Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sonos first quarter fiscal 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Cameron McLaughlin, you may begin your conference.
Thank you. Good afternoon, and welcome to Sonos first quarter fiscal 2022 earnings conference call. I am Cameron McLaughlin, and with me today are Sonos CEO, Patrick Spence, and Brittany Bagley, CFO. Chief Legal Officer, Eddie Lazarus, will also be available during the question and answer session. 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 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. 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 first quarter fiscal 2022 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 at investors.sonos.com. I will now turn the call over to Patrick.
Thanks, Cammeron, and hello, everyone. Our record first quarter results illustrate the continued strong demand for our products. Yet again, we have proven the power of our model as we scale and our continued ability to execute better than most in a challenging supply chain environment. Our team continues to go above and beyond, successfully navigating everything from supply-constrained chip supply to logistical bottlenecks to deliver on behalf of our customers and stakeholders. Our record results are a testament to all of the hard work our team puts in every day, and I would be remiss if I did not thank the entire Sonos team for their dedication and commitment toward building the world's leading sound experience brand. Our fiscal 2022 is off to a strong start, and we are increasingly confident in our ability to deliver another record year.
Demand remains strong, driven by the continued appeal of our industry-leading products, and we delivered a record $664.5 million in revenue during the first quarter. As we discussed last quarter, we expected heavily constrained product availability to offset our potential growth in the first quarter. We are pleased to have modestly exceeded our own expectations. As a result of our strong performance in the first quarter and our outlook for the remainder of the year, we are on track to deliver our 17th consecutive year of revenue growth and have raised the low end of our fiscal 2022 revenue guidance range. We now expect to deliver 15% revenue growth at the midpoint.
This raises the midpoint from our prior outlook as we were able to deliver more than we were expecting from a supply standpoint in the first quarter and remain confident as we look to the remainder of fiscal 2022. We continue to invest in our business to drive our long-term growth and fuel future product innovation. This is reflected in our outlook. As a result of our increased fiscal 2022 revenue guidance, we have also upwardly revised the low end of our Adjusted EBITDA outlook and see a clear path toward delivering Adjusted EBITDA margins in the range of 14.9%-16.2% this year. Consistent with what we shared last quarter, we remain ahead of schedule toward achieving our fiscal 2024 targets.
We are well on our way toward delivering a 13% revenue CAGR, thereby achieving approximately $2.5 billion in revenue in fiscal 2024, as well as adjusted EBITDA margins in the range of 15%-18%. Our brand has momentum. We have an exciting and expansive product roadmap, and we are confident in our ability to continue to drive sustainable, profitable growth over the long term. I would like to spend a few minutes on why we believe our model is such a powerful and differentiated one, and how we are well-positioned to drive growth for the long term, even in challenging times. First, really the most important thing for people to understand about Sonos is that our flywheel of strong new household acquisition and existing customer repurchases is core to our growth.
We've added approximately 3.5 million new households over the last 2 years and have more than doubled our total households since fiscal 2017. Today, we serve only 10% of the more than 116 million homes we believe are addressable for us in our existing markets alone. We have a tremendous runway to add tens of millions more households to the Sonos ecosystem over time, even before we contemplate adding new categories of products and services and new geographies. Sonos is not a typical one and done purchase. It is a unique system that you build over time. This system-based model is proven and predictable and core to our success. Importantly, each and every year, we see strong repurchase trends from our existing households, and with every new household we acquire, that flywheel begins again.
With an installed base of over 12 million households at the end of fiscal 2021 and incredibly strong repurchase rates coupled with continued robust new household growth, we have a powerful and time-tested engine for fueling growth. In fiscal 2021, we saw 46% of our existing households come back and add additional Sonos products to their system. This repurchase behavior has been long-lasting and is a unique and critical element of our growth. In fact, customers who purchased products in 2005, the year Sonos shipped its first product, have continued to return to this day to add additional products to their system, illustrating the power, predictability, and longevity of our model. The other important thing to remember is the continued expansion of our product offerings. We have a terrific product roadmap ahead to delight existing customers and attract new ones.
While our existing product offering can effectively fuel that Sonos flywheel, our unwavering commitment to innovation and the expansion of our product offerings is a key driver of growth. We have a long-stated annual goal of launching at least 2 new products a year, which we have executed on consistently. This enables us to interest new customers in getting started with Sonos and encourage those existing customers to repurchase and add additional products to their system. As we look forward, we have a robust and exciting future product roadmap. As a reminder, we refresh existing products, release new price points in existing categories, and also have opened up new categories and services over time. With general availability in early 2021, Beam Gen 2 marked our first product introduction of fiscal 2022.
Beam Gen 2 is the newest version of our industry-leading compact smart soundbar for TV, music, gaming, and more. The new Beam delivers a refreshed and upgraded, more immersive sound experience with greater depth and clarity, as well as support for Dolby Atmos. Given our commitment to launching at least two new products per year, you can expect to see at least one additional product launch from us later this year. In fiscal 2022, we are focused on launching new products in our existing product categories. Lastly, we operate in a large and growing addressable market, of which we have barely scratched the surface. Sonos has less than 2% of the broader $89 billion global audio market that we expect to expand into over the long term as we enter entirely new product categories and new geographies.
That being said, we still have a tremendous runway to capture increased share in our existing product categories. Today, Sonos accounts for less than 10% of the total spend in the $18 billion premium home audio market, primarily inclusive of the premium price categories such as the $100 and higher wireless speaker category and $200 and higher soundbar market. As one of the leading brands in the premium home audio category, we are incredibly well-positioned to continue to capture share. On top of the core growth pillars of our model, there are near-term macro tailwinds that we've talked about previously, which further underscore our growth.
As we look forward, as the leader in premium home audio, Sonos is extremely well-positioned to continue to benefit from the growth in both audio and video content consumption, which we have coined both the golden age of audio and Hollywood at home trends, as well as capitalize on the evolution of remote work and how that has enabled people to reevaluate how and where they wanna live. These are multi-year tailwinds that continue to point in our favor. As we look out beyond fiscal 2024 and to the longer term, we see an ability to add additional growth pillars such as geographic expansion, further category expansion, plus the addition of meaningful service offerings for both consumers and enterprise customers. We see a long runway ahead and have just barely scratched the surface. In conclusion, there remains tremendous opportunity ahead. Our growth pillars are proven and strong.
The Sonos flywheel of strong new household acquisition and existing customer repurchases continues to gain speed. We have a robust product roadmap and track record of at least two new product launches annually. We have an addressable market that is large and growing, as well as macro tailwinds that even further underscore the opportunity ahead. We have a proven ability to deliver sustainable, profitable growth and have illustrated the true power of our model as it scales. Now I'll turn the call over to Brittany to provide more details on our results and outlook.
Thank you, Patrick. As you can see from Patrick's comments and our first quarter results, we continue to be proud of the strength of our business, driven by the fantastic products that our new and existing customers enjoy. We are off to a strong start for fiscal 2022. Let me first focus on our Q1 results. Revenue in the first quarter increased 3% or 3.5% on a constant currency basis to a record $664.5 million. Demand remained strong during the quarter, but we continued to be supply constrained on most of our products. These constraints were the main reason we didn't run our typical holiday promotion, and they also impacted our results, especially in our core Sonos speakers product category. Clearly, our revenue growth during the quarter would have been higher if not for supply constraints.
While we continue to have a significant backlog and low channel inventory, we were able to do slightly better than we expected during the quarter. This was the result of strong logistics, which allowed for better supply timing at the end of Q1. The Americas and EMEA both grew by 2% during the quarter. Adjusted for currency, EMEA increased 5%. APAC increased 18%, primarily driven by available supply to support the strong demand. Sonos speaker revenue was down 5% year-over-year as this category was most impacted by the industry-wide component availability challenges. Sonos system products revenue increased 38%, driven by the continued strength of our installer channel and improved availability of our component products. Partner products and other revenue increased 37%, primarily driven by our partnerships with Sonance and IKEA.
Gross margin increased 140 basis points to 47.8%. The improvement in gross margin was driven by the reduction in holiday promotional activity and product mix, somewhat offset by higher shipping and logistics costs. We delivered Adjusted EBITDA of $163 million and Adjusted EBITDA margin of 24.6%. This is our second highest Q1 EBITDA ever, even as we made additional OpEx investments to support our long-term growth. As we've been discussing for the last couple of quarters, these investments were in our product, our brand, our infrastructure, and our people broadly, which resulted in deleverage across all our OpEx line items in this quarter.
Our model continues to generate strong free cash flow, and we generated cash flows from operating activities of $180 million and free cash flow of $174 million. We view this as very attractive free cash flow. We have a healthy balance sheet from which we will deploy capital back into the business to drive future growth. This includes M&A, as well as returning capital to our shareholders. You can see us executing on this strategy, as in addition to the investments in the business, we deployed $30 million through share buybacks out of our $150 million authorization and $27 million into two small acquisitions. Now turning to our fiscal 2022 outlook. We see a clear path toward delivering record fiscal 2022 results, and our first quarter results further solidify that view.
We now expect to deliver revenue in the range of $1.95 billion-$2 billion, up from our prior range of $1.925 billion-$2 billion. This represents growth in the range of 14%-16% compared to our prior range of 12%-16% growth. Let me provide details on the key drivers of our fiscal 2022 revenue outlook. First, we expect continued strong demand for our products. We do still expect supply constraints throughout the year, but that is factored into our guidance. We are also working hard to mitigate supply shortages where we can and do expect it to improve over the year. As we do this, we'll continue to work through our backlog and fill our retail channel in fiscal 2022. Second, we have consistently committed to the introduction of at least two new products a year.
As Patrick stated earlier, we expect to launch at least one new product in an existing category later this year. Lastly, as you know, we did take price increases in September to offset the gross margin impact of rising component and logistics costs. These price increases are also supporting our fiscal 2022 growth relative to last year. Now turning to gross margin. We are maintaining our gross margin outlook of 46%-47% in fiscal 2022. As discussed last quarter, this outlook continues to reflect everything we know about the supply chain situation today across shipping, logistics, and components, as well as the smaller benefit from product and channel mix as compared to last year. Gross margin for the year also benefits from the lack of promotions in the first quarter, and the pricing increases help offset the cost of the supply chain.
With the higher revenue range, we also expect an improved EBITDA outlook. We have increased the low end of our Adjusted EBITDA to a range of $290 million-$325 million, up 10% from fiscal 2021 at the midpoint. This Adjusted EBITDA margin in the range of 14.9%-16.2% reflects the gross margin factors noted previously, as well as the continued OpEx investments we've been talking about, to support our long-term growth and roadmap. Looking beyond fiscal 2022, we remain ahead of schedule toward achieving the fiscal 2024 targets outlined at our investor event last March.
We are confident in our ability to deliver revenue of approximately $2.5 billion, which is a 13% CAGR by the end of fiscal 2024 and ahead of the $2.25 billion target communicated at our investor event last year. We are well-positioned to deliver industry-leading gross margins in the range of 45%-47% and adjusted EBITDA margins in the range of 15%-18% through fiscal 2024. We are confident in these fiscal 2024 targets because of our business model. The flywheel of new household generation and existing customer repurchase remains a powerful driver of growth. We also have a terrific product roadmap ahead of us, which we'll be excited to share over time.
Furthermore, at only 2% market share of the $89 billion global audio market, we have plenty of opportunity in front of us to gain share in a large and growing category. Our brand is strong, our customer base skews more affluent, and we believe we are well-positioned to deliver tremendous shareholder value over time. In summary, we continued to execute and delivered strong results in the first quarter. We expect a strong fiscal 2022 from a double-digit top-line growth perspective, coupled with attractive profitability and free cash flow. We continue to see an opportunity to deliver strong returns on invested capital and are on a great path to deliver on our fiscal 2024 targets. Overall, we continue to feel very good about our execution and the opportunity in front of Sonos. With that, I would like to turn the call over to questions.
At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Brent Thill with Jefferies. Your line is now open.
Good afternoon. Patrick, many are exploring the reopening theme, and many ask how Sonos will benefit through the reopening as we shift from our homes back into the world. Brittany, many are still asking about the supply chain. There's been recent news about ports starting to open, and things start to move a little bit better. Can you just give us a sense on that side, on the supply chain side?
Yeah. Hey Brent. I'll take the first one on the reopening, if you will. Look, I think there are. One, we have products like Roam and Move, which are well-positioned as people leave their homes as well. I'd remind everybody that Sonos is well-positioned and more and more becoming a company that delivers the sound experience throughout your life, not just at home, and that we have some big macro tailwinds around the golden age of audio, Hollywood at home. Hollywood at home, for instance, I think we all know you know the streaming companies are investing you know tens of billions of dollars in new content, and people are gonna continue to consume that content, and we're very well positioned with our home theater play.
The work from home as well. Remember our lives have changed forever and there's going to be more and more people that are working from home, and they're going to improve their homes, they're gonna be moving, and Sonos plays a role there. W e can play a bigger role over time. There's a lot there, and then I would point back to our model and the fact that through all the different times we've gone through, and now 17 years of shipping products . The thing that I always come back to is the fact that we have a strong customer base that adds products every year, and they tell their friends and family to get Sonos, right?
We know the number one driver of new homes continues to be existing customers telling their friends and family. We just added a lot more in the last two years. We expect that to continue even as the world starts to reopen. Brittany, I'll turn it to you on supply chain.
Yeah. Thanks, Patrick. And Brent, I'd really hit that last point Patrick made in terms of looking forward. We got a lot of great new homes in over the last few years, and those new homes will continue to drive repurchases for us going forward. A s we talk OpEx, you'll also hear us continuing to invest in brand and marketing to go out and drive more new homes as we go forward. The new homes we've gotten over the last couple of years continue to be really powerful for us as we go forward. Just wanted to double underscore that for people. You know, from a supply chain perspective it is definitely still challenging out there.
C omponent shortages especially continue to be pretty difficult. I think as we called out, one of the reasons we did better than we expected in Q1 was really because we did a better job from a logistics standpoint. A s you mentioned, ports and stuff like that, they're certainly still challenging, but I think what we saw is we did a little bit better at ports. We did a little bit better in terms of getting product in with air freight. We did a little bit better with shipping times, and all of that allowed us to have a stronger Q1 as those logistics really helped us overperform in Q1.
W e're gonna be talking about supply chain for the rest of the year, but hopefully as we get out into the end of the year, we start to have, you know, some signs of improvement and we're talking more about that story.
The one thing I'd just layer on that.
Thank you.
A s well is I think we've really shown over the last six quarters, and really over the 17 years, a unique ability to manage some of the challenges that come along, on the supply chain side. As we saw once again in Q1, our team did an incredible job at figuring out how to deliver, more product than initially expected to our customers, which just bodes very well for how we handle any of the challenges of the future. Thanks, Brent.
Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is now open.
Yeah. Hi, thanks for the question. Patrick, I wanted to come back to the homes growth trajectory and just kind of because that homes growth has been slowing, and I would have thought that in the pandemic, if anything you guys would have maintained kind of that 20% annual growth rate, especially with the Roam, 'cause I thought that would help to penetrate more homes.
I just wonder if you could talk a little bit about where you're at now with homes passed, which is 12.6 million, and where you think you could get to and what may be some of the strategies for increasing home penetration are, or whether you think this is the right number of homes and kind of all things are firing on all cylinders from a home penetration point of view. Thanks.
Hey, Rod. I don't think all things are firing on all cylinders because we've still been supply constrained. You know, and some of the channels at which we see greater new homes have actually been the most constrained as we go through this. I think largely, there's a few different factors that go into it, and that comes along with product portfolio. The different types of products we're introducing at different times will have an impact on that for sure. I think we've we can do a lot more than the 12.6 that we mentioned at the end of last quarter.
The number I look at is the 116 million homes that even in existing categories today that we think we can address. That's what we're very focused on and how we reach those, and we balance that and our product roadmap with thinking about how we attract those homes and then how as well we're adding to the lifetime value of the existing homes. Those are the things that we're looking at. We continue to think about different levers. O ne of the things we didn't do, as you heard from Brittany in Q1, is a promotion either. That's often helpful in terms of new home driver as well. I think it really comes back to some of the supply on that front.
Then keeping in mind we have doubled the number since 2017, and I think we'll continue to be able to do that. As always, we'll update on the new homes at the end of the fiscal year.
Okay. Could I follow up with a question of Brittany on the just kind of inventory levels? T hey're depleted now, but I wonder, is it reasonable to think, Brittany, that channel inventory is kind of back to a normal level by the time we get to the fall? Or do you think that's unreasonable given where we are with supplies?
Oh, getting out my crystal ball. W e'll certainly be in a better position from channel inventory as we get to the fall. I don't know if it'll be fully back at normal levels, but we do see it improving from where we are today. Knowing what I know I would say it improves but is not sort of like magically all better at that point.
Okay, great. Thanks a lot.
Thank you.
Your next question comes from the line of Erik Woodring with Morgan Stanley. Your line is now open.
Thank you. Congrats on the quarter, guys. Obviously really strong gross margin performance, and obviously you went through some of the puts and takes. Any way you can kind of frame the impact of which had the most significant impact channel mix, promotions, product mix, logistics? Just trying to understand what was the bigger factor in driving the better performance. I have a follow-up. Thanks.
Yeah. T hat we called out that the impact from product mix and channel mix has been lessening as we look at this year, and that in Q1, the impact from not having promotions was a pretty big driver for us. You look at the lack of promotions, you look at the price increases, and we're more than sort of offsetting the cost increases and challenges from a price standpoint that we see in the supply chain.
All right. Maybe I'll direct my follow-up at Eddie give Eddie a chance. A ny comments he can share on the ITC news from last month. What are the next signposts that we should be looking for either in the U.S. or internationally as it comes to legal action? Thanks.
Well, thank you. We were certainly pleased to see that the ITC affirmed the administrative law judge's ruling that Google infringed all five of the patents that we had at issue in the case, and issued a limited importation ban that we expect to go into effect on March 8. We're certainly looking forward to that moment. We do have a case quite active in Northern California against Google based on a second generation of Sonos innovations that is moving forward at this time. That's really where the action is right now, and we'll see how things play out.
Thanks, Eddie. Congrats again, guys.
Thanks, Erik.
Your next question comes from the line of John Babcock with Bank of America. Your line is now open.
Hey, good evening, this afternoon. Overall, I was wondering if you could talk a bit about labor costs. Obviously, this is something that we're seeing a bit more these days than has been the case over the last number of years. Could you just talk about the extent to which you're seeing inflation there, and also if it is material, what you are doing to ensure it doesn't weigh too heavily on results?
Yeah. I would say we see similar trends as sort of the rest of the market broadly and have factored all of that into our guidance as we look at the year.
Just on R&D, it looks like spending was up a decent bit year-over-year, albeit largely in line with where you were last quarter. Could you talk a bit more broadly about where that investment is going?
Yeah. O bviously we spend a bit of time talking about product roadmap and, how excited we are to have a strong product roadmap not just for this year, but in the future and continuing to deliver on that two product a year cadence. B eyond that sort of two hardware product a year that people focus on we are continuously updating our software, our app, our user experience, bringing you things like Sonos Radio. W e just really continue to invest in the customer experience and the product roadmap, and that future of our business.
We've talked for the last, gosh, couple of quarters at least about how continuing to invest in R&D and the product roadmap is something you're really gonna be seeing from us. A gain, not a big deal quarter-over-quarter. You're seeing it a bit more year-over-year. You're just seeing the impact of those investments we've been talking about and have been making.
Okay. Thank you.
Your next question comes from the line of Victoria James at D.A. Davidson. Your line is now open.
Thanks for taking my call. I've got just the one question based off of a comment that Brittany just made regarding the software app user experience stuff. Is there anything that you can tell us at a high level about the anticipated mix of services to product revenue going forward?
We don't have anything we're gonna be breaking out on that at this point. I can say that we've talked about Sonos Radio in the past. It continues to be the third most listened to service. It's the fastest growing service. We're very happy with the consumer experience we're delivering through some of these investments and when it gets material, we'll start breaking it out financially, but that's not at this point.
Thank you.
There are no further questions at this time. Patrick Spence, I turn the call back over to you.
Great. Thank you. Thanks to everybody for joining us. We appreciate it and look forward to talking to you next quarter. Thank you.
This concludes today's conference call. Thank you for attending. You may now disconnect.