Snap One Holdings Corp.

Good afternoon and welcome to SNAP-1 Holdings Corp's fiscal third quarter 2023 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-1's Senior Vice President of Finance, Eric Steele. Sir, please proceed. Thank you.

Good afternoon and welcome to SNAP-1's fiscal third quarter 2023 earnings conference call. As a reminder, this call is being recorded. Joining us today from SNAP-1 are John Heyman, CEO, and Mike Carlette, 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, or 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. 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 latest annual report on Form 10-K and our latest quarterly report on Form 10-Q filed with the SEC. All non-GAAP financial measures referenced in today's call are reconciled in our earnings release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the time and date of this broadcast, November 7, 2023. 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. In addition to the webcast, we have posted a supplemental earnings presentation accompanying these results, which can also be found on our investor relations website. I will now turn the call over to our CEO, John Heyman. John?

Thanks, Eric, and welcome, everyone, and thanks for joining us this afternoon. To begin today, I'll give some company background very quickly. I'll follow that up with a review of our strategy and recent performance. And then I'll turn the call over to Mike Carlette, our CFO. Mike will discuss our financial results for the quarter in more depth and provide more on our outlook for the remainder of the year. I'll then share some closing remarks, and then we'll open the call for questions. All right, let's get started. As a reminder, here at SNAP One, we develop and distribute smart living platforms that empower professional integrators to deliver joy, connectivity, and security to discerning residential and commercial customers worldwide. We work with our growing network of approximately 20,000 professional Do It For Me integrators to distribute our proprietary and third-party products through our e-commerce portal and local branches. We further support our integrator partners with our proprietary software platforms and workflow solutions to allow them to successfully serve their customers throughout the project lifecycle. We believe the smart living opportunity is large and durable. Secular tailwinds, including technology adoption, software enablement, housing construction, and small business formation, will continue to propel the industry and our company forward. Many end users will seek professional help to select, install, integrate, and support the technology solutions they require. At SNAP One, we aim to provide our integrator partners with the right tools to capitalize on this opportunity. I'll now turn to our business update. This is an incredibly exciting time at SNAP One. We closed the third quarter with momentum following an impressive showing at the 2023 Cedia Expo that reinforced our leadership position in the smart living industry. It's always energizing for our teams to engage with a forward-thinking community of industry leaders with many of our integrator partners in attendance. Before I get to some CEDIA highlights, I want to first speak about the distribution platform we've been building. During the third quarter, we converged our SNAP-1 and Control 4 portals in the United States, finally bringing together a unified experience for our partners. One place to go to get the best products, training, workflow tools, and service. Second, we continued scaling our brick and mortar presence, opening local branches in Raleigh, North Carolina, and Chantilly, Virginia, to serve our partners in those attractive markets. These and other sales and marketing initiatives are helping to differentiate us in the market. Now back to Cedia. At the Expo, we showcase the breadth of our smart living solutions across a range of both residential and commercial applications and included our audio, networking, power, surveillance, lighting, control, and infrastructure categories. The strength of our oversee and control for software platforms were on display as the connective tissue underpinning our industry leading solution portfolio. Our team, once again, earned numerous industry awards, including number one, Cedia Best New Hardware Award for our Luma X20 family of video surveillance solutions, reflecting expanded residential and commercial applications. We believe surveillance will be the next form of security, and Luma X20 is leading the way for our industry. Two, Residential Tech Today Innovation Award for the new Control 4 single-room bundle and triad passive soundbars, highlighting our continued product innovation and opening new opportunities for our industry. And third, and finally, the Cedia Hall of Fame Award for Oversea and for Control4 OS2, recognizing the Snap1 software platforms that have shaped this industry and transformed the way our partners run their businesses. One of the most exciting takeaways from the Cedia Expo this year was the continued hunger within the industry for an improved service model. Historically, the industry has operated in a transactional way with limited ongoing client engagement following the initial installation. This has often resulted in performance degradation of installed systems in the field, often missing software upgrades and interoperability updates over time, resulting in low consumer satisfaction with their smart living experience. The investments we have made in Control 4 and Overseas are enabling us to help change the way the industry serves its customers. We are positioning the industry to consistently improve the end customer experience with new features and functionality, as well as integration and security updates. These enhancements will allow customers to continuously improve their systems so they get more out of their systems during their lifetime of ownership. After years of investment, we are looking forward to some exciting introductions in the first half of next year. As we look to close this year strong, we are reaffirming our continued focus on two other key strategic initiatives. First, driving higher platform and product adoption by our partners, and in turn, delivering a far better and consumer experience, and two, expanding our operating margins through several key programs which have already yielded positive results. From a platform adoption perspective, our continued innovation in our products, solutions, and service models enhance our relationships with our partners, delivering a better end customer experience and driving market share gains for SNAP1. An unprecedented number of product launches has elevated our leadership role in the industry and extended our position in new channels. Complementing our product portfolio, we continue to enhance our go-to-market strategy to drive ecosystem adoption. We took several important steps during the third quarter, including launching several targeted sales and marketing initiatives to drive towards a strong finish in 2023. completing a quarters-long effort to converge our US and e-commerce portals to provide a unified partner experience, and finally, expanding our local branch presence by opening two local branches, as I discussed earlier. That brings the total number of North American branches to 43 at the end of the quarter, and we expect to open a few additional local branches in the fourth quarter. Strategically, we remain committed to extending our product line for the residential and commercial market while making it more profitable for our integrators to adopt these solutions, providing tighter integration through Control 4 and Oversee to deliver an easier install and unparalleled system reliability, and finally, making it easier for our integrators to buy from us week after week through whichever channel they prefer. While we continue to drive growth, our second strategic initiative is achieving operating margin expansion. During COVID and the supply chain crisis, we prioritized keeping our partners in business. This created near-term inefficiencies for us, including securing componentry, expediting product, and pivoting R&D efforts based on abrupt changes in chipset availability. At this point, the supply chain has largely normalized and our team has successfully extracted these cost inefficiencies, driving sustained contribution margin expansion this year. Importantly, this recovery has allowed our product teams to do what they do best, get back to building new products. We're also driving scale within our operating model, integration activity related to previously completed acquisitions, as well as investments we've been making within our technology infrastructure have continued to yield results. These investments will support our operating margin growth expectations going forward and are evident in our third quarter's results, which I'll now discuss. Our team delivered solid results in the third quarter. We generated 270.1 million in net sales and 33 million in adjusted EBITDA, which represents another quarter of performance that was generally in line with our expectations. As discussed over the last few quarters, our sales have been impacted by ongoing channel inventory destocking since the middle of 2022, but we continue to believe that the industry will reach a normalized level of channel inventory by the end of this year. We're having success driving efficiency with our supply chain efforts, which in addition to our focus on disciplined spending, and ongoing efficiency initiatives has allowed us to expand operating margins to over 12% in the quarter. We expect to build on this momentum heading into next year. And now I'll quickly talk about demand factors. We balance our excitement for the future with a pragmatic view of the current operating environment. The ongoing macroeconomic uncertainty and channeled inventory destocking headwinds have put modest pressure on near-term demand. Generally speaking, our integrator partners continue to report healthy backlogs, and they're optimistic about the future. They're highly adaptable and have proven an ability to pivot to a variety of projects to remain successful in changing market conditions. These can include upgrading their install base with new products or pursuing commercial projects. We have a unique ability to support this flexibility with our diversified business model and product portfolio, which allow us to serve integrator partners across a variety of price points and in markets. While we are seeing some softness from more budget conscious end consumers for entry level projects, we believe that the high end residential and growing commercial markets remain resilient. While we expect to see some demand headwinds continue into 2024, we're confident that we're winning share and will emerge as an even stronger company as the operating environment bounces back. With that, I'm going to turn the call over to Mike Carlett to discuss our third quarter financial results and 2023 outlook in greater detail.