Sonos Inc

Previous wording

In addition to the measures presented in our 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 and Adjusted EBITDA margin are net income (loss) and net income (loss) margin, respectively.

Current wording

In addition to the measures presented in our 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 and Adjusted EBITDA margin are net loss and net loss margin, respectively.

Previous wording

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

Current wording

(1)Net loss margin is calculated by dividing net 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 (loss), to Adjusted EBITDA, see the sections titled "Adjusted EBITDA and Adjusted EBITDA Margin" and "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 loss to Adjusted EBITDA, see the sections titled "Adjusted EBITDA and Adjusted EBITDA Margin" and "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 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, 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 architectural speakers and module units sold through 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 price at which we sell our products, the introduction of new products that may have higher or lower than average selling prices, the impact of foreign exchange fluctuations, as well as the impact of recognition of previously deferred revenue.

Previous wording

We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. See the section titled "Results of Operations —Non-GAAP Financial Measures" for information regarding our use of Adjusted EBITDA and Adjusted EBITDA margin, and a reconciliation of net income (loss) to Adjusted EBITDA and net income (loss) margin to Adjusted EBITDA margin.

Current wording

See the section titled "Results of Operations —Non-GAAP Financial Measures" for information regarding our use of Adjusted EBITDA and Adjusted EBITDA margin, and a reconciliation of net income (loss) to Adjusted EBITDA and net income (loss) margin to Adjusted EBITDA margin.

Previous 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 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 charges, 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 (loss) to adjusted EBITDA:

Current wording

The following table presents a reconciliation of net loss to adjusted EBITDA:

Previous wording

Total revenue decreased $137.2 million, or 8.3% for fiscal 2024 compared to fiscal 2023, primarily due to softer demand across all regions due to market conditions and challenges resulting from our recent app rollout, partially offset by the introduction of Ace in June 2024, and the impact of favorable foreign exchange rates.

Current wording

Total revenue decreased $74.8 million, or 4.9% for fiscal 2025 compared to fiscal 2024, driven by challenges resulting from our app rollout in May 2024 and softer demand due to market conditions, partially offset by the introduction of Arc Ultra in October 2024.

Previous wording

Sonos speakers represented 77.0% of total revenue for fiscal 2024 and decreased 9.6% compared to fiscal 2023, primarily driven by expected declines in Sonos One and softer demand across the category, particularly in our home theater products. These declines were partially offset by sales of Era 100 and Era 300 which were introduced in March 2023, and by the introduction of Ace in June 2024. Sonos system products represented 17.6% of total revenue for fiscal 2024 and decreased 6.1% compared fiscal 2023. Partner products and other revenue represented 5.3% of total revenue for fiscal 2024, and increased 5.2% compared to the twelve months ended September 30, 2023.

Current wording

Sonos speakers represented 77.7% of total revenue for fiscal 2025 and decreased 4.1% compared to fiscal 2024, primarily driven by expected declines in Arc and Sonos One, as well as Beam, Move, and Sub Mini. These declines were partially offset by the introduction of Arc Ultra, as well as Era 100. Sonos system products represented 17.3% of total revenue for fiscal 2025 and decreased 6.9% compared fiscal 2024. Partner products and other revenue represented 5.0% of total revenue for fiscal 2025, and decreased 10.5% compared to fiscal 2024.

Previous wording

The volume of products sold decreased 12.7% for fiscal 2024, compared to fiscal 2023, primarily driven by expected declines in units of Sonos One, and softer demand, particularly in our home theater products. These declines were partially offset by sales of Era 100 and Era 300, as well as the introduction of Ace in June 2024. The decrease in volume of products sold outpaced that of revenue due to the impact of product mix.

Current wording

The volume of products sold decreased 7.5% for fiscal 2025, compared to fiscal 2024.

Previous wording

Cost of revenue consists of product costs, including costs of our contract manufacturers for production, components, shipping and handling, tariffs, duty costs, warranty replacement costs, packaging, fulfillment costs, manufacturing and tooling equipment depreciation, warehousing costs, hosting costs, and excess and obsolete inventory write-downs. It also includes licensing costs, such as royalties to third parties, and attributable amortization of acquired developed technology. In addition, we allocate certain costs related to management and facilities, personnel-related expenses, and supply chain logistic costs. Personnel-related expenses consist of salaries, bonuses, benefits, and stock-based compensation expenses.

Current wording

Cost of revenue consists of product costs, including costs of our contract manufacturers for production, components, shipping and handling, tariffs, duty costs, warranty replacement costs, packaging, fulfillment costs, manufacturing and tooling equipment depreciation, warehousing costs, hosting costs, and excess and obsolete inventory write-downs. It also includes licensing costs, such as royalties to third parties, and amortization attributable to acquired developed technology. In addition, we allocate certain costs related to management and facilities, personnel-related expenses, and supply chain logistic costs. Personnel-related expenses consist of salaries, bonuses, benefits, and stock-based compensation expenses.

Previous wording

Research and development expenses consist primarily of personnel-related expenses, consulting and contractor expenses, tooling, test equipment, prototype materials, and related overhead costs. To date, software development costs have been expensed as incurred because the period between achieving technological feasibility and the release of the software has been short and development costs qualifying for capitalization have been insignificant.

Current wording

Research and development expenses consist primarily of personnel-related expenses, third-party resources expenses, tooling, test equipment, prototype materials, and related overhead costs. To date, software development costs have been expensed as incurred because the period between achieving technological feasibility and the release of the software has been short and development costs qualifying for capitalization have been insignificant.

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 overhead costs.

Current wording

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

Previous wording

General and administrative expenses consist of administrative personnel-related expenses for our finance, legal, human resources and similar personnel, as well as the costs of professional services, information technology, litigation, patents, related overhead, and other administrative expenses.

Current wording

General and administrative expenses consist of administrative personnel-related expenses for our information technology, finance, legal, human resources, and similar personnel, as well as the costs of professional services, information technology, litigation, patents, related overhead, and other administrative expenses.

Previous wording

General and administrative expenses decreased $26.3 million, or 15.6%, for fiscal 2024 compared to the fiscal 2023. This was primarily driven by a decrease in legal fees related to our IP litigation.

Current wording

General and administrative expenses excluding restructuring and other charges decreased $26.8 million, or 19.3%, for fiscal 2025 compared to the fiscal 2024. This decrease was primarily driven by lower personnel-related costs, professional fees and information technology costs as a result of lower headcount and our cost transformation efforts.

Previous wording

Interest Income, Interest Expense, and Other Income, Net

Current wording

Interest Income, Interest Expense, and Other Income (Expense), Net

Previous wording

Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities balances. Interest expense consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs. Other income, net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Current wording

Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities balances. Interest expense consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs. Other income (expense), net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Previous wording

Interest income for fiscal 2024, compared to fiscal 2023, increased primarily due to the allocation of some excess cash into marketable securities and higher yields on our cash and cash equivalents. Interest expense for fiscal 2024, compared to fiscal 2023, decreased primarily due to reduced expenses associated with our Revolving Credit Agreement. The decrease in other income, net for fiscal 2024, compared to fiscal 2023, was primarily due to foreign currency exchange fluctuations.

Current wording

Interest income for fiscal 2025 compared to fiscal 2024 decreased primarily due to lower yields on our cash and cash equivalents combined with lower average cash balances. Interest expense for fiscal 2025, compared to fiscal 2024, increased primarily due to increased bank fees. The increase in other income (expense), net for fiscal 2025, compared to fiscal 2024, was primarily due to non-cash foreign currency exchange fluctuations.

Previous wording

Provision for income taxes for fiscal 2024, compared to fiscal 2023, decreased due to a favorable tax ruling on a Dutch Innovation Box application resulting in a revaluation of certain Dutch deferred tax liabilities, a reduction in the amount of net expense subject to capitalization under Section 174 of the U.S. Internal Revenue Code, and a reduction in operating income, partially offset by income tax expense in the Netherlands related to an intercompany sale of intellectual property to the U.S.

Current wording

Provision for income taxes for fiscal 2025, compared to fiscal 2024, decreased slightly primarily due to a reduction in the amount of net expense subject to capitalization under Section 174 of the U.S. Internal Revenue Code and a reduction in operating income. The decrease was partially offset by the non-recurrence of favorable tax impacts recognized in fiscal 2024 related to a Dutch Innovation Box ruling and the revaluation of certain Dutch deferred tax liabilities related to an intercompany sale of intellectual property to the U.S.

Previous wording

For the comparison of fiscal years 2023 and 2022, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended September 30, 2023, filed with the SEC on November 20, 2023, under the subheading "Comparison of fiscal years 2023 and 2022."

Current wording

For the comparison of fiscal years 2024 and 2023, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for fiscal 2024, filed with the SEC on November 15, 2024, under the subheading "Comparison of fiscal years 2024 and 2023."

Previous wording

Our operations are financed primarily through cash flows from operating activities. As of September 28, 2024, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $169.7 million, including $36.4 million held by our foreign subsidiaries, marketable securities of $51.4 million, proceeds from the exercise of stock options, and borrowing capacity under the Credit Facility. In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of September 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 September 27, 2025, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $174.7 million, including $105.5 million held by our foreign subsidiaries, marketable securities of $52.9 million, proceeds from the exercise of stock options, and borrowing capacity under the Credit Facility. In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of September 27, 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 paid, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

Previous wording

We believe our existing cash and cash equivalent balances, cash flows from operations, and committed credit lines will be sufficient to meet our long-term working capital and capital expenditure needs for at least the next 12 months. We hold our cash with a diverse group of major financial institutions and have processes and safeguards in place to manage our cash balances and mitigate the risk of loss. In October 2021, we entered into the Revolving Credit Agreement, which allows us to borrow up to $100 million, with a maturity date of October 2026. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, our planned sales and marketing activities, the timing of new product introductions, our potential merger and acquisition activity, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in increased dilution to our stockholders. If we were to incur additional debt financing it would result in increased debt service obligations and the instruments governing such debt could require additional operating and financing covenants that would restrict our operations.

Current wording

We believe our existing cash and cash equivalent balances, cash flows from operations, and committed credit lines will be sufficient to meet our long-term working capital and capital expenditure needs for at least the next 12 months. We hold our cash with a diverse group of major financial institutions and have processes and safeguards in place to manage our cash balances and mitigate the risk of loss. In October 2021, we entered into the Revolving Credit Agreement, which allows us to borrow up to $100 million, with a maturity date of October 2026. In October 2025, we amended the Revolving Credit Agreement. See Note 14. Subsequent Event of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, our planned sales and marketing activities, the timing of new product introductions, our potential merger and acquisition activity, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in increased dilution to our stockholders. If we were to incur additional debt financing it would result in increased debt service obligations and the instruments governing such debt could require additional operating and financing covenants that would restrict our operations.

Previous wording

On October 13, 2021, we entered into the Revolving Credit Agreement. The Revolving Credit Agreement provides for (i) a five year senior secured revolving credit facility in the amount of up to $100 million and (ii) an uncommitted incremental facility subject to certain conditions. Proceeds are to be used for working capital and general corporate purposes. In June 2023, we amended our Revolving Credit Agreement to change the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”), effective July 1, 2023. The facility may be drawn as an Alternative Base Rate Loan (at 1.00% plus an applicable margin) or Term Benchmark Loan (SOFR plus an applicable margin). We must also pay (i) an unused commitment fee ranging from 0.200% to 0.275% per annum of the average daily unused portion of the aggregate revolving credit commitment under the agreement and (ii) a per annum fee equal to the applicable margin over SOFR multiplied by the aggregate face amount of outstanding letters of credit. As of September 28, 2024, we did not have any outstanding borrowings and $1.8 million in undrawn letters of credit that reduce the availability under the Revolving Credit Agreement.

Current wording

On October 13, 2021, we entered into a Revolving Credit Agreement with JPMorgan Chase Bank, N.A., as the administrative agent, and Bank of America N.A., Morgan Stanley Senior Funding, Inc., and Goldman Sachs Bank USA as the other lenders party thereto (the "Revolving Credit Agreement"). The Revolving Credit Agreement provided for (i) a five year senior secured revolving credit facility in the amount of up to $100 million and (ii) an uncommitted incremental facility subject to certain conditions. Proceeds are to be used for working capital and general corporate purposes. In June 2023, we amended our Revolving Credit Agreement to change the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”), effective July 1, 2023. The facility may be drawn as an Alternative Base Rate Loan (at 1.00% plus an applicable margin) or Term Benchmark Loan (SOFR plus an applicable margin). We must also pay (i) an unused commitment fee ranging from 0.200% to 0.275% per annum of the average daily unused portion of the aggregate revolving credit commitment under the agreement and (ii) a per annum fee equal to the applicable margin over SOFR multiplied by the aggregate face amount of outstanding letters of credit. As of September 27, 2025, we did not have outstanding borrowings and $2.4 million in undrawn letters of credit that reduce the availability under the Revolving Credit Agreement.

Previous wording

Net cash provided by operating activities of $189.9 million for fiscal 2024 consisted of a net loss of $38.1 million, a favorable impact of non-cash adjustments of $125.3 million, and a favorable impact of net changes in operating assets and liabilities of $102.8 million. Non-cash adjustments primarily consisted of stock-based compensation expense and depreciation and amortization, partially offset by deferred income taxes as a result of a benefit from income taxes from the reversal of a deferred tax liability related to an intercompany sale of intellectual property. The net increase in cash from the change in operating assets and liabilities was primarily due to a decrease in inventories of $106.1 million as the result of measures taken to more efficiently manage inventory and the implementation of new payment terms with suppliers, and a decrease in accounts receivable of $23.0 million. The net increase in cash from the change in operating assets and liabilities was partially offset by an increase in other assets of $28.8 million due to timing of prepaid contracts.

Current wording

Net cash provided by operating activities of $136.9 million for fiscal 2025 consisted of a net loss of $61.1 million, non-cash adjustments of $170.1 million, and a favorable impact of net changes in operating assets and liabilities of $27.9 million. Non-cash adjustments primarily consisted of stock-based compensation expense, depreciation and amortization, and non-cash restructuring charges. The net increase in cash from the change in operating assets and liabilities was primarily due to a decrease in inventories of

Previous wording

Cash used in investing activities of $105.2 million for fiscal 2024, primarily consisted of the purchases of marketable securities of $90.5 million, and purchases of property and equipment of $55.2 million mainly related to point-of-sale product displays, manufacturing-related tooling and test equipment to support the launch of new products, and leasehold improvements, partially offset by cash provided by maturities of marketable securities of $40.5 million.

Current wording

Cash used in investing activities of $29.5 million for fiscal 2025, primarily consisted of the purchases of marketable securities of $57.9 million, and purchases of property and equipment of $28.7 million mainly related to point-of-sale product displays, manufacturing-related tooling and test equipment to support the launch of new products, and leasehold improvements, partially offset by cash provided by maturities of marketable securities of $57.1 million.

Previous wording

Cash used in financing activities of $137.3 million for fiscal 2024, primarily consisted of payments for repurchase of common stock of $129.0 million and payments for repurchase of common stock related to shares withheld for tax in connection with vesting of stock awards of $25.3 million, partially offset by proceeds from the exercise of options of $17.1 million.

Current wording

Cash used in financing activities of $102.3 million for fiscal 2025, primarily consisted of payments for repurchase of common stock of $81.0 million and payments for repurchase of common stock related to shares withheld for tax in connection with vesting of stock awards of $25.9 million, partially offset by proceeds from the exercise of options of $4.5 million.

Previous wording

For the comparison of fiscal 2023 to fiscal 2022, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" of our Form 10-K for our fiscal year ended September 30, 2023, filed with the SEC on November 20, 2023, under the subheading "Liquidity and capital resources."

Current wording

For the comparison of fiscal 2024 to fiscal 2023, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" of our Form 10-K for fiscal 2024, filed with the SEC on November 15, 2024, under the subheading "Liquidity and capital resources."

Previous wording

We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products. We also generate a portion of revenue from partner products and other revenue sources, such as architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, advertising revenue, licensing and subscription revenue such as Sonos Radio HD and Sonos Pro (software-as-a-service).

Current wording

We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products. We also generate a portion of revenue from partner products and other revenue sources, such as architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, advertising revenue, licensing and subscription revenue.

Previous wording

We determined that unspecified software upgrades represent a separate performance obligation as they occur subsequent to the time of purchase, fulfillment of these promises can be made separately, there are no resulting significant modification or customization to our products, and these services are provided to customers at no additional charge. We have also determined cloud-based services to be a separate performance obligation based as they are additive to our products rather than transformative.

Current wording

We determined that unspecified software upgrades represent a separate performance obligation as they occur subsequent to the time of purchase, fulfillment of these promises can be made separately, there are no resulting significant modification or customization to our products, and these services are provided to customers at no additional charge. We have also determined cloud-based services to be a separate performance obligation as they are additive to our products rather than transformative.

Previous wording

Inventory consists of finished goods and component parts, which we purchase from contract manufacturers and component suppliers. We record and value our inventory at the lower-of-cost and net realizable value. We determine cost using a standard costing method, which approximates first-in first-out. On a quarterly basis, we assess the value of our inventory on hand and non-cancelable purchase commitments for potential excess and/or obsolete inventory and will periodically write down the value to account for estimated excess and/or obsolete inventory. We determine excess or obsolete inventory based on market conditions, age/condition of inventory, an estimate of the future demand for our products within a specified time horizon, generally the shorter of 24 months or remaining life of the product, and product life cycle status. Inventory write-downs and losses on purchase commitments are recorded as a component of cost of revenue in our consolidated statement of operations and comprehensive income (loss). If actual demand is lower than our forecasted demand, we could be required to write down the value of additional inventory, which would have a negative effect on our gross profit. A hypothetical 10% change to our inventory reserves percentages would not result in a material change to our fiscal 2024 cost of revenue.

Current wording

Inventory consists of finished goods and component parts, which we purchase from contract manufacturers and component suppliers. We record and value our inventory at the lower-of-cost and net realizable value. We determine cost using a standard costing method, which approximates first-in first-out. On a quarterly basis, we assess the value of our inventory on hand and non-cancelable purchase commitments for potential excess and/or obsolete inventory and will periodically write down the value to account for estimated excess and/or obsolete inventory. We determine excess or obsolete inventory based on market conditions, age/condition of inventory, an estimate of the future demand for our products within a specified time horizon, generally the shorter of 24 months or remaining life of the product, and product life cycle status. Inventory write-downs and losses on purchase commitments are recorded as a component of cost of revenue in our consolidated statement of operations and comprehensive loss. If actual demand is lower than our forecasted demand, we could be required to write down the value of additional inventory, which would have a negative effect on our gross profit. A hypothetical 10% change to our inventory reserves percentages would not result in a material change to our fiscal 2025 cost of revenue.