Sonos reports second quarter fiscal 2023 results
Santa barbara, calif.--(business wire)--sonos, inc. (nasdaq: sono) today reported second quarter fiscal 2023 results. second quarter 2023 financial highlights (unaudited) revenue decreased 23.9% year-over-year to $304.2 million; on a constant-currency basis, revenue decreased 22.4% year-over-year gross margin decreased 150 basis points year-over-year to 43.3% gaap net loss of $(30.7) million compared to net income of $8.6 million last year gaap net loss margin of (10.1)% compared to net income margin of 2.1% last year gaap diluted earnings per share (eps) of $(0.24) compared to $0.06 last year gaap net loss margin of (10.1)% compared to net income margin of 2.1% last year gaap diluted earnings per share (eps) of $(0.24) compared to $0.06 last year non-gaap net income1 of $5.7 million compared to $36.8 million last year non-gaap diluted eps1 of $0.04 compared to $0.26 last year non-gaap diluted eps1 of $0.04 compared to $0.26 last year adjusted ebitda of $(10.6) million compared to $46.9 million last year adjusted ebitda margin of (3.5)% compared to 11.7% last year adjusted ebitda margin of (3.5)% compared to 11.7% last year free cash flow of $(121.7) million. cash flows used in operating activities of $(113.0) million inventories of $326.3 million, increased 7% from last quarter finished goods of $274.5 million, increased 5% from last quarter inventories of $326.3 million, increased 7% from last quarter finished goods of $274.5 million, increased 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 lease abandonment costs. see “use of non-gaap measures” and reconciliations to gaap measures below. sonos ceo patrick spence commented, “this quarter we made outstanding progress in delivering on our product roadmap with the launch of two new game-changing products, the era 100 and 300, both the best of their kind. and we entered a new product category with our saas-based sonos pro offering.” mr. spence continued, “though our second quarter results were in-line with our guidance, we are reducing our expectations for the second half of fiscal 2023 due to softening consumer demand and channel partner inventory tightening. as a result, we are taking swift action to reduce our operating expenses and protect our profitability. we remain focused on ensuring that sonos will emerge from the current choppy consumer environment in a position of strength: we are profitable, we are debt free, and we have a huge market opportunity. continuing to innovate is critical to delivering on our long-term growth ambitions and i have every confidence in our ability to continue to do so.” sonos today separately announced that the board has appointed julius genachowski as sonos' chairperson of the board. mr. genachowski succeeds the board's current chairperson, mike volpi, who will continue as a director. “mike has set a wonderful example as board chair with his exceptional combination of experience and discerning intellect,” mr. genachowski said. “i’m honored to be following in his footsteps and delighted that he will be remaining on the board.” mr. genachowski and mr. volpi have served as directors since september 2013 and march 2010, respectively and mr. volpi served as chairperson from november 2010 to may 2023. revised fiscal 2023 outlook revenue in the range of $1.625 billion to $1.675 billion, representing a decline of 7% to 4% from fiscal 2022, or a decline of 5% to 2% on a constant currency basis. this compares to a prior outlook range of $1.7 billion to $1.8 billion, which represented a decline of 3% to growth 3% from fiscal 2022 gross margin in the range of 44.3% to 44.8%, compared to prior outlook range of 45.0% to 46.0% adjusted ebitda in the range of $138 million to $168 million, compared to prior outlook range of $145 million to $180 million adjusted ebitda margin of 8.5% to 10.0%, unchanged from prior outlook range supplemental earnings presentation the company has posted a supplemental earnings presentation accompanying its second 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 second quarter fiscal 2023 results on may 10, 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 income (loss) (unaudited, in thousands, except share and per share amounts) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 revenue $ 304,173 $ 399,781 $ 976,752 $ 1,064,262 cost of revenue 172,555 220,747 560,078 567,843 gross profit 131,618 179,034 416,674 496,419 operating expenses research and development 80,785 64,947 157,726 126,277 sales and marketing 63,621 59,955 142,317 143,691 general and administrative 44,438 44,090 87,553 83,816 total operating expenses 188,844 168,992 387,596 353,784 operating income (loss) (57,226 ) 10,042 29,078 142,635 other income (expense), net interest income 3,181 123 5,149 156 interest expense (152 ) (90 ) (311 ) (187 ) other income (expense), net (2,832 ) (2,281 ) 20,745 (3,683 ) total other income (expense), net 197 (2,248 ) 25,583 (3,714 ) income (loss) before provision for (benefit from) income taxes (57,029 ) 7,794 54,661 138,921 provision for (benefit from) income taxes (26,377 ) (772 ) 10,124 6,874 net income (loss) $ (30,652 ) $ 8,566 $ 44,537 $ 132,047 net income (loss) attributable to common stockholders: basic and diluted $ (30,652 ) $ 8,566 $ 44,537 $ 132,047 net income (loss) per share attributable to common stockholders: basic $ (0.24 ) $ 0.07 $ 0.35 $ 1.03 diluted $ (0.24 ) $ 0.06 $ 0.34 $ 0.94 weighted-average shares used in computing net income (loss) per share attributable to common stockholders: basic 127,952,875 128,112,234 127,582,560 127,887,530 diluted 127,952,875 139,642,570 132,834,096 140,982,509 total comprehensive income (loss) net income (loss) (30,652 ) 8,566 44,537 132,047 change in foreign currency translation adjustment 4,542 100 (2,684 ) (260 ) comprehensive income (loss) $ (26,110 ) $ 8,666 $ 41,853 $ 131,787 (unaudited, dollars in thousands, except par values) as of april 1, 2023 october 1, 2022 assets current assets: cash and cash equivalents $ 294,873 $ 274,855 accounts receivable, net of allowances 84,203 101,206 inventories 326,289 454,288 prepaids and other current assets 31,474 37,042 total current assets 736,839 867,391 property and equipment, net 87,467 86,168 operating lease right-of-use assets 21,662 28,329 goodwill 81,501 77,300 intangible assets, net in-process research and development 71,554 64,680 other intangible assets 23,219 26,384 deferred tax assets 1,530 1,508 other noncurrent assets 35,481 36,628 total assets $ 1,059,253 $ 1,188,388 liabilities and stockholders’ equity current liabilities: accounts payable $ 183,648 $ 335,758 accrued expenses 76,387 109,290 accrued compensation 30,492 23,624 deferred revenue, current 19,764 27,318 other current liabilities 41,866 39,649 total current liabilities 352,157 535,639 operating lease liabilities, noncurrent 19,606 25,596 deferred revenue, noncurrent 61,963 56,152 deferred tax liabilities 11,849 9,642 other noncurrent liabilities 764 846 total liabilities 446,339 627,875 stockholders’ equity: common stock, $0.001 par value 130 130 treasury stock (36,462 ) (50,896 ) additional paid-in capital 613,505 617,390 retained earnings (accumulated deficit) 42,022 (2,514 ) accumulated other comprehensive loss (6,281 ) (3,597 ) total stockholders’ equity 612,914 560,513 total liabilities and stockholders’ equity $ 1,059,253 $ 1,188,388 condensed consolidated statements of cash flows (unaudited, dollars in thousands) six months ended april 1, 2023 april 2, 2022 cash flows from operating activities net income $ 44,537 $ 132,047 adjustments to reconcile net income to net cash provided by operating activities: depreciation and amortization 22,845 18,792 impairment and abandonment 4,846 — stock-based compensation expense 41,220 38,684 other 13,232 4,357 deferred income taxes 1,358 (129 ) foreign currency transaction (gains) losses (14,126 ) 2,267 changes in operating assets and liabilities: accounts receivable, net 16,932 (12,786 ) inventories 118,032 (86,153 ) other assets 5,481 (6,082 ) accounts payable and accrued expenses (186,194 ) 51,643 accrued compensation 6,108 (45,084 ) deferred revenue (4,484 ) (11,834 ) other liabilities (463 ) (3,348 ) net cash provided by operating activities 69,324 82,374 cash flows from investing activities purchases of property and equipment, and intangible assets (23,403 ) (15,665 ) cash paid for acquisitions, net of acquired cash — (27,101 ) net cash used in investing activities (23,403 ) (42,766 ) cash flows from financing activities payments for debt issuance costs — (929 ) payments for repurchase of common stock (30,054 ) (74,482 ) proceeds from exercise of common stock options 17,584 29,254 payments for repurchase of common stock related to shares withheld for tax in connection with vesting of stock awards (18,199 ) (22,601 ) net cash used in financing activities (30,669 ) (68,758 ) effect of exchange rate changes on cash and cash equivalents 4,766 (4,207 ) net increase (decrease) in cash and cash equivalents 20,018 (33,357 ) cash and cash equivalents beginning of period 274,855 640,101 end of period $ 294,873 $ 606,744 supplemental disclosure cash paid for interest $ 330 $ 85 cash paid for taxes, net of refunds $ 6,399 $ 8,916 cash paid for amounts included in the measurement of lease liabilities $ 7,219 $ 7,800 supplemental disclosure of non-cash investing and financing activities purchases of property and equipment in accounts payable and accrued expenses $ 8,393 $ 7,869 right-of-use assets obtained in exchange for new operating lease liabilities $ 711 $ 2,245 reconciliation of selected non-gaap financial measures (unaudited, dollars in thousands) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 research and development (gaap) $ 80,785 $ 64,947 $ 157,726 $ 126,277 stock-based compensation 9,565 8,091 18,716 14,829 amortization of intangibles 495 737 990 1,808 lease abandonment costs 2,682 — 2,682 — research and development (non-gaap) $ 68,043 $ 56,119 $ 135,338 $ 109,640 sales and marketing (gaap) $ 63,621 $ 59,955 $ 142,317 $ 143,691 stock-based compensation 4,475 4,177 8,588 7,824 lease abandonment costs 1,034 — 1,034 — sales and marketing (non-gaap) $ 58,112 $ 55,778 $ 132,695 $ 135,867 general and administrative (gaap) $ 44,438 $ 44,090 $ 87,553 $ 83,816 stock-based compensation 6,404 8,580 12,765 15,326 legal and transaction related costs 9,018 6,012 15,307 9,885 amortization of intangibles 24 24 48 48 lease abandonment costs 1,130 — 1,130 — adjusted general and administrative (non-gaap) $ 27,862 $ 29,474 $ 58,303 $ 58,557 total operating expenses (gaap) $ 188,844 $ 168,992 $ 387,596 $ 353,784 stock-based compensation 20,444 20,848 40,069 37,979 legal and transaction related costs 9,018 6,012 15,307 9,885 amortization of intangibles 519 761 1,038 1,856 lease abandonment costs 4,846 — 4,846 — adjusted operating expenses (non-gaap) $ 154,017 $ 141,371 $ 326,336 $ 304,064 total operating income (gaap) $ (57,226 ) $ 10,042 $ 29,078 $ 142,635 stock-based compensation 21,025 21,225 41,220 38,684 legal and transaction related costs 9,018 6,012 15,307 9,885 amortization of intangibles 1,492 974 3,196 2,284 lease abandonment costs 4,846 — 4,846 — adjusted operating income (non-gaap) $ (20,845 ) $ 38,253 $ 93,647 $ 193,488 depreciation 10,221 8,601 19,649 16,508 adjusted ebitda (non-gaap) $ (10,624 ) $ 46,854 $ 113,296 $ 209,996 reconciliation of net income (loss) to adjusted ebitda (unaudited, dollars in thousands except percentages) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 net income (loss) $ (30,652 ) $ 8,566 $ 44,537 $ 132,047 add (deduct): depreciation and amortization 11,713 9,575 22,845 18,792 stock-based compensation expense 21,025 21,225 41,220 38,684 interest income (3,181 ) (123 ) (5,149 ) (156 ) interest expense 152 90 311 187 other (income) expense, net 2,832 2,281 (20,745 ) 3,683 provision for (benefit from) income taxes (26,377 ) (772 ) 10,124 6,874 legal and transaction related costs(1) 9,018 6,012 15,307 9,885 lease abandonment costs(2) 4,846 — 4,846 — adjusted ebitda $ (10,624 ) $ 46,854 $ 113,296 $ 209,996 revenue $ 304,173 $ 399,781 $ 976,752 $ 1,064,262 net income (loss) margin (10.1 )% 2.1 % 4.6 % 12.4 % adjusted ebitda margin (3.5 )% 11.7 % 11.6 % 19.7 % (1) 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. (2) in march 2023, in support of operational efficiencies, we abandoned portions of our office spaces for the remainder of their respective lease terms. lease abandonment costs include the impact of the write-off of the associated operating lease right-of-use assets, as well as accelerated depreciation of the related leasehold improvements. reconciliation of gaap net income (loss) to non-gaap net income (loss) (unaudited, in thousands, except share and per share amounts) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 reconciliation of gaap net income (loss) gaap net income (loss) $ (30,652 ) $ 8,566 $ 44,537 $ 132,047 stock-based compensation expense 21,025 21,225 41,220 38,684 legal and transaction related costs 9,018 6,012 15,307 9,885 amortization of intangibles 1,492 974 3,196 2,284 lease abandonment costs 4,846 — 4,846 — non-gaap net income $ 5,729 $ 36,777 $ 109,106 $ 182,900 reconciliation of net income (loss) per share gaap net income (loss) per share, diluted $ (0.24 ) $ 0.06 $ 0.34 $ 0.94 non-gaap adjustments to net income (loss) per share $ 0.28 $ 0.20 $ 0.49 $ 0.36 non-gaap net income (loss) per share, diluted $ 0.04 $ 0.26 $ 0.82 $ 1.30 weighted-average shares used in gaap and non-gaap per share calculation, diluted 127,952,875 139,642,570 132,834,096 140,982,509 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 six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 cash flows provided by (used in) operating activities $ (112,962 ) $ (97,562 ) $ 69,324 $ 82,374 less: purchases of property and equipment, and intangible assets (8,714 ) (9,310 ) (23,403 ) (15,665 ) free cash flow $ (121,676 ) $ (106,872 ) $ 45,921 $ 66,709 revenue by product category (unaudited, dollars in thousands) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 sonos speakers $ 241,180 $ 317,734 $ 780,377 $ 819,620 sonos system products 44,091 61,220 158,525 195,965 partner products and other revenue 18,902 20,827 37,850 48,677 total revenue $ 304,173 $ 399,781 $ 976,752 $ 1,064,262 revenue by geographical region (unaudited, dollars in thousands) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 americas $ 196,533 $ 238,193 $ 593,097 $ 612,006 europe, middle east and africa 89,054 128,431 329,494 373,912 asia pacific 18,586 33,157 54,161 78,344 total revenue $ 304,173 $ 399,781 $ 976,752 $ 1,064,262 stock-based compensation (unaudited, dollars in thousands) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 cost of revenue $ 581 $ 377 $ 1,151 $ 705 research and development 9,565 8,091 18,716 14,829 sales and marketing 4,475 4,177 8,588 7,824 general and administrative 6,404 8,580 12,765 15,326 total stock-based compensation expense $ 21,025 $ 21,225 $ 41,220 $ 38,684 amortization of intangibles (unaudited, dollars in thousands) three months ended six months ended april 1, 2023 april 2, 2022 april 1, 2023 april 2, 2022 cost of revenue $ 973 $ 213 $ 2,158 $ 428 research and development 495 737 990 1,808 general and administrative 24 24 48 48 total amortization of intangibles $ 1,492 $ 974 $ 3,196 $ 2,284 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 lease abandonment costs and diluted earnings per share excluding stock-based compensation, legal and transaction related fees, amortization of intangibles and lease 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, lease 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 lease abandonment costs as net income (loss) less stock-based compensation, legal and transaction related fees, amortization of intangibles and lease abandonment costs. we calculate non-gaap diluted earnings per share excluding stock-based compensation, legal and transaction related fees, amortization of intangibles and lease abandonment costs as net income less stock-based compensation, legal and transaction related fees, amortization of intangibles and lease 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, 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 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 december 31, 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.
