Sonos Q3 Earnings Call Highlights

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Sonos (NASDAQ:SONO) reported third-quarter fiscal 2026 revenue of $375 million, up 9% from a year earlier and near the high end of its guidance range, as growth in Asia-Pacific and Europe, the Middle East and Africa offset more modest gains in the Americas.

CEO Tom Conrad said the quarter reflected an acceleration in the company’s growth trajectory after revenue rose 2% in the first half of the fiscal year. Non-GAAP gross margin was 45.5%, while adjusted EBITDA reached $44 million, up 24% year over year. The company also repurchased $30 million of stock during the quarter.

Regional Growth and Profitability

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CFO Saori Casey said APAC revenue increased 27% year over year, EMEA revenue rose 17%, and Americas revenue grew 4%. On a constant-currency basis, APAC grew 21%, EMEA increased 14%, and the Americas rose 3.5%. Foreign exchange contributed about one percentage point to reported growth.

Casey said Sonos Play and Era 100 SL, which were available for the full quarter, contributed meaningfully to results. The company’s non-GAAP gross profit rose 11% to $171 million. However, higher memory costs reduced gross profit by about $14 million year over year, representing a 380-basis-point impact on gross margin.

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Sonos received $24 million during the quarter related to refunds for duties paid under IEEPA. Of that amount, $23 million was recorded as a benefit to GAAP gross profit and $1 million was recorded as interest income. The company has filed claims totaling $41 million and expects to collect the remaining $18 million, though it has not recognized those amounts as a receivable because the timing of payment is uncertain.

Including tariff refunds, GAAP gross profit was $189 million and GAAP gross margin was 50.4%. Excluding refunds, GAAP gross margin was 44.3%. GAAP earnings per share were $0.25, including a $0.20 benefit from tariff refunds, compared with a loss of $0.03 per share a year earlier. Non-GAAP EPS rose 52% to $0.27.

Non-GAAP operating expenses increased 3% year over year to $135 million. The company ended the quarter with $261 million of net cash and marketable securities. Free cash flow was $40 million, up $8 million from the prior-year period.

Memory Costs Pressure Outlook

Management said escalating computer-memory and related component costs are expected to remain a near-term challenge. Conrad said higher memory costs reduced third-quarter adjusted EBITDA by approximately $14 million. Without that impact, adjusted EBITDA would have been $58 million, up 64% year over year.

For the fourth quarter, Sonos expects higher memory prices to create a $35 million year-over-year headwind to gross profit, or roughly 1,000 basis points of gross-margin pressure. The company expects mitigation efforts to phase in progressively through fiscal 2027.

Conrad said Sonos is addressing the issue through supply management, cost negotiations, engineering changes intended to reduce each product’s memory requirements, and potential pricing actions. He said the efficiency work can be implemented as running changes to product lines without reducing product capabilities, future optionality or customer experience.

The company has not made material price increases on existing audio products. Conrad said Sonos remains focused on attracting new households during the holiday period, while considering pricing as one of several available levers. Management expects profitability to improve in fiscal 2028 and beyond, depending in part on the path of memory prices.

Fourth-Quarter and Full-Year Expectations

Sonos forecast fourth-quarter revenue of $325 million to $355 million, representing reported growth of 13% to 23%, or 18% at the midpoint. The fiscal fourth quarter includes an extra week, which the company said should contribute approximately $24 million in sales and eight percentage points of year-over-year growth.

Excluding the additional week, the outlook implies revenue growth of 4% to 15%, or 10% at the midpoint. Management expects foreign exchange to have a slightly unfavorable effect on fourth-quarter revenue growth.

• Fourth-quarter GAAP gross margin is expected to be 39% to 41%, excluding any tariff-refund benefit.
• Non-GAAP gross margin is expected to be approximately 120 basis points above GAAP gross margin.
• Adjusted EBITDA is projected between a loss of $11 million and positive $18 million, with a midpoint of $3 million.
• Fiscal 2026 revenue is expected to grow 6% to 8%, or 4% to 6% excluding the 53rd week.
• Fiscal 2026 adjusted EBITDA is expected to reach $181 million, up 37% year over year.

For fiscal 2027, Casey said the low end of the company’s fourth-quarter gross-margin range is a reasonable framework for the year, with lower margins in the first half and some improvement in the second half as mitigation efforts take effect. She also said Sonos expects to remain disciplined on operating expenses.

Products, AI Focus and Leadership Changes

Conrad said Sonos Amp Multi, a multi-zone amplifier aimed at installer and integrator partners, is scheduled to ship Aug. 25. He also said the company plans a product launch event in early September, where it intends to discuss work involving conversational computing and predictive intelligence in the home.

The CEO said Sonos’ installed base includes more than 53 million connected devices across more than 17 million homes. He argued that the company’s portfolio, audio expertise, home-system integrations and customer relationships position it to benefit as more intelligence is incorporated into home products.

Separately, Sonos said Chris Shackleton, co-founder and managing partner of Coliseum Capital Management, the company’s largest investor, will join its board.

Casey also announced plans to retire following a 35-year finance career. She will remain CFO until the company identifies a successor and completes a transition. Conrad said she helped establish financial rigor and operating discipline at Sonos during her tenure.

About Sonos (NASDAQ:SONO)

Sonos, Inc is a consumer electronics company specializing in wireless home audio systems. The company's core business revolves around designing, developing and manufacturing smart speakers and soundbars that deliver high-fidelity audio and seamless multi-room listening experiences. Sonos products connect via Wi-Fi or Bluetooth and integrate with popular streaming services, enabling users to control music and other audio content through a dedicated mobile app, voice assistants or traditional controls.

Sonos offers a diversified product lineup that includes compact speakers such as Sonos One and Sonos Roam, premium models like Sonos Five and Sonos Move, home theater solutions including Sonos Beam and Sonos Arc, as well as accessories such as the Sonos Sub and Sonos Amp.

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