Sonos Reports Record First Quarter Fiscal 2021 Results

Rhea-AI Summary

Sonos reported a record Q1 2021 with GAAP net income increasing by 87% to $132.3 million. Non-GAAP net income rose to $153.2 million, while GAAP diluted EPS jumped to $1.01 from $0.60 and non-GAAP EPS reached $1.17 from $0.74. Revenue grew 15% year-over-year to $645.6 million. Adjusted EBITDA surged 78% to $166.3 million, with a margin increase to 25.8%. The company raised its fiscal 2021 outlook for revenue to $1.525 billion - $1.575 billion, indicating strong momentum.

Positive

• GAAP net income increased 87% to $132.3 million.
• Non-GAAP EPS rose to $1.17, up from $0.74.
• Revenue increased 15% year-over-year to $645.6 million.
• Adjusted EBITDA increased 78% to $166.3 million.
• Fiscal 2021 revenue outlook raised to a range of $1.525 billion - $1.575 billion.

Negative

• None.

Sonos, Inc. (Nasdaq: SONO) today reported record first quarter fiscal 2021 results.

First Quarter 2021 Financial Highlights (unaudited)

• GAAP net income increased 87% to $132.3 million from $70.8 million last year; non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees increased to $153.2 million from $87.4 million last year.
• GAAP diluted earnings per share (EPS) increased to $1.01 from $0.60 last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $1.17 from $0.74 last year.
• Adjusted EBITDA increased 78% to $166.3 million from $93.2 million last year; excluding the effect of tariff duties and refunds, adjusted EBITDA increased 45% to $163.2 million.
• Adjusted EBITDA margin increased 920 basis points to 25.8% from 16.6% last year; excluding the effect of tariff duties and refunds, adjusted EBITDA margin increased to 25.3%.
• Gross margin increased 590 basis points to 46.4% from 40.5% last year; excluding the effect of tariff duties and refunds, gross margin increased to 45.9%.
• Revenue increased 15% year-over-year to $645.6 million; on a constant-currency basis revenue increased approximately 12% year-over-year.
• Cash flows from operating activities of $214.5 million compared to $118.8 million last year.
• Free cash flow increased 97% to $203.2 million compared to $102.9 million last year.

Sonos CEO Patrick Spence commented, “Despite all of the challenges of the pandemic, our team rose to the occasion and delivered the best quarter in our 18 year history. We welcomed a record number of new customers while a record number of existing customers returned to add additional products to their system. Based on our outstanding first quarter performance, the momentum in our business, the exciting products we have planned for the future, and the power and profitability of our unique business model, we are raising our outlook for fiscal 2021.”

Mr. Spence concluded, “We remain focused on delivering innovative new products that both attract new customers and inspire existing customers to add additional products, introducing services that enhance and further differentiate the customer experience, strengthening our direct-to-consumer efforts, and supporting our incredible partnerships. We are extremely well positioned to deliver solid adjusted EBITDA margin expansion, industry-leading gross margins, strong revenue growth, significant free cash flow and increased shareholder value over time. The future has never been brighter for Sonos.”

Fiscal 2021 Outlook

• Adjusted EBITDA increased to a range of $195 million to $225 million representing growth in the range of 80% to 107% year-over-year. This compares to a prior guidance range of $170 million to $205 million representing growth in the range of 57% to 89%. Excluding the effect of tariffs, growth is expected to be in the range of 40% to 62%.
• Adjusted EBITDA margin increased to a range of 13% to 14%, representing a 460 to 610 basis point improvement year-over-year and compared to prior guidance range of 12% to 14%. Excluding the effect of tariffs, adjusted EBITDA margin expected to be in range of 13.0% to 14.4%.
• Gross margin increased to a range of 46.0% to 46.5%, representing a 288 to 338 basis point improvement year-over-year and compared to prior guidance of 45.3% to 45.8%. Excluding the effect of tariffs, gross margin is expected to be in the range of 46.2% to 46.7%. Our fiscal 2021 outlook includes minimal impact from ongoing tariffs and does not include the $29.2 million in tariff refunds expected due to timing uncertainty.
• Revenue increased to a range of $1.525 billion to $1.575 billion, representing growth in the range of 15% to 19% from fiscal 2020 (17% to 21% on a comparable basis excluding the 53rd week in fiscal 2020). This compares to prior revenue guidance of $1.44 billion to $1.5 billion, or 9% to 13% growth (11% to 15% on a comparable basis excluding the 53rd week in fiscal 2020).

Virtual Investor Event - Tuesday, March 9, 2021

Sonos will host a virtual investor event at 4:00 pm ET on Tuesday, March 9, 2021 highlighting its long-term strategic priorities and targets.

Supplemental Earnings Presentation

The Company has posted a supplemental earnings presentation accompanying its first quarter fiscal 2021 results to the Earnings Reports section of its investor relations website at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports.

Conference Call, Webcast and Transcript

The Company will host a webcast of its conference call and Q&A related to its first quarter fiscal 2021 results on February 10, 2021 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Participants may access the live webcast in listen-only mode on the Sonos investor relations website at https://investors.sonos.com/news-and-events/default.aspx. The conference call may also be accessed by dialing (833) 921-1637 with conference ID 9987111. Participants outside the U.S. can access the call by dialing (236) 714-2128 using the same conference ID.

An archived webcast of the conference call and a transcript of the company’s prepared remarks and Q&A session will also be available at https://investors.sonos.com/reports-and-filings/default.aspx#section=earningsreports following the call.

Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited, in thousands, except share and per share amounts)
	Three Months Ended
	January 2, 2021				December 28, 2019
Revenue	$	645,584			$	562,083
Cost of revenue		346,159				334,463
Gross profit		299,425				227,620
Operating expenses
Research and development		52,346				52,526
Sales and marketing		74,453				77,423
General and administrative		35,242				30,209
Total operating expenses		162,041				160,158
Operating income		137,384				67,462
Other income (expense), net
Interest income		36				998
Interest expense		(265	)			(453	)
Other income, net		4,257				4,424
Total other income (expense), net		4,028				4,969
Income before provision for income taxes		141,412				72,431
Provision for income taxes		9,120				1,656
Net income	$	132,292			$	70,775
Net income attributable to common stockholders:
Basic	$	132,292			$	70,775
Diluted	$	132,292			$	70,775
Net income per share attributable to common stockholders:
Basic	$	1.14			$	0.65
Diluted	$	1.01			$	0.60
Weighted-average shares used in computing net income per share attributable to common stockholders:
Basic		115,610,523				108,984,683
Diluted		130,644,147				118,415,968
Total comprehensive income
Net income	$	132,292			$	70,775
Change in foreign currency translation adjustment		847				(519	)
Comprehensive income	$	133,139			$	70,256

Condensed Consolidated Balance Sheets
(unaudited, in thousands, except par values)
	As of
	January 2, 2021				October 3, 2020
Assets
Current assets:
Cash and cash equivalents	$	677,834			$	407,100
Restricted cash		198				191
Accounts receivable, net of allowances		113,616				54,935
Inventories		88,194				180,830
Prepaids and other current assets		21,076				17,321
Total current assets		900,918				660,377
Property and equipment, net		64,170				60,784
Operating lease right-of-use assets		41,462				42,342
Goodwill		15,545				15,545
Intangible assets, net		25,975				26,394
Deferred tax assets		1,886				1,800
Other noncurrent assets		16,904				8,809
Total assets	$	1,066,860			$	816,051
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	239,760			$	250,328
Accrued expenses		96,433				45,049
Accrued compensation		29,424				44,517
Short-term debt		24,937				6,667
Deferred revenue, current		16,382				15,304
Other current liabilities		48,828				31,150
Total current liabilities		455,764				393,015
Operating lease liabilities, noncurrent		42,268				50,360
Long-term debt		-				18,251
Deferred revenue, noncurrent		52,459				47,085
Deferred tax liabilities		2,434				2,434
Other noncurrent liabilities		3,726				7,067
Total liabilities		556,651				518,212
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par value		121				114
Treasury stock		(26,004	)			(20,886	)
Additional paid-in capital		633,335				548,993
Accumulated deficit		(96,200	)			(228,492	)
Accumulated other comprehensive loss		(1,043	)			(1,890	)
Total stockholders’ equity		510,209				297,839
Total liabilities and stockholders’ equity	$	1,066,860			$	816,051

Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
	Three Months Ended
	January 2, 2021				December 28, 2019
	(unaudited)
Cash flows from operating activities
Net income	$	132,292			$	70,775
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		7,982				9,105
Stock-based compensation expense		14,844				13,204
Other		(1,050	)			1,471
Deferred income taxes		12				51
Foreign currency transaction gain		(1,633	)			(1,924	)
Changes in operating assets and liabilities:
Accounts receivable, net		(56,650	)			(31,411	)
Inventories		93,495				107,343
Other assets		(7,330	)			(11,853	)
Accounts payable and accrued expenses		33,271				(39,416	)
Accrued compensation		(15,481	)			(14,568	)
Deferred revenue		5,633				4,879
Other liabilities		9,128				11,184
Net cash provided by operating activities		214,513				118,840
Cash flows from investing activities
Purchases of property, equipment, intangible and other assets		(11,333	)			(15,914	)
Cash paid for acquisition, net of acquired cash		-				(35,622	)
Net cash used in investing activities		(11,333	)			(51,536	)
Cash flows from financing activities
Repayments of borrowings		-				(1,667	)
Payments for repurchase of common stock		-				(5,078	)
Proceeds from exercise of stock options		69,505				7,969
Payments for repurchase of common stock related to shares withheld for tax in connection with vesting of RSUs		(5,118	)			-
Net cash provided by financing activities		64,387				1,224
Effect of exchange rate changes on cash, cash equivalents and restricted cash		3,174				1,254
Net increase in cash, cash equivalents and restricted cash		270,741				69,782
Cash, cash equivalents and restricted cash
Beginning of period		407,291				338,820
End of period	$	678,032			$	408,602
Supplemental disclosure
Cash paid for interest	$	166			$	472
Cash paid for taxes, net of refunds	$	2,672				517
Cash paid for amounts included in the measurement of lease liabilities	$	8,102				4,304
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses	$	7,814			$	7,908
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,509			$	74,683

Reconciliation of Net Income to Adjusted EBITDA
(unaudited, dollars in thousands)
		Three Months Ended
		January 2, 2021				December 28, 2019
Net income		$	132,292			$	70,775
Add (deduct):
Depreciation and amortization			7,982				9,105
Stock-based compensation expense			14,844				13,204
Interest income			(36	)			(998	)
Interest expense			265				453
Other income, net			(4,257	)			(4,424	)
Provision for income taxes			9,120				1,656
Restructuring and related expenses (1)			(2,611	)			-
Legal and transaction related costs (2)			8,666				3,448
Adjusted EBITDA		$	166,265			$	93,219
Revenue		$	645,584			$	562,083
Adjusted EBITDA margin			25.8	%			16.6	%

(1) Restructuring and related expenses includes a gain of $2.8 million, related to our negotiation for the early termination of a facility lease that was part of the 2020 restructuring. The gain represents the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment.

(2) Legal and transaction related costs consist of expenses related to our intellectual property ("IP") litigation against Alphabet Inc. and Google LLC as well as legal and transaction costs associated with our acquisition activity, which we do not consider representative of our underlying operating performance.

Reconciliation of Cash Flows Provided by Operating Activities to Free Cash Flow
(unaudited, dollars in thousands)
	Three Months Ended
	January 2, 2021				December 28, 2019
Cash flows provided by operating activities	$	214,513			$	118,840
Less: purchases of property and equipment, intangible and other assets		(11,333	)			(15,914	)
Free cash flow	$	203,180			$	102,926

Revenue by Product Category
(unaudited, dollars in thousands)
	Three Months Ended
	January 2, 2021			December 28, 2019
Sonos speakers	$	527,516		$	466,677
Sonos system products		97,759			61,521
Partner products and other revenue		20,309			33,885
Total revenue	$	645,584		$	562,083
Revenue by Geographical Region
(unaudited, dollars in thousands)
	Three Months Ended
	January 2, 2021			December 28, 2019
Americas	$	367,239		$	303,194
Europe, Middle East and Africa		240,007			212,738
Asia Pacific		38,338			46,151
Total revenue	$	645,584		$	562,083

Stock-based Compensation
(unaudited, dollars in thousands)
		Three Months Ended
		January 2, 2021			December 28, 2019
Cost of revenue		$	214		$	282
Research and development			6,258			5,116
Sales and marketing			3,408			3,541
General and administrative			4,964			4,265
Total stock-based compensation expense		$	14,844		$	13,204

Restructuring and Related Expenses (1)
(unaudited, dollars in thousands)
	Three Months Ended
	January 2, 2021
Research and development	$	25
Sales and marketing		(2,636	)
Total	$	(2,611	)

(1) On June 23, 2020, we initiated a restructuring plan as part of our efforts to reduce operating expenses and preserve liquidity due to the uncertainty and challenges stemming from the COVID-19 pandemic. As part of the 2020 restructuring plan, we eliminated approximately 12% of our global headcount and closed our New York retail store and six satellite offices. We believe these initiatives will better align our resources to provide further operating flexibility and more efficiently position our business for our long-term strategy. Activities under the 2020 restructuring plan were substantially completed in the first quarter of fiscal 2021. In the first quarter of fiscal 2021, we negotiated the early termination of a facility lease that was part of the 2020 restructuring and recorded a gain of $2.8 million, representing the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. The gain was recognized as a credit in sales and marketing expenses on the condensed consolidated statements of operations and comprehensive income.

Use of Non-GAAP Measures

We have provided in this press release financial information that has not been prepared in accordance with generally accepted accounting principles (“U.S. GAAP”), including adjusted EBITDA, adjusted EBITDA margin, free cash flow, gross margin excluding the effect of tariff duties and refunds, adjusted EBITDA excluding the effect of tariff duties and refunds, adjusted EBITDA margin excluding the effect of tariff duties and refunds, net income excluding stock-based compensation, restructuring, and legal and transaction related fees, and diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees. These non-GAAP financial measures are not based on any standardized methodology prescribed by U.S. GAAP and are not necessarily comparable to similarly titled measures presented by other companies. We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that these non-GAAP financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses and other items that we exclude in these non-GAAP financial measures. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making. Non-GAAP financial measures should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. Investors are encouraged to review the reconciliation of these financial measures to their nearest U.S. GAAP financial equivalents provided in the financial statement tables above. We define adjusted EBITDA as net income adjusted to exclude the impact of depreciation, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes and other items that we do not consider representative of our underlying operating performance. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue. We calculate gross margin excluding the effect of tariff duties and refunds as gross profit, less the effect of tariffs imposed on goods imported to the U.S. from China and any tariffs refunds subject to a tariff refund claim approved by U.S. Customs and Border Protection, divided by revenue. We define free cash flow as net cash from operations less purchases of property and equipment and intangible assets. We calculate adjusted EBITDA excluding the effect of tariff duties and refunds as net income excluding the effect of tariffs imposed on goods manufactured in China and any tariffs refunds subject to a tariff refund claim approved by U.S. Customs and Border Protection and adjusted to exclude the impact of depreciation, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes and other items that we do not consider representative of our underlying operating performance. We calculate non-GAAP net income excluding stock-based compensation, restructuring and legal and transaction related fees as net income less stock-based compensation, restructuring fees and legal and transaction related fees. We calculate non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees as net income less stock-based compensation, restructuring costs and legal and transaction related fees divided by our number of shares at fiscal year end. We do not provide a reconciliation of forward-looking non-GAAP financial measures to their comparable GAAP financial measures because we cannot do so without unreasonable effort due to unavailability of information needed to calculate reconciling items and due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP financial measures in future periods. When planning, forecasting and analyzing future periods, we do so primarily on a non-GAAP basis without preparing a GAAP analysis as that would require estimates for items such as stock-based compensation, which is inherently difficult to predict with reasonable accuracy. Stock-based compensation expense is difficult to estimate because it depends on our future hiring and retention needs, as well as the future fair market value of our common stock, all of which are difficult to predict and subject to constant change. In addition, for purposes of setting annual guidance, it would be difficult to quantify stock-based compensation expense for the year with reasonable accuracy in the current quarter. As a result, we do not believe that a GAAP reconciliation would provide meaningful supplemental information about our outlook.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding our outlook for the fiscal year ended October 2, 2021, our long-term focus, financial, growth and business strategies and opportunities, growth metrics and targets, our business model, new products, services and partnerships, profitability and gross margins, our direct-to-consumer efforts, our market share, our tariff expense and other factors affecting variability in our financial results. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors, including, but not limited to the duration and impact of the COVID-19 pandemic and related mitigation efforts on our industry and our supply chain; changes in general economic or market conditions that could affect consumer income and overall consumer spending; our ability to successfully introduce new products and services and maintain or expand the success of our existing products; the success of our efforts to expand our direct-to-consumer channel; the success of our financial, growth and business strategies; our ability to meet and accurately forecast product demand and manage any product availability delays; and the other risk factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended October 3, 2020 and our other filings filed with the Securities and Exchange Commission (the “SEC”), copies of which are available free of charge at the SEC’s website at www.sec.gov or upon request from our investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this letter, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events. Sonos and Sonos product names are trademarks or registered trademarks of Sonos, Inc. All other product names and services may be trademarks or service marks of their respective owners.

About Sonos

Sonos (Nasdaq: SONO) is one of the world’s leading sound experience brands. As the inventor of multi-room wireless home audio, Sonos innovation helps the world listen better by giving people access to the content they love and allowing them to control it however they choose. Known for delivering an unparalleled sound experience, thoughtful home design aesthetic, simplicity of use and an open platform, Sonos makes the breadth of audio content available to anyone. Sonos is headquartered in Santa Barbara, California. Learn more at www.sonos.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210210005767/en/

FAQ

What were Sonos's Q1 2021 earnings results?

In Q1 2021, Sonos reported a GAAP net income of $132.3 million, a 87% increase year-over-year, with diluted EPS rising to $1.01.

How did Sonos's revenue perform in Q1 2021?

Sonos's revenue for Q1 2021 was $645.6 million, marking a 15% year-over-year increase.

What is Sonos's fiscal 2021 outlook?

Sonos has raised its fiscal 2021 revenue outlook to a range of $1.525 billion - $1.575 billion, indicating growth of 15% to 19%.