Sonos, Inc. (SONO) Q4 2026 Earnings Call Transcript

Operator: Good day, everyone, and welcome to the Sonos Fourth Quarter and Fiscal 26 Conference Call. Please note that today's call is being recorded. At this time, I will hand the call over to mister James Baglanis. Head of corporate finance. Please go ahead, sir.

James Baglanis: Good afternoon, and welcome to Sonos Fourth Quarter and Fiscal 26 Earnings Conference Call. I am James Baglanis, with me today are Sonos' CEO, Thomas Conrad; CFO, Saori Casey; chief legal officer, Eddie Lazarus. Before I hand it over to Thomas Conrad, 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" 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 26 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 our conference call transcript to the IR website. I will now turn the call over to Thomas Conrad.

Thomas Conrad: Hi, everyone, and thanks for joining us. Fiscal 26 is in the books. Saori will take you through our Q4 and full year numbers in a few minutes. So I will keep my part short on the arithmetic. We did what we said we were going to do, We returned Sonos to growth, including double digit growth in the fourth quarter. We held our discipline on cost, and we drove a very significant step up in profitability. I am proud of these results and I am grateful to the people in every corner of our company who did the hard work to get us here. Taking a step back, this marks my first full year as CEO. And I want to tell you how different a company Sonos is from the 1 I walked into. The experience we deliver to our customers is different and better. The way we explain Sonos to the world is different and better. We shipped more new products in a single year than at any point in Sonos' history. And I will put each of them up against anything in its category. We build a platform for agentive AI that nobody else in home audio matches. We stripped layers out of how we work so decisions get made faster and ship new value to customers every month. And we extended our reach into new markets. The list is longer than that, but all of it rolls up to 1 idea. From the day I took this job my focus has been on Sonos as a system. Not Sonos as a collection of just speakers. Now the speakers are excellent and they will continue to be excellent. But the thing that makes a Sonos Home a Sonos Home is what happens when all of those products work together as 1. We are a year into this new journey, and the system that is Sonos is taking flight. In September, we introduced Sonos 27, it is the next generation of our audio operating system and it is the first time in 25 years that we have given our software platform a name. Sonos 27 is also the start of an annual release cadence. Every fall, you can expect a new generation of system capabilities for us. This is how we will put further daylight between Sonos and everything else in home audio. Sonos 27 is built on 4 promises. An open platform for audio services through the Sonos ecosystem, Sound tuned to your specific home through Sonos Trueplay. Seamless control your way through Sonos 27 app, Sonos Web, and Sonos Voice. And products that genuinely work better together thanks to Sonos Fabric. Fabric is the piece that figures out where every Sonos product is in your home, what each 1 is best at in that moment, and stitches them into 1 coherent experience. But Sonos 27 is more than a platform that turns your portables into surrounds for movie night or unlocks ACE Ultra to pull movie audio off of your soundbar and into your headphones. 3 other major improvements join these system tricks. First, an improved Sonos app with better performance, a simpler navigation, and better everyday controls. We spent hundreds of hours watching real customers use the app and we rebuilt the core of how you move through it. Second, Sonos Voice. This is our own in house voice assistant. Built specifically to understand music, mood, and the way people actually talk to a speaker in a kitchen. You should just be able to say what you want. However you want to say it. It should be fast and it should meet you where you live. And when you ask a big question, the answer should also be there. Sonos Voice launches in early access this month. Third, Sonos MCP. Sonos MCP is an open interface that lets you invite any AI agent, whether that is Claude, ChatGPT, Gemini, even something you built yourself to discover and control your Sonos system. It is up and running today in early access. If you have not tried it, I would encourage you to go play with it after this call. All of the details are just a Google search away. I wanna pause on Sonos MCP because it is a window into how we think about AI. Last quarter, I said that the enduring value of AI in the home is not going to be about who has the best model. Exceptional models are going to be everywhere. What is going to matter is the system that embeds those models in a real home. Hardware that customers love in every room, a system that understands the shape of a home and the way that a family lives in it, and the connectivity to turn a request into a coordinated action across speakers, services, and devices. That is a description of Sonos. Millions of AI endpoints in millions of prized homes, Much of the industry is building walled gardens where the ecosystem invites but 1 agent. We see an opportunity for user choice. We want the AI you choose whoever it comes from, to work better on Sonos than it works anywhere else. Sonos MCP is the first step and it will not be the last. Of course, none of the software matters without hardware that brings it to life. And this was a banner year for hardware. We brought 5 new products to market, this fiscal year, Sonos Play, Era 100 SL, Amp Multi, Beam Ultra, and Ace Ultra. All 5 tell the same story. Each 1 makes every other Sonos product in the home more valuable. That is the system at work. Today, 62% of Sonos households own more than 1 product, and every new product and software update we deliver gives our customers another reason to add the next 1. that is why we think about a Sonos customer over years, not 1 sale at a time. 44% of this year's registration came from homes that already own Sonos, and customers who joined us in 2020 are still adding to their systems 5 years later. The homes we bring in today keep paying off for years. Sonos Amp Multi began shipping on August 25th, and the response from our installer partners has been overwhelmingly positive. it is doing exactly what we built it to do. Letting them take on bigger, more ambitious projects with Sonos at the center. Customers who come to us through installers are also among our most valuable. They start with larger systems, keep adding to them longer, and stay more engaged with Sonos through the years. And just in time for the holidays, Beam Ultra and Ace Ultra are now in customers' hands and the reviews have been excellent. TechRadar named Beam Ultra the best soundbar of 2026. In its product of the year awards, saying it might just be the best compact Dolby Atmos soundbar we have tested. And if Ace Ultra t 3 said, whether you are a Sonos user has been waiting for a more integrated pair of Sonos headphones or you are just looking for a class act where design and audio are concerned, Sonos is back with a bang in Ace Ultra. Reviewers are responding to the same things our customers experience every day. Exceptional hardware made even better by the system around it. that is the idea at the heart of our new brand campaign. Love the sound, feel the system. As the campaign cheekily puts it, all of this, the combination of software and hardware this well made and this good sounding is not magic. But it is not magic. But whatever you want to call it, it is the thing that will carry Sonos forward It is what will bring new households into Sonos. It is what will convince our existing households to fill another room. And it is what will extend our progress in the growth markets we are penetrating. These are big opportunities on the order of $12 billion of potential inside our existing customer base alone. Our mission is to go get it, and I am optimistic about our ability to do so. Our software and hardware roadmaps are deep, Our partnership conversations around the platform are accelerating. A year from now, when I come back to you to recap fiscal 27 I expect to be talking about another year of growth built on another leg of system improvement. We will pursue that opportunity with the same discipline that got us here. We are entering the holiday season with the strongest lineup we have had in years. And as Saori will share in a moment, we expect strong growth in our first quarter. And we are doing it from a structurally stronger position. Over the last 2 years, we built a business that earns meaningfully more on every dollar of revenue than it did before. That foundation matters because, as we have noted before, memory and other component costs remain elevated industry wide driven by the AI build out. Fiscal 26 showed what this business can do even in that environment. We absorbed a significant increase in memory costs and still expanded gross margin. Setting these conditions aside, Sonos has a long track of delivering a healthy mid forties gross margin and that is the base we are managing from. How quickly we get back there will in part depend on when by how much memory prices ease from today's unnaturally high levels. In the meantime, we have a number of levers to improve our gross margin. Optimizing the memory footprint of our products is well underway and we will continue to take a thoughtful approach on pricing balancing growth and margin over time. We are also focused on growing our installer channel, where Sonos is uniquely differentiated. And improving the performance of our direct to consumer business where we have the closest relationship with our customers. With that, I will turn it over to Saori to walk you through our results.

Saori Casey: Thank you, Tom. Hi, everyone. We finished fiscal 26 with solid momentum as we delivered strong financial results in Q4. And returned to growth for the year while significantly improving our profitability. These results were made possible by the discipline we built across the business over the past few years. Q4 revenue of $344 million was above the midpoint of our guidance range, growing 20% year-over-year or 11% excluding the fourteenth week. Constant currency growth was in line with reported growth as foreign exchange had a negligible impact in Q4. We have now delivered 9 consecutive quarters of disciplined execution, consistently meeting our commitments. We saw strong growth across all 3 regions, with Americas delivering 17% growth year-over-year, a meaningful improvement from the pace we have seen over the last 3 quarters. APAC and EMEA continue to demonstrate strength, growing 29% and 24%, respectively. Our growth markets delivered another quarter of strong double digit growth, underscoring their importance to our long term growth strategy. On a product basis, we introduced Beam Ultra and ACE Ultra in September. Following Amp Multi's general availability in late August. These 3 products made meaningful contributions through Q4 results, and were encouraged by their early performance and the momentum they bring into fiscal 27. Together, these introductions brought our total to 5 new products in fiscal 26. Sonos Play and Era 100 SL continue to generate solid demand in their second full quarter of availability further contributing to our growth. In Q4, we received the remaining $18 million in tariff refunds against the claims that we filed for prior duties paid under AIPA, which led to Q4 GAAP gross profit dollars growing 26% year-over-year to $159 million representing a GAAP gross margin of 46.1%. Without the benefit of the tariff refunds, GAAP gross profit would have been up 12% year over year representing a margin of 40.9%. Landing near the high end of our guidance range. Q4 non GAAP gross profit of $145 million grew 11% year-over-year and landed at the high end of our guidance range, representing a margin of 42.1%. Gross profit dollars benefiting from higher revenue, partly offset by higher memory costs, which reduced gross margin by nearly 1000 points year-over-year. In line with our expectation. Q4 GAAP operating expenses of $169 million increased 6% year-over-year, driven by investments in future growth including the spend related to new product launches, our new brand campaign, litigation spend, and approximately $5 million from the extra week in the quarter. Excluding the extra week, GAAP operating expenses was up 3% year-over-year. Non GAAP operating expenses of $147 million grew 9% year-over-year, or 6% excluding the extra week in the quarter. Consistent with our guidance. Q4 adjusted EBITDA of positive $6 million was roughly flat year-over-year, and a few million dollars better than the midpoint of our guidance range. Like we said last quarter, Q4 adjusted EBITDA does not include any tariff refund benefit. I am particularly proud of our team's performance in delivering positive adjusted EBITDA despite absorbing $33 million of higher memory costs compared to prior year. Excluding this impact, adjusted EBITDA would have grown over 5x to $39 million representing a margin of 11.3%. GAAP loss per share was $0.04 and includes 16¢ of benefit from tariff refunds, an improvement from a loss of 31¢ last year. Non-GAAP earnings per share of $0.04 also improved from a loss of 6¢ last year. We spent $35 million of share repurchases to buy back 2.2 million shares reducing our share count by 1.9%. We have maintained a strong balance sheet with a net cash and marketable securities balance $227 million at quarter end. Our period end inventory balance of $273 million was up 60% year over year, driven by higher memory costs and new product launch timing. Our inventory consists of $227 million of finished goods and $46 million of components. Q4 free cash flow was negative $5 million, a couple million dollars lower than last year. Improved cash earnings from higher revenue and $19 million of tariff refunds were offset by unfavorable working capital, primarily due to higher inventory, as I previously noted, as well as $9 million of cash outlay related to components. I will now quickly walk through our results for the full year. Revenue grew 7% to $1.55 billion or 5% excluding the 53rd week. Our return to top line growth was supported by growth across all 3 regions with meaningful contributions from the 5 new products we introduced during the year. We also saw growth across almost every category, including home theater, where we remain the number 1 brand in premium home theater in The US. Our installed base increased to 17.7 million households at the end of fiscal 26. Up from 17.1 million last year. Multiproduct households grew 5% and now represent 62% of our installed base. Devices for multiproduct household increased to 4.54. Demonstrating our success in further penetrating our installed base. While higher memory prices were a significant headwind in the year, GAAP gross margin came in at 46.9% aided by 2 70 basis points of tariff refunds. Excluding tariff refunds, GAAP gross margin was 44.3%, up 60 basis points year-over-year. Non GAAP gross margin was 45.5%, up 30 basis points year-over-year. Absorbing 360 basis points of higher memory costs, and still expanding gross margin speaks to the discipline of our team. The durability of improvements we have made. GAAP operating expenses were $637 million and non GAAP operating expenses were $554 million down 7.3% year-over-year, respectively. That reflects continued cost discipline, even as we invested in the products, markets, and brand that will drive our long term growth. Higher revenue, better gross margin and lower operating expenses drove adjusted EBITDA up 39% to $184 million with margin expanding 2 70 basis points to 11.9%. Higher memory prices reduced adjusted EBITDA by $56 million year over year. Without that headwind, adjusted EBITDA would have grown 81% to $240 million Adjusted EBITDA was positive in all 4 quarters of fiscal 26, something we have not achieved since fiscal 21. This is a direct result of our transformation work, which has made us a leaner, more focused organization with sharper financial discipline. Non GAAP earnings per share roughly doubled to $1.23. Coming back to capital allocation, we completed $130 million of share repurchases. Reducing our share count by 8.2 million shares and completing our $150 million share repurchase authorization. In early November, the board of directors approved a new $150 million share repurchase authorization, all of which remains available now. Lastly, fiscal 26 free cash flow was $123 million up 14% from $108 million in fiscal 25. We deliver that even with significantly higher memory costs. A clear sign that our business continues to generate healthy free cash flow in a challenging cost environment. Turning to our guidance, the Q1 outlook we are providing today is our best estimate and reflects the trends that we have observed quarter to date. We expect Q1 revenue to be in the range of $570 million to $630 million representing a growth of 4% to 15% year over year. Up 10% at the midpoint or 11% on a constant currency basis, with continued contribution from new products entering the holiday season. On a sequential basis, the midpoint of our guidance is 74% growth from Q4, or 88% excluding the impact of q 4's extra week, consistent with last year's seasonality. Consistent with the color we provided last quarter, we expect our Q1 GAAP gross margin to be in the range of 36.4%, with non-GAAP gross margin approximately 90 basis points higher than GAAP. Memory and component costs are tracking broadly in line with what we anticipated last quarter, at approximately 1200 basis points of year-over-year headwind. However, we now expect a stronger dollar to be a headwind of nearly 100 basis points to gross margin. We expect Q1 GAAP operating expenses to be in the range of $102 million to $162 million We expect non GAAP operating expenses to be lower than GAAP by approximately $17 million The sequential decrease from Q4 is primarily attributable to Q1 being a normal 13-week period compared to the 14 weeks in Q4. Bringing it all together, we expect Q1 adjusted EBITDA to be in the range of $73 million to $111 million, $92 million at the midpoint. Without the impact of higher memory costs, we expect adjusted EBITDA would have increased by 25% year-over-year to $165 million in Q1. Looking ahead, we expect fiscal 27 to be another year of revenue growth. Our memory mitigation actions remain on track to deliver approximately 500 basis points of annualized gross margin improvement by the end of the year. We are also focused on other levers Tom described. Including pricing and channel mix to further improve profitability, and build on the underlying earning power we demonstrated in fiscal 26. We will continue to update you as we progress through the year. With that, I would like to turn the call over for questions.

Operator: Thank you. And everyone, if you would like to ask a question today, please press The first question comes from Steven Frankel, Rosenblatt.

Steve Frankel: Good afternoon. Saori, on your comment regarding gross margin improvement, could you clarify if that 500 basis point of improvement is from the Q1 level or from what you did for the full year in fiscal 26?

Saori Casey: Hi, Steven. The basis points of improvement year over year is discussing the full year effect of the gross margin, GAAP and non GAAP, you know, at a similar level. And we are proud of the fact that we were able to absorb 360 basis points of gross margin headwind from the memory. And still be able to structurally improve our margin.

Steve Frankel: I was referring to your guidance. Could you just clarify again? What you said about gross margin improvement and what is the base for that?

Saori Casey: The gross margin, year over year for our margin of 36.5% at the midpoint is a 1000 basis point decline on a year over year basis. And that is driven by 1200 basis points of memory cost impact.

Thomas Conrad: Steven, as I hear your question, you are asking about the 500 basis points of mitigations that we will be enjoying as we work through balance of the work on our margin levers. And we will see that come on through the year. that is the total as the exit at the end of the year. Something more than about half of that is already contemplated in the results that we have seen. And as we continue particularly to work on, memory efficiency, and our pricing levers, you will see the rest of that materialize.

Saori Casey: Yeah. Sorry, Steve. Yeah. The 500 basis points we mentioned is an annualized impact of the exit rate of FY27 expected memory cost. Mitigation efforts that we have in flight. But as Tom mentioned, there are several other levers that we are also, exploring and pursuing. To ensure we are pulling all levers to mitigate through. Navigate through this memory cost headwind.

Steve Frankel: Okay. And then switching gears, Tom, maybe give us some color on how you think about approaching the holiday season relative to things like new marketing campaigns and promotions. And how it is going to be different this year than last year.

Thomas Conrad: Yeah. 1 of the big changes, Steven, is that our new marketing organization led by Colleen DeCourcy is found its footing and has launched, what is already an award winning campaign under the theme of love the sound, feel the system. And this is the first time in many, years that we have a full stack articulation of reasons to understand and embrace our brand, to consider us against the other options in the market, and then, of course, a very strong sort of performance marketing dimension as well. And so we are really excited about how, all of that working together can, help us deliver the double digit growth that we are guiding to at the midpoint of our range in Q1. You have heard me say that a key dimension of growth for us is marketing excellence, and, we are really seeing that start to show up in the tail as a tailwind for the company as we go into the new year.

Steve Frankel: Great. And if I could sneak 1 more in. You know, DTC has ticked down as a percentage of the business over the last couple of years. Is that a conscious choice to try to invest in the channel and leverage the channel? Or do you think that you need to work on the execution on that side to grab more share. With your own DTC operation.

Thomas Conrad: Yeah. As we have broadened the channels, where you can access Sonos today, some of that has rebalanced away from DTC over the last 3 although you will notice that there is a deceleration in that change, in this. Over the course of this last year. We think some of that rebalancing is healthy. We are just meeting customers where they are. At the same time, you know, we have got Frank Barbieri on our COO, world class ecommerce executive, and he is driving transformative change in our DTC execution. So we are certainly looking to the company to improve from our current state of execution there. So exciting times on the DTC front for us.

Steve Frankel: Okay. Great. I will jump back in the queue.

Operator: Your next question comes from Erik Woodring from Morgan Stanley.

Erik Woodring: Hey, guys. Thank you very much for taking my questions. Tom, you have introduced several new products this year, obviously. And that follows a relatively limited launch where you guys were kind of getting your feet under yourselves in 2025. As we just think about your kind of high level framework for fiscal 27 talking about revenue growth, How much of that growth opportunity do you believe would be attributable to new products coming this new fiscal year versus kind of persistent demand for the existing portfolio launch in 2026? And just, yes, I guess, at a high level, what gives you the confidence that revenue growth can be sustained over the next 52 weeks? And then just a follow-up, please.

Thomas Conrad: Yeah. I am really excited about what is gonna play out over the course of fiscal 27. You know, as we have described, we have got strong growth coming out of Q4 and going into Q1. The biggest quarter for us in the year. And, of course, I think that is materially benefits from the great new products that we have in market this year. Amp Multi, Beam Ultra, Ace Ultra, Sonos 27, and all of the differentiated system features that we are bringing to our customers. Also really excited about the product road map. Moving into fiscal 27. We have many more great products to come. But know, you have heard me say for many quarters now that there are really, 5 dimensions of growth for the company, product innovation, this return to customer advocacy that we are seeing more and more every day, as our customers fall back in love with Sonos again. The incredible brand and product marketing work that Colleen and her team are doing, the geo expansion, progress that our sales organization is driving, and most recently, our sort of stepping into the spotlight with respect to the emerging trend around conversational and ambient AI in the home and our new products in those categories. So I am reluctant to pin the success that we will see in 2027 on any 1 of those things. Certainly, new product introductions will be a piece, but it is really, the cumulative, impact of those tailwinds that I think are really going to drive the success we will see.

Erik Woodring: Okay. No, that is awesome. I appreciate that color then. Maybe since you mentioned it earlier, I would love to lob a to Eddie, Eddie Lazarus, which is we have seen a few wins in the ITC over the last few weeks. Just curious what that means for Sonos and the patent portfolio going forward. Could that mean anything for potential patent monetization? Just high level views after a number of positive headlines for you guys, please?

Edward Lazarus: Thanks so much. Thanks for the question. Well, we, we have scored a very nice victory in the federal circuit, just recently, defeating, 1 of Google's cases against us. We are very, we are very much looking forward to getting to trial in our big case in the Central District Of California against Google where many of those patents have already been through the ITC, where we had findings of validity and infringement. And we have a case in Northern California where we are waiting for the judge to knock wood, affirm a jury verdict that came in our favor. Overall, there is a lot of work at the company thinking about how to do more with our wonderful patent portfolio, but I do not have anything specific to say about that just yet.

Erik Woodring: Okay. Awesome, guys. I appreciate it. Good luck.

Operator: And as a reminder, everyone, it is *1 if you have a question today. And everyone, at this time, there are no further questions. So that does conclude our and answer session as well as our conference for today. We would like to thank you all for your participation. You may now disconnect.