Sonos Reports Record First Quarter Fiscal 2021 Results Achieves Record Number of New Customers and Record Number of Existing Customers Adding Additional Products Raises Fiscal 2021 Outlook Santa Barbara, CA - February 10, 2021 - Sonos, Inc. (Nasdaq: SONO) today reported record first quarter fiscal 2021 results. First Quarter 2021 Financial Highlights (unaudited) ● GAAP net income increased 87% to $132.3 million from $70.8 million last year; non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees increased to $153.2 million from $87.4 million last year. ● GAAP diluted earnings per share (EPS) increased to $1.01 from $0.60 last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $1.17 from $0.74 last year. ● Adjusted EBITDA increased 78% to $166.3 million from $93.2 million last year; excluding the effect of tariff duties and refunds, adjusted EBITDA increased 45% to $163.2 million. ● Adjusted EBITDA margin increased 920 basis points to 25.8% from 16.6% last year; excluding the effect of tariff duties and refunds, adjusted EBITDA margin increased to 25.3%. ● Gross margin increased 590 basis points to 46.4% from 40.5% last year; excluding the effect of tariff duties and refunds, gross margin increased to 45.9%. ● Revenue increased 15% year-over-year to $645.6 million; on a constant-currency basis revenue increased approximately 12% year-over-year. ● Cash flows from operating activities of $214.5 million compared to $118.8 million last year. ● Free cash flow increased 97% to $203.2 million compared to $102.9 million last year. Sonos CEO Patrick Spence commented, “Despite all of the challenges of the pandemic, our team rose to the occasion and delivered the best quarter in our 18 year history. We welcomed a record number of new customers while a record number of existing customers returned to add additional products to their system. Based on our outstanding first quarter performance, the momentum in our business, the exciting products we have planned for the future, and the power and profitability of our unique business model, we are raising our outlook for fiscal
2021.” Mr. Spence concluded, “We remain focused on delivering innovative new products that both attract new customers and inspire existing customers to add additional products, introducing services that enhance and further differentiate the customer experience, strengthening our direct-to-consumer efforts, and supporting our incredible partnerships. We are extremely well positioned to deliver solid adjusted EBITDA margin expansion, industry-leading gross margins, strong revenue growth, significant free cash flow and increased shareholder value over time. The future has never been brighter for Sonos.” Fiscal 2021 Outlook ● Adjusted EBITDA increased to a range of $195 million to $225 million representing growth in the range of 80% to 107% year-over-year. This compares to a prior guidance range of $170 million to $205 million representing growth in the range of 57% to 89%. Excluding the effect of tariffs, growth is expected to be in the range of 40% to 62%. ● Adjusted EBITDA margin increased to a range of 13% to 14%, representing a 460 to 610 basis point improvement year-over-year and compared to prior guidance range of 12% to 14%. Excluding the effect of tariffs, adjusted EBITDA margin expected to be in range of 13.0% to 14.4%. ● Gross margin increased to a range of 46.0% to 46.5%, representing a 288 to 338 basis point improvement year-over-year and compared to prior guidance of 45.3% to 45.8%. Excluding the effect of tariffs, gross margin is expected to be in the range of 46.2% to 46.7%. Our fiscal 2021 outlook includes minimal impact from ongoing tariffs and does not include the $29.2 million in tariff refunds expected due to timing uncertainty. ● Revenue increased to a range of $1.525 billion to $1.575 billion, representing growth in the range of 15% to 19% from fiscal 2020 (17% to 21% on a comparable basis excluding the 53rd week in fiscal 2020). This compares to prior revenue guidance of $1.44 billion to $1.5 billion, or 9% to 13% growth (11% to 15% on a comparable basis excluding the 53rd week in fiscal 2020). Virtual Investor Event - Tuesday, March 9, 2021 Sonos will host a virtual investor event at 4:00 pm ET on Tuesday, March 9, 2021 highlighting its long-term strategic priorities and targets. Supplemental Earnings Presentation The Company has posted a supplemental earnings presentation accompanying its first quarter fiscal 2021 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 2021 results on February 10, 2021 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 (833) 921-1637 with conference ID 9987111. Participants outside the U.S. can access the call by dialing (236) 714-2128 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, dollars in thousands, except share and per share amounts) Three Months Ended January 2, 2021 December 28, 2019 Revenue $ 645,584 $ 562,083 Cost of revenue 346,159 334,463 Gross profit 299,425 227,620 Operating expenses Research and development 52,346 52,526 Sales and marketing 74,453 77,423 General and administrative 35,242 30,209 Total operating expenses 162,041 160,158 Operating income 137,384 67,462 Other income (expense), net Interest income 36 998 Interest expense (265) (453) Other income, net 4,257 4,424 Total other income (expense), net 4,028 4,969 Income before provision for income taxes 141,412 72,431 Provision for income taxes 9,120 1,656 Net income $ 132,292 $ 70,775 Net income attributable to common stockholders: Basic $ 132,292 $ 70,775 Diluted $ 132,292 $ 70,775 Net income per share attributable to common stockholders: Basic $ 1.14 $ 0.65 Diluted $ 1.01 $ 0.60 Weighted-average shares used in computing net income per share attributable to common stockholders: Basic 115,610,523 108,984,683 Diluted 130,644,147 118,415,968 Total comprehensive income Net income $ 132,292 $ 70,775 Change in foreign currency translation adjustment 847 (519) Comprehensive income $ 133,139 $ 70,256
Condensed Consolidated Balance Sheets (unaudited, dollars in thousands, except par values) As of January 2, 2021 October 3, 2020 Assets Current assets: Cash and cash equivalents $ 677,834 $ 407,100 Restricted cash 198 191 Accounts receivable, net of allowances 113,616 54,935 Inventories 88,194 180,830 Prepaids and other current assets 21,076 17,321 Total current assets 900,918 660,377 Property and equipment, net 64,170 60,784 Operating lease right-of-use assets 41,462 42,342 Goodwill 15,545 15,545 Intangible assets, net 25,975 26,394 Deferred tax assets 1,886 1,800 Other noncurrent assets 16,904 8,809 Total assets $ 1,066,860 $ 816,051 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 239,760 $ 250,328 Accrued expenses 96,433 45,049 Accrued compensation 29,424 44,517 Short-term debt 24,937 6,667 Deferred revenue, current 16,382 15,304 Other current liabilities 48,828 31,150 Total current liabilities 455,764 393,015 Operating lease liabilities, noncurrent 42,268 50,360 Long-term debt — 18,251 Deferred revenue, noncurrent 52,459 47,085 Deferred tax liabilities 2,434 2,434 Other noncurrent liabilities 3,726 7,067 Total liabilities 556,651 518,212 Stockholders’ equity: Common stock, $0.001 par value 121 114 Treasury stock (26,004) (20,886) Additional paid-in capital 633,335 548,993
Accumulated deficit (96,200) (228,492) Accumulated other comprehensive loss (1,043) (1,890) Total stockholders’ equity 510,209 297,839 Total liabilities and stockholders’ equity $ 1,066,860 $ 816,051
Condensed Consolidated Statements of Cash Flows (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Cash flows from operating activities Net income $ 132,292 $ 70,775 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 7,982 9,105 Stock-based compensation expense 14,844 13,204 Other (1,050) 1,471 Deferred income taxes 12 51 Foreign currency transaction gain (1,633) (1,924) Changes in operating assets and liabilities: Accounts receivable, net (56,650) (31,411) Inventories 93,495 107,343 Other assets (7,330) (11,853) Accounts payable and accrued expenses 33,271 (39,416) Accrued compensation (15,481) (14,568) Deferred revenue 5,633 4,879 Other liabilities 9,128 11,184 Net cash provided by operating activities 214,513 118,840 Cash flows from investing activities Purchases of property and equipment, intangible and other assets (11,333) (15,914) Cash paid for acquisition, net of acquired cash — (35,622) Net cash used in investing activities (11,333) (51,536) Cash flows from financing activities Repayments of borrowings — (1,667) Payments for repurchase of common stock — (5,078) Proceeds from exercise of common stock options 69,505 7,969 Payments for repurchase of common stock related to shares withheld for tax in connection with vesting of restricted stock units (5,118) — Net cash provided by financing activities 64,387 1,224 Effect of exchange rate changes on cash, cash equivalents and restricted cash 3,174 1,254 Net increase in cash, cash equivalents and restricted cash 270,741 69,782 Cash, cash equivalents and restricted cash Beginning of period 407,291 338,820 End of period $ 678,032 $ 408,602 Supplemental disclosure
Cash paid for interest $ 166 $ 472 Cash paid for taxes, net of refunds $ 2,672 517 Cash paid for amounts included in the measurement of lease liabilities $ 8,102 4,304 Supplemental disclosure of non-cash investing and financing activities Purchases of property and equipment in accounts payable and accrued expenses $ 7,814 $ 7,908 Right-of-use assets obtained in exchange for new operating lease liabilities $1,509 $74,683 Reconciliation of Net Income to Adjusted EBITDA (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Net income $ 132,292 $ 70,775 Add (deduct): Depreciation and amortization 7,982 9,105 Stock-based compensation expense 14,844 13,204 Interest income (36) (998) Interest expense 265 453 Other income, net (4,257) (4,424) Provision for income taxes 9,120 1,656 Restructuring and related expenses (1) (2,611) — Legal and transaction related costs (2) 8,666 3,448 Adjusted EBITDA $ 166,265 $ 93,219 Revenue $ 645,584 $ 562,083 Adjusted EBITDA margin 25.8 % 16.6 % (1) Restructuring and related expenses includes 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. 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 ("IP") 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 Operating Activities to Free Cash Flow (unaudited, dollars in thousands) Year Ended January 2, 2021 December 28, 2019 Cash flows provided by operating activities $ 214,513 $ 118,840 Less: purchases of property and equipment, intangible and other assets (11,333) (15,914) Free cash flow $ 203,180 $ 102,926 Revenue by Product Category (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Sonos speakers $ 527,516 $ 466,677 Sonos system products 97,759 61,521 Partner products and other revenue 20,309 33,885 Total revenue $ 645,584 $ 562,083 Revenue by Geographical Region (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Americas $ 367,239 $ 303,194 Europe, Middle East and Africa ("EMEA") 240,007 212,738 Asia Pacific ("APAC") 38,338 46,151 Total revenue $ 645,584 $ 562,083 Stock-based Compensation (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Cost of revenue $ 214 $ 282 Research and development 6,258 5,116 Sales and marketing 3,408 3,541 General and administrative 4,964 4,265 Total stock-based compensation expense $ 14,844 $ 13,204
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, gross margin excluding the effect of tariff duties and refunds, adjusted EBITDA excluding the effect of tariff duties and refunds, adjusted EBITDA margin excluding the effect of tariff duties and refunds, net income excluding stock-based compensation, restructuring, and legal and transaction related fees, and diluted earnings per share (EPS) excluding stock-based compensation, restructuring, 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 calculate gross margin excluding the effect of tariff duties and refunds as gross profit, less Restructuring and Related Costs(1) (unaudited, dollars in thousands) Three Months Ended January 2, 2021 Research and development $ 25 Sales and marketing (2,636) Total restructuring and related costs $ (2,611) (1) On June 23, 2020, we initiated a restructuring plan as part of our efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic. As part of the 2020 restructuring plan, we eliminated approximately 12% of our global headcount and closed our New York retail store and six satellite offices. We believe these initiatives will better align our resources to provide further operating flexibility and more efficiently position our business for our long-term strategy. Activities under the 2020 restructuring plan were substantially completed in the first quarter of fiscal 2021. In the first quarter of fiscal 2021, we negotiated the early termination of a facility lease that was part of the 2020 restructuring and recorded a gain of $2.8 million, representing the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. The gain was recognized as a credit in sales and marketing expenses on the condensed consolidated statements of operations and comprehensive income.
the effect of tariffs imposed on goods imported to the U.S. from China and any tariffs refunds subject to a tariff refund claim approved by U.S. Customs and Border Protection, divided by revenue. We define free cash flow as net cash from operations less purchases of property and equipment and intangible assets. We calculate adjusted EBITDA excluding the effect of tariff duties and refunds as net income excluding the effect of tariffs imposed on goods manufactured in China and any tariffs refunds subject to a tariff refund claim approved by U.S. Customs and Border Protection and 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 calculate non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees as net income less stock-based compensation, restructuring fees and legal and transaction related fees. We calculate non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees as net income less stock-based compensation, restructuring costs and legal and transaction related fees divided by our number of shares at fiscal year end. 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 ended October 2, 2021, 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, our direct-to-consumer efforts, our market share, our tariff expense 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; changes in general economic or market conditions that could affect consumer income and overall consumer spending; 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 and accurately forecast 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 3, 2020 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 letter, 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. Investor Contact Cammeron McLaughlin IR@ sonos.com Press Contact Tom Lodge PR@sonos.com Source: Sonos
