Sonos, Inc.

Good afternoon, and welcome to the Sonos first quarter 2023 earnings call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star, followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. James Boglanis, Senior Director of Investor Relations. Thank you. Please go ahead, sir.

Thank you. Good afternoon and welcome to Sonos first quarter fiscal 2023 earnings conference call. I am James Boglanis and with me today are Sonos CEO Patrick Spence and CFO and Chief Legal Officer Eddie Lazarus. For those who joined the call early, today's hold music is a sampling from our Say It Loud station, which is curated in collaboration with Black at Sonos in recognition of Black History Month. 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 and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption risk factors in our filings with the SEC. During this call, we will 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 2023 results posted to the investor relations 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, investors.sonos.com. I would like to also note that for convenience, we have separately posted an investor presentation to our investor relations website, which contains certain portions of our supplemental earnings presentation. I will now turn the call over to Patrick.

Thank you, James. And hello, everyone. Our record first quarter revenue is a testament to the strength of the Sonos brand and our category leadership. It's another performance that proves our flywheel is working. We acquire new customers through disciplined marketing efforts and through our existing customers who tell their friends and family that they should get Sonos. Our existing customers return to make additional purchases, building out their Sonos systems and growing products per household. Our team demonstrated its ability to execute amidst a challenging macroeconomic backdrop as we delivered constant currency revenue growth of 7%, a healthy adjusted EBITDA margin of 18.4%, and 168 million of free cash flow. As we always take a long-term view, the most important thing to note is that these results are where we expected them to be in order to deliver on our fiscal 2023 guidance. In the context of the current market environment, these are especially outstanding numbers. Consumer spending was rather tepid, especially as the pendulum has swung away from goods and towards travel and services, as the consumer enjoys some of the activities that they were deprived of during the pandemic. The consumer electronic space in particular continues to experience softness after three years of very strong growth. For this reason, despite our strong start to fiscal 2023, we are standing pat on our annual guidance. The macroeconomic environment remains challenging and consumer spending uncertain. The dollar, while weakening some, continues to erode our top line, gross margins, and adjusted EBITDA. Given everything we see right now, we are maintaining our previously issued guidance range of 1.7 to 1.8 billion revenue, 45 to 46% gross margins, and 145 to 180 million in adjusted EBITDA. We believe this is prudent in the face of a lot of unknowns this early in the year. In Q1, we did exceedingly well on a comparative basis. We built upon our already strong share of home theater market and saw significant gains in the US, UK, Germany, and the Nordics, resulting in our highest share in terms of both dollars and units in three years. We performed well amidst the competition in the wireless speaker category as well. There is a reason why the New York Times crossword puzzle selected Sonos as the answer to the clue, wireless home audio company. And Michelle Obama named it her most used app recently while on The Late Show with Stephen Colbert. The Sonos brand has never been stronger. And when consumer spending picks up and the balance of goods and services expenditure stabilizes, we will be well positioned to deliver accelerating top and bottom line growth. On the last earnings call, we discussed how being in stock on our products would enable us to run our typical focused promotions for the first time in three years. As we expected, customers responded in force to these promotions. We saw very strong customer response to our sets offering, resulting in our highest level of sets as a percent of direct-to-consumer orders in years. We are keenly focused on driving multi-product starts because they have proven to have greater lifetime value than single product starts, as well as a higher propensity to repurchase over time. We were pleased with the balance of sales to new households, as well as the repurchase activity by our existing household base, which we believe is yet another validation of our flywheel. As a reminder, in any given period, we tend to see existing households account for 40 to 45% of our registrations, providing us with a sticky, predictable revenue stream from our installed base. Our flywheel is proven and has been remarkably consistent over our history. Even in the midst of the ongoing economic uncertainty, it continues to drive growth. We are still in the early innings of our growth as our more than 14 million households represent just 9% of the 158 million affluent households in our core markets. At the end of fiscal 2022, the average Sonos household had 2.98 products, up from 2.95 the prior year. This figure has steadily increased over the years, underscoring how the lifetime value of our customers continues to grow. And there's a lot more room for additional growth. As we noted on our last call, 40% of our households are single product households, whereas our average multi-product household has 4.30 products. In other words, we are starting to get into the range we had previously discussed of four to six products for every mature Sonos household. We estimate that converting our single product households to the average multi-product household install base size represents a $5 billion revenue opportunity. Of course, this will not happen overnight, but it does highlight the long runway we have to further monetize our install base. We are investing in the systems and programs to more aggressively go after this opportunity in fiscal 2023 and beyond. One example I'm proud of is Sonos Voice Control. With Sonos Voice Control, we have created a dedicated, easy to use, music focused voice service for Sonos households. Our hypothesis is that this will result in increased engagement, which will translate into additional products purchased over time, further driving lifetime value. I am pleased to report that the net promoter score of Sonos Voice Control far exceeds that of the other voice assistants on our platform. SVC, as we call it, caught up to 50% of Alexa total enablements in the US in just seven months and is trending to become the number one voice solution for Sonos in both the US and France, where it only launched in December. Before I turn the call over to Eddie, I want to take a moment to address something that gets asked often. how the pandemic has affected Sonos' performance and what our path forward looks like. There could be no doubt that over the last three years, the pandemic created a stay-at-home tailwinds which drove strong demand for our products. These tailwinds were partially offset by the persistent supply chain disruption that we faced. This quarter was a step in the direction of normalization as these stay-at-home tailwinds subside and we face minimal supply disruption. But importantly, and as our record setting Q1 revenue attests, the 5 million new homes that we added over the last three years are contributing to our flywheel. From everything we've seen in our data, these customers are behaving similarly to those customers who joined prior to 2020. in that they are, one, adding additional products over time, and two, they've become great advocates for Sonos, helping us attract more new customers. The last three years didn't just yield a temporary spike in sales, nor was it a one-and-done phenomenon. It brought our business to a higher baseline from which we will grow further. As we discussed last quarter, we are making thoughtful and targeted investments to drive our medium and long-term growth while being mindful of the continued importance of delivering profitability. Our investments are focused on driving our flywheel of new household acquisitions and existing customer repurchases. And while we are investing in these opportunities, we are simultaneously tightening our belts, reducing discretionary spend, and doing some restructuring to make our teams more efficient. We are laser focused on what we can control, so if we begin to fall short of our targets in fiscal 2023, we won't hesitate to adapt to the environment, prioritize our key initiatives, and protect the profitability of our business. We are on the cusp of launching some exceptional new products, and our product roadmap continues to get more exciting. As I mentioned on the last call, we'll be announcing our entry into a new category this year, one of four that we're working on. We have a proven track record of gaining share when entering a new category, which underpins our conviction that we will continue to gain a larger and larger share of the $96 billion global audio market over time. The future is bright, and we're well positioned to seize it. Now I'll turn the call over to Eddie to provide more details on our results and our outlook.