Sonos Reports Record Second Quarter Fiscal 2021 Results

Raises Fiscal 2021 Outlook

Sonos, Inc. (Nasdaq: SONO) today reported record second quarter fiscal 2021 results.

Second Quarter 2021 Financial Highlights (unaudited)

• GAAP net income (loss) increased to $17.2 million from ($52.3) million last year; non-GAAP net income (loss) excluding stock-based compensation, restructuring and legal and transaction related fees increased to $44.6 million from ($37.2) million last year.
• GAAP diluted earnings per share (EPS) increased to $0.12 from ($0.48) last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $0.31 from ($0.34) last year.
• Adjusted EBITDA increased to $48.5 million from ($28.4) million last year.
• Adjusted EBITDA margin increased to 14.6% from (16.2%) last year.
• Gross margin increased 810 basis points to 49.8% from 41.7% last year.
• Revenue increased 90% year-over-year to $332.9 million; on a constant-currency basis, revenue increased approximately 83% year-over-year.

Sonos CEO Patrick Spence commented, “We are thrilled to report another record quarter at Sonos, as demand for our products continues to exceed even our heightened expectations. The power of our model is that customers can start with one product and expand to more over time, and our customers continue to prove they do just that. Based on our outstanding second quarter performance, the continued strong demand for our products, and the power and profitability of our unique business model, we are raising our outlook for fiscal 2021 again.”

Mr. Spence continued, “Our increased fiscal 2021 revenue outlook still assumes Sonos will account for only approximately 9% of the total spend in the $18 billion premium home audio market¹, and an even smaller fraction of the broader $89 billion global audio market² we expect to expand into over the long-term. We are truly just scratching the surface toward realizing our long-term opportunity. The future is bright for Sonos.”

Mr. Spence concluded, “We remain focused on our key three strategic initiatives - the expansion of our brand, the expansion of our offerings, and driving operational excellence - and continue to see a clear path toward achieving our fiscal 2024 targets of $2.25 billion revenue, 45% to 47% gross margin, and 15% to 18% adjusted EBITDA margin. We are extremely well positioned to deliver significant free cash flow and increased shareholder value over the long-term.”

Fiscal 2021 Outlook

• Adjusted EBITDA increased to a range of $225 million to $250 million representing growth in the range of 107% to 130%.
  • This compares to our prior outlook of $195 million to $225 million, representing growth in the range of 80% to 107% and our initial fiscal 2021 outlook provided at the start of the fiscal year of $170 million to $205 million, representing growth in the range of 57% to 89%.
• Adjusted EBITDA margin increased to a range of 13.8% to 14.9%, representing a 560 to 670 basis point improvement year-over-year.
  • This compares to our prior outlook range of 12.8% to 14.3%, representing a 460 to 610 basis point improvement and our initial fiscal 2021 outlook of 12% to 14%, representing a 380 to 580 basis point improvement.
• Gross margin in the range of 46.0% to 46.5%, representing a 288 to 338 basis point improvement year-over-year.
  • Our fiscal 2021 gross margin outlook reflects minimal impact from ongoing tariffs and does not include the $27.5 million in tariff refunds expected due to timing uncertainty.
  • This is consistent with our prior guidance range of 46.0% to 46.5% and compares to our initial fiscal 2021 outlook of 45.3% to 45.8%.
• Revenue increased to a range of $1.625 billion to $1.675 billion, representing growth in the range of 23% to 26% year-over-year (25% to 29% on a comparable basis excluding the 53rd week in fiscal 2020).
  • This compares to our prior guidance range of $1.525 billion to $1.575 billion, representing growth in the range of 15% to 19% from fiscal 2020 (17% to 21% excluding the 53rd week in fiscal 2020) and our initial fiscal 2021 outlook of $1.44 billion to $1.5 billion, or 9% to 13% growth (11% to 15% excluding the 53rd week in fiscal 2020).

¹ “Premium” defined as $100+ wireless speakers, $200+ soundbars, $300+ Hi-Fi systems, $250+ in-wall/in-ceiling speakers, $250+ bookshelf speakers (pairs), and all AV receivers, Floor standing speakers, home theater speakers and home theater in a box products and Hi-Fi separates. Source: Futuresource.

² Source: Futuresource.

Supplemental Earnings Presentation

The Company has posted a supplemental earnings presentation accompanying its second 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 second quarter fiscal 2021 results on May 12, 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 6483115. 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.

(1) Restructuring and related expenses for the six months ended April 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.

(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 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 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 excluding stock-based compensation, restructuring and legal and transaction related fees as net income 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 less stock-based compensation, restructuring costs and legal and transaction related fees 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 outlook for the fiscal year ended October 2, 2021, 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 January 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.

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