SONO - Earnings call transcript Q3 2019

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Operator

Good afternoon. My name is Camille and I will conference operator today. At this time, I would like to welcome everyone to the Sonos' fiscal third quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer session. Instructions]. [Operator

turn Corporate to Finance. now Vice Mike call of President the will Mr. over Groeninger, I

Mike Groeninger

am of Thank Sonos' today Brittany XXXX I Bagley. fiscal Good are third Groeninger, you. afternoon Spence quarter earnings and Sonos' CEO, conference and with Finance and Corporate welcome Patrick to Mike me VP CFO, call.

For the playlist in IKEA. included letter. The QX was collaboration the by our early, exciting hold today's call joining playlist those music from our inspired comes shareholder with

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

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

results website. non-GAAP to For to our those XXXX measures, third the quantitative today's our of complete please Investor portion shareholder information a posted our and financial fiscal quarter refer regarding Relations information reconciliation of letter regarding

the call now turn Patrick I to will Spence. over

Patrick Spence

our a profit growth a and million to year. Mike XX% revenue quarter our improvement loss record for to us in fourth with Thanks joining today. I all to report compared adjusted am $X pleased and thanks $X you turning of year-over-year last million EBITDA year-over-year consecutive

measuring strong revenue XX%-plus our business EBITDA annual a continue annual good growth quarter, think encourage Given progress our goals adjusted term that everyone to time of on annual we stated such growth. XX%-plus you basis long basis. to on against think our would an about a I remind it's and a I

year I we that, am pleased thanks to very continue fiscal QX progress our towards delivering on another our performance.

business feel all release As trends to other our we the our consistent timing the but and year, good continue buying of improving growth delivering smooth factors, on know, over along quarter-to-quarter, profitability. you new very not with is and product steady given seasonal course while always

multi-years We continue we think and to our year at business. about forward look whole the as

the As new I expansively as philosophy new accelerating mentioned previously, more technology Sonos area monetize and been product as addressable a about focus thinking has platform. markets to primary how well

IKEA, press technology our opportunity a with X stores Our represents perfect these some powered and ambitions. against IKEA. collaboration by manufactured new speakers launched our which collaboration with the partner This sold fantastic for Sonos example business August Sonos in reviews, of is delivering where

between SYMFONISK line reach Sonos and to is is product network. footprint existing distribution at IKEA close Sonos' unparalleled of offers new new has new The bring and the innovative an to collaboration Sonos a experience result scale. the completely IKEA way global a and customers to

launching countries new new XXX approximately across factors countries. experience collaboration price stores in XX more XXXX. new with the through to to and sound Sonos are at We points IKEA form The countries brings unique

of homes. expand consider particularly to point many adding Sonos by has Once potential anticipate interesting new we their products customers Sonos millions we to our believe into the as of to the is Sonos will introduced price $XX homes. it significantly bringing simplicity experience, The audience additional the

developed the module we we hardware we something will our will love. products in to our customers results two to this and revenue have IKEA In QX, as selling new, innovative look know revenue with You forward are software. up IKEA experiencing sharing see embedded as we show with new consumers

words. over it turn a to to I now will Brittany few say

Brittany Bagley

first my XX% XXX.X%. CFO the I been APAC to has with with in of year-over-year delighted Sonos grew grew board results share strength This full Patrick. IKEA XX.X%, grew EMEA The sales of our you. and am these including XX.X% terms Revenue module you and quarter strong products. geography and Americas across to as Thank both grew

wireless Our XX%. grew category speaker

Our Components home And Sonos the theater XX% speakers of our largely to XXX.X%. accessories, helped continuingly grew IKEA the which continued grew of by other our success XX%, includes and new Beam launch due module soundbar. Amp. grew the other,

been the also gross has addition strong this and Google lunch available In XX.X%. IKEA, product to have had Assistant with quarter. new the margin great QX it to at performance

cost and QX to a benefit from due contract rebate one-time We the manufacturer. reductions are from a sequentially of up

XX due Overall gross though, primarily with we strong impact. foreign We in this basis unfavorable exchange within reduction a revenue margin year, are a down a consistent to variability but currency quarter points licensing was expect from year. and last

scale investment as support us OpEx to marketing as company. and sales in public software term efforts show even our in launch Investment continues increased leverage to continued our of show to QX. with G&A helps in R&D a to we And the roadmap. continue long Google

as be the to for our lineup of details quarter. to in In the you. with excited holiday we We September, share QX continue investments will make prepare we will

news moving this believe longer Obviously the with of decision chain been preparing and Sonos announcement potential We towards tariff The this discussions. good tariff we for and the China. are been of to diversifying is have supply term outside we on is business that vicissitudes focusing we regardless this managing pursue of week, that for will the of last good a impact. our continue have

$X,XXX impact annual growth, target, and revenue. to difficult with consistent of and a represents Europe environment XX% million already the year this, at term $X,XXX included are of trend For with year-over-year revenue updated impact including XX% challenging our million pleased fiscal we is to to starting for guidance With tighten minimal the in guidance. XX% our of September reconfirm our all FX the range year XXXX, in the of Brexit. even in X long of is This tariff which

the in EBITDA our million annually. high are $XX of target $XX growth We confirming our growth XX% above range term to million long XX% of at end our of or year-over-year XX% to also EBITDA

we feel We was what up very are us. to for for shaping be excited great quarter a is and strong a year what

will for it questions. I up that, With open

Operator

[Operator Instructions].

Our Sachs. with first comes Goldman Hall question from Rod

Rod Hall

$XX new I the deviation most us I just fiscal from can help for Hi question. come wanted break out the follow-up. guidance guess, us you back to quarters. I is to the and updated three you guys. all, anyway below midpoint to I wanted down understand called mean have consensus that? at Brittany, consensus that know in then guys Thanks to understand you that for I currency? I $XX Could FX QX of the impact guidance. is Or it? million, at your implied see, help And million just a that first

Brittany Bagley

Yes. Sure.

I think prior was million So our guidance million. $X,XXX $X,XXX to

view are really So range our that to and I about of would in we quantify We to be of to headwind the we fact FX. be million end a prior guidance at year. sort guidance so far coming us this lower prior attributable range FX the within are that for $XX

in we for and to challenging that quarter obviously, in But big a So that we QX of this QX is it are trends had EMEA from. quarter. working recover EMEA nice us. then some a And had part fairly

are the performance the again for pieces what we which those the really it's for a target And in couple that Americas, we XX% it's I so of think XX% while the of really year. is to low it we us is see excellent year. continue at end while where landing land to And growth, guidance,

And so we about we are year. feeling where good we think pretty the landing are

Rod Hall

follow on to just just then Okay. comments on up, wanted tariffs. clarify the And my I

Just You tariffs is here? really any if could just very understand Or impacts said what's under impact impact you kind there? of us the the chain help from supply able the I guidance. it's you to there contemplated is the in us material covers much because help understand, move tariff are there on wonder not around?

Brittany Bagley

Yes.

going So year-end impact tariffs because contemplated really one-month when effect, a fiscal it's us. for our into of are and

very it so year And fiscal has really for XXXX. minimal

Rod Hall

looks like like? though, the say, you month for Could that impact what

Brittany Bagley

break not going that out. am to I

are week. a moving mitigate supply of of fully tariffs. to the This things doing lot impact went last the effect We including chain into

are minimal XXXX it's working saying for and already quickly So we pretty comfortable are we that it's included. and

Rod Hall

you. Great. Okay. Thank

Operator

next Katy from with our comes Huberty question Stanley. Morgan And

Katy Huberty

Congrats a question afternoon. have quarter. guidance I guidance. Good on on you. the wanted Thank also and on clarification to a ask

products You talk into fourth baked about in the outperformance or spend original your you the R&D spending and incremental are of all your marketing the on given for quarter. outlook that Or more given guidance? margins? Was

Brittany Bagley

that Yes. on focused say, I annual have flexibility we we would guidance really quarter-to-quarter. so some

excellent leverage that So we gotten to have of it but R&D and continue sales and where some have is really coming contemplated largely able year this been we support it spend in was to marketing. out together

that that's really are make been what you And is it's but contemplated some to so it's us time we And signaling QX. there. investments for in again really seeing are what

Katy Huberty

Okay. for those to had and timing think And orders IKEA for we feedback product that And very it's about color and demand IKEA IKEA expectations pace the the I around product? early back how but that around know any products? original then on the versus should coming adding expectations very, of for the

Patrick Spence

Hi take Patrick here. Katy. It's that one. I will

they just the in, are. the of launched. see. today Even days your lamp awesome hit Guardian media great which to I SYMFONISK being product It's the to six we just point early very are been to we starting five and to did on before think where review I star terms reviews in So about saw see, is a reaction

media customers raving We have of the social seen a products. on lot about

terms IKEA. the early new would in the them doing speculate new a software. like And that a it terms embedded area regard. is, is conduct are or this where that anything hardware else way as for our on business business selling what But it feeling here is to in too of mean whole of might in about say, So and also of us it's good I way forecast the to way we and

that that through we to that's so a we little that, sure get I right. And different. go want bit make

excited does it's feeling seen our today. it change this that, plans anything at to So so point, about but have early we about in know, too that far, have what we good

Brittany Bagley

relationship that land we know do Katy, where I with IKEA, was of just really XXXX. we going going the to year add because the for fiscal that's way to

about year talk XXXX. we on any to it in locked for about, I start November So will that we But guidance provide pretty as when being would variability XXXX. view talk fiscal

Katy Huberty

in I become helpful. growth the on in that Can to adding just Google has European market of That's more recovery number which assistant ask the one question one voice and Europe? lately? How the Assistant much Okay. tied is

Patrick Spence

it that. point, to this wouldn't Yes. At I attribute

Assistant Google that had the have program the I quarter. that tried we that as front. in well our still obviously we very a plan think Europe thought And in we called into built year. that about and promotional early It's out we we went in the

front year nothing front expecting our -- reconfirm help us on for at that in we is that So and line on has with has are point. everything that what this guidance made the well,

Katy Huberty

you so Thank much. Okay.

Operator

from And James. Tindle our Raymond next question Adam comes with

Adam Tindle

to I the picking afternoon. that outside have fence so revisit I a specifics, good Patrick, up and just Thanks Okay. get to it bit. hoping you investments know wanted to little maybe home initiative to ring alluded start past. to it's the hard into with the R&D the in

also in us guess I can timeline to competing will that? a on boundaries choose for with would sort set give potentially can then different the of the you where competitors guys about initiative? you think we that that And you kind markets of So a set that How attack? any of you

Patrick Spence

before, new table. into I bring we positions the perspective unique that the attributes we easy we I incumbents were unique in we will we that a there of choice categories audio, and space. to had and mentioned around a competitors something lot great home as were and markets of bring lot experience. enter, to think sound Sonos of the and And When a things audio have think like in unique opportunity there the the of any freedom variety Obviously, a of in came well-established are see we that future

think when we into going excited we have particular that we so enter about make and and sure roadmap best product categories tip product those our approach one I we but we don't in now. X.X want being for it's And And happen. that about make when just are are investments very to that. also are had have hands But in right the are the we we of my that I we about And the making thoughtful to categories new years Sonos, excited how at terms are sure. there we

Adam Tindle

And That's Okay. then model. on helpful. one just the maybe operating for Brittany,

meaningfully year-over-year quarters in have looks growth OpEx You But it had, think that on going like on I is growth guidance, QX. to revenue based trend reverse basis. a outpacing four of

you an of can as in is touch So you I it that am because that on maybe targeting just hoping revenue OpEx a are QX. increasing metric percent

committed So though. EBITDA just you And wondering to if the XX% sound growth, that XX% continues? revenue

in increase, term that is future? So that is of light the this think achievable near for something still OpEx you

Brittany Bagley

Great question. Yes, we do. absolutely

lot drive point, are then, term about supporting brand investing where we are our behind significant about R&D. some still also help be did growth. the invest seen a that's leverage us to a marketing smart that from future are that's benefit. have and Patrick's OpEx in new of But we building sales us team we and we where launches, You long But in of to going given the we restructuring pretty and excited to

the so EBITDA. in are then the some year, XX% I with our QX, and And committed XX% we to to XX% topline the And expecting think we guidance, very growth full additional for to outperform XX%. in XX% that EBITDA even still are investment

look the good in really about and balance we rather basis than on do an we trying to annual the it metrics anything quarter. on feel So time pretty specific a and

Adam Tindle

helpful. you. That's Thank Okay.

Operator

Elliot And our with Davidson. from Alper comes next question D.A.

Elliot Alper

for Great. questions. the you Thank

we heading locations should year? the IKEA about that So rollout think how for revenue of contribution next and the the the into effort

Brittany Bagley

disclosed So you IKEA see and us. APAC will other in for

gets that to more a it revenue. not are portion more it be on than out We until break our to significant of in detail going

when into are And XXX coverage IKEA. we for locked see we are Six, where or give on in would out included in mentioned back and We improvement XXXX are we would like I we earlier, be that that year it. are stores, come come guidance. as We days performance XX you the anything seven countries. press to any or on and getting pretty the

Elliot Alper

July? Prime follow-up. And this then than difference Great. in year any just notice Okay. it's material Did longer ever been. a Day sales was you in

Brittany Bagley

in Day So and Prime QX July fall us. for

And forward results. providing so when and not look meaningful it we release an whether inclusive update on whole as or QX QX a to that that, at was look of we our

Elliot Alper

Okay. Thank you.

Operator

our from question comes Sheerin And next Stifel. Matthew with

Matthew Sheerin

Yes. good and afternoon. Thanks

Just cost component know another or headwinds cost I know in easier for know the to you has on margin the that. one I gross question margin of talked about and some and the business regarding that improvement guide higher a I cutting. up these of now been that lot components are get.

to that of basis So tell how you gross how lower component is points And that about, could benefited talked relative credit might us cost? have much manufacturer that contract other you margin? the then many that

Brittany Bagley

there. questions Lots in of good

updated term will I gross XXXX. of all are long with, for on this and margin So start sort we into changing is not the baked our we guide provided guidance

on quarter nice really margin, a necessarily out. was it that gross extrapolate I but So wouldn't

contract very a team nice in but cost the the of done going the of operations nice of impact it manufacturer, some not overall, mitigating quarter. has And help then component that out our increases. a are We break job to was

I better So basis year the expecting those beginning the has a at for on of been for much have the a think year meaningful margin were gross we come us help and generally. in than all

Matthew Sheerin

similar have margin to or you is similar the Or at direct businesses Okay. and own business And that may business to it relationships that business of profile different? the is business? other looking IKEA that, your

Brittany Bagley

lower our different. know, the is that don't And The business think out. you than about But a I product. our a margin bit talked again have for we module on break different general gross product module fact It's margin our how is we it us.

hand, OpEx some our normal the the have Sonos don't product with associated of we On other costs other line.

And be we beneficial so bottomline overall, very performance. our consider it to to

Matthew Sheerin

concern your reach? may, that Okay. Or and regarding Great. appears speaker, IKEA to there that are and a those the And Is selling just trying Play:X? about last different the I audience be any $XX is particularly question, cannibalizing well. if you speakers, launch which to low-end the products

Patrick Spence

factor That's a are a well. think in reaching form we different different as audience that we

are you buying Matt, well they we because, into more. up and so excited this end somebody's home gets as And know,

add of or a will a and app, get time. and X play that Sonos we really ourselves they a as so see looks Sonos from there in see confident the And an like. over And Sonos of a great they millions we add this new that establish to use system homes. to time understanding Beam way will trend beginning have in what we that But are the

net So we it as see accretive.

Matthew Sheerin

Okay. Thanks much. very

Operator

over I are turn And this no back to there [Operator will questions further the And at it time. presenters. Instructions].

Patrick Spence

again for growth like the would us I to our of EBITDA reiterate Thank Thanks revenue our track today. on year. planned right to and you. keeps close, this To strength for earnings time deliver everybody's that QX

as of product scope new This time of in inspired have day. first playlist our the love. we one also will later are the strategy delivering we new the letter. experience this customers we to our enjoy artists. forward shareholder absolutely to and promised look a Thank We to this in We sharing IKEA's was market collaboration and enjoying new you by with quarter we going against that expanding included take are and IKEA well of the QX, favorite platform SYMFONISK our some great in to customers. know velocity of Sonos as With millions look features and Swedish forward hope some you to introducing something the fruits consumers reach

Operator

call. concludes This conference today's

disconnect. bye. You Good may now

Sonos (SONO) 7 Aug 192019 Q3 Earnings call transcript