Sonos Inc Q2 FY2025 earnings call

• Core Sonos experience: Focus on software updates for quality, reliability; 9 software updates in 120 days, with more planned. - Reorganization: Sharpened priorities, restructured teams, gained 4th in patent power for consumer electronics (IEEE Spectrum). - Home theater: Gained dollar share in US and EMEA with Arc Ultra soundbar. - Customer acquisition: Era 100 priced competitively to attract new households. - Tariff management: Moved most US-bound production from China to Malaysia/Vietnam, limited China exposure; managing tariffs via production acceleration and scenario planning. - Cost efficiency: Restructuring led to 14% YOY decline in non-GAAP operating expenses; raised annual run rate savings for GAAP (to $640M-$670M, down $100M-$130M) and non-GAAP (to $580M-$600M, down $80M-$100M) operating expenses.

Revenue for the second quarter was $260 million, up 3% year-over-year. Home theater saw dollar share growth in the US and EMEA. Growth markets, though a small share of revenue, grew double-digits in Q2. GAAP gross margin was 43.7% (towards the high end of guidance), non-GAAP gross margin was 47.1%. Q2 GAAP operating expenses were $175 million, down 4%, with non-GAAP operating expenses at $135 million, down 14% year-over-year. Adjusted EBITDA was negative $1 million, above the high end of guidance range.

• Q3 revenue expected $310M-$340M (up 19%-31% QOQ, down 22%-14% YOY). - GAAP gross margin 43%-45%, non-GAAP 45.2%-47%. - GAAP operating expenses $157M-$162M, non-GAAP $135M-$140M. - Adjusted EBITDA $12M-$37M (margin 4%-11%). - Raised annualized run rate savings: GAAP operating expenses now $640M-$670M (down $100M-$130M), non-GAAP $580M-$600M (down $80M-$100M).

• Tariff uncertainties: Impact on inventory costs, consumer spending, and operational planning. - Macro-economic forces: Dynamic global environment affecting demand and pricing. - IP litigations: Ongoing cases against Google with uncertainties.

Q: What's the channel's willingness to take on inventory with lower tariff attached?

A: Saori said they're in discussion with channel partners on tariff rates, margin/promotion strategies, and channel inventory strategy.

Q: Any update on the IKEA partnership?

A: Tom said the partnership has been largely wound down to focus on core experience, improving core experience, profitable growth, cost efficiency, and innovation.

Q: Progress in repairing relationship with installer team?

A: Tom mentioned 9 software updates focused on quality, reliability, with positive customer response and improving core metrics.

Q: Impact of tariffs on demand?

A: Saori said no material demand change seen yet, but monitoring closely.

Q: Tariff impact on holiday season?

A: Saori and Tom discussed ongoing efforts to mitigate, but tariff rates and consumer demand remain uncertain. Tom noted active work on mitigation strategies.

Q: Tariff exemption and COGS?

A: Tom said majority US-bound production from Vietnam/Malaysia at 10% reciprocal tariff, with only a tiny fraction of business from China-related accessories.

Q: Normalizing year-over-year growth excluding Ace launch?

A: Saori said there are multiple moving parts, including Ace channel fill and pent-up demand, making normalization complex but noted home theater strength and growth in growth markets.

Q: Qualities the Board is prioritizing for permanent CEO?

A: Tom said the Board is working with an executive search firm, conducting a comprehensive search, confident in selecting a world-class leader soon.

Q: Update on IP litigations?

A: Tom said two affirmative cases against Google are proceeding; damages case in District Court LA, appeal of jury verdict case awaiting oral argument before Federal Circuit.