Sonos Reports Record Second Quarter Fiscal 2021 Results

Rhea-AI Summary

Sonos, Inc. (Nasdaq: SONO) reported impressive second quarter fiscal 2021 results, with a net income of $17.2 million, a significant turnaround from a loss of $52.3 million last year. Revenue rose 90% year-over-year to $332.9 million, driven largely by strong product demand. Non-GAAP diluted EPS improved to $0.31 from ($0.34), while adjusted EBITDA surged to $48.5 million. The company raised its fiscal 2021 revenue outlook to $1.625 billion - $1.675 billion, reflecting a growth of 23% to 26% year-over-year. CEO Patrick Spence emphasized ongoing strong demand and a positive long-term business model.

Positive

• Revenue up 90% YoY to $332.9 million.
• GAAP net income improved to $17.2 million from a loss of $52.3 million.
• Non-GAAP diluted EPS rose to $0.31 from ($0.34).
• Adjusted EBITDA increased to $48.5 million, marking a substantial recovery.
• Raised fiscal 2021 revenue outlook to $1.625-$1.675 billion, up from prior guidance.

Negative

• None.

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

Second Quarter 2021 Financial Highlights (unaudited)

• GAAP net income (loss) increased to $17.2 million from ($52.3) million last year; non-GAAP net income (loss) excluding stock-based compensation, restructuring and legal and transaction related fees increased to $44.6 million from ($37.2) million last year.
• GAAP diluted earnings per share (EPS) increased to $0.12 from ($0.48) last year; non-GAAP diluted earnings per share (EPS) excluding stock-based compensation, restructuring, and legal and transaction related fees increased to $0.31 from ($0.34) last year.
• Adjusted EBITDA increased to $48.5 million from ($28.4) million last year.
• Adjusted EBITDA margin increased to 14.6% from (16.2%) last year.
• Gross margin increased 810 basis points to 49.8% from 41.7% last year.
• Revenue increased 90% year-over-year to $332.9 million; on a constant-currency basis, revenue increased approximately 83% year-over-year.

Sonos CEO Patrick Spence commented, “We are thrilled to report another record quarter at Sonos, as demand for our products continues to exceed even our heightened expectations. The power of our model is that customers can start with one product and expand to more over time, and our customers continue to prove they do just that. Based on our outstanding second quarter performance, the continued strong demand for our products, and the power and profitability of our unique business model, we are raising our outlook for fiscal 2021 again.”

Mr. Spence continued, “Our increased fiscal 2021 revenue outlook still assumes Sonos will account for only approximately 9% of the total spend in the $18 billion premium home audio market¹, and an even smaller fraction of the broader $89 billion global audio market² we expect to expand into over the long-term. We are truly just scratching the surface toward realizing our long-term opportunity. The future is bright for Sonos.”

Mr. Spence concluded, “We remain focused on our key three strategic initiatives - the expansion of our brand, the expansion of our offerings, and driving operational excellence - and continue to see a clear path toward achieving our fiscal 2024 targets of $2.25 billion revenue, 45% to 47% gross margin, and 15% to 18% adjusted EBITDA margin. We are extremely well positioned to deliver significant free cash flow and increased shareholder value over the long-term.”

Fiscal 2021 Outlook

• Adjusted EBITDA increased to a range of $225 million to $250 million representing growth in the range of 107% to 130%.
  • This compares to our prior outlook of $195 million to $225 million, representing growth in the range of 80% to 107% and our initial fiscal 2021 outlook provided at the start of the fiscal year of $170 million to $205 million, representing growth in the range of 57% to 89%.
• Adjusted EBITDA margin increased to a range of 13.8% to 14.9%, representing a 560 to 670 basis point improvement year-over-year.
  • This compares to our prior outlook range of 12.8% to 14.3%, representing a 460 to 610 basis point improvement and our initial fiscal 2021 outlook of 12% to 14%, representing a 380 to 580 basis point improvement.
• Gross margin in the range of 46.0% to 46.5%, representing a 288 to 338 basis point improvement year-over-year.
  • Our fiscal 2021 gross margin outlook reflects minimal impact from ongoing tariffs and does not include the $27.5 million in tariff refunds expected due to timing uncertainty.
  • This is consistent with our prior guidance range of 46.0% to 46.5% and compares to our initial fiscal 2021 outlook of 45.3% to 45.8%.
• Revenue increased to a range of $1.625 billion to $1.675 billion, representing growth in the range of 23% to 26% year-over-year (25% to 29% on a comparable basis excluding the 53rd week in fiscal 2020).
  • This compares to our prior guidance range of $1.525 billion to $1.575 billion, representing growth in the range of 15% to 19% from fiscal 2020 (17% to 21% excluding the 53rd week in fiscal 2020) and our initial fiscal 2021 outlook of $1.44 billion to $1.5 billion, or 9% to 13% growth (11% to 15% excluding the 53rd week in fiscal 2020).

¹ “Premium” defined as $100+ wireless speakers, $200+ soundbars, $300+ Hi-Fi systems, $250+ in-wall/in-ceiling speakers, $250+ bookshelf speakers (pairs), and all AV receivers, Floor standing speakers, home theater speakers and home theater in a box products and Hi-Fi separates. Source: Futuresource.

² Source: Futuresource.

Supplemental Earnings Presentation

The Company has posted a supplemental earnings presentation accompanying its second 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 second quarter fiscal 2021 results on May 12, 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 6483115. 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 (Loss)
(unaudited, in thousands, except share and per share amounts)
	Three Months Ended							Six Months Ended
	April 3, 2021			March 28, 2020				April 3, 2021			March 28, 2020
Revenue	$	332,949		$	175,098			$	978,532		$	737,181
Cost of revenue		167,173			102,089				513,331			436,552
Gross profit		165,776			73,009				465,201			300,629
Operating expenses
Research and development		56,370			49,593				108,717			102,120
Sales and marketing		57,205			50,504				131,658			127,928
General and administrative		39,806			26,119				75,047			56,327
Total operating expenses		153,381			126,216				315,422			286,375
Operating income (loss)		12,395			(53,207	)			149,779			14,254
Other income (expense), net
Interest income		44			874				80			1,873
Interest expense		(182	)		(374	)			(448	)		(827	)
Other income (expense), net		(1,578	)		(1,423	)			2,680			3,001
Total other income (expense), net		(1,716	)		(923	)			2,312			4,047
Income (loss) before provision for (benefit from) income taxes		10,679			(54,130	)			152,091			18,301
Provision for (benefit from) income taxes		(6,542	)		(1,810	)			2,578			(153	)
Net income (loss)	$	17,221		$	(52,320	)		$	149,513		$	18,454
Net income (loss) attributable to common stockholders:
Basic	$	17,221		$	(52,320	)		$	149,513		$	18,454
Diluted	$	17,221		$	(52,320	)		$	149,513		$	18,454
Net income (loss) per share attributable to common stockholders:
Basic	$	0.14		$	(0.48	)		$	1.26		$	0.17
Diluted	$	0.12		$	(0.48	)		$	1.09		$	0.16
Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:
Basic		121,880,615			109,515,049				118,745,569			109,249,866
Diluted		143,055,546			109,515,049				136,849,846			117,819,569
Total comprehensive income (loss)
Net income (loss)	$	17,221		$	(52,320	)		$	149,513		$	18,454
Change in foreign currency translation adjustment		199			(431	)			1,046			(950	)
Comprehensive income (loss)	$	17,420		$	(52,751	)		$	150,559		$	17,504

Condensed Consolidated Balance Sheets
(unaudited, dollars in thousands, except par values)
	As of
	April 3, 2021	October 3, 2020
Assets
Current assets:
Cash and cash equivalents	$ 638,927	$ 407,100
Restricted cash	192	191
Accounts receivable, net of allowances	69,690	54,935
Inventories	139,581	180,830
Prepaids and other current assets	31,763	17,321
Total current assets	880,153	660,377
Property and equipment, net	65,509	60,784
Operating lease right-of-use assets	39,061	42,342
Goodwill	15,545	15,545
Intangible assets, net	25,434	26,394
Deferred tax assets	1,984	1,800
Other noncurrent assets	20,600	8,809
Total assets	$ 1,048,286	$ 816,051
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$ 203,585	$ 250,328
Accrued expenses	61,659	45,049
Accrued compensation	46,665	44,517
Short-term debt	-	6,667
Deferred revenue, current	18,392	15,304
Other current liabilities	40,770	31,150
Total current liabilities	371,071	393,015
Operating lease liabilities, noncurrent	39,361	50,360
Long-term debt	-	18,251
Deferred revenue, noncurrent	52,497	47,085
Deferred tax liabilities	2,394	2,434
Other noncurrent liabilities	3,695	7,067
Total liabilities	469,018	518,212
Stockholders’ equity:
Common stock, $0.001 par value	126	114
Treasury stock	(26,023)	(20,886)
Additional paid-in capital	684,988	548,993
Accumulated deficit	(78,979)	(228,492)
Accumulated other comprehensive loss	(844)	(1,890)
Total stockholders’ equity	579,268	297,839
Total liabilities and stockholders’ equity	$ 1,048,286	$ 816,051

Condensed Consolidated Statements of Cash Flows
(unaudited, dollars in thousands)
	Six Months Ended
	April 3, 2021			March 28, 2020
Cash flows from operating activities
Net income	$	149,513		$	18,454
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		16,725			18,831
Stock-based compensation expense		31,207			26,598
Other		344			2,989
Deferred income taxes		(146	)		74
Foreign currency transaction gain		(1,047	)		(420	)
Changes in operating assets and liabilities:
Accounts receivable, net		(13,260	)		63,344
Inventories		39,631			106,245
Other assets		(21,982	)		(9,690	)
Accounts payable and accrued expenses		(36,485	)		(191,070	)
Accrued compensation		2,087			(14,443	)
Deferred revenue		8,374			3,729
Other liabilities		992			10,727
Net cash provided by operating activities		175,953			35,368
Cash flows from investing activities
Purchases of property and equipment, intangible and other assets		(19,927	)		(25,800	)
Cash paid for acquisition, net of acquired cash		-			(36,289	)
Net cash used in investing activities		(19,927	)		(62,089	)
Cash flows from financing activities
Repayments of borrowings		(25,000	)		(3,333	)
Payments for repurchase of common stock		(682	)		(33,216	)
Proceeds from exercise of common stock options		119,166			12,585
Payments for repurchase of common stock related to shares withheld for tax in connection with vesting of restricted stock units		(18,821	)		(4,596	)
Net cash provided by (used in) financing activities		74,663			(28,560	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		1,139			(107	)
Net increase (decrease) in cash, cash equivalents and restricted cash		231,828			(55,388	)
Cash, cash equivalents and restricted cash
Beginning of period		407,291			338,820
End of period	$	639,119		$	283,432
Supplemental disclosure
Cash paid for interest	$	357		$	851
Cash paid for taxes, net of refunds	$	3,255		$	1,025
Cash paid for amounts included in the measurement of lease liabilities	$	11,683		$	7,346
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses	$	8,910		$	3,270
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,622		$	75,642

Reconciliation of Net Income (Loss) to Adjusted EBITDA
(unaudited, dollars in thousands)
	Three Months Ended							Six Months Ended
	April 3, 2021			March 28, 2020				April 3, 2021			March 28, 2020
Net income (loss)	$	17,221		$	(52,320	)		$	149,513		$	18,454
Add (deduct):
Depreciation and amortization		8,742			9,726				16,725			18,831
Stock-based compensation expense		16,363			13,394				31,207			26,598
Interest income		(44	)		(874	)			(80	)		(1,873	)
Interest expense		182			374				448			827
Other (income) expense, net		1,578			1,423				(2,680	)		(3,001	)
Provision for (benefit from) income taxes		(6,542	)		(1,810	)			2,578			(153	)
Restructuring and related expenses (1)		-			-				(2,611	)		-
Legal and transaction related costs (2)		11,013			1,705				19,679			5,153
Adjusted EBITDA	$	48,513		$	(28,382	)		$	214,779		$	64,836
Revenue	$	332,949		$	175,098			$	978,532		$	737,181
Adjusted EBITDA margin		14.6	%		(16.2	)%			21.9	%		8.8	%

(1) Restructuring and related expenses for the six months ended April 3, 2021 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 plan. The gain represents the difference between the related operating lease liability and previously accrued restructuring expenses versus the early termination payment. For a description of the 2020 restructuring plan, see “Restructuring and Related Costs” below.

(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)
	Six Months Ended
	April 3, 2021		March 28, 2020
Cash flows provided by operating activities	$175,953		$35,368
Less: Purchases of property and equipment, intangible and other assets	(19,927)		(25,800)
Free cash flow	$ 156,026		$ 9,568

Revenue by Product Category
(unaudited, dollars in thousands)
	Three Months Ended			Six Months Ended
	April 3, 2021	March 28, 2020		April 3, 2021		March 28, 2020
Sonos speakers	$ 267,534	$ 116,367		$ 795,050		$ 583,044
Sonos system products	52,062	47,202		149,820		108,723
Partner products and other revenue	13,353	11,529		33,662		45,414
Total revenue	$ 332,949	$ 175,098		$ 978,532		$ 737,181
Revenue by Geographical Region
(unaudited, dollars in thousands)
	Three Months Ended			Six Months Ended
	April 3, 2021	March 28, 2020		April 3, 2021		March 28, 2020
Americas	$ 193,938	$ 101,964		$ 561,177		$ 405,158
Europe, Middle East and Africa ("EMEA")	114,306	57,252		354,313		269,990
Asia Pacific ("APAC")	24,705	15,882		63,042		62,033
Total revenue	$ 332,949	$ 175,098		$ 978,532		$ 737,181

Stock-based Compensation
(unaudited, dollars in thousands)
	Three Months Ended		Six Months Ended
	April 3, 2021	March 28, 2020	April 3, 2021	March 28, 2020
Cost of revenue	$ 261	$ 278	$ 474	$ 561
Research and development	6,683	5,427	12,942	10,543
Sales and marketing	3,632	3,407	7,040	6,948
General and administrative	5,787	4,282	10,751	8,546
Total stock-based compensation expense	$ 16,363	$ 13,394	$ 31,207	$ 26,598

Restructuring and Related Costs (1)
(unaudited, dollars in thousands)
	Three Months Ended			Six Months Ended
	April 3, 2021			April 3, 2021
Research and development	$	-		$	25
Sales and marketing		-			(2,636	)
Total restructuring and related costs	$	-		$	(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, 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 define free cash flow as net cash from operations less purchases of property and equipment and intangible assets. 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, 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; supply chain challenges, including shipping and logistics challenges and significant limits on component supplies; 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 Quarterly Report on Form 10-Q for the quarter ended January 2, 2021 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 press release, 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.

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FAQ

What were Sonos's earnings for the second quarter of fiscal 2021?

Sonos reported a net income of $17.2 million for the second quarter of fiscal 2021.

How much did Sonos's revenue increase in Q2 2021?

Sonos's revenue increased by 90% year-over-year to $332.9 million.

What is Sonos's adjusted EBITDA for Q2 2021?

Adjusted EBITDA for Q2 2021 was $48.5 million.

What is Sonos's updated revenue outlook for fiscal 2021?

Sonos raised its fiscal 2021 revenue outlook to a range of $1.625 billion to $1.675 billion.

What is the non-GAAP diluted EPS for Sonos in Q2 2021?

The non-GAAP diluted EPS for Sonos increased to $0.31 in Q2 2021.