Group 1 - Zacks Premium offers various tools for investors, including daily updates on Zacks Rank and Industry Rank, access to the Zacks 1 Rank List, Equity Research reports, and Premium stock screens to enhance investment confidence [1][2] - The Zacks Style Scores are complementary indicators that rate stocks based on value, growth, and momentum methodologies, helping investors identify stocks likely to outperform the market in the next 30 days [2][3] Group 2 - Stocks are rated with an alphabetic system from A to F based on their value, growth, and momentum qualities, with A being the highest score indicating a better chance of outperforming [3] - The Value Score focuses on identifying undervalued stocks using ratios like P/E, PEG, and Price/Sales to find attractive investment opportunities [3][4] - The Growth Score emphasizes a company's financial strength and future outlook, analyzing projected and historical earnings, sales, and cash flow for sustainable growth [4] - The Momentum Score identifies optimal times to invest based on price trends and earnings estimate changes, aligning with the strategy of momentum trading [5] - The VGM Score combines all three Style Scores, providing a comprehensive indicator for investors who utilize multiple investing strategies [6] Group 3 - The Zacks Rank is a proprietary stock-rating model that leverages earnings estimate revisions to assist investors in building successful portfolios, with 1 (Strong Buy) stocks achieving an average annual return of +23.75% since 1988, significantly outperforming the S&P 500 [7][9] - Investors are encouraged to focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for the highest probability of success [9][10] Group 4 - Sonos (SONO) is a consumer electronics company specializing in immersive sound speakers, currently rated 2 (Buy) on the Zacks Rank with a VGM Score of A [11] - Sonos has a Momentum Style Score of A, with shares increasing by 28.6% over the past four weeks, indicating strong momentum [11][12] - Recent earnings estimates for Sonos have been revised higher, with the Zacks Consensus Estimate increasing by $0.29 to $0.59 per share, and an average earnings surprise of +24% [12]

Summary of Sonos Conference Call Company Overview - **Company**: Sonos - **Event**: Fifth Annual Rosenblatt Age of AI Conference - **Participants**: Sayori Casey (CFO), Jaip Spoganes (IR Head) Key Financial Highlights - **Q3 Earnings**: Exceeded top line guidance and came in at the high end of adjusted EBITDA guidance, marking the fourth consecutive quarter of meeting or exceeding guidance [2][3] - **Year-to-Date Performance**: Revenue down 6% in the first half and 8% currently, with a challenging comparison to last year's Q3 due to the launch of ACE headphone products [3][4] - **Q4 Guidance**: Expected growth of 2% to 14%, with revenue projected between $260 million and $290 million, implying a 14% year-over-year growth [4] - **Full Year FY 2025**: Anticipated revenue decline of 5% to 7%, but adjusted EBITDA expected to grow by 8% to 30% year-over-year [4] Management Changes - **CEO Promotion**: Tom Conrad promoted from interim to permanent CEO, focusing on streamlining operations and cost efficiency [6][7] - **Organizational Changes**: Shift from a product line view to a functionally organized structure to enhance efficiency and reduce costs [7][8] Strategic Focus - **Cost Reduction**: Targeting $580 million to $600 million in operating expenses for FY 2026, with a reduction of $90 million to $100 million from FY 2024 normalized basis [11][12] - **Free Cash Flow Utilization**: Prioritizing shareholder returns, potential share repurchases, and funding growth initiatives [15][16] - **Software Improvements**: Continuous enhancement of the app and user experience, with recent updates including AI speech enhancements and active noise cancellation for headphones [17][19] Market Strategy - **Customer Acquisition**: Focus on winning new homes and increasing the number of devices per household, with a strategy to lower prices on gateway products like ERA 100 to drive initial sales [21][25] - **International Expansion**: Identifying underpenetrated markets such as Asia Pacific and India, with plans to increase market share [29][30] - **Tariff Management**: Implementing a surgical pricing strategy to mitigate tariff impacts while maximizing gross profit dollars [32][34] Competitive Landscape - **Market Share Gains**: Notable growth in North American home theater market, attributed to product differentiation, particularly with the Arc Ultra [27] - **Installer Channel**: Strong reliance on professional installers for product recommendations, with ongoing efforts to enhance software features based on their feedback [36][38] Future Outlook - **Long-term Goals**: Desire to articulate long-term growth and margin goals once clarity on tariffs and consumer demand is achieved [10] - **Brand Positioning**: Emphasis on transitioning from a hardware-centric narrative to a platform and system play, aiming to enhance customer value beyond initial purchases [50][55] Additional Insights - **Direct-to-Consumer Channels**: Establishing a presence on platforms like Amazon and Walmart to reach new customers [43][46] - **Housing Market Impact**: Acknowledgment of the housing market cycle's influence on revenue, with opportunities tied to new housing starts and upgrades [42] This summary encapsulates the key points discussed during the Sonos conference call, highlighting financial performance, strategic initiatives, market positioning, and future outlook.

Core Viewpoint - Sonos (SONO) is positioned as a strong investment opportunity due to significant upward revisions in earnings estimates, indicating a positive earnings outlook that may continue to drive stock price growth [1][2]. Earnings Estimate Revisions - Analysts have shown growing optimism regarding Sonos's earnings prospects, reflected in the upward trend of earnings estimate revisions, which historically correlate with stock price movements [2]. - For the current quarter, Sonos is expected to earn $0.05 per share, representing a year-over-year increase of +127.8%. The Zacks Consensus Estimate has risen by 67.69% due to one upward revision and no negative revisions in the last 30 days [5]. - For the full year, the earnings estimate stands at $0.59 per share, reflecting a +5.4% change from the previous year. The consensus estimate has increased by 82.5% with one upward revision and no negative revisions [6][7]. Zacks Rank - Sonos currently holds a Zacks Rank 2 (Buy), indicating favorable conditions for investment based on promising estimate revisions. Stocks with Zacks Rank 1 (Strong Buy) and 2 (Buy) have historically outperformed the S&P 500 [8]. Stock Performance - Over the past four weeks, Sonos shares have appreciated by 23.2%, suggesting that investor confidence is bolstered by the company's impressive earnings growth prospects [9].

Core Insights - Sonos, Inc. reported third-quarter fiscal 2025 non-GAAP earnings per share (EPS) of 19 cents, meeting the Zacks Consensus Estimate, but down from 23 cents in the prior-year quarter. On a GAAP basis, the company reported a loss of 3 cents compared to an EPS of 3 cents in the year-ago quarter [1][2] Revenue Performance - Quarterly revenues declined 13.2% year over year to $344.8 million, exceeding the company's guidance of $310 million to $340 million, driven by stronger-than-expected sales of portables and components [2][10] - Revenues from Sonos speakers were $253.7 million, down 15.8% year over year, while system products generated $73.2 million, a decrease of 2.7% year over year. Partner products and other revenues totaled $17.9 million, down 14.1% year over year [5] - Region-wise, revenues from the Americas decreased 13.2% to $229.7 million, Europe, the Middle East, and Africa generated $97.2 million, down 12.3%, and revenues from the Asia Pacific fell 17.4% to $17.9 million [6] Margin and Expense Analysis - Non-GAAP gross profit was $154.1 million, down 20.3% year over year, with non-GAAP gross margin contracting 400 basis points to 44.7% [7] - Adjusted operating expenses were $131.1 million, down 15.4% year over year, reflecting a 23% decline in non-GAAP operating expenses due to workforce reductions and cost optimization initiatives [8][10] - Research and development (R&D) expenses decreased 17%, general and administrative (G&A) expenses fell 16%, and sales and marketing expenses were down 13% [9] Cash Flow and Liquidity - In the fiscal third quarter, Sonos generated $37.4 million in cash from operations, with free cash flow at $32.7 million, down from $40.3 million in the same period last year. Cash and cash equivalents stood at $201.3 million as of June 28, compared to $173.2 million as of March 29, 2025 [12] Future Guidance - For the fourth quarter, Sonos expects revenues to range between $260 million and $290 million, indicating a year-over-year increase of 2% to 14%. Projected GAAP gross margin is between 42% and 44%, and non-GAAP gross margin is expected to be between 43.7% and 45.5% [14] - GAAP operating expenses are projected to be between $150 million and $155 million, a decline of 10% to 13% from $172 million in the same period last year [15] - Adjusted EBITDA is anticipated to range from a loss of $10 million to a gain of $14 million, marking an improvement compared to a negative EBITDA of $22.6 million in the fourth quarter of the prior year [16]

Core Viewpoint - Sonos plans to raise prices on some products later this year due to new tariffs imposed by the U.S. government on imports from Vietnam and Malaysia, complicating its efforts to recover and grow in a challenging 2024 [1] Financial Performance - For the third fiscal quarter ending June 28, Sonos reported revenue of approximately $344.8 million, exceeding Wall Street's average expectation of $325 million [1] - Following the earnings report and the announcement of price increases, Sonos shares rose over 5% in after-hours trading [1] Leadership Changes - The earnings report is the first under the new CEO Tom Conrad, who was appointed in July after the resignation of former CEO Patrick Spence due to customer dissatisfaction with a problematic app update [2] Product Focus and Strategy - Sonos specializes in high-end wireless audio products, including multi-room Wi-Fi speakers, home theater systems, and portable smart speakers, leveraging its expertise in audio technology and user-friendly software [2][3] - The company is focusing on its core strengths by canceling the development of a streaming video player to concentrate on improving its audio products and software [6][7] Software and User Experience - Sonos has been working to rebuild customer trust after a flawed app update last year, with the new CEO emphasizing a return to user-centric design and innovation [3] - In the past 90 days, Sonos has launched seven major and nine minor software updates for its audio product line, indicating a commitment to improving user experience [7]

Core Insights - Sonos reported revenue of $344.76 million for the quarter ended June 2025, reflecting a year-over-year decline of 13.2% and an EPS of $0.19 compared to $0.23 a year ago [1] - The reported revenue exceeded the Zacks Consensus Estimate of $329.21 million, resulting in a surprise of +4.73%, while the EPS met the consensus estimate [1] Revenue Performance - Revenue from Sonos speakers was $253.67 million, surpassing the average estimate of $245.35 million, but showing a decline of -15.8% year-over-year [4] - Revenue from partner products and other revenue was $17.92 million, slightly below the average estimate of $18 million, with a year-over-year decline of -14.1% [4] - Revenue from Sonos system products was $73.18 million, exceeding the average estimate of $53.08 million, but still reflecting a -2.7% change compared to the previous year [4] Stock Performance - Sonos shares have returned +0.9% over the past month, outperforming the Zacks S&P 500 composite's +0.5% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Group 1: Earnings Performance - Sonos reported quarterly earnings of $0.19 per share, matching the Zacks Consensus Estimate, but down from $0.23 per share a year ago [1] - The company posted revenues of $344.76 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 4.73%, but down from $397.15 million year-over-year [2] - Over the last four quarters, Sonos has surpassed consensus EPS estimates two times and topped consensus revenue estimates four times [2][3] Group 2: Stock Performance and Outlook - Sonos shares have declined approximately 27.8% since the beginning of the year, contrasting with the S&P 500's gain of 7.1% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the upcoming quarter is -$0.48 on revenues of $257.78 million, and -$0.80 on revenues of $1.38 billion for the current fiscal year [7] Group 3: Industry Context - The Audio Video Production industry, to which Sonos belongs, is currently ranked in the top 41% of over 250 Zacks industries, indicating a favorable industry outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Sonos's stock performance [5][6]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Sonos reported a net loss for the three and nine months ended June 28, 2025, a significant downturn from the net income in the prior year, driven by declining revenue and gross profit, while cash flow from operations decreased [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to $834.4 million as of June 28, 2025, primarily due to a significant reduction in inventories, with corresponding decreases in total liabilities and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2025 | September 28, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $503,141 | $551,086 | | Inventories | $115,427 | $231,505 | | **Total Assets** | **$834,402** | **$916,312** | | **Total Current Liabilities** | $315,603 | $366,153 | | **Total Liabilities** | **$435,096** | **$487,692** | | **Total Stockholders' Equity** | **$399,306** | **$428,620** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) For Q3 2025, Sonos reported a **net loss of $3.4 million** on **revenue of $344.8 million**, a decline from the prior year's net income and revenue, with similar trends observed for the nine-month period Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2025 | Q3 2024 | Nine Months 2025 | Nine Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $344,764 | $397,146 | $1,155,376 | $1,262,676 | | Gross Profit | $149,724 | $191,641 | $504,739 | $586,356 | | Operating Income (Loss) | $(2,929) | $12,589 | $(16,059) | $21,323 | | Net Income (Loss) | $(3,379) | $3,709 | $(23,286) | $14,947 | | Diluted EPS | $(0.03) | $0.03 | $(0.19) | $0.12 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities for the nine months ended June 28, 2025, decreased to $133.9 million, primarily due to lower net income, while cash was used for investing activities and common stock repurchases Cash Flow Summary for Nine Months Ended (in thousands) | Cash Flow Activity | June 28, 2025 | June 29, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $133,948 | $227,640 | | Net cash used in investing activities | $(24,167) | $(88,153) | | Net cash used in financing activities | $(78,703) | $(133,184) | | **Net increase in cash and cash equivalents** | **$31,541** | **$6,883** | - The decrease in operating cash flow was primarily driven by a **net loss of $23.3 million** in fiscal 2025 compared to a net income of $14.9 million in fiscal 2024, with a significant positive contribution from a **$106.2 million decrease in inventories**[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, revenue declines across all regions and product categories, ongoing patent litigation with Google, and significant restructuring charges from workforce reductions Revenue by Region for Nine Months Ended (in thousands) | Region | June 28, 2025 | June 29, 2024 | % Change | | :--- | :--- | :--- | :--- | | Americas | $731,041 | $827,238 | (11.6)% | | EMEA | $363,642 | $372,074 | (2.3)% | | APAC | $60,693 | $63,364 | (4.2)% | | **Total** | **$1,155,376** | **$1,262,676** | **(8.5)%** | Revenue by Product Category for Nine Months Ended (in thousands) | Product Category | June 28, 2025 | June 29, 2024 | % Change | | :--- | :--- | :--- | :--- | | Sonos speakers | $915,330 | $991,378 | (7.7)% | | Sonos system products | $183,993 | $209,013 | (12.0)% | | Partner products and other | $56,053 | $62,285 | (10.0)% | | **Total** | **$1,155,376** | **$1,262,676** | **(8.5)%** | - The company is involved in multiple patent infringement lawsuits with Google, where a jury awarded Sonos **$32.5 million** in one case, though the patents were later held unenforceable, and Google's asserted patents against Sonos have been found invalid, non-infringed, or withdrawn[57](index=57&type=chunk)[58](index=58&type=chunk) - Sonos initiated a cost transformation initiative, including a **6% workforce reduction** in August 2024 and a **12% workforce reduction** in February 2025, resulting in **$25.6 million** in total restructuring charges for the nine months ended June 28, 2025[82](index=82&type=chunk)[83](index=83&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 8.5% revenue decline to softer market demand and app rollout challenges, while a cost transformation initiative, including workforce reductions, is underway to improve efficiency and reduce operating expenses, maintaining adequate liquidity - The company launched new products, including the Arc Ultra soundbar in October 2024, and redesigned its Sonos app in May 2024 to enhance user experience and drive future innovation[91](index=91&type=chunk) - A cost transformation initiative, including workforce reductions of **6% in August 2024** and **12% in February 2025**, is expected to save approximately **$20 million** in the remainder of fiscal 2025[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) Key Metrics Comparison (in thousands, except percentages) | Metric | Nine Months 2025 | Nine Months 2024 | | :--- | :--- | :--- | | Total revenue | $1,155,376 | $1,262,676 | | Products sold | 3,696 | 4,135 | | Net income (loss) | $(23,286) | $14,947 | | Adjusted EBITDA | $125,936 | $130,506 | | Adjusted EBITDA margin | 10.9% | 10.3% | - Gross margin for the nine months ended June 28, 2025, decreased by **270 basis points** compared to the prior year, primarily due to reorganization efforts, unfavorable channel mix, and increased inventory write-downs[124](index=124&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20qualitative%20disclosures%20about%20market%20risk) The company's primary market risk is foreign currency exposure from international sales, with a hypothetical 10% adverse change in exchange rates potentially impacting pre-tax income by $15.2 million - For the nine months ended June 28, 2025, the company recognized a foreign currency exchange **loss of $5.2 million**, compared to a gain of $4.2 million in the same period of 2024[160](index=160&type=chunk) - A hypothetical adverse change of **10% in foreign exchange rates** would have resulted in an adverse impact on loss before income taxes of approximately **$15.2 million** for the nine months ended June 28, 2025[160](index=160&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 28, 2025, with no material changes to internal control over financial reporting during the quarter - The Interim Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** at a reasonable assurance level as of the end of the period[161](index=161&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[162](index=162&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20proceedings) The company refers to Note 7 of the financial statements for details on its legal proceedings, believing no other current legal matters would materially adversely affect the business if determined unfavorably - Details regarding legal proceedings are provided in **Note 7** of the condensed consolidated financial statements[164](index=164&type=chunk) [Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended September 28, 2024, and the Quarterly Report on Form 10-Q for the quarter ended March 29, 2025 - No material changes to the risk factors disclosed in the Annual Report and the previous Form 10-Q were reported[165](index=165&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20sales%20of%20equity%20securities%20and%20use%20of%20proceeds) On February 24, 2025, the Board authorized a new common stock repurchase program of up to $150.0 million, replacing the previous program, with no shares repurchased during the three months ended June 28, 2025 - A new **$150.0 million stock repurchase program** was authorized on February 24, 2025, replacing the 2023 program[167](index=167&type=chunk) Issuer Purchases of Equity Securities (Q3 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Value of Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | Mar 30 - Apr 26 | 0 | $— | $150,000,000 | | Apr 27 - May 24 | 0 | $— | $150,000,000 | | May 25 - Jun 28 | 0 | $— | $150,000,000 | [Other Information](index=51&type=section&id=Item%205.%20Other%20information) There were no adoptions or terminations of Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements by directors or officers during the quarter - The company reported no activity related to Rule 10b5-1 trading plans[172](index=172&type=chunk) [Exhibit Index](index=52&type=section&id=Item%206.%20Exhibit%20index) This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements formatted in Inline XBRL - Exhibits filed include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and financial data in Inline XBRL format (Exhibit 101)[173](index=173&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q3 was $345 million, exceeding guidance and reflecting a 13% year-over-year decline, which was better than the expected decline of 22% to 14% [16][19] - Adjusted EBITDA was positive $36 million, at the high end of guidance, driven by higher revenue and lower operating expenses [19][27] - GAAP gross margin was 43.7%, while non-GAAP gross margin was 45.2%, with tariff expenses impacting gross margin by 60 basis points [17][20] Business Line Data and Key Metrics Changes - Revenue decline was primarily driven by portable and component products, with ARC and ARC Ultra showing year-over-year growth [16][19] - Non-GAAP operating expenses decreased by 15% year-over-year, with significant reductions in research and development, general and administrative, and sales and marketing expenses [18][19] Market Data and Key Metrics Changes - The company noted that it has only captured a small fraction of the global market, indicating significant growth opportunities in both existing and key growth markets [11][28] - The home theater segment in the US showed dollar share gains, reflecting strong execution despite a challenging market environment [13][46] Company Strategy and Development Direction - The company is transitioning to a platform model, focusing on software upgrades that enhance the value of its hardware products [7][8] - There is a commitment to operational efficiency, with a goal to reduce annual operating expenses by over $100 million [10] - The company plans to raise prices on certain products due to tariff impacts, while also monitoring consumer behavior closely [14][24] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the cyclical challenges in the market but expressed optimism about future growth driven by increased content consumption and digital service subscriptions [45][46] - The company is focused on maintaining operational flexibility and liquidity amid tariff uncertainties and has paused share repurchase activities [20][22] Other Important Information - The company expects Q4 revenue to range from $260 million to $290 million, reflecting a year-over-year increase of 2% to 14% [22] - The balance sheet remains strong, with a net cash balance of $254 million and $100 million in undrawn revolving credit [20] Q&A Session Summary Question: Insights on new product introductions and software innovation - The CEO emphasized that the company aims to maintain a cadence of two new products per year while focusing on software reliability and experience improvements in the short term [31][34] Question: Cost reduction journey and future margin improvement - Management confirmed that efforts to optimize the cost structure are ongoing, with more potential for cost reductions to drive margin improvement [35] Question: Pricing strategy in light of tariffs - The CEO indicated that pricing changes are being evaluated based on product elasticity and demand, aiming to optimize gross profit dollars while monitoring competitive trends [39][40] Question: Market backdrop and future outlook - Management noted that the category remains cyclically challenged but expects a return to growth driven by increased content consumption and technological interaction [45][46] Question: Annualized run rate for non-GAAP operating expenses - Management stated that they are still working on optimizing the cost structure and expect to see the full impact of previous reductions in future fiscal years [48][50] Question: Leveraging AI for product enhancement - The CEO highlighted the potential of AI to enhance product experiences and operational efficiency, positioning the company for future growth [54][58]

Q3 2025 Financial Performance - Net revenue decreased by 13% year-over-year, impacted by the launch of Ace in Q3 2024 and challenging market conditions, offset partially by home theater strength[11] - GAAP gross margin declined by 490 bps year-over-year, primarily due to higher inventory reserves, reorganization efforts, and deleverage[11] - Non-GAAP gross margin decreased by 400 bps year-over-year, for the same reasons as GAAP gross margin[11] - Tariffs reduced Q3 2025 GAAP and Non-GAAP gross margin by 60 bps, equivalent to $2.1 million[11] - Adjusted EBITDA decreased by $13 million year-over-year due to lower revenue and gross profit, partially offset by lower expenses[12] - Free cash flow declined in Q3 2025 due to working capital changes, partially offset by lower capital expenditure and higher cash earnings[14] Inventory and Cash Flow - Inventories decreased by $39 million, a 25% year-over-year reduction, mainly driven by component inventory workdown[17] - Finished goods inventory decreased by $9 million, a 9% year-over-year decrease[17] - Component balance decreased by $30 million, a 58% year-over-year decrease[17] - Cash flow from operations was $37 million, a decrease of $26 million year-over-year from $64 million in Q3 2024[20] - Capital expenditures were $5 million, down $18 million year-over-year due to the launch of Ace in Q3 2024[20] - Free cash flow was $33 million, a decrease of $7 million year-over-year from $40 million in Q3 2024[20] Operating Expenses and Outlook - Non-GAAP Research and Development expenses were $53 million, down 17% year-over-year due to cost optimization efforts[21] - Non-GAAP Sales and Marketing expenses were $58 million, down 13% year-over-year driven by lower marketing investment[21] - Non-GAAP General and Administrative expenses were $20 million, down 16% year-over-year due to cost optimization efforts[21] - Non-GAAP Operating Expenses were $131 million, down 15% year-over-year, with normalized Non-GAAP Operating Expenses down 23% year-over-year[21] - The company expects Q4 2025 revenue to be between $260 million and $290 million, representing a growth of 2% to 14% year-over-year[26]