Sonos, Inc.

Thank you for standing by and welcome to the Sonos fourth quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. For the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the call over to James Baglanas, head of investor relations and treasury. You may begin.

Good afternoon, and welcome to Sonos' fourth quarter and 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 from our holiday-inspired Sonos radio station, Thankful. 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 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 fourth quarter and fiscal 2024 results posted to the investor relations portion of our website. As a reminder, the press release, supplemental earnings presentation including our guidance, and conference call transcript will be available on our investor relations website, investors.sonos.com. I will now turn the call over to Patrick.

Thank you, James, and hello, everyone. While fiscal 2024 didn't play out as we expected, I'm proud of the way we adapted to address the challenges we faced, and I believe we are on the comeback trail. Part of the difficulty this year stemmed from the fact that our categories continue to remain under pressure, something that we've now dealt with for the last three years and something that we continue to believe will improve at some point. And the other part was the way we mishandled the rollout of our new app. Life is all about how you respond to challenges, and the team has risen to the significant challenge we faced, went all in on our app recovery efforts, and made enough progress to enable us to launch our two new products in time for the holidays. And we've put a series of commitments in place to make sure this never happens again. The initial feedback and reviews on Arc Ultra and Sub 4 have been outstanding. When you combine this with Ace, our entry into headphones, a product that was just recognized as one of time's best inventions of the year, and add it to the rest of our industry-leading product portfolio, we now have the strongest lineup we've had in years. We continue to raise the bar with our recent product introductions. And I'd like to thank our customers, as they have stood by us despite the app misstep. We saw another increase in the number of products per home in fiscal 2024, the ultimate testament to the brand and the fact that Sonos remains the best home audio system in the market. I want to start by touching on three important areas of our app recovery efforts. First, of course, is the software. As our Chief Innovation Officer Nick Millington outlined in his blog post two weeks ago, we've made significant progress in bringing the quality of our software experience to a level that we're proud of. In fact, In the most important and impactful areas of the experience, like setting up your system, adding new products, and ensuring reliable connectivity, our metrics are better than they've ever been, including when compared to our old app. And as we've said many times, we're committed to continuing to improve the software experience on an ongoing basis. The ease, reliability, and magic of our products is the most important thing to us all. We've released 16 updates thus far, and we'll continue this momentum in the months to come. Second, to build on all of these efforts and help us stay focused on what matters most going forward, we released a set of commitments that will ensure we continue to deliver the best wireless audio system in the world and our customers always enjoy the quality of which Sonos is known for. These include ensuring we always establish rigorous quality benchmarks at the outset of product development and not launching products before meeting these criteria, increasing the stringency of our pre-launch testing phases, Introducing major changes to the app more gradually, appointing a quality ombudsperson, extending our home speaker warranties, relentlessly improving the app experience with regular software updates, and establishing a customer advisory board. We are confident these will ensure that we never make a misstep like this again. And finally, regaining the trust of our customers. Central to this process is making sure that the Sonos system is once again the easiest and most reliable in the world. That work is well underway and will continue intensely through 2025. We won't rest until that is done. But we are taking other measures as well. We've bolstered our customer service capabilities so that those customers who do experience issues can get the help they need more quickly. As the app improved, we provided a make-good program for the professional installers who have been inhibited from deploying Sonos products on their jobs. We've been deeply gratified by the response from this critically important distribution channel. And once we get through the holiday season, we'll deploy other tactics for restoring trust with impacted existing customers. We continue to believe our planned investment of $20 to $30 million total is the right level required to successfully execute on our app recovery plan. Beyond the app rollout, the other challenges we faced in fiscal 2024 was continued pressure on spending on our categories. We have dealt with this unusual environment for the past three years and continue to believe this trend will reverse and get back to normal, though there is uncertainty that makes it difficult to predict exactly when that will be. And while these pressures have led to some of our competitors to take an aggressive approach to promotions, we saw continued market share dollar gains in both U.S. home theater and U.S. streaming audio, which we believe is a validation of our brand and continued competitive differentiation. Fiscal 2024 saw us grow our base of active households to 16.3 million, which is critical to fueling our flywheel. Even in a year as challenging as fiscal 2024, our existing households accounted for 44% of product registrations, consistent with past years, and the average number of products in multi-product households grew to 4.42. We continue to make exceptional products that bring unparalleled experiences to our customers. I've often spoke about our product strategy of raising the bar in our existing categories while entering new categories in innovative ways. Over the last six months, we've done both. Arc Ultra and Sub 4 are great examples of raising the bar in our existing categories, while our Ace headphones represent our high-quality entrance into the exciting new category of premium over-the-ear headphones. After roughly six months in the market, we are starting to be able to assess how Ace is performing. Most importantly, Ace continues to be very well received by customers and reviewers. It's an excellent product that can compete with anyone on comfort, sound, active noise cancellation, and the other qualities that make for a great headphone. This is why Time named Sonos Ace a winner for their 2024 Best Inventions list in the category of Entertainment and Gaming. As an added bonus, Ace offers our existing customers unique connectivity with our home theater products, which is perfect for enjoying your favorite content without disturbing those around you. A great endorsement to the quality of Ace, Best Buy chose eight strategic vendor partners to participate in their Theatre District store layout, which highlights new and unique technologies sold at Best Buy. Sonos Ace will be featured on one of those end caps ahead of the holidays in approximately 171 Best Buy stores, with another 50 stores coming in January 2025. Looking back on the launch of ACE, I'm confident we have proven our ability to play in this category that we have found that building momentum in headphones is taking longer than we had originally anticipated. Some of that stems from the challenges with our rollout, but we've also seen unprecedented discounting and permanent price drops from the established players, which we believe has impacted sales. Overall, I believe there's good long-term opportunity for us in this category. As for the products we just announced, Arc Ultra is our first product to incorporate our revolutionary sound-motion technology. When we acquired MITE in 2022, we knew that their breakthrough transducer technology would be a key differentiator for Sonos. While devices like phones, flat screens, and laptops have become increasingly slim, transducers, especially those responsible for producing bass, haven't scaled with this trend, leading to a reduction in sound quality for those devices, particularly on the lower end of the hearable spectrum. SoundMotion addresses this limitation by making the transducer as much as three times smaller while producing more powerful sound. With SoundMotion technology added to Arc Ultra, the soundbar produces up to double the bass compared to our already impressive sounding Arc. This breakthrough not only improves the bass quality in a slimmer device, but also frees up room for additional transducers to be added to the product. This ability to combine compact design with high-quality, powerful audio is what Sono sees as a fundamental shift in sound innovation, and we've only scratched the surface of its potential. With SUB4, we've managed to improve on a truly iconic product. With revamped audio architecture, we upgraded its already amazing sound enhancement capabilities, and we've changed materials to make it both more premium in feel and better for the planet thanks to more sustainable materials. Arc Ultra is being well-received by the ever-important tech press, with early reviews calling it a significant upgrade, praising its sleek design, broad soundstage, and impressive bass. PC Magazine awarded it the coveted Editor's Choice Award. Reporters have taken a keen interest in the innovation behind sound motion, recognizing our commitment to revolutionize the audio industry, and imagining what comes next. Customers are responding in kind. Arc Ultra is rated 5 out of 5 stars, and Sub 4 is rated 4.8 out of 5 stars on Sonos.com. Another important product we announced in fiscal 2024 is the Aero 100 Pro, which is our first-ever solution optimized for professional installation in light commercial and residential spaces. With the rich sound, elegant design, and versatile control that Sonos is known for, Air 100 Pro brings simplified setup with power over Ethernet for a wired-first connection, versatile orientation via a pro-grade mount, and more customizable control with Zones, a new software tool to manage larger-scale installations. It was unveiled in September at Cedia, where it was met with tremendous excitement from our professional partners. Their excitement has manifested into ERA 100 Pro being nominated to the shortlist of best products in the audio category at the prestigious Innovation Awards. The ERA 100 Pro will be available exclusively through our professional installer partners starting on January 28, 2025. Looking back at the products we've produced since going public six years ago, what becomes clear is not only a long tradition of exceptional quality, but also an effective effort to diversify our business mix to create a stronger foundation for future growth. As we stand here today, nearly all of our most important products have been introduced or upgraded in the last two years. Our investments in innovation have modernized the portfolio and resulted in the strongest lineup that we've ever had. This widens our lead over the competitors and sets a strong foundation to drive our flywheel in the years to come. We will continue to invest in innovation to drive future growth, but with an eye towards increasing our efficiency. In our post-mortem evaluation of our challenges with the app rollout, one of the things that became clear was that we had spread ourselves too thin. Going forward, we will be focusing our efforts on the products and experiences that enable us to reach millions of new customers, while ensuring our existing customers have a great experience and add more Sonos products to their life. Focus is our flywheel, and our transformational cost initiatives are integral to fueling the next phase of our growth. Sayori will talk more about this shortly. To recap, we are making good progress on our app recovery efforts, and there is more work to be done. We're focused on making this right with our customers and partners, and we will not rest until we have customers raving about Sonos again. We announced some incredible products in the last year to add to our already strong product portfolio, all of which will be key to our success in fiscal 2025 and beyond. We are committed to showing the result of our significant investments in innovation. And finally, we are progressing with our transformation work, which will see us emerge as a more efficient, focused, and disciplined company positioned to drive sustainable, profitable growth over the long term. I'll now turn it over to Sayori to take you through our financials.