UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| ☒ | |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended DecemberMarch 29, 20172024
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| ☐ | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From To
Commission File Number: 001-32431
DOLBY LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | | 90-0199783 |
| | |
Delaware | 90-0199783 |
| (State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | |
| 1275 Market Street | San Francisco CA | 94103-1410California | (415) 558-020094103-1410 |
| (Address of principal executive offices) | | | (Zip Code) | (Registrant’s telephone number, including area code) |
(415) 558-0200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A common stock, $0.001 par value | DLB | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý☒No¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý☒No¨☐
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
| | Emerging Growth Company | ☐ |
Large accelerated filerý
| | Accelerated filer¨
|
Non-accelerated filer¨(Do not check if a smaller reporting company)
| | Smaller reporting company¨
|
| | Emerging growth company¨
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨☐Noý☒
On JanuaryApril 26, 2018,2024, the registrant had 60,791,24159,749,655 shares of Class A common stock, par value $0.001 per share, and 42,733,59736,085,779 shares of Class B common stock, par value $0.001 per share, outstanding.
DOLBY LABORATORIES, INC.
FORM 10-Q
For the Fiscal Quarter Ended DecemberMarch 29, 20172024
TABLE OF CONTENTS
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| Item 1. | | |
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Item 6.5. | | |
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GLOSSARY OF TERMS
The following table summarizes certain terms and abbreviations that may be used within the text of this report: | | | | | | | | | | | | |
| Abbreviation | | Term | | | | |
AbbreviationAAC | | Term |
AAC | | Advanced Audio Coding | | | | |
| AFS | | Available-For-Sale (Securities) | | | | |
| AOCI | | Accumulated Other Comprehensive Income (Loss) | | | | |
APICAPI | | Application Programming Interface | | Additional-Paid In-Capital | | |
ASCAPIC | | Additional Paid In-Capital | | | | |
| ASC | | Accounting Standards Codification | | | | |
| ASP | | Average Selling Price | | | | |
| ASU | | Accounting Standards Update | | | | |
| ATSC | | Advanced Television Systems Committee | | | | |
AVRAVC | | Advanced Video Coding | | | | |
| AVR | | Audio/Video Receiver | | | | |
| CE | | Consumer Electronics | | | | |
| CES | | Consumer Electronics Show | | | |
| CODM | | Chief Operating Decision Maker | | | | |
| COGS | | Cost Of Goods Sold | | | |
| COSO | | Committee Of Sponsoring Organizations (Of The Treadway Commission) | | | | |
| DD | | Dolby Digital® | | | | |
| DD+ | | Dolby Digital Plus™ | | | | |
| DMA | | Digital Media Adapter | | | | |
| DTV | | Digital Television | | | | |
| DVB | | Digital Video Broadcasting | | | | |
| DVD | | Digital Versatile Disc | | | | |
| EPS | | Earnings Per Share | | | | |
| ESP | | Estimated Selling Price | | | | |
| ESPP | | Employee Stock Purchase Plan | | | | |
| FASB | | Financial Accounting Standards Board | | | | |
| FCPA | | Foreign Corrupt Practices Act | | | | |
| FIFO | | First-in, First-out | | | |
| G&A | | General and Administrative | | General & Administrative | | |
| | | | | | |
| HD | | High Definition | | | | |
| HDR | | High-Dynamic Range | | | | |
| HDTV | | High Definition Television | | | | |
| HE-AAC | | High Efficiency Advanced Audio Coding | | | | |
| HEVC | | High Efficiency Video Coding | | | | |
| HFR | | High Frame Rate | | | |
| HTIB | | Home Theater In-A-Box | | | |
| IC | | Integrated Circuit | | | | |
| IMB | | Integrated Media Block | | | |
IPIBR | | Incremental Borrowing Rate | | | | |
| IP | | Intellectual Property | | | | |
| IPO | | Initial Public Offering | | | |
| IPTV | | Internet Protocol Television | | | |
| IT | | Information Technology | | | |
| LIFO | | Last-in, First-out | | | |
| | | | | | |
| LP | | Limited Partner/Partnership | | | | |
| ME | | Multiple Element | | | |
| NOL | | Net Operating Loss | | | | |
| OCI | | Other Comprehensive Income | | | |
| ODD | | Optical Disc Drive | | | |
| OECD | | Organization For Economic Co-Operation & Development | | | | |
| OEM | | Original Equipment Manufacturer | | | | |
| OLED | | Organic Light-Emitting Diode | | | |
| OTT | | Over-The-Top | | Over-The-Top | | |
| PC | | Personal Computer | | | | |
| PCS | | Post-Contract Support | | | | |
| PP&E | | Property, Plant, &and Equipment | | | | |
| PSO | | Performance-Based Stock Option | | | | |
R&DPSU | | Research & Development |
RSU | | Performance-Based Restricted Stock Unit | | | | |
S&MR&D | | Research and Development | | Sales & Marketing | | |
SERPROU | | Right-Of-Use | | | | |
| RSU | | Restricted Stock Unit | | | | |
| S&M | | Sales and Marketing | | | | |
| SEC | | U.S. Securities and Exchange Commission | | | | |
| SERP | | Supplemental Executive Retirement Plan | | | | |
| SoC | | System(s)-On-A-Chip | | | |
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| STB | | Set-Top Box | | | | |
| TPE | | Third Party Evidence | | | |
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| TSR | | Total Stockholder Return | | | | |
| UHD | | Ultra-High Definition | | Ultra High Definition | | |
| U.S. GAAP | | Generally Accepted Accounting Principles In The United States | | | | |
VSOEVVC | | Versatile Video Coding | | Vendor Specific Objective Evidence | | |
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PART I -– FINANCIAL INFORMATION
ITEM 1. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
| | | | December 29,
2017 | September 29,
2017 |
| March 29,
2024 | | | March 29,
2024 | September 29,
2023 |
| ASSETS | |
| Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Cash and cash equivalents | $ | 596,390 |
| $ | 627,017 |
|
| Restricted cash | 7,630 |
| 7,351 |
|
| Short-term investments | 252,607 |
| 247,757 |
|
| Accounts receivable, net of allowance for doubtful accounts of $4,087 and $2,967 | 122,917 |
| 73,750 |
|
| Inventories | 24,862 |
| 25,051 |
|
| Accounts receivable, net of allowance for credit losses of $6,213 and $9,683 | |
| Contract assets, net of allowance for credit losses of $105 and $138 | |
| Inventories, net | |
| Prepaid expenses and other current assets | 31,105 |
| 30,508 |
|
| Total current assets | 1,035,511 |
| 1,011,434 |
|
| Long-term investments | 303,501 |
| 314,364 |
|
| Property, plant, and equipment, net | 493,173 |
| 485,275 |
|
| Operating lease right-of-use assets | |
| Intangible assets, net | 195,205 |
| 189,648 |
|
| Goodwill | 311,186 |
| 311,087 |
|
| Deferred taxes | 139,658 |
| 190,915 |
|
| Other non-current assets | 36,475 |
| 30,831 |
|
| Total assets | $ | 2,514,709 |
| $ | 2,533,554 |
|
| | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable | |
| Accounts payable | |
| Accounts payable | $ | 14,408 |
| $ | 14,373 |
|
| Accrued liabilities | 178,419 |
| 207,034 |
|
| Income taxes payable | 6,906 |
| 1,216 |
|
| Deferred revenue | 23,449 |
| 23,150 |
|
| Contract liabilities | |
| Operating lease liabilities | |
| Total current liabilities | 223,182 |
| 245,773 |
|
| Long-term deferred revenue | 36,792 |
| 36,425 |
|
| Non-current contract liabilities | |
| | Non-current operating lease liabilities | |
| Non-current operating lease liabilities | |
| Non-current operating lease liabilities | |
| Other non-current liabilities | 198,811 |
| 107,514 |
|
| Total liabilities | 458,785 |
| 389,712 |
|
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| Stockholders’ equity: | |
| Class A, $0.001 par value, one vote per share, 500,000,000 shares authorized: 60,541,095 shares issued and outstanding at December 29, 2017 and 59,281,837 at September 29, 2017 | 59 |
| 58 |
|
| Class B, $0.001 par value, ten votes per share, 500,000,000 shares authorized: 42,733,597 shares issued and outstanding at December 29, 2017 and 42,873,597 at September 29, 2017 | 43 |
| 43 |
|
| Additional paid-in capital | 72,663 |
| 61,331 |
|
| Stockholders’ equity: | |
| Stockholders’ equity: | |
| Class A, $0.001 par value, one vote per share, 500,000,000 shares authorized: 59,737,770 shares issued and outstanding at March 29, 2024 and 59,673,633 at September 29, 2023 | |
| Class A, $0.001 par value, one vote per share, 500,000,000 shares authorized: 59,737,770 shares issued and outstanding at March 29, 2024 and 59,673,633 at September 29, 2023 | |
| Class A, $0.001 par value, one vote per share, 500,000,000 shares authorized: 59,737,770 shares issued and outstanding at March 29, 2024 and 59,673,633 at September 29, 2023 | |
| Class B, $0.001 par value, ten votes per share, 500,000,000 shares authorized: 36,085,779 shares issued and outstanding at March 29, 2024 and 36,085,779 at September 29, 2023 | |
| | Retained earnings | 1,985,064 |
| 2,083,063 |
|
| Accumulated other comprehensive (loss) | (8,122 | ) | (7,753 | ) |
| Retained earnings | |
| Retained earnings | |
| Accumulated other comprehensive loss | |
| Total stockholders’ equity – Dolby Laboratories, Inc. | 2,049,707 |
| 2,136,742 |
|
| Controlling interest | 6,217 |
| 7,100 |
|
| Noncontrolling interest | |
| Total stockholders’ equity | 2,055,924 |
| 2,143,842 |
|
| Total liabilities and stockholders’ equity | $ | 2,514,709 |
| $ | 2,533,554 |
|
See accompanying notes to unaudited interim condensed consolidated financial statements
DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Revenue: | | |
| Licensing | $ | 258,016 |
| $ | 232,699 |
|
| Products | 24,933 |
| 28,211 |
|
| Services | 4,848 |
| 5,357 |
|
| Total revenue | 287,797 |
| 266,267 |
|
| | | |
| Cost of revenue: | | |
| Cost of licensing | 9,259 |
| 8,121 |
|
| Cost of products | 17,035 |
| 17,720 |
|
| Cost of services | 4,582 |
| 4,126 |
|
| Total cost of revenue | 30,876 |
| 29,967 |
|
| | | |
| Gross margin | 256,921 |
| 236,300 |
|
| | | |
| Operating expenses: | | |
| Research and development | 56,444 |
| 57,518 |
|
| Sales and marketing | 70,149 |
| 71,175 |
|
| General and administrative | 48,285 |
| 41,540 |
|
| Restructuring charges/(credits) | (197 | ) | — |
|
| Total operating expenses | 174,681 |
| 170,233 |
|
| | | |
| Operating income | 82,240 |
| 66,067 |
|
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| Other income/expense: | | |
| Interest income | 3,781 |
| 1,814 |
|
| Interest expense | (35 | ) | (26 | ) |
| Other income/(expense), net | (1,152 | ) | (199 | ) |
| Total other income | 2,594 |
| 1,589 |
|
| | | |
| Income before income taxes | 84,834 |
| 67,656 |
|
| Provision for income taxes | (166,312 | ) | (14,082 | ) |
| Net income/(loss) including controlling interest | (81,478 | ) | 53,574 |
|
| Less: net (income) attributable to controlling interest | (144 | ) | (200 | ) |
| Net income/(loss) attributable to Dolby Laboratories, Inc. | $ | (81,622 | ) | $ | 53,374 |
|
| | | |
| Net income/(loss) per share: | | |
| Basic | $ | (0.80 | ) | $ | 0.53 |
|
| Diluted | $ | (0.80 | ) | $ | 0.51 |
|
| Weighted-average shares outstanding: | | |
| Basic | 102,552 |
| 101,483 |
|
| Diluted | 102,552 |
| 103,876 |
|
| | | |
| Related party rent expense: | | |
| Included in operating expenses | $ | 784 |
| $ | 782 |
|
| Included in net income attributable to controlling interest | $ | 177 |
| $ | 175 |
|
| | | |
| Cash dividend declared per common share | $ | 0.16 |
| $ | 0.14 |
|
| Cash dividend paid per common share | $ | 0.16 |
| $ | 0.14 |
|
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| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended | |
| | | | | | |
| March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | |
| Revenue: | | | | | | |
| Licensing | $ | 338,240 | | $ | 351,608 | | | $ | 632,007 | | $ | 659,619 | | |
| Products and services | 26,283 | | 24,283 | | | 48,090 | | 51,193 | | |
| Total revenue | 364,523 | | 375,891 | | | 680,097 | | 710,812 | | |
| | | | | | |
| Cost of revenue: | | | | | | |
| Cost of licensing | 15,318 | | 21,365 | | | 31,054 | | 34,724 | | |
| Cost of products and services | 23,459 | | 19,684 | | | 39,783 | | 40,775 | | |
| Total cost of revenue | 38,777 | | 41,049 | | | 70,837 | | 75,499 | | |
| | | | | | |
| Gross profit | 325,746 | | 334,842 | | | 609,260 | | 635,313 | | |
| | | | | | |
| Operating expenses: | | | | | | |
| Research and development | 62,493 | | 67,951 | | | 129,526 | | 132,401 | | |
| Sales and marketing | 90,038 | | 95,695 | | | 169,041 | | 177,900 | | |
| General and administrative | 66,742 | | 61,939 | | | 131,908 | | 121,911 | | |
| | | | | | |
| Restructuring charges/(credits) | (2,495) | | 33 | | | 3,596 | | (211) | | |
| Total operating expenses | 216,778 | | 225,618 | | | 434,071 | | 432,001 | | |
| | | | | | |
| Operating income | 108,968 | | 109,224 | | | 175,189 | | 203,312 | | |
| | | | | | |
| Other income/(expense): | | | | | | |
| Interest income/(expense), net | 8,597 | | 6,807 | | | 17,784 | | 11,604 | | |
| | | | | | |
| Other income, net | 4,183 | | 1,250 | | | 9,608 | | 2,347 | | |
| Total other income | 12,780 | | 8,057 | | | 27,392 | | 13,951 | | |
| | | | | | |
| Income before income taxes | 121,748 | | 117,281 | | | 202,581 | | 217,263 | | |
| Provision for income taxes | (23,534) | | (21,398) | | | (36,786) | | (41,932) | | |
| Net income including noncontrolling interest | 98,214 | | 95,883 | | | 165,795 | | 175,331 | | |
| Less: net income attributable to noncontrolling interest | (384) | | (187) | | | (984) | | (260) | | |
| Net income attributable to Dolby Laboratories, Inc. | $ | 97,830 | | $ | 95,696 | | | $ | 164,811 | | $ | 175,071 | | |
| | | | | | |
| Net income per share: | | | | | | |
| Basic | $ | 1.02 | | $ | 1.00 | | | $ | 1.72 | | $ | 1.83 | | |
| Diluted | $ | 1.01 | | $ | 0.98 | | | $ | 1.69 | | $ | 1.80 | | |
| Weighted-average shares outstanding: | | | | | | |
| Basic | 95,718 | | 95,820 | | | 95,547 | | 95,862 | | |
| Diluted | 96,856 | | 97,298 | | | 97,397 | | 97,392 | | |
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| Related party rent expense: | | | | | | |
| | | | | | |
| Included in net income attributable to noncontrolling interest | $ | 71 | | $ | 71 | | | $ | 142 | | $ | 142 | | |
| | | | | | |
| Cash dividend declared per common share | $ | 0.30 | | $ | 0.27 | | | $ | 0.60 | | $ | 0.54 | | |
| Cash dividend paid per common share | $ | 0.30 | | $ | 0.27 | | | $ | 0.60 | | $ | 0.54 | | |
See accompanying notes to unaudited interim condensed consolidated financial statements
DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Net income/(loss) including controlling interest | $ | (81,478 | ) | $ | 53,574 |
|
| Other comprehensive income: | | |
| Currency translation adjustments, net of tax | 1,218 |
| (7,724 | ) |
| Unrealized gains/(losses) on investments, net of tax | (1,593 | ) | (2,019 | ) |
| Comprehensive income/(loss) | (81,853 | ) | 43,831 |
|
| Less: comprehensive (income)/loss attributable to controlling interest | (138 | ) | 61 |
|
| Comprehensive income/(loss) attributable to Dolby Laboratories, Inc. | $ | (81,991 | ) | $ | 43,892 |
|
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| | Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| | March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | |
| | | | | | |
| Net income including noncontrolling interest | $ | 98,214 | | $ | 95,883 | | | $ | 165,795 | | $ | 175,331 | | |
| Other comprehensive income: | | | | | | |
| Currency translation adjustments gains/(losses), net of tax benefit/(expense) of $0, $0, $0, and $0 | (6,265) | | 2,497 | | | 5,384 | | 16,878 | | |
| Unrealized gains/(losses) on investments, net of tax benefit/(expense) of ($8), $1, $4, and $38 | (184) | | 1,635 | | | 1,772 | | 2,991 | | |
| Unrealized gains/(losses) on cash flow hedges, net of tax benefit/(expense) of $332, $(67), $(352), and $89 | (1,252) | | 391 | | | 839 | | 4,723 | | |
| Total other comprehensive income/(loss), net of tax | (7,701) | | 4,523 | | | 7,995 | | 24,592 | | |
| | | | | | |
| Total comprehensive income | 90,513 | | 100,406 | | | 173,790 | | 199,923 | | |
| Less: comprehensive income attributable to noncontrolling interest | (323) | | (261) | | | (1,063) | | (637) | | |
| Comprehensive income attributable to Dolby Laboratories, Inc. | $ | 90,190 | | $ | 100,145 | | | $ | 172,727 | | $ | 199,286 | | |
See accompanying notes to unaudited interim condensed consolidated financial statements
DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Dolby Laboratories, Inc. | | |
| | Common
Stock | Additional
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Total Stockholders' Equity - Dolby
Laboratories,
Inc. | Noncontrolling
Interest | Total Stockholders' Equity |
| Balance at December 29, 2023 | $ | 94 | | $ | — | | $ | 2,367,182 | | $ | (21,428) | | $ | 2,345,848 | | $ | 16,462 | | $ | 2,362,310 | |
| Net income | — | | — | | 97,830 | | — | | 97,830 | | 384 | | 98,214 | |
| Other comprehensive loss, net of tax | — | | — | | — | | (7,640) | | (7,640) | | (61) | | (7,701) | |
| | | | | | | |
| Stock-based compensation expense | — | | 28,915 | | — | | — | | 28,915 | | — | | 28,915 | |
| Capitalized stock-based compensation expense | — | | 110 | | — | | — | | 110 | | — | | 110 | |
| Repurchase of common stock | — | | (38,577) | | 13,580 | | — | | (24,997) | | — | | (24,997) | |
| Cash dividends declared and paid on common stock | — | | — | | (28,716) | | — | | (28,716) | | — | | (28,716) | |
| | | | | | | |
| Common stock issued under employee stock plans | — | | 11,044 | | — | | — | | 11,044 | | — | | 11,044 | |
| Tax withholdings on vesting of restricted stock | — | | (1,492) | | — | | — | | (1,492) | | — | | (1,492) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at March 29, 2024 | $ | 94 | | $ | — | | $ | 2,449,876 | | $ | (29,068) | | $ | 2,420,902 | | $ | 16,785 | | $ | 2,437,687 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | Dolby Laboratories, Inc. | | | | | | |
| | Common
Stock | Additional
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Income/(Loss) | Total Stockholders' Equity - Dolby
Laboratories,
Inc. | Noncontrolling
Interest | Total Stockholders' Equity | | | | |
| Balance at September 29, 2023 | $ | 94 | | $ | — | | $ | 2,391,990 | | $ | (36,984) | | $ | 2,355,100 | | $ | 17,084 | | $ | 2,372,184 | | | | | |
| Net income | — | | — | | 164,811 | | — | | 164,811 | | 984 | | 165,795 | | | | | |
| Other comprehensive income, net of tax | — | | — | | — | | 7,916 | | 7,916 | | 79 | | 7,995 | | | | | |
| Distributions to noncontrolling interest | — | | — | | — | | — | | — | | (1,047) | | (1,047) | | | | | |
| Stock-based compensation expense | — | | 60,809 | | — | | — | | 60,809 | | — | | 60,809 | | | | | |
| Capitalized stock-based compensation expense | — | | 205 | | — | | — | | 205 | | — | | 205 | | | | | |
| Repurchase of common stock | (1) | | (54,664) | | (50,334) | | — | | (104,999) | | — | | (104,999) | | | | | |
| Cash dividends declared and paid on common stock | — | | — | | (57,268) | | — | | (57,268) | | — | | (57,268) | | | | | |
| | | | | | | | | | | |
| Common stock issued under employee stock plans | 1 | | 29,344 | | — | | — | | 29,345 | | — | | 29,345 | | | | | |
| Tax withholdings on vesting of restricted stock | — | | (36,054) | | — | | — | | (36,054) | | — | | (36,054) | | | | | |
| | | | | | | | | | | |
| Deconsolidation of subsidiary | — | | — | | 677 | | — | | 677 | | (677) | | — | | | | | |
| Equity issued in connection with business combination | — | | 360 | | — | | — | | 360 | | 362 | | 722 | | | | | |
| Balance at March 29, 2024 | $ | 94 | | $ | — | | $ | 2,449,876 | | $ | (29,068) | | $ | 2,420,902 | | $ | 16,785 | | $ | 2,437,687 | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | Common Stock | Additional
Paid-In
Capital | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Dolby Laboratories, Inc. | Controlling Interest | Total |
| Balance at September 29, 2017 | $ | 101 |
| $ | 61,331 |
| $ | 2,083,063 |
| $ | (7,753 | ) | $ | 2,136,742 |
| $ | 7,100 |
| $ | 2,143,842 |
|
| Net income/(loss) |
|
|
|
| (81,622 | ) |
|
| (81,622 | ) | 144 |
| (81,478 | ) |
| Currency translation adjustments, net of tax of $(274) |
|
|
|
|
|
| 1,224 |
| 1,224 |
| (6 | ) | 1,218 |
|
| Unrealized gains on investments, net of tax of $83 |
|
|
|
|
|
| (1,593 | ) | (1,593 | ) |
| (1,593 | ) |
| Distributions to controlling interest |
|
|
|
|
|
|
|
| — |
| (1,021 | ) | (1,021 | ) |
| Stock-based compensation expense |
|
| 18,684 |
|
|
|
|
| 18,684 |
|
|
| 18,684 |
|
| Repurchase of common stock |
|
| (29,993 | ) |
|
|
|
| (29,993 | ) |
|
| (29,993 | ) |
| Cash dividends declared and paid on common stock |
|
|
|
| (16,377 | ) |
|
| (16,377 | ) |
|
| (16,377 | ) |
| Common stock issued under employee stock plans | 1 |
| 41,462 |
|
|
|
|
| 41,463 |
|
|
| 41,463 |
|
| Tax withholdings on vesting of restricted stock |
|
| (18,821 | ) |
|
|
|
| (18,821 | ) |
|
| (18,821 | ) |
| Balance at December 29, 2017 | $ | 102 |
| $ | 72,663 |
| $ | 1,985,064 |
| $ | (8,122 | ) | $ | 2,049,707 |
| $ | 6,217 |
| $ | 2,055,924 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Dolby Laboratories, Inc. | | |
| | Common
Stock | Additional
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Total Stockholders' Equity - Dolby
Laboratories,
Inc. | Noncontrolling
Interest | Total Stockholders' Equity |
| Balance at December 30, 2022 | $ | 95 | | $ | — | | $ | 2,319,358 | | $ | (31,875) | | $ | 2,287,578 | | $ | 4,947 | | $ | 2,292,525 | |
| Net income | — | | — | | 95,696 | | — | | 95,696 | | 187 | | 95,883 | |
| Other comprehensive income, net of tax | — | | — | | — | | 4,449 | | 4,449 | | 74 | | 4,523 | |
| | | | | | | |
| Stock-based compensation expense | — | | 29,827 | | — | | — | | 29,827 | | — | | 29,827 | |
| Capitalized stock-based compensation expense | — | | 330 | | — | | — | | 330 | | — | | 330 | |
| Repurchase of common stock | — | | (38,797) | | (11,067) | | — | | (49,864) | | — | | (49,864) | |
| Cash dividends declared and paid on common stock | — | | — | | (25,872) | | — | | (25,872) | | — | | (25,872) | |
| | | | | | | |
| Common stock issued under employee stock plans | — | | 10,440 | | — | | — | | 10,440 | | — | | 10,440 | |
| Tax withholdings on vesting of restricted stock | — | | (1,800) | | — | | — | | (1,800) | | — | | (1,800) | |
| | | | | | | |
| | | | | | | |
| Balance at March 31, 2023 | $ | 95 | | $ | — | | $ | 2,378,115 | | $ | (27,426) | | $ | 2,350,784 | | $ | 5,208 | | $ | 2,355,992 | |
| | | | | |
| | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Dolby Laboratories, Inc. | Controlling Interest | Total |
| Balance at September 30, 2016 | $ | 101 |
| $ | 42,032 |
| $ | 1,938,320 |
| $ | (10,197 | ) | $ | 1,970,256 |
| $ | 8,479 |
| $ | 1,978,735 |
|
| | | Dolby Laboratories, Inc. | |
| | | | Common
Stock | Additional
Paid-In
Capital | Retained
Earnings | Accumulated
Other
Comprehensive
Loss | Total Stockholders' Equity - Dolby
Laboratories,
Inc. | Noncontrolling
Interest | Total Stockholders' Equity |
| Balance at September 30, 2022 | |
| Net income |
|
|
|
| 53,374 |
|
|
| 53,374 |
| 200 |
| 53,574 |
|
| Currency translation adjustments, net of tax of $1,265 |
|
|
|
|
|
| (7,463 | ) | (7,463 | ) | (261 | ) | (7,724 | ) |
| Unrealized gains on investments, net of tax of $95 |
|
|
|
|
|
| (2,019 | ) | (2,019 | ) |
| (2,019 | ) |
| Distributions to controlling interest |
|
|
|
|
|
|
|
| — |
| (2,094 | ) | (2,094 | ) |
| Other comprehensive income, net of tax | |
| Distributions to noncontrolling interest | |
| Stock-based compensation expense |
|
| 17,215 |
|
|
|
|
| 17,215 |
|
|
| 17,215 |
|
| Capitalized stock-based compensation expense | |
| Repurchase of common stock | (1 | ) | (25,000 | ) |
|
|
|
| (25,001 | ) |
|
| (25,001 | ) |
| Cash dividends declared and paid on common stock |
|
|
|
| (14,216 | ) |
|
| (14,216 | ) |
|
| (14,216 | ) |
| Tax benefit from employee stock plans |
|
| 2,853 |
|
|
|
|
| 2,853 |
|
|
| 2,853 |
|
| | Common stock issued under employee stock plans | |
| Common stock issued under employee stock plans | |
| Common stock issued under employee stock plans | 1 |
| 13,990 |
|
|
|
|
| 13,991 |
|
|
| 13,991 |
|
| Tax withholdings on vesting of restricted stock | (1 | ) | (14,655 | ) |
|
|
|
| (14,656 | ) |
|
| (14,656 | ) |
| Balance at December 30, 2016 | $ | 100 |
| $ | 36,435 |
| $ | 1,977,478 |
| $ | (19,679 | ) | $ | 1,994,334 |
| $ | 6,324 |
| $ | 2,000,658 |
|
| | Balance at March 31, 2023 | |
| | Balance at March 31, 2023 | |
| | Balance at March 31, 2023 | |
|
See accompanying notes to unaudited interim condensed consolidated financial statements
DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| | | | | | |
| | Fiscal Quarter-To-Date Ended |
| | December 29,
2017 | December 30,
2017 |
| Operating activities: | | |
| Net income/(loss) including controlling interest | $ | (81,478 | ) | $ | 53,574 |
|
| Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | | |
| Depreciation and amortization | 19,882 |
| 21,810 |
|
| Stock-based compensation | 18,684 |
| 17,215 |
|
| Amortization of premium on investments | 742 |
| 662 |
|
| Provision for doubtful accounts | 1,119 |
| 67 |
|
| Deferred income taxes | 51,074 |
| (3,275 | ) |
| Other non-cash items affecting net income | 587 |
| (376 | ) |
| Changes in operating assets and liabilities: |
|
|
| Accounts receivable | (50,268 | ) | (5,782 | ) |
| Inventories | (1,491 | ) | 878 |
|
| Prepaid expenses and other assets | (6,609 | ) | (8,705 | ) |
| Accounts payable and other liabilities | (35,390 | ) | (11,528 | ) |
| Income taxes, net | 99,551 |
| 6,245 |
|
| Deferred revenue | 650 |
| (479 | ) |
| Other non-current liabilities | 96 |
| 417 |
|
| Net cash provided by operating activities | 17,149 |
| 70,723 |
|
| | | |
| Investing activities: | | |
| Purchases of investment securities | (74,479 | ) | (37,073 | ) |
| Proceeds from sales of investment securities | 28,383 |
| 7,524 |
|
| Proceeds from maturities of investment securities | 49,476 |
| 26,902 |
|
| Purchases of PP&E | (19,275 | ) | (22,576 | ) |
| Purchase of intangible assets | (11,198 | ) | — |
|
| Change in restricted cash | (279 | ) | (1,430 | ) |
| Net cash used in investing activities | (27,372 | ) | (26,653 | ) |
| | | |
| Financing activities: | | |
| Proceeds from issuance of common stock | 41,463 |
| 13,991 |
|
| Repurchase of common stock | (29,993 | ) | (25,001 | ) |
| Payment of cash dividend | (16,377 | ) | (14,216 | ) |
| Distribution to controlling interest | (1,021 | ) | (2,094 | ) |
| Shares repurchased for tax withholdings on vesting of restricted stock | (15,346 | ) | (14,656 | ) |
| Net cash used in financing activities | (21,274 | ) | (41,976 | ) |
| | | |
| Effect of foreign exchange rate changes on cash and cash equivalents | 870 |
| (5,368 | ) |
| Net decrease in cash and cash equivalents | (30,627 | ) | (3,274 | ) |
| Cash and cash equivalents at beginning of year | 627,017 |
| 516,112 |
|
| Cash and cash equivalents at end of year | $ | 596,390 |
| $ | 512,838 |
|
| | | |
| Supplemental disclosure: | | |
| Cash paid for income taxes, net of refunds received | $ | 17,355 |
| $ | 13,792 |
|
| | | |
| Non-cash investing activities: | | |
| Net change in PP&E purchased and unpaid at period-end | $ | 2,333 |
| $ | 6,901 |
|
| | | | | | | | |
| | Fiscal Year-To-Date Ended |
| | March 29,
2024 | March 31,
2023 |
| Operating activities: | | |
| Net income including noncontrolling interest | $ | 165,795 | | $ | 175,331 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | 35,890 | | 40,388 | |
| Stock-based compensation | 60,809 | | 61,067 | |
| Amortization of operating lease right-of-use assets | 5,847 | | 6,565 | |
| Amortization of premium on investments | (1,757) | | 37 | |
| | |
| Benefit from credit losses | (1,454) | | (2,072) | |
| Deferred income taxes | (6,779) | | (19,544) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Other non-cash items affecting net income | (2,500) | | (4,417) | |
| Changes in operating assets and liabilities: | | |
| Accounts receivable, net | (18,509) | | (37,769) | |
| Contract assets, net | (61,008) | | (99,162) | |
| Inventories | (7,836) | | (4,728) | |
| Operating lease right-of-use assets | (7,848) | | (2,643) | |
| Prepaid expenses and other assets | 33,527 | | 12,943 | |
| Accounts payable and accrued liabilities | 3,923 | | 21,609 | |
| Income taxes, net | 5,215 | | 17,370 | |
| Contract liabilities | 2,651 | | 3,852 | |
| Operating lease liabilities | 1,028 | | (5,415) | |
| Other non-current liabilities | (17,176) | | (2,475) | |
| Net cash provided by operating activities | 189,818 | | 160,937 | |
| | |
| Investing activities: | | |
| Purchases of marketable securities | (104,135) | | (80,561) | |
| Proceeds from sales of marketable securities | 4,451 | | 52,345 | |
| Proceeds from maturities of marketable securities | 97,459 | | 94,843 | |
| | |
| Purchases of property, plant, and equipment | (15,015) | | (14,741) | |
| | |
| | |
| | |
| | |
| | |
| | |
| Net cash provided by (used in) investing activities | (17,240) | | 51,886 | |
| | |
| Financing activities: | | |
| | |
| Proceeds from issuance of common stock | 29,345 | | 21,394 | |
| Repurchase of common stock | (104,999) | | (99,276) | |
| Payment of cash dividend | (57,268) | | (51,741) | |
| Distribution to noncontrolling interest | (1,047) | | (266) | |
| | |
| Shares repurchased for tax withholdings on vesting of restricted stock | (36,054) | | (26,800) | |
| | |
| Equity issued in connection with business combination | 722 | | — | |
| Payment of deferred consideration for prior business combinations | — | | (500) | |
| Net cash used in financing activities | (169,301) | | (157,189) | |
| | |
| Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash | 3,113 | | 9,415 | |
| Net increase/(decrease) in cash, cash equivalents, and restricted cash | 6,390 | | 65,049 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 817,966 | | 628,371 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 824,356 | | $ | 693,420 | |
| | |
| Supplemental disclosure: | | |
| Cash paid for income taxes, net of refunds received | $ | 38,582 | | $ | 27,468 | |
| | |
| | |
| Non-cash investing activities and financing activities: | | |
| Change in property, plant, and equipment purchased, unpaid at period-end | 7,957 | | 1,635 | |
| | |
| | |
| | |
| | |
See accompanying notes to unaudited interim condensed consolidated financial statements
DOLBY LABORATORIES, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Unaudited Interim Condensed Consolidated Financial Statements
We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with U.S. GAAP, and with SEC rules and regulations, which allow for certain information and footnote disclosures that are normally included in annual financial statements prepared in accordance with U.S. GAAP to be condensed or omitted. In our opinion, these unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended September 29, 20172023 and include all adjustments necessary for fair presentation. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements for the fiscal year ended September 29, 2017,2023, which are included in our Annual Report on Form 10-K filed with the SEC.
The results for the fiscal quarter and year-to-date period ended DecemberMarch 29, 20172024 are not necessarily indicative of the results to be expected for any subsequent quarterly or annual financial period, including the fiscal year ending September 28, 2018.27, 2024.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of Dolby Laboratories, Inc. and our wholly ownedwholly-owned and majority-owned subsidiaries. In addition, we have consolidated the financial results of jointly owned affiliated companies in which our principal stockholder hasor other entities have a controllingnoncontrolling interest. We report these controllingnoncontrolling interests as a separate line in our unaudited interim condensed consolidated statements of operations as net income attributable to controllingnoncontrolling interest and in our unaudited interim condensed consolidated balance sheets as a controllingnoncontrolling interest. We eliminate all intercompany accounts and transactions upon consolidation.
Operating Segments
Since we operate as a single reportingreportable segment, all required financial segment information is included in our unaudited interim condensed consolidated financial statements. This determination reflects the fact that our CODM, our Chief Executive Officer,CEO, evaluates our financial information and resources, and assesses the performance of these resources on a consolidated basis.
Use of Estimates
The preparation of our financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported and disclosed in our unaudited interim condensed consolidated financial statements and accompanying notes.
Significant items subject to such estimates and assumptions include estimated selling pricesshipments by our licensees for elements sold in MEwhich we are owed a sales-based royalty. These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices. Our estimates of royalty-based revenue also take into consideration the macroeconomic effect of global events that may impact our licensees' supply chain activities as well as demand for shipments.
Additional significant items subject to such estimates and assumptions include ESPs for performance obligations within revenue arrangements; valuation allowancesallowance for credit losses for accounts receivable; carrying values of inventories and certain property, plant, and equipment,PP&E, goodwill and intangible assets; fair values of investments; accrued liabilities including liabilities for unrecognized tax benefits, deferred income tax assets and liabilities, and contingent liabilities; and stock-based compensation. Actual results could differ from our estimates.
Fiscal Year
Our fiscal year is a 52 or 53 week period ending on the last Friday in September. The fiscal periods presented herein include the 13 week periodsperiod ended DecemberMarch 29, 20172024 and December 30, 2016. March 31, 2023. Our fiscal yearyears ending September 28, 201827, 2024 (fiscal 2018)2024) and our fiscal year ended September 29, 20172023 (fiscal 2017) both2023) each consist of 52 weeks.
Reclassifications
We have reclassified certain prior period amounts within our consolidated financial statements and accompanying notes to conform to our current period presentation. These reclassifications did not affect total revenue, operating income, or net income.
2. Summary of Significant Accounting Policies
Concentration of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, investments, accounts receivable, and contract assets. We continually assessmaintain cash, cash equivalents, and investments with multiple financial institutions that have high credit standing, and that we believe are financially sound and have minimal credit risk exposure, although at times our balances may exceed the applicable insurance coverage limits. We monitor and manage the overall counterparty credit risk exposure of our cash balances to individual financial institutions on an ongoing basis. Our investment portfolio consists of investment-grade securities diversified amongst security types, industries, and issuers. All of our securities are held in custody by large national financial institutions. Our investment policy limits the amount of credit exposure to a maximum of 5% of our total portfolio to any ASUsone issuer, except for the U.S. Treasury, and we believe no significant concentration risk exists with respect to these investments. We also mitigate counterparty risk through entering into derivative contracts with high-credit-quality financial institutions. Actual or other new accounting pronouncements issuedpotential defaults of one or more financial institutions could impact our results of operations or financial position, and make it challenging to find alternative qualified counterparties.
The majority of our licensing revenue is generated from customers outside of the United States ("U.S."). We manage the credit risk posed by non-U.S. customers by performing regular evaluations of the FASB to determine their applicabilitycreditworthiness of our licensing customers and impact on us. Where it is determined that a new accounting pronouncement will resultrecognize revenue in a change to our financial reporting, we take the appropriate steps to ensure that such changes are properly reflected in our consolidated financial statements or notes thereto.accordance with US GAAP.
Recently Issued Accounting Standards
Adopted Standards Not Yet Effective
Share-Based Compensation. DuringSegment Reporting. In November 2023, the first quarter of fiscal 2018, we adoptedFASB issued ASU 2016-09, 2023-07, Segment Reporting (Topic 280): Improvements to Employee Share-Based Payment AccountingReportable Segment Disclosures, which enhances the disclosures required for operating segments by requiring disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, among other expanded disclosures. This standard will be effective for annual periods beginning September 28, 2024 and interim periods beginning September 27, 2025, with early adoption permitted, and will be applied retrospectively to all periods presented in the financial statements. We are currently in the process of evaluating the impact of the standard's adoption on our unaudited interim condensed consolidated financial statements.
Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which simplifies several aspectsrequires further enhancement of income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This standard is effective for Dolby beginning September 27, 2025 on a prospective basis, but early adoption is permitted. We are currently in the process of evaluating the impact of the accountingstandard's adoption on our unaudited interim condensed consolidated financial statements.
3. Revenue Recognition
We enter into revenue arrangements with our customers to license technologies, trademarks and patents for employee share-basedsound and imaging solutions, and to sell products and services. We recognize revenue when we satisfy a performance obligation by transferring control over the use of a license, product, or service to a customer.
A. Identification of the Contract or Contracts with Customers
We generally determine that a contract with a customer exists upon the execution of an agreement and after consideration of collectability, which could include an evaluation of the customer's payment transactionshistory, the existence of a standby letter-of-credit between the customer’s financial institution and our financial institution, public financial information, and other factors. At contract inception, we also evaluate whether two or more non-standard agreements with a customer should be combined and accounted for as a single contract.
B. Identification of Performance Obligations in a Contract
We generate revenue principally from the following sources, which represent performance obligations in our contracts with customers:
•Licensing. We license our technologies, including patents, to a range of customers who incorporate them into their products for enhanced audio and imaging functionality across broadcast, mobile, CE, PC, gaming, and other markets.
•Product Sales. We design and provide audio and imaging products for the accountingcinema, television, broadcast, and entertainment industries.
•Services. We provide various services to support theatrical and television production for income taxes, forfeitures,cinema exhibition, broadcast, and statutory withholding requirements,home entertainment, including equipment training, mixing room alignment, equalization, as well as classificationaudio, color and light image calibration. We also offer solutions through our platform Dolby.io to companies building real-time digital experiences that increase audience engagement. Our solution provides the capability to stream high quality audiovisual content in ultra-low latency which reduces the delay between the action and the viewer.
•PCS. We provide PCS for products sold and for equipment leased, and we support the implementation of our licensing technologies in our licensees’ products.
•Equipment Leases. We collaborate with established cinema exhibitors to offer Dolby Cinema, a branded premium cinema offering for movie audiences by leasing equipment and licensing our IP.
•Licensing Administration Fees. We generate administrative fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via Licensing Alliance LLC ("Via LA").
Some of our revenue arrangements include multiple performance obligations, such as hardware, software, support and maintenance, and extended warranty services. We evaluate whether promised products and services are distinct performance obligations.
The majority of our arrangements with multiple performance obligations pertain to our digital cinema server and processor sales that include the following distinct performance obligations to which we allocate portions of the transaction price based on their stand-alone selling price:
•Digital cinema server hardware and embedded software, which is dependent on and interrelated with the hardware. Accordingly, the hardware and embedded software represent a single performance obligation.
•The right to support and maintenance, which is included with the purchase of the digital cinema server hardware, is a distinct performance obligation.
•The right to receive commissioning services is a distinct performance obligation within the sale of the Dolby Atmos Cinema Processor. These services consist of the review of venue designs specifying proposed speaker placement as well as calibration services performed for installed speakers to ensure optimal playback.
C. Determination of Transaction Price for Performance Obligations in a Contract
After identifying the distinct performance obligations, we determine the transaction price in accordance with the terms of the underlying executed contract which may include variable consideration such as discounts, rebates, refunds, rights of returns, and incentives. We assess and update, if necessary, the amount of variable consideration to which we are entitled for each reporting period. At the end of each reporting period, we estimate and accrue a liability for returns and adjustments as a reduction to revenue based on several factors, including past returns history.
With the exception of our sales-based royalties, we evaluate whether a significant financing component exists when we recognize revenue in advance of customer payments that occur over time. For example, some of our licensing arrangements include payment terms greater than one year from when we transfer control of our IP to a licensee and the receipt of the final payment for that IP. If a significant financing component exists, we classify a portion of the transaction price as interest income, instead of recognizing all of the transaction price as revenue. We do not adjust the transaction price for the effects of financing if, at contract inception, the period between the transfer of control to a customer and final payment is expected to be one year or less.
D. Allocation of Transaction Price to Distinct Performance Obligations in a Contract
For our sales-based royalties wherethe license is the predominant item to which the royalties relate, we present all revenue as licensing.
For revenue arrangements that include multiple performance obligations, we determine the stand-alone selling price for each distinct performance obligation based on the actual selling prices made to customers. If the performance obligation is not sold separately, we estimate the stand-alone selling price. We do so by considering market conditions such as competitor pricing strategies, customer specific information and industry technology lifecycles, internal conditions such as cost and pricing practices, or applying the residual approach method when the selling price of the good, most commonly a license, is highly variable or uncertain.
Once the transaction price, including any variable consideration, has been determined, we allocate the transaction price to the performance obligations identified in the statementcontract and recognize revenue as or when control is transferred for each distinct performance obligation.
E. Revenue Recognition as Control is Transferred to a Customer
We generate our licensing revenue by licensing our technologies and patents to various types of cash flows. Upon adoption, excess tax benefits or deficiencieslicensees, such as chip manufacturers ("implementation licensees"), consumer product manufacturers, software vendors, and communications service providers. Our revenue recognition policies for each of these arrangements are summarized below.
Initial fees from stock-based awardsimplementation licensees. Implementation licensees incorporate our technologies into their chipsets that, once approved by Dolby, are recordedavailable for purchase by OEMs for use in end-user products. Implementation licensees only pay us a nominal initial fee on contract execution as consideration for the ongoing services that we provide to assist in their implementation process. Revenue from these initial fees is recognized ratably over the contractual term as a component of licensing revenue.
Sales-based licensing fees. In our royalty bearing licensing agreements with OEMs, control is transferred upon the income tax provision, whereas theylater of contract execution or the contract’s effective date.We apply the royalty exception, which requires that we recognize sales-based royalties when the sales occur based on our estimates. These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices. Generally, our estimates represent the current period’s shipments to which we expect our licensees to submit royalty statements within the following two quarters. Upon receipt of royalty statements from the licensees with the actual reporting of sales-based royalties that we estimated previously, were recorded as additional paid-in capital.we record a favorable or unfavorable adjustment based on the difference, if any, between estimated and actual sales. In the firstsecond quarter of fiscal 2018,2024, we recognizedrecorded an excess tax benefitunfavorable adjustment of $6.0approximately $6 million, which was primarily related to stock-based awardsour estimates of shipmentsthat occurred in the provision for income taxes.prior two quarters.
Fixed and guaranteed licensing fees. In certain cases, our arrangements require the licensee to pay fixed, non-refundable fees. In these cases, control is transferred and fees are recognized upon the later of contract execution or the effective date. Additionally and separate from initial fees from implementation licensees, our sales- and usage-based licensing agreements include a nominal fee, which is also recognized at a point in time in which control of the IP has been transferred. Revenue from these arrangements is included as a component of licensing revenue.
Recoveries. Through compliance efforts, we identify misreported licensed activity related to non-current periods. We electedmay record a favorable or unfavorable revenue adjustment in connection with the findings from these compliance efforts generally upon resolution with the licensee through agreement of the findings, or upon receipt of the licensee’s correction statement. Revenue from these arrangements is included as a component of licensing revenue.
We undertake activities aimed at identifying potential unauthorized uses of our technologies, which, when successful, result in the recognition of revenue. Recoveries stem from third parties who agree to continueremit payments to account for forfeituresus based on an estimatepast use of expected forfeitures, rather than to account for forfeitures as they occur. Additionally,our technology. In these scenarios, a legally binding contract did not exist at the time of use of our technology, and therefore, we adopted the aspectsrecognize revenue recoveries upon execution of the guidance affectingagreement as that is the cash flow presentation retrospectively,point in time at which a contract exists and control is transferred. This revenue is classified as licensing revenue.
In general, we classify legal costs associated with activities aimed at identifying potential unauthorized uses of our technologies, auditing existing licensees, and on occasion, pursuing litigation as S&M in our unaudited interim condensed consolidated statements of operations.
We recognize licensing revenue gross of withholding taxes, which our licensees remit directly to their local tax authorities, and for which we receive a partial foreign tax credit in our income tax provision.
In addition to our licensing arrangements, we also enter into arrangements to deliver products and services.
Product Sales. Revenue from the sale of products is recognized when the customer obtains control of the promised good or service, which is generally upon shipment. Payments are generally made within 90 days of sale.
Services. We provide various services, such as engineering services related to movie soundtrack print mastering, equipment training and maintenance, mixing room alignment, equalization, and image calibration, which we bill on a fixed fee and time and materials basis. Most of these services are of a short duration and are recognized as control of the performance obligations are transferred which is when the related services are performed.
Cloud Services. We provide access to audio and video APIs through our developer platform as well as cloud encoding services, generally, on either a consumption or subscription basis. Revenue related to cloud services provided on a consumption basis is recognized when the customer utilizes the services, based on the quantity of services consumed. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract term as the customer receives and consumes the benefits of the cloud services.
Collaborative Arrangements. We collaborate with established cinema exhibitors to offer Dolby Cinema, a branded premium cinema offering for movie audiences. Under such collaborations, Dolby and the exhibitor are both active participants, and share the risks and rewards associated with the business. Accordingly, these collaborations are governed by revenue sharing arrangements under which Dolby receives revenue based on box office receipts, reported to Dolby by exhibitor partners on a monthly or quarterly basis, our proprietary designs and trademarks as well as for the use of our equipment at the exhibitor's venue. The use of our product solution meets the definition of a lease, and for the related portion of Dolby's share of revenue, we apply ASC 842, Leases, and recognize revenue based on monthly box office reports from exhibitors. Our revenue share is recognized as licensing revenue in our unaudited interim condensed consolidated statements of operations.
In addition, we also enter into hybrid agreements where a portion of our revenue share involves guaranteed payments, which in some cases result in classifying the arrangement as a sales-type lease. In such arrangements, we consider control to transfer at the point in time to which we have installed and tested the equipment, at which point we record such guaranteed payments as product revenue.
Licensing Administration Fee. We generate administrative fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via LA. As an agent to licensors in the patent pool, Via LA receives a share of the sales-based royalty that the patent pool licensors earn from licensees. As such, we apply the sales-based royalty exception as the service provided is directly related to the patent pool licensors’ provision of IP, which results in a reclassificationrecognition based on estimates of excess tax benefitsthe licensee’s quarter shipments that use the pool’s patents. In addition to sales-based royalties, Via LA also has contracts where the fees are fixed. The revenue share Via LA receives from financing activitieslicensors on fixed fee contracts is recognized over the term in which we are providing services associated with the fixed fee contract. We recognize our administrative fees net of the consideration paid to operating activitiesthe patent licensors in the consolidated statements of cash flows.pool as licensing revenue.
Standards Not Yet Effective
Revenue Recognition. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new standard defines a five-step approach for recognizingDeferred revenue, which may requireis a companycomponent of contract liabilities, represents amounts that are ultimately expected to use more judgment and make more estimates than underbe recognized as revenue, but for which we have yet to satisfy the current guidance. Amongst the elements in the new standard are requirements for an entityperformance obligation. As of March 29, 2024, we had $74.2 million of remaining performance obligations, 34% of which we expect to recognize as revenue in fiscal 2024, 26% in fiscal 2025, and the amountbalance of revenue to which it expects to be entitled for40% in fiscal years beyond 2025.
F.Disaggregation of Revenue
The following table presents a summary of the transfer of promised goods or services to customers, to capitalize certain direct costs associated with revenues and contract acquisition costs, and to provide expanded disclosures.
We have evaluated the impact of adoption of Topic 606 on allcomposition of our revenue
streamsfor all periods presented (in thousands, except percentage amounts): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| Revenue | March 29, 2024 | | March 31, 2023 | | March 29, 2024 | | March 31, 2023 |
| Licensing | $ | 338,240 | | 93 | % | | $ | 351,608 | | 94 | % | | $ | 632,007 | | 93 | % | | $ | 659,619 | | 93 | % |
| Products and services | 26,283 | | 7 | % | | 24,283 | | 6 | % | | 48,090 | | 7 | % | | 51,193 | | 7 | % |
| Total revenue | $ | 364,523 | | 100 | % | | $ | 375,891 | | 100 | % | | $ | 680,097 | | 100 | % | | $ | 710,812 | | 100 | % |
The following table presents the composition of our licensing revenue for all periods presented (in thousands, except percentage amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| Market | March 29, 2024 | | March 31, 2023 | | March 29, 2024 | | March 31, 2023 |
| Broadcast | $ | 105,480 | | 31 | % | | $ | 128,971 | | 37 | % | | $ | 217,896 | | 34 | % | | $ | 246,305 | | 37 | % |
| Mobile | 88,690 | | 26 | % | | 93,126 | | 26 | % | | 123,977 | | 20 | % | | 157,412 | | 24 | % |
| CE | 42,221 | | 12 | % | | 39,015 | | 12 | % | | 95,441 | | 15 | % | | 94,098 | | 14 | % |
| PC | 49,938 | | 15 | % | | 43,347 | | 12 | % | | 79,617 | | 13 | % | | 67,633 | | 10 | % |
| Other | 51,911 | | 16 | % | | 47,149 | | 13 | % | | 115,076 | | 18 | % | | 94,171 | | 15 | % |
| Total licensing revenue | $ | 338,240 | | 100 | % | | $ | 351,608 | | 100 | % | | $ | 632,007 | | 100 | % | | $ | 659,619 | | 100 | % |
We license our technologies in approximately 70 countries, and believeour licensees distribute products that incorporate our technologies throughout the following areworld. We generate the most significant changes that could occur:
Estimating and recording royalty-basedmajority of our revenue earned from outside the U.S. Geographic data for our licensing revenue is based on the location of our licensees’ shipmentsheadquarters, products revenue is based on the destination to which we ship our products, and services revenue is based on the location where services are performed. The following table presents the composition of our revenue by geographic location for all periods presented (in thousands, except percentage amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| Geographic Location | March 29, 2024 | | March 31, 2023 | | March 29, 2024 | | March 31, 2023 |
| United States | $ | 146,638 | | 40 | % | | $ | 177,082 | | 47 | % | | $ | 261,823 | | 38 | % | | $ | 277,344 | | 39 | % |
| International | 217,885 | | 60 | % | | 198,809 | | 53 | % | | 418,274 | | 62 | % | | 433,468 | | 61 | % |
| Total revenue | $ | 364,523 | | 100 | % | | $ | 375,891 | | 100 | % | | $ | 680,097 | | 100 | % | | $ | 710,812 | | 100 | % |
G. Contract Balances
Our contract assets represent rights to consideration from licensees for the use of our IP that we have estimated in a given period in the same period in which thoseabsence of receiving actual royalty statements from licensees. These estimates reflect our best judgment at that time, and are developed using a number of inputs, including historical data, industry estimates of expected shipments, occurred, rather than recognizinganticipated sales price and performance, and third party data supporting the percentage of markets using our royalty-based revenuetechnologies. In the event that our estimates differ from actual amounts reported, we record an adjustment in the quarter in which itthe royalty statement is reported to us by our licensees,received, which is typically the quarter following our estimate. Actual amounts reported are typically paid within 60 days following the end of the quarter of shipment. The main drivers for change in the quarter after those shipments have occurred;contract assets account are variances in quarterly estimates, and to a lesser degree, timing of receipt of actual royalty statements.
For certain transactionsOur contract liabilities consist of advance payments and billings in advance of performance and deferred revenue that have minimum commitmentis typically satisfied within one year. The non-current portion of contract liabilities is separately disclosed in our unaudited interim condensed consolidated balance sheets. We present the net contract asset or fixed fee terms, recognizing licensing revenues on contract execution instead of over the contract term;
Specified performance obligations for whichliability when we have not historically had VSOEboth contract assets and which resultedcontract liabilities for a single contract. We recognized $7.3 million in the deferralsecond quarter of revenue balances may accelerate revenue recognition as VSOE forfiscal 2024 and $19.5 million in the undelivered elements is no longer required to separately recognize revenue for the delivered elements;fiscal year-to-date period ended March 29, 2024 from prior period deferred revenue.
RecordingThe following table presents a one-time adjustment to retained earnings to reflect the cumulative impactsummary of the changes noted abovebalances to which contract assets and liabilities related to revenue are recorded for the periods prior to adoption.
We have not yet quantified the impact of these anticipated changes.
We plan to adopt the new standard using the full retrospective method, whereby the standard is applied to all periods presented on the adoption date. Although permitted, we do not intend to early-adopt the new standard, but will adopt it on September 29, 2018, which is the beginning of our first quarter of fiscal 2019.
In addition to our ongoing evaluation of the accounting changes and of our transition options, we are also addressing the impact of the new accounting standard and its expanded disclosure requirements on our policies, processes, controls, and systems.
Leases.In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for leases. Under the new guidance, a lessee will be required to recognize a lease liability and right-of-use asset for most leases. The new guidance also modifies the classification criteria and accounting for sales-type and
(in thousands, except percentage amounts): | | | | | | | | | | | | | | |
| March 29, 2024 | September 29, 2023 | Change ($) | Change (%) |
| Accounts receivable, net | $ | 282,131 | | $ | 262,245 | | $ | 19,886 | | 8 | % |
| Contract assets, net | 243,170 | | 182,130 | | 61,040 | | 34 | % |
| | | | |
| Contract liabilities - current | 37,702 | | 31,505 | | 6,197 | | 20 | % |
| Contract liabilities - non-current | 36,453 | | 39,997 | | (3,544) | | (9) | % |
| | | | |
direct financing leases, and requires additional disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. The ASU must be applied using a modified retrospective approach. Upon adoption, we will recognize a lease liability and right-of-use asset for each of our long-term lease arrangements, which exceed 70 as of December 29, 2017. We intend to early adopt this new standard concurrently with the adoption of the new revenue recognition standard beginning September 29, 2018.
We continue to refine our quantification and anticipate this standard will have a material impact on our consolidated balance sheets, but will not have a material impact on our consolidated income statements. We currently expect the most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases. Our accounting for capital leases is expected to remain substantially unchanged.
Going Concern. In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards as specified in the guidance. The ASU is effective for us beginning September 29, 2018. Early adoption is permitted, including adoption in an interim period. We do not anticipate that the new standard will impact our consolidated financial statements.
Cash Flow Classification. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance addresses eight specific cash flow issues, with the objective of reducing an existing diversity in practices regarding the manner in which certain cash receipts and payments are presented and classified in the statement of cash flows. The ASU is effective for us beginning September 29, 2018. Early adoption is permitted, including adoption in an interim period, and we are currently evaluating the timing and impact of the standard on our consolidated financial statements.
Income Taxes: Intra-Entity Asset Transfers.In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The new guidance requires the recognition of the income tax consequences of an intercompany asset transfer, other than transfers of inventory, when the transfer occurs. For intercompany transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The ASU is effective for us beginning September 29, 2018. Early adoption is permitted, including adoption in an interim period. We do not anticipate that the new standard will materially impact our consolidated financial statements.
Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Restricted Cash — a consensus of the FASB Emerging Issues Task Force, which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The ASU is effective for us beginning September 29, 2018. Early adoption is permitted, including adoption in an interim period. Aside from conforming to new cash flow presentation and restricted cash disclosure requirements, we do not anticipate that the new standard will materially impact our consolidated financial statements.
Accounting for Hedging Activities. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which enables entities to better portray the economics of their risk management activities in the financial statements while enhancing the transparency and understandability of hedge results. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness. The ASU is effective for us beginning September 29, 2018 and we do not currently plan to early adopt. We do not anticipate that the new standard will materially impact our consolidated financial statements.
3.4. Composition of Certain Financial Statement Captions
The following tables present detailed information from our unaudited interim condensed consolidated balance sheets as of DecemberMarch 29, 20172024 and September 29, 2017 (amounts displayed in thousands, except as otherwise noted)2023 (in thousands).
Accounts Receivable and Contract Assets | | | | | | | | | | | |
| March 29,
2024 | | September 29,
2023 |
| Trade accounts receivable | $ | 132,787 | | | $ | 137,820 | |
| Accounts receivable from patent administration program licensees | 155,557 | | | 134,108 | |
| Contract assets | 243,275 | | | 182,268 | |
| Accounts receivable and contract assets, gross | 531,619 | | | 454,196 | |
| Less: allowance for credit losses on accounts receivable and contract assets | (6,318) | | | (9,821) | |
| Total accounts receivable and contract assets, net | $ | 525,301 | | | $ | 444,375 | |
Accounts Receivablereceivable as of March 29, 2024 and September 29, 2023, respectively, includes unbilled accounts receivable balances of $151.0 million and $150.4 million, related to amounts that are contractually owed. The unbilled balance represents our unconditional right to consideration related to fixed fee contracts which we are entitled to as a result of satisfying, or partially satisfying, performance obligations, as well as Via LA's unconditional right to consideration related to its patent administration programs.
| | | | | | | | | | | | | | |
| Allowance for Credit Losses | Beginning Balance | Charges/(Credits)
to S&M and G&A | Additions/(Deductions) | Ending Balance |
| | | | |
| | | | |
| For fiscal year-to-date period ended March 29, 2024 | 10,969 | | (1,454) | | (2,103) | | 7,412 | |
| | | | |
| | | | |
|
| | | | | | | |
| | December 29,
2017 | | September 29,
2017 |
| Trade accounts receivable | $ | 107,068 |
| | $ | 62,305 |
|
| Accounts receivable from patent administration program customers | 19,936 |
| | 14,412 |
|
| Accounts receivable, gross | 127,004 |
| | 76,717 |
|
| Less: allowance for doubtful accounts | (4,087 | ) | | (2,967 | ) |
| Total | $ | 122,917 |
| | $ | 73,750 |
|
Inventories | | | | | | | | | | | |
| March 29,
2024 | | September 29,
2023 |
| Raw materials | $ | 3,250 | | | $ | 6,203 | |
| Work in process | 5,426 | | | 3,972 | |
| Finished goods | 27,121 | | | 25,448 | |
| Total inventories | $ | 35,797 | | | $ | 35,623 | |
|
| | | | | | | |
| | December 29,
2017 | | September 29,
2017 |
| Raw materials | $ | 4,465 |
| | $ | 6,812 |
|
| Work in process | 6,321 |
| | 4,954 |
|
| Finished goods | 14,076 |
| | 13,285 |
|
| Total | $ | 24,862 |
| | $ | 25,051 |
|
Inventories are stated at the lower of cost and net realizable value. Inventory with a consumption period expected to exceed twelve months is recorded within other non-current assets in our unaudited interim condensed consolidated balance sheets. In addition to the amounts shown in the table above, weWe have included $3.1$12.8 millionand $1.8$8.1 million of raw materials inventory within other non-current assets in our consolidated balance sheets as of DecemberMarch 29, 20172024 and September 29, 2017,2023, respectively. We write-downBased on anticipated inventory at the time it is deemedconsumption rates, and aside from existing write-downs due to excess or obsolete.inventory, we do not believe that material risk of obsolescence exists prior to ultimate sale.
Prepaid Expenses Andand Other Current Assets | | | | | | | | | | | |
| March 29,
2024 | | September 29,
2023 |
| Prepaid expenses | $ | 28,753 | | | $ | 24,435 | |
| Other current assets | 21,668 | | | 26,257 | |
| | | |
| Total prepaid expenses and other current assets | $ | 50,421 | | | $ | 50,692 | |
|
| | | | | | | |
| | December 29,
2017 | | September 29,
2017 |
| Prepaid expenses | $ | 17,852 |
| | $ | 16,681 |
|
| Other current assets | 12,743 |
| | 11,383 |
|
| Income tax receivable | 510 |
| | 2,444 |
|
| Total | $ | 31,105 |
| | $ | 30,508 |
|
Accrued Liabilities | | | | | | | | | | | |
| March 29,
2024 | | September 29,
2023 |
| | | |
| Amounts payable to patent administration program partners | $ | 207,317 | | | $ | 150,509 | |
| Accrued compensation and benefits | 80,295 | | | 118,728 | |
| Accrued professional fees | 11,592 | | | 18,632 | |
| Unpaid property, plant, and equipment additions | 21,576 | | | 18,002 | |
| Accrued customer refunds | 2,578 | | | 3,878 | |
| Accrued market development funds | 6,416 | | | 5,010 | |
| Other accrued liabilities | 33,109 | | | 36,640 | |
| Total accrued liabilities | $ | 362,883 | | | $ | 351,399 | |
|
| | | | | | | |
| | December 29,
2017 | | September 29,
2017 |
| Accrued royalties | $ | 2,298 |
| | $ | 2,274 |
|
| Amounts payable to patent administration program partners | 59,619 |
| | 49,141 |
|
| Accrued compensation and benefits | 60,365 |
| | 92,277 |
|
| Accrued professional fees | 7,500 |
| | 5,530 |
|
| Unpaid PP&E additions | 10,203 |
| | 10,096 |
|
| Other accrued liabilities | 38,434 |
| | 47,716 |
|
| Total | $ | 178,419 |
| | $ | 207,034 |
|
Other Non-Current Liabilities | | | | | | | | | | | |
| March 29,
2024 | | September 29,
2023 |
| Supplemental retirement plan obligations | $ | 4,544 | | | $ | 4,302 | |
Non-current tax liabilities (1) | 73,312 | | | 74,482 | |
| Other liabilities | 12,119 | | | 29,555 | |
| Total other non-current liabilities | $ | 89,975 | | | $ | 108,339 | |
(1) Refer to Note 12 "Income Taxes" for additional information related to our tax liabilities.
|
| | | | | | | |
| | December 29,
2017 | | September 29,
2017 |
| Supplemental retirement plan obligations | $ | 3,067 |
| | $ | 2,928 |
|
| Non-current tax liabilities | 182,882 |
| | 91,013 |
|
| Other liabilities | 12,862 |
| | 13,573 |
|
| Total | $ | 198,811 |
| | $ | 107,514 |
|
4.5. Investments &and Fair Value Measurements
We use cash holdings to purchase investment gradeinvestment-grade securities diversified among security types, industries, and issuers. All of our investmentinvestments in debt securities are measured at fair value, and are recorded within cash equivalents and both short-term and long-term investments in our unaudited interim condensed consolidated balance sheets. With the exception of our mutual fund investments held in our SERP and classified as trading securities and our other long-term investments, all of our investments are classified as AFS securities. Derivative contracts are used to hedge currency risk, and these are carried at fair value and classified as other assets and other liabilities.
Our investmentinvestments in debt securities primarily consist of corporate bonds, government bonds, certificates of deposit, municipal debt securities, corporate bonds,commercial paper, and U.S. agency securities, and commercial paper.securities. In addition, our cash and cash equivalents may also consist of corporate bonds,highly-liquid money market funds, and municipal debt securities that meet the high liquidity requirements set forth in our accounting policy.funds. Consistent with our investment policy, none of our municipal debt investments are supported by letters of credit or standby purchase agreements. Our cash and investment portfolio consisted of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 29, 2024 | | | |
| Cost | Unrealized | | | Estimated Fair Value | | | | | |
| Gains | Losses | Total | | Level 1 | Level 2 | Level 3 | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | | | | | | | | |
| Cash | $ | 703,418 | | $ | — | | $ | — | | $ | 703,418 | | | $ | 703,418 | | $ | — | | $ | — | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Money market funds | 6,117 | | — | | — | | 6,117 | | | 6,117 | | — | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | 709,535 | | — | | — | | 709,535 | | | 709,535 | | — | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Short-term investments: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Government bonds | 32,281 | | 2 | | (401) | | 31,882 | | | 30,989 | | 893 | | — | | | | | | | | | | |
| Commercial paper | 14,952 | | 1 | | (20) | | 14,933 | | | — | | 14,933 | | — | | | | | | | | | | |
| Corporate bonds | 57,217 | | 12 | | (244) | | 56,985 | | | — | | 56,985 | | — | | | | | | | | | | |
| Municipal debt securities | 12,156 | | — | | (93) | | 12,063 | | | — | | 12,063 | | — | | | | | | | | | | |
| Short-term investments | 116,606 | | 15 | | (758) | | 115,863 | | | 30,989 | | 84,874 | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Long-term investments: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Government bonds | 34,626 | | 10 | | (221) | | 34,415 | | | 34,415 | | — | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Corporate bonds | 70,253 | | 133 | | (232) | | 70,154 | | | — | | 70,154 | | — | | | | | | | | | | |
| Municipal debt securities | 11,053 | | 7 | | (39) | | 11,021 | | | — | | 11,021 | | — | | | | | | | | | | |
Other investments (1) | 12,383 | | — | | — | | 12,383 | | | — | | — | | — | | | | | | | | | | |
| Long-term investments | 128,315 | | 150 | | (492) | | 127,973 | | | 34,415 | | 81,175 | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total cash, cash equivalents, and investments | $ | 954,456 | | $ | 165 | | $ | (1,250) | | $ | 953,371 | | | $ | 774,939 | | $ | 166,049 | | $ | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Investments held in supplemental retirement plan: | | | | | | | | | | | | | | | | |
| Assets | $ | 4,642 | | $ | — | | $ | — | | $ | 4,642 | | | $ | 4,642 | | $ | — | | $ | — | | | | | | | | | | |
| Included in prepaid expenses and other current assets and other non-current assets | | | | | | | | | | | | | | |
| Liabilities | $ | 4,642 | | $ | — | | $ | — | | $ | 4,642 | | | $ | 4,642 | | $ | — | | $ | — | | | | | | | | | | |
| Included in accrued liabilities and other non-current liabilities | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Currency derivatives as hedge instruments: | | | | | | | | | | | | | | | | | |
| Assets: Included in other current assets | $ | — | | $ | 968 | | $ | — | | $ | 968 | | | $ | — | | $ | 968 | | $ | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | December 29, 2017 |
| | Cost | Unrealized | | | Estimated Fair Value |
| | Gains | Losses | Total | | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Cash | $ | 587,136 |
|
|
|
|
| $ | 587,136 |
| |
|
|
|
|
|
|
| Cash equivalents: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Corporate bonds | 5,866 |
|
|
| (1 | ) | 5,865 |
| |
|
| 5,865 |
|
|
|
| Money market funds | 2,787 |
|
|
|
|
| 2,787 |
| | 2,787 |
|
|
|
|
|
| Municipal debt securities | 602 |
|
|
|
|
| 602 |
| |
|
| 602 |
|
|
|
| Cash and cash equivalents | 596,391 |
| — |
| (1 | ) | 596,390 |
|
| 2,787 |
| 6,467 |
| — |
|
| | | | | | | | | |
| Short-term investments: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Certificate of deposit (1) | 22,981 |
| 7 |
| (2 | ) | 22,986 |
| |
|
| 22,986 |
|
|
|
| U.S. agency securities | 8,443 |
|
|
| (33 | ) | 8,410 |
| |
|
| 8,410 |
|
|
|
| Government bonds | 535 |
|
|
| (2 | ) | 533 |
| | 533 |
|
|
|
|
|
| Commercial paper | 13,636 |
| — |
| (15 | ) | 13,621 |
| |
|
| 13,621 |
|
|
|
| Corporate bonds | 170,740 |
| 25 |
| (295 | ) | 170,470 |
| |
|
| 170,470 |
|
|
|
| Municipal debt securities | 36,679 |
| — |
| (92 | ) | 36,587 |
| |
|
| 36,587 |
|
|
|
| Short-term investments | 253,014 |
| 32 |
| (439 | ) | 252,607 |
|
| 533 |
| 252,074 |
| — |
|
| | | | | | | | | |
| Long-term investments: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Certificate of deposit (1) | 10,345 |
|
|
| (1 | ) | 10,344 |
| |
|
| 10,344 |
|
|
|
| U.S. agency securities | 20,283 |
|
|
| (272 | ) | 20,011 |
| |
|
| 20,011 |
|
|
|
| Government bonds | 20,965 |
| 4 |
| (222 | ) | 20,747 |
| | 20,747 |
|
|
|
|
|
| Corporate bonds | 225,639 |
| 147 |
| (1,313 | ) | 224,473 |
| |
|
| 224,473 |
|
|
|
| Municipal debt securities | 23,853 |
| 1 |
| (168 | ) | 23,686 |
| |
|
| 23,686 |
|
|
|
Other long-term investments (2) | 3,944 |
| 296 |
|
|
| 4,240 |
| | 296 |
|
|
|
|
|
| Long-term investments | 305,029 |
| 448 |
| (1,976 | ) | 303,501 |
|
| 21,043 |
| 278,514 |
| — |
|
| | | | | | | | | |
| Total cash, cash equivalents, and investments | $ | 1,154,434 |
| $ | 480 |
| $ | (2,416 | ) | $ | 1,152,498 |
| | $ | 24,363 |
| $ | 537,055 |
| $ | — |
|
| | | | | | | | | |
| Investments held in supplemental retirement plan: | | | | | | | |
| Assets | 3,165 |
|
|
|
|
| 3,165 |
| | 3,165 |
|
|
|
|
|
| Included in prepaid expenses and other current assets & other non-current assets | | | | | |
| Liabilities | 3,165 |
|
|
|
|
| 3,165 |
| | 3,165 |
|
|
|
|
|
| Included in accrued liabilities & other non-current liabilities | | | | | |
| |
(1) | Certificates of deposit include marketable securities, while those with a maturity in excess of one year as of December 29, 2017 are classified within long-term investments. |
| |
(2) | Other long-term investments as of December 29, 2017 include a marketable equity security of $0.3 million, and other investments that are not carried at fair value including an equity method investment of $0.4 million and two cost method equity investments of $3.0 million and $0.5 million. |
(1)Other investments as of March 29, 2024 is primarily comprised of an equity method investment of $6.9 million and an equity security without a readily determinable fair value, valued at $5.0 million. The equity method investment is measured at cost minus impairment, if any, adjusted for our proportionate share of the investee's net income or loss. Our share of the equity method investee's net income or loss is included in other income/(expense), net on the unaudited interim condensed consolidated statements of operations. Our share of the equity method investee's net income was $3.6 million in the second quarter of fiscal 2024 and was not material in the second quarter of fiscal 2023. Our share of the equity method investee's net income was $6.9 million in the fiscal year-to-date period ended March 29, 2024 and was $1.7 million in the fiscal year-to-date period ended March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 29, 2023 | | | |
| Cost | Unrealized | | | Estimated Fair Value | | | | | |
| Gains | Losses | Total | | Level 1 | Level 2 | Level 3 | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | | | | | | | | |
| Cash | $ | 602,288 | | $ | — | | $ | — | | $ | 602,288 | | | $ | 602,288 | | $ | — | | $ | — | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | | | | | | | |
| Commercial paper | 1,514 | | — | | — | | 1,514 | | | — | | 1,514 | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Money market funds | 139,831 | | — | | — | | 139,831 | | | 139,831 | | — | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Government Bonds | 1,731 | | — | | — | | 1,731 | | | 1,731 | | — | | — | | | | | | | | | | |
| Cash and cash equivalents | 745,364 | | — | | — | | 745,364 | | | 743,850 | | 1,514 | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Short-term investments: | | | | | | | | | | | | | | | | | |
| Certificate of deposit | 530 | | — | | — | | 530 | | | — | | 530 | | — | | | | | | | | | | |
| U.S. agency securities | 5,956 | | 1 | | (7) | | 5,950 | | | — | | 5,950 | | — | | | | | | | | | | |
| Government bonds | 50,220 | | 3 | | (384) | | 49,839 | | | 46,246 | | 3,593 | | — | | | | | | | | | | |
| Commercial paper | 5,843 | | — | | (3) | | 5,840 | | | — | | 5,840 | | — | | | | | | | | | | |
| Corporate bonds | 61,803 | | — | | (431) | | 61,372 | | | — | | 61,372 | | — | | | | | | | | | | |
| Municipal debt securities | 15,801 | | — | | (184) | | 15,617 | | | — | | 15,617 | | — | | | | | | | | | | |
| Short-term investments | 140,153 | | 4 | | (1,009) | | 139,148 | | | 46,246 | | 92,902 | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Long-term investments: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Government bonds | 33,227 | | — | | (1,046) | | 32,181 | | | 32,181 | | — | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Corporate bonds | 39,057 | | 6 | | (589) | | 38,474 | | | — | | 38,474 | | — | | | | | | | | | | |
| Municipal debt securities | 16,137 | | — | | (224) | | 15,913 | | | — | | 15,913 | | — | | | | | | | | | | |
Other investments (1) | 11,244 | | — | | — | | 11,244 | | | — | | — | | — | | | | | | | | | | |
| Long-term investments | 99,665 | | 6 | | (1,859) | | 97,812 | | | 32,181 | | 54,387 | | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total cash, cash equivalents, and investments | $ | 985,182 | | $ | 10 | | $ | (2,868) | | $ | 982,324 | | | $ | 822,277 | | $ | 148,803 | | $ | — | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Investments held in supplemental retirement plan: | | | | | | | | | | | | | | | | |
| Assets | $ | 4,400 | | $ | — | | $ | — | | $ | 4,400 | | | $ | 4,400 | | $ | — | | $ | — | | | | | | | | | | |
| Included in prepaid expenses and other current assets and other non-current assets | | | | | | | | | | | | | | |
| Liabilities | $ | 4,400 | | $ | — | | $ | — | | $ | 4,400 | | | $ | 4,400 | | $ | — | | $ | — | | | | | | | | | | |
| Included in accrued liabilities and other non-current liabilities | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Currency derivatives as hedge instruments: | | | | | | | | | | | | | | | | | |
| Assets: Included in other current assets | $ | — | | $ | 144 | | $ | — | | $ | 144 | | | $ | — | | $ | 144 | | $ | — | | | | | | | | | | |
| Assets: included in other non-current assets | — | | 2 | | — | | 2 | | | — | | 2 | | — | | | | | | | | | | |
| Liabilities: Included in other accrued liabilities | — | | — | | (618) | | (618) | | | — | | (618) | | — | | | | | | | | | | |
| Liabilities: Included in other non-current liabilities | — | | — | | (24) | | (24) | | | — | | (24) | | — | | | | | | | | | | |
(1)Other investments as of September 29, 2023 is comprised of an equity method investment of $5.9 million and an equity security without a readily determinable fair value, valued at $5.0 million. |
| | | | | | | | | | | | | | | | | | | | | | |
| | September 29, 2017 |
| | Cost | Unrealized | | | Estimated Fair Value |
| | Gains | Losses | Total | | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents: | | | | | | | | |
| Cash | $ | 623,244 |
|
|
|
|
| $ | 623,244 |
| |
|
|
|
|
|
|
| Cash equivalents: |
|
|
|
|
|
| | |
|
|
|
|
|
|
| Commercial paper | 1,223 |
| — |
| — |
| 1,223 |
| |
|
| 1,223 |
|
|
|
| Money market funds | 2,550 |
| — |
| — |
| 2,550 |
| | 2,550 |
|
|
|
|
|
| Cash and cash equivalents | 627,017 |
| — |
| — |
| 627,017 |
| | 2,550 |
| 1,223 |
| — |
|
| | | | | | | | | |
| Short-term investments: | | | | | | | | |
Certificate of deposit (1) | 17,236 |
| 9 |
| (1 | ) | 17,244 |
| |
|
| 17,244 |
|
|
|
| U.S. agency securities | 9,518 |
| — |
| (20 | ) | 9,498 |
| |
|
| 9,498 |
|
|
|
| Government bonds | 2,034 |
| — |
| (6 | ) | 2,028 |
| | 2,028 |
|
|
|
|
|
| Commercial paper | 15,160 |
| 2 |
| (1 | ) | 15,161 |
| |
|
| 15,161 |
|
|
|
| Corporate bonds | 174,750 |
| 54 |
| (163 | ) | 174,641 |
| |
|
| 174,641 |
|
|
|
| Municipal debt securities | 29,178 |
| 16 |
| (9 | ) | 29,185 |
| |
|
| 29,185 |
|
|
|
| Short-term investments | 247,876 |
| 81 |
| (200 | ) | 247,757 |
| | 2,028 |
| 245,729 |
| — |
|
| | | | | | | | | |
| Long-term investments: | | | | | | | | |
Certificate of deposit (1) | 22,940 |
| 5 |
| (6 | ) | 22,939 |
| |
|
| 22,939 |
|
|
|
| U.S. agency securities | 21,779 |
| — |
| (178 | ) | 21,601 |
| |
|
| 21,601 |
|
|
|
| Government bonds | 17,839 |
| — |
| (107 | ) | 17,732 |
| | 17,732 |
|
|
|
|
|
| Corporate bonds | 218,857 |
| 327 |
| (537 | ) | 218,647 |
| |
|
| 218,647 |
|
|
|
| Municipal debt securities | 28,913 |
| 29 |
| (25 | ) | 28,917 |
| |
|
| 28,917 |
|
|
|
Other long-term investments (2) | 4,171 |
| 357 |
| — |
| 4,528 |
| | 357 |
|
|
| — |
|
| Long-term investments | 314,499 |
| 718 |
| (853 | ) | 314,364 |
| | 18,089 |
| 292,104 |
| — |
|
| | | | | | | | | |
| Total cash, cash equivalents, and investments | $ | 1,189,392 |
| $ | 799 |
| $ | (1,053 | ) | $ | 1,189,138 |
| | $ | 22,667 |
| $ | 539,056 |
| $ | — |
|
| | | | | | | | | |
| Investments held in supplemental retirement plan: | | | | | | | |
| Assets | 3,026 |
|
|
|
|
| 3,026 |
| | 3,026 |
|
|
|
|
|
| Included in prepaid expenses and other current assets & other non-current assets | | |
|
|
|
|
|
|
| Liabilities | 3,026 |
|
|
|
|
| 3,026 |
| | 3,026 |
|
|
|
|
|
| Included in accrued liabilities & other non-current liabilities | | | | | |
| |
(1) | Certificates of deposit include marketable securities, while those with a maturity in excess of one year as of September 29, 2017are classified within long-term investments.
|
| |
(2) | Other long-term investments as of September 29, 2017 include a marketable equity security of $0.4 million, and other investments that are not carried at fair value including an equity method investment of $0.6 million and two cost method equity investments of $3.0 million and $0.5 million. |
Fair Value Hierarchy. Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. We minimize the use of unobservable inputs and use observable market data, if available, when determining fair value. We classify our inputs to measure fair value using the following three-level hierarchy:
Level 1: Quoted prices in active markets at the measurement date for identical assets and liabilities. We base the fair value of our Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.
Level 2: Prices may be based upon quoted prices in active markets or inputs not quoted on active markets but are corroborated by market data. We obtain the fair value of our Level 2 financial instruments from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or model driven valuations using observable market data or inputs corroborated by observable market data. To validate the fair value determination provided by our primary pricing service, we perform quality controls over values received which include comparing our pricing service provider’s assessment of the fair values of our investment securities against the fair values of our investment securities obtained from another independent source, reviewing the pricing movement in the context of overall market trends, and reviewing trading information from our investment managers. In addition, we
assess the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy. The fair value of the currency derivatives are calculated from market spot rates, forward rates, interest rates, and credit ratings at the end of the period.
Level 3: Unobservable inputs are used when little or no market data is available and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
Securities In Gross Unrealized Loss Position. We periodically evaluate our investments for other-than- temporary declines inimpairment by comparing the fair value.value with the cost basis for each of our investment securities. The unrealized losses on our AFS securities were primarily the result of unfavorable changes in interest rates subsequent to the initial purchase of these securities. The following table presents the gross unrealized losses and fair value for those AFS securities that were in an unrealized loss position for less than twelve months and for greater than twelve months or greater as of DecemberMarch 29, 20172024 and September 29, 20172023 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 29, 2017 | | September 29, 2017 |
| | Less Than 12 Months | 12 Months Or Greater | | Less Than 12 Months | 12 Months Or Greater |
| Investment Type | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
| Certificate of deposit | $ | 12,323 |
| $ | (3 | ) | $ | — |
| $ | — |
| | $ | 19,750 |
| $ | (6 | ) | $ | — |
| $ | — |
|
| U.S. agency securities | 6,177 |
| (53 | ) | 22,243 |
| (253 | ) | | 19,713 |
| (91 | ) | 11,386 |
| (108 | ) |
| Government bonds | 10,892 |
| (112 | ) | 7,412 |
| (111 | ) | | 15,029 |
| (64 | ) | 4,729 |
| (49 | ) |
| Commercial paper | 10,015 |
| (15 | ) | — |
| — |
| | 4,292 |
| (1 | ) | — |
| — |
|
| Corporate bonds | 210,057 |
| (800 | ) | 119,766 |
| (808 | ) | | 125,890 |
| (251 | ) | 109,806 |
| (449 | ) |
| Municipal debt securities | 56,136 |
| (236 | ) | 3,586 |
| (23 | ) | | 26,749 |
| (24 | ) | 3,625 |
| (10 | ) |
| Total | $ | 305,600 |
| $ | (1,219 | ) | $ | 153,007 |
| $ | (1,195 | ) | | $ | 211,423 |
| $ | (437 | ) | $ | 129,546 |
| $ | (616 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 29, 2024 | | September 29, 2023 |
| Less Than 12 Months | Greater Than 12 Months | | Less Than 12 Months | Greater Than 12 Months |
| Investment Type | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
| | | | | | | | | |
| U.S. agency securities | $ | — | | $ | — | | $ | — | | $ | — | | | $ | 853 | | $ | (7) | | $ | — | | $ | — | |
| Government bonds | 29,859 | | (183) | | 19,336 | | (440) | | | 26,756 | | (247) | | 40,235 | | (1,183) | |
| Commercial paper | 11,267 | | (20) | | — | | — | | | 5,840 | | (3) | | — | | — | |
| Corporate bonds | 64,105 | | (200) | | 14,763 | | (275) | | | 79,846 | | (461) | | 14,634 | | (558) | |
| Municipal debt securities | 11,641 | | (54) | | 5,479 | | (78) | | | 23,365 | | (203) | | 8,166 | | (206) | |
| Total | $ | 116,872 | | $ | (457) | | $ | 39,578 | | $ | (793) | | | $ | 136,660 | | $ | (921) | | $ | 63,035 | | $ | (1,947) | |
Although we had certain securities that were in an unrealized loss position as of DecemberMarch 29, 2017,2024 and September 29, 2023, we expect to recover the full carrying value of these securities as we do not intend to, nor do we currently anticipate a need to sell these securities prior to recovering the associated unrealized losses. As a result, we do not consider any portion of the unrealized losses at either December 29, 2017 or September 29, 2017 to represent an other-than-temporary impairment, nor do we consider any of the unrealized losses to be credit losses.securities.
Investment Maturities. The following table summarizes the amortized cost and estimated fair value of the AFS securities within our investment portfolio based on stated maturities as of DecemberMarch 29, 20172024 and September 29, 2017,2023, which are recorded within cash equivalents and both short and long-term investments in our unaudited interim condensed consolidated balance sheets (in thousands): | | | | | | | | | | | | | | | | | |
| March 29, 2024 | | September 29, 2023 |
| Range of maturity | Amortized Cost | Fair Value | | Amortized Cost | Fair Value |
| Due within 1 year | $ | 122,724 | | $ | 121,980 | | | $ | 283,229 | | $ | 282,225 | |
| Due in 1 to 2 years | 85,045 | | 84,737 | | | 67,679 | | 66,075 | |
| Due in 2 to 5 years | 30,887 | | 30,853 | | | 20,743 | | 20,493 | |
| Total | $ | 238,656 | | $ | 237,570 | | | $ | 371,651 | | $ | 368,793 | |
|
| | | | | | | | | | | | | |
| | December 29, 2017 | | September 29, 2017 |
| Range of maturity | Amortized Cost | Fair Value | | Amortized Cost | Fair Value |
| Due within 1 year | $ | 259,529 |
| $ | 259,137 |
| | $ | 251,649 |
| $ | 251,530 |
|
| Due in 1 to 2 years | 183,876 |
| 182,787 |
| | 213,555 |
| 213,154 |
|
| Due in 2 to 3 years | 119,948 |
| 119,200 |
| | 96,773 |
| 96,682 |
|
| Total | $ | 563,353 |
| $ | 561,124 |
| | $ | 561,977 |
| $ | 561,366 |
|
5.6. Property, Plant, &and Equipment
Property, plant, and equipmentPP&E are recorded at cost, with depreciation expense included in cost of licensing, cost of products cost ofand services, R&D, S&M, and G&A expenses in our unaudited interim condensed consolidated statements of operations.
As of March 29, 2024 and September 29, 2023, PP&E consistconsisted of the following (in thousands): | | | | | | | | | | | |
| Property, Plant, and Equipment | March 29,
2024 | | September 29,
2023 |
| Land | $ | 41,942 | | | $ | 41,902 | |
| Buildings and building improvements | 288,095 | | | 287,799 | |
| Leasehold improvements | 81,250 | | | 79,988 | |
| Machinery and equipment | 154,178 | | | 152,675 | |
| Computer equipment and software | 237,503 | | | 233,224 | |
| Furniture and fixtures | 30,333 | | | 32,629 | |
| Equipment provided under operating leases | 220,864 | | | 211,910 | |
| Construction-in-progress | 24,600 | | | 18,327 | |
| Property, plant, and equipment, gross | 1,078,765 | | | 1,058,454 | |
| Less: accumulated depreciation | (597,273) | | | (576,873) | |
| Property, plant, and equipment, net | $ | 481,492 | | | $ | 481,581 | |
|
| | | | | | | |
| | December 29,
2017 | | September 29,
2017 |
| Land | $ | 43,363 |
| | $ | 43,364 |
|
| Buildings and building improvements | 280,993 |
| | 281,196 |
|
| Leasehold improvements | 64,858 |
| | 65,034 |
|
| Machinery and equipment | 101,436 |
| | 98,437 |
|
| Computer equipment and software | 178,588 |
| | 173,341 |
|
| Furniture and fixtures | 29,336 |
| | 28,118 |
|
| Equipment provided under operating leases | 107,808 |
| | 97,456 |
|
| Construction-in-progress | 6,467 |
| | 3,673 |
|
| Property, plant, and equipment, gross | 812,849 |
| | 790,619 |
|
| Less: accumulated depreciation | (319,676 | ) | | (305,344 | ) |
| Property, plant, & equipment, net | $ | 493,173 |
| | $ | 485,275 |
|
7. Leases
As Lessee
6.As a lessee, we enter into contracts to access and utilize office space, including those payable to our principal stockholder and portions attributable to the noncontrolling interests in our consolidated subsidiaries. The following table presents the maturity analysis of lease liabilities (in thousands): | | | | | | | |
| March 29, 2024 | | |
| Operating Leases | | |
| Remainder of Fiscal 2024 | $ | 8,618 | | | |
| Fiscal 2025 | 15,221 | | | |
| Fiscal 2026 | 9,076 | | | |
| Fiscal 2027 | 7,776 | | | |
| Fiscal 2028 | 7,063 | | | |
| Thereafter | 15,493 | | | |
| Total undiscounted lease payments | 63,247 | | | |
| Less: imputed interest | (11,330) | | | |
| Total lease liabilities | $ | 51,917 | | | |
As Lessor
As a lessor, we lease our Dolby Cinema product solution to exhibitors. The terms of these leases are typically 10 years. Lease components consist of fixed payments and/or variable lease payments based on contracted percentages of revenue. Generally, leases do not grant any right to the lessee to purchase the underlying asset at the end of the lease term. Dolby Cinema lease arrangements have options to extend the lease term at expiration by increments ranging from 1 to 5 years.
Assets provided under an operating lease are carried at cost within property, plant, and equipment, net on the unaudited interim condensed consolidated balance sheets, and depreciated over the useful life of the asset using the straight-line method. Fixed operating lease payments are recognized on a straight-line basis over the lease term to revenue. Variable lease payments received under our Dolby Cinema operating leases are computed as shares of lessees' box office revenue and recognized to revenue in the period that box office sales occur. Lease incentive payments we make to lessees are amortized as a reduction in revenue over the lease term. The components of lease income were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| March 29, 2024 | | March 31, 2023 | | March 29, 2024 | | March 31, 2023 |
| Operating Lease Income | | | | | | | |
| Variable operating lease income | $ | 7,023 | | | $ | 10,657 | | | $ | 13,338 | | | $ | 16,985 | |
| Fixed operating lease income | 795 | | | 781 | | | 1,607 | | | 1,528 | |
If a lease is classified as a sales-type lease, the carrying amount of the asset is derecognized from property, plant, and equipment, net, and a net investment in the lease is recorded. The net investment in the lease is measured at commencement date as the sum of the lease receivable and the estimated residual value of the equipment. The unguaranteed residual value of the equipment is determined as the estimated carrying value of the asset at the end of the lease term had the asset been depreciated on a straight-line basis. The unguaranteed residual value of sales-type leases was $0.9 million and $1.0 million as of March 29, 2024 and September 29, 2023, respectively. Selling profit or loss arising from a sales-type lease is recorded at lease commencement and presented on a gross basis. Over the term of the lease, we recognize interest income on the net investment in the lease, and variable lease payments, which are not included in the net investment in the lease. The variable lease payments are not material.
The following table presents the maturity analysis of fixed lease payments due to Dolby (in thousands): | | | | | | | | | | | |
| March 29, 2024 |
| Operating Leases | | Sales-Type Leases |
| Remainder of Fiscal 2024 | $ | 300 | | | $ | 620 | |
| Fiscal 2025 | 1,110 | | | 620 | |
| Fiscal 2026 | 932 | | | 220 | |
| Fiscal 2027 | — | | | 220 | |
| Fiscal 2028 | — | | | 220 | |
| | | |
| Total undiscounted cash flows | $ | 2,342 | | | 1,900 | |
| Less: Carrying value of lease receivables | | | (659) | |
| Difference | | | $ | 1,241 | |
8. Goodwill &and Intangible Assets
Goodwill
The following table outlines changes to the carrying amount of goodwill (in thousands):
|
| | | |
| | Goodwill |
| Balance at September 29, 2017 | $ | 311,087 |
|
| Translation adjustments | 99 |
|
| Balance at December 29, 2017 | $ | 311,186 |
|
| | | | | |
| Goodwill |
| Balance at September 29, 2023 | $ | 408,409 | |
| |
| Translation adjustments | 243 | |
| |
| Balance at March 29, 2024 | $ | 408,652 | |
Intangible Assets
Our intangibleIntangible assets are stated at their original cost less accumulated amortization, and principally consist of acquired technology, patents, trademarks,technology, customer relationships and contracts.contracts, and trademarks. Intangible assets subject to amortization consistconsisted of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| | March 29, 2024 | | September 29, 2023 |
| Intangible Assets, Net | Cost | Accumulated
Amortization | Net | | Cost | Accumulated
Amortization | Net |
| Acquired patents and technology | $ | 350,519 | | $ | (280,832) | | $ | 69,687 | | | $ | 350,406 | | $ | (270,750) | | $ | 79,656 | |
| Customer relationships | 148,806 | | (66,362) | | 82,444 | | | 148,794 | | (61,049) | | 87,745 | |
| Other intangible assets | 22,798 | | (22,780) | | 18 | | | 22,781 | | (22,755) | | 26 | |
| Total | $ | 522,123 | | $ | (369,974) | | $ | 152,149 | | | $ | 521,981 | | $ | (354,554) | | $ | 167,427 | |
|
| | | | | | | | | | | | | | | | | | | |
| | December 29, 2017 | | September 29, 2017 |
| Intangible Assets | Cost | Accumulated Amortization | Net | | Cost | Accumulated Amortization | Net |
| Acquired patents and technology | $ | 311,886 |
| $ | (134,929 | ) | $ | 176,957 |
| | $ | 299,707 |
| $ | (128,986 | ) | $ | 170,721 |
|
| Customer relationships | 56,849 |
| (39,035 | ) | 17,814 |
| | 56,843 |
| (38,368 | ) | 18,475 |
|
| Other intangibles | 22,749 |
| (22,315 | ) | 434 |
| | 22,742 |
| (22,290 | ) | 452 |
|
| Total | $ | 391,484 |
| $ | (196,279 | ) | $ | 195,205 |
| | $ | 379,292 |
| $ | (189,644 | ) | $ | 189,648 |
|
We purchase various patents and developed technologies that enable us to further develop our audio, imaging and potential product offerings.
With regard to our purchaseThere were no purchases of intangible assets during the second quarter of fiscal 2024 and during the second quarter of fiscal 2023, or during the fiscal year-to-date periods presented, the following table summarizes the consideration paid, the weighted-average useful lives over which the acquired assets will be amortized using the greater of either the straight-line basis or a ratio-to-revenue method,ended March 29, 2024 and the classification of their amortized expense in our consolidated statements of operations:March 31, 2023, respectively. |
| | |
| Fiscal Period | Total Purchase Consideration (1) | Weighted-Average Useful Life |
| | (in millions) | (in years) |
| Fiscal 2017 | | |
| Q1 - Quarter ended December 30, 2016 | None |
| Fiscal 2018 | | |
| Q1 - Quarter ended December 29, 2017 | $12.0 | 14.1 |
(1) Amortization expense on the intangible assets from patent portfolio acquisitions is included within cost of revenue, R&D, and G&A in our consolidated statements of operations.
Amortization expense for our intangible assets is included in cost of licensing, cost of products and services, R&D, S&M, and G&A expenses in our unaudited interim condensed consolidated statements of operations. Amortization expense was $6.5$7.4 million and $8.4$7.0 million in the firstsecond quarter of fiscal 20182024 and 2017,2023, respectively, and $15.0 million and $13.3 million in the fiscal year-to-date periods ended March 29, 2024 and March 31, 2023, respectively. As of DecemberMarch 29, 2017, estimated2024, expected amortization expense of our intangible assets in future fiscal periods was as follows (in thousands): | | | | | |
| Fiscal Year | Amortization Expense |
| |
| Remainder of 2024 | $ | 15,022 | |
| 2025 | 15,786 | |
| 2026 | 15,268 | |
| 2027 | 14,748 | |
| 2028 | 14,589 | |
| Thereafter | 76,736 | |
| Total | $ | 152,149 | |
|
| | | |
| Fiscal Year | Amortization Expense |
| Remainder of 2018 | $ | 19,725 |
|
| 2019 | 25,719 |
|
| 2020 | 25,256 |
|
| 2021 | 25,229 |
|
| 2022 | 23,309 |
|
| Thereafter | 75,967 |
|
| Total | $ | 195,205 |
|
7.9. Stockholders' Equity &and Stock-Based Compensation
We provide stock-based awards as a form of compensation for employees, officers, and directors. We have issuedissue stock-based awards in the form of stock options and RSUs under our equity incentive plans, as well as shares under our ESPP.
Common Stock - Class A and Class B
Our Board of Directors has authorized two classes of common stock, Class A and Class B. At DecemberAs of March 29, 2017,2024, we had authorized 500,000,000 Class A shares and 500,000,000 Class B shares. At DecemberAs of March 29, 2017,2024, we had 60,541,09559,737,770 shares of Class A common stock and 42,733,59736,085,779 shares of Class B common stock issued and outstanding. Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share. Shares of Class B common stock can be converted to shares of Class A common stock at any time at the option of the stockholder and automatically convert upon sale or transfer, except for certain transfers specified in our amended and restated certificate of incorporation.
Stock Incentive Plans
2005 Stock Plan. In January 2005, our stockholders approved our 2005Our 2020 Stock Plan whichoriginally was adopted by our Board of Directors adoptedand shareholders in November 2004. The2005 (when the 2020 Stock Plan was called the 2005 Stock Plan became effective on February 16, 2005, the day priorPlan). Our stockholders last approved amendments to the completion2020 Stock Plan at our 2023 annual meeting of our initial public offering.stockholders. Our 20052020 Stock Plan, as amended and restated, provides for the ability to grant incentive stock options, non-qualified stock options, restricted stock, RSUs, stock appreciation rights, deferred stock units, performance units, performance bonus awards, and performance shares. A total of 46.064.0 million shares of our Class A common stock ishave been authorized for issuance under the 2005 Stock Plan. For awards granted prior to February 2011, any shares subject to an award with a per share price less than the fair market value of our Class A common stock on the date of grant and any shares subject to an outstanding RSU award will be counted against the authorized share reserve as two shares for every one share subject to the award, and if returned to the 20052020 Stock Plan such shares will be counted as two shares for every one share returned. For those awards granted from February 2011 onward, anyin total since inception of the plan. Any shares subject to an award with a per share price less than the fair market value of our Class A common stock on the date of grant and any shares subject to an outstanding RSU award will be counted against the authorized share reserve as 1.6 shares for every one share subject to the award, and if returned to the 20052020 Stock Plan, such shares will be counted as 1.6 shares for every one share returned.
Stock Options. Stock options are granted at fair market value on the date of grant. Options granted to employees and officers prior to June 2008 generally vested over four years, with equal annual cliff-vesting and expire on the earlier of ten years after the date of grant or three months after termination of service. Options granted to employees and officers from June 2008 onward generally vest over four years, with 25% of the shares subject to the optionoptions becoming exercisable on the one-year anniversary of the date of grant and the balance of the shares vesting in equal monthly installments over the following 36 months. These options expire on the earlier of ten years after the date of grant or three months after termination of service. All options granted vest over the requisite service period and upon the exercise of stock options, we issue new shares of Class A common stock under the 20052020 Stock Plan. Our 20052020 Stock Plan also allows us to grant stock awards which vest based on the satisfaction of specific performance criteria.
Performance-Based Stock Options (PSOs). InOptions. From fiscal 2016 through fiscal 2019, we began grantinggranted PSOs to our executivecertain officers with shares of our Class A common stock underlying such options. The contractual term for the PSOs iswas seven years, with vesting contingent upon market-based performance conditions, representing the achievement of specified Dolby annualized TSR targets at the end of a three-year measurement period following the date of grant. If the minimum conditions are met, the PSOs earned will cliff vest on the third anniversary of the grant date, upon certification of achievement of the performance conditions by our Compensation Committee. Anywhere from 0% to 125% of the shares subject to a PSO may vestvested based on achievement of the performance conditions at the end of the three-year performance period.
In valuing the PSOs, which will beare recognized as compensation cost, we used a Monte Carlo valuation model. Aside from the use of an expected term for the PSOs commensurate with their shorter contractual term, the nature of the valuation inputs used in the Monte Carlo valuation model were consistent with those used to value our non-performance based options granted under the 20052020 Stock Plan. Compensation cost is being amortized on a straight-line basis over the requisite service period.
As of March 29, 2024, an aggregate of 228,108 shares of PSOs were exercisable and outstanding.
On December 15, 2017, we granted PSOs to our executive officers exercisable for an aggregate of 264,000 shares at the target award amount, which would be exercisable up to an aggregate of to 330,000 shares at 125% of the target award amount. On December 15, 2016, we granted PSOs to our executive officers exercisable for an aggregate of 276,199 shares at the target award amount, which would be exercisable up to an aggregate of 345,248 shares at 125% of the target award amount. On December 15, 2015, we granted PSOs to our executive officers exercisable for an aggregate of 335,699 shares at the target award amount, which would be exercisable up to an aggregate of 419,623 shares at 125% of the target award amount. As of December 29, 2017, PSOs which would be exercisable for an aggregate of 784,898 shares at the target award amount (981,121 at 125% of the target award amount) were outstanding.
The following table summarizes information about all stock options, including PSOs, issued under our 20052020 Stock Plan: | | | | | | | | | | | | | | |
| Shares | Weighted-Average
Exercise Price | Weighted-Average
Remaining
Contractual Life | Aggregate Intrinsic Value (1) |
| | (in thousands) | | (in years) | (in thousands) |
| Options outstanding as of September 29, 2023 | 3,720 | | $ | 66.13 | | | |
| Grants | 271 | | 87.49 | | | |
| Exercises | (408) | | 53.02 | | | |
| Forfeitures and cancellations | (49) | | 89.66 | | | |
| Options outstanding as of March 29, 2024 | 3,534 | | 69.01 | | 5.33 | $ | 56,345 | |
| Options vested and expected to vest as of March 29, 2024 | 3,388 | | 68.72 | | 5.25 | 56,100 | |
| Options exercisable as of March 29, 2024 | 2,767 | | $ | 65.60 | | 4.47 | 53,313 | |
(1)Aggregate intrinsic value is based on the closing stock price of our Class A common stock on March 29, 2024 of $83.77 and excludes the impact of options that were not in-the-money. |
| | | | | | | | | |
| | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value (1) |
| | (in thousands) | | (in years) | (in thousands) |
| Options outstanding at September 29, 2017 | 8,741 |
| $ | 38.65 |
| | |
| Grants | 1,262 |
| 62.31 |
| | |
| Exercises | (911 | ) | 38.31 |
| | |
| Forfeitures and cancellations | (306 | ) | 40.68 |
| | |
| Options outstanding at December 29, 2017 | 8,786 |
| 42.02 |
| 6.9 | $ | 175,980 |
|
| Options vested and expected to vest at December 29, 2017 | 8,212 |
| 41.26 |
| 6.8 | 170,650 |
|
| Options exercisable at December 29, 2017 | 4,529 |
| $ | 36.74 |
| 5.7 | 114,392 |
|
| |
(1) | Aggregate intrinsic value is based on the closing price of our Class A common stock on December 29, 2017 of 62.00 and excludes the impact of options that were not in-the-money. |
Restricted Stock Units. Beginning in In fiscal 2008, we began granting RSUs to certain directors, officers and employees under our 2005 Stock Plan. Awardsemployees. RSU awards granted to employees and officers generally vest over four years, with equal annual cliff-vesting. Awards granted to directors prior to November 2010 generally vest over three years, with equal annual cliff-vesting. Awards granted after November 2010 and prior to fiscal 2014 to new directors vest over approximately two years, with 50% vesting per year, while awards granted from November 2010 onward to ongoing non-employee directors generally vest over approximately one year. Awards granted to new non-employee directors from fiscal 2014 onward vest on the earlier of the first anniversary of the award’s date of grant, or the day immediately preceding the date of the next annual meeting of stockholders that occurs after the award’s date of grant. Our 2005 Stock Plan also allows us to grant RSUs that vest based on the satisfaction of specific performance criteria, although no such awards had been granted as of December 29, 2017. At each vesting date, the holder of the award is issued shares of our Class A common stock. Compensation expense from these awards is equal to the adjusted fair market value of our Class A common stock on the date of grant, discounted to account for dividend payments forgone during the vesting period, and is recognized on a straight-line basis over the requisite service period. Certain grants may have other vesting conditions or other award terms as approved by the Compensation Committee of our Board of Directors. Our 2020 Stock Plan also allows us to grant RSUs that vest based on the satisfaction of specific performance criteria.
Performance-Based Restricted Stock Units. In fiscal 2020, we began granting PSUs to certain officers with shares of our Class A common stock underlying such awards. The terms of the PSU Agreement adopted in the first quarter fiscal 2020 provide for the grant of PSUs to certain officers contingent on Dolby's achievement of annualized TSR targets measured against a comparator index over a three-year performance period following the date of grant. Anywhere from 0% to 200% of eligible restricted stock units may vest based on achievement of the performance conditions at the end of the three-year performance period. The value of the PSUs, which is recognized as compensation cost, is calculated using a Monte Carlo valuation model. Compensation cost is being amortized on a straight-line basis over the requisite service period. Certain grants may have other vesting conditions or other award terms as approved by the Compensation Committee of our Board of Directors.
The following table summarizes information on PSUs granted to our officers that have not vested as of March 29, 2024:
| | | | | | | | | | |
| Aggregate Shares Granted | | Potential Shares at Vest Date (at 200% of Target) | |
| | | | |
| December 15, 2021 | 60,301 | | | 120,602 | | |
| December 15, 2022 | 90,613 | | | 181,226 | | |
| December 15, 2023 | 77,283 | | | 154,566 | | |
On December 16, 2019, we granted PSUs to our executive officers for an aggregate of 62,000 shares, which vested in December 2022 at 81% of the target award amount. On December 15, 2020, we granted PSUs to our executive officers for an aggregate of 66,138 shares, which vested in December 2023 at 80% of the target award amount. As of March 29, 2024, PSUs which would vest for an aggregate of 220,082 shares at the target award amount (440,164 shares at 200% of the target award amount) were outstanding.
The following table summarizes information about RSUs, including PSUs, issued under our 20052020 Stock Plan: | | | | | | | | |
| Shares | Weighted-Average
Grant Date
Fair Value |
| | (in thousands) | |
| Non-vested as of September 29, 2023 | 3,747 | | $ | 78.62 | |
| Granted | 1,639 | | 84.07 | |
| Vested | (1,200) | | 78.65 | |
| Forfeitures | (306) | | 81.57 | |
| Non-vested as of March 29, 2024 | 3,880 | | $ | 80.68 | |
|
| | | | | |
| | Shares | Weighted-Average Grant Date Fair Value |
| | (in thousands) | |
| Non-vested at September 29, 2017 | 2,839 |
| $ | 44.38 |
|
| Granted | 1,066 |
| 62.28 |
|
| Vested | (849 | ) | 39.76 |
|
| Forfeitures | (175 | ) | 41.41 |
|
| Non-vested at December 29, 2017 | 2,881 |
| $ | 52.55 |
|
Employee Stock Purchase Plan. Our planESPP originally was adopted by our Board of Directors and shareholders in 2005. Our stockholders last approved amendments to the ESPP at our 2023 annual meeting of stockholders. The ESPP allows eligible employees to have up to 10 percent of their eligible compensation withheld and used to purchase Class A common stock, subject to a maximum of $25,000$25,000 worth of stock purchased in a calendar year or no more than 1,000 shares in an offering period, whichever is less. An offering period consists of successive six-month purchase periods, with a look back feature to our stock price at the commencement of a one-year offering period. The plan provides for a discount equal to 15 percent of the lower of the closing price of our Class A common stock on the New York Stock ExchangeNYSE on the first day of the offering period and the last day of the offering periods.purchase period. The plan also includes an automatic reset feature that provides for an offering period to be reset and recommenced to a new lower-priced offering if the offering price of a new offering period is less than that of the immediately preceding offering period.
5.5 million shares of our Class A common stock have been authorized for issuance under the ESPP since inception of the plan.
Stock Option Valuation Assumptions
We use the Black-Scholes option pricing model to determine the estimated fair value of employee stock options at the date of the grant. The Black-Scholes model includes inputs that require us to make certain estimates and assumptions regarding the expected term of the award, as well as the future risk-free interest rate, and the volatility of our stock price over the expected term of the award.
Expected Term. The expected term of an award represents the estimated period of time that options granted will remain outstanding, and is measured from the grant date to the date at which the option is either exercised or canceled. Our determination of the expected term involves an evaluation of historical terms and other factors such as the exercise and termination patterns of our employees who hold options to acquire our Class A common stock, and is based on certain assumptions made regarding the future exercise and termination behavior.
Risk-Free Interest Rate. The risk-free interest rate is based on the yield curve of United StatesU.S. Treasury instruments in effect on the date of grant. In determining an estimate for the risk-free interest rate, we use average interest rates based on these instruments’ constant maturities with a term that approximates and corresponds with the expected term of our awards.
Expected Stock Price Volatility. The expected volatility represents the estimated volatility in the price of our Class A common stock over a time period that approximates the expected term of the awards, and isawards. The expected volatility has historically been determined using a blended combination of historical and implied volatility.volatility, but is currently being determined using historical volatility only. Historical volatility is representative of the historical trends in our stock price for periods preceding the measurement date for a period that is commensurate with the expected term. Implied volatility is based upon externally traded option contracts of our Class A common stock.
Dividend Yield. The dividend yield is based on our anticipated dividend payout over the expected term of our option awards. Dividend declarations and the establishment of future record and payment dates are subject to the Board of Directors’ continuing determination that the dividend policy is in the best interests of our stockholders. The dividend policy may be changed or canceled at the discretion of the Board of Directors at any time.
The weighted-average assumptions used in the determination of the fair value of our stock options were as follows: | | | | | | | | | | | | |
| | Fiscal Year-To-Date Ended | | | |
| | March 29,
2024 | March 31,
2023 | | | | |
| Expected term (in years) | 4.86 | 4.82 | | | | |
| Risk-free interest rate | 3.9 | % | 3.6 | % | | | | |
| Expected stock price volatility | 29.4 | % | 29.4 | % | | | | |
| Dividend yield | 1.4 | % | 1.6 | % | | | | |
|
| | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Expected life (in years) | 5.06 |
| 5.13 |
|
| Risk-free interest rate | 2.2 | % | 2.1 | % |
| Expected stock price volatility | 22.6 | % | 27.6 | % |
| Dividend yield | 1.1 | % | 1.1 | % |
Stock-Based Compensation Expense
Stock-based compensation expense for equity awards granted to employees is determined by estimating their fair value on the date of grant, and recognizing that value as an expense on a straight-line basis over the requisite service period in which our employees earn the awards. Compensation expense related to these equity awards is recognized net of estimated forfeitures, which reduce the expense recorded in the unaudited interim condensed consolidated statements of operations. The selection of applicable estimated forfeiture rates is based on an evaluation of trends in our historical forfeiture data with consideration for other potential driving factors. If in subsequent periods actual forfeitures significantly differ from our initial estimates, we will revise such estimates accordingly.
The following two tables separately present stock-based compensation expense both by award type and classification in our unaudited interim condensed consolidated statements of operations (in thousands):
Expense - By Award Type
| | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| | March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | |
| Compensation expense | | | | | | |
| Stock options | $ | 1,505 | | $ | 2,008 | | | $ | 3,630 | | $ | 4,413 | | |
Restricted stock units (1) (2) | 26,331 | | 26,544 | | | 55,347 | | 54,096 | | |
| Employee stock purchase plan | 1,079 | | 1,275 | | | 1,832 | | 2,558 | | |
| Total stock-based compensation | 28,915 | | 29,827 | | | 60,809 | | 61,067 | | |
| Estimated benefit from income taxes | (4,143) | | (4,497) | | | (9,142) | | (9,199) | | |
| Total stock-based compensation, net of tax | $ | 24,772 | | $ | 25,330 | | | $ | 51,667 | | $ | 51,868 | | |
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Compensation Expense - By Type | | |
| Stock options | $ | 6,964 |
| $ | 4,803 |
|
| Restricted stock units | 10,780 |
| 11,583 |
|
| Employee stock purchase plan | 940 |
| 829 |
|
| Total stock-based compensation | 18,684 |
| 17,215 |
|
| Benefit from income taxes | (3,896 | ) | (5,028 | ) |
| Total stock-based compensation, net of tax | $ | 14,788 |
| $ | 12,187 |
|
(2)Excludes $0.1 million and $0.3 million of capitalized stock-based compensation related to internal-use software in the second quarter of fiscal 2024 and in the second quarter of fiscal 2023, respectively, and excludes $0.2 million and $0.7 million in the fiscal year-to-date periods ended March 29, 2024 and March 31, 2023, respectively.
Expense - By Income Statement Line Item Classification
| | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| | March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | |
| Compensation expense | | | | | |
| Cost of products and services | $ | 356 | | $ | 431 | | | $ | 766 | | $ | 934 | | |
| Research and development | 8,949 | | 9,472 | | | 19,055 | | 20,148 | | |
| Sales and marketing | 9,927 | | 10,276 | | | 20,408 | | 21,003 | | |
| General and administrative | 9,683 | | 9,648 | | | 20,580 | | 18,982 | | |
| Total stock-based compensation | 28,915 | | 29,827 | | | 60,809 | | 61,067 | | |
| Estimated benefit from income taxes | (4,143) | | (4,497) | | | (9,142) | | (9,199) | | |
| Total stock-based compensation, net of tax | $ | 24,772 | | $ | 25,330 | | | $ | 51,667 | | $ | 51,868 | | |
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Compensation Expense - By Classification | | |
| Cost of products | $ | 262 |
| $ | 258 |
|
| Cost of services | 118 |
| 134 |
|
| Research and development | 4,877 |
| 4,930 |
|
| Sales and marketing | 5,951 |
| 6,867 |
|
| General and administrative | 7,476 |
| 5,026 |
|
| Total stock-based compensation expense | 18,684 |
| 17,215 |
|
| Benefit from income taxes | (3,896 | ) | (5,028 | ) |
| Total stock-based compensation, net of tax | $ | 14,788 |
| $ | 12,187 |
|
The tax benefit that we recognize from shares issued under our ESPP is excluded from the tables above. ThisThe tax benefit recognized was as follows (in thousands):not material in the second quarters of fiscal 2024 and fiscal 2023, or in the fiscal year-to-date periods ended March 29, 2024 and March 31, 2023. |
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Tax benefit - shares issued under ESPP | $ | 305 |
| $ | 324 |
|
Unrecognized Compensation Expense. At DecemberAs of March 29, 2017,2024, total unrecordedunrecognized compensation expense associated with employee stock options expected to vest was approximately $37.6$12.9 million, which is expected to be recognized over a weighted-average period of 2.62.8 years. At DecemberAs of March 29, 2017,2024, total unrecordedunrecognized compensation expense associated with RSUs expected to vest was approximately $115.7$236.8 million, which is expected to be recognized over a weighted-average period of 2.92.8 years.
Common Stock Repurchase Program
In November 2009, we announced a stock repurchase program, ("program"), providing for the repurchase of up to $250.0 million of our Class A common stock. The following table summarizes the initial amount of authorized repurchases as well as additional repurchases approved by our Board of Directors as of DecemberMarch 29, 20172024 (in thousands): |
| | | |
| Authorization Period | Authorization Amount |
| Fiscal 2010: November 2009 | $ | 250,000 |
|
| Fiscal 2010: July 2010 | 300,000 |
|
| Fiscal 2011: July 2011 | 250,000 |
|
| Fiscal 2012: February 2012 | 100,000 |
|
| Fiscal 2015: October 2014 | 200,000 |
|
| Fiscal 2017: January 2017 | 200,000 |
|
| Total | $ | 1,300,000 |
|
| | | | | |
| Date of Authorization | Authorization Amount |
| Fiscal 2010: November 2009 | $ | 250,000 | |
| Fiscal 2010: July 2010 | 300,000 | |
| Fiscal 2011: July 2011 | 250,000 | |
| Fiscal 2012: February 2012 | 100,000 | |
| Fiscal 2015: October 2014 | 200,000 | |
| Fiscal 2017: January 2017 | 200,000 | |
| Fiscal 2018: July 2018 | 350,000 | |
| Fiscal 2019: July 2019 | 350,000 | |
| Fiscal 2021: July 2021 | 350,000 | |
| Fiscal 2022: February 2022 | 250,000 | |
| Fiscal 2022: August 2022 | 350,000 | |
| Total | $ | 2,950,000 | |
Stock repurchases under the program may be made through open market transactions, negotiated purchases, or otherwise, at times and in amounts that we consider appropriate. The timing of repurchases and the number of shares repurchased depend upon a variety of factors, including price, regulatory requirements, the rate of dilution from our equity compensation plans, and other market conditions. The program does not have a specified expiration date, and can be limited, suspended, or terminated at our discretion at any time without prior notice. Shares repurchased under the program will be returned to the status of authorized but unissued shares of Class A common stock. As of DecemberMarch 29, 2017,2024, the remaining authorization to purchase additional shares is approximately $122.0was $106.6 million.
The following table provides information regarding share repurchase activity under the program during fiscal 2018:2024: | | | | | | | | | | | |
| Quarterly Repurchase Activity | Shares
Repurchased | Cost (1) | Average Price Paid Per Share (2) |
| | (in thousands) | |
| Q1 - Quarter ended December 29, 2023 | 967,789 | | $ | 80,002 | | $ | 82.66 | |
| Q2 - Quarter ended March 29, 2024 | 294,400 | | 24,997 | | 84.91 | |
| | | |
| | | |
| Total | 1,262,189 | | $ | 104,999 | | |
|
| | | | | | | | |
| Quarterly Repurchase Activity | Shares Repurchased | Cost in thousands (1) | Average Price Paid Per Share (2) |
| | | | |
| Q1 - Quarter ended December 29, 2017 | 493,884 |
| $ | 29,999 |
| $ | 60.73 |
|
| |
(1) | Cost of share repurchases includes the price paid per share and applicable commissions. |
| |
(2) | Average price paid per share excludes commission costs. |
(2)Average price paid per share excludes commission costs.
Dividend Program
In October 2014, our Board of Directors initiated a recurring quarterly dividend program for our stockholders. The following table summarizes dividends declared under the program during fiscal 2024: | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Period | Announcement Date | Record Date | Payment Date | Cash Dividend Per Common Share | Dividend Payment | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Q1 - Quarter ended December 29, 2023 | February 1, 2024 | February 13, 2024 | February 22, 2024 | $ | 0.30 | | $28.7 million | | |
| Q2 - Quarter ended March 29, 2024 | May 2, 2024 | May 14, 2024 | May 22, 2024 | $ | 0.30 | | $28.7 million | (1) | |
| | | | | | | |
| | | | | | | |
(1)The dividend payment amount for the dividend declared in relation tothe second quarter of fiscal 2018:2024 is estimated based on the number of shares of our Class A and Class B common stock that we estimate will be outstanding as of the Record Date.
|
| | | | | | | | |
| Fiscal Period | Declaration Date | Record Date | Payment Date | Cash Dividend Per Common Share | Dividend Payment | |
| Fiscal 2018 | | | | | | |
| Q1 - Quarter ended December 29, 2017 | January 24, 2018 | February 5, 2018 | February 14, 2018 | $ | 0.16 |
| $16.5 million | (1) |
| |
(1) | The amount of the dividend payment is estimated based on the number of shares of our Class A and Class B common stock that we estimate will be outstanding as of the Record Date. |
8.10. Accumulated Other Comprehensive IncomeLoss
Other comprehensive incomeincome/loss consists of twothree components: unrealized gains or losses on our AFS marketable investment securities, gains and losses on derivatives in cash flow hedge relationships not yet recognized in earnings, and the gains and losses from the translation of assets and liabilities denominated in non-U.S. dollar functional currencies. Until realized and reported as a component of net income, these comprehensive income items accumulate and are included within accumulated other comprehensive income,loss, a subsection within stockholders’ equity in our unaudited interim condensed consolidated balance sheets. Unrealized gains and losses on our investment securities are reclassified from AOCI into earnings when realized upon sale, and are determined based on specific identification of securities sold.
Unrealized gains and losses on our cash flow hedges are reclassified from AOCI into earnings when the hedged operating expenses are recognized, which is also when the gains and losses are realized.
The following table summarizes the changes in the accumulated balances during the period, and includes information regarding the manner in which the reclassifications out of AOCI into earnings affect our unaudited interim condensed consolidated statements of operations (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended
March 29, 2024 | | Fiscal Year-To-Date Ended
March 29, 2024 | | |
| Investment Securities | Cash Flow Hedges | Currency Translation Adjustments | Total | | Investment Securities | Cash Flow Hedges | Currency Translation Adjustments | Total | | | | |
| Beginning Balance | $ | (902) | | $ | 1,894 | | $ | (22,420) | | $ | (21,428) | | | $ | (2,858) | | $ | (197) | | $ | (33,929) | | $ | (36,984) | | | | | |
| Other comprehensive income before reclassifications: | | | | | | | | | | | | | |
| Unrealized gains/(losses) | (295) | | (2,425) | | — | | (2,720) | | | 1,716 | | 162 | | — | | 1,878 | | | | | |
Foreign currency translation gains/(losses) (1) | — | | — | | (6,204) | | (6,204) | | | — | | — | | 5,305 | | 5,305 | | | | | |
Income tax effect - benefit/(expense) (3) | — | | 467 | | — | | 467 | | | — | | (181) | | — | | (181) | | | | | |
| Net of tax | (295) | | (1,958) | | (6,204) | | (8,457) | | | 1,716 | | (19) | | 5,305 | | 7,002 | | | | | |
| Amounts reclassified from AOCI into earnings: | | | | | | | | | | | | | |
Realized gains (2) | 119 | | 841 | | — | | 960 | | | 52 | | 1,029 | | — | | 1,081 | | | | | |
Income tax effect - benefit/(expense) (3) | (8) | | (135) | | — | | (143) | | | 4 | | (171) | | — | | (167) | | | | | |
| Net of tax | 111 | | 706 | | — | | 817 | | | 56 | | 858 | | — | | 914 | | | | | |
| Net current-period other comprehensive income/(loss) | (184) | | (1,252) | | (6,204) | | (7,640) | | | 1,772 | | 839 | | 5,305 | | 7,916 | | | | | |
| Ending Balance | $ | (1,086) | | $ | 642 | | $ | (28,624) | | $ | (29,068) | | | $ | (1,086) | | $ | 642 | | $ | (28,624) | | $ | (29,068) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended
March 31, 2023 | | Fiscal Year-To-Date Ended
March 31, 2023 | | |
| Investment Securities | Cash Flow Hedges | Currency Translation Adjustments | Total | | Investment Securities | Cash Flow Hedges | Currency Translation Adjustments | Total | | | | |
| Beginning Balance | $ | (4,630) | | $ | (151) | | $ | (27,094) | | $ | (31,875) | | | $ | (5,986) | | $ | (4,483) | | $ | (41,172) | | $ | (51,641) | | | | | |
| Other comprehensive income before reclassifications: | | | | | | | | | | | | | |
| Unrealized gains | 1,572 | | 372 | | — | | 1,944 | | | 3,104 | | 5,552 | | — | | 8,656 | | | | | |
Foreign currency translation gains (1) | — | | — | | 2,423 | | 2,423 | | | — | | — | | 16,501 | | 16,501 | | | | | |
| Income tax effect - expense | — | | (61) | | — | | (61) | | | — | | (61) | | — | | (61) | | | | | |
| Net of tax | 1,572 | | 311 | | 2,423 | | 4,306 | | | 3,104 | | 5,491 | | 16,501 | | 25,096 | | | | | |
| Amounts reclassified from AOCI into earnings: | | | | | | | | | | | | | |
Realized losses (2) | 62 | | 86 | | — | | 148 | | | (151) | | (918) | | — | | (1,069) | | | | | |
Income tax effect - benefit (3) | 1 | | (6) | | — | | (5) | | | 38 | | 150 | | — | | 188 | | | | | |
| Net of tax | 63 | | 80 | | — | | 143 | | | (113) | | (768) | | — | | (881) | | | | | |
| Net current-period other comprehensive income | 1,635 | | 391 | | 2,423 | | 4,449 | | | 2,991 | | 4,723 | | 16,501 | | 24,215 | | | | | |
| Ending Balance | $ | (2,995) | | $ | 240 | | $ | (24,671) | | $ | (27,426) | | | $ | (2,995) | | $ | 240 | | $ | (24,671) | | $ | (27,426) | | | | | |
(1)The foreign currency translation gains during the fiscal year-to-date period ended March 29, 2024, and during the second quarter of fiscal 2023 and fiscal year-to-date period ended March 31, 2023, were primarily due to the strengthening of other foreign currencies as compared to the U.S. dollar. The foreign currency translation losses during the second quarter of fiscal 2024 were due to the weakening of other foreign currencies as compared to the U.S. dollar.
(2)Realized gains or losses, if any, from the sale of our AFS investment securities or from foreign currency translation adjustments are included within other income/(expense), net in our unaudited interim condensed consolidated statements of operations. Realized gains or losses on foreign currency contracts designated as cash flow hedges are included in operating expenses in the unaudited interim condensed consolidated statements of operations.
(3)The income tax benefit or expense is included within provision for income taxes in our unaudited interim condensed consolidated statements of operations.
|
| | | | | | | | | |
| | Fiscal Quarter Ended
December 29, 2017 |
| | Investment Securities | Currency Translation Adjustments | Total |
| Beginning Balance | $ | (377 | ) | $ | (7,376 | ) | $ | (7,753 | ) |
| Other comprehensive income before reclassifications: |
|
|
|
| — |
|
| Unrealized gains/(losses) - investment securities | (1,696 | ) |
|
| (1,696 | ) |
Foreign currency translation gains/(losses) (1) |
|
| 1,498 |
| 1,498 |
|
| Income tax effect - benefit/(expense) | 87 |
| (274 | ) | (187 | ) |
| Net of tax | (1,609 | ) | 1,224 |
| (385 | ) |
| Amounts reclassified from AOCI into earnings: | | | |
Realized gains/(losses) - investment securities (1) | 20 |
|
|
| 20 |
|
Income tax effect - benefit/(expense) (2) | (4 | ) |
|
| (4 | ) |
| Net of tax | 16 |
| — |
| 16 |
|
| Net current-period other comprehensive income/(loss) | (1,593 | ) | 1,224 |
| (369 | ) |
| Ending Balance | $ | (1,970 | ) | $ | (6,152 | ) | $ | (8,122 | ) |
|
| | | | | | | | | |
| | Fiscal Quarter Ended December 30, 2016 |
| | Investment Securities | Currency Translation Adjustments | Total |
| Beginning Balance | $ | 742 |
| $ | (10,939 | ) | $ | (10,197 | ) |
| Other comprehensive income before reclassifications: |
|
|
|
| |
| Unrealized gains/(losses) - investment securities | (2,160 | ) |
|
| (2,160 | ) |
Foreign currency translation gains/(losses) (1) |
|
| (8,728 | ) | (8,728 | ) |
| Income tax effect - benefit/(expense) | 102 |
| 1,265 |
| 1,367 |
|
| Net of tax | (2,058 | ) | (7,463 | ) | (9,521 | ) |
| Amounts reclassified from AOCI into earnings: | | | |
Realized gains/(losses) - investment securities (1) | 46 |
|
|
| 46 |
|
Income tax effect - benefit/(expense) (2) | (7 | ) |
|
| (7 | ) |
| Net of tax | 39 |
| — |
| 39 |
|
| Net current-period other comprehensive income/(loss) | (2,019 | ) | (7,463 | ) | (9,482 | ) |
| Ending Balance | $ | (1,277 | ) | $ | (18,402 | ) | $ | (19,679 | ) |
| |
(1) | Realized gains or losses, if any, from the sale of our AFS investment securities or from foreign currency translation adjustments are included within other income/expense, net in our consolidated statements of operations. |
| |
(2) | The income tax benefit or expense is included within provision for income taxes in our consolidated statements of operations. |
9.11. Earnings Per Share
Basic EPS is computed by dividing net income attributable to Dolby Laboratories, Inc. by the number of weighted-average shares of Class A and Class B common stock outstanding during the period. Through application of the treasury stock method, diluted EPS is computed in the same manner, except that the number of weighted-average shares outstanding is increased by the number of potentially dilutive shares from employee incentive plans during the period.
Basic and diluted EPS are computed independently for each fiscal quarter and year-to-date period, presented,
which involves the use of different weighted-average share count figures relating to quarterly and annual periods. As a
result, and after factoring the effect of rounding to the nearest cent per share, the sum of all four quarter-to-date EPS
figures may not equal year-to-date EPS.
Potentially dilutive shares represent the hypothetical number of incremental shares issuable under the assumed exercise of outstanding stock options (both vested and non-vested)unvested) and vesting of outstanding RSUs. The calculation of dilutive shares outstanding excludes out-of-the-money stock options (e.g., such options' exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. In periods when we report a net loss, stock awards are excluded from our calculation of earnings per share as their inclusionsecurities that would have an antidilutive effect. In the first quarter of fiscal 2018, we excluded stock awards of 2,424 stock options and 1,358 RSUs.effect on EPS.
The following table sets forth the computation of basic and diluted EPS attributable to Dolby Laboratories, Inc. (in thousands, except per share amounts): | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| | March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | |
| Numerator: | | | | | | |
| Net income attributable to Dolby Laboratories, Inc. | $ | 97,830 | | $ | 95,696 | | | $ | 164,811 | | $ | 175,071 | | |
| | | | | | |
| Denominator: | | | | | | |
| Weighted-average shares outstanding—basic | 95,718 | | 95,820 | | | 95,547 | | 95,862 | | |
| Potential common shares from options to purchase common stock | 639 | | 838 | | | 695 | | 683 | | |
| Potential common shares from restricted stock units | 495 | | 569 | | | 1,143 | | 795 | | |
| Potential common shares from employee stock purchase plan | 4 | | 71 | | | 12 | | 52 | | |
| Weighted-average shares outstanding—diluted | 96,856 | | 97,298 | | | 97,397 | | 97,392 | | |
| | | | | | |
| Net income per share attributable to Dolby Laboratories, Inc.: | | | | | | |
| Basic | $ | 1.02 | | $ | 1.00 | | | $ | 1.72 | | $ | 1.83 | | |
| Diluted | $ | 1.01 | | $ | 0.98 | | | $ | 1.69 | | $ | 1.80 | | |
| | | | | | |
| Antidilutive awards excluded from calculation: | | | | | | |
| Stock options | 1,217 | | 997 | | | 1,129 | | 910 | | |
| Restricted stock units | 8 | | 1,406 | | | 4 | | 177 | | |
| Employee stock purchase plan | 101 | | — | | | 72 | | 5 | | |
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Numerator: | | |
| Net income/(loss) attributable to Dolby Laboratories, Inc. | $ | (81,622 | ) | $ | 53,374 |
|
| | | |
| Denominator: | | |
| Weighted-average shares outstanding—basic | 102,552 |
| 101,483 |
|
| Potential common shares from options to purchase common stock | — |
| 1,385 |
|
| Potential common shares from restricted stock units | — |
| 1,008 |
|
| Weighted-average shares outstanding—diluted | 102,552 |
| 103,876 |
|
| | | |
| Net income/(loss) per share attributable to Dolby Laboratories, Inc.: | | |
| Basic | $ | (0.80 | ) | $ | 0.53 |
|
| Diluted | $ | (0.80 | ) | $ | 0.51 |
|
| | | |
| Antidilutive awards excluded from calculation: | | |
| Stock options | 2,424 |
| 739 |
|
| Restricted stock units | 1,358 |
| 42 |
|
10.12. Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid.liabilities. We are subject to income taxes in both the United StatesU.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.
Tax Act Enacted in 2017
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; (4) capitalizing specific R&D expenses which are amortized over five to 15 years; and (5) other changes to how foreign and domestic earnings are taxed.
Our accounting for the impact of the Tax Act reflects reasonable estimates of certain effects. We recorded a total provisional amount of $154.6 million in our first quarter of fiscal 2018 income tax provision as follows:
Remeasurement of net deferred tax assets: The Tax Act reduces the corporate tax rate from 35 percent to 21 percent, which results in an estimated net decrease of $57.9 million in our net deferred tax asset balance. While we are able to make a reasonable estimate of the impact of the reduced corporate tax rate on our net deferred tax asset balances, we are continuing to gather additional information to assess the impact.
Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax ("Transition Tax") is a tax on certain unrepatriated earnings of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profits of the relevant subsidiaries, as well as the amount of foreign income taxes paid on such earnings and profits. The portion of earnings and profits comprised of cash and other specified assets is taxed at a rate of 15.5 percent and any
remaining amount of earnings and profits is taxed at a rate of eight percent. We made a reasonable estimate of the Transition Tax and recorded a liability for a provisional Transition Tax obligation of $96.7 million payable over a period of up to eight years. However, we are continuing to gather additional information to more precisely compute the liability for the Transition Tax.
Other significant provisions that are not yet effective, but will impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, an incremental tax on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries' tangible assets ("minimum foreign tax"). We are still evaluating whether to make a policy election to treat the minimum foreign tax as a period expense or to provide U.S. deferred taxes on temporary differences related to the minimum foreign tax.
The final transitional impacts of the Tax Act may differ from our initial estimate, due to, among other things, changes in interpretations of the Tax Act, any legislative actions to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, any updates or changes to estimates we have utilized to calculate the transition impacts, any impact of changes to our current assertion to indefinitely reinvest foreign earnings as a result of the Tax Act, and any impacts from changes to current year earnings estimates. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 28, 2018.
Unrecognized Tax BenefitBenefits
As of DecemberMarch 29, 2017,2024, the total amount of gross unrecognized tax benefits was $101.0$81.4 million, of which $87.9$49.9 million, if recognized, would reduce our effective tax rate. As of September 29, 2017,2023, the total amount of gross unrecognized tax benefits was $98.7$76.3 million, of which $85.0$47.2 million, if recognized, would reduce our effective tax rate. The fiscal year-to-date period ended March 29, 2024 increase was primarily due to current year reserves for transfer pricing and interest accruals. Our net liability for unrecognized tax benefits is classified within other non-current liabilities in our unaudited interim condensed consolidated balance sheets.
We recognize licensing revenue gross of withholding taxes, which our licensees remit directly to their local tax authorities, and for which we receive a partial foreign tax credit in our income tax provision. The foreign current tax provision includes this withholding tax expense while the appropriate foreign tax credit benefit is included in current federal and foreign taxes. Withholding taxes were as follows (in thousands):
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Withholding taxes | $ | 12,264 |
| $ | 8,991 |
|
Effective Tax Rate
Each period, the combination of multiple different factors can impact our effective tax rate. These factors include both recurring items such as tax rates and the relative amount of income earned in foreign jurisdictions, as well as discrete items such as changes to our uncertain tax positions, that may occur in, but are not necessarily consistent between periods.
Our effective tax rate in the firstsecond quarter of fiscal 20182024 was 196.0%, compared to 20.8%19.3% or a tax expense of $23.5 million and our effective tax rate in the firstsecond quarter of fiscal 2017.2023 was 18.2% or a tax expense of $21.4 million. The 175 percentage point increase in our effective tax rate reflects a 182 percentage point impact from the Tax Act, partially offset by a seven percentage point decrease from the excesswas primarily due to tax benefitbenefits related to settlement of stock-based awards.
Our effective tax rate in the fiscal year-to-date period ended March 29, 2024 was 18.2%or a tax expense of $36.8 millionand our effective tax rate in the fiscal year-to-date period ended March 31, 2023 was 19.3%or a tax expense of $41.9 million. The decrease in our effective tax rate was primarily due to higher tax benefits related to settlement of stock-based awards.
On December 11, 2023, the IRS announced in a notice that taxpayers can temporarily apply the regulations in effect prior to 2022 related to U.S. federal foreign tax credits. This relief applies to foreign taxes paid or accrued in our fiscal 2024.
11.Compared to the Federal statutory rate of 21%, our effective tax rate for the second quarter of fiscal 2024 and fiscal year-to-date period ended March 29, 2024 were lower primarily due to the mix of earnings favoring jurisdictions with lower tax rates and benefits related to settlement of stock-based awards.
13. Restructuring
Restructuring charges recorded as operating expenses in our unaudited interim condensed consolidated statements of operations represent costs associated with separate individual restructuring plans implemented in various fiscal periods. CostsThe extent of our costs arising fromas a result of these actions, including fluctuations in related balances between fiscal periods, areis based on the nature of activities under the various plans.
Fiscal 20172023 Restructuring Plan ("Restructuring Plan").Events. In September 2017,2023, we implementedinitiated a restructuring plan to reduce certain activities in order to reallocate thosewith the purpose of focusing our resources towards higher priority investment areas. As a result,on our highest strategic priorities. In connection with this plan, we recorded $12.9an expense in the fourth quarter of fiscal 2023 of $13.4 million in restructuring costs during fiscal 2017, representing severance and other related benefits offeredand an impairment loss of $16.9 million related primarily to internally developed software for projects we are no longer pursuing. In continuation with this plan, we recorded an expense in the first quarter of fiscal 2024 of $7.4 million in severance and other related benefits. Cash payment of the severance and other termination benefits were substantially completed by the end of the second quarter of fiscal 2024. These activities are expected to result in estimated gross pre-tax operating income savings of approximately 80 employees that$40 million to $45 million within fiscal 2024. The impact of these estimated savings on our operating expenses will be mostly offset by increased investment in our strategic priorities and the effects of inflation on our remaining expenses.
In June 2023, we implemented a focused restructuring plan, primarily consisting of workforce reductions and facility consolidations to improve execution in alignment with our strategy and to reduce our cost structure through improved utilization of our global infrastructure. As a result of these events, we recorded expense in the third quarter of fiscal 2023 of $10.9 million in severance and other related benefits and expense of $6.9 million related to a facility consolidation in New York, NY. Actions and expenses related to this plan were affectedsubstantially completed by this action. the end of the second quarter of fiscal 2024. These activities are expected to result in estimated gross pre-tax operating income savings of approximately $20 million to $25 million within fiscal 2024. The impact of these estimated savings on our operating expenses will be mostly offset by increased investment in our strategic priorities and the effects of inflation on our remaining expenses.
We recorded a benefit of $2.5 million in the second quarter of fiscal 2024 primarily due to a true-up of estimated restructuring expenses.
The table presented below summarizes the changes in our restructuring accruals under this plan (in thousands): | | | | | | | | | | | | | | | |
| Severance | Leased facility exit costs and other costs and adjustments | | | Total | | |
| Balance at September 30, 2022 | $ | 5,781 | | $ | — | | | | $ | 5,781 | | | |
| Restructuring charges | 23,943 | | 23,118 | | | | 47,061 | | | |
| Cash payments and adjustments | (9,372) | | (16,225) | | | | (25,597) | | | |
| Non-cash adjustment for leased facility exit costs | — | | (6,893) | | | | (6,893) | | | |
| Balance at September 29, 2023 | $ | 20,352 | | $ | — | | | | $ | 20,352 | | | |
| Restructuring charges | 7,513 | | (3,917) | | | | 3,596 | | | |
| Cash payments and adjustments | (22,514) | | 3,917 | | | | (18,597) | | | |
| | | | | | | |
| Balance at March 29, 2024 | $ | 5,351 | | $ | — | | | | $ | 5,351 | | | |
|
| | | |
| | Severance and associated costs |
| Restructuring charges | $ | 12,856 |
|
| Cash payments | (168 | ) |
| Non-cash and other adjustments | — |
|
| Balance at September 29, 2017 | $ | 12,688 |
|
| Restructuring charges | 67 |
|
| Cash payments | (9,060 | ) |
| Non-cash and other adjustments | (264 | ) |
| Balance at December 29, 2017 | $ | 3,431 |
|
Accruals for restructuring chargescharges/(credits) incurred for the restructuring plan described above are included within accrued liabilities in our unaudited interim condensed consolidated balance sheets, while restructuring charges/(credits)charges are included within restructuring charges/(credits)charges in our unaudited interim condensed consolidated statements of operations.
12.
14. Legal Matters
We are involved in various legal proceedings that occasionally arise in the normal course of business. These can include claims of alleged infringement of IP rights, commercial, employment, and other matters. In our opinion, resolution of these proceedings is not expected to have a material adverse impact on our operating results or financial condition. On a quarterly basis, we evaluate based on the known facts and circumstances whether a potential loss or range of losses is considered probable and reasonably estimable in accordance with U.S. GAAP. We record a provision for a liability relating to these legal proceedings when a loss is both probable and the amount of the loss can be reasonably estimated. Legal costs associated with these legal proceedings are expensed as incurred.
Given the unpredictable nature of legal proceedings, it is possible that an unfavorable resolution of one or more such proceedings could materially affect our future operating results or financial condition in a particular period, including as a result of required changes to our licensing terms, monetary penalties, and other potential consequences. However, based on the information known by us as of the date of this filing and the rules and regulations applicable to the preparation of our unaudited interim condensed consolidated financial statements, any such amounts are either immaterial, or it is not possible to provide an estimatedprobable that a potential loss has been incurred or the amount of any such potential losses.loss cannot be reasonably estimated.
13.15. Commitments &and Contingencies
In the ordinary course of business, we enter into contractual agreements with third parties that include non-cancelable payment obligations, for which we are liable in future periods. These arrangements can include terms binding us to minimum payments and/or penalties if we terminate the agreement for any reason other than an event of default as described by the agreement. The following table presents a summary of our contractual obligations and commitments as of DecemberMarch 29, 2017(in2024 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Fiscal Period |
| Remainder of Fiscal
2024 | Fiscal
2025 | Fiscal
2026 | Fiscal
2027 | Fiscal
2028 | Thereafter | Total |
| Naming rights | $ | 2,288 | | $ | 13,126 | | $ | 13,472 | | $ | 8,534 | | $ | 8,642 | | $ | 35,674 | | $ | 81,736 | |
| Purchase obligations | 13,526 | | 4,830 | | 1,196 | | — | | — | | — | | 19,552 | |
| Donation commitments | 1,025 | | 116 | | 116 | | 86 | | 86 | | 404 | | 1,833 | |
| Total | $ | 16,839 | | $ | 18,072 | | $ | 14,784 | | $ | 8,620 | | $ | 8,728 | | $ | 36,078 | | $ | 103,121 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By Fiscal Period |
| | Remainder of
Fiscal 2018 | Fiscal
2019 | Fiscal
2020 | Fiscal
2021 | Fiscal
2022 | Thereafter | Total |
| Naming rights | $ | 3,857 |
| $ | 7,811 |
| $ | 7,909 |
| $ | 8,008 |
| $ | 8,108 |
| $ | 86,865 |
| $ | 122,558 |
|
| Operating leases | 12,428 |
| 15,306 |
| 13,095 |
| 10,429 |
| 9,174 |
| 25,540 |
| 85,972 |
|
| Purchase obligations | 18,062 |
| 25,358 |
| 22,047 |
| 333 |
| 333 |
| — |
| 66,133 |
|
| Donation commitments | 200 |
| 6,300 |
| 322 |
| 122 |
| 122 |
| 958 |
| 8,024 |
|
| Total | $ | 34,547 |
| $ | 54,775 |
| $ | 43,373 |
| $ | 18,892 |
| $ | 17,737 |
| $ | 113,363 |
| $ | 282,687 |
|
Naming Rights. We are party to an agreementagreements for naming rights of certain facilities, most significantly for naming rights and related benefits with respect to the Dolby Theatre in Hollywood, California, the location of the Academy Awards®. The term of thethis agreement is 20 years, over which we will make payments on a semi-annual basis until fiscal 2032. Our ongoing annual payment obligations are conditioned in part on the Academy Awards being held and broadcast from the Dolby Theatre. Our payment obligations may be suspended or reduced in certain circumstances, including the protracted closure of the Dolby Theatre. We also hold the naming rights to Dolby Live at the Park MGM in Las Vegas, Nevada. Dolby Live is a fully integrated performance venue offering live concerts in Dolby Atmos.
Operating Leases. Operating lease payments represent our commitments for future minimum rent made under non-cancelable leases for office space, including those payable to our principal stockholder and portions attributable to the controlling interests in our wholly owned subsidiaries.
Purchase Obligations. Purchase obligations primarily consist of our commitments made under agreements to purchase goods and services related to Dolby Cinema and for purposes that include ITinformation technology and telecommunications, marketing and professional services, and manufacturing and other R&D activities. Also included in purchase obligations are non-cancelable commitments to contract manufacturers, including potentially variable obligations related to inventory based on demand forecasts we provide to the contract manufacturers.
Donation Commitments. Donation Our donation commitments primarily relate to a non-cancelable obligation entered into during fiscal 2014 to installobligations that consist of maintenance services and donateinstallation of imaging and audio products to the Museum of the Academy of Motion Picture Arts and Sciences in Los Angeles, California, and to provide maintenance services for fifteen years from its expected opening date in fiscal 2019, in exchange for various marketing, branding, and publicity benefits. These donation agreements either transfer title of our audio and imaging products to the donee or offer use of the products free of charge for a specified period of time via a leasing arrangement. The recipients of these donations participate in or promote the cinema and entertainment industry, and our commitments vary in length, lasting up to 15 years.
Indemnification Clauses. On a limited basis, our contractual agreements contain a clause under which we agree to provide indemnification to the counterparty, most commonly to licensees in connection with licensing arrangements that include our IP. We have also entered into indemnification agreements with our officers, directors,
and certain employees, and our certificate of incorporation and bylaws contain similar indemnification obligations. Additionally, and although not a contractual requirement, we have at times elected to defend our licensees from third
party IP infringement claims. Since the terms and conditions of our contractual indemnification clauses do not explicitly specify our obligations, we are unable to reasonably estimate the maximum potential exposure for which we could be liable. Furthermore, we have not historically made any payments in connection with any such obligation and believe there to be a remote likelihood that any potential exposure in future periods would be of a material amount. As a result, no amounts have been accrued in our consolidated financial statements with respect to the contingent aspect of these indemnities.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations andthat are subject to risks and uncertainties, including, but not limited to statements regarding: operating results and underlying measures; demand and acceptance for our technologies and products; the effect of macroeconomic and geopolitical conditions on our business; market growth opportunities and trends; the development and launch of new products, features, and platforms; our ability to maintain key partner relationships; our plans, strategies and expected opportunities; future competition; our stock repurchase plan; and our dividend policy. Use of words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”"may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," "intend," "could," "can," "would," "target," "goal," "outlook," "project," "contemplate," "future," or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions indicates a forward-looking statement. Such forward-looking statements are based on management's reasonable and current assumptions and expectations, but such statements inherently involve substantial risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including but not limited to the risks set forth in Part II, Item 1A, “Risk Factors.” Such forward-looking statements are based on management’s reasonable current assumptions"Risk Factors" and expectations.key challenges set forth in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are under nobased upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Except as required by law, we disclaim any duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to new developments or actual results.
Investors and others should note that we disseminate information to the public about our company, our products, services and other matters through various channels, including our website (www.dolby.com), our investor relations website (http://investor.dolby.com), SEC filings, press releases, public conference calls, and webcasts, in order to achieve broad, non-exclusionary distribution of information to the public. We encourage investors and others to review the information we make public through these channels, as such information could be deemed to be material information.
OVERVIEW
Dolby Laboratories creates audio and imaging technologies that transform entertainment for content playback in movies, TV, music, gaming and communications at the cinema, at home, at work, and on mobile devices.user-generated content. Founded in 1965, our strengths stem from expertise in analog and digital signal processing and digital compression technologies that have transformed the ability of artists to convey entertainment experiences to their audiences through recorded media. Such technologies led to the development of our noise-reduction systems for analog tape recordings, and have since evolved into multiple offerings that enable more immersive sound for cinema, digital televisionDTV transmissions and devices, mobile devices, OTT video and music services, DVDhome entertainment devices, and Blu-ray Discs, gaming consoles, and mobile devices. automobiles.
Today, we derive the majority of our revenue from licensing our audio technologies. We also derive revenue from licensing our consumer imaging and communication technologies, as well as audio and imaging technologies for premium cinema offerings in collaboration with exhibitors. Finally,In addition to our licensing business, we provide products and services for a variety of applications in the cinema and broadcast markets, and communications markets.offer solutions to companies building real-time digital experiences that increase audience engagement.
OUR STRATEGY
Key elements of our strategy include:
Advancing the Science of Sight and Sound. We apply our understanding of the human senses, audio, and imaging engineering to develop technologies aimed at improving how people experience and interact with their entertainment and communications content.
Providing Creative Solutions. We promote the use of our solutions as creative tools, and provide our products, services, and technologies to filmmakers, musical artists, sound mixers, and other production teams in their creative processes.content creators and providers. Our tools help showcase the quality and impact of their efforts and intent, and thiswhich in turn may generate market demand.
Delivering Superior Experiences.Our technologies and solutions optimize playback and communications so that users may enjoy richer, clearer, and more immersive sound and sight experiences.
Expanding the Reach of our Technologies. We look for new and innovative ways to expand the reach of our technologies to new content, media, devices and audiences. For example, we are expanding our addressable market to enhance a broader range of content, by offering solutions to companies building real-time digital experiences that increase audience engagement. Our solution provides the capability to stream high quality audiovisual content in Dolby,ultra-low latency which provide a more rich, clear,reduces the delay between the action and immersive experience.
the viewer. Everyone experiencing the action at the same time enables ways to interact with the content.
REVENUE GENERATION
The following table presents a summary of the composition of our revenue for all periods presented:
|
| | |
| | Fiscal Quarter Ended |
| Revenue | December 29,
2017 | December 30,
2016 |
| Licensing | 90% | 87% |
| Products | 8% | 11% |
| Services | 2% | 2% |
| Total | 100% | 100% |
We license our technologies in approximately 50 countries, and our licensees distribute products that incorporate our technologies throughout the world. As shown in the table below, we generate the majority of our revenue from outside the United States. Geographic data for our licensing revenue is based on the location of our licensees’ headquarters, products revenue is based on the destination to which we ship our products, and services revenue is based on the location where services are performed.
|
| | |
| | Fiscal Quarter Ended |
| Revenue By Geographic Location | December 29,
2017 | December 30,
2016 |
| United States | 26% | 32% |
| International | 74% | 68% |
We have active licensing arrangements with over 550 electronicsmore than approximately 500 product OEMs and software developer licensees.developers. As of DecemberMarch 29, 2017,2024, we had approximately 8,50020,300 issued patents relating to technologies, from which we deriveare licensed to third parties and comprise a significant portion of our licensing revenue. We have approximately 1,0001,700 trademark registrations throughout the world for a variety of wordmarks, logos, and slogans. These trademarks are an integral part of our technology licensing program as licensees typically place them on their products which incorporate our technologies to inform consumers that they have met our quality specifications.
Licensing
We license our technologies to a range of customers who incorporate them into their products for enhanced audio and imaging functionality whether it be at home, at work, on mobile devices, or at the cinema.for content playback in movies, TV, music, gaming, and other applications. Our key technologies are summarized in the table below. As it relates to AAC, HE-AAC, Extended HE-AAC, AVC, and HEVC, we own patents that comprise a portion of these standardized technologies and we participate in patent licensing programs which combine our patents with those of other patent owners and offer them as follows:
a single solution. | | | | | |
| Technology | Description |
| AAC, HE-AAC and Extended HE-AAC | |
Technology | Description |
AAC & HE-AAC | An advancedAdvanced digital audio codec solutionsolutions with higherhigh bandwidth efficiency used for a wide range of media applications such as TVs, STBs, PCs, gaming consoles, mobile devices, and digital radio.
applications. |
| AVC | A digital video codec with high bandwidth efficiency used in a wide range of media devices, such as TVs, STBs, PCs, gaming consoles, and mobile devices. |
Dolby®Dolby AC-4 | A next-generation digital audio coding technology that increases transmission efficiency while delivering new audio experiences, including Dolby Atmos, to a wide range of playback devices, including TVs, STBs, PCs, gaming consoles, and mobile devices. |
Dolby Atmos®Atmos | An object-oriented audio technology for home theaters, cinema device speakers, and headphonesa wide range of media devices that allows sound to be precisely placed and moved anywhere in the listening environment including the overhead dimension. Dolby Atmos isprovides an immersive experience that can be provided via multiple Dolby audio coding technologies. |
Dolby Digital®DD | A digital audio coding technology that provides multichannel sound to applications such as DVD players, TVs, and STBs.a variety of media applications. |
Dolby Digital Plus™DD+ | An advanced digital audio coding technology that offers more efficient audio transmission for a wide range of media applications such as TVs, STBs, Blu-ray Discs, PCs, and mobile devices. |
Dolby®Dolby TrueHD | A digital audio coding technology providing lossless encoding for premium quality media applications such as Blu-ray Discs and home theaters.applications. |
Dolby Vision™Vision | An imaging technology combining HDR, an expanded color spectrum,high dynamic range and dynamic metadata to deliver higher contrast, brighter highlights,ultra vivid colors, sharper contrasts, and improvedricher details for TV, cinema mobile devices, and other consumera wide range of media devices. |
| Dolby Voice® | An audio conferencing technology with superior spatial perception, voice clarity, and background noise reduction that emulates the in-person meeting experience.
| HEVC | A next-generation digital video codec with high bandwidth efficiency to support ultra-high definition experiences for a wide range of media devices. |
The following table presents the composition of revenue from our licensing business and revenues for all periods presented: |
| | | |
| | Fiscal Quarter Ended | |
| Market | December 29,
2017 | December 30,
2016 | Main Offerings Incorporating Our Technologies |
| Broadcast | 40% | 46% | STBs & Televisions |
| Mobile | 23% | 10% | Smartphones & Tablets |
| CE | 11% | 12% | DMAs, Blu-ray Disc devices, AVRs, Soundbars, DVDs, & HTIBs |
| PC | 10% | 15% | Windows and macOS operating systems |
| Other | 16% | 17% | Gaming consoles, Auto DVD, Dolby Cinema, Dolby Voice |
| Total | 100% | 100% | |
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended | |
| Market | March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | Main Components of Each Category |
| Broadcast | 31% | 37% | | 34% | 37% | Televisions and STBs |
| Mobile | 26% | 26% | | 20% | 24% | Smartphones and Tablets |
| CE | 12% | 12% | | 15% | 14% | DMAs, Blu-ray Disc devices, AVRs, Soundbars, and DVDs |
| PC | 15% | 12% | | 13% | 10% | Windows and macOS operating systems and devices |
| Other | 16% | 13% | | 18% | 15% | Dolby Cinema, Gaming consoles, Automotive, and Patent pool administrative services |
| Total | 100% | 100% | | 100% | 100% | |
We have various licensing models: a two-tier model, an integrated licensing model, a patent licensing model, recoveries, and collaboration arrangements.
Two-Tier Licensing Model. Most ofWe license our consumer entertainment licensing business consists oftechnologies through a two-tier licensing model whereby our decoding technologies, included in reference software and firmware code, are first provided under license to semiconductor manufacturers whom we refer to as “implementation"implementation licensees.”" Implementation licensees incorporate our technologies in ICs which they sell to OEMs of consumer entertainment products, whom we refer to as “system"system licensees.”" System licensees separately obtain licenses from us that allow them to make and sell end-user products using ICs that incorporate our technologies.
Implementation licensees pay us a one-time, up-front fee per license. In exchange, the licensee receives a licensing package which includes information that is useful in implementingincorporate our technologies into their chipsets. Once implemented, the licensee sendschipsets that, once approved by Dolby, are available for purchase from implementation licensees by OEMs for use in end-user products. Implementation licensees only pay us a sample chipsetnominal initial fee on contract execution as consideration for quality control evaluation, and following our validationthe ongoing services that we provide to assist in their implementation process. Revenue from these initial fees is recognized ratably over the contractual term as a component of the design, the licensee is permitted to sell the chipset for use solely to our network of system licensees.licensing revenue.
System licensees provide us with prototypes of products, or self-test results of products that incorporate our technologies. Upon our confirmation that our technologies are optimally and consistently incorporated, the system licensee may buy ICs under a license for the same Dolby technology from our network of implementation licensees, and may further sell approved products to retailers, distributors, and consumers. For the use of our technologies, our system licensees pay an initial licensing fee as well as royalties, which represent the majority of the revenue recognized from these arrangements. The amount of royalties we collect on a particular product depends on several factors including the nature of the implementations,implementation, the mix of Dolby technologies used, and the volume of products using our technologies that are shipped by the system licensee.
Integrated Licensing Model. We also license our technologies to software operating system vendors and to certain other OEMs that act as combined implementation and system licensees. These licensees incorporate our technologies in their software used on PCs, in mobile applications, or in ICs they manufacture and incorporate into their products. As with the two-tier licensing model, the combined implementation and system licensee pays us an initial licensing fee in addition to royalties as determined by the mix of Dolby technologies used, the nature of the implementations, and the volume of products using our technologies that are shipped, and is subject to the same quality control evaluation process.
Patent Licensing Model. We license our patents through patent pools which are arrangements between multiple patent owners to jointly offer and license pooled patents to licensees who use our IP in their products. By aggregating and offering pooled patents, these arrangements deliver efficiencies that reduce transactional costs for both IP owners and licensees. Patent pools enable product manufacturers to efficiently and transparently secure patent licenses for collaboratively developed technologies. We offer our patents related to AAC, HE-AAC, Extended HE-AAC, AVC, HEVC, VVC and other standardized technologies through a combination of patent pools and licensing directly to OEMs. We also license our patents directly to manufacturers that use our IP in their products. Finally, we generate serviceVia LA generates patent licensing administrative fees for managingadministering patent pools on behalf of third party patent owners through our wholly-owned subsidiary, Viaowners.
Recoveries. Licensing Corporation. By aggregating and offering pooled IP, patent pools deliver efficiencies that reduce transactional costs for both IP owners and licensees. The Via Licensing patent pools enable product manufacturers to efficiently and transparently secure patent licenses for audio coding, interactive television, digital radio, and wireless technologies. We offer our AAC, AVC, HE-AAC, HEVC, and other IP through patent licensing. Currently, mostrevenue recognized in any given period may include revenue from licensees and/or settlements with third parties where the use of our technology occurred in previous periods. Within the Results of Operations section of Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," revenue earned from patent licensing relatesattributable to the licensingprevious periods' usage including settlements are collectively referred to as "recoveries." Such recoveries have become a recurring element of AACour business and HE-AAC technologies.are particularly subject to fluctuation and unpredictability.
Collaboration Arrangements.Arrangements
Dolby Cinema: We partner with exhibitors to deliver a premium cinema offering with Dolby Vision and Dolby Atmos at new and pre-existing venues. We receive revenue at Dolby Cinema sites through a portionshare of box-officebox office receipts, from the installed theaters.
Dolby Voice: We enter into arrangements with audio and video conferencing providers where, in return forwhich is recognized as licensing our IP and know-how, we earn revenue based on access to our technology and services as well as on sales of the Dolby Conference Phone (see "Products" below).
Settlements & Back Payments From Licensees: Licensing revenue recognized in any given quarter may include back payments and/or settlements with licensees. Within the Results of Operations section of Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations," settlements and back payments are collectively referred to as "recoveries." Such recoveries have become a recurring element of our business and are particularly subject to fluctuation and unpredictability.revenue.
Products
We design and manufacture audio and imaging hardware and software products for the cinema, television, broadcast, and entertainment industries. Distributed in over 80approximately 90countries, these products are used in content creation, distribution, and playback to enhance image and sound quality, and improve transmission and playback. We also marketAdditionally, some of our Dolby Cinema arrangements are classified as sales-type leases, and sellas a result are included in products sales.
Key products from which we generate products revenue are summarized in the Dolby Conference Phone which optimizes the conference call experience when using Dolby Voice.
Products revenue is derived primarily from sales of the following:table below: | | | | | | | | |
| Product | Description |
| Cinema | | |
Product | Description |
Cinema | Cinema Imaging Products | Digital Cinema Servers used to load, store, decrypt, decode, watermark, and playback digital film files for presentation on digital cinema projectors and software used to encrypt, encode, and package digital media files for distribution.distribution |
| Cinema Audio Products | Cinema Processors, amplifiers, and loudspeakers used to decode, render, and optimally playbackplay back digital cinema soundtracks, including those using Dolby Atmos.Atmos |
| Other | Dolby Conference Phone | An integral hardware component of the Dolby Voice conferencing solution that enhances productivity through superior sound, full-room voice capture, spatial voice separation, and touch-screen interface.
| | |
| | |
| | |
| Other | Other Products | 3-D glasses and kits, broadcast hardware and software used to encode, transmit, and decode multiple channels of high qualityhigh-quality audio for DTV and HDTV distribution, monitors, and accessibility solutions for hearing and visually impaired consumers.consumers |
Services
We offer cloud-based software solutions to companies building real-time digital experiences that increase audience engagement. Over time, we expect to expand the amount and types of content that can be enhanced through our technologies and capabilities.
In addition, we offer various services to support theatrical and television production for cinema exhibition, broadcast, and home entertainment, including equipment training and maintenance, mixing room alignment, equalization, as well as audio, color, and light image calibration. We also provide PCS for products sold and equipment installed at Dolby Cinema theaters operated by exhibitor partners and support the implementation of our technologies into products manufactured by our licensees.
MACROECONOMIC CONDITIONS
EXECUTIVE SUMMARYThe current macroeconomic environment has negatively impacted many of our licensees and that directly impacts our financial results. Our revenue has been impacted by macroeconomic conditions, including but not limited to, inflation, heightened interest rates, restrictions and economic impacts related to COVID-19, supply chain constraints, increased shipping costs, international conflicts, reduced discretionary consumer spending, and reduced new product investment by our customers caused by elevated interest rates and lower demand. The macroeconomic conditions also impart substantial uncertainty into our operating environment, which presents additional challenges for our business. These factors and the related uncertainty may cause delays or a decrease in the adoption or implementation of our technologies into new products by partners and licensees. These conditions may impact consumer demand for devices and services and our partners’ ability to manufacture devices. Further, we may be negatively impacted by delays in transaction cycles and our recoveries efforts due to the noted macroeconomic conditions and related uncertainty. The future implications of these macroeconomic conditions on our business, results of operations and overall financial position remain uncertain. We continue to monitor the evolving macroeconomic environment and the impact on our business. Further discussion of the potential impacts of these macroeconomic effects on our business can be found in Part II, Item 1A "Risk Factors."
EXPANDING OUR LEADERSHIP IN AUDIO AND IMAGING EXPERIENCES
We are focused on expanding our leadership in audio and imaging solutions for premium entertainment content and delivering dynamic new audio and imaging technologies. This will broadenby increasing the number of Dolby experiences that people can enjoy, which will drive revenue growth across the markets we serve. The availability of content in turnDolby formats is an important part of creating the ecosystems that drive adoption of our technologies within a wide range of devices.
Our audio and imaging technologies have a strong presence within movie and episodic content through adoption across content creators and many forms of distribution, including broadcast TV, streaming, and optical disc playback. The availability of content on these platforms has driven strong adoption in devices such as TVs, STBs, and speaker devices. Major streaming partners and services such as Netflix, Disney+, Apple TV+, Amazon, Max, Paramount+, and other streaming partners and services internationally, continue to enhance content in Dolby Vision and Dolby Atmos. For example, in the second quarter of fiscal 2024, Max announced that live sports will help drivebe available to stream in Dolby Vision, in addition to Dolby Atmos. These streaming services launch local content in Dolby formats internationally. As we see an increase in new local content, we increase our value proposition for adoption of Dolby Vision and Dolby Atmos across devices in all market segments.
We are increasing the number of Dolby experiences that people can enjoy by enhancing new types of content, such as music, gaming, live sports, and user-generated content using Dolby technologies. Recently, the Indian Premier League broadcasted cricket in Dolby Atmos and Dolby Vision for the first time.
We are increasingly making our audio and imaging technologies available for content beyond premium entertainment through Dolby.io, creating new revenue growth. Followinggenerating opportunities. We also seek to expand the reach of our technology by incorporating it into industry standards and offering licenses to our patents covering that technology, along with our partners, through patent pools. The following is a discussion of the key markets that we address and the various Dolby technologies and solutions that serve these markets.
EXPANDING OUR LEADERSHIP IN AUDIO SOLUTIONS
AUDIO LICENSING
The majority of our licensing revenue is derived from the licensing of audio technologies. The followingand imaging technologies for entertainment playback. Our branded technologies are highlightsprimarily comprised of DD+, Dolby Atmos, and AC-4 for audio, and Dolby Vision for imaging. Our audio technologies offered jointly through patent pools are incorporated into the AAC, HE-AAC, xHE-AAC, MPEG H and Opus standards for audio, and the AVC, HEVC, VVC and AV1 standards for imaging. Licensing revenue is primarily driven by the adoption of our first quartertechnologies on devices, the number of fiscal 2018devices shipped by licensees, and key challenges related to audio licensing by markets.
Broadcast
Highlights: We have an established presence in developed markets with respect tothe expansion of the number of licensees adopting our technologies. DD+, AC-4, and our AAC and HE-AAC audio patents (collectively, our "foundational audio technologies") have broad penetration across a diverse set of devices and end markets. Our revenue from these technologies in HDTV servicesis primarily driven by device shipments from licensees, and devices. We are focused on increased adoption of DD+ in emerging marketsas such, as China and India, whereis impacted by consumer spending. In the HDTV transition is still underway, by working with country-specific operators and standards bodies to drive longer term growth.
We continue to see new products introduced that incorporatefuture, we expect revenue from our leadingfoundational audio technologies to generally reflect market trends in device shipments. The remaining portion of our licensing revenue is derived from offerings such as Dolby Atmos and AC-4. At CES in January 2018, LG announced that all 2018 LG OLED and Super UHD TVs will support bothVision, Dolby Atmos, our imaging patents, and Dolby Vision. In addition, TCL announced that they would be offering TVs with Dolby Atmos andCinema. Dolby Vision and Skyworth announced that they would be offering TVs with Dolby Atmos.
Along with these new product introductions, the availability of content in Dolby formats continues to grow in streaming and live broadcast. Dolby Atmos have not been in the market as long as our foundational audio technologies, thus revenue growth is now availableprimarily driven by increased adoption and the addition of new licensees. Revenue from technologies licensed through twoour patent licensing model is driven primarily by our royalty share within patent pools,
licensee penetration, device shipments, and the introduction of new streaming OTT providers, Rakuten in Europestandardized technologies and Okko in Russia, adding to the list of OTT providers which includes Netflix, Tencent, and iQiYi.
In live broadcast, BT and Sky TV continue the production of live sporting events in Dolby Atmos. During the first quarter of fiscal 2018, in China, the New Year's Gala was broadcast in Dolby Atmos by two tier one networks, including HunanTV, one of the most watched channels in China. This event marks the first time that Dolby Atmos was broadcast by paid TV operators in China. Most recently, Comcast announced that they will deliver the 2018 Winter Olympics in Dolby Atmos and Canal Plus announced their first Dolby Atmos set-top box along with availability of Dolby Atmos content.
Key Challenges: To achieve growth and further adoption in emerging markets where conversion to digital television is still underway, our success will be impacted by a number of factorspatent programs. Factors such as regional fragmentation of operators and regulators, and the pace of their decision-making and implementation.global supply constraints or device lifecycles may also impact licensing revenue generally. Further, in some emerging growthcertain countries, such as China, we face difficulties enforcing our contractual and IP rights, including instances in which our licensees fail to accurately report the shipment of products using our technologies. Finally, we face geopolitical challenges including changes in diplomatic and trade relationships, trade protection measures, and import or export licensing requirements.
The following are highlights from our second quarter of fiscal 2024 and key challenges related to audio and imaging licensing, by market. Further discussion of the potential impacts of these key challenges on our business can be found in Part II, Item 1A "Risk Factors."
Broadcast
Highlights: We have an established global presence with respect to our DD+ and HE-AAC audio technologies in broadcast services and devices. We have expanded our offerings in the broadcast market through technologies such as Dolby Atmos and AC-4, Dolby Vision, as well as AVC and HEVC imaging technologies which we license through patent pools. We work with many TV OEMs and strategic partners to enable and promote Dolby Vision and Dolby Atmos experiences within their TV lineups. Many such partners continue to expand their support of the combined Dolby Vision and Dolby Atmos experience. At CES in January 2024, Hisense announced that its latest TV models will support Dolby Atmos FlexConnect. MediaTek also recently announced that its Pentonic smart TV platform will support Dolby Atmos FlexConnect. Dolby Atmos FlexConnect pairs accessory wireless speakers with a TV’s sound system, optimizing the Dolby Atmos experience for any room layout and speaker setup.
Key Challenges: Our pursuit of new licensees and further adoption of our technologies by existing licensees may be impacted by a number of factors. We must continue to present compelling reasons for consumers to demand our audio and imaging technologies, including ensuring that there is a breadth of available content in our formats and such content is being widely distributed. To the extent that OEMs do not incorporate our technologies in current and future products or our technology is not included in future broadcast industry standards, our revenue could be negatively impacted. Changing trends in the way that video content is distributed and consumed may impact our business and future growth in the broadcast market, such as the trend away from subscription-based cable and satellite television providers toward streaming services.
Mobile
Highlights: We continue to focus on adoption of our technologies across major mobile ecosystems, including Apple and Android. HE-AAC and HEVC are widely adopted audio and video technologies across mobile devices, and we offer these technologies through our patent licensing programs. We also continue to focus on expanding adoption of our DD+, AC-4, Dolby Atmos, and Dolby Vision technologies in the mobile market. The breadth of mobile devices supporting Dolby technologies continues to increase globally. In the second quarter of fiscal 2024, Transsion, a global mobile device maker, announced that their latest smartphones will support Dolby Atmos. Additionally, Xiaomi expanded its premium smartphone portfolio in India, which support Dolby Vision Capture, Dolby Vision, and Dolby Atmos. Also, Honor launched the Magic 6 Pro smartphone that supports Dolby Vision, and Lava Mobiles launched its new Blaze Curve 5G smartphone in India that supports Dolby Atmos. Oppo recently announced that they introduced five new phones supporting Dolby Vision Capture.
Key Challenges: Growth in this market is dependent on several factors. Due to short product life cycles, mobile device OEMs can readily add or remove certain of our technologies from their devices. Our success depends on our ability to address the rapid pace of change in mobile devices, and we must continuously collaborate with mobile device OEMs to incorporate our technologies. The mobile market is heavily concentrated, so we rely on a small number of partnerships with key participants in this market. If we are unable to maintain these key relationships, we may experience a decline in mobile devices incorporating our technologies. To the extent that OEMs do not incorporate our technologies in current and future products or our technology is not included in future mobile industry standards, our revenue could be impacted. We must also continue to support the development and distribution of Dolby-enabled content via various ecosystems.
Consumer Electronics
Highlights: We have an established presence in the home entertainment market across devices such as soundbars, DMAs, wireless and smart speakers, AVRs, and Blu-Ray players, through the inclusion of our DD+ technology, and increasingly through the inclusion of Dolby Atmos and Dolby Vision. AAC and HE-AAC technologies
also have broad adoption through our patent licensing programs. We continue to focus on expanding the availability of Dolby technologies to new devices.
Key Challenges:We must continue to present compelling reasons for consumers to demand our technologies wherever they enjoy entertainment content, while promoting creation and broad availability of content in our formats. To the extent that OEMs do not incorporate our technologies in current and future products, our revenue could be impacted.
Consumer Electronics
Highlights: We have an established presence in the home theater market that provides compatibility across devices, such as AVRs and DMAs, through the inclusion of our DD+ and HE-AAC technologies. Additionally, the adoption of Dolby Atmos continues to expand across a wide range of devices including AVRs, speakers, soundbars, and DMAs. At CES in January 2018, new soundbars featuring Dolby Atmos were announced by LG and Sony with price points starting below $600. These hardware offerings can be paired with a growing array of Dolby enabled content via OTT services and Blu-ray discs, and the lower price points make them more accessible to mainstream consumers.
We will continue to work with OEMs to expand the range of Dolby Atmos-enabled hardware, and with content developers and distributors to expand the range of entertainment offerings that utilize our audio technologies.
Key Challenges: We must continue to present compelling reasons for consumers to demand our audio and imaging technologies wherever they enjoy entertainment content. To the extent that OEMs do not incorporate our technologies in current and future products, our revenue could be impacted.
Mobile
Highlights: DD+ is incorporated in Apple's iOS, and we continue to focus on adoption of our technologies across other major mobile ecosystems, such as Android, Windows, and Amazon, to facilitate delivery and enhanced consumption of Dolby-enabled content from a multitude of streaming services. In addition, HE-AAC is a de facto audio standard across mobile devices. Dolby Atmos is currently featured on a number of mobile devices from partners such as Amazon, Lenovo, ZTE, and Razer.
We had higher revenue from recoveries in our mobile market in the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017. We also derive revenue in our mobile market from patent licensing, and we saw revenue growth in this market in the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017.
Key Challenges: Growth in this market is dependent on several factors. Due to short product lifecycles, it is easier for mobile device OEMs to add or remove certain of our technologies from mobile devices. Our success depends on our ability to address the rapid pace of change in mobile devices. We must continuously collaborate with manufacturers of mobile devices to incorporate our technologies. Finally, we must continue to support the development and distribution of Dolby content via various ecosystems.
Personal Computers
Highlights: DD+ and HE-AAC continuecontinues to enhance audio playback in both Mac and Windows operating systems, including native support in their respective Safari and Microsoft Edge browsers. Dolby's presence in these browsers enables us to reach more users through newvarious types of content, including streaming video entertainment.
Dolby Atmos is currently featured on A number of PCs from partners such as Apple, Lenovo, Huawei,Dell, Samsung, and Xiaomi.ASUS also support Dolby Vision and/or Dolby Atmos, with continued expansion of applications through music, streaming, and gaming. At CES in January 2024, Alienware and ASUS announced their first gaming PC monitors to support Dolby Vision, and Dell announced that its latest XPS laptops will offer the combined Dolby Vision and Dolby Atmos experience.
Key Challenges: In recent years, unit demandDemand for PCs has experienced secular decline as consumer choices have shifted towards other devices such as tabletsrecently been declining and mobile phones. This has caused downward pressure onit remains uncertain when, if, and to what extent PC demand will return to historic levels. We must continuously collaborate and maintain our key partnerships with PC revenues. Furthermore, a decline inmanufacturers to incorporate our technologies, and we must continue to support the portiondevelopment and distribution of PCs that have optical disc functionality will have a negative impact on our ASPs.Dolby content via various ecosystems.
Other Markets
Highlights: DD+ is incorporated in both the XboxPlayStation and PlaystationXbox gaming consoles that support gaming content and platforms.streaming for movie and television content. The PlayStation 5 supports compatible Dolby Atmos is enabled for WindowsAtmos-enabled living room devices with the latest PS5 system. The Xbox Series X and Xbox One, which enables playback on devices such asSeries S gaming consoles support Dolby Atmos soundbarsVision and AVRs. Additionally, purchasing an app on the Microsoft app store or an OEM gaming headset bundled with Dolby Atmos for Headphones can enable Dolby Atmos on a user's headphones. Six Dolby Atmos games are currently available onstreaming and gaming content. Additionally, our technologies continue to be incorporated into the Xbox One.latest headphones by various OEMs.
We also generate revenue from the automotive industry primarily through DVD playersthe adoption of Dolby Atmos Music and through disc playback devices as well as other elements of the entertainment system. In the second quarter of fiscal 2024, Xiaomi announced that their first electric vehicle, the SU7, will support Dolby Atmos. Additionally, automotive manufacturer Hyundai began shipping its Genesis model that supports Dolby Atmos. At CES in January 2024, it was announced that Mercedes-Benz, Audible, and Amazon Music have collaborated to make Audible and Amazon Music's catalog of content in Dolby Atmos available in Mercedes-Benz vehicles. Also at CES, Lotus announced that its new Eletre hyper-SUV will support Dolby Atmos.
Key Challenges: TheConsumer demand for devices in the gaming industry is impacted by anticipation of console refresh cycles, which could result in fluctuations in our revenue. In addition, the gaming console market continues to be challenged byhas competition from mobile devices and gaming PCs, which have faster refresh cycles and appeal to a broader consumer base. ThisAutomotive revenue has been negatively impacted by a decline in the portion of cars that have optical disc playback. Shortages of certain semiconductor components could result in lower implementation of our technologies in vehicles by automotive manufacturers. Our revenue growth will be impacted if OEMs do not incorporate our technologies in their latest products, which can be more prominent in industries with longer development cycles such as the automotive industry.
Included within Other Markets is also licensing revenue from audio and imaging technologies used to create Dolby experiences through Dolby Cinema.
Dolby Cinema
Highlights: We continue to expand our global presence for Dolby Cinema, with sites located in the U.S. and internationally. The breadth of motion pictures for Dolby Cinema continues to grow with over 580 theatrical titles in both Dolby Vision and Dolby Atmos having been announced or released from all of the major studios as of the end of second quarter of fiscal 2024.
Key Challenges: Although the premium large format market for the cinema industry has been growing, Dolby Cinema competes with other existing offerings. Our success depends on our partners and their success, and our ability to differentiate our offering, deploy new sites, and attract and retain a global viewing audience. In addition, the
success of our Dolby Cinema offering is tied to global box office performance generally. COVID-19 has had a significant effect on theatrical exhibition, which could impact the financial viability of our key partners. The response to COVID-19 has had a negative impact on our cinema-related revenue and consumer demand, although consumer demand for the cinema has been improving. It is uncertain whether consumer demand for the cinema will return to previous levels. Additionally, the strikes by the Writers Guild of America and Screen Actors Guild - American Federation of Television and Radio Artists ("SAG-AFTRA") in 2023 effectively halted the production, release and promotion of certain films for an extended period. The resulting impacts of those stoppages have resulted in, and may impactcontinue to lead to, near-term decreases in box office receipts and our future revenues.cinema-related revenue.
PRODUCTS AND SERVICES
We also generate revenue by providingA majority of our products and services for a varietyrevenue is derived from the sale of applications inaudio and imaging products for the cinema, television, broadcast, communication, and communications markets.entertainment industries. Revenue from Dolby.io is also included in products and services.
Cinema Products and Services
Highlights: We offer servers and audio processors toTo help enable the playback of content in cinemas. We continueDolby formats, we offer a range of servers, which include the IMS3000 (an integrated imaging and audio server with Dolby Atmos), and audio processors, such as the CP950, to see continued adoption ofcinema exhibitors globally. Dolby Atmos byhas been adopted broadly across studios, content creators, post-production facilities, and exhibitors. As of the end of the firstsecond quarter of fiscal 2018,2024, there were approximately 3,200are over 7,500 Dolby Atmos-enabledAtmos screens installed or committed and approximately 880over 3,000 Dolby Atmos theatrical titles have been announced or released.
We expect future growth from our neweralso offer a variety of other cinema products, which include the IMS3000, an integrated imaging and audio server with Dolby Atmos,such as the Dolby Multichannel Amplifier and our 3-Axis speaker.high-power flexible line of speakers. These products allow us to offer exhibitors a more complete Dolby Atmos offeringsolution that can also provide exhibitors with ais often more cost effective solution than what was previouslyother commercially available to them.options.
Key Challenges: Demand for our cinema products is dependent upon our partners and their success in the market, industry and economic cycles, and box office performance, generally, along withand our ability to develop and introduce new technologies, further our relationships with content creators, and promote new cinematic audio and imaging experiences. To the extent that we do not make progressA significant portion of our growth opportunity lies in these areas,international markets, which are subject to geopolitical risks. Additionally, weakness in general economic conditions due to inflation, recession, pandemic or areother worsening economic conditions could have a negative impact on our cinema-related revenue due to reduced consumer discretionary spending. We may also be faced with pricing pressures or competing technologies, which would affect our revenue may be adversely affected.
EXPANDING INTO NEW AUDIO AND VISUAL EXPERIENCES
Our new growth initiatives include Imaging Licensing (comprised of Dolby Vision™ and our patent licensing initiatives related to consumer imaging), Dolby Cinema™, and Dolby Voice®. New growth initiative revenue, which is mostly in licensing, but also includes product revenue for Dolby Conference Phones, was approximately $60 million in fiscal 2017 and is expected to approximately double in fiscal 2018. Key highlights of our first quarter of fiscal 2018 and future challenges related to our new growth initiatives are described below.
Imaging Licensing
Highlights: Dolby Vision is our end-to-end solution for delivering HDR content across TVs, Blu-ray players, smartphones, tablets, DMAs, STBs, and now PCs.
At CES in January 2018, additional products with Dolby Vision were announced with both new and existing partners. Over 10 TV partners have announced their 2018 Dolby Vision TVs and many are expanding Dolby Vision into mainstream lines with price points starting at $500, making these devices more accessible to mainstream customers. Sony and Panasonic announced their first UHD Blu-ray players, joining LG, Phillips, and Oppo who launched Dolby Vision Blu-ray players in fiscal 2017. In the PC marketplace, Lenovo recently announced the inclusion of Dolby Vision in two of its ThinkPad X1 Series models, the X1 Carbon and X1 Yoga, which marks the first PCs to support Dolby Vision.
The availability of entertainment content in Dolby Vision continues to grow. Disney, Lionsgate, Paramount, Sony Pictures, Universal, and Warner Bros. have all released content in Dolby Vision and Dolby Atmos for the home, and an increasing number of Blu-ray discs are being released in Dolby Vision and Dolby Atmos. Movie titles and original TV content are also available in Dolby Vision through a number of OTT streaming partners, which include Netflix, iTunes, Amazon, Vudu, Tencent, Rakuten, and iQiYi.
Netflix and iTunes have provided Dolby Vision content to iOS since the release of Dolby Vision in the iPhone X, iPhone 8, iPad Pro lineup, and Apple TV 4K. In the first quarter of fiscal 2018, Tencent also began streaming Dolby Vision content to these devices. iTunes now has over 200 movies available in Dolby Vision, compared to 100 as of the fourth quarter of fiscal 2017, and Netflix now has over 200 hours of original content in Dolby Vision.
Our HEVC and AVC imaging technologies offer efficient delivery of video content across a variety of devices. We are seeing expanded adoption of these consumer imaging technologies, which helped drive increased revenue in the first quarter of fiscal 2018, primarily in the broadcast and mobile markets.
Key Challenges:The success of Dolby Vision and our consumer imaging IP initiatives will depend on a number of factors, such as the expansion of available Dolby Vision content, broader adoption of our technologies into mainstream consumer device models, licensing penetration, and competition from alternative technologies.
Dolby Cinema
Highlights:During the first quarter of fiscal 2018, we opened 20 new Dolby Cinema screens with our exhibitor partners. Our partners include AMC in the U.S., Wanda, Jackie Chan Cinema, CGV, and Huayi Brothers in Asia, Les cinémas Gaumont Pathé, Cineplexx, and Vue in Europe, and Reel Cinemas in the Middle East. In total, 132 Dolby Cinema locations were operational as of the end of the first quarter of fiscal 2018 compared to 66 as of the end of the first quarter of fiscal 2017, and we are on track to open approximately as many new Dolby Cinema locations in fiscal 2018 as we did in fiscal 2017.revenue. In addition, approximately 130 theatrical titles with Dolby
Vision and Dolby Atmos have been announced or released with participation from every major studio, and during calendar year 2017, all ten of the highest grossing films in the U.S. were optimized for Dolby Cinema.
Key Challenges: Although the premium large format market for the cinema industry is currently growing, Dolby Cinema is in competition with other existing offerings. Our success with this initiative depends onsupply chain constraints may impact our ability to differentiateprovide cinema products and services to our offering, deploy new sites in accordance with plans,customers. COVID-19 has also negatively impacted the financial health of our cinema customers and attract and retain a global viewing audience.partners. In addition, the successstrikes by the Writers Guild of America and SAG-AFTRA in 2023 effectively halted the production, release and promotion of certain films for an extended period. The resulting impacts of those stoppages have resulted in, and may continue to lead to, decreased box office receipts in the near term, which could potentially impact exhibitors' willingness and ability to invest in our Dolby Cinemacinema products.
Dolby.io
Highlights: We are focused on bringing Dolby’s decades of sight and sound technology to a broader range of media content and digital experiences. We are expanding our addressable market to enhance a broader range of content, by offering solutions to companies building real-time digital experiences that increase audience engagement. Our solution provides the capability to stream high quality audiovisual content in ultra-low latency which reduces the delay between the action and the viewer.
Content being delivered with almost no delay enables our customers to create real-time interaction in their apps and services. This lifelike interaction is essential to the experiences companies, particularly in sports and entertainment, are creating.
Over time, we believe this way of delivering and engaging with content will be tied to the pipelineused more broadly.
Key Challenges: Dolby.io is an early-stage business, and success of motion pictures available at Dolby Cinema locations and box office performance generally.
Dolby Voice
Highlights:Our primary partners in Dolby Voice are: BlueJeans,it is uncertain when or if it will be a leading video meetings platform, West, a leading global audio conferencing services provider, PGi, Highfive, and BT. We continue to focus on expanding Dolby Voice’s availability to the global market for audio and video conferencing services.
Key Challenges:material revenue driver. Our success in this market will depend on the number of service providers and enterprise customers we are able to attractadoption from competing solutions, the number of Dolby Conference Phonescompanies building real-time digital experiences that we are able to sell, andincrease audience engagement, the volume of usage of the service.services and our ability to monetize our services. In addition, the development and maintenance needed to provide a reliable and scalable platform may require us to develop new skills internally for our current employees or hire external specialized talent. Although the market for real-time experiences has been growing, Dolby.io competes with other offerings.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a description ofThere have been no material changes to the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Item 7 on Management Discussion and Analysisfrom those included in our Fiscal 2017fiscal 2023 Annual Report on Form 10-K filed with the SEC.SEC, as per Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates included therein.
RESULTS OF OPERATIONS
For each line item included on our unaudited interim condensed consolidated statements of operations described and analyzed below, the significant factors identified as the leading drivers contributing to the overall fluctuation are presented in descending order of their impact on the overall change (from an absolute value perspective). This discussion and analysis highlights comparisons of material changes in the unaudited interim condensed consolidated financial statements for the quarters ended March 29, 2024 and March 31, 2023. Note that recovery payments received fromadjustments related to sales-based royalties that were misreported by licensees either in the form of back payments or settlementsas well as unlicensed settlement activity, are collectively referred to as "recoveries." Amounts displayed, except percentages, are in thousands.
Revenue and Gross Margin
Licensing
Licensing revenue consists of fees earned from licensing our technologies to customers who incorporate them into their products and services to enable and enhance audio imaging, and voiceimaging capabilities. The technologies that we license are either internally developed, acquired, or licensed from third parties. We also generate administrative fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via LA. A significant portion of our licensing revenue pertains to customer-shipment royalties that we recognize based on estimates of our licensees’ shipments. To the extent that shipment data reported by licensees differs from estimates we made and recorded, we recognize an adjustment to revenue for such difference in the period we receive the reported shipment data.
Our cost of licensing consists mainly of amortization of certain purchased intangible assets and intangible assets acquired in business combinations, depreciation, third party royalty obligations, and direct fees incurred.patent pool fees. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | Change | | Fiscal Year-To-Date Ended | | | Change | | |
| Licensing | March 29,
2024 | March 31,
2023 | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | |
| Revenue | $338,240 | $351,608 | $(13,368) | (4)% | | $632,007 | $659,619 | | | $(27,612) | (4)% | | | |
| Percentage of total revenue | 93% | 94% | | | | 93% | 93% | | | | | | | |
| Cost of licensing | 15,318 | 21,365 | (6,047) | (28)% | | 31,054 | 34,724 | | | (3,670) | (11)% | | | |
| Gross margin | 322,922 | 330,243 | (7,321) | (2)% | | 600,953 | 624,895 | | | (23,942) | (4)% | | | |
| Gross margin percentage | 95% | 94% | | | | 95% | 95% | | | | | | | |
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| Fiscal Quarter Ended | | Fiscal Year-To-Date Ended |
| Licensing Revenue By Market | March 29, 2024 | | March 31, 2023 | | March 29, 2024 | | March 31, 2023 |
| Broadcast | $ | 105,480 | | 31 | % | | $ | 128,971 | | 37 | % | | $ | 217,896 | | 34 | % | | $ | 246,305 | | 37 | % |
| Mobile | 88,690 | | 26 | % | | 93,126 | | 26 | % | | 123,977 | | 20 | % | | 157,412 | | 24 | % |
| CE | 42,221 | | 12 | % | | 39,015 | | 12 | % | | 95,441 | | 15 | % | | 94,098 | | 14 | % |
| PC | 49,938 | | 15 | % | | 43,347 | | 12 | % | | 79,617 | | 13 | % | | 67,633 | | 10 | % |
| Other | 51,911 | | 16 | % | | 47,149 | | 13 | % | | 115,076 | | 18 | % | | 94,171 | | 15 | % |
| Total licensing revenue | $ | 338,240 | | 100 | % | | $ | 351,608 | | 100 | % | | $ | 632,007 | | 100 | % | | $ | 659,619 | | 100 | % |
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| | Fiscal Quarter Ended | Change |
| Licensing | December 29,
2017 | December 30,
2016 | $ | % |
| Revenue | $258,016 | $232,699 | $25,317 | 11% |
| Percentage of total revenue | 90% | 87% | | |
| Cost of licensing | 9,259 | 8,121 | 1,138 | 14% |
| Gross margin | 248,757 | 224,578 | 24,179 | 11% |
| Gross margin percentage | 96% | 97% | | |
Quarter-To-Date: Q1 2018Current Quarter: Q2 2024 vs. Q1 2017Q2 2023 | | | | | | | | | | | | | | |
| Factor | Licensing Revenue | Gross Margin |
| Broadcast | â | | | |
Factor | Revenue | Gross Margin |
Mobile | á | Higher revenuesLower revenue from recoveries and patent licensing, along with higher volumes | â | Higher costtiming of licensing primarily due to depreciation of Dolby Cinema equipment |
PC | â | Lower revenues from recoveriesminimum volume commitments and lower ASP due to decreasetrue-up in ODD mix |
Broadcast | â | Lower revenues from STBs,our imaging patent programs, partially offset by Dolby Vision adoption and higher revenues from imaging and patent licensing as well as timing of recognitionrecoveries | â | Lower gross margin due to payment terms in new arrangementslower revenue, offset by lower patent administrative fees |
CEPC | á | Higher revenue from patent licensingtiming of minimum volume commitments in imaging patents and higher volumetrue-up |
| Other | á | Higher revenue from imaging patent pool administrative fees and higher automotive revenue driven by higher adoption of DMAs,Dolby Atmos |
| Mobile | â | Lower revenue from recoveries |
| CE | á | Higher revenue from recoveries partially offset by lower average pricingunit shipments primarily in DMAs |
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Year-To-Date: Q2 2024 vs. Q2 2023
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| Factor | áLicensing Revenue | Gross Margin |
| Mobile | â | Lower revenue primarily due to timing of minimum volume commitments in our audio patent programs and lower recoveries | ßà | No significant fluctuations |
| Broadcast | â | Lower revenue due to timing of minimum volume commitments in imaging patents and lower true-up impacting foundational technologies and imaging patents |
| Other | á | Higher revenuesrevenue from imaging patent licensing in automotive and gaming,pool administrative fees and higher automotive revenue driven by higher adoption of Dolby Atmos |
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| PC | á | Higher revenue from Via Licensing patent pools,timing of minimum volume commitments in imaging patents and Dolby Cinema,higher true-up |
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| CE | á | Higher revenue from recoveries partially offset by lower automotive recoveriesunit shipments primarily in DMAs |
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Products and Services
Products revenue is generated from the sale of audio and imaging hardware and voicesoftware products for the cinema, television, broadcast and communicationsentertainment industries. Also included in products revenue are amounts relating to certain Dolby Cinema arrangements that are considered sales-type leases that involve fixed or minimum fees. Cost of products consists ofincludes materials, labor, and manufacturing overhead, amortization of certain intangible assets, as well asand certain third party royalty obligations.
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| | Fiscal Quarter Ended | Change |
| Products | December 29,
2017 | December 30,
2016 | $ | % |
| Revenue | $24,933 | $28,211 | $(3,278) | (12)% |
| Percentage of total revenue | 8% | 11% | | |
| Cost of products | 17,035 | 17,720 | (685) | (4)% |
| Gross margin | 7,898 | 10,491 | (2,593) | (25)% |
| Gross margin percentage | 32% | 37% | | |
Quarter-To-Date: Q1 2018vs. Q1 2017
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Factor | Revenue | Gross Margin |
Cinema | â | Lower units of digital server products and audio products | â | Lower utilization of manufacturing capacity and higher excess & obsolete charges, partially offset by improved mix of products |
Services
Services revenue consists of fees charged to support theatrical and television production for productioncinema exhibition, broadcast, and licensing services,home entertainment, including equipment training and maintenance, and support, mixing room alignment, equalization, as well as audio, color, and light image calibration. Services revenue also includes PCS for products sold and equipment installed at Dolby Cinema theaters operated by exhibitor partners and support for the implementation of our technologies into products manufactured by our licensees. Also included in services revenue are amounts generated through Dolby.io. Cost of services consists of personnel and personnel-related costs for providing our professional services, software maintenance and support, external consultants,contractors, and other direct expenses incurred on behalf of customers. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Change | | Fiscal Year-To-Date Ended | | | Change | | |
| Products and Services | March 29,
2024 | March 31,
2023 | | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | |
| Revenue | $26,283 | $24,283 | | $2,000 | 8% | | $48,090 | $51,193 | | | $(3,103) | (6)% | | | |
| Percentage of total revenue | 7% | 6% | | | | | 7% | 7% | | | | | | | |
| Cost of products and services | 23,459 | 19,684 | | 3,775 | 19% | | 39,783 | 40,775 | | | (992) | (2)% | | | |
| Gross margin | 2,824 | 4,599 | | (1,775) | (39)% | | 8,307 | 10,418 | | | (2,111) | (20)% | | | |
| Gross margin percentage | 11% | 19% | | | | | 17% | 20% | | | | | | | |
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| | Fiscal Quarter Ended | Change |
| Services | December 29,
2017 | December 30,
2016 | $ | % |
| Revenue | $4,848 | $5,357 | $(509) | (10)% |
| Percentage of total revenue | 2% | 2% | | |
| Cost of services | 4,582 | 4,126 | 456 | 11% |
| Gross margin | 266 | 1,231 | (965) | (78)% |
| Gross margin percentage | 5% | 23% | | |
Quarter-To-Date: Q1 2018Current Quarter: Q2 2024 vs. Q1 2017
| | | | | | | | | | | | | | |
| Factor | Products and Services Revenue | Gross Margin |
| Products | ßà | No significant fluctuations | â | Lower gross margin due to higher inventory reserve provision |
FactorServices | Revenueßà | Gross Margin |
Configuration & Post-ProductionNo significant fluctuations | âßà | Lower mastering services and decreased support and maintenance services | â | Lower utilization of available capacity |
Support & OtherNo significant fluctuations |
Year-To-Date: Q2 2024 vs. Q2 2023
| | | | | | | | | | | | | | |
| Factor | Products and Services Revenue | Gross Margin |
| Products | ßà | No significant fluctuations | ßà | No significant fluctuations |
| Services | ßà | No significant fluctuations | ßà | No significant fluctuations |
Operating Expenses
Research &and Development
R&D expenses consist primarily of employee compensation and benefits expenses, stock-based compensation, consulting and contract laborexternal contractor costs, depreciation and amortization, facilities costs, costs for outside materials, and services, and information technology expenses. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Change | | Fiscal Year-To-Date Ended | | | Change | | | | |
| | March 29,
2024 | March 31,
2023 | | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | | | | |
| Research and development | $62,493 | $67,951 | | $(5,458) | (8)% | | $129,526 | $132,401 | | | $(2,875) | (2)% | | | | | | |
| Percentage of total revenue | 17% | 18% | | | | | 19% | 19% | | | | | | | | | | |
Current Quarter: Q2 2024 vs. Q2 2023 | | | | | | | | |
| Category | Key Drivers |
| | |
| Legal, Professional, and Contractors | â | Lower costs of $1.6 million primarily due to lower contractor spend due in part to restructuring activities |
| Other | â | Lower bonus, stock-based compensation expense, and other miscellaneous expenses |
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| | Fiscal Quarter Ended | Change |
| | December 29,
2017 | December 30,
2016 | $ | % |
| Research and development | $56,444 | $57,518 | $(1,074) | (2)% |
| Percentage of total revenue | 20% | 22% | | |
Quarter-To-Date: Q1 2018Year-To-Date: Q2 2024 vs. Q1 2017
| | | | | | | | |
| Category | Key Drivers |
| Legal, Professional, and Contractors | â | Lower costs of $2.6 million primarily due to lower contractor spend due in part to restructuring activities |
| Category | Key Drivers
| Product Developmentâ | Lower costs related to various research projects and new product development |
Sales &and Marketing
S&M expenses consist primarily of employee compensation and benefits expenses, stock-based compensation, marketing and promotional expenses for events such as trade shows and conferences, marketing campaigns, travel-related expenses, consultingcontractor fees, facilities costs, depreciation and amortization, information technology expenses, and legal costs associated with the protection of our IP. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Change | | Fiscal Year-To-Date Ended | | | Change | | | | |
| | March 29,
2024 | March 31,
2023 | | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | | | | |
| Sales and marketing | $90,038 | $95,695 | | $(5,657) | (6)% | | $169,041 | $177,900 | | | $(8,859) | (5)% | | | | | | |
| Percentage of total revenue | 25% | 25% | | | | | 25% | 25% | | | | | | | | | | |
Current Quarter: Q2 2024vs. Q2 2023 | | | | | | | | |
| Category | Key Drivers |
| | |
| | |
| | |
| | |
| Compensation & Benefits | â | Lower costs of $2.9 million in payroll salaries due to lower headcount due to restructuring activities |
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| | Fiscal Quarter Ended | Change |
| | December 29,
2017 | December 30,
2016 | $ | % |
| Sales and marketing | $70,149 | $71,175 | $(1,026) | (1)% |
| Percentage of total revenue | 24% | 27% | | |
Quarter-To-Date: Q1 2018Year-To-Date: Q2 2024 vs. Q1 2017Q2 2023 | | | | | | | | |
| Category | Key Drivers |
| | |
| Marketing Programs | á | Higher costs of $3.4 million primarily due to marketing program spend |
| Category | |
| Compensation & Benefits | Key Driversâ | Lower costs of $4.3 million in payroll salaries due to lower headcount due to restructuring activities |
| Marketing Programs | á | Higher costs associated with selected marketing efforts
Stock-Based Compensation | â | Decrease in award grants |
Depreciation & Amortization | â | Lower amortization from assets that have been fully amortized |
General &and Administrative
G&A expenses consist primarily of employee compensation and benefits expenses, stock-based compensation, depreciation and amortization, facilities and information technology costs, as well as professional fees and other costs associated with external consulting and contract labor.contractors. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Change | | Fiscal Year-To-Date Ended | | | Change | | |
| | March 29,
2024 | March 31,
2023 | | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | |
| General and administrative | $66,742 | $61,939 | | $4,803 | 8% | | $131,908 | $121,911 | | | $9,997 | 8% | | | |
| Percentage of total revenue | 18% | 16% | | | | | 19% | 17% | | | | | | | |
Current Quarter: Q2 2024vs. Q2 2023 | | | | | | | | |
| Category | Key Drivers |
| | |
| | |
| | |
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| | |
| | |
| Credit Loss Expense | á | Higher costs of $1.7 million primarily due to benefit from provision for credit losses in prior year |
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| Legal, Professional, and Contractors | â | Lower costs of $1.7 million primarily due to lower legal fees associated with our MPEG LA acquisition in the prior year |
| Other | á | Higher systems, telecom, and computer equipment costs and higher payroll taxes and employee benefits due in part to the acquisition of MPEG LA |
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| | Fiscal Quarter Ended | Change |
| | December 29,
2017 | December 30,
2016 | $ | % |
| General and administrative | $48,285 | $41,540 | $6,745 | 16% |
| Percentage of total revenue | 17% | 16% | | |
Quarter-To-Date: Q1 2018Year-To-Date: Q2 2024 vs. Q1 2017Q2 2023 | | | | | | | | |
| Category | Key Drivers |
| Systems, Telecom & Computer Equipment | á | Higher costs of $2.2 million primarily driven by additional spend post-acquisition |
CategoryFringe benefits | Key Driversá | Higher costs of $1.8 million primarily due to increased headcount |
Stock-BasedStock-based Compensation | á | Higher costs of $1.6 million primarily due to increased fair value of award grantsRSUs |
Legal, Professional, & ConsultingMarketing | áâ | HigherLower costs associated with patent filings and other various legal activitiesof $1.6 million primarily due to timing of charitable contributions |
| Compensation & Benefits | á | Higher due to employee base mix
| Bad Debt | á | Higher charges recorded in the current period
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Restructuring Charges
Restructuring
Restructuring charges recorded as operating expenses in our statementunaudited interim condensed consolidated statements of operations represent costs associated with separate individual restructuring plans implemented in various fiscal periods. The extent of our costs arising as a result of these actions, including fluctuations in related balances between fiscal periods, is based on the nature of activities under the various plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Quarter Ended | | Change | | Fiscal Year-To-Date Ended | | | Change | | |
| March 29,
2024 | March 31,
2023 | | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | |
| Restructuring charges | $(2,495) | $33 | | $(2,528) | (7,661)% | | $3,596 | $(211) | | | $3,807 | (1,804)% | | | |
| Percentage of total revenue | (1)% | —% | | | | | 1% | 1% | | | | | | | |
NetIn September 2023, we initiated a restructuring chargesplan with the purpose of focusing our resources on our highest strategic priorities. In connection with this plan, we recorded an expense in the fiscal quarter ended December 29, 2017 were incurred in relation to our fiscal 2017 Restructuring Plan implemented during the fourth quarter of fiscal 2017, and represent costs to reduce certain activities2023 of $13.4 million in order to reallocate resources towards higher priority investment areas. These charges and credits primarily related to severance and other related benefits providedand an impairment loss of $16.9 million related primarily to employees thatinternally developed software for projects we are no longer pursuing. In continuation with this plan, we recorded an expense in the first quarter of fiscal 2024 of $7.4 million in severance and other related benefits. Cash payment of the severance and other termination benefits were affected assubstantially completed by the end of the second quarter of fiscal 2024. These activities are expected to result in estimated gross pre-tax operating income savings of approximately $40 million to $45 million within fiscal 2024. The impact of these estimated savings on our operating expenses will be mostly offset by increased investment in our strategic priorities and the effects of inflation on our remaining expenses.
In June 2023, we implemented a focused restructuring plan, primarily consisting of workforce reductions and facility consolidations to improve execution in alignment with our strategy and to reduce our cost structure through improved utilization of our global infrastructure. As a result of these events, we recorded expense in the third quarter of fiscal 2023 of $10.9 million in severance and other related benefits and expense of $6.9 million related to a facility consolidation in New York, NY. Actions and expenses related to this action.plan were substantially completed by the end of the second quarter of fiscal 2024. These activities are expected to result in estimated gross pre-tax operating income savings of approximately $20 million to $25 million within fiscal 2024. The impact of these estimated savings on our operating expenses will be mostly offset by increased investment in our strategic priorities and the effects of inflation on our remaining expenses.
We recorded a benefit of $2.5 million in the second quarter of fiscal 2024 primarily due to a true-up of estimated restructuring expenses.
For additional information on our Restructuring programs, see Note 13 "Restructuring" to our unaudited interim condensed consolidated financial statements.
Other Income/Expense
Other income/(expense)expense primarily consists of interest income earned on cash and investments and the net gains/(losses)gains or losses from foreign currency transactions, derivative instruments, our proportionate share of net income or losses from our equity method investment, and gains and losses on the sales of marketable securities from our investment portfolio.portfolio. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Change | | Fiscal Year-To-Date Ended | | | Change | | |
| March 29,
2024 | March 31,
2023 | | $ | % | | March 29,
2024 | March 31,
2023 | | | $ | % | | | |
| Other income | $12,780 | $8,057 | | $4,723 | 59% | | $27,392 | $13,951 | | | $13,441 | 96% | | | |
| Percentage of total revenue | 4% | 2% | | | | | 4% | 2% | | | | | | | |
Current Quarter: Q2 2024vs. Q2 2023 | | | | | | | | |
| Category | Key Drivers |
| Interest Income | á | Higher yields on higher invested cash balance |
| Other Income | á | Higher income from our equity method investment in the current year |
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| | Fiscal Quarter Ended | Change |
| Other Income/Expense | December 29,
2017 | December 30,
2016 | $ | % |
| Interest income | $3,781 | $1,814 | $1,967 | 108% |
| Interest expense | (35) | (26) | (9) | 35% |
| Other income/(expense), net | (1,152) | (199) | (953) | 479% |
| Total | $2,594 | $1,589 | $1,005 | 63% |
Quarter-To-Date: Q1 2018Year-To-Date: Q2 2024 vs. Q1 2017
| | | | | | | | |
| | |
| Category | Key Drivers |
| Other Income | á | Higher income from our equity method investment in the current year |
Category | Key Drivers |
| Interest Income | á | Increase due to higherHigher yields on our investment balances |
Other Income/(Expense) | â | Decrease in other expense primarily due to higher currency translation lossesinvested cash balance |
Income Taxes
Our effective tax rate is based on a projection of our annual fiscal year results and is affected each quarter-endperiod-end by several factors. These factors include changes in our projected fiscal year results, and recurring items such as tax rates and relative income earned in our foreign jurisdictions, as well as discrete items such as the impact of the Tax Act and changes to our uncertainunrecognized tax positionsbenefits that may occur in but are not necessarily consistent between periods. For additional information related to effective tax rates, see Note 10 “12 "Income Taxes”Taxes" to our unaudited interim condensed consolidated financial statements. | | | | | | | | | | | | | | | | | | |
| | Fiscal Quarter Ended | | Fiscal Year-To-Date Ended | |
| | March 29,
2024 | March 31,
2023 | | March 29,
2024 | March 31,
2023 | |
| Provision for income taxes | $(23,534) | $(21,398) | | $(36,786) | $(41,932) | |
| Effective tax rate | 19.3% | 18.2% | | 18.2% | 19.3% | |
|
| | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Provision for income taxes | $(166,312) | $(14,082) |
| Effective tax rate | 196.0% | 20.8% |
Quarter-To-Date: Q1 2018Current Quarter: Q2 2024vs. Q1 2017Q2 2023 | | | | | | | | |
| Factor | | |
Factor | Impact On Effective Tax Rate |
| | |
| | |
| Stock-based Compensation | á | Lower benefit related to the settlement of stock-based awards |
Year-To-Date: Q2 2024 vs. Q2 2023
| | | | | | | | |
| Factor | Impact On Effective Tax Act | á | Higher tax provision for deemed repatriation and write-down of deferred tax assetsRate |
| Stock-Based | |
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| Stock-based Compensation | â | Higher benefit related to the settlement of stock-based awards |
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
Our principal sources of liquidity are cash, cash equivalents, and investments, as well as cash flows from operations. We believe that these sources will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve months.
As of DecemberMarch 29, 2017,2024, we had cash and cash equivalents of $596.4$709.5 million, which mainly consisted of cash and highly-liquid money market funds, corporate bonds, and municipal debt securities.funds. In addition, we had short and long-term investments of $556.1$243.8 million, which primarily consisted primarily of corporate bonds, government bonds, municipal debt securities, certificates of deposit, government bonds, commercial paper, corporate bonds, and U.S. agency securities.
As a result of the Tax Act, we recognized a liability for taxes due on deemed repatriation of unremitted earnings of foreign subsidiaries in our first quarter of fiscal 2018. We are currently evaluating our existing policy to indefinitely reinvest a portion of our undistributed earnings in certain foreign subsidiaries to support the operations and growth of these subsidiaries. Of our total cash, cash equivalents, and investments held as of December 29, 2017, approximately $815 million, or 71%, was held by our foreign subsidiaries. This represented a $15 million decrease from the approximately $830 million that was held by our foreign subsidiaries as of September 29, 2017.
The following table presents selected financial information as of DecemberMarch 29, 20172024 and September 29, 2017 (amounts displayed are in2023 (in thousands):
|
| | | | | | |
| | December 29,
2017 | September 29,
2017 |
| Cash and cash equivalents | $ | 596,390 |
| $ | 627,017 |
|
| Short-term investments | 252,607 |
| 247,757 |
|
| Long-term investments | 303,501 |
| 314,364 |
|
| Accounts receivable, net | 122,917 |
| 73,750 |
|
| Accounts payable and accrued liabilities | 192,827 |
| 221,407 |
|
| Working capital | 812,329 |
| 765,661 |
|
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| March 29,
2024 | | September 29,
2023 |
| Cash and cash equivalents | $ | 709,535 | | | $ | 745,364 | |
| Short-term investments | 115,863 | | | 139,148 | |
| Long-term investments | 127,973 | | | 97,812 | |
| Accounts receivable, net | 282,131 | | | 262,245 | |
| Accounts payable and accrued liabilities | 382,610 | | | 372,324 | |
| Working capital | 1,108,836 | | | 1,065,578 | |
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Capital Expenditures and Uses of Capital
Our capital expenditures consist of purchases of land, building, building fixtures, laboratory equipment, office equipment, computer hardware and software, leasehold improvements, and production and test equipment. IncludedAdditionally, included in capital expenditures are amounts associated with Dolby Cinema locations. We continue to invest in S&M and R&D that contribute to promote the overall growth of our business and technological innovation.
We retain sufficient cash holdings to support our operations and we also purchase investment gradeinvestment-grade securities diversified among security types, industries, and issuers. We have used cash generated from our operations to fund a variety of activities related to our business in addition to our ongoing operations, including business expansion and growth, acquisitions, and repurchases of our Class A common stock. We have historically generated significant cash from operations, howeveroperations. However, these cash flows and the value of our investment portfolio could be affected by various risks and uncertainties, as described in Part II, Item 1A "Risk Factors."
Shareholder Return
We have returned cash to stockholders through both repurchases of Class A common stock under our repurchase program initiated in fiscal 2010 and our quarterly dividend program initiated in fiscal 2015. Refer to Note 79 "Stockholders' Equity &and Stock-Based Compensation" to our unaudited interim condensed consolidated financial statements for a summary of dividend payments made under the program during fiscal 20182024 and additional information regarding our stock repurchase program.
Stock Repurchase Program. Our stock repurchase program was approved in fiscal 2010, and since then we have completed approximately $1.2$2.8 billion of stock repurchases.repurchases under the program.
The Inflation Reduction Act and CHIPS and Science Act were signed into law in August 2022. The Inflation Reduction Act introduced a one percent non-deductible excise tax on certain public company stock buybacks made after December 31, 2022. We do not currently expect the excise tax to have a material impact on our results of operations or financial position, and its ongoing impact will be dependent on the extent of our future net stock repurchase activities.
Quarterly Dividend Program. During the first quarter of fiscal 2015, we initiated a recurring quarterly cash dividend program for our stockholders. UnderIn the program, currentsecond quarter of fiscal 2024, a quarterly dividendsdividend of $0.16$0.30 per share arewas paid on our Class A and Class B common stock to eligible stockholders of record for each respective dividend record date.
record.
Cash Flows Analysis
For the following comparative analysis performed for each of the sections of the unaudited interim condensed consolidated statement of cash flows, the significant factors identified as the leading drivers contributing to the fluctuation are presented in descending order of their impact relative to the overall change (amounts displayed in thousands, except as otherwise noted)(in thousands).
Operating Activities | | | | | | | | | | | |
| Fiscal Year-To-Date Ended |
| March 29,
2024 | | March 31,
2023 |
| Net cash provided by operating activities | $ | 189,818 | | | $ | 160,937 | |
|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Net cash provided by operating activities | $ | 17,149 |
| $ | 70,723 |
|
Net cash provided by operating activities decreased $53.6increased $28.9 million in the fiscal quarter-to-dateyear-to-date period ended DecemberMarch 29, 20172024 as compared to the fiscal quarter-to-dateyear-to-date period ended December 30, 2016,March 31, 2023, primarily due to the following:
| | | | | | | | |
| Factor | | |
Factor | Impact On Cash Flows |
Income Taxes, NetOperating assets and liabilities | á | Higher long term tax liabilities due to impact of the Tax Act |
Net Income/(Loss) | â | Net loss in Q1 fiscal 2018 due to impact of the Tax Act |
Working Capital | â | Lower inflows due to increase inlower contract assets, prepaid expenses and other assets, and accounts receivable, partially offset by lower account payable and decrease in accrued liabilities |
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Investing Activities | | | | | | | | | | | |
| Fiscal Year-To-Date Ended |
| March 29,
2024 | | March 31,
2023 |
| Net cash provided by (used in) investing activities | $ | (17,240) | | | $ | 51,886 | |
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|
| | | | | | |
| | Fiscal Quarter Ended |
| | December 29,
2017 | December 30,
2016 |
| Net cash used in investing activities | $ | (27,372 | ) | $ | (26,653 | ) |
| Capital expenditures | (19,275 | ) | (22,576 | ) |
Net cash used inprovided by (used in) investing activities was $0.7$69.1 million higherlower in the fiscal quarter-to-dateyear-to-date period ended DecemberMarch 29, 20172024 as compared to the fiscal quarter-to-dateyear-to-date period ended December 30, 2016,March 31, 2023, primarily due to the following:
| | | | | | | | |
| Factor | | |
Factor | Impact On Cash Flows |
| | |
| | |
Proceeds Fromfrom Investments | áâ | HigherLower inflows from the sale &and maturity of marketable investment securities |
Purchase Ofof Investments | â | Higher outflows for the purchase of marketable investment securities |
| Acquisition Of Intangible Assets | â | Higher outflows for the purchase of patent portfolios
| Capital Expenditures | á | Lower expenditures for PP&E
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Financing Activities | | | | | | | | | | | |
| Fiscal Year-To-Date Ended |
| March 29,
2024 | | March 31,
2023 |
| Net cash used in financing activities | $ | (169,301) | | | $ | (157,189) | |
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|
| | | | | | |
| | Fiscal Year-To-Date Ended |
| | December 29,
2017 | December 30,
2016 |
| Net cash used in financing activities | $ | (21,274 | ) | $ | (41,976 | ) |
| Repurchase of common stock | (29,993 | ) | (25,001 | ) |
Net cash used in financing activities was $20.7$12.1 million lowerhigher in the fiscal quarter-to-dateyear-to-date period ended DecemberMarch 29, 20172024 as compared to the fiscal quarter-to-dateyear-to-date period ended December 30, 2016,March 31, 2023, primarily due to the following: | | | | | | | | |
| Factor | | |
Factor | Impact On Cash Flows |
| Shares Repurchased for Tax Withholdings | â | Higher outflows due to higher common stock repurchases |
Common Stock IssuanceIssuances | á | Higher cash inflows from increased employee stock option exercises and shares issued under our ESPP |
| Share Repurchases | â | Higher outflows from increases indue to higher common stock repurchases in the current year |
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| Dividend Payments | â | Higher outflows for the payment of our quarterly cash dividend to common stockholders primarily as a result of a $0.03 per share increase compared to the prior fiscal year |
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Off-Balance Sheet ArrangementsContractual Obligations and Contractual ObligationsCommitments
Our liquidity is not dependent upon the use of off-balance sheet financing arrangements, and we have not entered into any arrangements that are expected to have a material effect on liquidity or the availability of capital resources. Since the end of our most recent fiscal year ended September 29, 2017,2023, there have been no material
changes in either our off-balance sheet financing arrangements or contractual obligations outside the ordinary course of business. For additional details regarding our contractual obligations, see Note 13 “7 "Leases" and Note 15 "Commitments & Contingencies”and Contingencies" to our unaudited interim condensed consolidated financial statements.
In the second quarter of fiscal 2024, we did not enter into any off-balance sheet arrangements that are expected to have a material effect on Dolby's liquidity or the availability of capital resources.
Indemnification Clauses
We are party to certain contractual agreements under which we have agreed to provide indemnification of varying scope and duration to the other party relating to our licensed IP. Historically, we have not made any payments for these indemnification obligations and no amounts have been accrued in our consolidated financial statements with respect to these obligations. Since the terms and conditions of the indemnification clauses do not explicitly specify our obligations, we are unable to reasonably estimate the maximum potential exposure for which we could be liable. In addition, we have entered into indemnification agreements with our officers, directors, and certain employees, and our certificate of incorporation and bylaws contain similar indemnification obligations. For additional details regarding indemnification clauses within our contractual agreements, see Note 1315 “Commitments &and Contingencies” to our unaudited interim condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
As of DecemberMarch 29, 2017,2024, we had cash and cash equivalents of $596.4$709.5 million, which consisted of cash and highly liquidhighly-liquid money market funds. In addition, we had both short and long-term investments of $556.1$243.8 million, which consisted primarily of corporate bonds, government bonds, municipal debt securities, certificates of deposit, government bonds, commercial paper, corporate bonds, and U.S. agency securities. Our investment policy is focused on the preservation of capital and support for our liquidity requirements. Under the policy, we invest in highly rated securities with a minimum credit rating of A- while limiting the amount of credit exposure to any one issuer other than the U.S. government. At DecemberAs of March 29, 2017,2024, the weighted-average credit quality of our investment portfolio was AA,AA-, with a weighted-average maturity of approximately fourteenthirteen months. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy.
The investments within our fixed-income portfolio are subject to fluctuations in interest rates, which could affect our financial position, and to a lesser extent, results of operations. Based on our investment portfolio balance as of DecemberMarch 29, 2017,2024, hypothetical changes in interest rates of 1% and 0.5% would have an impact on the carrying value of our portfolio of approximately $5.4$2.2 million and $2.7$1.1 million, respectively.
Foreign Currency Exchange Risk
We maintain business operations in foreign countries, most significantly in Australia, China, Germany, the Netherlands,Ireland, Poland, and the United Kingdom.Kingdom ("U.K."). Additionally, a growing portion of our business is conducted outside of the U.S. through subsidiaries with functional currencies other than the U.S. dollar, most notably:
•Australian Dollar
•British Pound
•Chinese Yuan
•Euro
Indian Rupee
Japanese Yen
Korean Won
•Polish Zloty
Russian Ruble
Singapore Dollar
Swedish Krona
As a result, we face exposure to adverse movements in currency exchange rates as the financial results of our international operations are translated from local currency into U.S. dollars upon consolidation. The majority of our revenue generated from international markets is denominated in U.S. dollars, while the operating expenses of our foreign subsidiaries are predominantly denominated in local currencies. Therefore, our operating expenses will increase when the U.S. dollar weakens against the local currency and decrease when the U.S. dollar strengthens against the local currency. Additionally, foreign exchange rate fluctuations on transactions denominated in currencies other than the functional currency result in gains or losses that are reflected in our unaudited interim condensed consolidated statements of operations. Our foreign operations are subject to the same risks present when conducting business internationally, including, but not limited to, differingchanges in economic conditions changes in politicaland geopolitical climate, differing tax structures, foreign exchange rate volatility and other regulations and restrictions.
In an effortWe also enter into forward currency contracts exclusively designated as cash flow hedges, which have a maturity of thirteen months or less, to reduce the risk that ourimpact of currency volatility on U.S. dollar operating expenses. The gains and losses from the effective portions of cash flow hedges are recorded at fair value as a component of AOCI, until the hedged item is subsequently reclassified into earnings will be adversely affected by foreign currency exchange rate fluctuations, wein the same period in which the hedged transaction affects earnings, with the corresponding hedged item. Amounts reclassified are recorded to the same line item in the unaudited interim condensed consolidated statements of operations as the impact of the hedge transaction, concurrently with the hedged costs.
The pre-tax gains or losses attributed to the effective portion of cash flow hedges recognized in AOCI was a $2.4 million loss in the second quarter of fiscal 2024 and was not material in the fiscal year-to-date period ended March 29, 2024. The pre-tax gains attributed to the effective portion of cash flow hedges recognized in AOCI was not material in the second quarter of fiscal 2023 and was $5.6 million in the fiscal year-to-date period ended March 31, 2023.
The pre-tax effective portion of the gains or losses reclassified to the unaudited interim condensed consolidated statements of operations was not material in the second quarter of fiscal 2024 and was a $1.0 million gain in the fiscal
year-to-date period ended March 29, 2024, and was not material in the second quarter of fiscal 2023 and in the fiscal year-to-date period ended March 31, 2023.
We also enter into foreign currency forward contracts to hedge against assets and liabilities for which we have foreign currency exchange rate exposure. These derivative instrumentsexposure and selected anticipated expenses. The contracts hedging receivables and payables are carried at fair value with changes in the fair value recorded to other income,income/(expense), net, in our unaudited interim condensed consolidated statements of operations. While not designated asThe contracts hedging instruments, these foreign currency forward contractsdenominated operating expenses are usedcarried at fair value with changes in the fair value recorded to reduceother comprehensive income until the exchange rate risk associated primarily with intercompany receivables and payables. These contracts do not subject us to material balance sheet risk due to exchange rate movements as gains and losses on these derivativeshedged expenses are intended to offset gains and losses on the related receivables and payables for which we have foreign currency exchange rate exposure. reported in our unaudited interim condensed consolidated statements of operations.
As of DecemberMarch 29, 20172024 and September 29, 2017,2023, the outstanding derivative instruments had maturities of equal to or less than 31 and 31 days, respectively,12 months, and the total notional amounts of outstanding contracts were $28.9$124.1 million and
$24.5 $134.8 million, respectively. The fair values of these contracts were nominal as of December 29, 2017and September 29, 2017, and were included within prepaid expenses and other current assets and within accrued liabilities in our consolidated balance sheets. For additional information related to our foreign currency forward contracts, see Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements.
A sensitivity analysis was performed on all of our foreign currency forward contracts as of DecemberMarch 29, 2017.2024. This sensitivity analysis was based on a modeling technique that measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S. dollar. For these forward contracts, duration modeling was used where hypothetical changes arewere made to the spot rates of the currency. A 10% increase in the value of the U.S. dollar would lead to an increasea decrease in the fair value of our financial instruments by $1.8$2.1 million. Conversely, a 10% decrease in the value of the U.S. dollar would result in a decreasean increase in the fair value of these financial instruments by $1.8$2.1 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure"disclosure controls and procedures,”" as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, (“as amended ("Exchange Act”Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Subject to the limitations noted above, our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the CEO and CFO have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objective for which they were designed and operate at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended Decemberending March 29, 20172024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Additionally, as disclosed in our fiscal 2023 Annual Report on Form 10-K filed with the SEC, the Company acquired MPEG LA during fiscal 2023. We are in the process of integrating MPEG LA into the Company's overall internal control over financial reporting framework.
PART II -– OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings from time to time arising fromthat occasionally arise in the normal course of business activities, including claims of alleged infringement of IP rights, commercial, employment, and other matters. In our opinion, resolution of these pending mattersproceedings is not expected to have a material adverse impact on our operating results or financial condition. Given the unpredictable nature of legal proceedings, it is possible that an unfavorable resolution of one or more such proceedings could materially affect our future operating results or financial condition in a particular period; however, based on the information known by us as of the date of this filing and the rules and regulations applicable to the preparation of our unaudited interim condensed consolidated financial statements, any such amounts are either immaterial, or it is not possible to provide an estimatedprobable that a potential loss has been incurred or the amount of any such potential losses.loss cannot be reasonably estimated.
ITEM 1A.RISK FACTORS
The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem less significant may also affect our business operations or financial results. If any of the following risks actually occur, our stock price, business, operating results and financial condition could be materially adversely affected.
REVENUE GENERATION
Markets We Target
Dependence on SalesChanging trends in content distribution and consumption may negatively impact our business. Changing trends in the way that content is distributed and consumed may impact our existing business and future opportunities for growth. One such trend is the shift by Licensees.Ourconsumers in certain markets away from subscription-based cable and satellite television providers toward streaming services, commonly referred to as "cord-cutting." While cable and satellite television often require a STB, today consumers can also access streaming media through smart TVs or DMA devices. As consumers trend toward canceling subscriptions to these traditional cable and satellite providers and turn to streaming media, we expect demand for STBs in certain regions to continue to decline. If we are unable to derive additional revenue from the smart TV and DMA markets to make up for decreases in our STB-related revenue, our financial results may be negatively impacted. Other changes to the way content is distributed and consumed may impact our licensing businesses depend on OEMs and other licensees to incorporate our technologies into their products. Our license agreements generally do not have minimum purchase commitments, are typically non-exclusive, and frequently do not require incorporation or use of our technologies. Our revenue will decline if our licensees choose not to incorporate our technologies into their products or if they sell fewer products incorporating our technologies.
Impact of PC Sales.Revenue from our PC market depends on several factors, including underlying PC unit shipment growth, the extent to which our technologies are included on computers, through operating systems or otherwise, and the terms of any royalties or other payments we receive. We face challenges in the PC market, including:
Purchasing trends away from traditional PCs and toward computing devices without optical disc drives, such as mobile devices, which trends we expect to continue;
Because PC OEMs are required to pay us a higher per-unit royalty for Windows PCs that include optical disc playback functionality than Windows PCs that do not include such functionality, the continued decreasing inclusion of optical disc drives in Windows PCs will result in lower per-unit royalties;
PC software that includes our technologies on an unauthorized and infringing basis, for which we receive no royalty payments; and
Continued decreasing inclusion of independent software vendor media applications by PC OEMs.
Declines in Optical Disc Media.For many years, movies have been distributed, purchased, and consumed through optical disc media, such as DVD and Blu-ray Disc. However, the rapid advancement of online and mobile content delivery has resultedbusinesses in a trend toward movie downloadingsimilar fashion, and streaming services. We expect the shift away from optical disc mediawe may not be able to online media content consumptionanticipate and respond effectively to continue, resultingsuch future changes.
The mobile device market is concentrated and susceptible to competition and rapid change, which may negatively affect our penetration and pricing in decreased revenue from DVD and Blu-ray Disc players.
Mobile Industry Risksthat market.Successful penetration of the mobile device market is important to our future growth. The mobile device market, particularly smartphones and tablets, is characterized by rapidly changing market conditions, frequent product introductions and intense competition based on features and price. Our technologies usually are not mandated as an industry standard for mobile devices. We must continually convince mobile device OEMs and end users of mobile devices of the value of our technologies. With shorter product lifecycles, it is easier for mobile device OEMs to add or remove our technologies from mobile devices than it is for TV OEMs and other hardware OEMs. In addition, because the mobile industry is concentrated, we rely on a small number of partnerships with key participants in the mobile market. If we are unable to maintain these key relationships, we may experience a decline in mobile devices incorporating our technologies.
In order to increase the value of our technologies in the mobile market and increase OEM and software vendor demand for our decoding technologies, we have worked with online and mobile media content service providers to encode their content with our technologies, which could affect OEM and software vendor demand for our decoding technologies. However, the online and mobile media content services markets are
also characterized by intense competition, evolving industry standards and business and distribution models, disruptive software and hardware technology developments, frequent product and service introductions and short life cycles, and price sensitivity on the part of consumers, all of which may result in downward pressure on pricing or the removal of our technologies by these providers.providers and may result in decreased revenue from our mobile market. Further, macroeconomic conditions such as inflation, geopolitical instability, global health risks, and other factors may adversely impact the ability of our partners to manufacture and distribute mobile devices and consumer demand for mobile devices.
Our revenue from the PC market is reliant on key partnerships and is vulnerable to macroeconomic risks. Our revenue from the PC market depends on several factors, including underlying PC unit shipments, the extent to which our technologies are included on computers, including through operating systems and various subsystems, and the terms of any royalties or other payments we receive. Further, we rely on a small number of partnerships with key participants in the PC market. If we are unable to maintain these key relationships, we may experience a decline in PCs incorporating our technologies. Further, demand for PCs has recently been declining and it remains uncertain when, if, and to what extent PC demand will return to historic levels. Macroeconomic conditions may also adversely impact PC manufacturing, supply chain and distribution, the timing of the adoption of our technologies into products by partners and licensees, and the timing of launches for new products.
The success of Dolby Cinema Industry Risks.and cinema product sales are subject to a number of factors beyond our control, such as the production of films in Dolby formats and broader cinema industry conditions.Revenue from Dolby Cinema and cinema product sales is subject to our ability to develop and implement new technologies, the pace of construction or upgrade of screens, the financial stability of exhibitors, the advent of new or competing technologies, and the willingness of movie studios to produce films in our Dolby Atmos and Dolby Vision formats, consumer trends, box-office performance generally, and other events or conditions in the cinema industry.formats. Although we have invested and expect to continue to invest, a substantial amount of time and resources developing Dolby Cinema, and building ourexpect to continue to invest and build partnerships in connection with the launch of Dolby Cinema locations, this is a relatively new market for us and we may not continue to recognize a meaningful amount of revenue from these efforts in the near future, or at all, if new Dolby Cinema locations are not ultimately successful, or if there is a decrease in the performance of our existing locations.future. Additionally, we have collaborationscollaborate with multiple exhibitors in foreign markets, including ChinaAsia, Europe, and the Middle East, and we may face a number of risks in expanding Dolby Cinema in these and other new international markets. The revenue we receive from Dolby Cinema exhibitors areis based on a portion of box-office receipts from the installed theaters, and the timing of such theater installations is dependent upon a number of factors beyond our control. In addition, the success of our Dolby Cinema offering will be tied to the pipeline and success of motion pictures available at Dolby Cinema locations generally. The success of Dolby Cinema and cinema products depends in large part on our ability to differentiate our offering, deploy new sites and installations in accordance with plans, provide a compelling experience, and attract and retain a viewing audience. In addition, aA decrease in our ability to develop and introduce new cinema products and services successfully could affect licensing of our consumer technologies, because the strength of our brand and our ability to useleverage professional product developments to introduce new consumer technologies wouldcould be negatively impacted. To the extent that we do not make progress in these areas or are faced with pricing pressures or competing technologies, our revenue may be adversely impacted.
Our revenue and associated demand fromfor Dolby Cinema and cinema product sales is dependent uponproducts are affected by cinema industry and economic cycles, along with ourmacroeconomic conditions, which are subject to risks including consumer trends and box office performance generally, delays in cinematic releases, the seasonality of film releases and associated moviegoing attendance, and other events or conditions in the cinema industry. Cinema attendance and revenues have been reduced in the wake of COVID-19 and it remains uncertain when, if, and to what extent cinema attendance will return to pre-pandemic levels. Additionally, the strikes by the Writers Guild of America and SAG-AFTRA in 2023 effectively halted the production, release and promotion of certain films for an extended period. The resulting impacts of those stoppages have resulted in, and may continue to lead to, decreased box office receipts in the near term, which directly impacts the revenue generated by Dolby Cinema theaters and could potentially impact exhibitors’ willingness and ability to developinvest in Dolby cinema products. Also, a portion of our opportunity lies in the China market, which is subject to unique economic and introduce new technologies, further our relationships with content creators, and promote new cinematic audio and imaging experiences.geopolitical risks. Furthermore, future growth of our cinema products businessofferings also depends upon new theater construction and entering into an equipment replacement cycle whereby previously purchased cinema products are upgraded or replaced. To the extent that we do not make progress in these areas, or are faced with pricing pressures, competing technologies, or other globalsuch cinema industry and macroeconomic challenges constrain the growth of our Dolby Cinema and cinema products offerings, our revenue may be adversely impacted.
Customers and Distributors
LossOur licensing business depends on the incorporation of Key Licenseeour technologies into products and the sales of such products, which are, in large part, not within our control. Our licensing businesses depend on OEMs and other licensees to incorporate our technologies into their products. Our license agreements generally do not have minimum purchase commitments, are typically non-exclusive, and frequently do not mandate incorporation or Customeruse of our technologies. Our revenue will decline if our licensees choose not to incorporate our technologies into their products or if they sell fewer products incorporating our technologies.
The loss of a key licensee or customer may materially impact our revenue.A small number of our licensees or other customers may represent a significant percentage of our licensing, products, or services revenue. Although we generally have agreements with these licensees or customers, these agreements typically do not require any minimum purchases or minimum royalty fees and do not prohibit licensees from using competing technologies or customers from purchasing products and services from competitors. Customer demand for our technologies and products can shift quickly as many of our markets are rapidly evolving. As a result of our increased presence acrossIn consumer electronic device markets, where our technologies are not mandated and are subject to significant competition, theso there is a risk that a large consumer electronic device licensee may reduce or eliminate its use of our technologies has increased.technologies.
RelianceOur licensing business depends, in part, on Semiconductor Manufacturerssemiconductor manufacturers and the availability of semiconductor components.Our licensing revenue from OEM system licensees depends in large part upon the availability of ICs that implement our technologies. IC manufacturers incorporate our technologies into these ICs, which are then incorporated in consumer entertainment products. We do not manufacture these ICs, but rather depend on IC manufacturers to develop, produce, and then sell them to system licensees in accordance with their agreements. We do not control the IC manufacturers’ decisions on whether or not to incorporate our technologies into their ICs, and we do not control their product development or commercialization efforts. Further, demand levels may result in shortages of semiconductor components and other key materials that may adversely impact the ability of our implementation and system licensees and other customers to meet product demand in a timely fashion.
Consumer Spending Weaknessspending weakness may impact our licensees and licensing revenues generally.Weakness in general economic conditions due to inflation, elevated interest rates, lower consumer confidence, a potential recession, pandemic or other adverse economic conditions, may suppress consumer demand in our markets.markets and consumers going to the movies. Many of the products in which our technologies are incorporated are discretionary goods, such as PCs, TVs, STBs, Blu-ray Disc players, video game consoles, AVRs, mobile devices, in-car entertainment systems, and home-theater systems. Weaknesssystems, which makes revenue generated by such technologies vulnerable to weakness in general economic conditionsconsumer spending. Prolonged weakness in consumer spending may also lead to licensees and other customers becoming delinquent on their obligations to us or being unable to pay, resulting in a higher level of write-offs. Economic conditionsWeakness in consumer spending may also increase underreporting and non-reporting of royalty-bearing revenue by our licensees as well as increase the unauthorized use of our technologies.
RelianceOur reliance on Distributors.distributors may impact sales of certain products and present compliance risks. We rely significantly on a global network of independent, regional distributors to market and distribute our cinema and broadcast products. Our distributor arrangements are non-exclusive and our
distributors are not obligated to buy our products and can represent competing products, andproducts. Thus, they may be unwilling or unable to dedicate the resources necessary to promote our portfolio of products. Our distributors could retain product channel inventory levels that exceed future anticipated sales, which could affect our future sales to those distributors. In addition, failure of our distributors to adhere to our policies designed to promote compliance with global anticorruption laws, export controls, and local laws, could subject us to criminal or civil penalties and stockholder litigation.
Marketing and Branding
Importance of Brand Strength.If we fail to promote and maintain the Dolby brand, our business will suffer. Maintaining and strengthening the Dolby brand is critical to maintaining and expanding our licensing, products, and services business, as well as our ability to offer technologies for new markets, including Dolby Voice for the communications market, Dolby Cinema, Dolby Vision and other imaging offerings for the consumer market,Dolby.io, and others. Our continued success depends on our reputation for providing high quality technologies, products, and services across a wide range of entertainment markets, including the consumer entertainment,electronics, PC, broadcast, and gaming markets. If we fail to promote and maintain the Dolby brand successfully in licensing, products or services, our business will suffer. Furthermore, we believe that the strength of our brand may affect the likelihood that our technologies are adopted as industry standards in various markets and for various applications. Our ability to maintain and strengthen our brand will depend heavily on our ability to develop innovative technologies for the entertainment industry, to enter into new markets successfully, and to provide high quality products and services in these new markets. In addition, our practices and public disclosures related to environmental, social and governance (ESG) matters could impact our brand and reputation. If our ESG practices do not meet evolving investor or other stakeholder expectations and societal and regulatory standards, or if we are
unable to make progress on or achieve our goals and objectives in this area, then our reputation, our ability to attract or retain employees, and our attractiveness as an investment or business partner could be negatively impacted, which could adversely affect our operating results.
Industry Standards
Certain parts of our business are dependent on the inclusion of our technologies in industry standards, the adoption and development of which are not fully within our control. Standards-setting organizations establish technology standards for use in a wide range of products and solutions. The entertainment industry dependsin particular has historically depended upon industry standards to ensure compatibility and interoperability across delivery platforms and a wide variety of consumer entertainment products. We make significant efforts to design our products and technologies to address capability, quality, and cost considerations so that they either meet or, more importantly, are adopted as industry standards across the broad range of entertainment industry markets in which we participate, as well as the markets in which we hopeplan to compete in the future. ToWe are also active in standards development where many contributing members work together to come up with next-generation technology standards in media, entertainment, and communications technologies. Nonetheless, it can be difficult to have our productstechnologies and technologiesproducts adopted as industry standards,standards.To do so, we must convince a broad spectrum of standards-setting organizations throughout the world, as well as our major customers and licensees who are members of such organizations, to adopt them as such. The market for broadcast technologies has traditionally been heavily based on industry standards, often mandated by governments choosing from among alternative standards, and we expect this to continue to be the case in the future.
Difficulty Becoming Incorporated in an Industry Standard.Standards-setting organizations establish technology standards for use in a wide range of consumer entertainment products. It can be difficult for companies to have their technologies adopted as an industry standard, as multipleMultiple companies, including ones that typically compete against one another, are involved in the development of new technology standards for use in entertainment-orientedconsumer products. Furthermore, some standards-setting organizations choose to adopt a set of optional standards or a combination of mandatory and optional standards; in such cases, our technologies may be adopted only as an optional standard and not a mandatory standard. Standards may also change in ways that are unfavorable to Dolby.
The market for broadcast technologies in particular has traditionally been heavily based on industry standards, in some cases mandated by governments choosing from among alternative standards, and we expect this to continue to be the case in the future. The continued advancement of OTT media delivery and consumption is altering the landscape for broadcast standards and impacting the importance of the inclusion of our technology in certain broadcast standards, and we cannot predict if and to what extent this may impact our revenue.
Participants May Choose Among Alternative Technologiesmay choose alternative technologies within Standardsstandards.Even when a standards-setting organization incorporates our technologies in an industry standard for a particular market or geographic region, our technologies may not be the sole technologies adopted for that market. Furthermore, different standards may be adopted forwithin a single market or region, and across different markets. and regions. Our operating results depend upon participants in that market choosing to adopt our technologies instead of competitive technologies that also may be acceptable under such standard. For example, the continued growth of our revenue from the broadcast market will depend upon both the continued global adoption of digital televisionDTV generally, including in emerging markets, and the choice to use our technologies where it is one of several accepted industry standards.
Being Partpart of a Standard May Limit Our LicensingPracticesstandard may limit our licensing practices.When a standards-setting organization mandates our technologies, we generally must agree to license such technologies on a fair, reasonable, and non-discriminatory basis, which could limit our control over the use of these technologies. In these situations, we must often limit the royalty rates we charge for these technologies, and we may be unable to limit to whom we license such technologies or to restrict many terms of the license. We have in the past, and may in the future, be subject to claims that our licensing of industry standard technologies may not conform to the requirements of the standards-setting organization. Allegations such as these could be asserted in private actions seeking monetary damages and injunctive relief, or in regulatory actions. Claimants in such cases could seek to restrict or change our licensing practices or our ability to license our technologies.
Additionally, where our technologies are incorporated into a standard, our licensing practices may become subject to additional regulatory requirements. For example, the European Union (EU) legislature is considering regulation that would impose a number of requirements on standard essential patent (SEP) licensing practices in the EU. Such regulation could, if it comes into effect, impose additional costs and disclosure requirements on our SEP licensing business and potentially reduce associated revenue.
Royalty Reporting
Reporting practices and uncertainty may result in fluctuations in our royalty revenue from period to period.
Our operating results fluctuate based on the risks set forth in this section, as well as, among other factors, on:
Timing of royalty reports from our licensees and meeting revenue recognition criteria;
•Royalty reports including positive or negative corrective adjustments;
•Retroactive royalties that cover extended periods of time; and
•Timing of revenue recognition under licensing agreements and other contractual arrangements, including recognition of unusually large amounts of revenue in any given quarter because not allquarter.
We recognize a material portion of our licensing revenue based on our estimate of shipments to which we expect our licensees to submit royalty statements. Upon receipt of actual reporting of sales-based royalties that we estimated previously, we record a favorable or unfavorable adjustment based on the difference, if any, between estimated and actual sales. Additionally, our results of operations could be impacted to the extent that we are required to accelerate recognition criteria were metof revenue under certain arrangements, potentially causing the amount of revenue we recognize to vary materially from quarter to quarter. While our reporting practices do not change the cash flows or total revenue we ultimately receive from our contracts with customers, they could result in prior periods.changes to the timing of our reported revenue and income, which in turn could cause volatility in the price of our Class A common stock.
Inaccurate Licensee Royalty Reportingreporting by our licensees may be inaccurate or understated.We generate licensing revenue primarily from OEMs who license our technologies and incorporate those technologies into their products. Our license agreements generally obligate our licensees to pay us a specified royalty for every product they ship that incorporates our technologies, and we rely on our licensees to report their shipments accurately. However, we have difficultyit is inherently difficult to independently determiningdetermine whether our licensees are reporting shipments accurately, particularly with respect to software incorporating our technologies because unauthorized copies of such software can be made relatively easily. A third party may disagree with our interpretation of the terms of a license agreement or, as a result of an audit, a third party could challenge the accuracy of our calculation. We are regularly involved in discussions with third party technology licensees regarding license terms. Most of our license agreements permit us to audit our licensees’ records, and we routinely exercise these rights, buttypically by using an independent third party auditor. Such audits are generally expensive, time-consuming, and potentially detrimental to our ongoing business relationships with our licensees. In the past, licensees have understated or failed to report the number of products incorporating our technologies that they shipped, and we have not been able to collect and recognize revenue to which we were entitled. We expect that we will continue to experience understatement and non-reporting of royalties by our licensees. We have been able to obtain certain recovery payments from licensees (either in the form of back payments or settlements), and such recoveries have become a recurring element of our business; however, we are unable to predict with certainty the revenue that we may recover in the future or if we will be ableour ability to continue to obtain such recoveries at all.
Royalties We Owe OthersThe amount of royalties we owe others may be disputed.In some cases, the products we sell and the technologies we license to our customers include IP that we have licensed from third parties. Our agreements with these third parties generally require us to pay them royalties for that use, and to give the third parties the right to audit our calculation of those royalties. A third party may disagree with our interpretation of the terms of a license agreement or, as a result of an audit, a third party could challenge the accuracy of our calculation. We are regularly involved in discussions with third party technology licensors regarding license terms. A successful challenge by a third party could result in the termination of a license agreement or an increase in the amount of royalties we have to pay to the third party.
Changes in Revenue Recognition Standard.In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers (Topic 606), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new standard defines a five-step approach for recognizing revenue, which may require a company to use more judgment and make more estimates than under the current guidance. Amongst the elements in the new standard are requirements for an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and make expanded disclosures.
Under the new standard, our current practice of reporting revenue from per-unit royalty based arrangements one quarter in arrears, when reported by licensees, will no longer be accepted. Instead, the new standard will require us to estimate per-unit royalty-based revenue shipped in the quarter for which we are reporting our results of operations. In addition, the new standard will require us to make a variety of additional estimates and judgments that are subject to risks and complexities, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. The new standard may also impact the timing of revenue recognition associated with various revenues including, but not limited to, arrangements with guaranteed minimums and fixed fees as well as recoveries.
Such changes to our reporting practices could significantly affect our results of operations to the extent that actual revenues differ significantly from estimated revenues, or that we are required to accelerate recognition of revenue under certain arrangements, potentially causing the amount of revenue we recognize to vary materially from quarter to quarter. While the adoption of the new standard will not change the cash flows we receive from our contracts with customers, the changes to our reporting practices and the potential fluctuations in our reported revenue could cause a decline and/or fluctuations in the price of our common stock.
Although permitted, we do not intend to early-adopt the new standard, but will adopt it beginning in the first quarter of fiscal 2019.
TECHNOLOGY TRENDS AND DEVELOPMENTS
Technology InnovationDeveloping new and enhanced technologies is inherently difficult and our revenue growth may be impacted if we are unsuccessful in our efforts.Our revenue growth will depend upon our success in new and existing markets for our technologies, such as digital broadcast, mobile devices, online and mobile media distribution, cinema, consumer imaging and communications. The markets for our technologies and products are definedinfluenced by:
•Rapid technological change;
•New and improved technology and frequent product introductions;
•Changing consumer and licensee demands;
•Evolving industry standards; and
•Technology and product obsolescence.
Our future success depends on our ability to enhance our technologies and products and to develop new technologies and products that address the market needs in a timely manner.manner, including the development of technologies and products that incorporate rapidly developing generative artificial intelligence and other artificial intelligence and machine learning technologies (“AI/ML”). Technology development is a complex, uncertain process requiring high
levels of innovation, highly-skilled engineering and development personnel, and the accurate anticipation of technological and market trends. We may not be able to identify, develop, acquire, market, or support new or enhanced technologies or products on a timely basis, if at all. If we are unable to develop technologies and related intellectual property that are accepted into technology standards, or are unable to do so at the same rate as other technology developers, our royalty share within patent pools that we participate in may decline.
Experience with New Markets and Business ModelsOur efforts to expand into new markets may not be successful.Our future growth will depend, in part, upon our continued expansion into areas beyond our audio licensing business. Over the past few years,As we have introduced Dolby Voice technology for the communications market, Dolby Vision for the home and cinema markets, and our branded-theater experience, Dolby Cinema. In connection with enteringenter into these new markets, we will face new sources of competition, new business models, and new customer relationships. In order to be successful in these markets, we will need to cultivate new industry relationships and strengthen existing relationships to bring our products, services, and technologies to market. Our limited experience to date in one or more of thesenew markets could limit our ability to successfully execute on our growth strategy.
IncorporationThe success of our existing products and newer initiatives is dependent on the use of Dolby Formats into New Products & Availabilityformats in, and commercial success of, Content in Dolby Formatsproducts and content.The success of many of our newer initiatives, such as Dolby Atmos, Dolby Vision, and Dolby Cinema, is dependent upon the availability and success of (i) products that incorporate Dolby formats and (ii) content produced in Dolby formats. However, there is no guarantee that device makers will continue to incorporate Dolby formats into their products, that content creators will continue to release content in Dolby formats, or that either those products or that content will be commercially successful.
For instance, to successfully establishbroaden adoption of Dolby Vision and Dolby Atmos, we will need to continue to expand the array of products and consumer devices that incorporate Dolby Atmos and Dolby Vision, expand the pipeline of Dolby Atmos and Dolby Vision content available from content creators, and encourage consumer adoption in the face of competing products and technologies. Similarly, the success of Dolby Cinema is dependent uponon our ability to partner with movie theater exhibitors to launch new Dolby Cinema sites and to deploy new sites in accordance with plans, as well asand on the continued release and box-office success of new films in the Dolby Vision and Dolby Atmos formats released through Dolby Cinemas.
Further, the commercial success of products incorporating Dolby formats, content released in Dolby formats, and Dolby Cinemas generally, depends upon a number of factors outside of our control, including, but not limited to, consumer preferences, critical reception, timing of release, marketing efforts of third-parties,third parties, and general market conditions. Moreover, release and distribution of such products and content can be subject to delays in production or changes in release schedule, which can negatively impact the quantity, timing and quality of such products and content released in Dolby formats and available at Dolby Cinema theaters.
INTELLECTUAL PROPERTY
Our business is dependent on protecting our intellectual property rights. Our business is dependent upon protecting our patents, trademarks, trade secrets, copyrights, and other IP rights, the loss or expiration of which may significantly impact our results of operations and financial condition. Effective IP rights protection, however, may not be available under the laws of every country in which our products and services and those of our licensees are distributed. The efforts we have taken to protect our proprietary rights may not be sufficient or effective. We also seek to maintain select IP as trade secrets, and third parties or our employees could intentionally or accidentally compromise the IP that we maintain as trade secrets. In addition, protecting our IP rights is costly and time consuming. We have taken steps in the past to enforce our IP rights and
expect to do so in the future. However, it may not be practicable or cost effective for us to enforce our IP rights fully, particularly in some countries or where the initiation of a claim might harm our business relationships.
We generally seek patent protection for our innovations. However, our patent program faces a number of challenges, including:
•Possibility that innovations may not be protectable;
•Failure to protect innovations that later turn out to be important;
•Insufficient patent protection to prevent third parties from designing around our patent claims;
•Our pending patent applications may not be approved; and
•Possibility that an issued patent may later be found to be invalid or unenforceable.
Patent Royalties and ExpirationOur revenue could decline if we are unable to maintain patent coverage for our technologies.Many of the technologies that we license to our system licensees are covered by patents, and the licensing revenue that we
receive from those licenses depends in large part upon the life of such patents. In general, our agreements with our licensees require them to pay us a full royalty with respect to a particular technology only until the lastthere are no patents or, in some cases, no patent applications covering that technology expires in a particular country.countries where applicable products are made and sold. As of DecemberMarch 29, 2017,2024, we had approximately 8,50020,300 issued patents in addition to approximately 4,1004,600 pending patent applications in more than 100 jurisdictions throughout the world. Our currently issued patents expire at various times through May 2042.December 2047. If we are unable to refresh our technology with new patented inventions or expand our patent portfolio, our revenue could decline. In addition to patents covering technology we license directly, if patents we license through patent pool arrangements expire or we are otherwise unable to maintain our share of pool royalties, then our revenue could be impacted.Additionally, if the patents licensed through a patent pool arrangement are deemed not to be valuable in the aggregate by the licensees of such patent pool, they may not renew their licenses, which could impact our revenue.
We seek to mitigate this risk in a variety of ways. We regularly look for opportunities to expand our patent portfolio through organic development and acquisitions. We develop proprietary technologies to replace licensing revenue from technologies covered by expiring patents with licensing revenue supported by patents with a longer remaining life. And we develop and license our technologiesintellectual property in a manner designed to minimizepromote the chancecontinued use and licensing of our technology. The continued success of these risk mitigation strategies is not guaranteed, including the risk that such technologies will not achieve widespread adoption or be licensed at a system licensee would develop competingrate sufficient to replace licensing revenue from technologies that do not include any Dolby IP.covered by expiring patents.
In the case of our patent coverage related to DD, some of our relevant patents have expired, but others continue to apply. DD is our solution that includes technology necessary to implement AC-3 as it has been updated over time. We have continued to innovate and develop intellectual propertyIP to support the standard and its implementation. Our customers use our DD implementation for quality, reliability, and performance, even in locations where we have not had applicable patent coverage. While in the past, we derived a significant portion of our licensing revenue from our DD technologies, this is no longer the case as revenuesrevenue attributed to DD technologies havehas declined and areis expected to continue to decline.
Many of our partners have adopted newer generations of our offerings such as DD+, and the range of products incorporating DD solutions is now limited to DVD players (but not Blu-ray players) and some TVs, STBs and soundbars. To continue to be successful in our audio licensing business, we must keep transitioning our DD licensees to our newer technologies, including our DD+ and Dolby AC-4 technologies.
Unauthorized Useuse of Our Intellectual Propertyour intellectual property has occurred and will likely continue to occur.We have often experienced, and expect to continue to experience, problems with non-licensee OEMs and software vendors, particularly in China and certain emerging economies, incorporating our technologies and trademarks into their products without our authorization and without paying us any licensing fees. Manufacturers of ICs containing our technologies occasionally sell these ICs to third parties who are not our system licensees. These sales, and the failure of such manufacturers to report the sales, facilitate the unauthorized use of our IP. As emerging economies transition from analog to digital content, such as the transition from analog to digital broadcast, we expect to experience increasedan increase in problems with this form of piracy.
Intellectual Property LitigationOur business may be negatively impacted by intellectual property litigation.Companies in the technology and entertainment industries frequently engage in litigation based on allegations of infringement or other violations of IP rights. We have faced such claims in the past, and we expect to face similar claims in the future. Any IP claims, with or without merit, could be time-consuming, expensive to litigate or settle, and could divert management resources and attention. In the past, we have settled claims relating to infringement allegations and agreed to make payments in connection with such settlements. An adverse determination in any IP claim could require that we pay damages or stop using technologies found to be in violation of a third party’s rights and could prevent us from offering our products and services to others. In order to avoid these restrictions, we may have to seek a license for the technology, which may not be available on reasonable terms or at all. Licensors could also require us to pay significant royalties.As a result, we may be required to develop alternative non-infringing technologies, which could require significant effort and expense. If we cannot license or develop technologies for any aspects of our business found to be infringing, we may be forced to limit our product and service offerings and may be unable to compete effectively.
In some instances, we have contractually agreed to provide indemnifications to licensees relating to our
IP. Additionally, at times we have chosen to defend our licensees from third party IP infringement claims even where such defense was not contractually required, and we may choose to take on such defense in the future.
Licensee DisputesOur business may be negatively impacted by disputes involving the licensing of our IP.At times, we are engaged in disputes regarding the licensing of our IP rights, including matters related to our royalty rates, whether
products are royalty-bearing, and other terms of our licensing arrangements. These types of disputes can be asserted by our customers or prospective customers or by other third parties as part of negotiations with us or in private actions seeking monetary damages or injunctive relief, or in regulatory actions. In the past, licensees have threatened to initiate litigation against us based on potential antitrust claims or regarding our licensing royalty rate practices. Damages and requests for injunctive relief asserted in claims like these could be significant, and could be disruptive to our business.
Maintaining and enforcing our IP rights in the U.S. and Foreign Patent Rightsabroad presents challenges to our business.Our licensing business depends in part on the uniform and consistent treatment of patent rights in the U.S. and abroad. Changes to the patent and intellectual property laws and regulations in the U.S. and abroad, including the regulation regarding SEP licensing in the EU referenced above, may limit our ability to obtain, license, and enforce our rights. Additionally, court and administrative rulings may interpret existing patent laws and regulations in ways that hurt our ability to obtain, license, and enforce our patents. We face challenges protecting our IP in foreign jurisdictions, including:
Ourincluding that our ability to enforce our contractual and IP rights, especially in countries that do not recognize and enforce IP rights to the same extent as the U.S., Japan, Korea, and European countries do, which increases the risk of unauthorized use of our technologies;
Limited or no patent protection for our DD technologies in countries such as China, Taiwan, and India, which may require us to obtain patent rights for new and existing technologies in order to grow or maintain our revenue; and
Becausetechnologies. Also, because of limitations in the legal systems in many countries, our ability to obtain and enforce patents in many countries is uncertain, and we must strengthen and develop relationships with entertainment industry participants worldwide to increase our ability to enforce our IP and contractual rights without relying solely on the legal systems in the countries in which we operate.
OPERATIONS
Reliance on Key Supplierskey suppliers presents certain risks to our business, many of which are beyond our control.Our reliance on suppliers for some of the key materials and components we use in manufacturing our products involves risks, including limited control over the price, timely delivery, and quality of such components. We generallycomponents, as well as delays caused by military conflicts, including those between Russia and Ukraine and in the Middle East, and other potential interruptions to the supply chain. Due to the relatively small volume of components we purchase for use in manufacturing, we purchase such components primarily through distributors. As such, we have no formal agreements in place with ourrelatively limited influence over the suppliers of such components to, for the continued supplyexample, ensure continuity of materials and components.supply. Although we have identified alternate suppliers for most of our key materials and components, any required changes in our suppliers could cause delays in our operations and increase our production costs. In addition, our suppliers may not be able to meet our production demands as to volume, quality, or timeliness.
Moreover, we rely on sole source suppliers for some of the components that we use to manufacture our products, including specific charged coupled devices, light emitting diodes, and digital signal processors. These sole source suppliers may become unable or unwilling to deliver these components to us at an acceptable cost or at all, which could force us to redesign those specific products. Our inability to obtain timely delivery of key components of acceptable quality, any significant increases in the prices of components, or the redesign of our products could result in production delays, increased costs, and reductions in shipments of our products.
Product QualityEnsuring the quality of our products and the products in which our technology is incorporated is inherently difficult, and product quality failures can be costly.Our products, and products that incorporate our technologies, are complex and sometimes contain undetected software or hardware errors that are not detected during testing, particularly when first introduced or when new versions are released. In addition, we have limited control over manufacturing performed by contract manufacturers, which could result in quality problems. Furthermore, our products and technologies are sometimes combined with or incorporated into products from other vendors, sometimes making it difficult to identify the source of a problem or, in certain instances, making the quality of our implementation dependent in part upon the quality of such other vendors' products. Any negative publicity or impact relating to these product problems could affect the perception of our brand and market acceptance of our products or technologies. These errors could result in a loss of or delay in market acceptance of our products or cause delays in delivering them and meeting customer demands, any of which could reduce our revenue and raise significant customer relations issues. In addition, if our products or technologies contain errors, we could be required to replace or reengineer them or rely upon parties who have incorporated our technologies into their products to implement updates to address such issues, which could cause delays or increase our costs. Moreover, if any such errors cause unintended consequences, we could incur substantial costs in defending and settling product liability claims. Although we generally attempt to contractually limit our liability, if these contract provisions are not enforced, or are unenforceable for any reason, or if liabilities arise that are not effectively limited, we could incur substantial costs in defending and settling product liability claims.
Production Processesprocesses for our products are subject to interruption, delay, and Productionother risks.Production difficulties or inefficiencies can interrupt production, resulting in our inability to deliver products on time or in a cost effective
manner, which could harm our competitive position. While we have three production facilities, we increasingly use contract manufacturers for a significant portion of our production capacity. Our relianceWe rely on contract manufacturers for theto manufacture of our products and such reliance involves risks, including limited control over timely delivery and quality of such products. If production of our products is interrupted, we may not be able to manufacture products on a timely basis. A shortage of manufacturing capacity for our products could reducenegatively impact our operating results and damage our customer relationships. We may be unable to quickly adapt our manufacturing capacity to rapidly changing market conditions, and a contract manufacturer may encounter similar difficulties. Likewise, we may be unable to quickly respond tosuch as fluctuations in customer demand or contract manufacturer interruptions. Atdemand. Supply chain disruptions and extended lead times we underutilize our manufacturing facilities as afor semiconductor and electrical components may limit the availability of products and result of reduced demand for somein difficulty meeting demand.
We face threats to the confidentiality, integrity, and availability of our products.
Data Security.information systems, which could result in the misappropriation of sensitive information, disruption of our business, reputational damage, legal exposure, and financial losses.We rely on information technology systems in the conduct of our business, including systems designed and managed by third parties. Many of these systems contain sensitive and confidential information, including our trade secrets and proprietary business information, and personal data, as well as content and information ofowned by or pertaining to our customers, suppliers and business partners. The secure maintenance ofProtecting this information is critical to our operations and business strategy. Increasingly, companies are subject to a wide variety of attacks on their networks and systems on an ongoing basis. Our information technology systems, applications and infrastructure may be vulnerable to penetration or attacks by computer programmersmalicious actors including, but not limited to, nation-states and hackers,cyber criminals, malware, software bugsdefects or other technical malfunctions, ransomware attacks, or other disruptions. This sensitive, confidential or proprietary information may be misappropriated by third-party service providers or others who may inappropriately access or exfiltrate that information from a third-party service provider's system.
While we have taken a number of steps to protect our information technology systems, theThe number and sophistication of maliciouscyber attacks and disruptions that companies have experienced from third parties has increased over the past few years. In addition, becauseyears, including computer viruses, malware, ransomware, cyber extortion, social engineering, denial of service, supply chain attacks, and other similar attacks and disruptions. These risks could be elevated in connection with geopolitical conflicts. Measures we have undertaken to protect our information systems may be unsuccessful in deterring or repelling malicious actors. Since techniques used by computer programmers and hackersmalicious actors (many of whom are highly sophisticated and well-funded) to access or sabotage networks and computer systems change frequently and often are not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques. This could delay our detection and response, or impede the effectiveness of our response, and impede our operations and ability to limit our exposure to third-party claims and other potential liability. Attacks on our systems have occurred in the past and may occur, and be successful, in the future. Such risks are sometimes successful,also faced by our third-party service providers and in some instances, we might be unaware of an incident or its magnitude and effects. others, which forms another vector for malicious attacks on our systems.
We also may suffer data security breaches and the unauthorized access to, misuse or acquisition of, personal data or other sensitive and confidential information as the result of intentional or inadvertent breaches or other compromises, including by our employees or service providers. Any data security breach or other incident, whether external or internal in origin, could compromise our networks and systems, creatingcreate system disruptions or slowdowns and exploitingexploit security vulnerabilities of our products. Any such breach or other incident can result in the information stored on our networks and systems, or our vendors' networks and systems, being improperly accessed or acquired, publicly disclosed, lost, stolen, modified, made unavailable, or stolen, whichotherwise processed without authorization, and any such breach or other incident, or the perception any has occurred, could subject us to demands, litigation, and liability to our customers, suppliers, business partners and others.others, as well as regulatory investigations and other proceedings, fines, penalties, and other liabilities, and brand and reputational damage. We seekmake efforts to detect and investigate such attempts and incidents and to prevent their recurrence where practicable through changes to our internal processes and tools, but in some cases preventive and remedial action might not be sufficient or successful. In addition, despite the implementation of network security measures, our networks also may be vulnerable to computer viruses, break-ins, denial of service attacks, and similar other disruptions.
Disruptions to our information technology systems, due to outages, security breaches or other causes, cancould also have severe consequences to our business, including financial loss and reputational damage.
Business Interruptions by Natural DisastersWe must comply with a variety of data privacy regulations. Compliance with such regulations can be costly and Other Events Beyond Our Control.Although we maintain crisis management plans,failure to comply may affect our business operations, financial performance, and business. A variety of provincial, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These laws and regulations are subjectevolving, including with respect to interruption by natural disastersthe development and catastrophic events beyond our control,use of AI/ML technologies, and may result in ever-increasing obligations and regulatory and public scrutiny and escalating levels of enforcement and sanctions. For example, the California Privacy Rights Act (CPRA), as well as obligations under other recently-enacted and forthcoming privacy laws, including but not limitedthose in other states, may require us to earthquakes, hurricanes, typhoons, tropical storms, floods, tsunamis, fires, droughts, tornadoes, public health issues and pandemics, severe changes in climate, war, terrorism, and geo-political unrest and uncertainties. Additionally, severalfurther modify certain of our offices, including our corporate headquarters in San Francisco, are located in seismically active regions. Because we do not carry earthquake insurance for earthquake–related lossesinformation practices and significant recovery time could be requiredsubject us to resume operations, our financial conditionadditional compliance costs and operating results could be materially adversely affectedexpenses. Our actual or perceived failure to adequately comply with applicable laws and regulations relating to privacy and data protection (including regimes such as the California Consumer Privacy Act, as amended and supplemented by the CPRA, and continuing developments in the event of a major earthquake or catastrophic event.
European Union, U.K., and U.S. data privacy
frameworks that are rapidly evolving) could result in regulatory fines, investigations and other proceedings, penalties and other liabilities, claims for damages by affected individuals, and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance, and business. Our commercial and cybersecurity insurance policies may be insufficient to insure us against these risks, and future escalations in premiums and deductibles under these policies may render them uneconomical.
COMPETITION
The markets for our technologies are highly competitive. The markets for our technologies are highly competitive, and we face competitive threats and pricing pressure in our markets. Consumers may perceive the quality of the visual and audio experiences produced by some of our competitors’ technologies to be equivalent or superior to the sight and sound experiences produced by our technologies. Some of our current or future competitors may have significantly greater financial, technical, marketing, and other resources than we do, or may have more experience or advantages in the markets in which they compete. These competitors may also be able to offer integrated systems in markets for entertainment technologies on a royalty-free basis or at a lower price than our technologies, including audio, imaging, and other technologies, which could make competing technologies that we develop less attractive. These competitors may also be able to develop and market new technologies that render our existing or future products less competitive. For example, disruptive technologies such as AI/ML may significantly alter the market for our products in unpredictable ways and reduce customer demand.
Pricing PressuresMany of the markets for our products and for products in which our technologies are incorporated are price sensitive.The markets for the consumer entertainment products in which our technologies are incorporated are intensely competitive and price sensitive. We expect to face increased royalty pricing pressure for our technologies as we seek to driveincrease the adoption of our technologies intoin online content and portable devices, such as tablets and smartphones. Such pricing pressures may be exacerbated by elevated rates of inflation, which may cause device manufacturers to take additional steps to limit costs. Retail prices for consumer entertainment products that include our soundaudio technologies, such as DVD and Blu-ray players and home theater systems, have decreased significantly, and we expect prices to decrease for the foreseeable future. In response, OEMs have sought to reduce their product costs, which can result in additional downward pressure on the licensing fees we charge. Further, Dolby.io faces pricing pressure from other platforms offering similar solutions that may be able to offer competing services at lower prices.
Customers as CompetitorsWe face competitive risks in situations where our customers are also current or potential competitors.We face competitive risks in situations where our customers are also current or potential competitors. For example, Samsung and Technicoloris a significant customer, but some of its technologies are significant licensee customers, but are also competitorscompetitive with respect to some of our consumer broadcast, and cinema technologies. Our customers may choose to use competing technologies they have developed or in which they have an interest rather than use our technologies. The existence of important customer relationships may influence which strategic opportunities we pursue, as we may forgo some opportunities in the interests of preserving a critical customer relationship.
CompetitionWe face competition from Other Audio Formats, Imaging Solutions,other audio formats, imaging solutions, and Integrated System Offeringsintegrated system offerings.We believe that the success we have had licensing our audio and imaging technologies to system licensees is due, in part, to the perceptionhigh quality of the solutions that our technologies provide a high quality solution for multichannel audio and to the strength of our brand. However, both free and proprietary sound and imaging technologies are becoming increasingly prevalent, and we expect competitors to continue to enter this fieldthese fields with other offerings. Furthermore, to the extent that customers perceive our competitors’ products as providing the same or similar advantages as our technologies at a lower or comparable price, there is a risk that these customers may treat sound and video encoding technologies as commodities, resulting in loss of status of our technologies, decline in their use, and significant pricing pressure. For example, we face competition with respect to our HDR imaging technology, Dolby Vision, and there can be no assurance that additional consumers will adopt Dolby Vision in the near future, or at all, or that we will maintain our existing customers.
In addition, some of our current or potential competitors may be able to offer integrated systems in certain markets for entertainment technologies, including audio imaging, and digital rights management technologies,imaging, which could make competing technologies that we develop or acquire obsolete. By offering an integrated system solution, these potential competitors may also be able to offer competing technologies at lower prices than we can, which could adversely affect our operating results.
Competition for Employees.In order to be successful, we must attract, develop, and retain employees, including employees to work on our growth initiatives where our current employees may lack experience with the business models and markets we are pursuing. Competition for experienced employees in our markets can be intense. In order to attract and retain employees, we must provide a competitive compensation package, including cash and equity compensation. Our equity awards include stock options and restricted stock units. The future value of these awards is uncertain, and depends on our stock price performance over time. In order for our compensation packages to be viewed as competitive, prospective employees must perceive our equity awards to be a valuable benefit.
STRATEGIC ACTIVITIES
ImportanceThe success of Relationships with Entertainment Industryour business depends on strong industry relationships.To be successful, we must maintain and grow our relationships with a broad range of entertainment industry participants, including:
•Content creators, such as film directors, studios, mobile and online content producers, and music
producers;
•Content distributors, such as studios, film exhibitors, broadcasters, operators, streaming providers, and OTT video service providers and video game publishers;
•Companies building real-time digital experiences that increase audience engagement; and
•Device manufacturers.
RelationshipsIndustry relationships have historically played an important role in the entertainment markets that we serve.serve, particularly in the entertainment market. For example, sales of our products and services are particularly dependent upon our relationships with major film studios and broadcasters, and licensing of our technologies is particularly dependent upon our relationships with system licensees and IC manufacturers. Industry relationships also play an important role in other markets we serve; for instance, our relationships with companies building real-time digital experiences support the adoption of Dolby.io solutions. If we fail to maintain and strengthen theseour industry relationships, these entertainment industry participants may be less likely to purchase and use our technologies, products, and services, or create content incorporating our technologies. Industry relationships also play an important role in other markets we serve; for instance, our partner relationships in the audio and video conferencing markets are important
Our M&A activity is subject to our communications business.
Consequences of M&A Activitycertain risks, including risks associated with integrating acquired businesses.We evaluate a wide array of possible strategic transactions, including acquisitions. We consider these types of transactions in connection with, among other things, our efforts to strengthen our audio and cinema businesses and expand beyond soundaudio technologies. Although we cannot predict whether or not we will complete any such acquisitions or other transactions in the future, any of these transactions could be significant in relation to our market capitalization, financial condition, or results of operations. The process of integrating an acquired company, business, or technology may create unforeseen difficulties and expenditures. Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different geographies, cultures, and languages; currency risks; and risks associated with the economic, political, and regulatory environment in specific countries. Future acquisitions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, and write-offs of goodwill. Future acquisitions may also require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.all, particularly during times of market volatility, elevated interest rates, and general economic instability. Also, the anticipated benefits of our acquisitions may not materialize.
We face various risks in integrating acquired businesses, including:
•Diversion of management time and focus from operating our business to acquisition integration challenges;
•Cultural and logistical challenges associated with integrating employees from acquired businesses into our organization;
•Retaining employees, suppliers and customers from businesses we acquire;
•The need to implement or improve internal controls, procedures, and policies appropriate for a public company at businesses that prior to the acquisition may have lacked effective controls, procedures, and policies;
•Possible write-offs or impairment charges resulting from acquisitions;
•Unanticipated or unknown liabilities relating to acquired businesses; and
•The need to integrate acquired businesses’ accounting, management information, manufacturing, human resources, and other administrative systems to permit effective management.
LEGAL AND REGULATORY COMPLIANCE
International BusinessConducting business internationally presents a number of risks to our business, including trade restrictions and Compliance.changing, unpredictable, and/or inconsistent laws in the jurisdictions in which we operate. We are dependent on international sales for a substantial amount of our total revenue. Approximately 74%62% and 68%61% of our revenue was derived outside of the U.S. in the fiscal quarter ended Decemberyear-to-date periods ending March 29, 20172024 and December 30, 2016, respectively.March 31, 2023, respectively. We are subject to a number of risks related to conducting business internationally, including:
•U.S. and foreign government trade restrictions or sanctions, including those which may impose restrictions on the importation or exportation of programming,products, equipment, materials, software, technologies, services, on technology transfers, or componentson the receipt or collection of payments and distribution of royalties, and any political or economic responses or counter-responses to such restrictions or fromsanctions, including
any such restrictions, sanctions, responses, or counter-responses related to global military conflicts or changes in US export controls related to China and other countries;
•Changes in trade relationships, including new tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers imposed by the U.S.; or by other countries;
•Compliance with applicable international laws and regulations, including antitrust and other competition laws and laws and regulations that relate to environmental, social, and governance matters, that may change unexpectedly, differ, or conflict with laws in other countries where we conduct business, or are otherwise not harmonized with one another;
•Foreign government taxes, regulations, and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the U.S., and other laws limiting our ability to repatriate funds to the U.S.;
•Potential adverse changes in the political, social, and/or economic stability of foreign countriesor conflicts within the regions in which we operate (including Europe, Russia, Asia, the Middle East, North Africa, Latin America and other emerging markets) or in their diplomatic relations with the U.S.;between governments, including policy changes, turmoil or disruptions resulting from elections or other leadership changes;
Changes in diplomatic and trade relationships, including new tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers;
•Difficulty in establishing, staffing, and managing foreign operations, including but not limited to restrictions on the ability to obtain or retain licenses required for operation, relationships with local labor unions and
works councils, investment restrictions and/or requirements, and restrictions on foreign ownership of subsidiaries;
•Adverse fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we undertake;
•Poor recognition and enforcement of IP rights;
•Difficulties in enforcing contractual rights;
•Multi-jurisdictional data protection and privacy laws, including, for example, the European Union's General Data Protection Regulation and restrictions on transferring personally identifiable informationpersonal data outside of a jurisdiction;
Political or social instabilityjurisdiction and potential legislation such as the Artificial Intelligence Act under consideration in the U.K.EU potentially impacting our development of products incorporating AI/ML or the use of AI/ML tools in our business; and Europe (including but not limited
•The global macroeconomic environment and potential slowing of key markets we serve.
Any or all of these factors may impact our ability to uncertainty resulting fromoperate in foreign countries and our ability to develop, the Brexit referendum in the U.K.)demand for, and in Russia, the Middle East, North Africa, Latin Americaprofitability of, our technologies and other emerging markets;
Uncertainties related to any geopolitical, economic and regulatory effects or changes due to the current political climate in the U.S.;
Natural disasters, war or events of terrorism; and
The strength of international economies.products, as well as our customers' products that incorporate our technologies.
Certain foreign governments, particularly in China, have advanced arguments under their competition laws that exert downward pressure on royalties for IP. The regulatory enforcement activities in such jurisdictions can be unpredictable, in some cases because these jurisdictions have only recently implemented competition laws. From time to time, we are the subject of requests for information, market conduct examinations, inquiries or investigations by industry groups and/or regulatory agencies in these jurisdictions. For instance, in March 2014, the National Development and ReformKorean Fair Trade Commission of China (“NDRC”) initiated a review of our business practices under the Chinese competition laws and requested information relating to our business practices in China.South Korea on various occasions, and initially made findings regarding the audit of a single customer. In early May 2015, the NDRC confirmedJuly 2023, that the matters under review have been resolved on mutually agreeable terms. The implementation of these terms remains ongoing. Additionally, in December 2013,determination was overturned by the Korean Fair Trade Commission (“KFTC”) initiatedCivil court and thus the matter was fully resolved in Dolby’s favor. In the event that we are involved in significant disputes or are the subject of a review of the Company under Korean competition law. The KFTC requested information relating toformal action by a regulatory agency, our business practices in Korearesults could be negatively impacted and we cooperated during its review. As a result of this review, in July 2015, the KFTC issued an ordercould be exposed to costly and we agreed to modify certain terms in our standard licensing agreements going forward without admitting to any liability or wrongdoing.time-consuming legal proceedings.
In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by U.S. regulations applicable to us such as the FCPA and U.S. export controls. Although we implement policies and procedures designed to ensure compliance with the FCPA and U.S. export controls, there can be no assurance that all of our employees, distributors, dealers, and agents will not take actions in violation of our policies or these regulations.
Costs of Environmental Lawslaws and Regulationregulations may pose additional costs on and otherwise impact our products and operations.Our products and operations use substancesmay be regulated under federal, state, local, and international laws governing the environment, including those governing the discharge of pollutants into the air and water, the management, disposal, and labeling of hazardous substances and wastes, the achievement of certain energy performance criteria, and the cleanup of contaminated sites. In addition, future environmental laws and regulations
have the potential to affect our operations, increase our costs, decrease our revenue, or change the way we design or manufacture our products. We face increasing complexity in our product design as we adjust to requirements relating to the materials composition of our products. ForIn some products, substitutingthe use or avoidance of particular components containingthat contain regulated hazardous substances ismay be more difficult or costly, and additional redesign efforts could result in production delays. We could incur costs, fines, and civil or criminal sanctions, third party property damage or personal injury claims, or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under environmental laws.
Conflict MineralsWe are subject to regulations relating to “conflict minerals” and compliance with, or failure to comply with, such regulations may be costly.The SEC has adopted rules regardingrequire the disclosure of the use of conflict mineralstantalum, tin, tungsten, and gold (commonly referred to as tantalum, tin, tungsten, and gold), which"conflict minerals") that are sourced from the Democratic Republic of the Congo and surrounding countries. This requirementCertain of those minerals are used in the manufacturing process of electrical components that our products utilize. The potential inclusion of conflict minerals in the materials used in our products could affect the sourcing, availability and pricing of such materials used in our products as well as the companies we use to manufacture our products. In circumstances where sources of conflict minerals from the Democratic Republic of the Congo or surrounding countries are not validated as conflict free, Dolbywe may take actions to change materials, designs or manufacturers to reduce the possibility that Dolby'sour contracts to manufacture products that contain conflict minerals finance or benefit local armed groups in the region. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers that can certify to us that they are offering “conflict free” conflict minerals, we cannot be sure that weour component suppliers will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. These actions could also add engineering and other costs in connection with the manufacturing of our products.
such status, disclosure of such status could affect public and investor perception of Dolby and our products.
We may not be able to sufficiently verify the origins for the minerals used in our products.components. Our reputation may suffer if we determine that our productscomponents contain conflict minerals that are not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products.components. In addition, some customers may require that all of our products are certified to be conflict free and if we cannot satisfy these customers, they may choose a competitor's products.
Tax RatesWe are subject to complex and Liabilitieschanging tax laws which may impact our financial results.Changes We are a U.S. multi-national company that is subject to tax in multiple U.S. and foreign jurisdictions. We must use judgment to determine our worldwide tax provision. We earn a significant amount of our income outside the U.S. and receive tax benefits from a portion of these foreign sales. Realizability of these benefits are contingent upon existing current tax laws and regulations in the valuation ofU.S. and countries where we operate. The following could materially affect our deferredeffective tax assets and liabilities, therate:
•Changes in geographic mix of our revenue, or changes in tax laws or their interpretation could affect our future effective tax rates. We file a consolidated federal U.S. income tax return and separate income tax returns in numerous state and local jurisdictions as well as multiple countries, and we must use judgment in determining our worldwide provision for income taxes. For example, the following could affect our income taxes:
Earnings beingearnings, where earnings are lower than anticipated in countries that havewith lower tax rates and higher than anticipated in countries that havewith higher tax rates;
•Changes in the valuation of our deferred tax assets and liabilities;
Transfer•Changes in transfer pricing adjustments;arrangements;
Tax effects•Outcomes of nondeductible compensation;tax audits;
Tax costs related to intercompany realignments;
Any obligations or decisions to repatriate earnings from abroad earlier than anticipated;
•Changes in accounting principles; or
•Changes in tax laws and regulations in the countries in which we operate, including an increase in tax rates, or an adverse change in the treatment of an item of income or expense; or
•Our ability to effectively implement changes to our corporate structure in response to changes in applicable tax laws and regulations in the countries in which we operate.
Changes in U.S. tax law, including the Tax Act.Cuts and Jobs Act ("Tax Act") and the Inflation Reduction Act, may affect our business. These provisions, their interpretations, and other proposed changes to law could further impact our corporate trading structure and adversely affect our tax rate and cash flow in future years.
A numberIn addition, the Organization of international legislativeEconomic Cooperation and regulatory bodies have proposed model legislation and begun investigations on the tax practices of multinational companies. One of these efforts has been led by the OECD,Development (“OECD”), an international association of many countries including the United States, whichU.S., has finalized recommendationsmade changes to revise individual countrymany long-standing transfer pricing and cross-border taxation rules that affect our operations. The OECD has introduced a framework to implement a 15% global minimum corporate tax, laws, transfer pricing requirements, andreferred to as Pillar 2 or the minimum tax treaty provisions in member countries. As a result, a number of new transfer pricing documentation requirements havedirective. The minimum tax directive has been adopted in countries in which we operate. We willby the EU for implementation by its Member States into national legislation and may be complying with these requirements in fiscal 2018. In addition,adopted by other jurisdictions, including the European Union and its European Commission is reviewing and deciding on the appropriateness of agreements between various member countries and companies that might be in violation of European Union competition rules against unjustified state aid. Several affected companies have appealed these decisions to the European Court of Justice for re-consideration.U.S. Further, the OECD, European UnionCommission, EU Member States and European Commissionother individual countries have
made and could conceivably make additional competing jurisdictional claims over the taxes owed on earnings of multinational companies in their respective countries or regions. While none ofTo the extent these bodies has identified Dolby as a potential target of its actions take place in the countries that we operate, it is possible that these law changes and efforts may in the futureincrease uncertainty and have an adverse impact on our income tax liabilities.
As a result of the Tax Act, there have been many significant changes to the U.S. federal income tax laws, including changes in the U.S. corporate incomeeffective tax rates the realizability of the net deferred tax assets relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses. These changes caused us to incur a deemed repatriation tax on certain undistributed earnings of foreign subsidiaries estimated at $96.7 million. The reduction of the U.S. corporate tax rate to 21% from 35% caused us to adjust our U.S. deferred tax assets and liabilities, resulting in an estimated decrease of $57.9 million in our net deferred tax assets. We estimate the overall impact of the Tax Act to reduce earnings for the first quarter of fiscal 2018 by $154.6 million, resulting in a net loss for the first quarter of fiscal 2018. However, we are still evaluating the full impact of the Tax Act to our overall financial position. In addition, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The foregoing items could have a material impact on business, cash flow, results of operation or financial condition.
operations.
We are subject to the periodic examination of our income tax returns by tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and to consider potential responsive actions, but an adverse decision by tax authorities exceeding our reserves could significantly impact our financial results. Additionally, due to the evolving nature of tax rules combined with the large number of jurisdictions in which we operate, it is possible that our estimates of our tax liability and the realizability of our deferred tax assets could change in the future, which may result in additional tax liabilities.
STOCK-RELATED ISSUES
Controlling StockholderThe Dolby family has control over stockholder decisions as a result of the control of a majority of the voting power of our outstanding common stock by them and their affiliates.At DecemberMarch 29, 2017,2024, the Dolby family and their affiliates owned 1,738,706314,968 shares of our Class A common stock and 42,632,21036,012,733 shares of our Class B common stock. As of DecemberMarch 29, 2017,2024, the Dolby family and their affiliates had voting power of 99.8% of our outstanding Class B common stock, which combined with their shares of our Class A common stock, represented 87.7%85.7% of the combined voting power of our outstanding Class A and Class B common stock. Under our certificate of incorporation, holders of Class B common stock are entitled to ten votes per share while holders of Class A common stock are entitled to one vote per share. Generally, shares of Class B common stock automatically convert into shares of Class A common stock upon transfer of such Class B common stock, other than transfers to certain specified persons and entities, including the spouse and descendants of Ray Dolby and the spouses and domestic partners of such descendants.
As a result of this dual class structure, the Dolby family and their affiliates will, for the foreseeable future, have significant influence over our management and affairs, and will be able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other sales of our company or assets, even if they come to own considerably less than 50% of the total number of outstanding shares of our Class A and Class B common stock. Absent a transfer of Class B common stock that would trigger an automatic conversion as described above, there is no threshold or time deadline at which the shares of Class B common stock will automatically convert into shares of Class A common stock.
Moreover, the Dolby family and their affiliates may take actions in their own interests that our other stockholders do not view as beneficial.
Insider Sales of Common Stocksubstantial amounts of our Class A common stock in the public markets could reduce the price of our Class A common stock.If our large shareholders, officers, directors or employees sell, or indicate an intention to sell, substantial amounts of our Class A common stock in the public market, including shares of Class A common stock issuable upon conversion of shares of Class B common stock, the trading price of our Class A common stock could decline.
Stock Repurchase ProgramThere are risks associated with our stock repurchase program.Our stock repurchase program may reduce the public float of shares available for trading on a daily basis. Such purchases may be limited, suspended, or terminated at any time without prior notice. There can be no assurance that we will buy additional shares of our Class A common stock under our stock repurchase program or that any future repurchases will have a positive impact on our stock price or earnings per share.EPS. Important factors that could cause us to discontinue or decrease our share repurchases include, among others, unfavorable market conditions, the market price of our Class A common stock, the nature of other investment or strategic opportunities presented to us, the rate of dilution of our equity compensation programs, our ability to make appropriate, timely, and beneficial decisions as to when, how, and whether to purchase shares under the stock repurchase program, the tax consequences of any repurchases (including the potential impact of the 1% excise tax on certain stock repurchases), and the availability of funds necessary to continue purchasing stock. If we curtail our repurchase program, our stock price may be negatively affected.
Dividend ProgramThere are risks associated with our dividend program.We cannot provide assurance that we will continue to increase dividend payments and/or pay dividends. We are not obligated to pay dividends on our Class A and Class B common stock. In October 2014, we announced a quarterly cash dividend program for our stockholders that was initiated by our Board of Directors. Since the initial commencement of our dividend program, our Board of Directors has annually approved an increase to our cash dividend. Although we anticipate paying regular quarterly dividends for the foreseeable future, dividend declarations and the establishment of future record and payment dates are subject to the Board of Directors’ continuing determination that the dividend policy is in the best interests of our stockholders. The dividend policy may be changed or canceled at the discretion of the Board of Directors at any time. If we do not pay dividends, the market price of our Class A common stock must appreciate for investors to realize a gain on their investment. This
appreciation may not occur and our Class A common stock may in fact depreciate in value.
GENERAL RISK FACTORS
Macroeconomic conditions, including inflation, elevated interest rates, supply chain constraints, and the lasting effects of COVID-19 have impacted and may continue to impact the markets we serve and our business and results of operations.Our revenue and operations and the markets we serve have been, and may continue to be, impacted by macroeconomic conditions, including but not limited to, inflation, elevated interest rates, COVID-19-related economic impacts, supply chain constraints, increased shipping costs, international conflicts, reduced discretionary consumer spending, and reduced new product investment by our customers caused by elevated interest rates and lower demand. The current macroeconomic environment has negatively impacted, and may continue to negatively impact, many of our licensees and that directly impacts, and may continue to impact, our financial results. The impacts of the current macroeconomic environment on our partners have resulted in, and may continue to cause, the disruption of consumer products' supply chains, shortages of certain semiconductor components, and delays in shipments, product development, and product launches. The macroeconomic conditions also impart substantial uncertainty into our operating environment, which presents additional challenges for our business. These factors and the related uncertainty may cause delays or a decrease in the adoption or implementation of our technologies into new products by partners and licensees. These conditions may impact consumer demand for devices and services and our partners’ ability to manufacture devices.Further, we may be negatively impacted by delays in transaction cycles and our recoveries efforts due to the noted macroeconomic conditions and related uncertainty. The future implications of these macroeconomic conditions on our business, the markets we serve, results of operations and overall financial position remain uncertain.
COVID-19, including the spread of variants of SARS-CoV-2,continues to impact several of our partners and it is unclear how demand for consumer products that include our technologies may change in response to, and following, the pandemic. The degree to which COVID-19 impacts our results will depend on future developments, which cannot be predicted with any certainty, including, but not limited to, the duration and extent of the pandemic, additional actions taken by governments, businesses and consumers in response to the pandemic, additional subsequent outbreaks and variant strains, and to what extent economic and operating conditions can return to pre-pandemic conditions.Even after COVID-19 has subsided, if ever, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any persistent economic impacts and any recession that may occur.
Our results may be impacted by fluctuations in foreign currency exchange rates. We earn revenue, pay expenses, own assets and incur liabilities in foreign countries using several currencies other than the U.S. dollar. As a result, we face exposure to adverse movements in currency exchange rates as the financial results of our international operations are translated from local currency into U.S. dollars upon consolidation. The majority of our revenue generated from international markets is denominated in U.S. dollars, while the operating expenses of our foreign subsidiaries are predominantly denominated in local currencies. Therefore, our operating expenses will increase when the U.S. dollar weakens against the local currency and decrease when the U.S. dollar strengthens against the local currency. Additionally, foreign exchange rate fluctuations on transactions denominated in currencies other than the functional currency result in gains or losses that are reflected in our unaudited interim condensed consolidated statements of operations. Further, our hedging programs may not be effective to offset any, or more than a portion, of the adverse impact of currency exchange rate movements. Additional risks related to fluctuations in foreign currency exchange rates are described in the Foreign Currency Exchange Risk section of Part I, Item 3 "Quantitative and Qualitative Disclosures About Market Risk."
Business interruptions by natural disasters and other events beyond our control could adversely impact our business.Although we maintain crisis management plans, our business operations are subject to interruption by natural disasters and catastrophic events beyond our control, including, but not limited to, earthquakes, hurricanes, typhoons, tropical storms, floods, tsunamis, fires, droughts, tornadoes, public health issues and pandemics, severe changes in climate, war, terrorism, and geopolitical unrest and uncertainties. Further, outbreaks of pandemic diseases, or the fear of such events, could provoke (and in the case of COVID-19 has provoked) responses, including government-imposed travel restrictions and limits on access to entertainment venues. These responses could negatively affect consumer demand and our business, particularly in international markets. War, including the military conflicts between Russia and Ukraine and in the Middle East, as well as any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy and supply chain, could also affect our business. For example, we have R&D facilities and a large number of employees in
Eastern Europe, and any business interruptions or other spillover effects from the Russia-Ukraine conflict could adversely impact our business.
Additionally, several of our offices, including our corporate headquarters in San Francisco, are located in seismically active regions. Because we do not carry earthquake insurance for earthquake–related losses and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected in the event of a major earthquake or catastrophic event.
We face intense competition for employees.In order to be successful, we must attract, develop, and retain employees, including employees to work on our growth initiatives where our current employees may lack experience with the business models and markets we are pursuing. Competition for experienced employees in our markets can be intense. In order to attract and retain employees, we must provide competitive compensation packages, including cash and equity compensation. Our equity awards include stock options, RSUs and performance-based RSUs. The future value of these awards is uncertain and depends on our stock price performance over time. In order for our compensation packages to be viewed as competitive, prospective employees must perceive our equity awards to be a valuable benefit.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our Board of Directors announced a $250.0 million stock repurchase program on November 3, 2009. The program, which has no expiration date, approved the repurchase of shares of our Class A common stock, $0.001 par value per share. The authorized maximum was subsequently increased by $300.0 million, $250.0 million, $100.0 million, $200.0 million, $200.0 million, $350.0 million, $350.0 million, $350.0 million, $250.0 million, and $200.0$350.0 million as announced on July 27,29, 2010, August 4, 2011, February 8, 2012, October 23, 2014, and January 25, 2017, July 25, 2018, August 1, 2019, July 29, 2021, February 3, 2022, and August 9, 2022, respectively. Stock repurchases under this program may be made through open market transactions, negotiated purchases, or otherwise, at times and in such amounts asthat we consider appropriate.
The following table provides information regarding our share repurchases made under the program during the firstsecond quarter of fiscal 2018:2024: | | | | | | | | | | | | | | |
| Repurchase Activity | Total Shares Repurchased | Average Price Paid Per Share (1) | Total Shares Purchased As Part Of Publicly Announced Programs | Remaining Authorized Share Repurchases (2) |
| December 30 - January 26, 2024 | 294,400 | $84.91 | 294,400 | $106.6 million |
| January 27, 2024 - February 23, 2024 | — | $— | — | $106.6 million |
| February 24, 2024 - March 29, 2024 | — | $— | — | $106.6 million |
| Total | 294,400 | | 294,400 | |
(1)Average price paid per share excludes commission costs.
(2)Amounts represent the approximate dollar value of the maximum remaining number of shares that may yet be purchased under the stock repurchase program as of the end of the applicable period and excludes commission costs.
ITEM 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the fiscal quarter ending March 29, 2024, the following director and officers, as defined in Rule 16a-1(f), adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408, as follows:
On February 14, 2024, Kevin Yeaman, our Chief Executive Officer, President, and a member of our Board of Directors, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate of up to 302,580 shares of our Class A common stock. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until April 17, 2025, or earlier if all transactions under the trading arrangement are completed.
On February 26, 2024, Andy Sherman, our Executive Vice President, General Counsel, and Corporate Secretary, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate of up to 233,052 shares of our Class A common stock. This figure includes an estimate of the number of shares to be acquired under our ESPP that may be sold under the trading arrangement; however, the actual number of shares that will be acquired through the ESPP may vary. In addition, the number of shares that may be sold under the trading arrangement includes the maximum number of shares issuable under Mr. Sherman’s PSU award vesting during the term of the trading arrangement; however, the actual number of shares to be vested will depend on the achievement of applicable performance conditions under such PSU award, as described in Note 9 " Stockholders' Equity and Stock-Based Compensation – Stock Incentive Plans" to our unaudited interim condensed consolidated financial statements. The number of shares that may be sold under the trading arrangement will be reduced by the number of shares (not yet determinable) sold to satisfy tax obligations upon the vesting and settlement of certain outstanding equity awards. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until May 8, 2025, or earlier if all transactions under the trading arrangement are completed.
No other directors or officers, as defined in Rule 16a-1(f), adopted and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408, during the fiscal quarter ending March 29, 2024.
|
| | | | |
| Repurchase Activity | Total Shares Repurchased | Average Price
Paid Per Share (1) | Total Shares Purchased As Part Of Publicly Announced Programs | Remaining Authorized Share Repurchases (2) |
| September 30, 2017 - October 27, 2017 |
|
|
| $152.0 million |
| October 28, 2017 - November 24, 2017 | 402,416 | 60.35 | 402,416 | $127.7 million |
| November 25, 2017 - December 29, 2017 | 91,468 | 62.38 | 91,468 | $122.0 million |
| Total | 493,884 | | 493,884 | |
| |
(1) | Average price paid per share excludes commission costs. |
| |
(2) | Amounts represent the approximate dollar value of the maximum remaining number of shares that may yet be purchased under the stock repurchase program, and excludes commission costs. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Description | | | | | | | | | |
Exhibit
Number
| | Description | | Incorporated By Reference Herein | | |
| Form | | File Number | | Date | | Provided Herewith |
| | Form | | File Number | | Date | | Provided Herewith | | |
| 10.1 | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| 3.1 | | | | Form 8-K | | 001-32431 | | 001-32431February 9, 2024 | | | November 15, 2017 | |
| 31.1 | | | | | | | | | | X |
| 31.2 | | | | | | | | | | X |
32.1+32.1+ | | | | | | | | | | X |
| | | | | | | | | | |
| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | X |
| 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | X |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | X |
| 101.DEF | | XBRL Extension Definition | | | | | | | | X |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | X |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | X |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | X |
* Denotes a management contract or compensatory plan or arrangement.
+ Furnished herewith.
SIGNATURESSIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: January 31, 2018May 2, 2024
| | | | | |
| |
| DOLBY LABORATORIES, INC. |
| By: | /S/ LEWIS CHEWROBERT PARK |
| Lewis ChewRobert Park |
| ExecutiveSenior Vice President and Chief Financial Officer |
| (Principal Financial and Accounting Officer) |
| |
| |
| |
| |
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