Achieves Record Number of New Customers and Record Number of Existing Customers Adding Additional Products

Raises Fiscal 2021 Outlook

Sonos, Inc. (Nasdaq: SONO) today reported record first quarter fiscal 2021 results.

First Quarter 2021 Financial Highlights (unaudited)

  • GAAP net income increased 87% to $132.3 million from $70.8 million last year; non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees increased to $153.2 million from $87.4 million last year.
  • GAAP diluted earnings per share (EPS) increased to $1.01 from $0.60 last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $1.17 from $0.74 last year.
  • Adjusted EBITDA increased 78% to $166.3 million from $93.2 million last year; excluding the effect of tariff duties and refunds, adjusted EBITDA increased 45% to $163.2 million.
  • Adjusted EBITDA margin increased 920 basis points to 25.8% from 16.6% last year; excluding the effect of tariff duties and refunds, adjusted EBITDA margin increased to 25.3%.
  • Gross margin increased 590 basis points to 46.4% from 40.5% last year; excluding the effect of tariff duties and refunds, gross margin increased to 45.9%.
  • Revenue increased 15% year-over-year to $645.6 million; on a constant-currency basis revenue increased approximately 12% year-over-year.
  • Cash flows from operating activities of $214.5 million compared to $118.8 million last year.
  • Free cash flow increased 97% to $203.2 million compared to $102.9 million last year.

Sonos CEO Patrick Spence commented, “Despite all of the challenges of the pandemic, our team rose to the occasion and delivered the best quarter in our 18 year history. We welcomed a record number of new customers while a record number of existing customers returned to add additional products to their system. Based on our outstanding first quarter performance, the momentum in our business, the exciting products we have planned for the future, and the power and profitability of our unique business model, we are raising our outlook for fiscal 2021.”

Mr. Spence concluded, “We remain focused on delivering innovative new products that both attract new customers and inspire existing customers to add additional products, introducing services that enhance and further differentiate the customer experience, strengthening our direct-to-consumer efforts, and supporting our incredible partnerships. We are extremely well positioned to deliver solid adjusted EBITDA margin expansion, industry-leading gross margins, strong revenue growth, significant free cash flow and increased shareholder value over time. The future has never been brighter for Sonos.”

Fiscal 2021 Outlook

  • Adjusted EBITDA increased to a range of $195 million to $225 million representing growth in the range of 80% to 107% year-over-year. This compares to a prior guidance range of $170 million to $205 million representing growth in the range of 57% to 89%. Excluding the effect of tariffs, growth is expected to be in the range of 40% to 62%.
  • Adjusted EBITDA margin increased to a range of 13% to 14%, representing a 460 to 610 basis point improvement year-over-year and compared to prior guidance range of 12% to 14%. Excluding the effect of tariffs, adjusted EBITDA margin expected to be in range of 13.0% to 14.4%.
  • Gross margin increased to a range of 46.0% to 46.5%, representing a 288 to 338 basis point improvement year-over-year and compared to prior guidance of 45.3% to 45.8%. Excluding the effect of tariffs, gross margin is expected to be in the range of 46.2% to 46.7%. Our fiscal 2021 outlook includes minimal impact from ongoing tariffs and does not include the $29.2 million in tariff refunds expected due to timing uncertainty.
  • Revenue increased to a range of $1.525 billion to $1.575 billion, representing growth in the range of 15% to 19% from fiscal 2020 (17% to 21% on a comparable basis excluding the 53rd week in fiscal 2020). This compares to prior revenue guidance of $1.44 billion to $1.5 billion, or 9% to 13% growth (11% to 15% on a comparable basis excluding the 53rd week in fiscal 2020).

Virtual Investor Event - Tuesday, March 9, 2021

Sonos will host a virtual investor event at 4:00 pm ET on Tuesday, March 9, 2021 highlighting its long-term strategic priorities and targets.

Supplemental Earnings Presentation

The Company has posted a supplemental earnings presentation accompanying its first quarter fiscal 2021 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 2021 results on February 10, 2021 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 (833) 921-1637 with conference ID 9987111. Participants outside the U.S. can access the call by dialing (236) 714-2128 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 January 2, 2021 December 28, 2019 Revenue

$

645,584

 

$

562,083

 

Cost of revenue

 

346,159

 

 

334,463

 

Gross profit

 

299,425

 

 

227,620

 

Operating expenses Research and development

 

52,346

 

 

52,526

 

Sales and marketing

 

74,453

 

 

77,423

 

General and administrative

 

35,242

 

 

30,209

 

Total operating expenses

 

162,041

 

 

160,158

 

Operating income

 

137,384

 

 

67,462

 

Other income (expense), net Interest income

 

36

 

 

998

 

Interest expense

 

(265

)

 

(453

)

Other income, net

 

4,257

 

 

4,424

 

Total other income (expense), net

 

4,028

 

 

4,969

 

Income before provision for income taxes

 

141,412

 

 

72,431

 

Provision for income taxes

 

9,120

 

 

1,656

 

Net income

$

132,292

 

$

70,775

 

  Net income attributable to common stockholders: Basic

$

132,292

 

$

70,775

 

Diluted

$

132,292

 

$

70,775

 

Net income per share attributable to common stockholders: Basic

$

1.14

 

$

0.65

 

Diluted

$

1.01

 

$

0.60

 

Weighted-average shares used in computing net income per share attributable to common stockholders: Basic

 

115,610,523

 

 

108,984,683

 

Diluted

 

130,644,147

 

 

118,415,968

 

Total comprehensive income Net income

$

132,292

 

$

70,775

 

Change in foreign currency translation adjustment

 

847

 

 

(519

)

Comprehensive income

$

133,139

 

$

70,256

 

Condensed Consolidated Balance Sheets (unaudited, in thousands, except par values)   As of January 2, 2021 October 3, 2020 Assets Current assets: Cash and cash equivalents

$

677,834

 

$

407,100

 

Restricted cash

 

198

 

 

191

 

Accounts receivable, net of allowances

 

113,616

 

 

54,935

 

Inventories

 

88,194

 

 

180,830

 

Prepaids and other current assets

 

21,076

 

 

17,321

 

Total current assets

 

900,918

 

 

660,377

 

Property and equipment, net

 

64,170

 

 

60,784

 

Operating lease right-of-use assets

 

41,462

 

 

42,342

 

Goodwill

 

15,545

 

 

15,545

 

Intangible assets, net

 

25,975

 

 

26,394

 

Deferred tax assets

 

1,886

 

 

1,800

 

Other noncurrent assets

 

16,904

 

 

8,809

 

Total assets

$

1,066,860

 

$

816,051

 

  Liabilities and stockholders’ equity Current liabilities: Accounts payable

$

239,760

 

$

250,328

 

Accrued expenses

 

96,433

 

 

45,049

 

Accrued compensation

 

29,424

 

 

44,517

 

Short-term debt

 

24,937

 

 

6,667

 

Deferred revenue, current

 

16,382

 

 

15,304

 

Other current liabilities

 

48,828

 

 

31,150

 

Total current liabilities

 

455,764

 

 

393,015

 

Operating lease liabilities, noncurrent

 

42,268

 

 

50,360

 

Long-term debt

 

-

 

 

18,251

 

Deferred revenue, noncurrent

 

52,459

 

 

47,085

 

Deferred tax liabilities

 

2,434

 

 

2,434

 

Other noncurrent liabilities

 

3,726

 

 

7,067

 

Total liabilities

 

556,651

 

 

518,212

 

  Commitments and contingencies Stockholders’ equity: Common stock, $0.001 par value

 

121

 

 

114

 

Treasury stock

 

(26,004

)

 

(20,886

)

Additional paid-in capital

 

633,335

 

 

548,993

 

Accumulated deficit

 

(96,200

)

 

(228,492

)

Accumulated other comprehensive loss

 

(1,043

)

 

(1,890

)

Total stockholders’ equity

 

510,209

 

 

297,839

 

Total liabilities and stockholders’ equity

$

1,066,860

 

$

816,051

 

Condensed Consolidated Statements of Cash Flows (unaudited, in thousands)   Three Months Ended January 2,2021 December 28,2019 (unaudited) Cash flows from operating activities Net income

$

132,292

 

$

70,775

 

Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization

 

7,982

 

 

9,105

 

Stock-based compensation expense

 

14,844

 

 

13,204

 

Other

 

(1,050

)

 

1,471

 

Deferred income taxes

 

12

 

 

51

 

Foreign currency transaction gain

 

(1,633

)

 

(1,924

)

Changes in operating assets and liabilities: Accounts receivable, net

 

(56,650

)

 

(31,411

)

Inventories

 

93,495

 

 

107,343

 

Other assets

 

(7,330

)

 

(11,853

)

Accounts payable and accrued expenses

 

33,271

 

 

(39,416

)

Accrued compensation

 

(15,481

)

 

(14,568

)

Deferred revenue

 

5,633

 

 

4,879

 

Other liabilities

 

9,128

 

 

11,184

 

Net cash provided by operating activities

 

214,513

 

 

118,840

 

Cash flows from investing activities Purchases of property, equipment, intangible and other assets

 

(11,333

)

 

(15,914

)

Cash paid for acquisition, net of acquired cash

 

-

 

 

(35,622

)

Net cash used in investing activities

 

(11,333

)

 

(51,536

)

Cash flows from financing activities Repayments of borrowings

 

-

 

 

(1,667

)

Payments for repurchase of common stock

 

-

 

 

(5,078

)

Proceeds from exercise of stock options

 

69,505

 

 

7,969

 

Payments for repurchase of common stock related to shares withheld for tax in connection with vesting of RSUs

 

(5,118

)

 

-

 

Net cash provided by financing activities

 

64,387

 

 

1,224

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

3,174

 

 

1,254

 

Net increase in cash, cash equivalents and restricted cash

 

270,741

 

 

69,782

 

Cash, cash equivalents and restricted cash Beginning of period

 

407,291

 

 

338,820

 

End of period

$

678,032

 

$

408,602

 

Supplemental disclosure Cash paid for interest

$

166

 

$

472

 

Cash paid for taxes, net of refunds

$

2,672

 

 

517

 

Cash paid for amounts included in the measurement of lease liabilities

$

8,102

 

 

4,304

 

  Supplemental disclosure of non-cash investing and financing activities Purchases of property and equipment in accounts payable and accrued expenses

$

7,814

 

$

7,908

 

Right-of-use assets obtained in exchange for new operating lease liabilities

$

1,509

 

$

74,683

 

Reconciliation of Net Income to Adjusted EBITDA (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Net income

$

132,292

 

$

70,775

 

Add (deduct): Depreciation and amortization

 

7,982

 

 

9,105

 

Stock-based compensation expense

 

14,844

 

 

13,204

 

Interest income

 

(36

)

 

(998

)

Interest expense

 

265

 

 

453

 

Other income, net

 

(4,257

)

 

(4,424

)

Provision for income taxes

 

9,120

 

 

1,656

 

Restructuring and related expenses (1)

 

(2,611

)

 

-

 

Legal and transaction related costs (2)

 

8,666

 

 

3,448

 

Adjusted EBITDA

$

166,265

 

$

93,219

 

Revenue

$

645,584

 

$

562,083

 

Adjusted EBITDA margin

 

25.8

%

 

16.6

%

(1) Restructuring and related expenses includes a gain of $2.8 million, related to our negotiation for the early termination of a facility lease that was part of the 2020 restructuring. The gain represents the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. (2) Legal and transaction related costs consist of expenses related to our intellectual property ("IP") 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 Cash Flows Provided by Operating Activities to Free Cash Flow (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Cash flows provided by operating activities

$

214,513

 

$

118,840

 

Less: purchases of property and equipment, intangible and other assets

 

(11,333

)

 

(15,914

)

Free cash flow

$

203,180

 

$

102,926

 

Revenue by Product Category (unaudited, dollars in thousands)  

Three Months Ended

January 2, 2021

December 28, 2019

Sonos speakers

$

527,516

$

466,677

Sonos system products

 

97,759

 

61,521

Partner products and other revenue

 

20,309

 

33,885

Total revenue

$

645,584

$

562,083

    Revenue by Geographical Region (unaudited, dollars in thousands)

Three Months Ended

January 2, 2021

December 28, 2019

Americas

$

367,239

$

303,194

Europe, Middle East and Africa

 

240,007

 

212,738

Asia Pacific

 

38,338

 

46,151

Total revenue

$

645,584

$

562,083

Stock-based Compensation (unaudited, dollars in thousands) Three Months Ended January 2, 2021 December 28, 2019 Cost of revenue

$

214

$

282

Research and development

 

6,258

 

5,116

Sales and marketing

 

3,408

 

3,541

General and administrative

 

4,964

 

4,265

Total stock-based compensation expense

$

14,844

$

13,204

Restructuring and Related Expenses (1) (unaudited, dollars in thousands) Three Months Ended January 2, 2021 Research and development

$

25

 

Sales and marketing

 

(2,636

)

Total

$

(2,611

)

(1) On June 23, 2020, we initiated a restructuring plan as part of our efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic. As part of the 2020 restructuring plan, we eliminated approximately 12% of our global headcount and closed our New York retail store and six satellite offices. We believe these initiatives will better align our resources to provide further operating flexibility and more efficiently position our business for our long-term strategy. Activities under the 2020 restructuring plan were substantially completed in the first quarter of fiscal 2021. In the first quarter of fiscal 2021, we negotiated the early termination of a facility lease that was part of the 2020 restructuring and recorded a gain of $2.8 million, representing the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. The gain was recognized as a credit in sales and marketing expenses on the condensed consolidated statements of operations and comprehensive income.

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, gross margin excluding the effect of tariff duties and refunds, adjusted EBITDA excluding the effect of tariff duties and refunds, adjusted EBITDA margin excluding the effect of tariff duties and refunds, net income excluding stock-based compensation, restructuring, and legal and transaction related fees, and diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees. 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, 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 calculate gross margin excluding the effect of tariff duties and refunds as gross profit, less the effect of tariffs imposed on goods imported to the U.S. from China and any tariffs refunds subject to a tariff refund claim approved by U.S. Customs and Border Protection, divided by revenue. We define free cash flow as net cash from operations less purchases of property and equipment and intangible assets. We calculate adjusted EBITDA excluding the effect of tariff duties and refunds as net income excluding the effect of tariffs imposed on goods manufactured in China and any tariffs refunds subject to a tariff refund claim approved by U.S. Customs and Border Protection and adjusted to exclude the impact of depreciation, 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 calculate non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees as net income less stock-based compensation, restructuring fees and legal and transaction related fees. We calculate non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees as net income less stock-based compensation, restructuring costs and legal and transaction related fees divided by our number of shares at fiscal year end. 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 ended October 2, 2021, 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, our direct-to-consumer efforts, our market share, our tariff expense 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; changes in general economic or market conditions that could affect consumer income and overall consumer spending; 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 and accurately forecast 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 3, 2020 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 letter, 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.

Investor Contact Cammeron McLaughlin IR@sonos.com

Press Contact Tom Lodge PR@sonos.com