Sonos Inc (SONO) Q2 2024 Earnings Call Transcript Highlights: Navigating Market Challenges with ...

• Q2 Revenue: $252.7 million, slightly ahead of expectations.

• Revenue per Product Sold: $338, up 11% year-over-year.

• First Half Revenue: $866 million, down 11% year-over-year.

• Regional Revenue Performance: Americas down 5%, EMEA down 21%, APAC down 23% year-over-year.

• GAAP Gross Margin: 44.3%, up 100 basis points year-over-year.

• First Half Gross Margin: 45.6%, up from 42.7% last year.

• Adjusted EBITDA: Negative $34 million for Q2, first half at $81.6 million.

• Net Cash: $292 million, including $46 million in marketable securities.

• Free Cash Flow: Negative $121 million for Q2, first half at $148 million.

• Inventory Balance: $180 million, down 45% year-over-year.

• Share Repurchases: $53 million in Q2, total year-to-date at $76 million.

• FY24 Revenue Guidance: $1.6 billion to $1.7 billion.

• FY24 GAAP Gross Margin Guidance: 45% to 46%.

• FY24 Adjusted EBITDA Guidance: $150 million to $180 million.

• Warning! GuruFocus has detected 4 Warning Sign with SONO.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Sonos Inc (NASDAQ:SONO) reported Q2 revenues of $252.7 million, exceeding expectations with a strong customer response to promotions.

• The company is launching a new product soon, entering a new multibillion-dollar category, expected to significantly boost Q3 revenues.

• Sonos Inc (NASDAQ:SONO) has successfully expanded its distribution footprint, including becoming a first-party seller on Amazon in the U.S., enhancing customer acquisition.

• The company has maintained a robust gross margin of 44.3%, demonstrating resilience and effective cost management.

• Sonos Inc (NASDAQ:SONO) has a strong innovation track record, with significant investments in a new app and upcoming products, aiming to attract new customers and expand market share.

Negative Points

• Despite exceeding revenue expectations, Sonos Inc (NASDAQ:SONO)'s first half revenue of $866 million was down 11% year over year.

• The company faces significant pressure in its categories, with overall market challenges impacting sales, particularly in EMEA and APAC regions.

• Adjusted EBITDA was negative $34 million, although it was ahead of guidance, indicating ongoing challenges in achieving profitability.

• Sonos Inc (NASDAQ:SONO) reported a negative free cash flow of $121 million in Q2, reflecting typical seasonal challenges but highlighting financial pressures.

• The company's litigation with Google over patent infringement, although successful, could pose distractions and potential future legal expenses.

Q & A Highlights

Q: Could you provide feedback on early learnings from the direct presence on Amazon and details on the installed base promotion? A: Patrick Spence, CEO of Sonos, highlighted the successful start on Amazon, emphasizing its role in reaching new customers, which is crucial for entering new categories. Regarding the installed base promotion, he noted it taps into a significant opportunity by encouraging single-product homes to become multi-product homes, representing a potential $6 billion revenue opportunity.

Q: Can you provide some characterization of channel inventories and insights into how they may differ geographically? A: Saori Casey, CFO of Sonos, mentioned that the company ended with a comfortable level of channel inventory but did not provide detailed breakdowns geographically during the call.

Q: What have you learned about consumer demand over the last three months, especially given the cautious spending environment noted by other consumer companies? A: Patrick Spence expressed that the audio categories have been consistently under pressure, but Sonos has managed to execute successfully in the first half of the year. He remains confident in the upcoming launch into a new, growing multi-billion-dollar category, supported by strong channel partnerships and a robust product pipeline.

Q: How much of this year's investments are run-rate operating expenses or one-time investments? A: Saori Casey explained that the current year's investments are embedded within the FY24 guidance, aiming to optimize for long-term profit growth while managing expenses to drive margin expansion.

Q: Could you discuss the promotional focus on acquiring new homes and compare it to previous partnerships like the one with IKEA? A: Patrick Spence clarified that the focus is more strategic and long-term, aiming to tap into the 91% of homes they believe they can address but haven't yet. This approach is about finding channel partners that align with Sonos' product portfolio and future plans, rather than short-term promotions.

Q: Can you dive deeper into international trends, particularly how your market share compares to the broader audio segment in those regions? A: Patrick Spence noted that despite the downturn in the audio categories, Sonos is holding or gaining market share in the U.S. home theater and streaming audio categories. He believes that Sonos' performance is representative of broader industry trends rather than being unique to Sonos.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.