SONO - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Sonos First Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

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

Cammeron McLaughlin

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

Black comes group Black our Month. those and shareholder History For music was the to @ that playlist created early call a joining our Sonos letter resource employee is celebrate hold by today's from included in

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

and several impact EBITDA During will we also gross refer free cash excluding of and margin EBITDA financial this measures, including to margin tariffs, adjusted call, adjusted adjusted the non-GAAP EBITDA, flow.

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

the turn to I call Patrick. over will now

Patrick Spence

everyone. you, hello Thank Cammeron, and

to currency quarter, increased of million, to or Including for and EBITDA Revenue XX% XX.X%. increased off tariffs record $XXX.X impact XX% XX% million. fiscal adjusted $XXX to EBITDA increased year during basis is the a start. new great Our increased adjusted margin the to a on margin XX%, gross a constant the quarter to

Port. we to A quarter with registrations the Sonos by homes new One record and customers. growth and started the quarter, strong system in by number our Sonos growth Move, continued Revenue and SL, see was and led product products existing Amp of during driven during new Sonos both speaker by first

Our partner strong continue consider who additional other products who future as repurchase see these contributor started consider partner quarter. same a trend product during to Sonos value and Furthermore, and in this to Sonos product revenue of This continue the products. and IKEA we are IKEA purchase product the that to we follow customers repurchasing partnership to importantly, the the a continues be growth and returning consumers customers with space. is important, trend lifetime in opportunities as SYMFONISK

rank gain consistently market and top products a rapidly products competitive to home continue Our we evolving audio environment. amidst share, the among

quarter, geographies, United December points categories in speaker United When U.S. and the the in we more Germany. looking the dollars the Kingdom increased including in the in we audio market During many at category share specifically States, premium price serve

the nature disproportionately gained the the our more rest the premium illustrating to brand power and strength share products and of and market, of of Sonos further our compared platform.

selling period across categories. all holiday led strong very by a had We growth product

selling year our We position. limit and environment our maintaining to this be planned you last our keep strongly efforts believe regular evolved. how deeper we know, given as campaigns the and in has targeted holiday As year and the premium to compared promotions marketing throughout few broader holiday

the of our offering more our we Despite platform products, positioning than effective discounts and season, competitors we our strength believe the underscores of significant the ever. communication and targeting of premium holiday quality share was uniqueness the which Our gained during brand. and

thinking at the on We financial fiscal to set intend continue launching cadence product achieve pipeline, exciting increasingly part about remain track and new and QX our two are our additional XXXX. of products to models out forward as include being future our and more to of in business than look as execution able hardware strong we our products targets Given year launches. to we every we for least

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

Brittany Bagley

Thank Patrick. you,

some results. by Revenue quarter and color revenue. add Sonos additional the was all partner our on our strong categories contribution across me coming strength largest Let and first driven speakers from product our with other growth products

and promotions Our the planned quarter. in expectations second of some pull resulted revenue outperformed our we from believe forward

our reporting following increased X% with categories: the One, voice-enabled we Move Sonos Beam our three starting speakers, SL, include discussed we Playbar, are this you Playbase and Play:X, products. As quarter, last revenue and quarter, sub Sonos Sonos and One now which in Play:X,

Sonos system products which products and up generated Sonance and and revenue. increased XXX% partner and IKEA our our revenue and Boost XX% includes accessories revenue Amp year-over-year include through Sonos partnership other Port, other

will quarter. product on website. Investor our Relations our filings the XX.X% revenue You find increased new reports these in basis XXX the based to points historical of section during categories and margin Gross

gross million recognized would have over quarter $XX to the points China-U.S. margin basis tariff duties XX%. in this Excluding XXX increased

products into Our quarter mix margin as the during reduction. gross shift and strong well material driven higher-margin as volume by cost expansion was

As our capabilities long-term the we This to map, road in discussed is business services. last quarter, growth. product to support spend our and we up continue software to invest support R&D predominantly in showing

$XX.X $XX.X last to Our adjusted was million EBITDA for million year. the compared quarter

to adjusted tariffs EBITDA million with adjusted basis increasing increased EBITDA Excluding the points to XXX of $XXX XX.X%. impact margin XX%

to and ended million over of long-term generated Turning quarter. and $XX balance our in We cash $XXX and the cash free million quarter cash million the flow equivalents $XXX debt. cash sheet in We in with flow.

cash. approximately We $XX in also completed of the acquisition for Snips million

a and take tremendous strength us quarter September our in value we during our on to continue we repurchase execute which of stock. to In share capital authorized the Board sheet balance approach The started $XX a program, enables to thoughtful allocation. see our XXXX, million to

in reminder, a road at Snips. our as investing with R&D through also looking opportunities As inorganic map long-term demonstrated while are we growth we

share through to returning We shareholders value repurchases. are also focused on

maintaining each to continue manage a also will balance We quarter while sheet. these strong

strong for a on excited we fiscal execution continued XXXX. ahead, Looking are

We and will we partnerships and those products announce look additional end this the including year. of that launched and at XXXX services have new forward to great products

are pleased guidance. We reconfirm our fiscal XXXX to

to expect range of $X.X consistent at continue revenue to for our is growth annual X% year target $X.XXX We the the XX% midpoint average of billion. XX% and growth. with billion represents This the to revenue of in

in strong our a believe had there of the first but which revenue some this given of do is forward guidance. We quarter from second effectiveness pull quarter the promotions reflected was

margin tariffs. guidance $XX approximately into million a adjusted impact one-time our As reminder, gross China takes and EBITDA from account of

shipped will a be were that through X.X% and date subject after China U.S. XX Sonos and subject tariff. XX% tariff in to products to the manufactured to February a

tariff the expected and our is the to on already begun XXXX little impact we that expense. transitioning have our quarter Given first Malaysia, in tariff largest the to reduction fiscal quarter is have

the will We end expect by have impact the largely and of the of Malaysia of the therefore to end eliminated of fiscal fully the year operational rate. by be tariffs regardless year

closely this operations monitoring coronavirus and also during on Currently, is to and our XXXX focused not are outlook. are related to people any impact partners supporting the at to minimal and anticipate time any this impact do our our developments We time. we fiscal think challenging

basis in margin excluding to fiscal be costs. XX.X% gross range GAAP point XXXX, to remains margin XXX improvement would gross tariff-related XXXX. range GAAP fiscal to outlook XX.X% the representing XXXX of fiscal in XXX in from XX.X% Our the of XX.X%

the EBITDA remains range Fiscal million XXXX $XX million tariffs. adjusted including of $XX in to

XX% Excluding we We to our track tariffs, profitability and growth are look with million $XXX as one-time, EBITDA line representing consecutive adjusted revenue we adjusted on target. which our in $XXX be annual average of at view midpoint to million, would execution forward fourth continued year strong deliver to growth. and the believe

deliver. been we the QX We to proud are able very of results have

we line open for And will that the with questions.

Operator

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

Unidentified Analyst

do Rod. is my RK to pull demand? for from know of was This Thanks forward opposed forward? quantify pull How of promotions also on as better you there the And Hi. the magnitude could just taking you behalf question.

Brittany Bagley

quantify full to we year what factored the magnitude we're is going the fully pull guidance, at that if have But we of maintaining not forward. the fact our you We're pull look think forward. in

Unidentified Analyst

not And demand? you how it's just know better do

Brittany Bagley

have We giving demand our our on factors channel are you the signals with the in look and and sort information at and based look view at a of best variety conversations partners we of have.

Unidentified Analyst

products Okay. than Could your you hardware about including you and as talk business additional by mean more thinking about what just models?

Patrick Spence

Yes. Hey, RK, it's here. Patrick

ongoing get we were were think an about of to running through what a for value which over we of I we're products into began Flex a monthly business, new called our certain we're you where you that quarter the always because and the bringing based we in sets that Sonos things experiments reflects functions of the something a last our in kind bundle better customer you Netherlands software. as features do really on terms thinking that running could of to appreciation pay, couple the fee

been we've tuned that and one. -- with So on stay that so experimenting

something pillars freedom the customers the We've business the of great of bring called the Sonos, we started think to opportunity Sonos Business, to all there's for great also as sound, where simplicity, choice well.

seen to bring begun the at opportunities get our been we've customers there's to bring other into R&D experiments -- we and we've us opportunity services as we've Sonos by you've investments new new to some ramping really in there. Sonos up, So And platform. believe customers experiences looking to

hardware on that products, of new and and the team Sonos are I'm And lot can as thinking about that and also where just at scaling we been for thinking But consumption, time we've looking those. so is proud fact our ready go. but more those not traditionally, just be in beyond public do with spending areas the ready we'll talking a like and very where

Unidentified Analyst

color. sense. Thanks all makes for That the

for question final one Just me.

the reaction you're to products. month some been? replacement rates? how customer software older provide updates you You announced that last And about that initial talk going how Could not impacts has to

Patrick Spence

with get we terms initial passionate Sonos Sure. we any mean out think certainly of and follow-up. there. it our the in that from communication news customers right That I that are is I communication saw put didn't how by our we hence something

that we think to products everybody was and intent future. fact anywhere are years see be And to launched the And longer bug continue they supported so, will no that of fixes ago XX kind the out coming features of but talk the are into from I our May, to new XX about in supporting updates understands be that going the to and continuing capable things. now software those with

and to say plan volume I I It's e-mails got stood was about in for else we there. of than XX% and to got the always of most we've we're and that comments, lots But continue the would terms asking of in I So terms of people longevity. of we reassured lead I would industry longevity. the that kind in to say are anybody lots of XX% product I different -- we think think message -- very in probably product

program introduced Right now, we Up long-time there to able think the latest we've be the that and our customers products. which helps move great -- into Trade

we've So started. from just that. something starting that's to We're learn

that we'll through we'll go see we replacement and we continue terms as learning at to well. impacts been similar kind through customers we've But going So point, rate existing of from see over just repurchase that that we've time how in -- this of as rates that. expect

Unidentified Analyst

results Great. congrats good the guys. Thanks -- on

Patrick Spence

Thanks, RK.

Operator

Your next question of James. Raymond Adam with line -- Tindle

Adam Tindle

I congrats strong guidance. just revenue Obviously quarter. Brittany, start wanted afternoon. Good thanks. December on to very on Okay,

given to early little in wanting up model conservatism. you here one tomorrow. fully what in, the prudence on you're could pull I'm anticipating commentary -- strong On the hoping the debate seasonality a a what just to normal touch can hand, we some on Just bit and due you quarter seeing not that March quarter on understand around

corrected. hand, year problem can the this to On quarter fact other needed where sure there a the the that channel be with last that was sympathize you was inventory

could that think bubbling I there's that again. be up some speculation

just can thus that conservatism quarter? you've versus channel help what us based you hoping far So inventory seen on in issue understand March the

Brittany Bagley

Yes.

our changing and year inventory with terms are you're results. we're for where we're in QX position think in of comfortable I very we with we're happy guidance And -- the any way. our not our

of can So terms I the QX. color how we're that's best in sort of seeing I think give

Adam Tindle

in XX% about year-over-year think Okay. maybe think as the just incremental such strong progresses? I the can trends on we point, cash And And cash you flow? tariff impact. what's flow was driving how Can that flow touch cash year despite on just up nearly

Brittany Bagley

Yes. our flow QX always is strongest quarter. cash

EBITDA. That was taxpayer cash And QX. flow our had in our management. scale than of of benefits incredible have We quarter because we strong also said, higher actually course, yet, had really we're free another not capital we great working where a

those -- are are that some of So the factors. contributing

think you quarter. would flow QX cash if looked been year, I highest have last also our

about similar can I think the year. you so trends throughout And think

Adam Tindle

imply like years, the usually for loss EBITDA It based of net for fiscal what positive. one the year ask few atypical and quick -- mentioned for the I And is remaining guidance pretty you're looks which one which to quarters Okay. three a year, Patrick. And wanted on million past couple investments a would you that's which about. keeping the the

just If see And on further a expect you you making mentioned? ultimately, the and them? from touch that maybe what you them little with could got what investments comfortable to you

Brittany Bagley

one, this I'll Adam. Yes, take

long-term our and I what is are as starting you have R&D we're of XXXX to and bit time pretty half with. doing through in our support of home. on in new year our map, about that spend think the Patrick, product what we that This investments experimenting our road this then we have initiatives the a to are organization. little even think continue product really outside potential revenue making second how predominantly seen is been diversification significant we to expecting of

we our for and and future come. years growth. the quarter to promise along overall long-term Obviously, the continuing as on of margins an are EBITDA really gross this many average that deliver on annual business investment trying see to to we so an XX% balance And strong for with our important this strength

company the both where we're balancing we really of hardware fact are in Sonos the But of So take and the software we we feel good really really as business. are front products a the it leaders the making about overall can of and business. with the the health our in that investments and opportunities on side

Adam Tindle

on a start. and Thanks, congrats strong

Brittany Bagley

you. Thank

Operator

line with Huberty question Morgan of next Your Stanley. Katy

Katy Huberty

down Yes. trend as in My revenue Should a well. as XQ on sequentially. XX% the we Or Thank seen scenario maybe but about XX% we've you in you. towards given that the think is to congrats this the a year about past? historically XQ that Brittany, in -- the range, think down historically is in? is decline pull than where of high end revenue there the is down more quarter

Brittany Bagley

the I shaping to mean quarterly guidance don't giving or think quarter. I real start Yes. going we're

looking So comments the best as account advise at can I into pull guide last year do our is taking then about to and a in.

Katy Huberty

points you you dynamics up as basis talk XXX is of the And it relates business product gross to Can Okay. margin some then expand that is points Thank mentioned margins gross about you. to you that XXX shift margin at the what that basis is that's expansion and to in allowing mix. mix going on rate?

Brittany Bagley

Yes, that associated gross margins different of think, our products them. all have different I with

for fall there will out so terms of a given any from how is margin in And in variability that mix standpoint. quarter gross us

a in QX high-margin So happen lot I to say our more sell would products. we of

our probably then improvement to a contributed costs in material were You nice that can continued look how that really And led then it's quarter. we and very where and at about to running some think promotions it. which

Katy Huberty

one one Patrick. maybe And then for just Okay. last

number idea financial about of the investor an of licensing arrangements you those this there may place in your a be talk And value Thanks. how the in Can year you about do today? in see you realizing inflection or of where You arrangements. that type could have of arrangements? the talk other many the patent mean IP as of accretive letter those

Patrick Spence

you and Hi, Lead IP Katy, to it's answer to that one. Counsel Eddie, I'm to on going pass Patrick. our General

Eddie Lazarus

Hi, everyone. Patrick. Thank you,

We happen really the as now view have going discussions say. necessary But infringing a we litigate those inventions space can't substantially to with a bear accretive we that's discussions are on to hope we those this a that we've many companies. It's long-term as proposition fruit for discussions we're that and down. something of when We our we've break company. also if willing we're not Exactly will as that quite the players So on. when completely in think way. shown few in patented a noted currently in clock

where So one I to come of value -- But getting to to valuable going and these what extremely inventions. are very we're little prejudge for wouldn't is we single actively a pursuing different want we consider for it's us circumstances out. every bit be

Katy Huberty

existing have the up revenue segmentation in where you I other? that licensing And do show assume in Eddie, arrangements? Brittany does

Brittany Bagley

would other That Yes. our category. be in

Katy Huberty

you. Thank

Operator

line with of Your Sheerin Matt next question Stifel.

Matt Sheerin

Yes. Thank question. for you. And thanks taking

regarding Just the quarters just fiscal year the quarter the successful. customers? expect that's had you through year? that strategy look strong And seasonally been And through out has how promotional in of sounds activity what as the the you it reaching in to like should terms not we changed very

Brittany Bagley

should to we run premium that you we think promotions continue time Friday, promotional. of expect in category Cyber that what we a at holistically. no when expect is and terms I customers it Black an are Monday Monday. are But Friday, really Yes, and is seen in we promotional from that our means have really Black brand are very looking that We selective of on by be company the that promotional were increasingly most Cyber that and companies getting we year

to extent, up sure play really time have show some year. to to at and you're you But make ready that of that

was for last saw we year we you a us what than us we that this really that bit so, year deeper as did this that result. and that went planned a paid off And year from

get of into we I at We're XXXX XXXX our think year. a not point. in promotions. and being selective rest and guidance, what brand is premium for everything very continuing our into on this already we'll But next planned to focus going see be that to the means will

Matt Sheerin

increase in And tell then nice of registered customers Okay. Could us number particularly what buy that well? the additional products, terms And you you then with of program, Patrick percentage in us give this that -- that IKEA was? mentioned the you could number and as that users. a number saw of you

Patrick Spence

we give Yeah an basis. those on Matt, annual

quarter, record it a homes. quarter in of terms any of number providing we're So, new not was on but the the

other significant The that. that thing a was important contributor to was IKEA was

very again that something new Sonos system really the for and expand the into and been work many, push which we've software in our is platform homes. different partnerships that's been done helping the So, has past many there, where we've the from

has something that's so, we the proud And of and think of we're opportunity future. lot which for very a

Matt Sheerin

Got it.

Okay. Thank you.

Operator

Forte Thomas with line question next your of D.A. Davidson. And

Thomas Forte

question. taking Great. Thanks my for

as So into that potential about in supply far for in from how Thank products the think you should the U.S., your your a sold move we supply coronavirus? potential prolonged chain for as Malaysia disruption China stays chain as you.

Brittany Bagley

Hey, thanks for question. very the situation. obviously a fluid coronavirus Look, is

fiscal us now, predict what So, the there. no there based saying see that it for minimal have, for year XXXX information we do with going are to is what guidance. to is the we to our we impact be impact will hard certainty But change and be on

Patrick Spence

The isn't would add for that only just also a thing that I market China on material is us.

think know perspective talking Sonos. many So, that note for to from but companies have about important a it's not material I it's revenue I been this,

Thomas Forte

for taking question. my Thanks Great.

Patrick Spence

Tom. Thanks,

Brittany Bagley

Thank you.

Operator

Robert line with Your next of RBC Muller question Capital Markets.

Robert Muller

goals Hi. products? on in integration Can of is into of a the coming see And the of about or assistance we terms team when might Snips the kind new development you any how talk along? are actually of towards bit looking there you're integration little targets that voice the

Patrick Spence

excited is well, by we're it. and integration The going

of share lot build we say found a we amazing tuned the customer beliefs And think I in how terms the of experiences. rest. have I in to would of that stay terms people that

Brittany Bagley

our fully you're see going would P&L. I Yeah, them say in integrated to

we're we're something, really acquisition. it the going not like with map excited you're related time ready putting to to lines announce our on specific we with features. everything be any But road product we'll share everyone. out outs call not to on to do product So, when see Snips And

Robert Muller

it expand reduction I And million just -- I math, be small, wasn't to on a least. bit it's tariffs expectation? kind know Sure. why seems then mean at just little a your can might you a but backed like on more there of on it just few

another to why changing wondering I'm not So, just your is rate have expectations.

Brittany Bagley

in how QX, line. the us for in is behind in already of much well And the of is It really are tariff came production because through which Malaysia. then, transition time by we

and moved that very So, quickly are there. we on executing

really about And weighted front-end so, tariff quarter, is for our as talked we last year. the impact

year, out you largely don't as we the get mitigated in that's And for tariff have material we why that. half so into call see back And rate. a of the really the the reduction

Robert Muller

Okay. Appreciate it. Thank you.

Patrick Spence

Thanks.

Operator

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

Brent Thill

strong level was up I'm you to and I cause think see growth what EMEA what you you that? currency. curious, elevated gets only think in the kind that the just of was X% Americas, Patrick constant mentioned U.S. back where

Patrick Spence

there were Germany. Yes, the is, well. I what's there market to the in share important little as on actually U.K. referenced thing understand think key able that the in a And to markets and we in going bit gain we

And about doing good work well. I as of position. we the we're the doing some feel we're with that there so, in excellent And an with think work that we're IKEA,

want obviously the at the play in, grow good market. we in so, But positioning like position premium we to And over feel our time, a that and about same brand good we're in a being that time. we in categories, see continue to

Brent Thill

get it maybe the Have anecdotally that just I've just moved sent -- have I about you and signal, any software of Or call? that in see updates the your too already is to system? the had but upgrades And upgrades wrong early e-mail the you that ahead to seen know friends already moving. some

Patrick Spence

they -- program right customers, as customers to to that they so a excited get upgrade can to features they're because, choice choose by and are a really anything This that is time if do is we've so first this what years the point and XX, there, The through at particular we offered this choice in functions early now at they time, the got point see. started it too to this XX gone choose this. just has like in to again

that terms in. of early pretty think also through And quickly. in clarified and we going I But we'll message factoring So, that that. right now, it's learn be

to So work. products continue people will existing their understood that

the So, it I perspective created we've doing a think again that revenue the impacts for and that customers. on flow, and is the and make to that like is it that an loyalty from questions sure I this we're customer -- -- building really the we're while brand everything understand effort how

see trends. time that how we'll over So,

Brittany Bagley

The would only or thing can as decision I lightly make is, we add Yes. you didn't imagine, quickly. this

to And so, can they these best are guidance. the estimate in year our we that 'XX impacts, fiscal included

Brent Thill

Great. Thank you.

Operator

to turning remarks. And over Patrick for Spence closing back

Patrick Spence

Great. and start you thank Well, everybody. to year. to exciting We're very fiscal excited strong an with the forward looking 'XX are

investments, can you we're development. As of in making see, and lot a primarily research

excited And you ahead. so, we're for And support. what your lies thank for

Operator

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

now may You disconnect.

Sonos (SONO) 5 Feb 202020 Q1 Earnings call transcript