SONO 10-K & 10-Q changes, risk factors and insider trading

In particular, following the May 2024,2024 welaunch launchedof an extensive redesign of our Sonos app and operating system. We did this to provide our customers with a more modern user interface and a modular developer platform that would allow us to deliver new and innovative customer experiences at a faster pace. Following the launch of our redesigned Sonos app,system, certain of our customers and partners experienced missing features and performance issues, including trouble with set up and general unreliability. These issues with the app haveresulted led toin increased customer complaints and dissatisfaction, including complaints expressed publicly on social media and elsewhere, and we believe that the app rollout has led to decreased sales of our existing products and reputational harm. Other areas of our business were also impacted, as we delayed the introduction of two new products for a quarter, negatively impacting fiscal 2024 fourth quarter sales, slowed certain product development efforts and incurred short-term costs as part of our efforts to improve the app experience and address the concerns of our customers and partners. We believe we have substantially addressed these issues with software updates to improve performance and add back certain features. Going forward, we intend to prioritize software update releases to optimize and enhance our app.

We cannot guarantee that we will be able to release software updates and enhancements that are error-free or that are on a cadence or with results that meet the expectations of our customers and partners. If the quality and user experience of the Sonos app and relatedoperating servicessystem do not meet the expectations of our customers and partners, or if we cannot successfully address the concerns raised by our customers and partners related the redesigned Sonos app, our operating results, financial condition, customer or partner relationships and reputation may be further adversely impacted.

Although we were profitable in fiscal 2021 and fiscal 2022, we had a net losslosses of $10.3 million, $38.1 million and $61.1 million in fiscal 20232023, fiscal 2024 and a net loss of $38.1 million in fiscal 2024.2025, respectively. As of September 28,27, 2024,2025, we had an accumulated deficit of $50.9$112.1 million.

We have in recent periods experienced, and may continue to experience, a decrease in consumer demand. As a result, we have had to, and may continue to, write-down or write-off inventory or sell the excess inventory at discounted prices, which has, and could in the future, cause our gross margin to suffer. In addition, excess inventory has, and may in the future, result in reduced working capital, which could adversely affect our ability to invest in other important areas of our business such as marketing and product development. If our channel partners have excess inventory of our products, they may decrease their purchases of our products in subsequent periods. In addition, in the event of excess inventory, including excess component inventory, we may be unable to renegotiate our agreements with existing suppliers on mutually acceptable terms. Although in certain instancesof our supplier agreements with certain suppliers allow us the option to cancel, reschedule, and adjust our requirements based on our business needs, our loss contingencies may include liabilities for contracts that we cannot cancel, reschedule or adjust with suppliers or partners. We may also deem it necessary or advisable to renegotiate agreements with our supply partners in order to scale our inventory with demand.

The markets in which we operate are extremely competitive and rapidly evolving, and we expect that competition will intensify in the future. Our competition includes established, well-known sellers of audio products such as Bose, Samsung (and its subsidiaries and brands Harman InternationalInternational, Denon, Polk Audio and Bowers and Wilkens, and JBL), Sony, Bang & Olufsen, Sennheiser, Apple, Google, Amazon, and Masimo (and its subsidiary Sound United that owns, among others, the Denon, Polk Audio and Bowers and Wilkens brands).Amazon. We could also face competition from new market entrants, some of whom might be current partners of ours.

We have initiated legal proceedings to protect our intellectual property rights, and we may file additional actions in the future. For example, in January 2020 we filed a complaint with the ITC against Alphabet and Google and a counterpart lawsuit in the U.S. District Court for the Central District of California against Google alleging infringement of five Sonos patents, and in September 2020 we filed another lawsuit against Google alleging infringement of an additional four Sonos patents. See Note 13.12. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Form 10-K for further details. The cost and effort of defending our intellectual property have been and may in the future be substantial, and there is no assurance we will be successful. Our business could be adversely affected as a result of any such actions, or a finding that any patents-in-suit are invalid or unenforceable. These actions have led and may in the future lead to additional counterclaims or actions against us, which are expensive to defend against and for which there can be no assurance of a favorable outcome. For example, Google has responded to our legal proceedings by filing multiple patent infringement lawsuits against us indomestically theand U.S.internationally, Districtas Courtwell for the Northern District of California,as cases against us in the ITC, and patent infringement lawsuits against us and our subsidiary Sonos Europe B.V. in various foreign jurisdictions.ITC. See Note 13.12. Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this Form 10-K for further details. Further, parties we bring legal action against could retaliate through non-litigious means, which could harm our ability to compete against such parties or to enter new markets.

The value of our brand could also be severely damaged by isolated incidents, which may be outside of our control. For example, in the United States, we rely on custom installers of home audio systems for a significant portion of our sales but maintain no control over the quality of their work and thus could suffer damage to our brand or business to the extent such installations are unsatisfactory or defective. In addition, certain of our customers and partners experienced performance issues with our redesigned Sonos app launched in May 2024, which has negatively affected, and could further negatively affect, our brand and reputation. See "We face risks related to the adoption and operations of our redesigned Sonos app" above for further details. Any damage to our brand or reputation may adversely affect our business, financial condition and operating results.

TheAny expansion of our direct-to-consumer channel could alienate some of our channel partners. If our channel partners perceive themselves to be at a disadvantage based on the direct-to-consumer sales offered through our website and app, they may divert resources away from the promotion and sale of our products which could cause a reduction in product sales from these partners, adversely impact our business and results of operations.

We depend on a limited number of contract manufacturers to manufacture our products, with our key manufacturer, Inventec Appliances Corporation, manufacturing a majority of our products. If these companies experience an interruption in their operations, fail to perform their obligations in a timely manner, or terminate their agreement with us, we may be unable to maintain our production capacity without incurring material additional costs and substantial delays or we may be fully prevented from selling our products. In the event that we need to replace a contract manufacturer or transfer volume to another contract manufacturer, we cannot assure you that we would be able to do so on acceptable terms or in a timely manner and such efforts may be costly and time-consuming. Additionally, during the third quarter of fiscal 2025, we began the process of exiting a partnership with one of our contract manufacturers to consolidate and improve supply chain efficiency and our business could be disrupted as a result of this transition. Any material disruption in our relationship with our manufacturers would harm our ability to compete effectively and satisfy demand for our products and could adversely impact our revenue, gross margin and operating results.

In addition, the longer lead time for many of our components presents challenges in our efforts to manage component inventory, as we procure such components based on our then current forecast of demand for our products. In the past, we have had to increase our purchase commitments and investments during industry-wide shortages. In the event that actual demand for our products differs from our forecast, we may end up with excess component inventory, as we saw in fiscal 2024, negatively impacting our working capital.

We have in the past and may in the future incorporate AI, including generative AI, internally for business purposes and into our products, servicesproducts and business.services. These technologies are complex and rapidly evolving and building them requires significant investment in infrastructure and personnel with no assurance that we will realize the desired or anticipated benefits. Our competitors, many of whom have greater technological and financial resources than we do, may more successfully incorporate AI into their products and achieve higher market acceptance of their AI solutions, which could impair our ability to compete effectively and adversely affect our results of operations. Also, if we fail to keep pace with rapidly evolving technological developments in artificial intelligence, our competitive position and business results may suffer.

As with many innovations, the use of AI may lead to challenges, concerns and risks that are significant or that we may not be able to predict, especially if our use of these technologies in our products and services becomes more important to our operations over time. For example, our AI-related efforts, particularly those related to generative AI, subject us to risks related to accuracy, intellectual property infringement or misappropriation, data privacy, and cybersecurity, among others. AI solutions, including generative AI, may create output that appears correct but is inaccurate, biased or otherwise flawed, or that infringes or otherwise violates intellectual property or other rights. AI solutions as part of our products or services may not gain acceptance by our customers and may, in the event of inaccurate, biased or flawed output, may lead to customer dissatisfaction. The use of AI may result in cybersecurity incidents that implicate the personal data of users of AI solutions as well as disclosure of our confidential information. Developing, testing and deploying AI systems in a responsible and ethical manner may also increase the cost profile of our products due to the nature of the computing costs and costs to develop or license proprietary datasets and machine learning models involved in such systems. Our business may be disrupted if any of the third-party AI services we use become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonably terms or prices. Changes to existing regulations, their interpretation or implementation or new regulations could impede our use of AI and also may make it more difficult to operate our business or to protect our intellectual property and may vary jurisdiction from jurisdiction. AI also presents emerging ethical issues, and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including the regulation of AI by government or other regulatory agencies, will require significant resources to develop, test and maintain our platforms, products, and services to implement AI ethically and minimize any unintended harmful impacts.

Changes in international trade policies, including the imposition of tariffstariffs, have had, and may continue to have, an adverse effect on our business, financial condition and results of operations.

We have never declared or paid any cash dividends on our common stock, and we do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of theour Board.Board of Directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock.

InWe Octoberare 2021,parties we entered intoto a credit agreement with JPMorgan Chase Bank, N.A., BankKeyBank ofNational America N.A., Morgan Stanley Senior Funding, Inc.,Association and Goldman Sachs Bank USA (the "Revolving Credit Agreement"),USA, which allows us to borrow up to $100.0$80.0 million, with a maturity date of October 2026.2030. We may require additional equity or debt financing to fund our operations and capital expenditures. Our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance and the condition of the capital markets at the time we seek financing. We cannot assure you that additional financing will be available to us on favorable terms if and when required, or at all.

We operate on a 52-week or 53-week fiscal year ending on the Saturday nearest September 30 each year. Our fiscal year is divided into four quarters of 13 weeks, each beginning on a Sunday and containing two 4-week periods followed by a 5-week period. An additional week is included in the fourth fiscal quarter approximately every five years to realign fiscal quarters with calendar quarters. References to fiscal 2025 are to our 52-week fiscal year ended September 27, 2025, references to fiscal 2024 are to our 52-week fiscal year ended September 28, 2024, references to fiscal 2023 are to our 52-week fiscal year ended September 30, 2023,2023 and references to fiscal 2022 are to our 52-week fiscal year ended October 1, 2022 and references to fiscal 2021 are to our 52-week fiscal year ended October 2, 2021.2022.

In addition to the measures presented in our consolidated financial statements, we use the following key metrics to evaluate our business, measure our performance, identify trends affecting our business and assist us in making operational and strategic decisions. Our key metrics are total revenue, products sold, Adjusted EBITDA and Adjusted EBITDA margin. The most directly comparable financial measure calculated under U.S. GAAP for Adjusted EBITDA and Adjusted EBITDA margin are net income (loss) and net income (loss) margin, respectively.

(1)Net income (loss) margin is calculated by dividing net income (loss) by revenue.

(2)For additional information regarding Adjusted EBITDA and Adjusted EBITDA margin (which are non-GAAP financial measures), including reconciliations of net income (loss), to Adjusted EBITDA, see the sections titled "Adjusted EBITDA and Adjusted EBITDA Margin" and "Non-GAAP Financial Measures" below.

Products sold represents the number of products that are sold during a period, net of returnsreturns, and includes the sale of products in the Sonos speakers and Sonos system products categories, as well as architectural speakers and module units sold through our Partner products and other revenue category. Growth rates between products sold and revenue are not perfectly correlated because our revenue is affected by other variables, such as the mix of products sold during the period, promotional discount activity, the price at which we sell our products, the introduction of new products that may have higher or lower than average selling prices, the impact of foreign exchange fluctuations, as well as the impact of recognition of previously deferred revenue.

We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue. See the section titled "Results of Operations —Non-GAAP Financial Measures" for information regarding our use of Adjusted EBITDA and Adjusted EBITDA margin, and a reconciliation of net income (loss) to Adjusted EBITDA and net income (loss) margin to Adjusted EBITDA margin.

We define Adjusted EBITDA as net income (loss) adjusted to exclude the impact of depreciation and amortization, stock-based compensation expense, interest income, interest expense, other income (expense), income taxes, legal and transaction related costs, restructuring and abandonmentother costs,charges, and other items that we do not consider representative of underlying operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.

The following table presents a reconciliation of net income (loss) to adjusted EBITDA:

(1)Legal and transaction-relatedtransaction related costs consist of expenses related to our intellectual property ("IP") litigation against Alphabet and Google as well as legal and transaction costs associated with our acquisition activities, which we do not consider representative of our underlying operating performance.

Total revenue decreased $137.2$74.8 million, or 8.3%4.9% for fiscal 20242025 compared to fiscal 2023,2024, primarilydriven due to softer demand across all regions due to market conditions andby challenges resulting from our recent app rollout,rollout in May 2024 and softer demand due to market conditions, partially offset by the introduction of AceArc Ultra in JuneOctober 2024, and the impact of favorable foreign exchange rates.2024.

Sonos speakers represented 77.0%77.7% of total revenue for fiscal 20242025 and decreased 9.6%4.1% compared to fiscal 2023,2024, primarily driven by expected declines in Sonos OneArc and softerSonos demandOne, acrossas thewell category,as particularlyBeam, inMove, ourand homeSub theater products.Mini. These declines were partially offset by sales of Era 100 and Era 300 which were introduced in March 2023, and by the introduction of AceArc inUltra, Juneas 2024.well as Era 100. Sonos system products represented 17.6%17.3% of total revenue for fiscal 20242025 and decreased 6.1%6.9% compared fiscal 2023.2024. Partner products and other revenue represented 5.3%5.0% of total revenue for fiscal 2024,2025, and increaseddecreased 5.2%10.5% compared to thefiscal twelve months ended September 30, 2023.2024.

Cost of revenue consists of product costs, including costs of our contract manufacturers for production, components, shipping and handling, tariffs, duty costs, warranty replacement costs, packaging, fulfillment costs, manufacturing and tooling equipment depreciation, warehousing costs, hosting costs, and excess and obsolete inventory write-downs. It also includes licensing costs, such as royalties to third parties, and amortization attributable amortization ofto acquired developed technology. In addition, we allocate certain costs related to management and facilities, personnel-related expenses, and supply chain logistic costs. Personnel-related expenses consist of salaries, bonuses, benefits, and stock-based compensation expenses.

Research and development expenses consist primarily of personnel-related expenses, consultingthird-party and contractorresources expenses, tooling, test equipment, prototype materials, and related overhead costs. To date, software development costs have been expensed as incurred because the period between achieving technological feasibility and the release of the software has been short and development costs qualifying for capitalization have been insignificant.

Research and development expenses increasedexcluding $3.6restructuring and other charges decreased $31.4 million, or 1.2%,10.5%, for fiscal 20242025 compared to fiscal 2023.2024. This increasedecrease was primarily driven by productlower developmentpersonnel-related programcosts spend.due to lower headcount and our reorganization efforts, partially offset by higher variable compensation costs.

Sales and marketing expenses consist primarily of advertising and marketing activity for our products and personnel-related expenses, as well as trade showmaintenance and eventrepair costs, sponsorship costs, consulting and contractor expenses, travel costs, depreciationexpenses for product displays, as well as related maintenance and repair expenses,depreciation, customer experience and technology support tool expenses, revenue related sales fees from our direct-to-consumer business,and installer solutions sales channels, and related overhead costs.

Sales and marketing expenses increasedexcluding $23.1restructuring and other charges decreased $16.4 million, or 8.6%,5.7%, for fiscal 20242025 compared to fiscal 2023.2024. This decrease was primarily driven by anlower increasemarketing costs compared to prior year when we incurred significant costs associated with our launch of Sonos Ace in June 2024 marking our advertisingentry andinto marketingthe activity,headphones andmarket, anpartially increaseoffset inby increased depreciation mainlycosts forassociated with our product displays.

General and administrative expenses consist of administrative personnel-related expenses for our information technology, finance, legal, human resourcesresources, and similar personnel, as well as the costs of professional services, information technology, litigation, patents, related overhead, and other administrative expenses.

General and administrative expenses excluding restructuring and other charges decreased $26.3$26.8 million, or 15.6%,19.3%, for fiscal 20242025 compared to the fiscal 2023.2024. This decrease was primarily driven by alower decreasepersonnel-related incosts, legalprofessional fees relatedand toinformation technology costs as a result of lower headcount and our IPcost litigation.transformation efforts.

Interest Income, Interest Expense, and Other Income,Income (Expense), Net

Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities balances. Interest expense consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs. Other income,income (expense), net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Interest income for fiscal 2024,2025 compared to fiscal 2023,2024 increaseddecreased primarily due to the allocation of some excess cash into marketable securities and higherlower yields on our cash and cash equivalents.equivalents combined with lower average cash balances. Interest expense for fiscal 2024,2025, compared to fiscal 2023,2024, decreasedincreased primarily due to reducedincreased expensesbank associated with our Revolving Credit Agreement.fees. The decreaseincrease in other income,income (expense), net for fiscal 2024,2025, compared to fiscal 2023,2024, was primarily due to non-cash foreign currency exchange fluctuations.

Provision for income taxes for fiscal 2024,2025, compared to fiscal 2023,2024, decreased slightly primarily due to a favorable tax ruling on a Dutch Innovation Box application resulting in a revaluation of certain Dutch deferred tax liabilities, a reduction in the amount of net expense subject to capitalization under Section 174 of the U.S. Internal Revenue Code,Code and a reduction in operating income,income. The decrease was partially offset by incomethe non-recurrence of favorable tax expenseimpacts recognized in fiscal 2024 related to a Dutch Innovation Box ruling and the Netherlandsrevaluation of certain Dutch deferred tax liabilities related to an intercompany sale of intellectual property to the U.S.

For the comparison of fiscal years 20232024 and 2022,2023, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended September 30, 2023,2024, filed with the SEC on November 20,15, 2023,2024, under the subheading "Comparison of fiscal years 20232024 and 2022.2023."

Our operations are financed primarily through cash flows from operating activities. As of September 28,27, 2024,2025, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $169.7$174.7 million, including $36.4$105.5 million held by our foreign subsidiaries, marketable securities of $51.4$52.9 million, proceeds from the exercise of stock options, and borrowing capacity under the Credit Facility. In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of September 28,27, 2024,2025, as they are required to fund needs outside of the United States. In the event funds from foreign operations are needed to fund operations in the United States and if U.S. tax has not already been previously provided,paid, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

We believe our existing cash and cash equivalent balances, cash flows from operations, and committed credit lines will be sufficient to meet our long-term working capital and capital expenditure needs for at least the next 12 months. We hold our cash with a diverse group of major financial institutions and have processes and safeguards in place to manage our cash balances and mitigate the risk of loss. In October 2021, we entered into the Revolving Credit Agreement, which allows us to borrow up to $100 million, with a maturity date of October 2026. In October 2025, we amended the Revolving Credit Agreement. See Note 14. Subsequent Event of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, our planned sales and marketing activities, the timing of new product introductions, our potential merger and acquisition activity, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in increased dilution to our stockholders. If we were to incur additional debt financing it would result in increased debt service obligations and the instruments governing such debt could require additional operating and financing covenants that would restrict our operations.

On October 13, 2021, we entered into thea Revolving Credit Agreement.Agreement with JPMorgan Chase Bank, N.A., as the administrative agent, and Bank of America N.A., Morgan Stanley Senior Funding, Inc., and Goldman Sachs Bank USA as the other lenders party thereto (the "Revolving Credit Agreement"). The Revolving Credit Agreement providesprovided for (i) a five year senior secured revolving credit facility in the amount of up to $100 million and (ii) an uncommitted incremental facility subject to certain conditions. Proceeds are to be used for working capital and general corporate purposes. In June 2023, we amended our Revolving Credit Agreement to change the reference rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”), effective July 1, 2023. The facility may be drawn as an Alternative Base Rate Loan (at 1.00% plus an applicable margin) or Term Benchmark Loan (SOFR plus an applicable margin). We must also pay (i) an unused commitment fee ranging from 0.200% to 0.275% per annum of the average daily unused portion of the aggregate revolving credit commitment under the agreement and (ii) a per annum fee equal to the applicable margin over SOFR multiplied by the aggregate face amount of outstanding letters of credit. As of September 28,27, 2024,2025, we did not have any outstanding borrowings and $1.8$2.4 million in undrawn letters of credit that reduce the availability under the Revolving Credit Agreement.

Net cash provided by operating activities of $189.9$136.9 million for fiscal 20242025 consisted of a net loss of $38.1$61.1 million, a favorable impact of non-cash adjustments of $125.3$170.1 million, and a favorable impact of net changes in operating assets and liabilities of $102.8$27.9 million. Non-cash adjustments primarily consisted of stock-based compensation expense andexpense, depreciation and amortization, partiallyand offsetnon-cash byrestructuring deferred income taxes as a result of a benefit from income taxes from the reversal of a deferred tax liability related to an intercompany sale of intellectual property.charges. The net increase in cash from the change in operating assets and liabilities was primarily due to a decrease in inventories of $106.1$51.7 million as the result of measures taken to more efficiently manage inventory and the implementation of new payment terms with suppliers, andinventory, a decrease in accountsother receivableassets of $23.0$10.5 million, and an increase in accrued compensation of $5.2 million. The net increase in cash from the change in operating assets and liabilities was partially offset by an increase in otheraccounts assetsreceivable of $28.8$21.9 million, and a decrease in accounts payable and accrued expenses of $14.4 million due to timinglower ofinventory prepaid contracts.purchases.

For the comparison of fiscal 20232024 to fiscal 2022,2023, refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" of our Form 10-K for our fiscal year ended September 30, 2023,2024, filed with the SEC on November 20,15, 2023,2024, under the subheading "Liquidity and capital resources."

We generate substantially all of our revenue from the sale of Sonos speakers and Sonos system products. We also generate a portion of revenue from partner products and other revenue sources, such as architectural speakers from our Sonance partnership, and accessories such as speaker stands and wall mounts, as well as professional services, advertising revenue, licensing and subscription revenue such as Sonos Radio HD and Sonos Pro (software-as-a-service).revenue.

We determined that unspecified software upgrades represent a separate performance obligation as they occur subsequent to the time of purchase, fulfillment of these promises can be made separately, there are no resulting significant modification or customization to our products, and these services are provided to customers at no additional charge. We have also determined cloud-based services to be a separate performance obligation based as they are additive to our products rather than transformative.

Inventory consists of finished goods and component parts, which we purchase from contract manufacturers and component suppliers. We record and value our inventory at the lower-of-cost and net realizable value. We determine cost using a standard costing method, which approximates first-in first-out. On a quarterly basis, we assess the value of our inventory on hand and non-cancelable purchase commitments for potential excess and/or obsolete inventory and will periodically write down the value to account for estimated excess and/or obsolete inventory. We determine excess or obsolete inventory based on market conditions, age/condition of inventory, an estimate of the future demand for our products within a specified time horizon, generally the shorter of 24 months or remaining life of the product, and product life cycle status. Inventory write-downs and losses on purchase commitments are recorded as a component of cost of revenue in our consolidated statement of operations and comprehensive income (loss).loss. If actual demand is lower than our forecasted demand, we could be required to write down the value of additional inventory, which would have a negative effect on our gross profit. A hypothetical 10% change to our inventory reserves percentages would not result in a material change to our fiscal 20242025 cost of revenue.

Our operations and financial results are subject to various risks and uncertainties, including the factors discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended September 27, 2025, which could adversely affect our business, reputation, financial condition and operating results, and affect the trading price of our common stock. Except asfor setthe forthrisk below,factors disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 28, 2026, which are hereby incorporated by reference into this Part II, Item 1A of this Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report.

WeEntering arethe buildingsecond onhalf of fiscal 2026, we continue to leverage the strong foundation established during our transformational year inprior fiscal 2025.year. With Tom Conrad now in place as our Chief Executive OfficerOfficer, we are well-positioned to continue building upon the improvements we have made to our software products and operational efficiency. Under Mr.Tom Conrad's direction,strategic direction in motion, we have restored our software with reliability now exceeding historical levels, reorganized our operations to improve our efficiency and effectiveness and recommitted to delivering the kind of premium experience our customers expect. We recommitted to new product introductions, including the announcement of Amp Multi in January 2026, followed by Sonos Play™ and Sonos Era 100™ SL in March 2026. With every new product, software feature and integration, the Sonos platform becomes more powerful, provides greater value to our customers, and further strengthens our position as the differentiated system for connected home audio. Additionally, we are refiningevolving our go-to-marketmarketing strategy aroundto build a full-funnelstrong brandsystem architecturenarrative designedaligned to alignwith our long-term brand narrative with a consistent messaging system.differentiation.

Our business has been, and may continue to be, adversely impacted by the potential expansion of tariffs on goods imported into the U.S., as well as any retaliatory tariffs or policies enacted in other countries or any "trade wars." In addition, we have been and mayexpect to continue to be affected by the increases in demand for memory chips and other components caused by the build out of new AI technologies and data centers. We also face global macroeconomic challenges such as inflation, ongoing geopolitical conflicts, uncertainty in the financial markets, volatility in exchange rates, and low or negative growth in certain regions.

(23)Restructuring and other charges for the three and sixnine months ended MarchJune 28,27, 2026, include employee-related costs associatedresulting withfrom non-recurringa reorganization of certain corporate functions and organizational changes driven by new leadership,leadership. Additionally, the charges include costs related to the partial abandonment of office space in support of operational efficiencies, and costs associated with exiting a partnership with one of our contract manufacturersmanufacturing partnership to consolidate and improve supply chain efficiency.efficiency and exit costs associated with the partial abandonment of office space.

(34)Restructuring and other charges for the three and sixnine months ended MarchJune 29,28, 2025 primarily reflect costs associated withfiscal our2025 cost transformation initiativeactions including thea 2025reduction-in-force restructuringannounced planin andFebruary 2025, rationalization of our product roadmap, as well as non-recurring CEO transition costs related to modifications to equity awards.

Total revenue increased $21.8$30.5 million, or 8.4 %,8.8%, for the three months ended MarchJune 28,27, 2026 compared to the three months ended MarchJune 29,28, 2025, due to favorabilitythe fromintroduction foreignof exchangeEra rates100 SL and continuedPlay, strengthpartially offset by declines in EraArc 100.Ultra.

Sonos speakers revenue represented 74.6%76.0% of total revenue for the three months ended MarchJune 28,27, 20262026, and increased 8.0 %12.5% compared to the three months ended MarchJune 29,28, 2025, primarily driven by Era 100 SL, Play, and Beam.Beam, partially offset by the impact of the introduction of Arc Ultra in the prior year and by expected declines in Era 100. Sonos system products represented 18.6%18.5% of total revenue for the three months ended MarchJune 28,27, 20262026, and increaseddecreased 3.7%5.4% compared to the three months ended MarchJune 29,28, 2025. Partner products and other revenue represented 6.8%5.5% of total revenue for the three months ended MarchJune 28,27, 20262026, and increased 29.9%15.4% compared to the three months ended MarchJune 29,28, 2025.

The volume of products sold increased 2.6 %17.4% for the three months ended MarchJune 28,27, 2026 compared to the three months ended MarchJune 29,28, 2025.2025, Revenueoutpacing revenue growth exceeded volume growth primarily due to favorablea foreignshift exchangein rates,product whichmix benefitedtoward revenuelower-priced butofferings, didincluding notEra affect100 volume,SL and the impact of pricing actions.Play.

Total revenue increased $16.6$47.1 million, or 2.0%,4.1%, for the sixnine months ended MarchJune 28,27, 2026 compared to the sixnine months ended MarchJune 29,28, 2025, primarily due to the introduction of Era 100 SL and favorability from foreign exchange rates and continued strength in Era 100,rates, partially offset by softerthe demandphase-out dueof toArc market conditions.sales.

Sonos speakers revenue represented 80.9%79.4% of total revenue for the sixnine months ended MarchJune 28,27, 2026 and increased 1.1%4.3% compared to the sixnine months ended MarchJune 29,28, 2025, primarily driven by Era 100 SL, Arc UltraUltra, and Era 100,Play, partially offset by declinesthe inphase-out of Arc and Sub.sales. Sonos system products represented 14.2%15.5% of total revenue for the sixnine months ended MarchJune 28,27, 2026 and increased 6.0%1.5% compared to the sixnine months ended MarchJune 29,28, 2025, due to higher sales to our installed solutions channel.2025. Partner products and other revenue represented 4.9%5.1% of total revenue for the sixnine months ended MarchJune 28,27, 20262026, and increased 6.1%9.1% compared to the sixnine months ended MarchJune 29,28, 2025.

The volume of products sold decreasedincreased 1.4%4.1% for the sixnine months ended MarchJune 28,27, 2026 compared to the sixnine months ended MarchJune 29,28, 2025.2025, Revenueconsistent grew while volume declined, primarily due to favorable foreign exchange rates, which benefited revenue but did not impact volume, andwith the impactincrease ofin pricing actions.revenue.

The following table presents the change in revenue for the three and sixnine months ended MarchJune 28,27, 2026 compared with the three and sixnine months ended MarchJune 29,28, 2025:

Our gross margin fluctuates from period to period based on a number of factors, including the mix of products we sell, the mix of channels through which we sell our products, fluctuations of our product and material cost savings,costs, fluctuations in our product and material and logistics markets, product pricing strategies and promotional activity, the foreign currency in which our products are sold, and tariffs and duty costs implemented by governmental authorities.

GrossCost marginof increasedrevenue 60decreased basis$9.1 pointsmillion, or 4.7%, for the three months ended MarchJune 28,27, 2026 compared to the three months ended MarchJune 29,28, 2025, primarily due to foreigntariff exchangerefunds. rate favorability,Excluding the net impact of pricingtariff changes,refunds, cost of revenue increased primarily due to higher memory costs, tariff expenses, and increased products sold, partially offset by a decrease in productinventory-related and material costs, partially offset by tariff expenses and higher memory costs.write-downs.

Gross margin increased 190700 basis points for the sixthree months ended MarchJune 28,27, 2026 compared to the sixthree months ended MarchJune 29,28, 2025, primarily due to atariff decreaserefunds. Excluding the impact of tariff refunds, the increase in productgross margin was driven by the impact of price changes, and material costs, foreign exchange rate favorability, a decrease in inventory-related write-downs, and the net impact of pricing changes, partially offset by tariff expenses, higher memory costs, and unfavorable product mix.mix shift.

(1)Restructuring and other charges for the three and sixnine months ended MarchJune 28,27, 2026, include employee-related costs associatedresulting withfrom non-recurringa reorganization of certain corporate functions and organizational changes driven by new leadership,leadership. Additionally, the charges include costs related to the partial abandonment of office space in support of operational efficiencies, and costs associated with exiting a partnership with one of our contract manufacturersmanufacturing partnership to consolidate and improve supply chain efficiency.efficiency and exit costs associated with the partial abandonment of office space.

(2)Restructuring and other charges for the three and sixnine months ended MarchJune 29,28, 2025 primarily reflect costs associated with ourfiscal cost2025 transformation initiativeactions including thea 2025reduction-in-force restructuringannounced planin andFebruary 2025, rationalization of our product roadmap, as well as non-recurring CEO transition costs related to modifications to equity awards.

Research and development expenses, excluding restructuring and other charges, decreasedincreased $1.4by $3.3 million, or 2.1 %,5.4%, for the three months ended MarchJune 28,27, 2026, compared to the three months ended MarchJune 29,28, 2025. This decreaseincrease was primarilydriven drivenby higher personnel costs and investments in our product roadmap, partially offset by lower stock-based compensation related to timing of grants as well as favorable comparison to one timeone-time retention grants for key personnel in the prior year.

Research and development expenses, excluding restructuring and other charges, decreased $22.5$19.2 million, or 15.5 %,9.3%, for the sixnine months ended MarchJune 28,27, 2026, compared to the sixnine months ended MarchJune 29,28, 2025. This decrease was primarily driven by lower headcount and our prior year reorganization efforts.efforts, partially offset by investments in our product roadmap.

Sales and marketing expenses consist primarily of advertising and marketing activity for our products and personnel-related expenses, maintenance and repair expenses for our product displays, as well as depreciation, customer experience expenses, revenue related sales fees from our direct-to-consumer and installer solution sales channels, and related overhead costs.

Sales and marketing expenses, excluding restructuring and other charges, decreased $0.5slightly by $2.0 million, or 0.8 %,3.2%, for the three months ended MarchJune 28,27, 2026, compared to the three months ended MarchJune 29,28, 2025. This decrease was primarily driven by ongoing savings efforts associated with cost transformation initiatives, offset by costs associated with announced product launches.

Sales and marketing expenses, excluding restructuring and other charges, decreased $21.9$23.8 million, or 14.811.4 %, for the sixnine months ended MarchJune 28,27, 2026, compared to the sixnine months ended MarchJune 29,28, 2025. This decrease was primarily driven by ongoingmanagement's savings as a resultreprioritization of our cost transformation journey, lower marketing costs due to thespend, timing of ourproduct launches - including the launch of Arc Ultra in October 2024, and lower personnel-related costs due to lower headcount.

General and administrative expenses, excluding restructuring and other charges, increased $0.6by $2.0 million, or 2.2 %,7.2%, for the three months ended MarchJune 28,27, 2026, compared to the three months ended MarchJune 29,28, 2025. This increase was primarily driven by legal fees mainly related to our IP litigation, offset by lower stock-based compensation mainly due to timing of grants.litigation.

General and administrative expenses, excluding restructuring and other charges, increased $2.8$4.8 million, or 5.1%,5.8%, for the sixnine months ended MarchJune 28,27, 2026, compared to the sixnine months ended MarchJune 29,28, 2025. This increase was primarily driven by an increase in legal fees mainly related to our IP litigation, partially offset by lower personnel-related costs due to lower headcount.

Interest income consists primarily of interest income earned on our cash, cash equivalents, and marketable securities balances.balances as well as interest earned on tariff refunds. Interest expense consists primarily of interest expense associated with our debt financing arrangements and amortization of debt issuance costs. Other income (expense), net consists primarily of our foreign currency exchange gains and losses relating to transactions and remeasurement of asset and liability balances denominated in currencies other than the U.S. dollar. We expect our foreign currency gains and losses to continue to fluctuate in the future due to changes in foreign currency exchange rates.

Interest income for the sixthree months ended MarchJune 28,27, 2026 compared to the sixthree months ended MarchJune 29,28, 2025, decreasedincreased primarily due to higherinterest internationalearned cashon balancestariff with lower yields.refunds. Interest expense for the sixthree months ended MarchJune 28,27, 2026 compared to the sixthree months ended MarchJune 29,28, 2025, remained relatively consistent. Other income (expense), net for the sixthree months ended MarchJune 28,27, 2026 compared to the sixthree months ended MarchJune 29,28, 2025, decreasedincreased due to a gain on sale of excess components, partially offset by foreign currency exchange fluctuations.

Provision for (Benefit from) Income Taxes

Our operations are financed primarily through cash flows from operating activities. As of MarchJune 28,27, 2026, our principal sources of liquidity consisted of cash flows from operating activities, cash and cash equivalents of $200.2$206.9 million, including $111.2$102.1 million held by our foreign subsidiaries, marketable securities of $48.9$54.1 million, proceeds from the exercise of stock options, and borrowing capacity under the credit facility under our Revolving Credit Agreement. In accordance with our policy, the undistributed earnings of our non-U.S. subsidiaries remain indefinitely reinvested outside of the United States as of MarchJune 28,27, 2026, as they are intended to fund needs outside of the United States. In the event funds from foreign operations are repatriated to the United States, we may incur income or withholding taxes associated with such distributions. In addition, certain of our non-U.S. subsidiaries have the ability to repatriate funds to the United States in a tax-free manner.

As of MarchJune 28,27, 2026, our open purchase orders to contract manufacturers for finished goods were approximately $92$148 million, the majority of which are expected to be paid over the next six months. As of MarchJune 28,27, 2026, our expected commitments to suppliers for components were in the range of $198$264 million to $222$296 million, the majority of which is expected to be paid and/or utilized by our contract manufacturers in building finished goods within the next two years. The expected commitments are subject to change as a result of fluctuations in the demand forecast, as well as ongoing negotiations with contract manufacturers and suppliers. These commitments are related to components that can be specific to Sonos products and comprised 1) indirect obligations to third-party manufacturers and suppliers, 2) the inventory owned by contract manufacturers procured to manufacture Sonos products, and 3) purchase commitments made by contract manufacturers to their upstream suppliers.

We believe our existing cash and cash equivalent balances, cash flows from operations and committed credit lines will be sufficient to meet our long-term working capital and capital expenditure needs for at least the next 12 months. We hold our cash with a diverse group of major financial institutions and have processes and safeguards in place to manage our cash balances and mitigate the risk of loss. In October 2021, we entered into the Revolving Credit Agreement, which was amended in October 2025 to provide for aggregate commitments of up to $80.0 million with a maturity date in October 2030. Our obligations under the Revolving Credit Agreement are secured by substantially all of our assets. The Revolving Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires us to maintain a certain consolidated leverage ratio, and customary events of default. As of MarchJune 28,27, 2026, we were in compliance with all financial covenants under the Revolving Credit Agreement. Refer to Note 6. Debt for further information.

Net cash provided by operating activities of $97.9$144.2 million for the sixnine months ended MarchJune 28,27, 2026, consisted of net income of $64.9$94.8 million, which included the benefit of $23.2 million in IEEPA tariff refunds, non-cash adjustments of $62.8$93.6 million, and an unfavorable impact of net changes in operating assets and liabilities of $29.8$44.2 million. Non-cash adjustments primarily consisted of stock-based compensation expense andof depreciation$46.4 and amortization.million. The net decrease in cash from the change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued expenses of $33.3 million driven by payments for inventory purchases, and an increase in accounts receivable of $31.7$53.6 million due to sales growth, and an increase in other assets of $15.9 million driven by thea timingcash ofoutlay newrelated productto launches.components. The net decrease in cash from the change in operating assets and liabilities was partially offset by an increase in deferred revenue of $17.0 million driven by product general availability deferrals, and a decrease in inventories of $9.8$11.3 million due to seasonality.seasonality partially offset by the impact of higher memory costs, an increase in accrued compensation of $10.3 million, and an increase in accounts payable and accrued expenses of $6.0 million.

Cash used in investing activities of $6.8$18.0 million for the sixnine months ended MarchJune 28,27, 2026, primarily consisted of the purchases of marketable securities of $25.2$44.6 million and purchases of property and equipment of $10.7$16.7 million mainly related to manufacturing-related tooling and test equipment to support the launch of new products, partially offset by cash provided byfrom maturitiesthe maturity of marketable securities of $29.1$43.3 million.

Cash used in financing activities of $66.7$93.4 million for the sixnine months ended MarchJune 28,27, 2026, primarily consisted of payments for repurchases of common stock of $65.1$95.3 million, and payments for repurchases of common stock related to shares withheld for tax in connection with vesting of stock awards of $15.9$20.4 million, partially offset by proceeds from the exercise of stock options of $15.1$23.1 million.