Press release

Sonos Reports Record Fourth Quarter and Fiscal 2020 Results

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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.