10q10k10q10k.net

What changed in Sonos Inc's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Sonos Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+265 added−256 removedSource: 10-K (2023-11-20) vs 10-K (2022-11-23)

Top changes in Sonos Inc's 2023 10-K

265 paragraphs added · 256 removed · 188 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

48 edited+12 added−6 removed71 unchanged
Biggest changeSonos Radio HD November 2020 Our ad-free, high-definition streaming tier of our streaming radio service, Sonos Radio. Sonos Radio April 2020 Our free, ad-supported streaming radio experience bringing together more than 60,000 stations from multiple streaming partners alongside original programming from Sonos.
Biggest changeSonos Radio April 2020 Our free, ad-supported streaming radio experience bringing together more than 60,000 stations from multiple streaming partners alongside original programming from Sonos. Sonos Architectural by Sonance February 2019 Our collection of installed passive speakers for indoor and outdoor use designed and optimized for Amp in partnership with Sonance, including in-ceiling, in-wall, and outdoor speakers.
We look to partner with a wide variety of streaming music services, voice assistants, connected home integrators, content creators, and podcast providers. We have also partnered with certain companies in the development of our own voice-enabled products, while also bringing to market our own voice assistant focused specifically on the audio experience.
We look to partner with a wide variety of streaming music services, voice assistants, connected home integrators, content creators, podcast and audiobook providers. We have also partnered with certain companies in the development of our own voice-enabled products, while also bringing to market our own voice assistant focused specifically on the audio experience.
Investing in Product and Software Development. Our investments in product and software development consist primarily of expenses in the personnel who support our research and development efforts and capital expenditures for new tooling and production line equipment to manufacture and test our products.
Our investments in product and software development consist primarily of expenses in the personnel who support our research and development efforts and capital expenditures for new tooling and production line equipment to manufacture and test our products.
Our platform has attracted a broad range of more than 130 streaming content providers and span across content, control, and third-party applications: • Content . We partner with a broad range of content providers, such as streaming music services, internet radio stations, and podcast services, allowing our customers to enjoy their audio content from whichever source they desire. • Control.
Our platform has attracted a broad range of more than 130 streaming content providers and spans across content, control, and third-party applications: • Content . We partner with a broad range of content providers, such as streaming music services, internet radio stations, and podcast services, allowing our customers to enjoy their audio content from whichever source they desire. • Control.
Additionally, we intend to expand and strengthen our partnerships with custom installers who are valuable to our customer base and contribute to our new household growth. For example, a 2022 product survey by CE Pro ranked Sonos as the leading brand in the wireless speakers, soundbar, and subwoofer categories.
Additionally, we intend to expand and strengthen our partnerships with custom installers who are valuable to our customer base and contribute to our new household growth. For example, a 2023 product survey by CE Pro ranked Sonos as the leading brand in the wireless speakers, soundbar, and subwoofer categories.
Our marketing investments are focused on driving profitable growth through advertising, public relations and brand promotion activities, including digital platforms, sponsorships, collaborations, brand activations, and channel marketing. We continue to invest significant resources in our marketing and brand development efforts, including investing in capital expenditures on product displays to support our channel marketing through our retail partners.
Our marketing investments are focused on driving profitable growth through advertising, public relations and brand promotion activities, including digital platforms, sponsorships, collaborations, brand activations, and channel marketing. We continue to invest in our marketing and brand development efforts, including investing in capital expenditures on product displays to support our channel marketing through our retail partners.
We intend to introduce new products that appeal to a broad set of consumers, as well as bring our differentiated listening platform and experience to all the places and spaces where our customers listen to the breadth of audio content available, including inside and outside their homes. Seasonality .
We intend to introduce new products and services that appeal to a broad set of consumers, as well as bring our differentiated listening platform and experience to all the places and spaces where our customers listen to the breadth of audio content available, including inside and outside their homes, as well as commercial spaces. Seasonality .
Sonos, the Sonos logo, Sonos One, Sonos One SL, Sonos Five, Sonos Beam, Play:1, Play:5, Playbase, Playbar, Sonos Arc, Amp, Sub, Sonos Move, Port, Boost, Ray, Sonos Ray, Sonos Roam, Sonos Voice Control, Trueplay, Sub Mini, Sonos Sub Mini, Mayht and our other registered or common law trademarks, tradenames or service marks appearing in this Annual Report on Form 10-K are our property.
Sonos, the Sonos logo, Sonos One, Sonos One SL, Sonos Five, Sonos Beam, Play:1, Play:5, Playbase, Playbar, Sonos Arc, Amp, Sub, Sonos Move, Port, Boost, Ray, Sonos Ray, Sonos Roam, Sonos Voice Control, Trueplay, Sub Mini, Sonos Sub Mini, Mayht, Era 100, Era 300, and our other registered or common law trademarks, tradenames or service marks appearing in this Annual Report on Form 10-K are our property.
In fiscal 2022, existing households represented approximately 44% of new product registrations. As we execute on our product roadmap to address evolving consumer preferences, we believe we can expand the number of products in our customers’ homes.
In fiscal 2023, existing households represented approximately 44% of new product registrations. As we execute on our product roadmap to address evolving consumer preferences, we believe we can expand the number of products in our customers’ homes.
We regularly file patent applications in the U.S. and throughout the world to protect our innovations and technology that come from areas such as research, development, and design. Our patents expire at various times and no single patent or other intellectual property right is solely responsible for protecting Sonos’ products and services.
We regularly file patent applications in the U.S. and throughout the world to protect our innovations and technology that come from areas such as research, development, 11 Table of contents and design. Our patents expire at various times and no single patent or other intellectual property right is solely responsible for protecting Sonos’ products and services.
We have developed and refined our sound system over the last 19 years. Our effort has resulted in significant consumer awareness and market share among home audio professionals. For example, a 2022 product study by CE Pro ranked Sonos as the leading brand in the wireless speakers, soundbar, and subwoofer categories.
We have developed and refined our sound system over the last 20 years. Our effort has resulted in significant consumer awareness and market share among home audio professionals. For example, a 2023 product study by CE Pro ranked Sonos as the leading brand in the wireless speakers, soundbar, and subwoofer categories.
International Trade Commission ("ITC") against Alphabet Inc. ("Alphabet") and Google LLC ("Google") and a counterpart lawsuit in the U.S. District Court for the Central District of California against Google alleging infringement of five Sonos patents. In September 2020, the Company filed another lawsuit against Google alleging infringement of an additional four Sonos patents. This lawsuit is currently pending in U.S.
International Trade Commission ("ITC") against Alphabet Inc. ("Alphabet") and Google LLC ("Google") and a counterpart lawsuit in the U.S. District Court for the Central District of California against Google alleging infringement of five Sonos patents. In September 2020, the Company filed another lawsuit against Google alleging infringement of an additional four Sonos patents.
Experiences covered by our patents include simple system setup, seamless integration with other platforms and services, balanced 11 Table of contents sound, voice interactions and control, as well as experiences unique to home theater to name a few.
Experiences covered by our patents include simple system setup, seamless integration with other platforms and services, balanced sound, voice interactions and control, as well as experiences unique to home theater to name a few.
We continue to invest resources in our marketing and brand development efforts. Our marketing investments are focused on increasing brand awareness through advertising, public relations and brand promotion activities. While we maintain a base level of investment throughout the year, significant increases in spending are highly correlated with the holiday shopping season, new product launches, and software introductions.
Our marketing investments are focused on increasing brand awareness through advertising, public relations and brand promotion activities. While we maintain a base level of investment throughout the year, significant increases in spending are highly correlated with the holiday shopping season, new product launches, and software introductions.
Our 93% share in the wireless speaker category among these industry professionals significantly outpaces our competitors. • Proprietary Sonos app and software platform. We offer our customers a mobile app that controls the Sonos sound system and the entire listening experience.
Our 91% share in the wireless speaker category among custom installation industry professionals significantly outpaces our competitors. • Proprietary Sonos app and software platform. We offer our customers a mobile app that controls the Sonos sound system and the entire listening experience.
As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community where everyone feels included and empowered to do their best work, and give employees the opportunity to give back to their communities and make a social impact. As of October 1, 2022, we had 1,844 full-time employees.
As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community where everyone feels included and empowered to do their best work, and give employees the opportunity to give back to their communities and make a social impact. As of September 30, 2023, we had 1,867 full-time employees.
We have made significant investments in research and development since our inception and believe that we own the foundational intellectual property of wireless multi-room and other audio technologies. Our patent portfolio continues to grow each year. W e were included in the Intellectual Property Owners Association "Top 300 Patent Owners" report for calendar year 2021 .
We have made significant investments in research and development since our inception and believe that we own the foundational intellectual property of wireless multi-room and other audio technologies. Our patent portfolio continues to grow each year. We were included in the Intellectual Property Owners Association "Top 300 Patent Owners" report for calendar year 2022, which was our sixth consecutive year.
We intend to continue to build direct relationships with current and prospective customers through sonos.com and the Sonos app to drive direct sales. In fiscal 2022, we generated 22.5% of total revenue through our direct-to-consumer channel, primarily sonos.com.
We intend to continue to build direct relationships with current and prospective customers through sonos.com and the Sonos app to drive direct sales. In fiscal 2023, we generated 23.8% of total revenue through our direct-to-consumer channel, primarily sonos.com.
We also sell through online retailers, to custom installers who bundle our products with services that they sell to their customers, and directly through our website sonos.com. We invest in customer experience and customer relationship management to drive loyalty, word-of-mouth marketing and sustainable, profitable growth.
The majority of our sales are transacted through traditional physical retailers, including on their websites. We also sell through online retailers, to custom installers who bundle our products with services that they sell to their customers, and directly through our website sonos.com. We invest in customer experience and customer relationship management to drive loyalty, word-of-mouth marketing and sustainable, profitable growth.
Of our full-time employees, 1,312 were in the United States and 532 were in our international locations. Other than our employees in France and the Netherlands, none of our employees are represented by a labor union or covered by a collective bargaining agreement. Compensation and Benefits Program .
Of our full-time employees, 1,332 were in the United States and 535 were in our international locations. Except for our employees in France and the Netherlands, none of our employees are represented by a labor union or covered by a collective bargaining agreement. Compensation and Benefits Program .
Manufacturing, Logistics and Fulfillment We outsource the manufacturing of our speakers and components to contract manufacturers, who produce our products based on our design specifications. Our products are manufactured by contract manufacturers in China and Malaysia, and in fiscal 2022, we began further diversifying our supply chain into Vietnam.
Manufacturing, Logistics and Fulfillment We outsource the manufacturing of our speakers and components to contract manufacturers, who produce our products based on our design specifications. Our products are manufactured by contract manufacturers in China and Malaysia, and Vietnam.
Current IKEA products include SYMFONISK picture frame, bookshelf speaker, and speaker lamp. Accessories Various Our custom-designed stands, mounts, shelves, cables, chargers, and more. 6 Table of contents Our Software Our proprietary software is the foundation of the Sonos sound system and further differentiates our products and services from those of our competitors.
Accessories Various Our custom-designed stands, mounts, shelves, cables, chargers, and more. 6 Table of contents Our Software Our proprietary software is the foundation of the Sonos sound system and further differentiates our products and services from those of our competitors.
Beam (Gen 2) October 2021 Our smart, compact soundbar for TV, music, and more, with support for Dolby Atmos. Originally introduced as Beam (Gen 1) in June 2018. Roam Colors Roam SL Roam May 2022 March 2022 April 2021 Our ultra-portable smart speaker with Bluetooth and WiFi for listening on the go and at home.
Originally introduced as Beam (Gen 1) in June 2018. Roam Colors Roam SL Roam May 2022 March 2022 April 2021 Our ultra-portable smart speaker with Bluetooth and WiFi for listening on the go and at home.
Our 93% share in the wireless speakers category among these industry professionals significantly outpaces our competitors. In fiscal 2022, we generated 21.2% of total revenue through our installer solutions channel. • Expand partner ecosystem to enhance platform .
Our 91% share in the wireless speakers category among custom installation industry professionals significantly outpaces our competitors. In fiscal 2023, we generated 20.7% of total revenue through our installer solutions channel. • Expand partner ecosystem to enhance platform .
Additionally, the Sonos app enables universal search, the ability to search for audio content across streaming services and owned content so that customers can easily find, play, or curate music. 8 Table of contents • Platform enables freedom of choice for consumers .
Customers can stream different audio content to speakers in different rooms or the same audio content synchronized throughout the entire home. Additionally, the Sonos app enables universal search, the ability to search for audio content across streaming services and owned content so that customers can easily find, play, or curate music. • Platform enables freedom of choice for consumers .
Originally launched as Play:5 (Gen 1) in November 2009 and completely redesigned in November 2015 as Play:5 (Gen 2). Sub (Gen 3) June 2020 Our wireless subwoofer for deep bass. Originally introduced as Sub (Gen 1) in June 2012. Move September 2019 Our durable, battery-powered smart speaker for outdoor and indoor listening.
Originally launched as Play:5 (Gen 1) in November 2009 and completely redesigned in November 2015 as Play:5 (Gen 2). Sub (Gen 3) June 2020 Our wireless subwoofer for deep bass. Originally introduced as Sub (Gen 1) in June 2012.
We generate significant revenue and profits from existing customers purchasing additional products to expand their Sonos sound systems. In fiscal 2022, existing households represented approximately 44% of new product registrations. We have proven our ability to profitably develop new experiences that drive existing customers to add additional products to their home, while continuing to add new homes.
In fiscal 2023, existing households represented approximately 44% of new product registrations. We have proven our ability to profitably develop new experiences that drive existing customers to add additional products to their home, while continuing to add new homes.
As of October 1, 2022, 60% of our 14.0 million households had registered more than one Sonos product. As of October 1, 2022, our households own 3.0 products on average.
As of September 30, 2023, 60% of our 15.3 million households had registered more than one Sonos product. As of September 30, 2023, our households own 3.0 products on average.
In April 2022, we added a talented group of employees to our research and development team through our acquisition of Mayht, a Netherlands-based company, which invented a new approach to audio transducers.
In April 2022, we added a talented group of employees to our research and development team through our acquisition of Mayht, a Netherlands-based company, which invented a new approach to audio transducers. The addition of this team and its strategic technology is helping transform and enhance our product portfolio.
To address our market opportunity, we have developed a long-term roadmap to deliver innovative products, services and software enhancements, and expand into new categories.
Our Growth Strategies Key elements of our growth strategy include: • Continued introduction of innovative products and services and expansion into new categories. To address our market opportunity, we have developed a long-term roadmap to deliver innovative products, services and software enhancements, and expand into new categories.
Sonos speakers comprises our wireless speakers and home theater products, including: Product Launch Date Description Sub Mini October 2022 Our wireless subwoofer which delivers powerful, balanced bass, rich, clear low end frequencies, in a compact cylindrical design. Ray June 2022 Our smallest, smart soundbar for TV, music, and more.
Sub Mini October 2022 Our wireless subwoofer which delivers powerful, balanced bass, rich, clear low end frequencies, in a compact cylindrical design. Ray June 2022 Our smallest, smart soundbar for TV, music, and more. Beam (Gen 2) October 2021 Our smart, compact soundbar for TV, music, and more, with support for Dolby Atmos.
In fiscal 2022, existing customers accounted for approximately 44% of new product registrations. As of October 1, 2022, we had a total of nearly 41.8 million products registered in approximately 14.0 million households globally, including the addition of approximately 1.4 million new households during fiscal 2022. Our customers have typically purchased additional Sonos products over time.
As of September 30, 2023, we had a total of nearly 46.6 million products registered in approximately 15.3 million households globally, including the addition of approximately 1.3 million new households during fiscal 2023. Our customers have typically purchased additional Sonos products over time.
We also estimate that our customers listened to 12.8 billion hours, excluding Bluetooth listening, of audio content using our products in fiscal 2022, which represents 5.5% growth from fiscal 2021. 4 Table of contents Our Products We generate revenue from sales of our Sonos speaker products, including wireless speakers and home theater speakers, from our Sonos system products, which largely comprises our component products, and from partner products and other revenue, including partnerships with IKEA and Sonance, Sonos and third-party accessories, licensing, advertising, and subscription revenue.
Our Products We generate revenue from sales of our Sonos speaker products, including wireless speakers and home theater speakers, from our Sonos system products, which largely comprises our component products, and from partner products and other revenue, including partnerships with IKEA and Sonance, Sonos and third-party accessories, licensing, advertising, and subscription revenue, including 4 Table of contents Sonos Radio HD, and Sonos Pro.
District Court for the Northern District of California. In December 2020, the Company filed another lawsuit against Google Germany Gmbh and Google Ireland Ltd. in the regional court of Hamburg, Germany, alleging infringement of a Sonos patent. Starting in 2020, Google has responded by filing patent infringement lawsuits against the Company in the ITC, U.S.
In December 2020, the Company filed another lawsuit against Google Germany Gmbh and Google Ireland Ltd. in the regional court of Hamburg, Germany, alleging infringement of a Sonos patent. The ITC case has concluded with a finding of all five Sonos patents infringed by Google and not invalid.
Our international growth will depend on our ability to generate sales from the global population of consumers, develop international distribution channels, and diversify our partner ecosystem to appeal to a more global audience. We are committed to strengthening our brand in global markets and our future success will depend in part on our growth in international markets.
Our products are sold in more than 60 countries, and in fiscal 2023, 41.3% of our revenue was generated outside the United States. Our international growth will depend on our ability to generate sales from the global population of consumers, develop international distribution channels, and diversify our partner ecosystem to appeal to a more global audience.
Our physical retail distribution relies on third-party retailers and our ability to maintain our diversified manufacturing footprint and base of component suppliers in support of production efficiency and flexibility across our global supply chain. International Expansion. Our products are sold in more than 60 countries, and in fiscal 2022, 45.0% of our revenue was generated outside the United States.
In fiscal 2023, sales through our installer solutions channel represented 20.7% of total revenue, and 21.2% in fiscal 2022. Our physical retail distribution relies on third-party retailers and our ability to maintain our diversified manufacturing footprint and base of component suppliers in support of production efficiency and flexibility across our global supply chain. International Expansion.
The products and software we develop require significant technical knowledge and expertise to develop at a competitive pace. We believe our research and development capabilities and our intellectual property differentiates us from our competitors. We intend to continue to significantly invest in research and development to bring new products and software to market and expand our platform and capabilities.
These products demonstrate a range of proprietary manufacturing and design details, logo application techniques, and assembly architecture. The products and software we develop require significant technical knowledge and expertise to develop at a competitive pace. We believe our research and development capabilities and our intellectual property differentiates us from our competitors.
Our broad and growing network of partners provides access to voice control, streaming music, internet radio, podcasts, and audiobook content, enabling consumers with freedom of choice in content and services. Our platform attracts a broad set of content providers, including leading streaming music services and third-party developers. • Differentiated consumer experience creates engaged households who often repeat purchases .
Our broad and growing network of partners provides access to voice control, streaming music, internet radio, podcasts, and audiobook content, enabling consumers with freedom of choice in 8 Table of contents content and services.
Sonos Voice Control works on every voice-capable Sonos speaker, processing requests entirely on the Sonos device. Our software provides the following key benefits: • Multi-room experience. Our system enables our speakers to work individually or together in synchronized playback groups, powered by wireless network and Bluetooth capabilities to route and play audio optimally. • Open platform for content partners.
Our system enables our speakers to work individually or together in synchronized playback groups, powered by wireless network and Bluetooth capabilities to route and play audio optimally from all the different content services that our customers enjoy. • Open platform for content partners.
While we seek to increase sales through our direct-to-consumer sales channel, we expect that our partnerships with third-party retailers and custom installers will continue to be an important part of our ecosystem. We will continue to seek retail partners that can deliver differentiated in-store experiences to support customer demand for product demonstrations.
In fiscal 2023 and 2022, sales through our direct-to-consumer channel, primarily through sonos.com, represented 23.8% and 22.5% of our total revenue, respectively. While we seek to increase sales through our direct-to-consumer sales channel, we expect that our partnerships with third-party retailers and custom installers will continue to be an important part of our ecosystem.
District Court for the Northern District of California, Canada, Germany, France, and the Netherlands, and patent infringement lawsuits against the Company’s subsidiary, Sonos Europe B.V., in Germany, France, and the Netherlands. See Note 13. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
The cases in Canada, Germany, France, and the Netherlands have been decided against Google. In the California case, all but one of Google's patent claims have been dismissed, with no trial date set. See Note 12. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
We deliver a differentiated customer experience to millions of households every day, cultivating a long-term passionate and engaged customer base. This engagement with our products, and our ability to continuously improve and enhance the functionality of our existing products through software updates, can help drive momentum in our flywheel as customers add products to their Sonos sound systems.
This engagement with our products, and our ability to continuously improve and enhance the functionality of our existing products through software updates, drives momentum in our flywheel as customers add products to their Sonos sound systems. We generate significant revenue and profits from existing customers purchasing additional products to expand their Sonos sound systems.
Products in this category comprise accessories that allow our customers to integrate our products seamlessly into their homes as well as products manufactured by and/or sold by our partners, including: Product Launch Date Description Audi Partnership April 2021 Our first-ever automotive audio partnership delivering Sonos-tuned premium sound experience for the Q4 e-tron and further models including the A1, Q2, and Q3.
Products in this category comprise accessories that allow our customers to integrate our products seamlessly into their homes as well as products manufactured by and/or sold by our partners, including: Product Launch Date Description Sonos Pro April 2023 Our software-as-a-service subscription offering for commercial audiences.
Sales and Marketing We sell our products primarily through over 10,000 third-party physical retail stores and our products are distributed in more than 60 countries. The majority of our sales are transacted through traditional physical retailers, including on their websites.
We intend to continue to significantly invest in research and development to bring new products and software to market and expand our platform and capabilities. Sales and Marketing We sell our products primarily through over 10,000 third-party physical retail stores and our products are distributed in more than 60 countries.
Our industrial design and mechanical engineering teams developed a cohesive, unique family of products across multiple categories and use-cases such as home theater, all-in-one, and portable. These products demonstrate a range of proprietary manufacturing and design details, logo application techniques, and assembly architecture.
Our wireless 7 Table of contents and radio team established world-class wireless performance that enabled multi-room experience, wireless surround sound, and many other applications. Our industrial design and mechanical engineering teams developed a cohesive, unique family of products across multiple categories and use-cases such as home theater, all-in-one, and portable.
Additionally, we intend to expand and strengthen our partnerships with custom installers who are valuable to our customer base and contribute to our new household growth. In fiscal 2022, we generated 21.2% of total revenue through our installer solutions channel.
We will continue to seek retail partners that can deliver differentiated in-store experiences to support customer demand for product demonstrations. Additionally, we intend to expand and strengthen our partnerships with custom installers who are valuable to our customer base and contribute to our new household growth.
Our portfolio of products encourages customers to uniquely tailor their Sonos sound systems to best meet their sound and design preferences. • Sonos speakers.
Our portfolio of products encourages customers to uniquely tailor their Sonos sound systems to best meet their sound and design preferences. • Sonos speakers. Sonos speakers comprises our wireless speakers and home theater products, including: Product Launch Date Description Era 100 March 2023 Our powerful smart speaker with improved acoustics and design that delivers detailed stereo sound and deep bass.
Our innovative products, seamless customer experience, and expanding global footprint have driven 17 consecutive years of sustained revenue growth since our first product launch. Our growth is driven by both new customers buying our products as well as existing customers continuing to add products to their Sonos systems.
Since we launched our first product 18 years ago, we have grown our install base by launching innovative new products, delivering a seamless customer experience, and expanding our global footprint. In fiscal 2023, existing customers accounted for approximately 44% of new product registrations.
Removed
One SL September 2019 Our powerful microphone-free speaker for music and more. Replaced Play:1 which was introduced in October 2013. One October 2017 Our powerful smart speaker with voice control built in. • Sonos System Products.
Added
Originally launched as One in October 2017 and completely redesigned in March 2023 as Era 100. Era 300 March 2023 Our bold, revolutionary speaker that offers the best out-loud listening experience for your favorite spatial audio content with Dolby Atmos.
Removed
Sonos Architectural by Sonance February 2019 Our collection of installed passive speakers for indoor and outdoor use designed and optimized for Amp in partnership with Sonance, including in-ceiling, in-wall, and outdoor speakers. IKEA module units Various Hardware and embedded software integrated into final products manufactured and sold by IKEA.
Added
Move 2 September 2023 Our portable, battery-powered smart speaker that delivers spacious stereo sound, with ultra-durable water resistant design for outdoor and indoor listening. Originally introduced as Move in September 2019. • Sonos System Products.
Removed
We expect that the addition of this team and its strategic technology will help transform and enhance our product portfolio. 7 Table of contents Our wireless and radio team established world-class wireless performance that enabled multi-room experience, wireless surround sound, and many other applications.
Added
Audi Partnership April 2021 Our first-ever automotive audio partnership delivering Sonos-tuned premium sound experience for the Q4 e-tron and further models including the A1, Q2, and Q3. Sonos Radio HD November 2020 Our subscription service of ad-free, high-definition streaming tier of our streaming radio, Sonos Radio.
Removed
Customers can stream different audio content to speakers in different rooms or the same audio content synchronized throughout the entire home.
Added
IKEA module units Various Hardware and embedded software integrated into final products manufactured and sold by IKEA. Current IKEA products include SYMFONISK picture frame, bookshelf speaker, and speaker lamp.
Removed
As of calendar year 2021, we held approximately 1,150 issued patents in the United States versus approximately 15 in 2011. Our Growth Strategies Key elements of our growth strategy include: • Continued introduction of innovative products and services and expansion into new categories.
Added
Sonos Voice Control works on every voice-capable Sonos speaker, processing requests entirely on the Sonos device. Our software provides the following key benefits: • Multi-room, multi-service experience.
Removed
In fiscal 2022, sales through our direct-to-consumer channel, primarily through sonos.com, represented 22.5% of our revenue in fiscal 2022, and 24.2% in fiscal 2021. Sales through our direct-to-consumer channel decreased 5.1% in fiscal 2022 and increased 46.5% in fiscal 2021.
Added
In fiscal 2023, we began the process of exiting certain partnerships with two of our contract manufacturers and we expect to complete these exits with minimal disruption by the first quarter of fiscal 2024.
Added
Additionally, we continued to diversify and add to our contract manufacturing partnerships and shifted more of our production into our locations in Malaysia and Vietnam, resulting in savings including tariff avoidance.
Added
Our platform attracts a broad set of content providers, including leading streaming music services and third-party developers. • Differentiated consumer experience creates engaged households who often repeat purchases . We deliver a differentiated customer experience to millions of households every day, cultivating a long-term passionate and engaged customer base.
Added
As of calendar year 2022, we have obtained a total of approximately 1,320 issued patents in the United States versus approximately 15 in 2011. We obtained 168 US patents in calendar year 2022 alone and are on pace to exceed 200 US patents in calendar year 2023.
Added
We are committed to strengthening our brand in global markets and our future success will depend in part on our growth in international markets. Investing in Product and Software Development.
Added
The California case has concluded with a jury verdict against Google but the court holding the Sonos patents unenforceable and invalid. Both cases are awaiting appeal. The Company has since withdrawn the German case. Starting in 2020, Google has responded by filing patent infringement lawsuits against the Company in the ITC, U.S.
Added
District Court for the Northern District of California, Canada, Germany, France, and the Netherlands, and patent infringement lawsuits against the Company’s subsidiary, Sonos Europe B.V., in Germany, France, and the Netherlands. The ITC cases have concluded with a finding of no violation by the Company and are now awaiting appeal.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

67 edited+19 added−14 removed157 unchanged
Biggest changeFor example, demand for our products was impacted in the second half of fiscal 2022, and in the future may be impacted, by uncertainty in the economic environment including the potential for an extended global recession, continued inflationary pressures, or, in certain markets, foreign currency exchange rate fluctuations, including those resulting from the Russian invasion of Ukraine.
Biggest changeFactors affecting the level of consumer spending for our products and services include general economic conditions, including the potential for an extended global recession, continued inflationary pressures, rising interest rates and, in certain markets, foreign currency exchange rate fluctuations. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable.
Our ability to achieve revenue growth will depend in part on our ability to execute on our product roadmap and our strategy and to determine the market opportunity for new products.
Our ability to achieve revenue growth will depend in part on our ability to execute on our product roadmap and strategy and to determine the market opportunity for new products.
We plan to make significant future expenditures related to the expansion of our business and our product offerings, including investments in: • research and development to continue to introduce innovative new products, enhance existing products and improve our customers’ listening experience; • sales and marketing to expand our global brand awareness, promote new products, increase our customer base and expand sales within our existing customer base; and • legal, accounting, information technology and other administrative expenses to sustain our operations as a public company.
We plan to make future expenditures related to the expansion of our business and our product offerings, including investments in: • research and development to continue to introduce innovative new products, enhance existing products and improve our customers’ listening experience; • sales and marketing to expand our global brand awareness, promote new products, increase our customer base and expand sales within our existing customer base; and • legal, accounting, information technology and other administrative expenses to sustain our operations as a public company.
For example, we use Amazon Web Services (“AWS”) to maintain the interconnectivity of our mobile app to our servers and those of the streaming services that our customers access to enjoy our products. Because AWS runs its own platform that we access, we are vulnerable to both system-wide and Sonos-specific service outages at AWS.
For example, we use Amazon Web Services ("AWS") to maintain the interconnectivity of our mobile app to our servers and those of the streaming services that our customers access to enjoy our products. Because AWS runs its own platform that we access, we are vulnerable to both system-wide and Sonos-specific service outages at AWS.
If we do not succeed in attracting, hiring and integrating high-quality personnel or in retaining and motivating existing personnel, we may be unable to grow effectively, and our financial condition may be harmed.
If we do not succeed in attracting, hiring and then integrating high-quality personnel or in retaining and motivating existing personnel, we may be unable to grow effectively, and our financial condition may be harmed.
Further, our headquarters are located in Santa Barbara, California, in a seismically active region that is also prone to forest fires.
Further, our headquarters are located in Santa Barbara County, California, in a seismically active region that is also prone to forest fires.
If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from offering or selling our products 23 Table of contents that contained the open source software and required to comply with the above conditions.
If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from offering or selling our products that contained the open source software and required to comply with the above conditions.
Most of our competitors have greater financial, technical and marketing resources available to them than those available to us, and, as a result, they may develop competing products that cause the demand for our products to decline.
Many of our competitors have greater financial, technical and marketing resources available to them than those available to us, and, as a result, they may develop competing products that cause the demand for our products to decline.
Any shortfalls in expected first fiscal quarter revenue, due to macroeconomic conditions like the potential for an extended global recession, product release patterns, a decline in the effectiveness of our promotional activities, supply chain disruptions, inflationary pressures or for any other reason, could cause our annual operating results to suffer 16 Table of contents significantly.
Any shortfalls in expected first fiscal quarter revenue, due to macroeconomic conditions like the potential for an extended global recession, product release patterns, a decline in the effectiveness of our promotional activities, supply chain disruptions, inflationary pressures or for any other reason, could cause our annual operating results to suffer significantly.
To succeed in this market, we will need to design, produce and sell innovative and compelling products and partner with other businesses that enable us to capitalize on new technologies, some of which have developed or may develop and sell voice-enabled speaker products of their own as further described herein.
To succeed in this market, we will need to design, produce and sell innovative and compelling products and partner with other businesses that enable us to capitalize on new 16 Table of contents technologies, some of which have developed or may develop and sell voice-enabled speaker products of their own as further described herein.
We are subject to the risk of disruption by earthquakes, floods and other natural disasters, fire, power shortages, geopolitical unrest, war, including Russia's invasion of Ukraine, terrorist attacks and other hostile acts, public health issues, epidemics or pandemics, including COVID-19, and other events beyond our control and the control of the third parties on which we depend.
We are subject to the risk of disruption by earthquakes, floods and other natural disasters, fire, power shortages, geopolitical unrest, war, terrorist attacks and other hostile acts, public health issues, epidemics or pandemics, including COVID-19, and other events beyond our control and the control of the third parties on which we depend.
In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. 25 Table of contents Certain provisions in our corporate charter documents and under Delaware law may prevent or hinder attempts by our stockholders to change our management or to acquire a controlling interest in us.
In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. Certain provisions in our corporate charter documents and under Delaware law may prevent or hinder attempts by our stockholders to change our management or to acquire a controlling interest in us.
If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the arrangement. The success of these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products or develop compelling new ones.
If an arrangement fails to adequately anticipate changing circumstances and interests of a party, it may result in early termination or renegotiation of the 25 Table of contents arrangement. The success of these transactions and arrangements will depend in part on our ability to leverage them to enhance our existing products or develop compelling new ones.
In addition, excess inventory may result in reduced working capital, which could adversely affect our ability to invest in other important areas of our business such as marketing and product development. If our channel partners have excess inventory of our products, they may decrease their purchases of our products in subsequent periods.
In addition, excess inventory has, and may in the future, result in reduced working capital, which could adversely affect our ability to invest in other important areas of our business such as marketing and product development. If our channel partners have excess inventory of our products, they may decrease their purchases of our products in subsequent periods.
Our access to AWS’ infrastructure could be limited by a number of potential causes, including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent. Additionally, our products may contain flaws that make them susceptible to unauthorized access or use.
Our access to AWS’ infrastructure could be limited by a number of potential causes, including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent. 21 Table of contents Additionally, our products may contain flaws that make them susceptible to unauthorized access or use.
If this were to happen, demand for our products could decrease, our costs could increase and our operating results could be harmed. Operational Risks We are dependent on a limited number of contract manufacturers to manufacture our products and our efforts to diversify manufacturers may not be successful.
If this were to happen, demand for our products could decrease, our costs could increase and our operating results could be harmed. 18 Table of contents Operational Risks We are dependent on a limited number of contract manufacturers to manufacture our products and our efforts to diversify manufacturers may not be successful.
Accordingly, a loss or interruption in the service of any key party could adversely impact our revenue, gross margin and operating results. We sell our products through a limited number of key channel partners, and the loss of any such channel partner would adversely impact our business.
Accordingly, a loss or interruption in the service of any key party could adversely impact our revenue, gross margin and operating results. 19 Table of contents We sell our products through a limited number of key channel partners, and the loss of any such channel partner would adversely impact our business.
In the event that actual demand for our products differs from our forecast, we may end up with an excess inventory of components, as we saw in the fourth quarter of fiscal 2022, negatively impacting our working capital. We also use a small number of logistics providers for substantially all our product delivery to both distributors and retailers.
In the event that actual demand for our products differs from our forecast, we may end up with an excess inventory of components, as we saw in fiscal 2023, negatively impacting our working capital. We also use a small number of logistics providers for substantially all our product delivery to both distributors and retailers.
These anti-takeover provisions include: • a classified Board so that not all members of the Board are elected at one time; • the ability of the Board to determine the number of directors and fill any vacancies and newly created directorships; • a requirement that our directors may only be removed for cause; • a prohibition on cumulative voting for directors; • the requirement of a super-majority to amend some provisions in our restated certificate of incorporation and restated bylaws; • authorization of the issuance of “blank check” preferred stock that the Board could use to implement a stockholder rights plan; • an inability of our stockholders to call special meetings of stockholders; and • a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders.
These anti-takeover provisions include: • a classified Board so that not all members of the Board are elected at one time; • the ability of the Board to determine the number of directors and fill any vacancies and newly created directorships; • a requirement that our directors may only be removed for cause; • a prohibition on cumulative voting for directors; 24 Table of contents • the requirement of a super-majority to amend some provisions in our restated certificate of incorporation and restated bylaws; • authorization of the issuance of "blank check" preferred stock that the Board could use to implement a stockholder rights plan; • an inability of our stockholders to call special meetings of stockholders; and • a prohibition on stockholder actions by written consent, thereby requiring that all stockholder actions be taken at a meeting of our stockholders.
Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose any of our source code that incorporates or is a modification of our licensed software.
Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose any of our source code that incorporates or 22 Table of contents is a modification of our licensed software.
In order to maintain or grow our profitability, we need to continue to increase our revenue and we cannot assure you that we will be able to do so, particularly during times of global economic, social and political uncertainty.
In order to regain or grow our profitability, we need to increase our revenue and we cannot assure you that we will be able to do so, particularly during times of global economic, social and political uncertainty.
In the event that future tariffs are imposed on imports of our products, we do not successfully obtain the remaining refunds to which we are currently entitled, we are not successful in any future exemption requests, the amounts of existing tariffs are increased, our efforts to diversify our supply chain outside of China are delayed or otherwise not successful, or China or other countries take retaliatory trade measures in response to existing or future tariffs, our business may be impacted and we may be required to raise prices or make changes to our operations, any of which could materially harm our revenue or operating results.
In the event that future tariffs are imposed on imports of our products, we are not successful in any future exemption requests, the amounts of existing tariffs are increased, our efforts to diversify our supply chain outside of China are delayed or otherwise not successful, or China or other countries take retaliatory trade measures in response to existing or future tariffs, our business may be impacted and we may be required to raise prices or make changes to our operations, any of which could materially harm our revenue or operating results.
Any catastrophic event that occurred near our headquarters, or near our manufacturing facilities in China or Malaysia, could impose significant damage to our ability to conduct our 26 Table of contents business and could require substantial recovery time, which could have an adverse effect on our business, operating results and financial condition.
Any catastrophic event that occurred near our headquarters, or near our manufacturing facilities in China, Malaysia or Vietnam, could impose significant damage to our ability to conduct our business and could require substantial recovery time, which could have an adverse effect on our business, operating results and financial condition.
Because substantially all of our products are distributed from and into a small number of locations and by a small number of companies, we are susceptible to both isolated and system-wide interruptions caused by events out of our control, including COVID-19 lockdowns.
Because substantially all of our products are distributed from and into a small number of locations and by a small number of companies, we are susceptible to both isolated and system-wide interruptions caused by events out of our control.
This subjects us to a variety of risks inherent in doing business internationally, including: • fluctuations in currency exchange rates and costs of imposing currency exchange controls; • political, social and/or economic instability, including related to the ongoing COVID-19 pandemic, Russia's invasion of Ukraine and the United Kingdom's withdrawal from the EU, commonly known as "Brexit"; • tariffs, trade barriers and duties; • protectionist laws and business practices that favor local businesses in some countries; • higher levels of credit risk and payment fraud and longer payment cycles associated with, and increased difficulty of payment collections from certain international customers; • burdens and risks of complying with a number and variety of foreign laws and regulations, including the Foreign Corrupt Practices Act; • laws and regulations may change from time to time unexpectedly and may be unpredictably enforced; • potential negative consequences from changes in or interpretations of U.S. and foreign tax laws; • the cost of developing connected products for countries where Wi-Fi technology has been passed over in favor of more advanced cellular data networks; • reduced protection for intellectual property rights in some countries; • difficulties and associated costs in managing and staffing multiple international locations; and 21 Table of contents • delays from customs brokers or government agencies.
This subjects us to a variety of risks inherent in doing business internationally, including: • fluctuations in currency exchange rates and costs of imposing currency exchange controls; • political, social and/or economic instability; • tariffs, trade barriers and duties; • protectionist laws and business practices that favor local businesses in some countries; 20 Table of contents • higher levels of credit risk and payment fraud and longer payment cycles associated with, and increased difficulty of payment collections from certain international customers; • burdens and risks of complying with a number and variety of foreign laws and regulations, including the Foreign Corrupt Practices Act; • laws and regulations may change from time to time unexpectedly and may be unpredictably enforced; • potential negative consequences from changes in or interpretations of U.S. and foreign tax laws; • the cost of developing connected products for countries where Wi-Fi technology has been passed over in favor of more advanced cellular data networks; • reduced protection for intellectual property rights in some countries; • difficulties and associated costs in managing and staffing multiple international locations; and • delays from customs brokers or government agencies.
We are dependent on our channel partners for a vast majority of our product sales. Best Buy, one of our key channel partners, accounted for 15% of our revenue in fiscal 2022.
We are dependent on our channel partners for a vast majority of our product sales. Best Buy, one of our key channel partners, accounted for 17% of our revenue in fiscal 2023.
If one of these providers were to experience financial difficulties or disruptions in its business, or be subject to closures or other disruptions as a result of COVID-19, our own operations could be adversely affected.
If one of these providers were to experience financial difficulties or disruptions in its business, or be subject to closures or other disruptions, our own operations could be adversely affected.
We have operations outside the United States, and we expect to continue to expand our international presence, especially in Asia. In fiscal 2022, 45% of our revenue was generated outside the United States.
We have operations outside the United States, and we expect to continue to expand our international presence, especially in Asia. In fiscal 2023, 41.3% of our revenue was generated outside the United States.
To manage our growth and our increasingly complex business operations, especially as we move into new markets internationally, we will need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant additional expense. In particular, we replaced our legacy ERP system in order to accommodate our expanding operations.
To manage our growth and our increasingly complex business operations, especially as we move into new markets internationally, we will need to upgrade our operational and financial systems and procedures, which requires management time and may result in significant additional expense.
Any of these situations could adversely impact our business and results of operations. 18 Table of contents Competition with our technology partners could harm our business and operating results. We are dependent on a number of technology partners for the development of our products, some of which have developed or may develop and sell products that compete with our products.
Competition with our technology partners could harm our business and operating results. We are dependent on a number of technology partners for the development of our products, some of which have developed or may develop and sell products that compete with our products.
Apple and Google, both of which sell products that compete with ours, may choose to use their marketplaces to promote their competing products over our products or may make access to our mobile app more difficult.
Apple and Google, both of which sell products that compete with ours, may choose to use their marketplaces to promote their competing products over our products or may make access to our mobile app more difficult. Any of these situations could adversely impact our business and results of operations.
The markets in which we operate are extremely competitive and rapidly evolving, and we expect that competition will intensify in the future.
The home audio and consumer electronics industries are highly competitive. The markets in which we operate are extremely competitive and rapidly evolving, and we expect that competition will intensify in the future.
In the event that these practices relate to an acquisition or a partner, we may not be successful in exercising any indemnification rights available to us under our agreements or in recovering damages in the event that we are successful. Each of these efforts could require significant effort and expense and ultimately may not be successful.
In the event that these practices relate to an acquisition or a partner, we may not be successful in exercising any indemnification rights available to us under our agreements or in recovering damages in the event that we are successful.
In particular, many components with longer lead times have experienced shortages during the pandemic and, as a result, during fiscal 2022 we increased our investments in, and purchase commitments for, certain components where possible to secure inventory in anticipation of shortages and strong demand, and we may need to do so again in the future.
For example, during the pandemic we increased our investments in, and purchase commitments for, components with longer lead times where possible to secure inventory in anticipation of shortages and strong demand, and we may need to do so again in the future.
In addition, the longer lead time for many of our components presents challenges in our efforts to manage component inventory, as we procure such components based on our then current forecast of demand for our products. During the pandemic, we have also faced the challenge of managing component inventory during periods of fluctuating availability.
In addition, the longer lead time for many of our components presents challenges in our efforts to manage component inventory, as we procure such components based on our then current forecast of demand for our products.
In the event that we are unable to grow our revenue, or in the event that revenue grows more slowly than we expect, our operating results could be adversely affected, and our stock price could be harmed. Our investments in research and development may not yield the results expected.
In the event that we are unable to grow our revenue, or in the event that revenue grows more slowly than we expect, our operating results could be adversely affected, and our stock price could decrease.
We cannot be certain that we will institute, in a timely or efficient manner or at all, the improvements to our managerial, operational and financial systems and procedures necessary to support our anticipated increased levels of operations.
For example, we replaced our legacy enterprise resource planning ("ERP") system in fiscal 2022 in order to accommodate our expanding operations. We cannot be certain that we will institute, in a timely or efficient manner or at all, the improvements to our managerial, operational and financial systems and procedures necessary to support our anticipated increased levels of operations.
We must forecast production and inventory needs in advance with our suppliers and manufacturers; our ability to do so accurately could be affected by many factors, including changes in customer demand and spending patterns, new product introductions, sales promotions, channel inventory levels, uncertainties related to the COVID-19 pandemic, Russia's invasion of Ukraine, and general economic conditions, including inflation and the potential for an extended global recession.
We must forecast production and inventory needs in advance with our suppliers and manufacturers, and our ability to do so accurately could be affected by many factors, including changes in customer demand and spending patterns, new product introductions, sales promotions, channel inventory levels, and general economic and political conditions.
We introduced Sonos One, Sonos Beam, Sonos Move, Sonos Roam, and Sonos Arc, which feature built in voice-enabled speakers powered by Amazon’s Alexa or Google’s Google Assistant technology. One or more of our partners could disable their integration, terminate or not renew their distribution agreement with us, or begin charging us for their integration with our voice-enabled products.
Our existing voice-enabled speakers are powered by Amazon’s Alexa or Google’s Google Assistant technology. One or more of our partners could disable their integration on one or all of our voice-enabled products, terminate or not renew their distribution agreement with us, or begin charging us for their integration with our voice-enabled products.
We are subject to the risk of industry-wide shortages, price fluctuations and long lead times in the supply of these components and other materials, which risk has been and may continue to be heightened by the impact of COVID-19.
We are subject to the risk of industry-wide shortages, price fluctuations and long lead times in the supply of these components and other materials.
If we are not successful in continuing to expand our direct-to-consumer sales channel by driving consumer traffic and consumer purchases through our website, our business and results of operations could be harmed. 15 Table of contents We have invested significant resources in our direct-to-consumer sales channel, primarily through our website, and our future growth relies, in part, on our continued ability to attract consumers to this channel, which has and will continue to require significant expenditures in marketing, software development and infrastructure.
We have invested significant resources in our direct-to-consumer sales channel, primarily through our website, and our future growth relies, in part, on our continued ability to attract consumers to this channel, which has and will continue to require significant expenditures in marketing, software development and infrastructure.
If we are unable to compete with these consolidated companies or if consolidation in the market disrupts our partnerships or reduces the number of companies we partner with, our business would be adversely affected. 14 Table of contents To remain competitive and stimulate consumer demand, we must successfully manage frequent new product introductions and transitions.
If we are unable to compete with these consolidated companies or if consolidation in the market disrupts our partnerships or reduces the number of companies we partner with, our business would be adversely affected.
While we devote significant resources to address and eliminate flaws and other vulnerabilities in our products, there can be no assurance that our products will not be compromised in the future.
While we devote significant resources to address and eliminate flaws and other vulnerabilities in our products, there can be no assurance that our products will not be compromised in the future. Any such flaws or vulnerabilities, whether actual or merely potential, could harm our reputation, competitive position, financial condition and results of operations.
For example, in June 2022 we introduced Ray, our compact soundbar and in September 2022 we introduced Sub Mini, the smaller of our two wireless subwoofer offerings. The successful introduction of these products and any new products depends on a number of factors, such as the timely completion of development efforts to correspond with limited windows for market introduction.
The successful introduction of these products and any new products depends on a number of factors, such as the timely completion of development efforts to correspond with limited windows for market introduction.
Our inability to adequately respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business via our website may have an adverse impact on our results of operations. If we are unable to accurately anticipate market demand for our products, we may have difficulty managing our production and inventory and our operating results could be harmed.
Our inability to adequately respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business via our website may have an adverse impact on our results of operations.
Loss of a key channel partner would require us to identify alternative channel partners or increase our reliance on our direct-to-consumer channel, which may be time-consuming and expensive or we may be unsuccessful in our efforts to do so. 20 Table of contents We have and may in the future discontinue support for older versions of our products, resulting in customer dissatisfaction that could negatively affect our business and operating results.
Loss of a key channel partner would require us to identify alternative channel partners or increase our reliance on our direct-to-consumer channel, which may be time-consuming and expensive or we may be unsuccessful in our efforts to do so.
Any such flaws or vulnerabilities, whether actual or merely potential, could harm our reputation, competitive position, financial condition and results of operations. 22 Table of contents Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business.
Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by our third-party service providers or partners, could harm our business.
As of October 1, 2022, we also had U.S. federal research and development tax credit carryforwards of $70.0 million, and state research and development tax credit carryforwards of $48.1 million, which will expire beginning in 2025 and 2024, respectively.
As of 23 Table of contents September 30, 2023, we also had U.S. federal research and development tax credit carryforwards as filed of $54.4 million, and state research and development tax credit carryforwards as filed of $47.0 million, which will expire beginning in 2038 and 2025, respectively.
Additional risks and uncertainties not currently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations and growth prospects.
Additional risks and uncertainties not currently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations and growth prospects. 13 Table of contents Economic, Industry and Strategic Risk To remain competitive and stimulate consumer demand, we must successfully manage frequent new product introductions and transitions.
We currently are, and may continue to be, subject to intellectual property rights claims and other litigation which are expensive to support, and if resolved adversely, could have a significant impact on us and our stockholders. 17 Table of contents Companies in the consumer electronics industries own large numbers of patents, copyrights, trademarks, domain names and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property or other rights.
Companies in the consumer electronics industries own large numbers of patents, copyrights, trademarks, domain names and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property or other rights.
In addition, any partial or full government-mandated shutdown resulting from COVID-19 may impact or delay our efforts to diversify our supply chain or may cause supply chain disruptions notwithstanding any supply chain diversification efforts. 19 Table of contents We depend on a limited number of third-party components suppliers and logistics providers, and many of our components have long lead times, and our business and operating results could be adversely affected by shortages, disruptions and related challenges.
We depend on a limited number of third-party components suppliers and logistics providers, and many of our components have long lead times, and our business and operating results could be adversely affected by shortages, disruptions and related challenges.
Our business operates in intensely competitive markets characterized by changing consumer preferences and rapid technological innovation. Due to advanced technological innovation and the relative ease of technology imitation, new products tend to become standardized more rapidly, leading to more intense competition and ongoing price erosion.
Due to advanced technological innovation and the relative ease of technology imitation, new products tend to become standardized more rapidly, leading to more intense competition and ongoing price erosion. In order to strengthen the competitiveness of our products in this environment, we continue to invest heavily in research and development.
If this occurs and we cannot successfully defend our position, our profitability will be reduced. 24 Table of contents Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
There is no assurance that tax and customs authorities agree with our reporting positions and upon audit may assess us additional taxes, duties, interest and penalties. If this occurs and we cannot successfully defend our position, our profitability will be reduced. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
To date, we have been able to obtain certain refunds on tariffs paid during the fiscal 2020 and fiscal 2021 exemption periods and continue to see outstanding refund requests and corresponding refunds processed for such periods.
To date, we have been able to obtain certain refunds on tariffs paid through the fiscal 2022 exemption periods and are in the process of obtaining the minimal remaining refunds processed for such periods.
Our business could be adversely affected as a result of any such actions, or a finding that any patents-in-suit are invalid or unenforceable. These actions have led and may in the future lead to additional counterclaims or actions against us, which are expensive to defend against and for which there can be no assurance of a favorable outcome.
These actions have led and may in the future lead to additional counterclaims or actions against us, which are expensive to defend against and for which there can be no assurance of a favorable outcome. For example, Google has responded to our legal proceedings by filing multiple patent infringement lawsuits against us in the U.S.
We may seek to expand beyond our core sound systems and develop products that have wider applications outside of home sound, such as commercial or office. Developing these products would require us to devote substantial additional resources, and our ability to succeed in developing such products to address such markets is unproven.
Our efforts to expand beyond our core product offerings and offer products with wider applications may not succeed and could adversely impact our business We have, and may in the future continue to, seek to expand beyond our core sound systems and develop products that have wider applications outside of home sound, such as commercial or office.
We were able to obtain an exemption from the Section 301 tariffs for certain of our products for a period of time during fiscal 2020 and, for our core speaker products, through the first quarter of fiscal 2021.
We were able to obtain an exemption from the Section 301 tariffs for certain of our products, including our core speaker products, for certain periods since fiscal 2020. In particular, on December 16, 2022, the USTR granted an extension through September 30, 2023, of the exclusion for our core speaker products.
If we are not able to maintain and enhance the value and reputation of our brand, or if our reputation is otherwise harmed, our business and operating results could be adversely affected. Our continued success depends on our reputation for providing high-quality products and consumer experiences, and the “Sonos” name is critical to preserving and expanding our business.
Each of these efforts could require significant effort and expense and ultimately may not be successful. 17 Table of contents If we are not able to maintain and enhance the value and reputation of our brand, or if our reputation is otherwise harmed, our business and operating results could be adversely affected.
Our brand and reputation are dependent on a number of factors, including our marketing efforts, product quality, and trademark protection efforts, each of which requires significant expenditures. The value of our brand could also be severely damaged by isolated incidents, which may be outside of our control.
The value of our brand could also be severely damaged by isolated incidents, which may be outside of our control.
For example, Google has responded to our legal proceedings by filing multiple patent infringement lawsuits against us in the U.S. District Court for the Northern District of California, cases against us in the ITC and patent infringement lawsuits against us and our subsidiary Sonos Europe B.V. in various foreign jurisdictions.
District Court for the Northern District of California, cases against us in the ITC, and patent infringement lawsuits against us and our subsidiary Sonos Europe B.V. in various foreign jurisdictions. See Note 12. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
If demand does not meet our forecast, excess product inventory could force us to write-down or write-off inventory or to sell the excess inventory at discounted prices, which could cause our gross margin to suffer and impair the strength of our brand.
As a result, we have had to, and may continue to, write-down or write-off inventory or sell the excess inventory at discounted prices, which has, and could in the future, cause our gross margin to suffer.
As of October 1, 2022, we had gross U.S. federal net operating loss carryforwards of $105.8 million, of which $74.7 million have an indefinite life and $31.1 million that expire beginning in 2035, and gross state net operating loss carryforwards of $65.5 million, which expire beginning in 2027, as well as $41.7 million in foreign net operating loss carryforwards with an indefinite life.
As of September 30, 2023, we had gross state net operating loss carryforwards of $25.4 million, which expire beginning in 2032, as well as $46.9 million in foreign net operating loss carryforwards with an indefinite life.
Although we have achieved profitability, our business is impacted by a number of factors, including those outside of our control like the global economy, and we may not be able to sustain or increase our profitability and expect to incur increased operating costs in the future.
Although we have achieved profitability in the past, we are not currently profitable, and we may not be able to regain profitability or consistent revenue growth and expect to incur increased operating costs in the future.
Moreover, we have experienced increased demand for our products during much of the COVID-19 pandemic and we cannot predict how or whether the easing of COVID-19 mitigation measures will impact demand for our products or shift consumer spending habits in general.
In addition, we experienced increased demand for our products during the COVID-19 pandemic and have recently seen a softening of consumer demand and a shift in consumer spending from purchasing goods to purchasing services and travel .
Although we achieved profitability starting in the fiscal year ended October 2, 2021, we may not be able to maintain or grow our profitability. We have experienced net losses in the past and may incur net losses in the future. We had an accumulated deficit of $2.5 million as of October 1, 2022.
Although we achieved profitability in the fiscal year ended October 2, 2021, and were profitable in fiscal 2022, we had a net loss of $10.3 million in fiscal 2023. As of September 30, 2023, we had an accumulated deficit of $12.8 million.
In May 2022, we introduced Sonos Voice Control, our proprietary voice assistant, on all of our voice-enabled speakers.
We introduced our first voice-enabled speaker in 2017 and since then have introduced a total of eight voice-enabled speakers, as well as Sonos Voice Control, our proprietary voice assistant.
District Court for the Central District of California against Google alleging infringement of five Sonos patents, and in September 2020 we filed another lawsuit against Google alleging infringement of an additional four Sonos patents. The cost of defending our intellectual property has been and may in the future be substantial, and there is no assurance we will be successful.
District Court for the Central District of California against Google alleging infringement of five Sonos patents, and in September 2020 we filed another lawsuit against Google alleging infringement of an additional four Sonos patents. See Note 12. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
Removed
Economic, Industry and Strategic Risk Our business has been, and could in the future be, adversely affected by the ongoing COVID-19 pandemic. 13 Table of contents The COVID-19 pandemic and related mitigation measures have adversely affected our business and operating results and may continue to impact us in the future.
Added
For example, in March 2023, we introduced Sonos Era 100 and Sonos Era 300, our next generation of smart speakers, in September 2023, we introduced Move 2, our next generation of our Move speaker, and in April 2023, we introduced Sonos Pro, our new audio subscription service for businesses.
Removed
During the pandemic, consistent with its effects industry-wide, our supply chain has experienced disruptions, including lockdowns, port congestion, component supply-related challenges, and inflationary pressures, which may continue in the future.
Added
If we are unable to accurately anticipate market demand for our products, we may have difficulty managing our production and inventory and our operating results could be harmed.
Removed
Supply chain challenges have increased our component and shipping and logistics costs, caused delayed product availability, and impacted our ability to forecast and meet product demand, procure certain components, and effectively manage our inventory levels, all of which has and could in the future, materially and adversely affected our business, results of operations, financial position, and cash flows.
Added
If we fail to accurately forecast consumer demand, we may experience excess inventory levels or a shortage of products available for sale, either of which could adversely impact our operating results and financial condition. Following an increase in demand during the COVID-19 pandemic, we have recently seen a softening of consumer demand.
Removed
Although some pandemic-related impacts on our business have abated, they may emerge or intensify again given the uncertain course of the pandemic and its effects. COVID-19 has also negatively impacted the global economy to date, including by contributing to significant global economic uncertainty.
Added
In addition, in the event of excess inventory including excess component inventory, we may be unable to renegotiate our agreements with existing suppliers on mutually acceptable terms.
Removed
The duration and severity of the economic impacts of COVID-19 are unknown and may be prolonged and extend beyond the easing of mitigation measures, the widespread availability of vaccines and treatments or any eventual containment of the spread of COVID-19.
Added
Although in certain instances our agreements with certain suppliers allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, our loss contingencies may include 14 Table of contents liabilities for contracts that we cannot cancel, reschedule or adjust with suppliers or partners.
Removed
In particular, any recession, depression, inflationary pressures, or other sustained adverse market event resulting from, among other causes, COVID-19 may result in high levels of unemployment and associated loss of personal income, decreased consumer confidence, and lower discretionary spending, which could materially and adversely affect our business, results of operations, financial position, and cash flows.
Added
We may also deem it necessary or advisable to renegotiate agreements with our supply partners in order to scale our inventory with demand. A resurgence of the COVID-19 pandemic could adversely impact our business and it remains uncertain how the post-COVID environment will impact demand for our products.
Removed
The extent of the impact of the COVID-19 pandemic on our business and operating results is uncertain and difficult to predict and will depend on factors outside of our control, including efforts to contain the spread of COVID-19, any resurgence of infections or any variants that may emerge and the impact of the pandemic on the global economy.

… 20 more changes not shown on this page.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeItem 3. Leg al Proceedings From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Other than the matters described in Note 13. Commitments and Contingencies of the notes to our consolidated financial statements included in Part II.
Biggest changeItem 3. Leg al Proceedings From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Other than the matters described in Note 12. Commitments and Contingencies of the notes to our consolidated financial statements included in Part II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+2 added−0 removed4 unchanged
Biggest changeAlthough these withheld shares are not issued or considered common stock repurchases under our stock repurchase program and therefore are not included in the preceding table, they are treated as common stock repurchases in our consolidated financial statements as they reduce the number of shares that would have been issued upon vesting. 29 Table of contents Stock Performance Graph September 28, 2018 September 27, 2019 October 2, 2020 October 1, 2021 September 30, 2022 Sonos, Inc. $ 80.56 $ 67.86 $ 77.85 $ 162.03 $ 69.81 Nasdaq composite index $ 103.34 $ 103.11 $ 141.94 $ 192.31 $ 135.54 S&P 500 $ 103.43 $ 107.29 $ 118.44 $ 163.28 $ 126.82 Item 6 . [Reserved] 30 Table of contents
Biggest changeAlthough these withheld shares are not issued or considered common stock repurchases under our stock repurchase program and therefore are not included in the preceding table, they are treated as common stock repurchases in our consolidated financial statements as they reduce the number of shares that would have been issued upon vesting. 27 Table of contents Stock Performance Graph In fiscal 2023, we elected to replace the Nasdaq Composite Index with the Nasdaq Computer Index because we believe it is more aligned with our peer group and will provide a meaningful comparison of our stock performance going forward.
In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities The following table presents information with respect to our repurchase of common stock during the quarter ended October 1, 2022.
In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities The following table presents information with respect to our repurchase of common stock during the quarter ended September 30, 2023.
Item 5. Market for Registrant’s Common Equity, Rela ted Stockholder Matters, and Issuer Purchases of Equity Securities Market Information for Our Common Stock Shares of our common stock trade on The Nasdaq Global Select Market under the symbol “SONO.” Holders of Record As of November 7, 2022, there were 1,638 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Rela ted Stockholder Matters, and Issuer Purchases of Equity Securities Market Information for Our Common Stock Shares of our common stock trade on The Nasdaq Global Select Market under the symbol “SONO.” Holders of Record As of November 3, 2023, there were 4 holders of record of our common stock.
Over the past three fiscal years, we have completed $250.0 million in share repurchases, for 11,760,762 shares, at an average price of $21.26 per share. See Note 8. Stockholders' Equity of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information.
Stockholders’ Equity of the Company's consolidated financial statements for further information. Over the past three fiscal years, we have completed $300.0 million in share repurchases, for 14,528,681 shares, at an average price of $20.65 per share.
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) Jul 3 - Jul 30 483,797 $ 19.68 483,797 $ 23,374 Jul 31 - Aug 27 1,444,900 $ 16.24 1,444,900 $ — Aug 28 - Oct 1 — $ — — $ — Total 1,928,697 1,928,697 (1) In November 2021, the Board of Directors authorized a common stock repurchase program of up to $150.0 million; as of October 1, 2022, we had fully utilized the amount available under this common stock repurchase program.
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 1 (in thousands) Jul 2 - Jul 29 — $ — — $ 54,974 Jul 30 - Aug 26 1,762,624 $ 13.92 1,762,624 $ 30,440 Aug 27 -Sep 30 2,244,894 $ 13.54 2,244,894 $ 34 Total 4,007,518 4,007,518 1 Approximate dollar value of shares that may yet to be purchased under the plans or programs does not include the impact of direct costs incurred to acquire shares.
Added
(1) In November 2022, the Board of Directors authorized a common stock repurchase program of up to $100.0 million. During the twelve months ended September 30, 2023, the Company repurchased 6,555,702 shares for an aggregate purchase price of $100.0 million at an average price of $15.25 per share under the repurchase program. See Note 8.
Added
Item 6 . [Reserved] 28 Table of contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

62 edited+44 added−47 removed41 unchanged
Biggest changeThe following table presents a reconciliation of net income (loss) to adjusted EBITDA: Fiscal Year Ended October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 September 29, 2018 (In thousands, except percentages) Net income (loss) $ 67,383 $ 158,595 $ (20,115 ) $ (4,766 ) $ (15,604 ) Depreciation and amortization 38,504 33,882 36,426 36,415 39,358 Stock-based compensation expense 75,640 62,127 57,610 46,575 38,645 Interest income (1,655 ) (146 ) (1,998 ) (4,349 ) (731 ) Interest expense 552 592 1,487 2,499 5,242 Other (income) expense, net 21,905 (2,407 ) (6,639 ) 8,625 1,162 Provision for (benefit from) income taxes 1,347 (1,670 ) 32 3,690 1,056 Restructuring and related expenses — (2,446 ) 26,285 — — Legal and transaction related costs (1) 22,873 30,058 15,455 — — Adjusted EBITDA $ 226,549 $ 278,585 $ 108,543 $ 88,689 $ 69,128 Revenue 1,752,336 1,716,744 1,326,328 1,260,823 1,137,008 Adjusted EBITDA margin 12.9 % 16.2 % 8.2 % 7.0 % 6.1 % (1) Legal and transaction-related costs consist of expenses related to our intellectual property ("IP") litigation against Alphabet and Google as well as legal and transaction costs associated with our acquisition activities, which we do not consider representative of our underlying operating performance. 36 Table of contents Comparison of Fiscal Years 2022 and 2021 Revenue Fiscal Year Ended Change from Prior Fiscal Year October 1, 2022 October 2, 2021 $ % (Dollars in thousands) Sonos speakers $ 1,368,916 $ 1,378,808 $ (9,892 ) (0.7 )% Sonos system products 297,110 265,180 31,930 12.0 Partner products and other revenue 86,310 72,756 13,554 18.6 Total revenue $ 1,752,336 $ 1,716,744 $ 35,592 2.1 % Volume data (products sold in thousands) Units % Total products sold 6,281 6,503 (222 ) (3.4 )% Total revenue increased 2.1% for fiscal 2022, compared to fiscal 2021.
Biggest changeThe following table presents a reconciliation of net income (loss) to adjusted EBITDA: Fiscal Year Ended September 30, 2023 October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 (In thousands, except percentages) Net income (loss) $ (10,274 ) $ 67,383 $ 158,595 $ (20,115 ) $ (4,766 ) Add (deduct): Depreciation and amortization 48,969 38,504 33,882 36,426 36,415 Stock-based compensation expense 76,857 75,640 62,127 57,610 46,575 Interest income (10,201 ) (1,655 ) (146 ) (1,998 ) (4,349 ) Interest expense 733 552 592 1,487 2,499 Other (income) expense, net (15,473 ) 21,905 (2,407 ) (6,639 ) 8,625 Provision for (benefit from) income taxes 14,668 1,347 (1,670 ) 32 3,690 Legal and transaction related costs (1) 32,950 22,873 30,058 15,455 — Restructuring, abandonment, and related expenses (2) 15,649 — (2,446 ) 26,285 — Adjusted EBITDA $ 153,878 $ 226,549 $ 278,585 $ 108,543 $ 88,689 Revenue 1,655,255 1,752,336 1,716,744 1,326,328 1,260,823 Net income (loss) margin (0.6 )% 3.8 % 9.2 % (1.5 )% (0.4 )% Adjusted EBITDA margin 9.3 % 12.9 % 16.2 % 8.2 % 7.0 % (1) Legal and transaction-related costs consist of expenses related to our intellectual property ("IP") litigation against Alphabet and Google as well as legal and transaction costs associated with our acquisition activities, which we do not consider representative of our underlying operating performance.
We define adjusted EBITDA as net income (loss) adjusted to exclude the impact of depreciation, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes and other items that we do not consider representative of underlying operating performance. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue.
We define adjusted EBITDA as net income (loss) adjusted to exclude the impact of depreciation and amortization, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes, and other items that we do not consider representative of underlying operating performance. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue.
We generate revenue from the sale of our Sonos speaker products, including wireless speakers and home theater speakers, from our Sonos system products, which largely comprises our component products, and from partner products and other revenue, including partnerships with IKEA and Sonance, Sonos and third-party accessories, licensing, and advertising revenue.
We generate revenue from the sale of our Sonos speaker products, including wireless speakers and home theater speakers, from our Sonos system products, which largely comprises our component products, and from partner products and other revenue, including partnerships with IKEA and Sonance, Sonos and third-party accessories, licensing, advertising, and subscription revenue.
We must also pay (i) an unused commitment fee ranging from 0.200% to 0.275% per annum of the average daily unused portion of the aggregate revolving credit commitment under the agreement and (ii) a per annum fee equal to the applicable margin over LIBOR multiplied by the aggregate face amount of outstanding letters of credit.
We must also pay (i) an unused commitment fee ranging from 0.200% to 0.275% per annum of the average daily unused portion of the aggregate revolving credit commitment under the agreement and (ii) a per annum fee equal to the applicable margin over SOFR multiplied by the aggregate face amount of outstanding letters of credit.
Leases and Note 13. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP.
Leases and Note 12. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP.
We also generate a small portion of revenue from partner products and other revenue sources, such as module revenue from our IKEA partnership, architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, licensing and advertising revenue.
We also generate a portion of revenue from Partner products and other revenue sources, such as module revenue from our IKEA partnership, architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, licensing, advertising, and subscription revenue.
See the section titled "Results of Operations —Non-GAAP Financial Measures" for information regarding our use of adjusted EBITDA and adjusted EBITDA margin, and a reconciliation of net income (loss) to adjusted EBITDA. Components of Results of Operations Revenue We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products.
See the section titled "Results of Operations —Non-GAAP Financial Measures" for information regarding our use of adjusted EBITDA and adjusted EBITDA margin, and a reconciliation of net income (loss) to adjusted EBITDA and net income (loss) margin to adjusted EBITDA margin. 30 Table of contents Components of Results of Operations Revenue We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products.
These limitations include that the non-GAAP financial measures: • exclude depreciation and amortization, and although these are non-cash expenses, the assets being depreciated may be replaced in the future; • exclude stock-based compensation expense, which has been, and will continue to be, a significant recurring expense for our business and an important part of our compensation strategy; • do not reflect interest income, primarily resulting from interest income earned on our cash and cash equivalent balances; • do not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; • do not reflect the effect of foreign currency exchange gains or losses, which is included in other income (expense), net; • do not reflect the provision for or benefit from income tax that may result in payments that reduce cash available to us; • do not reflect items that are not considered representative of our underlying operating performance which reduce cash available to us; and • may not be comparable to similar non-GAAP financial measures used by other companies, because the expenses and other items that we exclude in our calculation of these non-GAAP financial measures may differ from the expenses and other items, if any, that other companies may exclude from these non-GAAP financial measures when they report their operating results.
These limitations include that the non-GAAP financial measures: • exclude depreciation and amortization, and although these are non-cash expenses, the assets being depreciated may be replaced in the future; • exclude stock-based compensation expense, which has been, and will continue to be, a significant recurring expense for our business and an important part of our compensation strategy; • do not reflect interest income, primarily resulting from interest income earned on our cash and cash equivalent balances; • do not reflect interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; • do not reflect the effect of foreign currency exchange gains or losses, which is included in other income (expense), net; • do not reflect the provision for or benefit from income tax that may result in payments that reduce cash available to us; • do not reflect items that are not considered representative of our underlying operating performance which reduce cash available to us; and • may not be comparable to similar non-GAAP financial measures used by other companies, because the expenses and other items that we exclude in our calculation of these non-GAAP financial measures may differ from the expenses and other items, if any, that other companies may exclude from these non-GAAP financial measures when they report their operating results. 34 Table of contents Because of these limitations, these non-GAAP financial measures should be considered along with other operating and financial performance measures presented in accordance with U.S.
This assertion is made on a jurisdiction by jurisdiction basis and takes into account the liquidity requirements in both the United States and of our foreign subsidiaries.
This assertion is made on a jurisdiction by jurisdiction basis and takes into account the liquidity requirements in both the United States and of our foreign subsidiaries. 42 Table of contents
Fiscal 2021 Changes in Cash Flows For the comparison of fiscal 2021 to fiscal 2020, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" of our Form 10-K for our fiscal year ended October 2, 2021, filed with the SEC on November 22, 2021, under the subheading "Liquidity and capital resources." Contractual obligations See Note 6.
Fiscal 2022 Changes in Cash Flows For the comparison of fiscal 2022 to fiscal 2021, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" of our Form 10-K for our fiscal year ended October 1, 2022, filed with the SEC on November 23, 2022, under the subheading "Liquidity and capital resources." Contractual obligations See Note 6.
Results of Operations The consolidated statements of operations data for fiscal years 2022, 2021, and 2020, and the consolidated balance sheet data as of October 1, 2022, and October 2, 2021, are derived from our audited consolidated financial statements appearing in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.
Results of Operations The consolidated statements of operations data for fiscal years 2023, 2022, and 2021, and the consolidated balance sheet data as of September 30, 2023, and October 1, 2022, are derived from our audited consolidated financial statements appearing in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.
The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires us to maintain a certain consolidated leverage ratio, and customary events of default. As of October 1, 2022, we were in compliance with all financial covenants under the Revolving Credit Agreement.
The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires us to maintain a certain consolidated leverage ratio, and customary events of default. As of September 30, 2023, we were in compliance with all financial covenants under the Revolving Credit Agreement.
We also generate a portion of revenue from Partner products and other revenue sources, such as module revenue from our IKEA partnership, architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, 32 Table of contents licensing, advertising, and subscription revenue.
We also generate a portion of revenue from Partner products and other revenue sources, such as module revenue from our IKEA partnership, architectural speakers from our Sonance partnership, accessories such as speaker stands and wall mounts, professional services, licensing, and advertising revenue.
We recorded a valuation allowance against all our U.S. deferred tax assets and certain of our foreign deferred tax assets as of October 1, 2022. We intend to continue maintaining a full valuation allowance on our U.S. and certain foreign deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
We recorded a valuation allowance against all our U.S. deferred tax assets and certain of our foreign deferred tax assets as of September 30, 2023. We intend to continue maintaining a full valuation allowance on our U.S. and certain foreign deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
Comparison of Fiscal Years 2021 and 2020 For the comparison of fiscal years 2021 and 2020, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended October 2, 2021, filed with the SEC on November 22, 2021, under the subheading "Comparison of fiscal years 2021 and 2020." Liquidity and Capital Resources Our operations are financed primarily through cash flows from operating activities and net proceeds from the sale of our equity securities.
Comparison of Fiscal Years 2022 and 2021 For the comparison of fiscal years 2022 and 2021, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended October 1, 2022, filed with the SEC on November 23, 2022, under the subheading "Comparison of fiscal years 2022 and 2021." 38 Table of contents Liquidity and Capital Resources Our operations are financed primarily through cash flows from operating activities and net proceeds from the sale of our equity securities.
The consolidated statements of operations data for fiscal years 2019, and 2018, and the consolidated balance sheet data as of October 3, 2020, September 28, 2019, and September 29, 2018, are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K.
The consolidated statements of operations data for fiscal years 2020, and 2019, and the consolidated balance sheet data as of October 2, 2021, October 3, 2020, and September 28, 32 Table of contents 2019, are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K.
Revenue is recognized at the point in time when control is transferred, which is either upon shipment or upon delivery to the customer, depending on delivery terms.
Revenue for products and related software is recognized at the point in time when control is transferred to the customer, which is either upon shipment or upon delivery to the customer, depending on delivery terms.
In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of October 1, 2022, as they are required to fund needs outside of the United States.
In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of September 30, 2023, as they are required to fund needs outside of the United States.
As of October 1, 2022, we did not have any outstanding borrowings and $3.0 million in undrawn letters of credit that reduce the availability under the Revolving Credit Agreement. Our obligations under the Revolving Credit Agreement are secured by substantially all of our assets.
As of September 30, 2023, we did not have any outstanding borrowings and $1.8 million in undrawn letters of credit that reduce the availability under the Revolving Credit Agreement. Our obligations under the Revolving Credit Agreement are secured by substantially all of our assets.
As of October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 September 29, 2018 (In thousands) Consolidated balance sheet data: Cash and cash equivalents $ 274,855 $ 640,101 $ 407,100 $ 338,641 $ 220,930 Working capital 331,752 481,384 267,362 276,635 201,243 Total assets 1,188,388 1,138,804 816,051 761,605 587,498 Total long-term debt — — 18,251 24,840 33,097 Total liabilities 627,875 569,762 518,212 480,677 379,140 Accumulated deficit (2,514 ) (69,897 ) (228,492 ) (208,377 ) (203,611 ) Total stockholders' equity 560,513 569,042 297,839 280,928 208,358 Non-GAAP Financial Measures To supplement our consolidated financial statements presented in accordance with U.S.
As of September 30, 2023 October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 (In thousands) Consolidated balance sheet data: Cash and cash equivalents $ 220,231 $ 274,855 $ 640,101 $ 407,100 $ 338,641 Working capital 305,413 331,752 481,384 267,362 276,635 Total assets 1,002,241 1,188,388 1,138,804 816,051 761,605 Total long-term debt — — — 18,251 24,840 Total liabilities 483,584 627,875 569,762 518,212 480,677 Accumulated deficit (12,788 ) (2,514 ) (69,897 ) (228,492 ) (208,377 ) Total stockholders' equity 518,657 560,513 569,042 297,839 280,928 Non-GAAP Financial Measures To supplement our consolidated financial statements presented in accordance with U.S.
Fiscal Year Ended October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 September 29, 2018 (4) (In thousands, except share and per share amounts and percentages) Revenue $ 1,752,336 $ 1,716,744 $ 1,326,328 $ 1,260,823 $ 1,137,008 Cost of revenue (1) 955,969 906,750 754,372 733,480 647,700 Gross profit 796,367 809,994 571,956 527,343 489,308 Operating expenses Research and development (1) 256,073 230,078 214,672 171,174 142,109 Sales and marketing (1) 280,333 272,124 263,539 247,599 270,869 General and administrative (1) 170,429 152,828 120,978 102,871 85,205 Total operating expenses 706,835 655,030 599,189 521,644 498,183 Operating income (loss) 89,532 154,964 (27,233 ) 5,699 (8,875 ) Other income (expense), net Interest income 1,655 146 1,998 4,349 731 Interest expense (552 ) (592 ) (1,487 ) (2,499 ) (5,242 ) Other income (expense), net (21,905 ) 2,407 6,639 (8,625 ) (1,162 ) Total other income (expense), net (20,802 ) 1,961 7,150 (6,775 ) (5,673 ) Income (loss) before provision for (benefit from) income taxes 68,730 156,925 (20,083 ) (1,076 ) (14,548 ) Provision for (benefit from) income taxes 1,347 (1,670 ) 32 3,690 1,056 Net income (loss) $ 67,383 $ 158,595 $ (20,115 ) $ (4,766 ) $ (15,604 ) Net income (loss) per share attributable to common stockholders:⁽²⁾ Basic $ 0.53 $ 1.30 $ (0.18 ) $ (0.05 ) $ (0.24 ) Diluted $ 0.49 $ 1.13 $ (0.18 ) $ (0.05 ) $ (0.24 ) Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:⁽²⁾ Basic 127,691,030 122,245,212 109,807,154 103,783,006 65,706,215 34 Table of contents Diluted 137,762,078 140,309,152 109,807,154 103,783,006 65,706,215 Other Data: Products sold (5) 6,281 6,503 5,806 6,204 5,165 Adjusted EBITDA (3) $ 226,549 $ 278,585 $ 108,543 $ 88,689 $ 69,128 Adjusted EBITDA margin (3) 12.9 % 16.2 % 8.2 % 7.0 % 6.1 % (1) Stock-based compensation was allocated as follows: Fiscal Year Ended October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 September 29, 2018 (In thousands) Cost of revenue $ 1,620 $ 988 $ 1,106 $ 985 $ 198 Research and development 30,724 25,075 23,439 17,643 13,960 Sales and marketing 15,335 13,570 14,359 12,965 15,885 General and administrative 27,961 22,494 18,706 14,982 8,602 Total stock-based compensation expense $ 75,640 $ 62,127 $ 57,610 $ 46,575 $ 38,645 (2) See Note 11.
Fiscal Year Ended September 30, 2023 October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 (In thousands, except share and per share amounts and percentages) Revenue $ 1,655,255 $ 1,752,336 $ 1,716,744 $ 1,326,328 $ 1,260,823 Cost of revenue (1) 938,765 955,969 906,750 754,372 733,480 Gross profit 716,490 796,367 809,994 571,956 527,343 Operating expenses Research and development (1) 301,001 256,073 230,078 214,672 171,174 Sales and marketing (1) 267,518 280,333 272,124 263,539 247,599 General and administrative (1) 168,518 170,429 152,828 120,978 102,871 Total operating expenses 737,037 706,835 655,030 599,189 521,644 Operating income (loss) (20,547 ) 89,532 154,964 (27,233 ) 5,699 Other income (expense), net Interest income 10,201 1,655 146 1,998 4,349 Interest expense (733 ) (552 ) (592 ) (1,487 ) (2,499 ) Other income (expense), net 15,473 (21,905 ) 2,407 6,639 (8,625 ) Total other income (expense), net 24,941 (20,802 ) 1,961 7,150 (6,775 ) Income (loss) before provision for (benefit from) income taxes 4,394 68,730 156,925 (20,083 ) (1,076 ) Provision for (benefit from) income taxes 14,668 1,347 (1,670 ) 32 3,690 Net income (loss) $ (10,274 ) $ 67,383 $ 158,595 $ (20,115 ) $ (4,766 ) Net income (loss) per share attributable to common stockholders:⁽²⁾ Basic $ (0.08 ) $ 0.53 $ 1.30 $ (0.18 ) $ (0.05 ) Diluted $ (0.08 ) $ 0.49 $ 1.13 $ (0.18 ) $ (0.05 ) Weighted-average shares used in computing net income (loss) per share attributable to common stockholders:⁽²⁾ Basic 127,702,885 127,691,030 122,245,212 109,807,154 103,783,006 Diluted 127,702,885 137,762,078 140,309,152 109,807,154 103,783,006 Other Data: Products sold (4) 5,725 6,281 6,503 5,806 6,204 Adjusted EBITDA (3) $ 153,878 $ 226,549 $ 278,585 $ 108,543 $ 88,689 Net income (loss) margin (0.6 )% 3.8 % 9.2 % (1.5 )% (0.4 )% Adjusted EBITDA margin (3) 9.3 % 12.9 % 16.2 % 8.2 % 7.0 % (1) Stock-based compensation was allocated as follows: Fiscal Year Ended September 30, 2023 October 1, 2022 October 2, 2021 October 3, 2020 September 28, 2019 (In thousands) Cost of revenue $ 2,038 $ 1,620 $ 988 $ 1,106 $ 985 Research and development 35,530 30,724 25,075 23,439 17,643 Sales and marketing 15,677 15,335 13,570 14,359 12,965 General and administrative 23,612 27,961 22,494 18,706 14,982 Total stock-based compensation expense $ 76,857 $ 75,640 $ 62,127 $ 57,610 $ 46,575 (2) See Note 11.
Actual results could differ materially from those estimates. Our critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Actual results could differ materially from those estimates. Our critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below. Revenue Nature of Products and Services We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products.
Our platform has attracted a broad range of more than 130 streaming content providers, such as Apple Music, Spotify, Deezer, and Pandora. These partners find value in our independent platform and access to our millions of desirable and engaged customers.
We are known for delivering unparalleled sound, thoughtful design aesthetic, simplicity of use, and an open platform. Our platform has attracted a broad range of more than 130 streaming content providers, such as Apple Music, Spotify, Deezer, and Pandora. These partners find value in our independent platform and access to our millions of desirable and engaged customers.
To establish an estimate for returns, we use the expected value method by considering a portfolio of contracts with similar characteristics to calculate the historical returns rate. When determining the expected value of returns, we consider future business initiatives and relevant anticipated future events.
To establish an estimate for returns, we use the expected value method by considering a portfolio of contracts with similar characteristics to calculate the historical returns rate.
GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest U.S. GAAP equivalent of adjusted EBITDA, and the use of adjusted EBITDA margin rather than operating margin, which is the nearest U.S. GAAP equivalent of adjusted EBITDA margin.
GAAP equivalent of adjusted EBITDA, and the use of adjusted EBITDA margin rather than net income (loss) margin, which is the nearest U.S. GAAP equivalent of adjusted EBITDA margin.
Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making. 35 Table of contents Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S.
Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making.
As of October 1, 2022, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $274.9 million, including $65.6 million held by our foreign subsidiaries, proceeds from the exercise of stock options and borrowing capacity under the Credit Facility.
As of September 30, 2023, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $220.2 million, including $44.5 million held by our foreign subsidiaries, proceeds from the exercise of stock options and borrowing capacity under the Credit Facility.
We accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense. Our policy with respect to the undistributed earnings of our non-U.S. subsidiaries is to maintain an indefinite reinvestment assertion as they are required to fund needs outside of the United States.
Our policy with respect to the undistributed earnings of our non-U.S. subsidiaries is to maintain an indefinite reinvestment assertion as they are required to fund needs outside of the United States.
Estimates for sales incentives are developed using the most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved.
Estimates for sales incentives are developed using the most likely amount based on our past experience with similar contracts and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved. We accept returns from direct customers and from certain resellers.
If we were to incur additional debt financing it would result in increased debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. 39 Table of contents Debt Obligations On October 13, 2021, we entered into the Revolving Credit Agreement, which replaced our prior $80.0 million credit facility with JPMorgan Chase Bank, N.A., which matured in October 2021, in its entirety.
If we were to incur additional debt financing it would result in increased debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. Debt Obligations On October 13, 2021, we entered into the Revolving Credit Agreement.
Interest expense. Interest expense consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs. Other income (expense), net. Other income (expense), net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S. dollar.
Other income (expense), net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.
Foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rate will vary depending on jurisdictional mix of earnings, and changes in tax laws. In addition, certain U.S. tax regulations subject the earnings of our non-U.S. subsidiaries to current taxation in the United States.
Provision for (Benefit From) Income Taxes We are subject to income taxes in the United States and foreign jurisdictions in which we operate. Foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rate will vary depending on jurisdictional mix of earnings, and changes in tax laws.
Revenue We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products. We also generate a portion of revenue from Partner products and other revenue sources, such as module revenue from our IKEA partnership, architectural speakers from our Sonance partnership, accessories such as speaker stands and wall mounts, professional services, licensing, and advertising revenue.
We also generate a portion of revenue from partner products and other revenue sources, such as module revenue from our IKEA partnership, architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, advertising revenue, licensing and subscription revenue such as Sonos Radio HD and Sonos Pro (software-as-a-service). 40 Table of contents Our contracts generally include a combination of products and related software, and services.
We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations.
Significant judgments and estimates are required in the determination of the consolidated income tax expense. We prepare and file income tax returns based on our interpretation of each jurisdiction’s tax laws and regulations.
We pioneered multi-room, wireless audio products, debuting the world’s first multi-room wireless sound system in 2005. Today, our products include wireless, portable, and home theater speakers, components, and accessories to address consumers’ evolving audio needs. We are known for delivering unparalleled sound, thoughtful design aesthetic, simplicity of use, and an open platform.
Overview Sonos is one of the world's leading sound experience brands. We pioneered multi-room, wireless audio products, debuting the world’s first multi-room wireless sound system in 2005. Today, our products include wireless, portable, and home theater speakers, components, and accessories to address consumers’ evolving audio needs.
Cash Flows Fiscal 2022 Changes in Cash Flows The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended October 1, 2022 October 2, 2021 (In thousands) Net cash provided by (used in): Operating activities $ (28,260 ) $ 253,226 Investing activities (172,632 ) (45,531 ) Financing activities (150,260 ) 24,967 Effect of exchange rate changes (14,094 ) 148 Net increase in cash, cash equivalents and restricted cash $ (365,246 ) $ 232,810 Cash Flows from Operating Activities Net cash used in operating activities of $28.3 million for fiscal 2022 consisted of net income of $67.4 million, non-cash adjustments of $134.4 million and a net decrease in cash related to changes in operating assets and liabilities of $230.0 million.
Cash Flows Fiscal 2023 Changes in Cash Flows The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended September 30, 2023 October 1, 2022 (In thousands) Net cash provided by (used in): Operating activities $ 100,406 $ (28,260 ) Investing activities (50,286 ) (172,632 ) Financing activities (108,592 ) (150,260 ) Effect of exchange rate changes 3,848 (14,094 ) Net decrease in cash, cash equivalents and restricted cash $ (54,624 ) $ (365,246 ) 39 Table of contents Cash Flows from Operating Activities Net cash provided by operating activities of $100.4 million for fiscal 2023 consisted of net loss of $10.3 million, non-cash adjustments of $149.6 million and a net decrease in cash related to changes in operating assets and liabilities of $38.9 million.
Nature of Products and Services Our product revenue primarily includes sales of Sonos speakers and Sonos system products, which include software that enables our products to operate over a customer’s wireless network as well as connect to various third-party services, including music and voice.
Products and related software primarily constitute Sonos speakers and Sonos system products and include software that enables our products to operate over a customer’s wireless network as well as connect to various third-party services, including music and voice. Additionally, module revenue includes hardware and embedded software that is integrated into final products that are manufactured and sold by our partners.
Unspecified software upgrades are provided on a when-and-if-available basis and have historically included updates and enhancements such as bug fixes, feature enhancements and updates to the ability to connect to third-party music or voice assistant platforms.
Service revenue includes revenue allocated to (i) unspecified software upgrades and (ii) cloud-based services that enable products to access third-party music and voice assistant platforms. Unspecified software upgrades have historically included updates and enhancements such as bug fixes, feature enhancements and updates to the ability to connect to third-party music or voice assistant platforms.
In developing SSP estimates, we also consider the nature of the products and services and the expected level of future services. Determining the revenue recognition period for unspecified software upgrades and cloud services requires judgment. We recognize revenue attributable to these performance obligations ratably over the best estimate of the period that the customer is expected to receive the services.
Revenue allocated to unspecified software upgrades and cloud-based services is deferred and recognized ratably over our best estimate of the period that the customer is expected to receive the services. Determining the revenue recognition period for unspecified software upgrades and cloud services requires judgment.
References to fiscal 2022 are to our 52-week fiscal year ended October 1, 2022, references to fiscal 2021 are to our 52-week fiscal year ended October 2, 2021, references to fiscal 2020 are to our 53-week fiscal year ended October 3, 2020. Overview Sonos is one of the world's leading sound experience brands.
References to fiscal 2023 are to our 52-week fiscal year ended September 30, 2023, references to fiscal 2022 are to our 52-week fiscal year ended October 1, 2022, references to fiscal 2021 are to our 52-week fiscal year ended October 2, 2021 and references to fiscal 2020 are to our 53-week fiscal year ended October 3, 2020.
A valuation allowance is provided to reduce our deferred tax assets to amounts that are more-likely-than-not to be realized.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided to reduce our deferred tax assets to amounts that are more-likely-than-not to be realized.
(3) Adjusted EBITDA and adjusted EBITDA margin are financial measures that are not calculated in accordance with U.S. GAAP. See the section titled "—Non-GAAP Financial Measures" below for information regarding our use of these non-GAAP financial measures and a reconciliation of net income (loss) to adjusted EBITDA.
See the section titled "—Non-GAAP Financial Measures" below for information regarding our use of these non-GAAP financial measures and a reconciliation of net income (loss) to adjusted EBITDA. 33 Table of contents (4) Products sold for the fiscal 2019 has been recast to reflect the change in product revenue categorization.
Income Taxes Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. Significant judgments and estimates are required in the determination of the consolidated income tax expense.
A hypothetical 10% change to our inventory reserves percentages would not result in a material change to our fiscal 2023 cost of revenue. Income Taxes Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid.
Research and Development Fiscal Year Ended Change from Prior Fiscal Year October 1, 2022 October 2, 2021 $ % (Dollars in thousands) Research and development $ 256,073 $ 230,078 $ 25,995 11.3 % Percentage of revenue 14.6 % 13.4 % Research and development expenses increased $26.0 million, or 11.3%, for fiscal 2022 compared to fiscal 2021.
Research and Development Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) Research and development $ 294,445 $ 256,073 $ 38,372 15.0 % Restructuring and abandonment costs 6,556 — 6,556 * Total research and development $ 301,001 $ 256,073 $ 44,928 17.5 % Percentage of revenue 18.2 % 14.6 % * not meaningful Research and development expenses increased $44.9 million, or 17.5%, for fiscal 2023, compared to fiscal 2022.
Sales and Marketing Fiscal Year Ended Change from Prior Fiscal Year October 1, 2022 October 2, 2021 $ % (Dollars in thousands) Sales and marketing $ 280,333 $ 272,124 $ 8,209 3.0 % Percentage of revenue 16.0 % 15.9 % Sales and marketing expenses increased $8.2 million, or 3.0%, in fiscal 2022 compared to fiscal 2021.
Sales and Marketing Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) Sales and marketing $ 261,883 $ 280,333 $ (18,450 ) (6.6 )% Restructuring and abandonment costs 5,635 — 5,635 * Total sales and marketing $ 267,518 $ 280,333 $ (12,815 ) (4.6 )% Percentage of revenue 16.2 % 16.0 % * not meaningful Sales and marketing expenses decreased $12.8 million, or 4.6%, for fiscal 2023, compared to fiscal 2022.
Other Income (Expense), Net Fiscal Year Ended Change from Prior Fiscal Year October 1, 2022 October 2, 2021 $ % (Dollars in thousands) Interest income $ 1,655 $ 146 $ 1,509 * Interest expense $ 552 $ 592 $ (40 ) (6.8 )% Other income (expense), net $ (21,905 ) $ 2,407 $ (24,312 ) * 38 Table of contents * not meaningful Interest income increased by $1.5 million, in fiscal 2022 compared to fiscal 2021, due to higher yields earned on our cash and cash equivalents during fiscal 2022.
Other Income (Expense), Net Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) Interest income $ 10,201 $ 1,655 $ 8,546 * Interest expense (733 ) (552 ) (181 ) 32.80 % Other income (expense), net 15,473 (21,905 ) 37,378 * Total other income (expense), net $ 24,941 $ (20,802 ) $ 45,743 * * not meaningful Interest income for fiscal 2023, compared to fiscal 2022, increased due to higher yields on our cash and cash equivalents.
Our effective tax rate will be impacted by our ability to claim deductions and foreign tax credits to offset the taxation of foreign earnings in the United States. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
In addition, certain U.S. tax regulations subject the earnings of our non-U.S. subsidiaries to current taxation in the United States. Our effective tax rate will be impacted by our ability to claim deductions and foreign tax credits to offset the taxation of foreign earnings in the United States.
Fiscal Year Ended October 1, 2022 October 2, 2021 October 3, 2020 (In thousands, except percentages) Revenue $ 1,752,336 $ 1,716,744 $ 1,326,328 Products sold 6,281 6,503 5,806 Adjusted EBITDA (1) $ 226,549 $ 278,585 $ 108,543 Adjusted EBITDA margin (1) 12.9 % 16.2 % 8.2 % (1) For additional information regarding adjusted EBITDA and adjusted EBITDA margin (which are non-GAAP financial measures), including reconciliations of net income (loss), to adjusted EBITDA, see the sections titled "Adjusted EBITDA and Adjusted EBITDA Margin" and "Non-GAAP Financial Measures" below.
Fiscal Year Ended September 30, 2023 October 1, 2022 October 2, 2021 (In thousands, except percentages) Revenue $ 1,655,255 $ 1,752,336 $ 1,716,744 Products sold 5,725 6,281 6,503 Net income (loss) (10,274 ) 67,383 158,595 Net income (loss) margin (1) (0.6 )% 3.8 % 9.2 % Adjusted EBITDA (2) $ 153,878 $ 226,549 $ 278,585 Adjusted EBITDA margin (2) 9.3 % 12.9 % 16.2 % (1) Net income (loss) margin is calculated by dividing net income (loss) by revenue.
Partner products and other revenue represented 4.9% of total revenue for fiscal 2022, and increased 18.6% compared to fiscal 2021. The increase was driven by sales from our partnerships with Sonance and IKEA. The volume of products sold decreased for fiscal 2022, compared to fiscal 2021, as we sold fewer units in the Sonos speakers category.
Partner products and other revenue represented 4.6% of total revenue for fiscal 2023, and decreased 11.1% compared to fiscal 2022. The decline was driven by a decrease in orders of our partner products. The volume of products sold decreased 8.9% for fiscal 2023, compared to fiscal 2022, driven by unit decreases across all categories.
Inventories Inventories consist of finished goods and component parts, which are purchased from contract manufacturers and component suppliers. Inventories are stated at the lower of cost and net realizable value. Cost is determined using a standard costing method, which approximates first-in first-out. We assess the valuation of inventory balances including an assessment to determine potential excess and/or obsolete inventory.
We record and value our inventory at the lower-of-cost and net realizable value. We determine cost using a standard costing method, which approximates first-in first-out.
The decrease in net operating assets and liabilities was partially offset by an increase in accounts payable and accrued expenses of $129.7 million primarily related to an increase in accrued inventory payments.
The net decrease in net operating assets and liabilities was primarily due to a decreases in accounts payable and accrued expenses of $162.3 million due to lower inventory purchases, a decrease in deferred revenue of $4.6 million, and a decrease in accrued compensation of $2.2 million due to lower accrued variable compensation.
The most directly comparable financial measure calculated under U.S. GAAP for adjusted EBITDA is net income (loss). In the fiscal years ended October 1, 2022 and October 2, 2021, we had net income of $67.4 million and $158.6 million, respectively and in the fiscal year ended October 3, 2020, we had a net loss of $20.1 million.
The most directly comparable financial measure calculated under U.S. GAAP for adjusted EBITDA and adjusted EBITDA margin are net income (loss) and net income (loss) margin, respectively.
In developing our estimates, we also consider the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved, our experience with similar contracts, and the range of possible outcomes. Reductions in revenue related to discounts are allocated to products and services on a relative basis based on their respective SSP.
In developing SSP estimates, we also consider the nature of the products and services and the expected level of future services. We offer sales incentives through various programs, consisting primarily of discounts, cooperative advertising and market development fund programs. Reductions in revenue related to discounts are allocated to products and services on a relative basis based on their respective SSP.
Cash Flows from Investing Activities Cash used in investing activities for fiscal 2022 of $172.6 million consisted primarily of payments for acquisitions, net of acquired cash of $126.4 million, as well as purchases of property and equipment and intangible assets of $46.2 million, which were primarily related to manufacturing-related tooling and test equipment to support the launch of new products, as well as purchased intangible assets. 40 Table of contents Cash Flows from Financing Activities Cash used in financing activities for fiscal 2022 of $150.3 million consisted primarily of payments for repurchases of common stock of $150.1 million, payments for repurchases of common stock related to shares withheld for tax in connection with vesting of RSUs of $39.7 million, as well as payments for debt issuance costs of $0.9 million, offset by proceeds from the exercise of stock options of $40.4 million.
Cash Flows from Financing Activities Cash used in financing activities for fiscal 2023 of $108.6 million consisted primarily of payments for repurchase of common stock of $100.1 million, payments for repurchase of common stock related to shares withheld for tax in connection with vesting of RSUs of $29.9 million, partially offset by proceeds from exercise of common stock options of $21.3 million.
Products and related software are accounted for as a single performance obligation and all intended functionality is available to the customer upon purchase. The revenue allocated to the products and related software is the substantial portion of the total sale price.
Revenue Recognition Revenue is allocated to products and related software, and to unspecified software upgrades and cloud-based services. Revenue allocated to the products and related software is the substantial portion of the total sale price.
The facility may be drawn as an Alternative Base Rate Loan (at 1.00% plus an applicable margin) or Eurocurrency Loans (at the London interbank offered rate ("LIBOR") plus an applicable margin).
In June 2023, we amended our Revolving Credit Agreement to change the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”), effective July 1, 2023. The facility may be drawn as an Alternative Base Rate Loan (at 1.00% plus an applicable margin) or Term Benchmark Loan (SOFR plus an applicable margin).
Non-cash adjustments primarily consisted of stock-based compensation expense of $75.6 million and depreciation and amortization of $38.5 million.
Non-cash adjustments primarily consisted of stock-based compensation expense of $76.9 million, depreciation and amortization of $49.0 million, provision for inventory obsolescence of $20.6 million, restructuring and abandonment charges of $5.5 million, and other adjustments of $5.5 million, partially offset by foreign currency transaction gains of $7.3 million.
Cost of Revenue and Gross Profit Fiscal Year Ended Change from Prior Fiscal Year October 1, 2022 October 2, 2021 $ % (Dollars in thousands) Cost of revenue $ 955,969 $ 906,750 $ 49,219 5.4 % Percentage of revenue 54.6 % 52.8 % Gross profit $ 796,367 $ 809,994 $ (13,627 ) (1.7 )% Gross margin 45.4 % 47.2 % The increase in cost of revenue for fiscal 2022, compared to fiscal 2021, was primarily driven by an increase in air freight shipping in the first quarter of fiscal 2022, higher component costs, and an overall increase in shipping and logistics costs related to industry-wide supply chain dynamics.
We calculate constant currency growth percentages by translating our current period financial results using the prior period average currency exchange rates and comparing these amounts to our prior period reported results. 36 Table of contents Cost of Revenue and Gross Profit Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) Cost of revenue $ 938,765 $ 955,969 $ (17,204 ) (1.8 )% Percentage of revenue 56.7 % 54.6 % Gross profit $ 716,490 $ 796,367 $ (79,877 ) (10.0 )% Gross margin 43.3 % 45.4 % Cost of revenue decreased $17.2 million, or 1.8%, for fiscal 2023, compared to fiscal 2022, primarily due to decreased volume of products sold, lower shipping and logistics costs related to the improvement in industry-wide supply chain dynamics compared to the prior year, and decreased spot market component costs due to the normalization of the supply chain.
The increase was primarily driven by $11.6 million in personnel-related expenses due to increased headcount and stock-based compensation, offset by lower variable compensation.
This increase was primarily driven by $40.4 million of higher personnel-related expenses, stock-based compensation and overhead driven by increased headcount related to our continued execution on our product roadmap and category expansion, and the impact of $6.6 million of restructuring and abandonment costs resulting from the 2023 restructuring plan.
Inventory write-downs and losses on purchase commitments are recorded as a component of cost of revenue in the consolidated statement of operations and comprehensive income (loss). Business Combinations We use the acquisition method of accounting for business combinations and recognize assets acquired and liabilities assumed measured at their fair values on the date acquired.
Inventory write-downs and losses on purchase commitments are recorded as a component of cost of revenue in our consolidated statement of operations and comprehensive income (loss). If actual demand is lower than our forecasted demand, we could be required to write down the value of additional inventory, which would have a negative effect on our gross profit.
Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns, discounts, sales incentives and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Transaction price is calculated as the stated consideration net of variable consideration such as allowances for returns, discounts, sales incentives, and any tax collected from customers. The transaction price is allocated to the separate performance obligations in the contract based on relative standalone selling prices ("SSPs").
General and Administrative Fiscal Year Ended Change from Prior Fiscal Year October 1, 2022 October 2, 2021 $ % (Dollars in thousands) General and administrative $ 170,429 $ 152,828 $ 17,601 11.5 % Percentage of revenue 9.7 % 8.9 % General and administrative expenses increased $17.6 million, or 11.5%, in fiscal 2022 compared to fiscal 2021.
This decrease was primarily driven by lower marketing expenses of $28.0 million partially offset by an increase of $6.3 million in personnel-related expenses, stock-based compensation and overhead due to increased headcount, as well as $5.6 million of restructuring and abandonment costs resulting from the 2023 restructuring plan. 37 Table of contents General and Administrative Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) General and administrative $ 165,060 $ 170,429 $ (5,369 ) (3.2 )% Restructuring and abandonment costs 3,458 — 3,458 * Total general and administrative $ 168,518 $ 170,429 $ (1,911 ) (1.1 )% Percentage of revenue 10.2 % 9.7 % * not meaningful General and administrative expenses decreased $1.9 million, or 1.1%, for fiscal 2023, compared to fiscal 2022.
Removed
Our innovative products, seamless customer experience and expanding global footprint have driven 17 consecutive years of sustained revenue growth since our first product launch.
Added
Recent developments In March 2023, we executed the successful launch of two new products simultaneously - Era 100 and Era 300, our next generation of smart speakers. We also entered our new category with the introduction of Sonos Pro, our new audio subscription service for businesses.
Removed
Recent developments The impacts of, and uncertainty related to, the COVID-19 pandemic and its expected duration persist. Developments continue to occur, relating to the emergence of new variants of the virus, outbreaks, and resulting lockdowns globally.
Added
In September 2023, we launched Move 2, our new and improved premium portable all-in-one speaker, which we are confident is the best on the market.
Removed
COVID-19 has affected our supply chain, consistent with its effect across many industries, including component supply-related challenges, inflationary pressures, port congestion and the continuing impacts of lockdowns in China. We began to see recovery in supply for some of our products, while supply chain constraints resulted in delayed product availability for certain products.
Added
Notwithstanding the success of these products, our fiscal 2023 results were impacted by the near term industry-wide macroeconomic pressures we have flagged throughout fiscal 2023, and our fiscal 2023 results were adversely affected by a tightening of inventory in our installer solutions channel and by our retail partners, as well as demand softening in the later part of the year.
Removed
As a result of these broader industry-wide supply chain challenges, in fiscal 2022, we experienced increased component costs, and increased shipping and logistics costs, as well as longer lead times. More recently, macroeconomic trends have led to uncertainty in the economic environment.
Added
During fiscal 2023, we saw improvements in our supply chain, including recovery of supply for our products, decreased spot market component costs, and decreased shipping and logistics costs compared to the prior year.
Removed
These include conditions such as the potential for a recession, foreign exchange rate fluctuations - particularly the strengthening of the U.S. dollar relative to the euro and the British pound, high inflation and the related negative impact on the global economy, and the continuing conflict between Russia and Ukraine.
Added
This improvement was partially offset by inventory write-downs for component inventory for purchases we committed to in response to industry-wide supply constraints resulting from the impact of the COVID-19 pandemic.
Removed
Foreign exchange rate fluctuations had an unfavorable impact on revenue for the second half of fiscal 2022, primarily due to the strength of the U.S. dollar relative to the euro and the British pound.
Added
In fiscal 2023, we began the process of exiting certain partnerships with two of our contract manufacturers and we expect to complete these exits with minimal disruption by the first quarter of fiscal 2024.
Removed
These trends, as well as a shift in consumer spending from purchasing goods to purchasing services , led to softening demand in the second half of fiscal 2022.
Added
We also added to our diversified contract manufacturing partnerships and shifted more of our production into our new contract manufacturing locations in Malaysia and Vietnam, resulting in savings from tariff avoidance.
Removed
The falloff in demand resulted in an increase in our component supply and inventory as we had previously increased our investments and purchase commitments to secure inventory for long lead-time components during what had been a period of constrained availability and strong demand.
Added
In June 2023, in response to the softening of underlying demand trends we observed in the prior quarter resulting from industry-wide macroeconomic pressures, we initiated a restructuring plan to reduce our cost base (the “2023 restructuring plan”).
Removed
We continue to work with our contract manufacturing partners to actively manage the impact of industry-wide supply chain challenges, including fluctuations in component availability and consumer demand.
Added
The 2023 restructuring plan included a reduction in force involving approximately 7% of our employees, a further reduction of our real estate footprint, and a re-evaluation of certain program spend. Restructuring and abandonment costs under the 2023 restructuring plan were $11.4 million, substantially all of which were incurred in the third quarter of fiscal 2023.

… 73 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−1 removed6 unchanged
Biggest changeA hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. 43 Table of contents Foreign Currency Risk Our inventory purchases are primarily denominated in U.S. dollars.
Biggest changeTo date, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. Foreign Currency Risk Our inventory purchases are primarily denominated in U.S. dollars.
Summary of Significant Accounting Policies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements. 44 Table of contents
Summary of Significant Accounting Policies of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements. 43 Table of contents
Based on transactions denominated in currencies other than respective functional currencies as of October 1, 2022, a hypothetical adverse change of 10% would have resulted in an adverse impact on income (loss) before provision for (benefit from) income taxes of approximately $22.5 million for the fiscal year ended 2022. Recent Accounting Pronouncements See Note 2.
Based on transactions denominated in currencies other than respective functional currencies as of September 30, 2023, a hypothetical adverse change of 10% would have resulted in an adverse impact on income (loss) before provision for (benefit from) income taxes of approximately $21.5 million for the fiscal year ended 2023. Recent Accounting Pronouncements See Note 2.
We recognized a net loss from foreign currency of $21.9 million in fiscal 2022, and net gains from foreign currency of $2.4 million and $6.6 million in fiscal 2021 and fiscal 2020, respectively. Recently, we have seen a particular strengthening of the U.S. dollar relative to the euro and the British pound.
We recognized a net gain from foreign currency of $13.7 million in fiscal 2023, a net loss from foreign currency of $21.9 million in fiscal 2022 and a net gain from foreign currency of $2.4 million in fiscal 2021. Recently, we have seen a particular strengthening of the U.S. dollar relative to the euro and the British pound.
These risks primarily include interest rate and foreign currency risks as follows: Interest Rate Risk As of October 1, 2022, we had cash and cash equivalents of $274.9 million, which consisted primarily of cash on hand, money market fund investments, and bank deposits. Such interest-earning instruments carry a degree of interest rate risk due to floating interest rates.
These risks primarily include interest rate and foreign currency risks as follows: Interest Rate Risk As of September 30, 2023, we had cash and cash equivalents of $220.2 million, which consisted primarily of cash on hand, money market fund investments, and bank deposits. Such interest-earning instruments carry a degree of interest rate risk due to floating interest rates.
Removed
To date, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates.

Other SONO 10-K year-over-year comparisons