Sweet Sounds From Sonos Earnings

they had to say. Well, let's talk to Patrick Spence, CEO of Sons, all about it. He joins us on the phone from Santa Barbara, California. It's about eighty miles north of where we are here in Los Angeles. Patrick. How are you good, Tim? How are you? We're doing

really well. Thanks. Hey. Last time we spoke to you about a quarter ago, Uh, you were confident, but I think it's fair to describe you as a little nervous about the holiday quarter and making sure that you had enough supply to meet demand for the holiday shopping season. Here we are a few months later. Did you have enough apply to me demand? We did not. You know, we successfully navigated probably the most challenging UM supply chain

conditions I've ever seen in my career. H and we got more to our customers UM than we had planned and exceeded expectations. But there was so much demand that we couldn't still and we've you know, continued to January and February to continue to try and fulfill that demand for our customers. UM. And you you nailed it him, I mean, were going into the quarter, we knew it was gonna be a tough one. UM. We had provided

that color to everybody. And I am so proud of the team's effort because we we really navigated well considering all of the challenges that we had. UM, we did better than than expectations. So I feel good about that, but also feel good about putting that quarter behind us. I think a lot of people feel good about us. Is it really behind us? Patrick? Is it really behind us? Are there signs that you're seeing that it's getting better? Oh? Absolutely, Carroll.

So you know, the UM I definitely feel like it was the low point again for us. And you know, as we there's a variety of different components, and you know, every situation is a little different in terms of every company you'll hear from. I saw fox On today as well, kind of giving a similar perspective, which is, um, we're by no means out of the woods, but that for us felt like, um, you know, the tightest period, and

you know, we we stay very close with UH. We both have the demand signals from our customers obviously with a big direct to consumer business and all of our great channel partners, but we as well see our products lighting up every single day, so we have a really good handle on it. Sewer demand that remains very strong for our customer base. And then on the flip side, you know, we're working very closely with our supply chain partners to make sure that we can deliver on this.

So we're and it's not like we will have everything sorted out in this quarter, but it definitely gets better through the year. UH, And that's why we felt confident in raising the midpoint of our guidance. How how do you quantify the opportunity loss in the most recent quarter.

Two people going to the website are going to a store and seeing that Sons wasn't in stock, and instead of buying that Sons speaker for somebody for a gift they went and bought something else for that person, versus somebody buying for themselves, maybe waiting a few weeks and saying, Okay, I can buy this for myself in January or February. How do you quantify that? So a couple of things. One is, um, we're such a considered purchase, right and

you know, and it really goes to our model. You know, our existing customers are our number one generator of new customers, and so they're telling their friends and family how much they love it and they understand that there's nothing quite

like it. And then for more tactical mechanics perspective, we watch very closely the orders from our direct consumer business, um you know, and understand and people have been willing to wait, Sam like they've been willing to wait you know, eight ten weeks for product at times, and we watch whether whether people cancel or not and going through that, um you know. And we also look at and we triangulate that with third party market share reports to understand

how we're doing. And since this has been a lot of industry wide uh you know, supply chain challenges, you know, I feel like we're coming out of this and We've navigated it better than anyone in our industry, that's for sure, UM. And we're in a strong position and you know, we'll continue to work hard at delivering to all those customers that have been waiting, UM and try and get back in a situation where you don't have to wait up Patrick,

How how big is the backlog? UM? You know that it changes every single day, uh, in terms of with there, but it's it's significant in terms of what we're working through. UM. I certainly hope that by the end of our fisical two, UM,

we're through at all. But we said a couple of things. One, there's the backwarders that we have today, and then we don't have our channels uh filled you know, back up to where they need to be, so you know, you might walk into a best Buy or a Costco and not be able to um, you know, by a Sonos right in that particular moment. So we've worked to do to get those Channel three stocked and then we have work to do to deliver back to our customers as well.

So UM, it's significant. Hey, Patrick, Caroline, I've talked about this a lot on air, but we both have Sono systems at home and we do like them full disclosure. But how do you get recurring revenue from people like us because we don't necessarily need any new speakers. Of course, you need new speakers tim over time. There, I am sure there's a room that you haven't added it too. But look, you know, going going back to kind of

my husband, you can always have more speakers. In fact, you know, it really goes back to our business model, you know, and we're not a one and done kind of purchase, whereas you know some products are. And so you know you saw last year of our sales came from existing customers coming back and adding another product, and we also shared that the average number of products per customer moved up to three and we think that can go over time to four to six right as well.

And so we actually have an annuity. You know, we've been shipping products in two thousand and five. They were part of that cohort that actually came back and bought products last year. Yeah, Patrick, hang on for a second. We're going to come back and continue with Patrick Span CEO at Sonos on the phone from Santa Barbara, California. We'll be back with him in just a moment, I want to get right back to Patrick Span, CEO at Sons, joining us on the phone again from Santa Barbara. Patrick.

We talked a lot about housing on the show, and I would imagine that new housing and household formation and people moving over the last couple of years to bigger homes during the pandemic really helped out sales of Sonos speakers. Today we saw that US mortgage rates jumped to three point six nine percent, the highest since January. That is,

of course pre pandemic. I'm wondering how you're thinking about or planning for your potential slow down in real estate as home prices get more expensive and mortgage rates continue to climb. You know, I think them we've kind of looked at the data, uh, you know, eight different ways from Sunday to to look at any macro trends and and and how it embaked our sales and how it has the last seventeen years, and there's not really you know, we haven't seen kind of like a macro factor that

we have a correlation to. And I think what I chalk it up to, quite frankly, is that, um, we're still pretty small in a grand scheme of things right. We're you know, we'll do two billion dollars this year in revenue in a market that the global audio markets about uh eighty nine billion dollars and we're maybe in about ten percent of the homes that UM we think we address in the more affluent home sector. And so you know, adding some son knows at you know, everything

is under a thousand dollars. You know, in terms of what our set is goes from two hundred to about eight d um. You know, I think are the things that we've we've seen kids you need to sell in prior um you know, macro weak conditions, UM, and we see in strong conditions as well. And all those new customers we added during the last couple of years, you know, if history serves, they'll continue to add products over the

next couple of years, no matter what happened. So we're optimistic. Hey, you know, you go to your website, you see the array of products which also you know have Sonus Radio and content. We're getting ready to do the Power Players Summit tomorrow and talking to a lot of team owners of folks that are making investments in all kinds of businesses that play into the world of sports. That I'm gonna talk with Stephanie Nickman over WWE, person who's key

in terms of sports for Amazon. They all talk about content, content, content. How important is that as you think about how you continue to build out the Sonus array of products. We want to be the one that can serve up all that content in a way that's really easy for customers

to access. And so we give you know, that's our differentiator, right is really being open to every music service, every voice service, every radio service that's out there, and so our goal is to make it really easy and really accessible so that people can quickly find, you know, what they want to listen to. And so that's where we're going to stay focused and really ride the wave of all that amazing content, not only on audio quite frankly, but as well in the video right with their sound bars.

So we benefit from you know, Netflix putting twenty billion dollars in the content and Disney putting through three billion dollars into content. So all of that is key and those investments are important tail wins to hard business. That's what was gonna say, move the needle for you guys.

Patrick absolutely one of the one of the big macro trends is what we call Hollywood at home, right, So all of this viewing of all this great content that's coming into our living rooms and you want to hear that the way you would hear it in the theater. And so that's what we do when it comes to your living room. Hey, I'm want to talk product development here and try to understanding the product pipeline as you think not just in the next couple of years, but

five ten years from now. What do what do son speakers look like in the next decade um? You know that it's not just speakers, right, and so as we think about where we play, you know, obviously we have the Idea partnership. We UM have an Auty partnership. So we're starting to show up in cars and that's got a great root you um from one of the definitive audio reviewers. So I would say like for us, and my goal is that we're you know, we're the sound

experience provider in all aspects of your life. And you know, we started over the course of the pandemic, we've started to go outside the home with two new products, Roman Move, so you know, we're expanding beyond UM and we have a lot of room in that whole eighty nine billion dollar global audio market, so you'll see a lot more products from Sonos, you know, upping the game in existing categories, but as well going to new categories for sure. Well.

Always great to check in with you and hear what's going on. And as we said, both Tim and I full transparency are users. Um, but really great to hear what's going on. Patrick, Thank you so much. Be well, stay safe. Patrick Spencey's the CEO of Sonas they did come out with their latest quarterly update. We were talking about the numbers last night, showing good demand, ability to navigate supply. These are what analysts are saying post their results.

It's funny. I think back to my first experience understanding the supply chain constraints as a consumer was when I went to buy that Sonos Move speaker for my dad. I think it was for Father's Day, for his birthday, um, but that was the new product that about last year. Bought it online, uh, and then saw when I was checking out it was like, you know, eight to twelve weeks away for shipping or something like that. I was thinking, what is going on here? And that was my first

foray into the supply chain pain. That's really interesting. We got ours during the pandemic, like early on because we were spending time outside and uh we were lucky. I think just got it ahead of that.