Sonos Inc

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding future operations and performance, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "would," "expect," "objective," "plan," "potential," "seek," "grow," "target," "if," and similar expressions intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, objectives, restructuring efforts, timing of certain tax impacts and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled "Risk Factors" set forth in Part I, Item 1A of the Annual Report and in our other SEC filings. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results may differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding future operations and performance, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "would," "expect," "objective," "plan," "potential," "seek," "grow," "target," "if," and similar expressions intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations, objectives, restructuring efforts, cost initiatives, timing of certain tax impacts and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled "Risk Factors" set forth in Part I, Item 1A of the Annual Report and in our other SEC filings. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results may differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

Previous wording

In addition to the measures presented in our condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, identify trends affecting our business and assist us in making operational and strategic decisions. Our key metrics are total revenue, products sold, Adjusted EBITDA, and Adjusted EBITDA margin. The most directly comparable financial measure calculated under U.S. GAAP for Adjusted EBITDA is net income. The most directly comparable financial measure calculated under U.S. GAAP for Adjusted EBITDA margin is net income margin.

Current wording

In addition to the measures presented in our condensed consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, identify trends affecting our business and assist us in making operational and strategic decisions. Our key metrics are total revenue, products sold, Adjusted EBITDA, and Adjusted EBITDA margin. The most directly comparable financial measure calculated under U.S. GAAP for Adjusted EBITDA is net income (loss). The most directly comparable financial measure calculated under U.S. GAAP for Adjusted EBITDA margin is net income (loss) margin.

Previous wording

(1)Net income margin is calculated by dividing net income by revenue.

Current wording

(1)Net income (loss) margin is calculated by dividing net income (loss) by revenue.

Previous wording

(2)For additional information regarding Adjusted EBITDA and Adjusted EBITDA margin (which are non-GAAP financial measures), including reconciliations of net income to Adjusted EBITDA, see the section titled "Non-GAAP Financial Measures" below.

Current wording

(2)For additional information regarding Adjusted EBITDA and Adjusted EBITDA margin (which are non-GAAP financial measures), including reconciliations of net income (loss) to Adjusted EBITDA, see the section titled "Non-GAAP Financial Measures" below.

Previous wording

Products sold represents the number of products that are sold during a period, net of returns and includes the sale of products in the Sonos speakers and Sonos system products categories, as well as module units sold through our partnerships with IKEA and Sonance from our Partner products and other revenue category. Growth rates between products sold and revenue are not perfectly correlated because our revenue is affected by other variables, such as the mix of products sold during the period, promotional discount activity, the introduction of new products that may have higher or lower than average selling prices, changes to selling prices, as well as the impact of recognition of previously deferred revenue.

Current wording

Products sold represents the number of products that are sold during a period, net of returns and includes the sale of products in the Sonos speakers and Sonos system products categories, as well as module units sold through our partnerships from our Partner products and other revenue category. Growth rates between products sold and revenue are not perfectly correlated because our revenue is affected by other variables, such as the mix of products sold during the period, promotional discount activity, the introduction of new products that may have higher or lower than average selling prices, changes to selling prices, as well as the impact of recognition of previously deferred revenue.

Previous wording

We define Adjusted EBITDA as net income adjusted to exclude the impact of depreciation and amortization, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes, legal and transaction related costs, restructuring and abandonment costs, and other items that we do not consider representative of underlying operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.

Current wording

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, legal and transaction related costs, restructuring and other costs, and other items that we do not consider representative of underlying operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.

Previous wording

The following table presents a reconciliation of net income to Adjusted EBITDA:

Current wording

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA:

Previous wording

Total revenue decreased $62.0 million, or 10.1%, for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, driven by softer demand due to market conditions and challenges resulting from our 2024 app rollout, partially offset by the introduction of Arc Ultra in October 2024 and Ace in June 2024.

Current wording

Total revenue decreased $54.9 million, or 6.3%, for the six months ended March 29, 2025 compared to the six months ended March 30, 2024, primarily due to softer demand due to market conditions and challenges resulting from our 2024 app rollout, partially offset by the introduction of Arc Ultra in October 2024 and Ace in June 2024.

Previous wording

Sonos speakers revenue represented 84.8% of total revenue for the three months ended December 28, 2024 and decreased 7.1% compared to the three months ended December 30, 2023, primarily driven by expected declines in Arc and Sonos One, as well as Move, partially offset by the introduction of Arc Ultra and Ace, as well as Era 100. Sonos system products represented 10.9% of total revenue for the three months ended December 28, 2024 and decreased 28.7% compared to the three months ended December 30, 2023, due to lower sales to our installed solutions channel. Partner products and other revenue represented 4.3% of total revenue for the three months ended December 28, 2024 and decreased 7.3% compared to the three months ended December 30, 2023.

Current wording

Sonos speakers revenue represented 81.6% of total revenue for the six months ended March 29, 2025 and decreased 4.1% compared to the six months ended March 30, 2024, primarily driven by expected declines in sales of Arc and Sonos One, as well as Move. These declines were partially offset by the introduction of Arc Ultra and Ace, as well as Era 100. Sonos system products represented 13.7% of total revenue for the six months ended March 29, 2025 and decreased 17.2% compared to the six months ended March 30, 2024, due to lower sales to our installed solutions channel. Partner products and other revenue represented 4.7% of total revenue for the six months ended March 29, 2025 and decreased 8.0% compared to the six months ended March 30, 2024.

Previous wording

The volume of products sold decreased 12.3% for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, primarily driven by expected declines in Arc and Sonos One, as well as Move, and partially offset by the introduction of Arc Ultra and Ace, as well as Era 100.

Current wording

The volume of products sold decreased 8.3% for the six months ended March 29, 2025 compared to the six months ended March 30, 2024, primarily driven by expected declines in units sold of Sonos One and Arc, as well as Roam and Move. These declines were partially offset by the introduction of Arc Ultra and Ace, as well as increases in sales of Era 100.

Previous wording

Cost of revenue decreased $20.7 million, or 6.3%, for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, primarily due to a decrease in products sold as well as a decrease in product and material costs, partially offset by a shift into higher cost products.

Current wording

Cost of revenue increased $5.5 million, or 3.9%, for the three months ended March 29, 2025 compared to the three months ended March 30, 2024, primarily due to shift into higher cost products, and the impact of reorganization efforts, partially offset by a decrease in inventory-related write-downs and a decrease in product and material costs.

Previous wording

Our gross margin has fluctuated and may, in the future, fluctuate from period to period based on a number of factors, including the mix of products we sell, the mix of channels through which we sell our products, fluctuations of our product and material cost saving initiatives, fluctuations in our product and material markets, promotional activity, the foreign currency in which our products are sold, and tariffs and duty costs implemented by governmental authorities.

Current wording

Our gross margin has fluctuated and may, in the future, fluctuate from period to period based on a number of factors, including the mix of products we sell, the mix of channels through which we sell our products, fluctuations of our product and material cost savings, fluctuations in our product and material and logistics markets, product pricing strategies and promotional activity, the foreign currency in which our products are sold, and tariffs and duty costs implemented by governmental authorities.

Previous wording

Gross margin decreased 230 basis points for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, primarily due to an increase in inventory-related write-downs, unfavorable channel mix, and increased depreciation and amortization primarily related to the reclassification of our Mayht in-process research and development into finite-lived intangible assets, partially offset by decreased product and material costs.

Current wording

Gross margin decreased 180 basis points for the six months ended March 29, 2025 compared to the six months ended March 30, 2024, primarily due to unfavorable channel mix, the impact of reorganization efforts, and increased depreciation and amortization primarily related to the completion of our Mayht in-process research and development project and related reclassification into finite-lived intangible assets, partially offset by decreased product and material costs and favorable product mix.

Previous wording

Research and development expenses increased $1.6 million, or 2.0%, for the three months ended December 28, 2024 compared to the three months ended December 30, 2023. This increase was primarily driven by a stock-based compensation expense related to retention of key personnel, partially offset by lower personnel-related costs due to lower headcount.

Current wording

Research and development expenses excluding restructuring and other costs decreased $13.7 million, or 8.6%, for the six months ended March 29, 2025 compared to the six months ended March 30, 2024. This decrease was primarily driven by lower personnel-related costs due to lower headcount and lower product development spend, partially offset by stock-based compensation expense related to retention of key personnel.

Previous wording

Sales and marketing expenses consist primarily of advertising and marketing activity for our products and personnel-related expenses, as well as trade show and event costs, sponsorship costs, consulting and contractor expenses, travel costs, depreciation for product displays, as well as related maintenance and repair expenses, customer experience and technology support tool expenses, revenue related sales fees from our direct-to-consumer business, and related overhead costs.

Current wording

Sales and marketing expenses consist primarily of advertising and marketing activity for our products and personnel-related expenses, depreciation for product displays, as well as related maintenance and repair expenses, customer experience expenses, revenue related sales fees from our direct-to-consumer business, and related overhead costs.

Previous wording

Sales and marketing expenses increased $2.7 million, or 3.2%, for the three months ended December 28, 2024 compared to the three months ended December 30, 2023. This was primarily driven by app recovery spend and depreciation costs associated with a refresh of our product displays deployed at retail locations, partially offset by lower revenue-related sales fees.

Current wording

Sales and marketing expenses excluding restructuring and other costs increased $2.4 million, or 1.6%, for the six months ended March 29, 2025 compared to the six months ended March 30, 2024. This was primarily driven by app recovery spend and depreciation costs associated with our product displays, partially offset by decreased advertising and marketing activity, lower personnel-related costs due to lower headcount, and lower revenue-related sales fees.

Previous wording

General and administrative expenses decreased $14.0 million, or 35.1%, for the three months ended December 28, 2024 compared to the three months ended December 30, 2023. This decrease was primarily driven by lower personnel and facilities costs following the 2024 restructuring plan and a decrease in legal fees mainly related to our IP litigation.

Current wording

General and administrative expenses excluding restructuring and other costs decreased $11.8 million, or 29.0%, for the three months ended March 29, 2025 compared to the three months ended March 30, 2024. This decrease was primarily driven by lower personnel-related costs due to lower headcount and a decrease in legal fees mainly related to our IP litigation.

Previous wording

Interest income for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, decreased due to lower cash balances. Interest expense for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, increased primarily due to increased expenses associated with our Revolving Credit Agreement and banking partners. Other income (expense), net for the three months ended December 28, 2024 compared to the three months ended December 30, 2023, decreased from other income of $10.3 million for the three months ended December 30, 2023 to other expense of $6.0 million for the three months ended December 28, 2024 due to foreign currency exchange fluctuations.

Current wording

Interest income for the three months ended March 29, 2025 compared to the three months ended March 30, 2024, decreased due to lower cash balances. Interest expense for the three months ended March 29, 2025 compared to the three months ended March 30, 2024, decreased primarily due to lower interest expense on a foreign income tax obligation. Other income (expense), net for the three months ended March 29, 2025 compared to the three months ended March 30, 2024, increased from other expenses of $3.3 million for the three months ended March 30, 2024 to other income of $0.2 million for the three months ended March 29, 2025 due to foreign currency exchange fluctuations.

Previous wording

We recognized a tax benefit of $6.4 million for the three months ended December 28, 2024, compared to a provision for income taxes of $12.0 million for the three months ended December 30, 2023. This decrease was driven by a change in the prescribed US GAAP method to calculate the interim income tax benefit for the period ending December 28, 2024 versus the method used to calculate the income tax provision for the period ending December 30, 2023.

Current wording

We recognized a tax provision of $11.0 million for the three months ended March 29, 2025, compared to a benefit from income taxes of $0.7 million for the three months ended March 30, 2024. This increase was driven by a change in the prescribed U.S. GAAP method to calculate the interim income tax provision for the period ending March 29, 2025 versus the discrete method used to calculate the income tax benefit for the period ending March 30, 2024.

Previous wording

For the three months ended December 28, 2024, we utilized the AETR method to calculate separate U.S. and foreign income tax provisions. Separate U.S. and non-U.S. AETRs were calculated in accordance with interim US GAAP reporting requirements since, unlike the prior year, small fluctuations in forecasted pre-tax income (loss) are not expected to have a material impact on the estimated U.S. AETR. For the three months ended December 30, 2023, we calculated our U.S. income tax provision using the discrete method as though the interim period was an annual period, since minor deviations in the projected pre-tax loss in the U.S. could have resulted in a disproportionate and unreliable effective tax rate under the AETR method.

Current wording

For the three months ended March 29, 2025, we utilized the AETR method to calculate separate U.S. and foreign income tax provisions. Separate U.S. and non-U.S. AETRs were calculated in accordance with interim U.S. GAAP reporting requirements since, unlike the prior year, small fluctuations in forecasted pre-tax income (loss) are not expected to have a material impact on the estimated U.S. AETR. For the three months ended March 30, 2024, we calculated our U.S. income tax provision using the discrete method as though the interim period was an annual period, since minor deviations in the projected pre-tax loss in the U.S. could have resulted in a disproportionate and unreliable effective tax rate under the AETR method.

Previous wording

Our operations are financed primarily through cash flows from operating activities. As of December 28, 2024, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $280.0 million, including $143.3 million held by our foreign subsidiaries, marketable securities of $47.9 million, proceeds from the exercise of stock options, and borrowing capacity under the credit facility under our Revolving Credit Agreement. In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of December 28, 2024, as they are required to fund needs outside of the United States. In the event funds from foreign operations are needed to fund operations in the United States and if U.S. tax has not already been previously provided, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

Current wording

Our operations are financed primarily through cash flows from operating activities. As of March 29, 2025, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $173.2 million, including $72.9 million held by our foreign subsidiaries, marketable securities of $50.3 million, proceeds from the exercise of stock options, and borrowing capacity under the credit facility under our Revolving Credit Agreement. In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of March 29, 2025, as they are required to fund needs outside of the United States. In the event funds from foreign operations are needed to fund operations in the United States and if U.S. tax has not already been previously provided, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

Previous wording

Net cash provided by operating activities of $156.2 million for the three months ended December 28, 2024, consisted of net income of $50.2 million, non-cash adjustments of $47.3 million, and a favorable impact of net changes in operating assets and liabilities of $58.6 million. Non-cash adjustments primarily consisted of stock-based compensation expense and depreciation and amortization. The net increase in cash from the change in operating assets and liabilities was primarily due to a decrease in inventories of $89.3 million as the result of measures taken to more efficiently manage inventory, an increase in accrued compensation of $12.4 million, and an increase in other liabilities of $9.1 million primarily for provisions for our returns. The net increase in cash from the change in operating assets and liabilities was partially offset by an increase in accounts receivable of $41.4 million.

Current wording

Net cash provided by operating activities of $96.5 million for the six months ended March 29, 2025, consisted of net loss of $19.9 million, non-cash adjustments of $85.4 million, and a favorable impact of net changes in operating assets and liabilities of $31.0 million. Non-cash adjustments primarily consisted of stock-based compensation expense, depreciation and amortization, as well as non-cash restructuring and other charges. The net increase in cash from the change in operating assets and liabilities was primarily due to a decrease in inventories of $92.6 million due to seasonality and as the result of measures taken to more efficiently manage inventory, an increase in accrued compensation of $10.5 million, an increase in other liabilities of $5.8 million primarily for provisions for our returns, and a decrease in accounts receivable of $4.7 million. The net increase in cash from the change in operating assets and liabilities was partially offset by a decrease in accounts payable of $83.6 million driven by payments for inventory purchases and payment of a non-recurring non-U.S. income tax due on the intercompany transfer of intellectual property to the U.S.

Previous wording

Cash used in investing activities of $9.3 million for the three months ended December 28, 2024, primarily consisted of the purchases of marketable securities of $10.1 million and purchases of property and equipment of $13.1 million mainly related to point-of-sale product displays and manufacturing-related tooling and test equipment to support the launch of new products, partially offset by cash provided by maturities of marketable securities of $13.9 million.

Current wording

Cash used in investing activities of $17.2 million for the six months ended March 29, 2025, primarily consisted of the purchases of marketable securities of $25.9 million and purchases of property and equipment of $18.7 million mainly related to point-of-sale product displays and manufacturing-related tooling and test equipment to support the launch of new products, partially offset by cash provided by maturities of marketable securities of $27.4 million.

Previous wording

Cash used in financing activities of $33.8 million for the three months ended December 28, 2024, primarily consisted of payments for repurchases of common stock of $27.2 million and payments for repurchases of common stock related to shares withheld for tax in connection with vesting of stock awards of $9.0 million, partially offset by proceeds from the exercise of stock options of $2.4 million.

Current wording

Cash used in financing activities of $74.2 million for the six months ended March 29, 2025, primarily consisted of payments for repurchases of common stock of $60.6 million and payments for repurchases of common stock related to shares withheld for tax in connection with vesting of stock awards of $16.2 million, partially offset by proceeds from the exercise of stock options of $2.7 million.