Snap One (SNPO) 8 Aug 232023 Q2 Earnings call transcript

Good afternoon. Welcome to Snap One Holdings Fiscal Second Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Snap One’s Senior Vice President of Finance, Eric Steele. Sir, please proceed.

Great. you. Thank welcome fiscal and earnings quarter Snap call. conference to afternoon, second One’s XXXX Good

this being call reminder, a As is recorded.

Joining us and CEO, John are today from Mike Snap Carlet, One Heyman, CFO.

performance, our would may future management additional events therefore, of performance. placed but forward-looking and to financial remind begin, not statements, response make like These in or not questions, them. we contain forward-looking upon future should we everyone Before guarantee reliance statements expectations, that not your prepared statements limited remarks and statements future to undue do including, to be

uncertainties, reasonable, Although on undertake after we believe current expectations could differ these expectations to results that or obligation are statements and revise and of identified occur reflect XX-Q. materially. events changes on recent we any latest These annual based to Form are the involve Actual those Risk call. section this filed and no XX-K our SEC, statements Form risks inherent with of including Factors management the most report our the in report company’s quarterly on

of that date All accurate in X, call are earnings our also in measure. the today’s time-sensitive comparable release non-GAAP of to contains this information referenced broadcast, reconciled press most as This and call only directly measures the XXXX. financial time GAAP is August

investors.snapone.com. will at I made website available everyone to is on that recording Investor remind and would Relations a be like being for Finally, this conference webcast call our replay

be accompanying website. on Relations In results, addition our to the also posted earnings we webcast, found these supplemental have which can a presentation Investor

John CEO, to turn I the will now over John? our call Heyman.

over discussion, background, going afternoon. Mike some I’ll and performance, a everyone, of followed to CFO. then our the the To for thanks depth, our opening the for After remainder give and that, closing begin Eric, well call the He us you, more call company of the turn Thank will this financial I’ll questions. for year. our as and review to recent by some in our provide welcome, remarks discuss I’m share before for today’s quarter results as outlook Carlet, joining

Let’s get started.

we As integrators a scale. platform to on discerning a Snap to residential smart reminder, and living commercial at and that provide connectivity empowers global a deliver One, customers security joy, professional

integrators, As distributor approximately distribute to serve successfully platforms partners our with their work customers software solutions branches. across with a lifecycle. leading products proprietary and of through workflow XX,XXX our these support project network and We our we to portal and integrators proprietary of e-commerce growing third-party our the them to further do-it-for-me local our allow integrated

smart business adoption, living professional our Snap company durable. will the technology We believe opportunity. we tailwinds, products, construction technology services provide and support tools Secular forward. the install, aim users opportunity formation and select, housing living to they smart enablement, and will require. the health right small the propel integrator our industry and to to integrate to One, software, is end continue At large on solutions seek the and capitalize partners Many software including workflow with

performance. I’ll recent turn now to our

QX million channel $XXX.X product our executing and in while go-to-market including impacted EBITDA, in adjusted inventory development, results, $XX.X QX solid improvement a our and costs ongoing XX.X% to are in on net of rate results, delivered line extract net team to from QX we Our we anticipated, top We enhancement sales as destocking million margin of chain. strategies. drove quarterly as net XX.X% in supply sequential in sales contribution from continue margin sales

management margins investment expanding is focus disciplined operating the cost and business. for on Additionally, our

to uncertainty. We in stability continue demand macroeconomic environment the amid see the broader

own sustaining backlogs healthy indicate businesses. their First, continue to our are partners that they in

to ability allow portfolio the to commercial current supports variety integrator end and markets, across residential and of model and to partners’ which adapt partners business serve product environment. diversified our Our us pivot a projects

while hearing growing commercial cautiousness the that remain budget-oriented for projects, high-end resilient. believe end customers we’re markets residential we and from Also, some more entry-level

has which recent market consumer to some shorter-term homebuilder U.S. backdrop, in a over around confidence. the inventory and All macroeconomic housing rates overall health the robust be we that including signs proved luxury quarters, quite across volatile while Second, notwithstanding confidence, showed home next and several sequential indicators, availability will point look interest improvement decade. market headwinds

‘XX. And performance key are to have on ahead the two, focused reflect which delivering we very and on we turn, initiatives As higher our margins programs, two adoption year, our operating and strategic in by product expanding yielded far positive results. remainder several end through our customer second for of experiences. look One, the driving key partners quarter better already

our I’ll of a of few these in context year rest and results second the of the minutes take to the outlook. quarter each address

First, partner adoption.

refining new launches, of Following audio, a of significant product across significant and supply innovation and we and the new approach capabilities software of surveillance a the quarter we including drive Coming of of off chain continue first products with control, multi-pronged well uncertainty, introductions our period strategy. includes our we go-to-market strong and exciting to solutions quarter, are believe adoption enhanced both introducing delivering in platform products positioned software product second new networking. that

single-room which robust mounts. for the investments our for Carbon partners industry’s more profitable to believe the A and audio offers soundbars routers completing important partners. line, continued and continued underscores Triad market, highlights innovation One, designed solution in commercial entry-level product passive solutions most award-winning ecosystem including Araknis makes we our accessible. core Two, few Strong controllers for premium Series product three, a multi-Gig And and include. our of the applications. what an the ControlX controller, lineup be light simple which

launch I’d flagship not of the Touch. be to Halo our remiss Finally, mention July

that for us exciting set continuous voice also for our enables innovation with Snap our latest help touchscreen remote of product these strong Together, robust Our strengthen systems. portfolio pipeline foundation a a One. and interaction launches

the Analysis of the subcategories product CEPro the number XXx Brand XX this partners innovation competitor. across XXXX Xx a recognitions us closest X in recognized XXX top Our of represents next which by ranking brand awards,

our value-added plan for in As services, These and invest software in build future. more we upon we software-centric, ControlX overseas continue offerings platforms the both which product provide become to platforms. near our to

continue to growth as on in markets. our opportunities we we new make go-to-market pursue Also, progress strategy,

First, ControlX to to AV us with legacy programs higher to domestic e-commerce we the in Snap our engage partners efficacy operations. completed single efficiently, and us to allow portals with our our and conversion platform internal a drive marketing of order enable streamline more

to continue best-in-class partners. further adoption leverage to program category and by drive to loyalty Second, our we product adoption and product ecosystem our strengthen

new in July in branch presence, location in and omnichannel continued the investing strategic of anticipated the additional including several finally, we’ve And our our half openings of the second opening Raleigh year.

strategic margin Our driving initiative is expansion. second operating

that the to and and range pivots focused made keeping based in components COVID numerous a in business. Fees development on of on expediting number ship we crisis, inefficiencies During decisions our research abrupt availability. from and from changes rate securing partners supply chain product and

cadence lower freeing build chain our the costs As has to up product supply what and our do they teams normalized, of we products. new to driving best, returning unit operational are do

yield operating previously scale support we activity our driving operating infrastructure the well within related margin to been – growth as completed have remainder within will as starting also our acquisitions, technology results. throughout our making growth to model, are investments operating of integration investments XXXX. expectations These We’re

outlook turning our on the briefly Mike. comment over to now before call me Let

and expectations. positive, we now continued cost year the remains of half structure expansion inventory disciplined first as channel XXXX outlook and to the expansion drive move complete, our the year position. margin destocking operating rate profitability full with enhance confidence contribution our our our seek provide headwind, us liquidity With management in margin past Also,

solutions, are living for role for growth dynamic the propel adoption, further us Therefore, the central and prosper in innovations reaffirming XXXX, of Mike competitive integrator me, both net in coming our we smart our – our holistic excuse will detail. sales – and will will service adjusted people macro providing outlook our which propel a success. in discuss environment to believe in us that We long-term EBITDA differentiation enable and

turn detail. it Mike? results to outlook With over CFO, financial ‘XX our discuss Mike, in that, our and greater second I’ll quarter to

John. Thanks,

inventory results inventory sell-in million, channel to ago channel that from million John million in QX ended net in of the of occurred sales XX, quarter year-over-year decrease in fiscal of our The second period. destocking reflects $XX year headwind earlier. Let’s second quarter mentioned comparable the million. the turn and of Net approximately $XX XXXX. approximately for approximately the We a XXXX, XXXX down top that the destocked during now fiscal anticipated headwind decreased QX $XXX.X in financial estimate $XXX.X line representing to million sales in June $XX quarter X.X%

a channel of the since inventory around year-over-year indicates approximately inventory adjusting expect sell-down for destocking of impact, integrators second second rate we Continuing excess with our quarter. mid-XXXX. And through our this the sales that continue the half working peaked of believe their net data been channel in inventory X% growth estimates topic, at we through year. delivered levels moderate we the have the door to After

of As is may some on adapting they indication be to partners, we that normal inventory new survey integrator higher our there a level hand.

going year, believe normal we industry stabilize that to forward. arrive the continue end new of will the We and by this will this at

cumulative net impact percentage $XXX.X the that’s XX.X% margin, million a increased which of Contribution the sales increased to of net continued up operating price in measurement adjustments of ease. million $XXX.X as sales a XX.X% from to or the margin response of X.X% Contribution has to quarter, period. our input ago chain to fiscal non-GAAP performance in net second of in supply comparable or due year cost inflation, and enacted sales

quarter or million in XX.X% ago in year our selling, of sales expenses comparable net sales fiscal of net decreased general second million $XX.X $XX.X from administrative Our X.X% and period. to XX.X% or

lower expense SG&A base lower was variable primarily XXXX. in to a as the in QX sales Decrease of expenses attributable result

lower In XXXX. in addition, incurred equity-based we compensation

performance were to of contribution expenses, XXXX XX.X% to the in Our generated EBITDA, and reduced margin the the These in net year headwinds inventory of SG&A the sales sales comparable growth quarter million non-GAAP measurement attributable operating $XX.X XX.X% sales, to totaled loss net second destocking. by or ago compared or Adjusted including million a period. period. in in million lower comparable offset of quarter million the ago year net net compared totaled channel loss changes a $XX.X in primarily the net of second $X.X $X.X by

to performance year operating of X.X% million measurement operating totaled $X.X to income, ago the cash decreased ago in track reduce the benefit attributable levels. to by communicated inventory working non-GAAP equivalents to end cash was year a of target compared comparable cash At sales associated X.X% flow million revolver We or the of Adjusted the in in liquidity, fiscal had measurement the the primarily capacity approximately previously believe negative $XX.X inventory period. and reduction non-GAAP period. a and June in year. increase million million the the $XX.X net of end flow, $XX.X of net in X including of cash on of to sales the The months the million. we that quarter, undrawn ended free or performance $XXX.X $XXX million million in capital XXXX, $XX million total from of XX.X% $XX.X we Free net comparable with XX, remain second

the I’ll over few year turn call rest to of take for just I minutes before Now outlook financial a the provide John, to fiscal the our back XXXX.

adjusted the annual indicators guidance metrics for of Snap business. well as as for these net as reminder, we a overall our key believe for performance One be provides sales to As EBITDA,

as our well expectation of considers persist guidance our the remainder half throughout first XXXX the market performance, will that XXXX fiscal as uncertainty year. Our ongoing

factors reaffirming previously our these communicated outlook. year mind, are With we in full

and represent XX, will billion, to the December expect ending to to $X.XX fiscal year between net X% sales a to continue an billion range $X.XX as-reported the XXXX, decrease prior year X.X% on of which basis. We in fiscal compared

$XXX representing to year prior million an an X.X% to million, decrease X.X% fiscal to a compared We adjusted EBITDA also of continue between as-reported the on to range increase of $XXX expect and basis.

EBITDA incremental Our expansion in adjusted ongoing our EBITDA XXXX. reflects focus adjusted margin to drive guidance

contribution the in disciplined made to this in area, input significant quarters as continue already through operating we have as chain margin costs drive supply to and year-over-year expense rate We and as improvement management. coming well improvement strides normalize, expect through

to over That completes call John. my I’ll summary. back now turn the you,

A Thank thoughts closing we hit Mike. before you, few Q&A.

expectations in the compared plan the margin quarters, and strong Through costs for expansion First, track. in operating continue we last same contribution despite margins, ability are to of steady confident margin as referred two deliver operating our team’s our period that EBITDA gains growth. consistent we’ve on is our to. expand headwinds and the supply to proud related we long-term we our And remain believe year made we’ve to chain to alleviate, our

openings committed in of markets via includes such and to trust to strategy. service, their overarching and transformational growth all branch continue as remain security, growth businesses. environment, to our software an mind. market-leading operating strive we proprietary new commercial partner This one investments, with our be launches our additional partners’ and innovators we to in the product Two, top support new local Even that grow and uncertain

time. for One in in will that scale in Third, can more invested homes and we We’ve the only growth way that increases for consumer, over believe all integrator today all drive for types platforms next experiences for the and will as a I and decade, before, that future. driving the over smarter solutions operating said Snap we become demand capacity and better those imagine we businesses the margins the and of offer

Grace, call that, with open for please the Q&A. And

Instructions] of Erik Thank with Stanley. the you. from comes Morgan [Operator line question Our Woodring first

Your line is open. now

Super. Nice ask weaker taking Thank let’s vendors elaborate suggest that some conversations? so. reason last smart wouldn’t distributors bit call how residential AV bit on my Can demand your they’ve in – you, I maybe in Clearly, guys comments from heard the quarter. for we’ve maybe XX days? you, your excuse other, Just the integrated questions. And just me, is, was quarter. a home the trended more John, it, or a customer

then on have how a have their so original be just business? would for integrators I trended? So a double little feeling helpful. comment And conversations you you. clicking just follow-up Thank about Maybe are How much. customer that

first speak rely is on Rather than conversations learned our we happening there. visibility with is, is there through I anecdotal Thanks, into customers and surveys And we kind say data obviously, out get surveys what’s share in to and backlogs. I data you, I’ll other our a Yes. is a proposal and best work through what Erik, quite bit. the of into decline where think through with what we’ve best slight think

something would I that So decline healthy. in characterize very Yes, terms evident. low percentages. that’s of still as backlogs the is single-digits, it’s in

of then when kind And residential as kind have talking to double the to about you’re so, of click segments. you

what So I’ll where production more. clearly, in we’ve seen some general call That’s builder play the security our weakness products segment.

indicate, be AV was during the as in where kind On from we’re as of kind our growth. side the also said their other of in of our I capacity what end certain a factor something core It’s residential we the markets. coin, seeing and market, what think limiting backlogs happening us might would that has protected

there. and would And only year. out data, this have cite as factor would winning so, that amazing our share is products, the Pro factor. say, be CE then Like as I’ll the survey we I third And the they’re better And really another products. see XXX think getting we second we’re

that’s kept I other so, And are available products they’re from business our our any think available And from not only distributor. us, strong.

Mike. it’s Erik,

put just one of thing on that. top me Let

speak want inventory down. considering sure not talk them, I but will be as how demand the As they talk about don’t about channel other for they being to you folks, I’m

negative I little to demand, think also against think about inventory a inventory their it’s impact factors. channel we’re so, talking we inventory has is the a about demand of And channel bit, our up on excluding And own impacts the but feel everybody that.

Very guys. that’s Okay. both color very you No, from clear. helpful of

you Mike for non-GAAP a margin thank from maybe tailwind for So question nice that. saw pricing. you, clearly contribution is, second My

raise market much, And pricing how today, you’re remind me. if for quarter. Can what then taking it year-over-year tailwind a in historically think much? maybe I And when it just us exactly in you the Thanks that’s guys. you any? X-point so by actions prices was the

couple had Thanks, yes we’ve of of a over Erik, number pricing I the last years, would say actions.

minimal and way back If ‘XX, price X% August in February about you we X% ‘XX, all been we the X%, June raised raised about very go then. to another of since in activity price

all sort behind that So us. now is of

increase think get sales we will as to year-over-year with be pricing when our June, the not price factor about last on last basis, fact, being comparative. a we a In QX comparative

Super. Thank color, very much you the guys. for

Appreciate Great. Thanks, Erik. it.

comes [Operator of Norrison next with Our the question from line Jake Instructions] James. Raymond

is live. now Your line

my for guys. Hey, taking Thanks question.

color clicking on volatile? how mix I’m the would could been if When helpful. double trending? And typically provide any ads of Just on do you. integrators. there Thank that’s how those metrics more More us you color has wondering as integrated more be broadly, churn and the integrated then up? been looking has picked get backlog

on on we’ll those consistent don’t very right I Hey, accounts year, Annually, of is lot we it once tell in it, talk a underneath is disclose Jake, basis. don’t about quarterly There can a quarterly We it’s not but talk our norms. accounts basis. integrated that numbers you it Mike. a fluctuation with a historical integrated now. about

is industry not integrators. of tons our think I adding and tons

winning seeing We’re business, and integrators churn. more the normal of very of low we’re levels the

pretty business business tend One to for great profitable. things They about time. in of is, our integrators to long our tend be stay the a

very integrated so, consistent seeing accounts we that churn, sort little the same of and have And historically. we’re

talked Perfect. playing on with at if out, provide Okay. proprietary third-party at quickly, XXXX, about. you’re versus rest tailwinds you And especially of just the supply just the of then mix more the chain looking sort color of how looking as could you

Yes, second just one [indiscernible].

discounting end-of-year always QX, key A the don’t three are consumer up of our percentage doing I bit. XX% stays the little the We expect that been about to over when XX%. we mix see last much a mix and of lot sit think in Generally, has here couple holiday as movement. products, of between promotions. products today, consistent. quarters see pretty pick talk Remember, products XP we of to we other

see do bit. it we little move So a

increase a look XP to mix. our on to slight in same-store a We basis, see continue

local However, dragged as we that add down it bit. a more stores, little always

our And don’t decrease base a so, move years next in we right where small couple grow it we we to the now. it is of expect as to the expect see dramatically over But mix. from continue store XP to

Okay, thank you, guys, much. so

you. Thank

[Operator Instructions]

more If questions, no to there’s call. I Hi, Grace. are we think fine end the

me just also as of work, quarter. everywhere. to to ongoing continue like to thank for talk us do our as Ashley, partners thank let to network your team next businesses for integration especially for members I We’ll for And our everyone, today. contributions well you incredible great quickly who amazing our thank their joining individuals Grace? Well, investors I’d continued creating experiences support. and want

joining today Thank quarter you One’s second us for earnings call. for XXXX Snap fiscal conference

You disconnect. may now