Sonos, Inc. (SONO) Earnings Call Transcript & Summary

Thank you. So let's get started. Thank you, guys, very much for joining me today. My name is Erik Woodring. I lead the hardware coverage here at Morgan Stanley. I'm delighted to be joined by both Patrick Spence, CEO of Sonos; and Saori Casey, the new CFO of Sonos. Patrick is a well-known guy here. He was here last year. He's been CEO since 2017. Saori is relatively new to the role, joined late last year -- actually, during CES, January this year.

Yes, 6 weeks.

And so we'll ask you all the questions then. But obviously, previously was within Apple's VP -- was in Apple's finance department before becoming CFO at Sonos. So thank you guys for joining us today.

Thanks, sir.

Thank you.

Patrick, let's start with you. I think it's always helpful to kind of look backwards to understand where companies stand today. And for Sonos, that's important because the value proposition, the flywheel, I'd say, is still very much alive and well, but the end market has been challenged that you play in. And so maybe just unpackage for us, kind of what's happened over the last 2 to 3 years, both from a market perspective and then specifically from a Sonos perspective?

Yes, for sure. So as Erik mentioned, our flywheel is a very important part of the story. And so we've been at this for 20 years. And kind of the key notion has been that customers will come in every year and add another product to their Sonos. And so 40% of our sales every year go to existing customers adding another product to their Sonos system. During the pandemic, along with most companies that sell products for people's homes, our sales shot up. And then we've seen spend shift to other categories over the last 1.5 years. So we've seen in our home theater and streaming have been very challenged markets. The good news is we've held or gained share in most of the cases without having to compromise our gross margins the way many of our competitors have. And so that gives me a resolve around the brand strength in terms of where we are and the innovations that we've brought to market. And the other good news is that the cohorts that joined during that period are behaving very similarly to the ones that joined pre-pandemic. So the flywheel remains intact. And in fact, we've seen some interesting things where in the -- in our fiscal Q1, the holiday quarter, we saw more customers -- new customers start with more products than we ever have. And so we've had a concerted effort to both grow our DTC and grow our bundling strategy because the real value of Sonos, I suspect most people have it, is having more than one product in your home. And so getting people started that way, we know, will drive higher NPS, more engagement and then repurchase. And then just the one other thing I would add is that as part of that flywheel, our new customers, the #1 way new customers come into the system is existing customers telling their friends and family, hey, you need to get Sonos. And so that's been consistent remarkably over the last 20 years and continues to spin as well. So we feel good about where we're positioned. Obviously, some challenging macro periods, but we're very focused on what we can control.

Perfect. So maybe let's just add some numbers to that before we turn to Saori, which is historically, pre-pandemic, you guys kind of pitched yourselves as a 10% top line grower, 20% EBITDA grower annually. From 2019 to today, you've trended slightly below that. Again, the market has been very weak. Maybe my question is like, has the Sonos growth algorithm changed? Should we think about the level of growth coming from this business as being relatively similar to pre-pandemic? Or how should we unpackage that?

Yes. So we're 2% of the global audio market today. We're in 9% of the homes that we believe are the total addressable market for us. So there's lots of opportunity ahead. I think what we're looking at right now is some cyclical macroeconomic challenges. And I feel very confident that we have a path to continued growth for many years ahead. And so part of that is our own strategies around channels and countries and new product introductions as well that I know we'll get into in terms of thinking about new categories. But there's a lot of opportunity ahead, and I think we're very focused on what we can do to make sure we continue to drive that.

Perfect. So Saori, you're in the hot seat now. So lucky to have you here. I'd love maybe if you could just start to walk every through -- everybody kind of through your background. And then now that you've been in the seat for a long 6 weeks, what your priorities are as you take this role and try to push this company forward?

Well, thank you for that. No, I'm very excited to be here. As you said, 6 weeks on the job, trying to learn the Sonos business. But prior to that, I spent almost 13 years at Apple. And believe it or not, while the size is much larger, the business model is very similar and how the company is run is very similar in a single P&L way. And so there's a lot of similarities from the standpoint of both the consumer and technology, well-recognized brand and plain premium in the space. And so there's a lot of similar metrics that we can apply in terms of the efficiencies and the way we can grow the company in a sustainable and profitable way through capital allocations and using margin to the strength of the business to grow top line. And a lot of the investments that's been made on the product side, obviously, ahead of the revenue coming in the future as well as infrastructure. There's a great infrastructure that's put in place. I feel really lucky to be coming in where the Sonos is right now at a sort of a pivotal point with the product road map that's ahead, with the tremendous opportunities to grow. And if we can put -- continue to evolve and scale with a discipline around that, whether it's channel inventory metrics or on-hand inventory metrics, demand planning, forecasting and planning with a degree of accuracy and discipline to be able to deliver what we say we're going to do, I feel like I can add some value there from that perspective and being able to scale. Like I said, there's a lot of great investments that's put in place. So really, the name of the game is how do we scale from here.

Okay. Perfect. So let's maybe first talk about the near term and then we can think bigger picture and longer term. So December quarter that just ended, you reported revenue slightly above the high end of your expectations, up a little over 100% sequentially. You kept the full year 2024 guide unchanged. And so can you maybe talk about some of the drivers of outperformance in the quarter, promos, channel fill, share shifts? And then kind of where we stand from a demand perspective, both the broader market and you guys? And maybe, is it conservative that gets you to hold some of those numbers back for the full year given the outperformance? Or how to think about that juxtaposition maybe?

Yes. So really, I would say Q1 was a great test of the strength of our brand in terms of where we are. So all of last year, we fought against all of our competition deeply discounting their products and trying to drive growth in that way. We used promos in a pretty limited way. We did a little bit more promotion in fiscal Q1 as we saw that buyers were waiting longer to make their purchases this year. So usually, we would keep it limited to Black Friday, Cyber Monday. We decided to extend that based on what we're seeing in the marketplace, and that paid off in a big way. We also had some positive developments on component costs, drove down inventory, just a lot of great execution, I would say, in the quarter. And as we came out of it, part of it was trying to be prudent around what kind of pull-in we saw to Q1 because of the promo and running it in a different way. And part of it is just the environment we're in right now and making sure that we're being thoughtful about what the rest of the year holds. I think we would be foolish to call a change in the market at this particular point in time. We'll want to see some kind of consistent results around that. And so we're trying to be prudent in terms of how we think about the year ahead in terms of what we set with guidance.

Okay. Perfect. You repeated what I'm about to ask you because it stood out to me on your December quarter earnings call. But you said you saw the largest number of products per new customer in the holiday season in years, which is very kind of indicative or representative of the success you've had in bundling products together. Can you maybe just elaborate on the strategy a bit and kind of clarify why this is a good thing? Meaning, I think bears would say, you're pulling forward demand. Obviously, there's very much an ecosystem story to the Sonos brand and the Sonos product. So maybe just double-click on this whole strategy of bundling.

Yes. And it's very important to understand that even when we look back at the cohorts that started in the first year we started selling products back in 2004 at this point, they continue to come back and add new products to their system, right? So we do not see like there ever being an end to people adding products, particularly as we think about new products, new categories. And so the notion that we're just pulling ahead or something like that, I think, is misplaced from everything we can see from our cohort data at this particular moment in time. And so -- but what we know is that if somebody -- the more products that they have, the more highly engaged they are, the higher their NPS is and the more likely they are to come back and buy. And so last holiday, the one previous to this one, we take -- we tried some bundles on sonos.com, and we learned a few things and we had some progress with that. And then we decided that we would go harder at that at sonos.com for this holiday, but as well some of our retail partners. Like we set up with some of our retail partners as well getting started with more than one product. That worked very well. And so we learned last holiday, and this is what I love about our company and the way we approach these things, is we learned, we kind of tested that and then we expanded it for this year, and it really paid off. And that is just from overall like what we try to do every day, like the better experience is having multiple Sonos products in your house. But we also know that will fundamentally drive that higher NPS, which gets those customers to tell their friends and family, hey, Sonos is awesome, you should get it. And then that will have them come back and buy more. And again, we don't see anything in cohort data that makes us believe that there's any end to somebody filling their home with Sonos.

Okay. Perfect. So you talked about new products. So I'm going to take this time to try to ask you about new products, and we'll see where it goes from here. So clearly, a big year, as you guys have previewed for us, expecting an entrance into a new product category, you call a TAM expander. You've embedded about $100 million of revenue this year from new product launches, including this one. I don't know -- I know you don't want to divulge too many secrets, but maybe one, is everything on time? Number two, how does this $100 million ramp compare to past products you've launched? And then the number three is, because you view it as a TAM expander, is this a new product for new households? Is this a new product for existing households, kind of that add-on? How do we think about maybe where this category would fall in that spectrum?

Yes. And so we had said -- so this is very unusual for us. We don't usually provide this kind of color on when we're entering a new category of these things. But because it has such a large impact on our year and it also changes the way that people think of our seasonal growth, we felt it was prudent to provide color. And so what we said back in November, when we did earnings, was that it would come in the second half of the year. What we said at our last earnings call in February is that it will be in our fiscal Q3. And we have no update on that, continues to be fiscal Q3 from where we are. As we think about any product, we're thinking about a couple of dimensions. It has to be building on kind of everything we've invested to date. So when you think about what we've built, we really are the story of software eats audio, and we've built this software stack, which creates a system and makes it so that every Sonos product you get, the system gets better. And so a great example of that would be when we introduced the Roam, which is a portable speaker for our existing customers, they got a cool feature called Sound Swap, where you could take it by an existing Sonos speaker that's playing and you pick up the music. Like it just picks up the music magically, which is pretty cool. And so we always look for innovation that makes the system better for those new products, and we look for the fact like it will win in the marketplace against the other products that are there. And so it's got to sound great, and then it's got to have some unique trait that helps it win in the market because we only play in red oceans. And we're pretty good at it at this point by leveraging software because a lot of people in audio, I think pretty much everybody else, doesn't have the software capabilities that we do. And so that's the way we ultimately think about it. That's the way we feel like we win as well as having those 2 sides, so it's appealing to both new and to existing customers. And we are just blessed by the fact that with every new product launch, whether it's an existing category or a new category, we see an absolute stampede from our existing customers to go buy that product. Sight unseen or unheard is probably better in our case. They're willing to trust the brand and they trust it that much, they go out and they buy the product right away. So I think that will -- this will be a similar case as we enter a new category.

Well, we can't wait to hear what you're coming out with. No pun intended there.

That's good. That's good.

So -- and maybe just one more question on the new product launches. Because you launched the in-ceiling speaker with Sonance earlier.

We have.

You've obviously committed to this. That kind of gets you to your 2 new products every year. Should we be thinking about more this year? Or maybe does that do it for us?

Well, let me put it this way. So back in 2017, when I took over, I said we're going to do at least 2 new products every year. We've done more than 2 new products every single year.

Perfect. And one more question on products because ultimately, at the heart of this, this is a product company. Last earnings, you talked about being in the early stages of a multiyear product cycle. What exactly does that mean? And maybe how does that differ from the history of Sonos?

Yes. This is really important, and I think we haven't done maybe a good-enough job explaining this. But kind of coming out of COVID, we were in a very strong position. And I saw a lot -- like as there was some weakness, I saw a lot of the industry pulling back. And we decided that we were going to lean in and invest in 4 new categories, which we had never taken on 4 new categories at once. We usually did one after another. And so we've got 4 new categories underway. One we launched last year called Sonos Pro, which is a really Sonos-as-a-service offering. So recurring revenue, tailoring more to the commercial market. And so very excited about that one over the longer term, but very different than the way we approached it in the past, which I think is going to be interesting. And then with the other categories, we had teams that we've spun up to do that. So we've never run our R&D ahead at this scale to try and get ahead of this. And so the reason that we've talked about this is that the revenue will be coming from those products as we go through it. And all things being equal, unless we see some opportunities that we think we really need to like jump on, which I always reserve the right to, we will be like back to more of the way that we're typically investing in R&D, which is thinking, okay, another category each time that we're going into it. And so this has been a unique moment in time because we saw unique opportunities.

Okay. And maybe elaborating on that again, I think when we could ask anybody here in the audience, most people probably own a Sonos, but they can probably all agree that you own the home, right? You have a number of products that can satisfy your needs within a home. How do we think about the opportunity for Sonos outside of the home? You started that clearly, not just with Sonos Pro with Roam, with Move. How do we think about your aspirations to own the sound category outside of the home?

Yes. I mean endless ambition around it because we believe software plays just as relevant a role in the experience outside of the home, and the home is $20 billion of the $100 billion TAM that's out there. So we're only playing in that small market today. But as we go into these bigger markets, we think there's ways to connect it to the system that are unique and help power that flywheel and that customers are just going to love. And I mean our brand just has so much trust with customers, we're going to leverage that in other areas. And so I think there's no end to the ideas that we have on new products and on innovation to go into these areas. And it's all for us about kind of staggering that investment and making sure we're doing this in a responsible way. Because obviously, in our business with hardware revenue, generally, it's the discipline that Saori talked about in forecasting and inventory and some of those things, too, to make sure that we're doing this in a sustainably profitable way. But we just see so much opportunity, both with our existing products. But as we think about the other $80 billion of the audio TAM, we believe we have a role to play in all of that. And so that's why we think we have a huge opportunity ahead.

Okay. Last product question, and then we'll get more into the flywheel, which is a year ago, this time, you guys launched the Era 100 and 300, a bit of a different form factor for you guys than the traditional Sonos products. And as I think about the path forward, there's probably more to do when it comes to form factor. You've made some very interesting acquisitions, Mayht, T2, Snips, obviously, which isn't necessarily about form factor. But how do these acquisitions kind of play into how you think about the -- not necessarily the cadence of product launches, but where this business is ultimately going longer term?

Yes. So everything that we've acquired has been around accelerating our road map and taking more of that $100 billion TAM that's there. So Mayht is a great example, the transducer, the real heart of a speaker. Everybody in the industry, all the experts thought that we'd innovated it as far as it could go, even a lot of the amazing smart engineers at Sonos. Two young guys in the Netherlands came up with a completely different concept that allows for lower power, less weight, better for the environment and a lot more bass. And so that creates opportunities for new form factors and kind of new products that I think are very interesting for the future. But we'd already been thinking about other products. And so this fits in very nicely to be able to go ultimately and power that. And so we're always looking for teams and technology that might help us accelerate our road map, but it's all with that vision of how do we go and expand into the total addressable market that's there.

Okay. So let's maybe dig into the flywheel a little bit more in the ecosystem. I guess it's maybe a 2-part question, which is, I first want to focus on kind of new household growth, which becomes that early-stage engine. In 2023, it grew about 9%. On average, you're adding between -- it's like kind of 1 billion to 2 billion new households every single year.

Million, million.

Million, excuse me. Billion would be fantastic.

It would be fantastic.

Let's make sure that's correct. Maybe the question is, is it harder to add new households in an environment like this where the market is weaker, again, the broad category is weaker? And then ultimately, kind of what re-catalyzes market growth -- new household growth? Is it simply the market? Is it products? Is it everything? Help us think through those 2 things.

Yes. So obviously, getting new homes, and we're in over 15 million homes today with just over an average of 3 products per home. I think it's the -- we can do a better job of leveraging our marketing dollars. We've really focused on performance. There are some things. We have a new leader of our go-to-market team, Deirdre, that really sees opportunity in terms of how we tell our story and reach into new homes that are out there. And so I think there's some things we can do on the marketing front. We mentioned last quarter that we're also doing some new channels. So we believe there are some channels that reach into customers that we haven't reached to this point. So there's also a channel aspect to this. And then there is a geography aspect to this as well because we've largely been Western Europe and North America to this point. There's a lot outside of that, that are an opportunity. And then as we -- every time we enter a new product category, it does bring in people that hadn't thought of Sonos before, and that helps them sell that system to more and more people and get into new customers. So I think it's a combination of those things, and those are the things that we can control. And then I think there will be a tailwind from overall the audio market bouncing back from where it is as well. And -- but we don't count on that. We just go and execute on the opportunity we can.

Okay. And so now you sold the product, you've acquired a new user, a new household. Let's talk about kind of the underlying kind of drivers of that flywheel. Has anything changed after the point of purchase? Meaning, if we think about recent cohort behavior, does the LTV of these new cohorts, whether they're pre-, during or post-COVID, do they differ at all? Has the kind of ASP of the first product a customer is buying changed at all? How should we be thinking about any of the underlying drivers of this flywheel changing again pre-, during or post-pandemic?

Yes, it looks -- everything so far looks very similar to the pre-pandemic. And so it feels like the -- for the pandemic cohort, it's terrible, we call them that, but it is the pandemic cohort. And then the post, like we're watching those that are "post-pandemic". And so the behaviors of the cohort seem very similar from what we can tell at this particular point in time, even insomuch as there's always about 40% of our installed base that has one product. And then for people that have more than one, the average is 4.4 products. And so that's been steady as we've gone through it. And this is often how people start with one product, and we've been trying to change that with the bundles. We'll see this year as we go through that and focus even more on bundles, does that change on an overall basis? But yes, so everything we can see is that it's continuing to perform as before. And so it just gives us more confidence that the flywheel is exactly as we had expected it. And I think the LTV, ultimately, we've said in the past that we think most customers could get to somewhere between 4 and 6, but that was before we started to invest in these 4 new categories. And so as we do those things, there should be more upside and there should be more products per home as we go into that. And so I really think the LTV is just like only limited by our imagination and our ability to put new products out because, again, every time we bring something new out, our customers add it to their system.

Okay. And I want to kind of touch on that point you made. So 40% of your households only own one product, 60% obviously own more than 4.

That's right, 4.4. Yes.

How do you get that 1 to go to 4? Meaning what are the tools that you can use out in the market today to say, hey, James only has one speaker. I hope he has more than one. But James only has one speaker. We're going to get him to 4. How do you convert that? And is there a certain time that it typically takes that user, that household to go there?

Everybody is on a bit of a different time frame in terms of going through that. One of the things that Saori mentioned in terms of like some of the infrastructure investments is a customer data platform that allows us to better target each individual customer with an offer and say, if they have a particular product, hey, this is the next one you should add or you can complement your system and going through that. And so we're getting better at being able to target our customers with particular offers that allow them to add a new product. And I do think that's the key. Our direct-to-consumer has grown significantly since 2019. And we've just gotten much better at how to do that and how to go after those customers. And so that is the key to unlocking that in my mind, with the combination of trying to actually get more people started with more than one product. Like if we can do both of those things, I think we'll be in excellent shape. And a lot of the people that start do start with a sound bar. We're very -- we're in a very strong position in home theater, and that just plays itself to either adding a sub or adding 2 rear speakers as well. And so I think those and making sure we're providing the right information to our customers at the right time is really important. So the one other thing we've done is a very proactive, what we call, a first 30-day program, which makes sure that people are off and running and highly engaged and having a good experience in the first 30 days because we know if they do, they'll come back sooner and add another product. And so I think kind of across those 3 prongs, I would say, gives us some confidence that we'll be able to turn more of those single-product homes into. Now the other thing that may happen is we may, as new homes accelerate, we may actually get more single-product homes. And so we'll have to see how this all plays out because it's been very consistent over time. But yes, we're definitely targeting that group. And that group, we estimate if we could get those single-player homes to the 4.4 multi-average, that's a $6 billion opportunity before you even talk about the revenue from new homes. So it's a massive opportunity for us.

And now new categories means that's going to be even larger?

That's right. That's right.

I'll hold you to that one. You mentioned something before, which was the distribution footprint. Can you maybe just touch on that in terms of what you're seeing from kind of DTC versus retail versus the installer channel? How we might think about -- again, the installer channel a little bit tied to housing, people might say, but how we think of that? And then what the priorities really are from a distribution footprint, again, to either turn 1 product into 4.4 or turn those 15 million households into something that's larger than that?

Yes. I'll start with DTC. So our direct-to-consumer efforts have really doubled since 2019, so it's about 24% of our sales today. And with 40% of our sales coming from existing customers adding another Sonos product every year, like that is a golden opportunity for DTC because we're developing that relationship. They're opening their Sonos app every single day. So one could make the argument that it should be higher, and maybe I have, than 24%, given that 40% of our sales come from existing customers, and we should be capturing a large dose of those. The installer channel that Erik mentioned that's going around to people's houses, right, and installing Sonos, we -- it is one we've worked on for a long time. It sells some of our highest-priced and highest-margin products and has huge loyalty. And so we think there's a ton of opportunity there. They've been doing -- holding up relatively well in terms of where we are right now. It does seem logical that with housing and with renovations, like they very much will play in that because that is what they do. That's about 21% of our sales as well. But again, I think there's more products. There's kind of actually some services we've talked about that exist in that category, too, that we think we could do. And it's a really unique one and one that, over my 10 years at Sonos, has continued to be strong, and we've continued to perform well in it. And so it was one that a lot of people thought might go by the wayside over time, but it's remained very strong. So that's a good one for us. And then finally on retail, a lot of retailers are actually reducing the number of brands that they want to offer post-pandemic, and they're being much more selective about what they're going to do and what they're going to feature. And so we're in an excellent position as retailers do that. We found some retailers that, as we think about new categories, are particularly important. But even for our core business, we believe there's some retailers to add to the mix that will help us reach more of our total addressable market. And so we expect, as things normalize, we expect each of those teams to drive growth in their areas and in their channels. So there should be opportunity across all of them.

So you mentioned retailers reducing the number of brands that they own. So I want to just quickly touch on the competitive landscape, but do it obviously from the Sonos side. There's no need to give anybody else free press. How do you think about the intensity of the competitive landscape today? Is it more intense than 3 or 5 years ago? Is it less intense? And then where are you finding -- when you look at the cohorts or you talk to customers or you talk to retailers, where the Sonos brand is having success, like differentiation versus your competitors?

So as I said, we've always kind of played in red ocean territories. And so when we first came out, it was like there's no way you can compete with Bose or Sony or any of these players. After we bested all of them in the home audio space, then in about 2017, yes, we had -- well, a little bit before that, we had Amazon and Google jump in with their smart speaker products, which largely copied our technology. Then everybody said, oh my gosh, there's no way you can compete with them. We did. We co-opted their services. We brought out products that were better and continue to grow through that period. And so we've navigated any competition in the world thrown at us, and I'm confident we can do that as we go through it. We've seen the big tech companies stepped back from this as they go now focus their efforts, it seems, it would appear more on AI. So hardware, as I'm sure you all know, has been a money-losing business for Google and Amazon. And so they've started to back off those efforts, particularly in the areas we play. So I'd say competitive intensity that way has come down. I would say from the traditional audio players that are out there, a lot of them have been discounting quite heavily and I think impacting their margins over the last year. But at the end of the day, there's nobody else out there leveraging software the way we do to create the system. And the Blue Shirts at Best Buy are a great example where they continue to recommend Sonos to people that come in because they know it's easy, it's going to work well for people, and they know they're not going to get -- they're going to get that customer to come back and buy another one, which is good for them. And they're not going to get an angry customer coming back saying, hey, this thing doesn't work as promised. And I know it sounds really simple, but that is it at the end of the day. It's something that our installers can stand behind. The Blue Shirts at Best Buy, the reps at John Lewis in the U.K., they are confident in offering our products because it's simple to use, it's reliable, sounds great, looks great in your home, and they'll usually get somebody to come back and buy another one. And so all of that together has really set us up into a competitively differentiated position. And so I'd say the intensity is less. There's some pricing pressure from traditional audio players, but we don't see any software-enabled players pushing in the category.

Right. Okay. So we spent 33 minutes talking about demand in the revenue side, so we'll save 7 minutes for everything else. And maybe if we kind of almost -- I think back to kind of going down the income statement on the gross margin side, already as a hardware company, 45%-plus gross margins, really strong. Your long-term guide is 45% to 47%. You're kind of there. And so can you maybe just talk about the opportunities that you have in front of you to drive gross margins higher? What would be those underlying factors? And we'll go from there afterwards on more on the cost side.

Yes. No, I mean, certainly, as we were talking about different channels, the installer base as well as the DTC, they certainly have, just by design, the higher-margin profile. And so those areas grow relative to the channel. Certainly, that will give us a better mix from a channel margin perspective to be able to do that. I think that it's been great to see such a great hardware product margin as I'm coming in here, and the road map that we have continues to be very strong. So that gives us ability to either expand -- continue to expand gross margin percent or use that as a flexibility to be able to drive also top line at the same time. So it gives tremendous leverage for us to be nimble and adaptable as we go through it. And so it affords you the flexibility to play in both margin expansion as well as top line growth at the same time.

Okay. And again, this is a growth company. And -- but I've sensed, at least in kind of interacting with you guys over the last few quarters, there is this focus on cost. Not just necessarily rationalizing cost, but making sure you're investing in the right areas that drive growth over the right period of time, but then also being efficient if and when you can be. So can you maybe just talk about some of the more important initiatives you've done on the cost side to get you to where you are today, I guess, maybe through the end of this year? And ultimately, is this -- should we be thinking about this still as kind of a mid- to high-teens EBITDA margin type of business? What is the goal for you guys ultimately as you kind of balance kind of growth with profitability?

Yes, we haven't provided any longer-term guidance. We've talked about 15% to 18% adjusted EBITDA. Over the longer term, as we've gone through it at that point, I still feel that's very reasonable from where we stand today. We're focused on, I would say, yielding on the investments that we've been making. That infrastructure that we've invested in has -- definitely supports the $2 billion to $2.5 billion that we're talking about. So I feel good about our infrastructure investments, but we're ahead. We're ahead of where we need to be if we were just doing the kind of level of growth we are today or the level of revenue, which then sets us up to drive the revenue from here. Our R&D, we've invested ahead. And so right now, we're very focused on how do we yield the return from the investments in the additional categories, I guess, I would say, and the infrastructure investments we've made. And so we've been keeping discipline and aiming to provide the adjusted EBITDA growth versus last year to show we can drive that sustainable profitable growth as we start to bring the products that come with the increased R&D to market.

And I'd imagine that as the model then returns to growth, the goal is to get that leverage...

Absolutely. Absolutely. Yes, we're set up. We've got everything set up we need to go and do that exact thing. Yes.

Okay. So then let's turn to capital allocation. You have $450 million of gross and net debt. You obviously have done some tuck-ins over time. You obviously buy back a fair amount of stock every single year. If we put aside reinvestment into the company, which you've already made clear that you want to do, how do we think about your capital allocation priorities? And what I mean by that is, is there, one, an opportunity to maybe do something more maybe drastic, but transformational on the M&A side, if necessary? And then two, is there an opportunity to do something or any appetite to do something like a dividend? Or is it just too early to say that?

I can start here. Yes, certainly, that's one of the things that I'm digging into my first 60 days here, and hopefully, we'll come out of some kind of framework. But certainly, we don't want to leave potential opportunities for M&A when -- small or large, to Patrick's point earlier. So far, most of the M&As have been more smaller in nature, but we certainly don't want to leave out an option to be able to do that. So we'll try to look into the pace of buyback, the degree of buyback as well as opportunities for dividend when the time is right to make sure that we obviously leave enough money behind for operational flexibility, given there are seasonalities to the business and the cycles and to Patrick's point, the category -- our existing home theater category is in its place right now. So as the economy recovers, then we'll see what kind of free cash flow we can generate on an ongoing basis and whether that affords us to play in the dividend space in a sustainable way.

Yes. And there's no debt. So I think just to clarify that, yes, $400 million of cash. That's right. Yes. No debt on the balance sheet. So -- and we generate cash, so a strong position. So if there was something transformationally strategic to get done, we -- like always -- we are always shaking the trees on acquisitions that help accelerate the road map. If something more transformational, we'd definitely be open to if we thought it would help accelerate that growth and take advantage of more of the opportunity that's out there. So I'd like to think that we kind of never say never to any of those things that come up there. And we've got a great team that I think can evaluate these things in a rigorous fashion to make sure that it would fit with what we're capable of and what we've done. But we've successfully integrated all the companies we've acquired, their founders and key people all remain at Sonos even 5, 6 years later, which I think is a good sign about our culture and our way of integrating people. And so yes, we'd be open to that if an opportunity presented itself that we felt would help drive the kind of financial profile we talked about.

And then just very quickly, I know Eddie is not here. So just as we think about maybe next events on the legal side, where should all of our minds be there?

Yes. So 2 things. One, with the ITC, we went 5 for 5 on patents against Google. They appealed that. Watch for the outcome of that appeal in the next little bit because then after that's done, we move to damages. So we'd be going to the damages case that corresponds with that 5 for 5, which is significant. And then in the Northern District of California, the jury had awarded us $30 million -- over $31 million for one patent, a separate patent that we had sued Google on. We believe they infringed over 200 patents. So that was on one patent. They awarded us the over $30 million. The judge came in over the top and isn't a patent fan and threw that out. So there's an appeal for that one that we're very confident in that will also come through this year, I believe.

Okay. And so maybe with the last bit of seconds here, Patrick, I want to give you the dance floor. Last year, I asked you the same question, which is, as you think 5 to 10 years down the line in this vision that you have for Sonos and sound, how do you think Sonos evolves along with the audio landscape and the sound landscape? And how do you evolve to make sure you always stay at the top of this industry as we go through the different stages of evolution?

Totally. And hopefully, we are evolving it. Like that's been our thing, right, bringing software to the audio space, driving that evolution is I can see a world where audio is in different aspects. Obviously, we're leveraging Gen AI and thinking through the experiences of Gen AI. I think there could be a complete upheaval of what we see in the music space today and thinking text to music and some of these other areas. And so it could be very different. But I think sound is so -- like just -- there's so much emotion around sound and is something that's going to be very important to people is I expect form factors will change. I expect maybe business models will change around that. But sound is so critical to creating the great kind of environment and moving people that it's something I expect will be here forever, ultimately. And it's really us evolving form factors. We've done certain things where furniture makes sound. We use software to be able to do that and tune it in certain ways. And so those are the kind of things we're thinking about for the future of like, okay, the world is going to evolve the way we live. Maybe we've got VR headsets or glasses on and those things, and what role do we play in those worlds? And so making sure we're always staying a step up front and really driving the market is the key.

Perfect. We're out of time. Patrick, Saori, thank you so much.

Thank you.

Thanks, Erik. Thank you, everybody.