Speaker 1: Well Sonar shares traded by the close just down about
Speaker 1: one point two percent, but a fair swing today from
Speaker 1: a three point seven gain to about a three point
Speaker 1: nine decline throughout the day. Stock though up more than
Speaker 1: this year. Remember though, after the closed yesterday, company giving
Speaker 1: a revenue forecast that was greater than Wall Street expectations.
Speaker 1: The Auto Product Products Makers chief executive officer the warning
Speaker 1: about supply chain issues that would continue to be a
Speaker 1: problem into next year. Full transparency. Tim and I are
Speaker 1: both big customers of sons PRODCA. I spent a lot
Speaker 1: of money at Sonos over the years, as is my
Speaker 1: entire family. Patrick spest Spence is that chief executive officer.
Speaker 1: He joins us on the phone from Santa Barbara, California. Patrick,
Speaker 1: it's great to speak with you again. I want to
Speaker 1: get right into it because you told our Bloomberg News
Speaker 1: team that the fiscal first quarter, what we're in right now,
Speaker 1: the holiday period looks to be the most challenging period
Speaker 1: from a supply perspective. It will be a challenge to
Speaker 1: show growth, you said over last year's strong quarter. Give
Speaker 1: us the details here. What is the most challenging part
Speaker 1: of the holiday quarter. It's great to be back to him,
Speaker 1: thank you. Uh. You know, the most challenging thing right
Speaker 1: now is supply. We have a significant amount of demand. Um.
Speaker 1: You know, the consumer is extremely strong, UM, and right
Speaker 1: now we are just working hard to get as many
Speaker 1: products as we can into consumers hands in this holiday quarter.
Speaker 1: We're airshipping, UM, We're out on the market buying the
Speaker 1: chips that we need from other companies and brokers and
Speaker 1: all sorts of things. And so our team is hard
Speaker 1: at work doing everything they can to make that happen.
Speaker 1: But we do see that as the you know, really,
Speaker 1: I guess I would say, you know, the uh, you know,
Speaker 1: the the the period where it's gonna be most challenging
Speaker 1: before we turn up to the kind of growth that
Speaker 1: we adlined for Physical twenty two for this year. So
Speaker 1: it's most acute in our physical Q one the December quarter, um,
Speaker 1: and it should get better um as we progress through two.
Speaker 1: So I gotta ask you, Patrick, you know, one of
Speaker 1: the things we're trying to figure out is really understanding
Speaker 1: our supply chain, right. I mean, for most Americans it's
Speaker 1: you're either ordering on law and you go to a
Speaker 1: shelf and it's there, are not there and that's our
Speaker 1: kind of understanding. We're peeling back the layers right as
Speaker 1: we keep showing ports and how things move around. What's
Speaker 1: your understanding of what broke down in terms of our
Speaker 1: supply chains? Is it because people aren't working? What is it? Well,
Speaker 1: if we go all the way back to the pandemic,
Speaker 1: because really, Karen, we've been dealing with this, you know,
Speaker 1: all the way through twenty one, and that's why I'm
Speaker 1: so proud of our ability to really execute over that
Speaker 1: period and deliver the kind of growth we did in
Speaker 1: fiscal one. But if we go back to the beginning
Speaker 1: of the pandemic, you know, all of a sudden, everybody
Speaker 1: pretty much turned off the tap in terms of production.
Speaker 1: So all of a sudden, everybody turned it off overnight
Speaker 1: as people went into lockdown and tried to figure out
Speaker 1: what the heck was going on. And then all of
Speaker 1: a sudden, with the fiscal stimulus and everything happening and
Speaker 1: people figuring out how to work from home. I think
Speaker 1: not just us, but many in many different categories. We
Speaker 1: saw a much stronger consumer, uh than anybody had expected,
Speaker 1: and all of a sudden, all those factories and all
Speaker 1: like that, you know, deliver the hundreds of parts in
Speaker 1: a son of speaker, plus the manufacturing facility, plus the
Speaker 1: shippers you know, plus the ports all had to completely
Speaker 1: adjust and go the other way, which is okay, now
Speaker 1: we need to really gear up because it looks like
Speaker 1: there's a lot of demand there. And throughout the year,
Speaker 1: I would say from everything I've seen, UM, all aspects
Speaker 1: of the supply chain have been trying to catch up.
Speaker 1: And that's what you know, we've been trying to kind
Speaker 1: of manage back and forth and trying to deal with
Speaker 1: and so that's why you see it. And it's been
Speaker 1: ups and downs throughout the year, and it's been through
Speaker 1: all the chains. I mean, you start with the production
Speaker 1: of the chips and all the components and those hundreds
Speaker 1: of parts that go into a product, but you end
Speaker 1: with the situation where you're trying to find containers and
Speaker 1: you're trying to you know, find shipping slots. We see
Speaker 1: the backup in l A and all of the areas,
Speaker 1: and so it really is, you know, like it's been
Speaker 1: an end to end period. UM. You know, I think
Speaker 1: the good news is, as you're hearing from many companies
Speaker 1: as we get into two, UM, we expect that to
Speaker 1: improve significantly. UM, but right now is a is a
Speaker 1: huge challenge. So one thing I want to ask, I'm
Speaker 1: not asking to get political, but can the administration do
Speaker 1: something to help with the supply chain? From your perspective,
Speaker 1: I do think the push to you know, really be supporting, um,
Speaker 1: you know, the offloading of ships right and I think
Speaker 1: they extended the operating hours there. I think that's a
Speaker 1: good thing. So anything to enable the flow of goods
Speaker 1: I think right now is helpful. UM. But a lot
Speaker 1: of these things, uh, you know, do take some time
Speaker 1: just to work through. And and you know, at least
Speaker 1: in our case, consumer demand has never been higher. UM.
Speaker 1: So it's kind of like, uh, you know, it's kind
Speaker 1: of hitting um in a perfect storm in that way. Well,
Speaker 1: let's talk a little bit about that consumer demand. And
Speaker 1: I think back to just a few months ago when
Speaker 1: I ordered a move for my dad for from his
Speaker 1: Father's Day or for his birthday. And I think this
Speaker 1: was back in May, UM, and it actually didn't ship
Speaker 1: for I think it took a couple of months for
Speaker 1: it to get to him. And if I look at
Speaker 1: the website now for so nos even the move right
Speaker 1: now is expected to ship December sevent So are you
Speaker 1: saying right now that people who order this potentially couldn't
Speaker 1: get it by Christmas? Yeah, Jim, it will depend on
Speaker 1: the products UM here in the country you're in and everything.
Speaker 1: You might be able to go to Best Buy or
Speaker 1: cost Go and be able to purchase one UM. But yeah,
Speaker 1: I mean we keep that up to date UM on
Speaker 1: SOS dot com, so you can see it's pretty transparent
Speaker 1: quite frankly, how long it's going to take to get
Speaker 1: some of our products and some you can get tomorrow UM,
Speaker 1: you know, and some of it will be weeks. But
Speaker 1: that's exactly what we're working through UM. And it does
Speaker 1: vary by product. How concerned are you that somebody might
Speaker 1: see that and say, Okay, well, I'm not going to
Speaker 1: buy that. I'm going to go with a competitor product
Speaker 1: rather than waiting for it to come in stock and
Speaker 1: getting it after the holiday. This is something that we've
Speaker 1: been very focused on, really since the beginning of the
Speaker 1: supply chain challenges last year, and so what we've been
Speaker 1: watching closely are two things. One is UM now that
Speaker 1: our direct to consumer business has grown so much it's
Speaker 1: a quarter of our business. We asked that yesterday in
Speaker 1: a grip. Every year, we have a really really good
Speaker 1: handle on you know, what those orders are, how they're
Speaker 1: coming in. We can watch conversion, we can watch cancelations importantly,
Speaker 1: and that has been very very low, single digits, and
Speaker 1: it has not changed. So it looks like people are
Speaker 1: continuing to stick with UM, you know, our products. And
Speaker 1: I think it makes a lot of sense because this
Speaker 1: is a considered purchase, right. You're not rushing, You're not
Speaker 1: just like haphazardly going to order one of our products.
Speaker 1: You've usually done a little bit of research, You've thought
Speaker 1: about it, um, and then you're placing your order. And
Speaker 1: I think we're all living through a period. You know,
Speaker 1: we just tried to order some furniture for our house. UM,
Speaker 1: where you're talking months, right, So in our case sometimes
Speaker 1: with the weeks UM, with the week's delay, UM, it's
Speaker 1: not you know, in relative to other things, it's not um,
Speaker 1: you know extensive UM. And then the other thing we're
Speaker 1: doing is talking you know, very closely to our retail
Speaker 1: partners and that that demand from our retail partners is
Speaker 1: held up very well, and we check in with them,
Speaker 1: you know, um weekly, if not daily, into or how
Speaker 1: things are going, and all signals are the consumer is strong,
Speaker 1: and our order book continues to stay very strong. UM
Speaker 1: in light of this, and so we're you know, we're
Speaker 1: very grateful to our customers through that. But I think
Speaker 1: it's a reflection of the kind of products and quality
Speaker 1: in our system, right because once you're in the system,
Speaker 1: and we announced we now have over twelve point six
Speaker 1: million homes were in uh you know now that once
Speaker 1: you're in it, then you're gonna add more sell Us
Speaker 1: to your home. You're not gonna go add one of
Speaker 1: our competitors products. So that is well helps our situation. Hey, Patrick,
Speaker 1: one thing we want to ask you, and this is
Speaker 1: just something we know our audience is curious about. There's
Speaker 1: a bunch of lawsuits are going back and forth between you,
Speaker 1: you guys and Google. UM. Google has come out and
Speaker 1: said it's the rightful owner of patents sun ways to
Speaker 1: keep music playlists in the cloud. That from we know
Speaker 1: a key component of a suit that you guys filed
Speaker 1: over the Google play music system. UM Our reporting says
Speaker 1: that you call that contention nonsense. What do investors need
Speaker 1: to know about this? Um? You know, everybody can go
Speaker 1: look at the patents and understand um, when they got filed,
Speaker 1: and you know who the inventors are, which obviously we're
Speaker 1: confident are us and that's why we initiated this action
Speaker 1: in the I T C. UM And the other thing
Speaker 1: I would say, if I you know, I am a
Speaker 1: lot of shareholder as an investor, I would say, is
Speaker 1: you know watch the bilestones, right. And so Eddie, our
Speaker 1: chief LEO Council mentioned yesterday that, um, we're expecting an
Speaker 1: update from the I T C tomorrow in fact, in
Speaker 1: terms of whether they're going to have the full tried
Speaker 1: to UNI review the decision that went our way uh
Speaker 1: in August, or what the next steps will be on
Speaker 1: that one. So UM, if you know, for for anybody watching,
Speaker 1: um that's an investor, I think watching that is probably
Speaker 1: the right way to ultimately look at it. And you
Speaker 1: won't be surprised to know we remain very confident and
Speaker 1: we're very encouraged by the August ruling and expect as
Speaker 1: this progresses to finality that we will prevail. Yeah. Oh sorry,
Speaker 1: you guys are a four point one billion dollar company. Alphabet,
Speaker 1: the parent company of Google, is roughly two trillion dollar company.
Speaker 1: Your confident you can take them on and prevail absolutely,
Speaker 1: And Tim, I think we have to. UM look, being
Speaker 1: a small American innovative company that you know, really invented
Speaker 1: the category, we can't let people you know simply uh,
Speaker 1: you know, come in and copy what we did, because
Speaker 1: it's that's a bad precedent for every other you know,
Speaker 1: small inventive company that is trying to grow UM, you know,
Speaker 1: and has created something new. And so that's a that's
Speaker 1: the thing I felt very strongly about from the beginning,
Speaker 1: and I owe it to people that work here and
Speaker 1: have invented all of it and put their blood, sweat
Speaker 1: and tears into our products. But I also think it's
Speaker 1: a bigger societal issue, right UM. We've seen it with
Speaker 1: other companies UM, whether it's Zero or UM. There's a
Speaker 1: whole host of others Zoom being copied by Google with
Speaker 1: their video solutions. So I just think there's a you know,
Speaker 1: a bigger anti competitive, anti trust kind of issue at
Speaker 1: play UM. And you know, we went to the work
Speaker 1: of filing the patents and making sure that we were
Speaker 1: protecting our inventions really early on, but not all companies
Speaker 1: you know, have necessarily done that. So we feel strongly
Speaker 1: this is important for us to stand up all right.
Speaker 1: Last question, is the metaverse an opportunity for you? Patrick? Seriously? Girl,
Speaker 1: So we absolutely, being the world's leading sad experience company,
Speaker 1: we absolutely will be you know, wanting to play a
Speaker 1: role um in the metaverse. I look at it and
Speaker 1: I say, we're only in less than ten percent of
Speaker 1: the actual I r L in real life homes that
Speaker 1: were you know in today, So we have a lot
Speaker 1: of opportunity to fill the in real life homes before
Speaker 1: we make a move into the metaverse. I think it
Speaker 1: will be a while. We're watching it carefully as we
Speaker 1: do kind of all of the exciting new areas that
Speaker 1: are coming up, and uh, we expect to continue to
Speaker 1: innovate and adapt as the world changes. And um, if
Speaker 1: that's the place we're all enjoying great audio, we will
Speaker 1: be there, all right, cool stuff you left Horn, It's
Speaker 1: gonna be an opportunity, Patrick, be well, have a good
Speaker 1: holiday season and really great to check in with you.
Speaker 1: Patrick Spence, of course, the chief executive officer of Sonas,
Speaker 1: joining us from California. Santa Barbara, California, I know one
Speaker 1: of the best places. A gorgeous California