Supply Chain 'Stresses Remain," but China Plants Reopen: Snap One CEO

Supply chain constraints took a 5%-7% bite out of potential Q3 revenue for Snap One and will have a similar impact in Q4, said Chief Financial Officer Mike Carlet on a Thursday earnings call. Components shortages, manufacturing and shipping led headwinds for the company in the quarter.

Some of the plant shutdowns in China due to power cuts “are behind us,” said CEO John Heyman, but “we have a lot of product on ships right now.” The company was able to clear some orders at the end of the quarter “and outperform,” Heyman said, but “stresses remain.” Snap One’s inventory availability metric, typically at 98%-99%, dropped to the “low-to-mid 90s,” said Carlet: “We’re able to fill about 95% of orders.” Supply chain pressures in Q3 were “a little bit less than we anticipated,” he said, crediting the work of the supply chain team.

Five percent price hikes put in place Aug. 1 to offset higher supply chain costs have been "adequate," said Carlet. Heyman said “the entire industry has raised prices,” with many doing it multiple times “and in larger percentages.” Snap gave integrators “lots of notice” so they could give their customers notice: “We generally will honor quotes that have already been made out there to protect the integrators.” The company doesn't plan to raise prices again this year, Carlet said.

Snap's costs and expenses widened to $270 million from $214 million in the year-ago quarter. The company had a net income loss of $21.5 million vs. net income of $1.4 million, with costs associated with becoming a public company and the May Access Networks acquisition “taking a bite out of our profitability” in Q3, said Carlet.

Heyman was optimistic about long-term trends in the residential, security and commercial markets in the U.S. and the company’s renewed international expansion efforts that were disrupted by COVID-19. He cited Statista figures saying 35% of U.S. homes have smart devices today, projected to go to nearly 60% in five years. Most homeowners will want a professional integrator to help them, and adoption will drive more projects and “more spend per project,” he said.

Technology changes such as 8K, Wi-Fi 6 and “aging in place” will drive a “significant upgrade cycle,” Heyman said. Customers will want more of the company's software and services “without depending on multiple apps or disparate products." The pandemic caused delays in housing construction that Snap integrators “muscled through.” He sees “robust growth” ahead as the housing market rebounds.

Snap’s long-term growth strategy centers on product innovation, growing internationally “and in new channels,” software development, and mergers and acquisitions, Heyman said. Growth of brick-and-mortar locations will help expand “wallet share” with existing integrators, he said. The company plans to open six integrator stores annually over the next few years, from the current 30, with a long-term target of 60.

When Snap enters a new market, it finds new integrators that don’t traditionally buy through e-commerce and want to buy through local distribution because of relationships and same-day access to products, Heyman said. Existing Snap e-commerce customers in those markets also shop at the stores when they need products immediately or need third-party products the stores carry that might not be on the Snap website, he said. “Not a single one has disappointed us,” he said of the brick-and-mortar locations that are driving “share shift from more conventional distributors in those locales.”

Heyman envisioned a total addressable market of $43 billion for Snap. Its potential U.S. integrator base of 70,000 has an annual spend of $600,000 each on products that Snap sells, he said. The company is doing business with 16,000 domestic integrators now. All signs point to continued demand for installed smart home systems, Heyman said.

Snap raised full-year guidance slightly by $5 million at the low end, now projecting 2021 revenue of $990 million-$1 billion for the quarter ending Dec. 31. Revenue grew 15% to $260.7 million in the quarter ended Sept. 24, the first quarter to include revenue from Access Networks. Shares closed 13% higher Friday at $18.09.