WEBVTT - Sonos Forecast Tops Estimates Despite Ongoing Supply Issues

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<v Speaker 1>Well Sonar shares traded by the close just down about

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<v Speaker 1>one point two percent, but a fair swing today from

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<v Speaker 1>a three point seven gain to about a three point

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<v Speaker 1>nine decline throughout the day. Stock though up more than

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<v Speaker 1>this year. Remember though, after the closed yesterday, company giving

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<v Speaker 1>a revenue forecast that was greater than Wall Street expectations.

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<v Speaker 1>The Auto Product Products Makers chief executive officer the warning

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<v Speaker 1>about supply chain issues that would continue to be a

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<v Speaker 1>problem into next year. Full transparency. Tim and I are

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<v Speaker 1>both big customers of sons PRODCA. I spent a lot

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<v Speaker 1>of money at Sonos over the years, as is my

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<v Speaker 1>entire family. Patrick spest Spence is that chief executive officer.

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<v Speaker 1>He joins us on the phone from Santa Barbara, California. Patrick,

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<v Speaker 1>it's great to speak with you again. I want to

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<v Speaker 1>get right into it because you told our Bloomberg News

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<v Speaker 1>team that the fiscal first quarter, what we're in right now,

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<v Speaker 1>the holiday period looks to be the most challenging period

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<v Speaker 1>from a supply perspective. It will be a challenge to

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<v Speaker 1>show growth, you said over last year's strong quarter. Give

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<v Speaker 1>us the details here. What is the most challenging part

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<v Speaker 1>of the holiday quarter. It's great to be back to him,

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<v Speaker 1>thank you. Uh. You know, the most challenging thing right

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<v Speaker 1>now is supply. We have a significant amount of demand. Um.

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<v Speaker 1>You know, the consumer is extremely strong, UM, and right

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<v Speaker 1>now we are just working hard to get as many

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<v Speaker 1>products as we can into consumers hands in this holiday quarter.

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<v Speaker 1>We're airshipping, UM, We're out on the market buying the

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<v Speaker 1>chips that we need from other companies and brokers and

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<v Speaker 1>all sorts of things. And so our team is hard

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<v Speaker 1>at work doing everything they can to make that happen.

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<v Speaker 1>But we do see that as the you know, really,

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<v Speaker 1>I guess I would say, you know, the uh, you know,

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<v Speaker 1>the the the period where it's gonna be most challenging

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<v Speaker 1>before we turn up to the kind of growth that

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<v Speaker 1>we adlined for Physical twenty two for this year. So

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<v Speaker 1>it's most acute in our physical Q one the December quarter, um,

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<v Speaker 1>and it should get better um as we progress through two.

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<v Speaker 1>So I gotta ask you, Patrick, you know, one of

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<v Speaker 1>the things we're trying to figure out is really understanding

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<v Speaker 1>our supply chain, right. I mean, for most Americans it's

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<v Speaker 1>you're either ordering on law and you go to a

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<v Speaker 1>shelf and it's there, are not there and that's our

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<v Speaker 1>kind of understanding. We're peeling back the layers right as

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<v Speaker 1>we keep showing ports and how things move around. What's

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<v Speaker 1>your understanding of what broke down in terms of our

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<v Speaker 1>supply chains? Is it because people aren't working? What is it? Well,

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<v Speaker 1>if we go all the way back to the pandemic,

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<v Speaker 1>because really, Karen, we've been dealing with this, you know,

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<v Speaker 1>all the way through twenty one, and that's why I'm

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<v Speaker 1>so proud of our ability to really execute over that

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<v Speaker 1>period and deliver the kind of growth we did in

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<v Speaker 1>fiscal one. But if we go back to the beginning

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<v Speaker 1>of the pandemic, you know, all of a sudden, everybody

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<v Speaker 1>pretty much turned off the tap in terms of production.

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<v Speaker 1>So all of a sudden, everybody turned it off overnight

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<v Speaker 1>as people went into lockdown and tried to figure out

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<v Speaker 1>what the heck was going on. And then all of

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<v Speaker 1>a sudden, with the fiscal stimulus and everything happening and

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<v Speaker 1>people figuring out how to work from home. I think

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<v Speaker 1>not just us, but many in many different categories. We

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<v Speaker 1>saw a much stronger consumer, uh than anybody had expected,

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<v Speaker 1>and all of a sudden, all those factories and all

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<v Speaker 1>like that, you know, deliver the hundreds of parts in

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<v Speaker 1>a son of speaker, plus the manufacturing facility, plus the

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<v Speaker 1>shippers you know, plus the ports all had to completely

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<v Speaker 1>adjust and go the other way, which is okay, now

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<v Speaker 1>we need to really gear up because it looks like

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<v Speaker 1>there's a lot of demand there. And throughout the year,

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<v Speaker 1>I would say from everything I've seen, UM, all aspects

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<v Speaker 1>of the supply chain have been trying to catch up.

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<v Speaker 1>And that's what you know, we've been trying to kind

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<v Speaker 1>of manage back and forth and trying to deal with

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<v Speaker 1>and so that's why you see it. And it's been

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<v Speaker 1>ups and downs throughout the year, and it's been through

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<v Speaker 1>all the chains. I mean, you start with the production

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<v Speaker 1>of the chips and all the components and those hundreds

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<v Speaker 1>of parts that go into a product, but you end

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<v Speaker 1>with the situation where you're trying to find containers and

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<v Speaker 1>you're trying to you know, find shipping slots. We see

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<v Speaker 1>the backup in l A and all of the areas,

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<v Speaker 1>and so it really is, you know, like it's been

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<v Speaker 1>an end to end period. UM. You know, I think

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<v Speaker 1>the good news is, as you're hearing from many companies

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<v Speaker 1>as we get into two, UM, we expect that to

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<v Speaker 1>improve significantly. UM, but right now is a is a

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<v Speaker 1>huge challenge. So one thing I want to ask, I'm

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<v Speaker 1>not asking to get political, but can the administration do

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<v Speaker 1>something to help with the supply chain? From your perspective,

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<v Speaker 1>I do think the push to you know, really be supporting, um,

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<v Speaker 1>you know, the offloading of ships right and I think

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<v Speaker 1>they extended the operating hours there. I think that's a

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<v Speaker 1>good thing. So anything to enable the flow of goods

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<v Speaker 1>I think right now is helpful. UM. But a lot

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<v Speaker 1>of these things, uh, you know, do take some time

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<v Speaker 1>just to work through. And and you know, at least

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<v Speaker 1>in our case, consumer demand has never been higher. UM.

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<v Speaker 1>So it's kind of like, uh, you know, it's kind

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<v Speaker 1>of hitting um in a perfect storm in that way. Well,

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<v Speaker 1>let's talk a little bit about that consumer demand. And

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<v Speaker 1>I think back to just a few months ago when

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<v Speaker 1>I ordered a move for my dad for from his

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<v Speaker 1>Father's Day or for his birthday. And I think this

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<v Speaker 1>was back in May, UM, and it actually didn't ship

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<v Speaker 1>for I think it took a couple of months for

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<v Speaker 1>it to get to him. And if I look at

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<v Speaker 1>the website now for so nos even the move right

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<v Speaker 1>now is expected to ship December sevent So are you

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<v Speaker 1>saying right now that people who order this potentially couldn't

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<v Speaker 1>get it by Christmas? Yeah, Jim, it will depend on

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<v Speaker 1>the products UM here in the country you're in and everything.

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<v Speaker 1>You might be able to go to Best Buy or

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<v Speaker 1>cost Go and be able to purchase one UM. But yeah,

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<v Speaker 1>I mean we keep that up to date UM on

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<v Speaker 1>SOS dot com, so you can see it's pretty transparent

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<v Speaker 1>quite frankly, how long it's going to take to get

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<v Speaker 1>some of our products and some you can get tomorrow UM,

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<v Speaker 1>you know, and some of it will be weeks. But

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<v Speaker 1>that's exactly what we're working through UM. And it does

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<v Speaker 1>vary by product. How concerned are you that somebody might

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<v Speaker 1>see that and say, Okay, well, I'm not going to

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<v Speaker 1>buy that. I'm going to go with a competitor product

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<v Speaker 1>rather than waiting for it to come in stock and

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<v Speaker 1>getting it after the holiday. This is something that we've

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<v Speaker 1>been very focused on, really since the beginning of the

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<v Speaker 1>supply chain challenges last year, and so what we've been

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<v Speaker 1>watching closely are two things. One is UM now that

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<v Speaker 1>our direct to consumer business has grown so much it's

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<v Speaker 1>a quarter of our business. We asked that yesterday in

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<v Speaker 1>a grip. Every year, we have a really really good

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<v Speaker 1>handle on you know, what those orders are, how they're

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<v Speaker 1>coming in. We can watch conversion, we can watch cancelations importantly,

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<v Speaker 1>and that has been very very low, single digits, and

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<v Speaker 1>it has not changed. So it looks like people are

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<v Speaker 1>continuing to stick with UM, you know, our products. And

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<v Speaker 1>I think it makes a lot of sense because this

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<v Speaker 1>is a considered purchase, right. You're not rushing, You're not

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<v Speaker 1>just like haphazardly going to order one of our products.

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<v Speaker 1>You've usually done a little bit of research, You've thought

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<v Speaker 1>about it, um, and then you're placing your order. And

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<v Speaker 1>I think we're all living through a period. You know,

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<v Speaker 1>we just tried to order some furniture for our house. UM,

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<v Speaker 1>where you're talking months, right, So in our case sometimes

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<v Speaker 1>with the weeks UM, with the week's delay, UM, it's

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<v Speaker 1>not you know, in relative to other things, it's not um,

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<v Speaker 1>you know extensive UM. And then the other thing we're

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<v Speaker 1>doing is talking you know, very closely to our retail

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<v Speaker 1>partners and that that demand from our retail partners is

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<v Speaker 1>held up very well, and we check in with them,

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<v Speaker 1>you know, um weekly, if not daily, into or how

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<v Speaker 1>things are going, and all signals are the consumer is strong,

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<v Speaker 1>and our order book continues to stay very strong. UM

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<v Speaker 1>in light of this, and so we're you know, we're

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<v Speaker 1>very grateful to our customers through that. But I think

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<v Speaker 1>it's a reflection of the kind of products and quality

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<v Speaker 1>in our system, right because once you're in the system,

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<v Speaker 1>and we announced we now have over twelve point six

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<v Speaker 1>million homes were in uh you know now that once

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<v Speaker 1>you're in it, then you're gonna add more sell Us

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<v Speaker 1>to your home. You're not gonna go add one of

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<v Speaker 1>our competitors products. So that is well helps our situation. Hey, Patrick,

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<v Speaker 1>one thing we want to ask you, and this is

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<v Speaker 1>just something we know our audience is curious about. There's

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<v Speaker 1>a bunch of lawsuits are going back and forth between you,

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<v Speaker 1>you guys and Google. UM. Google has come out and

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<v Speaker 1>said it's the rightful owner of patents sun ways to

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<v Speaker 1>keep music playlists in the cloud. That from we know

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<v Speaker 1>a key component of a suit that you guys filed

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<v Speaker 1>over the Google play music system. UM Our reporting says

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<v Speaker 1>that you call that contention nonsense. What do investors need

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<v Speaker 1>to know about this? Um? You know, everybody can go

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<v Speaker 1>look at the patents and understand um, when they got filed,

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<v Speaker 1>and you know who the inventors are, which obviously we're

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<v Speaker 1>confident are us and that's why we initiated this action

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<v Speaker 1>in the I T C. UM And the other thing

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<v Speaker 1>I would say, if I you know, I am a

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<v Speaker 1>lot of shareholder as an investor, I would say, is

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<v Speaker 1>you know watch the bilestones, right. And so Eddie, our

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<v Speaker 1>chief LEO Council mentioned yesterday that, um, we're expecting an

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<v Speaker 1>update from the I T C tomorrow in fact, in

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<v Speaker 1>terms of whether they're going to have the full tried

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<v Speaker 1>to UNI review the decision that went our way uh

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<v Speaker 1>in August, or what the next steps will be on

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<v Speaker 1>that one. So UM, if you know, for for anybody watching,

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<v Speaker 1>um that's an investor, I think watching that is probably

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<v Speaker 1>the right way to ultimately look at it. And you

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<v Speaker 1>won't be surprised to know we remain very confident and

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<v Speaker 1>we're very encouraged by the August ruling and expect as

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<v Speaker 1>this progresses to finality that we will prevail. Yeah. Oh sorry,

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<v Speaker 1>you guys are a four point one billion dollar company. Alphabet,

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<v Speaker 1>the parent company of Google, is roughly two trillion dollar company.

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<v Speaker 1>Your confident you can take them on and prevail absolutely,

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<v Speaker 1>And Tim, I think we have to. UM look, being

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<v Speaker 1>a small American innovative company that you know, really invented

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<v Speaker 1>the category, we can't let people you know simply uh,

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<v Speaker 1>you know, come in and copy what we did, because

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<v Speaker 1>it's that's a bad precedent for every other you know,

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<v Speaker 1>small inventive company that is trying to grow UM, you know,

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<v Speaker 1>and has created something new. And so that's a that's

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<v Speaker 1>the thing I felt very strongly about from the beginning,

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<v Speaker 1>and I owe it to people that work here and

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<v Speaker 1>have invented all of it and put their blood, sweat

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<v Speaker 1>and tears into our products. But I also think it's

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<v Speaker 1>a bigger societal issue, right UM. We've seen it with

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<v Speaker 1>other companies UM, whether it's Zero or UM. There's a

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<v Speaker 1>whole host of others Zoom being copied by Google with

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<v Speaker 1>their video solutions. So I just think there's a you know,

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<v Speaker 1>a bigger anti competitive, anti trust kind of issue at

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<v Speaker 1>play UM. And you know, we went to the work

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<v Speaker 1>of filing the patents and making sure that we were

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<v Speaker 1>protecting our inventions really early on, but not all companies

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<v Speaker 1>you know, have necessarily done that. So we feel strongly

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<v Speaker 1>this is important for us to stand up all right.

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<v Speaker 1>Last question, is the metaverse an opportunity for you? Patrick? Seriously? Girl,

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<v Speaker 1>So we absolutely, being the world's leading sad experience company,

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<v Speaker 1>we absolutely will be you know, wanting to play a

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<v Speaker 1>role um in the metaverse. I look at it and

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<v Speaker 1>I say, we're only in less than ten percent of

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<v Speaker 1>the actual I r L in real life homes that

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<v Speaker 1>were you know in today, So we have a lot

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<v Speaker 1>of opportunity to fill the in real life homes before

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<v Speaker 1>we make a move into the metaverse. I think it

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<v Speaker 1>will be a while. We're watching it carefully as we

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<v Speaker 1>do kind of all of the exciting new areas that

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<v Speaker 1>are coming up, and uh, we expect to continue to

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<v Speaker 1>innovate and adapt as the world changes. And um, if

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<v Speaker 1>that's the place we're all enjoying great audio, we will

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<v Speaker 1>be there, all right, cool stuff you left Horn, It's

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<v Speaker 1>gonna be an opportunity, Patrick, be well, have a good

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<v Speaker 1>holiday season and really great to check in with you.

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<v Speaker 1>Patrick Spence, of course, the chief executive officer of Sonas,

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<v Speaker 1>joining us from California. Santa Barbara, California, I know one

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<v Speaker 1>of the best places. A gorgeous California