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Item 7. Management’s Discussion and Analysis

2023-11-17 compared with 2022-11-18 · 155 added, 161 removed, 287 unchanged (52% of the section changed)

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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.

EXECUTIVE SUMMARY

The COVID-19 pandemic triggered worldwide shutdowns, supply chain constraints, and other disruptions which in turn have negatively affected the global economy, including consumer purchasing activity.

It is unclear how demand for consumer products that include our technologies may change in response to the ongoing pandemic.

The issues and circumstances relating to COVID-19 continue to change and are difficult to predict.

We continue to monitor the evolving situation and the impact on our business.

The outbreak of COVID-19 has also affected many of our partners, resulting in the disruption of consumer products' supply chains, shortages of certain semiconductor components, and delays in shipments, product development, and product launches.

Consumer demand for products that include our technologies may continue to be negatively impacted due to economic uncertainty resulting from COVID-19.

These factors may cause delays in the adoption of our technologies by partners.

Further, we may be negatively impacted by delays in transaction cycles and our recoveries efforts due to ongoing global restrictions related to the pandemic.

The cinema market has been, and we expect to continue to be, adversely impacted by COVID-19.

At various times, our exhibition partners and customers have had to either partially or fully discontinue operations.

Box office receipts at Dolby Cinema sites and general demand for our cinema products and services by our broader exhibition partners have been, and we expect to remain, lower than that of pre-pandemic levels.

Most cinema locations have been permitted to resume operations, but many such locations are operating under restricted capacity.

Further, the spread of variants of SARS-CoV-2 may result in renewed government responses.

The situation is continuing to evolve, and we cannot predict how or to what extent the cinema market, or other markets we target, may be impacted during the course of the pandemic and long-term.

At Dolby, we continue to implement business strategies that support the health and safety of our employees and enable business continuity.

We have implemented a flex work program that enables connection and effective work delivery in a hybrid work environment.

We enable our employees with the tools and infrastructure they need to carry on our operations and progress the business forward in a hybrid working environment.

We expect COVID-19 will continue to have an impact for the foreseeable future, with varying degrees of impact depending on geographic location.

The degree of impact on our business will depend on several factors.

Further discussion of the potential impacts of COVID-19 on our business can be found in Part I, Item 1A " Risk Factors ."

MACROECONOMIC CONDITIONS

The 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, rising inflation, rising interest rates, COVID-19 related restrictions, supply chain constraints, increased shipping costs, international conflicts, reduced discretionary consumer spending, and reduced new product investment by our customers caused by higher interest rates and lower demand.

Our revenue has been impacted by macroeconomic conditions, including but not limited to, elevated inflation, rising 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 higher 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.

Across all of our markets, these conditions may affect consumer demand for devices and services, our partners’ ability to manufacture devices, and the timing of adoption of our technologies into new products by partners and licensees.

discussion of the potential impacts of these macroeconomic effects on our business can be found in Part I, Item 1A "Risk Factors."

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 I, Item 1A " Risk Factors ."

EXPANDING OUR LEADERSHIP IN AUDIO AND IMAGING EXPERIENCES

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We can increase our value proposition and create opportunities by broadening Dolby technologies into new types of content, such as music, gaming, live sports, and user-generated content.

We are also beginning to make our audio and imaging technologies available for content beyond premium entertainment through Dolby.io, creating new revenue generating opportunities.

Following is a discussion of the key markets that we address and the various Dolby technologies and solutions that serve these markets.

The majority of our licensing revenue is derived from the licensing of audio and imaging technologies for premium entertainment playback.

Our audio technologies are primarily comprised of DD+, Dolby Atmos, AC-4, and our AAC and HE-AAC technologies.

Our imaging technologies are primarily comprised of Dolby Vision and our AVC and HEVC technologies.

Licensing revenue is primarily driven by the adoption of our technologies on devices and the number of devices shipped by licensees.

We are increasingly making our audio and imaging technologies available for content beyond premium entertainment through Dolby.io, creating new revenue generating 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.

The majority of our licensing revenue is derived from the licensing of audio and imaging technologies for entertainment playback.

Our branded technologies are primarily 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 technologies on devices, the number of devices shipped by licensees, and by the 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 is primarily driven by device shipments from licensees, and as such, is impacted by consumer spending.

Other factors, such as global supply constraints or device lifecycles, may also impact revenue from these technologies.

In the future, we expect revenue from our foundational audio technologies to generally reflect market trends in device shipments.

The remaining portion of our licensing revenue is derived from offerings such as Dolby Vision, Dolby Atmos, our imaging patents, and Dolby Cinema.

These offerings have not been in the market as long as our foundational audio technologies, thus revenue growth is primarily driven by increased adoption and the addition of new licensees.

Dolby Vision and Dolby Atmos have not been in the market as long as our foundational audio technologies, thus revenue growth is primarily driven by increased adoption and the addition of new licensees.

technologies licensed through our patent licensing model is driven primarily by our royalty share within patent pools, licensee penetration, device shipments, and the introduction of new standardized technologies and patent programs.

Factors such as global supply constraints or device lifecycles may also impact licensing revenue generally.

Further, in certain countries, 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.

The availability of content in Dolby formats is an important part of creating the ecosystems that drive adoption of our technologies within a wide range of devices.

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Our audio and imaging technologies are also widely available through many forms of distribution, including broadcast TV, streaming, and optical disc playback.

Major streaming partners and services such as Netflix, Disney+, Apple TV+, Amazon, HBO Max, and Paramount+ continue to enable content in Dolby Vision and Dolby Atmos.

Major streaming partners and services such as Netflix, Disney+, Apple TV+, Amazon, Max, and Paramount+ continue to enhance content in Dolby Vision and Dolby Atmos.

For example, in fiscal 2023, Max launched its top tier service with Dolby Vision and 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 have also enabled a broader range of content, such as music, gaming, live sports, and user-generated content.

In music, in fiscal 2022, Dolby Atmos music became available on Tencent Music’s QQ Music streaming service in China and on Melon, a streaming service in South Korea.

In gaming, in fiscal 2022, Xbox's Halo Infinite was released in both Dolby Vision and Dolby Atmos, and popular mobile game PUBG Mobile was made available to play in Dolby Atmos in some markets.

In addition, Moong Labs announced the launch of its popular mobile game "Epic Cricket – Big League" in Dolby Atmos for Android smartphone.

In live sports, the 2022 UEFA Champions League was broadcast in Dolby Vision and Dolby Atmos in some markets, and the 2023 UEFA Champions League will again be broadcast in Dolby Vision and Dolby Atmos.

In addition, during fiscal 2022, the French Open and the German Supercup final match was broadcast in Dolby Atmos.

We have worked with industry leaders to enhance these forms of content through the use of our technologies, creating additional value for the adoption of Dolby within devices such as mobile, PC, gaming consoles, and automotive.

We work with industry leaders to enhance these forms of content through the use of our technologies, creating additional value for the adoption of Dolby within devices such as mobile phones and tablets, PCs, gaming consoles, and automobiles.

We have enhanced a broad range of content, such as music, gaming, live sports, and user-generated content.

In the current fiscal year:

• In music, the Belgian music festival Tomorrowland streamed its festival in Dolby Atmos, and released replay footage of the event on Apple Music in Dolby Atmos.

Apple Music launched Apple Music Classical, a new classical music app with Dolby Atmos supported on thousands of recordings, and Amazon Music, which supports Dolby Atmos, began streaming to a wider set of devices, including more wireless speakers, soundbars, and DMAs.

WYNK Music, a free music streaming service in India, has made Dolby Atmos Music available to India's Airtel's subscribers.

• In gaming, the popular mobile game PUBG Mobile was made available to play in Dolby Atmos globally.

• In sports, the 2022 FIFA World Cup was broadcast internationally by 12 global operators and three free-to-air terrestrial broadcasters in Dolby Vision and/or Dolby Atmos.

The 2023 Indian Premier League cricket matches were available in Dolby Atmos through Disney Star and JioCinema.

The 2023 French Open available for the very first time in Dolby Vision and Dolby Atmos via the streaming provider Molotov TV, and the 2023 Wimbledon Championships were broadcast in Dolby Atmos on Sky Germany.

The 68th UEFA Champions League games were available in Dolby Atmos.

The US Open Tennis Tournament was broadcast in the UK on Sky TV in Dolby Atmos.

Comcast broadcast the Superbowl LVII in Dolby Vision, and is broadcasting ESPN's college football game of the week in Dolby Vision and Dolby Atmos.

Sky Germany began broadcasting the second Bundesliga in Dolby Atmos.

Additionally, Max streamed its Major League Baseball games in Dolby Atmos.

• In user-generated content, Vivo launched its flagship mobile phone X90 Pro+ with Dolby Vision Capture and playback, further enabling the creation of user-generated content.

Weibo, one of China's largest social media platforms, began supporting Dolby Vision and Dolby Atmos.

Audiobooks on Audible now support Dolby Atmos.

Moj, India's largest short video platform, now supports Dolby Vision, and Viddsee, a short film video platform in Singapore, now supports Dolby Vision and Dolby Atmos.

The following are highlights from our fiscal 2023 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 I, Item 1A " Risk Factors ."

We have an established global presence with respect to our DD+ and HE-AAC audio technologies in broadcast services and devices.

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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 have continued to expand their support of the combined Dolby Vision and Dolby Atmos experience.

For example, in fiscal 2022, LG launched new TVs that support Dolby Vision, Dolby Vision IQ, and Dolby Atmos, and Samsung launched new TVs that support Dolby Atmos.

Also in fiscal 2022, Hisense launched their ULED TVs that support Dolby Vision IQ and Dolby Atmos, and launched their laser TV projector that supports Dolby Vision and Dolby Atmos, while TCL launched new TVs with Dolby Vision, Dolby Vision IQ, and Dolby Atmos.

We are also seeing more STB providers adopting Dolby Vision in their devices.

Many such partners continue to expand their support of the

combined Dolby Vision and Dolby Atmos experience.

For example, at CES in January 2023, LG announced its TV lineup that supports Dolby Vision and Dolby Atmos, and Hisense announced several new UHD TVs and Laser TVs that support Dolby Vision and Dolby Atmos.

Additionally in fiscal 2023, TCL announced new QLED and Mini-LED TVs with Dolby Vision and Dolby Atmos, and that it is expanding the number of products in its lineup that support Dolby Vision and Dolby Atmos in India.

We also recently announced that our new feature Dolby Atmos FlexConnect will be supported by TCL's 2024 TV lineup.

Acer launched TVs with DD+, Dolby Vision and Dolby Atmos in India.

Polytron, the largest TV OEM in Indonesia, launched TVs that support Dolby Vision and Dolby Atmos.

Hoichoi, an Indian OTT, adopted Dolby Atmos and Dolby Vision.

Key Challenges:

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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, our revenue could be impacted.

Further, in certain 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.

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.

Additionally, we face geopolitical challenges including changes in diplomatic and trade relationships, trade protection measures, and import or export licensing requirements.

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The breadth of mobile devices supporting Dolby technologies continues to increase globally.

In fiscal 2022, Xiaomi launched or announced a number of new smartphones supporting Dolby Vision and Dolby Atmos, including the new 12S series, the first Android phone capable of recording video in Dolby Vision.

Additionally, in fiscal 2022, OnePlus launched new Ace Pro smartphones that support Dolby Atmos.

For tablets, in fiscal 2022, ASUS released a new tablet that supports Dolby Vision and Dolby Atmos, and Vivo launched the Vivo Pad, which is the first Vivo product with Dolby Vision and Dolby Atmos.

In fiscal 2023, OPPO launched the OnePlus 11, its first phone that supports Dolby Vision and Dolby Atmos.

In addition, OPPO launched its first flagship phone with Dolby Vision Capture, and OnePlus launched its first phone with Dolby Vision playback and Dolby Atmos.

Xiaomi, which now has multiple Dolby Vision Capture phone models in China, began shipping Dolby Vision Capture phone models in India, Southeast Asia, Europe and the Middle East during the year.

Also in fiscal 2023, Vivo began shipping Dolby Vision Capture phones in China.

Motorola became our latest partner to announce and start shipping its first Dolby Vision playback phone globally.

Honor, a Chinese smart phone manufacturer, recently launched smart phones that support Dolby Vision playback.

Key Challenges:

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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, our revenue could be impacted.

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.

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We continue to focus on expanding the availability of Dolby technologies to new devices.

In fiscal 2022, Samsung, Hisense, Prism+, and Bose all launched new soundbar models that support Dolby Atmos.

At CES in January 2023, LG and Samsung each announced 2023 soundbar lineups that support Dolby Atmos.

Also in fiscal 2023, Sonos launched their premium smart speaker, the Sonos Era 300, with Dolby Atmos.

Zebronics announced a new soundbar that supports Dolby Atmos to be sold in India.

Jabra launched headphone products that support Dolby Atmos.

XGIMI announced the 4K long throw home projector with Dolby Vision.

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.

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.

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A number of PCs from partners such as Apple, Lenovo, Dell, Samsung, and ASUS also support Dolby Vision and/or Dolby Atmos, with continued expansion of applications through music, streaming, and gaming.

In addition, in fiscal 2022, Dell and ASUS released their latest laptop models that now support Dolby Vision and Dolby Atmos.

In fiscal 2023, Tencent's streaming music platform QQ Music launched Dolby Atmos support in Mac operating systems.

Also in fiscal 2023, Microsoft launched its latest tablets that support Dolby Vision and Dolby Atmos.

Key Challenges :

PC revenue from audio technologies such as DD+ has been impacted by a decline in the portion of PCs that have optical disc functionality in recent years, which has resulted in a decline in our ASPs, and we expect this decline in ASPs to continue.

Demand for PCs has recently been declining and it 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 manufacturers to incorporate our technologies, and we must continue to support the development and distribution of Dolby content via various ecosystems.

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Additionally, our technologies continue to be incorporated into the latest headphones by various OEMs.

In fiscal 2022, Cosmic Byte, Alienware, and Zebronics launched headsets that support Dolby Atmos.

We also generate revenue from the automotive industry primarily through disc playback devices as well as other elements of the entertainment system, and more recently through the adoption of Dolby Atmos Music.

In fiscal 2022, Mercedes-Benz announced they would be adopting Dolby Atmos in their Mercedes-Maybach models, the EQS and EQS SUV, as well as the EQE and the S-Class with support for Dolby Atmos Music provided by Apple Music.

Also in fiscal 2022, Chinese electric car manufacturers NIO, Li Auto, and XPENG launched multiple car models that support Dolby Atmos.

Recently, Polestar and Lotus announced that their latest models will be the first of their car models to support Dolby Atmos.

In fiscal 2023, Sony Interactive Entertainment announced that PlayStation 5 is unlocking support for compatible Dolby Atmos-enabled living room devices with the latest PS5 system software beta, available to beta participants in select markets.

Sony Interactive Entertainment also announced support for Dolby Atmos on the PS5.

We also generate revenue from the automotive industry through disc playback devices as well as other elements of the entertainment system, and through the adoption of Dolby Atmos Music.

In fiscal 2023, Mercedes-Benz adopted Dolby Atmos and Dolby Atmos Music in several of its car models, and continues to add our technologies to more models and ship more models globally.

Also in fiscal 2023, Chinese electric car manufacturer Li Auto and NetEase Cloud Music announced a collaboration to deliver Dolby Atmos Music in Li Auto cars.

Additionally, Guangzhou Automobile Group, a large Chinese auto manufacturer, announced the launch of a new sport sedan that features Dolby Atmos, and NIO and Lotus launched cars that support Dolby Atmos beyond the domestic Chinese market into Europe as well.

Yangwang announced its first car, the Yangwang U8 model, supporting Dolby Atmos, our fifth automotive OEM this year.

Key Challenges :

Consumer demand for devices in the gaming industry is impacted by anticipation of console refresh cycles.

Consumer 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 has competition from mobile devices and gaming PCs, which have faster refresh cycles and appeal to a broader consumer base.

Also, automotive revenue has been negatively impacted by a decline in the portion of cars that have optical disc playback in recent years.

In addition, recent shortages of certain semiconductor components could result in lower implementation of our technologies in vehicles by automotive manufacturers.

If OEMs do not incorporate our technologies in current and future products, our revenue will face downward pressure.

Automotive 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.

Additionally, we face geopolitical challenges including changes in diplomatic and trade relationships, trade protection measures, and import or export licensing requirements.

In addition to licensing revenue derived from the licensing of audio and imaging technologies into the markets discussed above, we offer our audio and imaging technologies to create Dolby experiences through Dolby Cinema.

We continue to expand our global presence for Dolby Cinema, with over 280 open Dolby Cinema sites located in the U.S.

and internationally, subject to capacity restrictions per local regulations.

The breadth of motion pictures for Dolby Cinema continues to grow with over 400 theatrical titles in Dolby Vision and Dolby Atmos having been announced or released from all of the major studios as of the end of fiscal 2022.

Included within Other Markets is also licensing revenue from audio and imaging technologies used to create Dolby experiences through Dolby Cinema.

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 500 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 fiscal 2023.

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 in accordance with plans, and attract and retain a global viewing audience.

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 including the closure of cinemas in China and government-imposed restrictions has had a negative impact on our cinema-related revenue and consumer demand, although consumer demand for the cinema has improved recently.

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 recently concluded strikes by the Writers Guild of America and SAG-AFTRA effectively halted the production, release and promotion of certain films for an extended period.

The resulting impacts of those stoppages may result in near-term decreases in box office receipts and our cinema-related revenue.

PRODUCTS AND SERVICES

A majority of our products and services revenue is derived from the sale of audio and imaging products for the cinema, television, broadcast, communication, and entertainment industries.

Revenue from our developer platform, Dolby.io, is also included in products and services.

Revenue from Dolby.io is also included in products and services.

Cinema Products and Services

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Demand for our cinema products is dependent upon our partners and their success in the market, industry and economic cycles, box office performance, and our ability to develop and introduce new technologies, further our relationships with content creators, and promote new cinematic audio and imaging experiences.

A significant portion of our growth opportunity lies in international markets, such as China, which are subject to economic risks as well as geopolitical risks.

A significant portion of our growth opportunity lies in international markets, which are subject to geopolitical risks.

Additionally, weakness in general economic conditions due to inflation, recession, pandemic or other worsening economic conditions could have a negative impact on our cinema-related revenue due to reduced consumer discretionary spending.

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We have also experienced supply chain shortages and increased shipping costs that have created challenges to maintain the sufficient supply of cinema products to meet the demand in the market.

Additionally, the effects of COVID-19 such as the closure of cinemas and public health mandates have had a negative impact on Dolby Cinema attendance.

As demand continues to recover, supply chain constraints may impact our ability to provide cinema products and services to our customers.

In addition, supply chain constraints may impact our ability to provide cinema products and services to our customers.

COVID-19 has also negatively impacted the financial health of our cinema customers and partners.

We continue to closely monitor the ongoing impact of these conditions.

Developer Platform Services

We are focused on bringing our expertise in media and communications to a broader range of content and digital experiences .

For example, we are increasing our engagement with new customers across different industries through our developer platform, Dolby.io, that enables developers to access our technologies through APIs.

The current offerings include audio and video APIs for building high-quality communications, media, and streaming solutions.

Following the initial launch of Dolby.io in fiscal 2020, we have seen an expansion of the use cases for the platform.

Examples include virtual live performances, online and hybrid events, social audio, premium education, gaming, sports, and content creation and production.

Dolby.io provides tools to help developers create immersive experiences through apps and services with high quality audio and video, spatialized sound, and deliver live-streamed content with low latency.

In addition, the recently concluded strikes by the Writers Guild of America and SAG-AFTRA effectively halted the production, release and promotion of certain films for an extended period.

The resulting impacts of those stoppages may lead to decreased box office receipts in the near term, which could potentially impact exhibitors' willingness and ability to invest in our cinema products .

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 used more broadly.

Key Challenges:

Dolby.io is an early-stage business, and it is uncertain when or if it will be a material revenue driver.

Our success in this market will depend on the number of developers we are able to attract and retain, the volume of usage of the service, and our ability to monetize our services.

Our success in this market will depend on adoption from companies building real-time digital experiences that

increase audience engagement, the volume of usage of the 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 online experiences has been growing, Dolby's API technologies compete with other offerings.

Although the market for real-time experiences has been growing, Dolby.io competes with other offerings.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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We apply the royalty exception to these arrangements, which requires that we recognize sales-based royalties at the later of when the sales occur based on our estimates or the completion of our performance obligations.

Our estimates of royalty-based revenue take into consideration the macroeconomic effect of global events, such as inflation, COVID-19, or other economic conditions, which may impact supply chain activities as well as demand for shipments.

Our estimates of royalty-based revenue take into consideration the macroeconomic effect of global events, such as inflation, elevated interest rates, economic impacts related to COVID-19, or other economic conditions, which may impact supply chain activities as well as demand for shipments.

These estimates also 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.

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Transaction price is determined at contract execution and, to the extent variable consideration applies, is updated each subsequent reporting period until the completion of the contract.

We evaluate whether other distinct performance obligations exist, such as PCS, and determine the stand-alone selling price 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.

We evaluate whether other distinct performance obligations exist, such as PCS, and determine the stand-alone selling price.

We do so by considering actual stand-alone sales in addition to 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.

In addition, we evaluate whether a significant financing component exists when we recognize revenue in advance of customer payments that occur over time and extend beyond one year.

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The discount rate used for each arrangement reflects the rate that would be used in a separate financing transaction between us and the licensee at contract inception and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement.

If we assess the financing component to be significant to the contract, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component.

If we assess the financing component to be significant to the contract, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated

financing component.

The portion related to the financing component is recorded as interest income, and is not material to our consolidated financial statements.

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For the discussion and analysis highlighting comparisons of material changes in the consolidated financial statements for the years ended September 30, 2022 and September 24, 2021, refer to Part II, Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations " included in our Annual Report on Form 10-K for the year ended September 30, 2022, which is incorporated herein by reference.

Note that adjustments related to previously under-reported sales-based royalties as well as unlicensed settlement activity, are collectively referred to as "recoveries." Amounts displayed, except percentages, are in thousands.

Note that adjustments related to sales-based royalties that were misreported by licensees as well as unlicensed settlement activity, are collectively referred to as "recoveries." Amounts displayed, except percentages, are in thousands.

Revenue and Gross Margin

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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.

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Factor Licensing Revenue Gross Margin

Broadcast â Lower foundational audio revenue due to lower TV unit shipments globally and lower recoveries, partially offset by higher adoption of Dolby Vision and Dolby Atmos technologies in TVs and STBs ßà No significant fluctuations

Mobile â Lower revenue due to timing, including recoveries, partially offset by higher adoption of Dolby Vision and Dolby Atmos technologies and new licensees in our imaging patent programs

PC á Higher adoption of Dolby Vision and Dolby Atmos technologies and new licensees in our imaging patent programs, and higher recoveries, partially offset by lower unit shipments

CE á Higher adoption of Dolby Atmos and Dolby Vision across devices, partially offset by lower unit shipments

Other ßà Higher Dolby Cinema revenue due to more screens being open and strong box office performance in fiscal 2022, partially offset by lower gaming and automotive revenue

Other á Higher revenue from imaging patent pool administrative fees, higher revenue due to gaming console shipments, higher automotive revenue driven by higher adoption of Dolby Atmos ßà No significant fluctuations

PC â Lower revenue driven by lower shipments and lower recoveries, primarily from foundational audio technologies, partially offset by higher revenue from our imaging patent programs

Broadcast á Higher revenue from our imaging patent programs, partially offset by lower unit shipments primarily in STBs, impacting revenue from foundational audio technologies

CE â Lower revenue from unit shipments in DMAs, and lower revenue due to timing of minimum volume commitments, primarily impacting revenue from foundational audio technologies, partially offset by higher revenue from our imaging patent programs

Mobile á Higher revenue from new licensees in our audio patent programs and increased adoption of Dolby Vision, partially offset by lower revenue from minimum volume commitments

Products and Services

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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 our Dolby.io developer platform.

Cost of services consists of personnel and personnel-related costs for providing our professional services, software maintenance and support, external consultants, and other direct expenses incurred on behalf of customers.

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 contractors, and other direct expenses incurred on behalf of customers.

Fiscal Year Ended Change

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Factor Products and Services Revenue Gross Margin

Products á Increased demand for cinema equipment as the exhibitor market continues to recover following COVID-19-related shutdowns

á Higher gross margin primarily due to higher products revenue

Services á Higher services revenue primarily due to revenue from our cloud initiatives such as Dolby.io, cinema production services, partially offset by lower Dolby Voice hardware services

â Lower gross margin due to increased warranty expense on Dolby Cinema equipment, higher contractor expenses, and higher computer equipment and web hosting fees for our cloud initiatives, offset by higher revenue

Products á Increased demand for cinema equipment as the exhibitor market continues to recover á Higher cinema product sales partially offset by excess and obsolescence reserve

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, contractor and contract labor costs, depreciation and amortization, facilities costs, costs for outside materials, and information technology expenses.

R&D expenses consist primarily of employee compensation and benefits expenses, stock-based compensation, external contractor costs, depreciation and amortization, facilities costs, costs for outside materials, and information technology expenses.

Fiscal Year Ended Change

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Category Key Drivers

Compensation & Benefits â Lower costs of $10.5 million due to our annual bonus program, partially offset by higher salaries expense due to the extra week in the current fiscal year

Stock-based Compensation á Higher costs of $7.0 million due to increased fair value of RSUs

Systems, Telecommunications and Computer Equipment á Higher costs of $4.1 million primarily due to higher cloud hosting costs

Compensation & Benefits á Higher costs of $6.8 million primarily due to higher variable compensation

Travel á Higher costs of $2.5 million due to increased company travel as a result of fewer COVID-19 travel restrictions, and increased in-person presence at certain events

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, consulting fees, facilities costs, depreciation and amortization, information technology expenses, and legal costs associated with the protection of our IP.

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, contractor fees, facilities costs, depreciation and amortization, information technology expenses, and legal costs associated with the protection of our IP.

Fiscal Year Ended Change

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Category Key Drivers

Legal, Professional, & Consulting á Higher costs of $13.1 million primarily due to legal support for patents and licensee audits, and higher consulting expense for the increased development of digital marketing programs

Stock-based Compensation á Higher costs of $6.0 million primarily due to increased fair value of RSUs, offset by lower costs of $1.4 million due to fewer outstanding unearned options

Travel á Higher costs of $4.5 million for increased company travel as a result of fewer COVID-19 travel restrictions

Compensation & Benefits â Lower costs of $7.6 million primarily due to our annual bonus program, partially offset by higher costs of $7.1 million for higher salaries expense primarily due to increased headcount and the extra week in the current fiscal year

Legal, Professional, and Contractors â Lower costs of $10.6 million primarily due to timing of patent program-related expenses

Marketing Programs á Higher costs of $8.3 million primarily due to increased marketing activities

Travel á Higher costs of $5.2 million due to increased travel as a result of fewer COVID-19 travel restrictions, and increased in-person presence at certain events

Compensation & Benefits â Lower payroll salaries expense of $4.7 million primarily due to lower headcount

General and Administrative

G&A expenses consist primarily of employee compensation and benefits expenses, stock-based compensation, depreciation, facilities and information technology costs, as well as professional fees and other costs associated with external consulting and contract labor.

G&A expenses consist primarily of employee compensation and benefits, stock-based compensation, depreciation and amortization, facilities and information technology costs, as well as professional fees and other costs associated with external contractors.

Fiscal Year Ended Change

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Category Key Drivers

Other Miscellaneous Expenses á Higher costs of $34.4 million related to the resolution of the legal matter discussed above

Credit Loss Expense á Higher credit loss expense of $8.4 million primarily due to aging license receivable balances

Compensation & Benefits â Lower costs of $6.3 million primarily due to our annual bonus program, partially offset by higher costs of $5.9 million for higher salaries expense primarily due to increased headcount and the extra week in the current fiscal year

Gain on Sale of Assets

Fiscal Year Ended Change

September 30,

2022 September 24,

Gain on sale of assets $— $(13,871) $13,871 100%

Percentage of total revenue —% (1)%

In fiscal 2021, we finalized the sale of a property, which included land and a building, resulting in a gain of $13.9 million, which was recorded to gain on sale of assets o n the consolidated statements of operations.

Refer to "Net (Income)/Loss Attributable to Controlling Interest" section below for more information.

Other Miscellaneous Expenses â Lower costs of $34.4 million related to the resolution of the legal matter discussed above, in the prior year

Credit Loss Expense â Lower credit loss expense of $6.3 million primarily due to higher collections

Compensation & Benefits á Higher costs of $5.3 million primarily due to higher variable compensation, higher payroll salaries expense of $4.3 million due to increased headcount due to the MPEG LA (as defined below) acquisition

Legal, Professional, and Contractors á Higher costs of $2.2 million primarily due to transaction costs resulting from the MPEG LA acquisition

Restructuring Charges

Restructuring charges recorded as operating expenses in our consolidated statements of operations represent costs associated with separate individual restructuring plans implemented in various fiscal periods.

Restructuring charges recorded as operating expenses in our consolidated statements of operations represent costs associated with separate 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.

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Percentage of total revenue 4% 1%

Restructuring charges was flat due to the restructuring events in fiscal 2022 and the restructuring events in fiscal 2021, to align resources with a revised business strategy and outlook, and to support our higher priority focus areas.

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 actions, we recorded restructuring charges of $10.9 million in severance and other related benefits offered to approximately 130 impacted employees and $6.9 million related to facility consolidation in New York, NY.

In September 2023, we initiated a focused restructuring plan with the purpose of focusing our resources on our highest strategic priorities.

We recorded expense of $13.4 million in severance and other related benefits offered to approximately 160 impacted employees.

The remaining components of this plan are expected to be completed in November 2023, resulting in an additional charge of approximately $5.0 million in severance and other termination benefits.

In conjunction with focusing our resources on our top strategic priorities, we recorded an impairment loss of $16.9 million related primarily to internally developed software for projects we are no longer pursuing.

For additional information on our Restructuring programs, see Note 13 " Restructuring " to our consolidated financial statements.

Other Income/Expense

Other income/expense primarily consists of interest income earned on cash and investments and the net gains or losses from foreign currency transactions, derivative instruments, our proportionate share of net income or losses from our equity method investment, and sales of marketable securities from our investment portfolio.

Other income/expense primarily consists of interest income earned on cash and investments and the net 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.

Fiscal Year Ended Change

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Interest income $28,086 $6,174 $21,912 355%

Interest expense (394) (479) 85 (18)%

Other income, net 6,214 2,500 3,714 149%

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Interest Income á Higher yields on current year investment balances due to increased interest rates

Other Income â Lower income primarily due to lower yields on our SERP balances in the current year

Other Income á Higher income primarily due to higher yields on our SERP balances in the current year, and higher foreign currency transaction gains

Our effective tax rate is based on our fiscal year results and is affected by several factors.

These reflect the current statutory rates in our domestic and foreign jurisdictions, the relative income earned in our foreign jurisdictions, and nonrecurring items such as changes to our unrecognized tax benefits that may occur in but are not necessarily consistent between periods.

These include the current statutory rates in our domestic and foreign jurisdictions, the relative income earned in our foreign jurisdictions, and nonrecurring items such as changes to our unrecognized tax benefits that may occur in but are not necessarily consistent between periods.

For additional information related to effective tax rates, see Note 12 " Income Taxes" to our consolidated financial statements.

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Stock-based Compensation á Lower benefit related to the settlement of stock-based awards.

Foreign Operations á Lower benefit from earned income in lower tax jurisdictions.

Research and Development â Higher benefit from R&D tax credits.

Net (Income)/Loss Attributable to Controlling Interest

Fiscal Year Ended Change

September 30,

2022 September 24,

Net (income)/loss attributable to controlling interest $189 $(7,596) $7,785 (102)%

Percentage of total revenue —% (1)%

In fiscal 2021, we finalized the sale of a property, which included land and building, and as a result, we recognized a gain of $13.9 million to gain on sale of assets on the consolidated statements of operations.

The property was 51% owned by the controlling interest, and therefore 51% of the gain on sale of assets has been attributed to the controlling interest.

Research and Development á Lower benefit from R&D tax credits.

LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION

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We believe that these sources will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve months.

As of September 30, 2022, we had cash and cash equivalents of $620.1 million, which mainly consisted of cash and highly-liquid money market funds.

In addition, we had short and long-term investments of $291.7 million, which consisted primarily of corporate bonds, government bonds, municipal debt securities, certificates of deposit, commercial paper, and U.S.

As of September 29, 2023, we had cash and cash equivalents of $745.4 million, which consisted of cash and highly liquid money market funds.

In addition, we had short and long-term investments of $237.0 million, which primarily consisted of government bonds, corporate bonds, municipal debt securities, certificates of deposit, commercial paper, and U.S.

agency securities.

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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 are currently analyzing the impact of the excise tax on our future operations.

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.

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Cash Flows Analysis

For the following comparative analysis performed for each of the sections of the 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 (in thousands).

For the following comparative analysis performed for each of the sections of the consolidated statements 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 (in thousands).

Operating Activities

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Net cash provided by operating activities $ 367,081 $ 318,576

Net cash provided by operating activities decreased $129.2 million in fiscal 2022 compared to fiscal 2021, primarily due to the following:

Net cash provided by operating activities increased $48.5 million in fiscal 2023 compared to fiscal 2022, primarily due to the following:

Factor Impact On Cash Flows

Net Income â Lower revenue, higher costs associated with the resolution of a legal matter discussed in Note 15 to the consolidated financial statements, and higher S&M expenses

Working Capital â Decrease due to lower accounts payable and accrued liabilities and higher inventories, partially offset by lower accounts receivable and contract assets

Operating assets and liabilities á Higher inflows due to lower accounts receivable and higher operating lease liabilities, partially offset by lower accounts payable and accrued liabilities and lower income taxes

Investing Activities

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2023 September 30,

Net cash used in investing activities $ (295,935) $ (44,905)

Net cash used in investing activities was $251.0 million higher in fiscal 2022 compared to fiscal 2021, primarily due to the following:

Net cash provided by/(used in) investing activities $ 54,206 $ (295,935)

Net cash provided by/(used in) investing activities was $350.1 million higher in fiscal 2023 compared to fiscal 2022, primarily due to the following:

Factor Impact On Cash Flows

Purchase of Investments â Higher outflows for the purchase of marketable investment securities, and other investments

Purchase of Investments á Lower outflows for the purchase of marketable investment securities

Proceeds from Investments á Higher inflows from the sale and maturity of marketable investment securities

Business Combinations â Higher outflows for the acquisition of Millicast, Inc.

("Millicast") completed in fiscal 2022

Sale of Assets â Lower inflows for the sale of property in the prior year that was 51% owned by the controlling interest

Business Combinations á Inflows due to restricted cash balances acquired in connection with the MPEG LA acquisition

Financing Activities

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Net cash used in financing activities $ (236,812) $ (610,558)

Net cash used in financing activities was $358.0 million higher in fiscal 2022 compared to fiscal 2021, primarily due to the following:

Net cash used in financing activities was $373.7 million lower in fiscal 2023 compared to fiscal 2022, primarily due to the following:

Factor Impact On Cash Flows

Share Repurchases â Higher outflows from increases in common stock repurchases

Share Repurchases á Lower outflows due to lower common stock repurchases

Common Stock Issuance â Lower inflows from employee stock option exercises

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

Distribution to Controlling Interest á Lower outflows for distributions to controlling interest due to the sale of property that was 51% owned by the controlling interest in fiscal 2021, that did not recur in fiscal 2022

Contractual Obligations and Commitments

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Naming rights $ 12,794 $ 26,598 $ 17,176 $ 35,674 $ 92,242

Operating leases, including imputed interest 15,995 21,626 10,595 12,240 60,456

Purchase obligations 29,934 4,667 — — 34,601

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The term of the agreement is 20 years, over which we will make payments on a semi-annual basis until fiscal 2032.

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.

For additional details regarding our naming rights commitments, see Note 14 " Commitments and Contingencies " to our consolidated financial statements.

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.

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 noncontrolling interests in our wholly-owned and majority-owned subsidiaries.

For additional details regarding our leases, see Note 7 " Leases " to our consolidated financial statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis