Dolby Laboratories(DLB) - 2025 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents Dolby Laboratories, Inc.'s unaudited interim condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents Dolby Laboratories, Inc.'s unaudited interim condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes. The financial statements are prepared in accordance with U.S. GAAP and SEC regulations, providing a snapshot of the company's financial health and performance for the fiscal quarter and year-to-date periods ended June 27, 2025, compared to the prior year Unaudited Interim Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific fiscal year-end and quarter-end dates Unaudited Interim Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 27, 2025 | September 27, 2024 | | :-------------------- | :------------ | :----------------- | | Cash and cash equivalents | $698,566 | $482,047 | | Total current assets | $1,338,119 | $1,194,417 | | Total assets | $3,196,001 | $3,109,928 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | June 27, 2025 | September 27, 2024 | | Total current liabilities | $388,785 | $417,836 | | Total liabilities | $581,750 | $623,035 | | Total stockholders' equity | $2,614,251 | $2,486,893 | - Total assets increased by $86.1 million from September 27, 2024, to June 27, 2025, primarily driven by an increase in cash and cash equivalents[10] - Total liabilities decreased by $41.3 million, while total stockholders' equity increased by $127.4 million over the same period[10] Unaudited Interim Condensed Consolidated Statements of Operations This section presents the company's financial performance over specific fiscal periods, detailing revenue, gross profit, operating income, and net income, including diluted earnings per share Unaudited Interim Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | (in thousands, except per share amounts) | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :--------------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenue: | | | | | | Licensing | $289,905 | $267,082 | $966,390 | $899,089 | | Products and services | $25,641 | $21,736 | $75,716 | $69,826 | | Total revenue | $315,546 | $288,818 | $1,042,106 | $968,915 | | Gross profit | $271,544 | $253,155 | $921,493 | $862,415 | | Operating income | $47,639 | $36,783 | $235,282 | $211,972 | | Net income attributable to Dolby Laboratories, Inc. | $46,071 | $38,444 | $205,686 | $203,255 | | Diluted EPS | $0.48 | $0.40 | $2.11 | $2.09 | | Cash dividend declared per common share | $0.33 | $0.30 | $0.99 | $0.90 | - Total revenue for the fiscal quarter ended June 27, 2025, increased by 9.2% to $315.5 million from $288.8 million in the prior year quarter, primarily driven by an 8.5% increase in licensing revenue[12] - Operating income for the quarter increased by 29.5% to $47.6 million, and net income attributable to Dolby Laboratories, Inc. rose by 19.9% to $46.1 million[12] - Diluted EPS for the quarter increased to $0.48 from $0.40, and the cash dividend declared per common share increased to $0.33 from $0.30[12] Unaudited Interim Condensed Consolidated Statements of Comprehensive Income This section outlines the company's total comprehensive income, including net income and other comprehensive income components like foreign currency translation adjustments, for specific fiscal periods Unaudited Interim Condensed Consolidated Statements of Comprehensive Income (in thousands) | (in thousands) | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net income including noncontrolling interest | $46,542 | $39,655 | $206,838 | $205,450 | | Total other comprehensive income/(loss), net of tax | $14,619 | $(1,058) | $5,747 | $6,937 | | Total comprehensive income attributable to Dolby Laboratories, Inc. | $60,525 | $37,340 | $211,349 | $210,067 | - Total comprehensive income attributable to Dolby Laboratories, Inc. significantly increased to $60.5 million for the fiscal quarter ended June 27, 2025, from $37.3 million in the prior year, primarily due to positive currency translation adjustments[14] - For the fiscal year-to-date period, comprehensive income attributable to Dolby Laboratories, Inc. increased slightly to $211.3 million from $210.1 million[14] Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's stockholders' equity over specific fiscal periods, reflecting net income, stock-based compensation, share repurchases, and dividends Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (in thousands) | (in thousands) | Balance as of March 28, 2025 | Net income | Other comprehensive income, net of tax | Stock-based compensation expense | Repurchase of common stock | Cash dividends declared and paid on common stock | Common stock issued under employee stock plans | Balance as of June 27, 2025 | | :------------- | :--------------------------- | :--------- | :------------------------------------- | :------------------------------- | :------------------------- | :----------------------------------------------- | :--------------------------------------------- | :-------------------------- | | Total Stockholders' Equity - Dolby Inc. | $2,573,669 | $46,071 | $14,454 | $30,728 | $(39,991) | $(31,633) | $12,557 | $2,604,733 | - Total stockholders' equity for Dolby Laboratories, Inc. increased from $2,573.7 million as of March 28, 2025, to $2,604.7 million as of June 27, 2025[17] - Key increases were driven by net income ($46.1 million) and other comprehensive income ($14.5 million), partially offset by common stock repurchases ($40.0 million) and cash dividends ($31.6 million)[17] Unaudited Interim Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for specific fiscal year-to-date periods Unaudited Interim Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------------- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by operating activities | $349,367 | $211,082 | | Net cash provided by/(used in) investing activities | $11,326 | $(24,984) | | Net cash used in financing activities | $(183,183) | $(227,696) | | Net increase/(decrease) in cash, cash equivalents, and restricted cash | $178,812 | $(39,342) | | Cash, cash equivalents, and restricted cash at end of period | $756,564 | $778,624 | - Net cash provided by operating activities increased significantly to $349.4 million for the fiscal year-to-date period ended June 27, 2025, up from $211.1 million in the prior year[21] - Investing activities shifted from a net cash outflow of $25.0 million in the prior year to a net inflow of $11.3 million, primarily due to lower purchases of marketable securities and higher proceeds from asset sales[21] - Net cash used in financing activities decreased to $183.2 million from $227.7 million, mainly due to lower common stock repurchases[21] Notes to Unaudited Interim Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited interim condensed consolidated financial statements, covering accounting policies, revenue recognition, and other financial captions 1. Basis of Presentation This note describes the basis for preparing the interim financial statements, including compliance with U.S. GAAP and SEC rules, and the company's single reportable segment - The unaudited interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, allowing for condensed disclosures[22] - The company operates as a single reportable segment, with the CEO evaluating financial information and resources on a consolidated basis[25] - Significant estimates include sales-based royalties, ESPs for revenue arrangements, allowance for credit losses, and carrying values of assets[27][28] 2. Summary of Significant Accounting Policies This note outlines the key accounting policies, including credit risk management and recently issued accounting standards under evaluation for their potential impact - The company manages credit risk by diversifying cash, cash equivalents, and investments with high-credit-standing financial institutions and through derivative contracts[30] - Recently issued accounting standards include ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Taxes), and ASU 2024-03/2025-01 (Income Statement Expense Disaggregation), all currently under evaluation for impact[32][33][34] 3. Revenue Recognition This note details the company's revenue recognition policies, primarily from licensing technologies and selling products and services, with a breakdown by revenue type and market segment - Revenue is primarily generated from licensing technologies, trademarks, and patents for sound and imaging solutions, and selling products and services[35] - Licensing revenue accounts for 92% of total revenue in Q3 2025 and 93% year-to-date, with Broadcast and Mobile being the largest market segments[60] Revenue Composition (in thousands) | Revenue Type | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Licensing | $289,905 (92%) | $267,082 (92%) | $966,390 (93%) | $899,089 (93%) | | Products and services | $25,641 (8%) | $21,736 (8%) | $75,716 (7%) | $69,826 (7%) | | Total revenue | $315,546 (100%) | $288,818 (100%) | $1,042,106 (100%) | $968,915 (100%) | Licensing Revenue by Market (in thousands) | Market | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Broadcast | $111,286 (38%) | $95,430 (36%) | $321,297 (33%) | $313,326 (35%) | | Mobile | $56,295 (19%) | $63,096 (24%) | $217,942 (23%) | $187,073 (21%) | | CE | $28,071 (10%) | $28,352 (11%) | $115,668 (12%) | $123,793 (14%) | | PC | $33,589 (12%) | $27,606 (10%) | $123,247 (13%) | $107,223 (12%) | | Other | $60,664 (21%) | $52,598 (19%) | $188,236 (19%) | $167,674 (18%) | | Total | $289,905 (100%) | $267,082 (100%) | $966,390 (100%) | $899,089 (100%) | - The majority of revenue (72% in Q3 2025) is generated from international locations, based on the location of licensees' headquarters, product shipment destinations, or service performance locations[60] 4. Composition of Certain Financial Statement Captions This note provides a detailed breakdown of specific balance sheet accounts, including accounts receivable, contract assets, inventories, and accrued liabilities Accounts Receivable and Contract Assets (in thousands) | Category | June 27, 2025 | September 27, 2024 | | :------- | :------------ | :----------------- | | Trade accounts receivable | $149,979 | $170,574 | | Accounts receivable from patent administration program licensees | $154,742 | $150,252 | | Contract assets | $204,486 | $197,584 | | Total accounts receivable and contract assets, net | $501,995 | $512,943 | Inventories (in thousands) | Category | June 27, 2025 | September 27, 2024 | | :------- | :------------ | :----------------- | | Raw materials | $6,500 | $3,079 | | Work in process | $4,145 | $4,791 | | Finished goods | $21,770 | $25,858 | | Total inventories | $32,415 | $33,728 | - Total accounts receivable and contract assets, net, decreased by $10.9 million from September 27, 2024, to June 27, 2025[65] - Inventories, net, decreased slightly from $33.7 million to $32.4 million, with a notable increase in raw materials but a decrease in finished goods[67] - Accrued liabilities decreased by $30.1 million, primarily due to lower amounts payable to patent administration program partners and accrued compensation and benefits[70] 5. Investments and Fair Value Measurements This note details the company's cash, cash equivalents, and investments, including fair value measurements and the use of currency derivatives for hedging Cash, Cash Equivalents, and Investments (in thousands) | Category | June 27, 2025 | September 27, 2024 | | :------- | :------------ | :----------------- | | Cash and cash equivalents | $698,566 | $482,047 | | Short-term investments | $763 | — | | Long-term investments | $78,017 | $89,267 | | Total cash, cash equivalents, and investments | $777,346 | $571,314 | - Total cash, cash equivalents, and investments increased by $206.0 million from September 27, 2024, to June 27, 2025[73][74] - The company holds an equity method investment in Access Advance LLC, valued at $64.9 million as of June 27, 2025[75] - Currency derivatives are used to hedge currency risk, classified as other current assets and accrued liabilities, with a total notional amount of $218.5 million as of June 27, 2025[72][73][306] 6. Property, Plant, and Equipment This note presents the gross and net values of property, plant, and equipment, along with accumulated depreciation Property, Plant, and Equipment, Net (in thousands) | Category | June 27, 2025 | September 27, 2024 | | :------- | :------------ | :----------------- | | Property, plant, and equipment, gross | $1,076,094 | $1,097,885 | | Less: accumulated depreciation | $(597,613) | $(618,776) | | Property, plant, and equipment, net | $478,481 | $479,109 | - Net property, plant, and equipment remained relatively stable, decreasing slightly from $479.1 million to $478.5 million[83] 7. Leases This note outlines the company's lease arrangements, both as a lessee for operating leases and as a lessor for its Dolby Cinema product solution - As a lessee, total undiscounted operating lease payments are $45.3 million as of June 27, 2025, with total lease liabilities of $39.1 million[84] - As a lessor, Dolby leases its Dolby Cinema product solution, generating variable operating lease income of $11.3 million in Q3 2025 (up from $9.1 million in Q3 2024) and fixed operating lease income of $1.0 million (up from $0.9 million)[86] 8. Goodwill and Intangible Assets This note details the composition and changes in goodwill and intangible assets, including acquired patents, technology, and customer relationships Goodwill (in thousands) | Category | Amount | | :------- | :----- | | Balance as of September 27, 2024 | $533,208 | | Translation adjustments | $939 | | Measurement period adjustments | $(5,324) | | Balance as of June 27, 2025 | $528,823 | Intangible Assets, Net (in thousands) | Category | June 27, 2025 Net | September 27, 2024 Net | | :------- | :---------------- | :--------------------- | | Acquired patents and technology | $270,797 | $286,379 | | Customer relationships | $137,112 | $147,826 | | Other intangible assets | $241 | $309 | | Total | $408,150 | $434,514 | - Goodwill decreased slightly to $528.8 million as of June 27, 2025, primarily due to measurement period adjustments[88] - Total intangible assets, net, decreased to $408.2 million from $434.5 million, with amortization expense of $34.0 million for the fiscal year-to-date period ended June 27, 2025[89][90] 9. Stockholders' Equity and Stock-Based Compensation This note provides information on the company's capital structure, stock-based compensation expense, share repurchase activities, and cash dividends - As of June 27, 2025, Dolby had 61.1 million Class A shares and 34.7 million Class B shares outstanding, with Class B holders having ten votes per share[92] Stock-Based Compensation Expense (in thousands) | Award Type | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :--------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Stock options | $1,690 | $1,540 | $5,108 | $5,170 | | Restricted stock units | $28,201 | $26,436 | $89,028 | $81,783 | | Employee stock purchase plan | $837 | $1,361 | $3,326 | $3,193 | | Total stock-based compensation | $30,728 | $29,337 | $97,462 | $90,146 | - Total stock-based compensation expense increased to $30.7 million in Q3 2025 from $29.3 million in Q3 2024, and to $97.5 million year-to-date from $90.1 million, primarily driven by restricted stock units[110] - The company repurchased 526,033 shares for $39.991 million in Q3 2025, with a remaining authorization of $311.6 million[116] - A quarterly cash dividend of $0.33 per share was declared and paid in Q3 2025, totaling $31.6 million[118] 10. Accumulated Other Comprehensive Loss This note details the changes in accumulated other comprehensive loss, primarily driven by foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (in thousands) | Category | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Beginning Balance | $(27,978) | $(29,068) | $(19,187) | $(36,984) | | Net current-period other comprehensive income/(loss) | $14,454 | $(1,104) | $5,663 | $6,812 | | Ending Balance | $(13,524) | $(30,172) | $(13,524) | $(30,172) | - Accumulated other comprehensive loss improved significantly, moving from $(28.0) million to $(13.5) million in Q3 2025, primarily due to $12.8 million in foreign currency translation gains[121][122] 11. Earnings Per Share This note presents the calculation of basic and diluted earnings per share, along with the weighted-average shares outstanding EPS Attributable to Dolby Laboratories, Inc. | (in thousands, except per share amounts) | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :--------------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net income attributable to Dolby Laboratories, Inc. | $46,071 | $38,444 | $205,686 | $203,255 | | Weighted-average shares outstanding—basic | 95,897 | 95,686 | 95,947 | 95,593 | | Weighted-average shares outstanding—diluted | 96,900 | 96,959 | 97,537 | 97,412 | | Basic EPS | $0.48 | $0.40 | $2.14 | $2.13 | | Diluted EPS | $0.48 | $0.40 | $2.11 | $2.09 | - Diluted EPS increased to $0.48 in Q3 2025 from $0.40 in Q3 2024, and to $2.11 year-to-date from $2.09[128] - The calculation of diluted EPS excludes antidilutive awards, which included 1,516 thousand stock options and 41 thousand restricted stock units in Q3 2025[127][128] 12. Income Taxes This note provides details on the provision for income taxes, effective tax rates, and unrecognized tax benefits, highlighting factors influencing tax expense Income Tax Provision and Effective Tax Rate | (in thousands) | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Provision for income taxes | $(8,974) | $(10,509) | $(54,979) | $(47,295) | | Effective tax rate | 16.2% | 20.9% | 21.0% | 18.7% | - The effective tax rate decreased to 16.2% in Q3 2025 from 20.9% in Q3 2024, primarily due to higher tax benefits from U.S. federal R&D tax credits[133] - For the fiscal year-to-date, the effective tax rate increased to 21.0% from 18.7%, mainly due to a mix of earnings favoring higher tax jurisdictions and lower benefits from stock-based awards, partially offset by R&D tax credits[134] - The total gross unrecognized tax benefits increased to $90.8 million as of June 27, 2025, from $81.6 million as of September 27, 2024, mainly due to current year reserves for transfer pricing and interest accruals[131] 13. Restructuring This note describes the company's restructuring actions, including associated charges and expected pre-tax operating income savings - In November 2024 (fiscal 2025), the company initiated restructuring actions to align R&D and S&M resources with strategic priorities, incurring $9.2 million in severance and related benefits year-to-date[137] - These fiscal 2025 restructuring activities are expected to result in estimated gross pre-tax operating income savings of approximately $20 million in fiscal 2025[137] - Restructuring accruals decreased to $1.720 million as of June 27, 2025, from $2.765 million as of September 27, 2024[141] 14. Legal Matters This note discusses the company's involvement in legal proceedings, including intellectual property claims, and management's assessment of their potential financial impact - The company is involved in various legal proceedings, including IP infringement claims, but does not expect resolutions to have a material adverse impact on operating results or financial condition[143][144] 15. Commitments and Contingencies This note outlines the company's contractual obligations and commitments, including naming rights, purchase obligations, and indemnification clauses Contractual Obligations and Commitments (in thousands) | Category | Remainder of Fiscal 2025 | Fiscal 2026 | Fiscal 2027 | Fiscal 2028 | Fiscal 2029 | Thereafter | Total | | :------- | :----------------------- | :---------- | :---------- | :---------- | :---------- | :--------- | :---- | | Naming rights | — | $13,472 | $8,534 | $8,642 | $8,751 | $26,923 | $66,322 | | Purchase obligations | $7,670 | $32,841 | $31,087 | $19,585 | $19,208 | $19,208 | $129,599 | | Donation commitments | — | $183 | $153 | $153 | $153 | $586 | $1,228 | | Total | $7,670 | $46,496 | $39,774 | $28,380 | $28,112 | $46,717 | $197,149 | - Total contractual obligations and commitments amount to $197.1 million as of June 27, 2025, including naming rights, purchase obligations, and donation commitments[145] - The company provides indemnification to counterparties for licensed IP and to officers, directors, and employees, but the maximum potential exposure is not reasonably estimable[148][149] 16. Business Combinations This note details recent business combinations, specifically the acquisition of GE Licensing, and its impact on the company's assets and goodwill - No business combinations were entered into during the third quarter or fiscal year-to-date period ended June 27, 2025[150] - In fiscal 2024, Dolby acquired GE Licensing for a total consideration of $434.2 million, net of cash acquired, to strengthen its IP portfolio, particularly in HEVC video[151] GE Licensing Acquisition Date Fair Values (in thousands) | Recognized Identifiable Assets Acquired and Liabilities Assumed | Purchase Price Allocation | | :------------------------------------------------------------ | :------------------------ | | Cash and cash equivalents | $2,232 | | Accounts receivable | $20,171 | | Assets held for sale, current | $24,494 | | Long-term investments | $76,000 | | Intangible assets | $274,197 | | Goodwill | $75,387 | | Purchase Consideration | $434,211 | - Goodwill of $75.4 million was recognized from the GE Licensing acquisition, representing expected benefits and synergies from integration[152][154] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on Dolby Laboratories, Inc.'s financial condition and results of operations for the fiscal quarter and year-to-date periods ended June 27, 2025. It covers the company's business overview, strategic initiatives, revenue generation models, performance across various end markets, the impact of macroeconomic conditions, and a detailed analysis of financial results, including revenue, gross margin, operating expenses, and cash flows OVERVIEW This section provides a brief introduction to Dolby Laboratories, Inc., highlighting its core business of innovating audio and video technologies and its primary revenue generation models - Dolby Laboratories, Inc. was founded in 1965 and focuses on inventing and innovating technologies to advance audio and video capture, transmission, and playback, enhancing entertainment experiences[159] - The company derives the majority of its revenue from licensing audio and video technology to electronics manufacturers and offers premium audio and video technologies to cinema exhibitors[160] STRATEGY This section outlines the company's strategic pillars, focusing on advancing technology, delivering superior creative experiences, building ecosystems, and expanding market reach - Advancing the Science of Sight and Sound: Collaborating with creators and innovating in emerging categories like user-generated content, sports, and podcasts - Delivering Superior Creative Experiences: Promoting solutions as creative tools for filmmakers, artists, and content creators - Building Ecosystems: Working with creators, distributors, and device makers to sustain demand and promote standardized technologies - Expanding the Reach: Applying expertise to new content, media, devices, and audiences PRODUCTS AND REVENUE GENERATION This section describes how Dolby generates revenue through licensing branded technologies and patents, as well as selling products and services, primarily for the cinema industry - Over 90% of revenue comes from licensing branded technology and patents to approximately 1,000 electronic device manufacturers[168] Revenue Composition (in thousands) | Revenue | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :------ | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Licensing | $289,905 (92%) | $267,082 (92%) | $966,390 (93%) | $899,089 (93%) | | Products and services | $25,641 (8%) | $21,736 (8%) | $75,716 (7%) | $69,826 (7%) | | Total revenue | $315,546 (100%) | $288,818 (100%) | $1,042,106 (100%) | $968,915 (100%) | LICENSING This section details the company's primary revenue source, encompassing branded technology licensing, patent licensing, recoveries from under-reported usage, and Dolby Cinema revenue - Licensing revenue is primarily generated from Branded Technologies (Dolby Atmos, Dolby Vision, and Audio Codecs like DD+, Dolby AC-4) and Patents (Audio and Imaging Patents, including AAC, AVC, HEVC)[167][172][175][187] - Branded technology licensing involves a two-stage model: licensing to semiconductor manufacturers and then to OEMs, typically through per-unit royalty arrangements[176][177] - Patent licensing revenue largely comes from participation in patent pools (e.g., Access Advance, Via LA) for standard essential patents, with a minority from bilateral agreements[189][193][196] - Recoveries, from unlicensed or under-reported usage in prior periods, are a recurring but unpredictable element of licensing revenue[197] - Dolby Cinema generates licensing revenue through a share of box office receipts from premium large format (PLF) cinemas that feature Dolby Vision, Dolby Atmos, and proprietary theater design[198] Branded Technology Licensing This section describes Dolby's branded technologies like Dolby Atmos and Dolby Vision, their market adoption, and the value- and volume-based pricing model for royalties - Dolby branded technologies, including Dolby Atmos and Dolby Vision, offer immersive audio and video experiences, enjoying widespread adoption and often mandated as standards[169][172] - The ecosystem for Dolby Atmos and Dolby Vision is growing, with increasing content availability in music, TV shows, movies, user-generated content, audio books, and live sports[174] - Pricing is based on value and volume, with advanced features like Dolby Atmos and Dolby Vision commanding higher royalties, and higher volumes generally leading to lower per-unit prices[179][180][181] Patent Licensing This section explains revenue generation from patents essential to standardized audio and video technologies, including participation in patent pools and bilateral agreements - Patent licensing revenue is primarily derived from Dolby-owned patents essential to standardized audio (AAC, HE-AAC) and video (AVC, HEVC) technologies, which are fundamental to media capture, storage, transmission, and playback[182][187] - The company actively participates in the development of next-generation standardized audio and video technologies, including exploring the use of AI[185] - Dolby participates as a licensor in patent pools administered by entities like Access Advance, Sisvel, Via LA (majority stockholder), and Vectis, which offer simplified access to fundamental technology for licensees[193] Recoveries This section defines recoveries as licensing revenue from previously unlicensed or under-reported use of Dolby technologies, noting their recurring but unpredictable nature - Recoveries represent licensing revenue from unlicensed or under-reported distribution of products incorporating Dolby technologies in prior periods, arising from licensee audits or back-royalties from new license agreements[197] - These recoveries are a recurring element of the business but are subject to fluctuation and unpredictability[197] Dolby Cinema This section describes the Dolby Cinema premium experience, generating revenue through a share of box office receipts from cinemas featuring Dolby Vision and Dolby Atmos - Dolby Cinema offers a branded premium cinema experience with Dolby Vision, Dolby Atmos, and proprietary theater design, generating revenue through a share of box office receipts[198] - The company typically provides the necessary technology to exhibitors at minimal or no upfront cost[198] PRODUCTS AND SERVICES This section covers revenue from the sale of audio and imaging hardware/software for cinema, along with related services and the SaaS product Dolby OptiView - Products and services revenue is primarily derived from the sale of audio and imaging hardware and software solutions for the cinema industry, including digital cinema servers and audio processors[199][200][202] - Services include equipment training, maintenance, mixing room alignment, equalization, image calibration, and post-contract support (PCS)[201] - Dolby OptiView, a SaaS product, contributes to services revenue by powering immersive, interactive, and social experiences for live events via a consumption-based model[203][205] Cinema Imaging Products & Audio Products This section details Dolby's hardware and software solutions for cinema, including digital cinema servers and audio processors, and the widespread adoption of Dolby Atmos screens - Dolby designs and manufactures audio and imaging hardware/software for cinema, including digital cinema servers (e.g., IMS3000) and audio processors (e.g., CP950)[199][200][237] - As of Q3 2025, over 8,400 Dolby Atmos screens are installed or committed, and over 4,100 Dolby Atmos theatrical titles have been announced or released[238] Dolby OptiView This section introduces Dolby OptiView as a SaaS product for real-time digital experiences, utilizing a consumption-based revenue model for high-quality, ultra-low latency streaming - Dolby OptiView is a Software as a Service (SaaS) product licensed directly to enterprises, utilizing a consumption-based revenue model[205] - It aims to bring Dolby's audio and video technologies to real-time digital experiences, enabling high-quality, ultra-low latency streaming for increased audience engagement in live events, especially sports[203][241] END MARKETS This section analyzes the composition of licensing revenue across various end markets, including Broadcast, Mobile, CE, PC, and Other, highlighting shifts in market share Licensing End Market Composition | Market | June 27, 2025 | June 28, 2024 | Main Components of Each Category | | :-------- | :------------ | :------------ | :------------------------------- | | Broadcast | 38% | 36% | Televisions and STBs | | Mobile | 19% | 24% | Smartphones and Tablets | | CE | 10% | 11% | DMAs, Blu-ray Disc devices, AVRs, Soundbars, and DVDs | | PC | 12% | 10% | Windows and macOS operating systems and devices | | Other | 21% | 19% | Dolby Cinema, Gaming consoles, Automotive, and Patent pool administrative fees | | Total | 100% | 100% | | - Broadcast and Mobile remain the largest licensing end markets, with Broadcast revenue increasing to 38% in Q3 2025 from 36% in Q3 2024, while Mobile decreased to 19% from 24%[206] - Growth in 'Other' markets (including automotive, gaming consoles, and Dolby Cinema) increased to 21% in Q3 2025 from 19% in Q3 2024[206] MACROECONOMIC CONDITIONS This section discusses how macroeconomic factors like inflation, interest rates, foreign exchange, and geopolitical conflicts can negatively impact revenue, technology adoption, and pricing - Revenue can be negatively impacted by macroeconomic conditions such as inflation, heightened interest rates, foreign exchange rates, rising costs, tariffs, international conflicts, and reduced consumer spending[207] - Uncertainty or adverse economic climate may delay or decrease technology adoption, lead manufacturers to discontinue Dolby technologies, or seek price reductions[208] - Challenges in licensing include global supply constraints, device lifecycles, difficulties enforcing IP rights in certain countries, and geopolitical factors[209] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section confirms that there have been no material changes to the company's critical accounting policies and estimates since the prior fiscal year - There have been no material changes to the critical accounting policies from those included in the fiscal 2024 Annual Report on Form 10-K[244] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance, examining revenue, gross margin, operating expenses, other income, and income taxes for the reported periods Revenue and Gross Margin This section analyzes the company's revenue and gross margin performance, broken down by licensing and products and services segments, highlighting key drivers of change Licensing Revenue and Gross Margin (in thousands) | Licensing | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Change ($) | Change (%) | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | Change ($) | Change (%) | | :-------- | :--------------------------------- | :--------------------------------- | :--------- | :--------- | :-------------------------------------- | :-------------------------------------- | :--------- | :--------- | | Revenue | $289,905 | $267,082 | $22,823 | 9% | $966,390 | $899,089 | $67,301 | 7% | | Cost of licensing | $21,713 | $17,386 | $4,327 | 25% | $62,508 | $48,440 | $14,068 | 29% | | Gross margin | $268,192 | $249,696 | $18,496 | 7% | $903,882 | $850,649 | $53,233 | 6% | | Gross margin percentage | 93% | 93% | | | 94% | 95% | | | Products and Services Revenue and Gross Margin (in thousands) | Products and Services | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Change ($) | Change (%) | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | Change ($) | Change (%) | | :-------------------- | :--------------------------------- | :--------------------------------- | :--------- | :--------- | :-------------------------------------- | :-------------------------------------- | :--------- | :--------- | | Revenue | $25,641 | $21,736 | $3,905 | 18% | $75,716 | $69,826 | $5,890 | 8% |\ | Cost of products and services | $22,289 | $18,277 | $4,012 | 22% | $58,105 | $58,060 | $45 | —% | | Gross margin | $3,352 | $3,459 | $(107) | (3)% | $17,611 | $11,766 | $5,845 | 50% | | Gross margin percentage | 13% | 16% | | | 23% | 17% | | | Licensing This section details the changes in licensing revenue and gross margin, attributing fluctuations to recoveries, minimum volume commitments, and market segment performance - Q3 2025 licensing revenue increased by $22.8 million (9%) YoY, driven by higher recoveries and timing of minimum volume commitments in PC and Broadcast, and higher automotive and Dolby Cinema revenue in 'Other' markets[248][249] - Mobile licensing revenue decreased in Q3 2025 due to timing of minimum volume commitments in imaging patent programs[249] - Year-to-date licensing revenue increased by $67.3 million (7%) YoY, with Mobile and PC showing higher revenue from imaging patent programs and minimum volume commitments[248][250] Products and Services This section analyzes the revenue and gross margin trends for products and services, noting the impact of Dolby OptiView and Dolby Cinema-related purchases - Q3 2025 products and services revenue increased by $3.9 million (18%) YoY, primarily due to higher services revenue driven by Dolby OptiView[253][254] - Q3 2025 gross margin for products and services decreased by 3% YoY, driven by higher Dolby Cinema-related purchases, partially offset by higher services revenue[253][254] - Year-to-date gross margin for products and services increased by 50% YoY, mainly due to higher services revenue from Dolby OptiView and lower inventory reserve provision[253][255] Operating Expenses This section provides an analysis of changes in research and development, sales and marketing, general and administrative, and restructuring charges Operating Expenses (in thousands) | Operating Expenses | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Change ($) | Change (%) | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | Change ($) | Change (%) | | :----------------- | :--------------------------------- | :--------------------------------- | :--------- | :--------- | :-------------------------------------- | :-------------------------------------- | :--------- | :--------- | | Research and development | $65,982 | $65,501 | $481 | 1% | $194,327 | $195,027 | $(700) | —% | | Sales and marketing | $86,163 | $77,518 | $8,645 | 11% | $270,191 | $246,559 | $23,632 | 10% | | General and administrative | $72,307 | $69,275 | $3,032 | 4% | $212,814 | $201,183 | $11,631 | 6% | | Restructuring charges | $(547) | $4,078 | $(4,625) | (113)% | $8,879 | $7,674 | $1,205 | 16% | Research and Development This section reviews the trends in research and development expenses, noting their relative stability across the reported fiscal periods - R&D expenses remained relatively stable, with a slight increase of 1% in Q3 2025 YoY and a marginal decrease year-to-date[257][258][259] Sales and Marketing This section analyzes the increase in sales and marketing expenses, primarily driven by higher legal costs, payroll, and tradeshow expenditures - S&M expenses increased by $8.6 million (11%) in Q3 2025 YoY, primarily due to higher legal costs for litigation-related activities and increased payroll salaries and tradeshow spend[261][262] - Year-to-date S&M expenses increased by $23.6 million (10%) YoY, driven by higher legal, professional, and contractor costs (including acquired business costs), increased compensation, and higher stock-based compensation[261][263][264] General and Administrative This section details the increase in general and administrative expenses, mainly due to higher credit loss expense and incentive compensation - G&A expenses increased by $3.0 million (4%) in Q3 2025 YoY, mainly due to higher credit loss expense from aged receivables, partially offset by lower marketing program costs[266][267] - Year-to-date G&A expenses increased by $11.6 million (6%) YoY, driven by higher credit loss expense, incentive compensation, salaries, and stock-based compensation[266][268] Restructuring Charges This section discusses the restructuring charges and credits, reflecting actions taken to align resources with strategic priorities and expected operating income savings - Restructuring charges showed a credit of $(0.5) million in Q3 2025, a significant change from a $4.1 million charge in Q3 2024[270] - Year-to-date restructuring charges increased to $8.9 million from $7.7 million, reflecting fiscal 2025 actions to align R&D and S&M resources, expected to yield $20 million in pre-tax operating income savings in fiscal 2025[270] Other Income/Expense This section analyzes the decrease in total other income, primarily attributed to lower interest income from invested cash and short-term investments Other Income (in thousands) | Other income | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Change ($) | Change (%) | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | Change ($) | Change (%) | | :----------- | :--------------------------------- | :--------------------------------- | :--------- | :--------- | :-------------------------------------- | :-------------------------------------- | :--------- | :--------- | | Total other income | $7,877 | $13,381 | $(5,504) | (41)% | $26,535 | $40,773 | $(14,238) | (35)% | - Total other income decreased by $5.5 million (41%) in Q3 2025 YoY and by $14.2 million (35%) year-to-date, primarily due to lower interest income from flat yields on lower invested cash and short-term investments[276][277][278] Income Taxes This section examines the provision for income taxes and effective tax rates, highlighting the impact of R&D tax credits and foreign operations Income Tax Provision and Effective Tax Rate | Income Taxes | Fiscal Quarter Ended June 27, 2025 | Fiscal Quarter Ended June 28, 2024 | Fiscal Year-To-Date Ended June 27, 2025 | Fiscal Year-To-Date Ended June 28, 2024 | | :----------- | :--------------------------------- | :--------------------------------- | :-------------------------------------- | :-------------------------------------- | | Provision for income taxes | $(8,974) | $(10,509) | $(54,979) | $(47,295) | | Effective tax rate | 16.2% | 20.9% | 21.0% | 18.7% | - The effective tax rate decreased to 16.2% in Q3 2025 from 20.9% in Q3 2024, mainly due to higher benefits from U.S. federal R&D tax credits, partially offset by lower benefits from foreign operations[282] - Year-to-date, the effective tax rate increased to 21.0% from 18.7%, primarily due to lower benefits from foreign operations and stock-based compensation, partially offset by higher R&D tax credits[283] LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION This section assesses the company's liquidity, capital resources, and financial condition, including cash flows, capital expenditures, shareholder returns, and contractual obligations - Principal sources of liquidity are cash, cash equivalents, investments, and cash flows from operations, supplemented by a revolving credit facility[284] Selected Financial Information (in thousands) | Category | June 27, 2025 | September 27, 2024 | | :------- | :------------ | :----------------- | | Cash and cash equivalents | $698,566 | $482,047 | | Short-term investments | $763 | — | | Long-term investments | $78,017 | $89,267 | | Accounts receivable, net | $297,614 | $315,465 | | Accounts payable and accrued liabilities | $334,656 | $364,909 | | Working capital | $949,334 | $776,581 | - Working capital increased to $949.3 million as of June 27, 2025, from $776.6 million as of September 27, 2024[285] Capital Expenditures and Uses of Capital This section discusses the company's capital expenditures and how cash and cash equivalents are managed through operations and strategic investments - Capital expenditures include purchases of land, buildings, equipment, and investments in S&M and R&D[286] - Cash and cash equivalents increased in fiscal 2025 through normal operations, recovering from a decline in fiscal 2024 due to the GE Licensing acquisition[287] Shareholder Return This section highlights the company's commitment to returning cash to stockholders through its stock repurchase and quarterly dividend programs - The company has returned cash to stockholders through a stock repurchase program (approximately $3.0 billion completed since fiscal 2010) and a quarterly dividend program ($0.33 per share paid in Q3 2025)[289][290] Cash Flows Analysis This section provides a detailed analysis of net cash flows from operating, investing, and financing activities, explaining the key drivers of changes - Net cash provided by operating activities increased by $138.3 million year-to-date, driven by higher inflows from lower prepaid expenses, other current assets, and accounts receivable, offset by lower income taxes[292] - Net cash from investing activities was $36.3 million higher year-to-date, primarily due to lower outflows from marketable securities purchases and higher inflows from asset sales[293] - Net cash used in financing activities was $44.5 million lower year-to-date, mainly due to lower common stock repurchases, partially offset by higher dividend payments[294] Contractual Obligations and Commitments This section confirms no material changes in off-balance sheet financing or contractual obligations since the prior fiscal year-end - No material changes in off-balance sheet financing arrangements or contractual obligations outside the ordinary course of business since September 27, 2024[295] Indemnification Clauses This section notes the company's indemnification provisions for licensed intellectual property and for officers and directors, with unestimable maximum potential exposure - The company provides indemnification for licensed IP and to officers/directors, but the maximum potential exposure is not reasonably estimable[297] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines Dolby Laboratories, Inc.'s exposure to market risks, specifically focusing on interest rate sensitivity and foreign currency exchange risk. It details the company's investment policies aimed at capital preservation and liquidity, and its strategies for hedging against currency volatility in international operations Interest Rate Sensitivity This section discusses the company's exposure to interest rate fluctuations on its cash, cash equivalents, and investment portfolio, emphasizing its capital preservation policy - As of June 27, 2025, the company held $698.6 million in cash and cash equivalents and $78.8 million in short-term and long-term investments[299] - Investment policy prioritizes capital preservation and liquidity, investing in highly-rated securities (minimum A-) with limited credit exposure to any single issuer (except U.S. government)[299] - The fixed-income portfolio is subject to interest rate fluctuations, which could affect financial position and results of operations[299] Foreign Currency Exchange Risk This section outlines the company's exposure to foreign currency exchange rate movements due to international operations and its use of forward currency contracts for hedging - The company operates