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Sonos Reports Record Third Quarter Fiscal 2021 Results and Raises Fiscal Year 2021 Outlook

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SANTA BARBARA, Calif., August 11, 2021--(BUSINESS WIRE)--Sonos, Inc. (Nasdaq: SONO) today reported record third quarter fiscal 2021 results.

Third Quarter 2021 Financial Highlights (unaudited)

  • GAAP net income (loss) increased to $17.8 million from ($57.0) million last year; non-GAAP net income (loss) excluding stock-based compensation, restructuring and legal and transaction related fees increased to $38.7 million from ($11.6) million last year.

  • GAAP diluted earnings per share (EPS) increased to $0.12 from ($0.52) last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $0.27 from ($0.11) last year.

  • Adjusted EBITDA increased to $46.7 million from ($2.7) million last year.

  • Adjusted EBITDA margin increased to 12.3% from (1.1%) last year.

  • Gross margin increased 300 basis points to 47.0% from 44.0% last year.

  • Revenue increased 52% year-over-year to $378.7 million; on a constant-currency basis, revenue increased approximately 45% year-over-year.

Sonos CEO Patrick Spence commented, "Our third quarter results represent yet another record-shattering quarter at Sonos. We believe that the strong demand for our products is unwavering and underscores the uniqueness and power of our business model where customers start with one product and expand with more over time. Based on the strong demand for our products, the amazing execution of our team, and the power and profitability of our business, we are yet again raising our outlook for fiscal 2021."

Mr. Spence continued, "Our future has never been brighter, as there are three macro trends that position Sonos for continued growth in the large and growing global audio market. First, the 'Golden Age of Audio' - as the leading premium home audio brand, we are well positioned to capitalize on the continued increase in audio content consumption and new audio formats that are emerging. Second, 'Hollywood at Home' - with more video content going direct-to-home, consumers are demanding a theater-like audio experience in the home which Sonos is well positioned to provide. Third, 'The Great Reshuffling' - the untethering of people from their offices enabling flexibility on how and where to live will drive continued investment in the home, a trend that our premium brand, design and quality is well-suited to capitalize on."

Mr. Spence concluded, "Long-term, we remain focused on our key three strategic initiatives - the expansion of our brand, the expansion of our offerings, and driving operational excellence. The powerful momentum we are experiencing in our business, exceeding even our own expectations from six months ago, puts us ahead of schedule on reaching our fiscal 2024 financial targets. We are extremely well positioned for the long-term and expect to deliver significant free cash flow and increased shareholder value over time as we continue on our quest to be the world’s leading sound experience company."

Fiscal 2021 Outlook

  • Revenue increased to a range of $1.695 billion to $1.710 billion, representing growth in the range of 28% to 29% year-over-year (30% to 31% on a comparable basis excluding the 53rd week in fiscal 2020).

    • This compares to our prior guidance range of $1.625 billion to $1.675 billion and our initial fiscal 2021 outlook provided at the start of the fiscal year of $1.44 billion to $1.5 billion.

  • Adjusted EBITDA increased to a range of $270 million to $280 million representing growth in the range of 149% to 158%.

    • This compares to our prior outlook of $225 million to $250 million and our initial fiscal 2021 outlook of $170 million to $205 million.

  • Adjusted EBITDA margin increased to a range of 15.9% to 16.4%, representing a 770 to 820 basis point improvement year-over-year.

    • This compares to our prior outlook range of 13.8% to 14.9% and our initial fiscal 2021 outlook of 12% to 14%.

  • Gross margin increased to a range of 46.5% to 46.9%, representing a 340 to 380 basis point improvement year-over-year.

    • This compares to our prior guidance range of 46.0% to 46.5% and our initial fiscal 2021 outlook of 45.3% to 45.8%.

    • Our fiscal 2021 gross margin outlook includes tariff refunds of $11 million and tariff expense of $9 million recognized through the third quarter fiscal 2021. Minimal tariff expense and no further tariff refunds are assumed for the fourth quarter given timing uncertainty.

Supplemental Earnings Presentation

The Company has posted a supplemental earnings presentation accompanying its third 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 third quarter fiscal 2021 results on August 11, 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 8063688. 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

Nine Months Ended

July 3, 2021

June 27, 2020

July 3, 2021

June 27, 2020

Revenue

$

378,672

$

249,310

$

1,357,204

$

986,491

Cost of revenue

200,811

139,519

714,142

576,071

Gross profit

177,861

109,791

643,062

410,420

Operating expenses

Research and development

55,578

57,770

164,294

159,890

Sales and marketing

67,231

77,273

198,888

205,201

General and administrative

38,323

31,662

113,372

87,989

Total operating expenses

161,132

166,705

476,554

453,080

Operating income (loss)

16,729

(56,914

)

166,508

(42,660

)

Other income (expense), net

Interest income

34

81

114

1,954

Interest expense

(77

)

(360

)

(525

)

(1,187

)

Other income, net

1,998

365

4,678

3,366

Total other income, net

1,955

86

4,267

4,133

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

18,684

(56,828

)

170,775

(38,527

)

Provision for (benefit from) income taxes

858

152

3,436

(1

)

Net income (loss)

$

17,826

$

(56,980

)

$

167,339

$

(38,526

)

Net income (loss) attributable to common stockholders:

Basic

$

17,826

$

(56,980

)

$

167,339

$

(38,526

)

Diluted

$

17,826

$

(56,980

)

$

167,339

$

(38,526

)

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

Basic

$

0.14

$

(0.52

)

$

1.38

$

(0.35

)

Diluted

$

0.12

$

(0.52

)

$

1.20

$

(0.35

)

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

Basic

125,138,279

109,477,622

120,876,472

109,325,785

Diluted

144,181,632

109,477,622

139,293,775

109,325,785

Total comprehensive income (loss)

Net income (loss)

$

17,826

$

(56,980

)

$

167,339

$

(38,526

)

Change in foreign currency translation adjustment

(784

)

219

262

(731

)

Comprehensive income (loss)

$

17,042

$

(56,761

)

$

167,601

$

(39,257

)

Condensed Consolidated Balance Sheets

(unaudited, dollars in thousands, except par values)

As of

July 3, 2021

October 3, 2020

Assets

Current assets:

Cash and cash equivalents

$

670,905

$

407,100

Restricted cash

-

191

Accounts receivable, net of allowances

70,329

54,935

Inventories

146,697

180,830

Prepaids and other current assets

23,763

17,321

Total current assets

911,694

660,377

Property and equipment, net

71,732

60,784

Operating lease right-of-use assets

36,595

42,342

Goodwill

15,545

15,545

Intangible assets, net

24,962

26,394

Deferred tax assets

1,747

1,800

Other noncurrent assets

21,823

8,809

Total assets

$

1,084,098

$

816,051

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

198,495

$

250,328

Accrued expenses

77,006

45,049

Accrued compensation

66,041

44,517

Short-term debt

-

6,667

Deferred revenue, current

16,906

15,304

Other current liabilities

42,471

31,150

Total current liabilities

400,919

393,015

Operating lease liabilities, noncurrent

36,501

50,360

Long-term debt

-

18,251

Deferred revenue, noncurrent

53,480

47,085

Deferred tax liabilities

2,394

2,434

Other noncurrent liabilities

3,677

7,067

Total liabilities

496,971

518,212

Stockholders’ equity:

Common stock, $0.001 par value

128

114

Treasury stock

(48,740

)

(20,886

)

Additional paid-in capital

698,520

548,993

Accumulated deficit

(61,153

)

(228,492

)

Accumulated other comprehensive loss

(1,628

)

(1,890

)

Total stockholders’ equity

587,127

297,839

Total liabilities and stockholders’ equity

$

1,084,098

$

816,051

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)

Nine Months Ended

July 3, 2021

June 27, 2020

Cash flows from operating activities

Net income (loss)

$

167,339

$

(38,526

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization

25,789

27,692

Impairment and abandonment charges

2,789

14,047

Stock-based compensation expense

46,755

41,638

Other

1,253

4,371

Deferred income taxes

95

(176

)

Foreign currency transaction gain

(2,226

)

(1,491

)

Changes in operating assets and liabilities:

Accounts receivable, net

(13,846

)

53,418

Inventories

32,333

129,623

Other assets

(17,730

)

(4,400

)

Accounts payable and accrued expenses

(27,169

)

(162,137

)

Accrued compensation

21,501

8,038

Deferred revenue

7,715

3,506

Other liabilities

2,143

7,548

Net cash provided by operating activities

246,741

83,151

Cash flows from investing activities

Purchases of property and equipment, intangible and other assets

(34,792

)

(29,905

)

Cash paid for acquisition, net of acquired cash

-

(36,289

)

Net cash used in investing activities

(34,792

)

(66,194

)

Cash flows from financing activities

Repayments of borrowings

(25,000

)

(5,000

)

Payments for repurchase of common stock

(21,729

)

(33,216

)

Proceeds from exercise of common stock options

131,536

17,708

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

(34,877

)

(6,603

)

Net cash provided by (used in) financing activities

49,930

(27,111

)

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

1,735

639

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

263,614

(9,515

)

Cash, cash equivalents and restricted cash

Beginning of period

407,291

338,820

End of period

$

670,905

$

329,305

Supplemental disclosure

Cash paid for interest

$

434

$

1,318

Cash paid for taxes, net of refunds

$

3,773

$

1,153

Cash paid for amounts included in the measurement of lease liabilities

$

15,078

$

11,689

Supplemental disclosure of non-cash investing and financing activities

Purchases of property and equipment in accounts payable and accrued expenses

$

9,046

$

3,055

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

$

1,622

$

75,913

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 3, 2021

June 27, 2020

July 3, 2021

June 27, 2020

Net income (loss)

$

17,826

$

(56,980

)

$

167,339

$

(38,526

)

Add (deduct):

Depreciation and amortization

9,065

8,861

25,789

27,692

Stock-based compensation expense

15,547

15,041

46,755

41,638

Interest income

(34

)

(81

)

(114

)

(1,954

)

Interest expense

77

360

525

1,187

Other (income) expense, net

(1,998

)

(365

)

(4,678

)

(3,366

)

Provision for (benefit from) income taxes

858

152

3,436

(1

)

Restructuring and related expenses (1)

-

26,160

(2,611

)

26,160

Legal and transaction related costs (2)

5,351

4,132

25,030

9,285

Adjusted EBITDA

$

46,692

$

(2,720

)

$

261,471

$

62,115

Revenue

$

378,672

$

249,310

$

1,357,204

$

986,491

Adjusted EBITDA margin

12.3

%

(1.1

)%

19.3

%

6.3

%

(1) Restructuring and related expenses for the nine months ended July 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)

Nine Months Ended

July 3, 2021

June 27, 2020

Cash flows provided by operating activities

$

246,741

$

83,151

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

(34,792

)

(29,905

)

Free cash flow

$

211,949

$

53,246

Revenue by Product Category

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 3, 2021

June 27, 2020

July 3, 2021

June 27, 2020

Sonos speakers

$

310,233

$

196,895

$

1,105,283

$

779,939

Sonos system products

47,621

42,164

197,442

150,887

Partner products and other revenue

20,818

10,251

54,479

55,665

Total revenue

$

378,672

$

249,310

$

1,357,204

$

986,491

Revenue by Geographical Region

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 3, 2021

June 27, 2020

July 3, 2021

June 27, 2020

Americas

$

223,720

$

151,167

$

784,898

$

556,325

Europe, Middle East and Africa ("EMEA")

126,228

83,818

480,541

353,807

Asia Pacific ("APAC")

28,724

14,325

91,765

76,359

Total revenue

$

378,672

$

249,310

$

1,357,204

$

986,491

Stock-based Compensation

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 3, 2021

June 27, 2020

July 3, 2021

June 27, 2020

Cost of revenue

$

248

$

306

$

723

$

866

Research and development

6,125

6,154

19,067

16,697

Sales and marketing

3,277

3,710

10,317

10,658

General and administrative

5,897

4,871

16,648

13,417

Total stock-based compensation expense

$

15,547

$

15,041

$

46,755

$

41,638

Restructuring and Related Costs (1)

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

July 3, 2021

June 27, 2020

July 3, 2021

June 27, 2020

Research and development

$

-

$

4,949

$

25

$

4,949

Sales and marketing

-

19,788

(2,636

)

19,788

General and administrative

$

-

$

1,423

$

-

$

1,423

Total restructuring and related costs

$

-

$

26,160

$

(2,611

)

$

26,160

(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 (loss) 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 (loss) 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 (loss) excluding stock-based compensation, restructuring and legal and transaction related fees as net income (loss) 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 (loss) less stock-based compensation, restructuring costs and legal and transaction related fees divided by our number of shares at fiscal year end. We calculate constant currency growth percentages by translating our prior period financial results using the current period average currency exchange rates and comparing these amounts to our current 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 ended October 2, 2021, our fiscal 2024 targets, 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 April 3, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210811005721/en/

Contacts

Investor Contact
Cammeron McLaughlin
IR@sonos.com

Press Contact
Tom Lodge
PR@sonos.com