Earnings call transcript Q3 2023

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Operator

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos Third Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] Thank you.

James Baglanis, Head of Investor Relations, you may begin your conference.

James Baglanis

Emma. Thanks, welcome Quarter and Conference XXXX Sonos Call. to afternoon, Fiscal Third Earnings Good Baglanis. am I James me with CFO Eddie Legal and Sonos' and Officer, And Lazarus. are Chief today CEO, Patrick Spence;

joined Fuzz station. music who For today's call from Sunset sampling hold those our is the a earlier,

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

refer certain financial During this to non-GAAP call, measures. will we

For please refer financials information of measures, third press Relations regarding release posted the to today's quarter Investor and of our GAAP website. to regarding portion a XXXX to non-GAAP results reconciliation our our fiscal non-GAAP

contains release, investor will presentation presentation like to our Investor an supplemental portions the conference Relations call note our and certain that which transcript of presentation. also to reminder, a website, investors.sonos.com. As have we be posted separately press our on supplemental would available earnings Relations I for earnings website, convenience, Investor

call now turn the I to over Patrick. will

Patrick Spence

QX afternoon, reported fiscal everyone. results. this Earlier Thanks, hello, we James. And strong

consider The of not as and levels remain of we by the to participate unprecedented of we play we in consumer would discounting outperformed proud electronics winning continue competitors. normal what yet challenged, team’s the am in that our we are We categories to we have I which the execution see returned conditions categories as competition. in and

our continued focused we on two in testament to brand where This in and play share gain innovative in with existing ways. a the bar well. home product investment categories past categories development, continue to both we significant theater Europe. have perform research new is portfolio Consistent Despite continued and and things, this, to the in the entering market and our quarters, States in raising which remains United

raising of start. Era great categories, in the of is bar Speaking off existing family a our products to new

seen embrace Era with have XXX its consumers We its XXX bass deep Era Atmos. out listening spatial impressive and alike sound stereo detailed and for audio loud media and for Dolby

reviews the any consumers from and I change Era A as rating is at XXX our review on earnings with Sonos.com. second noted for XXX spatial Forbes and what half the a of X.X it the wireless is QX five Each how and products media both can audio in stars QX speaker consumers Last recent stellar outlined perfect year. as performance Era both and be, nearly are Era of XXX quarter, affected fantastic. the that between guidance this our at

guidance the to QX of with we EBITDA. half maintaining consistent our adjusted for revenue issued the for outpace expectations a we and tracking today, saw are thus expectation in the revised those to and are We in inventory reduction for registrations channel midpoint second selling. We

QX, up. through Europe continue Pacific tighten to where Asia this expect retailers to We continue particularly in and

the economic impact Europe climate demand, of and underlying Pacific. the the in Asia tough Americas strength per As in offset helped

expect both in to QX. we mid-June. a quarter, Fathers’ In trends through Americas, saw which steady Europe Day promo response Pacific, continue by through strong the the registration trends in quarter, Asia softened and to Specifically, generally our the through registration followed we

to because reduce reduction in would rigor, harder on focus our EBITDA necessary track renewed efficiency. to hit force while staying commitments, repeatedly said, spending roadmap, deliver commitment X% commitments mid-June. a led to have us announce if to we and I ambitious in As our times This our require

enable expense us future our roadmap. base while profitability, in product rightsizing to This in making increase will our targeted exciting investments

the more over. Our is efficiency journey organization in never to drive

will to lever takes profitability of continue cost do closely scrutinize long-term base our whatever have to and We kind on it the we targeted.

we remains on focus over investing the long-term driving profitable growth Our sustainable in five categories. to our release products as continue now

categories well Sonos as this Pro added expect to was year, we as three enter. new

of our the We in core than are affluent our growth households just represent of households the early more million our markets. $XXX as in innings XX million X%

At the has Sonos the figure prior fiscal the underscoring had in customers increased up X.XX a XXXX, value the of average of have continues end our over years steadily from This to year. household X.XX lifetime products, grow.

households noted As households are our average product past, single multi-product the have our whereas in X.X of has XX% products. households, we

average $X our words, a mature get X product range other household. opportunity. starting monetize This we into we of X base. In per the further every Sonos runway highlights have we multi-product are size install estimate products household billion the discussed to the install to represents long to that converting single previously households, revenue our have We

million Sonos on deliver mind over and we targets customers company revenue, long-term in on track stronger delivering to long-term. and I doubt investors from in that right for confident this challenging our $XXX progress resume the adjusted $XXX that period million the $X.X as and is of is my EBITDA. in There value remain to will making emerge to a billion no continue toward

on results over turn provide more our Eddie I Now, call the our to to outlook, and will details

Eddie Lazarus

from Hello intense Patrick. just is numbers minute, QX Thank you areas of Stepping everyone. the two summarize I'd for back a focus. having

meet revenue the on fiscal earnings we the gave we deliver deliver And both our that on revenue QX deliver sure faster EBITDA we ‘XX we making guidance reductions, on a adjusted expenses margin. in we profitability to put us and our our guidance and year quarter than last in to to to stated ensure intention position grow expense that that sure second second, call. gave our half making First, expand

to these We are all things. on track do

million, up. demand, of reported of our driven a to resilient in QX Day the a flat year-over-year June. by for well Now, sequentially Father's to strong promotion roughly as and as year-over-year both revenue, reported grew Americas basis. constant on consumer total currency results. XX% We reception and be revenues $XXX.X X% XX%

EMEA to revenue in APAC QX. This year-over-year declined XX% through consumer region and and demand, consistent total expect each soft climate softness due to to was be the respectively. economic APAC of percent each this and X% and with continue we in EMEA challenging

So in different the expectations of from are we the had we anticipated, half bit what aggregate, is shape a quarter. than outlined last our unchanged second

of declined while year. further quarter consistent this outpacing recapping the after This finish channel will results. declined products Quarterly with registrations the is XX%. what divergence we reducing about this sold I outlined second quarter's registrations with selling I in X% discuss year-over-year, inventory half last

Favorable well currently focused This in and driven gross activity of by have deem targeted product reserves increases basis quarter to expansion our sold. XXX component that excess. we was product consistent mix promotional points guidance. expanded offset with of inventory some the and decline or as a QX to cost and of mix, price expenses as revenues roughly full be from price XX% impact XX% the to be quarter's last FX, we QX partially by taken favorable related components the increases, and lower caused margin flat excluding to sequentially despite channel year-over-year XX.X%

our of included These our a and now cost slower scarcity, consequence is components COVID-induced This temporary gross of a during hit of revenue sourcing a followed period margin. in reserves by of are period demand.

We the mid-fiscal work way diminishing year in ’XX. COVID expect the overhang rest to of gradually through this

fiscal Adjusted ahead declined the $XX.X margin of XXX basis, QX by in of year. expectations of to gross due QX year-over-year fewer of promotional favorable was component On mix typical and a our by points basis million, partially product this lack expenses. operating spot and ‘XX offset higher lower of EBITDA revenue to combination activity in purchases due

adjusted million EBITDA. spend $XXX.X was of lower X% exchange operating $X.X non-GAAP advertising from accrual. to declined Total and due expenses an million delayed bonus approximately a program Foreign or and adjusted $X.X million to by QX tailwind

million a this largely flow negative associated cash million in decrease $XX charge little We $XX and the excludes $X.X and million Please expenses expenses offset quarter our restructuring in accrued $XX mid-June million had Free the inventories, million that by inventories. by down a increase $XX million cash accounts accounts million recorded in we no driven note decrease on were that partially ended sequentially. repurchases, receivable $XXX and and figure of Within million with $XXX rev payable the goods debt. in expense impact quarter, with was share of $XX finished XX% and the QX rev.

Looking ahead holiday. fiscal in inventory seasonality ahead, has building of the atypical its QX

Our up component was million sequentially. of balance XX% $XX

purchase year, last the and to plan commitment. we moved component sourcing adjust Over our our swiftly

increase to While balance you still fiscal we term sometime peak have in reaching near component continue progress, a before expect next to the our year. good made

previously said, own our managing cash conversions inventory improving remains As top and priority. I've a

guidance, purchased X.X% common turning we $XX share, before in of in shares And of representing finally, million average the an a outstanding quarter at of as $XX.XX QX. price to stock

of a $XXX million authorization. approximately repurchase remaining $XX As million our previous have we reminder, share

Turning to guidance.

X/X expectations of while billion, ranges year between revenue are reflect now expect maintaining fiscal billion $X.XX revenues fiscal last report adjusting the quarter. year-over-year. We way of X% adjusted we and mentioned, previously As are guidance Today for approximately to the being XXXX for I our second to largely and ‘XX, from EBITDA. half down unchanged the midpoint through full $X.XX

$X.XX of billion unchanged last quarter. guidance our from midpoint, the At

We million $XXX year-over-year. and expect QX between X% million, down and X% revenue $XXX between

some guidance assumes in the while overperformance, QX overall resilient. that Americas in promo demand is our pulled demand Our QX, QX from

APAC and We on expect EMEA our results. to weigh

half last of the XX% gross excess revised be of of revision will $XXX this is together We $XXX Taking XX.X%. driven margin now higher expect million, by guidance is revenue revenue component second from midpoint unchanged million, our of provisions. QX range at to with in the entirety quarter. The our

As margin expect XX.X% result, between XX.X%. and now gross QX a we

of XX%, At revision To second you, of in outlook provision be XXX basis, gross of gross at margin headwind midpoint be this gross XX%. prior modestly margin QX, of below approximately line our half full would least, the guide the the this midpoint, in expected to our implies component prior margins. size to excess with outlook this the Absent points impact year for guide. the the is

as we've adversely by year reminder, gross FX over significant And headwinds faced this as also points, affecting a XXX basis well. margin

within X% million well to gross XX% a Excluding representing our be to We EBITDA to would normal FX range of margin provision, $XXX margin of adjusted of in the XX%. X.X%. the target now be to annual expect million in $XXX

of midpoint the unchanged last guidance our At $XXX quarter. from is million

We zero expense approximately of million, be $XXX EBITDA program and representing to adjusted margin of guide QX to X%. adjusted this between Embedded between $XX operating X% adjusted expect in EBITDA non-GAAP QX a spend. is modestly and million year operating lower savings realized partially approximately from be million. by non-GAAP QX, of adjusted rift Full to to expected in $XXX down QX timing are bonus, offset expenses due

at again together adjusted guidance adjusted revised our our of $XX with from last of QX million, quarter. unchanged $XX half the Taking midpoint is EBITDA million, second

As workforce necessary X%. Patrick mentioned, the step painful, We but QX, in by of approximately reducing our took

We expense initiatives well. have as underway, other reduction

process the up And XXXX. leased continuing amended We consolidated moving our and second in example, early almost our of our by of office to office a in be Boston giving quarter Santa current lease space reducing the Barbara, new For in XX%. reducing space. our long-term two footprint locations, office recently will we

We will further, a expense savings. and critical search importance. Managing our of base expenses is improving of efficiency in continue review to areas

it delivering provide in double operating while in And are to I to throes fiscal early our want planning too commitment on for the ‘XX. We leverage to is ‘XX. guidance, down of do fiscal

further earnings We of this call. QX our provide detail will on

our not against in our on briefly Google, jury let touch litigation. Sonos pending. based held but are awarded least, two infringement hearing expected the in initial September. themed case case Google's Sonos Google patents. our decision cases Last California on one of a with In against In Google's us one an Northern ITC, $XX.X at Post-trial the of million motions me currently pending was

to there that judge order the indicated she Google be invalid. hearing at the expected delayed July case, the issuing and In the an be patents would finding issue second

ruling We shortly. expect a written

I'd the for questions. that, like over With to call turn

Operator

Instructions] [Operator

the comes with Woodring first of from line question Stanley. Your Morgan Erik

Your line is open.

Erik Woodring

promotional one and Awesome. nice just and that's guess, fiscal I a or one the result which sure you, of Thank strong fiscal down work but largely XQ Patrick, Maybe you confirm, like the defer beat in I product quarter. already in XQ seems to either guys guide it I'm of not activity.

So also weakness you demand. international There's in forward some markets. pulled incremental some

just product like, key is registration, making the growth think the just of we worsening And one, if helpful. just the So That follow-up. color just September how September about quarter? those to that you sure the think maybe to for guide on would that a I down? think think Or are the kind quarter. guess follow-up factors we have two some think about or should then about we how as for Thank could you. given the XQ. about I Should to trajectory about then be And declines share

Eddie Lazarus

that thanks Erik, for question.

So intensely that going bottom-line on meeting And focused second happy we're we've revised targets. goals. been half our very to we're and top those hitting obviously be

the to pulled QX, As you QX Well, forward from between QX. we doubt it. balance a very revenue promo, I hit some QX had and think which successful no

economic Overall, with touched in We're channel and continued also APAC further Americas in regions with other some other the on those see you that. weakness tightening areas. those expecting EMEA steady holding in conditions we the consistent

just registration, I this year outpacing selling. have whole want emphasize registrations the year, whole asked the but to because about you been For

is So, headline demand than the numbers. stronger actually the bit a revenue underlying

is our effectively, continue wait they will our to to we've in been as goal which Now compete recover, definitely to we for time. categories doing which

so, summarized you well pretty I And things there. think but

Erik Woodring

Pro. Awesome. you want categories. kind three talk categories? help those now Sonos four continuously you, to categories after the new entering of give you these the you don't Obviously, make about new trade Perfect. away for think it's maybe timeline Patrick, secrets. product launch know And to us then, any Thank that. you And I new about of Can

million subsequent that set you. million exposure $XXX billion reach already? existing EBITDA. with of categories the question it Thank launches new you So can think to any product of for categories goal? enter $XXX $X.X you that Do Or revenue, kind you've of in do And need a you that me. goal maybe have to that's if for to I three those the you target in reach long-term phrase as,

Patrick Spence

to is new then that the element And is of that categories, entering second entering the We our categories. categories, driving raising existing Erik. new which bar Thanks, important the strategy the both in is that growth.

parts our are to like of the And strategy acquiring strategy. our so, both as of purchase and homes those getting additional homes, just part both well of existing new

in our billion revenue. It's getting of all to part $X.X

we So, definitely and the you. as you to alluded Thank roadmap because foreshadow stay don't reasons. competitive tuned, for product

Erik Woodring

Thank you, Patrick.

Operator

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

open. is line Your

Unidentified Analyst

for? that. is gone you past the update are how infringing that you have curious and down the get patents I more are start have about, two I'm litigation. I guys go guys wanted is X color to on the on should just for coming one, This How from that patents you David kind maybe on know the you next road, of I guys. Google on Brent. Hey And Thanks. that markers guys mile in And forward watching as on, be than investors path of an gave. just that are with. reloading more just guys Kind with this, you the we here. think guess, to curious the Appreciate just what you thinking thinking about should

Eddie Lazarus

Milestone motions, California, tomorrow next is judge far hearing. that relatively the in and going I case the that In so have be on prevailed should in we think holding after post-trial decision is Well, would the a get, the Northern the actually hearing in. we soon to

of Circuit case ITC patents. the the be the two to Step Google one. step infringing of that's five going be won Federal at the was both argument five Google valid in oral we that valid, the from patents is to our that So appeal finding

once cross of the benefit infringing that on in of and is is already prevail appeal five first a if those And litigation. case time could been test will begin very, are the that for patents Google our point foundational District those patents for in Central that significantly, And the once there the appeal. And that respect any that, second damages decided, that, California. - us stood withstand has long of appeal, we've all, there appeal we very

January. So ITC, September cautiously optimistic we're decision that big us. And against remaining decision in be come And out us getting we'll initial the that's will in well probably for case their then decision the final in that next at event.

Unidentified Analyst

just And you competitors obviously, activity, promotion about much know as promoting weren't on then, past you guys helpful. more activity, are the year. the - maybe last being aggressive on as this promotional talked I a little That’s have as you bit year much as guys you

like, trend. curious that Just found yourself just guys a have curious you than you bit would more promoting around maybe little

Eddie Lazarus

our really that's is are when time successful. the say we, our that strategy and particular in changed. promotional in think moments what overall very, think promoting on focused consumers I'd we I product very really that, very hasn't proven, We're context

have year, we more successful because while we've promotions. this in with some sense So, our so promoted been

been to gaining because And hasn't proven that that and same with been in It successful has continue as and significantly abroad. home share think are way strategy the I market theater here I we've Patrick sale all the expect time. described we because on very both going we're much

just hit plays right right And sale that's on all to the with strong being these now so it think - with brand a occasional moments I the as really, really and we notes time. opposed

Unidentified Analyst

Thanks it. guys. helpful. That's Appreciate

Operator

Haas comes Bank from line Your America. with next of of question Jason the

open. Your line is

Jason Haas

my Hi, for questions. good and afternoon thanks taking

period, bit period, - to hit going curious the half with has the the if as any there's second getting on little a thinking if the I'm commentary been closer change on at curious we're your that the but thinking fiscal there? your into what's falls that know it just really So changes I holidays, in helpful. to holiday all next

Eddie Lazarus

that And strategy of that cyclical is quarter with QX ready we're and good our be through when going our space product No can't a we're forward and in have again. setting think will We change looking moment issues we thinking. great turn. we're kind exactly place. always and the going in tell a we lineup But happens in that for the us excel to to strong a to

Jason Haas

of broadly And channel could getting about your your bit great end all That's happen. levels, both if that see what's this levels needs inventory inventory in commentary just appreciate hear. closer the inventory the And to - we're a curious on then terms your you just the commentary gave to that more also, of little on speaking, to components, - levels? retail into how but more to own to feel destocking on going you get you

the that just having how to there's important out If or holidays for again, given And you. – reorder. any or risk need reach to

Eddie Lazarus

Yeah, thanks. Yeah, sure.

exiting what we down brought more of feel look since So, and we'll there's by elevated good typical With QX or demand, $XXX be normal levels a the to into with a the return is we inventory level about and the that. finished for to season. But respect a more little than to slowdown of year we somewhat QX. bit building bit beginning expect million goods, holiday a

we'll sheet, certain so during purchase component ‘XX. now It's temporary of and we bit to spike work do and from own the taking inventory, some due we as our held our be On from by to side more expect some aging CM a the to COVID third exit inventory balance of that in things, a to us fiscal parties. also but relationships year longer take going onto in little

we we of bit work, expect now. will, elevated on year but in shape be little good seasonality bit Little right that. next So, very to at

than fine. of little seeing here tightening US. lot a tale partners, of distribution many We've cities. In a tightening definitely fewer already used hold. the of some retail bit experienced of more two BestBuy in to That's weeks of there. terms they much pattern we're is got EMEA, but in our diffused, has covers Now

in great system, lot But squeeze said, and registrations seen relationship year that long. have already outpacing We of we've a as selling I been all that's why there. the have

Jason Haas

Thanks.

Very Okay. helpful. Thank you.

Operator

line next with Raymond from of James. Your the Cash question comes Mark

is Your line open.

Mark Cash

learning but Patrick on could you can for understand Sonos early is how brought since like things if to update days, start on with in heavy offerings. This SaaS be you you great it's is since interest the introduction that. Hey, that help give thanks. Adam. Pro, Mark demand would it an catalyze Sonos for I

Patrick Spence

early days, is mentioned, it Yeah, like, you Mark.

I it customers interest we've we're received. the that the have adopted pleased and that with think

meeting that We to haven't because marketing customers. that through the to it even with make yet really mark want efforts want to sure we make started we because promote sure it’s

easy of feels think think think for We We even terms with in our revenue doing addressing really offering. to for continue to opportunity on to path I And we it faster. customers. But we're do, good to we to can customers pretty in business well flows so. work we the as of it right recurring way we've to have there. the have need It for adopt some that customers we that are opportunities targeted wherever to going the make add look benefits a

work so, recognize we value of and we'll offerings the types to And on that. those of continue

Mark Cash

Okay.

then, Day And promotional Okay. Fathers’ strength out was activity. with called

I quarter. So great. I in if quarter, of things Day was versus skewing the the would be of if in that a progressed But middle throughout kind of of things may you wondering sense you sense linearity give April? Father’s you better the that back look a somewhat. give how June be if Are in understand now

Patrick Spence

some other to from which said earlier, that than any think more for QX. forward what on do that really that did you is I don't pull say color I have we revenue that

So time you over into can can you that will that but dissipate. effect read

Mark Cash

was in Okay. channel and installer to And to inventory back then Now you I It sense the levels what tightening. consider go versus retailer of Can to they're inventory a what kind give topic. just us holding historical these want market avenues? by partners you different of norms retail circle

Patrick Spence

I but, tightened. numbers historical those standards, say the here would would We is what example, by have in partners don't retail actually the definitely for that I give out states,

all now And we're - selling So with where comfortable opposed now. long. year balance has those that registrations as where to levels outstripping selling are over will time, and to it out it's very inventory point the registrations as

Mark Cash

the if headwinds you mentioned more you still ask when then think reserve, Okay. basis margin I And If this so, headwind this that's ’XX year? through Eddie, right, right? in one from that was – increased for just XXX mentioned getting the if year you impact for be it do see of fiscal would can some subsiding? gross you're And I the

Eddie Lazarus

the is I diminishing will used - and should in all we ‘XX. through phrase it's think I gradually we the be way - It's it

Mark Cash

Okay.

the Thank you taking Wonderful. Okay. for questions.

Operator

next Your D.A. comes Forte of from question line the with Thomas Davidson.

line open. is Your

Unidentified Analyst

Hi. I This is for so taking much one question. for have you Thank my Sharon on Tom. question follow-up. and one

first think It's my understanding should integrated consumer question, refresh software for and relative the general, rate in So how products in investors rate components? longer electronics about that have quality for build the products and your the our refresh particular? during your

Patrick Spence

Yeah, thanks, participates this think in differ company I that electronics. much is from where consumer pretty we other every Sharon. And

that we product investment is the return premise a long be model on from should higher time, in as alone stands will standpoint an Our new last the from products which is,ultimately a to investment because a make the viewed think market. investor bringing I

years. from think in for landfill better recycled, And I been people we not of know And our important model then and cohort stuff since will it's the has we're XX up ends for also part a model over to or this that And that continues add the creating world more our as the be everybody is time. well. case would that's from that recognize

as many believe to single billion because product long-term households that value, from are refresh $X a the as one-time cyclical so to why revenue to have of we other companies that more I purchase is multi-product. on alone being as This some mentioned, or the opposed we simply always opportunity focused our able take we're

playing it, and to time - our higher the over would the products And say I and more more playing products. the way ROI game adding and about is so, long we're think from getting

Unidentified Analyst

travel. all, Awesome. by how, discretionary on their And my if been for at impacted you. have focusing you consumers follow-up, income Thank

examples So Arrow and some on Store? Swift which your exemplified Taylor including international events by recent are best the travel live focus

Patrick Spence

talked you some isn't seen think and travel I think, heard that spending as new the I what to macro audio throughout in market in services we just most all Yeah, Sonos is that that And bit. goods of think about we’ve so opposed definitely little level. I we've year. QX that shift on the we've it's And versus a is specifically. a encountering But the been important overall that impacting know on

share, these, in competing we think In understand we pleased despite like we to competitors really say you're we times important it's gaining discounting about categories play to And that share. the and market so, category’s that holding you're when how not share how winning. the that look to the are we're at are. And our or levels

so, And we good feel very about our position.

swings the portfolio we where a forward product that on now. the market today back and to a spend our brand right services. positioning difficult goods think, and day in Our from And I look normalizes bit from it is

the the long of advantage take that be position that's normalize. in investing things term, are we we any in to for best will company of why So, audio we're when

Unidentified Analyst

Thank you.

Operator

back the are Instructions] I Patrick, call no at [Operator further time. over turn you. There this questions to

Patrick Spence

of you all to updating to forward thanks you and in We Emma Thanks, look for again November. Alright. joining.

Operator

conference today's concludes call. This

disconnect now may You

Sonos (SONO) 9 Aug 232023 Q3 Earnings call transcript