Control4 Still Committed to Growing Overseas Markets Despite Q3 ‘Turbulence’

Control4’s 21 percent Q3 revenue growth in its core North American market was offset by “more modest” international growth of 11 percent, which CEO Martin Plaehn said on an earnings call was due to “growing pains and some turbulence” in China due to changes in the channel model. Plaehn said the disruption from the transition to a direct dealer model from a two-tier distribution strategy was expected but “more pronounced” than forecast.

International volume in Q3 was about $500,000 below the year-ago quarter, Plaehn said, noting that excluding China, Control4’s Q3 2013 international growth rate would have been roughly 25 percent. The revenue “disruption” in China is expected to subside in first half 2014, he said. Control4 has fewer than 100 direct dealers in China and fewer than 50 in India, and hopes to raise those numbers to 200 and “well above 100” by year-end 2014, Plaehn said.

Control4’s primary focus in China and India is on recruiting and training dealers to “fulfill the visible demand” for connected and automated homes in major metropolitan areas, he said. Control4 also had slower growth in the U.K. and central Europe during the quarter, attributable to a “sluggish summer borrowing period,” Plaehn said. Despite the Q3 slowdown in select international territories, Control4 remains bullish on overseas markets. Plaehn said demand for Control4 solutions overseas “has never been stronger” and he called recent limiting growth factors “regional and temporary.”

Stronger growth in North America was due to recent initiatives, including the addition of dealers and “improving the proficiency and efficiency of our existing dealers,” Plaehn said. The company has added technical field specialists to help dealers with business practices, troubleshooting and advance system design and customization. It has also improved the “onboarding process” for new dealers, he said. Control4 has added staff to its customer advocacy department to work with end customers and dealers in addressing product questions, specific installation concerns and requests for installation upgrades and expansions, he said.

On the company’s third-generation lighting product launched in Q3, Plaehn cited a “delicate transition” from the second-gen product from the supply chain and logistics side. There was some “dealer hesitance” in the first several months of the new product’s availability where a few dealers “stepped back,” he said. Dealers didn’t know the products well enough to promote it and “wanted someone else to go first,” he said. Dealers also didn’t want to sell the second-gen lighting product and then have customers find out six weeks later that “they should have bought the new one,” he said. “I think we are through that,” Plaehn said, saying the third-gen lighting product is “still only 60 percent penetrated” in the dealer channel with 15-20 percent penetration to go to meet target levels. He said not all Control4 dealers sell all of its products.

Control4’s Q3 revenue was $33.6 million, up 18 percent from $28.6 million in the year-ago quarter. The company recorded net income of $1.7 million compared with a loss of $4.1 million in Q3 2012. Shares closed 5.6 percent higher Friday at $17.37.