Snap One Weighing Another Price Hike, With Supply Challenged Until '23
Supply chain constraints are not expected to moderate until 2023, said Snap One CEO John Heyman on a Q4 earnings call Tuesday. The company had expected in late fall that its supply chain issues would start to ease in second-half 2022, but “inflationary pressures,” events in Ukraine and a resurgence of COVID-19 in China, with resulting plant shutdowns, “have caused us more recent concern and those things have rippled through the supply chain,” Heyman said.
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Q3 price hikes the company implemented in August (see 2111050034), about twice that of typical increases, weren’t enough to cover escalating costs, Heyman said. “As we started to see our costs continue to expand and we saw the need to accumulate product for our integrators,” management decided to do “an additional increase of MSRP and of price,” Heyman said. The second increase, announced to dealers in December, took effect Feb. 1.
A third price increase is possible. “Today, we sit here looking at price again” as “a lever that we will use judiciously,” Heyman said, saying Snap has to make sure “partners and MSRP are in good shape.” The company will make sure its issues today “are not short term because we just did a price increase on Feb. 1,” he said.
Deciding where to raise prices is determined by the degree of component cost increases for specific products, Heyman said, citing products with high copper content: “We might look at those in isolation.” The company didn’t want to commit on a call with analysts to a price increase “that doesn't make sense for our market and our industry and then have to live by that price increase,” he said.
Price hikes haven’t had an impact on customer demand, said Heyman, saying dealers continue to have all the business they can handle. If integrators do experience a lull, “it's very easy for them to find work” doing upgrades or remodels for existing residential customers or light commercial work, he said. Commercial business is outpacing the company’s growth rate, he said.
Despite rumblings about a housing market slowdown, Heyman said he remains optimistic for the segment integrators operate in. “We feel like that's going to be quite solid for us,” he said, saying the market is “under-housed.” Homebuyers may spend less overall for a home, but they're still buying, he said.
Snap One is focused on raising revenue from software subscriptions and growing its service subscriber base from the current 100,000. Recurring subscription revenue is about 1% of company net sales, Heyman said. “This is an industry where no one's mandated software to the end customer, yet the end customer is very dependent on software to run their homes,” Heyman said.
Over time, Heyman wants Snap to move away from the legacy hardware-driven pricing model to “pricing based on value vs. pricing based on cost” because of the “very high level of software content that's in our products today that wasn't in our products a decade ago.”
The executive said the roughly $10 monthly fee Control4 put in place for its 4Sight remote access subscription, before its purchase by Snap One, was “elective.” He contrasted it with the $39-$59 recurring monthly fee revenue integrators command for Snap's Parasol remote support service that "allows us to enable the integrator to provide the service our discerning customer expects.”
“We already have a population that is spending somewhere between $120 to $700 or $800 a month on service and software,” Heyman said. He believes the custom channel should “bake that model … for the end customer and for the integrator.” That will “align this smart living industry in a way it's never been aligned between the homeowner or small business owner, the integrator who serves them, and us,” he said. His vision is over one million installations for Snap with a “very rich model” encompassing hardware and installation services, “enhanced by a recurring software and service model.” Based on Snap’s growth trajectory, Heyman said it’s “very easy” to envision a customer base of 1 million homes and small businesses on its platforms in the mid-term future.
On the product side, the company is investing in surveillance systems that Heyman said will be higher end than traditional security offerings. Homeowners and business owners will see a “significant amount of new product launches across many of our categories,” he said, spotlighting “the more connected … smart categories.”
Snap’s current integrator base numbers 16,000 out of a potential universe of about 70,000 U.S. integrators, Heyman said. As it converges different businesses, the company is "getting to the point now that we can start identifying a single customer and ensure we’re not double- or triple-counting a customer,” he said. In markets where Snap has higher share, the integrator spend averages $50,000-$60,000, of which Snap has 10%-15% share, he said. In commercial and security markets, its share is under 5%, he said.
The company opened eight local branches in 2021 in an effort to grow “wallet share” with existing integrators. It now has 31 branches as part of its omnichannel strategy and plans another six to eight this year, with a target of 60 over the next few years.
Chief Financial Officer Mike Carlet identified a typical smart home and automation industry growth rate of 6%-8% but said Snap is “heading that back a little bit” due to supply chain constraints. The company is “looking at organic growth being a little bit below that rate this year as we manage through the supply chain challenges.” Snap projected its 2022 revenue will grow 13%-16% to $1.14 billion-$1.170 billion.
Q4 revenue grew 21% to $273.5 million. Full-year revenue topped $1 billion for the first time, growing by 24%, the company said. Net loss widened to $7.8 million from $4.4 million in the year-ago quarter; for its first year as a public company, Snap's net loss grew to $36.5 million from $25.2 million. Shares plunged 19% Wednesday, closing at $16.58.