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For the Quarterly Period Ended June 30, 2023

For the Transition Period From              To             

Commission File Number: 001-32431

(Exact name of registrant as specified in its charter)

Delaware									90-0199783
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)
1275 Market Street			San Francisco			California			94103-1410
(Address of principal executive offices)									(Zip Code)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Class A common stock, $0.001 par value			DLB			The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer			☒			Accelerated Filer			☐
Non-accelerated Filer			☐			Smaller Reporting Company			☐
						Emerging Growth Company			☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

On July 28, 2023, the registrant had 59,555,465 shares of Class A common stock, par value $0.001 per share, and 36,085,779 shares of Class B common stock, par value $0.001 per share, outstanding.

 

			PART I – FINANCIAL INFORMATION
Item 1.			Unaudited Interim Condensed Consolidated Financial Statements			4
			Unaudited Interim Condensed Consolidated Balance Sheets			4
			Unaudited Interim Condensed Consolidated Statements of Operations			5
			Unaudited Interim Condensed Consolidated Statements of Comprehensive Income			6
			Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity			7
			Unaudited Interim Condensed Consolidated Statements of Cash Flows			9
			Notes to Unaudited Interim Condensed Consolidated Financial Statements			10
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			52
Item 4.			Controls and Procedures			54
			PART II – OTHER INFORMATION
Item 1.			Legal Proceedings			55
Item 1A.			Risk Factors			55
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			70
Item 5.			Other Information			70
Item 6.			Exhibits			71
Signature

The following table summarizes certain terms and abbreviations that may be used within the text of this report:

(in thousands, except share and per share amounts)

(in thousands, except per share amounts)

 

			Fiscal Quarter Ended									Fiscal Year-To-Date Ended
			June 30, 2023			July 1, 2022						June 30, 2023			July 1, 2022
Revenue:
Licensing			$	273,108		$	269,289					$	932,727		$	915,406
Products and services			25,262			20,296						76,455			60,183
Total revenue			298,370			289,585						1,009,182			975,589
Cost of revenue:
Cost of licensing			15,610			13,756						50,334			45,363
Cost of products and services			25,905			22,201						66,680			58,818
Total cost of revenue			41,515			35,957						117,014			104,181
Gross profit			256,855			253,628						892,168			871,408
Operating expenses:
Research and development			68,696			62,859						201,097			199,104
Sales and marketing			85,594			87,114						263,494			268,514
General and administrative			69,954			57,113						191,865			218,250
Restructuring charges			16,676			976						16,465			6,043
Total operating expenses			240,920			208,062						672,921			691,911
Operating income			15,935			45,566						219,247			179,497
Other income/(expense):
Interest income			7,316			1,416						18,967			3,230
Interest expense			(114)			(84)						(161)			(255)
Other income, net			620			2,514						2,967			1,833
Total other income			7,822			3,846						21,773			4,808
Income before income taxes			23,757			49,412						241,020			184,305
Provision for income taxes			(7,352)			(9,802)						(49,284)			(28,166)
Net income including noncontrolling interest			16,405			39,610						191,736			156,139
Less: net (income)/loss attributable to noncontrolling interest			(6)			(13)						(266)			192
Net income attributable to Dolby Laboratories, Inc.			$	16,399		$	39,597					$	191,470		$	156,331
Net income per share:
Basic			$	0.17		$	0.40					$	2.00		$	1.55
Diluted			$	0.17		$	0.39					$	1.96		$	1.52
Weighted-average shares outstanding:
Basic			95,658			100,213						95,794			100,936
Diluted			97,459			101,474						97,588			102,993
Related party rent expense:
Included in net income attributable to noncontrolling interest			$	84		$	71					$	226		$	213
Cash dividend declared per common share			$	0.27		$	0.25					$	0.81		$	0.75
Cash dividend paid per common share			$	0.27		$	0.25					$	0.81		$	0.75

We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with U.S. GAAP, and with SEC rules and regulations, which allow for certain information and footnote disclosures that are normally included in annual financial statements prepared in accordance with U.S. GAAP to be condensed or omitted. In our opinion, these unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended September 30, 2022 and include all adjustments necessary for fair presentation. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements for the fiscal year ended September 30, 2022, which are included in our Annual Report on Form 10-K filed with the SEC.

The results for the fiscal quarter and year-to-date period ended June 30, 2023 are not necessarily indicative of the results to be expected for any subsequent quarterly or annual financial period, including the fiscal year ending September 29, 2023.

The unaudited interim condensed consolidated financial statements include the accounts of Dolby Laboratories, Inc. and our majority-owned subsidiaries. In addition, we have consolidated the financial results of jointly owned affiliated companies in which our principal stockholder or other entities have a noncontrolling interest. We report these noncontrolling interests as a separate line in our unaudited interim condensed consolidated statements of operations as net income attributable to noncontrolling interest and in our unaudited interim condensed consolidated balance sheets as a noncontrolling interest. We eliminate all intercompany accounts and transactions upon consolidation.

Since we operate as a single reportable segment, all required financial segment information is included in our unaudited interim condensed consolidated financial statements. This reflects the fact that our CODM, our CEO, evaluates our financial information and resources, and assesses the performance of these resources on a consolidated basis.

The preparation of our financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported and disclosed in our unaudited interim condensed consolidated financial statements and accompanying notes.

Significant items subject to such estimates and assumptions include estimated shipments by our licensees for which we are owed a sales-based royalty. These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices. Our estimates of royalty-based revenue also take into consideration the macroeconomic effect of global events that may impact our licensees' supply chain activities as well as demand for shipments.

Additional significant items subject to such estimates and assumptions include ESPs for performance obligations within revenue arrangements; allowance for credit losses for accounts receivable; carrying values of inventories and certain PP&E, goodwill and intangible assets; fair values of investments; accrued liabilities including unrecognized tax benefits, deferred income tax assets and liabilities, and contingent liabilities; and stock-based compensation. Actual results could differ from our estimates.

Our fiscal year is a 52 or 53 week period ending on the last Friday in September. The fiscal periods presented herein include the 13 week period ended June 30, 2023 and July 1, 2022. Our fiscal year ending September 29, 2023 (fiscal 2023) consists of 52 weeks, and our fiscal year ended September 30, 2022 (fiscal 2022) consisted of 53 weeks.

Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, investments, accounts receivable, and contract assets. We maintain cash, cash equivalents, and investments with multiple financial institutions that have high credit standing, and that we believe are financially sound and have minimal credit risk exposure, although at times our balances may exceed the applicable insurance coverage limits. We monitor and manage the overall counterparty credit risk exposure of our cash balances to individual financial institutions on an ongoing basis. Our investment portfolio consists of investment-grade securities diversified amongst security types, industries, and issuers. All of our securities are held in custody by large national financial institutions. Our investment policy limits the amount of credit exposure to a maximum of 5% of our total portfolio to any one issuer, except for the U.S. Treasury, and we believe no significant concentration risk exists with respect to these investments. We also mitigate counterparty risk through entering into derivative contracts with high-credit-quality financial institutions. Actual or potential defaults of one or more financial institutions could impact our results of operations or financial position, and make it challenging to find alternative qualified counterparties.

The majority of our licensing revenue is generated from customers outside of the U.S. We manage the credit risk posed by non-U.S. customers by performing regular evaluations of the creditworthiness of our licensing customers and recognize revenue in accordance with US GAAP.

Business Combinations.     In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by an acquirer in accordance with ASC 606, Revenue from Contracts with Customers. This standard will be effective for Dolby beginning September 30, 2023 on a prospective basis, but early adoption is permitted. We early adopted this ASU in conjunction with the acquisition of MPEG LA (as defined below) by Via Corp (as defined below), and with that adoption, we recognized $38.1 million in deferred revenue. Refer to Note 16 "Business Combination" for a description of the recent business combination involving Via LA (as defined below). There were no other business combinations entered into during the third quarter of fiscal 2023 and year-to-date period ended June 30, 2023.

We enter into revenue arrangements with our customers to license technologies, trademarks and patents for sound and imaging solutions, and to sell products and services. We recognize revenue when we satisfy a performance obligation by transferring control over the use of a license, product, or service to a customer.

A. Identification of the Contract or Contracts with Customers

We generally determine that a contract with a customer exists upon the execution of an agreement and after consideration of collectability, which could include an evaluation of the customer's payment history, the existence of a standby letter-of-credit between the customer’s financial institution and our financial institution, public financial information, and other factors. At contract inception, we also evaluate whether two or more non-standard agreements with a customer should be combined and accounted for as a single contract.

B. Identification of Performance Obligations in a Contract

We generate revenue principally from the following sources, which represent performance obligations in our contracts with customers:

•Licensing.   We license our technologies, including patents, to a range of customers who incorporate them into their products for enhanced audio and imaging functionality across broadcast, mobile, CE, PC, gaming, and other markets.

•Product Sales. We design and provide audio and imaging products for the cinema, television, broadcast, communications, and entertainment industries.

•Services.   We provide various services to support theatrical and television production for cinema exhibition, broadcast, and home entertainment, including equipment training, mixing room alignment, equalization, as well as audio, color and light image calibration. We also offer a developer platform, Dolby.io, that enables developers to access our technologies through audio and video APIs for building high-quality communications, media, and streaming solutions.

•PCS. We provide PCS for products sold and for equipment leased, and we support the implementation of our licensing technologies in our licensees’ products.

•Equipment Leases. We collaborate with established cinema exhibitors to offer Dolby Cinema, a branded premium cinema offering for movie audiences by leasing equipment and licensing our IP.

•Licensing Administration Fees. We generate service fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via LA. See Note 16 "Business Combination" for a description of the recent business combination involving Via LA.

Some of our revenue arrangements include multiple performance obligations, such as hardware, software, support and maintenance, and extended warranty services. We evaluate whether promised products and services are distinct performance obligations.

The majority of our arrangements with multiple performance obligations pertain to our digital cinema server and processor sales that include the following distinct performance obligations to which we allocate portions of the transaction price based on their stand-alone selling price:

•Digital cinema server hardware and embedded software, which is dependent on and interrelated with the hardware. Accordingly, the hardware and embedded software represent a single performance obligation.

•The right to support and maintenance, which is included with the purchase of the digital cinema server hardware, is a distinct performance obligation.

•The right to receive commissioning services is a distinct performance obligation within the sale of the Dolby Atmos Cinema Processor. These services consist of the review of venue designs specifying proposed speaker placement as well as calibration services performed for installed speakers to ensure optimal playback.

C. Determination of Transaction Price for Performance Obligations in a Contract

After identifying the distinct performance obligations, we determine the transaction price in accordance with the terms of the underlying executed contract which may include variable consideration such as discounts, rebates, refunds, rights of returns, and incentives. We assess and update, if necessary, the amount of variable consideration to which we are entitled for each reporting period. At the end of each reporting period, we estimate and accrue a liability for returns and adjustments as a reduction to revenue based on several factors, including past returns history.

With the exception of our sales-based royalties, we evaluate whether a significant financing component exists when we recognize revenue in advance of customer payments that occur over time. For example, some of our licensing arrangements include payment terms greater than one year from when we transfer control of our IP to a licensee and the receipt of the final payment for that IP. If a significant financing component exists, we classify a portion of the transaction price as interest income, instead of recognizing all of the transaction price as revenue. We do not adjust the transaction price for the effects of financing if, at contract inception, the period between the transfer of control to a customer and final payment is expected to be one year or less.

D. Allocation of Transaction Price to Distinct Performance Obligations in a Contract

For our sales-based royalties where the license is the predominant item to which the royalties relate, we present all revenue as licensing.

For revenue arrangements that include multiple performance obligations, we determine the stand-alone selling price for each distinct performance obligation based on the actual selling prices made to customers. If the performance obligation is not sold separately, we estimate the stand-alone selling price. We do so by considering market conditions such as competitor pricing strategies, customer specific information and industry technology lifecycles, internal conditions such as cost and pricing practices, or applying the residual approach method when the selling price of the good, most commonly a license, is highly variable or uncertain.

Once the transaction price, including any variable consideration, has been determined, we allocate the transaction price to the performance obligations identified in the contract and recognize revenue as or when control is transferred for each distinct performance obligation.

E. Revenue Recognition as Control is Transferred to a Customer

We generate our licensing revenue by licensing our technologies and patents to various types of licensees, such as chip manufacturers ("implementation licensees"), consumer product manufacturers, software vendors, and communications service providers. Our revenue recognition policies for each of these arrangements are summarized below.

Initial fees from implementation licensees. Implementation licensees incorporate our technologies into their chipsets that, once approved by Dolby, are available for purchase by OEMs for use in end-user products. Implementation licensees only pay us a nominal initial fee on contract execution as consideration for the ongoing services that we provide to assist in their implementation process. Revenue from these initial fees is recognized ratably over the contractual term as a component of licensing revenue.

Sales-based licensing fees. In our royalty bearing licensing agreements with OEMs, control is transferred upon the later of contract execution or the contract’s effective date. We apply the royalty exception, which requires that we recognize sales-based royalties when the sales occur based on our estimates. These estimates involve the use of historical data and judgment for several key attributes including industry estimates of expected shipments, the percentage of markets using our technologies, and average sale prices. Generally, our estimates represent the current period’s shipments to which we expect our licensees to submit royalty statements within the following two quarters. Upon receipt of royalty statements from the licensees with the actual reporting of sales-based royalties that we estimated previously, we record a favorable or unfavorable adjustment based on the difference, if any, between estimated and actual sales. In the third quarter of fiscal 2023, we recorded a favorable adjustment of approximately $1 million, which was primarily related to shipments that occurred in the prior two quarters.

Fixed and guaranteed licensing fees.   In certain cases, our arrangements require the licensee to pay fixed, non-refundable fees. In these cases, control is transferred and fees are recognized upon the later of contract execution or the effective date. Additionally and separate from initial fees from implementation licensees, our sales- and usage-based licensing agreements include a nominal fee, which is also recognized at a point in time in which control of the IP has been transferred. Revenue from these arrangements is included as a component of licensing revenue.

Recoveries.   Through compliance efforts, we identify misreported licensed activity related to non-current periods. We may record a favorable or unfavorable revenue adjustment in connection with the findings from these compliance efforts generally upon resolution with the licensee through agreement of the findings, or upon receipt of the licensee’s correction statement. Revenue from these arrangements is included as a component of licensing revenue.

We undertake activities aimed at identifying potential unauthorized uses of our technologies, which, when successful, result in the recognition of revenue. Recoveries stem from third parties who agree to remit payments to us based on past use of our technology. In these scenarios, a legally binding contract did not exist at the time of use of our technology, and therefore, we recognize revenue recoveries upon execution of the agreement as that is the point in time at which a contract exists and control is transferred. This revenue is classified as licensing revenue.

In general, we classify legal costs associated with activities aimed at identifying potential unauthorized uses of our technologies, auditing existing licensees, and on occasion, pursuing litigation as S&M in our unaudited interim condensed consolidated statements of operations.

We recognize licensing revenue gross of withholding taxes, which our licensees remit directly to their local tax authorities, and for which we receive a partial foreign tax credit in our income tax provision.

In addition to our licensing arrangements, we also enter into arrangements to deliver products and services.

Product Sales.   Revenue from the sale of products is recognized when the customer obtains control of the promised good or service, which is generally upon shipment. Payments are generally made within 90 days of sale.

Services.   We provide various services, such as engineering services related to movie soundtrack print mastering, equipment training and maintenance, mixing room alignment, equalization, and image calibration, which we bill on a fixed fee and time and materials basis. Most of these services are of a short duration and are recognized as control of the performance obligations are transferred which is when the related services are performed.

Cloud Services. We provide access to audio and video APIs through our developer platform as well as cloud encoding services, generally, on either a consumption or subscription basis. Revenue related to cloud services provided on a consumption basis is recognized when the customer utilizes the services, based on the quantity of services consumed. Revenue related to cloud services provided on a subscription basis is recognized ratably over the contract term as the customer receives and consumes the benefits of the cloud services.

Collaborative Arrangements.   We collaborate with established cinema exhibitors to offer Dolby Cinema, a branded premium cinema offering for movie audiences. Under such collaborations, Dolby and the exhibitor are both active participants, and share the risks and rewards associated with the business. Accordingly, these collaborations are governed by revenue sharing arrangements under which Dolby receives revenue based on box office receipts, reported to Dolby by exhibitor partners on a monthly or quarterly basis, our proprietary designs and trademarks as well as for the use of our equipment at the exhibitor's venue. The use of our product solution meets the definition of a lease, and for the related portion of Dolby's share of revenue, we apply ASC 842, Leases, and recognize revenue based on monthly box office reports from exhibitors. Our revenue share is recognized as licensing revenue in our unaudited interim condensed consolidated statements of operations.

In addition, we also enter into hybrid agreements where a portion of our revenue share involves guaranteed payments, which in some cases result in classifying the arrangement as a sales-type lease. In such arrangements, we consider control to transfer at the point in time to which we have installed and tested the equipment, at which point we record such guaranteed payments as product revenue.

Licensing Administration Fee. We generate service fees for managing patent pools on behalf of third party patent owners through our subsidiary, Via LA. As an agent to licensors in the patent pool, Via LA receives a share of the sales-based royalty that the patent pool licensors earn from licensees. As such, we apply the sales-based royalty exception as the service provided is directly related to the patent pool licensors’ provision of IP, which results in recognition based on estimates of the licensee’s quarter shipments that use the pool’s patents. In addition to sales-based royalties, Via LA also has contracts where the fees are fixed. The revenue share Via LA receives from licensors on fixed fee contracts is recognized over the term in which we are providing services associated with the fixed fee contract. We recognize our administrative fees net of the consideration paid to the patent licensors in the pool as licensing revenue. See Note 16 "Business Combination" to our unaudited interim condensed consolidated financial statements for a description of the recent business combination involving Via LA.

Deferred revenue, which is a component of contract liabilities, represents amounts that are ultimately expected to be recognized as revenue, but for which we have yet to satisfy the performance obligation. As of June 30, 2023, we had $78.0 million of remaining performance obligations, 19% of which we expect to recognize as revenue in fiscal 2023, 33% in fiscal 2024, and the balance of 48% in fiscal years beyond 2024.

F.Disaggregation of Revenue

The following table presents a summary of the composition of our revenue for all periods presented (in thousands, except percentage amounts):

			Fiscal Quarter Ended																		Fiscal Year-To-Date Ended
Revenue			June 30, 2023									July 1, 2022									June 30, 2023									July 1, 2022
Licensing			$	273,108		92		%				$	269,289		93		%				$	932,727		92		%				$	915,406		94		%
Products and services			25,262			8		%				20,296			7		%				76,455			8		%				60,183			6		%
Total revenue			$	298,370		100		%				$	289,585		100		%				$	1,009,182		100		%				$	975,589		100		%

The following table presents the composition of our licensing revenue for all periods presented (in thousands, except percentage amounts):

We license our technologies in approximately 70 countries, and our licensees distribute products that incorporate our technologies throughout the world. We generate the majority of our revenue from outside the U.S. Geographic data for our licensing revenue is based on the location of our licensees’ headquarters, products revenue is based on the destination to which we ship our products, and services revenue is based on the location where services are performed. The following table presents the composition of our revenue by geographic location for all periods presented (in thousands, except percentage amounts):

G. Contract Balances

Our contract assets represent rights to consideration from licensees for the use of our IP that we have estimated in a given period in the absence of receiving actual royalty statements from licensees. These estimates reflect our best judgment at that time, and are developed using a number of inputs, including historical data, industry estimates of expected shipments, anticipated sales price and performance, and third party data supporting the percentage of markets using our technologies. In the event that our estimates differ from actual amounts reported, we record an adjustment in the quarter in which the royalty statement is received, which is typically the quarter following our estimate. Actual amounts reported are typically paid within 60 days following the end of the quarter of shipment. The main drivers for change in the contract assets account are variances in quarterly estimates, and to a lesser degree, timing of receipt of actual royalty statements.

Our contract liabilities consist of advance payments and billings in advance of performance and deferred revenue that is typically satisfied within one year. The non-current portion of contract liabilities is separately disclosed in our unaudited interim condensed consolidated balance sheets. We present the net contract asset or liability when we have both contract assets and contract liabilities for a single contract. We recognized $3.1 million in the third quarter of fiscal 2023 and $14.7 million in the fiscal year-to-date period ended June 30, 2023 from prior period deferred revenue.

The following table presents a summary of the balances to which contract assets and liabilities related to revenue are recorded for all periods presented (in thousands, except percentage amounts):

			June 30, 2023			September 30, 2022			Change ($)			Change (%)
Accounts receivable, net			$	266,865		$	243,593		$	23,272		10		%
Contract assets, net			192,585			176,093			16,492			9		%
Contract liabilities - current			36,586			18,588			17,998			97		%
Contract liabilities - non-current			41,624			23,203			18,421			79		%

The following tables present detailed information from our unaudited interim condensed consolidated balance sheets as of June 30, 2023 and September 30, 2022 (in thousands).

Accounts receivable as of June 30, 2023 and September 30, 2022, respectively, includes unbilled accounts receivable balances of $141.2 million and $106.9 million, related to amounts that are contractually owed. The unbilled balance represents our unconditional right to consideration related to fixed fee contracts which we are entitled to as a result of satisfying, or partially satisfying, performance obligations, as well as Via LA's unconditional right to consideration related to its patent administration programs.

Allowance for credit losses includes the provision for estimated credit losses on our sales-type leases, which was not material as of June 30, 2023 and September 30, 2022.

Inventories are stated at the lower of cost and net realizable value. Inventory with a consumption period expected to exceed twelve months is recorded within other non-current assets in our unaudited interim condensed consolidated balance sheets. We have included $1.9 million and $2.8 million of raw materials inventory within non-current assets as of June 30, 2023 and September 30, 2022, respectively. Based on anticipated inventory consumption rates, and aside from existing write-downs due to excess inventory, we do not believe that material risk of obsolescence exists prior to ultimate sale.

(1)        Refer to Note 12 "Income Taxes" for additional information related to our tax liabilities.

We use cash holdings to purchase investment-grade securities diversified among security types, industries, and issuers. All of our investments in debt securities are measured at fair value, and are recorded within cash equivalents and both short-term and long-term investments in our unaudited interim condensed consolidated balance sheets. With the exception of our mutual fund investments held in our SERP and classified as trading securities and our other long-term investments, all of our investments are classified as AFS securities. Derivative contracts are used to hedge currency risk, and these are carried at fair value and classified as other assets and other liabilities.

Our investments in debt securities consist of government bonds, corporate bonds, municipal debt securities, certificates of deposit, commercial paper, and U.S. agency securities. In addition, our cash and cash equivalents also consist of highly-liquid money market funds and U.S. agency securities. Consistent with our investment policy, none of our municipal debt investments are supported by letters of credit or standby purchase agreements. Our cash and investment portfolio consisted of the following (in thousands):

			June 30, 2023
			Cost			Unrealized												Estimated Fair Value
						Gains			Losses			Total						Level 1			Level 2			Level 3
Cash and cash equivalents:
Cash			$	693,427		$	—		$	—		$	693,427					$	693,427		$	—		$	—
Cash equivalents:
Money market funds			71,651			1			—			71,652						71,652			—			—
Cash and cash equivalents			765,078			1			—			765,079						765,079			—			—
Short-term investments:
Certificate of deposit			12,476			1			(12)			12,465						—			12,465			—
U.S. agency securities			5,891			2			(18)			5,875						—			5,875			—
Government bonds			43,337			1			(624)			42,714						40,026			2,688			—
Commercial paper			5,580			—			(4)			5,576						—			5,576			—
Corporate bonds			37,386			—			(396)			36,990						—			36,990			—
Municipal debt securities			20,730			1			(141)			20,590						—			20,590			—
Short-term investments			125,400			5			(1,195)			124,210						40,026			84,184			—
Long-term investments:
Government bonds			33,419			—			(1,150)			32,269						31,390			879			—
Corporate bonds			35,929			2			(707)			35,224						—			35,224			—
Municipal debt securities			21,633			32			(232)			21,433						—			21,433			—
Other investments (1)			9,177			—			—			9,177						—			—			—
Long-term investments			100,158			34			(2,089)			98,103						31,390			57,536			—
Total cash, cash equivalents, and investments			$	990,636		$	40		$	(3,284)		$	987,392					$	836,495		$	141,720		$	—
Investments held in supplemental retirement plan:
Assets			$	4,186		$	—		$	—		$	4,186					$	4,186		$	—		$	—
Included in prepaid expenses and other current assets and other non-current assets
Liabilities			$	4,186		$	—		$	—		$	4,186					$	4,186		$	—		$	—
Included in accrued liabilities and other non-current liabilities
Currency derivatives as hedge instruments:
Assets: Included in other current assets			$	—		$	597		$	—		$	597					$	—		$	597		$	—
Liabilities: Included in other accrued liabilities			$	—		$	—		$	(572)		$	(572)					$	—		$	(572)		$	—