Sonos, Inc. (Nasdaq: SONO) today reported second quarter fiscal
2023 results.
Second Quarter 2023 Financial Highlights (unaudited)
- Revenue decreased 23.9% year-over-year to $304.2 million; on a
constant-currency basis, revenue decreased 22.4%
year-over-year
- Gross margin decreased 150 basis points year-over-year to
43.3%
- GAAP net loss of $(30.7) million compared to net income of $8.6
million last year
- GAAP net loss margin of (10.1)% compared to net income margin
of 2.1% last year
- GAAP diluted earnings per share (EPS) of $(0.24) compared to
$0.06 last year
- Non-GAAP net income1 of $5.7 million compared to $36.8 million
last year
- Non-GAAP diluted EPS1 of $0.04 compared to $0.26 last year
- Adjusted EBITDA of $(10.6) million compared to $46.9 million
last year
- Adjusted EBITDA margin of (3.5)% compared to 11.7% last
year
- Free cash flow of $(121.7) million. Cash flows used in
operating activities of $(113.0) million
- Inventories of $326.3 million, increased 7% from last
quarter
- Finished goods of $274.5 million, increased 5% from last
quarter
Notes: 1 Non-GAAP net income/earnings per share (EPS) exclude
stock-based compensation, legal and transaction related fees,
amortization of intangibles, and lease abandonment costs. See “Use
of Non-GAAP Measures” and reconciliations to GAAP measures
below.
Sonos CEO Patrick Spence commented, “This quarter we made
outstanding progress in delivering on our product roadmap with the
launch of two new game-changing products, the Era 100 and 300, both
the best of their kind. And we entered a new product category with
our SaaS-based Sonos Pro offering.”
Mr. Spence continued, “Though our second quarter results were
in-line with our guidance, we are reducing our expectations for the
second half of Fiscal 2023 due to softening consumer demand and
channel partner inventory tightening. As a result, we are taking
swift action to reduce our operating expenses and protect our
profitability. We remain focused on ensuring that Sonos will emerge
from the current choppy consumer environment in a position of
strength: we are profitable, we are debt free, and we have a huge
market opportunity. Continuing to innovate is critical to
delivering on our long-term growth ambitions and I have every
confidence in our ability to continue to do so.”
Sonos today separately announced that the Board has appointed
Julius Genachowski as Sonos' Chairperson of the Board. Mr.
Genachowski succeeds the Board's current Chairperson, Mike Volpi,
who will continue as a Director. “Mike has set a wonderful example
as Board Chair with his exceptional combination of experience and
discerning intellect,” Mr. Genachowski said. “I’m honored to be
following in his footsteps and delighted that he will be remaining
on the Board.” Mr. Genachowski and Mr. Volpi have served as
Directors since September 2013 and March 2010, respectively and Mr.
Volpi served as Chairperson from November 2010 to May 2023.
Revised Fiscal 2023 Outlook
- Revenue in the range of $1.625 billion to $1.675 billion,
representing a decline of 7% to 4% from fiscal 2022, or a decline
of 5% to 2% on a constant currency basis. This compares to a prior
outlook range of $1.7 billion to $1.8 billion, which represented a
decline of 3% to growth 3% from fiscal 2022
- Gross margin in the range of 44.3% to 44.8%, compared to prior
outlook range of 45.0% to 46.0%
- Adjusted EBITDA in the range of $138 million to $168 million,
compared to prior outlook range of $145 million to $180
million
- Adjusted EBITDA margin of 8.5% to 10.0%, unchanged from prior
outlook range
Supplemental Earnings Presentation
The company has posted a supplemental earnings presentation
accompanying its second 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 second quarter fiscal 2023 results on May
10, 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 (Loss)
(unaudited, in thousands, except share and
per share amounts)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Revenue
$
304,173
$
399,781
$
976,752
$
1,064,262
Cost of revenue
172,555
220,747
560,078
567,843
Gross profit
131,618
179,034
416,674
496,419
Operating expenses
Research and development
80,785
64,947
157,726
126,277
Sales and marketing
63,621
59,955
142,317
143,691
General and administrative
44,438
44,090
87,553
83,816
Total operating expenses
188,844
168,992
387,596
353,784
Operating income (loss)
(57,226
)
10,042
29,078
142,635
Other income (expense), net
Interest income
3,181
123
5,149
156
Interest expense
(152
)
(90
)
(311
)
(187
)
Other income (expense), net
(2,832
)
(2,281
)
20,745
(3,683
)
Total other income (expense), net
197
(2,248
)
25,583
(3,714
)
Income (loss) before provision for
(benefit from) income taxes
(57,029
)
7,794
54,661
138,921
Provision for (benefit from) income
taxes
(26,377
)
(772
)
10,124
6,874
Net income (loss)
$
(30,652
)
$
8,566
$
44,537
$
132,047
Net income (loss) attributable to common
stockholders:
Basic and diluted
$
(30,652
)
$
8,566
$
44,537
$
132,047
Net income (loss) per share attributable
to common stockholders:
Basic
$
(0.24
)
$
0.07
$
0.35
$
1.03
Diluted
$
(0.24
)
$
0.06
$
0.34
$
0.94
Weighted-average shares used in computing
net income (loss) per share attributable to common
stockholders:
Basic
127,952,875
128,112,234
127,582,560
127,887,530
Diluted
127,952,875
139,642,570
132,834,096
140,982,509
Total comprehensive income (loss)
Net income (loss)
(30,652
)
8,566
44,537
132,047
Change in foreign currency translation
adjustment
4,542
100
(2,684
)
(260
)
Comprehensive income (loss)
$
(26,110
)
$
8,666
$
41,853
$
131,787
Condensed Consolidated Balance Sheets
(unaudited, dollars in thousands, except
par values)
As of
April 1,
2023
October 1,
2022
Assets
Current assets:
Cash and cash equivalents
$
294,873
$
274,855
Accounts receivable, net of allowances
84,203
101,206
Inventories
326,289
454,288
Prepaids and other current assets
31,474
37,042
Total current assets
736,839
867,391
Property and equipment, net
87,467
86,168
Operating lease right-of-use assets
21,662
28,329
Goodwill
81,501
77,300
Intangible assets, net
In-process research and development
71,554
64,680
Other intangible assets
23,219
26,384
Deferred tax assets
1,530
1,508
Other noncurrent assets
35,481
36,628
Total assets
$
1,059,253
$
1,188,388
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
183,648
$
335,758
Accrued expenses
76,387
109,290
Accrued compensation
30,492
23,624
Deferred revenue, current
19,764
27,318
Other current liabilities
41,866
39,649
Total current liabilities
352,157
535,639
Operating lease liabilities,
noncurrent
19,606
25,596
Deferred revenue, noncurrent
61,963
56,152
Deferred tax liabilities
11,849
9,642
Other noncurrent liabilities
764
846
Total liabilities
446,339
627,875
Stockholders’ equity:
Common stock, $0.001 par value
130
130
Treasury stock
(36,462
)
(50,896
)
Additional paid-in capital
613,505
617,390
Retained earnings (accumulated
deficit)
42,022
(2,514
)
Accumulated other comprehensive loss
(6,281
)
(3,597
)
Total stockholders’ equity
612,914
560,513
Total liabilities and stockholders’
equity
$
1,059,253
$
1,188,388
Condensed Consolidated Statements of
Cash Flows
(unaudited, dollars in thousands)
Six Months Ended
April 1,
2023
April 2,
2022
Cash flows from operating
activities
Net income
$
44,537
$
132,047
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
22,845
18,792
Impairment and abandonment
4,846
—
Stock-based compensation expense
41,220
38,684
Other
13,232
4,357
Deferred income taxes
1,358
(129
)
Foreign currency transaction (gains)
losses
(14,126
)
2,267
Changes in operating assets and
liabilities:
Accounts receivable, net
16,932
(12,786
)
Inventories
118,032
(86,153
)
Other assets
5,481
(6,082
)
Accounts payable and accrued expenses
(186,194
)
51,643
Accrued compensation
6,108
(45,084
)
Deferred revenue
(4,484
)
(11,834
)
Other liabilities
(463
)
(3,348
)
Net cash provided by operating
activities
69,324
82,374
Cash flows from investing
activities
Purchases of property and equipment, and
intangible assets
(23,403
)
(15,665
)
Cash paid for acquisitions, net of
acquired cash
—
(27,101
)
Net cash used in investing activities
(23,403
)
(42,766
)
Cash flows from financing
activities
Payments for debt issuance costs
—
(929
)
Payments for repurchase of common
stock
(30,054
)
(74,482
)
Proceeds from exercise of common stock
options
17,584
29,254
Payments for repurchase of common stock
related to shares withheld for tax in connection with vesting of
stock awards
(18,199
)
(22,601
)
Net cash used in financing activities
(30,669
)
(68,758
)
Effect of exchange rate changes on cash
and cash equivalents
4,766
(4,207
)
Net increase (decrease) in cash and cash
equivalents
20,018
(33,357
)
Cash and cash equivalents
Beginning of period
274,855
640,101
End of period
$
294,873
$
606,744
Supplemental disclosure
Cash paid for interest
$
330
$
85
Cash paid for taxes, net of refunds
$
6,399
$
8,916
Cash paid for amounts included in the
measurement of lease liabilities
$
7,219
$
7,800
Supplemental disclosure of non-cash
investing and financing activities
Purchases of property and equipment in
accounts payable and accrued expenses
$
8,393
$
7,869
Right-of-use assets obtained in exchange
for new operating lease liabilities
$
711
$
2,245
Reconciliation of Selected Non-GAAP
Financial Measures
(unaudited, dollars in thousands)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Research and Development (GAAP)
$
80,785
$
64,947
$
157,726
$
126,277
Stock-based compensation
9,565
8,091
18,716
14,829
Amortization of intangibles
495
737
990
1,808
Lease abandonment costs
2,682
—
2,682
—
Research and Development
(Non-GAAP)
$
68,043
$
56,119
$
135,338
$
109,640
Sales and Marketing (GAAP)
$
63,621
$
59,955
$
142,317
$
143,691
Stock-based compensation
4,475
4,177
8,588
7,824
Lease abandonment costs
1,034
—
1,034
—
Sales and Marketing (Non-GAAP)
$
58,112
$
55,778
$
132,695
$
135,867
General and Administrative
(GAAP)
$
44,438
$
44,090
$
87,553
$
83,816
Stock-based compensation
6,404
8,580
12,765
15,326
Legal and transaction related costs
9,018
6,012
15,307
9,885
Amortization of intangibles
24
24
48
48
Lease abandonment costs
1,130
—
1,130
—
Adjusted General and Administrative
(Non-GAAP)
$
27,862
$
29,474
$
58,303
$
58,557
Total Operating Expenses (GAAP)
$
188,844
$
168,992
$
387,596
$
353,784
Stock-based compensation
20,444
20,848
40,069
37,979
Legal and transaction related costs
9,018
6,012
15,307
9,885
Amortization of intangibles
519
761
1,038
1,856
Lease abandonment costs
4,846
—
4,846
—
Adjusted Operating Expenses
(Non-GAAP)
$
154,017
$
141,371
$
326,336
$
304,064
Total Operating Income (GAAP)
$
(57,226
)
$
10,042
$
29,078
$
142,635
Stock-based compensation
21,025
21,225
41,220
38,684
Legal and transaction related costs
9,018
6,012
15,307
9,885
Amortization of intangibles
1,492
974
3,196
2,284
Lease abandonment costs
4,846
—
4,846
—
Adjusted Operating Income
(Non-GAAP)
$
(20,845
)
$
38,253
$
93,647
$
193,488
Depreciation
10,221
8,601
19,649
16,508
Adjusted EBITDA (Non-GAAP)
$
(10,624
)
$
46,854
$
113,296
$
209,996
Reconciliation of Net Income (Loss) to
Adjusted EBITDA
(unaudited, dollars in thousands except
percentages)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Net income (loss)
$
(30,652
)
$
8,566
$
44,537
$
132,047
Add (deduct):
Depreciation and amortization
11,713
9,575
22,845
18,792
Stock-based compensation expense
21,025
21,225
41,220
38,684
Interest income
(3,181
)
(123
)
(5,149
)
(156
)
Interest expense
152
90
311
187
Other (income) expense, net
2,832
2,281
(20,745
)
3,683
Provision for (benefit from) income
taxes
(26,377
)
(772
)
10,124
6,874
Legal and transaction related costs(1)
9,018
6,012
15,307
9,885
Lease abandonment costs(2)
4,846
—
4,846
—
Adjusted EBITDA
$
(10,624
)
$
46,854
$
113,296
$
209,996
Revenue
$
304,173
$
399,781
$
976,752
$
1,064,262
Net income (loss) margin
(10.1
)%
2.1
%
4.6
%
12.4
%
Adjusted EBITDA margin
(3.5
)%
11.7
%
11.6
%
19.7
%
(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.
(2) In March 2023, in support of
operational efficiencies, we abandoned portions of our office
spaces for the remainder of their respective lease terms. Lease
abandonment costs include the impact of the write-off of the
associated operating lease right-of-use assets, as well as
accelerated depreciation of the related leasehold improvements.
Reconciliation of GAAP Net Income
(Loss) to Non-GAAP Net Income (Loss)
(unaudited, in thousands, except share and
per share amounts)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Reconciliation of GAAP net income
(loss)
GAAP net income (loss)
$
(30,652
)
$
8,566
$
44,537
$
132,047
Stock-based compensation expense
21,025
21,225
41,220
38,684
Legal and transaction related costs
9,018
6,012
15,307
9,885
Amortization of intangibles
1,492
974
3,196
2,284
Lease abandonment costs
4,846
—
4,846
—
Non-GAAP net income
$
5,729
$
36,777
$
109,106
$
182,900
Reconciliation of net income (loss) per
share
GAAP net income (loss) per share,
diluted
$
(0.24
)
$
0.06
$
0.34
$
0.94
Non-GAAP adjustments to net income (loss)
per share
$
0.28
$
0.20
$
0.49
$
0.36
Non-GAAP net income (loss) per share,
diluted
$
0.04
$
0.26
$
0.82
$
1.30
Weighted-average shares used in GAAP and
non-GAAP per share calculation, diluted
127,952,875
139,642,570
132,834,096
140,982,509
Note: Certain figures may not sum due to
rounding
Reconciliation of Cash Flows Provided
by (Used in) Operating Activities to Free Cash Flow
(unaudited, dollars in thousands)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Cash flows provided by (used in) operating
activities
$
(112,962
)
$
(97,562
)
$
69,324
$
82,374
Less: Purchases of property and equipment,
and intangible assets
(8,714
)
(9,310
)
(23,403
)
(15,665
)
Free cash flow
$
(121,676
)
$
(106,872
)
$
45,921
$
66,709
Revenue by Product Category
(unaudited, dollars in thousands)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Sonos speakers
$
241,180
$
317,734
$
780,377
$
819,620
Sonos system products
44,091
61,220
158,525
195,965
Partner products and other revenue
18,902
20,827
37,850
48,677
Total revenue
$
304,173
$
399,781
$
976,752
$
1,064,262
Revenue by Geographical Region
(unaudited, dollars in thousands)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Americas
$
196,533
$
238,193
$
593,097
$
612,006
Europe, Middle East and Africa
89,054
128,431
329,494
373,912
Asia Pacific
18,586
33,157
54,161
78,344
Total revenue
$
304,173
$
399,781
$
976,752
$
1,064,262
Stock-based Compensation
(unaudited, dollars in thousands)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Cost of revenue
$
581
$
377
$
1,151
$
705
Research and development
9,565
8,091
18,716
14,829
Sales and marketing
4,475
4,177
8,588
7,824
General and administrative
6,404
8,580
12,765
15,326
Total stock-based compensation expense
$
21,025
$
21,225
$
41,220
$
38,684
Amortization of Intangibles
(unaudited, dollars in thousands)
Three Months Ended
Six Months Ended
April 1,
2023
April 2,
2022
April 1,
2023
April 2,
2022
Cost of revenue
$
973
$
213
$
2,158
$
428
Research and development
495
737
990
1,808
General and administrative
24
24
48
48
Total amortization of intangibles
$
1,492
$
974
$
3,196
$
2,284
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,
amortization of intangibles, and lease abandonment costs and
diluted earnings per share excluding stock-based compensation,
legal and transaction related fees, amortization of intangibles and
lease abandonment costs. 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 (loss) adjusted to exclude the
impact of depreciation and amortization, stock-based compensation
expense, interest income, interest expense, other income (expense),
income taxes, lease abandonment costs 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,
amortization of intangibles and lease abandonment costs as net
income (loss) less stock-based compensation, legal and transaction
related fees, amortization of intangibles and lease abandonment
costs. We calculate non-GAAP diluted earnings per share excluding
stock-based compensation, legal and transaction related fees,
amortization of intangibles and lease abandonment costs as net
income less stock-based compensation, legal and transaction related
fees, amortization of intangibles and lease abandonment costs
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 and component
supply-related challenges; our ability to accurately forecast
product demand and effectively forecast and manage owned and
channel inventory levels; the impact of global economic, market and
political events, including broad economic uncertainty, 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 Quarterly Report on Form 10-Q for the quarter
ended December 31, 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/20230510005377/en/
Investor Contact James Baglanis IR@sonos.com
Press Contact Erin Pategas PR@sonos.com
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