Sonos Inc Q3 FY2025 earnings call

• Sonos is a platform company where hardware products compound in value with software upgrades, connecting products, partners, developers, and consumers. - Sonos has a strong brand as the clear leader in wireless home audio, being #1 in U.S. home theater and having strong installer and channel partnerships. - Significant operational progress: Reorganized earlier this year to improve product cadence and reduce annual operating expenses by over $100 million. In Q3, delivered AI-powered voice enhancement features on Arc Ultra and state-of-the-art adapted noise cancellation for Sonos Ace. - Q3 results: Solid quarter with revenue and adjusted EBITDA at or above guidance; tight focus on execution led to dollar share gains in U.S. home theater and efficiency drove operating expense declines. - Tariff environment: Uncertain tariff rates for Vietnam (20%) and Malaysia (19%) led to plans to raise prices on certain products later this year, with monitoring of consumer behavior and competitive trends.

In Q3, Sonos had revenue of $345 million, which was above the high end of the guidance range. Revenue declined 13% year-over-year but was better than the overall category trends. Excluding the impact of the launch of Ace last year, revenue was down mid-single digits. Gross margin was 43.4% GAAP and 44.7% non-GAAP. Adjusted EBITDA was $36 million, at the high end of the guidance range of $12 million to $37 million. Arc and Arc Ultra grew year-over-year. Portables and component products drove the better-than-expected revenue. Revenue contribution: Q3 revenue was $345 million, with portables and component products performing well and contributing to the revenue above guidance.

• Q4 revenue is expected to be in the range of $260 million to $290 million, up 2% to 14% year-over-year. - Q4 GAAP gross margin is expected to be in the range of 42% to 44%, with non-GAAP gross margin in the range of 43.7% to 45.5%. - Q4 GAAP operating expenses are expected to be in the range of $150 million to $155 million, down 13% to 10% from Q4 last year; non-GAAP operating expenses are expected to be in the range of $130 million to $135 million, down 9% to 6% from Q4 last year. - Full year adjusted EBITDA is expected to be between $116 million to $140 million, an increase of 8% to 30% year-over-year from fiscal 2024.

• Uncertain tariff environment: Tariff rates for Vietnam and Malaysia have been determined, and while working with contract manufacturers and channel partners to share costs, it has become clear that prices on certain products will need to be raised later this year. There is a need to monitor consumer behavior and competitive trends closely as these pricing changes occur.

Q: Good to be on the call as the new CEO. How do you think about new product introductions, with software innovation being compared to hardware?

A: A cadence of 2 new products a year is an excellent outcome. Software has shorter lead times and benefits of upgrades can appear more quickly. There has been a lull in new hardware releases in the short term, with focus on software upgrades to support current portfolio. Expect new product introductions to pick up in the second half of 2026.

Q: Last couple of quarters focused on cost reduction, are we towards the end of that journey?

A: We are still on the journey of transformation, driving cost structure and efficiency to invest for the future. Work continues and more will be shared in future quarters.

Q: Talk about how Sonos is leveraging AI to enhance the product or app experience and if it could be a differentiator or monetization driver?

A: Sonos has best-in-class sound quality, industrial design, and multi-room architecture. The platform is well-positioned for next-generation conversational AI experiences in the home. AI is being used across all departments operationally to increase agility and deliver unique experiences in customers' homes