SONO - Earnings call transcript Q4 2018

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Operator

Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to Sonos' Fourth Quarter and Fiscal 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. you. Thank may you your begin Groeninger, conference. Mike

Mike Groeninger

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

For inspired today's music largest by Celebration in Grace QX call Sonos' was letter. The in early, our and technology. women Hopper has of world's included participation gathering in shareholder the become October, all-female those the joining whole playlist playlists the which was The

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

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

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

Patrick Spence

questions. continue provide of in have letter, set lengthy your calls, to and focus Mike a shareholder said, our reading to highlight for quickly. you've our pain remarks I live chance the through I color a joining things review Mike advance Thanks three us largely to Mike want in We'll prepared and of on can today. That just had sit Thanks that and shareholder referenced. letter these hope hello to so the everyone. letters I we of don't you

[ph] fiscal quarter breaking First, QX strong Rugged a for record us. and a have really was XXXX

we quarter, EBITDA year-over-year the growth. revenue and XXX% For growth XX% adjusted achieved year-over-year

As we as solves in of that an really rate for on the progress that about we've evaluate is you business basis that quarter-to-quarter our some annual talked see. extensively variability the

year-over-year back we anyone in again new fiscal their space home. So of more number more annual to XXXX looking homes grew many add revenue an another growth the performance than We And our had made come XX% Sonos products had and adding as ours, of more progress. one revenue revenue a We talked have home. in growth We we year sold than growth. does XXXX. XX% to their importantly That's XX% else our new about quarter's pace is and year-over-year. homes existing at fastest really product a year-over-year and times, thus and prior great since existing product overall I'm replacing customers year number and we adjusted XX% than alike product by not record of Sonos our another had record direct-to-consumer resulted EBITDA XX% in the we That in prior. of

limited the home their as our to often propensity long-term continue is lifetime I more a to the Sonos the over come over show time. and customer of up more As to say, Sonos ideas add value only with the customers we to

it's a a Sonos isn't product, system.

from has share new the earning progress thankful resonate launch just that terms soundbar great excellent years expectations. Secondly, Perhaps that that easy really use last, in all product holds and to of charts, Beam I'm position better building a This at and so last. think portfolio that for the products evidence in companies dollar our finally, category. approach are product. time, even Beam top the more meant and our look proud unheard and to of most over really in launched still was That's the innovation. and team product us one convincing U.S. space. proves point, in share It rocketed which value number the short momentum XXXX, be Playbar, launch fiscal months, this product apart and to dollar an really the in U.S. exceed three the been are of product a to to than continues Beam is illustrating the year impressively, than new for with other spot a position this a to will few learning of customers. in we number five set $XXX This the its more ago successful making fact product and I business continues to-date. our this a our Sonos has holds each each And puts sound in of both

our portfolio, well our for are Given performance positioned. coming fiscal XXXX, broader we the of out the momentum start continued and impressive of Beam

point We that all future promising excited we're a in have initiatives very many about. the to pipeline that Sonos

Our partnership notable a one. with IKEA is

the really Sonos deliver For demonstration to of the an home potential the design. and in platform flexibility with sound one and first the décor in experience re-imagine the without and hardware opportunity of amazing producing ourselves. time world's It's leaders we'll a sound of the of an XXX% a

Alexa Google will the actually it I Sonos be fantastic. home the example platform and welcoming Amazon have to running Assistant in my alongside Another which in XXXX. is it's

experience the be Our ambition company. is sound to leading world's

innovate great world's we'll opportunity of will unique the like takes for and to listening to the home and fiscal our of really While magical be pass on music bring half expand because place listening the few to comments it focus to to listeners. our XXXX we'll matter Mike outlook. spaces to experiences Sonos I'd places beyond a With out that, that home, the experiences for continue

Mike Giannetto

everyone. Patrick. Good Thanks, afternoon,

full financial for letter share are described as quarter well shareholder Before year want our for XXXX ends guidance as fiscal providing the the outlook visibility we call open XXXX provide To in today. up issued questions, which earlier for first investors, our we December. in to I as we better

highlights growth we are outlook as Our sustainable metrics deliver and ranges, profitable the growth. on focus these revenue adjusted EBITDA to

are our a to revenue greater by least financial long-term reminder, XX%. year-after-year, EBITDA As at targets grow by adjusted than growing XX% while

to $X.XX So for XXXX, or growth. in September the year-over-year fiscal ending revenue to XX% billion range XX, the expect $X.XXX full billion year XX% we annual of

adjusted For year, currently December in, the XX, short-term we In ends XX% EBITDA which expect in adjusted $XX million year-over-year XX% X% EBITDA our QX it revenue range which expect $XXX the X% $XX And of we're the range million or questions. our we for we'll for $XX growth. With growth. to of annual to to to $XXX that, million full million - the $XX million of year-over-year. X% to open in range we fiscal expected in year-over-year to up for or growth million, QX, X% expect

Operator

with first Instructions] Sachs. from Rod Hall question [Operator Goldman Your is

Your open. line is

Rod Hall

Hey nice quarter guys. question and the for Thanks here.

lot to because most bit wanted of that I to the the So lot tariff. I assuming had Thanks. right tariff China I'm know moving demand to on and haven't of I Beam would have I cetera? wonder little China guess had of a could tail-end you I that quarter. ask we come And at et any I a want you then a the just comment you if with and check your expect Beam on guys of China seasonal what about you out also start have, December, question manufacturer that but you and in if yet? impact experience just contemplated linearity to linearity off a

Mike Giannetto

quite is mid-July. through quarter. and It Yeah. Rod, well but of the continued started Mike. launched electronics it for the I'll generally pick quarter. Beam first slower a terms August through to one out start this quite we honestly in August throughout up it it how nicely and September. We take ourselves, month flow sell continue the on consumer strong in including is

quarter from end a our of through continue a to strong partners. the sell-through see consumers saw we to from end perspective So selling re-orders the and

quarter. throughout strong pretty So, the

Rod Hall

- And kind Do visibility looks think you you what quarter? quarter here I'm to the got I demand - follow that. pretty the you've up we wanted for sorry. on predictive weeks us maybe Mike, now of just of add maybe Could few by as your this capability like your kind of say good last say or give experience move on is just through that? idea that the could - just you some

Mike Giannetto

Yeah.

look visibility into have we metrics and we which consumer mean usual I registrations. is visibility, selling at, of terms In

- through quarter's Black starting for yesterday. visibility for that So through next and all to quarter, of We we with part of stats the the the rest the biggest have Friday this wrap up really know week December. good

have quite looking is spike guidance. in still the - we reflected which our Things visibility. So, still are is good holiday But to come. good,

Patrick Spence

one I of in for of new the much Patrick. thing would as it's to in not a terms add a quarter ending Yeah, with healthy position well Rod, just we that think job in is the too I exiting a good inventory did The on product channel. inventory

So a pretty healthy position to be.

I than we is thinking the about launch from something that about. On learnings a And executed in Beam year. better that's each one we've what from did tariffs, the in because that. mean good definitely we So place on earlier with been

the that same are the in are page. products by core on place, just Our not currently is tariffs everybody impacted existing

few make short-term are mitigate been do evaluating That have to that accessories definitely and impact our long-term that is point. the try tariffs. at we've we ways sure immaterial believe have views I to that We not a and sound that we've are but would impacted, well-known. policy economic been impacts any said to stress been active this tariffs

something about we're on given obviously to. I to a would price whether So, side, positioning, and weather able but premium way ultimately look to out and supply actually mitigate an those as like if make we be been our had where sure industry-wide we've very that. be anything spot It's and issue, we we closely the are do able positioned been possible. at think to figure front there better thinking that in on partners options best manufacturing And working our to as we team the Dave with then have a to can the

to confident have come efforts were these long-term won't knock that make disrupts sure of our but plans. even us on kind trajectory. if impact, to got it brands we've both off very a don't in So might And place, short-term long-term they I'm that our

Rod Hall

appreciate guys. lot I it. a Thanks Great.

Operator

Your Katy Stanley. with next Morgan from Huberty question is

Your line open. is

Katy Huberty

congrats And on really you. strong Thank quarter. a

Then season? you're of how in this can we approach prices. addressed how differentiate follow the You can you just you this as I'm talk have very broadly to with in planning the Last come letter, ways some but year, prices wondering on other low holiday a I competitors led up up. holiday year? your season shareholder just than

Patrick Spence

Yeah. it's I'll Patrick. take Sure that one. Katy,

XXXX, launching very XXXX if new balance been never think we - landed, well there's the we you two think products. on I about of and executed where obviously

portfolio, a attention We QX, been it's have point, more strong obviously brand, a sub-$XXX a a in on activity to in points. we've there's but really of strong that And the seen space. price of and And front. even never also lot your activity lot been

that's happening lead homes now upwards believe this And new And the that ride back or because smart buy both our migrate a existing for that I the around experience taste so, can't homes Sonos product me that's great performance music to right going see people a our don't are we've to aren't wave coming experience the that better our long-term of acceleration. to or and anything product of lasts. view will and working that speakers me like happening kind and seen they in another from a our leads this streaming we believe number just people of quarter from to that get such to previous in accelerate quarter all activity ability as that now consumers is look and

comfortable we're where are we And so, with right now.

that. public and do now. see But see won't have that One for you promotions part, and will much itself the of rely think us the I and are We the as that's most some Beam focused of something on actually portfolio in will holidays But on little aggressive. strength know primarily you will get You through. you overly the see not see we a

us front marketing but you've in be us drive effective terms on see we've seen digital for going will continue area You that we're learned will marketing in sure, that to lot active of and a and it and to. leverage also more

Katy Huberty

there anything the Okay. Sonos that you baked you've some the Thank that. you outside is into may the the to baked then product that mentioned would outside home for home home, home, in And be about that outside And Thanks. fiscal and launches around Sonos there market talked market? you the I addressable is numbers how into guidance know IKEA compare other too? XXXX

Patrick Spence

we don't you you know Yeah. to know Katy, baked as fiscal outside it's Patrick home at have XXXX into the point. again. But us We XX first we there roadmap plan have it deliver the products to we're and anything one a this within working months. three plan and - relates several the we take have the year home the next outside that do

So thinking by step we're step.

about think will. I million, you music it's same that paying the - think talk going opportunity XXX they're million I we for people the group people you if streaming XXX know often to of

homes have of to still contrast are we that million. number so, today And terms the sub-XX in in where we of

into get people's more those way So frankly. to it's quite of lives a

kind elements. that how the and the One of is homes that we good And ecosystem. coming with into so, new people do two momentum driving new there's our keep are

experience exactly leading the with. areas not to there. of new is think the we to us I of products be want of mindful compelling but Obviously out we think competitive other time, figure existing other will we're the that home for too base we out people be I where so, products today to I some the come help thing hard any the really as know that will it's pretty the up reach our of new same in part are aspire at really different sound And And going, company way. reasons buy the a people

Katy Huberty

Thank Great. you.

Operator

next is Jefferies. question Brian Your from with Fitzgerald

is open. line Your

Brian Fitzgerald

XX% the really Patrick, highlighted quarter direct-to-consumer clearly marketing you're you've And Guys growing marketing there, leverage executing your earlier specifically mentioned Thanks. opportunity into increase line. to the and digital direct-to-consumer marketing the you and heading expense year-over-year. fourth

regard any and strength So initiatives in unpack highlight are more scaling you that you? How channels formats or know and I of Thanks. areas ROIs could best if any momentum. the don't your a those that particular or yielding maybe bit are quickly for

Patrick Spence

take Yeah. that I'll one.

a So it's year been of learning.

seen grown with. strong than As fact that of it's customers the that we've of we we any channels. can tap progress have existing of our good gone the Part into a that, and that faster you've other through is base fact the relationship and that a have

an I frankly. so, think advantage that at puts And quite us

that's so, And area. one

clearly also to for as get that made team that I we education up. That available as instance, For it. that the said, think we for areas. period been clear to short being a some been perspective some introduce of Beam, fantastic we've And opening and really time and sonos.com our doing explore message margin is specifically as new before on a channel about at from our has trying both jobs look able out we best

that growing about some yielded So some work been we've I and I great that's States, Costco been Ron in and think has the results. last exciting, talked time company probably as Johnson's well with but United Enjoy doing

been it. Best with some look good Buy. that's so, at great as doing We've And we stuff

so, I pretty this happy And channels with would all point. at of our say we're like

are in I is distributed we think and past the get for you way the mentioned one see we very that ventured about careful thing instance. Japan in I've we where

direct-to-consumer that sure to think be. audience in to our the to so, a one going reasons shape Costco we're is also of shopping with the rest able that our for based also led places But to look in to XXXX. and distribution to want than pace all I'm And we're a holds wise. continue promise grow of that on think be they We'll lot confident the that's faster we'll at one and that our IKEA work be make plans business. that where I a us I another fiscal because good It's in

So AB we're up try; doing seen to better continue I what you're over just invest in the to that's has stepped just see on front. more. where I've team going we've and that really us year. last testing gotten

So DTC. our I'm pretty about bullish

Brian Fitzgerald

Thanks, Great. Patrick.

Operator

Adam Your Tindle James. is next question from Raymond with

open. line Your is

Adam Tindle

of want that Thanks on and good subject. kind continue to just I afternoon. Okay.

from focus with rates, to leverage generating revenue obviously sales You're in resulting degradation achievement seem doesn't of on growth. profitable growth and expense, it coming your be marketing but in controlling

about levers. enabling So, guidance. and which talk balance can offsetting maybe two of Why because if doesn't are in what's Patrick revenue it's areas impacts implied this obviously not you typically future these kind that your growth rates

Just that? what the confidence gives you on

Patrick Spence

where things the how evangelism we've are. on is - how happens really And I than our think and like through of one more spend home it customers the this we've ability what our much impacts powerful our learned our products do. gotten

so, And through. and telling them have them it Sonos about go a Sonos from as have lot and it our customers we learn other that we people of know to about are encouraging

down to So really using to earned would the and on efforts we've is be got other how able this in our we're doubling do say that year. lever using media that. I And

product getting the the degree. to to message there get a some and benefit, necessarily to out the media much us a the cadence and at year allows in Adam without to forefront earned allows invest line drive think sales is that be more two you our and if marketing I on having us as will lot

speaker of wave the lot from the able we at then to us ultimately a we situation up of building so, some moved we're online especially the opportunity are and that the and of always other pretty for attracting digital adds that. products a investments consumers of great from looking people smart obviously investments to what's getting to what's leader. that us in companies can do more these we our And doing just done that And energy believe a space advertising where happening the at and It for traditional a others' into good these providing in and digital experiences music lot where our from and the moved actually we've so expenses space a there evangelism ride than - more from leverage as side there. better the been also equation, have is of plus happening, plus both market side we past TV the customer And our and streaming in media have more means it lot media. for we've and on

adds it for And in the sales feel marketing long-term of all about the brand think in I our for I we've and the that seeing kind up a you're of position. kind leverage model. us to should investments strong keep talked

Adam Tindle

Okay, makes I adjusted growth maybe XXXX sense. full growth year, that for leverage it kind a got on of And over quick the think up, EBITDA like low-to-mid single-digit QX, but year. in fiscal accelerating Mike just guidance. throughout Looks you've maybe the the follow fiscal implies for is XX%

about assumptions cost Is Thanks. talk linearity additional the So this? in the underlying buckets recognized. MLCCs the lead savings to year? could that getting the to just you better, there be are are it What

Mike Giannetto

Sure.

specifically out basically in shortage been that seeing in of everyone the the terms MLCC electronic you So, just is these has which of in called industry parts. terms

premium better the than we are say on which have were see gets but demand. a is We we'll we better go good a about thing. real feel Adam, I things throughout quite spot we have gotten as meet to a standpoint, price it year, the we supply; supply, that, have working And the need which closely, from in we wouldn't been better the good

see look the back-end lower QX the for you can beginning bookings, will on QX. higher XX% you in in the kind and but finished high XXXX to XXXX QX More terms and very In with in of going different. terms the year that happened guidance what in quarter. a growth QX we saw last this the growth growth In little in the and year, shape in see growth kind in of of is QX, in you obviously growth the middle and just of of on

EBITDA as the our through EBITDA have So in will reach We do as highest volume of QX, we is you of see will into bit quarter. that which terms a a flow well. front-end still

would the down of we've challenge, and flowing of kind way a but been specifically kind year to that's able So still knock it's there, standpoint a still it shape we a bit. from our the see MLCC

Adam Tindle

clarification but margin gross year little Okay. And magnitude. know sense you QX, typical XXX guess of seasonality to to normal about couple the more or just Is fiscal of you Is sequentially decline years that? give ready seasonal, than is one us that calling than specifically. being be on our previous it I you're range. quick to or going why or that's talked the could a lower out just models it it's that basis get for like XXX points more than I the

Mike Giannetto

know. gross history quarter XX, will I the will impacted you gave for before, activity. XXXX we it's and be back by seasonal you if don't to promotional see of margin our When or our in look guidance whether is the year lowest QX the really XX it

Nothing Monday. Black that. of as it's more about are be it's actually to I far years, that out year Cyber it's different already XX activity, and really it's week no next would Friday it it's promotional to holiday below - the to XX. our office really prior So start season, going than than there expect to this range

we - really that activity seasonal that's usual promotional it's So see. the

Adam Tindle

it. the results. Got That's and helpful. on Thanks congrats

Patrick Spence

you. Thank

Operator

question is Stifel. Matt next with from Your Sheerin

open. line Your is

Matt Sheerin

I tough year new ask just here where you're you. anniversarying you wireless going strong into you Thank know specifically very, be quarter concerning had last product with are to comps. to Yes. the the the I product wanted that. some very a speakers categories, running and

come year, growth and and it be as we're So terms thinking in talk could you play of devices looks sector? through for is know of expectations, sort you I there later actually expectations But like start speakers just new may you wireless out fiscal that what some could there give mix year. in down to with in plans in and you the year-over-year us about

Mike Giannetto

by not color. category, I'm a just give guidance but little you specific Sure going get to to into it's Mike Matt, again.

had very first that a year. XX% So strong won, we Sonos the growth, that and quarter quarter was so real QX strong XXXX

big bit Sonos So period. was when that's comp we One that year-over-year, a tough a holiday had yeah, of we launched

So that's - of and our into guidance comp a tough QX. factored for that's that's course

category, out has - look QX in and the which when wireless quite you that growth home year. for you look which a there when the have at driver done July we Now the at of Beam and we well came the to just be significant in theater rest expect

So we expect to well. quite home theater do

that have and terms the we other In in our Sonos on of launch the already announced, component products in full a we limited quarter our Amp, basis which is will which launching component, then be QX. category, this

to that's that but an or looks exciting, recently that it terms that nicely. So that in very area reviews category. either been We expect we category pick-up expect standpoint Early rejuvenate flat down. to really and product of has see acceptance

the be As yeah, you have give coming that's driving home later I be well. in year - and well, color as have with growth. out far as the think at should we I can IKEA then theater It we But a this as one will the also Beam upcoming strong year point. which for

Matt Sheerin

with display-based have competition different a the we to that going or Okay. point of to devices, come that where And seeing of just video-based those quality particularly you're category sort from out you low the products? competitors, devices category a of season, consider price is at some given big devices then the look - and devices. Do to lot Patrick, as we're holiday

Patrick Spence

when introduced started Matt; year I'd the Amazon that Show. we're Yeah, it category. actually last watching Echo say

go all I make into the it. on don't As screen serve see think - I main and displays that to of at our or - don't their an easier again well, I companies a to the to strategic for other are another lot we space, certainly ads, kitchen being sound point, you list the companies bedroom say jumping intent very the it areas. But smart through customers shop. products their would strategic back or if for There's far asking for so - go this overall intent customers a of focused don't or experience, our aren't from that's of I up these if in offer I

category remains it think really seen gaining I but display keep watching perspective. it, play so, point, seen from smart get I my this really And this will it to out. much at how We'll haven't be traction

Matt Sheerin

That's Thanks lot. a helpful. Okay.

Operator

[Operator remarks. it over to concludes closing the Instructions] now call. to I back This for Patrick of any portion like the Spence Q&A turn

Patrick Spence

the And the right, and piece XXXX, a questions. and coming of for revenue fiscal for us, of number All for fastest home. a new company. take Sonos This part ahead. record to thanks an the year fiscal honored couldn't thankful for to record job be at also more again traditionally amazing thank to beyond team space I like product amazing was of look a two number products, on or our of minute future since with a stretch proud to and a the experience sound another have I us and where the our everybody thanks. to great attending acceleration XXXX or XXXX we new growth played become for customers leading up and and bright business world's be our homes back innovation as strong existing we to well product adding sets Sonos in XXXX. to their year this we've a would team

called that everybody album one to my of We that's playlist. a time shareholder Man. included referenced. letter Jenkins from personal And Pieces in Mike this who enjoy And just hope I released Mick just playlist. I new Finally, quarter's more the takes added

putting called really wrap. a had to XXXX. Music And song powerful Mick back video Deal recall Big that's on Mick's to me and thanks latest my in might You album. a Drowning Macpherson for friend Operator, Kenny

Operator

call. today's concludes conference This

disconnect. now may You

Sonos (SONO) 15 Nov 182018 Q4 Earnings call transcript