Okay, good afternoon, everybody, and thank you for joining us. I'm Joe Altobello, a Leisure Analyst here at Raymond James, and I'm very pleased to have with me today, for a fireside chat, CEO of Sonos, Tom Conrad. Welcome. For those of you who are unfamiliar, Sonos has positioned itself as a premier consumer audio company with one of the strongest brands in the world of connected home technology that obviously doesn't do it justice. So, Tom, if you could please give our audience a more fulsome description of exactly what Sonos is, the categories you compete in. Are you a hardware company? Are you a software company? Are you a platform company? Or all the above? Fantastic. Good afternoon, everybody. Thanks for making time to come hear the story. I'm Tom Conrad. I've been the CEO of Sonos for just about a year, six months as interim, and I was named as the CEO at the end of July, and our company is a premium home audio company. As Joe said, we make a wide range of audio products for every dimension of sound: the best in the world home theater, sound bars, and surrounds, and subwoofers, best in the world standalone speakers or stereo pair speakers, and a line of popular portable speakers that you can use in your home and then take on the go, and Sonos Ace headphones, which are best in class noise-canceling headphones, tremendous comfort, battery life. And we also make a full range of products for the professional installed channel: power amplifiers, in-ceiling, in-wall speakers, products to connect other audio peripherals to the system. And then we unify all of that with a software platform that allows our customers to control every aspect of the audio experience with their voice, through Sonos Voice, with apps on their phone, with partner integrations like Spotify Connect and AirPlay. And so it's really the only comprehensive system for premium audio for the home. And yeah, you know, what should we talk about? Let's talk about you for a little bit. You've been associated with Sonos for a while. You were a technology partner. You were a board member. Now you're CEO. Maybe talk about your progression throughout the last couple of decades. I mean, maybe the first thing to know about me is I'm a computer engineer by training and professional path. I started off working on the Macintosh at Apple 35 years ago, and I've held engineering and product design leadership roles at companies big and small for all the years since. Perhaps the most notable thing I did is I was one of the creators of the pioneering music streaming service, Pandora. Started that in a garage, grew it to a multi-billion dollar public company over the course of a decade, and I ran engineering, product, a bunch of other things there for all those years. Then in 2016 or so, I was running product and design at Snapchat and was fortunate enough to get asked to join the board of Sonos about nine years ago. Now I've been on the board ever since. Most recently, professionally, I was CEO of a digital health company. Just to start the most recent chapter of the Sonos story, last holiday season, coming off of a really material regression in software performance at Sonos, the board started to have conversations that ultimately, in early January, led to the decision to ask me to step in as Interim CEO while the board spun up a search for new leadership for the company. So my nearly a year now chapter with the company inside the four walls is sort of demarcated by two chapters. There's a chapter where I was the Interim CEO. I think the nature of being an Interim CEO is always, by its nature, to sort of focus on the immediate term. In the case of Sonos, the need for that was particularly acute because the company was going through the recovery from these software quality issues that had plagued the company for the previous six or eight months. We, in my six months as interim, made tremendous progress restoring performance, reliability, functionality to the Sonos platform. Sonos today is performing better than it has at any time in many, many years, going back to far, far earlier than the software missteps of 2024. The other thing that we did during that six months is our CFO, Saara Casey, and I really worked on getting the operational efficiency of the company in the place that it needed to be. We took almost $100 million of OPEX out of the business on a go-forward run rate basis, or 25 to 26. By the end of July, when the company and the board asked me to come on as the named CEO, we were really in a much better position, both from an operational efficiency standpoint and from a product quality standpoint, to start to think about what does the next real chapter of Sonos look like. Which is a good segue into my next question. You're in a pretty good position to answer this one, but how has Sonos evolved in the last couple of decades? Yeah, so you know it's really interesting to look at the history of the company. I divided it into two chapters before I arrived, sort of think of my moment as the third chapter, so in the first chapter, where the company was led by its founder, we were pre-public, and we were really relentlessly focused on the idea of filling every home with music, and so the emphasis on the product family was on Sonos as a whole, Sonos as a system, specifically around music experiences, and I think that's where much of the company's early identity was solidified in that decade. In the decade that followed, when Patrick Spence was our CEO, what Patrick did is he really turned the company into a hardware execution machine. I think if you're going to critique the first 10 years of the company's history, you might say that for all of the product excellence, it was not very predictable how often they were going to extend their hardware product line. Sometimes a couple of years would go by between new product introductions, and so when Patrick took over, he said to the team, "Look, here's what we're going to do. We are going to become execution machines. We're going to ship two new products every year like clockwork," and he really achieved that ambition. The company I inherited is exceptionally good at designing and delivering world-class hardware. I think if you were to critique that chapter, you might say that developing that expertise came at the expense of focusing on delivering on the whole platform value of Sonos. And so a big part of what I see as the next stage of the company is bringing the best of those worlds together. Now we have this incredible capability of delivering exceptional new products a couple of years, but I identify very deeply with this idea that the future of the company is around systemness, is around the platform of Sonos, and ensuring that the whole of Sonos is greater than the sum of the individual parts. Let me just talk for a minute about why I think this is such a huge opportunity. So let's talk about just like some numbers. In the countries where Sonos is scaled around the world, there are north of 300 million premium music streaming subscribers. That's Apple Music and Spotify and their competitors. There's another 225 million premium TV streaming subscribers: Netflix, HBO Max, their competitors. The television industrial complex ships north of 30 million 60-inch televisions or larger every year. None of those industries existed: 60-inch televisions, premium streaming TV, streaming audio subscription in 2005 when Sonos got its start. Netflix was 2007, Spotify was 2008, 2011, depending on how you count it. 60-inch televisions, if they existed at all, were the things of sort of CES only that you would see in a magazine and never have in your home. So as proud as I am that we have 17 million Sonos homes today, it's disappointing that these industries that are not just adjacent to what Sonos does, they are deeply embedded in what Sonos does, have grown from nothing to these huge expressions, tens of millions, hundreds of millions of customers, while we've seen more modest growth through the period, and good news is it's not because someone else took that opportunity. There isn't a scaled premium whole home audio company in the world other than Sonos. And so I think that there's all kinds of opportunity on the table to step into the category that we defined. And we do that by, I think, three things. The first is we do a much better job of telling our story forcefully and thoughtfully through our marketing. And a big unlock in that dimension for us is that in four weeks, Colleen DeCourcy is joining us as our Chief Marketing Officer. She is an actual legend, like a literal legend. She is the Co-President and Chief Creative Officer of Wieden+Kennedy for a decade, home of the most iconic advertising campaigns of the last 25 years. Most recently, she was the CMO at Snap, parent company of Snapchat. And I think she is one of three women who have ever won the Lifetime Achievement Award for Creative Excellence out of Cannes Lions. She's incredible, and she'll come in as the steward of the Sonos brand for this third chapter in partnership with me and the rest of the leadership team. And I think that we have such an opportunity to tell the full stack story of Sonos from brand awareness, consideration, driving through to purchase in a way that we just haven't been focused on as a company for the last many years. Couldn't be more excited about that. So that's like leg one of the stool. Second pillar is, frankly, it is the excellence in performance, reliability, seamlessness, ease of use. I mean, a hallmark of Sonos used to be that it just works every time and that anybody could do it. You don't have to have the technical sophistication of an IT manager to have these really sophisticated experiences in the home, fill your whole home with entertainment and music. Unfortunately, over the course of the last decade, we have drifted from that ideal most acutely. You may have seen the headlines in 2024 with kind of disastrous software release, and so with my background in software platform architecture, I'm really bringing a return to excellence in that category, and we've made so much progress. There's work to do, but I'm confident that we're going to create a technical solution to a really hard problem that no one else has solved that's going to make distributed premium audio in the home just a thing that everybody can have, and then the third pillar is the product assortment itself. And I think if you look at the last five or six years of the company, you might say Sonos was a company whose growth hinged on identifying new product categories and attaching itself to some fraction of the TAM of that category. So we start as a company that makes internet-connected amplifiers. We steal some of that business from the traditional home hi-fi audio people. We extend into internet-connected speakers to find that category, take nearly all of it. We step into home theater, go from being the new entrant to be the dominant player. We add portables. We take a meaningful share of that market. And then most recently, we entered the headphones category. I described earlier that one of the things that pursuing that strategy risks is that you don't pay enough attention to how the whole is greater than the sum of the individual parts. You also maybe get pulled into fighting battles in other people's territory on rules that they define, and so the third pillar of the business is getting back to the place where the product assortment is designed from the ground up around increasing the value of Sonos, the product, as expressed through the individual product, so again, to repeat, I guess, the whole is greater than the sum of the parts. The headphones aren't just headphones. They make all of Sonos better. Thank you for that. You touched on this a little bit in your answer, but maybe talk about some of the competitors that you guys go up against. It's not one or two. It seems like it's a different competitor in each of those different segments. Yeah, so I suppose, and I think we've talked about it this way for some time, one way to look at the competitive set is to say that we compete with JBL and the portable speaker segment. We compete with Samsung and the Soundbar segment and the Home Theater segment. We compete with Sony and Bose for headphones and so on. But we don't really. Our aspiration is not to create just another Bluetooth speaker or just another soundbar. Again, it's to express this whole complicated set of customer needs around audio in the home. And none of those companies have that ambition. That is not what JBL is trying to do. It's certainly not what Sony is trying to do with their headphones or what Samsung is trying to do with their soundbars. So we need to do a better job of telling the story of what we're trying to do. So when a customer goes into retail to evaluate these products, part of what they bring to the store is an understanding that with Sonos, they're getting so much more than just a soundbar. Now, we are not alone in the ambition to create great scaled audio experiences in the home. Arguably, that's what Amazon is trying to do with Alexa or what Google is trying to do with whatever they're calling their home audio thing this quarter. And it's what Apple is sort of toying with with their HomePod products. And I'd say there's two things that distinguish us from those three big tech endeavors. One is that we really know from 20 years of doing this that the customer really wants a wide assortment of expressions, hardware expressions of these products in the home. We know that a small speaker and a large speaker is just not sufficient. You need a soundbar. You need something for surrounds. You need an installer-based solution. You need in-ceiling or in-wall. You need amplifiers that can go in a rack in the closet. You need a big speaker for the kitchen. You need a stereo pair for the bedroom. You need a tiny speaker for the bathroom. Better yet, put a battery in it so you can throw it in your bag when you go on a business trip. So there is a wide expression of form factors that are required. Amazon isn't doing that. Google is not doing it. Apple is not doing it. And then, of course, the other thing that differentiates us from what's going on in those three cases is that they all have their own walled garden ambitions. Amazon wants you to buy packages using Alexa voice interactions, and Apple wants you to use Apple Music, and Google wants you to use Gemini or whatever. And I think one of the defining characteristics of the Sonos platform for the last 20 years is that we are kind of a neutral playing field for all of the music service providers and all of the different formats for immersive audio in home theater. So you can get all of that without being tied to one particular ecosystem and whatever kind of thing they're trying to tie their customers to in a particular quarter. I think that gets particularly interesting in a big new emerging category for Sonos, which is the idea that we are stepping into a future where every day we're starting to have conversational experiences with AI personalities. And you see that with Voicemod and ChatGPT and Gemini. You see that with Alexa Plus. You see that with the promised version of Siri should they ever ship it. And then you see that with all kinds of one-of-a-kind bespoke voice interactions. Maybe it's a digital concierge for travel or a virtual therapist. And I think that world is just going to scale and scale and scale and scale. And so in a world where software is getting easier and easier because of the AI-based software development tools, I'll tell you one thing that's not getting particularly easier is making great hardware at scale. I think we're really, really uniquely positioned to bring these AI expressions into hardware expressions in the home in a way that really no other company is set up to do, particularly through the lens of creating a neutral playing field for all these personalities. So you talk about innovation a lot, and you mentioned two new products a year. How do you think about, I guess let me take a step back. What's your innovation strategy, and how do you decide which categories to expand into? Yeah. I mean, let's start with, before we get to innovation, let's just talk about strategy generally. The founding principle for me when it comes to strategy is you really have to understand the places of powerful leverage you have relative to your competitors in any particular setting. And so for Sonos, some examples of our powerful levers are we have an incredible brand that stands for quality, and it's deeply connected with these home-based use cases. We have incredible intellectual property around the nuts and bolts of whole home distributed audio and whole home AI and a host of adjacent ideas. We have incredible power just because of the scaled nature of our system and the kind of switching costs that occur. You bring Sonos into the home, and you build a whole household expression. It's very difficult to sort of walk away from that. And so as I look for new business opportunities, I look for things that tap into as many of those strategic powers as possible because those are the places where we are sort of set up to win. And so you can take Sonos Ace, our headphone. I think a lot of the conversations that happened around the company when it was under development three years ago were really about TAM. They were really about like, hey, there's a $5 billion-$6 billion market for over-ear headphones, premium headphones. We can go in. We can capture some modest percentage of that. It's a tremendous amount of revenue relative to the current scale of the company. Nothing wrong with seeing a TAM and believing that you can build a great product that will take a piece of it. But you also have to have some reason to believe that your product will effectively take on the incumbents. And incrementally better noise canceling, incrementally more comfortable, incrementally better battery life, I don't think gives you permission to really win in a category. However, the lens that I would bring to Ace is that with 17 million households, we have tremendous opportunity to make Ace headphone the only headphone that a Sonos household should purchase. And just to talk about the opportunity of our existing households, because you might think about it, you might look at 17 million and go, well, that's a relatively modest number, Tom. But even just at 17 million households, the typical multi-product household today has four and a half Sonos products. If we scale that pool of customers from four and a half products to six, we sell them a pair of Ace headphones. That alone is a $5 billion opportunity for us just to the installed base. If we take our single product households and scale them to the average to 4.5, that's another $7 billion opportunity. So you have $12 billion of opportunity just to the installed base at its current scale. So understanding the products that you make that add to the repurchase cycle is just as important as understanding the products that you make to drive new households, which of course we're also spending a lot of time thinking about. So before we get to innovation, I try to frame out strategy, derive from powers, and really understand, help the team understand what are the things that are kind of on strategy and off strategy through that lens. With respect to innovation, this is such a tricky question because so much of building a successful company is just about executing like hell, and so there's one form of innovation where it's just like it's everybody's job to bring an innovator's mindset to the work that they do that's basically about day-to-day execution. That's make the headphones you're building incrementally better, close the books incrementally faster, just leverage AI technology, for example, to unlock productivity in some part of the business and the customer service function, for example, and so there's innovation everywhere. But it's also the case that there is a particular special kind of innovator, a person who really is the highest, best use of them is to put them in an environment where they can think about the future in an uninterrupted way and they're not burdened with the expectation that they deliver the tactics of the day. And so I look to help the company understand that I look to every single person to bring innovative thought to the work that they do. But I also look for those very special people who are the true innovator's innovator and to give them an environment where they can constantly be seeding us with the big idea that's around the corner. Excellent. We've got a few minutes left here, so I wanted to ask kind of one more sort of open-ended question. If we're having this discussion, let's say five years from now, how is Sonos different from what you inherited today? Yeah. First of all, I just want us to be synonymous with premium audio experiences in the home. And I think five years from now, audio experiences on the home are not just going to be music experience and home theater experiences. I think they're going to be conversational AI experiences. And I think by executing on the three pillars I talked about, deliver software experiences at the highest quality that are radically easy, that are open to everyone, tell the story effectively through world-class marketing, and to deliver a product assortment that doesn't just land individual categories, but where every product makes the Sonos system more powerful. I think you execute on all of those details, and this is a much, much, much bigger company whose impact is really dramatic on the world. Great. We may have time for one question from the audience if anybody wants to ask Tom something? Is there any metric or short-term goal that you think that investors should pay attention to throughout this next fiscal year that you'd like to achieve? Let's see. One dimension that I haven't said anything about, we talked a little bit about the product assortment and how it drives how choices you make might drive repurchase and household LTV expansion. We didn't talk really at all about new household acquisition. And it's another really kind of lowercase s strategic aspect of executing the business. Just as an example, for a long time, a product called Sonos One was kind of the bread and butter of our new household acquisition strategy. It was priced at $199. It was called Sonos One because it was the one speaker that you need. And it was a hugely important part of our flywheel. In 2023, we replaced it with a product called Era 100. It's a better product in every way. It sounds better. It's better looking. And it has more cutting-edge sort of far-field microphone technology. It's a great product, but this was just coming out of the pandemic. Inflation had pushed consumer electronics prices up. We'd gone through a period where demand was outstripping supply for some of our products, and we priced the product at $249, not $199, and for a couple of years, it's out there in the portfolio kind of under-delivering on new household acquisition and somewhat unexamined, so I can't take any credit for this, but some other very thoughtful people in the business happened to be right about the time I showed up, started to do a deep dive on what the impact of the business was to have this product that should be a new household acquirer, but wasn't driving new households at the level of the product that preceded it. And so they made the case to lower the price to $199 based on an elasticity assumption about how much new demand that would drive and an assumption about a modeled assumption about what the likely lifetime value of those new households would be. And fortunately, it was one of those cases where the reality matched the analysis almost perfectly. Dropping the price point led to a dramatic increase in new household acquisition. And then we've been watching the repurchase behavior of that new cohort. And it's proving out that they have the same characteristics of the Sonos One customer and the historic Era 100 $249 customer. So it's doing all the things that it needs to do. And so one thing that I'm looking at really closely as we go through the year is not just how does the whole product portfolio sort of support the repurchase flywheel, but how are we using our product assortment to drive new households and not just measured by day one invoice profit, but full LTV across the product family and lifetime of the customer. Well, great. Thank you, Tom. Thank you, everybody. Enjoy the rest of the conference.