Q3 2021 Snap One Holdings Corp Earnings Call
Good afternoon, and welcome to Snap One Holdings Corp, 's fiscal third quarter 2021 earnings conference call.
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 once vice President of Investor Relations Eric Steel Sir. Please proceed.
Great. Thank you good afternoon, and welcome to snap once fiscal third quarter 2021 earnings Conference call. As a reminder, this call is being recorded joining.
Joining us today from snap one are John Hayman, CEO and Mike Carla 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. One 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 <unk> snap one dot com.
I'll now turn the call over to our CEO, John Hey Man 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 <unk> and he'll discuss our financial results for the corridor will then share some closing remarks and open it up for questions.
Here at snap one we've developed a smart living platform that empowers professional integrators to deliberate joy connectivity and security to end consumers on a global scale.
So 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 16000 professional do it for me integrators, which further support our integrator customers with our proprietary software platforms and our tech enabled work once a week.
To allow them to successfully serve that residential and small business customers.
Snap one 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.
<unk> 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.
Yeah.
The smart living opportunity is large and it is untapped and we believe that we're strategically positioned to power the smart living Revolution, who are entrenched and growing integrator network as demand for smart living solutions continues to rise we anticipate an increasing number of end comes.
Tumors will rely on professionals to get the job done and turn these local professional integrators need a scaled platform like only snap one has the success sex really 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 and residential and commercial development first adoption.
According to the test up 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 hub will be smart a decade from now and those homes will have tens if not hundreds of connected devices.
Isis 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.
And consumer demand for new experiences.
To the end consumer will continue to demand new experiences and upgrades to existing ones 8-K video as broadcasting in that technology accelerates will drive a significant upgrade cycle that structure with you as pressure on the home and business network Wise is for Matt home use cases.
You will demand Wi Fi six and then Youll demand Wi Fi seven 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 underhoused given the demand for housing over the long term and supply chain constraints have caused delays in construction that are in a bill that are 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-19 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 and commercial.
Focused applications.
To date, 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 we're finding our greater workflow solutions growing our integrator based outside the United States and in new channels and investing in the software required to.
Operate the smart home and smart business up in the future of course, the more connected living spaces become more software like oversee and O S. Three 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 workplace solutions to increase our wallet share with existing integrators, which includes <unk>.
To execute our Omnichannel distribution strategy, three expanding our global integrator network with professionals focused on residential security and commercial applications for developing new software services and revenue models and five executing.
Around mergers and acquisition, we continue to view M&A as a core competency of our company and our strategic value driver for the business and for our integrators. So that one operates in a target rich environment.
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 and 2022 as well Mike will cover the financials, but let me talk through a few recent.
Highlights first.
On the momentum from the second quarter, we continued to expand our omni channel distribution presence and then three new fast growing domestic markets. We opened local branches in Hollywood, Florida, Austin, Texas, and Nashville, Tennessee.
This brings our nation wide footprint to 30 locations as of quarter end all of these locations now make snap ones leading products immediately available for both local integrators, while extending our service offerings through deeper sales training and support engagement.
We plan to convert expanding our omni channel 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 four O S. Three software this quarter with the rollout of our West Green Dot two dot three last quarter. We noted that our recent integration of oversea remote management software.
Three allows integrators to remotely service.
Clients control for connected devices to the overseas platform.
As three dot two dot three upgrade brings further enhancements for both integrator partners and end consumers, including increased connectivity and search speed, where in a greater efficiency and improved control and personalization of their systems for end consumers. This upgrade also brings new competitors are appropriate.
<unk> designed to make installations faster and more efficient and that's fundamental platform enhancements, where commercial deployments, including a beta release that provides a 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 and the growing commercial market.
We're also excited about recent product releases, including control Fort contemporary lighting oversee workflow enhancements, new cameras and N V. R's mounts, an 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 the integrators with a one stop shop experience in the last year, we greatly expand on our where our pros by audio strategy. We've added distribution of cap klich parasite and Yamaha products.
This quarter, we're proud to announce the addition of ups downs, United brands, Denon, and Marine store portfolio plus the increased investment in our proprietary brands, specifically episode together with our proprietary and third party brands, we built and we've 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-19 accelerated already healthy smart living adoption trends fueling durable residential and commercial uptake that is.
<unk> into the fourth quarter covenants 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 into greater 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 tenants of our overall growth strategy as noted previously.
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 advanced notice of this increase and we correspondingly 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.
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 U S. As Covid has subsided as a reminder, today we do.
Around $100 million outside the U S 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 come technology market in the third quarter, we believe integrators.
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 on a 2% increase in non-GAAP adjusted EBITDA to approximately $32 1 million during the period despite moderate.
<unk>, resulting from supply chain shortage because during the period, we continued to grow our business even relative to a strong COVID-19 accelerating 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 <unk>.
Long term sales growth remains the focus with that I'll turn it over to our CFO, Mike <unk> to discuss our financial results for the quarter in greater detail Mike.
Thanks, John.
Now turning to our financial results for the fiscal third quarter, which ended on September 24 2021.
Our net sales increased 15%.
$260 7 million from $226 3 million in the comparable year ago period.
Our growth during the quarter was driven by continued demand strength with solid execution against supply chain headwinds gross supply chain headwinds, we estimate to have represented a negative 7% impact on net sales in Q3.
With our proprietary proprietary and third party product portfolios grew over 13% with all major product categories geographic regions and markets experiencing growth in the quarter. This.
This quarter also represented our first full quarter with results included for ex US networks. Following our acquisition in June.
Additionally, we benefited from a price increase and that could across our proprietary product portfolio beginning in August.
Finally, our net sales in the most recent quarter continue.
Fitted from the continued ramp up of local branches with the opening of eight additional branches between the end of the third quarter of 2020 at the end of the third quarter of 2021 as.
As John mentioned this includes three new local branches opened in the most recent quarter and it brings our total local branch count to 30.
Despite the supply chain headwinds, we faced we are pleased with the growth of the business experienced in the third quarter on a reported basis and a two year stack pro forma basis. As we said net sales growth was above our long term growth algorithm of low teens annual growth.
Our cost of sales exclusive of depreciation and amortization increased 14% to $151 3 million, representing 58% of net sales from $133 1 billion, which is 58, 8% of net sales in the comparable year ago period.
The increase in cost of sales exclusive of depreciation and amortization was primarily attributable.
Suitable to higher sales volume.
Our contribution margin and non-GAAP measurement of operating performance increased 18% to $109 5 million, representing 42% of net sales in the fiscal third quarter.
$93 $1 billion.
Representing 41, 2% of net sales in the comparable year ago period.
The increase in contribution margin as a percentage of net sales was primarily due to the net benefit from our price increase across our proprietary product portfolio in August partially offset by increased supplier cost and inbound inbound logistics costs in the period.
Our selling general and administrative expenses increased 57% to $105 million.
Representing 43% of net sales from $67 million, representing 29, 6% of net sales in the comparable year ago period.
The increase in SG&A expenses was primarily due to our IPO and the associated recognition of $14 4 million and equity based compensation expense and $10 6 million in compensation cost pizza certain pre IPO owners for their interest move their participation in the tax receivable agreement entered into in connection with the IPO.
The remaining increase in SG&A expenses was due to increases in variable operating expenses, including outbound shipping credit card processing fees and warranty driven by higher sales volume.
Increased costs associated becoming an operating as a public company.
Ongoing investments to support our strategic growth initiatives and a return to normalized spending levels, while lots of cost reduction actions taken to mitigate the impacts of COVID-19 in 2020.
Our net loss totaled $21 5 million compared to net income of $1 $4 million in the comparable year ago period.
The net loss was primarily due to the year over year increases to selling general and administrative expenses related to the equity based compensation and compensation expense for pails in lieu of PRA participation that we just mentioned.
Adjusted EBITDA, a non-GAAP measurement of operating performance increased 2% to $32 1 million.
Representing 12, 3% of net sales compared to $31 4 million or $13, 90% of net sales in the comparable period.
The increase in adjusted EBITDA result of net sales and contribution margin growth offset by year over year increases in SG&A expenses as previously referenced adjusted for all those IPO related items.
Adjusted net income and non-GAAP measurement of operating performance increased 13% to $16 $7 million, representing six 4% of net sales from $14 8 million or six 5% of net sales in the comparable year ago period.
The increase in adjusted net income was primarily due to net sales and contribution margin growth offset by those increases in SG&A expenses.
And free cash flow, a non-GAAP measurement of operating performance.
Total negative $18 1 million for the nine months ended September 24, 2021, compared to $35 $5 million in the comparable year ago period.
The decrease in free cash flow was primarily attributable to an increase in net cash used in operating activities driven by increases in inventory as well as prepaid vendor deposits, we have made to protect against supply chain uncertainty.
The return of our payable terms to normalized levels. Following temporary extension that we received last year in anticipation of Covid disruption.
At the end of the fiscal third quarter cash and cash equivalents were $60 6 million compared to $77 5 million as of December 25, 2020, our prior year end.
So before I turn the call back over to John I will take US a couple of minutes to provide our financial outlook for the remainder of the year.
As a reminder, at this time, we provide annual guidance for net sales as well as adjusted EBITDA as we believe these metrics to be key indicators for the overall performance of our business.
As we look at the upcoming fourth quarter, we continued to see strong demand for smart living technology. Our teams worked to take proactive measures to shore up our supply chain and inventory position continue.
We're confident in our ability to execute throughout the remainder of the year.
From a cash flow perspective, we'd also like to note that our capital expenditure outlook assume the timing shift with regards to our Salt Lake City office relocation with capital expenditures pushing out several quarters from Q4 2021 as originally anticipated.
Now moving for guidance as a reminder for 2021, our fiscal year ends on December 31, and includes a 50 <unk> week.
As we've said, while we managed well through the supply chain pressures in Q3, those pressures remain and we anticipate that the continued to impact our fourth quarter.
Our strong quarterly performance in Q3 increases are cognizant of full year outlook as of today's call. We are revising our net sales guidance to range between $990 million and 1 billion, which would represent an increase of 21, 6% to 22, 8% compared to the prior fiscal year on an as reported basis.
We're also revising up our adjusted EBITDA estimate.
To a range between $106 million and $110 million, representing an increase of 12, 2% to 16, 5% compared to the prior fiscal year.
Overall, we remain highly confident in the financial health of our business as well as our ability to sustainably grow for the foreseeable future.
Cleveland summary, I'll turn the call back over to John now for additional comments John.
Thanks, Mike.
Look we're very pleased with the quarter.
We're really energized by the tremendous opportunity in front of US both in the short term and the long term.
The industry is robust.
<unk> is high the team is executing across all fronts.
The secular trends, we've talked about make.
It makes what we are doing here in snap <unk>, even more relevant in the future.
We have experienced incredibly healthy growth across geographies markets and product categories. Our integrators have proven resilient in the face of challenging macroeconomic backdrops, thus far and we remain confident in our ability to successfully navigate any future uncertainties with that.
We'll open it up for Q&A.
Thank you at this time, we'll open the line for questions from the company's publishing analysts the company requests that each participant limit their comments to one question and one follow up.
If you would like to ask a question. Please press star one.
Our first question is from the line of Erik Woodring from Morgan Stanley. Your line is now open.
Hey, good afternoon, guys. Congrats on the quarter just a quick one from me on the demand outlook can you just talk about some of the Kpis that you see.
On your end that gives you confidence in the demand outlook not just in <unk>, but into 2022, and then and then I have a follow up thanks.
Hey, Eric This is John I think.
First of all I think the.
What we see as driving kind of our business is always kind of.
Yes, the number of integrators, we have which which drives our capacity and.
The spa.
Spend per and then there are number of things with that.
Dry, but this factor so we continue to see more and more integrators coming.
To our company.
In part that's fueled by our opening of brick and mortar facilities. We have plans to continue to open brick and mortar facilities and so we know when we do that that brings in new partners into our <unk>.
Company to install our products.
I'd say the second thing is we look at our own new product development, and what we're bringing to market together with products that we know that the industry.
That R&R products like Denon.
Miranda.
Which I think are really important.
We know what our history as we enter these products what kind of attach rates we get.
With that with our integrators and then.
Three as we talked to them about backlog as we see kind of what's going on from a building perspective et cetera.
We as a proxy control form is installed in about 100000 homes a year.
There is $1 $5 million or one 5 million homes being built in the U S. Even if housing is a little lighter because of their own supply chain issues theres plenty of homes being built.
And that are under construction that we see.
C.
Getting installed with our products. So we see those factors and then we also see kind of the investments we're making.
With that and we're still cautious about or how that might evolve in the fourth quarter, but our supply chain team and logistics team they've been amazing throughout this and so.
I would say we are.
Still watching componentry, and logistics and I think from our standpoint in talking with our supply chain partners, we see that kind of continuing through the first half of next year of next year, but we also are confident will continue to manage through it and it's been during that time it will be.
Less of an issue not more of an issue.
Great. Thank you so much.
Next question is from the line of Steve Volkmann from Jefferies. Your line is now open.
Hey, good afternoon, guys, maybe just sticking with the supply chain question, John I think you had given us.
Some kpis there that you were able to fill like 95% of orders on schedule or something like that forgive me if I'm remembering that slightly wrong, but can you just update us there on where that stands.
Hey, Mike how are you.
Yes, so a couple of things one would you refrain from asking because our inventory availability metric, which we measure what percentage of our skus are available at any point in time, and so typically we're running up north of 90, 890%, 99% on that metric and it's dropped down into the low to mid nineties immunities around week by week, depending upon as we talked about as John was mentioning <unk>.
Peter just cleared at any given day out of the ports.
That has continued through Q3 as continued today through Q4, and you can translate that into our ability to fulfill an order almost at the same rate. So if we're at 95%.
From an availability standpoint that means we're able to fill about 95% of the orders signed exactly one for one match, but it's pretty darn close and so we've seen that continue.
Say that the.
The supply chain pressures in Q3, we're probably actually a little bit less than we anticipated.
Given all the hard work for our supply chain team.
So we're not alone number one number two many have done so multiple times.
And in larger percentages than we have and I would say the other thing is we are very focused on our integrators business. When we do that meaning we give them lots of notice so that they can give their customers notice and not.
Surprised them negatively we generally will honor quotes that have already been made out there and protect the integrators. So I think what we've been doing this I think frankly integrators expect that and we have continued to build even more trust with them in terms of how we've handled it.
Great I appreciate it I'll pass it on thanks.
We have our next question from the line of Chris Snyder from UBS. Your line is now open.
Thank you. So my first question is on the implied Q4 guidance, which at least by my math calls for revenue in Q4, largely in line with Q3, but a pretty big step down in EBITDA can you just provide some color on what is driving the implied sequential margin decline.
Sure.
If you think about the operating margin on adjusted EBITDA between Q4 and Q3, one that's an extra week. So the holiday we picked out there is an extra week of fixed cost we think about the 50 <unk> week.
Less profitable, we've got an extra week of fixed cost in there.
And you can imagine theres not a lot of work being done.
Between that week, so that drives some if we think about it.
Year on year, we've got obviously access networks come onboard and we havent costs associate with them. We are a public company costs that are out there that are also taking a bite out of our profitability in the quarter. So.
70000 integrators is our addressable market Theres a lot more integrators out there.
Except for addressable market today, and so there's other folks that are servicing smart home technology that will continue to look to.
That's just how we define it today those are people who are actively marketing to we are actively trying to attract into the staff one ecosystem to go after.
I appreciate all that color yeah, yeah, no I appreciate all of that thank you.
We have our next question is from Keith had Montara from BMO capital markets. Your line is now open.
Good afternoon, John Mike Thanks for taking my question.
Maybe just start with can you can you talk a little more about.
The growth that you saw in invested enchanted, but as well as.
To quantify the focus area is commercial and security.
Sure I'll touch on it briefly how you doing.
I would say that we're not at this point going to be disclosing our separate market segments of growth rate. What I can say is that if we look at the quarter, both security and commercial grew at a rate that was faster than the home residential market.
So we have a lot of confidence our continued growth there.
Maybe some time in our future lives will get into some different types of reporting but we can say today is we're very pleased with the growth rates in all of our markets and commercial and security are growing at a rate faster than the residential market.
Okay got it.
And just very quickly and so as our international market.
Been outpacing the growth in <unk>.
Probably COVID-19 had a longer tail, there, but we've seen great recovery there.
Understood. That's helpful. And then just as my follow up.
As you kind of open branches I'm curious kind of.
What you've learned.
And as you've kind of gone and open these tranches.
And has that changed your view at all in terms of the pace that you want to grow these tranches.
I think right now we're kind of we've opened by the time. We're done this year will have open at least 10 new.
New branches I think we're estimating kind of over the next year right now that we can open around six.
We have a model that calls for.
That shows a ramp when we enter a geography, we have generally been seeing are.
Models.
As conservative and we typically have outpaced that growth. So there's two things that happened when we go into the market number one.
We're finding a set of integrators, who don't buy traditionally through E Commerce and <unk>.
Want to buy through local distribution because of relationships access to product et cetera.
They need at that day, and so we've seen our newest type within our greater coming into those.
Brick and mortar facilities. The second thing we are finding is that even our existing integrators, who buy through E. Commerce buy more frequently because they need products that day or first thing. The next morning, or they need third party products that we carry at the branch, but might not help out on the website and so those are the two things that were.
Scene with virtually every local office that we've opened.
I think I'm accurate in saying not a single one.
<unk>.
Basically you know the.
We we depend on two things one surveys of argument base, but also reports from the sizable buying groups in the industry and there is no indication of demand slowing in terms of bookings in terms of new business and.
In terms of integrator optimism about around the future.
So.
But on the answers that simple yep Yep that makes sense I wanted to ask also John on the strategic plan to expand outside the U S. You talked about $100 million today, but significant opportunity in the future could you maybe double click on that plan I think about expansion commercial and security is sort of your existing deal.
[noise] base expansion, but in this international strategic plan I would imagine that that's probably more about new dealer acquisition. So I would just be curious how you would approach that from a recruitment perspective, and what snap brings versus existing lines that dealers used internationally. Thank you.
Sure I think.
It's a good question, let me back up first of all snap.
One before we merged with control for a couple of years ago had very little in terms of an international business and today, it's about 100 million dollar business for us the market.
Is it outside.
Outside the U S.
We estimated to be over $100 billion based on the data we've seen.
So there's a huge opportunity there we at snapped one did not understand the international market because it was it came from the control for a merger and while we focused on the immediate integration of the two companies in late 2000.
20.
With plans to go over.
<unk> with our product line.
That was all interrupted by Covid in early 2020 and 2021.
So.
I did want to just comment on the other part of your question there, while we do business largely with almost <unk>.
75% to 80% of what we'll call the home technology integrators inside the United States.
We have a much lower penetration of the integrators in the security and commercial market. So in that market, we're doing business more with 5000 or so of <unk>.
53000, or greater so a lot of our strategies inside of commercial and security are similar to the international strategy and focus on integrator acquisition through either our commerce site or our brick and mortar facilities.
Next question is from the line of Keith Hughes from <unk>. Your line is now open.
Thank you questions about the pricing I believe you mentioned you got 5% during the quarter, but a weaker person crews implemented intra quarter.
As you go into the fourth will there will there be more.
At a higher price you think you'll realize the other question two can you give us an idea of how much acquisitions contributed to revenue growth in the quarter.
Mike maybe you do the acquisition one.
The price increase was roughly 5%. It was implemented August 1st So we got two months of it I will say there were certain quotes we also honor in the market.
To protect our integrators profits, we don't have another one planned for this year, we don't feel like we need another one based on our cost, but we should see both flow through of the 5% price increase in the fourth quarter.
As far as M&A goes Jon the only.
The M&A activity that we've had is our acquisition of access networks.
We don't disclose specifically what they did in the quarter, but access when we bought it was in the mid <unk> revenue.
On an LTM basis. So you can assume that that's if you split that by four you could assume that's about the impact of what it would've been in the quarter for the full quarter results in there.
Okay. Thank you.
Okay.
Next is Ryan Merkel from William Blair. Your line is now open.
Hey, Thanks, I wanted to follow up on the implied for Q Guide again, just in terms of gross margin should we assume sort of stable or is there something going on where gross margins have come down sequentially.
If you are comparing Q4 versus Q3, we do expect it to come down just a little bit as well.
Powertrain pressures coming in and some mix issues coming in the mix in Q4 is a little bit different you have black Friday, TV sales, which which happened and we benefit from that but that's at a much lower part and so sort of mixed those profile goes change delivering Q4 versus the rest of the year So margin will be.
Tens of bps slower in Q4 as it always is but other than that.
No other extra.
Extraordinary activity moving the margins around one way or another.
Got it that's helpful. And then you mentioned strategic inventory management helped drive sales can you unpack that a little bit and also just comment on your inventory levels are you carrying more inventory than you wanted to sort of protect or are you still short.
Couple of things that so the activity that our team is taking as we've talked about the three supply chain challenges one is the componentry and others manufacturing and the third is logistics and all of them as John talked about earlier are headwinds that are out there.
What were really effectively managing is on the component tree piece on the manufacturing piece are purchasing working very closely with our contract manufacturers in JDM partners to make sure we have visibility.
Low inventory write offs in our in our business as we go through it. So we are optimistic we think the supply chain again, we'll continue to be a bit of a challenge more on the logistics aspects and anything else with some intermittent componentry issues that will have to continue to work around.
I think some of the more strategic things, we're doing is getting down to like what are the components that go into different products identifying does making commitments to those components suppliers things, we haven't had to do before but our balance sheet is a strength of ours, especially against smaller competitors in the market and so we've.
We've done a double click there and.
And gotten commitments that.
And more normal cycles, we havent had to worry about.
Very helpful guys. Thanks.
Thank you Ryan Thanks, Rob.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Herrmann for any closing remarks.
Thanks again, everyone for joining us today really appreciate your time during a busy earning season.
Just got a.
Again applaud.
Our our team at snap one.
Amazing work Theyre doing.
Is.
Inspiring to me, it's delivering for our integrators. So they can deliver amazing results.
Consumers around the world. So thanks, a lot for your time today and really.
We look forward to speaking to you at the end of Q4.
Thank you for joining us today for snap ones fiscal third quarter 2021 earnings Conference call you may now disconnect.