SONO - Earnings call transcript Q3 2018

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Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos' Fiscal Third Quarter 2018 Earnings Conference Call [Operator Instructions]. I will now turn the call over to Mike Groeninger, VP of Corporate Finance.

You may begin your conference.

Mike Groeninger

Mike. you, Thank welcome Call. and Third XXXX Quarter Good to Conference Earnings afternoon, Sonos' I'm Corporate of Mike VP Groeninger, Finance. me Patrick Mike Spence; with and And today CFO, Giannetto. are Sonos' CEO,

call maybe For your is often songs. music. joined you signature those experience the with of Breakthrough music first our about question debuted selection hold who early,

our Sleep as the it the by Beastie public We thought played The Sonos' same started product, Brooklyn first to way song call the music filling Till first appropriate first to company the homes start was on a XX public ZPXXX, earnings was No we ago. years Boys. with

to performance. Before everyone statements as views today cause the from the and in to that these statements over statements views Factors date. risks A discussion reflect under Patrick, only remind will is uncertainties also of risk materially not filings our in be any differ Risk material and discussion our like financial include SEC. to of representing factors forward-looking could to subject fully and that I considered These expectations forward-looking results statements. hand today's of events as detailed subsequent regarding our are I it caption the future should These would future with reflected actual our

we non-GAAP During financial adjusted measures, will to call, also refer and this margin. including adjusted EBITDA EBITDA

the financial to non-GAAP to shareholder that, reconciliation Spence. portion quantitative posted call turn a regarding our Relations of please and XXXX information our regarding Patrick And letter today's of information third refer Investor over with measures, complete to our quarter I'll For the website. results those fiscal

Patrick Spence

to take public is important as so of I to good a we'll coming at ranges to road detail provide we our a preliminary things have our lot we all do Every use to show start Sonos about say joining QX Thanks, today. your letter, end our Mike, what off it for a quarter, questions. to IPO But and our on on do lot we're first talked high company. of a primarily we I the calls to results of shareholder the couple earnings want in with these I of touch how call us we'll And provided. thanks at in a everybody will.

good get products a X by And system. the the fact their product to we've for Sonos customers One the from other that products question still to of last done customers we another our answering add XX IPO the that do as that over Sonos' how a get of people are show need lot unique. building that last by encouraged of the software investors took of it's to power do XX% things our more last the last registrations of about from with XX I buy their away came is adding those. fact the education home? model, of Since that to our years, to for learn is years, to as we I'm beginning and business years, road another job year, evidenced better

I'm the second will our fiscal QX, which Amp, made year our We've strategies announcement One after a 'XX. products We add new good growth system X and launch We're with people our progress shipping product in replacing our the aware introduction are the XXXX company over of previous few to time only to in of over versus purchases. more on fiscal delivering months. the QX commitment on their of where start Beam, of of past

to taking the that tailored market the world. launched Japan approach in global a are terms in expansion, second-largest of we In market, in important August, and music

be to We with that business, our growing direct-to-consumer to accelerate continuing channel our one. continue fastest

with platform AirPlay introduction the engagement continued and the are from X. that AirPlay also using seen to X, Sonos of evolve increased homes we've We

set with and last are to developers platform gets excited of APIs more to a our we week, developed opened as Just result. a see what

partnership, brand NASDAQ that to also drove our ton commentary it opening which open at start our Finally, as locations. We're Expo over there we to reimagining of for activities build our to Beam company. through to now questions. brief see media amount and opportunity see. our launch I'll all provide the our and week Mike to public cultural partners, events energy turn our of at to the bell, like a of up earned CEDIA was get your of around a last before marketing some I the off various we a and physical a was installer Amp, great APIs continue awesome and Sonos And tremendous be it

Mike Giannetto

and good Patrick, everyone. Thanks, afternoon,

quick provided EBITDA Mike adjusted QX shareholder in I And our fiscal points. QX, in call loss operating earlier, year-to-date this As we all of the in earlier the said we letter. provided opening preliminary review our high prospectus for afternoon, back the finished to questions, our and results Revenue, financial and up range at our will before end July.

look over fiscal months of X at first progress XXXX, our revenue growth reflecting of was million, our XX%. As the rate year-over-year $XXX we

on Adjusted the which of in category, products same Our last in by million, the launched where year. driven driven the is speaker, has launched in One, fiscal growth growth speaker been and $XX Sonos was for our by category, wireless months from PLAYBASE the X third $X which the QX, theater quarter home slight a ended period of our EBITDA new the million decrease fiscal XXXX. specifically

our Our details shareholder the website on performance. year-to-date IR quarter and discussions and posted provides more on letter

XXXX year high the at be to fiscal expected final representing note, open over of the questions. is million, QX end low provide the billion rate XX our of earnings be to we ending XX.X% will end the to for annual XXXX to $XX fiscal follows: XX.X% Adjusted high year full full to EBITDA, representing for Revenue year fiscal November. year fiscal an is call a XX.X% in One an rate range $X.XXX growth that, the to outlook end in it September billion, With as $X.XXX we'll Our million at of low $XX outlook of XXXX. for and up XXXX. growth annual we in end expected a over our X.X%

Operator

[Operator Instructions] Your first question comes Huberty from Katy Morgan Stanley. from

Katy Huberty

in letter, retailer In the customer is and referenced your shareholder you Beam with media feedback expectations. and line

line Sonos in product about One you levels to the expectations? channel in Just are whether wondered conservative we internal inventory can with should where Street line as curious in And more Beam or then think if cycle? relative expectations I on your with comment the same point that

Patrick Spence

your talk the and Mike let I'll one inventory first I'll take levels. to

as -- we've turning it's made so about about, So the the tracking. around good expectations, we're to assumptions some our cannibalization is had other we product talked of products. feeling internal way And

about the yes, And is. really overall so on. we're good that where this feeling launch in And feeling that we're trajectory good about

Mike Giannetto

Mike, Yes, this is Katy.

question expectations channel I points. channel a Your mean, a and line of that it's little with are. very which very Sonos given the in But channel about inventory, say period, and high-volume inventory. holiday was to in period difficult as our in the was different they price comparison with it's levels inventory terms I'd comfortable us One, for

in we and late expectations. And about this which said, fill, the quarter. feeling performance with very channel with line good channel we're And into we're comfortable June began the our have as We inventory.

Katy Huberty

one to should that more, given next the think can revenue a and I the And if your in few how on over about big just market? year, we Japan's focused contribution direct-to-consumer retailers

Patrick Spence

Yes.

color the the terms time. say over I want and some of more there be that these impacts will it build just continue in we few on next we're would sure and minimal foot So getting things that, to we'll on make right off but get quarters. And to over give we started the

So it as minimal 'XX. 'XX will into about of we think the and fiscal be remainder fiscal

Operator

Goldman with next from question comes Your Sachs. Rod Hall

Rod Hall

playing rest update I you'd situation the the kick year? the MLCC maybe I them that see and have out pricing, the be if expected of to wanted how kind see off to tight things an as still of supply then follow-up. you as of IPO with just terms are to pre in a And and on

Mike Giannetto

change. From an we definitely a and imbalance Rod. supply between MLCC It's demand. There's lot tight. still global Mike again. -- Yes, standpoint, It's imbalance seen haven't

tightness demand. pricing with is comfortable premium ability quite We meet The to there. our the feel our there. parts is to So procure the

on daily working are teams it. Our

as We great the very to so very some comfortable, component supply seen. feel much from have a have relationships, And we of supply terms standpoint, we pretty confident it's getting need. premium pricing we in

going seen dramatic in terms of changes we've our from up We meet to there. say into haven't supply our made next year. standpoint, lining progress the good demand I'd

pricing. will it in year to in of fiscal the bit, terms impact start will We start in but little fiscal see much see an to of not premium XXXX. 'XX a We'll hit this

Rod Hall

March. out or material to you I CEDIA and a product view? contribution to from in -- unit have have quarter of I'm been you this how at the just point playing new wondering that demand see guys get up the had any more launched follow that material wouldn't of our volumes whether whether also maybe hope until that that I expectation wanted think there on December from see Amp just a you

Mike Giannetto

then in to general But the come standpoint not next see a our channel, now. availability providing of for volume guidance for obviously availability later a fiscal it expect in 'XX, XXXX. because would QX right We're through and year from we calendar why

to we'll see start some flow QX. So in

Rod Hall

just the And and is what API, there. kind is then of on one one I plan -- last the

bit well. would curious that's to was us maybe much if philosophy You I as interesting a don't guys think but the too that can remarks, give say didn't those little behind at us well. -- the I'm changes, as opening give know And know, a you Patrick, but change been, big that and what CEDIA be I in of reception

Patrick Spence

ever, Sonos being partners is other CEDIA our platform others a think that get it the week, the really And connects boots, or being really the than you where system system was I out anything control in the door sound see So that's tie happening, at home you of right? security things Sonos support, was there, or are booths into being it's any or feedback into whether hear you interesting much last very that to want. of various to think with control all API lot I many is ecosystem. bell on ability the So many, home service more would in assistant that on or your happening centralized the And and philosophy open, Sonos Expo power any line that's able voice to another and right? tied music from of loud

recently secondly, big for may then push to of to And think developers just so I to a home and around sound It pretty happening take allow in the may be may has have really of tie Product we of the have ideas platform, create is that's these that Hunt APIs allows in everything do a also those us not that yet into kind think see which new you and really: one, that home advantage that smart fundamentally done services space exciting. invented, and what APIs. around trend;

Sonos music customers to And see of fun of build it. to we're keep created will people work what don't make new and But from teams result listening renowned a to as for to a take that API. yet it software and allow away that the that the super be sure so the sure area reliability hard for their also of rock-solid we is fashion. make a ones and exciting us, gets on in this They're experiences top

Operator

Your from RBC Amit next Daryanani Markets. comes with Capital question

Amit Daryanani

from a I well. couple as me guess

the is channel have, sales off, the profile done consumer, qualitatively direct touch on model that direct the today? either you you in you versus letter up First percent guys XX% Could when And I you of direct what's about for what about business shareholder direct or quantitatively, year-over-year. think talk indirect guys? margin talked the the just are to model

Patrick Spence

our our at traditional XX in the XX% it, where tends sales terms we about about of better to as fits. look be than it and points of margin is direct year-to-date So

Amit Daryanani

go least category. what guess when have of I Sonos Perfect. areas products? about follow-up, forward? One just products focused Is with markets also as a new meant would that pretty the products those at or enabling these products we I be that as have talk you as go just on just ASPs And that an or same on lifting for should versus new lower and can two would anomaly And lower ASPs products growth forward, something Beam, of products -- new you you is about think something touch the helpful. That's new recently, you prior we that is expect happened just

Patrick Spence

range. really have a We don't

products. $XXX to year, in Our this great products to today, a different range any that's price and we range other. from $XXX our Certainly, have think than

You've play. seen the segments more in that that entry-level parts are X of the they

of so in at we in distribute in change terms of over terms think And we're price a $XXX to $XXX variety it expect the don't that of kind products customers And way points. the don't portfolio between we We time think building terms for of will of points. our ASP. price I

be level every you'll that over an more do I to done segments, have this points, as see those it the not think So entry us indicator in price think happen and for term, those the to we anything that's about certainly year. X but year, long of I of going we are

Mike Giannetto

the only would $XXX price. has which Amp a that Sonos announced I X, just we list add

we're not a depends customers. the solution direction going. it's we're on that It offering really particular So our product

Operator

Brent question Jefferies. comes next Your from from Thill

Brent Thill

Just think revenue. I has to tracking been your relates of in single-digit as it overall percent that Asia, the somewhere

to your is to when would see the of you second-largest short-term still the the market, talk still there is Europe think impact. music letter you you're you of reflection expecting of kind kind you that being expectations why and just at mentioned Can minimal markets, maybe when look what takes so about U.S. in Japan just of expect a I it the kind but long And that underpenetrated? a ramp? maybe massively just of ramp up

Patrick Spence

Brent. definitely of there's in. that We the markets we're opportunities Yes, huge all in existing think

in to so as we're I why right a get think But sure then resources, we and even approach and make think sonos.com long retail is it with partners Japan Beam. our with And we how we which want we approach the of taking investments for general, about about that. measured think we in high-end like it terms term,

place markets, when do get we're we about And right sure the in, new we as in we learn and these thinking brand we're that so thinking we well. establish make the how

we it So when experience. have very there, comes their from consumers they audio taste know to discerning

want local mean, our nailed, in of formula. as there, services, to be in believers really And we're around And soon learn to doing of getting we're fidelity, to from us that ramping make so that other big that and thing everything got as range then it right? getting it things. the terms up want audio of you'll in make know we starting on sure product so we've do we have we I sure everything -- some ahead the these to is prudent about expectations And

the But want so on do sure in there count to it to before start thinking traction about that And it's we future. too the see we'll make really, much for we how it before we is for get into. make that we that sure the sure that want to scale make nailed we Japan we've right we're up. going formula one got any country we

Brent Thill

just left the the you days in guidance, I Michael, for quickly quarter. have only then realize XX And on

would going delta low that you've fairly to given I so this million get the of back you high from only into given half -- month. the X visibility And a assume

Mike Giannetto

Yes, do good that's we have correct, visibility.

full We us. have X months a behind

So do yes, good we have visibility.

So and bottom we're provided, quite top the with line. range confident we've

Brent Thill

or as just given for quarter, And strongest to it as call? Michael, is just next to anything QX early think we're early we're about thinking your just models at about it's seasonally models, too looking year,

Mike Giannetto

I'd tuned. too early to say it's Stay call.

next We in call. guidance will earnings provide our

won't but from So the more year largest on -- our be be you'll go at call. quarter. QX our that, next us to beyond QX will I in continue hearing

Operator

Tindle Your Adam next from comes Raymond James. question from

Adam Tindle

things Commercial as to that X Chief ask wanted and Officer; Matthew, the then Patrick, recently: and happened have combining commercial I organization. marketing just

Matthew the what orders Officer on So in commerce, are? learned you marching his digital you've talk Chief about what background combination, in can just just can then doing talk maybe And with Commercial about that? his as you

Patrick Spence

Yes.

move we've can we more that some making that's aligned. down the learned by effective. little we've get And And the teams walls faster. to us of I think I think So taken a -- closer

push at some as continue to Sonance and has And it's gain everybody the build results area over the the even And sure direct time. same that an build Amp, right? from with to have over sales the been terms focus really making experience big shift well APIs, a our longstanding we've does able helped has consumer run we're digital, the in it installer And around there. as seen marketing in more the gain couple expect of knows, And partnership. and and see we efficiency to in You also area. terms to weeks the in past been Matthew think of of efficiency that I so things around on relationship Nike the like as channel, our this of time, you've we our to

Matthew do It's why able them in direct and be think I communicate much to focused drive through educating as about directly on so with in you've we're as we're app today And really what's and customers new that facility be to know we drive sure our available. we make the to to in and letting that channels seen been growth the those to continue able has how really consumer. can

focus helped definitely I the he's say, accelerate, our So on pace would change of digital. and

Adam Tindle

million wanted of relative target to about ago so us results? reflected Is so, of I in that EBITDA then XX% the or feeling with maybe you're And that? savings, quick just basis for benefit. follow-up think how can about EBITDA think XX XX% timing how the the we Mike. annualized to margin or points And help QX adjusted in fully to a days clarify that maybe just neighborhood I adjusted $XX you of the in just gives XXX margin

Mike Giannetto

Yes.

savings, restructuring in the annualized the So restructuring, the QX. occurred first on

So operating onetime $X.X we charges had in to nature restructuring. about expense related million the

an in So that cost QX. was incremental

QX, estimated million be and view from about from $XX we'll see Beyond to an that savings, an start the to point operating expense of we've annualized savings.

the think, target. part what second long-term EBITDA was? Is the was, that The I on question

Adam Tindle

about to How XX% ago, XX digital you're the XX% feeling accelerating. Correct. commerce relative to got days you've given

You've things are improving think happening you are that forward happening there are would a now, some basis. got right profitability that on that savings

Mike Giannetto

Yes.

you. got I So

to long-term is this so everybody knows, we our can So XX%. -- is mean, margin, XX% we're EBITDA I confident just adjusted deliver

continue how we we changed terms feel, business several If growing getting nothing the to feel time level we've how confidence of that In We changed I established. our it's over nothing next We we us overall years. the see would it's about we took get and of long-term make as -- very progress, thinking so where feel to really. has that increases EBITDA margin. of think lot it, last We but about anything, XX to I it, confident a a days. -- target has the

Operator

next The question with Instructions] Stifel. Sheerin [Operator from is Matt

Matt Sheerin

And that on to at category revenue going were that talking in Ikea, the to the is looking are you and know addition I little that partnership, about more streams just wanted up. Patrick, a licensing bit ask just other royalty you're So Sonance about other I side. partnership. the and

and So could bit be that driver a much about will a forward how revenue little more of you talk margin contribution? to

Patrick Spence

early something It's we're in. days that

speakers, Sonance obviously, sure, in-ceiling partnership. and edification, architectural having provides, best for the a for outdoor the that's So as that's collaboration in-wall, well. because And really some just announced just Sonance's really, everybody's

we're we're same degree, in them the we're some that partnering, the So with products with to of them. in with terms building Ikea way partnering

Sonos the out ways is help explore at so the that right, core. is to the fact other this build system, software And really and to the

with with we get we that ahead a we're think, these to we're and something time, keep fit figure what it's brands develop, Matt, I see want trying ourselves. mission And of going continue far so to our we at we'll feel to as do. few to that over And looking too out don't

team But And where both. seeing excited super about on time chance are of conservative Sonance I'm got little right now. to So spend we're what with week. a both being last those and I've a terms in we're

stuff there. our But that our a building I going to that to way in before And not get how are we there's So some want out pan we heard model. we'll be those into yet into financials. big exciting see

Matt Sheerin

did portfolio, products And back on function the Amp, PLAY:X line. got I'm notice is know you've that I if X the yet. higher-end voice out sure longer I of that in the look have sort then without just speakers now. know website, you not would no to your beyond you the product But be X the and available But I next if

I some X? in read one that But be terms thinking year of you in assume what area. that, could would products into next or So new give you'd would the be us about

Patrick Spence

We road have. feel really that good about map the product we

ever that from got map kind the excited I we've everybody actually perspective, very are we think think product I outlook the we've farthest road about have. of products and had a

not we've home, at competitive for really home talked next outdoor that are as million And thinking remains right? looking we and over an opportunity that it, today. reasons, go going for have the people million through two there massive that's about others, But XXX that's today, understand explore. You'll job come huge work. we still to so that, and area streaming so the in the those some the a of like personal in one. areas Job but go X we're and music outside to we feel continue ones being of We about is the kind paying I'm opportunity into homes which home, and

cognizant in And so about things that be our to the we those to map, that, we competitively, are share. be fact considered our mind what I road want of really product and we careful on but want have

Operator

the to turn presenters. back will I the time. this at call questions further no are There over

Patrick Spence

of had Amp well Sonance IPO, we've Thanks, of APIs and around questions. all the terms announcements well momentum past as have and the and few developing. obviously, as joining. in to been thanks the Very you fantastic X, right. and the as been Appreciate AirPlay we've for partnership. about Mike, months then The All that Beam the getting excited out,

we forward wouldn't QX So November. without excited in to and be good listen call with you the to momentum. Sonos call further we're something building talking a to. to public, you We're on be earnings to leaving look And it

So artist very Glassnote friend to me new I'd it Jade of pointed Daniel enjoyable. direction had label. Her on her. and point you great is unique, I hope Bird, introduced music My you'll in the Glass a me, find

So thank you a very great much, day. have and

Operator

This call. concludes conference today's

You may now disconnect.

Sonos (SONO) 10 Sep 182018 Q3 Earnings call transcript