SONOS(SONO) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2020 was $249.3 million, a decline of only 4% year-over-year, and a growth of 42% compared to Q2 2020 [10][23] - Gross margin decreased by 110 basis points to 44% due to tariffs, but would have increased by 60 basis points to 45.7% excluding tariffs [25][24] - Adjusted EBITDA was a loss of $2.7 million, compared to adjusted EBITDA of $6.8 million in the previous year [32] Business Line Data and Key Metrics Changes - Direct-to-consumer (DTC) revenue increased by 299% year-over-year, significantly contributing to overall revenue performance [11][23] - The company launched three new products, which were well-received and contributed to strong sales [9][13] Market Data and Key Metrics Changes - Revenue in the United States grew by 4% year-over-year, while revenue in the United Kingdom grew by 13% year-over-year [10] - Listening hours increased by approximately 40% compared to the previous year, indicating heightened engagement with Sonos products [11] Company Strategy and Development Direction - The company aims to maintain a long-term product roadmap with a cadence of two new products per year while exploring new business models and partnerships [21] - Sonos is focused on diversifying its supply chain into Malaysia to mitigate tariff impacts, with full ramp-up expected by mid-2021 [38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to thrive despite challenges posed by the pandemic, citing strong demand and successful product launches [9][10] - The company expects to catch up on product availability in Q4 and has reinstated guidance for fiscal year 2020, projecting revenue growth of 2% year-over-year [34][41] Other Important Information - The company incurred $26 million in restructuring and related impairment charges during the quarter due to workforce reductions and office closures [27][20] - Sonos has received an exemption from certain tariffs, which will positively impact future financials [36] Q&A Session Summary Question: Impact of new operating system on customer churn - Management reported no significant churn related to the new operating system upgrade, with millions of homes transitioning to the new app [46] Question: Supply shortage impact on revenue - Management indicated that demand exceeded supply chain capabilities, but they expect to be fully caught up in Q4 [52][53] Question: Direct-to-consumer business sustainability - Management acknowledged the growth in DTC but refrained from providing long-term guidance due to market uncertainties [48][59] Question: Sonos Radio engagement and monetization - Management noted strong engagement with Sonos Radio and has recently introduced advertising, indicating future monetization potential [72] Question: Transition of production from China to Malaysia - Management confirmed that the transition is ongoing and is not expected to materially impact gross margins at this time [77]