Snap One Holdings Corp.

Good afternoon. Welcome to Snap One Holdings Corp's Fiscal Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to turn the call over to Snap One's Vice President of Investor Relations, Eric Steele. Sir, please proceed.

Great, thank you. Good afternoon and welcome to SNAP-1's Fiscal Third Quarter 2021 Earnings Conference Call. As a reminder, this call is being recorded. Joining us today from SNAP-1 are John Heyman, CEO, and Mike Carlett, CFO. Before we begin, we would like to remind everyone that our prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions, including but not limited to statements of expectations, future events, and future financial performance. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call, except to the extent required by law. Actual events or results could differ materially. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of our registration statement on Form S-1 filed with the SEC. All non-GAAP financial measures referenced in today's call are reconciled in our earnings press release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the date of this broadcast, November 4th, 2021. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on our investor relations website at investors.snap1.com. I will now turn the call over to our CEO, John Heyman. John?

Eric, thank you, and welcome, everybody, and thank you so much for joining us on what we know is a really busy afternoon. To begin today's discussion, I'll start with an overview of our business model, our market position, and long-term growth strategy. From there, I'll review our recent updates and highlights, and then I'll turn it over to Mike Carlett, and he'll discuss our financial results for the quarter and We'll then share some closing remarks and open it up for questions. Here at SnapOne, we've developed a smart living platform that empowers professional integrators to deliver joy, connectivity, and security to end consumers on a global scale. Through our e-commerce site and brick-and-mortar facilities, we distribute our proprietary as well as third-party products to a growing network of over 16,000 professional do-it-for-me integrators. We further support our integrator customers with our proprietary software platforms and our tech-enabled workflow solutions to allow them to successfully serve their residential and small business customers. SnapOne was founded by integrators for integrators, and we aspire to be the one partner that professional integrators need for every job. By partnering with us, integrators can increase their earnings while focusing on their trade and leveraging the products, tools, and infrastructure that we deliver to build thriving and profitable businesses. Integrators have embraced our value proposition, creating reoccurring spending patterns that strengthen our integrator relationships and enhance our revenue visibility from our integrator base. The smart living opportunity is large and it is untapped. We believe that we're strategically positioned to power the smart living revolution through our entrenched and growing integrator network. As demand for smart living solutions continues to rise, we anticipate an increasing number of end consumers will rely on professionals to get the job done. In turn, these local professional integrators need a scaled platform like only SNAP1 has to successfully deliver on the promise of the smart home and business. The long-term secular growth drivers of our industry are here to stay. We view those primary drivers as adoption and consumer demand for new experiences in residential and commercial development. First, adoption. According to Statista, only around 35% of the homes in the United States have a smart device. Over the next five years, that's anticipated to grow to almost 60%. Our perspective is that every home will be smart a decade from now, and those homes will have tens, if not hundreds, of connected devices. And homeowners will want an integrator to help them navigate and manage this complexity and realize this potential. Simply, adoption will drive more projects and more spend per project. Second, end consumer demand for new experiences. You, the end consumer, will continue to demand new experiences and upgrades to existing ones. 8K video, as broadcasting and that technology accelerates, will drive a significant upgrade cycle that starts with you. As pressure on the home and business network rises from at home, Use cases, you will demand Wi-Fi 6, and then you'll demand Wi-Fi 7. New use cases, such as aging in place, will drive you to want more from your integrator. And you will demand more of your software and services to access these innovations simply and without depending on multiple apps or disparate products. Third, the at-home phenomenon. is here to stay and the United States is under housed given the demand for housing over the long term and supply chain constraints have caused delays in construction that our integrators have shown an ability to muscle through in the short term. Further, while a significant amount of our sales is linked to upgrades and installations in existing homes, We will also benefit from the robust growth in residential and light commercial construction. On the commercial side, businesses recovering following COVID disruption. We're building products and entering into third-party partnerships in this space to strengthen our relevance to commercial integrators and support their needs in commercial-focused applications. Today, we've built an enterprise that serves hundreds of thousands of home and business owners through our integrators. We aspire to serve millions, and that requires refining our integrator workflow solutions, growing our integrator base outside the United States and in new channels, and investing in the software required to operate the smart home and smart business of the future. Of course, the more connected living spaces become, the more software like Oversea and OS3 will become mission critical. Besides participating in a fast-growing market, our sustainable long-term growth strategy is rooted in five key pillars. One, innovate with new products, software, and tech-enabled workflow solutions. Two, Increase our wallet share with existing integrators, which includes continuing to execute our omnichannel distribution strategy. Three, expanding our global integrator network with professionals focused on residential, security, and commercial applications. Four, developing new software services and revenue models. And five, executing around mergers and acquisitions. We continue to view M&A as a core competency of our company and a strategic value driver for the business and for our integrators. SnapOne operates in a target-rich environment, and with our scale, track record, access to capital, we believe that we have established ourselves as the acquirer of choice in our industry. We expect to continue to pursue disciplined, accretive acquisitions that enhance our products, software, and workflow solutions and help us expand into the adjacent markets we've discussed and geographies, enabling us to best serve our integrator base. Now, I'll turn to some quick updates. Notwithstanding the supply chain constraints many industries have seen this year, we outperformed our expectations in terms of net sales and profitability in Q3, and we look forward to a strong Q4 in 2022 as well. Mike will cover the financials, but let me talk through a few recent highlights. First, Building on the momentum from the second quarter, we continue to expand our omni-channel distribution presence and enter three new fast-growing domestic markets. We open local branches in Hollywood, Florida, Austin, Texas, and Nashville, Tennessee. This brings our nationwide footprint to 30 locations as of quarter end. All of these locations now make SnapOne's leading products immediately available for local integrators while extending our service offering through deeper sales, training, and support engagement. We plan to continue expanding our omnichannel capabilities both domestically and internationally going forward. Second, we have recently shared several exciting product announcements with the industry. Most notably, we made another major upgrade to our Control 4 OS 3 software this quarter with the rollout of OS 3.2.3. Last quarter, we noted that our recent integration of Oversee remote management software and OS 3 allows integrators to remotely service clients' Control 4 connected devices through the Oversee platform. The OS 3.2.3 upgrade brings further enhancements for both integrator partners and end consumers, including increased connectivity and search speed for integrator efficiency and improved control and personalization of their systems for end consumers. This upgrade also brings new Composer Pro features designed to make installations faster and more efficient and adds fundamental platform enhancements for commercial deployments, including a beta release that provides native support for multi-display rooms and video walls. We're encouraged by early integrator feedback and energized by the opportunity in front of us in the growing commercial market. We're also excited about recent product releases, including control for contemporary lighting, oversee workflow enhancements, new cameras and NVRs, mounts and cables. Our product catalog is more robust than ever and we remain committed to driving innovation through our continued investments in new product development. Third, we continue to strategically expand our third-party product portfolio, to provide integrators with a one-stop shop experience. In the last year, we've greatly expanded on our Wear Pros by Audio strategy. We've added the distribution of KEF, Klipsch, Parasound, and Yamaha products. This quarter, we're proud to announce the addition of Sound United brands, Denon and Marantz, to our portfolio, plus the increased investment in our proprietary brands, specifically Episode. Together with our proprietary and third-party brands, we built and we curated a leading lineup of audio solutions to meet the needs of our integrators and end customers. Let me talk quickly about the current environment and then I'll turn it over to Mike. As we assess the current environment, many of our leading market indicators and broader demand sensors have remained strong. Our integrators are extremely busy and many are booked out months in advance. COVID accelerated already healthy smart living adoption trends, fueling durable residential and commercial uptake that is continuing into the fourth quarter. COVID has also produced many industry challenges, including product availability. Our team's commitment to operational efficiency, along with strategic inventory management, have enabled us to successfully navigate these challenges and to serve strong integrated demand for our solutions. Order volume has remained strong, and we continue to add new integrators and increase spend per integrator on a year-over-year basis, both key tenets of our overall growth strategy. As noted previously, we enacted an approximate 5% price increase on our proprietary products beginning in August, which was also partially responsible for the sales lift and contribution margin strength we saw during the quarter. Importantly, we provided our integrators with advance notice of this increase, and we correspondently raised MSRP to protect our integrators' profit, and the reception has been largely positive, which leads us to believe that, as and if needed, our end markets can bear increases as cost inputs rise. In addition to the domestic home technology market, We continue to develop three other channels, security, commercial, and international, to drive long-term growth. During the quarter, we developed a strategic plan to expand our presence outside the US as COVID has subsided. As a reminder, today we do around $100 million outside the US, and we believe these markets present a significant opportunity for us in the future. Our international, commercial, and security businesses are continuing to grow. In fact, each grew at a faster rate than our domestic home technology market in the third quarter. We believe integrators in these adjacent channels are key to serving the accelerating demand for smart living solutions. Put together, these positive operational developments enabled us to deliver a record quarter. Financial highlights include a 15% increase in net sales to over $260 million and a 2% increase in non-GAAP adjusted EBITDA to approximately $32.1 million during the period. Despite moderate headwinds resulting from supply chain shortages during the period, we continue to grow our business, even relative to a strong COVID-accelerated outperformance in Q3 last year. When zooming out a bit further, our two-year organic net sales CAGR remained in the mid-teens in the quarter and sustained long-term sales growth remains the focus. With that, I'll turn it over to our CFO, Mike Corlett, to discuss our financial results for the quarter in greater detail. Mike?