Good afternoon. Welcome to the Fifth Annual Rosenblatt Age of AI Conference. I'm Steve Frankel, Digital Media Analyst, and it's my pleasure today to host a discussion with Saori Casey of Sonos, the company's CFO, and James Baglanis, who heads up IR. I want this to be interactive, so if you have any questions, please hit the link at the bottom of your screen and try to get all your questions answered. Maybe to set the stage, Saori, you just reported your Q3 earnings. Why don't you give us a quick overview of what happened there and the comments you made about the future? Thank you, Steve. Thanks for hosting us. It's our pleasure to be attending your investor conference. Let me recap a little bit about the earnings that we just completed. We reported Q3 earnings. We exceeded our top line from our guidance range that we had given out one quarter prior, and we came in at the high end of our bottom line adjusted EBITDA guidance range. We're really pleased with our execution. In fact, this was our fourth consecutive quarter of meeting or exceeding our guidance. We're really laser-focused on delivering to what we said we're going to do and executing against that. With that, what's implied year to date, first half of the year, with - 6% and we're - 8% right now. We did have a difficult compare in our third quarter with last year launching our Ace headphone products, where we had a channel fill during that quarter that exceeds, usually the selling exceeds our sell-through demand. Given that, we had a - 13% quarter for Q3. With that behind us, we expect Q4, as we have guided, 2% to 14% growth from the low end of the guidance range of $260 million- $290 million on the top. That would imply a 14% growth year- over- year with adjusted EBITDA improving $13 million, which takes us to implied full year FY25. Revenue will be somewhere in the range of 5%- 7% decline. Our adjusted EBITDA bottom line is expected to grow 8% to 30% year- over- year based on the bottom line that we also guided for Q4 with the Q3 year-to-date results. We're doing everything we can to execute in our volatile environment over the past year through the app, as well as the macro environment we are with tariffs and the uncertain environment from a consumer demand-wise. We're pleased with executing while navigating through those challenges. The other big event in the quarter was the promotion of Tom Conrad, the acting CEO, to the permanent role. Give us some thoughts as to how his approach to the business might differ from what was happening before. Yeah, yeah, we're very happy to have Tom announced as our CEO. As most of you know, he was our interim CEO since the latter part of January, and he's been very much operating in the last six months before named as a permanent CEO side by side with us. In fact, some of the way he has reorganized the product team early on in February has streamlined it to which we have moved from more of a business unit view by product line to a functionally organized view that allowed us to be a lot more streamlined and be able to take cost structure out. We really welcomed the opportunity to partner with Tom. As you know, we've been on this transformation journey with cost efficiency play, and some of the way he's reorganized and thought about streamlining both the organization and the roadmap has very much aligned with being able to invest in our future growth by really changing our cost structure. He's been also increasingly talking in terms of our business being more platform play, platform and system play, rather than winning at individual hardware product sales. Given the delivery of the software is important to us and given what we've gone through over the past year of recovering from the initial app, new app launch, and making that even better than where we had originally started. Now being able to deliver additional feature and value to our customer is very important to us, and we believe that's our key differentiator that allows us to not compete just with price and be commoditized. The ecosystem of products that connects us and the ARPU, the revenue that we generate through our existing household, as well as new customer acquisition that fuels our future growth as well from a long-term value perspective, is very much part of the platform and the system story that Tom is starting to tell. We're very excited about how we're trending towards that play as opposed to competing solely on price with our competitors. Should we expect at some point in the near future this vision to be fleshed out to the point where you could set out some long-term margin goals and long-term growth goals for the business? Yeah, we certainly would love to do that. We are still navigating through, you know, while the tariff rates have more or less been clarified, the two countries that we're predominantly manufacturing in, Vietnam and Malaysia, but the price increase that we announced during the earnings call, you know, how the consumers react from a demand as well as how competitors react is still to be said. We'd like to see that through to see how that will play out. We would love to articulate our long-term strategy and the long-term growth story. Okay. One of the missions you started on before Tom came in was to really rationalize the cost base. Maybe give us an idea of how much cost you've taken out of the business and what that implies for FY 2026 OpEx, where we are in the inventory cycle, and what we should expect there. Thank you. We've been working hard at this because we see this as both an opportunity to expand our bottom line, but also really to be able to invest in the future, as mentioned. Last quarter during the earnings call, we disclosed the target, sort of the run rate that we're looking to go into FY 2026 with. On a non-GAAP basis, $580 million to $600 million off of. That will imply about $90 million- $100 million of reduction from what we're calling a FY 2024 normalized basis, normalized for we have variable compensation like bonuses, for example. If you make that apples to apples, how we're looking at that, those savings are even greater on a GAAP basis as we had reorganized our organizations and streamlined some of the management layers, especially at the senior level. Expenses like stock-based compensation weigh much more heavily into the GAAP-based operating expenses. The amount of takedown is more like $100 million- $130 million on a GAAP basis. We're happy with the progress that we're making, but we're not finished, as we had said. The transformation work, we're doing this while we're flying the plane. While we were focused on improving our software, we did not want to disrupt it while that was happening. The way we are thinking about this is more of a structure of the cost as opposed to the short-term cost cuts. We want these to be enduring, how we run the business and how we run it more efficiently in many ways, where we do our R&D, how we're thinking about different vendors and how we consolidate those vendors to get better cost, volume, efficiency, and many, many other ways we can reduce cost. Those are things that we're looking at on an ongoing basis and that will continue on through FY 2026 as well. Our work is not done. We haven't provided further guidance to that because we want to evaluate our top line and with the tariff happening, we want to see how the price elasticity will turn out with also how the competitors will show up in this environment. We build ourselves flexibility to both flow some to the bottom line as well as also offset some of the tariff expenses and be able to reinvest into the business for the future growth. You have also generated a meaningful amount of free cash flow through this period, despite all the headwinds. What are the priorities for that cash? Yeah, we very much would like to leave flexibility to do both return on capital, the shareholder share repurchases, as well as if we have an opportunity to accelerate some of our initiatives to be able to do as we have done in the past, tuck in M&A as necessary. We are really looking at this as we improve free cash flow by tightening up our inventory and our working capital. We want to be able to use that in a way that's most meaningful, return and fueling growth of the company, both top and the bottom line. We will be looking at this very carefully. As we have done in Q3, we wanted to leave open the big flexibility and navigate through tariffs. We have paused the share repurchases in Q3 to be able to pull in inventory or buy additional components as needed. Now with enough clarity for the tariffs, we intend to go back into the market to do repurchases. Great. You've got the app significantly improved from a year ago. Where is the team focusing its time today in terms of software and the user experience? Thank you for asking. Tom would tell you that our work in improving the core experience, as he calls it, is never finished. While the metrics will say that our app is in a better place than even the predecessor before we launched this new app, that's not our bar. We want to continue to raise that bar to not just have performance and reliability, but to be able to create more value to our customer through the software delivery and features. We've been doing that of recent. There are a couple that we've released recently that notably changes the way the value is delivered through the customer, through the existing hardware that we have. We're continuing to be focused on that core experience, given how Sonos has established its reputation as a brand of system and uniqueness is through that. That very much is a big pillar for us. To add value to our customer over the lifetime of their with us is very important to us not only to retain those customers, but also to continue to get return from those customers as they purchase more Sonos products. Could you give us a couple of examples of these software innovations that you've developed and why it matters? Yeah, absolutely. Recently, we delivered AI speech enhancements that was recently rolled out on Arc Ultra. Another one being active noise cancellation update to our Ace headphones. You know, when you bought Sonos Ace headphone, it came with the features at the time, but we're able to provide more features to those existing hardware that's out in the market. We're very happy to be able to do that, and we believe that's our differentiating factor to not have our products being commoditized in the market. Very good. Maybe we should cover this at the beginning, but yeah, one of the keys to Sonos is winning new homes and then growing the number of devices per home. Maybe you could walk us quickly through how that works and kind of where are we in that process? Yeah, both are important to us. You know, winning new homes certainly provides us with opportunity, and winning new homes could be both in our existing markets that we have already been playing in, like in the U.S. market, for example, where we're winning shares. Equally important is markets that we have not been high in market share. That means there's much more opportunity for us to go into, and some are literally we're scratching the surface on some of those markets. New customers through those are important. Subsequently, the repurchase of those customers as they're satisfied with the Sonos experience and the core experience that we continue to deliver, as we talked about earlier. To be able to have lifetime value out of those customers with a higher ARPU is very important to us as well. Those are two pillars that play on each other. Gaining quality new customers is key for us as opposed to one-and-done type of new customers. That differentiation really comes about what the initial items are or item that the customer purchases, right? That's how we should think about that. Yeah, that's right. I know we have enough data now to know which products play the role of getting new customers and which products tend to be more of a net tax to existing customers. That also very much plays into our pricing strategy, especially with the tariff mitigation point being, action being pricing. We're very much leaning on that historical data to be able to do this in a surgical way as opposed to a peanut butter way. Could you give us a couple of specific examples? What are the gateway products, and what are products that tend to be kind of one-offs? Yeah, we used, you know, at the last earnings call, we used the example of how we have decreased the price on Era 100. That is a gateway product for us that tends to be the entry into the Sonos ecosystem. The customers add on from there. Pricing ourselves out of that initial market was not serving us well. We have reduced the price from $249 to $199. That elasticity from that price decrease has turned out to do what we expected based on historical information and the data of the behavior of the customers. We're also starting to see the repurchase cycle that culminates subsequently from that. That's early days still, but we're encouraged by what the initial data shows. That's an example. Products like Arc Ultra or sound bars are also entry into it as well. Probably a little less about the high end, although some customers do go in initially with the home theater setup as well. On both fronts, the Beam is another entry point where customers expand from there. Sometimes they will upgrade from there to the high-end sound bars, or you may start with high-end sound bars and you add additional rooms with other mid-sized sound bars as well. Era 100 is an example where you lean in on the price, understanding that that is a gateway product to the rest of our portfolio. Okay, yeah. You've gained share for multiple quarters in North American home theater. Why do you think that's happening, and what does that say about the broader competitive landscape? Yeah, no, we were very happy to see that given a home theater product category is a large part of our portfolio. We believe Arc Ultra helped us win in this category this year, being able to gain market share because of the differentiation of the product. As we talked a little bit about, you know, tuck-in type of acquisition has been important for Sonos. Many technologies and delivery were accelerated as a result of that. Arc Ultra, the mic that we had purchased that came with a transducer sound motion technology that we were able to now embed in Arc Ultra, has been a key differentiating factor for the success of the home theater market share gains this year. Okay, we talked a minute ago about international expansions. Maybe give us a couple of specifics of markets where you think you're underpenetrated, and what do you need to do to ramp those markets up, and how soon before they might be material contributors to your growth? Yeah, no, we, you know, while we're happy to have market share gains in markets like, you know, a large market like the U.S., the fact that we're not number one market share in some of the other markets is an opportunity for us. If you look at our revenue ratio across the geography, we're very heavy North America, followed by Europe, but very minimal in the Asia- Pacific as an example of that. That really is a tremendous opportunity for us. Those are markets where American brands have done also quite well. They range from emerging markets like India, where there's plenty of high-income households that are demanding Sonos products. It's more recently that we have been certified and compliant to ship our product that will be compliant in the market. We see revenue tick up as a result of that. Combined with our effort, we have internal initiatives to be able to have a cross-functionally organized way of targeting certain markets so that we can win in a more meaningful way. That's an example of emerging markets. There are mature markets like Japan, where there's certainly not an emerging from in any sense of income of household that we have not had a meaningful penetration and focus in that regard. That's another market where we most recently have become certified and compliant and be able to ship new products like Arc Ultra. We're excited for the opportunity given the untapped nature of both of those types of markets that we're now looking at. We're calling them Sonos growth markets because they're not necessarily emerging from an external sense. Okay, we've touched on tariffs a couple of times, but you talked about it on the call and taking a surgical approach to how you would change prices. Maybe give us a little more detail on what that looks like in real time. Yeah, yeah, so now with enough clarity for the two locations that we do our manufacturing through a contract manufacturer that's U.S.-bound. That's Vietnam and Malaysia with 20% and 19% tariff rates respectively. We know enough, you know, what our expenses are going to be if we don't do any mitigation of the cost related to those. With 60% or roughly 60% of the business being U.S.-based for us, that's another reason why we want to be more diversified from a revenue perspective. In the meantime, we have to do what we have to do. Working closely with our channel partners on the pricing and promotions and the channel margin type of strategy, to the extent, you know, there's different types of elasticity across our products. It behooves all of us, both our manufacturers and our channel partners, for us to keep the volume up as much as possible. We want that volume to be a profitable volume that flows to maximize gross profit dollars. That's the sort of the story that we've been telling more recent, as opposed to high gross margin% being most important. We want the gross profit dollars to be maximized even through this process. We're using actually the same playbook in pricing and looking at tariff and how we mitigate some of that along with promotional strategy and so forth. Specific around pricing, we want to have the least amount of impact to the volume. Understanding price elasticity of each of our products in our portfolio and what role they each play, we will lean in more on the new customer acquisition or the quality new customer acquisition products like Era 100, where we may price lower in terms of lower increase to the price versus the more inelastic products that we have that may be going through installers or high-end products that we have. Generally the mantra of maximizing for gross profit and using our pricing strategy, elasticity, and new customer acquisition in the ARPU continues to be very much center of even our tariff mitigation action plans. Okay, so the consistent story there. One of the secret sauces to the company's success has been this professional installation channel. Clearly they had their challenges when you had the app issues. What are they telling you today, and what are they asking for that might drive even more business from those partners? Yeah, yeah, no, we are very much appreciative of our installer channel. That is a huge opportunity for us. They stuck with us during our app challenges, which very much plays to our strength that we provide premium quality products that installers can be proud to recommend to their end consumers. The ease and the systemness and the connectedness, the platform play, very much also plays with our installers. Obviously, they want a lot more software features, and we have forums in which we take their feedback and incorporate it into our roadmap, both from a software and hardware perspective as well. We very much value that because they're the eyes and the ears of what our customer segment that we're really going after are looking for. We're very much dependent on them to get that information as well as from our ongoing customers as well. Expanding in that channel is hugely important, both the products that we sell and products that we're not selling yet, the opportunities that we have, what they're installing. We're a subset of what they install in the house in their customer homes, and that's also another opportunity for us. Okay, how material is light commercial today, and can you make that a bigger part of the business? We believe there's a tremendous opportunity there. We know that we need to deliver on more software features in order to have the best experience. Not all light commercials are the same, so we want to make sure that we don't get ahead of ourselves to have poor customer experience that will shut down that opportunity for us and go about it in a way where we can win and provide best experience. That's very much part of what we're hoping to expand into once we're able to really take advantage of the residential installer markets in a more meaningful way. Is this typically a new set of installer partners, or do a lot of your existing installer partners also do this business today? You have the channel pretty well established already. Yeah, I think it's both. I think there's opportunities to partner with more installers that do larger jobs than just residential. Our go-to-market team is certainly looking at both. I have a question from the audience on how important is the housing market cycle for you, and is there an opportunity if the housing market starts to improve? It certainly is. You know, a combination of new housing starts, the remodels, and how people upgrade and move, and also when they upgrade TVs, for example. Any of those opportunities are new opportunities for us to expand or create upgrade cycles as well. All of those things are kind of intertwined and have to fuel Sonos revenue. Okay, great. One of the other new things you did over the past year was establish a direct presence on Amazon. What have you learned from that? Yeah, no, it's very interesting. We did have our own DTC channel, direct-to-consumer business as well. What we're finding is that, you know, we need to be where our consumers play, play as in the play, you know, how they like to purchase our products. Channels like online Amazon, you know, will bring us new customers as well. That's, you know, that's an area in which, you know, we're looking at our promotion strategy so that we get the quality customers that will lead to ongoing repurchases as well. Expanding channel is important to us to be able to be where we want the customers to be. Customers are be. Customers are and their purchasing behaviors and to the extent we can gain incremental new customers, those opportunities are very key for us. Right. I heard you this morning mention that Walmart is a relatively new channel for you as well, right? Yeah, yeah. We realize the channel that the consumers, that the large consumers that they serve, and we believe that will expand our new customer acquisition as well. Okay. Going back to the management change, do you think that Tom has the complete team today, or should we not be surprised to see additions or further swap outs of the core team over the next near term? Yeah, you know, since he's been CEO, coming up on a month, he's already made some changes to the leadership team. He was, as he was the interim CEO, also playing in somewhat of an interim Chief Product Officer role as well. He's organized the product team further so that he can scale as CEO to be able to have day-to-day operations of the product being done by his key leaders and elevated some leaders into the executive staff level as his direct reports and also, you know, colleagues to my level as well. I believe he has mentioned externally that he is taking on the CMO, the leader of the marketing team search. I think that's, as far as I know, the most recent opening that he is looking at. We have a great interim CMO right now, but she has a couple of other responsibilities, big responsibilities as direct reporting to Tom, customer service and DTC business. That's too many things for one person to physically handle. Tom is very much now venturing into the search of the CMO. I'm sorry, I have a couple of questions from the audience, so let me take a look at this. Broadly speaking, this investor is saying, how does Sonos go about telling its story to consumers better than it has in the past? How do you get, you know, everybody excited and really get your name recognition up in markets where maybe you aren't as recognized as you are here in the U.S.? Yeah, no, that's a very good question. You know, past year certainly we needed to get our software in order. More recent, with the most recent earnings call, Tom is starting to talk about our business in terms of platform and system play. We do have more work to do to be able to articulate that better to our consumer so that we are not competing just on price and race to the bottom and win in a different way than just pricing and promotion strategy alone. That is something we're very much working on with also our marketing leaders as well to make sure that we're able to articulate our long-term strategy, both as we do on these financial type calls, as well as our marketing strategy and our product roadmap all combined, telling the same story in a way that will resonate with our customers, that we're not a commoditized hardware-only customer, but we're a software platform-based company that we continue to provide value to our customers well beyond the initial purchase of the hardware products. That is something that we need to do in a better way. We're excited to be able to provide more updates to that in the quarters to come. That is something, you know, I've also been saying as well as Tom, with now he's been on board as permanent CEO for one month. We're actively working on that, but more to come on that. Great. You know, it is a product that really needs to be experienced, and that's either in a friend's home, which is really the best way to experience it, or at retail. Where are you today in your relationship with Best Buy in terms of making sure that a consumer that walks into a Best Buy gets a really good taste of what Sonos has to offer? Yeah, to the extent we don't have our own stores, our partnership with Best Buy is those that deliver that full experience. That partnership is very important to us. We continue to work closely with them to make sure that we can both articulate our story. Our go-to-market leader is very much focused on investing in training both our own go-to-market team, as well as our partners, to be able to tell that full story in a way that they can also experience it and hear the story at the same time. We're very happy about that investment that we're making on that. Okay. Maybe just to bring it all together, other than the recent rally in the stock, which is long overdue, what do you think investors are missing or underappreciating about the Sonos story today? Yeah, no, I think we were touching on this, right? We probably have more work to do in articulating the value proposition that Sonos brings as opposed to a one-and-done hardware sale company. How we're navigating through these uncertain times, tariffs and pricing and the category trends in the best way we can, delivering more to the bottom line. For example, rebuilding the plane while we're flying one hasn't been trivial, but we're very confident that we can come out of this really strong and streamlined and very nimble and efficient as a company. We're really committed to some of these structural profit improvements that we've been making so that we can also reinvest in not only core experiences, but in our future growth opportunities, both products and geography and acquiring new customers and expanding into more diversified geographic footprints. All those things we're working on that we haven't articulated all that well, especially the platform and the system play aspect of things. As mentioned earlier, we're also actively working with the marketing team to be able to tell that story better. We're navigating through some choppy, uncertain times, but we're really confident that we're coming out of this in a strong way. That's great. I really appreciate your time today and look forward to watching how this all plays out in the coming quarters. Great. Thanks for having us, Steve. We really appreciate it. Thank you so much. Thank you, Steve. Thank you, Rosenblatt. Take care. Thank you. Take care, everybody.