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What changed in Sonos Inc's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Sonos Inc's 2023 and 2024 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 2024 report.

+311 added−384 removedSource: 10-K (2024-11-15) vs 10-K (2023-11-20)

Top changes in Sonos Inc's 2024 10-K

311 paragraphs added · 384 removed · 222 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

61 edited+10 added−45 removed25 unchanged
Biggest changeSub 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.
Biggest changeReplaced Playbar, our first smart soundbar released in April 2013 and Playbase, our powerful sound base for TVs released in 2017. (General availability: June 2020) 4 Table of conten ts • Sub Mini : Our wireless subwoofer which delivers powerful, balanced bass, rich, clear low end frequencies, in a compact cylindrical design.
Our platform enables customers to easily search and browse for content from a list of more than 130 content partners from around the world including stations, artists, albums, podcasts, audio books, and more. Content partners can connect to Sonos via our platform and find a new and growing audience for their catalogs. • Intuitive and flexible control.
Our platform enables customers to easily search and browse for content from a list of more than 100 content partners from around the world including stations, artists, albums, podcasts, audio books, and more. Content partners can connect to Sonos via our platform and find a new and growing audience for their catalogs. • Intuitive and flexible control.
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.
We will continue to seek retail partners that can deliver differentiated in-store and e-commerce 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.
To accomplish these goals, we’re implementing initiatives to help us reach these goals, including: • holding management directly accountable in creating a more diverse and inclusive environment by designating 10% of the annual cash incentive plan for management for diversity, equity and inclusion goals; • examining our hiring practices to ensure we source the best talent from the widest available pool; 12 Table of contents • intentional listening to our employee resource groups who provide critical insight into the experience of underrepresented groups at Sonos and across our industry; • frequent review of our policies and practices to ensure an equitable experience for all; • coupling our hiring goals with a focus on retention, employee engagement, and inclusive leadership; • implementing mentoring and allyship programs that connect employees to key support systems across Sonos; and • deepening our organizational acumen around allyship, unconscious bias, and equity.
To accomplish these goals, we’re implementing initiatives to help us reach these goals, including: • holding management directly accountable in creating a more diverse and inclusive environment by designating 10% of the annual cash incentive plan for management for diversity, equity and inclusion goals; • examining our hiring practices to ensure we source the best talent from the widest available pool; • intentional listening to our employee resource groups who provide critical insight into the experience of underrepresented groups at Sonos and across our industry; • frequent review of our policies and practices to ensure an equitable experience for all; 9 Table of conten ts • coupling our hiring goals with a focus on retention, employee engagement, and inclusive leadership; • implementing mentoring and allyship programs that connect employees to key support systems across Sonos; and • deepening our organizational acumen around allyship, unconscious bias, and equity.
We provide employees with compensation packages that include base salary, annual incentive bonuses, and long-term equity awards ("RSUs") tied to the value of our stock price.
We provide employees with compensation packages that include base salary, cash incentive bonuses, and long-term equity awards ("RSUs") tied to the value of our stock price.
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.
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. The appeals court has affirmed this finding.
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 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.
In addition to cash and equity compensation, we also offer employees benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, and a 401(k) plan. Diversity, Equity and Inclusion .
In addition to cash and equity compensation, we also offer employees benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, and a 401(k) plan with employer matching. Diversity, Equity and Inclusion .
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.
Sonos, the Sonos logo, Sonos One, Sonos Five, Sonos Beam, Play:5, Playbase, Playbar, Sonos Arc, Amp, Sub, Sonos Move, Sonos Move 2, Port, Ray, Sonos Ray, Sonos Roam, Sonos Roam 2, Sonos Voice Control, Sonos Voice Control logo, Trueplay, Sub Mini, Sonos Sub Mini, Mayht, Era 100, Era 300, Sonos Ace and our other registered or common law trademarks, tradenames or service marks appearing in this Annual Report on Form 10-K are our property.
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.
The California case has concluded with a jury verdict against Google but the court holding the Sonos patents unenforceable and invalid. The California case is 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.
We monitor the representation of women and racially or ethnically diverse team members at different levels throughout the company and disclose the composition of our team in our annual Listen Better Report, which is our corporate social responsibility report available on the Investor Relations section of our website.
We monitor the representation of women and racially or ethnically diverse team members at different levels throughout the company and disclose the composition of our team in our annual Listen Better Report, which is our corporate social responsibility report available on the Sustainability & Impact section of our website.
Our Trueplay technology uses the microphones on an iOS device to analyze room attributes, speaker placement and other acoustic factors to improve sound quality. We also developed Automatic TruePlay to deliver the same audio tuning experience, directly using the microphones integrated to our speakers and make this available to iOS and Android users. • Continuous Improvement.
Our Trueplay technology uses the microphones on an iOS device to analyze room attributes, speaker placement and other acoustic factors to improve sound quality. We also developed Automatic TruePlay to deliver the same audio tuning experience, directly using the microphones integrated to our speakers and make this available to iOS and Android users. • Sonos Voice Control.
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.
(General availability: April 2023) • Audi Partnership : 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. (General availability: April 2021) • Sonos Radio HD : Our subscription service of ad-free, high-definition streaming tier of our streaming radio, Sonos Radio.
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.
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. 5 Table of conten ts • Open platform for content partners.
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.
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 28, 2024, we had 1,708 full-time employees.
The principal competitive factors in our market include: • brand awareness and reputation; • breadth of product offering; • price; • sound quality; • multi-room and wireless capabilities; • customer support; • product quality and design; • ease of setup and use; and • network of technology and content partners.
The principal competitive factors in our market include: • brand awareness and reputation; • breadth of product offering; • price; • sound quality; 8 Table of conten ts • multi-room and wireless capabilities; • customer support; • product quality, reliability and design; • ease of setup and use; and • network of technology and content partners.
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.
Our Growth Strategies Key elements of our growth strategy include: Continued introduction of innovative products and services and expansion into new categories. Since 2005, we have released products in multiple audio 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.
We completed the initial public offering ("IPO") of our common stock in August 2018 and our common stock is listed on The Nasdaq Global Select Market under the symbol of "SONO." Our principal executive offices are located at 614 Chapala Street, Santa Barbara, California 93101, and our telephone number is (805) 965-3001. Our website address is www.sonos.com.
We completed the initial public offering ("IPO") of our common stock in August 2018 and our common stock is listed on The Nasdaq Global Select Market under the symbol of "SONO." Our principal executive offices are located at 301 Coromar Drive, Santa Barbara, California 93117, and our telephone number is (805) 965-3001. Our website address is www.sonos.com.
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.
Originally launched as One in October 2017 and completely redesigned in March 2023 as Era 100. (General availability: March 2023) • Era 300: Our bold, revolutionary speaker that offers the best out-loud listening experience for your favorite spatial audio content with Dolby Atmos. (General availability: March 2023) • Five: Our high-fidelity speaker for superior sound.
Community Involvement . We aim to enhance the communities where we live and work, and believe that this commitment helps in our efforts to attract and retain employees. We offer employees the opportunity to give back both through our Sonos Soundwaves program, which partners with leading non-profits, and our Sonos Cares program, which offers employees paid volunteer time each year.
Community Involvement . We aim to enhance the communities where we live and work, and believe that this commitment helps in our efforts to attract and retain employees. We offer employees the opportunity to give back through our Sonos Soundwaves program, which partners with leading non-profits.
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.
The cases in Canada, Germany, France, and the Netherlands have been decided against Google. In the California case, all of Google's patent claims have been dismissed or decided against Google. 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.
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.
In fiscal 2024 and 2023, sales through our direct-to-consumer channel, primarily through sonos.com, represented 22.9% and 23.8% of our total revenue, respectively. We expect that our partnerships with third-party retailers will continue to be an important part of our ecosystem.
Our ability to sell additional products to existing customers is a key part of our business model, as follow-on purchases indicate high customer engagement and satisfaction, decrease the likelihood of competitive substitution, and result in higher customer lifetime value.
Our ability to sell additional products to existing customers is a key part of our business model, as follow-on purchases indicate high customer engagement and satisfaction, decrease the likelihood of competitive substitution, and result in higher customer lifetime value. Our differentiated customer experience has cultivated a long-term, passionate, and engaged customer base.
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.
Our marketing investments are focused on increasing brand awareness through advertising, public relations, and brand promotion activities, including digital platforms, sponsorships, collaborations, brand activations, and channel marketing. We also invest in capital expenditures on product displays to support our retail channel partners.
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.
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.
We intend to deepen our relationships with our current partners and expand our partner ecosystem by providing our customers access to streaming music services, voice assistants, internet radio, podcasts and audiobook content. • Increase brand awareness in existing geographic markets .
We intend to deepen our relationships with our current partners and expand our partner ecosystem by providing our customers access to streaming music services, voice assistants, internet radio, podcasts and audiobook content. Continued cultivation of customer experience with existing customers .
We partner with third-party developers to build new applications and services on top of the Sonos platform, increasing customer engagement and creating new experiences for our customers, such as architectural in-ceiling, in-wall and outdoor speakers in partnership with Sonance, picture frame, bookshelf and table lamp speakers in partnership with IKEA, and automotive sound in partnership with Audi.
We partner with third-party developers to build new applications and services on top of the Sonos platform, increasing customer engagement and creating new experiences for our customers, such as architectural in-ceiling, in-wall and outdoor speakers in partnership with Sonance, and automotive sound in partnership with Audi. Research and Development Our products and software demand significant technical expertise to develop competitively.
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.
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. One ITC case concluded with a finding of no violation by the Company and was not appealed. The other ITC case is awaiting a ruling by the judge.
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 .
Additionally, we use independent contractors and temporary personnel to supplement our workforce. Of our full-time employees, 1,235 were in the United States and 473 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 .
Sonos system products comprises our component and other products which allow customers to convert third-party wired systems, stereo systems and home theater set-ups into our easy-to-use, wirelessly controlled streaming music system, including: Product Launch Date Description Port September 2019 Our versatile streaming component for stereos or receivers. Replaced Connect which launched in January 2007.
(General availability: June 2024) Sonos System Products Our Sonos system products category includes our component products which allow customers to convert third-party wired systems, stereo systems, and home theater set-ups into our easy-to-use, wirelessly controlled streaming music system, as follows: • Port : Our versatile streaming component for stereos or receivers. Replaced Connect which launched in January 2007.
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.
(General availability: May 2024) • Move 2 : 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. (General availability: September 2023) Home theater: • Ray : Our smallest, smart soundbar for TV, music, and more.
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.
In fiscal 2024, existing customers accounted for approximately 44% of new product registrations. As of September 28, 2024, we had a total of nearly 50.4 million products registered in approximately 16.3 million households globally, including the addition of approximately 1.0 million new households during fiscal 2024. Our customers have typically purchased additional Sonos products over time.
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.
(General availability: April 2020) • Accessories : Accessories allow our customers to integrate our products seamlessly into their homes including our custom-designed stands, mounts, shelves, cables, chargers, and more. 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.
In order to continue to design innovative experiences and products, and compete and succeed in our highly competitive and rapidly evolving market, it is crucial that we continue to attract and retain experienced employees.
Human Capital Sonos is dedicated to creating the ultimate listening experience for our customers, and our employees are critical to achieving this mission. In order to continue to design innovative experiences and products, and compete and succeed in our highly competitive and rapidly evolving market, it is crucial that we continue to attract and retain talented employees.
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.
Our platform has attracted a broad range of more than 100 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. Our partner ecosystem spans across content, control, and third-party applications: • Content .
We frequently introduce new services and features across our platform, providing our customers with enhanced functionality, improved sound, and an enriched user experience. We are committed to continuous technological innovation as reflected in our growing global patent portfolio. We believe our patents comprise the foundational intellectual property for wireless multi-room and other audio technologies.
We are committed to continuous technological innovation as reflected in our growing global patent portfolio. We believe our patents comprise the foundational intellectual property for wireless multi-room and other audio technologies. Our software includes the following key benefits: • Multi-room, multi-service experience.
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.
While we maintain a base level of investment throughout the year, significant increases in spending have historically been highly correlated with the holiday shopping season, and new product launches.
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 launched as Play:5 (Gen 1) in November 2009 and completely redesigned in November 2015 as Play:5 (Gen 2). (General availability: June 2020) Portables: • Roam 2 : Our ultra-portable, durable, portable smart speaker with Bluetooth and WiFi for listening on the go and at home. Originally introduced as Roam in April 2021.
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.
Our products are manufactured by contract manufacturers in China and Malaysia, and Vietnam. We have continued to maintain diversified contract manufacturing partnerships with more of our production in Malaysia and Vietnam, resulting in savings including tariff avoidance.
We intend to increase our household penetration rates in our existing geographic markets by increasing brand awareness, expanding our product offerings and growing our partner ecosystem. • Expansion into new geographic markets. Geographic expansion represents a growth opportunity in currently underserved countries.
We intend to increase our household penetration rates in our existing geographic markets by increasing brand awareness, expanding our product offerings and growing our partner ecosystem. Additionally, we are committed to strengthening our brand in global markets and our future success will depend in part on our growth in international markets.
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. 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.
(General availability: April 2020) • Sonos Architectural by Sonance : 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.
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.
We frequently introduce new services and features across our platform, providing our customers with enhanced functionality, improved sound, and an enriched user experience. Since we launched our first product 19 years ago, we have grown our install base by launching innovative new products, delivering a seamless customer experience, and expanding our global footprint.
In June 2022, we introduced Sonos Voice Control, the first voice experience purpose-built for listening to and controlling your music on Sonos speakers. Designed with privacy at its core, Sonos Voice Control is the simplest way to control your music, offering complete command of your Sonos system using only your voice.
Designed with privacy at its core, Sonos Voice Control is the simplest way to control your music, offering complete command of your Sonos system using only your voice. Sonos Voice Control works on every voice-capable Sonos speaker, processing requests entirely on the Sonos device. • Continuous Improvement.
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.
Additionally, we own foundational intellectual property in wireless multi-room and other audio technologies and our patent portfolio grows each year. We were included in the Intellectual Property Owners Association's "Top 300 Patent Owners" report for 2023, marking our seventh consecutive year. As of calendar year 2023, we have obtained 1,551 issued patents in the United States.
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.
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 will continue to innovate and invest in product development in order to enhance customer experience and drive sales of additional products to existing customers. Expansion into new and existing geographic markets.
While we believe that our active patents and patent applications are an important aspect of our business, we also rely heavily on the innovative skills, technical competence and marketing abilities of our personnel. Human Capital Sonos is dedicated to creating the ultimate listening experience for our customers, and our employees are critical to achieving this mission.
While we believe that our active patents and patent applications are an important aspect of our business, we also rely heavily on the innovative skills, technical competence and marketing abilities of our personnel. Competition We compete against established, audio-focused sellers and developers of smart speakers, headphones and sound systems.
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 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. Intellectual Property Intellectual property is an important aspect of our business, and we seek protection for our intellectual property as appropriate.
Item 1: B usiness 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.
Item 1: Business 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. In June 2024, we introduced Sonos Ace, marking Sonos' entry into the personal listening category.
Our third-party warehouses are located in the United States in California and Pennsylvania, as well as internationally in Australia, Canada, the Netherlands, China, Japan, and the United Kingdom. We use a small number of logistics providers for substantially all of our product delivery to both distributors and retailers.
Our third-party warehouses are located in North America, Australia, Europe, and Asia. We use a small number of logistics providers for substantially all of our product delivery to both distributors and retailers. This approach generally allows us to reduce order fulfillment time, reduce shipping costs, and improve inventory flexibility.
Historically, we have typically experienced the highest levels of revenue in the first fiscal quarter of the year coinciding with the holiday shopping season and our promotional activities. Our promotional discounting activity is typically higher in the first fiscal quarter as well, which negatively impacts gross margin during this period.
In calendar year 2023 alone, we acquired 229 US patents and are on pace to obtain approximately 200 US patents in calendar year 2024. Seasonality Historically, we have typically experienced the highest levels of revenue in the first fiscal quarter of the year coinciding with the holiday shopping season and our promotional activities.
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.
We intend to 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. 6 Table of conten ts 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.
Originally introduced as Roam in April 2021 Arc June 2020 Our premium smart soundbar for TV, movies, music, gaming, and more, with support for Dolby Atmos. Replaced Playbar, our first smart soundbar released in April 2013 and Playbase, our powerful sound base for TVs released in 2017. Five June 2020 Our high fidelity speaker for superior sound.
(General availability: June 2022) • Beam (Gen 2) : Our smart, compact soundbar for TV, music, and more, with support for Dolby Atmos. Originally introduced as Beam (Gen 1) in June 2018. (General availability: October 2021) • Arc : Our premium smart soundbar for TV, movies, music, gaming, and more, with support for Dolby Atmos.
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.
As of September 28, 2024, 39% of our 16.3 million households had registered more than one Sonos product. As of September 28, 2024, our households own 3.1 products on average. Our Products Our portfolio of products encourages customers to uniquely tailor their Sonos sound systems to best meet their sound and design preferences.
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.
Sales and Marketing Our products are distributed in more than 60 countries through retailer's traditional physical stores and their websites, online retailers, custom installers who bundle our products with their services, and directly through our website sonos.com.
We believe our partner ecosystem improves customer experience, attracting more customers to Sonos, which in turn attracts more partners to the platform, further enhancing customer experience. We believe partners choose to be part of the Sonos platform because it provides access to a large, engaged customer base on a global scale.
In fiscal 2024 and 2023, we generated 21.6% and 20.7%, respectively, of total revenue through our installer solutions channel. Expansion of our partner ecosystem to enhance platform . We believe our partner ecosystem improves customer experience, attracting more customers to Sonos, which in turn attracts more partners to the platform, further enhancing customer experience.
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.
Sonos Speakers Our Sonos speakers category includes our all-in-one speakers, portables, home theater products, and beginning in June 2024, headphones, as follows: All-in-one speakers: • Era 100 : Our powerful smart speaker with improved acoustics and design that delivers detailed stereo sound and deep bass.
Amp February 2019 Our versatile amplifier powering all our customers’ entertainment. Replaced Connect: Amp which launched in September 2012. 5 Table of contents • Partner Products and Other Revenue. Partner products and other revenue categories comprise products sold in connection with our partnerships, accessories, professional services, licensing, and advertising revenue.
(General availability: September 2019) • Amp : Our versatile amplifier powering all our customers’ entertainment. Replaced Connect: Amp which launched in September 2012.
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.
Coupled with our continuous improvements and enhancements to our products and software, this has driven momentum in our flywheel, prompting existing customers to add more products to their homes while we continually introduce new ones. In fiscal 2024, existing households represented approximately 44% of new product registrations.
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.
(General availability: October 2022) • Sub (Gen 3) : Our wireless subwoofer for deep bass. Originally introduced as Sub (Gen 1) in June 2012. (General availability: June 2020) Headphones • Ace : Our first-ever Sonos headphones featuring lossless and spatial audio, Active Noise Cancellation, and extended battery life.
We also invest in capital expenditures on product displays to support our retail channel partners. Sales and marketing investments are typically incurred in advance of any revenue benefits from these activities.
Research and development investments are incurred in advance of any revenue benefits from these activities. We make substantial investments in research and development to bring new products and software to market and expand our platform and capabilities.
In some cases, our competitors are also our partners in our product development and resale and distribution channels. Many of our competitors have significant market share, diversified product lines, well-established supply and distribution systems, strong worldwide brand recognition, loyal customer bases and significant financial, marketing, research, development and other resources.
In some cases, our competitors are also our partners in our product development and resale and distribution channels.
Removed
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.
Added
Today, our product lineup includes wireless, portable, and home theater speakers, headphones, 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.
Removed
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.
Added
In fiscal 2024, we introduced Ace, our first-ever headphones and Roam 2, our ultra-portable smart speaker.
Removed
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.
Added
(General availability: February 2019) Partner Products and Other Revenue Our partner products and other revenue category includes our partnerships, accessories, professional services, licensing, and advertising revenue, as follows: • Sonos Pro : Our software-as-a-service subscription offering for commercial audiences.
Removed
In June 2020, we introduced Sonos S2, a powerful new app and operating system to enable a new generation of Sonos products and experiences, which includes new features, usability updates, and more personalization while also enabling higher resolution audio technologies for music and home theater.
Added
(General availability: November 2020) • Sonos Radio : Our free, ad-supported streaming radio experience bringing together more than 60,000 stations from multiple streaming partners alongside original programming from Sonos.
Removed
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.
Added
In May 2024, we launched an extensive redesign of our Sonos app. We rebuilt the app from the ground up with the purpose of improving the user experience through a modern user interface and to provide a modular developer platform allowing us to drive more innovation faster in the future.
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Research and Development Our research and development team develops new hardware products, software and services, while continually improving and enhancing our existing software and hardware products to address customer demands and emerging trends.
Added
Following our launch, some of our customers and partners experienced missing features and performance issues and since May 2024, we have addressed these issues with software updates improving our app's performance and adding back certain features. We intend to continue to prioritize software update releases to optimize and enhance our app.
Removed
Our teams have worked on features and enhancements to the Sonos system including developments to the Sonos app, product setup, Trueplay tuning, the ability to use Alexa or Google voice services, and Sonos Voice Control. Our audio team has developed a series of acoustic technologies which enabled us to create speakers that produce high-fidelity sound.
Added
Our research and development teams, include software and hardware engineering, user experience, product management, industrial design, and quality assurance, not only create and design new hardware, software, and services but also continually enhance existing products and user experiences to meet customer needs and emerging trends. We believe our research and development capabilities and intellectual property set us apart from competitors.
Removed
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.
Added
For example, in fiscal 2024, we introduced Ace, marking our entry into the personal listening category. We intend to continue to introduce products and services across multiple categories. Expansion of direct-to-consumer efforts and building relationships with existing channel partners and prospective customers.
Removed
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.
Added
Our products are sold in more than 60 countries, and in fiscal 2024, 38.7% of our revenue was generated outside the United 7 Table of conten ts States. Geographic expansion represents a growth opportunity in currently underserved countries. We intend to expand into new countries over time by employing country-specific marketing campaigns and distribution channels.
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe face significant challenges in managing the risks associated with new product introductions and production ramp-up issues, including accurately forecasting initial consumer demand, effectively managing any third-party strategic alliances or collaborative partnerships related to new product development or commercialization, as well as the risk that new products may have quality or other defects in the early stages of introduction or may not achieve the market acceptance necessary to generate sufficient revenue.
Biggest changeThe successful introduction of new products and services depends on a number of factors, such as the timely and successful completion of development efforts, market and consumer acceptance, our ability to accurately forecast initial consumer demand, the management of purchase commitments and inventory levels, the management of manufacturing and supply costs, the management of any third-party strategic alliances or collaborative partnerships related to development or commercialization, successful launch of complementary products and services, and the risk that new products and services may have quality or other defects in the early stages of introduction.
As a result, we may not be successful in future efforts to achieve profitability from new markets, services or new types of products, and our ability to generate revenue from our existing products may suffer.
As a result, we may not be successful in future efforts to achieve profitability from new markets, services or new types of products, and our ability to generate revenue from our existing products and services may suffer.
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.
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; • 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.
If we are unable to continue to drive traffic to, and increase sales through, our website, our business and results of operations could be harmed. The continued success of direct-to-consumer sales through our website is subject to risks associated with e-commerce, many of which are outside of our control.
If we are unable to continue to drive traffic to, and increase sales through, our website and our app, our business and results of operations could be harmed. The continued success of direct-to-consumer sales through our website is subject to risks associated with e-commerce, many of which are outside of our control.
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 app, 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.
Our competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the abilities of their products to address the needs of our prospective customers, and other companies may enter our markets by entering into strategic relationships with our competitors.
Certain of our competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the abilities of their products to address the needs of our prospective customers, and other companies may enter our markets by entering into strategic relationships with our competitors.
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.
Our inability to adequately respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business via our website and our app may have an adverse impact on our results of operations.
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.
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.
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 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 consumer demand and spending patterns, new product introductions, sales promotions, channel inventory levels, and general economic and political conditions.
Competition with our content partners could cause these partners to cease to allow their content to be streamed on our products, which could lower product demand. Demand for our products depends in large part on the availability of streaming third-party content that appeals to our existing and prospective customers.
Competition with our content partners could cause these partners to cease allowing their content to be streamed on our products, which could lower product demand. Demand for our products depends in large part on the availability of streaming third-party content that appeals to our existing and prospective customers.
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.
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.
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.
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.
We must comply with extensive regulatory requirements, and the cost of such compliance, and any failure to comply, may adversely affect our business, financial condition and results of operations.
We must comply with extensive regulatory requirements, and the cost of such compliance, and any failure to comply or perceived failure to comply, may adversely affect our business, financial condition and results of operations.
If we or those with whom we share information fail to comply with laws and regulations, such as the General Data Protection Regulation ("GDPR") and California Consumer Privacy Act ("CCPA"), our reputation could be damaged, possibly resulting in lost business, and we could be subjected to additional legal risk or financial losses as a result of non-compliance.
If we or those with whom we share information fail to comply with laws and regulations, such as the General Data Protection Regulation ("GDPR") and California Consumer Privacy Act ("CCPA"), our 18 Table of conten ts reputation could be damaged, possibly resulting in lost business, and we could be subjected to additional legal risk or financial losses as a result of non-compliance.
Even if we are able to efficiently develop and offer innovative products at competitive selling prices, our operating results and financial condition may be adversely impacted if we are unable to effectively anticipate and counter the ongoing price erosion that frequently affects consumer products or if the average selling prices of our products decrease faster than we are able to reduce our manufacturing costs.
Even if we are able to efficiently develop and offer innovative products and services at competitive selling prices, our operating results and financial condition may be adversely impacted if we are unable to effectively anticipate and counter the ongoing price erosion that frequently affects the highly competitive consumer electronics industry or if the average selling prices of our products and services decrease faster than we are able to reduce our manufacturing costs.
Any of these catastrophic events, whether in the United States or abroad, may have a strong negative impact on the global economy, us, our contract manufacturers, our suppliers or customers, and could decrease demand for our products, create delays and inefficiencies in our supply chain and make it difficult or impossible for us to deliver products to our customers.
Any of these catastrophic events, whether in the United States or abroad, may have a strong negative impact on the global economy, us, our contract manufacturers, our suppliers or 21 Table of conten ts customers, and could decrease demand for our products, create delays and inefficiencies in our supply chain and make it difficult or impossible for us to deliver products to our customers.
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.
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.
If we determine that a product does not meet product quality standards or may contain a defect, the launch of such product could be delayed until we remedy the quality issue or defect. The costs associated with any protracted delay necessary to remedy a quality issue or defect in a new product could be substantial.
If we determine that a product does not meet product quality standards or may contain a defect, the launch of such product could be delayed until we remedy 16 Table of conten ts the quality issue or defect. The costs associated with any protracted delay necessary to remedy a quality issue or defect in a new product could be substantial.
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.
In the event that actual demand for our products differs from our forecast, we may end up with excess component inventory, as we saw in fiscal 2024, 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.
Due to the quickly evolving and highly competitive nature of the home audio and broader consumer electronics industry, we must frequently introduce new products, enhance existing products and effectively stimulate customer demand for new and upgraded products in both mature and developing markets.
Due to the quickly evolving and highly competitive nature of the home audio and broader consumer electronics industry, we must continually introduce new products and services, enhance existing products and services, and effectively stimulate customer demand for new or upgraded products and services in both mature and developing markets.
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.
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 liabilities for contracts that we cannot cancel, reschedule or adjust with suppliers or partners.
Our business and results of operations have been, and may continue to be, significantly harmed by retail store closures by many of our key channel partners.
Our business and results of operations have been in the past, and may continue to be, significantly harmed by retail store closures by many of our key channel partners.
As we gain an increasingly high profile and face more intense competition in our markets, and as we introduce more products and services, including through acquisitions and through partners, the possibility of intellectual property rights claims against us grows.
Given our high profile and as we face more intense competition in our markets and introduce more products and services, including through acquisitions and through partners, the possibility of intellectual property rights claims against us grows.
If one or several of our channel partners do not effectively market and sell our products, discontinue or reduce the inventory of our products, increase the promotions of or choose to promote competing products over ours, the volume of our products sold to customers could decrease, and our business and results of operations would therefore be significantly harmed.
If one or more of our channel partners do not effectively market and sell our products, discontinue or reduce the inventory of our products, promote competing products over ours, the volume of our products sold to customers could decrease, and our business and results of operations would therefore be significantly harmed.
Any of the foregoing could disrupt and harm our business and financial condition. Legal and Regulatory Risks Changes in international trade policies, including the imposition of tariffs have had, and may continue to have, an adverse effect on our business, financial condition and results of operations.
Legal and Regulatory Risks Changes in international trade policies, including the imposition of tariffs have had, and may continue to have, an adverse effect on our business, financial condition and results of operations.
Our competition includes established, well-known sellers of speakers and sound systems such as Bose, Samsung (and its subsidiaries Harman International and JBL), Sony, Bang & Olufsen, and Masimo (and its subsidiary Sound United that owns, among others, the Denon, Polk Audio and Bowers and Wilkens brands), and developers of voice-enabled speakers and systems such as Amazon, Apple and Google.
Our competition includes established, well-known sellers of audio products such as Bose, Samsung (and its subsidiaries Harman International and JBL), Sony, Bang & Olufsen, Sennheiser, Apple, Google, Amazon, and Masimo (and its subsidiary Sound United that owns, among others, the Denon, Polk Audio and Bowers and Wilkens brands).
Our investments in research and development may not yield the results expected. 15 Table of contents Our business operates in intensely competitive markets characterized by changing consumer preferences and rapid technological innovation.
Our investments in research and development may not yield the results expected. 12 Table of conten ts Our business operates in intensely competitive markets characterized by changing consumer preferences and rapid technological innovation.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to document and test our internal control procedures and to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. We previously reported and remediated material weaknesses in internal control over financial reporting.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to document and test our internal control procedures and to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control.
Under the previous administration, the U.S. government has imposed significant new tariffs on China related to the importation of certain product categories, including those under the August 2019 Section 301 Tariff Action (List 4A) ("Section 301 tariffs"). These Section 301 tariffs have increased our cost of revenue and adversely impacted our results of operations.
In the past, the U.S. government imposed significant tariffs on China related to the importation of certain product categories, including those under the August 2019 Section 301 Tariff Action (List 4A) ("Section 301 tariffs"). These Section 301 tariffs increased our cost of revenue and adversely impacted our results of operations.
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.
Our efforts to expand beyond our core offerings and offer products and services 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 offerings and develop products and services that have wider applications outside of home sound.
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.
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. Economic, Industry and Strategic Risk To remain competitive and stimulate consumer demand, we must successfully manage the introduction of new products and services.
If we are unable to effectively sell our products due to conflicts with our distribution partners or the inability to find alternative distribution channels, our business would be harmed. The expansion of our direct-to-consumer channel could alienate some of our channel partners and cause a reduction in product sales from these partners.
If we are unable to effectively sell our products due to conflicts with our distribution partners or the inability to find alternative distribution channels, our business would be harmed. The expansion of our direct-to-consumer channel could alienate some of our channel partners.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business. We do not intend to pay dividends for the foreseeable future.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.
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.
As of September 28, 2024, we had gross state net operating loss carryforwards of $33.4 million, which expire beginning in 2032, as well as $39.9 million in foreign net operating loss carryforwards with an indefinite life.
Our profits, cash flow and effective tax rate could be adversely affected by changes in the tax rules and regulations in the jurisdictions in which we do business, unanticipated changes in statutory tax rates and changes to our global mix of earnings.
Our effective tax rate, as well as our business, operating results and financial condition, could be adversely affected by changes in the tax rules and regulations in the jurisdictions in which we do business, unanticipated changes in statutory tax rates and changes to our global mix of earnings.
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 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.
We compete with other consumer products for placement and promotion of our products in the stores of our channel partners, including in some cases products of our channel partners. Our contracts with our channel partners allow them to exercise significant discretion in the placement and promotion of our products, and such contracts do not contain any long-term volume commitments.
Our contracts with our channel partners allow them to exercise significant discretion in the placement and promotion of our products, and such contracts do not contain any long-term volume commitments.
As our brand grows, we may discover unauthorized products in the marketplace that are counterfeit reproductions of our products. If we are unsuccessful in pursuing producers or sellers of counterfeit products, continued sales of these products could adversely impact our brand, business, financial condition and results of operations.
If we are unsuccessful in pursuing producers or sellers of counterfeit products, continued sales of these products could adversely impact our brand, business, financial condition and results of operations.
If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected. Our success depends in part on our ability to protect our intellectual property and other proprietary rights.
We may need additional capital, and we cannot be certain that additional financing will be available. In October 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., Bank of America N.A., Morgan Stanley Senior Funding, Inc., and Goldman Sachs Bank USA, which allows us to borrow up to $100.0 million, with a maturity date of October 2026.
In October 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., Bank of America N.A., Morgan Stanley Senior Funding, Inc., and Goldman Sachs Bank USA (the "Revolving Credit Agreement"), which allows us to borrow up to $100.0 million, with a maturity date of October 2026.
To the extent products offered by our partners compete with our products, they may choose to market and promote their own products over ours or could end our partnerships and cease selling or promoting our products entirely.
To the extent products offered by our partners compete with our products, they may choose to market and promote their own products over ours or could end our partnerships and cease selling or promoting our products entirely, which may require us to increase our marketing expenditures or seek other distribution channels.
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.
Loss of a key channel partner would require us to identify alternative channel partners or increase our reliance on our e-commerce channel, which may be time-consuming and expensive or we may be unsuccessful in our efforts to do so. Conflicts with our channel and distribution partners could harm our business and operating results.
Revenue from our channel partners also depends on a number of factors outside our control and may vary from period to period. One or more of our channel partners may experience serious financial difficulty, particularly in light of the impact of the pandemic on the retail sector, may consolidate with other channel partners or may have limited or ceased operations.
Revenue from our channel partners also depends on a number of factors outside our control and may vary from period to period. One or more of our channel partners may experience serious financial difficulty, may consolidate with other channel partners or may close or reduce operations in their retail stores.
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 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 past, we have had to increase our purchase commitments and investments during industry-wide shortages.
Further, our current and prospective competitors may consolidate with each other or acquire companies that will allow them to develop products that better compete with our products, which would intensify the competition that we face and may also disrupt or lead to termination of our distribution, technology and content partnerships.
Further, our current and prospective competitors may consolidate with each other or make acquisitions that would intensify the competition that we face, including by acquiring companies that will allow them to develop products that better compete with our products, or that would disrupt our business, including by acquiring one of our distribution, technology or content partners.
Compatibility with streaming music services, podcast platforms and other content provided by our content partners is a key feature of our products. To date, all our arrangements have been entered into on a royalty-free basis. Some of these content partners compete with us already, and others may in the future produce and sell speakers along with their streaming services.
Compatibility with streaming music services, internet radio stations, podcast platforms and other content provided by our content partners is a key feature of our products. Some of these content partners compete with us already, and others may in the future produce and sell speakers along with their streaming services.
Any of our content partners may cease to allow their content to be streamed on our products for a variety of reasons, including as a result of our offering competing services, to promote other partnerships or their products over our products, or to seek to charge us for this streaming.
Any of our content partners may cease allowing their content to be streamed on our products for a variety of reasons, including as a result of our offering competing services, such as Sonos Radio HD, or to promote other partnerships or their own products over our products.
Factors 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 products and services may be considered consumer discretionary items. Factors affecting the level of consumer spending for consumer discretionary items include general economic conditions, including the potential for an extended global recession, global economic and political uncertainty, continued inflationary pressures, high interest rates, consumer confidence and, in certain markets, foreign currency exchange rate fluctuations.
Channel partners may perceive themselves to be at a disadvantage based on the direct-to-consumer sales offered through our website. Due to these and other factors, conflicts in our sales channels could arise and cause channel partners to divert resources away from the promotion and sale of our products.
If our channel partners perceive themselves to be at a disadvantage based on the direct-to-consumer sales offered through our website and app, they may divert resources away from the promotion and sale of our products which could cause a reduction in product sales from these partners, adversely impact our business and results of operations.
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.
Due to advanced technological innovation and the relative ease of technology imitation, new products and services tend to become standardized more rapidly, leading to more intense competition and ongoing price erosion.
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.
Accordingly, a loss or interruption in the service of any key party could adversely impact our revenue, gross margin and operating results. 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.
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as patent, trademark, copyright and trade secret protection laws, to protect our proprietary rights.
We currently protect, and expect to continue to protect, our intellectual property and other proprietary rights through a combination of confidentiality and license agreements with our employees, consultants and third-party partners and patent, trademark, copyright and trade secret protection laws.
Any determination to pay dividends in the future will be at the discretion of the Board. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock.
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.
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.
We have never declared or paid any cash dividends on our common stock, and we do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all our future earnings for use in the development of our business and for general corporate purposes.
We do not intend to pay dividends for the foreseeable future. 20 Table of conten ts We have never declared or paid any cash dividends on our common stock, and we do not intend to pay any cash dividends in the foreseeable future.
Accordingly, we believe our future revenue growth will depend in significant part on the continued expansion of the market for streaming music. The success of the streaming music market depends on the quality, reliability and adoption of streaming technology and on the continued success of streaming music services such as Apple Music, Spotify, Deezer, and Pandora.
The success of the streaming music market depends on the quality, reliability and adoption of streaming technology and on the continued success of streaming music services such as Apple Music, Spotify, Deezer, and Pandora.
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.
As of September 28, 2024, we also had U.S. federal research and development tax credit carryforwards as filed of $37.6 million, and state research and development tax credit carryforwards as filed of $48.0 million, which will expire beginning in 2041 and 2026, respectively.
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.
If we fail to accurately forecast consumer demand, we may experience manufacturing delays or inefficiencies, increased costs, excess inventory levels or a shortage of products available for sale, all of which could adversely impact our operating results and financial condition. We have in recent periods experienced, and may continue to experience, a decrease in consumer demand.
Our reliance on a limited number of contract manufacturers increases the risk that, in the event that any or all of such manufacturers experience an interruption in their operations, fail to perform their obligation in a timely manner or terminate agreements with us, we would not be able to maintain our production capacity without incurring material additional costs and substantial delays or we may be fully prevented from selling our products.
If these companies experience an interruption in their operations, fail to perform their obligations in a timely manner, or terminate their agreement with us, we may be unable to maintain our production capacity without incurring material additional costs and substantial delays or we may be fully prevented from selling our products.
Open source software is generally licensed by its authors or other third parties under open source licenses.
We incorporate open source software into our products, and we may continue to incorporate open source software into our products in the future. Open source software is generally licensed by its authors or other third parties under open source licenses.
We depend on a limited number of contract manufacturers to manufacture our products, with our key manufacturer, Inventec Appliances Corporation, manufacturing a majority of our products. We have also historically manufactured our products in China.
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. We depend on a limited number of contract manufacturers to manufacture our products, with our key manufacturer, Inventec Appliances Corporation, manufacturing a majority of our products.
In the United States and certain other countries, we have filed various applications for certain aspects of our intellectual property, most notably patents.
In the United States and certain other countries, we have filed various applications for certain aspects of our intellectual property, most notably patents. However, third parties may knowingly or unknowingly infringe our proprietary rights or challenge our proprietary rights, and pending and future patent and trademark applications may not be approved.
However, third parties may knowingly or unknowingly infringe our proprietary rights or challenge our proprietary rights, pending and future patent and trademark applications may not be approved, and we may not be able to prevent infringement without incurring substantial expense. Such infringement could have a material adverse effect on our brand, business, financial condition and results of operations.
We may not be 13 Table of conten ts able to prevent infringement of our proprietary rights without incurring substantial expense. Such infringement could have a material adverse effect on our brand, business, financial condition and results of operations. We have initiated legal proceedings to protect our intellectual property rights, and we may file additional actions in the future.
In order to deliver products that appeal to changing and increasingly diverse consumer preferences and to overcome the fact that a relatively high percentage of consumers may already own or use products that they perceive to be similar to those that we offer, we must develop superior technology, anticipate increasingly diverse consumer tastes and rapidly develop attractive products with competitive selling prices.
We must also overcome the fact that a relatively high percentage of consumers may already own or use products that they perceive to be similar to those that we offer.
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.
In the event of expansion of trade restrictions, the imposition of future tariffs on imports of our products or other government actions related to tariffs or trade agreements, 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 material disruption in our relationship with our manufacturers would harm our ability to compete effectively and satisfy demand for our products and could adversely impact our revenue, gross margin and operating results. In addition, there is no guarantee that our efforts to diversify manufacturers will be successful.
Any material disruption in our relationship with our manufacturers would harm our ability to compete effectively and satisfy demand for our products and could adversely impact our revenue, gross margin and operating results. 15 Table of conten ts Beginning in fiscal 2020, we have engaged in efforts to diversify our supply chain through the addition of new contract manufacturers and geographic diversification.
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.
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.
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.
Even if we are successful in these efforts, demand for smart speakers may be affected by external factors such as macroeconomic conditions and changes in consumer spending habits. 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.
If market demand for streaming music does not grow as anticipated or the availability and quality of streaming services does not continue to increase, our business could be adversely affected. A large proportion of our customer base uses our products to listen to content via subscription-based streaming music services.
If any such expansion does not enhance our ability to maintain or grow our revenue or recover any associated development costs, our operating results could be adversely affected. If market demand for streaming music does not grow as anticipated or the availability and quality of streaming services does not continue to increase, our business could be adversely affected.
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.
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, with the exemption for our core speaker product having expired in June 2024. To date, we have recovered virtually all refunds to which we are entitled on tariffs paid through fiscal 2022.
Failure to comply with such requirements can subject us to liability, additional costs and reputational harm and, in extreme cases, force us to recall products or prevent us from selling our products in certain jurisdictions.
Failure to comply with such requirements can subject us to liability, additional costs and reputational harm and, in extreme cases, force us to recall products or prevent us from selling our products in certain jurisdictions. 19 Table of conten ts We may incur costs in complying with changing tax laws in the United States and abroad, which could adversely impact our cash flow, financial condition and results of operations.
New and upgraded products can also affect the sales and profitability of existing products. Accordingly, if we cannot properly manage the introduction of new products, our operating results and financial condition may be adversely impacted, particularly if the cadence of new product introductions increases as we expect.
Accordingly, if we cannot properly manage the introduction of new products and services, our operating results, financial condition, customer or partner relationships and reputation may be adversely impacted.
Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect. Any reduction in sales of our products and services resulting from reductions in consumer discretionary spending could have an adverse effect on our business, financial condition, and operating results.
As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products and services and consumer demand for our products and services may not grow as we expect.
Many of these partners may subsidize these prices and seek to monetize their customers through the sale of additional services rather than the speakers themselves.
In particular, we have seen our competitors sell their products at a significant discount to ours from time to time. In addition, many of our competitors may subsidize the prices of speaker products and seek to monetize their customers through the sale of additional services rather than the speakers themselves.
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.
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. See Note 13.
We may have less familiarity with consumer preferences for these products and less product or category knowledge, and we could encounter difficulties in attracting new customers due to lower levels of consumer familiarity with our brand.
We could encounter difficulties in gaining market acceptance for these products and services due to lower levels of brand recognition and potentially less familiarity by us with consumers preferences in these markets.
Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation. We incorporate open source software into our products, and we may continue to incorporate open source software into our products in the future.
Complying with such laws may also require us to modify our data processing practices and policies and incur substantial expenditures. Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.
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.
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.
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.
Any damage to our brand or reputation may adversely affect our business, financial condition 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. We are dependent on our channel partners for a vast majority of our product sales.
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.
For example, in January 2020 we filed a complaint with the ITC against Alphabet and 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, and in September 2020 we filed another lawsuit against Google alleging infringement of an additional four Sonos patents. See Note 13.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Item 1C. Cybersecurity Not applicable. Item 2 . Properties We are a global company with our corporate headquarters located in Santa Barbara, California. In July 2023, we entered into a lease agreement for office space for a new headquarters location in Goleta, California. We intend to relocate our headquarters to this space in fiscal 2024.
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Item 1C. Cybersecurity Cybersecurity risk management and strategy We have developed and implemented an enterprise-wide cybersecurity program, which is part of our overall risk management system and is designed to provide cybersecurity risk management and governance.
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With this addition, we lease office space in Goleta, California, as well as offices in various locations in the U.S. and around the world. We believe our existing facilities are adequate to meet our current requirements.
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Our cybersecurity program prioritizes, among other things, proactive detection and mitigation of threats; protection of customer and internal confidential information; minimization of the impact of incidents; and identification, assessment, and management of material risks from cybersecurity threats.
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We use a variety of strategies and techniques designed to identify cybersecurity risks and reduce the risk of unauthorized access to internal and customer confidential information and critical business systems and platforms.
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This approach utilizes both internal and external resources and includes regular risk assessments (for example, penetration testing and annual self-assessments), ongoing employee training, proactive monitoring of our IT systems, encryption of certain types of information, and certain controls governing access to our facilities and systems. We maintain a detailed incident response plan to manage cybersecurity incidents when detected.
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The response plan includes procedures for identifying, containing, and responding to cybersecurity incidents. Our ability to respond to cybersecurity incidents is tested on a recurring basis.
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We use third-party service providers to assist us from time to time to identify, assess, and manage material risks from cybersecurity threats, including professional services firms, cybersecurity software providers, and certain testing firms. 22 Table of conten ts We have processes in place designed to identify and mitigate risks from third-party vendors, including, as appropriate, pre-contractual security assessments and review of contractual terms addressing cybersecurity and data protection.
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To date, we are not aware of cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
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Despite our security measures, however, there can be no assurance that we, or third parties with which we interact, will not experience a cybersecurity incident in the future that will materially affect us. For a discussion regarding risks related to cybersecurity threats, refer to Item 1A. “Risk Factors” of this Form 10-K.
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Cybersecurity governance Our Board of Directors oversees the management of risks inherent in the operation of our business, with a focus on the most significant risks that we face, including those related to cybersecurity. The Board of Directors has delegated oversight of our cybersecurity program to the Audit Committee.
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In connection with that oversight responsibility, senior members of our information security team meet with the Audit Committee on a regular basis (but no less than semi-annually) and provide information and updates on our cybersecurity program and related topics.
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This includes existing and new cybersecurity risks, status on how management is identifying, assessing, managing and/or mitigating those risks, cybersecurity and data privacy incidents (if any), status on key information security initiatives, and developments in the cybersecurity space and evolving standards.
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Our enterprise-wide cybersecurity program is managed by a dedicated information security team, led by our Head of Cybersecurity, Risk & Trust (“Head of Cybersecurity”). Our Head of Cybersecurity has almost 25 years of cybersecurity, information governance, and IT experience in the technology industry.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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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.
Biggest changeItem 3. Legal 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod 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.
Biggest changePeriod 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) (2) Jun 30- Jul 27 18,912 $ 14.76 18,912 $ 71,069 Jul 28 - Aug 24 — $ — — $ 71,069 Aug 25 - Sep 28 — $ — — $ 71,069 Total 18,912 18,912 (1) In November 2023, the Board authorized a common stock repurchase program of up to $200 million.
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.
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 28, 2024.
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.
Item 5. Market for Registrant’s Common Equity, Related 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 October 31, 2024, there were 4 holders of record of our common stock.
We also withhold shares of common stock in connection with the vesting of restricted stock unit awards issued to such employees to satisfy applicable tax withholding requirements.
The Company withholds shares of common stock from certain employees in connection with the vesting of stock awards issued to such employees to satisfy applicable tax withholding requirements.
Although 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.
Although these withheld shares are not issued or considered common stock repurchases under the Company's stock repurchase program and therefore are not included in the preceding table, they are treated as common stock repurchases in the Company's financial statements as they reduce the number of shares that would have been issued upon vesting.
(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.
During the twelve months ended September 28, 2024, the Company repurchased 7,796,120 shares for an aggregate purchase price of $128.9 million at an average price of $16.54 per share under the repurchase program. Aggregate purchase price and average price per share exclude commission and excise tax. See Note 9. Stockholders' Equity of the Company's consolidated financial statements for further information.
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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.
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(2) 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. 24 Table of conten ts Stock Performance Graph
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Item 6 . [Reserved] 28 Table of contents

Item 7. Management's Discussion & Analysis

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

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Biggest changeRestructuring Plan of the notes to our consolidated financial statement for further discussion related to our 2023 restructuring plan. 35 Table of contents Comparison of Fiscal Years 2023 and 2022 Revenue Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) Sonos speakers $ 1,293,440 $ 1,368,916 $ (75,476 ) (5.5 )% Sonos system products 285,064 297,110 (12,046 ) (4.1 ) Partner products and other revenue 76,751 86,310 (9,559 ) (11.1 ) Total revenue $ 1,655,255 $ 1,752,336 $ (97,081 ) (5.5 )% Volume data (products sold in thousands) Units % Total products sold 5,725 6,281 (556 ) (8.9 )% Total revenue decreased $97.1 million, or 5.5%, for fiscal 2023, compared to fiscal 2022.
Biggest changeComparison of Fiscal Years 2024 and 2023 Revenue Fiscal Year Ended Change from Prior Fiscal Year September 28, 2024 September 30, 2023 $ % (Dollars in thousands) $ % $ % Sonos speakers $ 1,169,604 77.0 % $ 1,293,440 78.1 % $ (123,836) (9.6) % Sonos system products 267,744 17.6 285,064 17.2 (17,320) (6.1) Partner products and other revenue 80,708 5.3 76,751 4.6 3,957 5.2 Total revenue $ 1,518,056 100.0 % $ 1,655,255 100.0 % $ (137,199) (8.3) % Volume data (products sold in thousands) Units % Total products sold 5,000 5,725 (725) (12.7) % Total revenue decreased $137.2 million, or 8.3% for fiscal 2024 compared to fiscal 2023, primarily due to softer demand across all regions due to market conditions and challenges resulting from our recent app rollout, partially offset by the introduction of Ace in June 2024, and the impact of favorable foreign exchange rates.
Sales and marketing expenses consist primarily of advertising and marketing activity for our products and personnel-related expenses, as well as trade show and event costs, sponsorship costs, consulting and contractor expenses, travel costs, depreciation for product displays, as well as related maintenance and repair expenses, customer experience and technology support tool expenses, revenue related sales fees from our direct-to-consumer business, and overhead costs.
Sales and Marketing Sales and marketing expenses consist primarily of advertising and marketing activity for our products and personnel-related expenses, as well as trade show and event costs, sponsorship costs, consulting and contractor expenses, travel costs, depreciation for product displays, as well as related maintenance and repair expenses, customer experience and technology support tool expenses, revenue related sales fees from our direct-to-consumer business, and overhead costs.
The Revolving Credit Agreement provides for (i) a five-year senior secured revolving credit facility in the amount of up to $100.0 million and (ii) an uncommitted incremental facility subject to certain conditions. Proceeds are to be used for working capital and general corporate purposes.
The Revolving Credit Agreement provides for (i) a five year senior secured revolving credit facility in the amount of up to $100 million and (ii) an uncommitted incremental facility subject to certain conditions. Proceeds are to be used for working capital and general corporate purposes.
Key Metrics In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions. Our key metrics are total revenue, products sold, adjusted EBITDA and adjusted EBITDA margin.
Key Metrics In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, identify trends affecting our business and assist us in making operational and strategic decisions. Our key metrics are total revenue, products sold, Adjusted EBITDA and Adjusted EBITDA margin.
A hypothetical 10% change to our SSP estimates and/or the estimated recognition period for unspecified software upgrades and cloud-based services, would not result in a material change to our fiscal 2023 revenue. Inventories Inventory consists of finished goods and component parts, which we purchase from contract manufacturers and component suppliers.
A hypothetical 10% change to our SSP estimates and/or the estimated recognition period for unspecified software upgrades and cloud-based services, would not result in a material change to our fiscal 2024 revenue. Inventories Inventory consists of finished goods and component parts, which we purchase from contract manufacturers and component suppliers.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.
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.
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.
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.
A hypothetical 10% change to our inventory reserves percentages would not result in a material change to our fiscal 2024 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.
GAAP, we monitor and consider adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by U.S. GAAP and are not necessarily comparable to similarly titled measures presented by other companies.
GAAP, we monitor and consider Adjusted EBITDA, Adjusted EBITDA margin, and constant currency which are non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by U.S. GAAP and are not necessarily comparable to similarly titled measures presented by other companies.
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 architectural speakers from our Sonance partnership, accessories such as speaker stands and wall mounts, professional services, licensing, and advertising revenue.
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.
Estimates for sales incentives are developed using the most likely amount based on our past experience with 33 Table of conten ts 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.
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.
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.
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.
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 28, 2024, we were in compliance with all financial covenants under the Revolving Credit Agreement.
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 September 28, 2024, 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.
For a description of our revenue recognition policies, see the section titled "Critical accounting policies and estimates." Products Sold Products sold represents the number of products that are sold during a period, net of returns and includes the sale of products in the Sonos speakers and Sonos system products categories, as well as module units sold through our partnerships with IKEA and Sonance from our Partner products and other revenue category.
For a description of our revenue recognition policies, see the section titled "Critical accounting policies and estimates." Products Sold Products sold represents the number of products that are sold during a period, net of returns and includes the sale of products in the Sonos speakers and Sonos system products categories, as well as module units sold through our Partner products and other revenue category.
Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
Changes in the recognition 34 Table of conten ts or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.
Adjusted EBITDA and Adjusted EBITDA Margin We define adjusted EBITDA as net income (loss) adjusted to exclude the impact of stock-based compensation expense, depreciation, interest, other income (expense), taxes, and other items that we do not consider representative of our underlying operating performance. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net income (loss) adjusted to exclude the impact of stock-based compensation expense, depreciation and amortization, interest, other income (expense), taxes, and other items that we do not consider representative of our underlying operating performance. 26 Table of conten ts We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.
The estimated service period may change in the future in response to competition, technology developments and our business strategy. 41 Table of contents For fiscal 2023, there has not been any event that would require us to materially change the underlying assumptions of revenue estimates.
The estimated service period may change in the future in response to competition, technology developments and our business strategy. For fiscal 2024, there has not been any event that would require us to materially change the underlying assumptions of revenue estimates.
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.
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 28, 2024, as they are required to fund needs outside of the United States.
Gross Profit and Gross Margin Our gross margin has fluctuated and may, in the future, fluctuate from period to period based on a number of factors, including the mix of products we sell, the channel mix through which we sell our products, fluctuations of the impacts of our product and material cost saving initiatives, the foreign currency in which our products are sold, and tariffs and duty costs implemented by governmental authorities.
Our gross margin has fluctuated and may, in the future, fluctuate from period to period based on a number of factors, including the mix of products we sell, the mix of channels through which we sell our products, fluctuations of our product and material cost saving initiatives, fluctuations in our product and material markets, promotional activity, the foreign currency in which our products are sold, and tariffs and duty costs implemented by governmental authorities.
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.
We recorded a valuation allowance against all our U.S. deferred tax assets as of September 28, 2024. We intend to continue maintaining a full valuation allowance on our U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
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.
If we were to incur 31 Table of conten ts additional debt financing it would result in increased debt service obligations and the instruments governing such debt could require additional operating and financing covenants that would restrict our operations. Debt Obligations On October 13, 2021, we entered into 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, licensing, advertising, and subscription revenue.
We also generate a portion of revenue from partner products and other revenue sources, such as 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).
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.
References to fiscal 2024 are to our 52-week fiscal year ended September 28, 2024, 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 and references to fiscal 2021 are to our 52-week fiscal year ended October 2, 2021.
We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions. We believe that these non-GAAP financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses and other items that we exclude in these non-GAAP financial measures.
We believe that these non-GAAP financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses and other items that we exclude in these non-GAAP financial measures.
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 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, legal and transaction related costs, restructuring and abandonment costs, and other items that we do not consider representative of underlying operating performance.
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.
Comparison of Fiscal Years 2023 and 2022 For the comparison of fiscal years 2023 and 2022, 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 September 30, 2023, filed with the SEC on November 20, 2023, under the subheading "Comparison of fiscal years 2023 and 2022." Liquidity and Capital Resources Our operations are financed primarily through cash flows from operating activities.
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.
Fiscal Year Ended September 28, 2024 September 30, 2023 October 1, 2022 (In thousands, except percentages) Revenue $ 1,518,056 $ 1,655,255 $ 1,752,336 Products sold 5,000 5,725 6,281 Net income (loss) (38,146) (10,274) 67,383 Net income (loss) margin (1) (2.5) % (0.6) % 3.8 % Adjusted EBITDA (2) $ 107,862 $ 153,878 $ 226,549 Adjusted EBITDA margin (2) 7.1 % 9.3 % 12.9 % (1) Net income (loss) margin is calculated by dividing net income (loss) by revenue.
Interest expense for fiscal 2023, compared to fiscal 2022, increased primarily due to expenses associated with amending our Revolving Credit Agreement. The increase in other income (expense), net for fiscal 2023, compared to fiscal 2022, was primarily due to foreign currency exchange gains.
Interest expense for fiscal 2024, compared to fiscal 2023, decreased primarily due to reduced expenses associated with our Revolving Credit Agreement. The decrease in other income, net for fiscal 2024, compared to fiscal 2023, was primarily due to foreign currency exchange fluctuations.
The basis of our determination is these products are highly dependent on, and interrelated with, the embedded software and cannot function as they are intended without the software.
We have determined that products and related software represent a single performance obligation. The basis of our determination is these products are highly dependent on, and interrelated with, the embedded software and cannot function as they are intended without the software.
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.
As of September 28, 2024, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $169.7 million, including $36.4 million held by our foreign subsidiaries, marketable securities of $51.4 million, proceeds from the exercise of stock options, and borrowing capacity under the Credit Facility.
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.
Cash Flows Fiscal 2024 Changes in Cash Flows The following table summarizes our cash flows for the periods indicated: Fiscal Year Ended (In thousands) September 28, 2024 September 30, 2023 Net cash provided by (used in): Operating activities $ 189,906 $ 100,406 Investing activities (105,242) (50,286) Financing activities (137,309) (108,592) Effect of exchange rate changes 2,146 3,848 Net decrease in cash, cash equivalents and restricted cash $ (50,499) $ (54,624) Cash Flows from Operating Activities Net cash provided by operating activities of $189.9 million for fiscal 2024 consisted of a net loss of $38.1 million, a favorable impact of non-cash adjustments of $125.3 million, and a favorable impact of net changes in operating assets and liabilities of $102.8 million.
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. 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.
The 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.
GAAP. 27 Table of conten ts The following table presents a reconciliation of net income (loss) to adjusted EBITDA: Fiscal Year Ended September 28, 2024 September 30, 2023 October 1, 2022 (In thousands, except percentages) Net income (loss) $ (38,146) $ (10,274) $ 67,383 Add (deduct): Depreciation and amortization 52,378 48,969 38,504 Stock-based compensation expense 84,294 76,857 75,640 Interest income (11,965) (10,201) (1,655) Interest expense 441 733 552 Other (income) expense, net (9,371) (15,473) 21,905 Provision for income taxes 10,995 14,668 1,347 Legal and transaction related costs (1) 7,383 32,950 22,873 Restructuring, abandonment, and related expenses (2) 11,853 15,649 — Adjusted EBITDA $ 107,862 $ 153,878 $ 226,549 Revenue 1,518,056 1,655,255 1,752,336 Net income (loss) margin (2.5) % (0.6) % 3.8 % Adjusted EBITDA margin 7.1 % 9.3 % 12.9 % (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.
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.
Interest expense consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs. Other income, 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.
Cash Flows from Investing Activities Cash used in investing activities for fiscal 2023 of $50.3 million consisted primarily of purchases of property and equipment mainly related to point-of-sale product displays and manufacturing-related tooling and test equipment to support the launch of new products.
Cash Flows from Investing Activities Cash used in investing activities of $105.2 million for fiscal 2024, primarily consisted of the purchases of marketable securities of $90.5 million, and purchases of property and equipment of $55.2 million mainly related to point-of-sale product displays, manufacturing-related tooling and test equipment to support the launch of new products, and leasehold improvements, partially offset by cash provided by maturities of marketable securities of $40.5 million.
To date, software development costs have been expensed as incurred because the period between achieving technological feasibility and the release of the software has been short and development costs qualifying for capitalization have been insignificant. Sales and marketing .
Research and Development Research and development expenses consist primarily of personnel-related expenses, consulting and contractor expenses, tooling, test equipment, prototype materials, and related overhead costs. To date, software development costs have been expensed as incurred because the period between achieving technological feasibility and the release of the software has been short and development costs qualifying for capitalization have been insignificant.
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.
Our contracts generally include a combination of products and related software, and services. 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.
We hold our cash with a diverse group of major financial institutions and have processes and safeguards in place to manage our cash balances and mitigate the risk of loss.
We hold our cash with a diverse group of major financial institutions and have processes and safeguards in place to manage our cash balances and mitigate the risk of loss. In October 2021, we entered into the Revolving Credit Agreement, which allows us to borrow up to $100 million, with a maturity date of October 2026.
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.
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. Performance Obligations Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires significant judgment.
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.
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. Non-GAAP Financial Measures To supplement our consolidated financial statements presented in accordance with U.S.
General and administrative . General and administrative expenses consist of personnel-related expenses for our finance, legal, human resources and administrative personnel, as well as the costs of professional services, information technology, litigation, patents, related overhead, and other administrative expenses. Other Income (Expense), Net Interest income. Interest income consists primarily of interest income earned on our cash and cash equivalents balances.
General and Administrative General and administrative expenses consist of administrative personnel-related expenses for our finance, legal, human resources and similar personnel, as well as the costs of professional services, information technology, litigation, patents, related overhead, and other administrative expenses. General and administrative expenses decreased $26.3 million, or 15.6%, for fiscal 2024 compared to the fiscal 2023.
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.
Cash Flows from Financing Activities Cash used in financing activities of $137.3 million for fiscal 2024, primarily consisted of payments for repurchase of common stock of $129.0 million and payments for repurchase of common stock related to shares withheld for tax in connection with vesting of stock awards of $25.3 million, partially offset by proceeds from the exercise of options of $17.1 million. 32 Table of conten ts Fiscal 2023 Changes in Cash Flows For the comparison of fiscal 2023 to fiscal 2022, 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 September 30, 2023, filed with the SEC on November 20, 2023, under the subheading "Liquidity and capital resources." Contractual obligations See Note 7.
For a description of our revenue recognition policies, see the section titled "Critical accounting policies and estimates." Cost of Revenue Cost of revenue consists of product costs, including costs of our contract manufacturers for production, components, shipping and handling, tariffs, duty costs, warranty replacement costs, packaging, fulfillment costs, manufacturing and tooling equipment depreciation, warehousing costs, hosting costs, and excess and obsolete inventory write-downs.
Cost of Revenue and Gross Profit Fiscal Year Ended Change from Prior Fiscal Year September 28, 2024 September 30, 2023 $ % (Dollars in thousands) Cost of revenue $ 828,683 $ 938,765 $ (110,082) (11.7) % Gross profit $ 689,373 $ 716,490 $ (27,117) (3.8) % Gross margin 45.4 % 43.3 % Cost of revenue consists of product costs, including costs of our contract manufacturers for production, components, shipping and handling, tariffs, duty costs, warranty replacement costs, packaging, fulfillment costs, manufacturing and tooling equipment depreciation, warehousing costs, hosting costs, and excess and obsolete inventory write-downs.
The net decrease in cash from the change in operating assets and liabilities was partially offset by lower inventory balances of $87.0 million as a result of improved inventory management, a decrease in accounts receivable of $32.1 million, and a decrease in other assets of $10.5 million driven by a decrease in prepaid expenses.
The net increase in cash from the change in operating assets and liabilities was primarily due to a decrease in inventories of $106.1 million as the result of measures taken to more efficiently manage inventory and the implementation of new payment terms with suppliers, and a decrease in accounts receivable of $23.0 million.
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.
Sonos speakers represented 77.0% of total revenue for fiscal 2024 and decreased 9.6% compared to fiscal 2023, primarily driven by expected declines in Sonos One and softer demand across the category, particularly in our home theater products.
Provision for Income Taxes Fiscal Year Ended Change from Prior Fiscal Year September 30, 2023 October 1, 2022 $ % (Dollars in thousands) Provision for income taxes $ 14,668 $ 1,347 $ 13,321 * * not meaningful For the fiscal year ended September 30, 2023, our U.S. tax expense was adversely impacted by the requirement to capitalize and amortize research and development expenses under Section 174 of the U.S.
Provision for Income Taxes Fiscal Year Ended Change from Prior Fiscal Year September 28, 2024 September 30, 2023 $ % (Dollars in thousands) Provision for income taxes $ 10,995 $ 14,668 $ (3,673) (25.0) % Provision for income taxes for fiscal 2024, compared to fiscal 2023, decreased due to a favorable tax ruling on a Dutch Innovation Box application resulting in a revaluation of certain Dutch deferred tax liabilities, a reduction in the amount of net expense subject to capitalization under Section 174 of the U.S.
The category decreased 5.5% compared to fiscal 2022, driven by expected declines in sales of Sonos One as we introduced the next generation of this product (Era 100), as well as Roam demand softness, partially offset by the strong performance of Sub Mini which was introduced in October 2022, and Era 300 and Era 100 which were introduced in March 2023.
These declines were partially offset by sales of Era 100 and Era 300 which were introduced in March 2023, and by the introduction of Ace in June 2024. Sonos system products represented 17.6% of total revenue for fiscal 2024 and decreased 6.1% compared fiscal 2023.
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.
This was primarily driven by a decrease in legal fees related to our IP litigation. 30 Table of conten ts Interest Income, Interest Expense, and Other Income, Net Fiscal Year Ended Change from Prior Fiscal Year September 28, 2024 September 30, 2023 $ % (Dollars in thousands) Interest income $ 11,965 $ 10,201 $ 1,764 17.3 % Interest expense (441) (733) 292 (39.8) Other income, net 9,371 15,473 (6,102) (39.4) Total other income, net $ 20,895 $ 24,941 $ (4,046) (16.2) % Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities balances.
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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.
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We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. We also present percentage sales growth in constant currency to show performance unaffected by fluctuations in currency exchange rates.
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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.
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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. We use these non-GAAP financial measures to evaluate our operating performance and trends and make planning decisions.
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We frequently introduce new services and features across our platform, providing our customers with enhanced functionality, improved sound, and an enriched user experience. We are committed to continuous technological innovation as reflected in our growing global patent portfolio. We believe our patents comprise the foundational intellectual property for wireless multi-room and other audio technologies.
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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.
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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.
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(2) See Note 14. Restructuring Plan of the notes to our consolidated financial statement for further discussion related to our 2024 restructuring plan.
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We have developed a robust product and software roadmap that we believe will help us capture the expanding addressable market for our products. We believe executing on our roadmap will position us to acquire new customers, offer a continuously improving experience to our existing customers, and grow follow-on purchases.
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Partner products and other revenue represented 5.3% of total revenue for fiscal 2024, and increased 5.2% compared to the twelve months ended September 30, 2023. The volume of products sold decreased 12.7% for fiscal 2024, compared to fiscal 2023, primarily driven by expected declines in units of Sonos One, and softer demand, particularly in our home theater products.
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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.
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These declines were partially offset by sales of Era 100 and Era 300, as well as the introduction of Ace in June 2024.
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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.
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The decrease in volume of products sold outpaced that of revenue due to the impact of product mix. 28 Table of conten ts Revenue by Region Fiscal Year Ended Change from Prior Fiscal Year September 28, 2024 September 30, 2023 $ % Constant Currency Change (1) (Dollars in thousands) Americas $ 1,004,770 $ 1,048,245 $ (43,475) (4.1 %) (4.2) % Europe, Middle East and Africa 430,428 518,179 (87,751) (16.9) (19.2) Asia Pacific 82,858 88,831 (5,973) (6.7) (5.5) Total revenue $ 1,518,056 $ 1,655,255 $ (137,199) (8.3) % (9.0) % (1) Constant currency is a financial measure that is not calculated in accordance with U.S.
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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.
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GAAP. For additional information, see the section titled "Non-GAAP Financial Measures" above.
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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.
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Cost of revenue and gross profit decreased for fiscal 2024 compared to fiscal 2023, primarily due to a decrease in products sold. Gross margin increased 210 basis points for fiscal 2024 compared to fiscal 2023.
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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.
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The increase was primarily due to a decrease in product and material costs, decreased inventory-related write-downs, and favorability from product mix, partially offset by higher promotional activity. 29 Table of conten ts Operating Expenses Fiscal Year Ended Change from Prior Fiscal Year September 28, 2024 September 30, 2023 $ % (Dollars in thousands) Research and development $ 298,815 $ 294,445 $ 4,370 1.5 % Restructuring and abandonment costs (1) 5,743 6,556 (813) (12.4) Total research and development $ 304,558 $ 301,001 $ 3,557 1.2 % Percentage of revenue 20.1 % 18.2 % Sales and marketing $ 287,839 $ 261,883 $ 25,956 9.9 % Restructuring and abandonment costs (1) 2,770 5,635 (2,865) (50.8) Total sales and marketing $ 290,609 $ 267,518 $ 23,091 8.6 % Percentage of revenue 19.1 % 16.2 % General and administrative $ 138,912 $ 165,060 $ (26,148) (15.8) % Restructuring and abandonment costs (1) 3,340 3,458 (118) (3.4) Total general and administrative $ 142,252 $ 168,518 $ (26,266) (15.6) % Percentage of revenue 9.4 % 10.2 % Operating expenses $ 725,566 $ 721,388 $ 4,178 0.6 % Restructuring and abandonment costs (1) 11,853 15,649 (3,796) (24.3) Total operating expenses $ 737,419 $ 737,037 $ 382 0.1 % Percent of revenue 48.6 % 44.5 % (1) On August 14, 2024, we initiated a restructuring plan to reduce our cost base (the “2024 restructuring plan”), including a reduction in force involving approximately 6% of our employees.
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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.
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Restructuring and abandonment costs also include nominal remaining costs incurred related to the restructuring plan incurred on June 14, 2023. See Note 14. Restructuring Plan of the notes to our consolidated financial statements for further discussion related to our 2024 restructuring plan.
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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.
Added
Research and development expenses increased $3.6 million, or 1.2%, for fiscal 2024 compared to fiscal 2023. This increase was primarily driven by product development program spend.
Removed
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”).
Added
Sales and marketing expenses increased $23.1 million, or 8.6%, for fiscal 2024 compared to fiscal 2023. This was primarily driven by an increase in our advertising and marketing activity, and an increase in depreciation mainly for our product displays.
Removed
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.
Added
We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates. Interest income for fiscal 2024, compared to fiscal 2023, increased primarily due to the allocation of some excess cash into marketable securities and higher yields on our cash and cash equivalents.
Removed
Additionally, in March 2023, in support of 29 Table of contents operational efficiencies, we abandoned portions of our office spaces for the remainder of their respective lease terms resulting in non-recurring abandonment charges of $4.8 million. We have considered the impacts of these recent developments based on information currently available when developing our estimates and assumptions.
Added
Internal Revenue Code, and a reduction in operating income, partially offset by income tax expense in the Netherlands related to an intercompany sale of intellectual property to the U.S.
Removed
Actual results and outcomes may differ from our estimates and assumptions. For additional information of risks related to our business, refer to Part II, Item 1A. Risk factors.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−1 removed3 unchanged
Biggest changeWe 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.
Biggest changeWe recognized net gains from foreign currency of $9.1 million, and $13.7 million, in fiscal 2024 and 2023, respectively, and a net loss from foreign currency of $21.9 million in fiscal 2022.
Item 7A. Quantitat ive and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks in the ordinary course of our business.
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
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. 35 Table of conten ts
The opposite impact occurs in countries where we record expenses in local currencies. In those cases, our costs and expenses benefit from a stronger dollar and are adversely affected by a weaker dollar. We do not currently use foreign exchange contracts or derivatives to hedge any foreign currency exposures.
The opposite impact occurs in countries where we record expenses in local currencies. In those cases, our costs and expenses benefit from a stronger dollar and are adversely affected by a weaker dollar. We have not entered into any material foreign exchange contracts or derivatives to hedge any foreign currency exposures.
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.
Based on transactions denominated in currencies other than respective functional currencies as of September 28, 2024, a hypothetical adverse change of 10% would have resulted in an adverse impact on loss before provision for income taxes of approximately $19.5 million for the fiscal year ended 2024. Recent Accounting Pronouncements See Note 2.
To 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.
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.
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.
These risks primarily include interest rate and foreign currency risks as follows: Interest Rate Risk As of September 28, 2024, we had cash and cash equivalents of $169.7 million, which consisted primarily of cash on hand, money market fund investments, and bank deposits. Additionally, we held $51.4 million in marketable securities, consisting of U.S. Treasury securities.
Removed
If this trend continues, it will negatively affect the U.S. dollar value of revenue and gross margins we earn on our foreign currency-denominated sales.
Added
Such interest-earning instruments carry a degree of interest rate risk due to floating interest rates. To date, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates.

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