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

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.

¹Source: 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.

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