SONOS(SONO)2023-05-11 06:01Financial Data and Key Metrics - Revenue for Q2 2023 was 10.6 million, significantly ahead of initial expectations due to cost actions taken intra-quarter [19] - Free cash flow was negative 120 million decrease in accounts payable and accrued expenses, and a 326 million, up 7% sequentially, with finished goods at 15 million of stock in the quarter at an average price of 5 billion revenue opportunity [12] Market Data and Key Metrics - The US home theater market saw a pronounced decline in March, while the European market remains challenged [28] - The company is seeing share gains in the home theater category despite deep discounts from competitors [28][36] - EMEA accounted for 33% of revenue in fiscal 2022, with FX sensitivity being about four to one euro to pound [46] Company Strategy and Industry Competition - The company is reducing its fiscal 2023 revenue guidance by 6% at the midpoint, reflecting a constant currency year-over-year decline of 3% [8] - Sonos is focusing on managing expenses to deliver an 8.5% to 10% adjusted EBITDA margin for the year [10] - The company is investing in innovation across five existing categories and expanding into three new categories [11] - Sonos is leveraging its installer channel and direct-to-consumer efforts to drive growth, particularly in multi-product household formation [51][76] Management Commentary on Operating Environment and Future Outlook - The company is navigating macroeconomic pressures, including softening demand and channel inventory tightening, particularly in EMEA [27][29] - Management remains confident in the long-term growth potential, with a focus on sustainable, profitable growth and innovation [13][33] - The company is taking decisive actions to adjust its expense base and protect profitability, aiming to maintain prior full-year adjusted EBITDA margin expectations [40] Other Important Information - The company is involved in Google litigation, with a trial in Northern California underway, but no additional comments will be made while the trial is pending [120] - Sonos is exploring opportunities in professional and commercial audio, with early signs of interest in the Sonos Pro offering [64] Q&A Session Summary Question: What changed in the last three months regarding channel inventory and dealer behavior? - The company observed softening demand trends and rapid changes in retailer behavior, particularly in EMEA, leading to reduced open-to-buy dollars and lower inventory levels [122] Question: How is the company managing its expense base for fiscal 2024? - The company is reducing its fiscal 2023 operating expense base by approximately $52 million through a combination of reduced program spend, slowing hiring, and restructuring teams [104] Question: What is the outlook for gross margin in the second half of the year? - The company expects gross margin to improve to approximately 47% in the second half, driven by lower promotional activity, improved supply chain conditions, and reduced FX headwinds [49][67] Question: How is the company leveraging its direct-to-consumer channel? - The company is leaning into direct-to-consumer efforts, focusing on converting single-product households to multi-product households, which represents a significant revenue opportunity [51] Question: What is the strategy for the Sonos Pro offering? - Sonos Pro is targeting small and medium-sized businesses, leveraging the company's existing consumer technology to provide a reliable and easy-to-use audio experience [45][64] Question: How is the company addressing industry headwinds? - The company is focusing on maintaining market share and delivering value for money, despite unprecedented discounts from competitors and broader industry challenges [43][83]