Sonos at Jefferies Public Tech: Strategic Growth Amid Challenges

On Wednesday, 28 May 2025, Sonos (NASDAQ:SONO) participated in the Jefferies Public Technology Conference, highlighting its strategic initiatives amidst recent challenges. The company discussed its recovery from app issues, leadership transitions, and tariff navigation while focusing on scalable and profitable growth. Despite facing a "choppy" year-over-year comparison, Sonos remains optimistic about future growth.

Key Takeaways

• Sonos is focusing on improving customer experience and streamlining operations.
• The company is navigating tariff impacts by shifting production to Vietnam and Malaysia.
• Sonos plans at least two product launches per year, emphasizing innovation.
• Geographic expansion in APAC and the Middle East is a key growth driver.
• The buyback program is paused to manage inventory flexibility but will resume.

Financial Results

• Year-over-Year Comparison:

- Q3 faced a challenging comparison due to the prior launch of Headphone Ace.

- Q4 is expected to show growth.

• Growth Rate:

- Sequential growth rates are normalizing.

• Margins and Profitability:

- Focus is shifting from gross margin percentage to maximizing gross profit dollars.

- Healthy margins reported for the hardware business.

• Buyback Program:

- Currently paused to allow flexibility in tariff mitigation through inventory management.

- An untouched $150 million buyback authorization remains.

Operational Updates

• App Issue Recovery:

- Core metrics of reliability and performance have improved over the previous app version.

• Product Team Reorganization:

- The team has been simplified and headcount reduced to improve efficiency.

• Production Shifts:

- US-bound production moved from China to Vietnam and Malaysia to minimize tariff impact.

• CEO Search:

- Ongoing search for a permanent CEO with interim leadership focusing on transformation.

Future Outlook

• Product Launch Cadence:

- At least two product launches per year, focusing on hardware and software.

• Geographic Expansion:

- Targeting APAC and the Middle East for revenue diversification.

• Pricing Strategy:

- Leveraging pricing to maximize demand elasticity and customer acquisition.

• Innovation:

- Ranked fourth in patent quality behind Apple, Samsung, and LG.

Q&A Highlights

• Competition:

- Emphasized the need to differentiate products and highlight features like SoundSwap.

• Use of Cash:

- Buyback paused for tariff flexibility; plans to resume in the future.

• Growth Drivers:

- Focus on geographic expansion and pricing strategies to drive growth.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Jefferies Public Technology Conference:

Brent, Conference Host: Okay. This company brings a lot of joy to my personal life. Thank you for powering powering the experience in my house. Sayori’s CFO of Sonos. James, he’s not from California Highway Patrol.

He is with Sonos, so no one’s in trouble. But thanks again for coming and supporting the conference. You have an incredible background. She spent twelve years at Apple as VP of Corporate Financial Planning. I’m sure you saw you got a lot of great stories.

And fifteen years prior to that at Cisco, and you’ve been at the company for about a year. You joined at a really interesting time.

Sayori, CFO, Sonos: Yes, I did. And

Brent, Conference Host: it seems like it started hard, but you’ve been navigating through some of these challenges and getting back on the other side of it. So let’s talk about kind of where you’re going, the pathway to to this recovery post the app issue and what what the forecast looks like for for the company, you know, in the next year.

Sayori, CFO, Sonos: Sounds great. Well, thanks for having me, Brent, and appreciate you being a loyal customer. Always like talking to investors and the sell side that understand by being a customer it’s easy to articulate. But yes, certainly I joined sixteen months ago, but who’s counting? And and I mean, certainly I joined the company as my as I was making my return to Southern California and I thought what better place to be than a company that I very much understand the business model, premium brand and, you know, people love the love the the product.

And so that was very much seeing the opportunity that this company can scale in a more profitable way as it was emerging from going IPO to going through the maturity of the company to be more streamlined and with a lot of potential growth and and generating profit. And so, you know, with that app thing happened last May. Now we have anniversaried it. And we’re very much in a place where putting it behind us. And the way, you know, how we feel comfortable saying that as we said recently on our earnings call is in a couple really metric ways.

One is our product core metrics around reliability and performance is now better than the predecessor app version that we were running. And so that’s, you know, some core metrics. Certainly, you know, we care about what customers have to say, and so that’s very much top of mind for us. And that’s part of the reason why Tom on our earnings call also had said that the rest of the year we’re going to be really focused on what we call core experience. What made Sonos great to begin with was the seamless experience, the systemness that is connected by the app that differentiated our product to begin with.

And so really, really back to the basics to make sure that we continue to improve that. It’s one of those things the work is never done. We want to make sure that is top of mind focus, and that is very much part of our flywheel that we might have articulated before, which is not only getting our new customers to buy Sonos products, but those customers that stay with us and do repurchases. And very much we have now enough history in our data to be able to see what products generate new customers and also the returning customers on the repurchase basis and add to their household number of devices of our products. And so that is really our top of mind core focus.

Certainly things like innovation and products that we’ve launched this past year like Arc Ultra is a differentiated product that very much are able to give us share gains in the market of home theater, for example. But nothing matters if our core experience is not great for the customer. That brought Sonos to where it had gone over the years. So the other indication that we’ve seen this past quarter that we also had mentioned is that we ran a promotion to our installed base customers with a discount to our loyal installed existing customers.

Brent, Conference Host: I didn’t see that. You resend it to me?

Sayori, CFO, Sonos: Yeah, we can resend you that promotion code. We’ll get to the next one. Remind you of the next one. But the take rate on that was better than the one we had run. Equivalent promotion a year before a year ago pre app launch.

And so we’re that was that exceeded our expectation, very much surprising to us that it did as well as it than we had expected. And that very much gave us a very encouraged thought about where our app recovery has come along and given us this impetus to keep moving forward on improving those core experiences as well. That’s some of the indications that we’ve come along in the past year. Just looking forward, obviously, we’ve guided for q three. We have a very choppy year from a year over year compare perspective because last year we had launched at the June our new category product, Headphone Ace, that was new to us.

And there was initial channel fill that occurs with our NPI, especially brand new category products like our headphone. And so we’re lapping that initial channel inventory fill that we have done. It wasn’t necessarily an indication of demand, but initial channel fill that we generated revenue that quarter really on the heels of app situation. And so we have to compare to that for q three, but we also indicated for q four we expect to grow. And so very choppy year, but on a sequential basis, our growth rate pattern quarter over quarter is starting to become a little more normalized as we look back, averaging many years of history.

So we’re encouraged by that.

Brent, Conference Host: And talk a little bit about the leadership and what’s happened with the transition. Are you going back now to versus kind of just protecting the maintenance to now going back to offense to go? How how would you characterize kind of that?

Sayori, CFO, Sonos: Yeah. You know, thanks for asking. You know, while while the app situation last year was unfortunate, as far as where I stand, it really gave us the impetus to transform the company to be more scalable and, scalable in a streamlined way. And so part of the transformation efforts that we have been doing, and we’re well into it now, as we have described, is that not just cut headcount to save cost, but structurally change the way we operate in a more efficient streamlined way. And as an example, you know, we had started on that on the G and A functions that I very much have more direct control over.

But more recently, as Tom had mentioned on the earnings call, we have reorganized the product team. You know, we’ve reduced headcount, but we reorganized it fundamentally to run it in a different way that is less layers and more simplified and more nimble and more leveraging of the resources across the different discipline like audio team, the design team, and so forth across multiple product category as opposed to having it more of a business unit approach that requires a lot more overhead and redundancy. And so things like that really help us really step into, as we emerge from this, be in a stronger position to be able to scale and also be more profitable, notwithstanding the tariff situation that’s looming over us, but that is affecting all vendors. And we want to make sure that we emerge from this stronger in a more scalable way.

Brent, Conference Host: Speaking of the tariffs, walk us through how you’re navigating that. And also, from a production standpoint, how you’re thinking through things. Maybe bringing everyone up to speed, where are you producing?

Sayori, CFO, Sonos: Yeah. So since the last tariff situation, Sonos has done a great job, moving away from China production for The US bound supply. So we’re virtually, none coming from China, so we have a little bit of a head start in the mitigation of the worst of the tariff rates as far as we know, based on what’s been transpiring over the last month or so. We’re mostly in Vietnam and Malaysia, and we’re trying to work with our supply chain to be as nimble as we can to adapt as we understand where the rates settle to the lowest location of the tariff rates between Vietnam and Malaysia. You know, that that is flexibility that we’re working really closely with our partner for.

We’re also at the same time working with our partners on the channel side as we evolve to see where the again, depending on where the tariff rates land, what kind of price changes that we may have to take on in order to try to mitigate the impact to the bottom line. However, we intend to do that in a very surgical way as our flywheel, approach that we’ve been seeing how our business grows. We’re seeing that there’s a very different behavior by product by product on which ones bring in new product new customers into our ecosystem and then go on to become a repurchase customer. Looking at it more in a long term LTV way of looking at this. So we would take a very different pricing strategy product by product and price, tariff mitigation, as well as we’ve actually already had embarked on doing that.

More recently, we lowered the price on Air one hundred, and that has very much behaved the way we had intended, which is had the price elasticity to bring in new customers. And those customers, as they come into that our ecosystem, tend to add on from there. So we’re leaning in hard on some of those things. And I we’ve been also talking about instead of focused on gross margin percent targets to be focused on maximizing gross profit dollars and that’s very much some of our pricing strategy does. And so this goes well with the tariff mitigation as well that we very much intend to take that approach in navigating through the tariff situation.

Brent, Conference Host: And then when you think about costs so far, have you seen a rise to your cost base because of what’s been going on? Has had an impact?

Sayori, CFO, Sonos: As far as tariffs concerned, not quite yet. No. We, you know, we haven’t seen material change from a cost structure. I mean, certainly, you know, there will be expedite cost. You know, we we do intend on pulling in our inventory purchases as much as possible before the new structure may kick in here.

There may be a few expedite costs, know, certainly we’ll have to compete for the component costs, but so far we haven’t seen a major material change that’s noticeable for us so far. And we’ve been also been asked after our earnings call whether we’ve been seeing any demand pull in, but we haven’t seen that yet so far.

Brent, Conference Host: Okay. You have an active CEO search underway. I know you’re not here to announce anything new, but everyone’s just curious how’s it going? Is there a timeline you’ve set when you want this done? How does that work?

Sayori, CFO, Sonos: Yeah. We’re all curious as well. You know, Tom is very much an active interim CEO. He has not missed a beat in making, some of the execution changes as as well as, partnering with me on the transformation that we were already in progress. So I I am very fortunate to say because he was a board member and very much bought in on the transformation journey that we had already embarked on last summer.

And so he’s been really pushing forward and then some in his own way, like the product reorganization, for example, given that he’s a product expert and very much, close to the software as we were recovering from the app, situation. He was very hands on board member in doing that. So as he jumped in as an interim CEO, we were able to just keep pushing that along. Board members have retained a very reputable search firm to do a very robust diligence in in the search of the CEO, which very much is, you know, something that we expect our shareholders to expect, investors to expect. So they’re well on their way their way doing that.

Our understanding is that typical CEO search takes about six months. So we’re five months in or so, you know, we all hope that this is coming to a closure pretty soon. Again, Tom is very much an active interim CEO and also a candidate at the same time, So we’re all looking forward to the day we can name the new CEO. But in the meantime

Brent, Conference Host: Do do you feel like the can the company move forward before that point? Or is it

Sayori, CFO, Sonos: Yeah. I know. We we’ve been actually, you know, very much plowing through. We really are not waiting for anything You know, certainly things like company revenue projection or goals and things, you know, one day we’ll be able to do that with the the permanent CEO.

But in the meantime, transformation, app recovery, all of the things that we need to do to execute and transform to come out stronger, we’re very much not losing any steps in doing so during this time.

Brent, Conference Host: On product innovation, I know you’ve wanted to have a steady cadence every year of new launches. And I know you’re not here to announce what the new launch is. But when you think about what’s next, how do you think about where the direction is going? I mean, when you went into headsets, headphones I have a pair. I love them.

I wear them on every flight. It’s a great product. But it wasn’t a new category. And for me, I’ve seen not a creative guy working at your company, but I’m like, there’s like five things I’d love for you to build. And so how do you think about getting that engine going, maybe experimenting?

Are you willing to go outside your comfort zone? Is this, hey, we’re sticking to our lane?

Sayori, CFO, Sonos: Yeah. No, great question. So our recent call, we were getting a lot of questions around, are you changing your product launch cadence? And Tom also indicated that we very much think at least two a year is a good cadence for a hardware company like us, despite software being a core. That said, we said for the rest of the year, we’re gonna very much focus on the core experience and improving that further than we’ve already come a long way from last year.

Innovation wise, we believe we have a lot of room to to continue. Arc Ultra was an example where the mic acquisition that we we made IP technology that coming from Sound Motion has very much differentiated our soundbar business that allowed us to take market share. The demand exceeded our expectation and we even increased price on that to for the value of the new technology that we’re bringing and innovation, that differentiator, and was received very well by the customers and we’ve been able to gain share as a result of that. On a similar vein, the recent I triple e report that had ranked us number four vendor for patent power. So it’s not a patent quantity, but patent quality.

And that was very much a pleasant surprise to me that it was we were the fourth after only after Apple, Samsung, and LG. And so that really proves the point of we have innovation foundation to be able to product ties and and grow and something more exciting, as you said. And so we’re very much looking into. But that said, we wanna stay focused. You know, we we can go into multiple areas, but we want to make sure that we see the concrete revenue projection and the r and d correlation.

Obviously, r and d is always ahead of ahead of the revenue, but we want to make sure we don’t get ahead of ourselves. You know, we are where we are having that to go through the transformation, which in a way will get us more streamlined and efficient. However, you know, we got ahead of the revenue that we were projecting that the OpEx investment we had made while the revenue started to come down pre after COVID overhang. And so we don’t want to be in that same place again. We want to be very balanced, but to make sure that we have a disciplined approach and making those investments for R and D.

So really, that is top of mind for us to make sure we can do it in a very scalable way.

Brent, Conference Host: Just on competition, is anything changing? I mean, seems like there’s some pretty cool innovations that are happening in your category, and the younger audience is carrying turtle boxes everywhere. They’re in the Jackson Hole tram. They’re on every lift. Why aren’t those Sonos devices?

Why there’s this new category. And then if you look at the home market, the home installers are talking a lot about BlueOS. They’re like, well, we went through our pain with Sonos. We’re going to go try something else. How do you eliminate these competitors that are coming in that are gaining more attention?

How are you balancing that back?

Sayori, CFO, Sonos: Yeah, no, it’s similar vein as making sure we’re staying focused but not missing obvious opportunities that our core strength can lend to for us to be successful in. Certainly areas like headphone, as you mentioned, we knew we had the technology to do it. And you know, some of the things that hindsight twenty twenty is timing in which we launched the headphone was terrible right after the app launch. But we actually did not market how we’re differentiated. For example, SoundSwap that is only Sonos, Sonos Soundbar and and the headphone SoundSwap as an example where it’s differentiated.

So to, you know, just to your point about how do you how do we stay competitive and innovative at the same time, we need to not only use our IP and the technology to differentiate, but we need to also articulate it in a way that is understandable to our customers, both our existing customers as well as new customers.

Brent, Conference Host: I think you suspended the buyback for a while. You have a lot of cash. How do you think about the use of cash now? Are you going back in the market to sports stock? Where are you at?

Sayori, CFO, Sonos: Yeah, we very much that is our strategy to continue to return to our shareholders. We recently did get additional buyback authorization from our board members, hundred and fifty million dollars. That’s untouched right now. We wanted to make sure we leave flexibility for ourselves to pull in inventory from supply chain to mitigate tariff expense as much as much as possible in the short term while this reciprocal tax pause is in place, I believe, through, July 8. And q four from a cash generation perspective, because it is our one of our lower revenue quarter before we go into the holidays, we wanted to make sure we have the cash preserved to be flexible in pulling in those inventory.

And so we’re paused as part of our flexibility of those operations for tariff mitigation, but we very much expect to go back into the market to buy back.

Brent, Conference Host: Okay. Other things you’re seeing internally we can’t see that are encouraging to you that just are not as apparent to us?

Sayori, CFO, Sonos: Yeah. One of the many growth drivers that we’re looking at and very much starting to implement is geo expansion. And so if you look at our geographic mix of our revenue, we’re very much skewed to US and secondarily Europe. That certainly, you know, to diversify further into international markets like APAC serve us well, especially in this tariff environment, but we had already started that initiative, if you will, to grow into markets that are already either large that were really untapped or growing that we really also have not participated in. And so, however that base is small right now, that actually growing at double digit that we’re seeing so far with the initiative that we have under under underway, is actually giving us a meaningful contribution to the growth of the total company.

So if that business becomes a larger share and if we can continue that momentum because the market is already there, if you look at our competitors, they’re more like a third and a third and a third across APAC, Europe and US. And if we can get there in those markets during that time, if we can grow in a meaningful way, that’s a huge driver for us. That is, you know, we don’t have to have any new shiny products. We can sell what we have, and there’s very much demand there that we’re hearing places like Middle East. There’s high income customers that are out there that we really have not tapped to date.

So that’s one. Pricing strategy that we touched on a little bit. We do have a pretty healthy margin for our hardware business. And, you know, instead of focused on the percent of the gross margin, we really want to focus on maximizing using that for our pricing strategy to get more volume, elasticity demand, and acquire new customers and the repurchases. So that is something that we’re leaning in harder now, especially with tariff situation, to use that more than kind of worshiping a high gross margin percent and flow more to the bottom line.

So those are a couple of the things that we’re focused on. Certainly, you know, leveraging our patent and innovations that we have to bring out more differentiated and new categories. But we we believe we have just number of new areas to tap into for the growth of the company in a profitable way with the transformation that’s underway.

Brent, Conference Host: Well, thanks for being here, sharing your story. Appreciate it. And we’re looking forward to watching what’s next from you.

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