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Sonos Reports First Quarter Fiscal 2022 Results

Feb 09, 2022

Increases Midpoint of Fiscal 2022 Outlook and Remains On Track to Achieve Fiscal 2024 Targets

SANTA BARBARA, Calif.--(BUSINESS WIRE)-- Sonos, Inc. (Nasdaq: SONO) today reported first quarter fiscal 2022 results.

First Quarter 2022 Financial Highlights (unaudited)

  • Revenue increased 3% year-over-year to $664.5 million; on a constant-currency basis, revenue increased approximately 3.5% year-over-year
  • Gross margin increased 140 basis points to 47.8%
  • GAAP net income of $123.5 million compared to $132.3 million last year; non-GAAP net income excluding stock-based compensation, restructuring, and legal and transaction related fees of $144.8 million compared to $153.2 million last year
  • GAAP diluted earnings per share (EPS) of $0.87 compared to $1.01 last year; non-GAAP diluted EPS excluding stock-based compensation, restructuring, and legal and transaction related fees of $1.02 compared to $1.17 last year
  • Adjusted EBITDA of $163.1 million compared to $166.3 million last year
  • Adjusted EBITDA margin of 24.6% compared to 25.8% last year
  • Cash flows from operating activities of $179.9 million
  • Free cash flow of $173.6 million

Fiscal 2022 Outlook

  • Revenue in the range of $1.95 billion to $2.0 billion, representing growth in the range of 14% to 16% from fiscal 2021
  • Gross margin in the range of 46% to 47%. Our fiscal 2022 gross margin outlook includes minimal net tariff impact
  • Adjusted EBITDA in the range of $290 million to $325 million, representing growth in the range of 4% to 17%
  • Adjusted EBITDA margin in the range of 14.9% to 16.2%

Fiscal 2024 Targets

  • Revenue of approximately $2.5 billion in fiscal 2024, representing a 13% CAGR based on the midpoint of the company’s fiscal 2022 guidance. This revenue target is ahead of the company’s prior fiscal 2024 target of $2.25 billion communicated at its March 2021 investor event
  • Gross margin in the range of 45% to 47%, consistent with the range communicated at its March 2021 investor event
  • Adjusted EBITDA margin in the range of 15% to 18%, consistent with the range communicated at its March 2021 investor event

Sonos CEO Patrick Spence commented, “We are pleased to report that Sonos had another excellent quarter, with record-setting revenue of $664.5 million and a strong adjusted EBITDA margin of 24.6% even as we continued to invest in our business. Importantly, we believe that we would have sold much more but for chip shortages that constrained our supply, as demand was, and continues to be, strong. Our operations team has developed considerable resiliency and we are well-positioned to deliver on our fiscal 2022 outlook, so we have increased the midpoint of our guidance to reflect this.”

“Longer term, the opportunity for Sonos is tremendous. Our flywheel of new household generation and existing customer repurchase remains a powerful driver of growth. We have a terrific product roadmap ahead to delight existing customers and attract new ones. At a mere 2% market share of the $89 billion1 global audio market, with a brand that is gaining momentum every day, we believe we are well positioned to seize the future and deliver significant shareholder value over the long-term,” concluded Mr. Spence.

1 Source: Futuresource, March 2021.

Supplemental Earnings Presentation

The company has posted a supplemental earnings presentation accompanying its first quarter fiscal 2022 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 2022 results on February 9, 2022, 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 1804222. 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

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

 

 

 

 

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Revenue

$

664,481

 

 

$

645,584

 

Cost of revenue

 

347,096

 

 

 

346,159

 

Gross profit

 

317,385

 

 

 

299,425

 

Operating expenses

 

 

 

Research and development

 

61,330

 

 

 

52,346

 

Sales and marketing

 

83,736

 

 

 

74,453

 

General and administrative

 

39,725

 

 

 

35,242

 

Total operating expenses

 

184,791

 

 

 

162,041

 

Operating income

 

132,594

 

 

 

137,384

 

Other income (expense), net

 

 

 

Interest income

 

33

 

 

 

36

 

Interest expense

 

(98

)

 

 

(265

)

Other income (expense), net

 

(1,402

)

 

 

4,257

 

Total other income (expense), net

 

(1,467

)

 

 

4,028

 

Income before provision for income taxes

 

131,127

 

 

 

141,412

 

Provision for income taxes

 

7,646

 

 

 

9,120

 

Net income

$

123,481

 

 

$

132,292

 

 

 

 

 

Net income attributable to common stockholders:

 

 

 

Basic

$

123,481

 

 

$

132,292

 

Diluted

$

123,481

 

 

$

132,292

 

Net income per share attributable to common stockholders:

 

 

 

Basic

$

0.97

 

 

$

1.14

 

Diluted

$

0.87

 

 

$

1.01

 

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

 

 

 

Basic

 

127,662,826

 

 

 

115,610,523

 

Diluted

 

142,322,448

 

 

 

130,644,147

 

Total comprehensive income

 

 

 

Net income

$

123,481

 

 

$

132,292

 

Change in foreign currency translation adjustment

 

(360

)

 

 

847

 

Comprehensive income

$

123,121

 

 

$

133,139

 

Condensed Consolidated Balance Sheets

(unaudited, dollars in thousands, except par values)

 

As of

 

January 1,
2022

 

October 2,
2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

754,417

 

 

$

640,101

 

Accounts receivable, net of allowances

 

178,257

 

 

 

100,779

 

Inventories

 

205,162

 

 

 

185,130

 

Prepaids and other current assets

 

22,532

 

 

 

31,504

 

Total current assets

 

1,160,368

 

 

 

957,514

 

Property and equipment, net

 

68,996

 

 

 

71,341

 

Operating lease right-of-use assets

 

33,776

 

 

 

33,841

 

Goodwill

 

37,726

 

 

 

15,545

 

Intangible assets, net

 

29,862

 

 

 

24,450

 

Deferred tax assets

 

9,892

 

 

 

10,028

 

Other noncurrent assets

 

32,123

 

 

 

26,085

 

Total assets

$

1,372,743

 

 

$

1,138,804

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

341,343

 

 

$

214,996

 

Accrued expenses

 

164,501

 

 

 

108,029

 

Accrued compensation

 

28,430

 

 

 

77,695

 

Deferred revenue, current

 

17,817

 

 

 

35,866

 

Other current liabilities

 

47,171

 

 

 

39,544

 

Total current liabilities

 

599,262

 

 

 

476,130

 

Operating lease liabilities, noncurrent

 

32,814

 

 

 

33,960

 

Deferred revenue, noncurrent

 

57,761

 

 

 

53,632

 

Deferred tax liabilities

 

2,394

 

 

 

2,394

 

Other noncurrent liabilities

 

905

 

 

 

3,646

 

Total liabilities

 

693,136

 

 

 

569,762

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value

 

130

 

 

 

129

 

Treasury stock

 

(54,875

)

 

 

(50,276

)

Additional paid-in capital

 

682,504

 

 

 

690,462

 

Retained earnings (accumulated deficit)

 

53,584

 

 

 

(69,897

)

Accumulated other comprehensive loss

 

(1,736

)

 

 

(1,376

)

Total stockholders’ equity

 

679,607

 

 

 

569,042

 

Total liabilities and stockholders’ equity

$

1,372,743

 

 

$

1,138,804

 

Condensed Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Cash flows from operating activities

 

 

 

Net income

$

123,481

 

 

$

132,292

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

9,217

 

 

 

7,982

 

Stock-based compensation expense

 

17,459

 

 

 

14,844

 

Other

 

1,139

 

 

 

(1,050

)

Deferred income taxes

 

14

 

 

 

12

 

Foreign currency transaction (gain) loss

 

494

 

 

 

(1,633

)

Changes in operating assets and liabilities:

 

 

 

Accounts receivable, net

 

(79,000

)

 

 

(56,650

)

Inventories

 

(21,800

)

 

 

93,495

 

Other assets

 

4,086

 

 

 

(7,330

)

Accounts payable and accrued expenses

 

185,127

 

 

 

33,271

 

Accrued compensation

 

(49,094

)

 

 

(15,481

)

Deferred revenue

 

(13,510

)

 

 

5,633

 

Other liabilities

 

2,321

 

 

 

9,128

 

Net cash provided by operating activities

 

179,934

 

 

 

214,513

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment, intangible and other assets

 

(6,355

)

 

 

(11,333

)

Cash paid for acquisitions, net of acquired cash

 

(27,101

)

 

 

 

Net cash used in investing activities

 

(33,456

)

 

 

(11,333

)

Cash flows from financing activities

 

 

 

Payments for debt issuance costs

 

(929

)

 

 

 

Payments for repurchase of common stock

 

(31,365

)

 

 

 

Proceeds from exercise of common stock options

 

13,232

 

 

 

69,505

 

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

 

(11,882

)

 

 

(5,118

)

Net cash provided by (used in) financing activities

 

(30,944

)

 

 

64,387

 

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

 

(1,218

)

 

 

3,174

 

Net increase in cash, cash equivalents and restricted cash

 

114,316

 

 

 

270,741

 

Cash, cash equivalents and restricted cash

 

 

 

Beginning of period

 

640,101

 

 

 

407,291

 

End of period

$

754,417

 

 

$

678,032

 

Supplemental disclosure

 

 

 

Cash paid for interest

$

23

 

 

$

166

 

Cash paid for taxes, net of refunds

$

413

 

 

$

2,672

 

Cash paid for amounts included in the measurement of lease liabilities

$

3,410

 

 

$

8,102

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

Purchases of property and equipment in accounts payable and accrued expenses

$

5,499

 

 

$

7,814

 

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

$

2,246

 

 

$

1,509

 

Reconciliation of Net Income to Adjusted EBITDA

(unaudited, dollars in thousands)

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Net income

$

123,481

 

 

$

132,292

 

Add (deduct):

 

 

 

Depreciation and amortization

 

9,217

 

 

 

7,982

 

Stock-based compensation expense

 

17,459

 

 

 

14,844

 

Interest income

 

(33

)

 

 

(36

)

Interest expense

 

98

 

 

 

265

 

Other (income) expense, net

 

1,402

 

 

 

(4,257

)

Provision for income taxes

 

7,646

 

 

 

9,120

 

Restructuring and related expenses (1)

 

 

 

 

(2,611

)

Legal and transaction related costs (2)

 

3,873

 

 

 

8,666

 

Adjusted EBITDA

$

163,143

 

 

$

166,265

 

Revenue

$

664,481

 

 

$

645,584

 

Adjusted EBITDA margin

 

24.6

%

 

 

25.8

%

(1) Restructuring and related expenses for the three months ended January 2, 2021, include 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 (as defined below). 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)

 

 

 

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Cash flows provided by operating activities

$

179,934

 

 

$

214,513

 

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

 

(6,355

)

 

 

(11,333

)

Free cash flow

$

173,579

 

 

$

203,180

 

Revenue by Product Category

(unaudited, dollars in thousands)

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Sonos speakers

$

501,886

 

$

527,516

Sonos system products

 

134,745

 

 

97,759

Partner products and other revenue

 

27,850

 

 

20,309

Total revenue

$

664,481

 

$

645,584

Revenue by Geographical Region

(unaudited, dollars in thousands)

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Americas

$

373,813

 

$

367,239

Europe, Middle East and Africa ("EMEA")

 

245,482

 

 

240,007

Asia Pacific ("APAC")

 

45,186

 

 

38,338

Total revenue

$

664,481

 

$

645,584

Stock-based Compensation

(unaudited, dollars in thousands)

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Cost of revenue

$

328

 

$

214

Research and development

 

6,738

 

 

6,258

Sales and marketing

 

3,647

 

 

3,408

General and administrative

 

6,746

 

 

4,964

Total stock-based compensation expense

$

17,459

 

$

14,844

Restructuring and Related Costs (1)

 

 

 

(unaudited, dollars in thousands)

 

 

 

 

Three Months Ended

 

January 1,
2022

 

January 2,
2021

Research and development

$

 

$

25

 

Sales and marketing

 

 

 

(2,636

)

General and administrative

 

 

 

 

Total restructuring and related costs

$

 

$

(2,611

)

(1) On June 23, 2020, we initiated a restructuring plan as part of our efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic (the “2020 restructuring plan”). 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 better aligned 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 EPS excluding stock-based compensation, restructuring, and legal and transaction related fees as net income less stock-based compensation, restructuring costs and legal and transaction related fees divided by our number of shares at fiscal year end. We 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 ending October 1, 2022, 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 product demand and manage any product availability delays; and the other risk factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended October 2, 2021 and our other filings filed with the Securities and Exchange Commission (the “SEC”), copies of which are available free of charge at the SEC’s website at www.sec.gov or upon request from our investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this press release, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events. Sonos and Sonos product names are trademarks or registered trademarks of Sonos, Inc. All other product names and services may be trademarks or service marks of their respective owners.

About Sonos

Sonos (Nasdaq: SONO) is one of the world’s leading sound experience brands. As the inventor of multi-room wireless home audio, Sonos’ innovation helps the world listen better by giving people access to the content they love and allowing them to control it however they choose. Known for delivering an unparalleled sound experience, thoughtful home design aesthetic, simplicity of use and an open platform, Sonos makes the breadth of audio content available to anyone. Sonos is headquartered in Santa Barbara, California. Learn more at www.sonos.com.

Investor Contact
Cammeron McLaughlin
IR@sonos.com

Press Contact
Tom Lodge
PR@sonos.com

Source: Sonos

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