WEBVTT - Sweet Sounds From Sonos Earnings

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Messer and

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<v Speaker 1>Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. I want

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<v Speaker 1>to talk a bit about Sons. The stock up about

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<v Speaker 1>four and a half percent in today's session. This after

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<v Speaker 1>the latest quarterly update. We were breaking it down yesterday

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<v Speaker 1>after the close. Uh, just a dps revenue beating estimates,

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<v Speaker 1>the company showing it had an ability to overcome those

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<v Speaker 1>supply constraints growing holiday sales. So investors definitely liking what

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<v Speaker 1>they had to say. Well, let's talk to Patrick Spence,

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<v Speaker 1>CEO of Sons, all about it. He joins us on

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<v Speaker 1>the phone from Santa Barbara, California. It's about eighty miles

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<v Speaker 1>north of where we are here in Los Angeles. Patrick.

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<v Speaker 1>How are you good, Tim? How are you? We're doing

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<v Speaker 1>really well. Thanks. Hey. Last time we spoke to you

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<v Speaker 1>about a quarter ago, Uh, you were confident, but I

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<v Speaker 1>think it's fair to describe you as a little nervous

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<v Speaker 1>about the holiday quarter and making sure that you had

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<v Speaker 1>enough supply to meet demand for the holiday shopping season.

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<v Speaker 1>Here we are a few months later. Did you have

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<v Speaker 1>enough apply to me demand? We did not. You know,

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<v Speaker 1>we successfully navigated probably the most challenging UM supply chain

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<v Speaker 1>conditions I've ever seen in my career. H and we

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<v Speaker 1>got more to our customers UM than we had planned

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<v Speaker 1>and exceeded expectations. But there was so much demand that

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<v Speaker 1>we couldn't still and we've you know, continued to January

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<v Speaker 1>and February to continue to try and fulfill that demand

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<v Speaker 1>for our customers. UM. And you you nailed it him,

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<v Speaker 1>I mean, were going into the quarter, we knew it

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<v Speaker 1>was gonna be a tough one. UM. We had provided

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<v Speaker 1>that color to everybody. And I am so proud of

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<v Speaker 1>the team's effort because we we really navigated well considering

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<v Speaker 1>all of the challenges that we had. UM, we did

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<v Speaker 1>better than than expectations. So I feel good about that,

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<v Speaker 1>but also feel good about putting that quarter behind us.

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<v Speaker 1>I think a lot of people feel good about us.

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<v Speaker 1>Is it really behind us? Patrick? Is it really behind us?

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<v Speaker 1>Are there signs that you're seeing that it's getting better? Oh? Absolutely, Carroll.

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<v Speaker 1>So you know, the UM I definitely feel like it

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<v Speaker 1>was the low point again for us. And you know,

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<v Speaker 1>as we there's a variety of different components, and you know,

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<v Speaker 1>every situation is a little different in terms of every

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<v Speaker 1>company you'll hear from. I saw fox On today as well,

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<v Speaker 1>kind of giving a similar perspective, which is, um, we're

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<v Speaker 1>by no means out of the woods, but that for

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<v Speaker 1>us felt like, um, you know, the tightest period, and

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<v Speaker 1>you know, we we stay very close with UH. We

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<v Speaker 1>both have the demand signals from our customers obviously with

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<v Speaker 1>a big direct to consumer business and all of our

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<v Speaker 1>great channel partners, but we as well see our products

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<v Speaker 1>lighting up every single day, so we have a really

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<v Speaker 1>good handle on it. Sewer demand that remains very strong

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<v Speaker 1>for our customer base. And then on the flip side,

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<v Speaker 1>you know, we're working very closely with our supply chain

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<v Speaker 1>partners to make sure that we can deliver on this.

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<v Speaker 1>So we're and it's not like we will have everything

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<v Speaker 1>sorted out in this quarter, but it definitely gets better

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<v Speaker 1>through the year. UH, And that's why we felt confident

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<v Speaker 1>in raising the midpoint of our guidance. How how do

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<v Speaker 1>you quantify the opportunity loss in the most recent quarter.

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<v Speaker 1>Two people going to the website are going to a

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<v Speaker 1>store and seeing that Sons wasn't in stock, and instead

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<v Speaker 1>of buying that Sons speaker for somebody for a gift

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<v Speaker 1>they went and bought something else for that person, versus

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<v Speaker 1>somebody buying for themselves, maybe waiting a few weeks and saying, Okay,

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<v Speaker 1>I can buy this for myself in January or February.

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<v Speaker 1>How do you quantify that? So a couple of things.

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<v Speaker 1>One is, um, we're such a considered purchase, right and

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<v Speaker 1>you know, and it really goes to our model. You know,

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<v Speaker 1>our existing customers are our number one generator of new customers,

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<v Speaker 1>and so they're telling their friends and family how much

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<v Speaker 1>they love it and they understand that there's nothing quite

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<v Speaker 1>like it. And then for more tactical mechanics perspective, we

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<v Speaker 1>watch very closely the orders from our direct consumer business,

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<v Speaker 1>um you know, and understand and people have been willing

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<v Speaker 1>to wait, Sam like they've been willing to wait you know,

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<v Speaker 1>eight ten weeks for product at times, and we watch

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<v Speaker 1>whether whether people cancel or not and going through that,

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<v Speaker 1>um you know. And we also look at and we

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<v Speaker 1>triangulate that with third party market share reports to understand

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<v Speaker 1>how we're doing. And since this has been a lot

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<v Speaker 1>of industry wide uh you know, supply chain challenges, you know,

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<v Speaker 1>I feel like we're coming out of this and We've

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<v Speaker 1>navigated it better than anyone in our industry, that's for sure, UM.

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<v Speaker 1>And we're in a strong position and you know, we'll

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<v Speaker 1>continue to work hard at delivering to all those customers

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<v Speaker 1>that have been waiting, UM and try and get back

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<v Speaker 1>in a situation where you don't have to wait up Patrick,

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<v Speaker 1>How how big is the backlog? UM? You know that

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<v Speaker 1>it changes every single day, uh, in terms of with there,

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<v Speaker 1>but it's it's significant in terms of what we're working through. UM.

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<v Speaker 1>I certainly hope that by the end of our fisical two, UM,

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<v Speaker 1>we're through at all. But we said a couple of things. One,

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<v Speaker 1>there's the backwarders that we have today, and then we

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<v Speaker 1>don't have our channels uh filled you know, back up

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<v Speaker 1>to where they need to be, so you know, you

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<v Speaker 1>might walk into a best Buy or a Costco and

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<v Speaker 1>not be able to um, you know, by a Sonos

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<v Speaker 1>right in that particular moment. So we've worked to do

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<v Speaker 1>to get those Channel three stocked and then we have

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<v Speaker 1>work to do to deliver back to our customers as well.

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<v Speaker 1>So UM, it's significant. Hey, Patrick, Caroline, I've talked about

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<v Speaker 1>this a lot on air, but we both have Sono

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<v Speaker 1>systems at home and we do like them full disclosure.

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<v Speaker 1>But how do you get recurring revenue from people like

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<v Speaker 1>us because we don't necessarily need any new speakers. Of course,

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<v Speaker 1>you need new speakers tim over time. There, I am

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<v Speaker 1>sure there's a room that you haven't added it too.

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<v Speaker 1>But look, you know, going going back to kind of

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<v Speaker 1>my husband, you can always have more speakers. In fact,

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<v Speaker 1>you know, it really goes back to our business model,

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<v Speaker 1>you know, and we're not a one and done kind

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<v Speaker 1>of purchase, whereas you know some products are. And so

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<v Speaker 1>you know you saw last year of our sales came

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<v Speaker 1>from existing customers coming back and adding another product, and

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<v Speaker 1>we also shared that the average number of products per

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<v Speaker 1>customer moved up to three and we think that can

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<v Speaker 1>go over time to four to six right as well.

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<v Speaker 1>And so we actually have an annuity. You know, we've

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<v Speaker 1>been shipping products in two thousand and five. They were

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<v Speaker 1>part of that cohort that actually came back and bought

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<v Speaker 1>products last year. Yeah, Patrick, hang on for a second.

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<v Speaker 1>We're going to come back and continue with Patrick Span

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<v Speaker 1>CEO at Sonos on the phone from Santa Barbara, California.

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<v Speaker 1>We'll be back with him in just a moment, I

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<v Speaker 1>want to get right back to Patrick Span, CEO at Sons,

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<v Speaker 1>joining us on the phone again from Santa Barbara. Patrick.

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<v Speaker 1>We talked a lot about housing on the show, and

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<v Speaker 1>I would imagine that new housing and household formation and

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<v Speaker 1>people moving over the last couple of years to bigger

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<v Speaker 1>homes during the pandemic really helped out sales of Sonos speakers.

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<v Speaker 1>Today we saw that US mortgage rates jumped to three

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<v Speaker 1>point six nine percent, the highest since January. That is,

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<v Speaker 1>of course pre pandemic. I'm wondering how you're thinking about

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<v Speaker 1>or planning for your potential slow down in real estate

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<v Speaker 1>as home prices get more expensive and mortgage rates continue

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<v Speaker 1>to climb. You know, I think them we've kind of

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<v Speaker 1>looked at the data, uh, you know, eight different ways

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<v Speaker 1>from Sunday to to look at any macro trends and

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<v Speaker 1>and and how it embaked our sales and how it

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<v Speaker 1>has the last seventeen years, and there's not really you know,

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<v Speaker 1>we haven't seen kind of like a macro factor that

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<v Speaker 1>we have a correlation to. And I think what I

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<v Speaker 1>chalk it up to, quite frankly, is that, um, we're

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<v Speaker 1>still pretty small in a grand scheme of things right.

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<v Speaker 1>We're you know, we'll do two billion dollars this year

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<v Speaker 1>in revenue in a market that the global audio markets

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<v Speaker 1>about uh eighty nine billion dollars and we're maybe in

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<v Speaker 1>about ten percent of the homes that UM we think

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<v Speaker 1>we address in the more affluent home sector. And so

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<v Speaker 1>you know, adding some son knows at you know, everything

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<v Speaker 1>is under a thousand dollars. You know, in terms of

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<v Speaker 1>what our set is goes from two hundred to about

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<v Speaker 1>eight d um. You know, I think are the things

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<v Speaker 1>that we've we've seen kids you need to sell in

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<v Speaker 1>prior um you know, macro weak conditions, UM, and we

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<v Speaker 1>see in strong conditions as well. And all those new

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<v Speaker 1>customers we added during the last couple of years, you know,

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<v Speaker 1>if history serves, they'll continue to add products over the

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<v Speaker 1>next couple of years, no matter what happened. So we're optimistic. Hey,

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<v Speaker 1>you know, you go to your website, you see the

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<v Speaker 1>array of products which also you know have Sonus Radio

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<v Speaker 1>and content. We're getting ready to do the Power Players

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<v Speaker 1>Summit tomorrow and talking to a lot of team owners

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<v Speaker 1>of folks that are making investments in all kinds of

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<v Speaker 1>businesses that play into the world of sports. That I'm

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<v Speaker 1>gonna talk with Stephanie Nickman over WWE, person who's key

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<v Speaker 1>in terms of sports for Amazon. They all talk about content, content, content.

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<v Speaker 1>How important is that as you think about how you

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<v Speaker 1>continue to build out the Sonus array of products. We

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<v Speaker 1>want to be the one that can serve up all

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<v Speaker 1>that content in a way that's really easy for customers

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<v Speaker 1>to access. And so we give you know, that's our differentiator,

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<v Speaker 1>right is really being open to every music service, every

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<v Speaker 1>voice service, every radio service that's out there, and so

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<v Speaker 1>our goal is to make it really easy and really

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<v Speaker 1>accessible so that people can quickly find, you know, what

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<v Speaker 1>they want to listen to. And so that's where we're

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<v Speaker 1>going to stay focused and really ride the wave of

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<v Speaker 1>all that amazing content, not only on audio quite frankly,

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<v Speaker 1>but as well in the video right with their sound bars.

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<v Speaker 1>So we benefit from you know, Netflix putting twenty billion

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<v Speaker 1>dollars in the content and Disney putting through three billion

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<v Speaker 1>dollars into content. So all of that is key and

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<v Speaker 1>those investments are important tail wins to hard business. That's

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<v Speaker 1>what was gonna say, move the needle for you guys.

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<v Speaker 1>Patrick absolutely one of the one of the big macro

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<v Speaker 1>trends is what we call Hollywood at home, right, So

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<v Speaker 1>all of this viewing of all this great content that's

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<v Speaker 1>coming into our living rooms and you want to hear

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<v Speaker 1>that the way you would hear it in the theater.

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<v Speaker 1>And so that's what we do when it comes to

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<v Speaker 1>your living room. Hey, I'm want to talk product development

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<v Speaker 1>here and try to understanding the product pipeline as you

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<v Speaker 1>think not just in the next couple of years, but

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<v Speaker 1>five ten years from now. What do what do son

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<v Speaker 1>speakers look like in the next decade um? You know

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<v Speaker 1>that it's not just speakers, right, and so as we

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<v Speaker 1>think about where we play, you know, obviously we have

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<v Speaker 1>the Idea partnership. We UM have an Auty partnership. So

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<v Speaker 1>we're starting to show up in cars and that's got

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<v Speaker 1>a great root you um from one of the definitive

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<v Speaker 1>audio reviewers. So I would say like for us, and

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<v Speaker 1>my goal is that we're you know, we're the sound

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<v Speaker 1>experience provider in all aspects of your life. And you know,

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<v Speaker 1>we started over the course of the pandemic, we've started

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<v Speaker 1>to go outside the home with two new products, Roman Move,

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<v Speaker 1>so you know, we're expanding beyond UM and we have

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<v Speaker 1>a lot of room in that whole eighty nine billion

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<v Speaker 1>dollar global audio market, so you'll see a lot more

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<v Speaker 1>products from Sonos, you know, upping the game in existing categories,

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<v Speaker 1>but as well going to new categories for sure. Well.

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<v Speaker 1>Always great to check in with you and hear what's

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<v Speaker 1>going on. And as we said, both Tim and I

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<v Speaker 1>full transparency are users. Um, but really great to hear

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<v Speaker 1>what's going on. Patrick, Thank you so much. Be well,

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<v Speaker 1>stay safe. Patrick Spencey's the CEO of Sonas they did

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<v Speaker 1>come out with their latest quarterly update. We were talking

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<v Speaker 1>about the numbers last night, showing good demand, ability to

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<v Speaker 1>navigate supply. These are what analysts are saying post their results.

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<v Speaker 1>It's funny. I think back to my first experience understanding

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<v Speaker 1>the supply chain constraints as a consumer was when I

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<v Speaker 1>went to buy that Sonos Move speaker for my dad.

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<v Speaker 1>I think it was for Father's Day, for his birthday, um,

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<v Speaker 1>but that was the new product that about last year.

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<v Speaker 1>Bought it online, uh, and then saw when I was

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<v Speaker 1>checking out it was like, you know, eight to twelve

0:11:15.240 --> 0:11:17.160
<v Speaker 1>weeks away for shipping or something like that. I was thinking,

0:11:17.200 --> 0:11:19.120
<v Speaker 1>what is going on here? And that was my first

0:11:19.160 --> 0:11:22.120
<v Speaker 1>foray into the supply chain pain. That's really interesting. We

0:11:22.160 --> 0:11:24.520
<v Speaker 1>got ours during the pandemic, like early on because we

0:11:24.520 --> 0:11:27.319
<v Speaker 1>were spending time outside and uh we were lucky. I

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<v Speaker 1>think just got it ahead of that.