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.
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version on businesswire.com: https://www.businesswire.com/news/home/20220810005624/en/
Investor Contact James Baglanis IR@sonos.com
Press Contact Tom Lodge PR@sonos.com
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