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Sonos Reports First Quarter Fiscal 2024 Results

Sonos, Inc. (Nasdaq: SONO) today reported first quarter fiscal 2024 results.

First Quarter Fiscal 2024 Financial Highlights (unaudited)

  • Revenue decreased 8.9% year-over-year to $612.9 million; on a constant-currency basis, revenue decreased 10.5% year-over-year
  • Gross margin increased 374 basis points year-over-year to 46.1%
  • GAAP net income of $80.9 million compared to $75.2 million last year
    • GAAP diluted earnings per share (EPS) of $0.64 compared to $0.57 last year
  • Non-GAAP net income1 of $106.1 million compared to $103.4 million last year
    • Non-GAAP diluted EPS1 of $0.84 compared to $0.79 last year
  • GAAP net income margin of 13.2% compared to 11.2% last year
  • Adjusted EBITDA1 of $115.2 million compared to $123.9 million last year
    • Adjusted EBITDA margin1 of 18.8% compared to 18.4% last year
  • Free cash flow of $269.3 million. Cash flows from operating activities of $275.4 million
    • Inventories of $173 million, decreased 50% from last quarter
    • Finished goods of $113 million, decreased 60% from last quarter
    • Period end cash and cash equivalents balance of $467 million

Notes: 1 Non-GAAP net income/Non-GAAP diluted earnings per share (EPS), 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, “We are pleased to report first quarter revenue of $612.9 million and Adjusted EBITDA of $115.2 million. Despite the challenging environment, we are winning in the market and outperforming the competition.”

Mr. Spence continued, “We are just months away from announcing our highly anticipated new product in a multi-billion dollar category, which will be the first major milestone of our multi-year product cycle. Our full attention is dedicated to successfully executing on our plan and positioning our business to return to top and bottom line growth. Great things are happening here at Sonos and the best is yet to come.”

Unchanged Fiscal 2024 Outlook

 

Low end

Midpoint

High end

Revenue ($ million)

1,600

1,650

1,700

% y/y

-3%

0%

3%

% y/y - constant currency

-3%

0%

3%

 

 

 

 

Gross margin - GAAP

45.0%

45.5%

46.0%

Adjustments(1)

0.4%

0.4%

0.4%

Gross margin - Non-GAAP(1)

45.4%

45.9%

46.4%

 

 

 

 

Adjusted EBITDA ($ million)

150

165

180

Adjusted EBITDA margin

9.4%

10.0%

10.6%

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

Supplemental Earnings Presentation

The company has posted a supplemental earnings presentation accompanying its first quarter fiscal 2024 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 first quarter fiscal 2024 results on February 6, 2024, 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.

Consolidated Statements of Operations and Comprehensive Income

(unaudited, in thousands, except share and per share amounts)

 

 

 

 

 

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Revenue

 

$ 612,869

 

$ 672,579

Cost of revenue

 

330,190

 

387,522

Gross profit

 

282,679

 

285,057

Operating expenses

 

 

 

 

Research and development

 

79,235

 

76,940

Sales and marketing

 

83,950

 

78,696

General and administrative

 

39,799

 

43,117

Total operating expenses

 

202,984

 

198,753

Operating income

 

79,695

 

86,304

Other income, net

 

 

 

 

Interest income

 

3,075

 

1,967

Interest expense

 

(105)

 

(158)

Other income, net

 

10,274

 

23,576

Total other income, net

 

13,244

 

25,385

Income before provision for income taxes

 

92,939

 

111,689

Provision for income taxes

 

11,992

 

36,501

Net income

 

$ 80,947

 

$ 75,188

 

 

 

 

 

Net income attributable to common stockholders:

 

 

 

 

Basic and diluted

 

$ 80,947

 

$ 75,188

 

 

 

 

 

Net income per share attributable to common stockholders:

 

 

 

 

Basic

 

$ 0.65

 

$ 0.59

Diluted

 

$ 0.64

 

$ 0.57

 

 

 

 

 

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

 

 

 

 

Basic

 

125,181,717

 

127,212,245

Diluted

 

126,742,153

 

131,502,986

 

 

 

 

 

Total comprehensive income

 

 

 

 

Net income

 

80,947

 

75,188

Change in foreign currency translation adjustment

 

(863)

 

(7,226)

Comprehensive income

 

$ 80,084

 

$ 67,962

Consolidated Balance Sheets

(unaudited, in thousands, except par values)

 

 

As of

 

 

December 30,

2023

 

September 30,

2023

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$ 467,342

 

$ 220,231

Accounts receivable, net

 

80,811

 

67,583

Inventories

 

173,043

 

346,521

Prepaids and other current assets

 

37,690

 

25,296

Total current assets

 

758,886

 

659,631

Property and equipment, net

 

86,816

 

87,075

Operating lease right-of-use assets

 

53,857

 

48,918

Goodwill

 

82,288

 

80,420

Intangible assets, net

 

 

 

 

In-process research and development

 

72,846

 

69,791

Other intangible assets

 

18,745

 

20,218

Deferred tax assets

 

1,714

 

1,659

Other noncurrent assets

 

34,838

 

34,529

Total assets

 

$ 1,109,990

 

$ 1,002,241

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$ 176,365

 

$ 187,981

Accrued expenses

 

97,992

 

89,717

Accrued compensation

 

28,018

 

22,079

Deferred revenue, current

 

20,943

 

20,188

Other current liabilities

 

52,683

 

34,253

Total current liabilities

 

376,001

 

354,218

Operating lease liabilities, noncurrent

 

60,622

 

54,956

Deferred revenue, noncurrent

 

64,962

 

60,650

Deferred tax liabilities

 

10,192

 

9,846

Other noncurrent liabilities

 

3,804

 

3,914

Total liabilities

 

515,581

 

483,584

 

 

 

 

 

Commitments and contingencies

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock, $0.001 par value

 

127

 

130

Treasury stock

 

(38,856)

 

(72,586)

Additional paid-in capital

 

569,286

 

607,345

Retained earnings (accumulated deficit)

 

68,159

 

(12,788)

Accumulated other comprehensive loss

 

(4,307)

 

(3,444)

Total stockholders’ equity

 

594,409

 

518,657

Total liabilities and stockholders’ equity

 

$ 1,109,990

 

$ 1,002,241

Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Cash flows from operating activities

 

 

 

 

Net income

 

$ 80,947

 

$ 75,188

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

11,878

 

11,132

Restructuring and abandonment charges

 

260

 

Stock-based compensation expense

 

19,358

 

20,195

Provision for inventory obsolescence

 

5,837

 

5,204

Other

 

1,236

 

1,593

Deferred income taxes

 

(45)

 

167

Foreign currency transaction gains

 

(7,388)

 

(17,700)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(12,215)

 

(7,286)

Inventories

 

167,641

 

143,144

Other assets

 

(12,878)

 

2,463

Accounts payable and accrued expenses

 

(7,429)

 

(65,917)

Accrued compensation

 

5,988

 

2,249

Deferred revenue

 

3,660

 

(3,950)

Other liabilities

 

18,551

 

15,804

Net cash provided by operating activities

 

275,401

 

182,286

Cash flows from investing activities

 

 

 

 

Purchases of property and equipment

 

(6,077)

 

(14,689)

Net cash used in investing activities

 

(6,077)

 

(14,689)

Cash flows from financing activities

 

 

 

 

Payments for repurchase of common stock

 

(23,484)

 

(15,043)

Proceeds from exercise of stock options

 

3,538

 

8,103

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

 

(3,745)

 

(8,376)

Net cash used in financing activities

 

(23,691)

 

(15,316)

Effect of exchange rate changes on cash and cash equivalents

 

1,478

 

4,397

Net increase in cash and cash equivalents

 

247,111

 

156,678

Cash and cash equivalents

 

 

 

 

Beginning of period

 

220,231

 

274,855

End of period

 

$ 467,342

 

$ 431,533

Supplemental disclosure

 

 

 

 

Cash paid for interest

 

$ 58

 

$ 111

Cash paid for taxes, net of refunds

 

$ 3,684

 

$ 1,903

Cash paid for amounts included in the measurement of lease liabilities

 

$ 2,601

 

$ 2,190

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$ 6,141

 

$ 2,030

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

 

$ 7,637

 

$ —

Reconciliation of GAAP to Non-GAAP Cost of Revenue and Gross Profit

(unaudited, in thousands, except percentages)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Reconciliation of GAAP cost of revenue

 

 

 

 

GAAP cost of revenue

 

$ 330,190

 

$ 387,522

Stock-based compensation expense

 

654

 

570

Amortization of intangibles

 

972

 

1,185

Non-GAAP cost of revenue

 

$ 328,564

 

$ 385,767

 

 

 

 

 

Reconciliation of GAAP gross profit

 

 

 

 

GAAP gross profit

 

$ 282,679

 

$ 285,057

Stock-based compensation expense

 

654

 

570

Amortization of intangibles

 

972

 

1,185

Non-GAAP gross profit

 

$ 284,305

 

$ 286,812

 

 

 

 

 

GAAP gross margin

 

46.1%

 

42.4%

Non-GAAP gross margin

 

46.4%

 

42.6%

Reconciliation of Selected Non-GAAP Financial Measures

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Research and Development (GAAP)

 

$ 79,235

 

$ 76,940

Stock-based compensation

 

8,979

 

9,151

Amortization of intangibles

 

496

 

495

Restructuring and abandonment costs

 

323

 

-

Research and Development (Non-GAAP)

 

$ 69,437

 

$ 67,294

 

 

 

 

 

Sales and Marketing (GAAP)

 

$ 83,950

 

$ 78,696

Stock-based compensation

 

3,815

 

4,113

Amortization of intangibles

 

-

 

-

Restructuring and abandonment costs

 

113

 

-

Sales and Marketing (Non-GAAP)

 

$ 80,022

 

$ 74,583

 

 

 

 

 

General and Administrative (GAAP)

 

39,799

 

43,117

Stock-based compensation

 

5,910

 

6,361

Legal and transaction related costs

 

3,743

 

6,289

Amortization of intangibles

 

24

 

24

Restructuring and abandonment costs

 

132

 

-

Adjusted General and Administrative (Non-GAAP)

 

$ 29,990

 

$ 30,443

 

 

 

 

 

Total Operating Expenses (GAAP)

 

$ 202,984

 

$ 198,753

Stock-based compensation

 

18,704

 

19,625

Legal and transaction related costs

 

3,743

 

6,289

Amortization of intangibles

 

520

 

519

Restructuring and abandonment costs

 

568

 

-

Adjusted Operating Expenses (Non-GAAP)

 

$ 179,449

 

$ 172,320

 

 

 

 

 

Total Operating Income (GAAP)

 

$ 79,695

 

$ 86,304

Stock-based compensation

 

19,358

 

20,195

Legal and transaction related costs

 

3,743

 

6,289

Amortization of intangibles

 

1,492

 

1,704

Restructuring and abandonment costs

 

568

 

-

Adjusted Operating Income (Non-GAAP)

 

$ 104,856

 

$ 114,492

Depreciation

 

10,386

 

9,428

Adjusted EBITDA (Non-GAAP)

 

$ 115,242

 

$ 123,920

Reconciliation of Net Income to Adjusted EBITDA

(unaudited, dollars in thousands except percentages)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

(In thousands, except percentages)

 

 

 

 

Net income

 

$ 80,947

 

$ 75,188

Add (deduct):

 

 

 

 

Depreciation and amortization

 

11,878

 

11,132

Stock-based compensation expense

 

19,358

 

20,195

Interest income

 

(3,075)

 

(1,967)

Interest expense

 

105

 

158

Other income, net

 

(10,274)

 

(23,576)

Provision for income taxes

 

11,992

 

36,501

Legal and transaction related costs (1)

 

3,743

 

6,289

Restructuring and abandonment costs (2)

 

568

 

-

Adjusted EBITDA

 

$ 115,242

 

$ 123,920

Revenue

 

$ 612,869

 

$ 672,579

Net income margin

 

13.2%

 

11.2%

Adjusted EBITDA margin

 

18.8%

 

18.4%

(1) Legal and transaction-related costs consist of expenses related to our intellectual property ("IP") litigation against Alphabet and Google, as well as legal and transaction costs associated with our acquisition activity, which we do not consider representative of our underlying operating performance.

(2) On June 14, 2023, we initiated a restructuring plan to reduce our cost base ("the 2023 restructuring plan"). The 2023 restructuring plan included a reduction in force involving approximately 7% of the Company's employees, further reducing our real estate footprint, and re-evaluating certain program spend. Total pre-tax and abandonment costs under the 2023 restructuring plan were $11.4 million, substantially all of which were incurred in the third quarter of fiscal 2023, with nominal amounts incurred in the first quarter of fiscal 2024.

Reconciliation of GAAP Net Income to Non-GAAP Net Income

(unaudited, in thousands, except share and per share amounts)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Reconciliation of GAAP net income

 

 

 

 

GAAP net income

 

$ 80,947

 

$ 75,188

Stock-based compensation expense

 

19,358

 

20,195

Legal and transaction related costs

 

3,743

 

6,289

Amortization of intangibles

 

1,492

 

1,704

Restructuring and abandonment costs

 

568

 

-

Non-GAAP net income

 

$ 106,108

 

$ 103,376

 

 

 

 

 

Reconciliation of net income per share

 

 

 

 

GAAP net income per share, diluted

 

$ 0.64

 

$ 0.57

Non-GAAP adjustments to net income per share

 

0.20

 

0.21

Non-GAAP net income per share, diluted

 

$ 0.84

 

$ 0.79

Weighted-average shares used in GAAP per share calculation, diluted

 

126,742,153

 

131,502,986

Weighted-average shares used in non-GAAP per share calculation, diluted

 

126,742,153

 

131,502,986

Note: Certain figures may not sum due to rounding

Reconciliation of Cash Flows Provided by Operating Activities to Free Cash Flow

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Cash flows provided by operating activities

 

$ 275,401

 

$ 182,286

Less: Purchases of property and equipment

 

(6,077)

 

(14,689)

Free cash flow

 

$ 269,324

 

$ 167,597

Revenue by Product Category

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

(In thousands)

 

 

 

 

Sonos speakers

 

$ 503,011

 

$ 539,196

Sonos system products

 

84,562

 

114,434

Partner products and other revenue

 

25,296

 

18,949

Total revenue

 

$ 612,869

 

$ 672,579

Revenue by Geographical Region

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Americas

 

$ 392,439

 

$ 396,565

Europe, Middle East and Africa

 

191,817

 

240,439

Asia Pacific

 

28,613

 

35,575

Total revenue

 

$ 612,869

 

$ 672,579

Stock-based Compensation

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

(In thousands)

 

 

 

 

Cost of revenue

 

$ 654

 

$ 570

Research and development

 

8,979

 

9,151

Sales and marketing

 

3,815

 

4,113

General and administrative

 

5,910

 

6,361

Total stock-based compensation expense

 

$ 19,358

 

$ 20,195

Amortization of Intangibles

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 30,

2023

 

December 31,

2022

Cost of revenue

 

$ 972

 

$ 1,185

Research and development

 

496

 

495

Sales and marketing

 

-

 

-

General and administrative

 

24

 

24

Total amortization of intangibles

 

$ 1,492

 

$ 1,704

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 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 adjusted to exclude the impact of depreciation and amortization, stock-based compensation expense, interest income, interest expense, other income, 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 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. 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, financial, growth and business strategies and opportunities, growth targets, our product cycle and roadmap, including our anticipated new product launch and the timing thereof, our investments in R&D, profitability and gross margins, the macroeconomic environment, 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 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 compete in the market and maintain or expand market share; 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; our ability to protect our brand and intellectual property; the resurgence of the COVID-19 pandemic and the other risk factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 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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