Sonos Inc

1. Business Overview and Basis of Presentation

Description of business

Sonos, Inc. and its wholly owned subsidiaries (collectively, "Sonos," the "Company," "we," "us" or "our") designs, develops, manufactures, and sells audio products and services. The Sonos sound system provides customers with an immersive listening experience created by the design of its speakers, headphones and components, a proprietary software platform, and the ability to stream content from a variety of sources over the customer’s wireless network or over Bluetooth.

The Company’s products are sold through third-party physical retailers, including custom installers of home audio systems, select e-commerce retailers, and its website, sonos.com. The Company’s products are distributed in over 60 countries through its wholly owned subsidiaries: Sonos Europe B.V. in the Netherlands, Beijing Sonos Technology Co. Ltd. in China, Sonos Japan GK in Japan, and Sonos Australia Pty Ltd. in Australia.

Basis of presentation and preparation

The accompanying condensed consolidated financial statements are unaudited. The condensed consolidated balance sheet as of September 27, 2025, has been derived from the audited consolidated financial statements of the Company.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for annual financial statements. They should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 2025, (the "Annual Report"), filed with the SEC on November 14, 2025.

In management’s opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position, its results of operations, and its cash flows for the interim periods presented. The results of operations for the three and six months ended March 28, 2026, are not necessarily indicative of the results to be expected for the full fiscal year or any other period.

The Company operates on a 52- week or 53- week fiscal year ending on the Saturday nearest September 30 each year. The Company’s fiscal year is divided into four quarters of 13 weeks, each beginning on a Sunday and containing two 4-week periods followed by a 5-week period. An additional week is included in the fourth fiscal quarter approximately every five years to realign fiscal quarters with calendar quarters. This last occurred in the fourth quarter of the Company’s fiscal year ended October 3, 2020, and will reoccur in the fiscal year ending October 3, 2026. The six months ended March 28, 2026 and March 29, 2025, spanned 26 weeks each. As used in this Quarterly Report on Form 10-Q, "fiscal 2026" refers to the fiscal year ending October 3, 2026, "fiscal 2025" refers to the fiscal year ended September 27, 2025, and "fiscal 2024" refers to the fiscal year ended September 28, 2024.

Use of estimates and judgments

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates and judgments compared to historical experience and expected trends.

Segment Information

The Company operates asone operating segment as it only reports aggregate financial information on a consolidated basis, accompanied by disaggregated information about revenue by geographic region and product category, to its Chief Executive Officer, who is the Company’s Chief Operating Decision Maker ("CODM"). The CODM reviews financial information on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. The CODM uses consolidated net income (loss) to measure segment profit or loss and make key operating decisions, such as allocation of the budget and monitoring budget versus actual results.

Significant expenses within net income (loss) include cost of revenue, research and development, sales and marketing, and general and administrative, which are each separately presented on the Company’s condensed consolidated statements of operations and comprehensive income. Other segment items include interest income, interest expense, other income (expense), and provision for (benefit from) income taxes, which are also each separately presented on the Company’s condensed consolidated statements of operations and comprehensive income (loss). The CODM does not evaluate segment performance or allocate resources using asset information.

2. Summary of Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies, recently adopted accounting pronouncements, or recent accounting pronouncements pending adoption from those disclosed in the Annual Report, except as noted below.

Recent accounting pronouncements pending adoption

In December 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. This update provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual reporting period. The amendments do not change the underlying objectives of interim reporting but are designed to enhance clarity in application. The amendments are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. The amendments may be applied retrospectively or prospectively, with early adoption permitted. The Company is currently evaluating the pronouncement to determine the impact it may have on the Company's consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). This update includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments will be effective for the Company's fiscal year ending October 3, 2026. The Company expects adoption of ASU 2023-09 to result in expanded income tax disclosures. The amendments only impact disclosures and are not expected to have an impact on the Company’s financial condition and results of operations.

3. Financial Instruments

The carrying values of the Company’s accounts receivable and accounts payable, approximate their fair values due to the short period of time to maturity or repayment. The Company utilizes the following fair value hierarchy to establish priorities of the inputs used to measure fair value:

•Level 1: Quoted prices in active markets for identical assets or liabilities.

•Level 2: Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

The following table summarizes cash, cash equivalents and marketable securities by investment category as of March 28, 2026 and September 27, 2025:

Marketable securities

As of March 28, 2026, the Company heldno securities with original maturities exceeding one year. There wereno realized gains or losses on sales of marketable securities during the three and six months ended March 28, 2026.

For securities in an unrealized loss position, the Company does not intend to sell the securities, and it is more-likely-than-not that it will not be required to sell before recovery of their amortized cost basis. The Company evaluated whether the decline in fair value resulted from credit losses or other factors and concluded these amounts were related to temporary fluctuations in value of the securities and were due primarily to changes in interest rates and market conditions of the underlying securities. Accordingly, an allowance for credit losses was deemed unnecessary for these securities as of March 28, 2026.

Accrued interest receivable related to our marketable securities was insignificant as of March 28, 2026. No accrued interest receivables were written off during the three and six months ended March 28, 2026.

4. Revenue and Geographic Information

Disaggregation of revenue

Revenue includes the applicable service revenue for unspecified software upgrades and cloud-based services attributable to each region and is as follows:

Revenue includes the applicable service revenue for unspecified software upgrades and cloud-based services attributable to each country and is as follows:

Revenue by product category also includes the applicable service revenue for unspecified software upgrades and cloud-based services attributable to each product category and is as follows:

5. Balance Sheet Components

Accounts receivable, net

Accounts receivable, net consist of the following:

Inventories

Inventories consist of the following:

As of March 28, 2026 and September 27, 2025, the Company's reserves for excess and obsolete inventory were $40.5 million and $41.2 million, respectively.

Property and equipment

Property and equipment net of accumulated depreciation were as follows:

Intangible assets

The following table reflects the changes in the net carrying amount of the components of intangible assets associated with the Company's acquisition activity:

The following table summarizes the estimated future amortization expense of the Company's intangible assets as of March 28, 2026:

Cloud computing arrangements

Capitalized costs to implement cloud computing arrangements net of accumulated amortization are reported as a component of other noncurrent assets on the Company's condensed consolidated balance sheets and were as follows:

Amortization expense for implementation costs for cloud-based computing arrangements for the three months ended March 28, 2026 and March 29, 2025, were $1.1 million and $0.9 million, respectively. Amortization expense for implementation costs for cloud-based computing arrangements for the six months ended March 28, 2026 and March 29, 2025, were $2.1 million and $1.7 million, respectively.

Accrued expenses

Accrued expenses included the following:

Deferred revenue

Amounts invoiced in advance of revenue recognition are recorded as deferred revenue on the condensed consolidated balance sheets and include revenue allocated to unspecified software upgrades and cloud-based services, as well as current deferred revenue related to newly launched products sold to resellers not recognized as revenue until reaching the date of general availability.

The following table presents the changes in the Company’s deferred revenue:

(1)Deferred revenue included amounts related to newly launched products sold to resellers for which revenue is deferred until the products reach general availability, which contributed to the increase during the period.

The Company expects the following recognition of deferred revenue as of March 28, 2026:

Other current liabilities

Other current liabilities consist of the following:

The following table presents the changes in the Company’s warranty liability:

6. Debt

On October 13, 2021, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") which was amended in October 2025 (“Amendment No. 2") with JPMorgan Chase Bank, N.A., KeyBank National Association and Goldman Sachs Bank USA. Amendment No. 2 provides for (i) afive-year senior secured revolving credit facility in the amount of up to $80.0 million and (ii) an uncommitted incremental facility subject to certain conditions. Proceeds are to be used for working capital and general corporate purposes. 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). The Company 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 March 28, 2026, the Company did not have any outstanding borrowings and had $2.4 million in undrawn letters of credit that reduce the availability under the Revolving Credit Agreement.

The Company's obligations under the Revolving Credit Agreement are secured by substantially all of its assets. The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires the Company to maintain a certain consolidated leverage ratio, and customary events of default. As of March 28, 2026, the Company was in compliance with all financial covenants under the Revolving Credit Agreement.

7. Commitments and Contingencies

Legal proceedings

From time to time, the Company is involved in legal proceedings in the ordinary course of business, including claims relating to employee relations, business practices, and patent infringement. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict, and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.

The Company’s Lawsuits Against Google:

On January 7, 2020, the Company filed a complaint with the U.S. International Trade Commission ("ITC") against Alphabet Inc. ("Alphabet") and Google LLC ("Google") and a counterpart lawsuit in the U.S. District Court for the Central District of California against Google. The complaint and lawsuit each allege infringement by Alphabet and Google of certain Sonos patents related to its smart speakers and related technology. The counterpart lawsuit was stayed pending completion of the ITC investigation and appeal thereof. The ITC concluded its investigation in January 2022, finding allfive of the Company’s asserted patents to be valid and infringed by Google, and further finding that one redesign per patent proposed by Google would avoid infringement. The ITC issued a limited exclusion order and a cease-and-desist order with respect to Google’s infringing products. The Company and Google each appealed the ITC’s determination, which was upheld in its entirety by the appeals court. The stay in the counterpart lawsuit has been lifted. Google moved to file counterclaims ontwo of its own patents related to device setup and the court has added those patents to the case. No trial date has been set.

On September 29, 2020, the Company filed another lawsuit against Google alleging infringement of additional Sonos patents and seeking monetary damages and other non-monetary relief. A jury trial was held in May 2023, which foundone Sonos patent to be infringed and another Sonos patent not infringed, and returned an award of $32.5 million based on a royalty rate of $2.30 per infringing unit. After trial, the court held Sonos’ patents unenforceable under the doctrine of prosecution laches and invalid as a result of amendments made during prosecution. In September 2025, the Federal Circuit overturned the lower court decision that had invalidated the jury verdict against Google, and is now set to decide the post-trial motions, including the Company’s motion for injunctive relief and additional damages.

Google’s Lawsuits Against the Company:

On June 11, 2020, Google filed a lawsuit in the U.S. District Court for the Northern District of California against the Company alleging infringement by the Company offive Google patents and seeking monetary damages and other non-monetary relief. Allfive of these patents have since been found invalid or non-infringed by the Court or by the U.S. Patent and Trademark Office or have been withdrawn from the case by Google. The Court has now entered final judgment for Sonos and against Google. Google has appealed the non-infringement rulings.

On August 8, 2022, Google filedtwo complaints with the ITC against the Company andtwo counterpart lawsuits in the Northern District of California against the Company, collectively alleging infringement by the Company ofseven Google patents generally related to wireless charging, device setup, and voice control, and seeking monetary damages and other non-monetary relief. The counterpart lawsuits are stayed pending completion of the ITC investigations. In the first ITC investigation, the ITC terminated the investigation as toone Google patent as a result of the expiration of that Google patent and determined the othertwo Google patents to be invalid as indefinite, thus concluding the first investigation. Google has appealed this first ITC determination. The Company has also initiated Inter Partes Reviews at the U.S. Patent and Trademark Office ("USPTO") against thesetwo remaining Google patents, which resulted in the USPTO invalidating thesetwo Google patents. Google has appealed this determination, which is awaiting a decision. The second ITC investigation concluded in December 2023 with a final determination of no violation by the Company. Google did not appeal this determination.

Implicit

On March 10, 2017, Implicit, LLC (“Implicit”) filed a patent infringement action in the United States District Court, District of Delaware against the Company. Implicit asserted that the Company has infringed on certain claims oftwo patents in this case. The Company denied the allegations. The claims at issue have been held unpatentable by the USPTO. Implicit appealed this ruling, but on March 9, 2026, the Federal Circuit rejected Implicit's appeal and affirmed the PTO's ruling. Implicit has filed for en banc review of the adverse appellate ruling. Accordingly, no range of loss associated with this matter is probable as of March 28, 2026.

The Company is involved in certain other litigation matters not listed above but does not consider these matters to be material either individually or in the aggregate at this time. The Company’s view of the matters not listed may change in the future as the litigation and events related thereto unfold.

On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were invalid. To date, the Company has paid approximately $40 million in IEEPA-related tariffs that may now be recoverable. Due to uncertainties regarding the timing and ultimate receipt of these funds, no receivable has been recorded. The Company will recognize any recoveries as a reduction to cost of revenue in the period they become realized or realizable.

8. Stockholders' Equity

On February 24, 2025, the Board of Directors (the "Board") authorized a common stock repurchase program of up to $150.0 million. During the six months ended March 28, 2026, the Company repurchased 4,014,842 shares for an aggregate purchase price of $64.8 million and at an average price of $16.14 per share under the repurchase program. Aggregate purchase price and average price per share exclude commission and excise tax. As of March 28, 2026, the Company had $64.8 million available for share repurchases under the share repurchase program. The Company's share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act. Any excise tax incurred is recognized as part of the cost basis of the shares acquired in the condensed consolidated statements of equity.

Treasury stock during the six months ended March 28, 2026, included 965,888 shares withheld to satisfy employees' tax withholding requirements in connection with vesting of stock awards. Additionally, during the six months ended March 28, 2026, the Company retired 4,071,046 shares of treasury stock.

9. Stock-based Compensation

2018 Equity Incentive Plan

In July 2018, the Board adopted the 2018 Equity Incentive Plan (the "2018 Plan").

Stock options

The summary of the Company’s stock option activity is as follows:

As of March 28, 2026 and September 27, 2025, all outstanding stock options have vested and the Company hadno unrecognized stock-based compensation expense related to stock options.

Restricted stock units ("RSU")

Pursuant to the 2018 Plan, the Company issues RSUs to employees and directors. The summary of the Company’s RSU activity is as follows:

As of March 28, 2026 and September 27, 2025, the Company had $77.0 million and $78.1 million of unrecognized stock-based compensation expense related to RSUs, which are expected to be recognized over weighted-average periods of 2.4 years and 2.3 years, respectively.

Performance stock units ("PSU")

Pursuant to the 2018 Plan, the Company grants PSUs that vest based on both service and performance conditions. PSUs are granted at a target number of units, with the actual number of shares earned at the end of the performance period ranging above or below target based on the level of achievement of specified performance goals.

Beginning in fiscal 2026, PSU awards may include a combination of financial performance metrics and market-based conditions, such as relative total shareholder return ("TSR"). For awards with market-based conditions, grant-date fair value reflects the impact of those conditions and is estimated using a Monte Carlo simulation model.

Compensation expense for PSUs with market-based conditions is recognized over the requisite service period regardless of whether the market condition is ultimately achieved, provided the service condition is satisfied. Compensation expense for PSUs with only performance conditions is recognized based on the probability of achieving the specified performance goals, with cumulative adjustments recorded to reflect changes in expected achievement, and ultimately reflects the number of awards that vest based on actual performance.

The following table summarizes the weighted-average assumptions used in calculating compensation expense of the Company’s PSUs with market-based conditions:

The summary of the Company’s PSU activity is as follows:

As of March 28, 2026 and September 27, 2025, the Company had $15.4 million and $3.3 million of unrecognized stock-based compensation expense related to PSUs, which are expected to be recognized over weighted-average periods of 1.6 years and 1.3 years, respectively.

Stock-based compensation

Total stock-based compensation expense by functional category was as follows:

10. Income Taxes

The Company’s income tax provision and the resulting effective tax rate for interim periods is generally determined based upon its estimated annual effective tax rate ("AETR"), adjusted for the effect of discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the AETR, and if the estimated AETR changes, a cumulative adjustment is made in that quarter.

The Company recorded an income tax benefit of $2.2 million and an income tax provision of $11.0 million for the three months ended March 28, 2026 and March 29, 2025, respectively, related to U.S. and non-U.S. income taxes. The Company recorded income tax provisions of $6.0 million and $4.6 million for the six months ended March 28, 2026 and March 29, 2025, respectively, related to U.S. and non-U.S. income taxes. The effective tax rate for the three months ended March 28, 2026 was favorably impacted by provisions of the One

Big Beautiful Bill Act ("OBBBA"), including the repeal of the requirement to capitalize and amortize specified domestic research and experimental expenditures under Section 174 of the U.S. Internal Revenue Code. This resulted in a reduction in the Company’s U.S. current tax expense with no impact to deferred tax expense as a result of the full valuation allowance maintained against the Company’s net U.S. deferred tax assets. The tax provision for the three months ended March 29, 2025 primarily resulted from the application of a negative annual effective tax rate to year-to-date U.S. pre-tax loss for the quarter, which was driven in part by the capitalization of research and experimental expenditures under Section 174 and the valuation allowance maintained against U.S. deferred tax assets.

In 2021, the Organization for Economic Cooperation and Development (“OECD”) released model rules for a global minimum tax (“Pillar Two Rules”), intended to ensure that large multinational enterprises are subject to an effective minimum tax rate of 15% in each jurisdiction in which they operate. Certain jurisdictions in which the Company conducts business have enacted local legislation implementing Pillar Two or equivalent minimum tax rules that apply for fiscal years beginning on or after January 1, 2024. In January 2026, the OECD released administrative guidance describing a coordinated “side-by-side” package applicable to certain U.S.-parented multinational groups for fiscal years beginning on or after January 1, 2026. Based on currently enacted legislation and available guidance, the Company does not expect the Pillar Two Rules to have a material impact on its effective tax rate for fiscal year 2026. The Company continues to monitor developments in Pillar Two legislation and guidance and will assess the impact of any legislative changes to future periods.

For the six months ended March 28, 2026, the Company concluded that a full valuation allowance on its deferred tax assets in the U.S. continued to be appropriate considering cumulative pre-tax losses in recent years and uncertainty with respect to future taxable income. Release of the valuation allowance in the U.S. would result in a benefit to the income tax provision in the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in the U.S.

11. Earnings (Loss) Per Share

Earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding less shares subject to repurchase. Diluted earnings (loss) per share adjusts the basic earnings (loss) per share and the weighted-average number of shares of common stock outstanding for the potentially dilutive impact of stock awards, using the treasury stock method.

The following table sets forth the computation of the Company’s basic and diluted earnings (loss) per share:

The following shares were excluded from the computation of diluted net earnings (loss) per share because their effect would have been antidilutive:

12. Retirement Plans

The Company has a defined contribution 401(k) plan (the "401(k) Plan") for the Company’s U.S.-based employees, as well as various defined contribution plans for its international employees. Eligible U.S. employees may make tax-deferred contributions under the 401(k) plan but are limited to the maximum annual dollar amount allowable under the Internal Revenue Code of 1986, as amended. The Company matches contributions towards the 401(k) Plan and international defined contribution plans. The Company's matching contributions totaled $2.0 million for the three months ended March 28, 2026 and March 29, 2025, respectively. The Company's matching contributions totaled $4.1 million and $4.3 million for the six months ended March 28, 2026 and March 29, 2025, respectively.