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Home Business Wire Sonos Reports Third Quarter Fiscal 2022 Results

Sonos Reports Third Quarter Fiscal 2022 Results

SANTA BARBARA, Calif.–(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.

Contacts

Investor Contact

James Baglanis

IR@sonos.com

Press Contact

Tom Lodge

PR@sonos.com

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