Sonos (SONO) 6 Feb 242024 Q1 Earnings call transcript

My name is Breanne, and I will be your conference operator today. At this time, I would like to welcome everyone to Sonos First Quarter Fiscal 2024 Conference Call. Please note that this call is being recorded. [Operator Instructions].

I will now turn the call over to James Baglanis, Head of Investor Relations.

conference. your begin may You

CFO, Thank you, Quarter Baglanis to First Lazarus. Patrick and with and Chief Strategy Officer, Good XXXX Earnings afternoon, Eddie Spence; CEO, Fiscal Sonos James today welcome Casey; Conference and me Legal Sonos are Breanne. Saori Call. and I'm

Month. For of Black Loud music is station, a those curated call Black at from sampling in hold joined today's the with Sonos which recognition and our History who collaboration early, is Say it

date. hand to discussion to include uncertainties events are risks reflected over These I views remind to material should from could today differ statements. and everyone performance. forward-looking that subject future as statements views like Before I would our be not as only subsequent representing also and considered actual financial it Patrick, the regarding statements forward-looking expectations future our materially results that cause will and reflect of in These to any today's our statements as of

A these in the caption with the our filings fully Risk SEC. is discussion detailed risk Factors of under factors

will we call, non-GAAP to refer this During financial measures. certain also

first to For press GAAP to website. refer reconciliation information release financials of the our measures results please regarding portion regarding a non-GAAP posted XXXX of this non-GAAP and quarter our to Relations fiscal today's Investor

available reminder, the Investor our on Relations be conference and website, will a As transcript press release, presentation supplemental call investors.sonos.com. earnings

have convenience, Relations I presentation. of posted also supplemental website, portions would certain we investor separately contains our presentation to for that, our which note an to Investor like earnings

over turn now call the will Patrick. I to

We our of kicked off and free I'm pleased successful expectations everyone. by million of a million. report adjusted flow $XXX fiscal first gross $XXX.X of and of GAAP million, we $XXX a revenue James, margin XX.X% EBITDA that you, hello, cash Thank delivering XXXX with exceeded and quarter. to

our million we owned sets to last previous million free inventory XX% adjusted up well $X.X quarter work position. made while meet revenue, We $XXX EBITDA, the to year. to us to targets $XXX XXXX XX% to also margins last and conversion improve billion of to vigilantly performance in relative . This to delivered billion $X.X cash flow commitment outlined GAAP on fiscal gross continuing down our

one navigated the cyclical promotional These environment. hard in our results a as categories were in we challenges highly

As of the theater subdued we has remains as our economic yet and across market APAC. geographies. TV purchases discussed have difficult This all slow in EMEA of the and part in home past, well category is to as in parts recovered a for conditions due not

but to for rather the the modestly the We than streaming competitive. execute we is in Friday, performance we us some select the to consumer and windows Monday. the different this an opted of category, of promotion conditions, pre-Christmas throughout discounting atypical improved run to holiday meet We having saw season. audio something it extended select promotions Black heavily though to Cyber This necessary in We highly decided Despite was on market expectations win. do products. felt continue remains holiday season concentrated these

sales delivering own market in all our margins categories, expectations key strong exceeded share We force. while and quarter. in the responded Customers for saw gross gains

both Specifically, and market in we and theater our share share home the gains improve audio saw U.S. saw also streaming further sequentially Europe. in in U.S.

in per years. customer one new We highest of holiday of of also any products saw levels the season

our our product that terrific this value and of is the products offer. a strong testament brand, lineup All to our

a in solid now further unchanged. the pulling from of in books, it in successful extended the effect outlook undivided With launch will Because QX QX. have half turn we X we quarter, our into foothold we first the as and in had sales new ship X which in may a categories our anticipated from QX. number expanding of this give And and we play announce some us later the of a product, the happened remains new diversifying promo category, to business. a multibillion-dollar believe will our our highly to This attention launch result,

in both reach In category, to this signing existing categories meaningfully. footprint of our new the new our partners anticipation untapped and in drive households. to distribution This few opportunity a expand plan broaden opportunities means with agreements distribution we our key and

We will quarters come. to in the updates provide further

plays with culture. we with the is past see to our in weekend, Connecting opportunity This we priority, with of throughout at partnering the the guests the a we and hip-hop academy in welcome The the activations carpet marketing Sonos XXXX recording is to other the to Particularly our efforts. house. culture exciting magic immersive amplified brought celebration. Boss Grammy place share Fianna the experience brand experiences role Duo the event, partnered life and connecting red experiences Sonos from to host and sound

our reinforces creator Commercial to experiences. commitment delivering [indiscernible] Chief the -- DeFinley, Our our it underscores and profound best, unparalleled unparalleled said listening Officer, community this to connection collaboration

XXXX flexibility We've in pair. success Sonos ask to be also ceiling available announcing per more upon of our needs installers the and direct installation. X-inch by will and the $XXX response built product in for our We their for our in Sonance. customers Recently partnership Sonance. options with during who speaker spring size of designed This and this

this control. I laser-focused unique are reiterate to consumer want we navigate As that we we what on environment, can

taking We share our margin. are gross compromising without

will onset one and and harvest of research at the products cycle with of enter product QX. be and shipping benefits multiyear the new as our a announcing new investments we to categories launch in development the are we We starting

they we X% to the market expanding ahead of just the large want ensure The opportunity billion remains X% where total our as continue time. loyal acquisition we to global make core households households new by Each have the distribution who customer to that the share our purchases year, audio to installed both customers shop. driven is over $XXX business of meet our We by are and in enter markets. base are subsequent our of our and

is at disproportionate capture to and Sonos ability opportunity here. only ahead Our happening things of of the will this us to a come. yet here are improve best from Great share

the call over, Eddie CFO. make Officer. a and as contributions turn as his rose navigate uncertain great in months for Chief I'm the confident a the his helped thank Eddie XX us environment. past I will impact to highly occasion I to to want new role Sonos Before on continue Strategy he over

exciting President Officer, Financial experience, corporate mind that She time from at joined Chief doubt my we brings finance a our we more years new wealth at serving recently Our to Finance multiyear as benefit as of product of tremendously of very will no new most Vice There she table. Casey, off kick the than brings Apple. XX Saori experience is in Sonos cycle. the

I'll Now introduce briefly the over Saori call yourself. to turn to

energized the Thank of brand Sonos lead with growth. work a our It's people I'm honor meeting I'm talent opportunity by next as past very the step at as you, here the by struck hand-in-hand Patrick. to leadership at the phase with Sonos an consumer and Sonos. spent caliber I've help and into of the X our to Financial Officer across to in iconic of Chief weeks organization,

investors in I getting our analysts weeks the to look forward know and come. to to

details our to provide over and Eddie more outlook. our I'll results Now pass on to it

XX organization. a Saori proud holiday a CFO growth. I'm of you, pleasure and our on grateful It's seamless incredibly transition have with all I she'll I I'm to of work success team great to already hard by Hi, the delivering talented phase wanted doubt Sonos very work takes into that as last next finance during the for everyone. build Thank serve and help the helm deeply accomplished Sonos lead including in, months. we no been quarter. Saori. just start the in as she saying strong of of upon opportunity the of the to this put this

specifically, with Saori, role, Sonos leadership the for new of long to our my my rest I dedicate and defend over position time the as course, to Patrick widespread will crafting of our and legal accountable and Google to team strategies hold our And I our executive that forward of to strategy the their patents. look of more will In term. intellectual I to continue infringement to succeed property oversee partnering

we numbers. when these increased to came of in first fill. our into revenue from the X.X% a channel currency. decline a On a quarter basis, our year-over-year or constant that of customer believe effect half factors challenging. I I'll We this QX of overall QX promotions of discuss and last ran in the XXX%, expectations $XXX.X unchanged sales pulling were the though for response had revenues quarter. that conditions due to expectations QX our now remain guidance. X would revenue note strong Turning million. ahead in some QX. the sequential XX.X% extent, revenues further we Hence, initial in categories lesser our the are timing to to extended cover

Products sold revenue on which favorable to This mix partially product declined percentage increase was product year-over-year, more than by resulted in offset promotional XX% basis per increase a from X% a due sold. increased revenue activity.

both regional a impacted in environment Revenue categories by in to the XX%. the APAC APAC EMEA on was year-over-year, X% significantly Sales down macroeconomic by in whereas and basis. varies Performance our declined there. be each Americas EMEA and difficult continued

inventory-related component additional year-over-year was points costs, was expectations. to spot by -- modestly due ahead gross purchases, promotional year-over-year, increase tailwinds, activity lower of basis which by offset provisions activity. and XX.X%, partially additional FX The GAAP up XXX lower our component fewer margin was promotional

gross year-over-year. X.X% dollars declined by GAAP profit

will XX%. of and Our QX confidence performance that we XX% fiscal our demonstrates of the underlying margins target underpins XXXX gross to our resilience our meet

and by $XXX XX and partially absolute our due was declined increased EBITDA million, XX.X%. dollars revenue margin offset of gross by spend. points advertising expansion, to lower margin year-over-year, margin Adjusted representing marketing a basis increased Though

were primarily accrual marketing a fees below increase bonus target revenue. resulting adjusted in Seasonal annual expenses in and $XXX from XXXX from advertising million the and increases $XX revenue-driven operating quarter, reset in up due Non-GAAP quarterly attainment. expenses sequentially, of fiscal higher million to

terms no of ended was from $XXX This working our debt. adjustments $XXX our the plans last We and driven an improvements adopted cash sourcing was better suppliers. as primarily payment by through improvement on a in of quarter million result resulting our with as million, Free implementation from to QX focus capital managing million of flow newly the with year. inventory cash $XXX well

flow a 'XX, fiscal would free that emphasized this towards progress be we cash top quarter, shows goal. and of priority quarter's that improving result Last

goods finished XX% and $XXX inventory fiscal of QX down Our from we million, inventory we balance period have 'XX. $XXX exited the sequentially. we balance end held the of Finished less inventory year-over-year or is where carrying ended our was XX% did down QX. down holidays goods This were million $XXX XX% level years on in $XXX we sheet lowest in million as than million

inventory balances keep to work in check diligently going will We forward.

of balance $XX sequentially. down component Our X% million was

As near previously component do to a we our in balance peak sometime increase in fiscal expect discussed, the reaching before term year. this

to million common turning average guidance, representing $XX.XX of an $XX the before X.X% in as outstanding at finally, stock of quarter, per repurchased And of price QX. share, we of shares

previous we our repurchase As on $XXX approximately $XXX remaining have million a share reminder, million authorization.

unchanged. expect capital allocation balanced that, market, Our in active continue be the remains And to we consistent repurchasing to stock. with strategy

last what for Revenue. outlined Now we guidance, from which is unchanged quarter.

the category We in year introductions in million from which we will expect this at the and than be in revenue share announcing we shipping QX. that of billion, more from year-over-year to the guidance assumption new that range FY of 'XX, in $X.X the multibillion-dollar the the half $XXX is $X.X in second the will come Embedded roughly new generate billion product of revenue key midpoint. of lion's flat will

comp of gross of gross XX.X% the we profit XX.X% due flat to margin, $X GAAP in intangibles in range Non-GAAP GAAP included to margins is GAAP XX% to gross amortization to implying of gross to million revenue. stock-based be On margin up approximately XX%, of X% dollars expected cost year-over-year. and expect and

up expected the X.X% from On adjusted X.X% At midpoint, $XXX million, of of EBITDA in EBITDA. XX% $XXX to a fiscal EBIT a in range million, XXXX. adjusted Adjusted representing be million to representing margin is margin is XX.X%. $XXX the to

and revenue. of operating be expected Non-GAAP between expenses XX% XX% are to

to the to future. diligently continue will growth We manage drive sustainable, expenses profitable in

XXXX, but discussed, previously fiscal we're to in continue not formal As guidance improve expect to flow free conversion. significantly providing for free we cash our cash flow

QX. to Turning

additional revenue bit decreases estimate our We promotional a is decrease as XX% expect our XX% to and revenue of fill. for revenue QX sequentially, typical -- pulled see decline because QX which more into seasonal we than to timing channel of activity that to

last Taken together, what revenue expectations unchanged our first are from we half outlined quarter.

expenses end low operating a bit to margin sales expect below our the primarily of due lower due bit QX. We adjusted non-GAAP revenue negative a $XX $XXX the EBITDA in million. million to decrease deleveraging from marketing, million to by And lower in of in to for $XX be gross -- million negative $XX to resulting quarter. decrease in to annual primarily XQ the range, and million seasonal guidance from $XX

Typically, we There's to litigation. defend monetize I our continue about not end to as with a Google continue and quarter IP. commentary as report our this -- to drive drive we our lot

that the We When are valuable appeals our Federal that will the in appeals we case. -- we from restart won at the waiting of finishes, damages for to of infringement for the the lawsuit Circuit valuable decide the case appeals involved ITC. stemming process patents had

in case verdict a our the we next Northern lot about our opening will future judge talked drivers Patrick in with of jury a our the California the from week, favor. file growth. our in Also invalidated brief appeal

just years to gross say is back our future. Success execution promise to in where need promise of in our keeping it our delivering confidence to paramount target there the we on and just expanding And margins deliver do that in the fronts to We I'll annual this have utmost in check. into comes that the instead, year keep 'XX will expenses margin X be need of while do FY I on this ability team's our in. So driving range come. that. these to and

over now I'd questions. to turn like the call for

question Morgan . first Your with Stanley. from Instructions] Woodring Erik [Operator comes

on understand you streaming one are then mean you maybe or for bit I either deck maybe you see nice a help and gaining one about kind earnings of call share, questions, -- just obviously by to market whether Eddie. the the and specifically, that a U.S. end or point levels trends I of the seeing notable ordering sequentially and us price what you're in can have just that's you, Patrick in the that? talking had a detail in take markets. you it's product, out normal partners -- follow-up. give market us then for Patrick, by two -- theater and And you more Can step just exactly home some when back

about Sure. it's been XXXX. the quarter it -- a how I'll trend little is see bit last talk we what a terms perspective from in we calendar about and of promotional -- talked throughout

think I the our of And XXX of categories, products saw through, in was think particularly bar out existing when and what off audio and brand in XXX some growth standing quarter share to those in in Era which think the we really our continuing really and those raise winning holiday and drive about terms in helping the category, the the shining kind categories, our interesting. strategy of streaming I is paid Era will. if you I fact,

bar able Arc value all there. market, and leadership Beam take see in think, consumers -- just tough sound terms ecosystem. then see our being And a the again, value to strength in the And I across spots continued really of markets category. reflection in another of ultimately, the that leadership of they in And position the from

our We flywheel. have and more competition the and about well a thinking their system our that Sonos coming helping the versus fact people they're advantage system and of power to as back as are adding

a things XXXX think I very So just to enabled where all were have challenged. us together of those categories navigate these

efforts, good terms about, we we our I so and to we of overall talked in I can ability at And And about the win of we compete execute feel at market us. continue look as market in point, this forward. I in to today. audio feel distribution I at position. the successful terms think good lots at think we're of both our -- and opportunity as of in so and our sure share yes, we in to win. then our the of making well And efforts, homes face we we number think continue look ourselves There's as the that throws that to there, whatever are we that marketing I as of be put going think And and

just you helpful. did kind Eddie, how opposite then Okay. you. maybe, Gross And That's quarter of the the margins first guided. for really of in

the below promotional You period talked just -- about you the they understand them above. more being term annual in came maybe the you long outperformed below target and despite why help us year-over-year? Can one,

the worsening of guide, gross should ago, shape look recovery margins it think bit think XX days the to as kind we why a flat we this we through full as about be year of I slightly was maybe year second, expecting of a trajectory then a when more And year.

year when trying look how So days a thought trajectory? gross than understand margin to just ago little different XX comes to you it might the bit

thank Well, Sure. you.

So on component costs the did did quite And a on better than side on that too. a thought. the have we the fluctuate shipping it we especially out, sometimes the than and quickly, expected. tailwind, FX turned Those better gross margin, things things of we bit little did little an costs and of logistics we we bit

than -- pleased our while do always favor. they a surprises were in So were just it -- that turned this little we bit better are the time, to out expected,

world Sea out costs situation shipping at could margins gross half things think the might are As the we upcoming. in that second the very still looking land rest for we coming see the at have of what's things We're where we're to raise whether which year, carefully, looking quite for again. the in volatile. also -- Red

And so has. it way just it the penciled out

happen derisks fingers good trajectory. the the the before guidance will disrupt would the in interim quarter. from to margin where in overperformed crossed, first the we say, It, but stood gross And quarter. we're delighted we nothing that I

question next from with Your Rosenblatt. Frankel comes Steve

Congratulations if initial larger the buying on people is driven more Patrick, product bundle? maybe on I color that the us by the up you line new your How consumers? performance, initial might towards purchase give product trend to wonder much a the moving by sizes just some them versus

Yes. Thanks, Steve.

way have will glory and of to home the sub. now being a We some we people theater to which able particularly our being as this been how and with well team, its on get Sonos, working on call DTC right is all our started partners hard, know, able but everybody as multiroom, with surrounds enjoy enjoy with

very more people -- effort that in off. And made it's start a to so have we've and concerted paying been way,

try And to so that customers, to know higher, that more if started their NPS they're and that, we're is continue because that their going and is way we also know get happier higher. value people lifetime we we do

been will categories about full customers continue value that even think so a effort as be into, we And the ecosystem. we the Sonos concerted effort concerted go do and of a be we new how that's get seeing to to

that's it's the So part in and paying QX. strategy, an of important off

into And then one more, retail? the European and installer in maybe some inventories channel in channel insight

we with were channels. we a IS And feel all We comfortable both place deleveraging that like we IS gotten last -- in to respect year, where to are were side, those the balanced the feel back We channel. very ahead running more significantly on sell-in. of channel. of we've Registrations

subdued. shape isn't channel just the that's based feel softness we said, It's that has going consumer forward. we as but fill. European retail on has excessive in environment -- been been good there really soft, we So but like

Haas comes from Bank . question with Jason America. of next Your

should see housing there's curious what demand needed that you you pickup we in broadly to lower think I'm a rates. could expectation the in industry inevitably if with pickup talk some see is about a

the you that industry help business So I'm extent think could your curious potentially to broadly? and what

Yes.

certainly down Ultimately, think, of that helps. that's I been have one those factors as TV well. probably sales Jason,

picks work market will And addressable time, that is those definitely . But opportunity that's towards goods take something a us. because out lot are the some have here same that believe more So even sentiment and our just a is versus and that interest in we've shown the at ability more. there that's weekend more we marketing clear loud for everybody efforts the point. every with to and challenged as help there we that right? I'm I we up at we things consumer the and to And referenced we're think sure I there, more. of environment, take So of and sure an services, distribution of take make actually new effort general that then despite agreements kind opportunity think all rates, the categories, in to just of the making renewing challenges, some would I buying more these and also have go the I things.

on as tailwind focused And focused And then those do. But on back think so staying can we're control. things come we're just very it's they whenever nice that. I things the a we very

it on cadence then follow-up getting as of bit question, was just it sounds reported back seems be cadence great. to year. going like little the a even EBITDA hasn't question about given know good versus -- question if years changed the getting ask it's I've the And I from perspective pre-pandemic. weighted is to before half year look EBITDA but more you've I the some at an you too I we like much, basically -- been through it. That's results, a the color wanted this

new curious any tailwinds what's of part the we for have recognize other instructions, be I'm I you'll that's second should of driving So I'm half product that the it. aware that. year? of sure But . so the

this year percentage in of the that say half we'll that this product that little would do lighter the significant introduction. first we fact because typically a new it than revenue is of I get reflects bit No, the

that's that have And category this So if we're going multibillion-dollar projecting we're to because we be the into. new category, revenue usually, this half first would XX% year, XX% of XX%.

in . have the for the weakest. that. And it year. rebound to will of And the follow second a is will EBITDA typically which quarter, back so then We're the our going dip half

with next from question comes Your James. Raymond . Norton Jake

new product half what you back category more entering a into are new a about thinking product this lot stronger launch there's year. soft than Of versus of in is in of a market you've a excitement seen macro internally traditional a past? consumer the potentially around How environment the course, typical

Well, Jake, all us, to it's thinking category we're when about new that opportunity. is I think, a new

like we we But the get that I investments with in believe we're we just so the the into buyers do. everybody super there. -- leader think And the even company we've shown the energy, and a categories always in weren't are category excited it I kind at have and And excitement I are this think in contemplating around of opportunity great buyers today, approaching we'll across prudence same that is bring to take some share to the others probably being that I time, think year.

we're right is ready company, a the opportunity. think across this long-term launch getting So and big to aggressively we because we're excited

strategic me. And standpoint? to one a Welcoming enable operations maybe long-term just from and CFO, even Saori, Perfect. Okay. then organizational an can for change last speak you what this will

team. in and way, really, a electronics point, the X yes, up talked this and in kind in Apple lot think weeks that and is profitable a companies sustainable, helping the the right And and like of consumer financial and drive at expertise and past profiles. we've technology growth in Cisco Chinos, scale investment with her Saori's the So I picking team finance about thing

growth profitable she so we to drive that in past. the we've wisely going sure And make talked are to the for of us the investing sustainable future help is kind to

organization, it be I X see will take the on a more more than So little but . her to impact weeks. excited not bit could

Furman Your next from Craig-Hallum with question Capital comes Group. . Alex

holiday a that's after competitors going is presumably, away more promotional holidays doing, Patrick, change to Did that. a or normal? now meet your the promotional you initial of during holiday one prices starting how the environment you consumer mentioned more given become to about being not new lot to the that upcoming were this more start what think expectations it season

things one If of Alex, that that some the work. can't will holiday I've given ways we what necessarily, learned these happen project right, next thing, it's

the a thing urgency was of quarter. sense this and a where pretty to we're so and to will kind holiday, were they monitoring I the were with this of in sure And super right meeting team unique the it and make the of move I say, way adapted customers proud was do that we closely,

where confident products about in position product of to very I'm we investment, will kind the for. gross to level that that But us innovation kind deliver and and leading brands and talked right, customers have the that margin we right are pay products willing put continue we've of of a love,

And premium level, going comes strategy we deliver so price we for a have and continue at when a it value think to to the the provide we're I to that. good

win I see throughout XXXX we in as and to but So kind continue saw just with think believe perhaps can the we XXXX, execute of we also discounts I year we did strategy. that our

Thill Brent with final comes . from question Your Jefferies.

on about these -- return are see. of out standing out you going existing to into, the that's just seeing little categories green the standing the excitement but now? biggest what's I starting kind mean ex been XXX talked growth? you where you're to shoots category to a you're What's you bit curious, I'm the kind new of the Patrick, and

for helps share our seeing we hypothesis bar categories. the making our just category -- mistake, Brent, in of as the quarter holiday in -- drive helped continue something Well, I I But we out be the with think raising to think Era to us have -- -- think, existing was audio ability a Era products that a the to and XXX XXX gain streaming and really that want I term higher about plus the investing me, in right prove kind things are for we growth aspirations the the our for existing given of we're seeing opportunity our now believe in because new we're what typical that than categories, the the to our categories, going categories. of introductions, do win everything continue to kind But existing our can growth our compete continue category and challenged to those rates. we product distribution, the to through in we're long in marketing

that, everything meantime We X in you to if tailwinds more when in are we then those we that doing back QX. in of spending we're comes but can categories the new have exciting to we be point, categories. entering your And know there'll will. capture

I the know for of unchanged. think impact Okay. embedded And that X.XX? us you've is on category numbers about then the when at new this you the what But outlook can mentioned midpoint . you you just remind year,

year. in million introductions this product new $XXX

for no to Instructions]. call back Sonos the Spence remarks. Seeing questions. turn CEO, closing will [Operator further I now Patrick any

Thanks, want closing. in Breanne. things to I X just hit

First, a highly a in we QX delivered environment. challenging and successful promotional

our and of puts gross in margin first in adjusted us meet half revenue, fiscal expectations track to on EBITDA. terms QX Our performance . and XXXX

we what we laser-focused are can on Second, control.

are without margin. share gross We taking our compromising

We multiyear we a enter new as QX. the with onset categories harvest starting the and at benefits investments we and be new launch in to announcing of our will product one the are cycle shipping of products

expanding are meet distribution where the customer to shop. they We want we to ensure our

are brand We into activation our new culture and reinventing audiences. marketing and address tap to

Our to cash to made means to margin commitment build the our flow our progress success working expenses quarter to deliver We our improve operational position we'll expansion adjusted conversion. this to in come. free inventory look excellence our margins, our years gross quarters down and tightly great managing improving and EBITDA and upon

speaking for with we Thanks to time look quarter. next and you your today, forward again

conference today's This call. concludes

may disconnect. are we You And now clear.

. Breanne. Thanks,

Thank you, Breanne.

day. Have you, of your great Thank everyone. rest a