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Sonos Reports Second Quarter Fiscal 2022 Results

Delivers strong revenue growth of 20%, consistent profitability and updates Full Year Outlook

Sonos, Inc. (Nasdaq: SONO) today reported second quarter fiscal 2022 results.

Second Quarter 2022 Financial Highlights (unaudited)

  • Revenue increased 20.1% year-over-year to $399.8 million; on a constant-currency basis, revenue increased approximately 22.8% year-over-year
  • Gross margin decreased 500 basis points year-over-year to 44.8%
  • GAAP net income of $8.6 million compared to $17.2 million last year; non-GAAP net income excluding stock-based compensation and legal and transaction related fees of $35.8 million compared to $44.6 million last year
  • GAAP diluted earnings per share (EPS) of $0.06 compared to $0.12 last year; non-GAAP diluted EPS excluding stock-based compensation and legal and transaction related fees of $0.26 compared to $0.31 last year
  • Adjusted EBITDA of $46.9 million compared to $48.5 million last year
  • Adjusted EBITDA margin of 11.7% compared to 14.6% last year
  • Cash flows used in operating activities of ($97.6) million
  • Free cash flow of ($106.9) million

Fiscal 2022 Outlook

  • Maintaining Revenue outlook in the range of $1.95 billion to $2.0 billion, representing growth in the range of 14% to 16% from fiscal 2021.
  • Gross margin updated to be in the range of 45.5% to 46.0%. This compares to a prior outlook range of 46% to 47%, and is inline with our long-term guidance range of 45.0% to 47.0%.
  • Adjusted EBITDA in the range of $290 million to $310 million, representing growth in the range of 4% to 11%. This has been narrowed relative to our prior outlook range of $290 million to $325 million representing growth in the range of 4% to 17%
  • Adjusted EBITDA margin in the range of 14.9% to 15.5%, compared to prior outlook range of 14.9% to 16.2%

Sonos CEO Patrick Spence commented, “We are pleased to report record Q2 revenue of $399.8 million, representing 20% growth over last year. Our Adjusted EBITDA of $46.9 million illustrates our continued ability to deliver sustainable, profitable growth despite the ongoing, industry-wide supply constraints and rising cost pressures.”

Spence continued, “Our consumer demand remains strong and we announced three exciting new products today. While the world remains unpredictable, we remain confident that we can deliver another record-setting year in Fiscal 2022.”

Supplemental Earnings Presentation

The company has posted a supplemental earnings presentation accompanying its second quarter fiscal 2022 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 second quarter fiscal 2022 results on May 11, 2022, 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.

Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited, in thousands, except share and per share amounts)
 
Three Months Ended Six Months Ended
April 2,

2022
April 3,

2021
April 2,

2022
April 3,

2021
Revenue

$

399,781

 

$

332,949

 

$

1,064,262

 

$

978,532

 

Cost of revenue

 

220,747

 

 

167,173

 

 

567,843

 

 

513,331

 

Gross profit

 

179,034

 

 

165,776

 

 

496,419

 

 

465,201

 

Operating expenses
Research and development

 

64,947

 

 

56,370

 

 

126,277

 

 

108,717

 

Sales and marketing

 

59,955

 

 

57,205

 

 

143,691

 

 

131,658

 

General and administrative

 

44,090

 

 

39,806

 

 

83,816

 

 

75,047

 

Total operating expenses

 

168,992

 

 

153,381

 

 

353,784

 

 

315,422

 

Operating income

 

10,042

 

 

12,395

 

 

142,635

 

 

149,779

 

Other income (expense), net
Interest income

 

123

 

 

44

 

 

156

 

 

80

 

Interest expense

 

(90

)

 

(182

)

 

(187

)

 

(448

)

Other income (expense), net

 

(2,281

)

 

(1,578

)

 

(3,683

)

 

2,680

 

Total other income (expense), net

 

(2,248

)

 

(1,716

)

 

(3,714

)

 

2,312

 

Income before provision for (benefit from) income taxes

 

7,794

 

 

10,679

 

 

138,921

 

 

152,091

 

Provision for (benefit from) income taxes

 

(772

)

 

(6,542

)

 

6,874

 

 

2,578

 

Net income

$

8,566

 

$

17,221

 

$

132,047

 

$

149,513

 

 
Net income attributable to common stockholders:
Basic and diluted

$

8,566

 

$

17,221

 

$

132,047

 

$

149,513

 

 
Net income per share attributable to common stockholders:
Basic

$

0.07

 

$

0.14

 

$

1.03

 

$

1.26

 

Diluted

$

0.06

 

$

0.12

 

$

0.94

 

$

1.09

 

 
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic

 

128,112,234

 

 

121,880,615

 

 

127,887,530

 

 

118,745,569

 

Diluted

 

139,642,570

 

 

143,055,546

 

 

140,982,509

 

 

136,849,846

 

 
Total comprehensive income
Net income

 

8,566

 

 

17,221

 

 

132,047

 

 

149,513

 

Change in foreign currency translation adjustment

 

100

 

 

199

 

 

(260

)

 

1,046

 

Comprehensive income

$

8,666

 

$

17,420

 

$

131,787

 

$

150,559

 

 
Condensed Consolidated Balance Sheets
(unaudited, dollars in thousands, except par values)
As of
April 2,

2022
October 2,

2021
Assets
Current assets:
Cash and cash equivalents

$

606,744

 

$

640,101

 

Accounts receivable, net of allowances

 

111,388

 

 

100,779

 

Inventories

 

264,405

 

 

185,130

 

Prepaids and other current assets

 

28,175

 

 

31,504

 

Total current assets

 

1,010,712

 

 

957,514

 

Property and equipment, net

 

71,973

 

 

71,341

 

Operating lease right-of-use assets

 

30,660

 

 

33,841

 

Goodwill

 

37,726

 

 

15,545

 

Intangible assets, net

 

28,888

 

 

24,450

 

Deferred tax assets

 

9,871

 

 

10,028

 

Other noncurrent assets

 

36,401

 

 

26,085

 

Total assets

$

1,226,231

 

$

1,138,804

 

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable

$

271,005

 

$

214,996

 

Accrued expenses

 

100,344

 

 

108,029

 

Accrued compensation

 

32,365

 

 

77,695

 

Deferred revenue, current

 

18,438

 

 

35,866

 

Other current liabilities

 

41,584

 

 

39,544

 

Total current liabilities

 

463,736

 

 

476,130

 

Operating lease liabilities, noncurrent

 

29,342

 

 

33,960

 

Deferred revenue, noncurrent

 

58,196

 

 

53,632

 

Deferred tax liabilities

 

2,394

 

 

2,394

 

Other noncurrent liabilities

 

879

 

 

3,646

 

Total liabilities

 

554,547

 

 

569,762

 

Stockholders’ equity:
Common stock, $0.001 par value

 

130

 

 

129

 

Treasury stock

 

(36,831

)

 

(50,276

)

Additional paid-in capital

 

647,871

 

 

690,462

 

Retained earnings (accumulated deficit)

 

62,150

 

 

(69,897

)

Accumulated other comprehensive loss

 

(1,636

)

 

(1,376

)

Total stockholders’ equity

 

671,684

 

 

569,042

 

Total liabilities and stockholders’ equity

$

1,226,231

 

$

1,138,804

 

 
Condensed Consolidated Statements of Cash Flows
(unaudited, dollars in thousands)
Six Months Ended
April 2,

2022
April 3,

2021
Cash flows from operating activities
Net income

$

132,047

 

$

149,513

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

18,792

 

 

16,725

 

Stock-based compensation expense

 

38,684

 

 

31,207

 

Other

 

4,357

 

 

344

 

Deferred income taxes

 

(129

)

 

(146

)

Foreign currency transaction (gain) loss

 

2,267

 

 

(1,047

)

Changes in operating assets and liabilities:
Accounts receivable, net

 

(12,786

)

 

(13,260

)

Inventories

 

(86,153

)

 

39,631

 

Other assets

 

(6,082

)

 

(21,982

)

Accounts payable and accrued expenses

 

51,643

 

 

(36,485

)

Accrued compensation

 

(45,084

)

 

2,087

 

Deferred revenue

 

(11,834

)

 

8,374

 

Other liabilities

 

(3,348

)

 

992

 

Net cash provided by operating activities

 

82,374

 

 

175,953

 

Cash flows from investing activities
Purchases of property and equipment, intangible and other assets

 

(15,665

)

 

(19,927

)

Cash paid for acquisitions, net of acquired cash

 

(27,101

)

 

 

Net cash used in investing activities

 

(42,766

)

 

(19,927

)

Cash flows from financing activities
Payments for debt issuance costs

 

(929

)

 

 

Payments of borrowings

 

 

 

(25,000

)

Payments for repurchase of common stock

 

(74,482

)

 

(682

)

Proceeds from exercise of common stock options

 

29,254

 

 

119,166

 

Payments for repurchase of common stock related to shares withheld for tax in connection with vesting of restricted stock units

 

(22,601

)

 

(18,821

)

Net cash provided by (used in) financing activities

 

(68,758

)

 

74,663

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(4,207

)

 

1,139

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

(33,357

)

 

231,828

 

Cash, cash equivalents and restricted cash
Beginning of period

 

640,101

 

 

407,291

 

End of period

$

606,744

 

$

639,119

 

Supplemental disclosure
Cash paid for interest

$

85

 

$

357

 

Cash paid for taxes, net of refunds

$

8,916

 

$

3,255

 

Cash paid for amounts included in the measurement of lease liabilities

$

7,800

 

$

11,683

 

Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses

$

7,869

 

$

8,910

 

Right-of-use assets obtained in exchange for new operating lease liabilities

$

2,245

 

$

1,622

 

 
Reconciliation of Net Income to Adjusted EBITDA
(unaudited, dollars in thousands except percentage)
Three Months Ended Six Months Ended
April 2,

2022
April 3,

2021
April 2,

2022
April 3,

2021
Net income

$

8,566

 

$

17,221

 

$

132,047

 

$

149,513

 

Add (deduct):
Depreciation and amortization

 

9,575

 

 

8,742

 

 

18,792

 

 

16,725

 

Stock-based compensation expense

 

21,225

 

 

16,363

 

 

38,684

 

 

31,207

 

Interest income

 

(123

)

 

(44

)

 

(156

)

 

(80

)

Interest expense

 

90

 

 

182

 

 

187

 

 

448

 

Other income (expense), net

 

2,281

 

 

1,578

 

 

3,683

 

 

(2,680

)

Provision for (benefit from) income taxes

 

(772

)

 

(6,542

)

 

6,874

 

 

2,578

 

Restructuring and related expenses(1)

 

 

 

 

 

 

 

(2,611

)

Legal and transaction related costs(2)

 

6,012

 

 

11,013

 

 

9,885

 

 

19,679

 

Adjusted EBITDA

$

46,854

 

$

48,513

 

$

209,996

 

$

214,779

 

Revenue

$

399,781

 

$

332,949

 

$

1,064,262

 

$

978,532

 

Adjusted EBITDA margin

 

11.7

%

 

14.6

%

 

19.7

%

 

21.9

%

(1) Restructuring and related expenses for the three months ended January 2, 2021, include a gain of $2.8 million, related to our negotiation for the early termination of a facility lease that was part of the 2020 restructuring plan. The gain represents the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment.
(2) Legal and transaction related costs consist of expenses related to our intellectual property litigation against Alphabet Inc. and Google LLC as well as legal and transaction costs associated with our acquisition activity, which we do not consider representative of our underlying operating performance.
Reconciliation of Cash Flows Provided by Operating Activities to Free Cash Flow
(unaudited, dollars in thousands)
Three Months Ended Six Months Ended
April 2,

2022
April 3,

2021
April 2,

2022
April 3,

2021
Cash flows provided by operating activities

$

(97,562

)

$

(38,559

)

$

82,374

 

$

175,953

 

Less: Purchases of property and equipment, intangible and other assets

 

(9,310

)

 

(8,594

)

 

(15,665

)

 

(19,927

)

Free cash flow

$

(106,872

)

$

(47,153

)

$

66,709

 

$

156,026

 

 
Revenue by Product Category
(unaudited, dollars in thousands)
Three Months Ended Six Months Ended
April 2,

2022
April 3,

2021
April 2,

2022
April 3,

2021
Sonos speakers

$

317,734

$

267,534

$

819,620

$

795,050

Sonos system products

 

61,220

 

 

52,062

 

 

195,965

 

 

149,820

 

Partner products and other revenue

 

20,827

 

 

13,353

 

 

48,677

 

 

33,662

 

Total revenue

$

399,781

 

$

332,949

 

$

1,064,262

 

$

978,532

 

 
Revenue by Geographical Region
(unaudited, dollars in thousands)
Three Months Ended Six Months Ended
April 2,

2022
April 3,

2021
April 2,

2022
April 3,

2021
(In thousands)
Americas

$

238,193

$

193,938

$

612,006

$

561,177

Europe, Middle East and Africa

 

128,431

 

 

114,306

 

 

373,912

 

 

354,313

 

Asia Pacific

 

33,157

 

 

24,705

 

 

78,344

 

 

63,042

 

Total revenue

$

399,781

 

$

332,949

 

$

1,064,262

 

$

978,532

 

 
Stock-based Compensation
(unaudited, dollars in thousands)
Three Months Ended Six Months Ended
April 2,

2022
April 3,

2021
April 2,

2022
April 3,

2021
Cost of revenue

$

377

$

261

$

705

$

474

Research and development

 

8,091

 

 

6,683

 

 

14,829

 

 

12,942

 

Sales and marketing

 

4,177

 

 

3,632

 

 

7,824

 

 

7,040

 

General and administrative

 

8,580

 

 

5,787

 

 

15,326

 

 

10,751

 

Total stock-based compensation expense

$

21,225

 

$

16,363

 

$

38,684

 

$

31,207

 

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, net income excluding stock-based compensation and legal and transaction related fees, and diluted earnings per share (EPS) excluding stock-based compensation and legal and transaction related fees. 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 adjusted to exclude the impact of depreciation, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes 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 calculate non-GAAP net income excluding stock-based compensation and legal and transaction related fees as net income less stock-based compensation and legal and transaction related fees. We calculate non-GAAP diluted EPS excluding stock-based compensation and legal and transaction related fees as net income less stock-based compensation and legal and transaction related fees divided by our number of shares at fiscal year end. We calculate constant currency growth percentages by translating our prior period financial results using the current period average currency exchange rates and comparing these amounts to our current 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 October 1, 2022, our long-term focus, financial, growth and business strategies and opportunities, growth metrics and targets, our business model, new products, services and partnerships, profitability and gross margins, our direct-to-consumer efforts, our market share, 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 the duration and impact of the COVID-19 pandemic and related mitigation efforts on our industry and our supply chain; supply chain challenges, including shipping and logistics challenges, significant limits on component supplies and inflationary pressures; the impact of global economic, market and political events, including Russia’s invasion of Ukraine; changes in consumer income and overall consumer spending as a result of economic or political uncertainty; 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; and the other risk factors set forth under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended January 1, 2022 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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