Q4 2022 Sonos Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the <unk> fourth quarter and fiscal 2022 earnings call.
All lines have been placed on listen only to prevent any background noise.
Now I'll turn the floor over to Mr. James Park Walnuts Senior director of Investor Relations. Please go ahead Sir.
Good afternoon, and welcome to <unk> fourth quarter and fiscal 2022 earnings Conference call I'm, James <unk> and with me today are <unk>, CEO , Patrick Spence and CFO and Chief Legal Officer, Eddie Lazarus for those who joined the call early today's hold music is a sampling from our holiday inspired Sonus radio station thankful before I hand, it over to Patrick I would like to re.
And 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 for 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 fourth quarter and fiscal 2022.
<unk> posted to the Investor relations portion of our website as a result as a reminder, the press release supplemental earnings presentation and conference call transcripts will be available on todays Investor Relations website investors <unk> Com I will now turn the call over to Patrick. Thank you James and Hello, everyone earlier today, we announced that Eddie Lazarus.
<unk>, our interim CFO and Chief legal officer has been appointed as Chief Financial Officer.
He has long played an active role in our strategic planning and he knows the team and the intricacies of our business.
His unique background brings a fresh perspective to the table and he has already made tremendous contributions to our fiscal 2023 plan.
Confident that we are in good hands with Eddie in the role we will commence the search for a general counsel, who will assume the day to day responsibilities of the legal organization reporting to Eddie.
Now turning to the state of our business I would like to begin by sharing how proud I am of our team's tremendous efforts to navigate an increasingly challenging macroeconomic backdrop and deliver our 17th consecutive year of revenue growth.
So fiscal 2022 came in below our initial expectations. We were pleased to see trends stabilized in Q4, ending the year as planned.
In challenging macroeconomic times, it is especially important to reemphasize the resilience of our business model and the economic Foundation. It provides.
The unique Sonars flywheel consists of acquiring new customers, which we refer to as households.
These households, do two things first our households add more products to their home over time and second the members of these households become advocates who help us acquire additional new customers.
Existing customers, telling their friends and family to buy Santos remains the leading driver of new customers.
Our flywheel is proven and remarkably consistent over the past 17 years.
Even in the midst of last year's many challenges continued to drive growth.
We added one 4 million households in fiscal 2022, bringing the total installed base of sonus households to $14 million.
And we manage this despite supply challenges crimping, our ability to attract new households through both product availability and an inability to run promotions.
We are still in the early innings of our growth as our 14 million households represent just 9% of the $158 million affluent households in our core markets.
As has been true yearend and year out our customers added new products to their solar systems.
Average products per household increased to $2 98 from $2 95 in fiscal 'twenty one underscore.
Underscoring how the lifetime value of our customers continues to grow.
And Theres a lot more room for additional growth.
40% of our households are single product households.
Whereas our average multi products household has for three products.
In other words, we are starting to get into the range, we talked about at our Investor day, a 4% fixed products for every mature sonus households.
We estimate that converting our single product households to the average multi product household install size represents a $5 billion revenue opportunity alone.
Of course, this will not happen overnight, but it does highlight the long runway we have to further monetize our install base.
We're investing in the systems and programs to more aggressively go after this opportunity in fiscal 2023 and beyond.
Now to recap our financial performance in.
In fiscal 2022, we grew revenues, 5% constant currency or 2% reported to $175 2 billion.
Gross profit was $796 4 million down 2%, representing a gross margin of 45, 4% down 180 basis points.
This was within our annual target range of $45 to 47%, but slightly below our fiscal 'twenty two guidance due to lower than expected gross margins in Q4.
Adjusted EBITDA was $226 5 million, representing a margin of 12, 9%.
From a product standpoint, 2022 was an exciting year, we launched five products and services and completed three acquisitions we.
We have seen strong adoption of Sonus voice control since it launched in May and so it was radio has become the number one most listened to service on Sonus and accounted for 30, nearly 30% of all listening.
Our products are resonating with consumers.
In Q4, we saw both sequential and year over year improvements in our home theater market share in the U S U K, Germany, and the Nordics, reaching our highest level of unit and dollar share in almost two years.
The fact, we are outperforming competitors and picking up share as a validation of our brand strength and category leadership.
Last quarter, we discussed how array or entry level sandbar underperformed, our internal expectations upon launch.
We are pleased to see that is gaining momentum and in the U K in Germany in Q4, it has become the top product in the entry level home theater category by dollar share.
Our newest product to so many is strong out of the gate.
Since launching in October it has garnered outstanding media reviews and has already hit with customers as we are exceeding our initial sales forecast.
We expect this momentum to continue through the fall and into the holiday season as households build out their home theater system to enjoy sports movies and music at home.
As you know we've been committed to and executed upon delivering at least two new products every year since 2017.
Fiscal 2023 will be no different we've already launched <unk> and we plan to launch at least two additional products on top of that in the remainder of fiscal 2023.
We have built a prudent plan balancing our commitment to profitability with an imperative to invest in the future in light of the exceptional opportunities. We see ahead of us in the next few years.
On the revenue side I'd emphasize a few of the building blocks for our approach.
We've taken a sober view of the macroeconomic conditions using the stabilized run rates, we've been seeing over the past four months as a baseline.
At the same time, we enjoy the benefit of the steady repurchase behavior, we have observed in our customer cohorts.
As I have said before the buying patterns of repurchase rates of our 2020 through 2022 customer cohorts continue to behave like our pre COVID-19 cohorts.
Based on past cohort repurchased behavior, we start each year with a line of sight to achieving 40% to 45% of our annual registrations target.
This sticky predictable revenue stream from our installed base is something that many other consumer electronic brands do not have.
Based on these considerations the improvement of our stock in stock position.
Our return returned to normal levels of promotional activity and the exciting new products. We have planned for this year and fiscal 2023, we expect to grow revenues between 1% to 7% constant currency at a 45% to 46% gross margin and deliver adjusted EBITDA of $145 million to $180 million representing.
Our margin of eight 5% at the low end and 10% at the high end.
And he will give you more details about our assumptions, but I would just remind everyone that a very significant portion of the $79 million foreign exchange revenue headwind, we expect in fiscal 'twenty three flow through to detract from both gross profit and adjusted EBITDA.
We are making thoughtful and targeted investments to drive our medium and long term growth, while being mindful of the continued importance of delivering profitability.
We'll grow our team at a significantly slower pace in fiscal 'twenty three than we did in fiscal 'twenty two as we have a lot of people in place to support the new categories. We are pursuing.
This runs against the grain when it comes to recent headlines, but it is important to keep in mind that we have been profitable. The last four years and have not chased growth at all costs. The way many of the companies you know hear about doing layoffs house.
We have been and will continue to be profitable.
The investments we are making are laying the foundation for centers to meet and exceed our long term targets of $2 5 billion in revenue and $375 million to $450 million in EBITDA.
While we are always cautious when talking about our product roadmap. We are investing in products that will allow us to enter four new categories, one of which we expect to announce in fiscal 'twenty three.
We have a proven track record of gaining share when entering a new category, which underpins our conviction that we will gain a larger share of the $96 billion global audio market over time.
And importantly, entering new categories will further diversify our business.
Our investments are focused on driving our flywheel of new household acquisition and existing customer repurchases.
So our head count is growing we are tightening our belts, reducing discretionary spend and doing some restructuring to make our teams more efficient.
We start following short of our targets in fiscal 'twenty, three we won't hesitate to adapt to the environment prioritize our key initiatives and protect the profitability of our business.
I am confident that we will emerge from this period of uncertainty stronger.
Our flywheel of new household generation and household repurchases working.
And in the next few years, we will spend it even faster.
We expect to accomplish this by focusing on three things first we will reset the bar in our existing product categories further differentiating <unk> as the choice for premium home audio.
Second we will enter new naturally adjacent product categories. As you have seen us do with portables.
And third we will expand our geographic reach building at the beachheads, we have already established in markets, such as Japan, India and Latam.
Executing on these strategies will accelerate our annual revenue growth to a previously achieved levels of low double digits.
With adjusted EBITDA in the 15% to 18% margin range.
Now I'll turn the call over to Eddie to provide more details on our results and outlook.
Thank you Patrick and Hello, everyone.
I'm delighted to assume the role of Chief financial Officer on a permanent basis.
Whole finance organization and my colleagues across the board have done a wonderful job of helping me get up to speed and map out our fiscal year 'twenty three plan.
Just to level set starting out my top three priorities are to ensure that we're making the right strategic investments to build upon our category leadership and drive long term profitable growth.
To drive efficiency in our operations and be a responsible steward of shareholder capital.
And to give the investing public better tools for understanding our business by adding some additional transparency to our disclosures.
Well I'll be transitioning out of the Chief legal officer role I will continue to oversee our strategy to defend our intellectual property and specifically to hold Google accountable for their widespread spread infringement of our patents.
Turning to our fiscal year 'twenty two results.
We grew revenue, 5% constant currency or 2% reported to a total of $1 $752 3 million.
Foreign exchange was a $49 million headwind to revenue and a very significant portion of that headwind flowed through to reduce gross profit and adjusted EBITDA.
On a channel basis retail and other which includes Ikea and other business initiatives declined 2% and was cumulatively, 56% of our sales.
After two years of exceptionally strong growth direct to consumer revenues declined 5% due to softer demand in EMEA, the strengthening dollar and limited promotional activity.
<unk> accounted for a healthy 23% of sales.
Installer solutions revenue and this is a new disclosure for us grew.
<unk> grew 28% driven by strong demand for our amp and port products, despite persistent supply challenges as well as from geographic expansion.
The eyes channel accounted for 21% of our sales.
Heading into the holiday season, our retail channel is in good shape as we are well stocked and our retail partners are pleased to see a return to our typical promotional activity.
As for our other two channels over the years, we've steadily diversified the distribution of our business to the point, where our ISN DTC channels accounted for 44% of the business in FY 'twenty two.
2260 basis points from fiscal year 'twenty one.
We expect this positive mix shift to continue into fiscal year, 'twenty, three and to support the higher revenue per product that we have seen in recent years.
Let me take a moment to give you some additional color on our newly disclosed installer solutions channel.
Household acquired through our installer solutions tend to purchase multiple high ASP products.
We have said before that Amp is a critical product to this channel and we are pleased to be in an improving supply position.
We continue to see robust performance in our installer solutions channel despite slowing housing activity in the U S.
Home improvement activity remains solid and our dealers have healthy backlogs.
Moreover, we have plenty of room to grow this channel worldwide.
At the moment America represents more than 80% of our installed solutions revenue.
But both EMEA and APAC are experiencing meaningful growth as we invest in building our dedicated local teams in these markets.
We expect <unk> revenues to continue to grow into fiscal year 'twenty three.
Gross profit dollars declined 2% year over year, driven by 180 basis points decline in gross margin to 45, 4%.
Gross margin was adversely affected by a number of COVID-19 related supply chain issues, including increased use of airframe spot buys due to component shortages and general component inflation.
These increased costs were partially offset by lower promotional activity and price increases that we announced in September of 2021.
We estimate that airfreight and spot buys with two five.
A 2.25 point headwind to gross margin.
Adjusted EBITDA declined 19% to $226 $5 million, representing a margin of 12, 9%.
The 330 basis point year over year decline in adjusted EBITDA margin was driven by lower gross margin as well as operating expense gross growth of 8%.
As Patrick emphasize we invested significantly in our future initiatives in FY 'twenty, two with an eye to ensuring increased growth and profitability over the long term.
One contextual note before getting more into the details.
Operating expense growth trailed our head count growth of 21% in large part due to paying our employees only a fraction of their annual bonus targets due to our annual results coming in below our targets.
The lower bonus payout resulted in approximately $30 million of savings.
non-GAAP R&D increased 10%.
Primarily due to increased head count in product development costs and professional fees, partially offset by the lower bonus.
Our software and consumer experience continues to differentiate our products and we expanded our investment in this area.
non-GAAP sales and marketing increased 2% in line with revenue due to higher brand and marketing expenses professional fees and increased head count again, partially offset by the lower bonus.
non-GAAP G&A increased 19% due to increased head count and continued systems and tools investment, particularly.
Partially offset again by the lower bonus.
This increase includes a major investment to replace our legacy ERP system with the new system, which went live in the third quarter of 2022.
Free cash flow was negative $74 5 million in FY, 'twenty, two and adversely affected by our investments in inventory.
In the first half of 2022, we.
We made the deliberate decision to invest in inventory after being severely supply constrained throughout 2020 in 2021.
Until the last month of the third quarter of 2022, we were on track to deliver revenue within our guidance range of $1 $95 billion to $2 billion and our supply plan reflected that expectation.
Upon seeing demand soften we made the necessary adjustments to curtail our purchasing.
But given production schedules and long lead times, there is an inevitable lag before the inflow of inventory can be harmonized with run rate sales trends.
As a result.
Our fourth quarter 22 inventory balance is $454 million up 145% year over year.
Within inventories finished goods were at $407 million up 163% and.
And primarily driven by unit growth.
We expect to exit the first quarter in a much better inventory position, which in turn will improve our free cash flow.
We ended the year with $274 $9 million of cash and no debt.
The decline in our cash balance was due to the $277 million increase in inventory that I just outlined.
Completion of our previous $150 million share repurchase program and $126 million of M&A, partially offset by the full year profitability of the business.
We are taking actions to improve our cash conversion to enable us to allocate capital towards driving our long term growth as well as to return capital to shareholders and offset dilution from stock based comp.
Today, our board authorized a new $100 million share repurchase program, replacing our prior $150 million program, which we completed in the fourth quarter of 'twenty two.
We repurchased in all six 6 million shares at an average price of $22 80.
Now quickly on our fourth quarter results were.
We were pleased to see trends stabilized in the quarter and our revenue come in near the high end of our guidance.
Revenue declined 7% constant currency or 12% reported to $316 3 million.
Last quarter, we shared how we expected that constant currency revenue would have grown year over year. If we had been in stock on an it had not moved the sub many launch into the first quarter of 'twenty three.
That is exactly how it played out to.
To provide further transparency in our earnings deck, we have disclosed quarterly registration trends for FY 'twenty, two as well as a monthly basis for the fourth quarter of 2002.
In the fourth quarter of 22 total registrations grew 5% and we expect that October was in line with this trend.
Gross margin of 39, 2% came in below our expectation of $40 to 42% due to increased reserves for excess component inventory as.
As a reminder, as we had foreseen this quarters gross margin was adversely affected by the timing of cost recognition for pricey spot market components.
I will outline in a minute, we expect to return to our target annual range of $45 to 47% gross margins in fiscal year 'twenty three.
Adjusted EBITDA was negative $25 6 million due to lower revenue flow through and a decreased gross margin.
non-GAAP operating expenses grew 2%.
And similarly.
Considerably below our end of period head count growth, 21%, which reflects the lower bonus payout dynamic.
That I outlined previously.
Now, let me walk you through our FY 'twenty three guidance.
We expect revenue in the range of one seven to $1 8 billion.
That's between down 3% to up 3% year over year.
As Patrick said, we were assuming demand trends consistent with where we saw stabilization in the past four months we.
We expect a stronger dollar to create a $79 million foreign exchange headwind with a significantly more pronounced pronounced effect in the first half of the fiscal year.
For the full year, we expect constant currency revenue to grow between one 7%.
Now to help you better model our reported revenue.
Our FX assumptions are as follows.
The euro at 99 cents and the pound at $1 13.
As a reminder, EMEA was 33% of our revenue in FY 'twenty, two and our FX sensitivity is about four to one euro to pound.
Now we realize that the rates have moved a bit since we formed this forecast with the dollar weakening so.
I would note that are weaker than modeled dollar lessens the foreign exchange headwind to our reported revenues and adjusted EBITDA.
We expect gross margin to land in the range of $45 to 46% roughly flat year over year we.
We do not expect to incur any airfreight and our reliance on spot buy should decrease significantly due to our inventory position as well as an improving supply environment.
We expect that these significant tail winds will be offset however by the combination of FX headwinds and a return to running a normal level of holiday promotions, which we've previously noted is an import is important to driving new household acquisition.
We expect adjusted EBITDA of 45 to $145 million to $180 million, representing a margin of between eight 5% and 10%.
As previously discussed FX presents a significant headwind to adjusted EBITDA.
Operating expenses are growing in excess in excess of revenue due to first.
Full year expense of hires made in FY 'twenty two.
Assume bonus payout this year of 100% of target versus the fractional payout in FY 'twenty two.
Third our strategic and targeted hiring plan for FY 'twenty three and.
And fourth prudent investment that product roadmap.
As a reminder, the lower bonus payout resulted in $30 million of savings in FY 'twenty two.
The incremental expense incurred by our FY 'twenty two hiring is another $30 million.
At the midpoint of our fiscal year 'twenty three guidance the $60 million represents approximately 75% of the year over year increase in GAAP opex dollars in fiscal year 'twenty three.
The remainder of the increase in Opex is targeted hiring and product roadmap investment, which is a significant reduction in pace compared to FY 'twenty two.
Yeah.
We're not in the business of growing opex in excess of revenue and if revenue starts falling short of expectations, Patrick and I are fully prepared to take remedial actions overall.
Overall, I am committed to driving further efficiency in <unk> business.
Finally, taking off my new.
My new head for a moment and putting back on my legal head I'll briefly recap the recent developments in our Google litigation.
In our case against Google and Northern California Judge also has consolidated the trial on the three patents at issue and scheduled for May of 2023.
He further rules even advance of in advance of trial that Google Infringes, one of the patents at issue.
Meanwhile, we remain undefeated in Google's cases against Sonus, having obtained.
Additional rulings of non infringement in cases, like Google filed in Canada, and in the Netherlands, and having now invalidated two more Google U S patents before the patent trial and appeal Board.
We of course will defend the new cases, Google has filed with the ITC with equal rigor.
And with that I'd like to turn it over to questions.
Your first question comes from the line of Tom ports.
Davidson.
Great. Thanks, So first off congrats on being named permanent CFO , one question and one follow up and then it makes it back in the queue for a couple more so it looks like you're providing new disclosure on your dealer channel. So first off thanks for the additional information second how does your dealer channel compared to trust with your retail and DTC channels.
Sorry, Tom what comparison did you ask once I didn't hear that one part of the question was a little more newness.
New disclosure on the dealer channel how does your dealer channel compare contrast, with your retail and DTC channels.
Well as I mentioned.
We get we get very high Asps.
Multiple product purchases in the installer channel, which is a great base for us.
And we also get very good margins out of that channel.
So so on those bases, we love growing that channel and as I said, we're going to be growing that channel again in 'twenty three.
And expanding that channel in both EMEA and in APAC.
Alright, and then a quick follow up on that one can I also assume that theres less marketing dollars devoted that channel to your contribution margin has perhaps the highest of the three channels.
Yes, that's.
That's fair.
Great Alright, and then for my other question and I'll get back in the queue Alright. So another consumer electronics company recently launched a complementary line of hardware outside its historical focus, which leverages, our strong brand and distribution, which is something I think soon us could do that for example at a high level, how married our U to solely focus on.
Sound would you consider video and then same for connected home hardware beyond sound related products.
Okay.
Thanks for the question Tom we have.
A lot of opportunity remaining in audio.
<unk>.
We know that people spend about $96 billion a year. There. So we have a lot of opportunity to keep expanding in audio and take more and more of that share and you can bet. That's what we're focused on.
And I do believe that our brand is strong and we have a lot of opportunity in other categories over time, but I also think that you need to be thoughtful in terms of how you move into those how you do it for your own brand and build on your own brand strength and capabilities in all of those things, but certainly.
I believe the Sonus brand.
Positions us to take more and more of that $96 billion in audio.
And even go beyond that in the long term.
Thank you Patrick Thank you Eddie.
Thanks, Tom.
Yeah.
One moment please.
Please standby for your next question.
Placed them all the call we'll present momentarily.
Your next question comes from the line of Matt Sheerin of Stifel.
Hey, guys. Thanks, Good afternoon, a couple of questions from me.
First on the gross margin guidance for the year could you sort of walk us through how that looks.
December quarter and plays out through the year traditionally I know.
Seasonally the gross margins down because of it.
Promotional.
Our marketing and that sort of thing.
But then of course, you've got this inventory issue. So how should we think about gross margins playing out through the year.
Well as I said, we expect gross margin to be yet.
Basically flat year over year and within our target range of $45 to 47%.
It's true that that of course promotions do have an effect.
But the inventory situation is not going to have an effect.
<unk>.
We will be able to work through.
Inventory, we have without doing any extraordinary measures.
And so that's just going to play out over time.
Because we expected to have greater demand and based on the first half of last year.
We developed this backlog when demand.
When demand subsided a bit.
But it's.
It's a we're going to be in a much better position by the end of the first quarter.
And as I said, it's not going to have a gross margin effect.
Going on through the rest of the year the big the big pluses for US on gross margin are going to be a reduction in these extraordinary supply chain costs that we've had airfreight.
Spot buys et cetera, but the headwinds will be the FX and the fact as you pointed out that we will be doing our usual promotions this year.
So when you balance all that out we expect to be basically flat year over year.
Got it thanks for that and then kind of same question on the Opex side, you look like you're you've got some meaningful step ups in.
<unk> expenses of course, the commissions being our bonuses being part of that but.
But could you tell us where those buckets are in terms of the incremental cost is that mostly R&D and sales and marketing or <unk>.
Across the board.
Yeah, Hey, Matt It's Patrick here.
The focus has been.
Making sure that we're investing in our product which is our engineering.
And product groups and operations group to make sure that we can continue to scale and raise the bar in the existing categories and then expand into those four additional categories that I mentioned and so that's really where we've focused the investment.
In those people.
And we are definitely building for the long term with those investments. So you will see us as I mentioned, we're slowing the pace of investment in fiscal <unk>.
'twenty three and you'll see those pay off those investments that we've made in our people and R&D payoff.
Pay off in the future.
Okay, and just as a follow up to that could you tell me what the head count of the company is in expectations.
As you get through the year.
We're just over 800 now.
And so.
We'll be growing that slightly over the course of the year.
Okay. Thanks very much.
Your next question comes from the line of John Babcock of Bank of America.
Hey, good afternoon Shannon.
I guess just to start out broadly given the macro volatility.
And also your guidance and I, just want to get a little bit more clarity here.
It seems like your revenue range is relatively tight but at the same time, the adjusted EBITDA range.
It was pretty broad so just wanted to get your thinking around this guidance.
Key drivers there.
Well I think the we've assumed that our.
Uh huh.
Trends remained stable right in terms of kind of where things are so we're not economists, we're not going to guess on what happens in the macro of course and we've been encouraged by the stabilizer stabilization we have seen across Q4.
And obviously today are reporting that we got that right.
And then on top of that we layer in our expectations based on the resiliency of our customer base and what we've seen across the last 17 years in terms of repurchase rates.
And then the new products that we have coming in how they factor in.
As well and so we've put all of those into the mix in terms of thinking about the year ahead.
And how we're going to perform from a top line perspective.
And then we factored in.
As Eddie mentioned and hopefully the transparency helps in terms of.
Understanding will be in that gross margin range. Our typical 40 45 to 47 range for this year, but flat year over year based on what we can see right now in the give and take on component cost and some of the things that we won't have to.
Won't have to incur that we did this year, obviously product mix goes into that as well and factoring in some things on the new product front.
Into all of that and then how should I read into the way that we're looking at the investments in the team that bonus payout FX all coming down.
Ultimately the bottom line in terms of where we are.
If there's anything you wanted to in terms of the spread for what it's worth we actually started out last year with a narrower spread on revenue of $75 million. This year, we went to a $100 precisely because of the uncertainty so I actually think that the EBITDA.
Through to the to the adjusted EBITDA.
In line with the fact that we're a little bit wider on the top on the top line as well so not really a deviation there just given the uncertainty we are we have a little bit bigger spread on both ends.
Okay. That's helpful.
And then just.
Given the broader environment, you talked a little bit about inventories, but just was wondering if you were able to provide any more color on.
Where inventories are right now obviously from the data, we can kind of tell where inventories out of the quarter, but wanted to get a sense on how that has trended so far in the quarter and also if there's any detail by channel. For example, how much you guys are holding in versus how much retailers are holding.
Anything you can provide on that would be useful.
What I would say about that is that.
For the first time in three years.
Our retail channel is comfortably stocks for the holidays and for the promotions. We just haven't been able to do that over the last couple of years and so we're very pleased to be able to do that this year.
Hi.
It's too early in the quarter to provide really any color on what what the ultimate sell through is going to be on all of that but as I said, where we're in a position to burned out a significant amount of the finished goods inventory that we have by the end of Q1 and get into a much more normalized position.
So.
We think we think the holiday season will.
Will rebalance, where we are and then John just the other thing I would add on there as well.
Our product cycle as well as to most of you on the call. We're not like typical companies that are rushing to <unk>.
Refresh or bring in a new season set of stuff and so our products are long lived and so we have time to sell through these products as well.
So it's something that we're watching closely we never want to put too much cash into that but obviously bouncing back from what we saw in the first half of last year.
And being in a position, where we couldnt capture all of the sales that we would have liked we feel like we're in a much better position for this holiday period.
Okay got you and then just last question before I turn it over just on the Osprey.
Wondering if youre seeing any signs of that cannibalizing the sales for the beam had a curiosity.
Yes interesting question no.
Home Theater has been Super interesting as a category because we've seen a lot of share gain with the introduction of array beam remains really strong and so and arcs right there as well. So many so home theater is particularly strong right now and it's been great to see both the reception to sub many and ray really taking that top spot across.
UK, Germany, and the Nordics in the entry level rent, so so far no cannibalization.
And as we think about taking more and more of that $96 billion in audio I think it shows that having a good better best kind of range in these areas. It makes sense and customers are responding to that.
Okay, great. Thank you.
Your next question comes from the line of Erik Woodring with Morgan Stanley .
Hey, guys. Thank you for taking the questions maybe Patrick I'll ask my first day on my second to Eddie I think this slide that you show on the repeat purchase opportunity of $5 billion is extremely powerful I'm. Just curious do you guys have you been able to measure kind of how long on average it takes your multi product households to ulta.
We get to four products and then the second part of that is if you haven't seen the single product households repeat purchase yet.
Are they looking for <unk>, what do you need to do to get them to buy more product and then I have a follow up thanks.
Yes, no I'm glad you picked up on that Eric because we've tried to provide a little more transparency around that.
As well and it's something we're very focused in on as I mentioned, we've been investing in our CDP platform to actually understand this even better and give our DTC team the ability to go after.
After customers in this way and so we've really in terms of I don't know how long. It takes as we go through like a specific answer for you and like we've talked about in the past. It differs depending on where you are but I will say, we've significantly increased the number of people that start with multiple products that are DTC team has done a tremendous job this year, putting together sets.
If you are.
Watching the Sone is dot com site, which I know many of you are youll see theres. Many more sets to get started with and that's become a much bigger proportion of the sales that we're seeing seeing through DTC.
We just ran as part of our early promo.
Promotion and we saw really good take up on that and we know that people that are starting with more than one or even more apt to come back.
And purchase and do it more quickly and so what we've also learned through all of this is engagement is so critically important and so one of the things that we've been focusing on and its one of the reasons SBC and so it was radio are important investments is that if we can get people using it and using it pretty regularly coming out of the gate we know.
As well.
Correlated to people, making.
Making a follow on purchase.
Moving from single into multiple and so we're really I think coming coming we're making progress and we've come a long way in terms of understanding some of those drivers and starting to put more.
More more focus into those and having kind of the systems and the teams in order to actually go after that and so I am excited about the opportunity. That's there. That's why we felt it was important to quantify that a little bit because.
Because I do think that's something that we're going to get better at in fiscal 'twenty three and beyond.
Eric one of the interesting things about that particular metric as it is just a snapshot in time right because we're adding new household some of whom will be single product households, all the time and so we have some product single product households move up the chain in the multi product households, others take their place in the queue and so that's the that's the flywheel dynamic we're trying to do.
Hi.
Yes, yes totally clear that's that's really helpful guys. Thanks and then.
Eddie.
My second question for you is.
If we just look or if we just assume that revenue in fiscal 'twenty three kind of on a quarterly basis grows in line with normal seasonality. We would get you to about one 5 billion of revenue, obviously, you're guiding to something higher than that and so any dynamics you can share around seasonality that might look different than past years.
Or does this imply that there is.
Revenue that maybe you werent able to capture in the last few years because of shortages that was deferred or not deferred in the accounting sense, but just deferred to the future that you might be able to capture in fiscal 'twenty three and that's it for me thanks guys.
Well I think it's very very tough too.
To look back and thanks to our seasonality curve, because we were so supply constrained.
Over the last year, we couldn't promote at all.
And so it's kind of distorted the way we see things I can just tell you what the building blocks of our plan are and we think that they are rock solid.
As Patrick said, we took a very sober view of what the baseline should be which is we took the last four months of run rate as the baseline and that was of course, a diminished level from.
From the kind of revenues that we were seeing earlier.
And then we looked at what our NPI, our new product introductions, we're going to be for this year.
Don't talk about our roadmap, but I'll, just say that they're very exciting.
And then we looked at the fact that we're in stock and we can promote.
And and then than we are.
We also do a top down view, where we look.
We expect new household and registration growth to be and.
And do a calculation based on that.
And when we did the bottoms up and when you did the tops down really.
Really coalesce right around.
The guidance plan that youre seeing from us so.
So we're not sure where that looking back over over last years seasonal curve is really the right baseline. We think we took the right measurements.
Okay I appreciate the color guys. Thanks, so much.
Thanks, Eric.
Okay.
Okay.
Your next question comes from the line of Brian All of Jefferies.
Thanks, Patrick.
Most economists are predicting things get a little worse before they get better so when youre, assuming kind of the baseline of what we're seeing right now.
I guess why not baked in a little more conservatism based on what's what's happening across across many of the different sectors.
Thoughtfully.
Your perspective on that.
We're not economists bread.
I've been at this 25 years and I think at this point I'm not going to guess at where that economy goes, but I can look at like kind of where.
Where things are today and kind of what we've seen in <unk>.
We took into account that step down that happened in June kind of what we've seen stabilized.
And then we obviously take inputs from the channel and we think about the product roadmap and everything that's happening.
But right now we feel it's most prudent to.
Be able to plan, it's why we got a little bit of a wider range as Eddie mentioned in terms of going through it and we'll adjust if we need to as we go through this but I certainly feel like it's prudent.
Where we are today.
And I think the pandemic has taught us anything it's that we need to be.
Nimble as we go through this period and we will so we'll be watching it very closely.
You know we watch it daily because we've got registrations in new household data.
We're watching that very closely and if we if we need to adjust along the way we will but.
We feel like this is a good plan based on what we've been seeing and then as well of course, the new products that we have planned and coming in the year.
You certainly have some humility around it there's no question about that but we also do see the data.
We did put some additional data.
Into the Investor deck, this year and I think I mentioned, which is we did we did show monthly registration trends for the fourth quarter.
And we were very heartened by the fact that in July we were up low single digits. In August we were up low single digits and actually in September we were up low double digits. So.
We just have to go on the information we got.
Didnt take a particular amount of joining those numbers, but they did give us a little bit of confidence going in to this year that that things were.
Whereas we as we've been saying over and over again really stabilizing the business and the one other thing Brent and the one other factor that as we think through this period and we've seen this from the market share data over the last four months is.
We believe that given our brand position given given the products that we have right now in our portfolio and what we have planned on the product road map, we could be taking share over this period as well and so.
We've seen that we're going to plan to be able to do more of that.
It's why we've been focused on building the brand we have the portfolio we have.
Certainly that's something I think that we expect to continue to do.
And just a quick follow up on the direct to consumer channel I know you mentioned it was down you had been making some really good progress and understand some of the factors.
It feels like you've got a lot more runway to take that higher assay and the soundness customer. Thank you for the job is installed.
Seems like there's an incredible opportunity to take that higher can you talk through the initiatives.
And what you are pushing there on the direct to consumer side.
Yes. It is.
We're investing in really the systems and tools to understand our customers better and make sure that we.
Can target on a.
A more individualized basis, as well and give each customer the right kind of offer based on the products that they have today and then we know what will make their experience better.
And so I would say that with that we've been.
We've been investing to have those systems to have the team in place and be able to make these offers and I think that will help us drive more growth.
In that channel for sure and.
I expect that we should be able to over time, obviously, we've got the macroeconomic uncertainty right now but over time, we should be able to drive growth in all of these channels as we go through it but I do think that the.
The investments, we've been making in our systems and tools and our team in DTC set us up for more success in that channel, yeah pretty pretty tough comps.
Two years ago, we were at 80 something percent I think last year, we were up 47%.
It did dip a little bit, but that's really because retail so much opened up so much more around the world, but as Patrick said, we are very.
High hopes for being able to continue to grow in DTC.
Thank you gentlemen.
Thanks Brent.
Your next question, we will return to you Tom ports all of D. A Davidson.
Great. Thanks, two three more relatively quick ones from me. So first one how should we think about your ability to price locally to offset the impact of the strong U S. Dollar.
So just as a reminder, we did take price in September 22021.
And we always wanted to be careful about not double dipping too aggressively, but we're going to of course look at price, especially given the FX headwinds.
And so that's something we'll revisit after the holidays, but we have nothing to announce on that.
Great and then you sort of touched on this in your prepared remarks, but I was hoping you could talk about a little more so our competitors reported they're laying off staff and it's hardware unit from your vantage point, how is the competitive landscape changed over the past year and is it possible that more companies with diversified business models may scale back their hardware efforts given the current challenging macro environment.
Yes, Tom it's Patrick I do think that.
There has been rumors obviously of the kind of money and we know that theres been some companies that have been in this space and using hardware as a way to go.
Get into People's homes for other reasons right other strategic purposes in either ideas they've had about potential services to layer on top that haven't panned out.
And so I do think you will see more sanity quite frankly returned to the hardware space in general.
And I think the.
Path that we've been on.
Around sustainable profitable growth is something that you see all companies scrambling now to be able to get to so I like the fact, we already have that discipline.
In our DNA.
We always have to keep working on but it's why I believe that right. Now is an important time to continue to invest in R&D continue to invest in product and.
And actually go after additional categories, because we can do it from a place of discipline.
We can come out of this stronger as others are fearful we can use it to get stronger and start to enter new categories, as well and take more of that opportunity and so I do see this period.
As one of opportunity for Sonus and setting us up for.
Even more growth in 'twenty four 'twenty five.
The last question I promise.
This was important though because I think some investors misunderstand.
The relationship between maybe new housing starts in year sales.
How should investors think about the sales of your products when consumers move versus when they remodel their homes because they are unable to move.
I would say.
Now that you've captured the Yin and Yang of it right at the housing starts.
Movement for housing sales as is.
Down just at the moment.
But at the same time remodeling is up and so when you talk to RIS channel, which really handles a lot of that sort of thing.
You find that they're very encouraged by what they're seeing in the remodel market.
We have a healthy backlog of orders.
And so notwithstanding.
The temporary slowdown in that.
Housing starts and the housing market itself.
Because of the balanced in that channel.
We think we're in good shape.
Yes, it certainly all of those new homeowners from the last couple of years haven't yet outfitted their house with their sound systems and all of those things and this is the perfect way to.
And really in an attainable kind of way be able to go out and.
Make your home.
An even better place right now, especially if theres pressures in other areas and as people, maybe reduced travel and those kind of things after the swing back then.
Investing and so on is to make your house a little better.
Attainable thing given the price points that we have.
Great. Thanks, Dan Patrick Thanks, Eddie Thanks, Tom.
At this time there are no further questions.
Great. Thanks, Paul I appreciate it and thanks to everybody for joining the call today.
We look forward to.
Talking to you again in February take care.
Thank you for your participation in today's conference. This does conclude todays event you may now disconnect.
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