Raises Fiscal 2021 Outlook

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

Second Quarter 2021 Financial Highlights (unaudited)

  • GAAP net income (loss) increased to $17.2 million from ($52.3) million last year; non-GAAP net income (loss) excluding stock-based compensation, restructuring and legal and transaction related fees increased to $44.6 million from ($37.2) million last year.
  • GAAP diluted earnings per share (EPS) increased to $0.12 from ($0.48) last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $0.31 from ($0.34) last year.
  • Adjusted EBITDA increased to $48.5 million from ($28.4) million last year.
  • Adjusted EBITDA margin increased to 14.6% from (16.2%) last year.
  • Gross margin increased 810 basis points to 49.8% from 41.7% last year.
  • Revenue increased 90% year-over-year to $332.9 million; on a constant-currency basis, revenue increased approximately 83% year-over-year.

Sonos CEO Patrick Spence commented, “We are thrilled to report another record quarter at Sonos, as demand for our products continues to exceed even our heightened expectations. The power of our model is that customers can start with one product and expand to more over time, and our customers continue to prove they do just that. Based on our outstanding second quarter performance, the continued strong demand for our products, and the power and profitability of our unique business model, we are raising our outlook for fiscal 2021 again.”

Mr. Spence continued, “Our increased fiscal 2021 revenue outlook still assumes Sonos will account for only approximately 9% of the total spend in the $18 billion premium home audio market1, and an even smaller fraction of the broader $89 billion global audio market2 we expect to expand into over the long-term. We are truly just scratching the surface toward realizing our long-term opportunity. The future is bright for Sonos.”

Mr. Spence concluded, “We remain focused on our key three strategic initiatives - the expansion of our brand, the expansion of our offerings, and driving operational excellence - and continue to see a clear path toward achieving our fiscal 2024 targets of $2.25 billion revenue, 45% to 47% gross margin, and 15% to 18% adjusted EBITDA margin. We are extremely well positioned to deliver significant free cash flow and increased shareholder value over the long-term.”

Fiscal 2021 Outlook

  • Adjusted EBITDA increased to a range of $225 million to $250 million representing growth in the range of 107% to 130%.
    • This compares to our prior outlook of $195 million to $225 million, representing growth in the range of 80% to 107% and our initial fiscal 2021 outlook provided at the start of the fiscal year of $170 million to $205 million, representing growth in the range of 57% to 89%.
  • Adjusted EBITDA margin increased to a range of 13.8% to 14.9%, representing a 560 to 670 basis point improvement year-over-year.
    • This compares to our prior outlook range of 12.8% to 14.3%, representing a 460 to 610 basis point improvement and our initial fiscal 2021 outlook of 12% to 14%, representing a 380 to 580 basis point improvement.
  • Gross margin in the range of 46.0% to 46.5%, representing a 288 to 338 basis point improvement year-over-year.
    • Our fiscal 2021 gross margin outlook reflects minimal impact from ongoing tariffs and does not include the $27.5 million in tariff refunds expected due to timing uncertainty.
    • This is consistent with our prior guidance range of 46.0% to 46.5% and compares to our initial fiscal 2021 outlook of 45.3% to 45.8%.
  • Revenue increased to a range of $1.625 billion to $1.675 billion, representing growth in the range of 23% to 26% year-over-year (25% to 29% on a comparable basis excluding the 53rd week in fiscal 2020).
    • This compares to our prior guidance range of $1.525 billion to $1.575 billion, representing growth in the range of 15% to 19% from fiscal 2020 (17% to 21% excluding the 53rd week in fiscal 2020) and our initial fiscal 2021 outlook of $1.44 billion to $1.5 billion, or 9% to 13% growth (11% to 15% excluding the 53rd week in fiscal 2020).

1 “Premium” defined as $100+ wireless speakers, $200+ soundbars, $300+ Hi-Fi systems, $250+ in-wall/in-ceiling speakers, $250+ bookshelf speakers (pairs), and all AV receivers, Floor standing speakers, home theater speakers and home theater in a box products and Hi-Fi separates. Source: Futuresource.

2 Source: Futuresource.

Supplemental Earnings Presentation

The Company has posted a supplemental earnings presentation accompanying its second 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 second quarter fiscal 2021 results on May 12, 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 6483115. 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 (Loss)

(unaudited, in thousands, except share and per share amounts)  

Three Months Ended

 

Six Months Ended

April 3, 2021

March 28, 2020

 

April 3, 2021

March 28, 2020

Revenue

$

332,949

 

$

175,098

 

$

978,532

 

$

737,181

 

Cost of revenue

 

167,173

 

 

102,089

 

 

513,331

 

 

436,552

 

Gross profit

 

165,776

 

 

73,009

 

 

465,201

 

 

300,629

 

Operating expenses Research and development

 

56,370

 

 

49,593

 

 

108,717

 

 

102,120

 

Sales and marketing

 

57,205

 

 

50,504

 

 

131,658

 

 

127,928

 

General and administrative

 

39,806

 

 

26,119

 

 

75,047

 

 

56,327

 

Total operating expenses

 

153,381

 

 

126,216

 

 

315,422

 

 

286,375

 

Operating income (loss)

 

12,395

 

 

(53,207

)

 

149,779

 

 

14,254

 

Other income (expense), net Interest income

 

44

 

 

874

 

 

80

 

 

1,873

 

Interest expense

 

(182

)

 

(374

)

 

(448

)

 

(827

)

Other income (expense), net

 

(1,578

)

 

(1,423

)

 

2,680

 

 

3,001

 

Total other income (expense), net

 

(1,716

)

 

(923

)

 

2,312

 

 

4,047

 

Income (loss) before provision for (benefit from) income taxes

 

10,679

 

 

(54,130

)

 

152,091

 

 

18,301

 

Provision for (benefit from) income taxes

 

(6,542

)

 

(1,810

)

 

2,578

 

 

(153

)

Net income (loss)

$

17,221

 

$

(52,320

)

$

149,513

 

$

18,454

 

  Net income (loss) attributable to common stockholders: Basic

$

17,221

 

$

(52,320

)

$

149,513

 

$

18,454

 

Diluted

$

17,221

 

$

(52,320

)

$

149,513

 

$

18,454

 

Net income (loss) per share attributable to common stockholders: Basic

$

0.14

 

$

(0.48

)

$

1.26

 

$

0.17

 

Diluted

$

0.12

 

$

(0.48

)

$

1.09

 

$

0.16

 

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

 

121,880,615

 

 

109,515,049

 

 

118,745,569

 

 

109,249,866

 

Diluted

 

143,055,546

 

 

109,515,049

 

 

136,849,846

 

 

117,819,569

 

Total comprehensive income (loss) Net income (loss)

$

17,221

 

$

(52,320

)

$

149,513

 

$

18,454

 

Change in foreign currency translation adjustment

 

199

 

 

(431

)

 

1,046

 

 

(950

)

Comprehensive income (loss)

$

17,420

 

$

(52,751

)

$

150,559

 

$

17,504

 

Condensed Consolidated Balance Sheets (unaudited, dollars in thousands, except par values)

As of

April 3, 2021

October 3, 2020

Assets Current assets: Cash and cash equivalents

$ 638,927

$ 407,100

Restricted cash

192

191

Accounts receivable, net of allowances

69,690

54,935

Inventories

139,581

180,830

Prepaids and other current assets

31,763

17,321

Total current assets

880,153

660,377

Property and equipment, net

65,509

60,784

Operating lease right-of-use assets

39,061

42,342

Goodwill

15,545

15,545

Intangible assets, net

25,434

26,394

Deferred tax assets

1,984

1,800

Other noncurrent assets

20,600

8,809

Total assets

$ 1,048,286

$ 816,051

Liabilities and stockholders’ equity Current liabilities: Accounts payable

$ 203,585

$ 250,328

Accrued expenses

61,659

45,049

Accrued compensation

46,665

44,517

Short-term debt

-

6,667

Deferred revenue, current

18,392

15,304

Other current liabilities

40,770

31,150

Total current liabilities

371,071

393,015

Operating lease liabilities, noncurrent

39,361

50,360

Long-term debt

-

18,251

Deferred revenue, noncurrent

52,497

47,085

Deferred tax liabilities

2,394

2,434

Other noncurrent liabilities

3,695

7,067

Total liabilities

469,018

518,212

Stockholders’ equity: Common stock, $0.001 par value

126

114

Treasury stock

(26,023)

(20,886)

Additional paid-in capital

684,988

548,993

Accumulated deficit

(78,979)

(228,492)

Accumulated other comprehensive loss

(844)

(1,890)

Total stockholders’ equity

579,268

297,839

Total liabilities and stockholders’ equity

$ 1,048,286

$ 816,051

Condensed Consolidated Statements of Cash Flows (unaudited, dollars in thousands)

Six Months Ended

April 3, 2021

March 28, 2020

Cash flows from operating activities Net income

$

149,513

 

$

18,454

 

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

 

16,725

 

 

18,831

 

Stock-based compensation expense

 

31,207

 

 

26,598

 

Other

 

344

 

 

2,989

 

Deferred income taxes

 

(146

)

 

74

 

Foreign currency transaction gain

 

(1,047

)

 

(420

)

Changes in operating assets and liabilities: Accounts receivable, net

 

(13,260

)

 

63,344

 

Inventories

 

39,631

 

 

106,245

 

Other assets

 

(21,982

)

 

(9,690

)

Accounts payable and accrued expenses

 

(36,485

)

 

(191,070

)

Accrued compensation

 

2,087

 

 

(14,443

)

Deferred revenue

 

8,374

 

 

3,729

 

Other liabilities

 

992

 

 

10,727

 

Net cash provided by operating activities

 

175,953

 

 

35,368

 

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

 

(19,927

)

 

(25,800

)

Cash paid for acquisition, net of acquired cash

 

-

 

 

(36,289

)

Net cash used in investing activities

 

(19,927

)

 

(62,089

)

Cash flows from financing activities Repayments of borrowings

 

(25,000

)

 

(3,333

)

Payments for repurchase of common stock

 

(682

)

 

(33,216

)

Proceeds from exercise of common stock options

 

119,166

 

 

12,585

 

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

 

(18,821

)

 

(4,596

)

Net cash provided by (used in) financing activities

 

74,663

 

 

(28,560

)

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

 

1,139

 

 

(107

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

231,828

 

 

(55,388

)

Cash, cash equivalents and restricted cash Beginning of period

 

407,291

 

 

338,820

 

End of period

$

639,119

 

$

283,432

 

Supplemental disclosure Cash paid for interest

$

357

 

$

851

 

Cash paid for taxes, net of refunds

$

3,255

 

$

1,025

 

Cash paid for amounts included in the measurement of lease liabilities

$

11,683

 

$

7,346

 

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

$

8,910

 

$

3,270

 

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

$

1,622

 

$

75,642

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA (unaudited, dollars in thousands)

Three Months Ended

 

Six Months Ended

April 3, 2021

March 28, 2020

 

April 3, 2021

March 28, 2020

Net income (loss)

$

17,221

 

$

(52,320

)

$

149,513

 

$

18,454

 

Add (deduct): Depreciation and amortization

 

8,742

 

 

9,726

 

 

16,725

 

 

18,831

 

Stock-based compensation expense

 

16,363

 

 

13,394

 

 

31,207

 

 

26,598

 

Interest income

 

(44

)

 

(874

)

 

(80

)

 

(1,873

)

Interest expense

 

182

 

 

374

 

 

448

 

 

827

 

Other (income) expense, net

 

1,578

 

 

1,423

 

 

(2,680

)

 

(3,001

)

Provision for (benefit from) income taxes

 

(6,542

)

 

(1,810

)

 

2,578

 

 

(153

)

Restructuring and related expenses (1)

 

-

 

 

-

 

 

(2,611

)

 

-

 

Legal and transaction related costs (2)

 

11,013

 

 

1,705

 

 

19,679

 

 

5,153

 

Adjusted EBITDA

$

48,513

 

$

(28,382

)

$

214,779

 

$

64,836

 

Revenue

$

332,949

 

$

175,098

 

$

978,532

 

$

737,181

 

Adjusted EBITDA margin

 

14.6

%

 

(16.2

)%

 

21.9

%

 

8.8

%

(1) Restructuring and related expenses for the six months ended April 3, 2021 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 plan. The gain represents the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. For a description of the 2020 restructuring plan, see “Restructuring and Related Costs” below.

(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)

Six Months Ended

April 3, 2021

 

March 28, 2020

Cash flows provided by operating activities

$175,953

$35,368

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

(19,927)

(25,800)

Free cash flow

$ 156,026

$ 9,568

Revenue by Product Category (unaudited, dollars in thousands)  

Three Months Ended

 

Six Months Ended

April 3, 2021

March 28, 2020

 

April 3, 2021

 

March 28, 2020

Sonos speakers

$ 267,534

$ 116,367

$ 795,050

$ 583,044

Sonos system products

52,062

47,202

149,820

108,723

Partner products and other revenue

13,353

11,529

33,662

45,414

Total revenue

$ 332,949

$ 175,098

$ 978,532

$ 737,181

    Revenue by Geographical Region (unaudited, dollars in thousands)

Three Months Ended

 

Six Months Ended

April 3, 2021

March 28, 2020

 

April 3, 2021

 

March 28, 2020

Americas

$ 193,938

$ 101,964

$ 561,177

$ 405,158

Europe, Middle East and Africa ("EMEA")

114,306

57,252

354,313

269,990

Asia Pacific ("APAC")

24,705

15,882

63,042

62,033

Total revenue

$ 332,949

$ 175,098

$ 978,532

$ 737,181

Stock-based Compensation (unaudited, dollars in thousands)

Three Months Ended

Six Months Ended

April 3, 2021

March 28, 2020

April 3, 2021

March 28, 2020

Cost of revenue

$ 261

$ 278

$ 474

$ 561

Research and development

6,683

5,427

12,942

10,543

Sales and marketing

3,632

3,407

7,040

6,948

General and administrative

5,787

4,282

10,751

8,546

Total stock-based compensation expense

$ 16,363

$ 13,394

$ 31,207

$ 26,598

Restructuring and Related Costs (1) (unaudited, dollars in thousands)

Three Months Ended

 

Six Months Ended

April 3, 2021

 

April 3, 2021

Research and development

$

-

$

25

 

Sales and marketing

 

-

 

(2,636

)

Total restructuring and related costs

$

-

$

(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, 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 define free cash flow as net cash from operations less purchases of property and equipment and intangible assets. 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, 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 and significant limits on component supplies; 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 Quarterly Report on Form 10-Q for the quarter ended January 2, 2021 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.

Investor Contact Cammeron McLaughlin IR@sonos.com

Press Contact Tom Lodge PR@sonos.com