Sonos CEO: Stay Tuned For Audio Category Expansion

It's up seventeen percent today, s O n O on your Bloomberg terminal stocks up seventeen percent today, fifty seven percent year to date, and about a hundred sixty seven percent on a trailing twelve month basis. So this story is absolutely working for shareholders. To give us the latest. We welcome so to CEO of Patrick Spence. Patrick talked to us first about your earnings last night. Big numbers,

the street like some what are the key takeaways? Yeah, thanks, Paul. Uh, you know, we have really capitalized on the system that we've built over the last nineteen years. And know I

mentioned last quarter we'd hit an inflection point. I feel like we're just you know, continuing to go from strength to strength on the back of that, and certainly you're one of the big trends here is just the explosion in audio, right, so you see it with podcasts, the streaming music, take up audio, books, and now social audio. So audio is booming and we are a huge beneficiary of that. Patrick, I'm going to ask them one question that's been on everyone's minds for a long time. You

know what that is? Are we getting headphones? You know? And you know we don't talk about a product roadmap, but look, but you said we would. We are a small player in the whole audio category. Today, we see a lot of opportunity in a number of categories that we're not in today. So, uh, stay tuned because I think over time, uh, you know, you can expect to see us play in every category of audio. All right, Patrick,

give us a sense of how your business. That's kind of rewind back to early March of last year, kind of just give us a sense of how you our business changed in March of Yeah, it was you know, it was a shock. Obviously, our first focus was on the health and safety of our people. So March thirteenth, we all headed home and we've been working from home ever since, UH, and I just have been astounded by you know, I knew we had the best team in

the world. I might be a little bit biased, but at the same time, you know, to see the way that everybody has adapted, UH, and how resilient they've been in the face of all the challenges that we've had this year. And you you guys know, supply chain has been a massive issue this year, right with all these shortages, everything that's been happening, and our team has just done a phenomenal job, like you know, end to end in terms of being able to manage our business, create new products,

launched new products, sell our products. I mean, our DTC sales have been off the charts, UH, in the midst of a pandemic and working from home, and so I am just so proud of the team and grateful. But it's really been a team effort, UH, and the adaptability and resilience has been incredible. Patrick, how do you sell sons?

So the sense of you know, high end audio is such a specialized field and it's so particular, and at the same time, if you walk into a store and you don't know enowful lot about the back brands, backgrounds or what have you. What's to stop somebody buying a Bows over a Sun Nos. Yeah, well, I think the you know, you can get started with sas for So we've really democratized that and democratized and brought kind of high end audio um to the masses, if you will.

And the best place I would want you to experience so Nos is someone else's home and that's where that's the number one driver of our new customers is actually hearing about Sons from a friend or family member, and that's how they come into the Sons ecosystem. And that is huge, right, It's a huge testament to the power of the brand, a huge testament to the customer experience

that we deliver today. And the nice thing about Sons and what's different than all the traditional audio brands is that you can start with one, you can start with many,

and then you add more over time. So one of the greatest things that we we talked about in this last quarter is that we had a record percentage of our existing customers coming back in the quarter and adding another product to their Sonos system, not replacing, but rather adding another Sonos product into their home which um is just a testament to the kind of products we build in the brand We've built your where again in Santa Barbara because me and Paul will come right over and

and tast that out. I tried. You know, I grew up in Toronto, so I I think I've paid my dues when it comes to snow and the cold and all of those things. But you're welcome any time. Yeah, So it's interesting. So, um, Patrick, I'm a former investment banker. When I see a stock up as much as yours is, I know you don't necessarily need the cash. Any thoughts of raising equity here and take advantage of your strong

stock price. Uh No. We we reported record cash levels and we paid off a little bit of debt that we had, so debt free we bout six hundred fifty million on the balance sheet. We are fully focused on how do we invest that to drive more growth and build on this momentum through you know, a lot of acquisitions or organic efforts. But um, we are just uh, we feel like we have great momentum. There's a massive opportunity in front of us. It's all about investing. Patrick.

It's an absolute pleasure to speak with you when should we expect maybe another product updates? Briefly, Well, you know, we actually I mentioned last night that we have a product, new product coming next month, so we're excited about that. And we also have our first investor event on March nine, so uh, stay tuned for that one. Well, that is exciting.

sUAS of course US based and just a wonderful audio product maker, charging cradles, adapters, controller as well as speakers, you know, loudspeakers, amps, anything that you could possibly think of, and they are based in Santa Barbara, California with about fifteen hundred employees. Patrick Spence is CEO of Well, it's our pleasure now to bring in Dr lucas A Jumpa, who's chief environmental officer for Microsoft. No less, it's the

first time that there husband the chief environmental officers. So basically, Dr Joppa is leading the development and execution of any sustainability strategy that Microsoft comes up with across its worldwide business. So Dr Joppa, thanks for joining. What have you decided Microsoft needs to do in terms of sustainability, Well, thanks for having me on the show. Really a pleasure to talk about sustainability, particularly now in UM in today's climate

in today's administration here in the United States. I think a little bit ago, about a year ago, Microsoft stepped back and asked itself if we thought we were doing enough on sustainability. I think the clear answer was no, everybody needs to do more. We put in place an acceleration of our ambition really to see a set industry leading commitments across four key areas, carbon, water, waste, and ecosystems.

And we spent the last year setting those commitments, which were designed to address what's the best available science says every individual organization and ultimately our global economy needs to do. And we culminated the year with a set of commitments to see us by committing to be a carbon negative, water positive, zero waste company that's also protecting more land than we use and building out the computational infrastructure of what we call a planetary computer to help society better

manage natural resources. So I think those that set of commitments really does concisely represent what we think needs to be done. And about two weeks ago we issued our first annual report that was kind of a a progress report on how we've done in the first year of not just commitment setting, but also working towards achieving our commitments in saw some great progress. We reduced our emissions

by six percent, a little over six percent. We managed to complete a pretty historic removal of carbon purchase of carbon move all of about one point three million metric tons. Both of those things put us well on our way to being a carbon negative company by so, Dr Choppa, how do we uh, you know e s G investing environmental sustainability, social governance. I mean it's becoming a big,

big part of the investment community investment process. How do we hold senior managers, board members accountable for these goals? Tell us how Microsoft does that? Because a lot of folks are just concerned that this is rhetoric from corporate America and not net's say, something that's measured, uh and maybe reflecting compensation for for example, Well, one of the things that we thought was important was to represent it

in compensation for our senior leaders. So after a lot of thinking about this, this is exact question that you pose, how do you hold senior leaders accountable? We um We announced as as part of our one year and the Anniversary announcement, that we would be tying executive compensation of our CEO, our president, our CFO, and the senior leadership

team more broadly to meeting our sustainability goals. And I think that is just absolutely critical in the corporate context to really tie it directly to the core compensation incentivization measures that any company holds. So what does that specifically mean for our products? Will we notice any difference? Uh? Well, I hope so, um, But in many respects, we don't

really want you to notice a lot of difference. We want your products that UM that you consume from Microsoft to you know, be as as as helpful as as they possibly can be, but we want them to do that in a way that's increasingly environmentally sustainable. So should you notice that your products are being powered by renewable energy um, like they will be by for all of our cloud customers. I wouldn't expect you to notice that, but I would expect you to just by default receive

those benefits by just being a customer of Microsoft. Would I expect you to notice that, you know, all of the hardware and componentry of our data centers, for instance, are part of a new circular cloud initiatives that where we have behind our secure private perimeter of our data centers, increasing our reusability and recycling of all of our componentry by up You probably won't notice that either, but all of our customers are going to receive those sustainability benefits

by default. It's been up to us to be able to provide those reporting platforms so that those who care do have access to that information, so that they can included in their external third party reporting into their stakeholders and shareholders. Dr Choppic spent twenty seconds here just give us a sense of the governments that you work with around the world. How cooperative have they been? Well? You just I think everybody is seeing the tide shift here

and governments all around the world. We have a new administration here in the United States, we saw some extremely interesting executive orders putting the full weight of government into um clean climate procurement decisions, putting science at the at the center of decision making. UH. In the EU we see just you know, rapid progress on this. I think this is the We're starting to see the dominoes fall all across the world on progressive policy. UM right, progressive

climate policy very good. We will certainly be paying attention going for Dr Lucas job a Chief Environmental Officer for Microsoft, based of course in Redmond, Washington, as a company accelerates its plans for to go green, to become even more green. Well, New York City restaurants they will be open their indoor dining too about capacity beginning tomorrow, just in time for the Valentine's Day rush. This is good news for restaurants. A question is how good? Uh is this news? Let's

check with Kate Creator. She's a food editor for Bloomberg Pursuits, joining us on the phone from New York City. So, Kate, it's good news for the restaurants, I think, but I'm just not sure how good? What do you think? That's exactly right. It's good news and the optics of it are good, and it gets restaurants names out there. You get to think about it, you know, get the gears going. But in terms of financial like windfall, it's nowhere near that. In fact, it's a lost for a lot of them

to open. Will they be able to access more p P P if we get I mean at the moment it's eight million dollars in the proposal by the administration and may not end up at eight hundred plus billion dollars, but that's where it is at now. Would these restaurants that have managed to stay open or to close and reopen be able to access more of that? Yeah, they should on the new loans are definitely geared more left

prochained and more towards independent restaurants. And there's a news there's a cent five billion dollar federally built for restaurants that is getting some attention and everyone is very hopeful about that. That that's the kind of thing that makes it different. You know, not not opening for tables on you know, right before Valentine's Day, that's not that's not sustaining restaurant. So it kind of just you know, reading your story on the Bloomberg terminal with you and your team,

lots of great reporting in there. So I guess one of the issues is I got a lot of restaurants laid off staff when they were forced to close. Can they even get that staff back and be ready to go? It seems like kind of a rush here. It's a great question. And yeah, I think even geting up towards Valentine's Day, um that that in itself was its talents. But when Cuomo made a relatively last minute call to open on Friday the twelfth instead of Sunday the fourteenth.

It gives it gives restaurants a couple more days to celebrate Valentine's Day, but it's really short notice because a lot of restaurant workers can afford a New York City rent and have moved away. So it's been a scramble for a lot of them to staff their dining rooms. Okay,

in your story, there's this sentence, and it's just so sad. Already, more than one hundreds and thousand restaurants have closed permanently or for the long term across the country, with New York City seeing more than four thousand closures according to the New York State Restaurant Association. These closures. Any hope that these these chefs and these managers and so on,

that they'll reopen maybe once rent goes down in certain areas. Yeah, Bunny, you know what, I really want to be hopeful about that. And I mean, there's so much talent, and you can see from the way so many restaurants activity there, you know, their models to do take out and Neil kids. I think there's a lot of opportunity for them. But there's

also a fear. This is another story we're working on that. UM. For all the real estate opportunities out there, it's going to be the changes that are going to sweep in and take advantage of it. UM. So, to go back to what Paul was saying, hopefully, when the loans come through, UM some good enterprising steps and UM restaurant people will

be able to take advantage of that. Okay, My understanding of the economics of the restaurant business is it's very very thin margins and you have to be at or near, you know, full capacity and turn over the tables and all that kind of stuff, and it just seems like an unsustainable level. What are some of these restaurant owners hoping for the hoping to get back to full capacity by the spring, by the summer. What are they saying? Yeah, No, there's a big UM, there's a big place some New

York City. UM restaurateurs are lobbying hard UM. The blog you and Cuomo too quickly open at I'm not sure a hundred percent is I wouldn't even guess when that's going to happen. But when outdoor dining can come back strong or been fantastic innovations on that front. I think with indoor dining and outdoor dining like nice Weather and all those accommodations of the NATE, that's starting to be a much more sustainable model for restaurants. But like Daniel

Ballut is the great TEP. Daniel Blues said, another another hard factor for them is that there's a mandated closure at ten PM, and that means a lot of these restaurants at only twenty percent, can only do one service at night. If it was extended to eleven, they might be able to do two services. And that is you can imagine double the amount of people you can bring in. And it's funny places where there are more people, like

New Jersey have higher capacity. So right now it's it's a thirty five present capacity and Westchester is operating at half capacity. And apparently that's where everybody went. You would have thought that New York City, which is empti or would be able to you know, here in New Jersey at the restaurants, they are at capacity. I mean, if

you cool, the demand is there, yeah, absolutely, Kate. Finally, our landlords giving any concessions and totally I have heard that they are absolutely not giving any concessions, which really surprises me. Yeah, and ectotally I've heard to say saying, although actually I've heard that they're starting to there's you know, it's there's so much empty store front now, so many

of them. Um, I think they are starting to realize or make or instead of doing like long term leases, doing short leases, which um I think convenitate of combetit at restaurants who might want to try and experiment and do something, but now it's not happening. It's fast. Yeah, I mean literally Midtown Manhattan. You're talking about, you know, ninety dollars per square foot. You know, it's it's an

insane amount of rent. But that's because there are normally tourists all over the place and every place is always full, and you know it can withstand that. But I can tell you Midtown Manhattan is absolutely empty. Kate Craters, thank you. It's a great story. On the Bloomberg Wall Street. Time for Bloomberg Opinion today we are joined by Ferdinando Giuliano, Bloomberg Opinion editor. His column is entitled Who's booking their

beach holiday? Are Ready? And it really goes to the issue of as more and more people get shots how much freedom should they have for the NANDO Thanks much for joining us here. Give us a key takeaways here. How do you think this is going to play out as more and more people begin to get jobs. Well, I think it's going to become a very important issue at the moment um. You know, the data collected shows that we've got around nine at least nineteen million people

in the ward who have been fully vaccinated. That means two jobs because the existing vaccines required to thoses as we know, uh and half of them are in the United States. But as the rollout continues, this number is going to grow, so governments will face demands to give more freedom to people who have been fully fully immunized. UM. But I think there are both medical and ethical issues with giving these people, uh the sports back. You know, we can call them passports if you want to detail

some of those medical issues if you will. I think the artical issues we can probably imagine a little easier, but the medical the main medical issues that we are still not quite sure whether people who have been immunized are infectious or not. In other words, we know that vaccines are very effective in preventing, especially the world forms of COVID nineteen. But we don't know yet with certainty whether you can still spread the virus to other individuals.

And these issue is key. If you think, for example, about doctors. I mean, doctors have been vaccinated first partly to protect them, but mainly to um, you know, make sure that they don't spread the virus to the people who are in hospital are very fragile. Now imagine we give we tell officers that we can they can just roll around freely because you know, we want to give

them this passport, but they could become dangerous. Now there is mounting evidence that perhaps these facts do protect from infection. Once we have certainty that you know, their protection from infection is very high, then we can set these medical issues aside. But for now we just can't. Well, it seems like there's also an economic argument here that we all know on a global scale, um that you know, the economic disruption and impact from closing down is just

too great. And it seems to me that you know, I guess the argument could be made that hey, if you're fully inoculated, go out and start living your life, go to restaurants, go to Disney World. What are the ethical issues associated with that that seems kind of straightforward to a lot of people. But the issues that at the moment, the distribution of back the supply of vaccines is constrained, and the distribution of vaccine is tightly enforced

by politicians and the public health authorities. In other words, if you're not vaccinated, it's not your choice, is because the state has decided that you're not a priority group, and for good reasons. I mean, I'm not I'm not debating that. I think it's absolutely right that we are take care first of all of the people who are

most at risk. But should then you know the fact that the government is taking care of you by giving you, uh, you know this um priority treatment allow you to go and live your life, you know, better than those who are further down the queue just because they're younger or um, you know, they they don't have an underlying condition. I think this is a real question and it could put a lot more pressure on government to make different forms of choice is from the ones they are making, again

for very good reasons. And one final point I think is a generational issue. Let's remember a lot of young people have been foured to stay at home. Maybe I've lost their jobs, maybe couldn't attend schools because we were here. You know, they were really trying to protect the elderly. Now imagine a society where youngsters have been you know, really been at home to protect the elderly and are now fourced at home again, while the elderly can roam

around freely. I think they would feel very agreed. Do we need all or most countries to get on the same board or is it possible for each country to sort of treat their citizens a different way and for the world to go back to normal somehow well, I think you know on many issues, like you know what happens to your social life, your habits, whether you can go to a restaurant and stadium or a concert, each

country can go alone. Obviously, on traveling, it's going to be very different and there needs to be some coordination, which is why the Greek Prime Minister Carya mits attack is is very worried about the risk of another wasted summer or a tourist dependents is asking the you to adopt a joint position on this very issue. I think where it comes to traveling that will need to be

co ordination. But I think at the moment um. Governments are still grappling, even just domestically, with what the answer they should give to this question. So for an under way, what really think we should be focusing on to get a sense of how this might play out. Is it you know, some of the policies and the travel companies um or from governments per se. I'm just not sure what's going to be the driving forces about how we reopen. Is it going to be driven by the government or

is it gonna be driven by the market. Well, I mean, I think on the governments. Are governments are going to be key because as we as we know, uh, you know, they're being able to enforce their draconian rules over time. So if they just are you know, companies from doing something,

companies will simply have to obey. But we also know that you know, there's gonna be once you know, I think the vaccine becomes more widely widespread, I think companies will say some very important questions and governments will need to provide answers. I think an obvious question issue is whether where the companies will be able to dismiss workers

who do not want to get vaccinated. And I think this is something which is going to be a very big question, which I think legal scholars should already start

thinking about. Yeah, I mean I presently court cases to that effect, right absolutely, And you know, I mean, I'm all in favor of personal freedom, but when you start thinking about some jobs, like people work in care homes, you realize that having someone who doesn't to get vaccinated is going to be a major, major issue, and not just getting your personal It's not just an issue of your own personal freedom, but it's an issue of the

safety of the people you work for. It is just mind boggling the amount of people that are going to have to get vaccinated in order for a workforce and its entirety to go back to work. And again today we saw initial droll these claims, a big disappointment. So people aren't going back to work for many reasons right now, so it's not as urgent question, Ferdinando, it is a very thought provoking column. Thanks for joining us today. Ferdinando

Giugliano is Bloomberg Opinion editor. In the column, if you want to look it up, is who's booking their beach holiday already? Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonny Quinn. And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio. Well oh,