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spk01: quarter fiscal 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Bill Newby, you may begin your conference.
spk00: Thanks, Emma, and good afternoon, everyone, and welcome to Sonos' second quarter fiscal 2022 earnings conference call. I'm Bill Newby, and with me today are Sonos' CEO, Patrick Spence, and Brittany Bagley, CFO. Chief Legal Officer Eddie Lazarus will also be available during the question and answer session. Before I turn it over to Patrick, I would 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 with 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 second quarter fiscal 2022 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, investors.sonos.com. I will now turn the call over to Patrick.
spk08: Thanks, Bill, and hello, everyone. Our music today was brought to you by award-winning artist Lorde. Her new Sonos radio station, Solar System, launched today and showcases the songs and stories that move, shape, and inspire her, both at home and outdoors. Last quarter, I talked in detail about the power of our flywheel and Q2 was another proof point that the model we've built is working. We delivered record-setting Q2 revenue ahead of our expectations, representing more than 20% year-over-year growth. That's even more impressive in light of the fact that we delivered this 20% growth on top of the 90% year-over-year growth we delivered in Q2 of last year. And growth again this quarter was constrained by supply. Our consumer demand remains strong, and we continue to work through a backlog. We once again delivered sustainable, profitable growth, achieving adjusted EBITDA of $47 million in Q2, despite increased component costs and higher shipping and logistics costs. These results are a testament to the execution of our amazing team and to the fact that Sonos is not a typical one-and-done purchase. New customers are drawn to Sonos as a result of our existing customers' passionate evangelism, word of mouth remains the number one driver of new customers, and our continuous product innovation, which causes existing customers to return on a predictable basis to add additional products. This is the flywheel that is core to our growth, and it continues to deliver. Of course, product innovation is a critical part of powering that flywheel, which is why we were so excited to announce a trio of new innovations today. The first is Ray, our new compact soundbar that delivers incredible sound for its small size. Ray raises the bar for at-home entertainment with new acoustic innovations that deliver balanced sound, crisp dialogue, and solid bass. Ray brings our category-leading simplicity and versatility to a more accessible price point, which we expect will attract more new customers to Sonos and provide a new way for existing customers to expand their system. When we launched Sonos One, it opened up a whole new range of customers to Sonos, and we're looking to Ray to do the same thing for our home theater segment. Second, Sonos Voice Control is the first voice experience purpose-built for listening to and controlling your music on Sonos. Designed with privacy at its core, Sonos Voice Control is the simplest way to control your music, offering complete command of your Sonos system using only your voice. Sonos Voice Control works on every voice-capable Sonos speaker, processing requests entirely on the device. No audio or transcript is sent to the cloud, stored, listened to, or read by anyone. Sonos Voice Control will be available in the United States on June 1st. Third is that Sonos Roam, our ultra-portable smart speaker, is now available in three new colors, olive, wave, and sunset. Influenced by natural serenity, evening skies, and outdoor living, Roam's new colors are as versatile as the speaker itself, complementing interior and outdoor styles while harmonizing with the rest of the Sonos system. As with all Sonos products, the brand's newest speakers deliver great sound that helps you play more, hear more, and really feel more, whether at home or on the go. Innovation is in our DNA and remains a critical element of our ability to fuel the Sonos flywheel. We continue to invest in innovation both organically, as you've seen today with Ray, and through acquisitions, like you've also seen today with the introduction of Sonos Voice Control, which builds on the Snips acquisition we made in 2019. Our premium product portfolio continues to bring new households into the Sonos family and drive increased purchases among existing customers. Separate from what we are doing internally to drive growth, we continue to see three macro trends that we expect will offer significant tailwinds to our business for years to come. We've previously labeled these the golden age of audio, Hollywood at home, and the great reshuffling. Whether it's audio or video, individuals continue to find new, exciting ways to consume content throughout their lives and increasingly demand better products and services to bring this content to life. This is where Sonos leads the way. As everyone is aware, external headwinds have picked up since our last earnings call. These include increasing supply chain pressures and COVID lockdowns across some of the largest cities in China. This is prolonging and in some cases intensifying industry-wide chip shortages and resulting in higher component and shipping costs. At the same time, we are watching the impact of the war in Ukraine on Europe, as well as rising global inflation and the strengthening of the U.S. dollar. While we have a large customer base across Europe, we did not have any material revenue from Russia or Ukraine and are no longer doing any business there. Despite these headwinds, we remain confident that we can deliver on our fiscal 2022 revenue outlook. We are monitoring demand closely, and from everything we can see today, our consumer demand remains healthy. As I mentioned at the top of the call, we continue to have a backlog of orders. Fulfilling this demand for the balance of fiscal 2022 will cost us a little more than we had previously expected due to the increasing component and logistics costs, and this is reflected in our updated gross margin outlook. While our short-term focus is all the hard work our teams are doing to minimize the impact of the industry-wide supply challenges, there remains tremendous long-term opportunity ahead for Sonos. Our growth pillars are proven and strong. The Sonos flywheel of new household acquisition and existing customer repurchases continues to spin. We have a robust product roadmap and track record of at least two new product launches annually, and we have an addressable market that is large and growing, as well as macro tailwinds that even further underscore the opportunity ahead. I also want to take a brief moment to provide an update on our activities defending our intellectual property. We were encouraged to see the ITC's importation ban go in effect in March, marking the most recent development in our victory against Google. Both sides have appealed aspects of the ITC decision to the federal circuit. And while that plays out, we are actively litigating our second case against Google in federal court in Northern California. Now we'll turn the call over to Brittany to provide more details on our results and our outlook.
spk02: Thank you, Patrick. We are pleased to report strong second quarter results. We delivered top line growth of 20% or 23% on a constant currency basis to $399.8 million. This strength reflects a combination of ongoing demand for our products and an improved supply position. This allowed us to serve our customers better through our physical retail, IS, and DTC channels. Despite the improved supply, we still had a backlog exiting the quarter and will remain supply constrained on some of our products for the rest of the year as we continue to work through component shortages and the impact of the recent COVID lockdowns in China on both manufacturing and shipping. Performance was strong across all of our regions. Revenue in the Americas grew 23%. EMEA grew 12% or 19% on a constant currency basis. And APAC grew 34%. Sono's speaker revenue increased 19% year-over-year, led by the positive full-period impact from Roam, which launched in April 2021, an ongoing strength in One and Arc, as well as improved supply availability. Sono's system products revenue increased 18%, driven by stable demand in our installer channel and improved availability of our products. Partner products and other revenue increased 56%, primarily driven by our partnerships with Sonance and IKEA. Gross margin declined 300 basis points relative to Q1 to 44.8%. Higher component costs were the primary driver of this decline as we rebuilt our inventory position and needed to utilize the spot market more frequently. Higher shipping and logistics costs also played a role. As we have discussed in prior quarters, we continue to invest in the business this year, including in R&D, as well as in our systems to support further scale. For example, in Q3, we are implementing a new ERP system. Even with these investments, we saw 200 basis points of adjusted OPEX leverage given the strong top-line growth. We delivered adjusted EBITDA of 46.9 million, representing an adjusted margin of 11.7%, and are proud of the profitability we delivered in Q2, even with the gross margin headwinds. From a free cash flow standpoint, we had negative cash flow from operations in the quarter, primarily due to inventory investments as we returned to a more normalized level and prepared for our new product launches. We also saw typical seasonality after our Q1 quarter. Despite the use of cash in Q2, we still delivered $82 million in cash from operations across the first half of the year, ended the quarter with $607 million of cash prior to the MITE acquisition, and have no debt. As we discussed, we will deploy capital organically into the business, as well as through M&A and share repurchases. You saw us execute on all three of those strategies so far this year. Organically, we invested in inventory, and we also invested $27 million in the first quarter towards M&A, as well as $100 million in Q3 for our acquisition of MITE. As a reminder, MITE reinvented the audio transducer to enable smaller and lighter form factors that deliver incredible sound. We are very excited to be able to integrate MITE's people and technology to further differentiate our product. And this is a great example of M&A that supports, accelerates, and expands our future product roadmap. Additionally, you saw us continue with our share repurchase activity. During Q2, we used $43.1 million on share repurchases. For the first half of the year, we have deployed $74.5 million of cash towards repurchases, which leaves $75.5 million remaining on our $150 million share repurchase authorization. Now turning to our fiscal 22 outlook. As is well known, and as Patrick mentioned, there is significant uncertainty in the world right now. Since our Q1 call, war has broken out in Ukraine, inflation has accelerated, the dollar has continued to strengthen versus the euro, and China has experienced major additional lockdowns due to COVID. As you can imagine, this makes it difficult to forecast the future since these factors continue to evolve almost daily. Our outlook reflects our best view based on what we currently know. We do continue to see demand from our customers, but we are closely watching the EMEA region in particular, given the ongoing conflict, as well as the impact of ongoing inflation on the consumer and our supply chain and the strengthening dollar relative to the euro. In addition to watching the demand signals, we are managing through an ongoing challenging supply environment. The situation in China, along with decommitments we are getting from our semiconductor suppliers and the overall ongoing component shortages, means we expect the supply challenges to last at least through the rest of the year. We have delivered a robust first half of the year with 9% growth, and despite the new macro challenges, we are reconfirming our revenue guidance in the range of $1950 to $2 billion for the full year. The teams have done an excellent job of executing in tough circumstances, and we're excited about our new product introductions this year, including Beam and Roam SL and our just-announced Ray, Roam Colors, and Sonos Voice Control. Our full-year outlook implies continued healthy growth in the second half of 20% to 27%. We have confidence in reaching at least the bottom end of our range based on one, consumer demand signals from Q2 partially offset by our constrained supply outlook. Two, strong new product introductions. And three, the pricing actions taken last September that are rolling through. While demand has remained healthy and we had a strong Q2, the current supply challenges likely limit any further upside to our top line outlook. We expect Q3 revenue in particular will be relatively more challenged by the supply constraints we are seeing. We did end Q2 with a backlog and currently expect that we'll continue for the rest of the year for some products, such as AMP, where it has been particularly difficult to match supply and demand. The cost of supplying our revenue has increased across components as well as shipping and logistics, impacting our margin not just in Q2, but for the rest of the year. We expect to continue to need a material amount of spot buys to offset component shortages and for the lockdowns in China to continue lifting. While the manufacturing capabilities in Malaysia have been very helpful over this period, there are still supply chain dependencies on China, and we are working through the impact and costs as a result. We will also further diversify our manufacturing footprint by expanding into Vietnam, which we expect to have operational next year. As a result of these increased costs, we are lowering our gross margin range to 45.5% to 46% for the remainder of the year. down from 46% to 47%, but still within our long-term guidance range of 45% to 47%. This implies roughly 44% to 45% gross margins for the second half, but there may be some volatility in each of these quarters depending on the timing of spot buys. Given the margin headwinds, we have moderated some of our OPEX investments for the back half of the year. However, the gross margin impact is still partially flowing through to adjusted EBITDA. As a result, we are narrowing our adjusted EBITDA guidance range to 290 million to 310 million, down roughly 2.5% at the midpoint. This represents an adjusted EBITDA margin in the range of 14.9% to 15.5% for the full year. We remain committed to our fiscal year 24 targets of $2.5 billion of revenue, gross margin in the 45% to 47% range, and adjusted EBITDA in the 15% to 18% range. Despite the uncertain environment, we have significant brand equity, a resilient and loyal premium customer, and a large and growing market opportunity. We believe these attributes, along with a history of consistently delivering innovative new products, support our flywheel and position us well to deliver tremendous shareholder value over time. Overall, we are very proud of the Q2 we delivered and believe the growth shows the durability of our value proposition to customers and the strength of our execution in a challenging supply environment. We believe we still have a record fiscal year 22 in front of us, supported by our new and existing customers, the new products we have introduced, and the price increases we took in September. leading to double-digit top-line growth and attractive profitability and supported by a strong balance sheet. With that, I would like to turn the call over to questions.
spk01: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question today comes from the line of Eric Woodring with Morgan Stanley. Your line is now open.
spk06: Hey, good afternoon, guys. Thank you for taking my question. You know, Brittany and Patrick, I know you mentioned a number of the drivers, but when you strip away some of the pricing changes, you know, channel fill, backlog, you know, the concern amongst bears is that, you know, demand is at risk of deteriorating. So maybe can you just share some details or data that gives you confidence that and the investment community confidence that that is not the case that demand remains strong and is kind of tracking um in line at least with your expectations and then i have a follow-up yeah thanks eric patrick i'll let you kick off
spk08: Yeah, thanks, Brittany. Thanks, Eric. I think we obviously have better insight, I would say, than most companies in terms of understanding what's actually lighting up and how that's actually trending. The other big thing I would say is We have a DTC business, which now is about twice as big as it was pre-pandemic, that gives us great visibility into what consumers are actually doing on a pretty real-time basis, a very real-time basis. And so, you know, we obviously are making sure that we're watching this very closely. We work very closely with our retail partners. You know, that's a big channel for us. And then as well, the custom install channel. And, you know, you could imagine we're asking these questions all the time. We're rigorously working with our teams and watching what the consumers are actually doing. I'd say from my perspective. There's some pretty conflicting data out there right now. And you see companies like us and Apple and Tesla all seeing a lot of demand and not able to fulfill all of that demand. And I think it speaks to the power right now and strength of the affluent customer. I think Bank of America came out with a report yesterday as well on the right now, the strength of the more affluent customer as well. So, Brittany, I don't know if you want to add anything on to that.
spk02: Yeah, thanks, Patrick. I mean, I agree with all of that. And then, you know, Eric, what I would add is I think the growth we just posted in Q2 of 20% with strength across our regions and across all of our product lines. is a nice indicator of the fact that we are seeing underlying demand. And when we're able to get the supply in, that we're seeing really nice growth numbers. It's not even like we fulfilled all the demand we had in the quarter, because as I referenced, we do still have a backlog coming out of the quarter. So that's what we look at. Patrick took you through some of the places where we go dive to really understand those demand drivers. And then as we look at the second half of the year, it's really some of the things I laid out, which is the price increases are rolling through. That still leaves you with some healthy growth numbers that are really supported by the new product introductions we have. And, you know, while we do look at our demand rates and, you know, so far our consumer has continued to show that they have interest in demand for some of those products. Remember, we are still supply constrained. And so to some extent that acts as a natural hedge against the potential for weakening demand because we don't currently expect that we can fulfill all the demand that we do see.
spk06: Great. That's really helpful. And then maybe as my follow-up, Patrick, I'll ask this one for you, just kind of conceptually. What was the driving force behind the decision to launch an internal kind of smart assistant? How do you think it's differentiated? Did this come from customers? Was this kind of in your plan all along. Just would love a little bit more color there on the driving force behind that and what you expect to see from that. Is that a new product? Is that a demand driver? Is that a platform enhancer? Kind of how would you think about it? Thanks.
spk08: Yeah, we're very excited with Sonos Voice Control. You know, we acquired Snips, a great team based in Paris, two years ago. 2019, actually, I think it was. And they've been working on this. And it was very different than every other assistant that's out there today. So it is private. It is on device. And so something we'd heard from customers is, they were unwilling to use some of the big tech voice assistants, the more general assistants. And we thought we could do something interesting that served both the privacy needs, but as well, a deeper music experience and a deeper listening experience and very You know, Sonos quality and Sonos level. And so as you start to use it, you'll see that this is made for people who want to listen to music, listen to audio. And that's where we really focused in on. And so it is, you know, an inch wide and a mile deep, whereas all the Ask Anything assistants are much more, you know, mile wide, inch deep. And the other thing is that, you know, we haven't done it at the exclusion of our partners. And so you can run Amazon Alexa alongside the Sonos Voice control as well. And really, Eric, it all goes to something that is so important to lifetime value, which is engagement. So we know that those customers that engage in voice engage more heavily with their Sonos and that that fundamentally helps drive higher lifetime value. And so we think, you know, with any of these experiences, with anything we're investing in, we're looking at what does it do for customer engagement? And in this case, we're very confident that Sonos voice control will be something that will get our customers even more interested and even more engaged with Sonos. And as they do that, we expect that they will expand their system and continue to tell their friends and family that they should as well get Sonos. And so that's what we're going to be watching for and monitoring as we go through this. And we're super excited for the world to get to experience it.
spk03: Awesome. Thanks. Congrats again, guys.
spk01: Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is now open.
spk04: Yeah, thanks for the question. I've got two, actually. I wanted to come back to the voice assistant, Patrick, and just ask you a couple of things. One is, have you had discussion with your, you know, the big platform music providers, Google, Apple, these guys that, you know, also have their own music platforms? are they, I'm assuming they're okay with that voice assistant, but of course they've got their own that are competing with it. So could you talk a little bit about the competitive dynamic there? And then on the voice assistant too, I wonder, could you talk a little bit, I saw the Giancarlo Esposito voice, and I'm wondering, you know, I've seen other things like this where people actually will pay for additional voices. I'm wondering if that's a business model that you've considered and and what other options you might have for making revenue out of that. And now I've got to follow up. Thanks.
spk08: Thanks, Rod. Yeah, I look at Sonos Voice Control as very complementary to what Amazon and Google have today. So, again, we've built this, and one of the things I've talked about in the past is the importance of being able to run multiple voice assistants on our products, and I think it's a differentiator. So the nice thing is, and of course, we've talked to all of our partners about this and, you know, so Apple as well. And so everybody understands what we're doing. It's not at the exclusion of anyone else. This is to create a better experience for our listeners and for music and audio podcasts specifically, right, as we get into all of that. And so this is complementary, should drive higher engagement. That's our plan as we go through this. And that fundamentally then translates into higher lifetime value. Basically, people that have been using voice and listen to voice will come back and purchase products. And so we think that's, you know, continues to power that flywheel. Right. So every investment that we want to make should power the flywheel. Very interesting on the voice side of it. You know, we, we will definitely be looking at, are there interesting ways to, you know, potentially find other revenue sources as we go through this today, we want to focus in on the, that engagement and make sure that we've nailed the, the experience in a way that does drive customer engagement and that that translates into LTV. But Rod, I think very much, you know, we're interested in, always interested, whether it's with voice or anything of other potential revenue opportunities, particularly as we think about services.
spk04: Great. Okay. Thanks, Patrick. And then Brittany, I had one for you. I just wondered if you could update us on, I know given there's order backlog, there must still be depleted channel inventory, but could you maybe update us on where the, channel inventory sits, at least from your point of view. And I'm also curious, like, if demand did deteriorate, are backlog orders cancelable or they're not really cancelable? Those are orders that are going to go through no matter what. Thanks.
spk02: Thanks, Rod. I think they're coming out of Q2. We're in a much better position on inventory across our channels. So I think as you look across physical retail, our installer channels and our DTC, a lot of our lead times have come in for many of our products. AMP is the one that I highlighted as still having fairly significant lead times. And that's one that's been pretty hard for us to keep in supply, given both demand and supply considerations for that. So we do still have a backlog. We're not perfectly in stock, but we're looking a lot better. Supply is going to continue to be pretty challenging as we go through the back half of the year, though. And so we'll be having to monitor that really closely to try and stay as much in stock as we can for as many products as we can stay in stock on. Our back orders are generally cancelable. We have tracked those through the last multiple quarters and we have incredibly low cancellation rates and nothing about those cancellation rates has changed to this point. So that is still looking fairly healthy to us.
spk03: Great. Okay, thanks a lot. I appreciate it.
spk01: Thank you. Your next question comes from the line of John Babcock with BOA. Your line is now open.
spk05: Hey, good afternoon, Dash, early evening. You know, I guess just to start out, I was wondering if you could talk about the MITE deal, what capabilities and talent that brings to Sonos, and also how its technology will help improve Sonos' products over time.
spk08: Yeah, we're super excited about the team there. You know, as Brittany mentioned, a smaller, lighter, more energy efficient, better sounding in terms of what's there. And you're going to be very unsatisfied. But for competitive reasons, I want to keep our future plans under wraps. But we are super excited to get that into our products. And we got some interesting ideas. And, you know, I know it's hard for all of you, but just as you see with Sonos Voice Control today, you know, we want to make sure that, When we actually have it ready, we bring it out to the world, and that's when we talk about it. So we've got plans, and we're super excited about that. And, you know, it's all part of the innovation and the product roadmap that helps power our flywheel.
spk05: Gotcha. Totally understand. And then just next and last question. Could you just talk about the impact that the COVID-related shutdowns in China are having on your manufacturing? I know you touched on this a little bit earlier, but I was hoping to get a little bit more color on that and also – you know, generally how you've been able to mitigate that impact?
spk02: Yeah, so I would say it's really impacted us in two ways. One, we continue to have manufacturing in China. And so it did impact the capacity of that manufacturing while they were in lockdowns. And then Two, China continues to have a significant part of the supply chain. And so all of those other pieces that go into our products also had manufacturing shutdowns and or we couldn't get them out of the ports in China, which were also shut down to get them over to Malaysia to support our manufacturing in Malaysia. It's really been across the board in terms of hitting shipping and logistics, hitting the supply chain from a component standpoint, and then also hitting our manufacturing. So we're starting to see that situation improve, and we're obviously watching it very closely, as are many other companies who are working to get their products out. That is, at this point, from what we can see and what we can tell, that's factored into our supply constraints in our guidance for the second half of the year. We are very glad we have Malaysia from a manufacturing standpoint. So obviously we're doing everything we can to get what we need to have where we need it to be. So that's pretty much what it is at this point is just that balance and managing through shipping and logistics.
spk03: Great. Thank you.
spk01: Your next question comes from the line of Thomas Forte with D.A. Davidson. Your line is now open.
spk09: Great. Thanks for taking my question. So one question and one follow-up. So I know you talked about this in your prepared remarks, but I was hoping you could sum up in one answer how inflation is impacting your business, both from a component standpoint, a consumer demand standpoint, and then also potentially a labor standpoint.
spk02: You know, I would say our consumer demand continues to be really healthy in Q2. So, you know, we passed along price increases last September. And, you know, so far, those continue to, you know, really not have an impact from what we can tell from an elasticity standpoint. So, It's certainly something we're watching as inflation continues to be out there and all of the sort of knock-on effects from trying to manage inflation. So right now we're saying we're keeping an eye on it, but we are continuing to note that we had very healthy consumer demand in Q2. It is definitely impacting from a supply chain standpoint, though what I would say is, you know, shipping and logistics costs and supply chain challenges have been with us for really, you know, a number of quarters slash years at this point. And so I think that was one of the first places that inflation hit, and it's not really new. We've been living with it there for a while. What you see is one of the reasons that, you know, our growth margins are coming down is actually really just because of the limitation from a component standpoint. And so because the component environment hasn't improved, we're having to continue to make really significant spot buys to try and get that supply and that availability in. Okay. Great.
spk09: And thank you for that, Brittany. For my follow-up, sorry. Okay. My follow-up question is, can you talk about the chip shortages to the extent that you can re-engineer the products for the chips that are available? And then also, if there's any risk to your two major product announcements a year goal for product launches because of the chip shortages?
spk02: Having launched now five products this year, I think we're really, really safe for this year in terms of new product launches. And just as a reminder, that was Beam in the beginning of the year. Now it's Ray. I'm very excited to have gotten Ray launched. It's a great entry-level price point for the home theater category. And I think it's a great time to really introduced that entry-level home theater product. It's also Rome SL and Rome Colors, both great entry-level, you know, come get to know Sonos price points. And then it's the Sonos Voice Control, which Patrick already talked about really driving engagement, interaction with our customers. So it's not to say it wasn't an enormous amount of work from all the teams and really great execution to be able to get us in the position to have the supply to be able to launch those products. But we're really happy with the cadence of innovation that we've released this year.
spk09: Great. Thank you, Patrick. Thank you, Brittany. Sounds like you guys are navigating the challenges beautifully. Thank you.
spk02: We are trying. Thank you very much.
spk01: Again, if you would like to ask a question, press star and the number one on your telephone keypad. Your next question comes from the line of Brent Phil with Jefferies. Your line is now open.
spk07: Good afternoon, Patrick. I want to go back to an important point you made about the more affluent customer, and I'm curious. If you kind of fast forward, I think right now many clients are assuming that the macro is going to get worse. And I guess just what you're implying and what you're saying is you ultimately believe that that customer base can stay more resilient through this as things get a little tougher. And if they do, you feel like you're more insulated. I think many are asking, not necessarily this quarter, but kind of six to nine months out, what are the parts of the business that you feel are more defensive? And is it because, partly because of this affluent base or Is there another characteristic that's helping? And a quick follow-up for Brittany after you're done.
spk08: Yeah, Brent, I totally understand the question and concern. And obviously, we've been watching both the... you know, kind of all the speculation that exists out there, but you're exactly on it, right? Which is, you know, really a couple of things. One is our customer and everything we can see from our customer today. And even, I would go back, Brent, to some of the behavior in the pandemic prior to stimulus and prior to, you know, things really turning up. We saw an incredible resilience with our customers. And so, you know, that was something that I reflected on a little bit too in terms of where we are. And I think, If people are tending to then maybe retreat, they're going to retreat to their homes, right? And they may want something that is a little bit better in their homes. And that's where we play, right? And again, we're talking about products that are $170 to $900. So we're not talking about massive purchases. These are the kind of things that really help improve a home, improve a room, improve... you know, an outdoor space and they're still accessible, right? For a lot of people. And the other thing I would say is that I think a lot of people miss is that we are $2 billion of a $96 billion category, right? So if we delivered this year, and so that's just a lot of space. We believe we are taking share from everything we can see across all of our major countries. We believe we're taking share. in the markets. And so, yeah, we are assuming that that, you know, continues. And right now, everything we can see is really those challenges around supply. So that's, that's what we see right now. And again, you know, obviously, we're talking through the end of fiscal 22, which, you know, has for us a quarter and a half, you know, left in it as well. So I would just flag that Brent, right, as you think about the rest of the fiscal year.
spk07: Okay, that's great. And for Brittany, I think, you know, many of us are all tracking lead times on your website and can see as a consumer, it's good to see some of the lead times come in. Are you seeing that come in because of just better supply? You know, some of us hit his demand, waned a little. It doesn't sound like demand's coming off, but can you explain what you're seeing? And you mentioned the backlog is still strong. It'll take a while. Is the backlog... Up sequentially down, how do you size that backlog that you have to work through?
spk02: Yeah, I mean, look, our goal is really not to run backlogs. Our goal really is to have our products be in supply for our customers. And so we do want to get those products in stock so that people can have them ship out as soon as they order them. That's our goal. And so I think what you're hearing from Patrick and I in Q2, I absolutely get the long-term questions, but in Q2, what we're saying is, That 20% growth, I think, shows the kind of demand that we have when we can start actually getting some of those products in relative to Q1, where we talked about good demand, but just a lack of supply. And so we're getting into that nicer balance. We don't quantify backlog beyond that other than to say, it's still large enough that it's worth calling out for people that it exists. And so that's an indication that even though we're in a much better position on supply. Our supply challenges are by no means resolved, and we do expect them to last through the rest of the year. And I think that's the balance we're working between managing the demand we do see that we saw in Q2, the demand that our new products will generate in the back half of the year, and then just our balance trying to get those supplied and available.
spk03: Great, thank you.
spk01: This concludes our Q&A session. I now turn the call back to Mr. Patrick Spence.
spk08: Thanks Emma. Thank you everybody for joining. I think our flywheel has really been on display in the results you see in Q2. We're excited to layer the new products on top of that. We still are working through the backlog and of course you're seeing the pricing that we took last September hit. So we feel our consumer is strong right now and we're doing everything we can to navigate these supply challenges to really deliver for those consumers. So Thank you to everybody at Sonos for all of the amazing work to be able to deliver this quarter and the past, I think, eight that have dealt with supply chain challenges, and to all of you for your time today. Thanks, and we'll talk to you soon. Take care.
spk01: This concludes today's conference call. Thank you for attending. You may now disconnect.
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