Sonos, Inc. (Nasdaq: SONO) today reported third quarter fiscal
2023 results.
Third Quarter 2023 Financial Highlights (unaudited)
- Revenue increased 0.4% year-over-year to $373.4 million; on a
constant-currency basis, revenue increased 0.3% year-over-year
- Gross margin decreased 130 basis points year-over-year to
46.0%
- GAAP net loss of $23.6 million compared to $0.6 million last
year
- GAAP net loss margin of 6.3% compared to 0.2% last year
- GAAP diluted loss per share (EPS) of $0.18 compared to $0.00
last year
- Non-GAAP net income1 of $21.3 million compared to $26.5 million
last year
- Non-GAAP diluted EPS1 of $0.16 compared to $0.19 last year
- Adjusted EBITDA of $34.3 million compared to $42.1 million last
year
- Adjusted EBITDA margin of 9.2% compared to 11.3% last year
- Free cash flow of ($7.8) million. Cash flows from operating
activities of $8.9 million
- Inventories of $298.1 million, decreased 8.6% from last
quarter
- Finished goods of $240.1 million, decreased 12.5% 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 restructuring and abandonment
costs. See “Use of Non-GAAP Measures” and reconciliations to GAAP
measures below.
Sonos CEO Patrick Spence commented, “We are pleased to report
third quarter revenue of $373.4 million and Adjusted EBITDA of
$34.3 million. Despite the challenging environment, we are winning
in the market and I’m proud of our team’s execution as we
outperform the competition. We remain on track to deliver against
our fiscal 2023 guidance.”
Mr. Spence continued, “While we have not yet seen conditions in
our categories return to normal, we remain focused on ensuring
Sonos can emerge from this period in a position of strength: we are
profitable, we are debt free, and we have a huge market
opportunity. In mid-June we made the difficult decision to reduce
our workforce by 7% in order to protect profitability and allow us
to invest in our exciting product roadmap to drive future growth.
Continuing to innovate is critical to achieving our long-term
potential and I have the utmost confidence in our ability to do
so.”
Revised Fiscal 2023 Outlook
- Revenue in the range of $1.64 billion to $1.66 billion,
representing a decline of 6% to 5% from fiscal 2022, or a decline
of 4% to 3% on a constant currency basis. This compares to a prior
outlook range of $1.625 billion to $1.675 billion, which
represented a decline of 7% to 4% from fiscal 2022
- Gross margin in the range of 44.0% to 44.2%, compared to prior
outlook range of 44.3% to 44.8%
- Adjusted EBITDA in the range of $148 million to $158 million,
compared to prior outlook range of $138 million to $168
million
- Adjusted EBITDA margin of 9.0% to 9.5%, compared to prior
outlook range of 8.5% to 10%
Supplemental Earnings Presentation
The company has posted a supplemental earnings presentation
accompanying its third 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 third quarter fiscal 2023 results on August
9, 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 (Loss) Income
(unaudited, in thousands, except share and
per share amounts)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Revenue
$
373,356
$
371,783
$
1,350,108
$
1,436,046
Cost of revenue
201,594
195,935
761,672
763,779
Gross profit
171,762
175,848
588,436
672,267
Operating expenses
Research and development
77,758
62,522
235,484
188,798
Sales and marketing
66,600
63,993
208,917
207,684
General and administrative
48,665
42,373
136,219
126,189
Total operating expenses
193,023
168,888
580,620
522,671
Operating (loss) income
(21,261
)
6,960
7,816
149,596
Other income (expense), net
Interest income
2,391
429
7,540
585
Interest expense
(274
)
(196
)
(585
)
(384
)
Other income (expense), net
1,424
(9,858
)
22,169
(13,541
)
Total other income (expense), net
3,541
(9,625
)
29,124
(13,340
)
(Loss) income before provision for
(benefit from) income taxes
(17,720
)
(2,665
)
36,940
136,256
Provision for (benefit from) income
taxes
5,851
(2,068
)
15,974
4,805
Net (loss) income
$
(23,571
)
$
(597
)
$
20,966
$
131,451
Net (loss) income attributable to common
stockholders:
Basic and diluted
$
(23,571
)
$
(597
)
$
20,966
$
131,451
Net (loss) income per share attributable
to common stockholders:
Basic
$
(0.18
)
$
—
$
0.16
$
1.03
Diluted
$
(0.18
)
$
—
$
0.16
$
0.94
Weighted-average shares used in computing
net (loss) income per share attributable to common
stockholders:
Basic
128,311,109
127,884,400
127,825,410
127,886,487
Diluted
128,311,109
127,884,400
132,851,379
139,502,527
Total comprehensive (loss) income
Net (loss) income
(23,571
)
(597
)
20,966
131,451
Change in foreign currency translation
adjustment
802
(1,711
)
(1,882
)
(1,971
)
Comprehensive (loss) income
$
(22,769
)
$
(2,308
)
$
19,084
$
129,480
Condensed Consolidated Balance
Sheets
(unaudited, in thousands, except par
values)
As of
July 1,
2023
October 1,
2022
Assets
Current assets:
Cash and cash equivalents
$
268,286
$
274,855
Accounts receivable, net of allowances
114,658
101,206
Inventories
298,146
454,288
Prepaids and other current assets
26,995
37,042
Total current assets
708,085
867,391
Property and equipment, net
94,154
86,168
Operating lease right-of-use assets
51,041
28,329
Goodwill
81,779
77,300
Intangible assets, net
In-process research and development
72,013
64,680
Other intangible assets
21,725
26,384
Deferred tax assets
1,437
1,508
Other noncurrent assets
34,989
36,628
Total assets
$
1,065,223
$
1,188,388
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
148,898
$
335,758
Accrued expenses
91,911
109,290
Accrued compensation
45,067
23,624
Deferred revenue, current
20,028
27,318
Other current liabilities
38,600
39,649
Total current liabilities
344,504
535,639
Operating lease liabilities,
noncurrent
53,266
25,596
Deferred revenue, noncurrent
62,237
56,152
Deferred tax liabilities
12,066
9,642
Other noncurrent liabilities
2,940
846
Total liabilities
475,013
627,875
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value
130
130
Treasury stock
(32,352
)
(50,896
)
Additional paid-in capital
609,460
617,390
Retained earnings (accumulated
deficit)
18,451
(2,514
)
Accumulated other comprehensive loss
(5,479
)
(3,597
)
Total stockholders’ equity
590,210
560,513
Total liabilities and stockholders’
equity
$
1,065,223
$
1,188,388
Condensed Consolidated Statements of
Cash Flows
(unaudited, in thousands)
Nine Months Ended
July 1,
2023
July 2,
2022
Cash flows from operating
activities
Net income
$
20,966
$
131,451
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
35,054
27,699
Restructuring and abandonment charges
5,125
—
Stock-based compensation expense
59,549
57,463
Other
19,234
8,656
Deferred income taxes
1,569
(1,238
)
Foreign currency transaction (gains)
losses
(12,698
)
4,437
Changes in operating assets and
liabilities:
Accounts receivable
(13,934
)
(28,476
)
Inventories
141,054
(158,129
)
Other assets
9,375
(1,587
)
Accounts payable and accrued expenses
(204,012
)
97,421
Accrued compensation
20,640
(49,769
)
Deferred revenue
(4,093
)
(10,958
)
Other liabilities
382
(1,313
)
Net cash provided by operating
activities
78,211
75,657
Cash flows from investing
activities
Purchases of property and equipment, and
intangible assets
(40,085
)
(24,946
)
Cash paid for acquisitions, net of
acquired cash
—
(126,416
)
Net cash used in investing activities
(40,085
)
(151,362
)
Cash flows from financing
activities
Payments for debt issuance costs
—
(929
)
Payments for repurchase of common
stock
(45,063
)
(117,093
)
Proceeds from exercise of common stock
options
20,042
37,257
Payments for repurchase of common stock
related to shares withheld for tax in connection with vesting of
stock awards
(23,914
)
(33,412
)
Net cash used in financing activities
(48,935
)
(114,177
)
Effect of exchange rate changes on cash
and cash equivalents
4,240
(10,493
)
Net decrease in cash and cash
equivalents
(6,569
)
(200,375
)
Cash and cash equivalents
Beginning of period
274,855
640,101
End of period
$
268,286
$
439,726
Supplemental disclosure
Cash paid for interest
$
780
$
223
Cash paid for taxes, net of refunds
$
5,217
$
8,862
Cash paid for amounts included in the
measurement of lease liabilities
$
10,599
$
11,185
Supplemental disclosure of non-cash
investing and financing activities
Purchases of property and equipment in
accounts payable and accrued expenses
$
7,129
$
10,937
Right-of-use assets obtained in exchange
for new operating lease liabilities
$
31,547
$
2,141
Change in estimate of asset retirement
obligations
$
2,185
$
—
Reconciliation of Selected Non-GAAP
Financial Measures
(unaudited, dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Research and Development (GAAP)
$
77,758
$
62,522
$
235,484
$
188,798
Stock-based compensation
8,637
7,858
27,353
22,687
Amortization of intangibles
496
641
1,487
2,449
Restructuring and abandonment costs
3,686
-
6,368
-
Research and Development
(Non-GAAP)
$
64,939
$
54,023
$
200,276
$
163,662
Sales and Marketing (GAAP)
$
66,600
$
63,993
$
208,917
$
207,684
Stock-based compensation
3,590
3,826
12,178
11,650
Restructuring and abandonment costs
4,422
-
5,455
-
Sales and Marketing (Non-GAAP)
$
58,588
$
60,167
$
191,284
$
196,034
General and Administrative
(GAAP)
48,665
42,373
136,219
126,189
Stock-based compensation
5,652
6,647
18,417
21,973
Legal and transaction related costs
14,699
7,459
30,006
17,344
Amortization of intangibles
24
24
72
72
Restructuring and abandonment costs
2,220
-
3,352
-
Adjusted General and Administrative
(Non-GAAP)
$
26,070
$
28,243
$
84,372
$
86,800
Total Operating Expenses (GAAP)
$
193,023
$
168,888
$
580,620
$
522,671
Stock-based compensation
17,879
18,331
57,948
56,310
Legal and transaction related costs
14,699
7,459
30,006
17,344
Amortization of intangibles
520
665
1,559
2,521
Restructuring and abandonment costs
10,328
-
15,175
-
Adjusted Operating Expenses
(Non-GAAP)
$
149,597
$
142,433
$
475,932
$
446,496
Total Operating Income (GAAP)
$
(21,261
)
$
6,960
$
7,816
$
149,596
Stock-based compensation
18,329
18,779
59,549
57,463
Legal and transaction related costs
14,699
7,459
30,006
17,344
Amortization of intangibles
1,493
878
4,690
3,162
Restructuring and abandonment costs
10,328
-
15,175
-
Adjusted Operating Income
(Non-GAAP)
$
23,588
$
34,076
$
117,236
$
227,565
Depreciation
10,716
8,029
30,364
24,537
Adjusted EBITDA (Non-GAAP)
$
34,304
$
42,105
$
147,600
$
252,102
Reconciliation of Net (Loss) Income to
Adjusted EBITDA
(unaudited, dollars in thousands except
percentages)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
(In thousands, except
percentages)
Net (loss) income
$
(23,571
)
$
(597
)
$
20,966
$
131,451
Add (deduct):
Depreciation and amortization
12,209
8,907
35,054
27,699
Stock-based compensation expense
18,329
18,779
59,549
57,463
Interest income
(2,391
)
(429
)
(7,540
)
(585
)
Interest expense
274
196
585
384
Other (income) expense, net
(1,424
)
9,858
(22,169
)
13,541
Provision for (benefit from) income
taxes
5,851
(2,068
)
15,974
4,805
Legal and transaction related costs
(1)
14,699
7,459
30,006
17,344
Restructuring and abandonment costs
(2)
10,328
-
15,175
-
Adjusted EBITDA
$
34,304
$
42,105
$
147,600
$
252,102
Revenue
$
373,356
$
371,783
$
1,350,108
$
1,436,046
Net (loss) income margin
(6.3
)%
(0.2
)%
1.6
%
9.2
%
Adjusted EBITDA margin
9.2
%
11.3
%
10.9
%
17.6
%
(1) Legal and transaction-related costs
consist of expenses related to our intellectual property ("IP")
litigation against Alphabet and Google, as well as legal and
transaction costs associated with our acquisition activity, which
we do not consider representative of our underlying operating
performance.
(2) On June 14, 2023, the Company
initiated a restructuring plan to reduce its cost base (the “2023
restructuring plan”). The 2023 restructuring plan included a
reduction in force involving approximately 7% of its employees,
further reducing the Company’s real estate footprint, and
re-evaluating certain program spend. Total pre-tax restructuring
and abandonment costs under the 2023 restructuring plan were $11.4
million, substantially all of which were incurred in the third
quarter of fiscal 2023, with nominal amounts to be incurred through
the first quarter of fiscal 2024. Total restructuring and
abandonment costs for the nine months ended July 1, 2023, include
$4.8 million non-recurring lease abandonment charges that were
incurred in March 2023, when the Company abandoned portions of its
office spaces for the remainder of their respective lease terms in
support of operational efficiencies.
Reconciliation of GAAP Net (Loss)
Income to Non-GAAP Net Income
(unaudited, in thousands, except share and
per share amounts)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Reconciliation of GAAP net (loss)
income
GAAP net (loss) income
$
(23,571
)
$
(597
)
$
20,966
$
131,451
Stock-based compensation expense
18,329
18,779
59,549
57,463
Legal and transaction related costs
14,699
7,459
30,006
17,344
Amortization of intangibles
1,493
878
4,690
3,162
Restructuring and abandonment costs
10,328
-
15,175
-
Non-GAAP net income
$
21,278
$
26,519
$
130,386
$
209,420
Reconciliation of net (loss) income per
share
GAAP net (loss) income per share,
diluted
$
(0.18
)
$
-
$
0.16
$
0.94
Non-GAAP adjustments to net (loss) income
per share
0.34
0.19
0.82
0.56
Non-GAAP net income per share, diluted
$
0.16
$
0.19
$
0.98
$
1.50
Weighted-average shares used in GAAP and
non-GAAP per share calculation, diluted
132,885,945
136,542,565
132,851,379
139,502,527
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
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Cash flows provided by (used in) operating
activities
$
8,887
$
(6,717
)
$
78,211
$
75,657
Less: Purchases of property and equipment,
and intangible assets
(16,682
)
(9,281
)
(40,085
)
(24,946
)
Free cash flow
$
(7,795
)
$
(15,998
)
$
38,126
$
50,711
Revenue by Product Category
(unaudited, dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
(In thousands)
Sonos speakers
$
289,740
$
314,205
$
1,070,117
$
1,133,825
Sonos system products
64,224
38,363
222,748
234,328
Partner products and other revenue
19,392
19,215
57,243
67,893
Total revenue
$
373,356
$
371,783
$
1,350,108
$
1,436,046
Revenue by Geographical Region
(unaudited, dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Americas
$
251,616
$
232,421
$
844,714
$
844,099
Europe, Middle East and Africa
105,312
112,684
434,806
486,473
Asia Pacific
16,428
26,678
70,588
105,474
Total revenue
$
373,356
$
371,783
$
1,350,108
$
1,436,046
Stock-based Compensation
(unaudited, dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
(In thousands)
Cost of revenue
$
450
$
448
$
1,601
$
1,153
Research and development
8,637
7,858
27,353
22,687
Sales and marketing
3,590
3,826
12,178
11,650
General and administrative
5,652
6,647
18,417
21,973
Total stock-based compensation expense
$
18,329
$
18,779
$
59,549
$
57,463
Amortization of Intangibles
(unaudited, dollars in thousands)
Three Months Ended
Nine Months Ended
July 1,
2023
July 2,
2022
July 1,
2023
July 2,
2022
Cost of revenue
$
973
$
213
$
3,131
$
641
Research and development
496
641
1,487
2,449
Sales and marketing
-
-
-
-
General and administrative
24
24
72
72
Total amortization of intangibles
$
1,493
$
878
$
4,690
$
3,162
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 restructuring and abandonment
costs and diluted earnings per share excluding stock-based
compensation, legal and transaction related fees, amortization of
intangibles and restructuring and 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,
restructuring and 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 restructuring and abandonment costs as net income
(loss) less stock-based compensation, legal and transaction related
fees, amortization of intangibles and restructuring and abandonment
costs. We calculate non-GAAP diluted earnings per share excluding
stock-based compensation, legal and transaction related fees,
amortization of intangibles and restructuring and abandonment costs
as net income less stock-based compensation, legal and transaction
related fees, amortization of intangibles and restructuring and
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 and services,
our product roadmap, 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 April 1, 2023 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/20230809016601/en/
Investor Contact James Baglanis IR@sonos.com
Press Contact Erin Pategas PR@sonos.com
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