Q1 2023 Sonos Inc Earnings Call
Good afternoon, and welcome to the Sonus first quarter 2023 earnings call.
All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session.
To ask a question you will need to press star followed by the number one on your telephone keypad.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Mr. James Mcmanus Senior director of Investor Relations. Thank you. Please go ahead Sir.
Okay.
Thank you good afternoon, and welcome to <unk> first quarter fiscal 2023 earnings Conference call I'm, James Mcmanus 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 say about station, which is curated in collaboration with Blackstone.
In recognition of Black history month, before I hand, 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.
Are there any subsequent date.
These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward looking statements. A discussion of these risk factors is fully detailed under the caption risk factors in our filings with the SEC. During this call we will 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 fiscal or first quarter of fiscal 2023 results posted to the Investor Relations portion of our website. As a reminder, the press release supplemental earnings presentation and conference call transcript will be available on our Investor Relations website investors.
<unk> Dot com I would like to also note that for convenience, we have separately posted an investor presentation to our Investor Relations website, which contains certain portions of our supplemental earnings presentation I will now turn the call over to Patrick.
Thank you James and Hello, everyone.
Our record first quarter revenue is a testament to the strength of the <unk> brand and our category leadership.
It's another performance that proves our flywheel is working.
We acquire new customers through disciplined marketing efforts and through our existing customers, who tell their friends and family that they should get Thanos.
Our existing customers return to make additional purchases building out their center systems and growing products per household.
Our team demonstrated its ability to execute amidst a challenging macroeconomic backdrop as we delivered constant currency revenue growth of 7% a healthy adjusted EBITDA margin of 18, 4% and $168 million of free cash flow.
As we always take a long term view the most important thing to note is that these results are where we expected them to be in order to deliver on our fiscal 2023 guidance.
In the context of the current market environment. These are especially outstanding numbers.
<unk> spending was rather tepid, especially as the pendulum has swung away from goods and towards travel and services as a consumer enjoys some of the activities that they were deprived up during the pandemic.
The consumer electronics space in particular continues to experience softness after three years of very strong growth.
For this reason despite our strong start to fiscal 2023, we're standing Pat on our annual guidance.
Macroeconomic environment remains challenging and consumer spending uncertain.
The dollar while weakening some continues to erode our topline gross margins and adjusted EBITDA.
Given everything we see right now we are maintaining our previously issued guidance range of one seven to $1 8 billion revenue, 45% to 46% gross margins and $145 million to $180 million and adjusted EBITDA.
We believe this is prudent in the face of a lot of unknowns. This early in the year.
In Q1, we did exceedingly well on a per ton basis.
We built upon our already strong share of home theater market and saw significant gains in the U S U K, Germany, and the Nordics, resulting in our highest share in terms of both dollars and units in three years.
We performed well against the competition in the wireless speaker category as well.
There is a reason why the New York Times Crossword puzzle selected <unk> as the answer to the <unk> wireless home audio company and Michelle Obama and named it her most used up recently, while on the late show with Stephen Colbert.
This brand has never been stronger and when consumer spending picks up and the balance of goods and services expenditures stabilizes, we will be well positioned to deliver accelerating top and bottom line growth.
On the last earnings call, we discussed how being in stock on our products would enable us to run our typical focused promotions for the first time in three years.
As we expected customers responded enforced to these promotions, we saw very strong customer response to our search offering resulting in our highest level of sets as a percent of direct to consumer orders in years.
We are keenly focused on driving multi product starts because they have proven to have greater lifetime value than single product starts as well as a higher propensity to repurchase over time.
We were pleased with the balance of sales to new households, as well as the repurchase activity by our existing household base, which we believe is yet another validation of our flywheel.
As a reminder, in any given period, we tend to see existing households account for $40 to 45% of our registration's, providing us with a sticky predictable revenue stream from our installed base.
Our flywheel is proven and has been remarkably consistent over our history.
Even in the midst of the ongoing economic uncertainty it continues to drive growth.
We are still in the early innings of our growth as more than 2014.
Our more than 14 million households, represent just 9% of the $158 million affluent households in our core markets.
At the end of fiscal 2020 to be average Sonars household at $2 98 products up from 295% the prior year.
Figure has steadily increased over the years underscoring how the lifetime value of our customers continues to grow.
And there is a lot more room for additional growth as we noted on our last call 40% of our households are single product households, whereas our average multi product household has $4 three zero products.
In other words, we are starting to get into the range. We had previously discussed a four to six products for every mature centers household.
We estimate that converting our single product households, the average multi product households installed base size represents a $5 billion revenue opportunity.
Of course, this will not happen overnight, but it does highlight the long runway we have to further monetize our install base.
We are investing in our systems and programs to more aggressively go after this opportunity in fiscal 2023 and beyond.
One example, I'm proud of as soon as voice control.
With Sonus voice control, we have created a dedicated easy to use music focused voice service for Sonus households.
Our hypothesis is that this will result in increased engagement, which will translate into additional products purchased over time further driving lifetime value.
I am pleased to report that the net promoter score of selling this voice control far exceeds that of the other voice assistance on our platform.
SPC as we call it caught up to 50% of Alexa total enablement in the U S. In just seven months and is trending to become the number one voice solution for Sonus in both the U S and France, where it only launched in December .
Before I turn the call over to Eddie I want to take a moment to address something that gets asked often.
Other pandemic has affected <unk> performance and what our path forward looks like.
There can be no doubt that over the last three years. The pandemic created a stay at home tailwind, which drove strong demand for our products.
These <unk> were partially offset by the persistent supply chain disruption that we faced.
This quarter was a step in the direction of normalization as these stay at home tailwind subside, we face minimal minimal supply disruption.
But importantly, and as a record setting Q1 revenue of tests, the 5 million new homes that we added over the last three years are contributing to our flywheel.
From everything we've seen in our data. These customers are behaving similarly to those customers who joined the prior to 2020 in that they are one adding additional products over time and two they become great advocates for stonehouse, helping us attract more new customers.
The last three years didn't just yield a temporary spike in sales nor was it a one and done phenomenon. It brought our business to a higher baseline from which we will grow further.
As we discussed last quarter, 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.
Our investments are focused on driving our flywheel of new household acquisition and existing customer repurchases.
And while we are investing in these opportunities we are simultaneously tightening our belts, reducing discretionary spend and doing some restructuring to make our teams more efficient.
We are laser focused on what we can control. So if we begin to fall short of our targets in fiscal 2023, we won't hesitate to adapt to the environment prioritize our key initiatives and protect the profitability of our business.
We are on the cusp of launching some exceptional new products and our product roadmap continues to get more exciting.
As I mentioned on the last call, we will be announcing our entry into a new category. This year one of four that we're working on.
We have a proven track record of gaining share when entering a new category, which underpins our conviction that we will continue to gain a larger and larger share of the $96 billion global audio market overtime.
The future is bright and we are well positioned to see that.
Now I will turn the call over to Eddie to provide more details on our results and our outlook.
Thank you Patrick and Hello, everyone.
At the outset I'd like to dig a little deeper into the point, Patrick was making about our business, establishing a new baseline.
As our Q1 results show the pandemic did not create a high watermark for some of those instead the pandemic strengthen the underlying fundamentals of our business and we have great confidence that we will be able to continue to grow from the new level that we have attained.
But I also want to call attention to another phenomenon associated with emerging from dependent.
Our year over year comparisons have been and will continue to be a bit wonky.
This is due to timing of backlog fulfillment, whether in an out of stock on key products. If we ran normal promotions and many more factors.
Although we see the shape of our year normalizing somewhat in fiscal 2023, we will likely have to lap this year in order to get back to some semblance of normalcy in terms of year over year comparison.
Against that backdrop, I'll provide what context seems to make most sense.
And let me start with revenue.
In Q1, we grew revenues, 7% constant currency, a 1% reported to a total of $672 $6 million.
Foreign exchange was a $39 million headwind to revenue.
It was roughly in line with our expectations for the quarter.
We're very encouraged by this revenue achievement, which fit with our ambitious expectations.
And we are further encouraged that we beat Q1 of FY 'twenty, two which in turn be Q1 of FY 'twenty, one even though FY 'twenty one was in the heart of Covid demand and saw fewer supply challenges in FY 'twenty two.
Quarterly registrations grew 27% year over year, while products sold grew 4%.
Quarterly registrations for this last quarter faced a very favorable comparison as Q1 of fiscal 2022 registration growth had declined 24% year over year due to product supply constraints timing of channel fill and low holiday promotional activity in that period.
Looking back a year further to Q1 of fiscal 2021 to smooth comparisons.
This quarter's reported revenue was up 4%, whereas registrations in products sold are down, 4% and 6% respectively.
So all told we saw revenue up from Q1 of fiscal 'twenty, one due to price increases and channel mix, but we were down a touch on units sold compared to the height of Covid demand.
On a regional basis Americas revenues grew 6% year over year in reported terms and accounted for 59% of sales.
EMEA revenues grew 11% constant currency, but declined 2% reported to account for 36% of sales.
As a reminder, the bulk of our FX exposure is to the euro into a lesser extent the pound.
We are pretty pleased with our constant currency performance in the EMEA region.
And continue to monitor the economic landscape there closely.
APAC revenues declined 15% constant currency or 21% reported to account for 5% of our ships.
Gross profit dollars grew 2% on a constant currency basis, but declined 10% on a reported basis gross margins declined 400 540 basis points to 42, 4%.
While our return to a normal holiday promotion drove the bulk of the decline in gross margin. It is also worth noting that FX was a 300 basis point headwind to gross margins.
Another point to emphasize year. This quarter's gross margin should be the low point for the year and landed roughly in line with our expectations and does not change our view that we can deliver gross margins in the range of $45 to 46% for fiscal 2023.
Adjusted EBITDA declined 24% to $123 9 million, representing a margin of 18, 4%.
The 610 basis point year over year decline in adjusted EBITDA margin was driven by our lower gross margin as well as non-GAAP operating expense growth of 6%.
Foreign exchange was an approximately $35 million headwind to adjusted EBITDA.
Total non-GAAP operating expenses of $172 3 million grew by $11 9 million or 7% from fourth quarter of fiscal 'twenty two due to increased head count as well as the reset of our bonus accrual from last year's depressed levels.
These factors result in uneven year over year comparisons beginning in <unk> this year.
I want to emphasize that non-GAAP operating expenses should be roughly stable in absolute dollars from this quarter's level.
Free cash flow was $168 million in the quarter, largely driven by $148 million decrease in inventories.
Last quarter, we discussed our plans to exit Q1, with a normal more normal inventory position and that is exactly what we did.
At the end of the quarter, our inventory balance was $306 million.
Down 33% sequentially.
Within inventories finished goods were $261 million down 36% sequentially our.
Our component balance of $45 million was down 5% sequentially.
We ended the quarter with $432 million of cash and no debt.
The increase in our cash balance was largely due to the $148 million decrease in inventory I just outlined.
Partially offset by the repurchase of $15 million of our stock.
Last quarter I mentioned that we were taking actions to improve our cash conversion and I am pleased with the team's progress in that regard.
When additional collateral changes to the internal revenue code that Congress mandated back in 2017 now require that we capitalize and amortize our R&D spend.
This change resulted in a $27 million hit to our net income this quarter, which naturally effects and a year over year comparisons.
We anticipate that this change in law will result in a modest increase to our cash tax rate for the full fiscal year and were assessing how to mitigate the impact.
As Patrick mentioned, we are leaving our fiscal 2023 guidance unchanged.
We continue to believe that constant currency revenue growth of 1% to 7% for the year is representative of the underlying demand that we see in the range of outcomes that the year could yield.
Significant economic uncertainty remains and we do not believe it is prudent to adjust annual expectations based on one quarter of performance.
Aware that the dollar has weakened from the levels, we discussed last quarter, but as I mentioned earlier the impact we felt in Q1 was roughly in line with our expectations.
I'll now briefly recap our fiscal 'twenty three guidance.
We continue to expect constant currency revenue growth in the range of 1% to 7%, which bakes into $79 million FX headwind at the rate assumptions, we outlined last quarter.
This translates to reported revenue in the range of $1 70 to $1 8 billion.
Down 3% at the low end up 3% at the high in reported terms.
We continue to expect the gross the gross margin to land in the range of 45% to 46% roughly flat year over year.
Our FX headwind assumption translates to an approximate 240 basis point headwind to gross margin for the year.
We continue to guide to adjusted EBITDA of $145 to $180 million, representing a margin of eight 5% to 10%.
As previously discussed a significant portion of the FX headwind flows directly through and reduces adjusted EBITDA.
As I also mentioned earlier, we are dealing with uneven year over year comparisons and Thats certainly the case in the second quarter of fiscal 2023.
And while it is not our practice to provide quarterly revenue guidance. We do think given the unusual puts and takes that is important to explain our expectations for the shape of fiscal 2023.
In the last five years, we have booked an average of 57% of annual revenue in the first half of the fiscal year <unk>.
Excluding certain COVID-19 impacted periods that are not representative of our normal course seasonality.
<unk>, 38% to 40% of annual revenue was generated in Q1 with Q2 generally down 55% to 60% quarter on quarter to be in the 16% to 17% of annual revenue range.
As our business returns to more normal seasonality, we expect this year to be no different where Q2 is our smallest revenue quarter of the year.
Q2 of fiscal 'twenty, two with a completely anomalous one due to backlog fulfillment as a result of supply constraints and timing of channel fill.
Thus the year over year comparison of down 25% to 30% is not I repeat not indicative of underlying trends in the business.
As Patrick emphasized we are pleased to be tracking to our plan that allows us to continue prudent and targeted incremental investments in the business.
Our investments in product and our product roadmap are squarely aimed at we accelerating topline growth to our previously achieved levels of low double digits with the adjusted EBITDA growth in excess of that.
I also want to echo his caution that should our performance in fiscal 2023, you start to fall short of our expectations. We are fully prepared to take remedial actions to prioritize our key initiatives and protect the profitability of our business.
Finally, I typically give a brief update on our Google litigation, but this quarter didn't see major milestones right. Now we are heads down as we prepare for the May trial in our northern California case, and the north end of summer hearings in the cases, Google brought at the ITC.
With that I'd like to turn it over for questions.
Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Your question. Please press star one again.
Our first question comes from Tom Forte from D. A Davidson. Please go ahead your line is open.
Great two questions and then time permitting I will get back in the queue for a couple more so.
Industry wide youre seeing material pullback in container costs, and therefore supply chain related costs.
High level, assuming that Youre also standing to benefit from that.
Would you let that flow through to margins or would you potentially reinvest some of that by taking price.
Well first the first part of the question with yes, I would agree that we're seeing a moderating of supply chain costs in the first quarter. For example last year, we had had to air ship a whole bunch of stuff, we didn't have to do that.
The logistics overall are smoothing out and Thats and Thats, a plus for the business.
We.
But we.
We've laid out our prudent investment past of the year at this point.
We're not going to modulate.
And toggle one way or the other just just based on that.
We evaluate price all the time, we think we deliver tremendous value to the customer.
But we will make those assessments on a on a quarter by quarter basis.
Great. Thank you Eddie right. So then my second question is you talked about this but I was hoping you could expand on it a little.
Given that you had a more normalized inventory position in the December quarter.
You were hoping that your promotions would enable you to increase both new customers and.
And then your penetration for existing customers.
Successful where promotions.
And how should we think about future potential promotional activity in the December quarter.
Yes, Thanks, Tom It's Patrick I'll take that one so.
And we use the term normalize are becoming more normal because we actually looked back in as well have looked at how the promos performed relative to the pre pandemic period.
They're in line. So we feel like it worked very well in terms of both attracting new customers.
And as well getting existing customers to come back and add another one.
And I think the other thing that we found youll.
Youll recall, we focus a little more on.
This year so <unk>.
Ones or beam with a couple of ones for home theater, even stereo pairs and that went really really well. So if we learned one thing from that and we know from our data youll, probably see us leading with more sets, particularly in DTC.
But it makes us feel like okay back in a more normal environment, where there is inventory.
We know what to do and how to execute within the expectations of our gross margin in our brand and our portfolio strength.
So coming off of that I feel like we are returning to more.
More normal like we were pre pandemic when it comes to promos.
Great. Thank you Patrick Thank you Eddie great quarter.
Thanks, Tom.
Our next question comes from Tom Babcock from Bank of America. Please go ahead. Your line is open.
Hi, This is actually John Babcock, but just wanted to quickly follow up on that overall it does seem like you're having promotional the promotional period here ahead of the Super Bowl is that something you've done in past years. So you can just remind me.
Yes. It is John this is Patrick here.
This is the biggest time of year for TV sales in the United States. So we tend to do something targeted around our home theater products. So that is something we typically do.
And Tom I would just say I think youre going to see through the course of the year that we're going to do it.
Back to the future. So we're going to return to kind of a normal cadence of promotions.
So the things we've done in the past I think youll when people when consumers are particularly focused on our markets are times, when we might dip into that but.
But generally speaking, we're just not going to be as promotional brand as others, Yes, and I'd just say the one thing I would layer on is the sets. So youll also see us probably lead more with promos around sets given the way that helps new.
New homes get started the right way.
Gotcha.
And following up at least on the geographic breakdown I know you provided some commentary on America.
EMEA in terms of what went on there just in terms of how much of that decline because I watch reasonably steep it was driven by kind of the COVID-19 lockdowns in China or if there were any other factors that play.
So the Australian TV market has been weak right now.
We think it will bounce back.
As you know at a relatively modest part of our overall revenue we've got some.
New geographies that we've been.
Working on in the APAC region, Japan, and India, those are going well.
But the Australia market had a dip.
China is now reopened that's a big part of the Australian economy, we will see how that flows through.
<unk>.
We don't we don't see any kind of long term implications here.
Okay, Great and then I guess.
Just my last question before I get back in the queue are there any updates on the ongoing litigation with Google Wallet also if you can just remind us what the next key deadlines are to be mindful of there that would be helpful.
Nothing from this quarter in terms of big milestones. The next big moment here is going to be may eight when we open trial in northern California, and our first trial against Google.
Okay.
What's going on exactly.
That's right.
We're actually getting to trial in the Northern California case.
And that trial will last something like 10 days. So of course, there's a lot of preliminary skirmishing before you get there, but assuming that there's nothing surprising happens we will be presenting our case to the journey.
Thank you.
Our next question comes from Erik Woodring from Morgan Stanley . Please go ahead. Your line is open.
Hey, guys. Good afternoon, thanks for taking my questions.
Wanted to dig into the kind of product registrations versus products sold dynamic because I know there are some kind of wild comps. If we look back over the last two year stack almost and so I guess kind of simplistically.
As we look at the metrics for for the December quarter did you shift kind of in line with demand was their channel restocking were you able to work down some channel inventories and maybe if you could just included in that how how customers or how channel partners are thinking about managing inventory into 2023, just because we hear from.
Some of your peers.
There is still being relatively tight so we'd love to know if that's the same for how they treat your products as well and then I have a follow up thanks.
So inventory has dropped very substantially I mean, we were we were quite elevated now finished goods inventory coming out of.
The last fiscal year, we had hoped and indeed predicted that we would come down to a normalized level and we did we dropped $750 million or whatever it is and that's.
That's.
That was exactly as we thought would happen.
And.
We exited the quarter with.
I would say the channel fill with our partners is in a in a normal and good spot neither neither heavy nor light.
And.
I think is reflective of the share gains we had our products. We're moving through these stores. Our main partners are very very pleased with how the holiday quarter.
Worked out.
And as long as that continues to be the case.
There'll be there'll be reordering on a regular basis, but of course.
It is an uncertain time, no one wants to be caught.
With too much in the store in their in their warehouses, so yes people.
People are careful but we've had a pretty regular cadence with with our partners.
Okay helpful. Thank you Eddie and then maybe as a follow up looking at Asia Pac maybe slightly different is I kind of look at Asia Asia Pac down year over year I look at the partner revenue down year over year and that to me indicates there might be some weakness within the Ikea partnership just because I know it falls into both of those segments. So maybe just give us an update on where that partnership.
Stands how demand for those products is proceeding, especially in light of the December product launch I know you came out with the floor lamps. So just kind of what's going on there and that's it for me.
Yes, Eric it's Patrick I'll take that.
Just talk to.
Keith.
Person over at Ikea, the other day.
So we did get off.
We did get launched with a new product, but thats just starting in terms of where we are today Ikea still is working on in store displays and work that they want to do to try and drive more sales as we go through so it's not where.
They would have wanted it to be at this point or ourselves I think it's a matter of them getting refocused on it from an execution perspective in store as opposed to.
As opposed to anything else in the mix and so we're expecting to see that through the course of fiscal 2023 and continue to work with them on future products, but I do think it's been a little bit harder for Ikea coming out of the <unk>.
<unk> to get that foot fall back and kind of drive what they would normally see in terms of their business overall, not just with some of those products.
Got it and maybe just again just to double click on that no change to how you guys think about that channel is maybe like an entry level channel that you can get younger younger demographics on and hope to upsell over time, that's still kind of a focus for you guys is that a fair statement to make.
That is that's exactly why we do it all right perfect. Thanks, guys.
Thank you thanks, Eric.
Our next question comes from Brent Thill from Jefferies. Please go ahead. Your line is open.
Thanks.
Really impressive top and bottom line beat but you didn't really flow any of that beat through.
To the guidance for the full year, so maybe just drilling.
Kind of what's in your thinking through that and then also can you Patrick you mentioned the new.
Category launch. This year are you are you baking anything into the guide for that launch this year or is that still yet to come.
So I'll take the new category one.
We bake everything.
Brent in terms of what we're expecting for the year, but you know as we go into new categories.
We go into them for.
Ever and we don't expect an explosive start as much as we do a prudent starting getting it right. So it's not like that is that the main driver our portfolio continues to be our main driver I'd also just remind everybody. We're committed to at least two new products every year and.
And we had clearly indicated that sub many even though that launched in Q1 wasn't counting against those two for this year.
And so.
So that hopefully helps you understand.
There are thinking in the guidance and then I would say and just kind of reiterating what Andy was talking about is we're watching what everybody is saying as well our retailers or retailers have been and I think it's coming out of Q1 in our category share gains.
They have been remarkably supportive I would say are and are quite excited about the products. We're planning on launching together and at the same time, we're just trying to be cautious having come out last year of a strong Q1.
And making sure that we're being prudent given all the other signals that we see not in our own business, but really across the macroeconomic backdrop, which none of us are economists, but we're just trying to be thoughtful about the way the year plays out.
And not get too far ahead of ourselves and so we think it's the right thing to do.
At this point, we're not spiking the football as Eddie likes to say at this point were making sure that we measure this we get our launches off on the right foot, we continue to execute at retail as we have.
As we go through this year, so hopefully that gives a little bit more color on kind of the way we're thinking about.
Paul This is Jeff Greg.
No go ahead.
Yes, just as a quick follow up are you are you, leaving a little more wiggle room in the guide given some of the macro concerns in terms of versus historic guide or is this kind of similar guidance cadence you've been giving us for years.
The range is a little broader and suggests that it is a very uncertain time and we're still very early in the year. The only other thing I would say about this is that.
We're on our internal plan much more closely I think than we are on the external guide.
Part of the risk of course will be giving annual guidance is the shape of the year.
A little bit harder to penetrate but we we expected.
To do well being in stock and being able to promote we did do well we're very pleased about that.
But.
But but we think given where we are in the year and given the the cloudy economic environment.
Standing Pat on the guidance is the right call.
Great. Thank you.
Thanks, Brett.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Our next question comes from Tom Forte from D. A Davidson. Please go ahead your line is open.
Great last two for me so Patrick I wanted to re ask a question I asked last quarter and now that we've had more time would appreciate your current thoughts on competition scaling back their hardware efforts and the implications for Sonus.
Yes.
It's a good time for that question Tom because.
We've gone through fiscal Q1, which is the height of the consumer electronics and audio season then.
It was we've seen some of the traditional players like go heavy discounting.
And kind of like a traditional playbook for CE that we've always fought against and don't really believe in.
And then the Big Tech players, we just haven't seen them active and we havent seen them doing anything interesting in so.
It's what enabled us I believe with our portfolio our brand strength, our flywheel and then competitors kind of backing off other than the traditional legacy players doing some heavy discounting we were able to gain share and.
Really execute on our plan, we expect it to.
And so we never want to get.
Overconfident in these things but.
You've been seeing what's emerged recently.
From Apple I could not be more excited or confident about the product roadmap, we have in our ability to take more and more of that $96 billion and I just.
We're scouring the Earth as we go through and we look at things that are happening.
I just feel like there's others that are probably questioning their investments in this area and we are investing in for new categories.
Are going to raise the bar in our existing categories. I mean, we've got a lot going on and the team is doing a great job. The team that's executing in the field is doing a great job and prove that in Q1.
So I really really like where we are right now.
And I am not.
We will focus on what we can control, but we're always paying attention to competition, but it felt like in Q1.
It was not much of a factor at all.
Excellent Alright. So then this is also another re ask I apologize, but ed he's talking about kind of the persistent strength of the U S. Dollar and would appreciate your current thoughts on the potential for increasing price.
For markets outside the U S. Given the persistent strength in U S dollar.
And we don't have anything to announce at this time and.
As you know if you follow what the currency is bouncing all over the place these days.
But it's something we evaluate from our perspective.
We want to make sure we're delivering value to the customer and given the lifetime.
How long are products last the quality they deliver the experiences we're investing in that that we deliver through our software updates.
We think we deliver that value and we do think we have pricing power at times, but that doesn't mean, you always want to use it because we want to grow our household base and keep that flywheel spinning and so it's always a balance but we don't have anything to announce at this time.
Great. Thanks, again for taking my questions.
Thanks, Tom.
Our last question will come from John Babcock from Bank of America. Please go ahead. Your line is open alright.
Alright, great. Thanks for letting me back in the queue.
Just one last question on guidance here.
If you can just clarify did you say you expected revenues to be down 55% to 60%.
From <unk> to <unk>, and then assuming that is right.
Anything in terms of inventories are timing differences that might be impacting that it just seems like a relatively weak quarter, given what we saw even back to 'twenty one.
Obviously would be the weakest since 2020.
Theres nothing in particular about it timing of new product initiatives as always.
A key factor.
And that does not a question of inventory overhang.
We have thought all along and we said this when we gave our annual guidance last call that this is a muted consumer environment.
And so we.
We haven't changed our expectation with respect to that even as well as we did in the first quarter.
We're not looking at Q2 as weak.
We think if you if you trace back far enough our first half and that's really how we're going to think about it is going to be right in line with our historic percentages.
And we think we have a great second half coming up so.
It's just it's just the way the wave of the year is working out.
Okay. Thanks, a lot.
Thanks, John .
We have no further questions I would like to turn the call back over to Patrick Spence for closing remarks.
Thank you and thanks, everybody for joining us today fiscal 2023 is off to a good start a lot of uncertainty out there obviously with the consumer but at the same time, we're focusing on what we can control we have an awesome product portfolio today, our brand has never been stronger we're taking market share and we've got some exciting products coming up so.
Thanks, everybody and we will talk to you soon take care.
Today's conference call. Thank you for your participation you may now disconnect.
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