Sonos, Inc.

and thank you for standing by. My name is Lacey and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos Third Quarter Fiscal 2026 Conference Call. 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. I would now like to turn the call over to James Baglanis. You may go ahead.

Good afternoon, and welcome to Sonos' third quarter fiscal 2026 earnings conference call. I am James Baglanis, and with me today are Sonos CEO Tom Conrad, CFO Saori Casey, and Chief Legal 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 the 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 NUMGAP 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 fiscal 2026 results posted to the investor relations portion of our website, investors.sonos.com. After the call concludes, we will upload our revised supplemental earnings presentation, including our guidance, as well as the conference call transcript to the investor relations website. I will now turn the call over to Tom.

Hi, everyone. I'm very pleased to report that Sonos had another strong quarter. We continued our positive growth trajectory with revenue coming in at $375 million of 9% year over year and near the high end of our guidance range. We saw strong growth across all of our regions and our efforts to penetrate new markets are driving excellent results. Non-GAAP gross margin was 45.5% near the high end of our guidance range. Non-GAAP gross profit dollars grew 11% year over year, two points faster than revenue. We also continue to control our expenses effectively in Q3. As a result, we generated $44 million of adjusted EBITDA, an improvement of 24% year-over-year, and also near the high end of our guidance. These Q3 numbers bear out the inflection in our business that I named on our last earnings call. As anticipated, revenue growth accelerated this quarter to 9%, up from the 2% growth we achieved in the first half of the year. As Saori will detail shortly, we expect strong growth in the fourth quarter as well. Our results through the first three quarters of the year demonstrate that we're maintaining strong fiscal discipline and working with greater efficiency and effectiveness. We've held operating expenses steady through the year, which has yielded a 6% year-over-year decline in year-to-date non-GAAP operating expenses, all while still investing in future growth. Putting together these savings with our revenue growth and our strong gross margin, year-to-date we have achieved a 41% increase in adjusted EBITDA year-over-year. To close on Q3, growth accelerated. Gross margin held near the top of our range. and many more. I've talked on recent earning calls about the five dimensions through which we'll drive profitable growth, product innovation, customer advocacy, more intentional marketing, geo-expansion, and tapping emerging trends. We're making progress on all of them. We're driving hardware and software roadmaps that are full of innovative products and experiences that will further reinforce our position as the leader in whole home audio. Let me update you on some of our progress since the last earnings call. First, AMP Multi. Last week, we announced to our installer partners that Sonos AMP Multi will ship August 25th. Built for our installer and integrator partners, AMP Multi combines flexible, best-in-class multi-zone amplification with simpler installation, configuration, and tuning. It is a clear expression of our system strategy, products that make our platform more compelling, more differentiated, and more deeply integrated into the very fabric of the home. The relationships we've built with professional installers over two decades are a unique Sonos advantage, and AMP Multi lets our partners take on larger projects with Sonos at the center. Second, the Sonos app. We've spent the last months watching real customers use the app in their everyday life, from brand new owners to people who have been with us for years. We've taken those learnings and rebuilt the basics of how you navigate Sonos. and many more. These acts of co-creation are core ingredient driving a return to customer advocacy that continues to show up in our own measurements and across social media. There's much more coming this fall and beyond, and we'll be bringing all of it to market with compelling new marketing that is the clearest expression in a decade of what makes Sonos singular in the world. I can't wait for you to see what Colleen and her team have been cooking. Here's what comes next. will be hosting a product launch event. This will be the first opportunity for me to publicly introduce some of the work we've been doing on the product side over the last year. I'll save the news for the event, but let me say this today. Conversational computing and predictive intelligence are moving into the home, and Sonos brings to this moment 20 years of solving the hard problems the home uniquely creates. Sound, Form, Systemness, and Intelligence. That combination of where we already excel and where computing is going next meaningfully expands the opportunity in front of us. Much of the industry conversation about AI in the home is about who has the best model. We think that's the wrong question. Access to exceptional models is going to be everywhere, and the differences between them will narrow. The lasting value is going to be in what surrounds the model in a real home. The hardware that can converse with quality across every room. The system that already knows the shape of a home and the way a family lives in it. The connectivity to reach the speakers, services, and devices that turn a request into coordinated action. That's the operating environment for AI in the home and Sonos has spent 20 years building it. Alongside the Sonos operating environment sits a physical product portfolio unlike anything else in home audio. Speakers sized for a kitchen counter and speakers built to fill a living room. Sound bars optimized for home theater and subwoofers to make your heart go thump. Amplifiers that run dozens of zones in a custom home. Small speakers you can throw in a teenager's backpack. Portables at home in the den and also on the patio. for personal listening and movie theater theatrics without leaving the baby. Every form sound takes in a home made by one company designed to belong together and built to work in unison. No one else in this category covers that range. Our installed base is more than 53 million connected devices across more than 17 million homes. All of this makes me extremely optimistic about what lies ahead for Sonos, even as we navigate transitory macro challenges. It will come as no surprise that a significant headwind we face today is the dramatic escalation in computer memory and associated component costs, and Despite the strong results I just walked through, the impact of the memory cost environment is already here in our numbers. Memory costs impacted Q3 adjusted EBITDA by approximately $14 million year over year. Absent that headwind, our profit growth this quarter would have been 64% year over year rather than 24%. That's the weight our team absorbed while still delivering results near the top of our guidance range. The industry's dynamics driving these prices are not yet easing, and we do not expect meaningful near-term relief. So let me speak to how we're approaching the memory situation as a business. We're tackling the challenge across four work streams. First, supply. Ensuring that we have the chip supply we need to build our products and meet the demand we see in the market. Second, cost. Securing that supply at the best possible terms. Third, efficiency, optimizing memory use in our products to reduce our per-device memory footprint. And finally, pricing balance, weighing whether and when to adjust pricing, balancing near-term profitability against our focus on attracting new customers to Sonos and driving household lifetime value. Let me say a bit more on the last two. On efficiency, this dramatic rise in memory costs has served as a catalyst to supply our hardware, and software engineering expertise to improve the memory efficiency of our products. By optimizing the memory requirements of our operating system without compromising the performance of our products, the customer experience or future optionality, we can alleviate some of the cost pressure. We're deep in this work and its impact will continue to grow in fiscal 2027. On pricing, this remains one of the important levers available to us and we'll be thoughtful and disciplined about how we use it, Some prominent consumer electronics brands have recently announced price increases on existing products, but notably, no company competing directly in audio categories have moved materially on price for existing products, and neither have we. Our focus as we head into the holidays is on welcoming as many new Sonos households as we can. Our thinking is informed by the full picture of our success, households growing, lifetime value expanding, and our competitive leadership compounding. We're driving against all of these dimensions in concert with an eye on healthy gross profit dollars, too. As these higher memory prices fully take hold, we will face margin headwinds in Q4 in 2027. I want to underscore that we're entering this moment from a position of underlying strength. Setting aside these transitory conditions, this business operates at a healthy mid-40s gross margin. Thank you for joining us. If instead they stay elevated, we'd expect the industry to move to higher pricing over time and we would adapt along with it. We prefer the first path since delivering the greatest possible value to our customers is always our goal. Either way, the destination is the same. After working through these pressures in 2027, we expect our profitability to improve in 2028 and beyond. The structural improvements we've made over the last two years underpin our conviction that Sonos can operate at meaningfully higher adjusted EBITDA margins over time, which, when combined with consistent revenue growth, creates a strong long-term financial outlook. Before turning the call over to Saori, I'm delighted to share one last update. Chris Shackleton, co-founder and managing partner of Coliseum Capital Management, Sonos' largest investor, is joining our board. Over the last 18 months, I've gotten to know Chris well and we've bonded over a shared enthusiasm for what Sonos can become and the value we can build for shareholders. This is the latest step in the evolution of our board, adding skills and expertise aligned with Sonus's future. In my time as CEO, we've added Hugo, Joe, Carmen, and Mandy, who bring product and AI, hardware and supply chain, consumer and media experience, as well as public company CEO and CFO governance, alongside operational and financial rigor. Today, we're adding Chris's deep investment, capital allocation, and director experience. This is a board built for the opportunity ahead. With those thoughts, Saori, I'll turn it over to you.