Q2 2022 Sonos Inc Earnings Call
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Good afternoon, My name is Emma and I will be your conference operator today.
At this time I would like to welcome everyone to the <unk> second quarter fiscal 2022 conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' 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 to Starwood. Thank you Bill.
Newbie you may begin your conference.
Thanks, Emma and good afternoon, everyone and welcome to the second quarter of fiscal 2022 earnings Conference call.
I'm Bill Newby and with me today are 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.
The 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 web site as.
As a reminder, the press release supplemental earnings presentation and conference call a transcript will be available on our Investor Relations website at investors <unk> Dot com.
I'll now turn the call over to Patrick.
Thanks, Bill and Hello, everyone. Our music today was brought to you by award winning artist Lord her New Sotos Radio station solar system launched today and showcases the songs for ease that move shape and inspire her fat home and outdoors.
Last quarter I talked in detail about the power of our flywheel in 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 our 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 Santos is not a typical one and done purchase.
New customers are drawn to sign up 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 wray, our new compact sound bar that delivers incredible sound for its small size ray.
Ray raises the bar for at home Entertainment with new acoustic innovations that deliver balanced sound, Chris dialogue and solid base.
Ray brings our category, leading simplicity and versatility to a more accessible price point, which we expect will attract more new customers to stonehouse and provide a new way for existing customers to expand their system.
Well, we will launched Sonus one it opened up a whole new range of customers to Stonehouse and we're looking to ray to do the same thing for our home theater segment.
Second Sonus voice control is the first voice experience purpose built for listening to and controlling your music on Stonehouse.
Signed with privacy at its core soda space control is the simplest way to control your music offering complete command of your stone our system using only your voice.
Voice control works on every voice capable so no speaker processing request entirely on the device.
No audio or transcript is sent to the cloud stored listened to you our read by anyone.
<unk> voice control will be available in the United States on June 1st.
Third is that Sonus, Rome, our ultra portable smart speaker is now available in three new colors, Aleph wave and sunset.
Influenced by natural Serenity evening skies in outdoor living rooms, new colors are as versatile as the speaker itself complementing interior and outdoor styles, while harmonizing with the rest of the sonar system.
As with all Sonus products, the brand's newest speakers deliver great found that helps you play more sheer 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 sonus 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 Sonus voice control, which builds on the Snip box acquisition, we made in 2019.
Our premium product portfolio continues to bring new households into this owner's 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 tailwind 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 <unk> leads the way.
As everyone is aware external headwinds have picked up since our last earnings call.
These include increasing supply chain pressures in 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.
As I mentioned at the top of the call. We continue to have a backlog log of orders.
So filling 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 stonehouse, our growth pillars are proven and strong the sonus flywheel of new household acquisition and existing customer repurchases continues to spend.
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 tailwind 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 band go into effect in March.
Marketing 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 I'll turn the call over to Brittany to provide more details on our results and our outlook.
Thank you Patrick.
We are pleased to report strong second quarter results, we delivered topline 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.
And DTC channel.
Despite the improved supply, we still had a backlog exiting the quarter and will remain supply constrained on <unk>.
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%.
Don't know speaker revenue increased 19% year over year led by the positive full period impact from Rome, which launched in April 2021, and ongoing strength in one in arc as well as improved supply availability.
Don't know 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 Johanna 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 headwind.
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 preparing for our new product launches.
We also saw a 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.
And in the quarter was $607 million of cash prior to the my 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.
Sars 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 a $100 million in Q3 for our acquisition of money.
As a reminder might reinvented the audio transducer to enable smaller and lighter form factors that deliver incredible talent we have.
We're very excited to be able to integrate my people and technology to further differentiate our products 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 'twenty two outlook.
As is well known and as Patrick mentioned, there is significant uncertainty in the world right now.
Since our Q1 call wore his 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-19.
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 the commitments, 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 195 out 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 rail mass cell and our just announced right round colors and silhouettes.
This control.
Our full year outlook implies continued healthy growth in the second half of 'twenty to 'twenty, 7%.
We have confidence in reaching at least the bottom end of our range based on one consumer demand signals from Q2, partially offset by air.
Constrain 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 in Q2 with a backlog and currently expect that will continue for the rest of the year for some products such as <unk>, where it has been particularly difficult to match supply and demand.
The cost of supplying our revenue has increased cross components as well as shipping and logistics impacting our margin not just in Q2, but the rest of the year.
We expect to continue to need a material amount of ice 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 in cost 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.
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 two 5% at the midpoint.
This represents an adjusted EBITDA margin in the range of $14 nine to 15, 5% for the full year.
We remain committed to our fiscal year 'twenty four targets of two and a half 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 in 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 overtime.
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 'twenty two 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.
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 Erik Woodring with Morgan Stanley . Your line is now open.
Hey, good afternoon, guys. Thank you for taking my question.
Britney and Patrick I know you mentioned a number of the drivers, but when you when you strip away some of the pricing changes as you know channel fill backlog. The concern amongst bears is that demand is at risk of deteriorating. So maybe can you just share some details or.
Ada that that gives you confidence that in the investment community confidence that that is not the case that demand remains strong and it's kind of tracking in line at least with your expectations and then I have a follow up.
Yeah, Thanks, Eric Patrick I'll, let you kick off yeah. Thanks, Brittany, Thanks, Eric I think b.
We obviously have better insight I would say than most companies in terms of understanding what's actually lighting up and how we how that is actually trending the other big thing I would say is.
We.
We have our DTC business, which now has about twice as big as it was pre pandemic that gives us great visibility.
Into.
Into what consumers are actually doing in a pretty.
Pretty real time basis that are very real time basis.
And so we.
Obviously are making sure that we're watching this very closely we work very closely with our retail partners. That's a big channel for US and then as well the custom install channel and you can 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 is 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 brittney I don't know if you want to add anything on to that.
Thanks, Patrick.
I agree with all of that and then.
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 line is a nice indicator of the fact that we are seeing underlying demand and when we're able to get the supply in that.
Where we're seeing really nice growth numbers, it's not even likely 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 that's what we looked 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.
While we do look at our demand rates and and you know so far our consumer has continued to show that that they have interest in demand for stoneridge 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 are we don't currently best that we can fulfill all the demand that we do see.
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.
You think it's differentiated but did this come from customers was this kind of in your plan all along just would love a little bit more color there on on on the driving force behind that and what you expect to see from that is that a is that a new product.
Is that a demand driver or is that a platform enhance our kind of how would you think about it.
Yes, we're very excited with some of his voice control we acquired.
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 assistance the generic the more general assistance.
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 Barry sonar was quality and sonorous level and so as you start to use it youll see that this is made for people who want to listen to music listen to audio I mean, that's where we really focused in on and so it is.
As you know an inch wide and a mile deep, whereas all the ask anything assistance are much more mile wide inch deep and the other thing is that we haven't done it at the exclusion of our partners and so you can run Amazon Alexa alongside the Sonus voice control as well and really Eric at all.
Goes to something that is so important to lifetime value, which is engagement.
We know that those customers that engage in voice <unk>.
Engage more heavily with their stonehouse and that that fundamentally helps drive higher lifetime value and so we think 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's on a space control will be something that will get our customers even more interested in even more engaged.
With <unk> 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 and get someone else 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's get to experience it.
Awesome. Thanks, Congrats again guys.
Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is now open.
Yes, 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.
The big platform music providers, Google Apple. These guys that 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 to I Wonder could you talk a little bit I saw the junk Carlo Esposito voice and I'm wondering 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 then I've got a follow up thanks.
Thanks, Rod Yeah, I look at it as soon as much 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 voices assistants on our products and I think it's a differentiator. So the nice thing is that of course, we've talked to all of our partners about.
This end.
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 podcast, 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 lift the voice will come back and purchase products and so we think that continues the power of that flywheel right. So every investment that we want to make should power the flywheel at very interesting on the voice side of it.
We will definitely be looking at are there interesting ways to 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 experience in a way that does drive customer engagement.
And that that translates into LTV, but rod I think very much we're interested in always interested whether it's with voice or anything of other potential revenue opportunities, particularly as we think about services.
Okay. Thanks, Patrick and then Britney I had one for you I just wondered if you could update us on I know given theres 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 our backlog orders cancel or theyre not really cancel those are orders that are.
Go through no matter what.
Thanks, Ron.
Coming out of Q2, we're in much better position on inventory across our channel.
So I think as you look across physical retailer and 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 is still having fairly significant lead times and Thats, one thats been pretty hard for us to keep in supply given both demand and supply considerations for not 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 cancer lebow.
We have tracked.
Through the last multiple quarters, and we have incredibly low cancellation rates.
Nothing about those cancellation rates has changed to this point so.
That is still looking very healthy.
Great. Okay. Thanks, a lot I appreciate it.
Thank you.
Your next question comes from the line of John Babcock with Bofa. Your line is now open.
Hi, Good afternoon does early evening.
I guess just to start out I was wondering if you could talk about that might deal what capabilities and talent that brings its own ups and also how it technology will help improve some of those products over time.
Yes, we're super excited about the team there is Britney mentioned.
<unk> lighter more energy efficient better sounding in terms of what's there.
And youre 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.
Each of our products and we got some interesting ideas in.
<unk>.
I know, it's hard for all of you, but just as you see with Sonus voice controlled today.
We want to make sure that when we actually Havent 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 it's all part of the innovation in the product roadmap that helps power our flywheel.
Alright, that's all totally understand and then just just next and last question can you just talk about the impact that the COVID-19 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 generally how you've been able to mitigate that impact.
Yes, I would say it really impacted us in two ways. One we continue to have manufacturing in China, and so it did impact the capacity of that manufacturing.
They were in Lockdowns and then.
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.
We couldnt get them out of the.
The ports in China, which were also shut down to get them over to Malaysia to support our manufacturing in Malaysia, and so it's really been across the board in terms of hitting shipping and logistics hitting the supply chain from a component standpoint.
Then also hitting arent 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 there.
<unk> that is at this point from what we can see and what we can tell that's factored into our supply constraints and 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.
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 in managing through shipping and logistics.
Great. Thank you.
Your next question comes from the line of Thomas Forte with D. A Davidson your line is now open.
Great. Thanks for taking my questions. So one question and one follow up so I know you talked about this in your prepared remarks, but I was hoping you could sell up.
One answer how inflation is impacting your business both from a component standpoint, a consumer demand standpoint, and then also potentially a labor standpoint.
You know I would say our consumer demand continues to be really healthy in Q2. So we.
We passed along price increases last September and so far.
Those continue to really not have an impact from what we can tell from an elasticity standpoint, so it's certainly something we're watching.
Inflation continues to be out there and all of that sort.
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, so what I would say is shipping and logistics costs.
The challenges have been with us for really a number of quarters last years at this point and so I think that was one of the first places that inflation hit and it's not it's not really new we've been living with it there for a while.
What youll see is one of the reasons that.
Our gross margins are coming down is is actually really just because of the limitation from a component standpoint, and so because the component environment Hasnt improved we're having to continue to make really significant spot buys to try and get that fleet availability in.
Great and thank you for my follow up.
Sorry, My follow up question can.
Can you can you talk about the chip shortages to the extent that you can reengineer the products for the chips that are available and then also if there's any risk to your two major product announcements a year goals for product launches because of the chip shortages.
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.
<unk> been in the beginning of the year now it's ray.
Im very excited to have gotten re launched it's a great entry level price point for the home theater category and I think it's a great time to.
<unk> introduced an entry level home theater product.
Also around Marcel and realm colors, both great entry level come get to know Stonehouse price points, and then separately Chanos voice control, which Patrick already talked about really driving engagement interaction with our customers. So.
Not to say it wasn't an enormous amount of work from all of the teams and really great execution to be able to get us in a position to have the supply to be able to launch those products.
We're really happy with the cadence of innovation that we've released this year.
Great. Thank you Patrick Thank you Brittany it sounds like you guys are navigating the challenges beautifully thank you.
We are trying thank you very much.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Your next question comes from the line of Brent Thill with Jefferies. Your line is now open.
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.
I guess, just what youre, implying in what you are saying that 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 Youre more insulated I think then youre asking not necessarily this quarter, but kind of six to nine months out what what are the one of the parts of the business that you feel are more defensive and is it because partly because of disciplined base or is there another characteristic thats, helping and I had a quick follow up.
Britney after you're done.
Yes, Brian I totally understand the question and concern and obviously we are watching both.
What kind of all the speculation that exists out there, but you're exactly on it right which is.
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 in prior two things really turning up we saw an incredible resilience with our customers and so that was something that I reflected on a little bit too in terms of where we are.
Our.
And I think.
If people are tending to then maybe.
Retreat, theyre 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.
Third and $70 two.
$900, so we're not talking about.
Massive purchases.
These are the kinds of things that really help improve our home improve a room improve.
What outdoor space and there is 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 deliver this year and so that's just a lot of space. We believe we're taking share from everything we can see across all of our major countries. We believe we're taking share in.
In the markets and so yeah, we are assuming that that 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, obviously were talking through the end of fiscal 'twenty, two which has for us a quarter and a half.
Left into it as well so I would just flag that brand right as you think about the rest of the fiscal year.
Okay, that's great and for Britney.
Many of US are all tracking lead times on your website and see it as a consumer.
Good to see some of that lead times come in are you seeing that come in because of just better supply some of asset as demand waned a little sound like demand is coming off but can you can you explain what youre seeing and you mentioned the backlog is still strong it will take while as the backlog up sequentially down.
Size of that backlog that you have to work through.
Yeah Scott.
Our goal is really not to run.
Backlog 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 youre hearing from Patrick on high in Q2, I, absolutely get the long term questions, but in Q2, what we're saying is that 20% growth I think show.
It was 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 the demand, but just the lack of supply and so we're getting into that not nicer balance you know, we don't quantify backlog beyond that other than to say it.
Still a 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 or supply challenges are by no means resolved and we do expect them to last for through.
The rest of the year.
And I think thats.
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.
Great. Thank you.
Yeah.
This concludes our Q&A session I'll now turn the call back to Mr. Patrick Spence.
Thanks, Emma Thank you everybody for joining I think are.
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 deliver for those consumers. So thank you to everybody at <unk> for all of the amazing work to be able to deliver this quarter and the <unk>.
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.
This concludes today's conference call. Thank you for attending you may now disconnect.
Okay.
Okay.
Yes.
Hey, this is Lloyd and Youll listening to solar system.
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