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Sonos Reports Third Quarter Fiscal 2022 Results

SANTA BARBARA, Calif., August 10, 2022--(BUSINESS WIRE)--Sonos, Inc. (Nasdaq: SONO) today reported third quarter fiscal 2022 results.

Third Quarter 2022 Financial Highlights (unaudited)

  • Revenue decreased 1.8% year-over-year to $371.8 million; on a constant-currency basis, revenue increased approximately 2.2% year-over-year

  • Gross margin increased 30 basis points year-over-year to 47.3%

  • GAAP net loss of $0.6 million compared to GAAP net income of $17.8 million last year; non-GAAP net income excluding stock-based compensation and legal and transaction related fees of $25.6 million compared to $38.7 million last year

  • GAAP diluted earnings per share (EPS) of $0.00 compared to $0.12 last year; non-GAAP diluted EPS excluding stock-based compensation and legal and transaction related fees of $0.19 compared to $0.27 last year

  • Adjusted EBITDA of $42.1 million compared to $46.7 million last year

  • Adjusted EBITDA margin of 11.3% compared to 12.3% last year

  • Cash flows used in operating activities of $6.7 million

  • Free cash flow of ($16.0) million

Sonos CEO Patrick Spence commented, "We have seen the macroeconomic backdrop become significantly more challenging for us starting in June as the dollar’s appreciation and high inflation have adversely affected consumer sentiment globally, particularly in the categories in which we play. As a result, revenue missed our expectations for Q3 and we are adjusting our FY22 outlook accordingly."

Spence continued, "Although we cannot predict when macroeconomic conditions will normalize, we remain confident that, when they do, we will return to double-digit revenue growth. We base this on our category leadership position, our flywheel of new and existing customer repurchases and robust product roadmap. We expect to weather the current environment while operating from a position of strength: we are profitable, we are debt free, and we have a huge market opportunity. We are tightly focused on expenses while prudently and deliberately investing in a number of products and initiatives in new and existing categories that we believe customers will love and will drive our long-term success."

Sonos today separately announced that Brittany Bagley, the Company’s Chief Financial Officer (CFO), is stepping down to pursue another professional opportunity. Eddie Lazarus, the Company’s Chief Legal Officer (CLO) will succeed Ms. Bagley as interim CFO effective Sept. 1, 2022.

Fiscal 2022 Outlook

  • Revenue in the range of $1.730 billion to $1.755 billion, representing growth of 1% to 2% from fiscal 2021, or growth of 4% to 5% on a constant currency basis. This compares to a prior outlook range of $1.95 billion to $2.0 billion, which represented growth of 14% to 16% from fiscal 2021

  • Gross margin in the range of 45.7% to 45.9%, narrowed from previous gross margin range of 45.5% to 46.0%

  • Adjusted EBITDA in the range of $215 million to $230 million, representing a decline of 23% to 17% from fiscal 2021. This compares to a prior outlook range of $290 million to $310 million, which represented growth of 4% to 11%

  • Adjusted EBITDA margin of 12.4% to 13.1%, compared to prior outlook range of 14.9% to 15.5%

Fiscal 2024 Targets

  • Due to the uncertain and evolving macroeconomic backdrop, the timeline to achieve the Company’s previously issued targets of $2.5 billion revenue, 45-47% gross margins and 15-18% Adjusted EBITDA margins is being extended beyond FY2024

Supplemental Earnings Presentation

The company has posted a supplemental earnings presentation accompanying its third 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 third quarter fiscal 2022 results on August 10, 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 (Loss)

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

Three Months Ended

Nine Months Ended

July 2,

2022

July 3,

2021

July 2,

2022

July 3,

2021

Revenue

$

371,783

$

378,672

$

1,436,046

$

1,357,204

Cost of revenue

195,935

200,811

763,779

714,142

Gross profit

175,848

177,861

672,267

643,062

Operating expenses

Research and development

62,522

55,578

188,798

164,294

Sales and marketing

63,993

67,231

207,684

198,888

General and administrative

42,373

38,323

126,189

113,372

Total operating expenses

168,888

161,132

522,671

476,554

Operating income

6,960

16,729

149,596

166,508

Other income (expense), net

Interest income

429

34

585

114

Interest expense

(196

)

(77

)

(384

)

(525

)

Other income (expense), net

(9,858

)

1,998

(13,541

)

4,678

Total other income (expense), net

(9,625

)

1,955

(13,340

)

4,267

Income (loss) before provision for (benefit from) income taxes

(2,665

)

18,684

136,256

170,775

Provision for (benefit from) income taxes

(2,068

)

858

4,805

3,436

Net income (loss)

$

(597

)

$

17,826

$

131,451

$

167,339

Net income (loss) attributable to common stockholders:

Basic and diluted

$

(597

)

$

17,826

$

131,451

$

167,339

Net income (loss) per share attributable to common stockholders:

Basic

$

0.00

$

0.14

$

1.03

$

1.38

Diluted

$

0.00

$

0.12

$

0.94

$

1.20

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

Basic

127,884,400

125,138,279

127,886,487

120,876,472

Diluted

127,884,400

144,181,632

139,502,527

139,293,775

Total comprehensive income (loss)

Net income (loss)

(597

)

17,826

131,451

167,339

Change in foreign currency translation adjustment

(1,711

)

(784

)

(1,971

)

262

Comprehensive income (loss)

$

(2,308

)

$

17,042

$

129,480

$

167,601

Condensed Consolidated Balance Sheets

(unaudited, dollars in thousands, except par values)

As of

July 2,

2022

October 2,

2021

Assets

Current assets:

Cash and cash equivalents

$

439,726

$

640,101

Accounts receivable, net of allowances

124,884

100,779

Inventories

335,730

185,130

Prepaids and other current assets

23,124

31,504

Total current assets

923,464

957,514

Property and equipment, net

75,862

71,341

Operating lease right-of-use assets

28,093

33,841

Goodwill

79,824

15,545

Intangible assets, net

96,936

24,450

Deferred tax assets

1,804

10,028

Other noncurrent assets

37,247

26,085

Total assets

$

1,243,230

$

1,138,804

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

308,032

$

214,996

Accrued expenses

107,993

108,029

Accrued compensation

27,250

77,695

Deferred revenue, current

18,334

35,866

Other current liabilities

43,611

39,544

Total current liabilities

505,220

476,130

Operating lease liabilities, noncurrent

26,118

33,960

Deferred revenue, noncurrent

57,487

53,632

Deferred tax liabilities

10,789

2,394

Other noncurrent liabilities

880

3,646

Total liabilities

600,494

569,762

Stockholders’ equity:

Common stock, $0.001 par value

131

129

Treasury stock

(65,050

)

(50,276

)

Additional paid-in capital

649,449

690,462

Retained earnings (accumulated deficit)

61,553

(69,897

)

Accumulated other comprehensive loss

(3,347

)

(1,376

)

Total stockholders’ equity

642,736

569,042

Total liabilities and stockholders’ equity

$

1,243,230

$

1,138,804

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)

Nine Months Ended

July 2,

2022

July 3,

2021

Cash flows from operating activities

Net income

$

131,451

$

167,339

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

Depreciation and amortization

27,699

25,789

Impairment and abandonment

62

2,789

Stock-based compensation expense

57,463

46,755

Other

8,594

1,253

Deferred income taxes

(1,238

)

95

Foreign currency transaction (gain) loss

4,437

(2,226

)

Changes in operating assets and liabilities:

Accounts receivable, net

(28,476

)

(13,846

)

Inventories

(158,129

)

32,333

Other assets

(1,587

)

(17,730

)

Accounts payable and accrued expenses

97,421

(27,169

)

Accrued compensation

(49,769

)

21,501

Deferred revenue

(10,958

)

7,715

Other liabilities

(1,313

)

2,143

Net cash provided by operating activities

75,657

246,741

Cash flows from investing activities

Purchases of property and equipment, intangible and other assets

(24,946

)

(34,792

)

Cash paid for acquisitions, net of acquired cash

(126,416

)

Net cash used in investing activities

(151,362

)

(34,792

)

Cash flows from financing activities

Payments for debt issuance costs

(929

)

Payments of borrowings

(25,000

)

Payments for repurchase of common stock

(117,093

)

(21,729

)

Proceeds from exercise of common stock options

37,257

131,536

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

(33,412

)

(34,877

)

Net cash provided by (used in) financing activities

(114,177

)

49,930

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

(10,493

)

1,735

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

(200,375

)

263,614

Cash, cash equivalents and restricted cash

Beginning of period

640,101

407,291

End of period

$

439,726

$

670,905

Supplemental disclosure

Cash paid for interest

$

223

$

434

Cash paid for taxes, net of refunds

$

8,862

$

3,773

Cash paid for amounts included in the measurement of lease liabilities

$

11,185

$

15,078

Supplemental disclosure of non-cash investing and financing activities

Purchases of property and equipment in accounts payable and accrued expenses

$

10,937

$

9,046

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

$

2,141

$

1,622

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(unaudited, dollars in thousands except percentages)

Three Months Ended

Nine Months Ended

July 2,

2022

July 3,

2021

July 2,

2022

July 3,

2021

Net income (loss)

$

(597

)

$

17,826

$

131,451

$

167,339

Add (deduct):

Depreciation and amortization

8,907

9,065

27,699

25,789

Stock-based compensation expense

18,779

15,547

57,463

46,755

Interest income

(429

)

(34

)

(585

)

(114

)

Interest expense

196

77

384

525

Other income (expense), net

9,858

(1,998

)

13,541

(4,678

)

Provision for (benefit from) income taxes

(2,068

)

858

4,805

3,436

Restructuring and related expenses(1)

(2,611

)

Legal and transaction related costs(2)

7,459

5,351

17,344

25,030

Adjusted EBITDA

$

42,105

$

46,692

$

252,102

$

261,471

Revenue

$

371,783

$

378,672

$

1,436,046

$

1,357,204

Adjusted EBITDA margin

11.3

%

12.3

%

17.6

%

19.3

%

(1) Restructuring and related expenses for the nine months ended July 3, 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 (Used in) Operating Activities to Free Cash Flow

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 2,

2022

July 3,

2021

July 2,

2022

July 3,

2021

Cash flows provided by (used in) operating activities

$

(6,717

)

$

70,786

$

75,657

$

246,741

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

(9,281

)

(14,865

)

(24,946

)

(34,792

)

Free cash flow

$

(15,998

)

$

55,921

$

50,711

$

211,949

Revenue by Product Category

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 2,

2022

July 3,

2021

July 2,

2022

July 3,

2021

Sonos speakers

$

314,205

$

310,233

$

1,133,825

$

1,105,283

Sonos system products

38,363

47,621

234,328

197,442

Partner products and other revenue

19,215

20,818

67,893

54,479

Total revenue

$

371,783

$

378,672

$

1,436,046

$

1,357,204

Revenue by Geographical Region

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 2,

2022

July 3,

2021

July 2,

2022

July 3,

2021

Americas

$

232,421

$

223,720

$

844,099

$

784,898

Europe, Middle East and Africa

112,684

126,228

486,473

480,541

Asia Pacific

26,678

28,724

105,474

91,765

Total revenue

$

371,783

$

378,672

$

1,436,046

$

1,357,204

Stock-based Compensation

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 2,

2022

July 3,

2021

July 2,

2022

July 3,

2021

Cost of revenue

$

448

$

248

$

1,153

$

723

Research and development

7,858

6,125

22,687

19,067

Sales and marketing

3,826

3,277

11,650

10,317

General and administrative

6,647

5,897

21,973

16,648

Total stock-based compensation expense

$

18,779

$

15,547

$

57,463

$

46,755

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 outlook, 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, 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 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 the continuing conflict between Russia and Ukraine, foreign currency exchange fluctuations and inflation; changes in consumer income and overall consumer spending as a result of economic or political uncertainty; 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; and the other risk factors set forth under the caption "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended April 2, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220810005624/en/

Contacts

Investor Contact
James Baglanis
IR@sonos.com

Press Contact
Tom Lodge
PR@sonos.com