Q2 2021 Sonos Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Sonus second quarter fiscal 2021 earnings conference call at.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised today's conference is being recorded if you require any further assistance. Please press star zero.
Now I would like to hand, the conference over to your Speaker today Cameron Mclaughlin. Please go ahead.
Thank you good afternoon, and welcome to sell on our second quarter fiscal 2021 earnings conference call.
Am Cameron Mclaughlin and with me today are so no CEO Patrick expense, Brittany, Bagley, CFO and Eddie Lazarus Chief Legal officer for those who joined the call early today's hold music included highlights from the recently launched audit artist curated stations by M. I a N go space killer answer on those radio H D B.
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.
<unk> 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 results posted to the Investor Relations portion of our website as a reminder, the press release and supplemental earnings presentation.
And conference call transcript will be available on our Investor Relations website at investors <unk> Zone I was dot com I will now turn the call over to Patrick.
Thanks, Cameron and Hello, everyone. We are thrilled to yet again report a record quarter for Sonus.
I first want to recognize the fantastic work by our people and our partners during this challenging time.
These results are a testament to all of the hard work they put in every day and I am so proud and very grateful.
Our second quarter results exceeded our expectations as we experienced even stronger than expected demand for all of our products and our team did an incredible job meeting as much demand as they could in the quarter.
As a result of our strong second quarter performance, we are increasing our revenue and adjusted EBITDA outlook for the year.
Our strong results are a testament to the fact, we have a unique model that serves customers and enables us to build a sustainable profitable business.
Power of our business model is that customers can start with one product and expand to more over time and our customers have proven that they do just that.
We are experiencing tremendous demand for our newest product Rome from new and existing customers alike.
Rome is not only our smartest and most versatile speaker. It's also our most affordable.
Rome provides the opportunity for millions of new customers to get started with stone house and has the right product at the right time as the weather warms up and we begin to gather again with friends and family.
During the preorder period, Rome far exceeded our expectations with sales, reaching over 150% of our preorder forecast in our DTC channel.
Several hundred journalists reviews have been published globally, highlighting the products incredible sound and ultra portability with rolling stone, calling it quote the new standard for portable smart speakers.
We are confident that we have delivered another fantastic product that customers love and helps the sonus flywheel.
As we look toward the remainder of fiscal 2021 and beyond there are three macro trends that will fuel our continued growth.
First this is the Golden age of audio the sheer volume of music audio books and podcast, we have access to now is incredible as more and more people become creators. We believe we will spend even more time with audio and find interesting new audio formats like social audio.
The second trend is that we are seeing more and more video content going direct to home.
We have seen a decade of change in the past year with companies like Disney and H B O, bringing the newest movies right into our homes, it's not enough to have a great visual experience customers are demanding a theatre like audio experience in the home and this is something we deliver better than anyone.
And the third trend fueling our growth is the great reshuffling. This.
This is the untethering of people from their communities in offices, which has really enabled people to reevaluate, how and where they want to live.
Given more and more companies are offering their people, especially the kind of people who are in our target market. The flexibility to work anywhere. We think this will be a multiyear cultural trend that benefits stonehouse significantly.
As we look toward our opportunity ahead, we believe that Sonus is just getting started and has barely scratched the surface of our large and growing addressable market.
As of the end of fiscal 2020, we were an 11 million homes or approximately 9% of the 116 million affluent homes, we believe our most addressable for us today in our existing markets.
We have tremendous runway to add tens of millions more of more households to the sonus ecosystem.
On the revenue side based on our upwardly revised fiscal 2021 revenue outlook Sonus will only account for approximately 9% of the total spend in the $18 billion premium home audio market.
And that doesn't even smaller fraction of the broader $89 billion global audio market that we expect to expand into over the long term.
We've come a long way, but we have a ton of opportunity to take a lot more of the home audio market and even more as we begin to expand into the broader audio market.
This is a huge and growing market.
We will seize the significant opportunity ahead by focusing really on three key strategic initiatives.
The first is 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 these customers.
Moving forward, you'll see us continue to partner with other premium brands as we invite a broader swath of consumers into the Sonus experience.
To support the launch of Rome. For example, we've partnered with the North face together will showcase Rome's durability portability and of course sound quality.
More on that in a few months.
Second the expansion of our offerings, we have a tremendous opportunity ahead just in the categories. We play in today, but we have ambitious plans to expand it in new categories to expand into new customer segments and to layer services on top of everything we do.
We remain focused on our efforts to introduce at least two new products each year and have already exceeded this target for fiscal 2021 day.
Thus far we've introduced sonorous radio HD, Rome, and taken our first step into auto with our partnership with Audi.
And we're not done.
Some of you may have seen the recent social media posts from Ikea in Sonus. We are excited about the products. We're working on together and are looking forward to sharing more in the near future.
Our long term product roadmap remains robust and we are excited to unveil what comes next.
As it relates to services, we continue to be pleased with our early success with Sonus radio and so on his radio H D.
So on this radio is the third most listened to music service on our platform and we remain focused on our long term aspiration to reach over 500000 subscribers to Sonus radio HD.
We see significant opportunities in services over the long term.
Our third strategic priority is driving operational excellence to achieve sustainable profitable growth for the long term.
You're seeing us continue to execute ahead of our plan and deliver margin expansion and and healthy top line growth.
I've never been more excited about the future of Sonus, we continue to see strong demand and we are in the best position we've ever been.
We have a huge opportunity in front of us and we're just getting started.
Now I'll turn the call over to Eddie to provide a brief update on our Google litigation.
Thanks, Patrick So let me provide just a brief update on our cases against group.
His background and as I shared at our Investor event in March we estimate the Google Infringes over 150 U S utility patents from 30 different patent families.
All of those patent families is still alive, and we continue to obtain high value patents from them.
We included five patents in our action against Google at the International Trade Commission.
Basically the limit of what you can fit in one case.
Those patents were directed to grouping and synchronizing playback amongst smart devices volume control for our group and individual devices stereo pairing incentive.
A few months ago, we finished trial at the ITC and we remain confident in the strength of our case.
We had expected a preliminary decision on may 11th however, as those of you. Following the case known the presiding judge extended the Taiwan timeline for decision to August 13th of this year due to the due to these increased workload as he assumed the cases of another judge who recently retired.
We look forward to that ITC decision, but in the meantime, we're very pleased to share an update regarding another matter.
We have read today reporting that a court in Germany is just granted a preliminary injunction against the European Google affiliate for infringing our solus patents that enables and controls the transfer of media content from the mobile phone or tablet to one or more playback devices.
Order prohibits the offer or a sale in Germany of Google's cash technology, some aspects of which are implicated in the sonar patent issue and encompasses such products as pixel <unk> smartphones next audio speakers and the Youtube music App.
We see the ruling is a powerful demonstration of the strength of Sonus has patent portfolio and of our conviction the googles widespread infringer of our IP.
Now, let me turn the call over to Brent to provide more details on our results and our outlook.
Thank you Eddie.
We are excited to report another quarter of stellar results further solidifying our ability to deliver a record year.
The strong demand for our product and the fact that our customers have proven that they will wait as we work to fulfill their orders.
It demonstrates the power of our offering and brands.
Let me color to our results starting with the second quarter.
We delivered adjusted EBITDA of 48, 5 million compared to a loss of $28 4 million last year.
Our adjusted EBITDA margin expanded to 14, 6% during the quarter.
We were able to deliver those tremendous results due to exceptionally strong gross margin top line growth and ongoing operating expense leverage.
This is also the first Q2 in our history, where we have been net income positive.
And we are pleased to see more consistent profitability across our quarters.
Revenue in the quarter increased from 90% to nearly $333 million.
This anniversary into 17% year over year revenue decline in the higher your corridor, which stemmed from partner inventory rebalancing and retail store closures at the start of the COVID-19 pandemic.
The outperformance versus expectations was largely a result of ours, but really just to sell them more demand.
This was driven by ongoing supply chain capacity investments as well as improved shipping and logistics processes.
Even with the improved supply position in the quarter, we continue to be out of stock on a number of our products, which further point.
Long demand we are seeing.
The Americas grew 90% on EMEA grew 100% or 83% on a constant currency basis.
APAC grew 56%.
The Americas and EMEA on both continued to see incredibly strong demand across our products.
APAC grew slightly less quickly than our other regions given the softness in Ikea.
Ikea continues to be impacted by store closures and the transition in our product cycle as Patrick mentioned, we are working on a new product release with them, which we will share more details on in the near future.
So on a speaker revenue was up 130% year over year, driven in part by Comping, a 27% decline in Q2 last year and was particularly helped by the continued success of our <unk>.
So on those system products revenue increased 10% Comping, 22% growth last year and driven by the continued strength of our installer channel and component products.
Partner products and other revenue increased 16% driven by accessories on demand offset by lower Ikea revenue.
Gross margins were incredibly strong in the quarter and reached a record 49, 8%.
An improvement of 810 basis points versus last year.
300 basis points is due to lower tariff expense.
We had approximately two more on one of my tariff expense impacting gross profit during the second quarter.
Excluding tariffs the 510 basis points of gross margin improvement was primarily due to comping. Our at home was still on those promotion last year.
As well as a shift into higher margin product and channel and.
On fixed cost leverage on the higher sales volume.
This growth margin expansion, even with an increase in component costs as well as ongoing higher industry wide shipping and logistics call.
Turning to operating expenses, we saw significant leverage during the second quarter largely due to the benefit of higher second quarter revenue.
We experienced year over year increases in.
All opex lines as a result of increasing investments to support our higher topline growth.
Year or into the future.
We also have higher incentive compensation assumption given our increased outlook.
During the second quarter, we used $39 million in cash from operations and.
And had negative free cash flow of $47 million largely due to the timing of working capital and accrued expense driven by seasonality.
We are ending the quarter with 639 million in cash and cash equivalents.
Which continues to put us on a strong position to invest organically in our business pursue M&A and return capital to shareholders through our authorized share repurchase.
We currently have no debt on our balance sheet as we paid down our outstanding $25 million in January.
Overall, we believe Q2 demonstrates a really impressive quarter for the company and helps us deliver on our strong fiscal 2021.
Now turning to our outlook.
Despite our outperformance in Q2 as I'm sure you're largely aware.
The global supply situation has only gotten more challenging as we look towards the second half of the year.
We and others across the industry.
We're seeing significant increases in constraints on a variety of components.
Our team continues to work tirelessly to mitigate as much as we can to deliver on the incredible demand we see.
We appreciate that our customers have proven that they will wait for our product.
Which is continuing to help us navigate through this challenge and delivered tremendous results.
Obviously this has been a difficult year to forecast.
We remain aware of the continued uncertainty in the broader macro environment, but feel confident in our fiscal 2021 outlook given our strong first half performance.
And the continued strong demand for our products as we enter the remainder of the year.
We are providing the best update we can given what we see from a demand perspective, and what we currently know about the global supply chain.
With those considerations in mind, we are increasing our adjusted EBITDA to 225 million to $250 million.
From our prior outlook of 195 million to $225 million and well ahead of our initial fiscal 2021 of 170 million to $205 million.
This new outlook represents 13, 8% to 14, 9% adjusted EBITDA margin.
This is an expansion of 560 to 670 basis points from the prior year.
We are maintaining our gross margin outlook of 46 to 46 anyhow per cent, because we expect increasing cost of components.
The need for additional airfreight to mitigate the impact of the industry wide supply shortages on this.
Smaller benefit from product mix.
We continue to have $27 5 million of tariff refunds, we expect to receive.
However, as a reminder, given the timing is uncertain, but it is not included in our outlook and will be recognized only upon acceptance of the refund request.
We will continue to call out this impact each quarter for transparency.
As we stated last quarter, we expect to continue making additional opex investments in our product marketing and operations to support the higher revenue volume and long term growth initiatives.
We also expect higher incentive compensation to support the increased top line growth and profitability, while delivering on attractive opex leverage for the year.
We are increasing our total revenue for fiscal 2021 to 162 5 billion to $1 67, 5 billion representing growth of 23 to 26 per cent.
Excluding the 50 <unk> week from fiscal 2020, this represents growth of 25% to 29% for the year.
This compares to our prior outlook on <unk>.
152, 5 billion to $1 575 billion provided last quarter and our initial fiscal 2021 revenue guidance of 144 to $1 5 billion provided at the start on the year.
Even as the World begins to open up again, the demand for our products has never been stronger.
We're incredibly pleased with what we have been able to deliver on Q2.
We're focused on continued execution to deliver on our increased fiscal 2021 outlook.
Which is significantly higher than what we set out to deliver.
As a reminder, we have a tremendous opportunity ahead of book.
There is a clear path to achieving our fiscal 2024 target of 2.25 billion on revenue.
45% to 47% sustainable growth margin and 15% to 18% adjusted EBITDA margin.
With that I would like to turn the call over to questions.
And at this time as a reminder, if you want to ask a question.
We need to press star one on your telephone keypad. If it was true draw question press the pound key.
First question will come from Katy Huberty of Morgan Stanley. Please go ahead.
Thank you good afternoon, and congratulations on the really strong results as I think through guidance you you pass through the the revenue upside from the March quarter, and and some incremental upside that you're assuming from it sounds like the room, but the EBITDA outlook for the next two core.
Orders is lower than than three months ago. So can you just walk through some of the.
Crushers in more detail that you expect over the next couple of quarters. It sounds like it's a combination of mix and in the supply chain dynamic and then maybe on on supply just comment on where you're seeing the biggest bottlenecks and where where you see costs increasing in the back half of the year.
Yeah happy to.
So as a reminder, we don't give quarterly guidance, we give annual guidance and so we are increasing our annual outlook.
We're really excited with the increase we're able to provide on both revenue and EBITDA.
But we are not increasing our gross margin outlook, even though we had pretty incredible growth margins in Q2, and that's really because we're expecting increase in component costs. Some need for additional airfreight to mitigate the impact of those components shortages and a smaller benefit from product mix.
In the second half of the.
So that's really impacting the gross margin a hold relative to our yeah on the hill.
Last quarter.
In terms of supply he or she is seeing the same impact that I'm sure you're hearing from all the companies across the CE landscape, which as you know there is a general semiconductor shortage out there and everyone's trying to figure out how to get there are components in the volume that they need and we're on.
On the same place on dot on the broader industry.
Okay. Thank you and then can I just ask a follow up to two Eddie just on the back of the ruling in Germany today and expected ruling and in August and in the U S. One of the questions that debt I hear from investors is what happens.
After these rulings what's the typical timeline or the construct in which a financial payment or a stream of payments would be decided once these rulings come in.
Katy Thanks for the question.
I wish I had a definitive answer for you.
It's going to depend I think in large part on on what the ITC rules.
And exactly what the details of that are we feel very good about our position at the ITC, but what's involved with the ITC is not a damages case, but.
And importation ban.
And what the implications would be on that for.
Discussions between Sotos on Google is just going to have to wait and see exactly what the court rules from from our perspective.
The real importance of the German case is it's a demonstration.
It's a it's a ruling that shows we have.
Strong and valid patents not only here in the United States, but also in Europe.
And that Google does in fact, infringe them and we're going to keep pursuing that line and showing over and over again, whether its at the ITC or in Europe or in Texas or wherever it may be that that is the case and <unk>.
We hope and expect debt.
Google will.
Recognize the.
On the validity of our position and come to the table with us.
Thank you very much.
Yeah.
Your next question will come from Tom Forte of D. A Davidson. Please go ahead.
So one question and one follow up so the first question I have is I know, it's early as far as the product was just released but how are you thinking about the ability to roam to bring new customers to Sonus and then the opportunity to get them to buy additional service products over time.
Hey, Tom It's Patrick.
We are feeling very good in terms of Rome's ability like you said, it's early but we think this is one that.
Could not have been better timed as the world reopens.
<unk> seen the gist tidal wave of positive reviews that have been out.
Around the product the momentum as I mentioned in.
In my comments has been tremendous and I'm seeing on social media and hearing anecdotally of a lot on new people that are coming into Sotos. As a result, so I believe this is going to be a key driver as we think about new homes going forward and tapping deeper into the kind of audience that we've been trying to penetrate and on and I think we'll learn over time.
But I don't see any reason why.
Starting with a ROM won't have the long term.
Kind of products per home that we've seen with our.
With our our mix overall and getting close to that are getting basically I think we are at two nine products per home right now so I expect it to be another one it's part of the system.
The first Bluetooth product that works both in the home and then also out and so I think that as well it makes it more valuable to people and more versatile so very excited about this and it is a new home driver.
Excellent and then from my second question.
One of the things you did many.
Calendar last year during the pandemic was advanced your direct to consumer efforts.
How should we think at a high level about your director of consumer leverage.
Physical stores are reopening and pandemic restrictions are easing and customers may be returning to the stores more than at least versus last year.
Yeah, it's definitely a different year when it comes to kind of approaching that but I think what we've seen we've said Oh DTC continues to be important in terms of telling our story and putting.
Putting our a good foot forward in terms of what we're doing but if Q2 has taught us anything its debt right across the board, we're seeing great engagement from all of our channels.
And we expect that to continue through the year. So we're seeing growth across the board.
And expect that to continue because.
I think theres opportunity in all of the channels that we're working on.
Great.
Growth in the quarter and thanks for taking my questions.
Thanks, Tom.
Our next question will come from Rod Hall of Goldman Sachs. Please go ahead.
Yes. Thanks for the question I guess I wanted to start with the inventory level in March it is.
More than what we've seen in prior marches in the days of inventories up a little bit too and I. Just wonder are you guys laying some component inventory on to try to mitigate some of the supply issues that one of the ways that you plan to.
Correct for that and do you should we be expecting higher level of inventory, maybe next quarter as well and then I've got a follow up.
Hey, Rod it's Brittany. Thank you for the question.
Most of.
On the inventory you're seeing on our balance sheet right now is actually finished goods inventory.
I'm on it because we are supporting significantly higher demand. This Q2 than we are you know it.
It has supported and other Q2, so part of it is just to support the higher sales volume.
And then I would say another part is just timing around when we have in transit inventory in a sort of quarter to quarter. So that's really the dynamic you're seeing.
Obviously, where we're doing everything we can.
And as is.
Everyone else right now, but we're.
We're pretty much turned on that those components into finished goods as fast as we can so we can do meet the back orders and and the demand we're seeing.
Okay, that's great Brittany and that makes sense.
The second question I had for you guys was on inflation, we've had a lot of different companies talking about inflating inputs I know semi is inflating, but I'm wondering if you've seen now for your products do you do you see other things basic inputs to the product's inflating in price or do you anticipate that as we move through the year.
Okay.
We've seen some on the shipping and logistics side as we've been calling out as we go through the year and then yes, we are seeing it in our component costs, which will particularly calling out for the second half of the year that increase the majority of that component cost increase that we're calling out in the <unk>.
Second half of the year. It really is on the semiconductor side given the shortage is that industry is seeing.
Great. Okay. Thanks, a lot, but I appreciate it.
Yeah, absolutely and we you know as.
As I mentioned, we've baked as much of that is we can foresee into our forecast. So it's all all incorporated right now as much as we have the visibility.
Yes, it makes sense. Thank you.
And your next question will come from Brent Thill of Jefferies. Please go ahead.
Yeah.
Patrick is there a common thread that you saw on that 150% of forecast the demand on the realm I know my kids.
Grabbed a hold of it and took off and it's gone I don't even have it on my office anymore.
It seems like a younger audience is getting pulled in is there is there any other common themes you're seeing that.
And that are that are surprising you out of the initial launch here and I guess follow up to Brittany.
A visit to your website today is a full month out now to get the room on June 11th I mean, do you run the risk of losing some demand to others, if they're looking for a portable on the short term on how to you.
How do you ensure you you take care of the customers' response on that at this point.
Yes, Brent.
You can always buy another one so.
I think the nice thing is we're going to see multiple rooms.
In some homes as well on it definitely is speaking to I think new people in the existing homes, and then as well new customers and so.
The Bluetooth speaker market.
<unk> is a massive one in its own right as the ultra portable Bluetooth speaker market.
And we've got the unique suenos value proposition of it being a great speaker in the home and outside.
And as well, having things like sounds swap the better sound quality all of the things that we've done to it. So I just think it's going to help us disrupt that category and the way that we have many of the others that are there and I'll I'll actually take the the question in terms of the.
The debt the delay right now if you order on Sonus Dot com one of the things we've looked at over the past few months not even relative just specifically to Rome, but overall on products is what the cancellation rate of the orders look like right because we've been in a situation where products like Ark, our amp have had delays along the way.
Hey, Ed.
And we are seeing incredible strength in terms of those orders.
They do not appear to be perishable.
Any way people do not come back and cancel we've seen that in terms of the at any significant rate and the rate has not changed despite some of the.
Some of the shipping dates pushing it further so we feel good about where the the product quality is and how it stands out and the brand overall and once people are in the system like I think this I think this is this is ware.
It makes a big difference to be part of our system as opposed to just another product rate or a typical hardware company and so being part of the system I think means more people will wait for.
For the product and.
They've had a good experience with their entire sonar system.
And they know what theyre going to get when they get any of our new products. So we're seeing we're not seeing perishable demand.
Thanks, Patrick and we're also trying pretty hard to.
Do the best job from a customer experience standpoint, but we possibly can given the back order situation that we're in so I know our teams are working really hard to make sure that when we make commitments about shipping dates we have first shipping and we're delivering on expectations I think we all recognize that that.
Relationship with the customer and give them a good job there is more important now than ever. So that's the other piece of it for us.
Thanks.
Your next question will come from John Babcock of Bank of America. Please go ahead.
Hi, good evening and thanks for taking my questions.
I might have missed this earlier, but were any patents on the German case with Google overlapping with the case on the United States.
Not directly overlapping but.
Relatively similar too.
Patents at issue in the Texas case, it's a direct control patent over in Germany, and we have several direct control patents in the in the Texas case.
Okay. Thanks.
And then next question I, just wanted to kind of talk about inflation a bit again here.
I mean this.
Isn't necessarily necessarily transitory.
And I guess, we'll see how that plays out what opportunities that some of us to have to have to offset that.
Now whether that comes from commercial opportunities or whether that comes from.
Cost adjustments, if you could kind of talk about that that'd be helpful.
Yeah. Thanks, I mean, what I would say is we're very committed to continuing to deliver on that long term gross margin target, we put out there on <unk>.
45 to 47 per cent.
So we feel very comfortable on our ability to continue to hit that and deliver on that year over year. We are a premium caught off really strong brands. So we'll look at all of our option on neither.
Over time.
The other thing I would say is we are in a particularly tight global supply chain situation and while I can't call. It all win that will earn a certainly there will be investments to add more capacity on the semiconductor industry over time, which over time should be a good long term.
Trend relative to the current price increases we're seeing.
Yeah.
Gotcha.
And also I don't know the extent to which you can comment on this it is a little bit early but broadly could you give us some sense of what the impact might be of course on us on the tax side from proposals, making their way through Congress.
Yeah, So we all.
Do you see watch that really closely but we are not a cash taxpayer right now and so.
Right now what that would really be it would be increasing the value of the <unk>.
Nols from the R&D tax credit that we have on the book So we'll keep a close eye on that but it will become much more critical to us as we move into being a cash taxpayer, which we are not today.
Okay. Thanks, Brad.
And your next question will come from Matt Sheerin of Stifel. Please go ahead.
Yes. Thank you for all the details so far.
Another question regarding the supply constraints, you're seeing it seems like you don't really have any visibility into when that eases. I know you previously had talked about coming out of Q2 and things seem to have gotten worse.
So in any anything you're hearing from your manufacturing partners in terms of when that eases in and I also know that you were in the middle of switching or moving manufacturing out of China.
Uh huh.
Other parts of Asia, and could you update us on how that's going.
Yeah, absolutely so I'll start with the second one though.
We have been actively diversifying into Malaysia. It is part of our long term.
Manufacturing strategy and it very much continues to be relevant and important to us I think that you can see from the magnitude of the tariff numbers that we have this quarter relative to what we were talking about a year ago that we had significantly mitigated the impact of tariffs through that Malaysia strat.
So.
We are well on our way to hit our milestones and targets from that perspective.
And then really what has changed is rather than focusing on mitigating tariffs are dealing with.
Supply chain and logistics you are seeing incredible tightness in semiconductor components across the industry. So just to be very clear, it's sort of not not us it's not something that is directly in our control. It is an industry wide issue and so you know certainly we talked to on manufacturing partners.
But there are Ceos of major semiconductor companies talking about this on TV and stuff like that and giving various answers in terms of when theyre going to be ramping capacity up on when they see the ascending and so I'm certainly no no smarter on this and they are.
And the best we can do is continue to secure the components. We can secure a neat really incredible demand that we have and so you know.
I'll just be that balance for us as we go through the rest of this year and for as long as this law. So no update on what we're gonna be back fully in stock because.
The landscape has shifted in.
Honestly, our demand has been so strong that yeah.
It's hard to keep up which is a great great problem to have but it's one that we've continued to see.
For sure Okay. That's it from me thanks, so much.
Thank you Tom for questions. We have today I'll now turn the call back over to Patrick Patrick Spence for closing remarks.
Thank you very much and thank you to all of you for attending we think we've taken another great step on our way to our long term ambitions as I outlined the opportunity ahead is enormous and we're just getting started so thanks, everybody and we'll see you next quarter.
This concludes today's conference call. Thank you for joining you may now disconnect.
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