Sonos Reports Fourth Quarter and Fiscal 2023 Results

Sonos, Inc. (NASDAQ: SONO) today reported fourth quarter and fiscal 2023 results.

Fiscal 2023 Financial Highlights (unaudited)

• Revenue decreased 5.5% year-over-year to $1,655.3 million; on a constant-currency basis, revenue decreased 3.3% year-over-year
• Gross margin decreased 220 basis points year-over-year to 43.3%
• GAAP net loss of $10.3 million compared to net income of $67.4 million last year
  • GAAP diluted loss per share of $(0.08) compared to GAAP diluted earnings per share (EPS) of $0.49 last year
• Non-GAAP net income¹ of $121.4 million compared to $171.1 million last year
  • Non-GAAP diluted EPS¹ of $0.92 compared to $1.24 last year
• GAAP net loss margin of 0.6% compared to net income margin of 3.8% last year
• Adjusted EBITDA¹ of $153.9 million compared to $226.5 million last year
  • Adjusted EBITDA margin¹ of 9.3% compared to 12.9% last year
• Free cash flow of $50.1 million. Cash flows from operating activities of $100.4 million

Fourth Quarter 2023 Financial Highlights (unaudited)

• Revenue decreased 3.5% year-over-year to $305.1 million; on a constant-currency basis, revenue decreased 5.1% year-over-year
• Gross margin increased 270 basis points year-over-year to 42.0%
• GAAP net loss of $31.2 million compared to $64.1 million last year
  • GAAP diluted loss per share of $(0.25) compared to GAAP diluted EPS of $0.50 last year
• Non-GAAP net loss¹ of $9.0 million compared to $38.3 million last year
  • Non-GAAP diluted loss per share¹ of $(0.07) compared to $(0.30) last year
• GAAP net loss margin of 10.2% compared to 20.3% last year
• Adjusted EBITDA¹ of $6.3 million compared to $(25.6) million last year
  • Adjusted EBITDA margin¹ of 2.1% compared to (8.1)% last year
• Free cash flow of $12.0 million. Cash flows from operating activities of $22.2 million
  • Inventories of $346.5 million, increased 16.2% from last quarter
  • Finished goods of $281.6 million, increased 17.3% from last quarter

Notes: ¹ Non-GAAP net income (loss)/Non-GAAP diluted earnings (loss) per share, Adjusted EBITDA and Adjusted EBITDA margin exclude stock-based compensation, legal and transaction related fees, amortization of intangibles, and restructuring and abandonment costs. See “Use of Non-GAAP Measures” and reconciliations to GAAP measures below.

Sonos CEO Patrick Spence commented, “While it was a challenging year in the categories in which we play, the strength of the Sonos brand and product portfolio enabled us to retain a strong market share position. We successfully raised the bar in the speaker category with the introduction of our new Era products, and extended our leadership in the premium portable category with Move 2. And we delivered on our commitment to EBITDA margin in spite of the headwinds we faced.”

Mr. Spence continued, “As we enter Fiscal 2024, we are laser focused on execution and positioning our business to return to top and bottom line growth when conditions improve. While current market conditions remain challenging, this is the beginning of a multi-year product cycle where we expect to reap the rewards of our R&D investments. This cycle begins with our entry into a new multi-billion dollar category in the second half of the year that will complement our current offering, delight customers and drive immediate revenue. We are so excited about what we have to share with the world in Fiscal 2024 and beyond.”

Notes:

(1) Non-GAAP gross margin excludes approximately $7 million (0.4% of revenue) of stock-based compensation and amortization of intangible assets included in GAAP gross margin

Fiscal 2023 Company Highlights (unaudited)

Key Metrics:

• Total households increased 9% to 15.3 million in Fiscal 2023
• Existing households accounted for 44% of new product registrations in Fiscal 2023
• Average number of registered products per household of 3.05 in Fiscal 2023 vs 2.98 last year
• Direct-to-consumer (DTC) revenue was flat year-over-year and represented 24% of total revenue
• Installer Solutions (IS) revenue decreased 7% year-over-year and represented 21% of total revenue

New Stock Repurchase Program

• As announced in a separate release today, the company’s Board of Directors has authorized a new common stock repurchase program of up to $200 million.
• Under its most recently completed repurchase program, the company repurchased $100 million in stock, representing 6.6 million shares at an average price of $15.25 per share, enabling the company to return capital to shareholders and offset dilution from compensation plans

Continued Product Innovation

• Era 100 – $249 MSRP. Only marginally larger than its predecessor, Sonos One, Era 100 boasts a new design and faster processing power, with a next-generation acoustic architecture that delivers detailed stereo sound and more powerful bass
• Era 300 – $449 MSRP. Era 300 delivers an unprecedented spatial audio experience for a single all-in-one speaker. With support for Dolby Atmos, the breakthrough design features six drivers that create a three-dimensional soundstage and make listeners feel like they're inside their music and movies
• Move 2 – $449 MSRP. The best-selling portable speaker has been revamped. Taking inspiration from the acoustic architecture developed for Era 100, Move 2 produces powerful stereo sound and up to 24 hours of battery life — more than twice that of the first generation — in an ultra durable and water-resistant design
• Sub Mini – $429 MSRP. Building on the award-winning Sonos Sub, this wireless subwoofer delivers rich, balanced bass in a more compact and equally iconic design. When paired with recommended speakers, Sub Mini creates a more immersive sound experience
• Sonos Pro – This new software as a service (SaaS) offering gives business owners the power to control Sonos across multiple locations. With this subscription-based solution, business owners get access to a web-based dashboard for remote monitoring and management, commercially-licensed music, and personalized support

Expansion of our Brand

• Brand Partnerships – More than 30k consumers, industry and press visited the sound experience at the Dolby House during SXSW, March 2023
• Advocacy – The Era Advocacy campaign enlisted more than 130 influencers, creating 350 pieces of bespoke content that resulted in more than 12M impressions and 10M views
• Retail – Global impact retail partnerships delivered unique brand and product experiences for consumers amplified by local PR and advocate partnerships
• Installer Solutions – The Sonos Professional experience at CEDIA Expo, the premier tradeshow summit for home technology integration professionals, saw over 3,500 integrators, distribution partners, and strategic partners visit the booth

Responsible Innovation

• Recognized as one of the best places to work for LGBTQ+ equality by the Human Rights Campaign Foundation.
• Publishing annual Listen Better Report in the coming weeks, highlighting the progress we’ve made on our sustainability and social impact work. In Fiscal 2023, we advanced our Climate Action Plan to become carbon neutral by 2030 and net zero by 2040. We also disclosed our Scope 1, 2, and 3 greenhouse gas emissions to the Carbon Disclosure Project (CDP).
• We built sustainability into all three of our new marquee products: Era 100, Era 300, and Move 2. We also introduced Product Environmental Reports to enhance our transparency. These reports provide detailed information about the materials and environmental footprint of each new product.
• Won Best In Show at the 2023 Dieline Awards for our sustainable paper-based Ray and Sub Mini product packaging.
• Launched partnership with 1% for the Planet to donate 1% of Certified Refurbished sales to high-impact nonprofits focused on environmental preservation and restoration.
• Improved our ESG ratings from multiple rating agencies, including from Medium Risk to Low Risk by Sustainalytics.

Supplemental Earnings Presentation

The company has posted a supplemental earnings presentation accompanying its fourth quarter and fiscal 2023 results to the Earnings Reports section of its investor relations website at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports.

Conference Call, Webcast and Transcript

The company will host a webcast of its conference call and Q&A related to its fourth quarter and fiscal 2023 results on November 15, 2023, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Participants may access the live webcast in listen-only mode on the Sonos investor relations website at https://investors.sonos.com/news-and-events/default.aspx.

The conference call may also be accessed by dialing (888) 330-2454 with conference ID 8641747. Participants outside the U.S. can access the call by dialing (240) 789-2714 using the same conference ID.

An archived webcast of the conference call and a transcript of the company’s prepared remarks and Q&A session will also be available at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports following the call.

Use of Non-GAAP Measures

We have provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles (“U.S. GAAP”), including adjusted EBITDA, adjusted EBITDA margin, free cash flow, free cash flow conversion, non-GAAP gross margin, net income (loss) excluding stock-based compensation, legal and transaction related fees, amortization of intangibles, and restructuring and abandonment costs and diluted earnings per share excluding stock-based compensation, legal and transaction related fees, amortization of intangibles and restructuring and abandonment costs. These non-GAAP financial measures are not based on any standardized methodology prescribed by U.S. GAAP and are not necessarily comparable to similarly titled measures presented by other companies. We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that these non-GAAP financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses and other items that we exclude in these non-GAAP financial measures. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making. Non-GAAP financial measures should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of these financial measures to their nearest U.S. GAAP financial equivalents provided in the financial statement tables above. We define adjusted EBITDA as net income (loss) adjusted to exclude the impact of depreciation and amortization, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes, restructuring and abandonment costs and other items that we do not consider representative of our underlying operating performance. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue. We define free cash flow as net cash from operations less purchases of property and equipment and intangible and other assets. We define free cash flow conversion as free cash flow as a percentage of Adjusted EBITDA. We define non-GAAP gross margin as GAAP gross margin, excluding stock-based compensation and amortization of intangible assets. We calculate non-GAAP net income (loss) excluding stock-based compensation, legal and transaction related fees, amortization of intangibles and restructuring and abandonment costs as net income (loss) less stock-based compensation, legal and transaction related fees, amortization of intangibles and restructuring and abandonment costs. We calculate non-GAAP diluted earnings per share excluding stock-based compensation, legal and transaction related fees, amortization of intangibles and restructuring and abandonment costs as net income less stock-based compensation, legal and transaction related fees, amortization of intangibles and restructuring and abandonment costs divided by our number of shares at fiscal year end. We calculate constant currency growth percentages by translating our current period financial results using the prior period average currency exchange rates and comparing these amounts to our prior period reported results. We do not provide a reconciliation of forward-looking non-GAAP financial measures to their comparable GAAP financial measures because we cannot do so without unreasonable effort due to unavailability of information needed to calculate reconciling items and due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP financial measures in future periods. When planning, forecasting and analyzing future periods, we do so primarily on a non-GAAP basis without preparing a GAAP analysis as that would require estimates for items such as stock-based compensation, which is inherently difficult to predict with reasonable accuracy. Stock-based compensation expense is difficult to estimate because it depends on our future hiring and retention needs, as well as the future fair market value of our common stock, all of which are difficult to predict and subject to constant change. In addition, for purposes of setting annual guidance, it would be difficult to quantify stock-based compensation expense for the year with reasonable accuracy in the current quarter. As a result, we do not believe that a GAAP reconciliation would provide meaningful supplemental information about our outlook.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding our outlook for the fiscal year ending September 28, 2024, our long-term outlook, our long-term focus, financial, growth and business strategies and opportunities, growth metrics and targets, our business model, new products, product categories and services, our product cycle and roadmap, our investments in R&D, profitability and gross margins, market growth and our market share, the macroeconomic environment and our ability to weather it, and other factors affecting variability in our financial results. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors, including, but not limited to: our ability to accurately forecast product demand and effectively forecast and manage owned and channel inventory levels; the impact of global economic, market and political events, including the potential for an extended global recession, continued inflationary pressures, rising interest rates and, in certain markets, foreign currency exchange rate fluctuations; changes in consumer income and overall consumer spending as a result of economic or political uncertainty or conditions; changes in consumer spending patterns; our ability to successfully introduce new products and services and maintain or expand the success of our existing products; the success of our efforts to expand our direct-to-consumer channel; the success of our financial, growth and business strategies; our ability to meet product demand and manage any product availability delays; supply chain challenges, including shipping and logistics challenges and component supply-related challenges; the resurgence of the COVID-19 pandemic and the other risk factors set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended July 1, 2023 and our other filings filed with the Securities and Exchange Commission (the “SEC”), copies of which are available free of charge at the SEC’s website at www.sec.gov or upon request from our investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this press release, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events. Sonos and Sonos product names are trademarks or registered trademarks of Sonos, Inc. All other product names and services may be trademarks or service marks of their respective owners.

About Sonos

Sonos (NASDAQ: SONO) is one of the world’s leading sound experience brands. As the inventor of multi-room wireless home audio, Sonos’ innovation helps the world listen better by giving people access to the content they love and allowing them to control it however they choose. Known for delivering an unparalleled sound experience, thoughtful home design aesthetic, simplicity of use and an open platform, Sonos makes the breadth of audio content available to anyone. Sonos is headquartered in Santa Barbara, California. Learn more at www.sonos.com.

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