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spk00: Before I hand it over to Patrick, I'd like to remind everyone that today's discussion will include forward-looking statements regarding future events and our future financial performance. These statements reflect our views as of today only and should not be considered as representing our views of any subsequent date. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption risk factors in our filings of the SEC. During this call, we will also refer to certain non-GAAP financial measures. For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our third quarter results posted to the Investor Relations portion of our website. As a reminder, the press release, supplemental earnings presentation, and conference call transcript will be available on our Investor Relations website at investors.sonos.com. I will now turn the call over to Patrick.
spk04: Thank you, Cameron. And hello, everyone. Before going into details on our record third quarter results, I want to recognize the tremendous work that our people and partners continue to do. As I reflect on our continued strong execution and performance, I'm extremely proud of what our team has been able to accomplish. The momentum in our business, the strength of our brand, and the unwavering consumer demand for our products makes me even more confident and excited about our future. We are pleased to report outstanding third quarter results driven in large part by the continued surging demand for our products. We're breaking records on both our top and bottom lines. We achieved a record third quarter adjusted EBITDA margin of 12.3% and delivered a record $379 million in revenue, up 52% from the prior year. As a result of our expected strong second half performance, we are raising our fiscal 2021 outlook. We now expect fiscal 2021 adjusted EBITDA of $275 million at the midpoint, up from our prior outlook of $238 million, and revenue of $1.702 billion at the midpoint compared to our prior outlook of $1.65 billion. This represents adjusted EBITDA growth of over 150%, adjusted EBITDA margin of over 16%, and revenue growth of over 30%, excluding the 53rd week in fiscal 2020. I think it's important to remember that this is not simply a favorable COVID comparison. This growth is on top of the growth we were able to deliver in fiscal 2020. And of course, we're doing it at much larger scale and doing it profitably. Our model is working. Our upwardly revised outlook calls for revenue growth of approximately 30% in the second half of fiscal 2021, adjusting for the extra week last year, up from our prior outlook of 20% growth. This is comparable to the 33% growth we delivered in the first half of the year despite the fact that supply chain constraints, which are broadly shared across our sector, have increasingly impacted our efforts to fulfill the ever-growing demand for our products. Fortunately, our customers have shown both patience and loyalty. Their willingness to wait for our products while we continue to work to build supply truly underscores the power of our system-based approach and our brand. Purchasing Sonos is a considered decision to enter our system. not just buy a single product like so much of consumer electronics. At this point, we expect to exit fiscal 2021 with a significant backlog, which we expect to work down in fiscal 2022. Given the exceptional momentum we are experiencing and the unwavering demand for our products, we are ahead of schedule toward achieving our fiscal 2024 targets outlined at our investor event back in March. and are on track for what we believe will be a promising fiscal year 2022. Stepping back from our immediate results for a minute, I want to revisit the three macro trends we identified earlier this year and we believe are and will continue to help fuel our continued growth as we look to the end of fiscal 2021 and beyond. First, the golden age of audio. The sheer volume of music, audio books, and podcasts we have access to now is incredible. According to FutureSource's recent audio tech lifestyle survey of audio product owners, the percentage of respondents listening at least an hour a week to streaming audio content in 2021 has increased to 73% across the US, Germany, and UK, compared to 63% in 2020. And we believe that as more and more people As the leading premium home audio brand, Sonos is well positioned to continue to capitalize on this. The second trend is Hollywood at home. With more and more video content going direct to home, there has been a decade of change in the past year, with companies bringing the newest movies right into our homes. The number of straight-to-streaming movie premieres tripled last year and is not showing any signs of letting up. As a result, consumers are demanding a theater-like audio experience in the home, and that is something we deliver better than anyone. And the third trend fueling our growth is the great reshuffling. This is the untethering of people from their commutes and offices, which has enabled them to reevaluate how and where they want to live. According to recent Zillow research, fast-rising home values and new location options resulting from remote work drove U.S. movers toward even larger homes last year, with a shift from urban to suburban zip codes being the most prevalent. We believe this will be a multi-year cultural trend that benefits Sonos significantly as consumers will continue to invest in their homes and have even more spaces to fill with sound. As we look toward the long term, we remain focused on our three strategic initiatives. First, the expansion of our brand. This is all about understanding our customers better than anyone and how we're evolving our brand and marketing strategies to reach more of those customers. As you have seen in recent weeks, we have announced exciting new partnerships that provide opportunities To celebrate the launch of Roam, our first ultra-portable smart speaker, we recently kicked off a multifaceted partnership with The North Face, a heritage brand that inspires all of us to get outside and explore the world. First up, a Sonos radio station called Never Stop Exploring, which invites all of us to sonically experience some of its athletes' farthest-flung adventures. And just yesterday, we announced a new exciting partnership with Liverpool Football Club, marking Sonos' first-ever sports team partnership. After a year of empty stands, Sonos and Liverpool FC are excited to welcome back the 12th man, the name for the fans whose very energy and sound can win games and intimidate the opposition. And with millions of Reds supporters globally, Liverpool FC's sound sits well outside the walls of the stadium, reverberating through countless towns and cities, connecting people all around the world. As part of the multi-year agreement, Sonos will amplify the Reds' passion for sound by creating immersive sound experiences within the stadium, focusing on internal lounges and player areas, as well as at the AXA Training Center, the club's training base. Starting on August 21st, we will also be featured at Anfield's Pitchside LED at every Premier League home game, with animation sequences featuring Sonos products, branding, and key messaging. We have a tremendous opportunity ahead in the categories we play today, and we have ambitious plans to expand into new categories. to expand into new customer segments, and to layer services on top of everything. Our newest product, Roam, fits this profile. And it's been a huge hit, driving strong demand from both existing and new customers alike. In fact, Roam set a new record for the number of registrations for a new product released in the first full week after its launch. We remain focused on our efforts to introduce at least two new products each year and have already exceeded this target for fiscal 2021 with the introductions of Sonos Radio HD, Roam, and new partner products with Audi and IKEA. In July, IKEA introduced the latest product stemming from our long-term partnership, the Symphonic Picture Frame, a Wi-Fi speaker enabling consumers to enjoy both room-filling sounds and a beautiful piece of art. As we look ahead, our long-term product roadmap remains robust and we are excited to unveil what comes next. Third, driving operational excellence to achieve sustainable, profitable growth for the long-term. You are seeing us continue to execute ahead of our plan and deliver margin expansion and healthy top-line growth. We're laser-focused on extending our trend lines as well as investing for the long-term. I've never been more excited about the future of Sonos. We continue to see strong demand, and we are in the best position we have ever been. We have a huge opportunity in front of us, and we are just getting started. Now I'll turn the call over to Eddie to provide an update on our IP litigation.
spk08: Thank you, Patrick. With the judge's initial decision in our International Trade Commission patent case expected on Friday, I thought I'd give everyone a brief refresher. As I shared at our investor event in March, We estimate that Google infringes over 150 US utility patents from 30 different patent families. All of those patent families are still alive, and we continue to obtain high-value patents from them. We included five patents in our action against Google at the IPC. That's basically the limit of what you can fit in one case before that tribunal. Those five patents were directed to grouping and synchronizing playback amongst smart devices, volume control for a group and individual devices, stereo pairing, and setup. Google has thrown everything at us in this case, but we believe that the evidence before the ITC demonstrates Google to be a serial infringer of Sonos' valid patents, and that the ITC case represents just the tip of the iceberg. We'll have more to say once the judge issues his initial decision. But for now, we remain confident that the ITC will find Google to be a patent infringer and, as happened recently in Sonos' case against Google in Germany, that other courts will do the same. Let me now turn the call over to Brittany to provide more details on our results and our outlook.
spk07: Thank you, Eddie. We are excited to report another quarter of strong results further positioning us to deliver a record fiscal 2021. As Patrick mentioned, the continued strong demand for our products and our customers' willingness to wait for products while we navigate the industry-wide supply constraints demonstrates the power of our platform and brand. That continues to show up clearly in our strong results. Now let me add some color to the third quarter. We delivered adjusted EBITDA of $46.7 million compared to a loss of Our adjusted EBITDA margin expanded to 12.3% during the quarter. We were able to deliver this tremendous result due to strong growth margin, record top-line revenue growth, and ongoing operating expense leverage. Revenue in the quarter increased 52% to nearly $379 million. The Americas grew 48% and EMEA grew 51% or 37% on a constant currency basis. APAC grew 101%. All regions continued to see strong demand across our products. Sonos speaker revenue was up 58% year over year, led by the introduction of Roam and the continued success of Arc and Sub. Sonos system products revenue increased 13%, even while constrained due to product availability. Partner products and other revenue increased 103%, driven by accessories growth and our new product introductions at IKEA. Gross margins reached 47%, an improvement of 300 basis points versus last year. We received approximately $5 million in tariff refunds and recognized approximately $4 million in tariff expense during this quarter. Excluding the impact of tariffs from both quarters, gross margin increased 110 basis points to 46.8%. This 110 basis points of gross margin improvement relative to last year is primarily due to lower promotional discounts as we comped at-home with Zona's campaign and fixed cost leverage on the higher sales volumes. These improvements were offset by channel mix as the anniversary of the retail store closures and the outside DTC growth we experienced last year, as well as by the increase in component costs and higher industry-wide shipping and logistics costs we continue to experience. Turning to operating expenses. As a reminder, we incurred $26 million in restructuring and related charges in the third quarter of last year. Excluding these costs, we experience a year-over-year increase in all OPEX categories as we invest to grow. As we stated last quarter, we expect to continue making additional OPEX investments in our products, marketing, and operations to support the higher revenue volumes and long-term growth initiatives. We also have experienced higher incentive compensation assumptions given our increased outlook. Excluding $4.9 million of restructuring costs in the year-ago quarter, R&D increased 5% due to higher personnel and other R&D-related costs to support our continued growth. Sales and marketing, excluding $19.8 million in restructuring costs last year, increased 17% due to higher marketing expenses as well as higher revenue-related sales fees. G&A, excluding the $1.4 million in restructuring costs and the $1.2 million in incremental legal fees related to our IP litigation, increased approximately 26% during the quarter, primarily related to IT investments and incentive compensation. During the third quarter, we had $70.8 million in cash from operations and had free cash flow of $55.9 million, largely due to strong net income performance and working capital management. We are ending the quarter with $671 million in cash and cash equivalents, which continues to put us in a strong position to invest organically in our business, pursue M&A, and return capital to shareholders through our authorized share repurchase. As of the end of the third quarter, we repurchased $22 million of our stock and had approximately $28 million outstanding on our authorization. We currently have no debt on our balance sheet. Now turning to our outlook. As you are aware, the global supply situation has continued to get more challenging. We and others across the industry are seeing significant increases in constraints on a variety of components. Our team continues to work to mitigate as much as we can to deliver on our strong demand. We appreciate that our customers have proven that they will wait for our products. which is resulting in a backlog that we will work through in fiscal 2022. Given our strong Q3 and what we know about product availability through the remainder of the year, we are increasing our total revenue for fiscal 2021 to 1.695 billion to 1.71 billion, representing growth of 28 to 29%. Excluding the 53rd week from fiscal 2020, this represents growth of This is a meaningful increase from our guidance of 1.44 to 1.5 billion provided at the start of the year, underscoring the stronger than anticipated demand we continue to experience. Our updated fiscal 2021 revenue outlook translates into fourth quarter revenue at the midpoint of approximately 345 million, representing 10% growth adjusted for the 14th week last year. While we are continuing to experience strong demand for our products, our ability to fulfill that demand is being impacted during the fourth quarter due to the supply constraints we and so many other companies are facing. This is expected to offset some of our potential revenue growth in the fourth quarter. We do expect to exit the year with a backlog that we anticipate fulfilling in fiscal 2022. We are increasing our gross margin outlook to a range of 46.5% to 46.9% from our prior range of 46% to 46.5%, largely to reflect the benefit of tariff refunds received in the third quarter and leverage on the higher sales outlook, offset by higher industry-wide component and logistics-related costs. Our fiscal 2021 gross margin guidance translates into a fourth quarter margin of 44% at the midpoint, reflecting the higher industry-wide component and logistics-related costs we are seeing. Consistent with past guidance, it assumes no additional tariff refunds are received in the quarter due to the uncertainty of timing. Year-to-date, as of the third quarter, we have received $11 million in tariff refunds and recognize $9 million in tariff expense. representing a net tariff benefit of close to $2 million. As a reminder, we have $22.5 million of tariff refunds left that we expect to receive before the end of fiscal 2022. We are increasing our fiscal 2021 adjusted EBITDA outlook to $270 million to $280 million from our prior range of $225 to $250 million. and well ahead of our initial fiscal 2021 guidance of 170 million to 205 million. This new outlook represents 15.9% to 16.4% adjusted EBITDA margin, an expansion of 770 to 820 basis points from the prior year. The higher adjusted EBITDA outlook compared to our prior guidance of 13.8% to 14.9% is primarily driven by OPEX leverage on the upwardly revised failed outlook, as well as tariff refunds. This updated guidance translates into fourth quarter adjusted EBITDA margin of approximately 4% at the midpoint, driven by the higher cost impacting gross margin, as well as increased operating expenses as we ramp investments into the holiday in fiscal 2022. Even with these higher costs, we are proud to report that we will have been adjusted EBITDA positive every quarter this year. As we enter the final months of fiscal 2021, we remain focused on our continued strong execution and are well on track to deliver record fiscal 2021 results, which are meaningfully higher than what we set out to deliver at the start of the year. Even with constrained product supply, we are delivering strong top line growth of approximately 30% fueled by demand. We are also delivering a material improvement in profitability with an expansion of 770 to 820 basis points in adjusted EBITDA forecasted relative to fiscal 2020. Our fiscal 2021 outlook has exceeded our expectations, and as a result, we are ahead of schedule on the fiscal 2024 financial targets we outlined at our investor event back in March. We look forward to providing fourth quarter results and our fiscal 2022 guidance on our next earnings call. With that, I would like to turn the call over to questions.
spk09: Okay, so as a reminder, to ask the question, you will need to press star one on your telephone. To resolve your question, press the pound key. Again, that is star one on your telephone. Please stand by while we compile the Q&A roster. First question comes from the line of Katie Huberti from Morgan Stanley. Your line is now open.
spk05: Yes, thank you. Good afternoon and congrats on the really strong quarter. Maybe starting with Brittany, what is the specific revenue impact in the fourth quarter that's embedded in guidance due to supply constraints? And then how should we think about that backlog working lower through fiscal 22? Does it happen in the first half or should we think about the backlog work down spread through most of fiscal 22?
spk07: Hi, Katie. Great question. We're not specifically quantifying backlog. We've had backlog in multiple quarters this year, and we continue to see pretty significant backlog numbers as that demand continues to drive higher with limited supply. So it's been an ongoing challenge for us, but also it's a pretty healthy backlog number. and we'll roll that into 22. We will really be able to fulfill that when we get better in balance from a supply-demand perspective, and I really don't know when that will happen at this point.
spk05: And, Brittany, a number of competitors in the smart home industry are raising prices of their products due to higher cost. Is that something that you're considering, or do you see this as an opportunity to leave list prices and perhaps take some market share?
spk07: We always evaluate our prices based not just on cost, but where we are from a supply perspective, what the demand is. And when we look at all of those factors, we will be raising some prices ahead of our next fiscal year.
spk05: Okay. And then just finally, Eddie, since we have you, assuming the ITC decision does go in your favor on Friday, how should we think about next steps and a reasonable timeline to any financial benefit that Sonos may see?
spk08: Well, knock wood, your prediction comes true. But candidly, I think the rest of that question is going to depend on Google. If Google is found to be an infringer of our patents, we would hope that they would basically accept that verdict, recognize that we have 30x that number of patents that they infringe, and take a portfolio license at a fair rate. But all we can do is pursue our remedies as aggressively as possible. That's what we've been doing. That's what we're going to continue to do until we get a fair resolution. And we hope that the ITC decision is the next step and an important step along that way.
spk05: Fair enough. Thank you. Congrats again on the quarter.
spk09: Next question comes from the line of Rod Hall from Goldman Sachs. Your line is now open.
spk10: Yeah, thanks for the question. I wanted to come back to the number of homes penetrated. I know that you don't like to give that number annually, but I'm just curious how the roam has affected the trajectory of the number of homes you're penetrating. I would have assumed that you know, these Rome sales would have been at least in some part to people that didn't have Sonos before, but I wanted to check and see, you know, just how much that's accelerated home penetration.
spk07: Hey, Rob. We're really excited about how Rome is doing, but you're right, we don't disclose, you know, new homes relative to specific products or, you know, outside of giving our annual number. So all I can really say is we are very happy with how Roam is performing.
spk10: Would you be willing to say, Brittany, how many of them are selling to people that didn't have Sonos before?
spk07: Not something we disclose, Rod.
spk10: Okay, fair enough. The second question I had, I wanted to come back to Eddie. When we look at the Qualcomm Apple case and the ITC injunction there, the ITC had determined that it was in the public interest not to enforce injunctions. And then, you know, it has kind of implied since then that that decision would be up to the president. And I wonder, do you agree with that, Eddie? You know, let's assume that an injunction is granted publicly. and you don't come to a license agreement, is that the process then? We're waiting on the administration to make a call on this, or do you understand the mechanics different than that?
spk08: I think that if we obtain an importation ban at the ITC, it's upheld by the full commission. uh that i would expect uh that the administration uh i think it's delegated to the ustr representative uh will sign that order and it will go into effect um this uh the the public interest calculation uh in the qualcomm case is very different than the calculation here uh and uh this is a case where Very large companies infringing on the inventions of a much smaller, innovative company, and there's no reason to think that the administration wouldn't follow through on the ruling of the ITC.
spk10: Right, right. And we understand that they have 60 days to sign that. Is that correct?
spk08: Well, it will go to the full commission first, and both parties, of course, can appeal to the full commission to revise the initial decision. And then once the full commission issues its order, yes, I believe 60 days is right.
spk10: Great. Okay. Thanks a lot. I appreciate it.
spk09: Next question comes from the line of John Bobcak from Bank of America. Your line is now open.
spk12: Hey, you know, good evening. Just wanted to, I guess, you know, follow up, you know, on one of the questions just earlier on the revenue guidance there. You know, I know you didn't, you know, really mention too much, you know, about kind of the impact of backlogs. But I just want to get a sense, I mean, are you by chance having to see any slowing in demand at all? You know, is that implied in the 4Q guidance or should we take it that, A lot of this comes down to the backlog side of things and not being able to kind of keep up on that front. Just want to get clarification there.
spk07: We really attribute it to the backlog. Demand continues to be strong. There's nothing we see that implies any slowing of demand. And our product dates that we're able to fulfill continue to push out, which is really an indication of that demand supply challenge we're having.
spk12: Gotcha. And then another piece, you know, and this has also, you know, come up, you know, across other companies is kind of the inflation side broadly. And it seems like you've navigated pretty well, you know, through this, you know, so far, including on the component cost side and also some of the challenging supply chain logistics. You know, that said, I mean, you know, ultimately, you know, what are you doing to fend off, you know, headwinds on this front? You know, and also, you you know, how are you thinking about inflation and how that might, you know, impact, you know, the business, you know, in fiscal 4Q, but then also, you know, over, you know, the next couple of quarters?
spk07: Yeah. You know, we're certainly seeing the impact of, you know, inflation and component shortages in the supply chain, which is fully factored into the guidance that we're giving for the rest of the year. That is one factor that we look at along with, you know, the overall supply-demand balance and, you know, really healthy demand we're seeing for our products. And so one of the ways that we are going to manage that, other than, you know, continuing to have great relationships with our suppliers, trying to be disciplined around cost and all of that, is to look at pricing, and we will look at pricing on our products ahead of the next fiscal year.
spk12: Gotcha. And are you, you know, I mean, it sounds like you're primarily facing, you know, higher costs from the component side and then also supply chain. Are there any other areas where you're experiencing inflation and also do you expect any increases in, you know, wages over the next year or so? You know, can you provide any color on that?
spk07: I mean, nothing I would specifically call out. It's, of course, a competitive market, and so, you know, we'll be impacted along with everyone else as that sorts out. But the main piece that we're sort of seeing and calling out and impacting our results and, you know, including in guidance is really around the component cost.
spk12: Okay. Thank you. And then... You know, I guess just, you know, last question overall. You know, can you just provide me an update on how Sonos Radio HD is, you know, doing so far? And then also... I assume you had some expectations for Rome heading into the year. Just kind of curious because I would assume that part of that is going to be driven by future demand is going to be driven by the retail opening. So I want to get a sense, I guess, more on the retail side here, not just overall demand, how the pace of retail openings is kind of progressing relative to your expectations on that.
spk04: So I'll take the radio one, John. So we're pleased with what we're seeing so far in terms of the listening. You've seen that every month we're doing kind of new collaborations. We've done one with North Face as well. So that's progressing still early days on that front. We also have seen, you know, some reopenings. Then we've seen some backtracking when it comes to retail overall in terms of kind of the retail footprint and different channels that we have throughout the world. um one thing that stayed very consistent through that to brittany's point is strong demand um and so you know this is the all of our channel partners right now are installed solutions partners our retailers um would prefer to have a lot more uh sonos products quite frankly uh as would our you know customers we service through direct to consumer so You know, I think that just speaks to the demand for Roam and all of the products that we have at this particular point. You can get a feel for that, obviously, on our website, too, in terms of what people are looking for. But I expect we'll have some with retail channels. We'll have some. you know, openings and closings in different places, just depending on what's going on with, um, the virus. But, uh, again, through this period, um, we've seen no change in the kind of strong demand, um, that we're seeing, you know, regardless of what's happening with the, uh, with the pandemic.
spk12: Okay, great.
spk09: Thanks for all the detail. Next question comes from the line of Matt Shearing from Stifo. Your lines are open.
spk11: Yes. Thank you very much. Um, My first question, Patrick, is regarding plans that the company recently disclosed to name a new head of your software operations. And I'm hoping you can share with us reasons for that change and what you envision for the company's software strategy going forward.
spk04: Yeah, so as you mentioned, we're looking for a new leader for our software team. This has been really the differentiator for Sonos. We often talk about Sonos being the story of software, each audio. It's a large portion of our engineering team. And we have a lot of ambition around where we can take software from here. And, you know, it's across the stack, right? So firmware, app. a cloud platform that we have, a variety of partnership APIs. And we'd like to use that to deliver some new experiences as well. And so we're actively out there. It was the first time we launched in a high-profile way. We got just a tremendous amount of qualified applicants. So I'm super excited about adding you know, somebody new to help take our software to another level and our product experience. And so, yeah, that's one of my top priorities right now.
spk11: Okay, thank you. And then, Brittany, another question just regarding the product issues that you're having in terms of the supply constraints. I know there's also been manufacturing disruptions throughout Asia, particularly in Malaysia, due to COVID restrictions. And I know your manufacturing partners have been shifting manufacturing from China to Malaysia. So I'm hoping you can update us on that and whether that is also contributing to the disruptions.
spk07: Yeah, so you're absolutely right. Malaysia has had movement control orders because of COVID, and that, I would say, has had an impact. But because we're in the process of transitioning, I would really say that that's had more of an impact on how quickly we can transition into Malaysia. As you know, we've continued to push out the timing for when we will be fully up and running in Malaysia. We're hoping that that happens at some point in fiscal year 22 at this point for the very reasons you mentioned. But we have been able to do our best to offset those challenges by continuing to manufacture in China. And so the shortness of supply is really less about the challenges in Malaysia and more about the shortage of components and the component cost, really the component shortage issues that we're seeing.
spk11: Okay, thanks for that.
spk09: Next question comes from the line of Brent Sales from Jefferies. The line is now open.
spk03: Hi, guys. This is David on for Brent. Thanks for taking the questions, too, if I may. Is there any update that you guys can give into the size of the DTC business? And would you say you're prioritizing refilling inventory in that channel versus other retail channels? And maybe just on the gross margin, I know you guys talked about being ahead of 2024 targets, looks like especially so on the gross margin side. I guess just structurally, how much higher do you believe gross margin can go over time? Is there any sort of soft target or color you could give there? Thanks.
spk04: Thanks, David. I'll take the first one, and Brittany, I'll take the second one. On the DTC front, we had mentioned at the beginning of the year our expectation that it would largely be in line with what we had seen in last year's phenomenal increase in DTC sales. And so we continue to feel good about where that is. In terms of inventory and replenishment and kind of how we're really focused on how do we get products to customers the fastest. It's a balance in terms of working in particular with our installed solutions partners, you know, the people that are coming around and doing installs and those kind of things and making sure they have what they need. Definitely servicing those direct to consumer, but we are by no means, you know, leaving our very valuable retail partners behind. And so it's a day-to-day balance, and our sales and go-to-market team has been doing that balance while our supply chain team really balances getting as many components and building as much as they can and going through it. So that's been the real challenge and a bit of nuance to kind of work through. Brittany?
spk07: Yeah, thanks, Patrick. From a gross margin standpoint, what I would say is we committed to being between 45% to 47% gross margin, and we take that commitment very seriously, which is why we're making sure that we manage through component cost increases and all of that. And from our really incredible performance on gross margins this year, we're really already at you know, almost the high end of that range. So we are exceeding our own expectations on, you know, how fast and how sustainable we think being in that range is, but we are not at a point where we're losing long-term guidance or changing that guidance in any way right now.
spk03: Got it. And then maybe one more, if I can, I'll try and get it out of you guys, but any commentary you could provide on maybe like the size of the realm business and maybe how it compares to that of the move.
spk07: No, we don't disclose that. But good try.
spk03: Thanks, guys. Appreciate it.
spk07: Thank you.
spk09: Next question comes from the line of Adam Jindal from Raymond James. Your line is now open.
spk02: Hi, thanks. This is Alex on for Adam. I'm just curious. So I believe you had a survey out to some users over the last few days that basically asked if they were interested in an on-device voice assistant rather than using a voice assistant that went to the cloud. I believe that would kind of help your move and roam businesses. Those devices may not always have internet connection. I'm just curious, is that something that's in the pipe? And if so, is that a Sonos voice assistant or would it be a partnership with Siri or an Alexa?
spk04: You know, we don't talk a lot about our future roadmap. We prefer to actually bring that out and, you know, so I would say stay tuned.
spk02: Okay, thank you. And then Secondly, we've just been kind of following up the Google Sonos lawsuit in Texas, and I believe it was stayed last week until January of 22, and the courts decided to deny Google's motion to move the lawsuit to California. Is that kind of in line with what you were thinking? And some of the court's wording was that Google's arguments defied all logic in some areas. Is that kind of... in mind what you're thinking and how does that kind of change your thoughts towards that lawsuit in particular?
spk08: So we thought from the outset that the venue is proper in Texas. That's why we filed there. And the trial court there has agreed with us, notwithstanding Google's efforts to move it. Google is seeking what's called a mandamus or an emergency appeal of that order. But the case is moving forward while that's pending. And we are cautiously optimistic that that case is going to stay in Texas and proceed on the track just as we have anticipated from the start.
spk02: Okay, perfect. Thank you so much.
spk09: We do have a follow-up question from John Babtack from Bank of America. The line is now open. John, your line is now open.
spk12: Oh, sorry, I was on mute, so apologies for that. I just want to follow up, you know, just on the Google ITC case. Can you just talk about, you know, the range of outcomes, I guess, that could come here? Because I assume it's not just black and white, you know, it happens this way, it happens that way. But, you know, how should we think about, you know, what could occur, you know, when things are kind of released on Friday?
spk08: Well, in the middle of the night, I think of a million scenarios, but I'm really not going to speculate. We're just 48 hours away from hearing what the initial decision is. When we get it, we'll analyze it. I think it will be a lengthy opinion. What we're looking for are two main items. How did our patents stand up to Google's challenge to their validity? And second, of our patents, how many does Google infringe? And we're, as I said, confident that our patents are strong, and we believe deeply that Google infringes them. And those are the metrics we'll be looking for most closely when the decision comes out.
spk12: Gotcha. Okay. Thank you. Let's go ahead.
spk09: Next question comes from the line of from DA Davidson. Your line is now open.
spk06: Thanks for taking my question. Can we expect any promotional activity for the quarter? And if so, how do you think that will affect revenue and profits?
spk07: For Q4, anything that would be promotional is really based into our guidance already, and we're not commenting on anything related to the holiday quarter or fiscal year 22 at this point.
spk06: Okay, thank you.
spk09: There are no further questions at this time. I will now turn the call over back to Patrick Spence for closing remarks.
spk04: Thank you, and thanks to everybody for joining us today. I want to reiterate the fact that we have such strong demand right now, and I want to thank our customers and our channel partners for their patience and loyalty through this. One of the things that we watch most closely is how that backlog is standing up, and people are proving patient in waiting for their Sonos. Like I said, it's a system, not a one-off product, and people make a considered purchase. And, again, I'd like to thank our teams that are navigating all of the supply chain challenges that we're seeing right now and continuing to outperform. So I appreciate all of those efforts, and I appreciate all of you joining. So thank you, and we will talk to you again next quarter.
spk09: This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.
spk01: You have been added to the waiting room. You cannot talk.
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