Sonos reaches inflection point demonstrating
the power and profitability of its business model
Sonos, Inc. (Nasdaq: SONO) today reported record fourth quarter
and fiscal 2020 results.
Fourth Quarter 2020 Financial Highlights (unaudited)
- GAAP net income increased to $18.4 million from ($29.6) million
last year; non-GAAP net income excluding stock-based compensation,
restructuring and legal and transaction related fees increased to
$40.7 million from ($16.6) million last year
- GAAP diluted earnings per share (EPS) increased to $0.15 from
($0.28) last year; non-GAAP diluted earnings per share (EPS)
excluding stock-based compensation, restructuring, and legal and
transaction related fees increased to $0.33 from ($0.15) last
year
- Adjusted EBITDA increased to $46.4 million from ($2.8) million
last year; excluding the effect of tariffs, adjusted EBITDA
increased to $48.9 million
- Adjusted EBITDA margin increased to 13.7% from (0.9%) last
year; excluding the effect of tariffs, adjusted EBITDA margin
increased to 14.4%
- Gross margin increased 530 basis points to 47.5%; excluding the
effect of tariffs, gross margin increased 560 basis points to
48.3%
- Revenue increased 16% year-over-year to $339.8 million;
excluding the impact of the 14th week, revenue increased
approximately 7% year-over-year
- Direct-to-consumer revenue increased 67% year-over-year
Fiscal 2020 Financial Highlights (unaudited)
- GAAP net loss increased to ($20.1) million from ($4.8) million
last year; non-GAAP net income excluding stock-based compensation,
restructuring, and legal and transaction related fees increased to
$79.2 million from $41.8 million last year
- GAAP diluted loss per share increased to ($0.18) from ($0.05)
last year; non-GAAP diluted earnings per share (EPS) excluding
stock-based compensation, restructuring, and legal and transaction
related fees increased to $0.67 from $0.37 last year
- Adjusted EBITDA increased 22% to a record $108.5 million;
excluding the effect of tariffs, adjusted EBITDA increased 56% to
$140.9 million
- Adjusted EBITDA margin increased 120 basis points to record
8.2%; excluding the effect of tariffs, adjusted EBITDA margin
increased 350 basis points to 10.6%
- Gross margin increased 130 basis points to 43.1%; excluding the
effect of tariffs, gross margin increased 370 basis points to a
record of 45.6%
- Revenue increased 5% to $1.326 billion; excluding the impact of
the 53rd week in fiscal 2020, revenue increased approximately
3%
- Direct-to-consumer revenue increased 84% and represented a
record 21% of total revenue compared to 12% last year
- Cash flows from operating activities of $162.0 million compared
to $120.6 million last year
- Free cash flow of $129.0 million compared to $97.4 million last
year
Sonos CEO Patrick Spence commented, “We reached an inflection
point in the fourth quarter that demonstrates the power and
profitability of our model. As our customers recognize, Sonos
products operate seamlessly together, with more products improving
the experience. That’s why year in and year out, our existing
customers add more products to their systems - every new household
that we gain starts that cycle anew. Fiscal 2020 was the 15th year
in a row we grew total households by at least 20%, while our
existing customers once again showed strong repurchase habits,
accounting for a record 41% of total product registrations. We
deliver a consistent cadence of new, innovative products and
services, and we have only started the process of realizing the
lifetime value of our customers, both old and new.”
“In fiscal 2020, we delivered a record 8.2% adjusted EBITDA
margin, or 10.6% excluding the effect of tariffs, and we project
delivering 12% to 14% adjusted EBITDA margins next year, which is
ahead of our prior targets,” continued Mr. Spence.
Mr. Spence concluded, “As we look ahead, we are focused on
delivering innovative new products and services that customers
love, strengthening our direct-to-consumer efforts, and supporting
our incredible partnerships. We believe we are well positioned to
deliver strong profit margins, cash flow, revenue growth and
increased shareholder value over the long-term.”
Fiscal 2020 Company Highlights
- Launched three new products including Arc, our premium smart
soundbar replacing Playbar; Five, our most powerful speaker and
replacing Play:5; and Sub (Gen 3), featuring the same iconic design
and bold bass as its predecessor
- Launched Sonos S2, a powerful new app and operating system
- Announced multifaceted innovative marketing campaign with
Disney, celebrating the widely anticipated premiere of the second
season of “The Mandalorian”
- Introduced Sonos Radio, a free, ad-supported radio service
available in the Sonos app
- Total households increased 20% to 10.9 million in fiscal 2020
on top of 22% growth last year
- Existing households accounted for 41% of new product
registrations in fiscal 2020 up from 37% last year
- Added record 1.8 million net new households in fiscal 2020
- Average number of registered products per household at 2.9 in
fiscal 2020
- Listening hours increased 33% in fiscal 2020 compared to 29%
growth last year
Fiscal 2021 Outlook
- Adjusted EBITDA in the range of $170 million to $205 million,
representing growth in the range of 57% to 89%, or 21% to 46%
excluding the effect of tariffs in fiscal 2020
- Adjusted EBITDA margin in the range of 12% to 14%, representing
a 380 to 580 basis point improvement year-over-year, or 140 to 340
basis points excluding the effect of tariffs in fiscal 2020
- Gross margin in the range of 45.3% to 45.8%, representing a 220
to 270 basis point improvement year-over-year; excluding the effect
of tariffs in fiscal 2020, gross margin roughly flat
year-over-year. This includes minimal impact from ongoing tariffs
and no impact from the potential tariff refund.
- Revenue in the range of $1.44 billion to $1.5 billion,
representing growth in the range of 11% to 15% from fiscal 2020 on
a comparable 52-week basis and 9% to 13% on as reported basis
- Direct-to-consumer revenue as a percentage of total revenue
similar to fiscal 2020
Virtual Investor Event - Tuesday, March 9, 2021
Sonos will host a virtual investor event on Tuesday, March 9,
2021 highlighting its long-term strategic priorities and targets.
Further details to come.
Supplemental Earnings Presentation
The Company has posted a supplemental earnings presentation
accompanying its fourth quarter and fiscal 2020 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 fourth quarter and fiscal 2020 results on
November 18, 2020 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 7717309. 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.
Consolidated Statements of Operations
and Comprehensive Income (Loss)
(unaudited, dollars in thousands, except share and per share
amounts)
Three Months Ended Twelve Months
Ended October 3, 2020 September 28, 2019
October 3, 2020 September 28, 2019 Revenue
$
339,837
$
294,160
$
1,326,328
$
1,260,823
Cost of revenue
178,301
169,889
754,372
733,480
Gross profit
161,536
124,271
571,956
527,343
Operating expenses Research and development
54,783
49,644
214,672
171,174
Sales and marketing
58,338
70,894
263,539
247,599
General and administrative
32,986
28,565
120,978
102,871
Total operating expenses
146,107
149,103
599,189
521,644
Operating income (loss)
15,429
(24,832
)
(27,233
)
5,699
Other income (expense), net Interest income
43
1,416
1,998
4,349
Interest expense
(300
)
(584
)
(1,487
)
(2,499
)
Other income (expense), net
3,273
(4,985
)
6,639
(8,625
)
Total other income (expense), net
3,016
(4,153
)
7,150
(6,775
)
Income (loss) before provision for income taxes
18,445
(28,985
)
(20,083
)
(1,076
)
Provision for income taxes
34
615
32
3,690
Net income (loss)
18,411
(29,600
)
(20,115
)
(4,766
)
Net income (loss) attributable to common stockholders
Basic
18,411
(29,600
)
(20,115
)
(4,766
)
Diluted
18,411
(29,600
)
(20,115
)
(4,766
)
Net income (loss) per share attributable to common
stockholders Basic
$
0.17
$
(0.28
)
$
(0.18
)
$
(0.05
)
Diluted
$
0.15
$
(0.28
)
$
(0.18
)
$
(0.05
)
Weighted-average shares used in computing net income (loss)
per share attributable to common stockholders Basic
111,148,110
107,130,076
109,807,154
103,783,006
Diluted
122,598,225
107,130,076
109,807,154
103,783,006
Total comprehensive income (loss) Net income (loss)
18,411
(29,600
)
(20,115
)
(4,766
)
Change in foreign currency translation adjustment
(1,095
)
1,107
(1,826
)
1,613
Comprehensive income (loss)
$
17,316
$
(28,493
)
$
(21,941
)
$
(3,153
)
Condensed Consolidated Balance Sheets (unaudited,
dollars in thousands, except par values)
As of
October 3,2020 September 28,2019 Assets
Current assets: Cash and cash equivalents
$
407,100
$
338,641
Restricted cash
191
179
Accounts receivable, net of allowances
54,935
102,743
Inventories
180,830
219,784
Prepaids and other current assets
17,321
17,762
Total current assets
660,377
679,109
Property and equipment, net
60,784
78,139
Operating lease right-of-use assets
42,342
-
Goodwill
15,545
1,005
Intangible assets, net
26,394
13
Deferred tax assets
1,800
1,154
Other noncurrent assets
8,809
2,185
Total assets
$
816,051
$
761,605
Liabilities and stockholders’ equity Current liabilities:
Accounts payable
$
250,328
$
251,941
Accrued expenses
45,049
69,856
Accrued compensation
44,517
41,142
Short-term debt
6,667
8,333
Deferred revenue, current
15,304
13,654
Other current liabilities
31,150
17,548
Total current liabilities
393,015
402,474
Operating lease liabilities, noncurrent
50,360
-
Long-term debt
18,251
24,840
Deferred revenue, noncurrent
47,085
42,795
Deferred tax liabilities
2,434
-
Other noncurrent liabilities
7,067
10,568
Total liabilities
518,212
480,677
Stockholders’ equity: Common stock, $0.001 par value
114
110
Treasury stock
(20,886
)
(13,498
)
Additional paid-in capital
548,993
502,757
Accumulated deficit
(228,492
)
(208,377
)
Accumulated other comprehensive loss
(1,890
)
(64
)
Total stockholders’ equity:
297,839
280,928
Total liabilities and stockholders’ equity:
$
816,051
$
761,605
Condensed Consolidated Statements of Cash Flows
(unaudited, dollars in thousands)
Twelve Months Ended
October 3,2020 September 28,2019 Cash flows from
operating activities Net loss
$
(20,115
)
$
(4,766
)
Adjustments to reconcile net loss to net cash provided by operating
activities Depreciation and amortization
36,426
36,415
Impairment and abandonment charges
14,174
-
Stock-based compensation expense
57,610
46,575
Other
5,710
2,713
Deferred income taxes
(567
)
(268
)
Foreign currency transaction (gain) loss
(4,143
)
4,035
Changes in operating assets and liabilities:
Accounts receivable, net
49,593
(32,078
)
Inventories
38,010
(31,796
)
Other assets
(5,749
)
(7,605
)
Accounts payable and accrued expenses
(24,440
)
85,878
Accrued compensation
1,088
8,231
Deferred revenue
4,754
6,165
Other liabilities
9,635
7,137
Net cash provided by operating activities
161,986
120,636
Cash flows from investing activities Purchases of property
and equipment and intangible assets
(33,035
)
(23,222
)
Cash paid for acquisition, net of acquired cash
(36,289
)
-
Net cash used in investing activities
(69,324
)
(23,222
)
Cash flows from financing activities Repayments of
borrowings
(8,333
)
(6,667
)
Payments for repurchase of common stock under share repurchase
program
(50,015
)
-
Payments for repurchase of common stock related to equity awards
(11,029
)
(2,426
)
Proceeds from exercise of common stock options
42,286
31,574
Payments of offering costs
-
(585
)
Net cash provided by (used in) financing activities
(27,091
)
21,896
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
2,900
(1,610
)
Net increase in cash, cash equivalents and restricted cash
68,471
117,700
Cash, cash equivalents and restricted cash Beginning of
period
338,820
221,120
End of period
$
407,291
$
338,820
Supplemental disclosure Cash paid for interest
$
1,647
$
2,517
Cash paid for taxes, net of refunds
$
783
$
3,570
Cash paid for amounts included in the measurement of lease
liabilities
$
17,194
$
-
Supplemental disclosure of non-cash investing and financing
activities Purchases of property and equipment, accrued but not
paid
$
3,911
$
11,687
Right-of-use assets obtained in exchange for lease liabilities
$
77,416
$
-
Reconciliation of Net Income (Loss) to Adjusted
EBITDA (unaudited, dollars in thousands)
Three Months
Ended Twelve Months Ended October 3,2020
September 28,2019 October 3,2020 September
28,2019 Net income (loss)
$
18,411
$
(29,600
)
$
(20,115
)
$
(4,766
)
Add (deduct): Depreciation and amortization
8,733
9,012
36,426
36,415
Stock-based compensation expense
15,971
13,049
57,610
46,575
Interest income
(43
)
(1,416
)
(1,998
)
(4,349
)
Interest expense
300
584
1,487
2,499
Other (income) expense, net
(3,273
)
4,985
(6,639
)
8,625
Provision for income taxes
34
615
32
3,690
Restructuring and related charges
125
-
26,285
-
Legal and transaction related costs (1)
6,170
-
15,455
-
Adjusted EBITDA
$
46,428
$
(2,771
)
$
108,543
$
88,689
Revenue
$
339,837
$
294,160
$
1,326,328
$
1,260,823
Adjusted EBITDA margin
13.7
%
(0.9
)%
8.2
%
7.0
%
(1) 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 recent 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)
Year Ended October 3,2020 September
28,2019 Cash flows provided by operating activities
$
161,986
$
120,636
Less: purchases of property and equipment and intangible assets
(33,035
)
(23,222
)
Free cash flow
$
128,951
$
97,414
Revenue by Product Category (unaudited, dollars in
thousands)
Three Months Ended Twelve Months
Ended October 3,2020 September 28,2019 October
3,2020 September 28,2019 Sonos speakers
$
254,874
$
217,526
$
1,034,813
$
1,008,422
Sonos system products
67,901
49,686
218,788
187,172
Partner products and other revenue
17,062
26,948
72,727
65,229
Total revenue
$
339,837
$
294,160
$
1,326,328
$
1,260,823
Revenue by Geographical Region (unaudited, dollars in
thousands)
Three Months Ended Twelve Months
Ended October 3,2020 September 28,2019 October
3,2020 September 28,2019 Americas
$
199,549
$
157,540
$
755,874
$
678,224
Europe, Middle East and Africa ("EMEA")
117,076
101,248
470,883
484,785
Asia Pacific ("APAC")
23,212
35,372
99,571
97,814
Total revenue
$
339,837
$
294,160
$
1,326,328
$
1,260,823
Stock-based Compensation (unaudited, in thousands)
Three Months Ended Twelve Months Ended October 3,
2020 September 28, 2019 October 3, 2020
September 28, 2019 Cost of revenue
239
284
1,106
985
Research and development
6,742
4,851
23,439
17,643
Sales and marketing
3,701
3,549
14,359
12,965
General and administrative
5,289
4,365
18,706
14,982
Total stock-based compensation expense
$
15,971
$
13,049
$
57,610
$
46,575
Restructuring and Related Costs(1) (unaudited, in
thousands)
Three Months Ended Twelve Months Ended
October 3,2020 October 3,2020 Research and
development
$
125
$
5,074
Sales and marketing
-
19,788
General and administrative
-
1,423
Total restructuring and related costs
$
125
$
26,285
(1) On June 23, 2020, the Company initiated a restructuring
plan as part of its 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,
the Company eliminated approximately 12% of its global headcount
and closed its New York retail store and six satellite offices. The
Company believes these initiatives will better align resources to
provide further operating flexibility and more efficiently position
the business for its long-term strategy. The Company expects
activities under the 2020 restructuring plan to be substantially
complete in the first quarter of fiscal 2021.
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, gross margin excluding the
effect of tariffs, adjusted EBITDA excluding the effect of tariffs,
adjusted EBITDA margin excluding the effect of tariffs, revenue
excluding the 14th week, revenue excluding the 53rd week, 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 calculate gross margin excluding the effect of tariffs
as gross profit dollars removing the effect of tariffs imposed on
goods imported to the U.S. from China divided by revenue. We define
free cash flow as defined as net cash from operations less
purchases of property and equipment and intangible assets. We
calculate adjusted EBITDA excluding the effect of tariffs as net
income (loss) excluding the effect of tariffs imposed on goods
manufactured in China and 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 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,
new products, software, services and partnerships, profitability
and gross margins, our restructuring efforts, our tariff expense
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;
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 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
accurately forecast consumer demand for our products and manage our
inventory in response to changing demands; and the other risk
factors set forth under the caption “Risk Factors” in our Quarterly
Report on Form 10-Q for the quarter ended June 27, 2020 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 letter, 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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version on businesswire.com: https://www.businesswire.com/news/home/20201118005984/en/
Investor Contact Cammeron McLaughlin IR@sonos.com
Press Contact Tom Lodge PR@sonos.com
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