Sonos reports third quarter fiscal 2022 results
Santa barbara, calif.--(business wire)--sonos, inc. (nasdaq: sono) today reported third quarter fiscal 2022 results. third quarter 2022 financial highlights (unaudited) revenue decreased 1.8% year-over-year to $371.8 million; on a constant-currency basis, revenue increased approximately 2.2% year-over-year gross margin increased 30 basis points year-over-year to 47.3% gaap net loss of $0.6 million compared to gaap net income of $17.8 million last year; non-gaap net income excluding stock-based compensation and legal and transaction related fees of $25.6 million compared to $38.7 million last year gaap diluted earnings per share (eps) of $0.00 compared to $0.12 last year; non-gaap diluted eps excluding stock-based compensation and legal and transaction related fees of $0.19 compared to $0.27 last year adjusted ebitda of $42.1 million compared to $46.7 million last year adjusted ebitda margin of 11.3% compared to 12.3% last year cash flows used in operating activities of $6.7 million free cash flow of ($16.0) million sonos ceo patrick spence commented, “we have seen the macroeconomic backdrop become significantly more challenging for us starting in june as the dollar’s appreciation and high inflation have adversely affected consumer sentiment globally, particularly in the categories in which we play. as a result, revenue missed our expectations for q3 and we are adjusting our fy22 outlook accordingly.” spence continued, “although we cannot predict when macroeconomic conditions will normalize, we remain confident that, when they do, we will return to double-digit revenue growth. we base this on our category leadership position, our flywheel of new and existing customer repurchases and robust product roadmap. we expect to weather the current environment while operating from a position of strength: we are profitable, we are debt free, and we have a huge market opportunity. we are tightly focused on expenses while prudently and deliberately investing in a number of products and initiatives in new and existing categories that we believe customers will love and will drive our long-term success.” sonos today separately announced that brittany bagley, the company’s chief financial officer (cfo), is stepping down to pursue another professional opportunity. eddie lazarus, the company’s chief legal officer (clo) will succeed ms. bagley as interim cfo effective sept. 1, 2022. fiscal 2022 outlook revenue in the range of $1.730 billion to $1.755 billion, representing growth of 1% to 2% from fiscal 2021, or growth of 4% to 5% on a constant currency basis. this compares to a prior outlook range of $1.95 billion to $2.0 billion, which represented growth of 14% to 16% from fiscal 2021 gross margin in the range of 45.7% to 45.9%, narrowed from previous gross margin range of 45.5% to 46.0% adjusted ebitda in the range of $215 million to $230 million, representing a decline of 23% to 17% from fiscal 2021. this compares to a prior outlook range of $290 million to $310 million, which represented growth of 4% to 11% adjusted ebitda margin of 12.4% to 13.1%, compared to prior outlook range of 14.9% to 15.5% fiscal 2024 targets due to the uncertain and evolving macroeconomic backdrop, the timeline to achieve the company’s previously issued targets of $2.5 billion revenue, 45-47% gross margins and 15-18% adjusted ebitda margins is being extended beyond fy2024 supplemental earnings presentation the company has posted a supplemental earnings presentation accompanying its third 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 third quarter fiscal 2022 results on august 10, 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 8641747. participants outside the u.s. can access the call by dialing (240) 789-2714 using the same conference id. an archived webcast of the conference call and a transcript of the company’s prepared remarks and q&a session will also be available at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports following the call. condensed consolidated statements of operations and comprehensive income (loss) (unaudited, in thousands, except share and per share amounts) three months ended nine months ended july 2, 2022 july 3, 2021 july 2, 2022 july 3, 2021 revenue $ 371,783 $ 378,672 $ 1,436,046 $ 1,357,204 cost of revenue 195,935 200,811 763,779 714,142 gross profit 175,848 177,861 672,267 643,062 operating expenses research and development 62,522 55,578 188,798 164,294 sales and marketing 63,993 67,231 207,684 198,888 general and administrative 42,373 38,323 126,189 113,372 total operating expenses 168,888 161,132 522,671 476,554 operating income 6,960 16,729 149,596 166,508 other income (expense), net interest income 429 34 585 114 interest expense (196 ) (77 ) (384 ) (525 ) other income (expense), net (9,858 ) 1,998 (13,541 ) 4,678 total other income (expense), net (9,625 ) 1,955 (13,340 ) 4,267 income (loss) before provision for (benefit from) income taxes (2,665 ) 18,684 136,256 170,775 provision for (benefit from) income taxes (2,068 ) 858 4,805 3,436 net income (loss) $ (597 ) $ 17,826 $ 131,451 $ 167,339 net income (loss) attributable to common stockholders: basic and diluted $ (597 ) $ 17,826 $ 131,451 $ 167,339 net income (loss) per share attributable to common stockholders: basic $ 0.00 $ 0.14 $ 1.03 $ 1.38 diluted $ 0.00 $ 0.12 $ 0.94 $ 1.20 weighted-average shares used in computing net income (loss) per share attributable to common stockholders: basic 127,884,400 125,138,279 127,886,487 120,876,472 diluted 127,884,400 144,181,632 139,502,527 139,293,775 total comprehensive income (loss) net income (loss) (597 ) 17,826 131,451 167,339 change in foreign currency translation adjustment (1,711 ) (784 ) (1,971 ) 262 comprehensive income (loss) $ (2,308 ) $ 17,042 $ 129,480 $ 167,601 condensed consolidated balance sheets (unaudited, dollars in thousands, except par values) as of july 2, 2022 october 2, 2021 assets current assets: cash and cash equivalents $ 439,726 $ 640,101 accounts receivable, net of allowances 124,884 100,779 inventories 335,730 185,130 prepaids and other current assets 23,124 31,504 total current assets 923,464 957,514 property and equipment, net 75,862 71,341 operating lease right-of-use assets 28,093 33,841 goodwill 79,824 15,545 intangible assets, net 96,936 24,450 deferred tax assets 1,804 10,028 other noncurrent assets 37,247 26,085 total assets $ 1,243,230 $ 1,138,804 liabilities and stockholders’ equity current liabilities: accounts payable $ 308,032 $ 214,996 accrued expenses 107,993 108,029 accrued compensation 27,250 77,695 deferred revenue, current 18,334 35,866 other current liabilities 43,611 39,544 total current liabilities 505,220 476,130 operating lease liabilities, noncurrent 26,118 33,960 deferred revenue, noncurrent 57,487 53,632 deferred tax liabilities 10,789 2,394 other noncurrent liabilities 880 3,646 total liabilities 600,494 569,762 stockholders’ equity: common stock, $0.001 par value 131 129 treasury stock (65,050 ) (50,276 ) additional paid-in capital 649,449 690,462 retained earnings (accumulated deficit) 61,553 (69,897 ) accumulated other comprehensive loss (3,347 ) (1,376 ) total stockholders’ equity 642,736 569,042 total liabilities and stockholders’ equity $ 1,243,230 $ 1,138,804 condensed consolidated statements of cash flows (unaudited, dollars in thousands) nine months ended july 2, 2022 july 3, 2021 cash flows from operating activities net income $ 131,451 $ 167,339 adjustments to reconcile net income to net cash provided by operating activities: depreciation and amortization 27,699 25,789 impairment and abandonment 62 2,789 stock-based compensation expense 57,463 46,755 other 8,594 1,253 deferred income taxes (1,238 ) 95 foreign currency transaction (gain) loss 4,437 (2,226 ) changes in operating assets and liabilities: accounts receivable, net (28,476 ) (13,846 ) inventories (158,129 ) 32,333 other assets (1,587 ) (17,730 ) accounts payable and accrued expenses 97,421 (27,169 ) accrued compensation (49,769 ) 21,501 deferred revenue (10,958 ) 7,715 other liabilities (1,313 ) 2,143 net cash provided by operating activities 75,657 246,741 cash flows from investing activities purchases of property and equipment, intangible and other assets (24,946 ) (34,792 ) cash paid for acquisitions, net of acquired cash (126,416 ) — net cash used in investing activities (151,362 ) (34,792 ) cash flows from financing activities payments for debt issuance costs (929 ) — payments of borrowings — (25,000 ) payments for repurchase of common stock (117,093 ) (21,729 ) proceeds from exercise of common stock options 37,257 131,536 payments for repurchase of common stock related to shares withheld for tax in connection with vesting of restricted stock units (33,412 ) (34,877 ) net cash provided by (used in) financing activities (114,177 ) 49,930 effect of exchange rate changes on cash, cash equivalents and restricted cash (10,493 ) 1,735 net increase (decrease) in cash, cash equivalents and restricted cash (200,375 ) 263,614 cash, cash equivalents and restricted cash beginning of period 640,101 407,291 end of period $ 439,726 $ 670,905 supplemental disclosure cash paid for interest $ 223 $ 434 cash paid for taxes, net of refunds $ 8,862 $ 3,773 cash paid for amounts included in the measurement of lease liabilities $ 11,185 $ 15,078 supplemental disclosure of non-cash investing and financing activities purchases of property and equipment in accounts payable and accrued expenses $ 10,937 $ 9,046 right-of-use assets obtained in exchange for new operating lease liabilities $ 2,141 $ 1,622 reconciliation of net income (loss) to adjusted ebitda (unaudited, dollars in thousands except percentages) three months ended nine months ended july 2, 2022 july 3, 2021 july 2, 2022 july 3, 2021 net income (loss) $ (597 ) $ 17,826 $ 131,451 $ 167,339 add (deduct): depreciation and amortization 8,907 9,065 27,699 25,789 stock-based compensation expense 18,779 15,547 57,463 46,755 interest income (429 ) (34 ) (585 ) (114 ) interest expense 196 77 384 525 other income (expense), net 9,858 (1,998 ) 13,541 (4,678 ) provision for (benefit from) income taxes (2,068 ) 858 4,805 3,436 restructuring and related expenses(1) — — — (2,611 ) legal and transaction related costs(2) 7,459 5,351 17,344 25,030 adjusted ebitda $ 42,105 $ 46,692 $ 252,102 $ 261,471 revenue $ 371,783 $ 378,672 $ 1,436,046 $ 1,357,204 adjusted ebitda margin 11.3 % 12.3 % 17.6 % 19.3 % (1) restructuring and related expenses for the nine months ended july 3, 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. the gain represents the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. (2) legal and transaction related costs consist of expenses related to our intellectual property litigation against alphabet inc. and google llc as well as legal and transaction costs associated with our acquisition activity, which we do not consider representative of our underlying operating performance. 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 2, 2022 july 3, 2021 july 2, 2022 july 3, 2021 cash flows provided by (used in) operating activities $ (6,717 ) $ 70,786 $ 75,657 $ 246,741 less: purchases of property and equipment, intangible and other assets (9,281 ) (14,865 ) (24,946 ) (34,792 ) free cash flow $ (15,998 ) $ 55,921 $ 50,711 $ 211,949 revenue by product category (unaudited, dollars in thousands) three months ended nine months ended july 2, 2022 july 3, 2021 july 2, 2022 july 3, 2021 sonos speakers $ 314,205 $ 310,233 $ 1,133,825 $ 1,105,283 sonos system products 38,363 47,621 234,328 197,442 partner products and other revenue 19,215 20,818 67,893 54,479 total revenue $ 371,783 $ 378,672 $ 1,436,046 $ 1,357,204 revenue by geographical region (unaudited, dollars in thousands) three months ended nine months ended july 2, 2022 july 3, 2021 july 2, 2022 july 3, 2021 americas $ 232,421 $ 223,720 $ 844,099 $ 784,898 europe, middle east and africa 112,684 126,228 486,473 480,541 asia pacific 26,678 28,724 105,474 91,765 total revenue $ 371,783 $ 378,672 $ 1,436,046 $ 1,357,204 stock-based compensation (unaudited, dollars in thousands) three months ended nine months ended july 2, 2022 july 3, 2021 july 2, 2022 july 3, 2021 cost of revenue $ 448 $ 248 $ 1,153 $ 723 research and development 7,858 6,125 22,687 19,067 sales and marketing 3,826 3,277 11,650 10,317 general and administrative 6,647 5,897 21,973 16,648 total stock-based compensation expense $ 18,779 $ 15,547 $ 57,463 $ 46,755 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 and legal and transaction related fees, and diluted earnings per share (eps) excluding stock-based compensation 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 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 and other assets. we calculate non-gaap net income excluding stock-based compensation and legal and transaction related fees as net income less stock-based compensation and legal and transaction related fees. we calculate non-gaap diluted eps excluding stock-based compensation and legal and transaction related fees as net income less stock-based compensation 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 long-term outlook, our long-term focus, financial, growth and business strategies and opportunities, growth metrics and targets, our business model, new products, services and partnerships, profitability and gross margins, market growth and our market share, the macroeconomic environment and our ability to weather it, and other factors affecting variability in our financial results. these forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors, including, but not limited to the duration and impact of the covid-19 pandemic and related mitigation efforts on our industry and our supply chain; supply chain challenges, including shipping and logistics challenges, significant limits on component supplies and inflationary pressures; the impact of global economic, market and political events, including the continuing conflict between russia and ukraine, 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 2, 2022 and our other filings filed with the securities and exchange commission (the “sec”), copies of which are available free of charge at the sec’s website at www.sec.gov or upon request from our investor relations department. all forward-looking statements herein reflect our opinions only as of the date of this press release, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events. sonos and sonos product names are trademarks or registered trademarks of sonos, inc. all other product names and services may be trademarks or service marks of their respective owners. about sonos sonos (nasdaq: sono) is one of the world’s leading sound experience brands. as the inventor of multi-room wireless home audio, sonos’ innovation helps the world listen better by giving people access to the content they love and allowing them to control it however they choose. known for delivering an unparalleled sound experience, thoughtful home design aesthetic, simplicity of use and an open platform, sonos makes the breadth of audio content available to anyone. sonos is headquartered in santa barbara, california. learn more at www.sonos.com.
