Q1 2022 Sonos Inc Earnings Call

Speaker 1: Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos first quarter fiscal 2022 earnings conference call.

Good afternoon. My name is Anna and I will be your conference operator today at this time I would like to welcome everyone to the Sony <unk> first quarter fiscal 2022 earnings conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Speaker 1: If you would like to withdraw your question, again, press the star 1. Thank you. Cameron McLaughlin, you may begin your conference.

If you would like to withdraw your question again press the star one. Thank you Kevin Mclaughlin you may begin your conference.

Speaker 1: Thank you. Good afternoon and welcome to Sonos first quarter fiscal 2022 earnings conference call. I am Cameron McLaughlin and with me today are Sonos CEO Patrick Spence and Brittany Bagley CFO . Chief legal officer Eddie Lazarus will also be available during the question and answer session.

Thank you good afternoon, and welcome to <unk> first quarter fiscal 2022 earnings conference call I Am Cameron Mclaughlin and with me today are CEO , Patrick Spence and Brittany Bagley CFO Chi.

Legal officer, Eddie Lazarus will also be available during the question and answer session.

Speaker 1: Before I hand it over to Patrick, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance. These statements reflect our views as of today only and should not be considered as representing our views of any subsequent date. These statements are also subject to material risks on certainties that could cause actual results to differ materially from expectations reflected in the forward-looking statement.

Before I hand, it over to Patrick I'd like to remind everyone that today's discussion will include forward looking statements regarding future events and our future financial performance. These statements reflect our views as of today, only and should not be considered as representing our views of any subsequent date. These statements are also subject to material risks uncertainties that could cause actual results to differ materially from expectations.

Reflected in the Olympics and statements.

Speaker 1: A discussion of these risk factors is fully detailed under the caption risk factors in our filings of the SEC. During this call, we will also refer to certain non-GAAP financial measures. For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our first quarter fiscal 2022 results posted to the investor relations portion of our website.

These risk factors is fully detailed under the caption risk factors in our filings with the SEC. During this call. We will also refer to certain non-GAAP financial measures for information regarding our non-GAAP financials, and a reconciliation of GAAP to non-GAAP measures. Please refer to today's press release regarding our first quarter of fiscal 2022 result posted to the investor relation.

<unk> portion of our website as a reminder, the press release supplemental earnings presentation and conference call transcript will be available on our Investor Relations website at investors docs on us Dot Com I will now turn the call over to Patrick Thanks, Cameron and Hello, everyone.

Speaker 1: As a reminder, the press release, supplemental earnings presentation, and conference call transcripts will be available on our investor relations website at investors.sonos.com. I will now turn the call over to Patrick.

Speaker 2: Thanks, Cameron, and hello, everyone. Our record first quarter results illustrate the continued strong demand for our products. Yet again, we have proven the power of our model as we scale and our continued ability to execute better than most in a challenging supply chain environment.

Our record first quarter results illustrate the continued strong demand for our products yet again, we have proven the power of our model as we scale and our continued ability to execute better than most in a challenging supply chain environment.

Speaker 2: Our team continues to go above and beyond, successfully navigating everything from constrained ship supply to logistical bottlenecks to deliver on behalf of our customers and stakeholders.

Our team continues to go above and beyond successfully navigating everything from constrained chip supply to logistical bottlenecks to deliver on behalf of our customers and stakeholders.

Speaker 2: Our record results are a testament to all of the hard work our team puts in every day. I am remiss if I did not thank the entire Sonos team for their dedication and commitment toward building the world's leading sound experience brand.

Our record results are a testament to all of the hard work our team puts in everyday.

I would remiss if I did not thank the entire sonus team for their dedication and commitment toward building the world's leading sound experience brand.

Speaker 2: Our fiscal 2022 is off to a strong start, and we are increasingly confident in our ability to deliver another record year.

Our fiscal 2022 is off to a strong start and we are increasingly confident in our ability to deliver another record year.

Speaker 2: Demand remains strong, driven by the continued appeal of our industry-leaning products, and we delivered a record $664.5 million in revenue during the first quarter.

<unk> remained strong driven by the continued appeal of our industry, leading products and we delivered a record $664.5 million in revenue during the first quarter.

Speaker 2: As we discussed last quarter, we expected heavily constrained product availability to offset our potential growth in the first quarter.

As we discussed last quarter, we expected heavily constrained product availability to offset our potential growth in the first quarter.

Speaker 2: We are pleased to have modestly exceeded our own expectations.

We are pleased to have modestly exceeded our own expectations.

Speaker 2: As a result of our strong performance in the first quarter and our outlook for the remainder of the year, we are on track to deliver our 17th consecutive year of revenue growth and have raised the low end of our fiscal 2022 revenue guidance range.

As a result of our strong performance in the first quarter and our outlook for the remainder of the year. We are on track to deliver our 17th consecutive year of revenue growth and have raised the low end of our fiscal 2022 revenue guidance range.

Speaker 2: We now expect to deliver 15% revenue growth at the midpoint.

We now expect to deliver 15% revenue growth at the midpoint.

Speaker 2: This raises the midpoint from a prior outlook as we were able to deliver more than we were expecting from a supply standpoint in the first quarter, and remain confident as we look to the remainder of fiscal 2022.

This raises the midpoint from our prior outlook as we were able to deliver more than we were expecting from a supply standpoint in the first quarter and remain confident as we look to the remainder of fiscal 2022.

Speaker 2: We continue to invest in our business to drive our long term growth and fuel future product innovation. This is reflect-

We continue to invest in our business to drive our long term growth and fuel future product innovation. This.

This is reflected in our outlook.

Speaker 2: As a result of our increased fiscal 2022 revenue guidance, we have also upwardly revised the low end of our adjusted EBITDA outlook and see a clear path toward delivering adjusted EBITDA margins in the range of 14.9% to 16.2% this year.

As a result of our increased fiscal 2022 revenue guidance. We are also upwardly revised the low end of our adjusted EBITDA outlook and see a clear path toward delivering adjusted EBITDA margins in the range of 14, 9% to 16, 2% this year.

Speaker 2: Consistent with what we shared last quarter, we remain ahead of schedule toward achieving our fiscal 2024 target.

Consistent with what we shared last quarter, we remain ahead of schedule toward achieving our fiscal 'twenty 'twenty four targets.

Speaker 2: We are well on our way toward delivering a 13% revenue CAGR, thereby achieving approximately $2.5 billion in revenue in fiscal 2024, as well as adjusted EBITDA margins in the range of 15% to 18%.

We are well on our way toward delivering a 13% revenue CAGR, thereby achieving approximately $2.5 billion in revenue in fiscal 2024, as well as adjusted EBITDA margins in the range of 15% to 18%.

Speaker 2: Our brand has momentum, we have an exciting and expansive product roadmap, and we are confident in our ability to continue to drive sustainable, profitable growth over the long term.

Our brand has momentum we've been exciting and expansive product roadmap and we are confident in our ability to continue to drive sustainable profitable growth over the long term.

Speaker 2: I would like to spend a few minutes on why we believe our model is such a powerful and differentiated one, and how we are well positioned to drive growth for the long term, even in challenging times.

I would like to spend a few minutes on why we believe our model is such a powerful and differentiated one.

And how we are well positioned to drive growth for the long term even in challenging times.

Speaker 2: First, and really the most important thing for people to understand about Sonos, is that our flywheel of strong new household acquisition and existing customer repurchases is core to our growth.

First and really the most important thing for people to understand about Santos is that our flywheel is strong new household acquisition and existing customer repurchases is core to our growth.

Speaker 2: We've added approximately 3.5 million new households over the last two years and have more than doubled our total households since fiscal 2017.

We've added approximately $3 5 million new households over the last two years and have more than doubled our total households since fiscal 2017.

Speaker 2: Today, we serve only 10% of the more than 116 million homes. We believe are addressable for us in our existing markets alone.

Today, we serve only 10% of the more than 116 million homes, we believe our addressable for us in our existing markets alone.

Speaker 2: We have a tremendous runway to add tens of millions more households to the Sonos ecosystem over time. Even before we contemplate adding new categories of products and services and new geographies.

We have a tremendous runway to add tens of millions more households to the sonus ecosystem over time, even before we contemplate adding new categories of products and services and new geographies.

Speaker 2: Sonos is not a typical one and done purchase. It is a unique system that you build over time.

So no. This is not a typical one and done purchase it is a unique system that you build over time.

Speaker 2: This system-based model is proven and predictable and core to our success.

This system based model is proven and predictable and core to our success.

Speaker 2: Importantly, each and every year we see strong repurchase trends from our existing households. And with every new household we acquire, that flywheel begins again.

Importantly, each and every year, we see strong repurchase trends from our existing households, and with every new household we acquire that flywheel begins again.

Speaker 2: with an installed base of over 12 million households at the end of fiscal 2021, an incredibly strong repurchase rates, coupled with continued robust new household growth, with a powerful and time-tested engine for fueling growth.

With an installed base of over 12 million households at the end of fiscal 2021 and incredibly strong repurchase rates coupled with continued robust new household growth, we've a powerful and time tested engine for fueling growth.

Speaker 2: In fiscal 2021, we saw 46% of our existing households come back and add additional Sonos products to their system.

In fiscal 2021 we saw 46% of our existing households come back and add additional some of those products to their system.

Speaker 2: This repurchase behavior has been long-lasting and is a unique and critical element of our growth. In fact, customers who purchased products in 2005, the year Sonos shipped its first product, have continued to return to this day to add additional products to their system, illustrating the power, predictability, and longevity of our model.

This repurchase behavior has been long lasting and has a unique and critical element of our growth.

In fact customers who purchased products in 2005, the year Sonus shipped its first product have continued to return to this day to add additional products to their system illustrating the power predictability and longevity of our model.

Speaker 2: The other important thing to remember is the continued expansion of our product offerings. We have a terrific product roadmap ahead to delight existing customers and attract new ones. While our existing product offering can effectively fuel that Sonos Plywheel, our unwavering commitment to innovation and the expansion of our product offerings to the key driver of growth.

The other important thing to remember is the continued expansion of our product offerings. We have a terrific product roadmap ahead to delight existing customers and attract new ones.

While our existing product offering can effectively fuel that sandoz flywheel, our unwavering commitment to innovation and the expansion of our product offerings is a key driver of growth.

Speaker 2: We have a long-stated annual goal of launching at least two new products a year, which we have executed on consistently.

We have a long stated annual goal of launching at least two new products, a year, which we have executed on consistently.

Speaker 2: This enables us to interest new customers in getting started with Sonos and encourage those existing customers to repurchase and add additional products to their system.

This enables us to interest and new customers and getting started with synovus and encourage those existing customers to repurchase and add additional products to their system.

Speaker 2: As we look forward, we have a robust and exciting future product road met.

As we look forward, we have a robust and exciting future product roadmap.

Speaker 2: As a reminder, we refresh existing products, release new price points in existing categories, and also have opened up new categories and services over time.

As a reminder, we refreshed existing products released new price points in existing categories and also have opened up new categories and services over time.

Speaker 2: With general availability in early 2021, Beam Gen 2 marked our first product introduction of fiscal 2022.

With general availability in early 2021 beam Gen. Two marked our first product introduction of fiscal 2022 beam.

Speaker 2: Beam Gen 2 is the newest version of our industry leading compact smart sound bar for TV, music, gaming and more.

<unk> is the newest version of our industry, leading compact smart sound bar for TV music gaming and more.

Speaker 2: The new beam delivers a refreshed and upgraded, more immersive sound experience with greater depth and clarity, as well as support for Dolby Yammer.

The new beam delivers a refreshed and upgraded more immersive sound experience with greater depth and clarity as well as support for Dolby Atmos.

Speaker 2: Given our commitment to launching at least two new products per year, you can expect to see at least one additional product launch from us later this year.

Given our commitment to launching at least two new products per year, you can expect to see at least one additional product launch from US later this year.

Speaker 2: In fiscal 2022, we are focused on launching new products in our existing product categories.

In fiscal 2022, we're focused on launching new products in our existing product categories.

Speaker 2: Lastly, we operate in a large and growing addressable market of which we have barely scratched the surface.

Lastly, we operate in a large and growing addressable market of which we have barely scratched the surface.

Speaker 2: Don't know it has less than 2% of the broader $89 billion global audio market that we expect to expand into over the long term as we enter entirely new product categories and new geographies.

Don this is less than 2% of the broader $89 billion global audio market that we expect to expand into over the long term as we enter entirely new product categories and new geographies.

Speaker 2: That being said, we still have a tremendous runway to capture increased share in our existing product categories.

That being said, we still have a tremendous runway to capture increased share in our existing product categories.

Speaker 2: Today, Sonos accounts for less than 10% of the total spend in the $18 billion premium home audio market, primarily inclusive of the premium price categories, such as the $100 and higher wireless speaker category and $200 and higher sound bar market.

Today, <unk> accounts for less than 10% of the total spend in the $18 billion premium home audio market primary.

Primarily inclusive of the premium priced categories, such as the $100 and higher wireless speaker category, and $200 and higher sound bar market.

Speaker 2: As one of the leading brands in the premium homodio category, we are incredibly well positioned to continue to capture share.

As one of the leading brands in the premium home audio category, we are incredibly well positioned to continue to capture share.

Speaker 2: On top of the core growth pillars of our model, there are near-term macro tailwinds that we've talked about previously, which further underscore our growth.

On top of the core growth pillars of our model there are near term macro tailwind that we've talked about previously which further underscore our growth.

Speaker 2: As we look forward, as the leader in premium home audio, Sonos is extremely well positioned to continue to benefit from the growth in both audio and video content consumption, which we have coined both the golden age of audio and Hollywood at home trends, as well as capitalize on the evolution of remote work and how that has enabled people to reevaluate how and where they want to live. These are multi-year tailwinds that continue to point in our favor.

As we look forward as the leader in premium home audio Thanos is extremely well positioned to continue to benefit from the growth in both audio and video content consumption.

Which we have coined both the Golden age of audio and Hollywood at home trends as well as capitalize on the evolution of remote work and how that has enabled people to reevaluate how and where they want to live. These are multiyear tailwind that continue to point in our favor.

Speaker 2: As we look at beyond fiscal 2024 and to the longer term, we see an ability to add additional growth pillars such as geographic expansion, further category expansion, plus the addition of meaningful service offerings for both consumers and enterprise customers. We see a long runway ahead and have just barely scratched the surface.

As we look out beyond fiscal 2024 and to the longer term, we see an ability to add additional growth pillars, such as geographic expansion further category expansion plus. The addition of meaningful service offerings for both consumers and enterprise customers. We see a long runway ahead and have just barely scratched the surface.

Speaker 2: In conclusion, the remains tremendous opportunity ahead. Our growth pillars are proven and strong. The Thinness Flywheel of strong new household acquisition and existing customer repurchases continues to gain speed. We have a robust product roadmap and track record of at least two new product launches annually.

In conclusion, there remains tremendous opportunity ahead, our growth pillars are proven and strong the sonus flywheel of strong new household acquisition and existing customer repurchases continues to gain speed we.

We have a robust product roadmap and track record of at least two new product launches annually.

Speaker 2: And we have an addressable market that is large and growing, as well as macro tailwinds that even further underscore the opportunity ahead.

And we have an addressable market that is large and growing as well as macro tailwind that even further underscore the opportunity ahead.

Speaker 2: We have a proven ability to deliver sustainable, profitable growth and have illustrated the true power of our model as its scale.

We have a proven ability to deliver sustainable profitable growth and have illustrated the true power of our model as it scales.

Speaker 2: Now we'll turn the call over to Brittany to provide more details on our results and outlook.

Now I will turn the call over to Brittany to provide more details on our results and outlook.

Thank you Patrick.

Speaker 3: As you can see from Patrick's comments and our first quarter results, we continue to be proud of the strengths of our business driven by the fantastic products that our new and existing customers enjoy.

As you can see from Patrick's comments, and our first quarter results. We continue to be proud of the strength of our business driven by the fantastic products that are new and existing customers in July .

Speaker 3: We are off to the strong start for fiscal 2022. Let me first go.

We are off to a strong start for fiscal 2022.

Let me first focus on our Q1 results.

Speaker 3: Revenue in the first quarter increased 3% or 3.5% on a constant currency.

Revenue in the first quarter increased 3% or three 5% on a constant currency basis to a record $664 5 million.

Speaker 3: to our record, 664.5 million.

Speaker 3: Demand remains strong during the quarter, but we continue to be supply constrained on most of our products.

Demand remains strong during the quarter, but we continued to be supply constrained on most of our products.

Speaker 3: These constraints were the main reason we didn't run our typical holiday promotion. And they also impacted our results, especially in our core Sonos speakers product categories.

These constraints were the main reason, we didnt Ron our typical holiday promotion and they also impacted our results, especially in our core speaker's product category.

Speaker 3: Clearly our revenue growth during the quarter would have been higher if not for supply constraints.

Our revenue growth during the quarter would have been higher if not for supply constraint.

Speaker 3: While we continue to have a significant backlog and flow channel inventory, we were able to do slightly better than we expected during the quarter.

While we continue to have a significant backlog and low channel inventory, we were able to do slightly better than we expected during the quarter.

Speaker 3: This was the result of strong logistics, which allowed for better supply timing at the end of P1.

This was the result of strong logistics, which allowed for better supply timing at the end of Q1.

Speaker 3: The Americas and Amia both grew by 2% during the corner. Adjusted for currency.

The Americas and EMEA, both grew by 2% during the quarter.

Adjusted for currency EMEA increased 5%.

Speaker 3: A-PAC increased 18%, primarily driven by available supply to support the strong demand.

APAC increased 18%, primarily driven by available supply to support the strong demand.

Speaker 3: So no speaker revenue was down 5% year over year as this category was most impacted by the industry-wide component availability challenge.

So no speaker revenue was down 5% year over year as this category was most impacted by the industry wide component availability challenges.

Speaker 3: Zona's system products revenue increased 38% driven by the continued strength of our installer channel and improved availability of our component products.

So in our system products revenue increased 38% driven by the continued strength of our installer channel and improved availability of our component products.

Speaker 3: Partner products and other revenue increased 37%. Primarily driven by our partnerships with Sonance and I.

Partner products and other revenue increased 37%, primarily driven by our partnerships with Sony anthem Ikea.

Speaker 3: Proced margin increased 140 basis points to 47.8%.

Gross margin increased 140 basis points to 47, 8%.

Speaker 3: The improvement in growth margin was driven by the reduction in holiday promotional activity and product mix, somewhat offset by higher shipping and logistics costs.

Improvement in gross margin was driven by the reduction in holiday promotional activity and product mix somewhat offset by higher shipping and logistics costs.

Speaker 3: We deliver an adjusted evid of 163 million and adjusted evid on margin of 24.6%. We deliver an adjusted evid of 163 million and adjusted evid on margin of 24.6%.

We delivered adjusted EBITDA of 163 million and adjusted EBITDA margin of 24, 6%.

Speaker 3: This is our second highest Q1EBIT.EVER. Even as we made additional office investments to support our long-term growth.

This is our second highest Q1 EBITDA ever even as we made additional opex investments to support our long term growth.

Speaker 3: As we've been discussing for the last couple of quarters, these investments were in our product, our brand, our infrastructure, and our people broadly, which resulted in deliverage across all our off-ex items, all our off-ex line items in this course.

As we've been discussing for the last couple of quarters. These investments were in our product our brands, our infrastructure and our people broadly which resulted in deleverage across all our opex item I'll, our opex line items in this quarter.

Speaker 3: Our model continues to generate strong free cash flow, and we generated cash flows from operating activities of 180 million and free cash flow of 174 million. We view this as

Our model continues to generate strong free cash flow and we generated cash flows from operating activities of $180 million and free cash flow of $174 million.

We view this as very attractive free cash flow.

Speaker 3: We have a healthy balance sheet from which we will deploy capital back into the business to drive future growth.

We have a healthy balance sheet from which we will deploy capital back into the business to drive future growth.

Speaker 3: This includes M&A as well as returning capital to our shareholders.

This includes M&A as well as returning capital to our shareholders.

Speaker 3: You can see us executing on this strategy. As an addition to the investments in the business, we deploy 30 million through share by that out of our 150 million authorization and 27 million into two small acquisitions. Now,

You can see us executing on this strategy as an addition to the investments in the business, we deployed 30 million through share buybacks out of our $150 million authorization and $27 million into two small acquisition.

Now turning to our fiscal 'twenty outlook.

Speaker 3: We see a clear path toward delivering rest record fiscal 22 results. And our first quarter result further solidify that view.

We see a clear path towards delivering record fiscal 'twenty two results.

Our first quarter results further solidify that view.

Speaker 3: We now expect to deliver revenue in the range of 1.95 to 2 billion, up from our prior range of 1.925 billion to 2 billion.

We now expect to deliver revenue in the range of $1 95 to 2 billion up from our prior range of $1 92, 5 billion to 2 billion.

Speaker 3: This represents growth in the range of 14 to 16% compared to our prior range of 12 to 16% growth.

This represents growth in the range of 14% to 16% compared to our prior range of 12% to 16% growth.

Speaker 3: Let me provide details on the key drivers of our fiscal 22 revenue outlook. First, we expect continues.

Let me provide detail on the key drivers of our fiscal 'twenty two revenue outlook.

First we expect continued strong demand for our products.

Speaker 3: We do still expect supply constraints throughout the year, but that is factored into our

We do still expect supply constraints throughout the year, but that is factored into our guidance.

Speaker 3: We are also working hard to mitigate supply shortages where we can and do expect it to improve over the year.

We are also working hard to mitigate supply shortages, where we can and do you expect it to improve over the year.

Speaker 3: As we do this, we'll continue to work for our backlog and fill our retail channel in fiscal 22.

As we do that we will continue to work through our backlog and fill our retail channel in fiscal 'twenty two.

Speaker 3: Second, we have consistently committed to the introduction of at least two new products a year. As Patrick stated earlier, we expect to launch at least one new product in an existing category later this year.

Second we have consistently committed to the introduction of at least two new products a year as Patrick stated earlier, we expect to launch at least one new product in an existing category later this year.

Speaker 3: Lastly, as you know, we did take price increases in September to offset the gross margin impact of rising components and logistics costs.

Lastly, as you know we did take price increases in September to offset the gross margin impact of ryzen components and logistics costs.

Speaker 3: These price increases are also supporting our fiscal 2022 growth relative to last year.

Price increases are also supporting our fiscal 2022 growth relative to last year.

Now turning to gross margin.

Speaker 3: We are maintaining our growth margin outlaw of 46 to 47% in fiscal 202.

We are maintaining our gross margin outlook of 46% to 47% in fiscal 'twenty two.

Speaker 3: As discussed last quarter, this outlook continues to reflect everything we know about the supply change situation today across shipping, logistics, and components, as well as a smaller benefit from product and channel mix as compared to last.

As discussed last quarter. This outlook continues to reflect everything we know about the supply chain situation today across shipping logistics and component as well as a smaller benefit from product and channel mix as compared to last year.

Speaker 3: Rose Margin for the year also benefits from the lack of promotions in the first quarter, and the pricing increases help offset the cost of the supply.

Gross margin for the year also benefits from the lack of promotions in the first quarter and the pricing increases to help offset the cost of the supply chain.

Speaker 3: With the higher revenue range, we also expect an improved EBITDA out.

With the higher revenue range. We also expect an improved EBITDA outlook, we have increased the low end of our adjusted EBITDA to a range of 290 million to $325 million up 10% from fiscal 2021 at the midpoint.

Speaker 3: We have increased the low end of our Adjusted EBITDA to a range of 290 million to 325 million, up 10% from Dissel 20.

Speaker 3: This adjusted EBITDA margin in the range of 14.9 to 16.2% reflects the gross margin factors noted previously, as well as the continued off-ex investments we've been talking to. To support our long-term...

This adjusted EBITDA margin in the range of 14, 9% to 16, 2% reflects the gross margin factors noted previously as well as the continued opex investments, we've been talking to to support our long term growth and roadmap.

Speaker 3: Working beyond fiscal 22, we remain ahead of schedule toward achieving the fiscal 2024 targets outlined at our investor event last March.

Looking beyond fiscal 'twenty, two we remain ahead of schedule toward achieving the fiscal 2024 targets outlined at our Investor event last March.

Speaker 3: We are confident in our ability to deliver revenue of approximately two and a half billion, which is a 13% keg or by the end of fiscal 2024. And ahead of the 2.25 billion target communicated our our investor a bad last year.

We are confident in our ability to deliver revenue of approximately $2 5 billion, which is a 13% CAGR by the end of fiscal 2024.

Of the $2 to 5 billion target communicated our investor event last year.

Speaker 3: We are well positioned to deliver industry-leading growth margins in the range of 45 to 47 percent, an adjusted EBITDA margins in the range of 15 to 18 percent through fiscal 24.

We are well positioned to deliver industry, leading gross margins in the range of $45 to 47% on it.

Adjusted EBITDA margins in the range of 15% to 18% through fiscal 'twenty four.

Speaker 3: We are confident in these fiscal 24 targets because of our business model. The flywheel of new-health full-generation and existing customer repurchase remains a powerful driver of growth.

We are confident in these fiscal 'twenty four targets because of our business model. The flywheel of new household generation of existing customer repurchase remains a powerful driver of growth.

Speaker 3: We also have a terrific product, Ruth Math the head of us, which will be excited to share over time.

We also have a terrific product roadmap ahead of us, which will be excited to share over time.

Speaker 3: Furthermore, and only 2% market share of the 89 billion global audio market. We have plenty of opportunity in front of us to gain share in a large and growing category.

Furthermore, and only 2% market share of the $89 billion global audio market, we have plenty of opportunity in front of us to gain share in a large and growing category.

Speaker 3: Our brand is strong, our customer base use more affluent, and we believe we are well positioned to deliver a tremendous shareholder value over time.

Our brand is strong our customer base is more affluent.

We believe we are well positioned to deliver tremendous shareholder value overtime.

Speaker 3: In summary, we continued to execute and delivered strong results in the first quarter.

In summary, we continue to execute and delivered strong results in the first quarter.

Speaker 3: We expect a strong fiscal 22 from a double digit top line growth perspective coupled with attractive profitability and free cash.

We expect a strong fiscal 'twenty two from a double digit top line growth perspective, coupled with attractive profitability and free cash flow.

Speaker 3: We continue to see an opportunity to deliver strong returns on invested capital and are on a great path to deliver on our fiscal 24 charts.

We continue to see an opportunity to deliver strong returns on invested capital and are on a great path to deliver on our fiscal 'twenty four targets.

Speaker 3: Overall, we continue to feel very good about our execution and the opportunity in front of Sonor. With that, I would like to turn...

Overall, we continue to feel very good about our execution and the opportunity in front of stoner.

With that I would like to turn the call over to questions.

Speaker 4: At this time, I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Speaker 4: Your first question comes from the line of Brent Phil with Jeffries. Your line is now open.

Your first question comes from the line of Brent Thill with Jefferies. Your line is now open.

Speaker 5: Good afternoon. Patrick, many are exploring the reopening theme and many ask how Sonos will benefit through the reopening as we shift from our homes back into the world. And Brittany, many are still asking about the supply chain. There's been recent news about ports starting to open and things start to move a little bit better. Can you just give us a sense on that side on the supply chain side?

Good afternoon, Patrick and many are exploring the reopening theme in many ask Hal Hal.

Sonus will benefit benefit through the reopening as we shift from our house back into the world.

Brittany many are still asking about supply chain. There has been recent news about ports starting to open and things start to move a little bit better can you just give us a sense on that side on the supply chain side.

Speaker 2: Yeah, hey, Brent. So I'll take the first one on the reopening, if you will.

Yeah, Hey, Brian So I'll take the first one on the reopening if you will look I think there are.

Speaker 2: Look, I think there are one, we have products like Rome and move, which are well positioned as people leave their homes as well. So I'd remind everybody that as soon as there's well position and more and more becoming.

One we have products like Rome, and move which are well positioned as people leave their homes as well, so I'd remind everybody that <unk> is well positioned and more and more becoming.

Speaker 2: a company that, you know, delivers this ad experience throughout your life, not just at home.

Accompany that.

It delivers the sat experienced throughout your life not just at home.

Speaker 2: and that we have some big macro tailwinds around the Golden Age of Audio, Hollywood at home, and Hollywood at home, for instance, I think we all know.

And that we have some big macro tailwind.

Around the Golden age of audio Hollywood at home in Hollywood at home for instance, I think we all know.

The streaming companies are investing tens of billions of dollars in new content and people are going to continue to consume that content and we're very well positioned with our home theater play and then the work from home as well remember our I think our lives have changed forever.

And there's going to be more and more people that are working from home and they're going to improve their homes, they're going to be moving.

And so it plays a role there and I think we can play a bigger role over time so.

Speaker 2: So there's a lot there and then I would point back to our model and the fact that through all the different times we've gone through and now 17 years of shipping products in the thing that I always come back to is the fact that we have a strong customer base that adds products every year and they tell their friends and family to get Sonos, right? And so we know the number one driver of new homes to be existing, you know, customers telling their friends and family and we just added a lot more in the last few years. And so we expect that to continue even as the world starts to real.

There's a lot there and then I would point back to our model and the fact that.

Through all the different times, we've gone through and now 17 years of shipping products.

Speaker 2: The thing that I always come back to is the fact that we have a strong customer base that adds products every year and they tell their friends and family to get Sonos, right? And so we know the number one driver of new homes continues to be existing, customers telling their friends and family. And we just added a lot more in the last few years. And so we expect that to continue even as the world starts to reopen. Brittany, I'll turn it to you on.

In.

The thing that I always come back to is the fact that we have a strong customer base that pads products every year and they tell their friends and family to get <unk> right and so we know the number one driver of new homes continues to be existing.

Customers, telling their friends and family.

And we just added a lot more in the last few years and.

So we expect that to continue even as the world starts to reopen Britney I'll turn it to you on supply chain, yes. Thanks.

Speaker 6: Yeah, thanks, Patrick.

And Brent I would just I'd really hit that last point Patrick made in terms of looking forward.

Speaker 3: I'd really hit that last point Patrick made in terms of looking forward. We got a lot of great new homes in over the last few years and those new homes will continue to drive repurchases for us going forward. So, as we talk off X, you'll also hear us continuing to invest in brand and marketing to go out and drive more new homes as we go forward. But the new homes we've gotten over the last couple of years continue to be really powerful for us as we go forward. Just wanted to double underscore that for people. You know from up.

We got a lot of great new homes in over the last few years.

Those new homes will continue to drive repurchases for us going forward. So.

As we talk Opex Youll also hear us continuing to invest in brand and marketing to go out and drive more new homes as we go forward, but the new homes, we've gotten over the last couple of years continue to be really powerful for us as we go forward. So just wanted to double underscore that for people.

Speaker 3: You know, from a suspecting perspective, I mean, it is, it is definitely still challenging out there.

You know from a supply chain perspective, I mean, it is it is definitely still challenging out there.

Speaker 3: you know, component shortages, especially continue to be pretty difficult.

Component.

Component shortages, especially continue to be pretty difficult I think as we called out one of the reasons, we did better than we expected in Q1 was really because we did a better job from a logistics standpoint. So we may as you mentioned port and stuff like that I mean, there are certainly still challenging but I think what we saw is we did a little bit better at <unk>.

Speaker 3: I think as we called out one of the reasons we did better than we expected in Q1 was really because we did a better job from a logistics standpoint. So, you know, as you mentioned, ports and stuff like that, I mean, they're certainly still challenging, but I think what we saw is, you know, we did a little bit better at ports. We did a little bit better in terms of getting product and with air freight, we did a little bit better with shipping times. And all of that allowed us to have a stronger Q1 as those logistics really.

We did a little bit better in terms of getting product in with airfreight, we did a little bit better with shipping times and all of that allowed us to have a stronger Q1 is as the logistics really.

Speaker 3: helped us over perform in Q1. I think we're going to be talking about supply chain for the rest of the year, but hopefully as we get out into the end of the year, we start to have some science of improvement and we're talking more about that.

It helped us to over perform in Q1.

Think we're going to be talking about supply chain for the rest of the year, but hopefully as we get out into the end of the year. We start to have some signs of improvement and we're talking more about that story.

Speaker 2: And the one thing I just layer on that as well is, you know, that I think we've really shown over the last six quarters.

And the one thing I'd just layer on that.

As well as I think we've really shown over the last six quarters.

Speaker 2: and really over the 17 years, unique ability to manage some of the challenges that come along on the supply chain side. And so as we saw once again in Q1, our team did an incredible job at...

And really over the 17 years unique ability to manage some of the challenges that come along on the supply chain side and so.

As we saw once again in Q1, our team did an incredible job at.

Speaker 2: figuring out how to deliver more product than initially expected to our customers, which just bodes very well for how we handle any of the challenges in the future.

Figuring out how to deliver more product than initially expected to our customers, which just bodes very well for how we handle any of the challenges in the future.

Thanks Brent.

Okay.

Speaker 4: Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is now open.

Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is now open.

Speaker 2: Yeah, thanks for the question. Patrick, I wanted to come back to the Home's Growth trajectory and just kind of, if that Home's Growth has been slowing, and I would have thought that...

Yes, hi, Thanks for the question Patrick I wanted to come back to the home's growth.

Trajectory and just kind of homes growth has been slowing and I would've thought that independent dynamic. If anything you guys would have maintained kind of that 20% annual growth rate, especially with the wrong. So I thought that would help to penetrate more homes. So I just wonder if you could talk a little bit about.

Speaker 7: in the pandemic, if anything, you guys would have maintained that 20% annual growth rate, especially with the Rome. I thought that would help to penetrate more homes. I just wonder if you could talk a little bit about where you're at now with Homes Pass, which is 12.6 million. Where do you think you could get to and what maybe some of the

Where you're at now with homes passed which is $12 6 million and where do you think you could get to and what maybe some of the strategies for increasing home penetration or whether you think this is the right number of homes.

Speaker 7: strategies for increasing home penetration or Or whether you think this is you know the right number of homes and and kind of all the all things are firing on all cylinders from a home penetration point of view Thanks

And kind of all of that all things are firing on all cylinders from a whole penetration point of view. Thanks.

Speaker 2: Hey Rod, I don't think all things are firing on all cylinders because we've still been supply constrained. And some of the channels at which we see greater new homes have actually been the most constrained as we go through this. So I think largely, there's a few different factors that go into it. And that comes along with product portfolio so the different types of products we're introducing at different times will have an impact on that.

Hey, Rod.

I don't think all things are firing on all cylinders, because we've still been supply constrained.

And some of the some of the channels at which we see greater.

New homes has actually been the most constrained as we go through this so I think largely.

Theres a few different factors that go into it and.

That comes along with product portfolios to the different types of products, we are introducing at different times will.

We will have an impact.

Speaker 2: for sure. And I think we can do a lot more than the 12.6 that we mentioned at the end of last quarter. The number I look at is the 116 million homes that even in existing categories today that we think we can address. And so that's what we're very focused on and how we reach those. And we balance that and balance our product roadmap with

Thanks.

For sure and I think we.

We can do a lot more than the $12 six that we mentioned at the end of last quarter.

I look at is the 116 million homes that even in existing categories.

Today that we think we can address and so that's what we're very focused on and how we reach those and we balance that and balance our product roadmap with thinking about how we attract those homes and then how is well, we're adding to the lifetime value of the existing homes and so those are the things that we're looking at.

We continue to think about different levers one of the things we didn't do as you heard from Brittany in Q1 is a promotion either and so thats often helpful. In terms of new home driver as well, but I think it really comes back to some of the supply on that front and then keeping in mind, we have doubled the number since 2017 and I think.

We will continue to be able to do that and as always we'll update on the new homes at the end of the fiscal year.

Speaker 7: Okay, and then can I follow up with a question of Brittany on the just kind of inventory levels. I know they're depleted now, but I wonder is it reasonable to think Brittany that channel inventory is kind of back to a normal level by the time we get to the fall or do you think that's unreasonable giving given where we are with supplies?

Okay, and then can I follow up with the question of Britney on the just kind of inventory levels I know they are depleted now.

Wonder is it reasonable to think Britney the channel inventory is kind of back to a normal level by the time, we get to the fall or do you think thats unreasonable, giving given where we are with supplies.

Speaker 3: Oh, getting out my crystal ball. No, I think we'll certainly be in a better position from channel inventory as we get to the fall. I don't know if it'll be, you know, fully back at normal level, but we do see it improving from where we are today. So, you know, knowing what I know, you know, I would say it improves, but is not, you know, sort of like magically all better at that point. Okay, great.

Getting out my Crystal ball.

No I think well certainly be in a better position from channel inventory.

We get to the fall I don't know if it'll be fully back at normal levels, but we do see it improving from where we are today.

Knowing what I know I would say it improves but is not sort of like magically all better at that point.

Okay, great. Thanks, a lot.

Okay.

Your next question comes.

Speaker 4: Your next question comes from the line of Eric Woodring with Morgan Stanley . Your line is now open.

Your next question comes from the line of Erik Woodring with Morgan Stanley . Your line is now open.

Speaker 8: Thank you and congrats on the quarter guys. Obviously really strong growth margin performance and obviously you went through some of the puts and takes. Anyway, you can kind of frame the impact of which had the most significant impact, channel mix promotions, product mix, logistics. Just trying to understand what was the bigger factor in driving the better performance. Then I'll follow up.

Thank you and congrats on the quarter guys, obviously really strong gross margin performance and obviously you went through some of the puts and takes any way you can kind of frame the impact of which had the most significant impact channel mix promotions product mix logistics, just trying to understand what was it what was the bigger factor in driving the.

The better performance than I have a follow up thanks.

Speaker 3: Yeah, I think that we called out that the impact from product mix and channel mix has been, you know, lessening as we look at this year and that, you know, in Q1, the impact from not having promotions was, you know, a pretty big driver for us. So you look at the promotion, lack of promotions, you look at the price increases, and, you know, we're more than sort of off-setting the cost increases and challenges from a price standpoint.

Yeah.

I think that we called out that the impact from product mix and channel mix has been lessening.

As we look at this year and that in Q1.

Impact from not having promotions was a pretty big driver for us. So you look at the promotion lack of promotions you look at the price increases.

And we're more than sort of offsetting the cost increases and challenges from a price standpoint that we see in the supply chain.

Speaker 8: All right, and then maybe I'll direct my follow up at Eddie. You know, give Eddie a chance. You know, any comments he can share on, you know, the IDC news from last month. What are the next signposts that we should be looking for, either in the US or internationally as it comes to legal action? Thanks.

Alright, and then maybe I'll direct my follow up it Eddie.

Give it a chance you know Andy any comments you can share on the ITC news from last months what are the next signposts that we should be looking for either in the U S or internationally as it comes to legal action.

Speaker 9: So thank you. So we were certainly pleased to see that the ITC affirmed the administrative law judges ruling that Google infringed all five of the patents that we had an issue in the case.

Well. Thank you. So we were certainly pleased to see that the ITC.

Affirmed the administrative law judge's ruling that.

Google infringed all five of the patents that we had an issue in the case.

Speaker 9: and issued a limited importation ban that we expect to go into effect on March 8th.

And issued a limited importation band that we expect to go into effect on March eight.

Speaker 9: So we're certainly looking forward to that moment. And we do have a case quite active in northern California against Google based on a second generation of Sonos innovations that is moving forward at this time. That's really where the action is right now. And we'll see how things play out.

We're certainly looking forward to that moment.

And we do have a case quite active in northern California against Google based on our second generation of some of those innovations that is moving forward at this time, that's really where the action is right now.

And we will see how things play out.

Thanks, Eddy Congrats again guys.

Thanks, Eric.

Speaker 4: Your next question comes from the line of John Babcock with Bank of America. Your line is now open.

Your next question comes from the line of John Babcock with Bank of America. Your line is now open.

Speaker 2: Hey, good evening, Dash afternoon. Overall, I guess I was wondering if you could talk a bit about labor costs. Obviously this is something that we're seeing a bit more these days than had been the case over the last number of years. Could you just talk about the extent to which you're seeing a place in there and also, if it is material, what you are doing to ensure it doesn't wait to have a young result?

Hey, good evening afternoon overall, I guess I was wondering if you could talk a bit about labor costs. Obviously this is something that we are.

A bit more these days and has been the case over the last number of years and so could you just talk about the extent to which you're seeing inflation. There and also if it is material. What you are doing to ensure it doesn't weigh too heavily on our results.

Speaker 3: Yeah, you know, I would say we see similar trends as sort of the rest of the market broadly and have factored all of that into our guidance.

Yeah.

I would say.

You see similar trends as sort of the rest of the market broadly and have factored all of that into our guidance as we look at the year.

Speaker 2: Okay. And then just on R&D, which I'm spending was up a decent bit year of year, albeit largely in line with where you were last quarter, could you talk a bit more broadly about where the investment is going?

Okay.

And then just on R&D spending was up a decent bit year over year, albeit largely in line with where you were last quarter can you talk a bit more broadly about where that investment is going.

Speaker 3: Yeah, you know, obviously we spend a bit of time talking about, you know, product roadmap and how excited we are to have a strong product roadmap, you know, not just for this year, but, you know, in the future and continuing to deliver on that.

Yeah.

Obviously, we spend a bit of time talking about product roadmap and how excited we are to have a strong product roadmap not just for this year, but in the future and continuing to deliver on that to product a year cadence.

Speaker 3: to product a year cadence and beyond that sort of to hardware product a year that people focus on, we are continuously up.

Beyond that sort of two hardware product a year.

That people focus on we are continuously up dating our software our app our user experience.

Speaker 3: dating our software, our app, our user experience, bringing you things like Sonos radio. So we just really continue to invest in the customer experience and the product roadmap.

Bringing new things like <unk> radio.

We just really continue to invest in the customer experience.

That road map.

Speaker 3: and that future of our business. And so we've talked for the last.

That future of our business and so we've talked for the last gosh.

Speaker 3: Dosh, a couple of quarters at least about how continuing to invest in R&D and the product roadmap is something you're really going to be seeing from us.

Couple of quarters at least about how continuing to invest in R&D and the product roadmap is something youre really going to be seeing from us.

Speaker 3: Again, not a big deal quarter over quarter. So you're seeing it a bit more year over year. So you're just seeing the impact of those investments we've been talking about and how to make it.

Again, not a big deal quarter over quarter, so youre seeing it a bit more year over year. So youre just seeing the impact of those investments we've been talking about it.

Okay. Thank you.

Speaker 4: Your next question comes from the line of Victoria James with DA Davidson. Your line is now open.

Your next question comes from the line of Victoria James D. A Davidson your line is now open.

Speaker 3: Thanks for taking my call. I've got just the one question based off of a comment that Brittany just made regarding the software app user experience stuff. Is there anything that you can tell us at a high level about the anticipated mix of services to product revenue going forward?

Thanks for taking my call.

Just the one question based off of a comment that Britain, just made regarding the software apps user experience stuff.

Is there anything that you can tell us at a high level about the anticipated mix of services to product revenue going forward.

Speaker 3: We don't have anything we're going to be breaking out on that at this point. I can say that, and we've talked about Zono's radio in the past. It continues to be the third most listened to service. The fastest growing service. So we're very happy with the consumer experience we're delivering through some of these investments. And when it gets material, we'll start breaking it out financially, but that's not at this point.

We don't have anything we're going to be breaking out on that at this point I can say that.

We've talked about Stonehouse radio in the past that continues to be the third most listened to serve assets the fastest growing service. So we're very happy with the consumer experience, we're delivering through some of these investments.

When it gets material, we'll start breaking it out financially.

Not at this point.

Thank you.

Speaker 4: There are no further questions at this time. Patrick Spence, I turn the call back over to you.

There are no further questions at this time, Patrick Spence I'll turn the call back over to you.

Speaker 2: Great, thank you and thanks to everybody for joining us. We appreciate it and look forward to Dr. Dunex's quarter. Thank you.

Great. Thank you and thanks to everybody for joining us.

We appreciate it and look forward to talking to you next quarter. Thank you.

Speaker 4: This concludes today's conference call. Thank you for attending. You may now disconnect.

This concludes today's conference call. Thank you for attending you may now disconnect.

Speaker 10: Hi, it's Karim Abdul-Jubar. You're listening to my third collection of jazz music from impulse records on Sono.

Hi, It's Kareem Abdul Jabbar Youre listening to my favorite collection of jazz music from Impulse records on solos.

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