Sonos, Inc.

Good afternoon, my name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos third quarter fiscal 2025 conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to James Baglanis, head of corporate finance.

Good afternoon, and welcome to Sonos' third quarter fiscal 2025 earnings conference call. I'm James Baglanis, and with me today are Sonos CEO Tom Conrad, CFO Sayori Casey, and Chief Legal and Business Development Officer Eddie Lazarus. Before I hand it over to Tom, 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 third quarter 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 Tom.

Thank you, James, and thanks to all of you for joining us. I'm speaking to you today, not just as the new CEO of Sonos, but as someone who deeply believes in what this company can be. I've devoted my career to building consumer products that people love, and I took this role because I believe Sonos is one of the few companies with the ingredients to do that at the highest level. There's a reason I have a Sonos Ace tattoo on my forearm. I love this company, its mission, and the possibilities ahead. Over the past six months, I've had the chance to work closely with every part of this business, and I've seen just how much our people care about the quality of our products, our customers' experience, the craft of what we build, and the operational rigor we bring to the task every day. Working with this incredible team has only deepened my conviction that Sonus can be among the most consequential hardware platform companies in the world. That's why I'm so honored the board has asked me to lead Sonos into its next chapter and why I'm so optimistic about what comes next. My appointment is not just a leadership transition. It's a turning point for the company, a return to our founding principles of obsessive craftsmanship, customer-first design, and category-defining innovation. We have a lot of work ahead of us to translate our convictions into a return to growth with better profitability, and we're approaching the challenge with urgency. Now, let me tell you why I'm so excited about the future. First, the Sonus we're building today is not just a product company. We're a platform company, a platform where our expanding portfolio of hardware products compound in value thanks to powerful software upgrades that deliver unique experiences for the home and beyond. This ecosystem connects not just our products, but also our partners, developers, and consumers. Every new product, every software feature, and every integration ensures that, over time, Sonos becomes more powerful, more interconnected, and more irreplaceable in our customers' homes. Second, Sonos has an extraordinary brand. We're the clear leader in wireless home audio, and we have earned that position by delivering consistently great sound, thoughtful industrial design, and a system that works across every room in the home. That's not marketing spin. It's why we're the number one home theater brand in the US and why our installer and channel partnerships remain so strong. Third, we're making significant operational progress. Earlier this year, we reorganized to improve our product cadence while reducing our annual operating expenses by more than $100 million. This has catalyzed focus on the things that matter, the core experience, profitable growth, and the kinds of innovations only Sonos can deliver. For example, this quarter, we delivered new AI-powered voice enhancement features on Arc Ultra and state-of-the-art adaptive noise cancellation for Sonos Ace. We're keeping this momentum as we build a strong roadmap that stretches through fiscal 2026 and beyond. Finally, there are many opportunities ahead for growth. Despite our market leadership, we've only captured a small fraction of the global market. We have room to add new households and grow our installed base in both our existing and key growth markets. What's more, our installed base is a powerful asset itself, and roughly 40 to 45% of annual product registrations come from existing households. And we're leaning into this by delivering experiences that get better as your system expands. Which is just to say, we know we have more to do. We'll make Sonus more relevant to people's daily lives by expanding the experiences we deliver and making them even easier to enjoy. We'll be more assertive in the products we bring to market and more expressive in how we tell the Sonus story. We can reconnect more deeply with artists, with culture, and with the spirit of invention that has always been part of this company. This is the Sonus I'm building. It'll take some time to bring this reinvention to market, but we will move with conviction and clarity of purpose and the payoff will be clear over the medium to long term. Now let me share a few comments about our performance in Q3 and the business environment in which we're operating. We had a solid quarter with revenue and adjusted EBITDA at or above the top of our guidance. Our results reflect a tight focus on execution, which yielded dollar share gains in home theater in the US and on efficiency with drove continued year over year declines in our operating expenses. With respect to our operations, like many companies, the most significant near-term challenge has been the uncertain tariff environment. As a reminder, short of a few accessories and our passive speaker partnership with Sonance, we do all of our US-bound manufacturing in Vietnam and Malaysia. We talked last quarter about the contingency planning we underwent to minimize the effects of tariffs on our business, while also doing what we can to limit the downstream impact to our customers. With last week's news, the tariff rates we were subject to going forward appeared to be 20% for Vietnam and 19% for Malaysia. We continue to work closely with our contract manufacturers and our channel partners to share tariff costs, though it has become clear that we'll need to raise prices on certain products later this year. As these pricing changes land, we'll monitor consumer behavior closely as well as competitive trends across our categories, and we'll make adjustments in collaboration with our channel partners when and if necessary to ensure we're exploring every opportunity to optimize our respective top and bottom lines. In conclusion, Sonus has the right to lead. We have the brand, the platform, the team, and the permission to define what great means for audio and entertainment in the home, on the go, and into the future. We lost the momentum in 2024. We're starting to get it back and we're going to accelerate our pace from here. Now, let me turn things over to Sayori.