Sonos, Inc.

At this time, I would like to welcome everyone to Sonos first quarter fiscal 2024 conference call. Please note that this call is being recorded. All participants are now in listen only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. Thank you. I will now turn the call over to James Baguanes, Head of Investor Relations. You may begin your conference.

Thank you, Brianna. Good afternoon and welcome to Sonos' first quarter fiscal 2024 earnings conference call. I am James Maglanis, and with me today are Sonos CEO Patrick Spence, CFO Sayori Casey, and Chief Legal and Strategy 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 as 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 also 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 2024 results posted to the investor relations portion of this 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 also like to 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. I'm pleased to report that we kicked off fiscal 2024 with a successful first quarter. We exceeded our expectations by delivering revenue of $612.9 million, a gap gross margin of 46.1%, an adjusted EBITDA of $115 million, and free cash flow of $269 million. We also delivered on the commitment we made last quarter to vigilantly work down our owned inventory position. This performance sets us up well to meet our previous outlined fiscal 2024 targets of 1.6 to 1.7 billion revenue, 45 to 46% gap gross margins, and $150 to $180 million in adjusted EBITDA, while continuing to improve free cash flow conversion relative to last year. These results were hard won as we navigated the cyclical challenges in our categories and a highly promotional environment. As we have discussed in the past, the home theater category has not yet recovered and remains subdued across all of our geographies. This is in part due to a slow market for TV purchases, as well as difficult economic conditions in parts of EMEA and APAC. We saw some modestly improved performance in the streaming audio category, though the market remains highly competitive. Despite these conditions, we continued to execute and win. We decided to do something different this holiday season. We opted to run an extended pre-Christmas promotion on select products. This is atypical for us, but we felt it was necessary to meet consumer expectations of discounting throughout the holiday season rather than having the promotions concentrated heavily in the select windows of Black Friday, Cyber Monday. Customers responded in force. We exceeded our own sales expectations and saw market share gains in key categories, all while delivering strong gross margins for the quarter. Specifically, we saw further share gains in US home theater and also saw our market share improve sequentially in streaming audio in both the US and Europe. We also saw one of the highest levels of products per new customer of any holiday season in years. All of this is a testament to our strong brand, our terrific product lineup, and the value that our products offer. Because this successful extended promo happened later in the quarter, we believe it may have had the effect of pulling some sales in from Q2, and as a result, our first half outlook remains unchanged. With a solid Q1 in the books, we now turn our undivided attention to the launch of our highly anticipated new product, which we will announce and ship in Q3. This launch will give us a foothold into a new multi-billion dollar category, expanding the number of categories we plan from five to six and further diversifying our business. In anticipation of both the untapped opportunity in our existing categories and opportunities in this new category, we plan to expand our distribution footprint meaningfully. This means signing agreements with a few key distribution partners to broaden our reach and drive new households. We will provide further updates in the quarters to come. The other place we see opportunity is in our marketing efforts, particularly the role Sonos plays in connecting to culture. This past weekend, we partnered with the Recording Academy to host immersive experiences at the 2024 Grammy House. Connecting our brand to culture is a priority, and we brought the magic of Sonos to life with exciting red carpet activations and amplified sound experiences throughout the event, partnering with the hip-hop duo Flyanna Boss to welcome guests and share experience from the celebration. Our chief commercial officer, Deirdre Finlay, said it best. This collaboration reinforces our profound connection to the creator community and underscores our commitment to delivering unparalleled listening experiences. We've also built upon the success of our partnership with Sonance, recently announcing our 8-inch in-ceiling speaker by Sonos and Sonance. We designed this in direct response to the needs of our customers and their installers, who asked for more size options and flexibility during installation. This product will be available in spring 2024 for $999 per pair. As we navigate this unique consumer environment, I want to reiterate that we are laser focused on what we can control. We are taking share without compromising on gross margin. We are at the onset of a multi-year product cycle as we harvest the benefits of our research and development investments to enter new categories and launch new products, starting with the one we will be announcing and shipping in Q3. We are expanding our distribution to ensure we meet the customer where they want to shop. We are reinventing our brand marketing and activation to tap into culture and address new audiences. We are positioning the company to accelerate our growth while keeping expenses in check to deliver margin expansion in the years to come. The eventual recovery of our categories should only further fuel this re-acceleration. The opportunity ahead remains large as we have just 2% of the $100 billion global audio market and 9% share of the total households in our core markets. Each year, our business is driven by both the acquisition of new households that are to enter our install base and by our loyal customers who continue to make subsequent purchases over time. Our ability to capture a disproportionate share of this opportunity ahead of us will only improve from here. Great things are happening here at Sonos, and the best is yet to come. Before I turn the call over, I want to thank Eddie for his contributions over the past 16 months as CFO. Eddie rose to the occasion and helped us navigate a highly uncertain environment. I'm confident he will continue to make a great impact on Sonos in his new role as Chief Strategy Officer. Our new Chief Financial Officer, Sayori Casey, joined Sonos at a very exciting time as we kick off our new multi-year product cycle. She brings more than 30 years of corporate finance experience, most recently serving as Vice President of Finance at Apple. There is no doubt in my mind that we will benefit tremendously from the wealth of experience she brings to the table. Now we'll turn the call over to Sayori to briefly introduce herself.