Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos Third Quarter Fiscal 2025 Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to James Baglanis, Head of Corporate Finance. Good afternoon and welcome to Sonos Third Quarter Fiscal 2025 Earnings Conference Call. I am James Baglanis, and with me today are Sonos CEO Tom Conrad, CFO Saori Casey, and Chief Legal and Business Development Officer Eddie Lazarus. Before I hand it over to Tom, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance. These statements reflect our views as of today only and should not be considered as representing our views of any subsequent date. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption "Risk Factors" in our filings with the SEC. During this call, we will also refer to certain non-GAAP financial measures. For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our third quarter results posted to the Investor Relations portion of our website. As a reminder, the press release, supplemental earnings presentation, including our guidance and conference call transcript, will be available on our Investor Relations website, investors.sonos.com. I will now turn the call over to Tom. Thank you, James, and thanks to all of you for joining us. I'm speaking to you today not just as the new CEO of Sonos, but as someone who deeply believes in what this company can be. I've devoted my career to building consumer products that people love, and I took this role because I believe Sonos is one of the few companies with the ingredients to do that at the highest level. There's a reason I have a Sonos-based tattoo on my forearm. I love this company, its mission, and the possibilities ahead. Over the past six months, I've had the chance to work closely with every part of this business, and I've seen just how much our people care about the quality of our products, our customers' experience, the craft of what we build, and the operational rigor we bring to the task every day. Working with this incredible team has only deepened my conviction that Sonos can be among the most consequential hardware platform companies in the world. That's why I'm so honored the board has asked me to lead Sonos into its next chapter and why I'm so optimistic about what comes next. My appointment is not just a leadership transition, it's a turning point for the company, a return to our founding principles of obsessive craftsmanship, customer-first design, and category-defining innovation. We have a lot of work ahead of us to translate our convictions into a return to growth with better profitability, and we're approaching the challenge with urgency. Now, let me tell you why I'm so excited about the future. First, the Sonos we're building today is not just a product company, we're a platform company, a platform where our expanding portfolio of hardware products compound in value thanks to powerful software upgrades that deliver unique experiences for the home and beyond. This ecosystem connects not just our products, but also our partners, developers, and consumers. Every new product, every software feature, and every integration ensures that, over time, Sonos becomes more powerful, more interconnected, and more irreplaceable in our customers' homes. Second, Sonos has an extraordinary brand. We're the clear leader in wireless home audio, and we have earned that position by delivering consistently great sound, thoughtful industrial design, and a system that works across every room in the home. That's not marketing spin, it's why we're the number one home theater brand in the U.S. and why our installer and channel partnerships remain so strong. Third, we're making significant operational progress. Earlier this year, we reorganized to improve our product cadence while reducing our annual operating expenses by more than $100 million. This has catalyzed focus on the things that matter: the core experience, profitable growth, and the kinds of innovations only Sonos can deliver. For example, this quarter, we delivered new AI-powered voice enhancement features on Arc Ultra and state-of-the-art adaptive noise cancellation for Sonos Ace. We're keeping this momentum as we build a strong roadmap that stretches through fiscal 2026 and beyond. Finally, there are many opportunities ahead for growth. Despite our market leadership, we've only captured a small fraction of the global market. We have room to add new households and grow our installed base in both our existing and key growth markets. What's more, our installed base is a powerful asset itself, and roughly 40%- 45% of annual product registrations come from existing households. We're leaning into this by delivering experiences that get better as your system expands. This is just to say, we know we have more to do. We'll make Sonos more relevant to people's daily lives by expanding the experiences we deliver and making them even easier to enjoy. We'll be more assertive in the products we bring to market and more expressive in how we tell the Sonos story. We can reconnect more deeply with artists, with culture, and with the spirit of invention that has always been part of this company. This is the Sonos I'm building. It'll take some time to bring this reinvention to market, but we will move with conviction and clarity of purpose, and the payoff will be clear over the medium to long term. Now, let me share a few comments about our performance in Q3 and the business environment in which we're operating. We had a solid quarter with revenue and adjusted EBITDA at or above the top of our guidance. Our results reflect a tight focus on execution, which yielded dollar-share gains in home theater in the U.S. and on efficiency, which drove continued year-over-year declines in our operating expenses. With respect to our operations, like many companies, the most significant near-term challenge has been the uncertain tariff environment. As a reminder, short of a few accessories and our passive speaker partnership with Soniox, we do all of our U.S.-bound manufacturing in Vietnam and Malaysia. We talked last quarter about the contingency planning we underwent to minimize the effects of tariffs on our business while also doing what we can to limit the downstream impact to our customers. With last week's news, the tariff rates we were subject to going forward appear to be 20% for Vietnam and 19% for Malaysia. We continue to work closely with our contract manufacturers and our channel partners to share tariff costs, though it has become clear that we'll need to raise prices on certain products later this year. As these pricing changes land, we'll monitor consumer behavior closely as well as competitive trends across our categories, and we'll make adjustments in collaboration with our channel partners when and if necessary to ensure we're exploring every opportunity to optimize our respective top and bottom lines. In conclusion, Sonos has the right to lead. We have the brand, the platform, the team, and the permission to define what great means for audio and entertainment in the home, on the go, and into the future. We lost some momentum in 2024. We're starting to get it back, and we're going to accelerate our pace from here. Now, let me turn things over to Saori. Thank you, Tom. Hi, everyone. We're pleased to deliver Q3 financial results that exceeded our expectations. Revenue of $345 million was above the high end of our guidance range, driven by better-than-expected portables and component products. Q3 revenue declined 13% year-over-year versus our guidance of down 22% to 14%. Excluding the impact of the launch of Ace last year, when we recognized the revenue of the channel fill, our revenue was down mid-single digits in Q3, slightly better than the first half of the year and better than the overall category trends. This was driven by Arc and Arc Ultra, which grew on a year-over-year basis. Gross margin was 43.4%, near the midpoint of our guidance range. Non-GAAP gross margin was 44.7%. We incurred $2.1 million of tariff expenses in Q3, which was a 60 basis point impact to our reported gross margin. This is consistent with our guidance for under $3 million in Q3. Q3 GAAP operating expenses were $153 million, down 15% year-over-year. Non-GAAP operating expenses of $131 million were down 15% year-over-year and came in about $9 million below the low end of our guidance. On a normalized basis, primarily for variable compensation, non-GAAP operating expenses declined by 23%, as we saw a full quarter benefit of savings from the reduction in force announced last quarter, as well as from many other cost optimization efforts we had set out last summer. As for the year-over-year trends of each non-GAAP operating expense category, research and development expense decreased by 17% due to cost optimization efforts from the prior quarter. G&A expenses decreased by 16%, driven by headcount and various cost optimization efforts initiated last year. Sales and marketing expenses decreased by 13%, driven by higher marketing investments last year from the launch of Ace. Adjusted EBITDA was positive $36 million at the high end of our guidance range of $12 million- $37 million due to higher revenue and lower operating expenses. Year to date, revenue declined by 8%, while GAAP gross margin came in at 43.7% and non-GAAP at 45.2%. Our GAAP and non-GAAP operating expenses declined by 8% and 11%, respectively, on a reported basis and by 16% on a normalized basis. Adjusted EBITDA declined 4% year-over-year, better than our revenue performance due to our expense discipline. Our balance sheet remains strong as our net cash balance increased by $30 million sequentially to end the quarter at $254 million, which includes $53 million of marketable securities as we hold excess cash in short-duration treasury bills. We also have a $100 million undrawn revolving credit facility at our disposal. Q3 free cash flow was $33 million, an increase from negative $65 million last quarter. CapEx was $5 million, down from $6 million last quarter. We paid $3.5 million of cash tariffs in Q3, a bit below the low end of our $5 million - $10 million guidance due to lower-than-planned inventory purchase pull forward. Our period-end inventory balance decreased 17% sequentially to $115 million, primarily due to lower finished goods. On a year-over-year basis, this was a 25% decrease, primarily due to lower component balances. Our inventory consists of $93 million of finished goods and $22 million of components. As we noted last quarter, our near-term priority is navigating this dynamic and uncertain environment with ample liquidity to preserve operational flexibility. As a result, we paused our repurchase activities in Q3. Returning capital to shareholders remains a key pillar of our capital allocation framework, and we have $150 million remaining on our current share repurchase authorization available at our disposal. Turning to our guidance, the Q4 outlook we're providing today reflects the demand trends we have observed quarter to date and does not assume any material change in consumer purchasing behavior as a result of this highly dynamic global trade environment. We expect Q4 revenue to be in the range of $260 million - $290 million, up 2% - 14% year-over-year. We're not guiding Q1 at this time, but I would note that due to the launch timing of Arc Ultra and Sub-4 in Q1 of fiscal 2025, we have a difficult year-over-year comparison. Also, as Tom Conrad mentioned earlier, we will be raising prices on certain products later this year. We have carefully formulated our pricing plan in support of our goal to optimize for gross profit dollars; however, it is difficult to accurately predict how our pricing and overall market demand may impact unit sales volume in this dynamic environment. If not for the uncertainty introduced by our contemplated pricing changes, we had been expecting our year-over-year comparison would improve from Q1 through the balance of fiscal 2026. We expect our Q4 GAAP gross margin to be in the range of 42% - 44%, with non-GAAP gross margin in the range of 43.7% - 45.5%. Our gross margin guidance embeds our expectation that tariff expenses will be approximately $5 million in Q4, which is around 180 basis point headwinds to gross margin, mostly representing the previous 10% tariff as well as inventory on hand. On a cash basis, we expect to pay $8 million - $10 million in Q4 as we build inventory ahead of our holiday quarter. This estimate is lower than our previous $20 million - $30 million estimate based on new tariff rates and the timing of the effective dates. While we're not guiding Q1 at this time, we expect our GAAP and non-GAAP gross margin will be above 40% for the quarter, even with the newly announced tariff rates due to our mitigation actions. We expect Q4 GAAP operating expenses to be in the range of $150 million - $155 million, down 13% - 10% from $172 million in Q4 last year. We expect non-GAAP operating expenses to be in the range of $130 million - $135 million, down 9% to 6% from $143 million in Q4 last year, and roughly flat sequentially. This decline is less than the 15% decline we saw in Q3, primarily due to lower variable compensation expenses in Q4 of last year. On a normalized basis, our guidance implies non-GAAP operating expenses will decline by 23% to 20% from Q4 of last year. Bringing it all together, we expect Q4 adjusted EBITDA to be in the range of - $10 million to + $14 million, representing a margin of approximately - 4% to + 5% and an improvement from negative $22.6 million in Q4 of last year. Please note that the adjusted EBITDA figures I just quoted include the $5 million tariff impact I outlined while discussing gross margin. Our Q4 guidance implies that our full-year adjusted EBITDA will be between $116 million - $140 million, an increase of 8% to 30% year-over-year from $108 million in fiscal 2024. Growing adjusted EBITDA while top line declines between 7% - 5% is a direct result of our transformation efforts. This marks our fourth consecutive quarter of delivering on our top and bottom line guidance while navigating through a volatile and uncertain macro environment, thanks to the dedication and hard work of our employees. We continue to work hard on our transformation efforts to improve operational efficiency, to drive profitability, and enable investments for our future growth. We will provide more updates in future quarters. Speaking of future growth, although our growth markets represent a small share of our revenue today, we remain encouraged by their growth performance that will be our key contributor to our growth in the years to come. We also continue to see tremendous opportunities to grow within our developed markets. We have been navigating a cyclical downswing in our category for some time, and we are confident that we are well positioned when the cycle rebounds as we continue to invest in the core experience and build out the Sonos platform. We're excited to have Tom officially as our CEO, as his appointment marks the beginning of a new chapter to capitalize on our brand and leadership in wireless audio. With only a small fraction of the global market captured so far, there is a vast opportunity to introduce the compounding value of the Sonos platform to new customers. After the call, we will update our earnings slides to reflect our Q4 guidance and our revised tariff exposure expectations. With that, I'd like to turn the call over for questions. Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll go first to Steve Frankel at Rosenblatt. All right, good afternoon and thank you. Congratulations, Tom. Maybe just start with some high-level insights on how you think about new product introductions. Prior to your appointment, you know the company was pretty set on introducing a couple of new pieces of hardware per year. You seem to be emphasizing software. Should we think about software innovation being as important in terms of new products to drive growth as new hardware products? Sure, thanks. It's great to be on the call as the CEO for the first time. I continue to think that a cadence of two new products a year is an excellent outcome for Sonos and its customers. There is really no change in our ambition in that regard. I will say, though, that we are, as you know, in the process of navigating tremendous reinvention here at Sonos, and it takes time to drive change. The beauty of software is that you have shorter lead times, and the benefits of upgrades to the software platform can appear more quickly. Hardware, of course, has much longer cycles. While it's true that today I think we have the strongest product portfolio in our history across every room of the home and beyond, our attention to software reliability and core experience over the last 15 months has created a kind of lull in new hardware releases coming over the next couple of quarters. In the short term, you will see us work hard to drive differentiation and experience improvements to support the current portfolio through software upgrades. Having said all of that, we all here at Sonos remain incredibly excited about our product roadmap with great new product introductions that will pick up in the second half of 2026. Expect in terms of near-term execution, continuing to deliver excellence in core experience, driving new customer acquisition and repurchase. Look to us to sharpen our ability to tell the Sonos story. As Saori described, expanding in promising new geographies, maturing our relationship with installer channels, and driving success in the new categories we've entered recently like headphones. Right. Saori, the last couple of quarters there's been a lot of discussion about reducing costs, and you've done a great job. Are we towards the end of that journey, or do you think, excluding tariffs, there's more costs you can take out of the business to drive margin improvement as volumes return? Thank you, Steve. We are still on our journey of our, as we've been calling it, transformation, really driving cost structure and cost efficiency to be able to invest for the future. Our work continues, and we'll hope to be able to share more in future quarters. Great, thank you. I'll jump back into the queue. We'll move next to Erik Woodring at Morgan Stanley. Great, thank you guys for taking my questions. Tom, you are clearly deserving of the role, and congrats on becoming the permanent CEO. I would love to maybe, Tom, I realize that it's early and this is maybe a tough question to answer, but you know, you guys last quarter communicated a strategy of kind of trying to widen your aperture from a pricing and promotion perspective to kind of get new households in the door. Obviously, once they come in, there's a very powerful flywheel. Now, obviously tariffs are kind of forcing your hand a bit from a pricing perspective. Can you maybe just give us a little bit more detail or direction on exactly how you think about, you know, what products should be higher priced because of tariffs, what products maybe you don't want to adjust pricing because of some of this pricing strategy? Just love to get a little bit more flavor of how you're thinking about pricing increases versus tariffs, and then I have a follow-up, please. I'm not sure that on this call we're going to go into more detail about the specifics of the pricing changes that we're making beyond just saying that, of course, we're evaluating each of the products in the line, contemplating our sense of elasticity and effect on demand as we make pricing changes. I think the best way to think about what we're trying to do here strategically is to craft a pricing plan that supports our goal of optimizing gross profit dollars. We certainly will be paying close attention to how our customers respond to these pricing changes, as well as the competitive trends across the portfolio and in our categories. I'll just say, we really believe that our portfolio of hardware products deliver truly exceptional value that compounds over time, thanks to the kinds of software updates that deliver new experiences. Just this quarter, we shipped AI-powered voice enhancement for Arc Ultra, multi-user swap for Ace in home theater, new room tuning capabilities for Ace. Our customers benefit from products that improve over time after their purchase, and we think that that puts us in a good position as we have to modulate pricing relative to our competitors who so often are delivering commodity experiences. Okay, totally understood. I'd love, as a follow-up, maybe just, you know, if you could kind of touch on the high-level kind of market backdrop as you see it today and maybe where you see it going. I realize there's a lot of variables that go into the forward look, but do you see, you know, the environment getting better? Is it deteriorating? Anything by geography that you would call out? Would just love to know kind of what's going on behind the scenes, kind of outside of what you guys can actually control. Thanks so much. Sure. It continues to be the case that the category remains cyclically challenged, coming off of COVID pull-in and weak housing data. That's just two headwinds. On the other hand, more people are consuming content at home than ever before. More people are subscribing to digital music and video streaming services than ever before. More people are interacting with technology through voice and conversational AI than ever before. I really think that in time, all of these trends are going to drive a return to growth for the category, and I think we're uniquely positioned to capture that growth when it returns. We're working hard in this sort of cyclical downturn to drive share through strong execution and innovation. You see that with Arc Ultra driving year-over-year gains in home theater in the U.S. this quarter on the backs of the sound motion technology that we brought to market. You'll continue to see us work hard in that lane while we wait for what we think is the inevitable return of category demand. Super, thanks. Maybe just last question, then I'll get back in the queue for you, Saori, and kind of a similar question to my predecessor, which is, you know, last quarter you guys talked about $580 million - $600 million of non-GAAP OpEx as kind of your target annualized run rate. I think you are actually already below that right now if we kind of take fiscal 2025 in totality. I know you're not going to necessarily guide for fiscal 2026, but is $580 million - $600 million still the target run rate? Is it below that? I'd love if you could just share a bit more context about kind of what that target is, if it has changed at all. Thanks. Thanks, Erik. Yeah, we continue to still work on our efforts to optimize our cost structure. Part of it, we obviously want to reinvest into the business for future growth. We're not guiding to a FY 2026 OpEx today. However, I do want to call out part of what I mentioned in the prepared remarks that the resulting impact to even the FY 2025 adjusted EBITDA, we expect to grow 8% - 30% year-over-year on our bottom line for this year. As you recall, we had our reduction in force both last August as well as an even larger one in February. We're not seeing a full year impact of those activities that have taken place to improve our cost structure this year in FY 2025, and we expect that to fully materialize into FY 2026 as well. We're balancing with where we want to invest for our future as well as flowing it through to the bottom line. We expect to continue to improve our profitability, and we believe this business can expand both top and bottom line. Thank you. Awesome. Thank you guys for all the color. Good luck. As a reminder, if you would like to ask a question, please press star one. We'll go next to Brent Thill at Jefferies. Hi, this is Rayyana Matraji on for Brent Thill. Thanks for the question and congrats, Tom. Can you speak to how Sonos is leveraging AI to enhance the product or app experience? Do you think this could be a meaningful differentiator or monetization driver over time? Thank you. Let me start by talking just a little bit about what I think of as the sort of the fundamental strengths of the Sonos capability. We have best-in-class sound quality and industrial design. We invented the multi-room architecture that's defined the standard for customers everywhere. We have this incredibly broad portfolio of premium form factors for every room and beyond. The power of this ecosystem is really the software platform that connects all of those products with our partners and developers and our customers in truly unique and differentiated ways. I think what you're touching on is why I'm so excited about where this platform can go from here. I think our hardware and software is incredibly well positioned to deliver the next generation of conversational AI experiences in the home. The way to think about it is that Sonos isn't and has never been a company that sells a loose collection of speakers. Today, we're building a next-generation platform that we think will define how people experience sound and interaction in the home for the next decade and beyond. Of course, as a footnote, I should say the company operationally is being transformed by the use of AI technology across all of our departments from engineering, certainly, through marketing and legal and customer experience. We have a really big vision for AI, both in terms of increasing our operation agility as well as delivering incredible one-of-a-kind experiences in our customers' homes. Great, thank you. That will complete our question-and-answer session. This concludes today's conference call. We thank you for your participation. You may now disconnect.