Q1 2022 Snap One Holdings Corp Earnings Call

Great, thank you, Operator. Good afternoon and welcome to SNAP-1's fiscal first quarter 2022 earnings conference call. As a reminder, this call is being recorded. Joining us today from SNAP-1 are John Heyman, CEO , and Mike Carlett, 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.

[music].

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 annual report on Form 10K for the annual period and in December 31, 2021, filed with the SEC.

Yeah.

Good afternoon, and welcome to snap on Holdings Corp fiscal first quarter 2022 earnings conference call. At this time, all participants listen only mode. After the speaker's presentation there'll be a question and answer session I would now like to turn the call over to snap when senior Vice President of Finance, Eric Steele Sir. Please proceed.

Great. Thank you operator, good afternoon, and welcome to the snap ons fiscal first quarter 2022 earnings Conference call. As a reminder, this call is being recorded joining us today from snap one are John Hayman, CEO and Mike Carla CFO .

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 time and date of this broadcast, May 12, 2022. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for reflight on our Investor Relations website at investors.snop1.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.

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.

With that, I'll now turn the call over to our CEO , John Heyman.

Actual events or results could differ materially.

Eric, thank you. Welcome everyone and again thanks for joining us this afternoon.

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 annual report on Form 10-K for the annual period ended December 31, 2021 filed with the SEC.

To start today's discussion, I will review recent highlights and updates, and then I'll turn the call over to our CFO , Mike Carlett, who will discuss our financial results for the quarter, as well as provide an update on our outlook for the remainder of 2022. After that, I'll share some closing remarks and then we'll open the call up for questions.

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 time and date of this broadcast May 12 2022.

As a brief reminder to everyone listening here at SNAP One, we provide a smart living platform that empowers professional integrators to deliver joy, connectivity, and security to end consumers on a global scale. As a leading distributor to this industry, we work with our growing network of approximately 20,000 professional do-it-for-me integrators.

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 about snap on dotcom and.

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.

With that I'll now turn the call over to our CEO John Haman John .

to distribute our proprietary and third-party products through our e-commerce portal and local brand.

Alright. Thank you you are welcome everyone and again, thanks for joining us this afternoon.

We further support our integration partners with our proprietary software platforms and

Today's discussion.

We'll Ricky recent highlights and updates and then I'll turn the call over to our CFO , Mike <unk>, who will discuss our financial results for the quarter as well as provide an update on our outlook for the remainder of 2022 after that I'll share. Some closing remarks, and then we'll open the call up for.

to allow them to successfully serve their residential and commercial customers across

The smart living opportunity is large and mostly untapped. With our entrenched and growing integrator network, we believe we're strategically positioned to power the smart living revolution. As demand for smart living solutions continues to rise, we anticipate an increasing number of end consumers will rely on professionals to get the job done. In turn, we're positioning our integrators and our companies.

Questions.

As a brief reminder to everyone listening here at snap one we provide a smart living platform that empowers professional integrators to deliver joy.

The activity and security to end consumers on a global scale.

Leading distributor to this industry, we work with our growing network of approximately 20000 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 integration partners with our proprietary Saul.

capitalize on the tremendous and durable growth opportunity.

It's within this robust, secular demand environment for smart living experience.

that we see our business continuing to propel forward. Clearly, there's uncertainty that exists in the market, including inflation, the war in Ukraine, supply chain constraints, and rising interest rates. However, we believe we are still operating in a favorable macro and microback

More platforms and digital workflow solutions to allow them to successfully serve that residential and commercial customers across the project lifecycle.

The smart living opportunity is large and mostly untapped with our entrenched in growing integrator network. We believe we're strategically positioned to power the smart living revolution as demand for smart living solutions continues to rise, we anticipate an increasing number of end consumers.

Despite the economic uncertainty, our integrator partners remain busy and demand remains strong. Macro indicators such as housing starts, building permits, housing completions, and residential construction backlogs, even if down modestly on a sequential basis, are robust and positioned favorably relative to historical average.

Well rely on professionals to get the job done.

Turn we're positioning our integrators and our company to capitalize on the tremendous and durable growth opportunity in front of us.

Additionally, repair and remodel spend is expected to expand, and the backdrop for housing at the higher end of the market remains more insulated than the broader one.

It's within this robust secular demand environment for smart living experience is that.

Specifically, the demand for luxury single family homes remains strong, inventory remains below traditional levels, and that provides a sustainable runway of home buyers seeking luxury properties in which our solutions are frequently installed.

We see our business continuing to propel for clearly there's uncertainty that exists in the market, including inflation the war in Ukraine supply chain constraints and rising interest rates. However, we believe we are still operating in a favorable macro and micro backdrop.

The secular trends surrounding population movements, housing shortages, and the proliferation of smart living gives us confidence and a favorable long-term growth outlook. Furthermore, commercial business continues to rebound post COVID and our integrators have shown the ability over time to successfully pivot their project types in different market environments.

Despite the economic uncertainty our integrator partners remain busy and demand remained strong macro indicators such as housing starts building permits housing completely pollutions in residential construction backlogs, even if down modestly on a sequential basis our robot.

And positioned favorably relative to historical averages.

With this backdrop, we aim to help these integrators enhance their capacity and to grow profitable business.

<unk> repair and remodel spend is expected to expand and the backdrop for housing at the higher end of the market remains more insulated than the broader market.

We do this through investing in our business platform which provides needed infrastructure and otherwise makes life easy for the small businesses we serve. Further, we compliment this business platform with a product platform that supports easier installations, higher profits, improved reliability, and enhanced end consumer satisfaction.

Specifically the demand for luxury single family homes remains strong inventory remains below traditional levels and that provides a sustainable runway of homebuyers thinking luxury properties and which our solutions are frequently installed.

We believe that no one is investing in these types of platforms that will drive the future success of this industry like SNAP 1.

The secular trends surrounding population movements housing shortages and the proliferation of smart living gives us confidence in our favorable long term growth outlook.

Let me now take a minute and reflect on the past quarter. These are indeed unprecedented.

The more commercial business continues to rebound post COVID-19 and our integrators have shown the ability over time to successfully pivot their project types in different market environments.

but our unwavering commitment to our integration partners has remained stalled.

Our objective every day is to ensure that our integrator partners have the products they need to be successful as they meet the continued robust demand for smart living solutions.

With this backdrop, we aim to help these integrators enhanced their capacity and to grow profitable businesses. We do this through investing in our business platform, which provides needed infrastructure and otherwise make life easy for the small businesses we serve.

Coming off of Banner 2021, we continue to capitalize on the growth opportunities in front of us this past quarter. Beginning with the top line, we generated over $277 million in net sales during the quarter, an increase of 25.8% from the comparable year ago.

Further we complement this business platform with a product platform that supports easier installations higher profit improved reliability and enhanced and consumer satisfaction.

We believe that no one is investing in these types of platforms that will drive the future success of this industry like snap one.

our efforts to meet demand have resulted in additional costs to the best.

primarily from inflationary pressures and supply chains.

Let me now take a minute and reflect on the past quarter.

However, our skilled execution allowed us to deliver adjusted EBITDA of $23.6 million, an increase of just over 1% from the prior year on an as-reported basis. This included approximately $2 million in public company-related expenses that we did not incur in the prior year.

These are indeed unprecedented times, but our unwavering.

Unwavering commitment to our integration partners has remained stalwart.

Our objective every day is to ensure that our integrator partners have the products they need to be successful as they meet the continued robust demand for smart living solutions.

Excluding those expenses, adjusted EBITDA increased 10% year over.

Coming off a banner 2021, we continue to capitalize on the growth opportunities in front of US This past quarter, beginning with the top line, we generated over 277 million in net sales during the quarter an increase of 28 excuse me 25, 8% from the comparable year.

We also successfully executed across a range of strategic initiatives including the following key accomplishments.

First, in January , we announced the acquisition of Stalb Electronics as our long-time distribution partner in Canada. The acquisition was a natural way for us to deliver more product choice, faster fulfillment,

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Our efforts to meet demand have resulted in additional costs to the business primarily from for inflationary pressures and supply chain constraints.

superior support for professional integrators across Canada.

This strategic acquisition accelerates our penetration of the Canadian market and it positions us for long-term growth in this important geography.

<unk>, our skilled execution allowed us to deliver adjusted EBITDA of $23 6 million an increase of just over 1% from the prior year on an as reported basis. This included approximately $10 million and public company related expenses that we did not incur in the prior year.

And second, effective January 31st, we launched our all-new Partner Rewards Program, which unifies the previous SNAP-1, Control-4, and local distribution loyalty programs under a single program. We believe the industry's most rewarding program just got even better as SNAP-1 integrators now will earn rewards on every purchase.

Excluding those expenses adjusted EBITDA increased 10% year over year.

We also successfully executed across a range of strategic initiatives, including the following key accomplishments.

Additionally, the Unified Point Space Program is a critical step forward in enabling us to deploy digitally enabled strategies to expose our integrators to new products and drive wallets.

First in January we announced the acquisition of Saba Electronics is all long time distribution partner in Canada. The acquisition was a natural way for us to deliver more product choice.

Third, we were humbled to earn 17 awards.

across 22 categories, and the CE Pro 2022 Quest for Quality Awards announced in March.

Their fulfillment and superior support for professional integrators across Canada.

This strategic acquisition accelerates, our penetration of the Canadian market and positions us for long term growth in this important geography.

SNAP won 17 honors, for more than twice, as many as the next most awarded competitor, and reflect the outstanding service we deliver. Thank you to our partners for your vote of confidence in SNAP-1 and to our team members for your exceptional service. 4. We

Second effective January 31st we launched our all new partner rewards program, which unifies the previous snap one control for and local distribution loyalty programs under a single program. We believe the industry is most rewarding program just got even better it's not one integrators now.

the opening of a new local branch to serve the Washington, D.C. metro area. Bringing our domestic footprint to 31 local

Earn rewards on every purchase.

Our local branches strengthen our existing integration relationships. They add incremental purchase opportunities and expand our integrator network in the local community. We intend to continue investing in the expansion of our local branch network. Fifth, we bolster

Additionally, unified points based program is a critical step forward and then enabling us to deploy digitally enabled strategies to expose our integrators to new products and drive wallet share growth.

Third we were humbled to earn 17 awards across 22 categories in the CE Pro 2022 Quest for quality Awards announced in March Snap 117 honors were more than twice as many as the next most awarded competitor and reflect the <unk>.

through the appointment of our new Chief Information Officer, Manit Singh. Manit will focus on the strategic design and implementation of business infrastructure to enable scalable and efficient growth. We're thrilled to welcome Manit to our chair.

Outstanding service, we deliver thank you to our partners for your vote of confidence in snap one and to our team members for your exceptional service.

Our success in Q1 continues to reflect the strong execution against our proven playbook to drive sustainable long-term growth. As a reminder, this growth strategy remains rooted in five key pillars. Number one, increase our wallet share with existing integrators. Two, expand our global integrator network.

Fourth we continue to build our omni channel presence with the opening of a new local branch to starve, the Washington D. C Metro area, bringing our domestic footprint to 31 local branches, our local branches strengthen our existing integration relationships they add incremental purchase opportunities.

three, innovate with new products, software, and tech-enabled workflow solutions, four, develop new software services and revenue models, and five, execute on strategic M&A. We continue to make progress in all these fronts as we look to 23 and beyond.

And expand our integrator network and the local community we intend to continue investing in the expansion of our local branch network there.

We bolstered our senior leadership team through the appointment of our new Chief Information Officer, a neat thing.

Let me now comment briefly on our outlook for the rest of the year and then I'll turn the call over to Mike.

<unk> will focus on the strategic design and implementation of business infrastructure to enable scalable and efficient growth, we're thrilled to welcome Mindy to our team.

As I spoke to earlier, while supply chain challenges persist, we've strategically deployed our balance sheet and executed well to circumvent these near-term hurdles. Our team has been hard at work optimizing our approach.

Our success in Q1 continues to reflect the strong execution against our proven playbook to drive sustainable long term growth.

component resourcing, inbound logistics, and air freight. Our engineering team

As a reminder, this growth strategy remains rooted in five key pillars number one increase our wallet share with existing integrators to expand our global integrator network three.

have worked tirelessly to re-engineer products based on component availability.

Our sales and support teams work diligently to find available products to quickly and efficiently meet our integrators project needs.

Three innovating with new products software and tech enabled workflow solutions for develop new software services and revenue models and by execute on strategic M&A. We continue to make progress on all these fronts as we look to 'twenty three and beyond.

demand from our integrators, we've continued to drive strong performance, positioning us firmly to meet our objectives for the future.

Notwithstanding the efforts of these teams, these challenges come with added costs as have been well-publicized in the general economy.

Let me now comment briefly on our outlook for the rest of the year and then I'll turn the call over to Mike.

Fortunately, we've utilized an evolving pricing strategy in a balanced manner as we assess rising costs, competitive forces, and the affordability of solutions the industry offers.

As I spoke to earlier.

While supply chain challenges persist, we strategically deployed our balance sheet and executed well to circumvent these near term hurdles. Our team has been hard at work optimizing our approaches to componentry sourcing inbound logistics and airfreight our engineering teams.

Earlier this week, we announced a price adjustment on our proprietary product portfolio to address rising supply chain and inflationary cost pressures and to support our investments to further strengthen our leading supply chain capabilities. The approximate 8% blended price adjustment has an effective date of June 6th and is in line with recent competitive

I have worked tirelessly to reengineer products based on component availability, our sales and support teams worked diligently to find available products to quickly and efficiently meet our integrators project needs. Thanks to their efforts and sustained demand from our integrators. We've continued to drive strong performance.

We implemented this price adjustment in a way that protects our partners, including by providing advanced notice and by making corresponding adjustments to MSRP.

Definitely not.

Normally to meet our objectives for the year.

Most importantly, demand for our products and services remains high and we've entered 2022 with strong momentum due to continued healthy trends and smart living adoption. Endurable residential and commercial uptakes are integrated remain extremely busy with many booked out months in advance.

Notwithstanding the efforts of these teams these challenges come with added costs as had been well publicized in the general economy.

Fortunately, we utilized an evolving pricing strategy in a balanced manner as we assess rising cost competitive forces and the affordability of solutions the industry offers.

We remain confident in the resiliency of our integrators and our own business and we look forward to expanding our share of a rapidly growing market while remaining prudently conservative with our expectation.

Earlier this week, we announced a price adjustment on our proprietary product portfolio to address rising supply chain and inflationary cost pressures and to support our investments to further strengthen our leading supply chain capabilities.

With that, I will turn the call over to Mike Carlett, our CFO , to discuss our first quarter results and updated 2022 outlook in greater detail.

[noise] approximate 8% blended price adjustment has an effective date of June six and is in line with recent competitiveness.

Thanks, John . Now we'll turn to our financial results for the fiscal first quarter, which ended on April 1st of 2022.

We implemented this price adjustment in a way that protects our partners, including partners by providing advanced notice and by making corresponding adjustments to MFS RP.

Net sales in the fiscal first quarter increased 25.8 percent to 277.4 million up from 220.5 million in the comparable year ago period.

Most importantly demand for our products and services remains high and we've entered 2022 with strong momentum due to continued healthy trends in smart living adoption and durable residential and commercial uptake our integrator for main extremely busy with many booked out months in advance.

The growth in net sales during the quarter was driven by strong overall demand across geographies, markets, and product categories.

Growth was also driven by the benefit of the acquisition of access networks, which was acquired in Q2 last year, the partial quarter benefit of Stab electronics, which as John said was acquired in late January this year, and the continued ramp-up of local branches that were opened in the previous year.

We remain confident in the resiliency of our integrators and our own business and we look forward to expanding our share of a rapidly growing market, while the remaining prudently conservative with our expectations with that I will turn the call over to Mike <unk>, our CFO to discuss our first quarter result.

Additionally, we benefited from the cumulative impact of price increases taken in the past year, including actions in March and August of 2021 and most recently in February of 2022.

And updated 2022 outlook in greater detail Mike.

While supply chain challenges represented a low single digits headwind in the quarter, we continue to take proactive measures to mitigate and deliver for our integrators.

Thanks, Sean.

Now, we will turn to our financial results for the fiscal first quarter, which ended on April one 2022.

Contribution margin, which is a non-gap measurement of operating performance, increased 14.7% to $105.1 million, or 37.9% of sales in the fiscal first quarter, which is up from 91.6 million, or 41.5% of net sales in the comparable year-ago period.

Net sales in the fiscal first quarter increased 25, 8% to $277 4 million up from $220 5 million in the comparable year ago period.

The growth in net sales during the quarter was driven by strong overall demand across geographies markets and product categories.

The increase in contribution margin dollars was primarily due to net sales growth.

Growth was also driven by the benefit of the acquisition of access networks, which was acquired in Q2 last year.

The decrease in the contribution margin as a percentage of net sales was primarily related to our local branch expansion and growth strategy, which drove a change in product mix as our local branch footprint skews toward third-party product sales.

Partial quarter benefit of starboard electronics, which as John said was acquired in late January of this year and the continued ramp up of local branches that were opened in the previous year.

Additionally, we benefited from the cumulative impact of price increases taken in the past year.

As a reminder, third-party products typically have a lower contribution margin as a percentage of net sales relative to our proprietary product.

<unk> actions in March and August of 2021, and most recently in February of 2022.

The strategic expansion of our local branch footprint and curated third-party product portfolio remains an important part of our value proposition.

While supply chain challenges represented a low single digit headwind in the quarter, we continued to take proactive measures to mitigate and deliver for our integrators.

We seek to provide our integrators with a one-stop shop for their product needs, while enhancing integrator loyalty and capturing incremental contribution margin dollars.

Contribution margin, which is a non-GAAP measurement of operating performance increased 14, 7% to $105 $1 million or 37, 9% of sales in the fiscal first quarter, which was up from $91 6 million or <unk> 41, 5% of net sales in the comparable year ago period.

Contribution margin as a percentage of net sales, also the coin relative to the comparable year ago period, due to increased componentry and logistics costs related to the broader industry-wide supply chain challenge.

These contribution margin rate pressures were partially offset by the pricing actions that have been enacted over the course of the last year.

The increase in contribution margin dollars was primarily due to net sales growth.

The decrease in the contribution margin as a percentage of net sales was primarily related to our local branch expansion and growth strategy, which drove a change in product mix as our local branch footprint skews towards third party product sales.

Our selling general and administrative expense in fiscal first quarter 2022 increased 14.8% to 86.5 million, which is 31.2% of net sales, which is up from $75.4 million or 34.2% of net sales in the comparable year ago period.

As a reminder, third party products typically have a lower contribution margin as a percentage of net sales relative to our proprietary products.

The increase in SG&A expenses during the quarter was primarily due to increased costs associated with becoming and operating as a public company, as well as ongoing investments to support strategic growth initiatives, the acquired costs of access networks and SOB, which we did not own in the prior year of fiscal first quarter, and finally the recognition of equity-based compensation expenses.

A strategic expansion of our local branch footprint and curated third party product portfolio remains an important part of our value proposition, we seek to provide our integrators with a one stop shop for their product needs, while enhancing its a greater loyalty and capturing incremental contribution margin dollars.

Contribution margin as a percentage of net sales also declined relative to the comparable year ago period, due to increased component tree and with the logistics costs related to the broader industry wide supply chain challenges.

Over the long term, we expect to achieve operating expense leverage as a business scales and we realize the efficiencies of a unified operating platform.

Our net loss totaled $2.3 million in the first quarter compared to a net loss of $6 million in the comparable year ago period.

These contribution margin rate pressures were partially offset by the pricing actions that have been enacted over the course of the last year.

Adjusted EBITDA, which is a non-gap measurement of operating performance, increased 1.1 percent to $23.6 million, or 8.5 percent of net sales in the first quarter 2022, compared to $23.3 million or 10.6 percent of net sales in the comparable year ago period.

Our selling general and administrative expense in fiscal first quarter 2022 increased 14, 8% to $86 5 million, which was 31, 2% of net sales, which was up from $75 4 million or 34, 2% of net sales in the comparable year ago period.

After normalizing adjusted EBITDA for the approximately two million dollars of public company-related expenses that we incurred in the quarter, comparable year-over-year growth in adjusted EBITDA was 10.1%.

The increase in SG&A expenses during the quarter was primarily due to increased costs associated with becoming and operating as a public company as well as ongoing investments to support strategic growth initiatives. The required cost of access networks, and Saab, which we did not own in the prior year fiscal first quarter and finally, the recognition of equity based compensation.

The adjusted EBITDA growth in the quarter was primarily attributable to net sales and contribution margin growth offset by the increased SG&A expense.

The decrease in adjusted EBITDA as a percentage of net sales in the quarter is primarily attributable to the contribution margin as a percentage of net sales declining on a year-over-year basis.

<unk> expenses.

Over the long term, we expect to achieve operating expense leverage as the business scales and we realize the efficiencies of a unified operating platform.

Our net loss totaled $2 $3 million in the first quarter compared to a net loss of $6 million in the comparable year ago period.

Adjusted net income, a non-gap measurement of operating performance increased 18.6% to $10.7 million or 3.9% of net sales.

Adjusted EBITDA, which is a non-GAAP measurement of operating performance increased one 1% to $23 6 million or.

up from $9 million or 4.1 percent of net sales in the comparable year ago period.

Or eight 5% of net sales in the first quarter 2022, compared to $23 $3 million were 10, 6% of net sales in the comparable year ago period.

Free cash flow, a non-gap measurement of operating performance, totaled negative $26.3 million in the three months ended April 1st, 2022, compared to negative $25.9 million in the comparable year ago period.

After normalizing adjusted EBITDA for the approximately $2 million of public company related expenses that we incurred in the quarter comparable year over year growth and adjusted EBITDA was 10, 1%.

The decrease in free cash flow was primarily attributable to net cash use and operating activities and an increase in purchases of property and equipment compared to the comparable year ago period.

The adjusted EBITDA growth in the quarter was primarily attributable to net sales and contribution margin growth offset by the increased SG&A expenses.

Net cash used in operating activities was driven by the strategic use of our balance sheet to protect against supply chain uncertainty resulting in the use of networking capital including increases in inventory.

The decrease in adjusted EBITDA as a percentage of net sales in the quarter is primarily attributable to the contributive margin as a percentage of net sales declining on a year over year basis.

At the end of the fiscal first quarter of 2022, cash and cash equivalents were $25.1 million.

Adjusted net income a non-GAAP measurement of operating performance increased 18, 6% to $10 7 million or three 9% of net sales.

In addition to the financial metrics we've reported to date, we'd like to take this time to formally introduce additional revenue disaggregation disclosures and a few key performance indicators or KPIs.

Up from $9 million were four 1% of net sales in the comparable year ago period.

Our goal with these metrics is to provide investors with enhanced visibility into our performance.

Free cash flow a non-GAAP measurement of operating performance totaled negative $26 $3 million in the three months ended April one 2022 compared to negative $25 $9 million in the comparable year ago period.

Previously, we disaggregated revenue by geography between the United States or domestic and international.

We are now further expanding our domestic revenue disaggregation to distinguish between domestic integrator revenue and domestic other revenue.

The decrease in free cash flow was primarily attributable to net cash used in operating activities and an increase in purchases of property and equipment compared to the comparable year ago period.

Domestic integrator revenue represents the majority of our business today and is transacted on a direct-to-integrator basis, while domestic other revenue reflects recently acquired entities and revenue generated through managed transactions with non-integrator customers such as national accounts.

Net cash used in operating activities was driven by the strategic use of our balance sheet to protect against supply chain uncertainty, resulting in the use of net working capital including increases in inventory.

We're also introducing a new revenue disaggregation to categorize our sales by product type between proprietary and third party products.

At the end of the fiscal first quarter 2022, cash and cash equivalents were $25 1 million.

The proprietary product is one where SNAP-1 is developed to product and services internally and is distributed under one of SNAP-1's proprietary brands.

In addition to the financial metrics, we've reported to date I would like to take this time to formally introduce additional revenue disaggregation disclosures and a few key performance indicators or kpis.

The proprietary product typically generates a higher contribution margin rate to snap one relative to a third party product.

Our goal with these metrics to provide investors with enhanced visibility into our performance.

All the revenue disaggregation disclosures will be reported on a quarterly basis going forward.

Previously, we disaggregated revenue by geography between the United States, where domestic and international.

So in Q1 2022, proprietary product represented 67.7% of net sales down from 69% in Q1 of 2021.

We are now further expanding our domestic revenue disaggregation to distinguish between domestic integrator revenue and domestic other revenue.

The decrease in proprietary sales mix is driven by the growth of third-party product outpacing the growth of proprietary product, primarily related to our strategic efforts to expand our local branch network, where we typically sell more third-party products than proprietary products.

Domestic integrator revenue represents the majority of our business today. It is transacted on the rest of the integrator basis, while domestic other the other revenue reflects recently acquired entities and revenue generated through managed transactions with non integrator customers such as national accounts.

In addition, to provide enhanced visibility into key operating metrics, we are introducing new KPIs regarding the count of transacting domestic integrators and the spend for transacting domestic integrator. These metrics will be presented annually on a fiscal year-end basis.

We're also introducing a new revenue disaggregation to categories, our sales by product by between proprietary and third party products.

Our proprietary product was one where snap one has developed a product and services internally and is distributed under one of snap on's proprietary brands.

In fiscal year 2021, we transacted with approximately 20,000 domestic integrators who spent $41,500 on average.

Primary productivity generates a higher contribution margin rate to snap one relative to a third party product.

On a year-over-year basis, the number of transacting domestic integrators and spend-per-transacting integrator increased 11.7% and 8.4% respectively.

All of the revenue disaggregation disclosures will be reported on a quarterly basis going forward.

So in Q1 2022 proprietary products represented 67, 7% of net sales down from 69% in Q1 of 2021.

Over time, we have demonstrated consistent ability to grow both our number of domestic integrators as well as our spend for domestic integrators.

The decrease in proprietary sales mix is driven by the growth of third party products outpacing the growth of proprietary products, primarily related to our strategic efforts to expand our local branch network, where we typically saw more third party products and proprietary product.

Now before I turn the call back over to John , I'll take just a few minutes to provide an update on our financial outlook for the remainder of the year.

As a reminder, Snappone provides 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.

In addition to provide enhanced visibility into key operating metrics, we are introducing new kpis regarding the counts of transacting domestic integrators and the spend per transacting domestic integrator. These.

Fiscal 2022 revised guidance considers our fiscal first quarter outperformance, our recently announced price adjustment, which is effective June's fix, and our anticipation of continued supply chain headwinds and economic uncertainty.

These metrics will be presented annually on a fiscal year end basis.

In fiscal year 2021, we transacted with approximately 20000 domestic integrators, who has been $41500 on average.

Taking these factors into consideration, we expect net sales in the fiscal year ending December 30, 2022 to range between 1.16 billion and 1.18 billion, which would represent an increase of 15% to 17% compared to the prior fiscal year on an as reported basis and an increase of 17% to 19% after adjusting fiscal 21 to remove the impact of the 53rd week.

On a year over year basis, the number of transactions domestic integrators and spend per transacting integrator increased 11, 7% and eight 4% respectively.

Overtime, we have demonstrated a consistent ability to grow both our number of domestic integrators as well as our spend for domestic integrator.

Now before I turn the call back over to John I will take just a few minutes to provide an update on our financial outlook for the remainder of the year.

The upwardly revised guidance represents an increase of $20 million and $10 million to the low and high end, respectively, of our initial guidance range that we communicated in March in conjunction with our fiscal 2021 earnings.

As a reminder, snapple and provides 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.

We believe the contributing factors to our 2022 net sales growth on a 52-week basis are as follows.

Our fiscal 2022 revised guidance considers our fiscal first quarter outperformance, our recently announced price adjustment, which is effective June six.

12% to 14% of our growth will come from organic growth, which includes volume, historical and planned pricing actions, as well as the impact of new local branch opening.

And our anticipation of continued supply chain headwinds and economic uncertainty.

5% of the growth will come from the impact of recently completed M&A, including access networks and style electronics.

Taking these factors into consideration we expect net sales in the fiscal year ending December 30, <unk> 2022 to range between $1 $1 6 billion and $1 8 billion, which would represent an increase of 15% to 17% compared to the prior fiscal year on an as reported basis and an increase of 17%.

On an as reported basis, the lapping of the 53rd week in 2021 represents approximately 2% net sales growth at 1%.

We expect adjusted EBITDAB to range between $115 million and $121 million, representing an increase of 5% to 9% compared to the prior fiscal year on an AS reported basis.

To 19% after adjusting fiscal 'twenty, one to remove the impact of the 50 <unk> week.

The upwardly revised guidance represents an increase of $20 million and $10 million to the low and high end, respectively. If our initial guidance range that we communicated in March in conjunction with our fiscal 2021 earnings.

Presenting 2021 on a 52-week adjusted basis and annualizing for a full year of public company costs of approximately $8.4 million, our 2022 adjusted EBITDA guidance would represent a year-over increase of 10% to 15%.

We believe the contributing factors to our 2022 net sales growth on a 52 week basis are as follows.

This upwardly revised guidance represents an increase of $2 million and $1 million to the low and high end, respectively, of our initial guidance range, which we communicated in March in conjunction with our fiscal 2021 earth.

12% to 14% of our growth will come from organic growth, which includes volume historical and planned pricing actions as well as the impact of new local branch openings.

5% of the growth will come from the impact of recently completed M&A, including access networks installed electronics.

Overall, we remain highly confident in the financial health of our business, as well as our ability to sustainably grow for the foreseeable future.

On an as reported basis, the lapping of the 50 <unk> week in 2021 represents approximately 2% net sales growth headwind.

As stated in today's earnings press release, we announced that the SNAP-1 Board of Directors has approved the stock repurchase program that authorizes the potential repurchase of up to $25 million more common stock through the end of 2023.

We expect adjusted EBITDA to range between $160 million and $121 million representing.

Representing an increase of 5% to 9% compared to the prior fiscal year on an as reported basis.

We believe our entrenched relationships in the reoccurring spending patterns of our integrators yields an attractive cashflow generating business model. These dynamics enable us to continue to prioritize reinvestment in the growth of our business as well as the other areas previously noted as the main drivers of our capital allocation strategy.

Presenting 2021 on a 52 week adjusted basis, and annualize them for a full year of public company costs of approximately $8 $4 million or 2022, adjusted EBIT EBITDA guidance would represent a year over increase of 10% to 15%.

This upwardly revised guidance represents an increase of $2 million and $1 million to the low and high end, respectively of our initial guidance range, which we communicated in March in conjunction with our fiscal 2021 earnings.

is our view that providing our leadership with the additional optionality to maximize returns for shareholders through both our existing operations as well as in the capital markets is the best practice.

To the extent we feel that our company's shares present a compelling investment opportunity at their current valuation, we may repurchase our common stock in the open market from time to time in amounts, at prices, and at such times as the company deems appropriate, subject to market conditions, as well as federal and state laws governing such transactions.

Overall, we remain highly confident in the financial health of our business as well as our ability to sustainably grow for the foreseeable future.

And one final update before I pass the call over to John .

As stated in today's earnings press release, we announced that the snap one board of directors has approved a stock repurchase program that authorizes the potential repurchase of up to $25 million of our common stock through the end of 2023.

We expect to fund the repurchases from our existing cash balance, including cash generated from operation.

That completes my summary. I now like to turn the call back over to John for additional comments. John ?

We believe our entrench relationships and the reoccurring spending patterns of our integrators yields an attractive cash flow generating business model.

Thanks, Mike. A few closing thoughts, and then we'll take Q&A. Number one, with the strong, sustained industry-wide demand we see, we're continuing to focus on supporting our integrators to capitalize on the opportunity in front of us and them, and that includes new product launches, software investments,

These dynamics enable us to continue to prioritize reinvestment in the growth of our business as well as the other areas previously noted as the main drivers of our capital allocation strategy.

It was our view that providing our leadership with the additional optionality to maximize returns for shareholders through both our existing operations as well as in the capital markets as a best practice to.

platform developments. That's our growth strategy and it remains our North Star. Two, our teams continue to work diligently through supply chain and through logistics challenges and we feel we have the processes in place to handle whatever obstacles might be on the horizon. Priority one,

To the extent, we feel that our company's shares present, a compelling investment opportunity at our current valuation we may repurchase our common stock in the open market from time to time to time and amounts at prices and at such times as the company deems appropriate subject to market conditions as well as federal and state laws governing such transactions.

We expect to fund the repurchases from our existing cash balance, including cash generated from operations.

means delivering for our integration partners and ensuring they can keep their projects moving while priority 1A continues to be doing that in a manner that protects our partners and our company's financial performance using price, MSRP, and key productivity.

That completes my summary, I'd now like to turn the call back over to John for additional comments John .

Thanks, Mike abuse.

<unk> thoughts and then we'll take Q&A.

as we implement an additional price adjustment in Q2 of this year, we do so with the ability to deliver on those priorities in mind and with the belief that broader challenges will subside over time. Three, we're proud of our results.

Number one.

With the strong sustained industry wide demand, we say, we're continuing to focus on supporting our integrators to capitalize on the opportunity in front of us and them and that includes new product launches software investments and platform development.

We believe we are establishing the track record of consistently delivering on our financial commitments and will continue to focus on driving shareholder value over the short and long.

Our growth strategy and it remains our north star here.

Okay.

Our teams continue to work diligently through supply chain and logistics challenges and we feel we have the processes in place to handle whatever obstacles might be on the horizon priority one.

And finally, we remain bullish around our long-term operating model, notwithstanding the noise of the current macro environment. The scale and the platforms we're investing in will drive better solutions for the end consumer, more capacity for the integrator, and growth for SNAP-1 in a way that increases operating margin over time.

Remains delivering for our integration partners and ensuring they can keep their projects moving while priority <unk> continues to be doing that in a manner that protects our partners and our company's financial performance using price MSRP and key productivity levers as we implement.

Our actions in Q1 have set us up for what we expect to be a year of healthy growth for SNAP-1 and exciting times ahead for our amazing team, our integrators, and then consumers. With that, we'll open the call up for Q&A.

An additional price adjustment in Q2 of this year, we do set with the ability to deliver on those priorities in mind and with the belief that broader challenges will subside over time.

Thank you. At this time, we'll open the line for questions from the company's publishing

The company requests that each participant limit their competence to one question and one follow-up. If you have a question or a comment at this time, please press the one key on your touch tone telephone. If you wish to be removed from the queue, please press the pound.

Three we're proud of our results to date as a public company. We believe we are establishing a track record of consistently delivering on our financial commitment and will continue to focus on driving shareholder value over the short and long term and finally, we remain bullish around our long term operating model.

Our first question comes from Eric Woodring with Morgan Stanley .

Hey guys, good afternoon, congrats on the very strong quarter. You guys mentioned the 17 awards you won in the CE ProQuest for Quality Awards. Can you guys just give us some additional detail, maybe some of the categories where you won, maybe some of the categories that you didn't win. Just help us better understand where you're getting recognized. Obviously, two times you're nearest competitor, but we'd just love to see or better understand where you're actually winning in those categories. And I have a follow-up.

Notwithstanding the noise of the current macro environment the scale and the platforms. We're investing in will drive better solutions for the end consumer more capacity for the integrator and growth for snap one in a way that increases operating margin over time, our actions in Q1 has set us up for what we expect to be a year.

Healthy growth for snap won an exciting times are ahead for our amazing team, our integrators and end consumers with that well open the call up for Q&A.

Thanks, Eric. And good afternoon. I'd say.

There's two sets of big awards that the industry offers. One are more product-oriented and one are more service-oriented. The ones that are more product-oriented go to manufacturers of products. The ones that are more service-oriented go to distributors.

Thank you at this time, we will open the lines for questions from the company's publishing analysts the company requests that each participant limit their comments to one question and one follow up.

Do you have a question or a comment at this time. Please press the one key on your Touchtone telephone if you wish to be removed from the queue. Please press the pound key.

So, the quest for quality awards are traditionally awarded to distributors, there are, there are some manufacturer elements in there, but traditionally distributors where we are revered are areas like.

Our first question comes from Erik Woodring with Morgan Stanley .

Hey, guys. Good afternoon, congrats on the on the very strong quarter.

You guys mentioned the 17 awards you won in the CE CE Pro Quest for quality Award can you guys just give us some additional detail maybe some of the categories, where you one maybe some of the categories that you didn't win just help us better understand where youre getting recognized obviously two times your nearest competitor, but would just love to see our under better understand where you are.

Our net promoter score continues to be over 90. I think our team is the finest technical support organization in the world. When a text on a ladder and they need support and they call us, we answer the phone and solve their problem, the vast majority of the time. I would say our

We're actually winning in those categories and then I have a follow up.

Thanks, Eric.

response has been revered this past year. I'd say that manifests itself primarily in in-stock availability.

And good afternoon I'd say.

Two sets of Big awards that the industry offers one or more product oriented and one or more service oriented the ones that are more product oriented manufacturers of products. The ones that are more service oriented go to distributors set the quest for quality awards are traditionally awarded.

So those are a couple of big areas, but there's other areas as well with things like our Rewards Program, Best in Class, our Website, Best in Class, Brick and Mortar Distribution, Best in Class, our Warranty Programs, Best in Class. So these are things that are really important to the integrator and allow them to stand behind the service they provide to the end customer.

Two distributors there are there are some manufacturer elements in there, but traditionally distributors, where we are revered are areas like tech support our net promoter score continues to be over 90, I think our team is.

The finest technical support organization in the world when it takes on a ladder and they need support and they call us we answered the phone and solve their problem. The vast majority of that time I would say our supply chain.

actually don't have at the tip of my tongue. Mike, do you have anything to add on that? I think a couple around like social media presence, maybe around lead generation for the integrators, which we know is an area of focus for us that we talk about doing in the future, but I think the ones where we don't win are areas that just haven't been focused for us. Yeah, thank you.

Response has been revered this past year.

I'd say that manifest itself, primarily and in stock availability.

Okay, that's perfect. I love that color. Thanks. And then maybe just as a follow-up, you know, I love that you guys have belief in this story. You're obviously starting a buyback program.

So those are a couple of.

Big areas, but there's other areas as well with things like our rewards program best in class our website best in class brick and mortar distribution best in class our warranty programs best in class. So these are things that are really important to the integrator.

You know, on the other end, you know, you ended the quarter with 25 million of cash and equivalent. So just help us understand how we should think about SNAP 1 balancing perhaps the desire to buy back stock at attractive levels.

with the need to utilize cash flow to invest in the business, all while obviously trying to bring your leverage ratio down to kind of the three times target.

And allowed them to stand behind the service they provide to the end customer.

That's areas.

As we didn't win.

I actually don't have the tip of my tongue.

Yeah, thanks, Eric. This is Eric from the SNAP-1 team. I think as we think about the repurchase program, I think number one, we have tremendous amount of confidence in the cash flow generation profile of the business and believe we'll continue to generate sufficient cash flow to execute on the program. I think we also sized it appropriately as we think about kind of execution capabilities here over the balance of 22 and 23.

Mike do you have any.

To add on that.

A couple of around like social media presence, maybe around lead generation for the integrators with an area of focus for us that we talk about doing in the future, but I think the ones, where we don't win or areas that just haven't been focus for US yeah. Thank you.

Okay, that's perfect I love that color. Thanks, and then maybe just as a follow up I love that you guys have belief in the story you, obviously, starting a buyback program.

I'd also remind everyone that our capital allocation priorities really first and foremost are continuing to invest in our organic growth of the business, followed by a creative M&A as well, which remains an important part of our story. And then we'll continue to look for opportunities to execute opportunistic share repurchases kind of as our number three priority. And so we think overall, as stewards of capital, it's prudent to have a share repurchase program at

On the other end you know you ended the quarter with $25 million of cash and equivalents. So just help us understand how how we should think about snap one balancing perhaps the desire to buy back stock at attractive levels with the need to utilize cash flow to invest in the business all while obviously trying to bring your leverage ratio.

But we'll use that judiciously as we look at trading volumes of the stock and stock price levels.

Down to kind of the three times target you've communicated in the past.

Yeah. Thanks, Erik this is erik from snap on team.

Yeah, I think especially when the stock's at somewhat ridiculously low levels. Totally understand. Thank you, John .

As we think about the repurchase program I think number one we have a tremendous amount of confidence in the cash flow generation profile of the business and believe we will continue to generate sufficient cash flow to execute on the program. I think we also have sized it appropriately as we think about kind of execution capabilities here, but the <unk>.

Nice to see the KPI disclosure coming back here on, you know, integrator spend and integrator count. You know, how do we think about kind of the relative strength between those two metrics for, you know, kind of 22 outlook? I assume, you know, with the price increases, maybe the spend is a bit stronger.

Balance in 'twenty, two and 'twenty three.

Also remind everyone that our capital allocation priorities really first and foremost are continuing to invest in our organic growth of the business followed by accretive M&A as well, which remains an important part of our story and then we'll continue to look for opportunities to execute opportunistic share repurchases kind of that's our number three priority.

We think overall as stewards of capital, it's prudent to have a share repurchase program in place, but we will use that.

You know, if you could also comment on kind of the local branch opening plan, you know, for the second half.

Judiciously as we look at trading volumes of the stock and stock price levels.

You know, it looks like the branch openings obviously drive a nice uptick in contribution, so comments on both those would be great and they're out of follow-up.

Super I appreciate the color thanks, guys.

Yes, I think especially when the stocks at somewhat ridiculously low levels.

Sure Paul, so we think about last year for the numbers that were reported out and we think about domestic integrator sales growing about 21%.

Totally understand thank you John .

Yeah.

Our next question comes from Paul Chung with Jpmorgan.

You know, that growth really was split not quite evenly between the growth and both, but domestic integrators grew 11.7%. So in 2020, we had 17,900 domestic integrators, which was, you know, right around 20,000 in 2021, that's around the number, but was within 30 or 40 of 20,000.

Yeah.

Hey, guys. Thanks for taking my question so.

Nice to see the TPI disclosure coming back here.

In the greater spend in.

And you grew your count how do we think about kind of the relative strength between those two metrics for kind.

in 2021. So we saw 11.7% growth and in our spend per integrator through 8.4% last year, obviously a component of that being price.

The 22 outlook I assume.

With the price increases may be.

As we look at this year, with the price actions we took last year and the price actions we're taking this year, we would expect to spend per to be a bit more. You know, we're not just aggregating that in our guidance and we're not guiding through the specific both numbers, but we think in our long-term growth algorithm, both of those levers are really important. Obviously, in this year with the activity around pricing and the inflationary pressure, we're all feeling that that's going to have some impacts on it, but over the long-term, we expect both of those metrics to grow, you know, both the big contributors around 50-50 of how we think about the growth.

This spend is a bit stronger but.

If you could also comment on kind of the local branch opening plan for.

For the second half.

It looks like the branch openings, obviously drive a nice uptick in contribution so comments on both those would be great and a follow up.

Sure Paul.

So if we think about last year for the numbers that we reported out and we think about domestic integrator sales growing about 21%.

As far as the store opening plan, you know, we continue on our path of opening around 10 stores this year. You know, there will be a couple at the end of the year, there's a couple of real estate things. So it might be nine, it might be 11 when we get to the end of the year and see how many we actually get open, but somewhere around 10 is our goal for the year and we think we'll be pretty close to that, you know, a little bit less than one a month as we look at the openings. And yes, they do clearly drive in those markets both integrator acquisition and the ability for spend per because it creates more buying opportunities for the integrators in those

That growth really was split not quite evenly between the growth in both but domestic integrators grew 11, 7%. So in 2020, we had 17900 domestic integrators, which was right around 20000 in 2021, that's around a number of things within 30 or 40 or 20000 and.

In 2021, so we saw a 11, 7% growth.

Our spend per integrator grew eight 4% last year, obviously, a component of that being pricing as we look at this year with the price actions, we took last year and the price actions were taking this year, we would expect to spend in order to be a bit more.

Great. And then my follow-up on the pricing adjustment.

Since you're kind of telegraphing some increases here for early June , are you seeing kind of a pickup here in 2Q to kind of get ahead of some of those increases? I assume the loss in the channel is quite high as well.

Not just aggregating that in our guidance and we're not guiding to the specific numbers, but we think in our long term growth algorithm. Both of those levers are really important obviously in this year would be activity around pricing and the inflationary pressure. We're all feeling that that's going to have some impacts on it but over the long term, we expect both of those metrics to grow.

Yeah, we just announced the increase on Monday of this week. So we typically won't see the impact of what you would think of as some pull ahead until we get closer to the effective date of that price increase, which is June 6th.

No it won't be big contributors around 50, 50 of how we think about the growth of the business.

As far as the store opening plans, we continue on our path of <unk>.

Opening around 10 stores this year.

There will be a couple at the end of the year. There's a couple of real estate thing. So it might be nine it might be 11, when we get to the end of the year and see how many we actually get opened but somewhere around 10 is our goal for the year and.

Some integrators will take advantage of that and use it to stock, but what I'll remind everyone on the call is,

And we think we'll be pretty close to that.

the vast majority of our integrators actually don't have where.

Less than one a month as we look at the openings and yes. They do grow we drive in those markets for a integrator acquisition and the ability for spend for the Covid.

So it's hard for them to do anything, but a fairly small amount of buying ahead of that. And so we'll expect that to happen in early June . We probably won't get much of the benefit of the price increase at all this quarter. And we'll look to start to see that in the second half of the year. Okay, great. Thank you.

Creates more buying opportunities for the integrators in those markets.

Great.

And then my follow up on the pricing adjustments.

Since you were kind of Telegraphing. Some increases here for early June are you seeing kind of a pickup here in <unk> to kind of get ahead of some of those increases.

I assume the lock when the channel is quite high as well, yes, we just announced the increase on Monday of this week so.

Hi, guys. Thanks for taking my question. Always good to see more things kind of broken out here, but then you get questions on them. So I'm curious as you show us...

We typically wont see the impact of what you would think of it. Some pull ahead until we get closer to the effective date of that price increase which is June six some integrators will take advantage of that and use it to stock, but what I'll remind everyone on the call is.

you know, the spend per indicator, sorry, the spend per integrator up 8.4%. I may be comparing apples and oranges, but that looks like that was probably almost all price based on the pricing data that you gave. So I'm curious, did the spend per integrator kind of go up on a unit volume basis?

The vast majority of our integrators actually don't have warehouses. So it's hard for them to do anything, but a fairly small amount of buying ahead of that and so we'll expect that to happen in early June we probably won't get much of the benefit of the price increase at all this quarter and we'll look to start to see.

Yeah, I think Paul, Steve, I'm sorry, as you look at last year, remember the supply chain challenges that came in the back half of the year, so you're right that last year I think of that 8.4% spend per like three quarters it would be attributable to the pricing increase we did, but you also have to think about the impact on volume of the supply chain challenges which we quoted last year as being in the mid single digits impacts on our top line, which would all go right almost 100% of that volume piece of it. So absolutely spot on with that observation, but very much driven by the supply chain challenges that we have.

And in the second half of the year.

Okay, great. Thank you thank.

Thank you Paul.

Our next question comes from Stephen Volkmann with Jefferies.

Hi, guys. Thanks for taking my question always good to see more and more things kind of broken out here, but.

But then you get questions on them. So I am curious as you.

As you show us.

Okay, all right, and actually that was kind of my next question was around the supply chain issues. It looks like some of the West Coast port situation is improving a little bit. Are you seeing some relief on the supply chain side? And do we think that's kind of going to get better over the next two or three quarters?

The spend for <unk> sorry.

Sorry.

Spend per integrator up eight 4%.

May be comparing apples and oranges, but looks like that was probably almost all price based on the pricing data that you gave so I'm curious did the spend per integrator kind of go up.

Yeah, so I think when we talk about supply chain challenges, it really falls to buckets. One is the logistics challenges of the West Coast ports clearing out there, the port delays, potential strikes on the West Coast that we think won't happen, but we keep an eye on. And then the other side of supply chain challenges is componentry and manufacturing, availability,

<unk> volume basis.

Yes, I think Paul Steve I'm, sorry, as you look at last year remember the supply chain challenges that came in the back half of the year. So you are right that last year I think of that eight 4% spend per three quarters. It will be attributable to the pricing increase we did but you also have to think about the impact on volume of the supply chain challenges with reported last year.

capacity that's out there. What we've seen is a shift last year. Most of our challenges across the supply chain were logistic faced.

As being in the mid single digits impacts on our top line, which should all of the Reits almost 100% of that volume piece of it so absolutely.

You're absolutely right. Most of that is cleared at this point. We don't think we're seeing much at all in the way of supply chain challenges from a logistic standpoint. What we are seeing is a couple dozen SKUs that are impacted by chip shortages, componentry shortages, manufacturing capacity shortage. It doesn't impact a lot. We have over 2,400 proprietary SKUs, and this is affecting dozens. But there are some SKUs that are pretty important and pretty significant volume. So we're managing that closely. We're making sure that we're staying on top of that. That's where we think those challenges will continue through this year. We don't think they're going to get worse.

Absolutely spot on with that observation, but very much driven by the supply chain challenges that we have.

Okay, Alright, and actually that was kind of my next question was around the supply chain issues. It looks like some of the West coast Port situation is improving a little bit are you seeing some relief on the supply chain side and does it do we think that's kind of getting to get better over the next two or three quarters.

So I think when you when we talk about supply chain challenges. It really falls into two buckets. One is logistics challenges of the west Port West Coast Port.

Yes.

Clearing out there.

The port delays potential strikes on the west coast that we think won't happen, but we keep an eye on and then the other side of the supply chain challenges as componentry and manufacturing availability and capacity.

It's out there what we've seen is a shift last year most of our challenges across the supply chain where logistics space.

Youre absolutely right. Most of that is cleared at this point, we don't think were see much at all in the way of supply chain challenges from a logistics standpoint, what we are seeing is.

A couple of dozen skus that are impacted by chip shortages componentry shortages.

but not on the logistics side, very much on the sourcing side. Got it. Understood. Thank you. Thank you. Thank you. Our next question comes from Chris Leiter with UBS. Thank you and appreciate all the detail on the slides like everybody else. So obviously a lot of concern in the market around the macro. Could you just provide some color about how the business has performed in prior market downturns or periods of declining or pressure residential reconstruction? Sure. You know, we now have the benefit of going through the

Manufacturing capacity shortage, it's not it doesn't impact a lot of the work we have over 2400 proprietary skus and this is impacting dozens but there are some skus that are pretty important and pretty significant volume. So we're managing that closely we're making sure that we're staying on top of that that's where we think those challenges will continue through this year, we don't think theyre going to get worse, it's a little.

Got it. Understood. Thank you. Thank you.

Thank you and appreciate all the detail in the slides like everybody else. So obviously a lot of concern in the market around the macro if you just provide some color about how the business has performed in prior market downturns or periods of declining or pressure residential reconstruction.

Like whack a mole.

You take care of one you figure out how to engineer around a chip that we don't have and then you hear about another trip that impacts three other products that you have to think about how to engineer around or find a replacement for so our engineering teams our supply chain team is paying very close attention to it.

Sure. You know, we now have the benefit of going through the

We think it's going to continue to be a low single digit headwind.

2007, 2008, 2009 cycle, the current cycle, and everything in between, and obviously there have been really good times during those 15 years and some tougher times.

Through this year.

We think we hit the end of this year, we expect it to get better, but obviously, there's a lot of uncertainty out there as we look forward but.

If last year was a mid to mid.

Mid single digit impact this year, we view it as a low single digit impact and we think that will continue for most of the year, but but not on the logistics side very much on the on the sourcing side.

and I would say control force business before the acquisition has grown through every cycle. There might have been a short interruption with control four that I frankly attribute to product transition not to the economy. And I think the reason for that, Chris, is the 070809 crisis

Got it understood. Thank you.

Thank you. Thank you.

Our next question comes from Chris Snyder with UBS.

Thank you and appreciate all the detail on the slides.

Body else.

So obviously a lot of concern in the market around the macro could you just provide some color about how the business has performed in prior market downturns or periods of declining or pleasure in residential new construction.

was so severe that it drove integrators to pivot

Sure.

We now have the benefit that going through the.

to not just residential, but commercial projects.

And as a reminder, you know, roughly a third of our business, even through our residential integrators.

2789 cycle the.

The current cycle and everything in between and obviously there have been really good times.

Okay.

And so generally speaking, when new construction is going really well, that's easy money, a home or an apartment building is being built, technology has to go in it before the homeowner moves in.

That is 15 years and some tougher times.

Our business.

And I would say control forest business before the acquisition has grown through every cycle there might have been a short interruption with control for that I, frankly attribute to product transition not to the economy.

And when the money isn't so easy, the integrators have a very large install base. They have a network of homeowners that they've done installs that have businesses that they'll work for, whether it's the lawyer's conference room, the dental office, the restaurant and bar, and they've shown themselves quite adept at pivoting their capacity.

And I think the reason for that Chris is that.

Seven or eight nine crisis was so severe.

That yet.

Drove integrators to pivot their capabilities.

To not just residential but commercial projects.

our commercial business, which was really in tough shape during the COVID years.

And as a reminder.

is outpacing the growth of the rest of our business right now.

Roughly a third of our.

Business, even through our residential integrators goes into commercial establishment.

to the extent in certain geographies you might see Resi slowing down.

our integrators show themselves adapted going into commercial enterprises. So we feel really good about that. We have, over time, continued to refine our product portfolio to have more commercial-oriented products. That's both on the proprietary side, as well as the third-party partner side. And so that's why we feel really good. Thank you.

And so generally speaking when new construction is going really well, that's easy money home or an apartment building.

Building, that's being built technology has to go in it before the homeowner moves yet.

And when the <unk>.

Money isn't so easy the integrators have a very large installed base. They have a network of homeowners that they've done installs that have businesses that don't work for whether it's the lawyers conference from the dental office, the restaurant and bar and they've shown themselves quite adept.

even in kind of the current concern around the housing

Our integrators, just one last comment, our integrators are incredibly busy.

At pivoting.

Their capacity, our commercial business, which was really in tough shape.

We survey them all the time. We subscribe to surveys that third-party companies do. There has been no decline in their outlook or the amount of time they're booked out.

The COVID-19 years.

Is outpacing the growth of the rest of our business right now.

So to the extent in certain geographies, you might see <unk> slowing down.

You are in a greater show themselves adaptive going into commercial.

And so, you know, I'll pan a counter argument real quick, which

you know, in this economy, if labor softens up, it might be easier for them to expand their capacity because they're booked out, they're booked out months in a day.

Enterprises. So we feel really good about that we have over time continue to refine our product portfolio to have more commercial oriented products.

I appreciate all that color. Really helpful. Thank you. And then I guess from my follow-up on the guidance, you know, if I just look at the back half, 8% price increase on the portfolio products, you know, about the end of the month, maybe if it's 3% tail end for the full year sales, I would expect some flow through there, I need to talk. I'm going to look at the guidance raises.

That's both on the proprietary side as well as the third party partner side and so that's why we feel.

Field.

Really good.

Even in kind of the current concern around the housing market.

Our integrators, just just one last comment our integrators are incredibly busy right now.

You know, it's at less than 1%, at the midpoint for both sales and EBITDAL, after a pretty strong key one, and it doesn't seem like the company's view with that supply chains are getting worse. So, I guess my question is, you know, is there an offset here? Is it place liableization? Is there something I'm missing? Many color here on the moving parts would be helpful. Thank you.

We surveyed them all the time, we subscribe to surveys that third party companies do there has been no decline and their outlook or their debt.

Amount of time, they're booked out.

Sure. And so it's definitely price, you know, it's not price realization, we expect to get the price, but our costs continue to rise. And so what we're raising our price offset is not just the costs that we've already incurred that are reflected in the numbers, but also continued costs that we are looking forward, we're hearing from our suppliers that we're going to be impacted going forward. And so the price adjustment that we're putting in today, not only covers, you know, the the degradation and margin, contribution margin that we saw in Q1, but also is there for anticipated additional price or cost increases that we we know are coming down the pike. So, you know, we're trying to be appropriately conservative in our guidance as we look out there, we're trying to think about the uncertainty that's in the market. We're trying to be prudent with the numbers we're putting out there for everyone, we feel really confident with our numbers. But that price increase that we're putting in there is is going to be offset by, you know, the continued cost pressures that are out.

And so you know.

Paying a counter argument real quick which as you know.

In this economy, if labor softens up it might be easier for them to expand their capacity because they are booked out they're booked out months in advance.

I appreciate all that color really helpful. Thank you and then I guess for my follow up on the guidance.

If I just look at the back half, 8% price increase on the portfolio of products.

About the envelope math looking at maybe like a 3% tailwind for the full year on our sales.

Some flow through there on EBITDA.

Just the guidance raise its less is that less than 1% at the midpoint for both sales and EBITDA.

After a pretty strong Q1, but it doesn't seem like the company's view is that supply chains are getting worse. So I guess my question is was there an offset here or is it price realization.

Thank you.

Something I am missing any color here on the moving parts would be helpful. Thank you.

Sure.

We price stock price realization, we expect to get the price, but our cost continue to rise and so while we are raising our price to offset it's not just the cost that we've already incurred that are reflected in the numbers. But also continued costs that we are looking forward. We're hearing from our suppliers that we're going to be impacted going forward and so the price adjustment that we're putting in today not one.

Thank you and good afternoon. Hey Mike so just on that point to clarify the 8% price increase does it cover the dollar cost and the rate of margin or just the dollar cost?

we've done it in a way that should protect our contribution margin and our operating margin. So we're anticipating the costs that are out there. We're trying to protect our integrators margin with our MSRP and trying to protect our margins so that we all can continue to invest in this industry. And so it should protect our margin rate. Again, it's an uncertain world we're all in. So I'm not going to promise you it's going to be spot on, but at least based upon what we know today and what we can anticipate happening, we should be able to protect that margin rate. I'll be honest, we thought when we did the one in February , we'd do the same thing. We announced that price increase in December . We basically worked on it in October , and we realized quickly it didn't cover it as the world has continued to evolve and costs have continued to change and the world continues to evolve. So we'll pay a lot of attention to it and we'll keep adjusting as needed going forward and making sure our integrators can pass that along to their customers as well.

Really covers the degradation of margin contribution margin that we saw in Q1, but also therefore anticipated additional price or cost increases that we know are coming down the pipe. So we're trying to be appropriately conservative in our guidance as we look out there we're trying to think about the uncertainty that's in the market.

We're trying to be prudent with the numbers, we're putting out there for everyone. We feel really confident with our numbers, but that price increase that were putting in there is going to be offset by the continued cost pressures that are out there.

Thank you.

Our next question comes from the kitchen mentor with BMO capital markets.

Thank you and good afternoon, Hey, Mike So just on that point to clarify 8% price increase.

I think one of the things we learned in the at the end of the as we did the last pricing increase at the end of last year for kind of effective date February 1st.

Does it cover the dollar cost and the rate of margin just the dollar cost.

We've done it in a way that should protect our operating our contribution margin and our operating margin. So we are anticipating the costs that are out there. We're trying to protect our integrators margin with our MSRP and trying to protect our margins. So you all can continue to invest in this industry.

was we thought the supply chain was going to turn around towards the middle of this year as most in the economy did.

We did not add a buffer of any kind of magnitude, and we've paid the price in the first half to be here a little bit on the call side. I think as we look at this current price increase that we've just announced, we have added a buffer. And part of the reason for that is our integrators understand what's happening out there, but

So it should protect our margin rate again, it's it's an uncertain world. We're all in so I'm not going to promise you, it's going to be spot on but at least based upon what we know today and what we can anticipate happening.

We should be able to protect that margin rate.

Honest, we thought when we did the one in February would do the same thing we announced a price increase in December we basically worked on it in October and we realized quickly. It didn't cover is the world is continuing to evolve and costs have continued to change in the world continues to evolve.

It's hard for them to continue to absorb a high frequency of pricing.

We will pay a lot of attention to it and we'll keep adjusting as needed going forward and making sure our integrators can pass that along to their customers as well.

they have to go update their catalogs. They have to go out and revise the proposals they have. And so the feedback from them has been, you know, less around any kind of price increase itself and just more about

I think one of the things we learned in the at the end of the as we did the last price increase at the end of last year for kind of effective date February 1st.

Wise.

don't keep coming back to us if possible so the magnitude of this price increase considers a buffer so that we won't have to keep coming back to our integrators. Obviously if costs continue to rise we'll have to reconsider that.

We thought the supply chain was going to turn around towards the middle of this year as as most in the economy that.

We did not add a buffer and.

Of any kind of magnitude.

Gotcha. Okay. Now that's that's helpful context. And just as my follow-up, can you talk a little bit on what we all are doing to, you know, kind of diversify the supply base, so as to kind of, you know,

We've paid the price in the first half of the year a little bit on the cost side I think as we look at this current price increase that we've just announced we have added a buffer and part of the reason for that is our integrators understand what's happening out there but.

mitigate kind of future challenges on the supply chain side.

It's hard for them to continue to absorb.

Sure. And so, you know, if I think back a number of years, we had a lot of our spend coming out of China. I would say in our proprietary products, it's still very Asia-based with over 95% of our supply chain, of our proprietary products coming out of Asia, but we really have diversified away from that China reliance. So our spend in China is now down to a third of our proprietary products.

High frequency of price increases they have to go update their catalogs. They have to go out and revise that proposal. They have and said the feedback from them has been.

Less around any kind of price increase itself and just more about.

Don't keep coming back to us if possible.

about 20% of the spend is in Taiwan, and then we flex to a lot of surrounding areas, Vietnam, Malaysia, to diversify away from one reliance on the

Magnus <unk> of this price increase considers a buffer.

So that we won't have to keep coming back to our integrators. Obviously if costs continue to rise we'll have to reconsider.

It is very reliant on Asia. We have diversified the ports we're coming out of as well, so we're not totally dependent upon Shanghai or other shutdown areas. Only 1% of our containers have been impacted by the Shanghai shutdown, which has been great. We've flexed some shipments to our surrounding ports. We're using other modes of transportation, barges, and air, which Coralia is one of the costs that we're seeing in our margins, is those alternative transportations.

Got you okay.

That's helpful context, and then just as my follow up.

Can you talk a little bit.

What I like doing to diversify their supply base, so as to kind of.

<unk> kind of enough future.

Challenges on the supply chain side.

Alright sure.

So I think back a number of years, we had a lot of our spend coming out of out of China.

of sources that were that were utilizing. So, you know, listen for the products we make Asia still the place to go manufacture them. We look at alternatives. We've, you know, evaluated Mexico. We brought some things back here domestically. But I think for the near to mid term, we're still going to be looking for that area of the world as the primary area that we source product from. But we continue to diversify away from relapsing any particular country within that region. Got it. That's very helpful. I'll turn it over. Good luck for the rest of the

I will turn on our proprietary products. It is still very Asia based with over 95% of our supply chain of our proprietary products coming out of Asia, but we really have diversified away from that trying to reliance so are our spend in China is now down to a third of our proprietary products.

About 20% of the spend is in Taiwan.

Then we flexible lot of surrounding areas, Vietnam and Malaysia.

To diversify away from from one current reliance on one country. It is very reliant on Asia, we have diversified the ports were coming out of as well so we're not totally dependent upon.

Okay, thanks, good afternoon. John , I just wanted to start on the Partner Rewards program that you implemented at the end of this presentation.

Shanghai or other shutdown areas only 1% of our containers have been impacted by the Shanghai shut down which has been great. We flipped some shipments towards surrounding ports were using other modes of transportation barges and air which clearly is for the costs that we're seeing in our in our margins as those alternative transportation.

I think of that as sort of the bucket of wallet share opportunity to consolidate more on the SNAP one, I would imagine, just wondering if you may maybe speak to early observations of the first few months and activity you're seeing there, and you alluded to some opportunities

So it's sort of sources that were that were utilizing so listen for the products. We make Asia is still the place to go manufacture them, we look at alternatives.

Yeah, I think that thank you. I think the there were two components of the rewards design.

Evaluated Mexico, we brought some things factor domestically, but I think for the near to mid term were still would be looking for that area of the world.

component number one was the design of the program itself and how we were awarded purchase

Primary area that we source product from but we continue to diversify away from reliance on April 3rd country within that region.

based on a variety of characteristics of the products and the partner and we spent a couple of years redesigning that.

Got it that's very helpful. I'll turn it over good luck for the rest of the year.

Awesome. Thank you.

Yes.

Our next question comes from Adam Tindle with Raymond James.

Um, the second part of it was actually

Okay. Thanks, Good afternoon, John I, just wanted to start on the partner rewards program that you implemented at the end of June I think of that as sort of the bucket of wallet share opportunity to consolidate more on the snap one I would I would imagine just wondering if you've made maybe speak to early observations of the first few months and activity Youre seeing there and you alluded to some op.

I'm unifying our view of a business partner because control for did business with 5000 partners snap did business with well over 10,000 and then our local entities and there were four different companies.

they may have done business with that exact same partner. And so we had a lot of crossover, so we had to unify the view of that partner and what they were buying, et cetera.

<unk> moving forward some digital initiatives that sounded interesting I wondered if you could expand on that as well. Thanks.

So at the end of last year and early this year, we were able to bring the new rewards program together and the unified view of the partner and.

Yeah I think.

Thank you I think.

The there were two components of that rewards design component number one was the design of the program itself and how we were awarded purchases based on a variety of.

in traditional snap fashion remembering that this market is

Characteristics of the products and the partner and we spent a couple of years redesigning that.

Um, highly fragmented with a lot of small businesses and you can only reach a small parts portion of the market with, uh, conventional sales person.

The second part of that was actually.

We have relied on our website historically to understand purchase behavior by partners and expose them to new products we have and products that we're introducing and get them to try it.

Unifying our view of our business partner because control for good business with 5000 partners snap did business with well over 10000, and then our local entities.

And there were four different companies that made up our local entities. They may have done business with that exact same partner and so we had a lot of crossover. So we had to unify the appeal of that partner and what they were buying et cetera.

inefficient to do that with a traditional feed-on-the-street model and so now that we've brought that together

we can start to target individual partner behavior and introduce products and run some of the conventional plays that we've run in the past. There is one missing piece to this though, Adam, which is the actual convergence of the website. First and foremost, the Control 4 and SNAP, the SNAP-AB website, and that will start later,

At the end of last year and early this year, we were able to bring the new rewards program together.

The unified view of the partner.

And.

In traditional snap fashion remembering that this market is.

Highly fragmented with a lot of small businesses and you can only reach a small parcel portion of the market with.

And so as we bring those things together, that will be very important in terms of driving kind of wallet share.

Conventional sales personnel.

We have relied on our website historically to understand purchase behavior by partners and expose them to new products, we have and products.

There's a second component of that in terms of how we've created the engine, the rewards engine itself, and I don't want to talk to that too much.

That we're introducing and get them to try it so.

Because this is a public call, but I think that we can get drive even stronger incentives for our integrator.

It is.

In efficient to do that with a traditional feet on the street model.

And so now that we brought that together.

to adopt our products. So really excited about all of those things starting to come to life. In the early days, we are seeing results as expected and we are seeing results as expected.

We can start to target.

Individual partner behavior, and introduce products and one some of the conventional plays that we've run in the past there is one missing piece to this though Adam which is the actual convergence of the website first and foremost the control for and snap.

thing I want to point out is we're seeing costs as expected. And so when you launch a big new loyalty program, one of the things you're concerned about is not just the revenues you're going to drive, but also the costs that go against those.

The snap AB website and that will start later this year.

And so as we bring those things together that will be very important in terms of driving kind of wallet share opportunities there.

And so our team had did a great job modeling all of that, and I think we're going to be able to continue to align our partners around.

The second component of that in terms of how we've created the.

Engine.

higher share of wallet, better economics for them at a cost level that meets our expectations.

The reward Tien tsin itself and I don't want to talk to that too much.

Because this is a public call, but I think that we can get.

make sense looking forward to that uh... mike maybe just as a follow-up on cashflow capital structure if you had a use this quarter just over twenty million and understandably investing you know

Drive even stronger incentives for our integrators to adopt.

Our products, so really excited about.

All of those things starting to come to life.

but people you've got about twenty five million on the balance sheet about a little over four hundred million of net debt just wondering how we can think about cash flow uh... going forward how investors can think about cash flow like i presume based on John commentary around ridiculous valuation that raising equities uh... probably off the table uh... but it's how you're thinking about cash

In the early days.

We are seeing results as expected.

And one.

Thing I want to point out is we are seeing cost as expected and so when you launch a big new loyal loyalty program. One of the things you are concerned about is not just the revenues youre going to drive but also the costs that go against those revenues and so our team that did a great job modeling all of that and I think we're.

Sure, so we continue to target, like we've always said, that sort of three times leverage in the business. I don't know whether actually get the three times leverage because we get close, we're gonna sort of take it back up to fund something as we go forward. But three are sort of target outlook as we think about the leverage piece. We did deploy a lot of cash this year, this quarter and this year, if you look, it's not just an inventory, you can see a lot of inventory growth. It's also as you look to that pre-paged and other current assets, that you can see a lot of the deposits.

Going to be able to continue to align our partners around.

Higher share of wallet better economics for them at a cost level that we.

That meets our expectations.

Got it makes sense looking forward to that Mike maybe just as a follow up on cash flow and capital structure thinking how to use this quarter, just over $20 million and understandably investing to.

and prepayments and a number of other things that we've had to do to protect the supply chain. So we think that, you know, that piece of it we don't expect to grow. We're managing inventory at about three times turns right now, which is in line with our historical averages, obviously during COVID. We had some things jump around and we've got back to sort of the normal run rate. The thought acquisition put, you know, four or five million dollars of inventory on the books associated with that.

To help the supply chain situation, but you have got about $25 million on the balance sheet about a little over $400 million of net debt. Just wondering how we can think about cash flow going forward or how investors can think about cash flow like I presume based on John's commentary around ridiculous valuation that raising equity is probably off the table.

In Q1, it's typically our biggest use of cash. We pay the bonus payment in Q1. We have the...

So just how youre thinking about cash flow and capital structure going forward. Thank you.

Sure. So we continue to target, we've always said that sort of three times leverage in the business I don't know what were actually get to three times leverage because we get close we're going to pick it back up to a point, it's something that as we go forward, but three of our sort of target outlook as we think about the leverage piece.

Chinese New Year that we typically build up inventory for so generally our cash flow cycle is going to see the most use of cash In Q1 even during normal times And then we'll be a much higher cash generation during the rest of the year and we expect that to continue So we're very confident the cash flow of the business. We think inventory is now in the right place

We did deploy a lot of cash this here this quarter and this year. If you look it's not just an inventory you can see a lot of inventory growth. It's also as you look sort of prepaid and other current assets you can see a lot of deposits and prepayments and a number of other things that we tried to do to protect the supply chain. So we think that that piece of it we don't expect to grow we're managing inventory.

Um, for supporting our integrators, you know, despite the fact that there's a couple of dozen skews that are driving us all crazy, uh, that we're going to continue to manage and we think that will be generating, you know, um, the appropriate amounts of cash going forward off and more even tough. CapEx is still, you know, for the year going to be that 15 to $20 million range.

I think we mentioned we're moving our headquarters in Salt Lake City to a new location, which will, depending on timing, is $5 million plus or minus. And we think that'll be this year, or might lead into next year. But other than that, we feel really good about the casual outlook. Got it, very helpful, thank you.

Three times turns right now which is in line with our historical averages obviously during Covid, we had some things jump around and we've got back to sort of a normal run rate, the Saba acquisition, but $4 million to $5 million of inventory on the books associated with that.

In Q1, it's typically our biggest use of cash we paid the bonus payment in Q1, we have.

B.

Thank you. At the end of the release, you discussed the growth and the number of domestic integrators, transacting with you and then the spend, spend about 8.4%. Is that all driven by inflation or are you seeing something about the math there that's hiding some.

Chinese new year that we typically build up inventory for sort of generally our cash flow cycle is going to see the most use of cash in Q1, even during normal times and then it will be a much higher cash generation during the rest of the year and we expect that to continue so we're very confident of the cash flow of the business. We think inventory is now in the right place.

Supporting our integrators. Despite the fact that there's a couple of dozen skus that are driving the bulk crazy.

Yeah, so, hey, if you think about last year, we did two price increases. One was about 1.2% in marginals, 5.8% plus or minus around six in August .

Continue to manage and we think that will be generating.

The appropriate amount of cash going forward off of our EBITDA Capex would still from youre going to be about $15 million to $20 million range. I think we mentioned, we're moving our headquarters in Salt Lake City to a new location, which will depending on the timing is $5 million plus or minus and we think that'll be this year, but into next year, but other than that we feel really good about the cash.

And so you sort of normalize those two things out, you would say price in last year's number, if you didn't get a full year impact of all that, is somewhere around 4% or 5%. And so if we think about 8% growth in spend per, you would say somewhere around half of it is probably directly related to price. And the other half is volume associated with the average spend per integrator, which drove at 8.5% increase. And then, again, as you just pointed out, 11.7%.

Outlook.

Got it very helpful. Thank you.

Our next question comes from Keith Hughes with <unk>.

growth in the number of transacting integrators. This year is going to be a complicated, you know, we have those price increases last year, we have the one we did in February , we'll have the one we did in June .

Thank you Andrew.

In the release you discussed the growth in the number of domestic integrators transacting with you and then the spend.

So the numbers will obviously be very price impacted this year. But for last year, about half of the growth in spend was we think price related.

About eight 4%.

Is that all driven by inflation are you seeing.

And final question, given the timing of the release in June , I assume there will be still in the second quarter some contribution margin pressure from...

Something about the math, there thats hiding some some some growth realizing.

Integrators increasing spend.

Yes.

If you think about last year, we did two price increases one was about one 2% in margin was five 8% plus or minus right around six in August .

Yeah, absolutely. We would expect to see maybe a slightly better contribution margin in Q2, but nothing significant in most of the benefit of that. Price increase will be kicking in, you know, kicking in beginning Q3. Okay, thank you very much.

Can you sort of normalize those two things out you would say price in last year's number if you didn't get a full year impact of all that is somewhere around four 5% and so we think about 8% growth in spend per you would say its somewhere around half of it is probably directly related to price and the other half is volume associated with the average spend per integrator.

Hey, thanks. I just wanted to follow up on that last point on gross margin. So, when do you claw back the full 230 basis points of the negative price cost? Is that 3Q or does it take until 4Q?

Which drove an eight 5% increase and then again as you pointed out 11, 7% growth in the number of transacting integrators. This year is going to be a complicated we have those price increases last year with what we did in February well have to what we did in June . So the numbers will obviously be very price impacted this year, but for last year about half of the growth in spend was was we think price related.

You know, we're not going to guide specifically on it, but I think we would expect to get most of the benefit by the third quarter. I think very little bit Q2, but we think, you know, Q3 should see a return to those normal levels. Got it. All right. Thank you. Thanks, Ryan.

Okay and final question given the timing of the release in June I assume there'll be still in the second quarter some contribution margin crusher.

Hum.

Great. Thank you very much. Just real quick, if you could go over any labor issues that you're seeing, given inflationary pressures out there, and more importantly, maybe what your integrators are seeing, and because that's an important channel and how they're installing, is there issues out there on the integrator side that's slowing you guys down?

Is that correct.

Yes, absolutely we would expect to see maybe.

We better contribution margin in Q2, but nothing significant and most of the benefit of that price increase will be.

Kicking kicking in beginning of Q3.

Okay. Thank you very much.

Thanks, Steve.

Our next question comes from Ryan Merkel with William Blair.

Hey, Thanks, just wanted to follow up on that last point on gross margin. So when do you claw back the full 230 basis points of the negative price cost is that <unk> or does it take until <unk>.

Well, let me, a couple of things. Labor is very tough. I think the starting point with it all is making sure your own team, your existing people are highly engaged. And I just actually looked at our engagement scores. They're at a record high. We did do a higher than normal wage increase.

We're not going to guide specifically on it but I think we would expect to get most of the benefit by the third quarter I think very little bit in Q2, but we think Q3 should see a return to those normal levels.

on our own cycle in earlier this year, our retention has been excellent even after paying bonuses for last year. So feel good about all that, but we all remain very conscious of that.

Got it alright, thank you.

Thanks, Rob.

Our next question comes from Brian Rotenberg with Imperial capital.

Great. Thank you very much just real quick if you could go over any labor issues that you're seeing given inflationary pressures out there and more importantly, maybe what youre integrators are saying.

and integrators have been having a hard time.

Because that's an important channel and how they are installing is.

hiring labor for the past two or three years. It's the number one concern in the industry.

Is there issues out there on the integrator side that slow and you guys down.

Well, let me a couple of things labor is very tough.

And on top of that, they've had to fight COVID in their own businesses because they've had people out on COVID. And so I think that continues to be a struggle in the industry. We're doing a number of things around efficiency of products.

I think the starting point would that all of us making sure your own team your existing people are highly engaged.

And.

I just actually looked at our engagement scores are at a record high.

And in terms of helping our integrators find labor that we're starting to work with. And so I think part of the number one thing we can do in the short term is to continue to recruit more capacity around our installation capacity for our products. And that's why growing our integrator count has been really important.

We did do a higher than normal wage increase.

On our own cycle and.

Earlier this year, our retention is has been <unk>.

Excellent.

Even after paying bonuses for last year.

So feel good about all that but are we all.

Barry.

So all of those things are important. I will say during COVID, you know, a bunch of training things had to be shut down because people weren't able to get together. And so we're now starting to utilize our local offices and starting to conduct more training sessions for new techs in the field.

Conscious of that.

And.

Integrators have been having a hard time hiring labor for the past two or three years, it's the number one concern in the industry.

And on top of that they've had to fight COVID-19 in their own businesses, because they've had people out on COVID-19 and so.

If that was to my comment earlier, if there is some softening on the labor fund, it may actually be an opportunity for industry that's already operating kind of over capacity.

Hi.

That continues to be a struggle in the industry, we're doing a number of things around efficiency of products and in terms of helping our integrators find labor that we're starting to work.

At this time, this concludes our question-and-answer session. I now like to turn the call back over to Mr. Heyman for a closer look.

And so.

I think part of the number one thing we can do in the short term is to continue to recruit more capacity around our installation capacity for our products and that's why growing our integrator count has been really important.

Thank you very much. I really appreciate everybody joining us today. It's a really exciting time here at SNAP One. Special thanks to our employees to continue to make outstanding contributions.

All of those things are important.

and the network of our integration partners who are doing great work in the field, driving exceptional experiences for individuals and businesses everywhere. And finally, thank you to our investors for your continued support.

Important I will say during COVID-19.

A bunch of training things had to be shut down because people weren't able to get together and so we're now starting to utilize our local offices and starting to conduct more.

More training sessions for new techs in the field.

look forward to speaking with you at the end of Q2 and operator I'll turn it back

That was my comment earlier, if there is some softening on the labor front it may actually be an opportunity for our industry that's already.

Thank you for joining us today for SNAP 1's fiscal first quarter 2022 earnings conference call. You may now disconnect and have a wonderful day.

Operating kind of overcapacity.

Thank you very much.

At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Hagan for closing remarks.

Thank you very much.

I really appreciate everybody joining us today.

It's a really exciting time here at snap one.

Thanks to our employees to continue to make outstanding contributions.

And the network of our integration partners, who are doing great work in the field driving exceptional experiences for individuals and businesses everywhere and finally, thank you to our investors for your continued support and look forward to speaking with you at the end of Q2, and operator I'll turn it back over to you.

I'm not going to let you get away with it.

Thank you for joining us today for snap <unk> fiscal first quarter 2022 earnings Conference call. You may now disconnect and have a wonderful day.

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