Dolby Laboratories(US:DLB)2026-01-29 21:57Revenue Performance - Total revenue for the fiscal quarter ended December 26, 2025, was $346.7 million, a decrease of 2% from $357.0 million for the same period in 2024[161]. - Licensing revenue accounted for 92% of total revenue at $319.8 million, while products and services contributed 8% at $26.9 million[161]. - Dolby generated 92% of its revenue in Q1 fiscal 2026 through licensing technology, brand, and patents, primarily to device manufacturers[201]. - Licensing revenue for Q1 2026 was $319,771, a decrease of 3% from $330,479 in Q1 2025, representing 92% of total revenue[242]. - Products and Services revenue increased by 2% to $26,935 from $26,520, accounting for 8% of total revenue[246]. Licensing and Patents - Dolby holds approximately 29,000 issued patents related to licensed technologies, which significantly contribute to licensing revenue[163]. - The company generated over 90% of its revenue from licensing agreements with around 1,000 electronic device manufacturers[163]. - Dolby's patent licensing primarily comes from standard essential patents associated with AAC, AVC, and HEVC codecs, which are critical for media technologies[182]. - Dolby's patent licensing revenue is primarily driven by royalty shares within patent pools, licensee penetration, and device shipments[208]. - Revenue from patent licensing is also influenced by the success of patent pools and the negotiation of licenses with companies using the relevant standards[213]. Technology and Innovation - Dolby Atmos and Dolby Vision are key branded technologies driving revenue growth, enabling immersive audio and video experiences[167]. - The company is exploring the use of artificial intelligence in the development of next-generation audio and video codecs[180]. - Dolby's branded technology licensing includes rights to software, patent rights, and know-how, with revenue driven by device shipments and consumer spending[205]. - Dolby Atmos and Dolby Vision have seen increased adoption, with major streaming services enhancing content using these technologies[207]. Market Dynamics - The company aims to expand the reach of its technologies to new content, media, devices, and audiences[159]. - Dolby's licensing customers typically enter into per unit royalty arrangements, which can lead to revenue variability[172]. - The company collaborates with content creators and device manufacturers to create a virtuous cycle of product development and demand for its solutions[158]. - The company faces challenges from macroeconomic conditions, including inflation and tariffs, which may impact revenue from licensing and product sales[202]. - The automotive industry's cyclical nature and long development cycles may affect revenue growth from automotive-related technologies[227]. Financial Performance - Gross profit for Products and Services decreased by 35% to $4,489, with a gross margin of 17%, down from 26%[246]. - Research and Development (R&D) expenses increased by $2,439 million, or 4%, from $66,638 million in Q1 2025 to $69,077 million in Q1 2026, representing 20% of total revenue[249]. - Sales and Marketing (S&M) expenses decreased by $2,847 million, or 3%, from $94,399 million in Q1 2025 to $91,552 million in Q1 2026, maintaining 26% of total revenue[252]. - General and Administrative (G&A) expenses slightly increased by $151 million, remaining stable at 20% of total revenue, from $70,092 million in Q1 2025 to $70,243 million in Q1 2026[254]. - Restructuring charges rose significantly by $5,250 million, or 101%, from $5,216 million in Q1 2025 to $10,466 million in Q1 2026, accounting for 3% of total revenue[257]. Cash Flow and Investments - Cash and cash equivalents decreased from $701,893 million as of September 26, 2025, to $643,845 million as of December 26, 2025[269]. - Net cash provided by operating activities decreased by $52.0 million, from $106,779 million in Q1 2025 to $54,799 million in Q1 2026, primarily due to higher accounts receivable[276]. - Net cash used in financing activities increased by $64.3 million, from $57,571 million in Q1 2025 to $121,834 million in Q1 2026, mainly due to higher common stock repurchases[278]. - The company has returned approximately $3.1 billion to stockholders through stock repurchases since the program's initiation in fiscal 2010[273]. - As of December 26, 2025, the company had cash and cash equivalents of $643.8 million and short-term and long-term investments of $85.8 million[282]. Foreign Currency Exposure - The company maintains exposure to foreign currency exchange risk due to operations in countries like Australia, China, Germany, Ireland, Poland, and the U.K.[283]. - The majority of revenue from international markets is denominated in U.S. dollars, while operating expenses are primarily in local currencies, leading to potential increases in expenses when the U.S. dollar weakens[283]. - The company uses forward currency contracts as cash flow hedges with maturities of thirteen months or less to mitigate currency volatility impacts on operating expenses[284]. - A sensitivity analysis indicated that a 10% increase in the U.S. dollar value would decrease the fair value of financial instruments by $3.7 million, while a 10% decrease would increase it by the same amount[289].