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