SONO - Earnings call transcript Q4 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sonos Fourth Quarter and Fiscal 2019 Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ms. Cammeron McLaughlin, Sonos Investor Relations. you. Thank ahead. go Please

Cammeron McLaughlin

and afternoon, earnings to Cammeron conference today Patrick with Good and McLaughlin, fourth fiscal me Spence; CEO, Sonos' XXXX call. are Brittany and you. Bagley. Sonos' welcome quarter and CFO, Thank I am

early, joining Sonos comes of from hold those is and included inspired For shareholder today's the letter playlist today. by music call the launch Move, a in our

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

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

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

turn I'll call over that, the Patrick. With to

Patrick Spence

joining you full Cammeron, company. today, you, fiscal public Thank a for we us as report thanks of all our year to as on first and

When ago, do set and what three achieve out get Sonos' the journey in want been As this I two on we the years role on to started, almost of ground us to set took CEO, I out things. we past year. to we we've

introductions, first to second the into home, profitable to deliver of that leadership growth extending on products our And new our was basis. the product was a and home. in us categories in new beyond the accelerate of consistent both terms products new pace The take sustainable

on XXXX, record-setting both exit we progress of continuing report while major fronts, As our I'm run pleased to results.

a the fiscal $XXX EBITDA We Revenue generated in million. flow. exceeded cash the increased these we year, growth, free achieving forth XXXX, than drive fiscal increased XX-percent-plus achieved Moreover, increased consecutive our cash. of as goals we've even of $XX EBITDA free the million as velocity milestone we revenue set flow record in third we in XXXX and This $X.XXX the cash term. positive and for with investment over innovation and cash financial as to marks $XX XX% XX% adjusted XX-percent-plus million billion, to important more ending adjusted product well the to flow in year metrics, long growth a

X.X Sonos. milestone, We the of The using exited over around This with and world continued and year. both existing and million a In added we in of new in customers. XXXX, by positioning the and homes quality million our is brand nearly and the products, reinforces XXXX last new our a our from terrific ever strength platform, uniqueness fiscal drove added increase in the of of premium X% confidence front we've us. the our of households, about only X fiscal opportunities most growth an purchases year,

of Sonos our This household, registered adding Together, continued who fiscal additional seen to in registrations. customers X.X results new strength, were our in from these reflected convince from for system. the were company in add XX% customers, to their any our average and apart product new number over means existing Additionally, XX% the of home. customers registered in XXXX. customers that us products accounted one can product to per from this more buying acquire to their an to of Sonos households the to our and is sets and time, going illustrate we've the of also X.X This ability of, is we continue existing products to things increase year think

XX and Since quality has new ago, our advanced revenues our home our drives the by of the of customers. and consistently over products product inventing Sonos The further of our and platform purchases existing design, and ease our brand quality, profits, across use, enhanced both years in leadership and positioning and our position. grown growth audio multi-room platform, offering openness sound premium innovated

to and our differentiation, areas invest innovation continue in We core of strength.

our the for. home, velocity, Move, the made introducing been Sonos products, Sonos product the and a takes our of Sonos have stated the first that One while moving our extend our tremendous time, fiscal home, choice goal leadership progress Move product demonstrate freedom toward several our within Amp. you the Sonos first asking Port introductions ability SL, These existing XXXX outside take increasing unveiling takes new outside to We customers category, in next home. Sonos including to marking level, anywhere, adds Sonos and product of can and

home, the in-home product market. We see audio in offering $XX a introduce much opportunity significant current and software hardware expertise outside new ahead, the categories. Sonos the our broader billion we'll to Expanding leveraging in also our market years than

to consumers IKEA. homes. our new Sonance over for us and XXX we with ecosystem In IKEA products also the shopping countries, global number give billion has vast over new addition and partner of with their stores partnerships products, with their of These to access XX X a exclusively both partners customers. unparalleled new visiting categories, reach new in like launch expanded all

new ways been in with sound IKEA. very brings Sonos software and price manufactured creates The performance. collaboration also by unique and to points. new factors Partnering the the products experience technology form Sonos sold pleased We've for enabling existing the by our IKEA experience at monetize us with to IKEA

of and day first bookshelf than more XX,XXX speakers, table demand. the sold early SYMFONISK significant IKEA On illustrating launch, lamps

households. are expectation, their our introduced next home sound Sonos experience, that add more households the their traditional way purchasing that Sonos Consistent product IKEA Sonos with similar a once simplicity data suggests system. of to products augment In addition, will to in our the customers new to

are we delighted the with platform, experience bring make will a you team of private-by-design Snips. the today, expertise amazing property Snips acquisition strategic and and is Sonos that even And will the on voice voice share intellectual to better.

Sonos are continue ease not we instead enhancing control, purpose We and differentiate choice, offer, looking use replicate privacy the what voice general customer and assistants to we'll as be end-to-end experience. to of

our intellectual ongoing Report. Power value, and our the latest to software the XXth in second overall Patent in add property Snips, and ranked electronics IEEE category investments, considerable

rights. over with Denon, companies necessary, we've are our of settlement our take engaged to assets as protect in action, time. Since constructive conversations, We are many working order towards realizing and the value to our in IP prepared

to As we not be we I fiscal more about look could what excited have planned. ahead XXXX,

We growth have continued and market a fuel robust our our and innovative roadmap that expand opportunity. product will

new against deliver and velocity XXXX, will and continue Trade unique promised our Sonos new for We product Sonos fiscal Business test to like Flex. through Up, offerings

to long committed growth continue delivering line long-term a our the remain enhance targets, growth value clear have and sustainable over of shareholder to term. we Lastly, profitable sight to

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

Brittany Bagley

has call I'd like to to her team. addition with Patrick. been the she welcome also a in earnings August, you, us. first wonderful to Since joining Thank Cammeron

points is example basis of came me just in us color million. great average the guidance to margin results. some pool. declined X% our do. doing ahead XXXX target above additional Gross Let $XXX.X and say our XX we annual revenue quarter, another what add on XXXX year-over-year increased We XX.X%. we're of revised In going strong fourth to to

$XX a driven to Our Move, support R&D fourth new compared adjusted The support development. profit by headcount quarter was year. and and EBITDA for loss $X software to hardware loss million sales marketing the to and million last increased launch of increased was the primarily

Turning XX.X%. business. Americas or strength basis. a at currency grew already at a our significantly, module a X.X% year X.X% Revenue on fiscal up the and the for growth impressive billion. constant grew better even now IKEA XXXX to grew a record constant was basis to full on XX.X% XX% This $X.XXX of APAC on grew currency XX% the results. The EMEA at

Our wireless Components year-over-year, in Move. Home our strong Sonos of it in but the lapped XX% particularly the Beam strong QX, a momentum XXXX, addition to X.X% of November driven speaker Amp performed gained due refresh due category IKEA we as year. QX by and last well had introduced of but sales. partly down was was and year-over-year, introduction theater the grew in full to year, back-half other of and down was in the it QX, module

product We Fiscal XXXX in of factors more the partially of direct-to-consumer and including offset to XXX basis basis a decreased reduction. XX.X%, and point a and mix, and currency high-impact XXX of from due cost benefited gross margin foreign of XXX creative launching differentiated, channel, a decrease efficient by digital on marketing points impact, revenue product variety XXXX. Sales material basis unfavorable distribution to new of adoption year-over-year a as tool. percentage points marketing top fiscal and the decreased

growth in our customers new reduction households acquire The X.X with continued cost and of the strong down. the coupled to coming sales million means marketing, is

realized. has add to to continue fully time, over be meaning our customers true lifetime customers Sonos to yet value more their system

to are to increased also this differentiates to truly consumer in effort mentioned, fiscal increased in revenue, R&D. Sonos. this product of year we the as Patrick to continuing are Snips the 'XX. basis addition will a we philosophy add continuing percentage be fiscal in and and We capabilities XXX software and in supported invest points great which team a experience, to as XXXX, Sonos R&D while invest its excited

XXXX. to XXXX. We from X% margin, in EBITDA $XX achieved This XX% increase a adjusted in represents X.X% million in up a

outsized scale demonstrated have again to have talked XXXX. Sonos which ability in about our EBITDA adjusted we drive growth, and We

improvement significant balance and We in drove a cash healthy sheet. also free flow, a have

since million in this invest stock program. enables value and and in authorized tremendous sheet reminder, like call, us implement our earnings maintain strong to flexibility pursue our a strategic program, last even a Snips. we As We as $XX new our share roadmap our balance repurchase Board see opportunities our to long-term our repurchase

and IKEA, the launched for we SL, One we are Port including ahead, supported great fiscal XXXX, and partnerships XXXX, Looking in Move, excited a Amp. strong by products

XXXX outlook and billion growth. of the revenue of midpoint $X.XXX consistent to our to target the average XX% year, is growth at revenue for This XX% for of billion. fiscal X% Our $X.X with annual it's represents

XXXX, tariff X, XX% September reminder, are List subject a effective to under products our XA. a As

of call trade While there for the that assuming in is the we at XX%. remains year are effect the full this on for speculation negotiations, frequent purposes this

Malaysia. have have We prior efforts goal and supply of our outside specifically chain quarters, China, US-bound our the to products of accelerated by production prioritizing our in discussed diversifying of

is of up go of the the Our eliminated, ramping largely fiscal have manufacturing year. impact will believe end quickly forward we by capacity Malaysia in and we tariffs the

have impact a our anticipate profitability of negative about to that tariffs year, quarter. half our is expect the net impact supply in In a range million, the margin of with year. which into to will diversify to efforts we Fiscal the extent Malaysia do coming largest in of is be We the $XX to expected to quarter, our half first offset to that sales of chain the in the GAAP gross XX.X% XX.X%. back XXXX greater

XX.X% XXXX would GAAP tariff-related margin representing in margin is in range and gross introduction to new products, the basis basis by in XXXX, in higher fiscal XXX and of gross improvement The material product a margins Excluding the strong from costs. over fiscal be improvements to XXX point improvement 'XX. costs, driven of point XX.X%

tariffs. are gross teams, $XX would still The the million our EBITDA range excluding to of our in Thanks high-end adjusted of an margins in to towards of tariffs, the line coming and $XX inclusive tariffs result with guidance. long-term work is be of including XXXX, million, great

one-time, target. are growth we our which million EBITDA in as XX% Excluding investing the we growth million, annual adjusted at would the the in of $XXX average line business. in tariff-related costs, representing range midpoint, view $XXX be and with Ultimately,

in letter how products at customers and us we plan our across we our our how nature noted our categories, categories. from reporting As into to our evolving purchasing multiple are revenue shareholder new look of today, business with align the internally,

two rear in home be living may surround room Beam creating the for example, sound One speaker, SL's For set up. are and great your theater your

Our increasingly in products flexible outside now are inside ways and of used the home.

quarter's earnings, our next result, in revenue a following with beginning categories. report product the will we As

from Sonos reflective buying category, home which and what a consumers essentially of consolidating, single are into speakers, wireless theater our more us. is

other Sonos other component products be revenue. components producing products, other. products and and revenue, non-audio longer licensing, will and partner home other-related our inclusive Accordingly, accessories system our reflecting and we revenue, and products, report Sonos will which wireless partner no theater of

look We profitability track the delivered in with results pleased we deliver very strong adjusted another are of we on revenue to and year XXXX, growth. forward are strong XXXX. believe We consistent and to

And to any question. answering with we forward that, look

Operator

first Instructions] Goldman Sachs. line the question And from Hall your [Operator of from comes Rod

Your open. line is

Unidentified Analyst

This of to particularly your in is that the expectation. you're your holiday And on about thinking Hi, Europe, this have thanks a on question. how for expectations you during maybe behalf year, Ashwin where for taking there? my Google demand about get Rod. I question thoughts expanded demand Patrick and voice wanted I strength. supported follow-up. you the was assistant talk have Can demand you other of on now

Patrick Spence

different particular, anything certainly, in Assistant guidance new the We've of Google out -- I relevant Voice more your like because built I the But that we've Europe, to obviously think it's point great really much that adding -- story. that in terms say provided. been in -- happened. into what's or to Google would there point we nothing And wouldn't countries about across I that it's

We the about growth growth expect across as but we -- regions, holiday. expect we and all think

Unidentified Analyst

Okay. Trade Up should on there? more on is color the sort my impact Customer program reception us see And have program. understand uptake. of profile, reception would a help follow-up and the you margin of us the it kind the your significant Can on give

Patrick Spence

all customers their really the then upgrade be It's early program our where a providing opportunity Trade products. right program. generation and with recycle Up to a of to is long-standing days newest products, now the to to we're for responsibly able -- an their This

over days, how we'll the things now, few next months. develop see early right So

Brittany Bagley

And have think results. margin absent our nice we're for I Trade 'XX. into built obviously fiscal you And really tariffs can guidance see we Up that, year showing gross

So I drag. wouldn't view that big as a

Unidentified Analyst

you. Thank Understood.

Operator

from from line Tindle comes question your the Adam is James, next Raymond of open. line Your

Unidentified Analyst

Good on questions. afternoon, thanks for start Adam, this I wanted my for to household and taking growth. is Madison the on

lower the of how You you And model Can acceleration, added this? IKEA innovation to impacting households. business some like letter about talk new marketing number led the this record drivers mentioned despite have in key a you that partnerships with spend? are

Patrick Spence

Madison. thanks, Yes,

think velocity the has I product helped, new right. certainly

set and -- see big the us So -- dollars have lot tempo of promotional new those press out sees moments, moments. like started drive two that the year two Sonos keeps products, we as a times to the to [ph] we it it world innovating. and earned through introduce allows And have a basically when through -- Sonos

tell The been to a that's Sonos. actually also new Systemness just would continues the driver. Sonos awareness loyalty to So point, drive I'd to point the And about key and key friends methods continued the our finding like system. a of their family customers be driver. of be go out to more and last and

marketing us efforts allowed the around our direct-to-consumer efficient So to become have and sales digital more on side. and

Brittany Bagley

would they because we're have August new only longer stores you pretty Madison, would IKEA been I'll number the think I August, for just excited us down add, they've do in our really and remind since in September. cost. driving that household what I in up But to household about could continue acquisition term shown

are So pretty this a million. X.X they to contributor really small

and this existing by So of driven really million most our channels. X.X is being products

Unidentified Analyst

to will high-single be million to year we anything costs that's just they bridge really tailwind then get help me tariff profit a tariffs? contributing the my one-time, the mid-teens Okay, in fiscal by down acquisition? these tariffs looks year color. still gap outside you meaning there? nature Thank a I maybe that Is good of EBITDA including dollars are 'XX? for If year-over-year. should right $XX for Thanks. the model but this, what 'XX. the you. gross Are to Can grow there of follow-up. the And have impact, It digits, just related like And related will by fiscal

Brittany Bagley

Yes, question. great

business. improve new we we've to that deliver differentiates investing we to Sonos. into done fiscal be absent deliver So grow, continue continue to tariffs, lot for critical it, XX% the really to That's continue year think long-term back as to gross growing in 'XX, and a about software us work to of to in would and both margins our EBITDA products,

going And to we to so are do that. continue

So R&D. is we absent really are really we're one-time. investing actually of the majority tariff. into is, costs back business the That really the net in seeing you're that it's tariffs, number said, you giving the what What are and is what tariff of costing to us the pay

that so shipping our get into impact. And tariffs, products what regardless we and will 'XX, from year of out Malaysia, to happens the got of be when we us fiscal will US-bound tariff

Unidentified Analyst

for Thanks questions. the Okay. taking

Operator

Muller from Robert comes of question Markets. line next Your from Capital RBC the

Your open. line is

Robert Muller

from could has if IKEA on or app. popularity one they're the just of of you the in And out products much discuss about how if the stronger commentary wondering users you time also, there in engagement any equal? performing spending was been then which of two I terms the have kind

Patrick Spence

Yes, sales. we're product how that that and thing IKEA the customers most I tell unit start we've is the watching come think out the with that's repurchase. not going to important will But you and been break I back an

seeing I think driver. a And start we're And pleased so position. so, that those the to excellent repeat will think with we an be IKEA. that bring is household when combine same is value follow Brittany's great as of trend as to Sonos that in branded customers return that IKEA going customers, we're new the lifetime point, these that very off a earlier far into. behavior And with customers we're in the we're you fact the seen with huge about thing we've the kind that which purchase,

Robert Muller

branded actually transitioning they Okay. more those to or they the lines. along just Are And for Sonos full are product? IKEA then returning

Patrick Spence

now, and will over watch see out. point, both, this at we'll trends particular see we're probably both pop mix we right if that in expect and time, both. seeing any and the continue seeing We're to But we

Robert Muller

that's Okay, much. great. you very Thank

Operator

from next line Your comes of Jefferies. question Thill from the Brent

is line Your open.

Unidentified Analyst

on especially point. is holiday you for there the we you early into demand be price taking good It Hi, Thanks it as Could out far. must the head for about for question. you're as season, constant out Move are or revenue how big anything Brent. in Thanks. this selling you're terms XXXX, on to as driver front? the competition those then out Americas, regions to like where grow EMEA of the call fast? it Is basis. grew $XXX X% David didn't feeling you so on the in X% why so seeing you for Is with comment macro something a looks it's the calling in And as on to currency call

Patrick Spence

the let the one take Brittany I'll one. answer first and second

and we're off X.X On way a of the I just today is we're X Move, one of out It's start. Amazon, rated pleased amazing our new pretty look to products, with there. on that's and it's for a the best product. great on which

contributors All products our our existing our but great are new of growth, ones. are to so

And a so, big fiscal our 'XX in plays it absolutely growth part story. we're pleased and

Brittany Bagley

Yes.

thing our lapping were that's the that you're Americas the saw growth. to that's the at. impact we're see introduction quarterly really both standpoint, a can last and continuing what that perform much seeing year-over-year we look EMEA more on revenue So year, in From you in on the the QX targets and growth of so is you that of QX and Beam really

Unidentified Analyst

Thank you. it. Got

Operator

from the line Henderson from comes question Sean Davidson. next of DA Your

line Your is open.

Sean Henderson

Thank taking question. my for you

what efforts, team your to IKEA to your extent partnership So looking strategy? does retail grow similar its to to start,

Patrick Spence

plan we're announce good to getting to for it's and them. considering the but have IKEA something we nothing a we're with for But more something certainly today, the started future. We're start we're considering the just one. off Yes, with future,

Sean Henderson

follow-up. you. And quick one Okay, then thank just

that we guys any your verticals strategy, can So think you how product future potential should including move into. about new

Patrick Spence

committed to introduction now. the almost We're last continuing new you've Yes. us of years the pace deliver over three that seen to kind of product from --

accelerated that. So we've

that. feel I think we about good

Sonos today, both then that and we're products see partnerships. -- home, help not branded come you balance can and those -- from both products in from categories will are us expand efforts and the a in that extending of extend leadership also also into our We

you'll So us those to of see can on fronts. to making And you mix we're see delivering both both. of continue sure a expect that

Brittany Bagley

be the in those mentioned introductions should we this few will and you letter, shareholder about more when As product really excited year, talk a those to expect happen.

Sean Henderson

very you Got much. it. Thank

Operator

comes Your Stifel. line Sheerin of next from Matt question from the

open. is line Your

Kurt Swartz

for for Kurt my hi, Yes, you Swartz this is Sheerin. questions. taking Matt on Thank

could First question, provide but trending on I color you more just seasonality. are currently sales perhaps you aren't specific quarterly providing relative guidance, how historical QX to know hoping maybe any

I but think growth other helpful. regions, expected any in color you've would there be said you all

Brittany Bagley

Yes.

we the consistent provide that rate early still So with would quarterly look at best don't But that rates I be that last we is guidance, that a we to say, growth QX. and are saw year. way roughly the in would growth

Kurt Swartz

Understood. And back just to going tariffs. another question, the then,

Sort of question a here. two-pronged

considered you of using the was For one, really strategy also the in new are sort Or Or ones? implemented? the were tariffs you on you you. the tariff same do previously? using that you've are once have plan you not -- actually that costs? Thank Malaysia in along using branching been out contract manufacturers passing And to

Brittany Bagley

Yes. Both great questions.

our that working contract Malaysia manufacturers using diversified are contract have manufacturers with. we're time, but we already over in We

Malaysia of out is this to diversifying really China. about So

best Company mean, while be as consumers we the a and In determined best for diversify and that tariffs, a and having one-year invest our these I is it, the to we pay perspective, as was deliver for what delivering out not best for do we business cost, for what's in our need to to long-term. business brand And this can, to business of really get on and continue terms because what's passing to and the quickly also consumers. along our need from is, what to our certainly impact but we And of plan. thought the we about us,

Kurt Swartz

Understood.

Operator

question Morgan next comes And your from the line Stanley. from Huberty of Katy

open. is line Your

Erik Woodring

for Erik It's Woodring on guys. evening, Good Katy.

realizing guidance. more you So the on XQ just don't give dynamics specific here, touching

as just about guys you've this how but into then days the kind affect season how the that how think being XQ? of of And that to and on through year of kind you six shorter comes how should incorporated about then you call just of XQ. historically your a timing I that it we annual and think imagine last it ex-tariffs guidance, incremental holiday in EBITDA fiscal think later secondly, the this tariffs impact XXX% than it curious then shy after. year, follow-up. your relates I So -- XQ, of Is about And have

Brittany Bagley

we have our incorporated So and holiday guidance timing into yes, into my commentary.

So yes, we've of think were think thought going will we EBITDA that half I that QX. get about that. really is in about And of on tariff all say, to cost impacted

be we'll in QX. XX about So XX of adding back the

Erik Woodring

Obviously, then Okay, tariffs. great, thanks. expanding you've about to it to Malaysia. just as talked And relates

Just of on US term? plan your in kind a you non-capacity? it broader longer how moving you the diversifying kind process? you only are over on call are that far view towards Do Or taking along base, manufacturing of

Brittany Bagley

tariffs, are diversify, to and manufacturing a solid long-term, US-bound But right because manufacturing. we looking flexible and of strategy. are the prioritizing have now, we Over

So 'XX. that's our year priority for fiscal

Erik Woodring

you Thank very Okay. much.

Operator

there no at I further are And back turn you over for Spence, call this closing Patrick Mr. the time. questions some remarks. to

Patrick Spence

to Thanks joining everybody for today. Fantastic.

inspired 'XX. in planned we think, Move. by forward our And in also as we're a a a Sonos was year have playlist I point it one. to fiscal in public first and the books, would letter, what got out you will I good our company And find we've looking

we'll you'll next take Thanks, to to hope enjoy a quarter. that. and you I moment talk all So

Operator

conference this gentleman, today's Thank for concludes call. Ladies participating. you and

You may now disconnect.

Sonos (SONO) 20 Nov 192019 Q4 Earnings call transcript