Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and related notes and the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.SONOS, INC.
Company Overview
Sonos was founded with a clear mission—to fill every home with music. This mission led us to invent wireless multi-room home audio. Sonos transforms the way people live and interact by restoring the shared experience of music throughout the home. Our home sound system provides an immersive listening experience created by our thoughtfully designed speakers and components, our proprietary software platform and the ability to wirelessly stream the content our customers love from the services they prefer.
Sonos sits at the intersection of emerging trends driving the future of home entertainment. The proliferation of streaming services and the rapid adoption of voice assistants are significantly changing audio consumption habits and how consumers interact with the internet. As the leading home sound system for consumers, content partners and developers, Sonos is poised to capitalize on the large market opportunity created by these dynamics.
We debuted the world’s first wireless multi-room home sound system in 2005, and have since been a leading innovator in wireless home audio. Today, our products include wireless speakers, home theater speakers and components to address consumers’ evolving home audio needs. We launched our first voice-enabled wireless speaker, Sonos One, in October 2017, and our first voice-enabled home theater speaker, Sonos Beam, in July 2018. In addition to new product launches, we frequently introduce new features through software upgrades, providing our customers with enhanced functionality and improved sound in the home. We are committed to continuous technological innovation, as evidenced by our growing global patent portfolio of over 630 issued patents and 570 applications. We believe our patents comprise the foundational intellectual property for wireless multi-room audio technology.
Our network of partners provides our customers with access to voice control, streaming music, internet radio, podcasts and audiobook content, enabling them to control and listen to an expansive range of home entertainment. Our platform has attracted a broad range of approximately 100 streaming content providers, such as Apple Music, Pandora, Spotify and TuneIn. These partners find value in our independent platform and access to our millions of desirable and engaged customers.
As of March 31, 2018, our customers had registered over 19 million products in approximately 6.9 million households globally. Based on customer data, we estimate that, on average, our customers listen to approximately 70 hours of content per month and to approximately 80% more music after purchasing their first Sonos product. We also estimate that our customers listened to five billion hours of audio content using our products in fiscal 2017, which represents 33% growth from fiscal 2016.
Our innovative products, seamless customer experience and expanding global footprint have driven 12 consecutive years of sustained revenue growth since our first product launch. We generate revenue from the sale of our wireless speakers, home theater speakers and component products, as new customers buy our products and existing customers continue to add products to their Sonos home sound systems. In fiscal 2017, existing customers accounted for approximately 38% of new product registrations. We sell our products primarily through over 10,000 third-party physical retail stores, including custom installers of home audio systems. We also sell through select e-commerce retailers and our website sonos.com. Our products are distributed in over 50 countries, with 55% of our revenue in fiscal 2017 generated outside the United States.
We generated revenue of $655.7 million in the six months ended March 31, 2018, an 18% increase from $555.4 million in the six months ended April 1, 2017. For the six months ended March 31, 2018, our net income was $13.1 million and our adjusted EBITDA was $50.5 million. We generated revenue of $992.5 million in fiscal 2017, a 10% increase from $901.3 million in fiscal 2016. In fiscal 2017, our net loss was $14.2 million and our adjusted EBITDA was $56.0 million. See the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures” for information regarding our use of adjusted EBITDA.
Market Opportunity
The following trends are changing how people consume entertainment and interact with the internet in the home:
Streaming Driving Transformation in Audio Consumption
Streaming music is fueling the music industry’s growth as it drives increasing music consumption and an expanding breadth of content available to consumers. Futuresource estimates that the number of global paid subscribers to streaming music services grew from 29 million in 2013 to approximately 176 million in 2017, and projects this number to grow to 293 million by 2021. Even with its rapid growth, the number of paid streaming music subscribers represents a fraction of the 858 million households worldwide with broadband internet today, as estimated by Kagan, a media research group within S&P Global Market Intelligence. Increased adoption of streaming music is accelerating consumption of audio content. According to Nielsen, the average number of hours spent listening to music per week in the United States increased 37% in two years to over 32 hours in 2017.
Voice Assistants Disrupting Home Audio
Voice assistants are disrupting the home audio industry by changing what consumers expect from a home speaker. Speakers are now expected to be voice-enabled, software-driven, Wi-Fi-connected computers that can fulfill requests for any audio content, answer questions or complete tasks by listening and responding. Industry research projects that by 2022, 50% of all web searches will be voice searches and 55% of U.S. households will have at least one voice-enabled speaker.
These trends provide a glimpse into the opportunity for consumers to enjoy what we call the Sonic Internet—where the internet’s sound content, such as music, movies, TV shows, video games, podcasts and virtual and augmented reality, can be controlled by voice and played out loud in the home. Existing products from traditional home audio companies and diversified technology companies are not designed to capture the full potential of the Sonic Internet. We believe there is a significant opportunity to provide a seamless sound experience that brings connectivity, freedom of content choice, ease of use and high-fidelity sound to the connected home.
Our Solution
Since our founding, we have focused on creating and enhancing a reliable, wireless multi-room home sound system that simply works. The Sonos home sound system integrates our speakers, proprietary software platform and a robust partner ecosystem to enable an immersive sound experience throughout the home. We manage the complexity of delivering a seamless customer experience in a multi-user and open-platform environment. The Sonos home sound system is easy to set up, use and expand to bring the Sonic Internet to any room in the home.
Our Products
Our portfolio of products encourages customers to uniquely tailor their Sonos sound systems to best meet their home sound and design preferences.
Our Software
Our proprietary software is the foundation of the Sonos home sound system and further differentiates our products from those of our competitors. Our software provides the following key benefits:
Our Partner Ecosystem
We have built a platform that attracts partners to enable our customers to play the content they love from the services they prefer. Our partners span across content, control and third-party applications:
Our Competitive Strengths
We believe the following combination of capabilities and features of our business model distinguish us from our competitors and position us well to capitalize on the opportunities created by the Sonic Internet:
Our Growth Strategies
Key elements of our growth strategy include:
Risks Related to Our Business and Investment in Our Common Stock
Investing in our common stock involves a high degree of risk. You should carefully consider the risks highlighted in the section titled “Risk Factors” beginning on page 14 before making an investment decision. We may be unable for many reasons, including those that are beyond our control, to implement our business strategy successfully. Some of these risks are that:
If we are unable to adequately address these and other risks we face, our business, financial condition, operating results and prospects may be adversely affected.
Corporate Information
We incorporated in Delaware in August 2002 as Rincon Audio, Inc. and we changed our name to Sonos, Inc. in May 2004. We had 1,478 full-time employees as of March 31, 2018. 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. The information on, or that can be accessed through, our website is not incorporated by reference into this prospectus and should not be considered part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.
Sonos, the Sonos logo, Sonos One, Sonos Beam, PLAY:1, PLAY:3, PLAY:5, PLAYBASE, PLAYBAR, CONNECT, CONNECT:AMP, SUB and our other registered or common law trademarks, tradenames or service marks appearing in this prospectus are our property. Solely for convenience, our trademarks, tradenames and service marks referred to in this prospectus appear without the ®, ™ and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, tradenames and service marks. This prospectus contains additional trademarks, tradenames and service marks of other companies that are the property of their respective owners.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These reduced reporting requirements include:
We will remain an emerging growth company until the earliest to occur of: (i) the end of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (ii) the end of the first fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) the end of the fiscal year during which the fifth anniversary of this offering occurs. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We are choosing to irrevocably “opt out” of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we currently intend to take advantage of the other exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.