SONO - Earnings call transcript Q3 2024

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Operator

Thank you for standing by. My name is Dale, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos Third Quarter Fiscal 2024 Conference Call. [Operator Instructions] I would now like to turn the conference over to James Baglanis, Head of Investor Relations and Treasury.

You may begin.

James Baglanis

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

those sampling our a joined music Barbecue. station, from call today's Sonos early, For hold who is Backyard Radio the

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

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

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

Patrick. conference release, earnings press to the our reminder, a As will presentation call and be Relations investors.sonos.com. supplemental the I over turn call a website, transcript Investor on available will now

Patrick Spence

our partners. build that That's brought heart the and we everything and customers with brings app. a rest James, the I again. the It why our the of we're we're do, into proud to issues let we've It's will so to everyone. and was position Sonos where lives. way raving hello, to am and me not company's Sonos Thank way we have right of experience with we it's and XX magic We soul joy painful you, Sonos committed years down our the focus customers now, #X our addressed customers company the customers' new and right have making pour this ago. what until I about and the to in

affecting ago, the had on a our our customers' address the would XX reliability to rearchitecting reason years outside complete to important, issues performance app to the app. few negatively ground-up in categories of viewed and ambitiously move reason years been experience. One we over growth new the was that A rewrite were as crept essential This and as last Sonos But enough. embark the have of expand home. we decided into and we as

more that developer In new and thus, modern allow new that features accommodate. app time app addition modern to not its let has all user will programming on based kinds languages more drive innovation modular to old over simply interface, the deliver us could the of faster Sonos platform a

would of But Some Others represent and app, could our modern our drawing they entry a imagined. new be without beyond categories. features these are new still boards to already are have our reach. into remained on

hardware and and built delivery to we the app at the needed software for future. new up For the ourselves intersection Sonos, joyful company a of innovation the of on experiences, set

the to least Sonos promise at delivered we to my for move to particular to my what deliver X That of short year, of remains one has emphasis of thing been I fell and led have on. right the new CEO, a execution, mark. products as was every my do, promise While our over faster. execution app redesign the took of successfully points the is the imperative Since

And of well was also the to app not this important undertaking. side as the cloud our enormously really redesign however, was speed app, for the note an but of a player infrastructure. only my system push this With system, It's entire complex backfired. that as the our

rolled we it users, in stubborn not became we that evident our the discovered software there bugs As were more new had and more testing. to out

their As that our worse previously a having result, in of far an are too many of they systems, is our with than those what customers, experience had. products older especially some

speakers For us. some, or our deserve others from this their while the issues meant up issues Sonos better existing products. errors missing Regardless of latency saw while systems, setting new customers from experienced,

This meets to customers The be partners app needs situation the addressing has our for believe Sonos. our the product planned everything we the focus that and app major sales, of quality we of had new X level from QX to our our we, product app become else. existing experience a means headwind delaying ahead releases and until expect

While our future the believe term. set medium success of greater effect will reducing to painful this QX products we our long it the expectations, has for over up sales

We updates tirelessly the issues. that improving option these every for on features address software X have in bugs experience. the back been app, launch, Since adding working introduced we've fixing exploring and new new certain customer the

even better we release, improve will where each the same we're We to get experience and continuing cadence X app can. that to on and faster every committed with expect subsequent weeks the

are able of updates new platform rapidly our because app. to modular We developer of software deliver the these major

want I areas where to taking X we're important highlight action.

to architect of takes the new our whatever experience, Sonos the do Millington, fixing I've with original app. asked the First, the Nick address issues to app. it software

our a successfully have fix We and and plan action processes them ensure our bugs, execute are improving key to have the staffing plan. identified we to

in customers perspective. get for engineering, our all Conrad, Board with in years of software another doing we as can more weeks, our over of track we're efforts everything One and ensure X better us as to of to season. providing we helping software will each are every happy behind Tom more issues expert holiday put members, on Because We're that the the right Tom XX has us release. making expect important is continue these app and well our time experience

The second customers. our is supporting

faster. and to of with able customers to customer support be more it increasing our engage our are We do and investment in partners

been term. need set and our has support apart, we help that us customer ramp has in something to faster this Our the to navigate customers always near

and customers And back partners. finally, our winning

support programs this enacting and These QX quarter both and and sticking run customers partners for to are us programs and our delight. QX. period to this will We dissatisfaction turn across through their with thank

XX a given the the investments it's expect cost the of range but come we will these are needed at term. long to And for we've the to We this term at win in short right the know long in $XX million necessary million to term. been in for years, $XX ship

the off start. to from headphones, first even our are a that to Now pleased the I'm turning with Ace, important the good to share quarter. launch challenges other of the app,

play the as may you me is ever. the to annually, which category a is this contrast double over-the-ear $X existing headphone product navigate As for addressable say in premium in Headphones digits heard in is category have we billion market, by stands to before, continue requested our cyclical exciting a us to growing categories. downswing very most our

participating in is of are diversify to more and to goal continue and streams, that. headphones our categories to a revenue more Our opportunity do just great

The customer outstanding. have reviews been

share our on rated on first tandem as and a Ace of X offering quality prices competitors offering. dropping a its competitor launch. over-the-ear in countries As to their in in meaningful the Buy. X our compliment the Best stars of X.X X.X despite promotions month, premium category In Sonos unprecedented of actions stars gained Ace and our is with We sonos.com key those take

United launch support Amazon first-party the Last on number partnerships. I went a seller new live States. ACE, To a of the in mentioned signed of distribution we we quarter, as

expanded since partnership have this We to Europe.

major airports you Additionally, partnership to now is shelves find can stores a the in around we world. InMotion Ace premier electronics on and airport are the delighted over Sonos of retailer, upon this time. many build InMotion

role evolution our are categories, and continue innovate established your play can that will we in Sonos the an represents in life. to of there. we the very home, well Ace With

all office, or everywhere Ace This be time, enables the long to in a with to for on plane moments whether major be out to customers day, first our a the us at integral our sound. you the home, mission being of of is part in experience your a For walk. day

revise reasons that quarter the Of for To and due a of X we for new exciting is have fourth could all failed the personally to partners most Sonos and new on have our our to to us us track, launch all only painful. expectations app. the be knowing and me our successful it year an off new is product challenges recap, is quarters taken with category because for track at perhaps first the in deeply the to disappointing of the customers for it that

a in Saori about this will issues to where focus, to partners. I'll again want team I committed and It's Sonos not with I to and again. you entire turn customers #X right the making raving our are I to addressed we've over and it until our now have take customers rest we're financials. and through reiterate my these that position

Saori Casey

Patrick. $XXX you, ahead QX revenues year-over-year. expectations up came everyone. Thank at of million, slightly our in Hi, X%

our the as to put Our year-over-year. meet the earlier. on app challenges come after to over-the-ear our back quarters introduction our recapping expectations, to X launch adjust down Ace. first I'll of headphone, requires us Though annual This driven finish of this us to expectations, from mentioned our positive track our the performance. the Patrick year-to-date our QX million, I our QX over year-over-year was past $X,XXX.X growth by financial brings had revenue X.X% results

GAAP quarter. fixed bps to cost overperformance management. quarter considerably due inventory gross Gross we year-over-year, up due and This from in benefit from leverage higher XXX sequentially increased revenue was from last improved margin inventory than better guidance was onetime margin XX.X%, QX to our primarily gave our second a management.

gross the QX last comparable margin in Our year-to-date our period XX.X% up performance XX.X%, year. to from brings

We higher brings bills. $XXX marketable million excess as margin were EBITDA and, our Adjusted million, representing higher some was XX.X%. million guidance, down to XX.X%, Non-GAAP our a $XX adjusted extent, $XXX.X includes adjusted representing which duration $XX.X revenue. margin a ended operating of This we of million the sequentially. margins of EBITDA driven quarter the million, with gross short a expenses and cash, hold in of by $XXX lesser securities quarter, cash net year-to-date ahead treasury to million $X of

primarily resulting managing our million Free $XX in flow of to implementation plans adopted the terms cash improvements, with period free payment year. adjustments was from as to by better focus newly bringing flow through This increase working in QX was million capital million, our suppliers. sourcing compared well our $XX.X our on $XXX to inventory year-to-date last driven as comparable cash

consists Our period-end was million down This down million and from of XX% $XXX quarter. of $XXX and components. last of finished $XX goods million, inventory balance year-over-year XX%

in to We keep working check. hard inventory balances are

And shareholders of of the QX. outstanding quarter, representing returned through in finally, we repurchases as stock $XX.X shares to our X.X% million common

repurchase share of We current have authorization. under million $XX million remaining our $XXX

continue to be expect market our in the We stock. to active purchasing

to of guidance. QX providing our our we're The estimates best reflects outlook Turning as today.

new for result As previously as our quarter fourth of rollout expectations our stemming reducing mentioned, the challenges a of XXXX app. from the we're fiscal

issues; of expect customers range had quality that to our to new expectations: revenue the We revenue QX portfolio in app to decision one, expect until impact of challenges to X partners meets sales our two, $XXX million. delay with app we, of our QX major our million The products a our lower across level twofold launch app experience and from due the our Sonos. have the launch $XXX the

QX, of billion $X.XXX to the of reduction billion to we for As $X.XXX revenue a range the expect the year. full the in result

down the in lower sequentially range resulting We of XX% margins expect from XX%, QX, deleverage to from driven QX revenue. gross by GAAP

For gross XX.X% profit to XX.X%. to a GAAP dollars year, in representing the we million margin gross of range expect million, $XXX of full the $XXX

higher included to non-GAAP We revenue. margins due bps of of stock-based of amortization intangibles expect million GAAP $X compensation to approximately cost gross approximately and XX be in

is year We for resulting be margin representing EBITDA million expectation range million, EBITDA range of the reduction a to adjusted our X.X% to expect $XX of minus full $XX due million primarily in lower EBITDA to to the in adjusted of QX minus $XX The million, in adjusted $XXX to revenue. in X.X%.

$XX in regaining approximately their to fixing now customers As and the investing trust. the million from app, our Patrick $XX holidays, mentioned, supporting through million we're

efforts A We portion will been this as in the in expect that not revenue this well QX and gross profit expense investment increases. will form as be that has come of of reductions reduction significantly operating incurred expectations due cash guidance to show to range. last Despite for our we in factored the still flow QX, working our versus capital. expect improved conversions year free into improve to our

operate. more the to in past how do the efficiencies became spoken have expense structurally organization. focus management needed we our about We the In clear that spring, evolve across of we and it driving

result, that, a the initiative like working to provide that questions. a an over call began we in I'd As With we on for turn will update transformational November. cost

Operator

the Your Tindle Adam question comes James. first from Instructions] of [Operator of line Raymond

Adam Tindle

Patrick, I appreciate a And us, near-term headwinds and a that introductions? Or we'd you like have where fiscal time being of kind And a these customers that products are start, think are are sense X increases where us time. wanted pushed, X you of would to are might potential year as us we think stuff that to the those those be into forward envision, pushed. can X pushed? and -- how a were? garnered of -- products gets products trust something product have behind those through sorry, 'XX, you indefinitely if how responsibility that over on lot along from taking far I give On

Patrick Spence

shipped These the felt issues would first on mentioned, hold want bar we had QX. it be to have. that for the Adam. -- question, to were as But address a to ready like the because customers we've Thanks high be in we products experience we we app

So is time. the this focus particular #X at point that in

say get want I to far fiscal but in ship QX. were will ready so to into products too these I And don't 'XX,

Adam Tindle

Got it.

Could perspective? to we're understand, the once about get where might over think this, that as modular bring help introduce give time that vision could you anything us all new an app. be that short-term development talking long-term that as pain longer-term would monetization investor some wonder And you if of could app, I of what the a Sonos expand all obviously, talked vision day endure customers that streams? from this the about, be Okay. the vision there the you near-term just pain. given we on about Just what enduring standpoint time, as the from a as we kind with being on long. you you're But through could

Patrick Spence

Yes. Adam. Thanks,

those market. for one. app We that home over think long that the ourselves definitely, on outside the of we the done audio was more what a in I only -- all work that and we right kind and term, X% X% We're take it a allowing the as build the need position proofing And of good that's future can we remain work than and the us future -- from of billion confident we've be build of more less areas. today. to $XXX

to the And we But new have we feel new so all we can have that and so thing extend a we back for trust lot opportunity app of customers address we categories ahead in categories. sure that also of is #X into for. those the right our plans make earn now,

Operator

comes question the of next from line Steve of Your Frankel Rosenblatt.

Steven Frankel

through in QX, products work at through the we look help obviously, going some channel issues Patrick, of app relative the QX? lot is to much extent to us inventories how of the here. aren't a to are causing want sell-through? parsing reduction the where revenue And case, in When magnitude new a is that's to them the for that you be how give channel. where the maybe that much And into to significant slowdown

Saori Casey

Saori. this take I Steve, can is that.

is way due second, And launch of first impact X it's and as and enough so were new of material just and expectation certainly, the reduction we portfolio issues; to that go, app major delay the the across ready mentioned. characterize of to products in in the to the the sales to larger X our Patrick lower mention our the one, twofolds: the QX the our

the impact guidance order And so magnitude reduction. in of those to were of sort the of

as knowing we bit put channel monitor currently. know our That that revenue we're than of knowing our that inventory liked comprehended QX best today, now is for today. have would gave the end carefully. we impact little far very -- a that trend at in of to would now us continuing As QX certainly, But QX, Q as we our higher guidance

Steven Frankel

might on to Okay. in $XX in sale? if end channel, -- portion margins up number, that of gross you boost into protection a or is is into the protection discounts margins? $XX reflected to that end Or putting lower And million more then price up effect gross price already million if the

Saori Casey

QX. guidance mentioned, it The between today. and would to $XX QX $XX million million the I mentioned gross that profit Yes. of impact, items in to gave does the also multiple comprehend QX we we revenue, expenses which timing That fully as out operating and not has line hit the and P&L:

so underway, bit best And a type we would hit point, already about progress of QX are that's your point that versus at price in actions this a We determining in in exactly how more are we that but more QX. are whether activity QX than others position, there hit some to to believe will in QX protection know. that little

Operator

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

Rayyana Matraji

is Rayyana speak purchase This hardware more you Matraji for from app rollout have going it on issues Thill. the Could intent forward? Brent on could the a for impact bit and the to

Patrick Spence

Yes. Thanks, Rayyana.

new ago, embarked to rewrite to So we would the new We we address few of performance -- to something we us allow a that complete wanted the of features to wanted create lot and system. reliability and into also app. a categories bring issues, a expand years roundup the on and

short on was app move the our this for one. Sonos, we definitely redesigning So right execution the but fell of

in to And but we're address rollout, I that having our now seeing priority this. that it's think #X pain right we're the now right short-term

we able so to our be will the to in intact sure we and that will And address short that the we make flywheel keep able be future. determined this, term I it believe for address

Rayyana Matraji

a in as that general? hard with impacted seeing demand macro you are tell further Has consumer app environment to spend? Okay. is well? Cool. the problems And the then weaker Or what in

Patrick Spence

last for been years. under really the X pressure have categories Our

are undergoing $X that continue had mentioned Saori entered over-the-ear recover we that this focused also growing also that to the some believe point. initiative is for digits. transformation why what see as But and right today, is headphone a Part now. they the premium best so are is why what we billion important positioning of we cost that So at on and it's will we market category we double

Operator

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

Erik Woodring

if this guys you from you'd to update. longer term. the lasting have cost there's million could you back step know $XX $XX be I in $XX if go through, a reputational number million alluding more million just I a that sure have to app than potential Patrick, near the take that a just costs mean damage backlash. of the Could think and and million? you wondering about of are kind of to boards, intensity you lot of $XX message I'm I'm

And store customers longer-term plan loyal this? been have either to wondering I'm What to in come outside place actually the products there's fixing if in promoting. to you app And a a or have so customers Sonos I that back follow-up. here considering that potentially customers those get were else have try after just then and of new

Patrick Spence

Erik. Yes. Thanks,

we're on think the the to are is with remember, customers key having for that we So those now sure. I front. But points innovation have new not address standing and app still the the right pain that issues

issues position behind X new out make major where we get we're So we're us. sure in again a that are app that to products have the pushing --

I'm in have, map confident the planned, as do we will this that we marketing day-to-day other be our those, the that to see long all our we be people do channels one products. that we products our able And just our They'll history. we launch chapter the coming, areas, execution will innovation we experience and and As in in road have and with we the have other with products. launch

pain And back Sonos. a to ultimately takes do we'll $XX like to have to to short-term then And is address place $XX able so we million the million be and about pain. with get we address feel everything the customers what it raving that that of coming,

Erik Woodring

some And Understood. was fully your maybe to comments. follow-up, just of Okay. I I wanted understanding, my then Saori, sure as make

million to $XX -- just that the does not to I'm cost. of guide So those million XQ incorporate understand. Is trying $XX

year to them flag it to saying including million you that those mean not but to include us, Or million are need in $XX If does come then 'XX? $XX that are the of you likely for you're cost XQ? in we in guide, fiscal

Saori Casey

be -- the not to that incurred it $XX does expect not the QX QX in others million Part There through that correct it that And but comprehended are million guidance. QX. of is $XX it $XX we're incurred the progress, in to activities million $XX already our You're will vetting because QX. over and is majority there are still in are to be some of details. we million

want for so until we QX out did to our specifically. better we not And in that clarity detail have guidance

Operator

no thus further I at to remarks. closing session. for the turn are CEO, back our There questions will over Patrick conference now Q&A concluding time, this Spence

Patrick Spence

thanks to and today. all Dale, Thanks, of your you time for

Just in I to closing. X things want hit

short new for was our of fallen but the First, May foundation mark. right software of building has investment the rollout the in a future Sonos,

not our will with delivered and the materially our that until we've new improve rest issues have experiences. customers' We versions app addressed

priority XX Sonos while chapter than our right one next regrettable, ones. setback chapter of that I Second, say in and everyone over ensure I is this it at is our previous #X when to better years for the even speak our make the is customers. that delighting is app

and And good us category. talk large presents finally, quarter. a off you next headphones, a and we'll Thank into our you, is growing start in Ace, for new, opportunity to and entry again great to a

Operator

This concludes call. today's conference

disconnect. now may You

Sonos (SONO) 7 Aug 242024 Q3 Earnings call transcript