Sonos Falls Short of Q3 Targets

Shares in Sonos have fallen roughly 17% this week on news the company missed revenue targets through the June quarter and have readjusted its revenue outlook for the remainder of the year.

In a written statement Sonos said, “due to the uncertain and evolving macroeconomic backdrop, the timeline to achieve the Company’s previously issued targets of $2.5 billion revenue, 45-47% gross margins and 15-18% Adjusted EBITDA margins is being extended beyond FY2024.”

Photo: Sonos

“We have seen the macroeconomic backdrop become significantly more challenging for us starting in June as the dollar’s appreciation and high inflation have adversely affected consumer sentiment globally”, commented Sonos CEO Patrick Spence, “particularly in the categories in which we play. As a result, revenue missed our expectations for Q3 and we are adjusting our FY22 outlook accordingly.”

Spence continued, “Although we cannot predict when macroeconomic conditions will normalize, we remain confident that, when they do, we will return to double-digit revenue growth. We base this on our category leadership position, our flywheel of new and existing customer repurchases and robust product roadmap. We expect to weather the current environment while operating from a position of strength: we are profitable, we are debt free, and we have a huge market opportunity. We are tightly focused on expenses while prudently and deliberately investing in a number of products and initiatives in new and existing categories that we believe customers will love and will drive our long-term success.”

Third Quarter 2022 Financial Highlights (unaudited)

  • Revenue decreased 1.8% year-over-year to $371.8 million; on a constant-currency basis, revenue increased approximately 2.2% year-over-year
  • Gross margin increased 30 basis points year-over-year to 47.3%
  • GAAP net loss of $0.6 million compared to GAAP net income of $17.8 million last year; non-GAAP net income excluding stock-based compensation and legal and transaction related fees of $25.6 million compared to $38.7 million last year
  • GAAP diluted earnings per share (EPS) of $0.00 compared to $0.12 last year; non-GAAP diluted EPS excluding stock-based compensation and legal and transaction related fees of $0.19 compared to $0.27 last year
  • Adjusted EBITDA of $42.1 million compared to $46.7 million last year
  • Adjusted EBITDA margin of 11.3% compared to 12.3% last year
  • Cash flows used in operating activities of $6.7 million
  • Free cash flow of ($16.0) million

Sonos separately announced that Brittany Bagley, the Company’s Chief Financial Officer (CFO), is stepping down to pursue another professional opportunity. Eddie Lazarus, the Company’s Chief Legal Officer (CLO) will succeed Ms. Bagley as interim CFO effective Sept. 1, 2022.

Photo: Sonos

Fiscal 2022 Outlook

  • Revenue in the range of $1.730 billion to $1.755 billion, representing growth of 1% to 2% from fiscal 2021, or growth of 4% to 5% on a constant currency basis. This compares to a prior outlook range of $1.95 billion to $2.0 billion, which represented growth of 14% to 16% from fiscal 2021
  • Gross margin in the range of 45.7% to 45.9%, narrowed from previous gross margin range of 45.5% to 46.0%
  • Adjusted EBITDA in the range of $215 million to $230 million, representing a decline of 23% to 17% from fiscal 2021. This compares to a prior outlook range of $290 million to $310 million, which represented growth of 4% to 11%
  • Adjusted EBITDA margin of 12.4% to 13.1%, compared to prior outlook range of 14.9% to 15.5%

Sonos consolidated statement of operations can be viewed here