Delivers record Q1 revenue despite economic
headwinds, maintains Fiscal 2023 outlook
Sonos, Inc. (Nasdaq: SONO) today reported first quarter fiscal
2023 results.
First Quarter 2023 Financial Highlights (unaudited)
- Revenue increased 1.2% year-over-year to $672.6 million; on a
constant-currency basis, revenue increased approximately 7.0%
year-over-year
- Gross margin decreased 540 basis points year-over-year to
42.4%
- GAAP net income of $75.2 million compared to $123.5 million
last year
- GAAP diluted earnings per share (EPS) of $0.57 compared to
$0.87 last year
- Non-GAAP net income1 of $103.4 million compared to $146.1
million last year
- Non-GAAP diluted EPS1 of $0.79 compared to $1.03 last year
- Adjusted EBITDA of $123.9 million compared to $163.1 million
last year
- Adjusted EBITDA margin of 18.4% compared to 24.6% last
year
- Free cash flow of $167.6 million. Cash flows from operating
activities of $182.3 million
- Inventories of $306.1 million, down 33% from last quarter
- Finished goods of $261 million, down 36% from last quarter
Notes: 1 Non-GAAP net income/earnings per share (EPS) exclude
stock-based compensation, legal and transaction related fees, and
amortization of intangibles. See “Use of Non-GAAP Measures” and
reconciliations to GAAP measures below.
“We are pleased to report record first quarter revenue of $672.6
million and adjusted EBITDA of $123.9 million. We entered the
quarter with our healthiest in-stock inventory position in three
years which allowed us to meet the tremendous customer response to
our industry-leading product portfolio and gain share across our
key categories and geographies. Our results are a testament to the
strength of the Sonos brand, our category leadership and the power
of our flywheel,” said Patrick Spence, CEO of Sonos.
Mr. Spence continued, “Looking ahead, we remain on track to
deliver against our fiscal 2023 guidance as we build upon our
momentum and prepare to launch multiple new products this year.
While significant macroeconomic uncertainty remains, my conviction
in the long-term potential of Sonos has never been stronger.”
Fiscal 2023 Outlook - Unchanged from 4Q22
- Revenue in the range of $1.7 billion to $1.8 billion,
representing a decline of -3% to growth of 3% from fiscal 2022, or
growth of 1% to 7% on a constant currency basis
- Gross margin in the range of 45.0% to 46.0%
- Adjusted EBITDA in the range of $145 million to $180 million,
representing a decline of 36% to 21% from fiscal 2022
- Adjusted EBITDA margin of 8.5% to 10.0%
Supplemental Earnings Presentation
The company has posted a supplemental earnings presentation
accompanying its first quarter fiscal 2023 results to the Earnings
Reports section of its investor relations website at
https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports.
Conference Call, Webcast and Transcript
The company will host a webcast of its conference call and
Q&A related to its first quarter fiscal 2023 results on
February 8, 2023, at 5:00 p.m. Eastern Time (2:00 p.m. Pacific
Time). Participants may access the live webcast in listen-only mode
on the Sonos investor relations website at
https://investors.sonos.com/news-and-events/default.aspx.
The conference call may also be accessed by dialing (888)
330-2454 with conference ID 8641747. Participants outside the U.S.
can access the call by dialing (240) 789-2714 using the same
conference ID.
An archived webcast of the conference call and a transcript of
the company’s prepared remarks and Q&A session will also be
available at
https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports
following the call.
Condensed Consolidated Statements of
Operations and Comprehensive Income
(unaudited, in thousands, except share and
per share amounts)
Three Months Ended
December 31,
2022
January 1, 2022
Revenue
$
672,579
$
664,481
Cost of revenue
387,522
347,096
Gross profit
285,057
317,385
Operating expenses
Research and development
76,940
61,330
Sales and marketing
78,696
83,736
General and administrative
43,117
39,725
Total operating expenses
198,753
184,791
Operating income
86,304
132,594
Other income (expense), net
Interest income
1,967
33
Interest expense
(158
)
(98
)
Other income (expense), net
23,576
(1,402
)
Total other income (expense), net
25,385
(1,467
)
Income before provision for income
taxes
111,689
131,127
Provision for income taxes
36,501
7,646
Net income
$
75,188
$
123,481
Net income attributable to common
stockholders:
Basic and diluted
$
75,188
$
123,481
Net income per share attributable to
common stockholders:
Basic
$
0.59
$
0.97
Diluted
$
0.57
$
0.87
Weighted-average shares used in computing
net income per share attributable to common stockholders:
Basic
127,212,245
127,662,826
Diluted
131,502,986
142,322,448
Total comprehensive income
Net income
75,188
123,481
Change in foreign currency translation
adjustment
(7,226
)
(360
)
Comprehensive income
$
67,962
$
123,121
Condensed Consolidated Balance
Sheets
(unaudited, dollars in thousands, except
par values)
As of
December 31,
2022
October 1, 2022
Assets
Current assets:
Cash and cash equivalents
$
431,533
$
274,855
Accounts receivable, net of allowances
109,703
101,206
Inventories
306,056
454,288
Prepaids and other current assets
34,765
37,042
Total current assets
882,057
867,391
Property and equipment, net
85,068
86,168
Operating lease right-of-use assets
25,894
28,329
Goodwill
80,941
77,300
Intangible assets, net
In-process research and development
70,640
64,680
Other intangible assets
24,705
26,384
Deferred tax assets
1,416
1,508
Other noncurrent assets
36,154
36,628
Total assets
$
1,206,875
$
1,188,388
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
236,037
$
335,758
Accrued expenses
138,344
109,290
Accrued compensation
26,430
23,624
Deferred revenue, current
19,560
27,318
Other current liabilities
57,268
39,649
Total current liabilities
477,639
535,639
Operating lease liabilities,
noncurrent
22,318
25,596
Deferred revenue, noncurrent
62,421
56,152
Deferred tax liabilities
10,415
9,642
Other noncurrent liabilities
728
846
Total liabilities
573,521
627,875
Stockholders’ equity:
Common stock, $0.001 par value
130
130
Treasury stock
(35,047
)
(50,896
)
Additional paid-in capital
606,420
617,390
Retained earnings (accumulated
deficit)
72,674
(2,514
)
Accumulated other comprehensive loss
(10,823
)
(3,597
)
Total stockholders’ equity
633,354
560,513
Total liabilities and stockholders’
equity
$
1,206,875
$
1,188,388
Condensed Consolidated Statements of
Cash Flows
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Cash flows from operating
activities
Net income
$
75,188
$
123,481
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
11,132
9,217
Stock-based compensation expense
20,195
17,459
Other
6,797
1,139
Deferred income taxes
167
14
Foreign currency transaction (gains)
losses
(17,700
)
494
Changes in operating assets and
liabilities:
Accounts receivable, net
(7,286
)
(79,000
)
Inventories
143,144
(21,800
)
Other assets
2,463
4,086
Accounts payable and accrued expenses
(65,917
)
185,127
Accrued compensation
2,249
(49,094
)
Deferred revenue
(3,950
)
(13,510
)
Other liabilities
15,804
2,321
Net cash provided by operating
activities
182,286
179,934
Cash flows from investing
activities
Purchases of property and equipment, and
intangible assets
(14,689
)
(6,355
)
Cash paid for acquisitions, net of
acquired cash
—
(27,101
)
Net cash used in investing activities
(14,689
)
(33,456
)
Cash flows from financing
activities
Payments for debt issuance costs
—
(929
)
Payments for repurchase of common
stock
(15,043
)
(31,365
)
Proceeds from exercise of common stock
options
8,103
13,232
Payments for repurchase of common stock
related to shares withheld for tax in connection with vesting of
stock awards
(8,376
)
(11,882
)
Net cash used in financing activities
(15,316
)
(30,944
)
Effect of exchange rate changes on cash
and cash equivalents
4,397
(1,218
)
Net increase in cash and cash
equivalents
156,678
114,316
Cash and cash equivalents
Beginning of period
274,855
640,101
End of period
$
431,533
$
754,417
Supplemental disclosure
Cash paid for interest
$
111
$
23
Cash paid for taxes, net of refunds
$
1,903
$
413
Cash paid for amounts included in the
measurement of lease liabilities
$
2,190
$
3,410
Supplemental disclosure of non-cash
investing and financing activities
Purchases of property and equipment in
accounts payable and accrued expenses
$
2,030
$
5,499
Right-of-use assets obtained in exchange
for new operating lease liabilities
$
—
$
2,246
Reconciliation of Selected Non-GAAP
Financial Measures
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Research and Development (GAAP)
$
76,940
$
61,330
Stock-based compensation
9,151
6,738
Amortization of intangibles
495
1,071
Adjusted Research and Development
(Non-GAAP)
$
67,294
$
53,521
Sales and Marketing (GAAP)
$
78,696
$
83,736
Stock-based compensation
4,113
3,647
Adjusted Sales and Marketing
(Non-GAAP)
$
74,583
$
80,089
General and Administrative
(GAAP)
$
43,117
$
39,725
Stock-based compensation
6,361
6,746
Legal and transaction related costs
6,289
3,873
Amortization of intangibles
24
24
Adjusted General and Administrative
(Non-GAAP)
$
30,443
$
29,082
Total Operating Expenses (GAAP)
$
198,753
$
184,791
Stock-based compensation
19,625
17,131
Legal and transaction related costs
6,289
3,873
Amortization of intangibles
519
1,095
Adjusted Operating Expenses
(Non-GAAP)
$
172,320
$
162,692
Total Operating Income (GAAP)
$
86,304
$
132,594
Stock-based compensation
20,195
17,459
Legal and transaction related costs
6,289
3,873
Amortization of intangibles
1,704
1,310
Adjusted Operating Income
(Non-GAAP)
$
114,492
$
155,236
Depreciation
9,428
7,907
Adjusted EBITDA (Non-GAAP)
$
123,920
$
163,143
Reconciliation of Net Income to
Adjusted EBITDA
(unaudited, dollars in thousands except
percentages)
Three Months Ended
December 31,
2022
January 1, 2022
Net income
$
75,188
$
123,481
Add (deduct):
Depreciation and amortization
11,132
9,217
Stock-based compensation expense
20,195
17,459
Interest income
(1,967
)
(33
)
Interest expense
158
98
Other (income) expense, net
(23,576
)
1,402
Provision for income taxes
36,501
7,646
Legal and transaction related costs(1)
6,289
3,873
Adjusted EBITDA
$
123,920
$
163,143
Revenue
$
672,579
$
664,481
Adjusted EBITDA margin
18.4
%
24.6
%
(1) Legal and transaction related costs consist of expenses
related to our intellectual property litigation against Alphabet
Inc. and Google LLC as well as legal and transaction costs
associated with our acquisition activity, which we do not consider
representative of our underlying operating performance.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(unaudited, in thousands, except share and
per share amounts)
Three Months Ended
December 31,
2022
January 1, 2022
Reconciliation of GAAP net
income
GAAP net income
$
75,188
$
123,481
Stock-based compensation expense
20,195
17,459
Legal and transaction related costs
6,289
3,873
Amortization of intangibles
1,704
1,310
Non-GAAP net income
$
103,376
$
146,123
Reconciliation of net income per
share
GAAP net income per share, diluted
$
0.57
$
0.87
Non-GAAP adjustments to net income per
share
$
0.21
$
0.16
Non-GAAP net income per share, diluted
$
0.79
$
1.03
Weighted-average shares used in GAAP and
non-GAAP per share calculation, diluted
131,502,986
142,322,448
Note: Certain figures may not sum due to
rounding
Reconciliation of Cash Flows Provided
by Operating Activities to Free Cash Flow
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Cash flows provided by operating
activities
$
182,286
$
179,934
Less: Purchases of property and equipment,
and intangible assets
(14,689
)
(6,355
)
Free cash flow
$
167,597
$
173,579
Revenue by Product Category
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Sonos speakers
$
539,196
$
501,886
Sonos system products
114,434
134,745
Partner products and other revenue
18,949
27,850
Total revenue
$
672,579
$
664,481
Revenue by Geographical Region
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Americas
$
396,565
$
373,813
Europe, Middle East and Africa
240,439
245,482
Asia Pacific
35,575
45,186
Total revenue
$
672,579
$
664,481
Stock-based Compensation
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1, 2022
Cost of revenue
$
570
$
328
Research and development
9,151
6,738
Sales and marketing
4,113
3,647
General and administrative
6,361
6,746
Total stock-based compensation expense
$
20,195
$
17,459
Amortization of Intangibles
(unaudited, dollars in thousands)
Three Months Ended
December 31,
2022
January 1,
2022
Cost of revenue
$
1,185
$
215
Research and development
495
1,071
General and administrative
24
24
Total amortization of intangibles
$
1,704
$
1,310
Use of Non-GAAP Measures
We have provided in this press release financial information
that has not been prepared in accordance with generally accepted
accounting principles (“U.S. GAAP”), including adjusted EBITDA,
adjusted EBITDA margin, free cash flow, net income excluding
stock-based compensation, legal and transaction related fees, and
amortization of intangibles, and diluted earnings per share
excluding stock-based compensation, legal and transaction related
fees, and amortization of intangibles. These non-GAAP financial
measures are not based on any standardized methodology prescribed
by U.S. GAAP and are not necessarily comparable to similarly titled
measures presented by other companies. We use these non-GAAP
financial measures to evaluate our operating performance and trends
and make planning decisions. We believe that these non-GAAP
financial measures help identify underlying trends in our business
that could otherwise be masked by the effect of the expenses and
other items that we exclude in these non-GAAP financial measures.
Accordingly, we believe that these non-GAAP financial measures
provide useful information to investors and others in understanding
and evaluating our operating results, enhancing the overall
understanding of our past performance and future prospects and
allowing for greater transparency with respect to a key financial
metric used by our management in its financial and operational
decision-making. Non-GAAP financial measures should not be
considered in isolation of, or as an alternative to, measures
prepared in accordance with U.S. GAAP. Investors are encouraged to
review the reconciliation of these financial measures to their
nearest U.S. GAAP financial equivalents provided in the financial
statement tables above. We define adjusted EBITDA as net income
adjusted to exclude the impact of depreciation and amortization,
stock-based compensation expense, interest income, interest
expense, other income (expense), income taxes and other items that
we do not consider representative of our underlying operating
performance. We define adjusted EBITDA margin as adjusted EBITDA
divided by revenue. We define free cash flow as net cash from
operations less purchases of property and equipment and intangible
and other assets. We calculate non-GAAP net income excluding
stock-based compensation, legal and transaction related fees, and
amortization of intangibles as net income less stock-based
compensation, legal and transaction related fees, and amortization
of intangibles. We calculate non-GAAP diluted earnings per share
excluding stock-based compensation, legal and transaction related
fees, and amortization of intangibles as net income less
stock-based compensation, legal and transaction related fees, and
amortization of intangibles divided by our number of shares at
fiscal year end. We calculate constant currency growth percentages
by translating our current period financial results using the prior
period average currency exchange rates and comparing these amounts
to our prior period reported results. We do not provide a
reconciliation of forward-looking non-GAAP financial measures to
their comparable GAAP financial measures because we cannot do so
without unreasonable effort due to unavailability of information
needed to calculate reconciling items and due to the variability,
complexity and limited visibility of the adjusting items that would
be excluded from the non-GAAP financial measures in future periods.
When planning, forecasting and analyzing future periods, we do so
primarily on a non-GAAP basis without preparing a GAAP analysis as
that would require estimates for items such as stock-based
compensation, which is inherently difficult to predict with
reasonable accuracy. Stock-based compensation expense is difficult
to estimate because it depends on our future hiring and retention
needs, as well as the future fair market value of our common stock,
all of which are difficult to predict and subject to constant
change. In addition, for purposes of setting annual guidance, it
would be difficult to quantify stock-based compensation expense for
the year with reasonable accuracy in the current quarter. As a
result, we do not believe that a GAAP reconciliation would provide
meaningful supplemental information about our outlook.
Forward Looking Statements
This press release contains forward-looking statements that
involve risks and uncertainties. These forward-looking statements
include statements regarding our outlook for the fiscal year ending
September 30, 2023, our long-term outlook, our long-term focus,
financial, growth and business strategies and opportunities, growth
metrics and targets, our business model, new products, services and
partnerships, profitability and gross margins, market growth and
our market share, the macroeconomic environment and our ability to
weather it, and other factors affecting variability in our
financial results. These forward-looking statements are only
predictions and may differ materially from actual results due to a
variety of factors, including, but not limited to the duration and
impact of the COVID-19 pandemic and related mitigation efforts on
our industry and our supply chain; supply chain challenges,
including shipping and logistics challenges, component
supply-related challenges and inflationary pressures; our ability
to accurately forecast product demand and effectively manage
inventory levels, particularly during periods of fluctuating
component availability; the impact of global economic, market and
political events, including the continuing conflict between Russia
and Ukraine, foreign currency exchange fluctuations and inflation;
changes in consumer income and overall consumer spending as a
result of economic or political uncertainty; changes in consumer
spending patterns; our ability to successfully introduce new
products and services and maintain or expand the success of our
existing products; the success of our efforts to expand our
direct-to-consumer channel; the success of our financial, growth
and business strategies; our ability to meet product demand and
manage any product availability delays; and the other risk factors
set forth under the caption “Risk Factors” in our Annual Report on
Form 10-K for the year ended October 1, 2022 and our other filings
filed with the Securities and Exchange Commission (the “SEC”),
copies of which are available free of charge at the SEC’s website
at www.sec.gov or upon request from our investor relations
department. All forward-looking statements herein reflect our
opinions only as of the date of this press release, and we
undertake no obligation, and expressly disclaim any obligation, to
update forward-looking statements herein in light of new
information or future events. Sonos and Sonos product names are
trademarks or registered trademarks of Sonos, Inc. All other
product names and services may be trademarks or service marks of
their respective owners.
About Sonos
Sonos (Nasdaq: SONO) is one of the world’s leading sound
experience brands. As the inventor of multi-room wireless home
audio, Sonos’ innovation helps the world listen better by giving
people access to the content they love and allowing them to control
it however they choose. Known for delivering an unparalleled sound
experience, thoughtful home design aesthetic, simplicity of use and
an open platform, Sonos makes the breadth of audio content
available to anyone. Sonos is headquartered in Santa Barbara,
California. Learn more at www.sonos.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20230208005624/en/
Investor Contact James Baglanis IR@sonos.com
Press Contact Tom Lodge PR@sonos.com
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