PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Sonos, Inc.'s unaudited condensed consolidated financial statements as of June 29, 2024, including balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets As of June 29, 2024, Sonos reported total assets of $961.1 million, a decrease from $1.002 billion, primarily due to reduced inventories Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 29, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $227,114 | $220,231 | | Inventories | $154,903 | $346,521 | | Total current assets | $604,456 | $659,631 | | Total assets | $961,105 | $1,002,241 | | Liabilities & Equity | | | | Accounts payable | $179,327 | $187,981 | | Total current liabilities | $366,881 | $354,218 | | Total liabilities | $496,714 | $483,584 | | Total stockholders' equity | $464,391 | $518,657 | Condensed Consolidated Statements of Operations Q3 2024 revenue increased to $397.1 million with a net income of $3.7 million, while nine-month revenue decreased to $1.26 billion Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $397,146 | $373,356 | $1,262,676 | $1,350,108 | | Gross Profit | $191,641 | $171,762 | $586,356 | $588,436 | | Operating Income (Loss) | $12,589 | $(21,261) | $21,323 | $7,816 | | Net Income (Loss) | $3,709 | $(23,571) | $14,947 | $20,966 | | Diluted EPS | $0.03 | $(0.18) | $0.12 | $0.16 | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $227.6 million for nine months, driven by inventory reduction, with substantial cash used in financing for stock repurchases Cash Flow Summary (Nine Months Ended, in thousands) | Activity | June 29, 2024 | July 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $227,640 | $78,211 | | Net cash used in investing activities | $(88,153) | $(40,085) | | Net cash used in financing activities | $(133,184) | $(48,935) | | Net increase (decrease) in cash | $6,883 | $(6,569) | | Cash and cash equivalents, end of period | $227,114 | $268,286 | Notes to Condensed Consolidated Financial Statements Notes detail revenue disaggregation, balance sheet components, legal proceedings with Google, and the company's stock repurchase program - The company designs, develops, manufactures, and sells audio products and services, distributed in over 60 countries through retailers and its own website1415 - Inventories decreased significantly to $154.9 million as of June 29, 2024, from $346.5 million as of September 30, 2023, primarily due to a reduction in finished goods40 - The company has a $200.0 million stock repurchase program authorized in November 2023. As of June 29, 2024, $128.7 million had been used to repurchase 7.8 million shares, with $71.3 million remaining6263 Revenue by Product Category (Three Months Ended, in thousands) | Product Category | June 29, 2024 | July 1, 2023 | | :--- | :--- | :--- | | Sonos speakers | $301,105 | $289,740 | | Sonos system products | $75,186 | $64,224 | | Partner products and other revenue | $20,855 | $19,392 | | Total revenue | $397,146 | $373,356 | Revenue by Region (Nine Months Ended, in thousands) | Region | June 29, 2024 | July 1, 2023 | | :--- | :--- | :--- | | Americas | $827,238 | $844,714 | | EMEA | $372,074 | $434,806 | | APAC | $63,364 | $70,588 | | Total revenue | $1,262,676 | $1,350,108 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2024 revenue growth driven by new products, year-to-date revenue decline, improved gross margin, and strong operating cash flow from inventory reduction Overview and Key Metrics Sonos entered personal listening with Sonos Ace headphones and redesigned its app, reporting increased Q3 2024 revenue and Adjusted EBITDA - In June 2024, Sonos entered the personal listening category with the introduction of Sonos Ace headphones80 - The company launched an extensive redesign of its Sonos app in May 2024, which was rebuilt to improve user experience and provide a modular platform for faster innovation80 Key Metrics (Three Months Ended) | Metric (in thousands) | June 29, 2024 | July 1, 2023 | | :--- | :--- | :--- | | Total revenue | $397,146 | $373,356 | | Products sold | 1,280 | 1,208 | | Net income (loss) | $3,709 | $(23,571) | | Adjusted EBITDA | $48,906 | $34,304 | Results of Operations Q3 2024 revenue increased 6.4% due to new products, while YTD revenue fell 6.5%; gross margin improved, and operating expenses decreased due to lower legal fees - Q3 revenue increased by 6.4% YoY, primarily driven by the introduction of Sonos Ace headphones in June 2024, which offset softer demand in other areas113 - Nine-month revenue decreased by 6.5% YoY due to softer demand across all regions, challenging market conditions, and channel partners normalizing ordering levels119 - Q3 gross margin increased by 230 basis points to 48.3%, mainly due to lower inventory-related write-downs and decreased product costs124 - General and administrative expenses for Q3 decreased by 31.8% YoY, primarily due to a $13.6 million decrease in legal fees related to IP litigation131 Liquidity and Capital Resources Sonos maintains strong liquidity with $227.1 million in cash and $49.5 million in marketable securities, supported by $227.6 million in operating cash flow - Principal sources of liquidity as of June 29, 2024, were $227.1 million in cash and cash equivalents and $49.5 million in marketable securities138 - Net cash from operating activities for the nine months ended June 29, 2024, was $227.6 million, primarily driven by a $189.6 million decrease in inventories145 - The company has a $100 million revolving credit facility maturing in October 2026, with no outstanding borrowings as of June 29, 2024139140 Quantitative and Qualitative Disclosures About Market Risk The company faces market risk primarily from foreign currency fluctuations, with a hypothetical 10% adverse change impacting pre-tax income by $4.5 million in Q3 - The company's primary market risk is foreign currency fluctuation, as international sales are denominated in currencies such as the euro and British pound150 - A hypothetical adverse 10% change in foreign currency exchange rates would have negatively impacted pre-tax income by $4.5 million for the three months and $17.2 million for the nine months ended June 29, 2024152 - Sonos has not entered into any material foreign exchange contracts or derivatives to hedge its foreign currency exposures151 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 29, 2024, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 29, 2024153 - No material changes were made to the company's internal control over financial reporting during the quarter ended June 29, 2024154 PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, with material litigation details, including Google lawsuits, provided in Note 8 of the financial statements - The company is involved in various legal proceedings, with material matters, such as the litigation with Google, detailed in Note 8 of the financial statements156 Risk Factors Key risks include managing new product introductions, challenges with the redesigned Sonos app, intense competition, and reliance on limited manufacturers and suppliers Economic, Industry and Strategic Risks Sonos faces risks from intense competition, the need for successful new product introductions, issues with its redesigned app, and ongoing intellectual property litigation - The company must successfully manage frequent new product introductions to remain competitive, a process which involves significant challenges in forecasting and development159 - The redesigned Sonos app, launched in May 2024, has experienced performance issues, leading to customer complaints, decreased sales, reputational harm, and the delay of two new products160 - The company faces intense competition from established brands and large tech companies (Amazon, Apple, Google) that have greater financial resources and may subsidize hardware sales163 - Ongoing intellectual property litigation with Google is expensive and could result in unfavorable outcomes, while Google has filed multiple countersuits against Sonos167 Operational Risks Operational risks include heavy dependence on limited contract manufacturers and component suppliers, reliance on key channel partners, and cybersecurity threats - Sonos depends on a limited number of contract manufacturers, with Inventec Appliances Corporation manufacturing a majority of its products, increasing risk of operational disruption174 - The business relies on a limited number of suppliers for key components, which have long lead times, creating risks of shortages and inventory management challenges174 - A vast majority of product sales come from a limited number of key channel partners, with Best Buy accounting for 17% of revenue in fiscal 2023175 - The company faces cybersecurity risks, as a breach of its systems or those of third-party partners like AWS could compromise customer data, damage its reputation, and lead to litigation179181 Legal and Regulatory Risks The company is exposed to legal and regulatory risks from international trade policies, evolving global regulations, and potential limitations on tax carryforwards - Changes in international trade policies, particularly U.S. tariffs on Chinese imports (Section 301), have adversely affected the business. An exemption for core speaker products expired in June 2024184 - The company must comply with a wide variety of complex and changing laws and regulations globally, including those for electrical safety, environmental standards, and data privacy, which increases costs184 - The company's ability to use its net operating loss and tax credit carryforwards may be limited by Section 382 of the Code due to ownership changes185 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, Sonos repurchased 3,253,468 shares as part of its $200 million program, with $71.3 million remaining for future repurchases Issuer Purchases of Equity Securities (Quarter Ended June 29, 2024) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program (in thousands) | | :--- | :--- | :--- | :--- | | Mar 31 - Apr 27 | 204,115 | $18.95 | $119,938 | | Apr 28 - May 25 | 872,551 | $16.89 | $105,201 | | May 26 - Jun 29 | 2,176,802 | $15.55 | $71,348 | | Total | 3,253,468 | | | - The share repurchases are part of a $200 million program authorized by the Board in November 2023193 Other Information On May 9, 2024, CEO Patrick Spence adopted a Rule 10b5-1 trading plan to sell up to 15,000 shares of common stock - On May 9, 2024, CEO Patrick Spence adopted a Rule 10b5-1 trading plan to sell up to 15,000 shares of common stock195
SONOS(SONO) - 2024 Q3 - Quarterly Report