March 28, 2023
VIA EDGAR
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Manufacturing
100 F Street, NE
Washington, DC 20549
Attention: Charles Eastman, Staff Accountant
Claire Erlanger, Staff Accountant
Re: Sonos, Inc.
Form 10-K for Fiscal Year Ended October 1, 2022
File No. 1-38603
Ladies and Gentlemen:
On behalf of Sonos, Inc. (the “Company”), we are submitting this letter in response to comments from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) received by electronic mail on March 14, 2023 that relate to the Company’s Form 10-K for the fiscal year ended October 1, 2022 (File No. 1-38603) filed with the Commission on November 23, 2022 (the “Form 10–K”). The numbered paragraphs below correspond to the numbered comments in the Staff’s letter and the Staff’s comments are presented in bold italics.
Pursuant to 17. C.F.R. § 200.83 (“Rule 83”), we are requesting confidential treatment for portions of our response below, as indicated by “[***]”, reflecting information that we have provided supplementally to the Commission.
Form 10-K for the period ended October 1, 2022
Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Developments, page 31
The Company respectfully acknowledges the Staff’s comment and advises the Staff that recent inflationary pressures have not materially impacted the Company’s results of operations or financial condition. In response to the Staff’s comment, in future filings, to the extent that inflationary pressures do have any material impacts, the Company will expand its disclosures to identify the principal factors contributing to the inflationary pressures and any actions planned or taken to mitigate those material impacts and quantify the resulting impact on results of operations and financial condition.
Non-GAAP Financial Measures, page 35
The Company respectfully acknowledges the Staff’s comment and reference to the guidance set forth in Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. The Company advises the Staff that the “legal and transaction related costs” adjustment solely consists of expenses directly related to the Company’s intellectual property ("IP") litigation against Alphabet and Google (the “Alphabet/Google IP Litigation”), including expenses related to Alphabet/Google counter suits, and legal and transaction costs associated with its acquisition activities, as shown below:
|
| Year Ended | ||||
|
| October 1, |
| October 2, |
| October 3, |
IP litigation costs |
| $[***] |
| $[***] |
| $[***] |
Acquisition activity transaction costs |
| [***] |
| [***] |
| [***] |
Legal and transaction related costs |
| $22,873 |
| $30,058 |
| $15,455 |
The Company further notes that legal costs that are determined to be normal, recurring expenses necessary to operate its business are not excluded when calculating Adjusted EBITDA. For example, the Company incurs in the ordinary course of business IP litigation expenses in a variety of matters other than the Alphabet/Google IP Litigation, and these expenses are deemed normal, recurring operating expenses and are not excluded when calculating Adjusted EBITDA (meaning not included within the “legal and transaction related costs” adjustment). Additional legal costs that the Company generally considers to be normal, recurring operating expenses, include, but are not limited to, recurring fees relating to trademark, antitrust, commercial litigation, regulatory compliance, data privacy, real estate, and labor and employment matters. Under its internal policy, in addition to oversight by the Audit Committee, the Company considers the following factors with respect to legal costs when determining whether the expenses are not normal, recurring operating expenses and therefore appropriate adjustments when arriving at its non-GAAP measure, Adjusted EBITDA:
In determining whether expenses directly related to the Company’s Alphabet/Google IP Litigation do not constitute normal, recurring, cash operating expenses necessary to operate a registrant’s business, the Company considered the following factors:
In the periods where these expenses are excluded from Adjusted EBITDA, these expenses were also excluded by management for purposes of its operating decision-making and to assess its operating performance. Management uses Adjusted EBITDA on an internal basis, period-over-period, to evaluate its operating performance, to analyze trends within its business, to assess its performance relative to its competitors, and to establish operational goals and forecasts that are used in allocating resources.
For each of these reasons, the Company believes that the adjustment with respect to Alphabet/Google IP Litigation expenses does not cause Adjusted EBITDA to be misleading or inconsistent with the guidance in Question 100.01 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations. Therefore, the Company believes that presenting Adjusted EBITDA including adjustments for these costs provides investors, when read in conjunction with the Company’s GAAP measures, with useful information about the Company’s operating performance, by eliminating the impact that these items may have of obscuring trends in the underlying performance of its business.
The Company respectfully acknowledges the Staff’s comment and in future filings the Company will include the GAAP measure of net income margin with equal or greater prominence than the non-GAAP measure of Adjusted EBITDA margin.
Critical Accounting Policies and Estimates, page 41
The Company respectfully acknowledges the Staff’s comment. In future filings, the Company will enhance its disclosure to provide greater clarity into the estimation and uncertainty in its accounting estimates where there is significant judgment and material impact of the assumptions including quantitative information where applicable, to the extent material and reasonably available. The Company will also, to the extent material, discuss how much each of these estimates and/or assumptions have changed over the relevant period, and will include the sensitivity of its reported amounts to methods, assumptions and estimates underlying its calculations. The Company will review all of its critical accounting estimates for enhanced disclosure. The Company’s intended enhanced disclosures will include, but will not be limited to, expanded descriptions related to management’s estimations of standalone selling price and service periods
for unspecified software upgrades and cloud-based services. Both of these require judgment and are subject to assumptions in their underlying calculations.
Should the Staff have additional questions or comments regarding the foregoing, please do not hesitate to contact Eddie Lazarus at (917) 621-7700.
Sincerely,
/s/ Eddie Lazarus
Eddie Lazarus, Chief Financial Officer and Chief Legal Officer
/s/ Chris Mason
Chris Mason, SVP, Finance and Chief Accounting Officer
cc:
Zachary R. Blume, Ropes & Gray LLP