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Sonos (SONO -0.65%)
Q2Â 2023 Earnings Call
May 10, 2023, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and welcome to the Sonos second quarter fiscal 2023 conference call. At this time, all participants are in a listen-only mode. Later, we will take your questions. [Operator instructions] And now, I would like to hand the call over to Mr.
James Baglanis, head of investor relations. Please go ahead, sir.
James Baglanis -- Head of Investor Relations
Good afternoon, and welcome to Sonos' second quarter fiscal 2023 earnings conference call. I'm James Baglanis, and with me today are Sonos' CEO, Patrick Spence; and CFO and chief legal officer, Eddie Lazarus. For those who joined the call earlier, today's hold music is a sampling from our Sweets and Spices station, which is curated in collaboration with API @ Sonos in recognition of the Asian and Pacific Islander Month. Before I hand it over to Patrick, I would like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance.
These statements reflect our views as of today only and should not be considered as representing our views as of any subsequent date. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption Risk Factors in our filings with the SEC. During this call, we will also refer to certain non-GAAP financial measures.
Please make sure you've selected a ticker.
For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our second quarter fiscal 2023 results posted to the Investor Relations portion of our website. As a reminder, the press release, supplemental earnings presentation, and conference call transcript will be available on our Investor Relations website, investors.sonos.com. I would also like to note that for convenience, we have separately posted an investor presentation to our Investor Relations website, which contains certain portions of our supplemental earnings presentation. I will now turn the call over to Patrick.
Patrick Spence -- Chief Executive Officer
Thank you, James, and hello, everyone. This quarter was a tale of two cities. We executed the biggest and most successful launch in our history, and we did something groundbreaking by launching two new products simultaneously, Era 100 and Era 300. Era 100 is the next generation of our best-selling Sonos One, featuring all-new hardware and software with next-gen acoustics and design that delivers detailed stereo sound and deep bass.
Era 300 is a bold revolutionary new speaker that offers the best out-loud listening experience for your favorite spatial audio content with Dolby Atmos. We also announced that Sonos is Apple Music's first and only speaker partner offering global access to spatial audio on Apple Music. These product launches took the industry and consumers by storm. WIRED Magazine calls Era 100 the new smart speaker standard, and GQ said of the Era 300, the killer Sonos Era 300 speaker is here to kick-start a spatial audio revolution.
Both products boast excellent media and customer review scores and are selling ahead of expectations. Our team raised the bar with Era 100 and Era 300, reinforcing our commitment to leading innovation in the categories we play in and creating products that will fuel our flywheel for years to come. We also entered a new category for fiscal 2023 with the introduction of Sonos Pro. We believe we have a tremendous opportunity to leverage everything we've learned and built for consumers to serve business customers.
We've seen the consumerization of technology across so many sectors of the industry, and audio will be no different. We're making it easy and reliable for businesses to create a great audio experience for their customers. And of course, this is a Software-as-a-Service offering as we explore the opportunities to layer services on top industry-leading hardware offerings. We take another step toward Sonos-as-a-Service for those customers that prefer that approach.
But even as we made all of this progress, the near-term macroeconomic pressures we have flagged throughout fiscal 2023 intensified in Q2 and have diminished our second-half and full-year expectations. While our financial results have generally met the expectations that we outlined for the first half of the year, we observed softening underlying demand trends in the second quarter. This softening, in conjunction with some of our channel partners tightening up on inventory, has led us to reduce our outlook for the remainder of fiscal 2023. Specifically, we're taking our fiscal 2023 revenue guidance down 6% at the midpoint, resulting in a constant-currency year-over-year decline of 3%.
We knew that this would be a challenging year, but this is disappointing and inconsistent with our ambitions. I'd like to take a moment to further explain what changed since our fiscal Q1 earnings in February. First, exiting the holiday period, we began to see softening run rate registration trends in February, which continued through March. The market data that we track showed a pronounced decline in U.S.
home theater sales in March, while the European home theater market remains very challenged. Our home theater share gains in Q2 show that customers are still choosing Sonos over the competition despite the deep discounts that legacy audio competitors are offering. But ultimately, we are not immune to the widespread category weakness. Second, after being supply constrained in Amp and other key installer-oriented products for most of fiscal 2022, we were able to replenish this channel and clear the vast majority of our backlog in the first quarter of fiscal 2023.
Since doing so, we have seen our dealers begin to work through the existing channel inventory and trend toward a lower level of weeks on hand rather than reorder and maintain prior levels. Third, while we exited the holidays with a relatively healthy retail channel inventory position, we are seeing some of our retail partners in EMEA tighten up their positions and reduce open-to-buy dollars. The cumulative effect of these three developments is unfortunately significant to our expected revenue over the next six months. Now, you have heard us say in quarters past that if we started to deviate from our performance expectations, we would not hesitate to take the actions necessary to adapt to our environment and protect the profitability of our business.
That's what we are doing and will continue to do. We are taking swift action to manage expenses so that we can still deliver an 8.5% to 10% adjusted EBITDA margin this year, consistent with our prior guidance. We've been investing heavily over the last two years because of all the opportunities we see over the long term, but harder times do require a renewed commitment to rigor, focus, and efficiency. We will reduce our spending while staying on track to deliver our ambitious roadmap.
Eddie will provide more detail on this shortly. Our focus remains driving sustainable profitable growth over the long term as we continue to innovate in our five existing categories and expand into three new categories. We are in the early innings of our growth as our more than 14 million households represent just 8% of the 172 million affluent households in our core markets. At the end of fiscal 2022, the average Sonos household had 2.98 products, up from 2.95 the prior year.
This figure has steadily increased over the years, underscoring how the lifetime value of our customers continues to grow. And there's a lot more room for additional growth. As we've noted in the past, 40% of our households are single-product households, whereas our average multiproduct household has 4.30 products. In other words, we are starting to get into the range we have previously discussed of four to six products for every mature Sonos household.
We estimate that converting our existing single-product households to the average multiproduct household install size represents a $5 billion revenue opportunity. Of course, this will not happen overnight, but it does highlight the long runway that we have to further monetize our install base. We will continue to invest in the systems and programs to more aggressively go after this opportunity in fiscal '23 and beyond. I remain confident that Sonos is on the right track to continue to deliver value for customers and investors over the long term.
The Era launch was incredible and ushers in a new generation of home speakers that raise the bar and will fuel our flywheel. Sonos Pro gets us into a whole new category and steps us into Software-as-a-Service and recurring revenue, and we are actively working on products in three new exciting categories. There's no doubt in my mind that we will emerge from this period as a stronger company and resume making progress toward delivering on our long-term targets of $2.5 billion in revenue and $375 million to $450 million in adjusted EBITDA. Now, I'll turn the call over to Eddie to provide more details on our results and our outlook.
Eddie Lazarus -- Chief Financial Officer and Legal Officer
Thank you, Patrick. Before I discuss our Q2 performance and the details of our revisions to guidance, I want to echo Patrick and emphasize our disappointment in downwardly revising our second-half expectations. Emerging from the pandemic has engendered sharp swings in fiscal conditions and consumer and partner behavior. And after our resilient first quarter, we did not sufficiently anticipate how these circumstances would affect visibility into our business in the short term.
As we navigate the remainder of fiscal 2023, my top priority is setting a strong foundation for fiscal 2024. This means evaluating how to rightsize our expense base to enable us to make targeted investments in our product roadmap while delivering operating leverage. As I said in our fourth quarter fiscal 2022 call, we are not in the business of growing opex in excess of revenue. It is of critical importance to reaccelerate top-line growth while keeping expenses in check in order to achieve our long-term financial targets.
Now, turning to Q2, we reported revenues of $304.2 million, down 23.9% year over year, which was slightly ahead of our previously outlined expectation of 25% to 30% decline.Recall that Q2 of fiscal 2022 was anomalous due to backlog fulfillment stemming from chronic supply constraints and the timing of channel fill. On a constant-currency basis, Q2 revenues declined 22.4%. Quarterly registrations declined 2% year over year, while products sold declined 29%. Quarterly products sold faced unfavorable comparisons due to the backlog and channel fill factors affecting Q2 of fiscal 2022 that I just mentioned.
Looking back a year further to Q2 of fiscal 2021 to smooth comparisons, this quarter's reported revenue is down 9%, whereas registrations and products sold are down 2% and 4%, respectively. Revenue declined by more than registrations and products sold due to adverse product mix shift and FX headwinds. Though our overall registration performance in the quarter was solid, we saw steadily declining run rate registration trends throughout the quarter. We attribute this to softening demand.
A multitude of macroeconomic factors are pressuring the home theater category broadly, and competitors are becoming increasingly promotional. We are pleased to see share gains in home theater in Q2, but we are not immune to the widespread category weakness. Accordingly, we have extrapolated these lower run rates into our guidance, which assumes that demand will soften further throughout the second half of the year. We have also changed our assumptions around selling into the IS channel, where we are now assuming that registrations will run ahead of replenishment through the end of the year as installers work down channel inventory.
Our prior assumption had been that installers would maintain and operate at higher levels of inventory after being undersupplied throughout the pandemic. Gross profit dollars declined 23% on a constant-currency basis and 26% on a reported basis. Gross profit dollars declined by more than revenue due to a 150-basis-point year-over-year contraction in gross margin, resulting in a 43.3% gross margin in the quarter. This represents a 90-basis-point sequential improvement from Q1 but less than we expected to see primarily due to adverse product mix given weakness in the home theater category.
An inventory reserve increase related to end-of-life products and excess components and FX. Excluding the impact of FX, gross margin was approximately 44.4%. Adjusted EBITDA declined to negative $10.6 million, considerably ahead of our initial expectations due to the cost actions that Patrick mentioned, which we began to take intra quarter. Foreign exchange was an approximately $3 million headwind to adjusted EBITDA.
Total non-GAAP operating expenses of $154 million declined by $18.3 million or 11% from last quarter due to delayed program spend, lower bonus accrual, and typical seasonality of sales and marketing expense. When we began to see demand soften, we delayed some program spend and slowed our pace of hiring while we work to identify how to offset the expected revenue shortfall in the second half. We also took steps to rightsize our real estate footprint in both Santa Barbara and Seattle in light of changes in office usage as we transition out of the pandemic. We ended the quarter with $295 million of cash and no debt.
Free cash flow was negative $122 million in the quarter, largely driven by a $120 million decrease in accounts payable and accrued expenses, as well as a $25 million increase in inventories. At the end of the quarter, our inventory balance was $326 million, up 7% sequentially. Within inventories, finished goods were 274 million, up 5% sequentially. Our component balance of 52 million was up 14% sequentially.
The reduction in second-half revenue expectations will disrupt the harmonization between inventory and run rate sales trends in the near term, adversely affecting free cash flow. But as I have said previously, improving cash conversion remains a top priority. And finally, before turning to guidance, we repurchased $15 million of stock in the quarter at an average price of $19.50 per share, representing 0.6% of common shares outstanding as of Q1. As a reminder, we have approximately $70 million remaining on our previous $100 million share repurchase authorization.
Now, turning to guidance. As Patrick mentioned, the developments we observed intra quarter, both demand and changes in our channels, requires us to significantly reduce our expectations for revenue in the back half of the year. To mitigate this, we are taking decisive action to adjust our expense base and protect profitability such that we are able to maintain our prior full-year adjusted EBITDA margin expectations. Our new plan assumes that we will be reducing our fiscal 2023 operating expense base by approximately $52 million at the midpoint.
We will achieve these savings through a combination of reduced program spend, slowing planned hiring, eliminating open positions, bonus reduction, and some restructuring of teams. On revenue, we now expect to report full-year revenues between $1.625 billion and $1.675 billion. This represents a year-over-year decline of 7.3% to 4.4% or 4.6% to 1.8% constant currency. Our guidance bakes in a $46 million or 2.6-point FX headwind, approximately $33 million less than previously expected.
A revised FX assumptions are as follows: the euro at $1.5 and the pound at $1.20. As a reminder, EMEA was 33% of our revenue in fiscal 2022, and our FX sensitivity is about 4:1 euro to pound. Based on results in the first half of the year, this outlook implies second-half revenue of $648 million to $698 million. At the midpoint, this represents a $114 million or 15% reduction to our prior guidance.
Inclusive of the favorable FX developments, this represents a $147 million or 19% reduction to our prior guidance. As Patrick outlined at the outset of the call, the three factors in our guidance reduction are, one, softening run rate levels of demand; two, dealers in our installer solutions channel targeting a lower-than-expected level of inventory; and three, retail partner inventory tightening, particularly in EMEA. We have adjusted our second-half estimates to reflect these factors and are now assuming that our reduced level of run rate registrations will outpace our channel selling. On gross margin, we now expect gross margin will be in the range of 44.3% to 44.8%.
Our revised FX headwind assumption translates to an approximately 150 basis points headwind to gross margin for the year. At the midpoint, this outlook implies a second-half gross margin of approximately 47%. We expect gross margin to improve from 42% to 43% range observed in the first half due to lower promotional activity, fewer spot buys on the component market, and lower logistical costs and a reduced FX headwind. On adjusted EBITDA, in light of the expense actions we will be taking, we are slightly reducing our expected full-year adjusted EBITDA range to be $138 million to $168 million, representing a margin of 8.5% to 10%.
Though the midpoint of $153 million represents a $9.5 million decline from our prior guidance, the range of 8.5% to 10% is unchanged. As previously discussed, a significant portion of the FX headwind flows through and reduces adjusted EBITDA. We now expect our full-year non-GAAP adjusted operating expenses to amount to approximately $630 million, a reduction of approximately $52 million from our previous guide. Looking ahead to Q3, we expect a sequential increase in revenue in the ranges of 10% to 15%, driven primarily by timing of channel replenishment consistent with typical Q3 seasonality.
We expect sequential improvement in gross margin from Q2 primarily due to product mix and for non-GAAP adjusted operating expenses to increase by $5 million to $7 million, resulting in a positive low to mid-single-digit adjusted EBITDA margin. Despite the short-term industry headwinds, there is no doubt in my mind that Sonos is well-positioned to be successful over the long term. We will continue to invest in our exciting product roadmap while making the right decisions on operating expenses to ensure that we can deliver operating leverage in fiscal year '24. Last but not least, to touch briefly on our Google litigation.
Our trial in Northern California kicked off earlier this week. As a matter of policy, while the trial is pending, we won't be making any additional comments, but we will provide an update when appropriate. With that, I'd like to turn the call over to questions.
Questions & Answers:
Operator
[Operator instructions] We'll take our first question from Erik Woodring, Morgan Stanley.
Erik Woodring -- Morgan Stanley -- Analyst
Hey, good afternoon, guys. Thanks for taking the question. You know, I guess if we just circle to, obviously, the points that you're making here on channel inventory and whatnot, you know, if we rewind three months ago, I feel like you guys were very confident that you weren't seeing any of these less open-to-buy dollars, weren't seeing -- necessarily seeing the impact to inventory. So, I guess maybe my question is, what do you think changed in the last three months or even kind of in February and March that got some of your channel partners and dealer partners to kind of put the brakes and say, well, hold on a second? I'm just curious, the feedback you have there, and then I have a follow-up.
Eddie Lazarus -- Chief Financial Officer and Legal Officer
Well, we're living in extremely uncertain financial times. We always knew that this would be a difficult year, but things have happened from a banking crisis to a variety of other external factors, the question of whether there's going to be a default, I mean, you name it. And I think across a number of categories, certainly, in the consumer electronics space, there was a softening of demand, and retailers now respond to that very, very quickly. And that's what we've seen.
So, in EMEA, you know, things change quickly. In our run rates, things changed quickly. And then in the IS channel, you know, the housing market's been in a difficult spot. With the increase in interest rates, you know, again, there, demand's down a bit, and since they had so much channel replenishment in our fiscal Q1, it appears that they have decided not to hold the inventory but to work it down.
And so, we factored all of that into our new guidance, but you always wish that you had seen things a little quicker, but we live in a pretty volatile consumer environment, and so things have changed rapidly.
Patrick Spence -- Chief Executive Officer
Yeah, I would just layer on there. I think Eddie nailed it. Industry headwinds at the end of the day, and so, the thing we go back to in these situations, this type of situations is how are we doing relative to what's happening out there. And you know, we're seeing declines of anywhere from 5% to 20% year over year in the sales in the categories that we compete.
And we're holding up well, even gaining share in some situations. And so, I feel like our brand -- the innovation you've seen with Era 100 and Era 300 positions us well for the long term. But we're seeing these really short-term industry headwinds, I think, blowing strongly.
Erik Woodring -- Morgan Stanley -- Analyst
OK. That's helpful color. And then maybe, Patrick, just on the Sonos Pro launch, I'd love to get some incremental color kind of from you on how you think about that opportunity. Kind of why now is the right time? Is this you, you know, pushing this to customers? Is this your customers asking for this type of solution? And any type of guidance you can provide for us for maybe how to think about the trajectory of the ramp or monetization or impact to the model over the next one to three years or however long you can help us think about that, that'd be super helpful.
And that's it for me. Thank you so much.
Patrick Spence -- Chief Executive Officer
Thanks, Erik. Yeah, so super excited about Sonos Pro. You know, we take some time to build these things, but we do it based on what we're seeing in the marketplace. And we have seen, you know, small- and medium-sized businesses start to use Sonos because, just like we've seen in so many industries, you know, the consumer solution is reliable and fantastic, easy to use, creates a great experience.
And so, we've kind of been -- you know, we've been lucky in a way that businesses have chosen Sonos before we even had, you know, the ability to provide a service that allows them to do things like monitor it and, you know, set permissions for the employees, choose the music, do all of these things. And so, it's kind of a -- it's a good way to leverage everything we've invested in and really bring that Sonos experience into small- and medium-sized businesses. And you know, we're not changing the model or guidance or anything like that. We obviously have it baked in, in terms of what we're doing on Pro.
But we're just getting started in this segment, and you know, we're pragmatic about these things. So, we want to make sure that we learn from this. We're getting some great organic interest off the start. So, we're very pleased about that.
We've been working with a lot of businesses and beta testing this. So, we're feeling good about the experience and the solution and the early signs. And I think it's going to be a big opportunity over time, especially -- and it really gets us into this whole new world of professional and commercial audio that we think we can bring the amazing experience, the reliability, and the simplicity of what we do At Sonos to this large category as well. And so, you know, we've kicked it off, which is exciting.
We're seeing good response at this point, and we're looking forward to continuing to bring new things into this space. So, watch for more because we think it's a great long-term opportunity.
Erik Woodring -- Morgan Stanley -- Analyst
Awesome. Thanks for the color, guys.
Operator
Next up is Jason Haas, Bank of America.
Jason Haas -- Bank of America Merrill Lynch -- Analyst
Hey, good afternoon. Thanks for taking my questions. So, it looks like the second-half guidance embeds about a four-percentage-point higher gross margin in the second half of the year versus the first half despite the talk about competition getting more promotional. It sounds like you're also maybe a little heavier than you like on inventory.
So, what gives you confidence that you'll see that improvement in gross margin in the back half?
Eddie Lazarus -- Chief Financial Officer and Legal Officer
So, we fully expect to be less promotional in the back half than the -- than we were in the front half. So, that's going to be a significant piece of it. And we do expect to see some continued supply chain improvement. We're seeing that now compared to what we saw in the first half.
And the last piece is just the FX headwind is basically going to even out in the back half. And so, between those things, we think we can hit that 47% number, and we've hit it before, and so we think it's a reasonable place to target.
Jason Haas -- Bank of America Merrill Lynch -- Analyst
Great. And then I think you also called out -- I think it was 52 million of cost takeouts, if I had that correctly. How much of that is structural in nature that we should continue -- or assume continues in future years versus temporary, meaning that would need to come back next year?
Eddie Lazarus -- Chief Financial Officer and Legal Officer
Right. So, we have two things that we have to do that overlap at the same time. One is to make sure that we get our opex squared away for this year, and that's the 52 million. And some of that would be opex savings that will roll over, and some of it is opex savings that won't roll over.
But at the same time, we're already looking to make sure that our house is in order for fiscal '24, and we'll take the additional steps necessary to make sure that that we do add operational leverage next year. We were always thinking about '24 as a pivot year for us. This makes the challenge a little tougher.But with discipline, we'll absolutely get there. So, as I said, the part of the 52 million, yes, part no, but we already are looking for the longer term at what we need to do for '24.
Jason Haas -- Bank of America Merrill Lynch -- Analyst
That makes sense. Thank you.
Patrick Spence -- Chief Executive Officer
Thanks, Jason.
Operator
And Tom Forte from D.A. Davidson has the next question.
Tom Forte -- D.A. Davidson -- Analyst
Great. Thanks. So, one question and one follow-up. And Patrick and Eddie, thank you very much for your prepared remarks, certainly answered a lot of my other questions I had.
So, the first question is, do you have an opportunity to lean into direct-to-consumer to offset channel inventory challenges? I feel like during the pandemic, you did an excellent job leaning into DTC. So, how should we think about that?
Patrick Spence -- Chief Executive Officer
You know, we are definitely leaning into DTC. Tom, you may recall one of the things that I did mention in the prepared remarks is continuing to go after that enormous -- that $5 billion opportunity in our existing base. And Lindsay and the team that runs DTC is doing a lot of work to look at how we do that. DTC has also led the way, I think we shared some of this in the Q1 reporting, really selling sets as well, so getting people started with more products as well.
And we use that then to help our channel with how to sell our products, how to effectively package them and do some of those things. And so, I think there's, you know, omnichannel benefits, if you will, as well. But we absolutely are leaning in on DTC and will continue to because we see so much opportunity there in our existing base.
Tom Forte -- D.A. Davidson -- Analyst
Great. Then for my follow-up, and I might get back in the queue for a couple more, but how should we think about your ability to increase promotional activity and possibly take advantage of improving supply chain-related costs, so there'd be little to no impact on gross Margin?
Eddie Lazarus -- Chief Financial Officer and Legal Officer
We're going to have to remain pretty targeted in our promotions, and that's our standard practice anyway, Tom. We're not going to see quite as much improvement in the component costs right now as we will later on because we have bought so many components when the prices were a little bit higher. So, we're going to be careful about -- as I said, we're going to do -- we're going to promote. We're going to do targeted strategic stuff, but I don't think we're going to dramatically increase the amount of promotion because that would be offset by supply chain savings.
We're going to use those savings such as they are to increase our gross margin, to get to the target range we have.
Patrick Spence -- Chief Executive Officer
Yeah, I think the customer, you know, Tom, I would say, you know, continue to see the balance like the value in the innovation that we're bringing. And that's underscored by the market share that we're seeing in terms of, you know, being able to hold or, in some cases, increase that despite legacy audio players running promotions that we've never seen the likes of, right? There's been 30%, 40% off promotions. We've been holding up, you know, with our existing pricing approach in that competitive environment. And so, we feel good about where we're positioned right now.
The industry headwinds are the big issue, but we feel very well-positioned on the competition front. So, you know, we're going to be the company that continues to innovate and deliver the kind of products that customers want and are willing to pay for that innovation.
Tom Forte -- D.A. Davidson -- Analyst
Great. Thanks for taking my questions.
Patrick Spence -- Chief Executive Officer
Thanks, Tom.
Operator
We'll go next to Brent Thill, Jefferies.
Brent Thill -- Jefferies -- Analyst
Thanks. Patrick, any color on the 100 and 300, how that trended out of the gate relative to your expectation?
Patrick Spence -- Chief Executive Officer
Yeah. This is why it's a tale of two cities, Brent, is because, you know, we launched those products. We did a big tour of media and artists, and we have them in the studios. We've done some interesting things with a number of artists, and we've seen -- I think we saw over 4 billion impressions around that product, and the reviews have been amazing.
Customer response has been amazing. It's been ahead of our expectations, and that's why it's -- again, in a challenging industry moment, right? And that's why it's such a strange time, quite frankly, because that, to me, proves -- OK, like with the innovation and these new products, we've got something, and this is something great. And you know, we build these things for the next five to 10 years, not for one quarter, but it was fantastic to see that raising the bar on those existing products, was able to get us to something a little bit higher than we had even expected. And so, I think they're off to a great start.
Kind of the fundamentals, you know, at a moment like this are what's the customer response, what are those reviews looking like, what's the media saying, and all of those things look very strong on the Era products.
Brent Thill -- Jefferies -- Analyst
OK. And then did you see this in the direct consumer channel as well? Or did that hold up better than the channel? And can you remind us any -- what percent of the business is channel now?
Patrick Spence -- Chief Executive Officer
Yeah. So, we do -- so DTC at the end of last year, I want to say, was around 22%, 23% in terms of -- we update that once a year, Brent, in terms of what's there. You know, it doesn't deviate much from where that is at this point. We are -- like we said, we have seen registration trends, and that's what we're watching, which is cross channel, in terms of that weakening there.
Some of the revenue side, to Eddie's point, is more to do with the channels and some of the restocking and things there. So, we have a tighter -- you know, the thing with DTC is we have that tighter time to registration, as we call it, from when we actually sell a product to somebody lights it up. And so -- but we're seeing registrations across the board be challenged, which, again, I think boils down to the industry headwinds.
Brent Thill -- Jefferies -- Analyst
Thank you.
Operator
Next up is Jake Norrison, Raymond James.
Jake Norrison -- Raymond James -- Analyst
Hey, thanks for taking my questions. Just a couple for me here. So, firstly, I'm hoping you could just touch on multiproduct household formation in the quarter. What did you see there? Any color on the linearity? And then further, how are you driving multiproduct household formation as you get further in the year with the macro uncertainties in relation to selling more sets? Just more color there would be helpful.
Patrick Spence -- Chief Executive Officer
Yeah. We've been focused -- it's a great question because it's an area that we started to really focus on in first quarter in terms of what we're able to do and kind of lead the way with our direct-to-consumer efforts. And so, we haven't seen a -- I think in Q1, it's fair to say, with a little more buyers out there and everything that we saw, you know, a really strong quarter in terms of what's there. I don't think we saw anything that deviated from kind of our general multiproduct household formation in Q2.
So, Eddie, I don't know if you have anything to add from that front.
Eddie Lazarus -- Chief Financial Officer and Legal Officer
No, we are registering initially more products per household, but the -- and the set strategy clearly is paying off for us. You know, I would just say overall, the flywheel continues to spin. We're adding the new households. We're getting the repurchase rates we're looking for, but the external forces are just slowing it down a bit, and that's reflected in the new guidance.
Patrick Spence -- Chief Executive Officer
And we'll continue to focus on that because we know NPS is higher. We know lifetime value is higher as well. So, you'll continue to see us focus on sets, you know, even more so as we go through this, especially with our push around direct-to-consumer and going out to our base.
Jake Norrison -- Raymond James -- Analyst
OK, perfect. That makes sense. And then last one for me. Just at a high level, anything to call out in terms of Sonos voice control versus the competition? Anything -- any incremental progress there? I know last call, you guys had called out some pretty outstanding results.
Patrick Spence -- Chief Executive Officer
Yeah. Continued good momentum on that front, great reaction from customers, highest NPS service on our platform, continues to lead the way in terms of growth with new homes. And we've got some exciting stuff planned to make it even better that our team is working on. So, I just got a chance to spend some time with that team just recently.
Obviously, that is also an area where machine learning and artificial intelligence comes into play. And so, our team there has done incredible things. And I'd remind everybody, we're doing that with a team of, I think, 60 to 70 people. You've probably heard some of the big tech investments of tens of thousands of people on those.
But we have a pretty darn good voice service that our customers are using and loving that our scrappy team has put together. So, we feel good about how that plays into the overall experience, and it continues to lead the way when it comes to voice assistance on the Sonos platform.
Jake Norrison -- Raymond James -- Analyst
Perfect. Thank you, guys, so much.
Patrick Spence -- Chief Executive Officer
Thank you.
Operator
[Operator instructions] We'll take a follow-up from Tom Forte.
Tom Forte -- D.A. Davidson -- Analyst
Great. So, two quick follow-ups ones. Is there anything you can do on the financing front to stimulate sales? As an example, Apple recently rolled out a buy now, pay later effort.
Eddie Lazarus -- Chief Financial Officer and Legal Officer
We're not looking at that particular option, but we're always thinking about ways to experiment with marketing and selling our products, Tom. And there are some things that are in the pipeline. So, I would just say stay tuned on that. We're going to be testing and learning a variety of different things.
Patrick Spence -- Chief Executive Officer
And we do use a BNPL partner on Sonos.com, so we have that as an option for customers as well.
Tom Forte -- D.A. Davidson -- Analyst
Great. And then the last question for me, and thanks for taking my question, on the Software-as-a-Service effort, I don't think you mentioned this, and I apologize if you did. Are you using a direct sales force? Are you leveraging resellers? What's the go-to-market strategy there?
Patrick Spence -- Chief Executive Officer
Yeah, we're doing both. We're leveraging some of our installer channel, right, because they're out there. Some of them focus on small and medium business customers. We, as well, have inside sales, our own people working it as well.
And so, this is all part of kind of building this up because we think there's a long term -- there's a great opportunity here. So, you'll see us continue to evolve it and get to self-service as well. But there's definitely room to work with our installer channel, and we think that's pretty exciting because, I think as we've said on previous calls, we think there's a lot more opportunity with our installer channel. They think there's a lot more opportunity out there for Sonos to play in some of the markets that we're not today.
So, that's another good reason why Pro is something that's so promising for us.
Tom Forte -- D.A. Davidson -- Analyst
Great. Thank you.
Patrick Spence -- Chief Executive Officer
Thanks, Tom.
Operator
We'll go back to Brent Thill.
Brent Thill -- Jefferies -- Analyst
Thanks. Patrick, do you think the consumer dollars are flowing more into experiences in other areas? Or do you feel that just the wallets are generally kind of getting held up, and maybe there's just a stall-up in general? Like what's your sense of kind of where -- where do you think this is flowing to?
Patrick Spence -- Chief Executive Officer
All I know for sure, Brent, is that it's not coming to audio right now, from everything I see. You know, these are those moments where you get even more -- in my seat, you get even more focused on, OK, where do we sit from a market share perspective, right? And are those unprecedented discounts that competitors doing, you know, changing any market share numbers? And they're not. So, we're mindful of that and making sure that we're still delivering the value for money that we expect to in all those products. I would say I suspect that those dollars are going toward other experiences right now based on what I see, you know, in the macro economy and the kind of things that I've seen out there.
But again, I'm not an expert in that part of it or the macro economy stuff. I am an expert on the audio industry side, and that is not where people are spending right now. And so, we will -- it's interesting because I do think with Era and everything around that, perhaps, we did, we were able to trigger some people that weren't thinking of spending on audio. And we created such a splash with that that maybe we pulled some of the dollars that people were earmarking for travel or restaurants or name it, what have you.
But yeah, I think the -- you know, it's hard for me to specifically say, you know, what's happening in that macro picture. I'm just really focused on how we make sure that we continue to win in the audio space. And so, I think that -- hopefully, that's helpful.
Brent Thill -- Jefferies -- Analyst
And just a quick follow-up just beyond the home. I know you've spoken in the past about the audio opportunity. You've got many other opportunities. Can you just -- any update there, maybe a refreshed view on what you're seeing outside the home?
Patrick Spence -- Chief Executive Officer
Yeah. So, I think, you know, outside the home as well continue -- you know, was kind of in the same bucket right now from an audio perspective. So, as we look at speaker share, for instance, there's really nothing different, I would say, about outside the home versus inside. The home, right now, they look to be behaving similarly, which is down year over year.
And so, we kind of have the same headwinds right now across those different categories that we have of the portables, the speaker in the home and home theater as well, and components. So, that's what we're facing right across the audio industry.
Brent Thill -- Jefferies -- Analyst
Thank you.
Patrick Spence -- Chief Executive Officer
Thanks, Brent.
Operator
Everyone, at this time, there are no further questions. I'll hand the conference back to our speakers for any additional or closing remarks.
Patrick Spence -- Chief Executive Officer
Thanks, Lisa, and thanks to everybody for joining today. Definitely, facing the industry headwinds, we're taking the actions we need to, to ensure that we continue to have a strong balance sheet, remain profitable, and be able to invest in innovation. I would remind everybody as we set out into fiscal '23, we talked about investing in categories that are pre-revenue. That's something that takes us anywhere from two to three years, sometimes longer, in our product development cycles.
And so, we've never had a more exciting product roadmap, but we've also never really focused -- never faced kind of the short-term industry headwinds we have. So, we will navigate this period. We're excited about what we have coming in the future, and we're going to continue to stay focused on how we build a sustainable profitable company for the long term. Thank you, everyone.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
James Baglanis -- Head of Investor Relations
Patrick Spence -- Chief Executive Officer
Eddie Lazarus -- Chief Financial Officer and Legal Officer
Erik Woodring -- Morgan Stanley -- Analyst
Jason Haas -- Bank of America Merrill Lynch -- Analyst
Tom Forte -- D.A. Davidson -- Analyst
Brent Thill -- Jefferies -- Analyst
Jake Norrison -- Raymond James -- Analyst
