Sonos Inc Q1 FY2025 earnings call

• Tom Conrad is interim CEO, noting work needed to improve core experience, focus on expenses, and seize market opportunities. He reorganized product and engineering into functional teams, laying off ~200 employees. - Saori Casey discussed Q1 results: revenue at high end of guidance, gross margin above guidance, G&A expense down 35% y/y due to various factors, adjusted EBITDA above guidance. Inventory down, share repurchases resumed. Transformation efforts aim for $60-70M run rate savings by FY26.

Sonos reported Q1 2025 revenue of $551 million, which was towards the high end of guidance. Year-over-year, revenue was down 10%. The portables category was challenged, but the new Arc Ultra soundbar had strong demand, contributing to the highest ever quarterly market share in US home theater on a dollar basis. GAAP gross margin was 43.8%, up 80 basis points from guidance range, driven by better cost and product mix. Non-GAAP gross margin was 44.7%. Q1 GAAP operating expenses were $193 million, non-GAAP operating expenses were $169 million, down 5% and 6% y/y respectively. Adjusted EBITDA was $91.2 million, margin 16.6%. Inventory ended the quarter at $141 million, down 19% y/y.

• Q2 revenue expected $240M-$265M, y/y change -5% to +5%. - Q2 GAAP gross margin 42%-44%, non-GAAP 44%-45.8%. - Non-GAAP operating expenses $140M-$145M. - Anticipate $4M-$8M app recovery investments in Q2. - FY24 baseline OpEx around $770M GAAP and $680M non-GAAP, with transformation aiming to improve efficiency and profitability.

Q: What drove the unconventional timing of the earnings release?

A: Tom Conrad said he had to balance communicating organizational changes with earnings call, announced reorganization before market close and earnings before market open to minimize investor uncertainty.

Q: Top two or three most important changes the company has to make?

A: Tom Conrad cited improving core customer experience, optimizing business for innovation, and delivering operational/financial performance.

Q: Where are channel inventories today?

A: Saori Casey said channel inventories ended Q1 at a comfortable place going into Q2.

Q: Will there still be two product launches a year?

A: Tom Conrad said committed to shipping many products but wouldn't make specific commitments on product roadmap.

Q: Changes to capital allocation?

A: Saori Casey said resumed share repurchases, capital allocation remains focused on returning capital to shareholders.

Q: Expansion on organizational changes mentioned in the letter to employees?

A: Tom Conrad explained product organization had business unit redundancies, moved to functional teams for hardware, software, etc., to be more efficient and collaborative.

Q: Comment on Ace's performance in holiday season?

A: Saori Casey said Ace was incremental to revenue, got great reviews, but launched at a bad time due to app issues, making progress in brand recovery.