Sonos Reports First Quarter Fiscal 2025 Results

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Sonos, Inc. (Nasdaq: SONO) today reported First Quarter Fiscal 2025 results. “Yesterday we implemented important organizational changes that mark the start of a new chapter of efficiency and growth for Sonos,” said Tom Conrad, Sonos Interim CEO. “I see tremendous opportunity in front of us. The team and I are hard at work improving the core experience for our customers while designing the next set of Sonos products and innovations. It’s an honor to show up every day to do this work with the talented Sonos team.” “Our Q1 results show our team’s commitment to execution as we navigate a difficult environment,” commented Saori Casey, Sonos Chief Financial Officer. “We continue to make great progress in our transformation journey that will set us up well for the future.” First Quarter Fiscal 2025 Financial Highlights (unaudited) Revenue of $551 million GAAP gross margin of 43.8% GAAP net income of $50.2 million, GAAP diluted earnings per share (EPS) of $0.40 Non-GAAP net income1 of $79.2 million, Non-GAAP diluted EPS1 of $0.64 Adjusted EBITDA1 of $91.2 million Notes: (1) Non-GAAP net income/Non-GAAP diluted earnings per share (EPS) and Adjusted EBITDA 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. Reorganization and Reduction in Force The company announced a reorganization and reduction in force involving approximately 12% of its employees in a Form 8-K filed with the SEC on February 5, 2025 The company estimates that it will incur approximately $15 to $18 million of restructuring and related charges, substantially all of which are related to employee severance and benefits costs. The company expects to incur substantially all of the restructuring and related charges in the second quarter of fiscal 2025 Guidance The company will provide guidance on its First Quarter Fiscal 2025 earnings call. Supplemental Earnings Presentation The company has posted a supplemental earnings presentation accompanying its First Quarter Fiscal 2025 results to the Earnings Reports section of its investor relations website at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports. Conference Call, Webcast and Transcript The company will host a webcast of its conference call and Q&A related to its First Quarter Fiscal 2025 results on February 6, 2025, at 4:15 p.m. Eastern Time (1:15 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. Consolidated Statements of Operations and Comprehensive Income (unaudited, in thousands, except share and per share amounts) Three Months Ended December 28, 2024 December 30, 2023 Revenue $ 550,857 $ 612,869 Cost of revenue 309,451 330,190 Gross profit 241,406 282,679 Operating expenses Research and development 80,838 79,235 Sales and marketing 86,644 83,950 General and administrative 25,831 39,799 Total operating expenses 193,313 202,984 Operating income 48,093 79,695 Other income (expense), net Interest income 1,861 3,075 Interest expense (110 ) (105 ) Other (expense) income, net (6,029 ) 10,274 Total other (expense) income, net (4,278 ) 13,244 Income before (benefit from) provision for income taxes 43,815 92,939 (Benefit from) provision for income taxes (6,422 ) 11,992 Net income $ 50,237 $ 80,947 Net income attributable to common stockholders: Basic and diluted $ 50,237 $ 80,947 Net income per share attributable to common stockholders: Basic $ 0.41 $ 0.65 Diluted $ 0.40 $ 0.64 Weighted-average shares used in computing net income per share attributable to common stockholders: Basic 122,071,586 125,181,717 Diluted 124,731,619 126,742,153 Total comprehensive income Net income 50,237 80,947 Change in foreign currency translation adjustment (1,116 ) (863 ) Net unrealized gain on marketable securities (84 ) — Comprehensive income $ 49,037 $ 80,084 Consolidated Balance Sheets (unaudited, in thousands, except par values) As of December 28, 2024 September 28, 2024 Assets Current assets: Cash and cash equivalents $ 279,955 $ 169,732 Marketable securities 47,902 51,426 Accounts receivable, net 84,786 44,513 Inventories 140,892 231,505 Prepaids and other current assets 58,991 53,910 Total current assets 612,526 551,086 Property and equipment, net 95,028 102,148 Operating lease right-of-use assets 47,935 50,175 Goodwill 82,854 82,854 Intangible assets, net In-process research and development — 73,770 Other intangible assets 84,488 14,266 Deferred tax assets 9,654 10,314 Other noncurrent assets 31,120 31,699 Total assets $ 963,605 $ 916,312 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 162,080 $ 194,590 Accrued expenses 108,871 87,783 Accrued compensation 28,509 15,701 Deferred revenue, current 20,973 21,802 Other current liabilities 52,081 46,277 Total current liabilities 372,514 366,153 Operating lease liabilities, noncurrent 56,786 56,588 Deferred revenue, noncurrent 61,245 61,075 Deferred tax liabilities 176 60 Other noncurrent liabilities 3,757 3,816 Total liabilities 494,478 487,692 Commitments and contingencies Stockholders’ equity: Common stock, $0.001 par value 125 123 Treasury stock (48,504 ) (17,096 ) Additional paid-in capital 521,121 498,245 Accumulated deficit (697 ) (50,934 ) Accumulated other comprehensive loss (2,918 ) (1,718 ) Total stockholders’ equity 469,127 428,620 Total liabilities and stockholders’ equity $ 963,605 $ 916,312 Consolidated Statements of Cash Flows (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 Cash flows from operating activities Net income $ 50,237 $ 80,947 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation expense 25,334 19,358 Depreciation and amortization 17,611 11,878 Provision for inventory obsolescence 1,305 5,837 Restructuring and abandonment charges — 260 Deferred income taxes 123 (45 ) Other 841 1,236 Foreign currency transaction loss (gain) 2,129 (7,388 ) Changes in operating assets and liabilities: Accounts receivable (41,374 ) (12,215 ) Inventories 89,308 167,641 Other assets (6,437 ) (12,878 ) Accounts payable and accrued expenses (5,940 ) (7,429 ) Accrued compensation 12,394 5,988 Deferred revenue 1,513 3,660 Other liabilities 9,129 18,551 Net cash provided by operating activities 156,173 275,401 Cash flows from investing activities Purchases of marketable securities (10,128 ) — Purchases of property and equipment (13,106 ) (6,077 ) Maturities of marketable securities 13,900 — Net cash used in investing activities (9,334 ) (6,077 ) Cash flows from financing activities Payments for repurchase of common stock, including excise tax and commission (27,165 ) (23,484 ) Payments for repurchase of common stock related to shares withheld for tax in connection with vesting of restricted stock units (9,044 ) (3,745 ) Proceeds from exercise of stock options 2,411 3,538 Net cash used in financing activities (33,798 ) (23,691 ) Effect of exchange rate changes on cash and cash equivalents (2,818 ) 1,478 Net increase in cash and cash equivalents 110,223 247,111 Cash and cash equivalents Beginning of period 169,732 220,231 End of period $ 279,955 $ 467,342 Supplemental disclosure Cash paid for interest $ 63 $ 58 Cash paid for taxes, net of refunds $ 658 $ 3,684 Cash paid for amounts included in the measurement of lease liabilities, net of tenant improvement reimbursements received $ (2,531 ) $ 2,601 Supplemental disclosure of non-cash investing and financing activities Purchases of property and equipment in accounts payable and accrued expenses $ 3,693 $ 6,141 Right-of-use assets obtained in exchange for new operating lease liabilities $ — $ 7,637 Excise tax on share repurchases, accrued but not paid $ 668 $ — Reconciliation of GAAP to Non-GAAP Cost of Revenue and Gross Profit (unaudited, in thousands, except percentages) Three Months Ended December 28, 2024 December 30, 2023 Reconciliation of GAAP cost of revenue GAAP cost of revenue $ 309,451 $ 330,190 Stock-based compensation expense 1,349 654 Amortization of intangibles 3,330 972 Non-GAAP cost of revenue $ 304,772 $ 328,564 Reconciliation of GAAP gross profit GAAP gross profit $ 241,406 $ 282,679 Stock-based compensation expense 1,349 654 Amortization of intangibles 3,330 972 Non-GAAP gross profit $ 246,085 $ 284,305 GAAP gross margin 43.8 % 46.1 % Non-GAAP gross margin 44.7 % 46.4 % Reconciliation of Selected Non-GAAP Financial Measures (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 GAAP Research and Development $ 80,838 $ 79,235 Stock-based compensation 13,315 8,979 Amortization of intangibles 178 496 Restructuring and abandonment costs (60 ) 323 Non-GAAP Research and Development $ 67,405 $ 69,437 GAAP Sales and Marketing $ 86,644 $ 83,950 Stock-based compensation 5,632 3,815 Amortization of intangibles - - Restructuring and abandonment costs - 113 Non-GAAP Sales and Marketing $ 81,012 $ 80,022 GAAP General and Administrative 25,831 39,799 Stock-based compensation 5,038 5,910 Legal and transaction related costs 195 3,743 Amortization of intangibles 23 24 Restructuring and abandonment costs - 132 Non-GAAP General and Administrative $ 20,575 $ 29,990 GAAP Operating Expenses $ 193,313 $ 202,984 Stock-based compensation 23,985 18,704 Legal and transaction related costs 195 3,743 Amortization of intangibles 201 520 Restructuring and abandonment costs (60 ) 568 Non-GAAP Operating Expenses $ 168,992 $ 179,449 GAAP Operating Income $ 48,093 $ 79,695 Stock-based compensation 25,334 19,358 Legal and transaction related costs 195 3,743 Amortization of intangibles 3,531 1,492 Restructuring and abandonment costs (60 ) 568 Non-GAAP Operating Income $ 77,093 $ 104,856 Depreciation 14,080 10,386 Adjusted EBITDA (Non-GAAP) $ 91,173 $ 115,242 Reconciliation of Net Income to Adjusted EBITDA (unaudited, dollars in thousands except percentages) Three Months Ended December 28, 2024 December 30, 2023 (In thousands, except percentages) Net income $ 50,237 $ 80,947 Add (deduct): Depreciation and amortization 17,611 11,878 Stock-based compensation expense 25,334 19,358 Interest income (1,861 ) (3,075 ) Interest expense 110 105 Other expense (income), net 6,029 (10,274 ) (Benefit from) provision for income taxes (6,422 ) 11,992 Legal and transaction related costs (1) 195 3,743 Restructuring and abandonment costs (2) (60 ) 568 Adjusted EBITDA $ 91,173 $ 115,242 Revenue $ 550,857 $ 612,869 Net income margin 9.1 % 13.2 % Adjusted EBITDA margin 16.6 % 18.8 % (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 August 14, 2024, we initiated a restructuring plan to reduce our cost base involving approximately 6% of our employees (the "2024 restructuring plan"). Substantially all restructuring related costs were incurred in the fourth quarter of fiscal 2024. In the first quarter of fiscal 2025, we recorded a gain resulting from the impact of remaining restructuring costs that were lower than our estimated liability. The gain was recognized as a credit in research and development expenses on the condensed consolidated statements of operations and comprehensive income. For fiscal 2024, restructuring and abandonment costs also include nominal remaining costs incurred related to the restructuring plan incurred on June 14, 2023. Reconciliation of GAAP Net Income to Non-GAAP Net Income (unaudited, in thousands, except share and per share amounts) Three Months Ended December 28, 2024 December 30, 2023 Reconciliation of GAAP net income GAAP net income $ 50,237 $ 80,947 Stock-based compensation expense 25,334 19,358 Legal and transaction related costs 195 3,743 Amortization of intangibles 3,531 1,492 Restructuring and abandonment costs (60 ) 568 Non-GAAP net income $ 79,237 $ 106,108 Net income per share GAAP net income per share, diluted $ 0.40 $ 0.64 Non-GAAP net income per share, diluted $ 0.64 $ 0.84 Shares used to calculate net income per share Weighted-average shares GAAP, diluted 124,731,619 126,742,153 Weighted-average shares non-GAAP, diluted 124,731,619 126,742,153 Reconciliation of Cash Flows Provided by Operating Activities to Free Cash Flow (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 Cash flows provided by operating activities $ 156,173 $ 275,401 Less: Purchases of property and equipment (13,106 ) (6,077 ) Free cash flow $ 143,067 $ 269,324 Revenue by Product Category (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 (In thousands) Sonos speakers $ 467,142 $ 503,011 Sonos system products 60,274 84,562 Partner products and other revenue 23,441 25,296 Total revenue $ 550,857 $ 612,869 Revenue by Geographical Region (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 Americas $ 324,583 $ 392,439 Europe, Middle East and Africa 197,612 191,817 Asia Pacific 28,662 28,613 Total revenue $ 550,857 $ 612,869 Stock-based Compensation (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 (In thousands) Cost of revenue $ 1,349 $ 654 Research and development 13,315 8,979 Sales and marketing 5,632 3,815 General and administrative 5,038 5,910 Total stock-based compensation expense $ 25,334 $ 19,358 Amortization of Intangibles (unaudited, dollars in thousands) Three Months Ended December 28, 2024 December 30, 2023 Cost of revenue $ 3,330 $ 972 Research and development 178 496 Sales and marketing - - General and administrative 23 24 Total amortization of intangibles $ 3,531 $ 1,492 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, non-GAAP gross margin, 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 adjusted to exclude the impact of depreciation and amortization, stock-based compensation expense, interest income, interest expense, other income, income taxes, restructuring and abandonment costs, legal and transaction related fees 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. We define non-GAAP gross margin as GAAP gross margin, excluding stock-based compensation and amortization of intangible 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 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 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 long-term outlook, financial, growth and business strategies and opportunities, our product roadmap, market growth and our market share, our ability to expand our footprint with existing customers, our operating model and cost structure, our expectations with respect to restructuring and related charges and the timing and amounts of such charges, 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: difficulties in and effect of implementing improvements to our operating model and cost structure; the risk that restructuring and related charges may be greater than anticipated or not occur in the expected time frame; local law requirements in various jurisdictions regarding elimination of positions; our ability to accurately forecast product demand and effectively forecast and manage owned and channel inventory levels; our ability to introduce software updates to our new app on a timely basis and otherwise deliver on our action plan to address issues caused by our new app and related customer commitments; our ability to maintain, enhance and protect our brand image; the impact of global economic, market and political events, including continued inflationary pressures, high interest rates and, in certain markets, foreign currency exchange rate fluctuations; changes in consumer income and overall consumer spending as a result of economic or political uncertainty or conditions; 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 compete in the market and maintain or expand market share; our ability to maintain relationships with our channel, distribution and technology partners; our ability to meet product demand and manage any product availability delays; supply chain challenges, including shipping and logistics challenges and component supply-related challenges; our ability to protect our brand and intellectual property; our use of artificial intelligence; and the other risk factors identified in our filings with the Securities and Exchange Commission (the “SEC”), including our most recent Annual Report on Form 10-K and subsequent filings. Copies of our SEC filings are available free of charge at the SEC’s website at www.sec.gov, on our investor relations website at https://investors.sonos.com/reports-and-filings/default.aspx 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.

Sonos Reports First Quarter Fiscal 2025 Results

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