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Sonos Reports First Quarter Fiscal 2023 Results

Delivers record Q1 revenue despite economic headwinds, maintains Fiscal 2023 outlook

Sonos, Inc. (Nasdaq: SONO) today reported first quarter fiscal 2023 results.

First Quarter 2023 Financial Highlights (unaudited)

  • Revenue increased 1.2% year-over-year to $672.6 million; on a constant-currency basis, revenue increased approximately 7.0% year-over-year
  • Gross margin decreased 540 basis points year-over-year to 42.4%
  • GAAP net income of $75.2 million compared to $123.5 million last year
    • GAAP diluted earnings per share (EPS) of $0.57 compared to $0.87 last year
  • Non-GAAP net income1 of $103.4 million compared to $146.1 million last year
    • Non-GAAP diluted EPS1 of $0.79 compared to $1.03 last year
  • Adjusted EBITDA of $123.9 million compared to $163.1 million last year
    • Adjusted EBITDA margin of 18.4% compared to 24.6% last year
  • Free cash flow of $167.6 million. Cash flows from operating activities of $182.3 million
    • Inventories of $306.1 million, down 33% from last quarter
    • Finished goods of $261 million, down 36% from last quarter

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

“We are pleased to report record first quarter revenue of $672.6 million and adjusted EBITDA of $123.9 million. We entered the quarter with our healthiest in-stock inventory position in three years which allowed us to meet the tremendous customer response to our industry-leading product portfolio and gain share across our key categories and geographies. Our results are a testament to the strength of the Sonos brand, our category leadership and the power of our flywheel,” said Patrick Spence, CEO of Sonos.

Mr. Spence continued, “Looking ahead, we remain on track to deliver against our fiscal 2023 guidance as we build upon our momentum and prepare to launch multiple new products this year. While significant macroeconomic uncertainty remains, my conviction in the long-term potential of Sonos has never been stronger.”

Fiscal 2023 Outlook - Unchanged from 4Q22

  • Revenue in the range of $1.7 billion to $1.8 billion, representing a decline of -3% to growth of 3% from fiscal 2022, or growth of 1% to 7% on a constant currency basis
  • Gross margin in the range of 45.0% to 46.0%
  • Adjusted EBITDA in the range of $145 million to $180 million, representing a decline of 36% to 21% from fiscal 2022
  • Adjusted EBITDA margin of 8.5% to 10.0%

Supplemental Earnings Presentation

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

Conference Call, Webcast and Transcript

The company will host a webcast of its conference call and Q&A related to its first quarter fiscal 2023 results on February 8, 2023, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Participants may access the live webcast in listen-only mode on the Sonos investor relations website at https://investors.sonos.com/news-and-events/default.aspx.

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

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

Condensed Consolidated Statements of Operations and Comprehensive Income

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

 

 

 

 

 

Three Months Ended

 

December 31,

2022

 

January 1,

2022

Revenue

$

672,579

 

 

$

664,481

 

Cost of revenue

 

387,522

 

 

 

347,096

 

Gross profit

 

285,057

 

 

 

317,385

 

Operating expenses

 

 

 

Research and development

 

76,940

 

 

 

61,330

 

Sales and marketing

 

78,696

 

 

 

83,736

 

General and administrative

 

43,117

 

 

 

39,725

 

Total operating expenses

 

198,753

 

 

 

184,791

 

Operating income

 

86,304

 

 

 

132,594

 

Other income (expense), net

 

 

 

Interest income

 

1,967

 

 

 

33

 

Interest expense

 

(158

)

 

 

(98

)

Other income (expense), net

 

23,576

 

 

 

(1,402

)

Total other income (expense), net

 

25,385

 

 

 

(1,467

)

Income before provision for income taxes

 

111,689

 

 

 

131,127

 

Provision for income taxes

 

36,501

 

 

 

7,646

 

Net income

$

75,188

 

 

$

123,481

 

 

 

 

 

Net income attributable to common stockholders:

 

 

 

Basic and diluted

$

75,188

 

 

$

123,481

 

 

 

 

 

Net income per share attributable to common stockholders:

 

 

 

Basic

$

0.59

 

 

$

0.97

 

Diluted

$

0.57

 

 

$

0.87

 

 

 

 

 

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

 

 

 

Basic

 

127,212,245

 

 

 

127,662,826

 

Diluted

 

131,502,986

 

 

 

142,322,448

 

 

 

 

 

Total comprehensive income

 

 

 

Net income

 

75,188

 

 

 

123,481

 

Change in foreign currency translation adjustment

 

(7,226

)

 

 

(360

)

Comprehensive income

$

67,962

 

 

$

123,121

 

Condensed Consolidated Balance Sheets

(unaudited, dollars in thousands, except par values)

 

 

As of

 

 

December 31,

2022

 

October 1,

2022

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

431,533

 

 

$

274,855

 

Accounts receivable, net of allowances

 

 

109,703

 

 

 

101,206

 

Inventories

 

 

306,056

 

 

 

454,288

 

Prepaids and other current assets

 

 

34,765

 

 

 

37,042

 

Total current assets

 

 

882,057

 

 

 

867,391

 

Property and equipment, net

 

 

85,068

 

 

 

86,168

 

Operating lease right-of-use assets

 

 

25,894

 

 

 

28,329

 

Goodwill

 

 

80,941

 

 

 

77,300

 

Intangible assets, net

 

 

 

 

In-process research and development

 

 

70,640

 

 

 

64,680

 

Other intangible assets

 

 

24,705

 

 

 

26,384

 

Deferred tax assets

 

 

1,416

 

 

 

1,508

 

Other noncurrent assets

 

 

36,154

 

 

 

36,628

 

Total assets

 

$

1,206,875

 

 

$

1,188,388

 

Liabilities and stockholders’ equity

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

236,037

 

 

$

335,758

 

Accrued expenses

 

 

138,344

 

 

 

109,290

 

Accrued compensation

 

 

26,430

 

 

 

23,624

 

Deferred revenue, current

 

 

19,560

 

 

 

27,318

 

Other current liabilities

 

 

57,268

 

 

 

39,649

 

Total current liabilities

 

 

477,639

 

 

 

535,639

 

Operating lease liabilities, noncurrent

 

 

22,318

 

 

 

25,596

 

Deferred revenue, noncurrent

 

 

62,421

 

 

 

56,152

 

Deferred tax liabilities

 

 

10,415

 

 

 

9,642

 

Other noncurrent liabilities

 

 

728

 

 

 

846

 

Total liabilities

 

 

573,521

 

 

 

627,875

 

Stockholders’ equity:

 

 

 

 

Common stock, $0.001 par value

 

 

130

 

 

 

130

 

Treasury stock

 

 

(35,047

)

 

 

(50,896

)

Additional paid-in capital

 

 

606,420

 

 

 

617,390

 

Retained earnings (accumulated deficit)

 

 

72,674

 

 

 

(2,514

)

Accumulated other comprehensive loss

 

 

(10,823

)

 

 

(3,597

)

Total stockholders’ equity

 

 

633,354

 

 

 

560,513

 

Total liabilities and stockholders’ equity

 

$

1,206,875

 

 

$

1,188,388

 

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Cash flows from operating activities

 

 

 

 

Net income

 

$

75,188

 

 

$

123,481

 

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

 

 

 

 

Depreciation and amortization

 

 

11,132

 

 

 

9,217

 

Stock-based compensation expense

 

 

20,195

 

 

 

17,459

 

Other

 

 

6,797

 

 

 

1,139

 

Deferred income taxes

 

 

167

 

 

 

14

 

Foreign currency transaction (gains) losses

 

 

(17,700

)

 

 

494

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

(7,286

)

 

 

(79,000

)

Inventories

 

 

143,144

 

 

 

(21,800

)

Other assets

 

 

2,463

 

 

 

4,086

 

Accounts payable and accrued expenses

 

 

(65,917

)

 

 

185,127

 

Accrued compensation

 

 

2,249

 

 

 

(49,094

)

Deferred revenue

 

 

(3,950

)

 

 

(13,510

)

Other liabilities

 

 

15,804

 

 

 

2,321

 

Net cash provided by operating activities

 

 

182,286

 

 

 

179,934

 

Cash flows from investing activities

 

 

 

 

Purchases of property and equipment, and intangible assets

 

 

(14,689

)

 

 

(6,355

)

Cash paid for acquisitions, net of acquired cash

 

 

 

 

 

(27,101

)

Net cash used in investing activities

 

 

(14,689

)

 

 

(33,456

)

Cash flows from financing activities

 

 

 

 

Payments for debt issuance costs

 

 

 

 

 

(929

)

Payments for repurchase of common stock

 

 

(15,043

)

 

 

(31,365

)

Proceeds from exercise of common stock options

 

 

8,103

 

 

 

13,232

 

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

 

 

(8,376

)

 

 

(11,882

)

Net cash used in financing activities

 

 

(15,316

)

 

 

(30,944

)

Effect of exchange rate changes on cash and cash equivalents

 

 

4,397

 

 

 

(1,218

)

Net increase in cash and cash equivalents

 

 

156,678

 

 

 

114,316

 

Cash and cash equivalents

 

 

 

 

Beginning of period

 

 

274,855

 

 

 

640,101

 

End of period

 

$

431,533

 

 

$

754,417

 

Supplemental disclosure

 

 

 

 

Cash paid for interest

 

$

111

 

 

$

23

 

Cash paid for taxes, net of refunds

 

$

1,903

 

 

$

413

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

2,190

 

 

$

3,410

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$

2,030

 

 

$

5,499

 

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

 

$

 

 

$

2,246

 

Reconciliation of Selected Non-GAAP Financial Measures

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Research and Development (GAAP)

 

$

76,940

 

$

61,330

Stock-based compensation

 

 

9,151

 

 

6,738

Amortization of intangibles

 

 

495

 

 

1,071

Adjusted Research and Development (Non-GAAP)

 

$

67,294

 

$

53,521

 

 

 

 

 

Sales and Marketing (GAAP)

 

$

78,696

 

$

83,736

Stock-based compensation

 

 

4,113

 

 

3,647

Adjusted Sales and Marketing (Non-GAAP)

 

$

74,583

 

$

80,089

 

 

 

 

 

General and Administrative (GAAP)

 

$

43,117

 

$

39,725

Stock-based compensation

 

 

6,361

 

 

6,746

Legal and transaction related costs

 

 

6,289

 

 

3,873

Amortization of intangibles

 

 

24

 

 

24

Adjusted General and Administrative (Non-GAAP)

 

$

30,443

 

$

29,082

 

 

 

 

 

Total Operating Expenses (GAAP)

 

$

198,753

 

$

184,791

Stock-based compensation

 

 

19,625

 

 

17,131

Legal and transaction related costs

 

 

6,289

 

 

3,873

Amortization of intangibles

 

 

519

 

 

1,095

Adjusted Operating Expenses (Non-GAAP)

 

$

172,320

 

$

162,692

 

 

 

 

 

Total Operating Income (GAAP)

 

$

86,304

 

$

132,594

Stock-based compensation

 

 

20,195

 

 

17,459

Legal and transaction related costs

 

 

6,289

 

 

3,873

Amortization of intangibles

 

 

1,704

 

 

1,310

Adjusted Operating Income (Non-GAAP)

 

$

114,492

 

$

155,236

Depreciation

 

 

9,428

 

 

7,907

Adjusted EBITDA (Non-GAAP)

 

$

123,920

 

$

163,143

Reconciliation of Net Income to Adjusted EBITDA

(unaudited, dollars in thousands except percentages)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Net income

 

$

75,188

 

 

$

123,481

 

Add (deduct):

 

 

 

 

Depreciation and amortization

 

 

11,132

 

 

 

9,217

 

Stock-based compensation expense

 

 

20,195

 

 

 

17,459

 

Interest income

 

 

(1,967

)

 

 

(33

)

Interest expense

 

 

158

 

 

 

98

 

Other (income) expense, net

 

 

(23,576

)

 

 

1,402

 

Provision for income taxes

 

 

36,501

 

 

 

7,646

 

Legal and transaction related costs(1)

 

 

6,289

 

 

 

3,873

 

Adjusted EBITDA

 

$

123,920

 

 

$

163,143

 

Revenue

 

$

672,579

 

 

$

664,481

 

Adjusted EBITDA margin

 

 

18.4

%

 

 

24.6

%

(1) 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 GAAP Net Income to Non-GAAP Net Income

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

 

 

 

 

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Reconciliation of GAAP net income

 

 

 

 

GAAP net income

 

$

75,188

 

$

123,481

Stock-based compensation expense

 

 

20,195

 

 

17,459

Legal and transaction related costs

 

 

6,289

 

 

3,873

Amortization of intangibles

 

 

1,704

 

 

1,310

Non-GAAP net income

 

$

103,376

 

$

146,123

 

 

 

 

 

Reconciliation of net income per share

 

 

 

 

GAAP net income per share, diluted

 

$

0.57

 

$

0.87

Non-GAAP adjustments to net income per share

 

$

0.21

 

$

0.16

Non-GAAP net income per share, diluted

 

$

0.79

 

$

1.03

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

 

 

131,502,986

 

 

142,322,448

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 31,

2022

 

January 1,

2022

Cash flows provided by operating activities

 

$

182,286

 

 

$

179,934

 

Less: Purchases of property and equipment, and intangible assets

 

 

(14,689

)

 

 

(6,355

)

Free cash flow

 

$

167,597

 

 

$

173,579

 

Revenue by Product Category

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Sonos speakers

 

$

539,196

 

$

501,886

Sonos system products

 

 

114,434

 

 

134,745

Partner products and other revenue

 

 

18,949

 

 

27,850

Total revenue

 

$

672,579

 

$

664,481

Revenue by Geographical Region

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Americas

 

$

396,565

 

$

373,813

Europe, Middle East and Africa

 

 

240,439

 

 

245,482

Asia Pacific

 

 

35,575

 

 

45,186

Total revenue

 

$

672,579

 

$

664,481

Stock-based Compensation

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Cost of revenue

 

$

570

 

$

328

Research and development

 

 

9,151

 

 

6,738

Sales and marketing

 

 

4,113

 

 

3,647

General and administrative

 

 

6,361

 

 

6,746

Total stock-based compensation expense

 

$

20,195

 

$

17,459

Amortization of Intangibles

(unaudited, dollars in thousands)

 

 

Three Months Ended

 

 

December 31,

2022

 

January 1,

2022

Cost of revenue

 

$

1,185

 

$

215

Research and development

 

 

495

 

 

1,071

General and administrative

 

 

24

 

 

24

Total amortization of intangibles

 

$

1,704

 

$

1,310

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, legal and transaction related fees, and amortization of intangibles, and diluted earnings per share excluding stock-based compensation, legal and transaction related fees, and amortization of intangibles. 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 (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, legal and transaction related fees, and amortization of intangibles as net income less stock-based compensation, legal and transaction related fees, and amortization of intangibles. We calculate non-GAAP diluted earnings per share excluding stock-based compensation, legal and transaction related fees, and amortization of intangibles as net income less stock-based compensation, legal and transaction related fees, and amortization of intangibles 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 30, 2023, 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, component supply-related challenges and inflationary pressures; our ability to accurately forecast product demand and effectively manage inventory levels, particularly during periods of fluctuating component availability; 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 Annual Report on Form 10-K for the year ended October 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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