Q4 2023 Snap One Holdings Corp Earnings Call
Thank you for watching. We'll see you next time.
Okay.
Operator: Good afternoon. Welcome to Snap One Holdings Corporation's fiscal fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Good afternoon, welcome to Snap One Holdings Corporation fiscal fourth quarter and full year 2023 earnings conference call. At this time all participants are in a 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 one senior Vice President of finance.
Operator: After the speaker's presentation, there will be a question and answer session. I would now like to turn the call over to Snap One's Senior Vice President of Finance, Haley Pierce. Haley, please.
Daily peer Kelly. Please proceed.
Haley Pierce: Thank you. Good afternoon, and welcome to Snap One's fiscal fourth quarter and full year 2023 earnings conference call. As a reminder, this call is being recorded. Joining us today from Snap One are John Heyman, CEO, and Mike Carlet, 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. 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. However, actual events or results could differ materially.
Thank you good afternoon, and welcome to snap one fiscal fourth quarter and full year 2023 earnings conference call.
As a reminder, this call is being recorded joining us today from snap, one or John Hayman, CEO and my Carla yet though.
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 question, 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.
Actual events or results could differ materially.
Haley Pierce: These statements are based on the current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factor section of our latest annual report on Form 10-K filed with the SEC. All non-GAAP financial measures referenced in today's call are reconciled in our earnings press release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the time and date of this broadcast, March 7th, 2024. 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.snapone.com. In addition to the webcast, we've posted a supplemental earnings presentation accompanying these results, which can also be found on our Investor Relations website. I will now turn the call over to our CEO, John Heyman. John?
These statements are based on current expectation of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of our latest annual report on Form 10-K filed with the SEC.
All non-GAAP financial measures referenced in today's call are reconciled in our earnings press release to the most directly comparable GAAP measure.
This call also contains time sensitive information that is accurate only as of the time and date of this Bryan.
March seven 2024.
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 Dot snap one dot com.
In addition to the webcast we've posted a supplemental earnings presentation accompany these results, which can also be found on our investor Relations website.
I will now turn the call over to our CEO John Haley John.
John H. Heyman: Thank you, Haley, and welcome, everyone, and I appreciate you joining us this afternoon. To begin today's discussion, I'll give some company background, followed by a review of our performance for the quarter and the year. And then I'll turn the call over to Mike Carlet, our CFO. He will discuss our financial results in more depth and provide an outlook for 2024. After that, I'll share some closing remarks before we open the call for questions. Okay, let's get started.
Thank you Haley and welcome everyone and I appreciate you joining us this afternoon.
To begin today's discussion I'll give some company background, followed by a review of our performance for the quarter and the year and then I'll turn the call over to Mike <unk>, Our CFO. He will discuss our financial results in more depth and provide an outlook for 2024 after that I'll share some closing remarks before we.
We open the call for questions, let's get started.
John H. Heyman: As a reminder, at Snap One, we develop and distribute smart living platforms that empower professional integrators to deliver joy, connectivity, and security to discerning residential and commercial customers worldwide. We work with our network of approximately 20,000 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 integrator partners with our proprietary software platforms, service offerings, and workflow solutions to allow them to successfully serve their customers throughout the project life cycle. We believe the smart living opportunity is large and durable and that long-term secular tailwinds, including technology adoption, software enablement, housing construction, and small business formation, will continue to propel the industry and our company forward. Many end users will seek professional help to select, install, integrate, and support the technology solutions they require.
As a reminder.
Once we develop and distribute smart living platforms that empower professional integrators to deliver our joy connectivity and security to discerning residential and commercial customers worldwide. We worked with our network of approximately 20000 professional do it for me integrate.
<unk> to distribute our proprietary and third party products through our e-commerce portal and local branches. We further support our integrator partners with our proprietary software platforms service offerings and workflow solutions to allow them to successfully serve their customers throughout the project lifecycle.
We believe the smart living opportunity is large and it is durable and that long term secular tailwind, including technology adoption software enablement housing construction and small business formation will continue to propel the industry and our company forward. Many end users will seek prefer.
<unk> will help to select install integrate and support the technology solutions. They require here. It's not one we aim to provide our integrator partners with the right tools to capitalize on this opportunity.
John H. Heyman: Here at Snap One, we aim to provide our integrator partners with the right tools to capitalize on this opportunity. While we have strong conviction in the United States housing market over the mid to long term, we are operating in a tough housing environment. Nonetheless, our strong fourth quarter and full year results highlight the resiliency of our business model and the scrappiness of our integration. Our team delivered year-over-year profitability growth despite top-line headwinds, including global macroeconomic uncertainty, channel inventory destocking, and inflation. Our focus on extracting supply chain costs to increase contribution margin, as well as our operating expense discipline, enabled us to generate 2023 adjusted EBITDA of $117.2 million. Importantly, this reflects an expanded operating margin of 11%, a 90 basis point year-over-year improvement.
While we have strong conviction in the United States housing market over the mid to long term, we are operating in a tough housing environment. Nonetheless, our strong fourth quarter and full year results highlight the resiliency of our business model and scrapping this of our integration partners are.
Team delivered year over year profitability growth, despite top line headwinds, including global macroeconomic uncertainty channel inventory Destocking and inflation are focused on extracting supply chain costs to increase contribution margin as well as our operating expense discipline enabled us to <unk>.
Generate 2023, adjusted EBITDA of $117 2 million.
Importantly, this reflects an expanded operating margin of 11% a 90 basis point year over year improvement, we are positioning ourselves for a turnaround in housing and are ready to build on our profitability momentum as we drive further operating leverage with expanded scale.
John H. Heyman: We are positioning ourselves for a turnaround in housing and are ready to build on our profitability momentum as we drive further operating leverage with expanded scale. As we reflect on the operational highlights of 2023, there's no better recognition than the vote of confidence we receive from professional integrators. We were humbled by numerous industry awards, including number one, 45 top five brand rankings across 62 product subcategories in the 2023 CE Pro 100 brand analysis, representing approximately five times the number of recognitions the next closest competitor included within the analysis. Number two, 14 2023 CE Pro Quest for Quality Service Awards across the 22 categories included in CEO, CE Pro's survey of professional integrators. Number three, Best New Hardware for Residential Tech Today Innovation and Cedia Hall of Fame Awards at the 2023 Cedia Expo. And fourth, and finally, two ISE 2024 Top New Technology Awards. We don't take these awards lightly.
As we reflect on the operational highlights of 2023, there's no better recognition than the vote of confidence we receive from professional integrators. We were humbled by numerous industry awards, including number 145 top five brand rankings across 62 Prada.
Subcategories in the 2023 CE Pro 100 brand analysis awards, representing approximately five times the number of recognition of the next closest competitor included within the analysis.
2014, 2023, CE Pro Quest for quality service awards across the 22 categories included in CEO CE Pro survey of professional integrators number three best new hardware for residential Tech today innovation and C. D. A hall of Fame Award.
At the 2023, CD Expo and fourth and finally to ISC 2024 top New Technology Awards, we don't take these awards lately, we recognize that to sustain and enhance our competitive position, we must continue to listen to our integration partners develop innovate.
John H. Heyman: We recognize that to sustain and enhance our competitive position, we must continue to listen to our integration partners, develop innovative products, invest in our software platforms, and enhance end customer satisfaction with the smart living experience. In January of this year, we officially announced the launch of Control 4 Connect and Control 4 Assist. As a reminder, Control 4 Assist is an optional service program for integrators to offer support to their customers, while Control 4 Connect will be a mandatory software subscription on all domestic installations starting in late April.
Ive products invest in our software platforms, and enhance and customer satisfaction with the smart living experience.
In January of this year, we officially announced the launch of control for connect and control for assist as a reminder, control for assist is an optional service program for integrators to offer support to their customers while control for connect will be a mandatory software so.
Scripture on all domestic install starting in late April.
John H. Heyman: Since acquiring Control 4 in August of 2019, a major focus for us has been on improving our software and support offerings for both our partners and the end customer. After years of extensive development, market testing, and integrator feedback, we have built a new software and support portfolio that we believe will transform this industry. Control4Connect and Control4Assist were designed to enhance the end customer experience, build recurring revenues, and incremental profitability for our partners and for Snap One, and ultimately align the industry in a way that benefits and delights the end customer and improves the system they acquire over time through valuable software updates and amazing services.
Since acquiring control four in August of 2019, a major focus for US has been on improving our software and support offerings for both our partners and the end customer after years of extensive development market testing and integrator feedback we have built a new software and support.
Portfolio that we believe will transform this industry control for connect and control for assist were designed to enhance the end customer experience build recurring revenues and incremental profitability for our partners and for snap one and ultimately aligned the industry in a way that Ben.
<unk> and delights, the end customer and improve the system. They acquire over time through valuable software updates and Amazing service. These two services establish us and our integration partners as the clear leaders in an industry that must evolve to manage increasingly complex technology.
John H. Heyman: These two services establish us and our integration partners as the clear leaders in an industry that must evolve to manage increasingly complex technology and more demanding customer expectations. So far, the overall post-launch reception has been positive. We are seeing customers come online now, and we are excited for our partners and end customers to benefit from the value of these offerings in 2024 and beyond. During the course of 2023, we outlined two key strategic initiatives. First, driving higher platform and product adoption by our partners and, in turn, delivering a far better end consumer experience. And second, expanding our operating margins through several key programs, which have already yielded positive results. From a platform adoption perspective, our continued innovation in our products, solutions, and service models enhances our relationships with our partners, delivers a better end customer experience, and drives market share gains for Snap One.
And more demanding customer expectations.
So far the overall post launch reception has been positive we are seeing customers come on line now and we are excited for our partners and end customers to benefit from the value of these offerings in 2024 and beyond.
Over the course of 2023, we outlined two key strategic initiatives first driving higher platform and product adoption by our partners and in turn delivering far better and consumer experiences and second expanding our operating margin.
Stu several key programs, which have already yielded positive results from our platform adoption perspective, our continued innovation in our products solutions and service models enhances our relationships with our partners delivers a better end customer experience and drives market share gains for <unk>.
John H. Heyman: With this in mind, we launched a large number of innovative new products throughout the year across many of our categories, with new launches planned for 2024. Complementing our product portfolio, we continue to optimize our go-to-market strategy to drive ecosystem adoption, and we are pleased with all that we've accomplished this year as part of this initiative, including leveraging our best-in-class loyalty platform to drive product category and ecosystem adoption and strengthen our relationships with partners. We're also converging our Snap One and Control Four portals in the United States, further enhancing our omni-channel initiative, and finally bringing together a unified experience for our partners. And finally, we're expanding our strategic omni-channel presence by opening four net new local branches in 2023, including two in the fourth quarter. This brings the total number of North American branches to 45 as of year end.
One with this in mind, we launched a large number of innovative new products throughout the year across many of our categories with new launches planned for 2024.
Complementing our product portfolio, we continue to optimize our go to market strategy to drive ecosystem adoption and we are pleased with all that we've accomplished this year as part of this initiative, including leveraging our best in class loyalty platform to drive product category and ecosystem adoption and stir.
And our relationships with partners.
We're also converging our snap one in control for ports in the United States further enhancing our omni channel initiative, and finally, bringing together a unified experience for our partners and finally, we're expanding our strategic omnichannel presence by opening four net new local branches in 2023.
Including two in the fourth quarter. This brings the total number of North American branches to 45 as of year end and continuing with this amendment momentum we have another branch slated to open in the coming weeks.
John H. Heyman: And continuing with this momentum, we have another branch slated to open in the coming weeks. We intend to continue opening more locations in 2024 to serve our partners and their communities, though we plan to briefly pause additional openings during the first half of this year as we wrap up our efforts to migrate our branches to a single operating system. While we continue to try to drive growth in our business, our second strategic initiative is achieving operating margin expansion. Through COVID and the recent supply chain challenges, we prioritized keeping our partners in business. This created near-term inefficiencies for Snap One.
We intend to continue opening more locations in 2024 to serve our partners and their communities that we plan to briefly pause additional openings during the first half of this year as we wrap up our efforts to migrate our branches to a single operating system.
While we continue to try to drive growth in our business. Our second strategic initiative is achieving operating margin expansion.
Through Covid and the recent supply chain challenges, we prioritized keeping our partners and business. This created near term inefficiencies for snap one the supply chain is now largely normalized and our team is successfully extracted those cost inefficiencies driving sustained contribution margin expansion this year.
John H. Heyman: The supply chain is now largely normalized, and our team has successfully extracted those cost inefficiencies, driving sustained contribution margin expansion this year. We're also driving scale within our operations. Integration activity related to previously completed acquisitions, as well as investments within our technology infrastructure, have continued to yield results. These investments will support our operating leverage and growth expectations going forward and are evident in this year's results. Let me now comment briefly on our outlook, and then I'll turn the call over to Mike.
We're also driving scale within our operating model integration activity related to previously completed acquisitions as well as investments within our technology infrastructure have continued to yield results. These investments will support our operating leverage and growth expectations going forward and are evident in this year's results.
<unk>.
Let me now comment briefly on our outlook and then I'll call I'll turn the call over to Mike.
John H. Heyman: While we hold a high level of conviction around our growth algorithm, we also think it's prudent to maintain a pragmatic view of the current operating environment. Several of the factors that have applied modest pressure on our demand over the last few quarters all remain in the short term. However, as we projected last quarter, we now believe that the industry is arriving at its new normal level of inventory that we estimate. Additionally, while spending has declined a bit, our integration partners continue to report relatively healthy backlogs and remain optimistic about the future. They are highly adaptable and have a proven ability to pivot to a variety of projects to remain successful in changing market conditions.
While we hold a high level of conviction around our growth algorithm. We also think it's prudent to maintain a pragmatic view of the current operating environment. Several of the factors that have applied modest pressure on our demand over the last few quarters all remain in the short term. However, as we projected last quarter, we now believe.
The industry is arriving at its new normal level of inventory that we estimate.
Additionally, while spending has declined a bit our integration partners continue to report relatively healthy backlogs and remain optimistic about the future. There are highly adaptable and have a proven ability to pivot to a variety of projects to remain successful and changing market conditions. These can include.
John H. Heyman: These can include upgrading their installed base with new products or pursuing commercial projects. We have a unique ability to support this flexibility with our diversified business model and product portfolio, which allows us to serve integration partners across a wide variety of price points and markets. While we're seeing some softness from more budget-conscious end customers for entry-level projects, we believe that high-end residential housing remains resilient, and our commercial pipeline is growing. We expect some demand headwinds to continue into 2024, but we're confident that we're winning share and will emerge as an even stronger company as the operating environment bounces back. As we look to the rest of 2024, we expect the operating environment to remain uncertain, but we plan to achieve growth nonetheless.
Upgrading their installed base with new products or pursuing commercial projects, we have a unique ability to support this flexibility with our diversified business model and product portfolio.
Which allows us to serve integration partners across a wide variety of price points and end markets.
While we're seeing some softness for more budget conscious end customers for entry level projects. We believe that high end residential housing remains resilient and our commercial pipeline is growing we expect some demand headwinds to continue into 2024, but we're confident that we're winning share and we will.
Emerge as an even stronger company as the operating environment bounces back.
As we look to the rest of 2024, we expect the operating environment to remain uncertain, but we plan to achieve growth. Nonetheless, accordingly, we have constructed a strategy to not only drive expansion in 2024, but to position snapped want to transform the industry and win market share in the year.
John H. Heyman: Accordingly, we have constructed a strategy to not only drive expansion in 2024 but to position Snap One to transform the industry and win market share in the years to come. To achieve this, we're executing on several strategies, including We're expanding our share of Wallet with existing customers through the further adoption of our ecosystems and product categories, the introduction of innovative new products, and the expansion of our local branch footprint. We're elevating the end consumer experience by offering cutting-edge support services such as Control4Connect and Control4Assist that will align the industry in a way that benefits the end consumer and ultimately increases the demand for our products.
To come to achieve this we are executing on several strategies, including we're expanding our share of wallet with existing integrators that the further adoption of our ecosystems and product categories. The introduction of innovative new products and the expansion of our local branch footprint.
We're elevating the end consumer experience by offering cutting edge support services, such as control for connect and control for assist that will align the industry in a way that benefits the end consumer and ultimately increases the demand for our products, we're growing beyond our core business, especially in commercial markets as we work to.
John H. Heyman: We're growing beyond our core business, especially in commercial, as we work to drive outsized growth by introducing new products and solutions in the near term. We're driving operational efficiency and scale by expanding our profitability, continuing to optimize our inventory position, and investing in our infrastructure. And finally, we're bolstering our own foundation by maintaining a strong employee engagement with the best team in the industry and making it easy for integrators to buy from us week after week through whatever channel they prefer. With that, I'll turn the call over to Mike Carlet, our CFO, to discuss the fourth quarter and full year results in our 2024 Outlook in greater detail. Mike?
To drive outsized growth by introducing new products and solutions in the near term.
Driving operational efficiency and scale by expanding our profitability continuing to optimize our inventory position and investing in our infrastructure and finally, we're bolstering our own foundation by maintaining a strong employee engagement with the best team in the industry and making it easy.
For our integrators to buy from US week after week through whatever channel they prefer.
With that I'll turn the call over to Mike <unk>, our CFO to discuss the fourth quarter and full year results and 2024 outlook in greater detail Mike.
Michael Carlet: Thanks, John. I'll start by talking about our financial results for the fourth quarter and the full year ended December 29, 2020. Net sales in the fiscal fourth quarter decreased 1.4% to $264.4 million, down from $268.2 million in the comparable year-ago period.
Thanks, Sean.
Start with talking about our financial results for the fourth quarter and the full year ended December 29 2023.
Net sales in the fiscal fourth quarter decreased one 4% to $264 4 million down from $268 $2 million in the comparable year ago period.
Michael Carlet: For the full year ended December 29, 2023, net sales decreased 5.6% to $1.06 billion from $1.12 billion in the year-ago period. As John alluded to earlier, our data shows that Integrator has been working through its elevated inventory since their levels peaked around mid-2022. And our data now indicates that our partners' inventory levels largely flattened in Q4. Even though channel inventory remains slightly elevated from the pre-2022 levels, our data suggests we have reached a new normal. And while destocking did serve as a notable headwind to sales in 2023, do not expect to see major stocking or destocking activity in the near future. Our selling, general, and administrative expenses and our fiscal fourth quarter increased 6.2% to $88.2 million or 33.4% of net sales from $83 million or 31% of net sales in the comparable year-ago period.
For the full year ended December 29, 2023, net sales decreased five 6% to 106 billion from $1 2 billion in the year ago period.
As John alluded to earlier, our data shows the integrators have been working through their elevated inventory levels peak around mid 2022.
And our data now indicates that our partners inventory levels largely flattened in Q4.
Even though channel inventory remains slightly elevated from the pre 2022 levels. Our data suggests we have reached a new normal and while Destocking did serve as a notable headwind to sales in 2023 do not expect to see major stocking or destocking activity going forward.
Our selling general and administrative expenses in our fiscal fourth quarter increased six 2% to $88 2 million or 33, 4% of net sales from $83 million or <unk>, 31% of net sales in the comparable year ago period.
Michael Carlet: The increase in SG&A expenses was primarily attributable to our long-term strategic growth investment, costs associated with local branch openings in the past year, and a change in fair value adjustment to contingent consideration. This was partially offset by a decrease in acquisition and integration-related costs. For the full year 2023, SG&A expenses increased 1.6% to $359.8 million, or 33.9% of net sales, up from $354.3 million, or 31.5% of net sales in a comparable year-ago period. The increase in SG&A expenses was attributable in part to a change in fair value adjustments to contingent value rights, and the costs associated with opening local branches in the past year were partially offset by a decrease in provisions And for the full year, our net loss totaled $21.4 million, compared to a net loss of $8.7 million in the comparable year-ago period.
The increase in SG&A expenses was primarily attributable to our long term strategic growth investments costs associated with local branch openings in the past year and a change in fair value adjustment to contingent consideration.
This was partially offset by a decrease in acquisition and integration related costs.
For the full year 2023, SG&A expenses increased one 6% to $359 8 million or 33, 9% of net sales up from $354 3 million or 31, 5% of net sales comparable year ago period.
The increase in SG&A expenses was attributable in part to a change in fair value adjustments to contingent value rights and the cost associated with opening local branches in the past year again, partially offset by a decrease in provisions for credit losses on notes receivable.
Our net loss of $5 8 million in the fourth quarter compared to a net loss of $4 $1 million from the comparable year ago period.
And for the full year, our net loss totaled $21 4 million compared to a net loss of $8 $7 million in the comparable year ago period.
Michael Carlet: Contribution margin, a non-gap measurement of operating performance, increased 4.3% to $110.3 million, or 41.7% of net sales in the fiscal quarter, up from 105.8 million, or 39.4% of net sales in the comparable year-ago period. Contribution margin as a percentage of net sales increased largely due to continued momentum from our supply chain cost management initiatives driven by our teams, as well as a modest impact from cumulative price adjustments we took in the last 12 months. This was partially offset by a lower proprietary product mix, which was largely driven by new local branch openings and an incremental brand assortment of third-party products. For the full year 2023, contribution margin increased 1.4% to $447.3 million, or 42.2% of net sales, from $441.2 million, or 39.3% of net sales in the comparable year-ago period.
Contribution margin on non-GAAP measurement of operating performance increased four 3% to $110 3 million or 41, 7% of net sales in the fiscal fourth quarter up from $105 8 million or 39, 4% of net sales in the comparable year ago period.
Contribution margin as a percentage of net sales increased largely due to continued momentum from our supply chain cost management initiatives driven by our teams.
As well as a modest impact from cumulative price adjustments, we took in the last 12 months.
This was partially offset by a lower proprietary product mix, which was largely driven by new local branch openings and incremental brand assortment of third party products.
For the full year 2023 contribution margin increased one 4% to $447 3 million or 42, 2% of net sales from 44, $441 2 million or 39, 3% of net sales in the comparable year ago period.
Michael Carlet: Contribution margin, a percentage of net sales, increased largely due to the cumulative impact of price adjustments taken in the last 12 months, as well as the execution of the supply chain cost management initiatives, which drove input cost efficiency. However, again, this was partially offset by lower proprietary product mix. For the full year 2023, third-party product sales represented 34.1% of net sales compared to 32.2% in the comparable year-ago period. Adjusted EBITDA, a non-gap measurement of operating performance, increased 10.7% to $29.8 million, or 11.3% of net sales, in the fourth quarter, compared to 26.9 million, or 10% of net sales in the comparable year-ago period.
Contribution margin as a percentage of net sales increased largely due to the cumulative impact of price adjustments taken in the last 12 months as well as the execution of the supply chain cost management initiatives, which drove input cost efficiencies.
Again, this was partially offset by lower proprietary product mix.
For the full year 2023 third party product sales represented 34, 1% of net sales compared to 32, 2% in the comparable year ago period.
Adjusted EBITDA, a non-GAAP measurement of operating performance increased 10, 7% to $29 8 million or 11, 3% of net sales in the fourth quarter compared to $26 9 million or 10% of net sales in the comparable year ago period.
Michael Carlet: And adjusted EBITDA for the full year 2023 increased 2.7% to 117.2 million, or 11% of net sales, compared to 114.1 million, or 10.2% of net sales in the comparable year-ago period. These increases were primarily attributable to the strong contribution margin rate expansion, partially offset by the net sales decline in the increase in SG&A. Adjusted net income, a non-gap measurement of operating performance, increased to $11.2 million, or 4.3% of net sales in the fourth quarter, from $10.5 million, or 3.9% of net sales in the comparable year-ago period. Adjusted net income decreased to $40.3 million, or 3.8% of net sales in the full year 2023 from $52.6 million, or 4.7% of net sales in the year ago. Free cash flow, a non-gap measurement of operating performance, totaled $66.5 million for the full year ended December 29, 2023, compared to a negative $44.6 million for the comparable year ago.
And adjusted EBITDA for the full year in 2023 increased two 7% to $117 2 million or 11% of net sales compared to $114 1 million or 10, 2% of net sales in the comparable year ago period.
These increases were primarily attributable to the strong contribution margin rate expansion, partially offset by the net sales decline and the increase in SG&A expenses.
Adjusted net income a non-GAAP measurement of operating performance increased $11 2 million or four 3% of net sales in the fourth quarter from $10 5 million or three 9% of net sales in the comparable year ago period.
Adjusted net income a non-GAAP measurement of operating performance decrease of $40 3 million or three 8% of net sales in our full year 2023 from $52 6 million or four 7% of net sales in the year ago period.
Free cash flow a non-GAAP measurement of operating performance totaled $66 $5 million in the full year ended December 29, 2023, compared to a negative $44 $6 million in the comparable year ago period. This.
Michael Carlet: This year over year significant increase in free cash flow is primarily attributable to the progress we made towards reducing our inventory level. We ended the year with $268.8 million in inventory, which overachieved against our stated inventory goal of $275 million. This contributed to our ability to fully pay down our revolver and build $156 million in total liquidity at the end of 2023, including cash and cash equivalents of $61 million and undrawn revolver capacity of $95 million. As a reminder, a portion of this excess liquidity will be utilized in Q1 for annual payments related to the TRA, the Employee Incentive Plan, and for the general seasonality of the business. But overall, we are pleased with the current liquidity position of the company and the operational flexibility that it provides. As mentioned last quarter in the context of our capital allocation policy, our board extended the current share repurchase program by one year to December 31st, 2024. As a reminder, the board previously authorized up to $25 million of share repurchases, of which the company has executed approximately $3.1 million to date.
This year over year, a significant increase in free cash flow is primarily attributable to the progress we've made towards reducing our inventory levels.
We ended the year with $268 $8 million of inventory, which overachieve against our stated inventory goal $275 million.
This contributed to our ability to fully pay down our revolver and build $156 million in total liquidity at the end of 2023.
Cash and cash equivalents of $61 million and.
And undrawn revolver capacity of $95 million.
As a reminder, a portion of this excess liquidity will be utilized from Q1 for annual payments related to the TRA employee incentive plan and for the general seasonality of the business.
But overall, we are pleased with the currently current liquidity position of the company and the operational flexibility that it provides.
As mentioned last quarter in the context of our capital allocation policy our board extended the current share repurchase program by one year to December 31 2024.
As a reminder, the board previously authorized up to $25 million of share repurchases of which the company has executed approximately $3 1 million to date.
Michael Carlet: With this extension, we will continue to evaluate share repurchases in line with our capital allocation strategy. In addition to the financial metrics that we've reported to date, we have a few key performance indicators that are intended to provide enhanced visibility into key operating metrics. These KPIs are related to the count of transacting domestic integrators and the spend per transacting domestic integrator. We will continue to present these metrics annually on a fiscal year basis.
With this extension, we will continue to evaluate share repurchases in line with our capital allocation strategy.
In addition to the financial metrics that we've reported to date, we have a few key performance indicators that are intended to provide enhanced visibility into key operating metrics.
These kpis are related to the account of transacting domestic integrators.
And the spend per transacting domestic integrator we.
We will continue to present these metrics annually on a fiscal year basis.
Michael Carlet: In fiscal year 2023, we transacted with approximately 19.7 thousand domestic integrators, who on average spent $45.9 thousand. On a year-over-year basis, the number of transactions by domestic integrators increased by 0.5 percent, while spend for a transacting integrator decreased 4.4 percent as integrators destocked their inventory positions. Finally, before I turn the call back over to John, I'll take just a few minutes to provide our financial outlook for Fiscal 24. As a reminder, Snap One 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 fiscal year 2023, we transacted with approximately $19 7000, domestic integrators, who on average spent $45 $9000.
On a year over year basis, the number of transactions domestic integrators increased five 5%.
While spend per transacting integrator decreased four 4% as integrators destock their inventory position.
Finally, before I turn the call back over to John I'll take just a few minutes to provide our financial outlook for fiscal 'twenty four.
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 of the overall performance of our business.
Michael Carlet: Our 24 guidance considers our full 2023 performance and our conviction in the multifaceted growth strategy we have built, while also confronting the continued market uncertainty that we believe will persist for much of 2024. We expect net sales in the fiscal year ending December 27, 2024 to range between $1.06 billion and $1.13 billion, which would represent a range of flat year-over-year performance to an increase of 6.5% on an as-reported basis. We believe the primary factors contributing to this 24 sales change to be A, excluding the impacts of channel inventory.
24 guidance considers our full 2023 performance and our conviction the multifaceted growth strategy. We adults. While also confronting the continued market uncertainty and we believe will persist for much of 2024.
We expect net sales in the fiscal year, ending December 27, 2024 to range between 1.06 billion and $1, one 3 billion, which would represent a range of flat year over year performance to an increase of six 5% on an as reported basis.
We believe the primary factors contributing to this 2000 <unk> sales change to be.
Excluding the impacts of channel inventory, we expect net sales to range from a decrease of <unk>, 5% to an increase of 2%.
Michael Carlet: We expect net sales to range from a decrease of 0.5% to an increase of 2%. This performance reflects a market-driven change in sales volume, partially offset by growth from continued expansion of local branches over the past year, as well as very modest pricing action. And B, we expect a 4% to 5% tailwind from channel inventory as we lap the channel destocking that occurred during the previous year. We expect adjusted EBITDA in 2024 to range between $120 million and $128 million, representing an increase of 2.4% to 9.2% compared to the prior fiscal year on an as-reported basis.
This strong performance reflects a market driven change in sales volume, partially offset by growth from continued ramp up of local branches over the past year as well as very modest pricing actions.
And B, we expect a 4% to 5% tailwind from channel inventory as we lapped the channel destocking that occurred over the previous year.
We expect adjusted EBITDA in 2024 to range between $120 million and $128 million, representing an increase of two 4% to nine 2% compared to the prior fiscal year on an as reported basis.
Michael Carlet: Our adjusted EBITDA guidance reflects our ongoing commitment to drive additional adjusted EBITDA margin expansion. We expect to achieve this both through continued contribution margin momentum stemming from our supply chain efficiencies, as well as continued discipline operating expense management. Finally, as we think about our 2024 seasonal trends, when we look at the external demand factors, prevailing data continues to indicate slow activity across the housing industry.
Our adjusted EBITDA guidance reflects our ongoing commitment to drive additional adjusted EBITDA margin expansion.
We expect to achieve this both through continued contribution margin momentum stemming from our supply chain efficiencies as well as continued disciplined operating expense management.
Finally, as we think about our 2020 for seasonal trends when we look at the external demand factors prevailing data continues to indicate slow activity across the housing industry and.
Appears that this dynamic will likely continue at least through the first half of 2024 with some reports, indicating a return to growth in the second half of the year.
Michael Carlet: The periods of this dynamic will likely continue at least through the first half of 2024, with some reports indicating a return to growth in the second half of the year. Based on this sentiment, as well as some of our own internal information, we would expect to see sales trending more strongly in the second half of the year. And, as previously mentioned, we believe our integrator customers have reached a new steady state level of inventory, and we do not expect changes in inventory carried by our customers to have a material impact on our 2024 results. But, as our 2023 results include the headwinds of restocking activity, this serves as a source of year-over-year growth in 2024. More specifically, we believe the bulk of the sell-down will occur in the middle of 2023, with the majority of this benefit to be seen in the second quarter and third quarter of 2024. That completes my summary, and I'll turn the call back over to John for a few more comments. John?
Based on this settlement sentiment as well as some of our own internal information, we would expect to see sales trending more strongly in the back half of the year.
And as previously mentioned, we believe our integrator customers have reached a new steady state level of inventory do not expect changes in inventory carried by our customers to have a material impact on our 2024 results.
But as our 2023 results include the headwinds of Destocking activity. This serves as a source of year over year growth in 2024.
More specifically, we believe the bulk of the sell down occurred in the middle of 'twenty three with the majority of this benefit to be seen second quarter and third quarter 2024.
That completes my summary, I will now turn the call back over to John for a few more comments.
John.
Thanks, Mike.
A few closing thoughts before we hit Q&A first.
We are really proud of our team's ability to grow adjusted EBITDA compared to last year and expand our operating margins. Despite the headwinds the industry faced and we remain confident in our expectations for consistent long term growth. This year, we made strong gains in our contribution margin as costs related to the supply chain.
John H. Heyman: Thanks, Mike. A few closing thoughts before we hit Q&A first. We are really proud of our team's ability to grow adjusted EBITDA compared to last year and expand our operating margins despite the headwinds the industry faced, and we remain confident in our expectations for consistent long-term growth. This year, we made strong gains in our contribution margin as costs related to the supply chain alleviated, and additionally, we executed on our operating margin expansion plan, and we intend to make more progress in the coming year. Second, we remain committed to our overarching strategy.
Deviated and Additionally, we executed on our operating margin expansion plan and we intend to make more progress in the coming year.
Second we remain committed to our overarching strategy. This includes growth via new proprietary product launches market, leading service expansion in our growth markets, such as commercial and additional local branch offerings openings excuse me as I mentioned previously we're also very excited about our transfer.
<unk> software investment as seen through our control for connect and control for assist offerings.
Even in an uncertain operating environment, we continue to strive to be the one partner that are integrators trust to support and grow their businesses and third and finally as I've said before we believe that all homes and businesses will become smarter over the next decade driving for demand.
John H. Heyman: This includes growth via new proprietary product launches, market-leading service, and expansion in our growth markets such as commercial and additional local branch offices. As I mentioned previously, we're also very excited about our transformational software investments, as seen through Control 4 Connect and Control 4 Assist. Even in an uncertain operating environment, we continue to strive to be the one partner that our integrators trust to support and grow their business. And third, and finally, as I've said before, we believe that all homes and businesses will become smarter over the next decade, driving demand for the types of experiences we offer today and We've invested in scale and platforms that will drive better solutions for the end customer, more capacity for the integrator, and growth for Snap One in a way that increases operating margins over time.
For the types of experiences we offer today and those we can only imagine in the future. We've invested in scale and platforms that will drive better solutions for the end customer more capacity for the integrator and growth for snap one in a way that increases operating margins overtime will remain <unk>.
Highly confident in our operating model and believe that our resilient integration partners, our diversified business model and consistently strong execution positioning us to prosper in a dynamic macro environment at snap one we believe that our time is now and we are excited to.
Our vision for 2024 and beyond and with that Norma. Please open the call for Q&A. Thank you at this time, we will open the lines for questions from the company's publishing analysts the company requested each participant limit their comments to one question and one follow up to ask a question you will need to press star one on your telephone.
John H. Heyman: We remain highly confident in our operating model and believe that our resilient integration partners, our diversified business model, and consistently strong execution position us to prosper in a dynamic macro environment. At Snap One, we believe that our time is now, and we are excited to implement our vision for 2024 and beyond. And with that, Norma, please open the call for Q&A. Thank you. At this time, we'll open the line for questions from the company's publishing analysts. The company requests that each participant limit their comments to one question and one follow-up. To ask a question, you'll need to press star 1-1 on your telephone.
To withdraw your question. Please press Star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.
One moment for your first question.
Our first question comes from the line of Eric Woodring with Morgan Stanley. Your line is now open.
Hey, guys. Thank you very much for taking my questions I just have I just have two maybe just on the maybe the first one is just kind of high level. We went through how you are.
Operator: To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. The first question comes from the line of Erik Woodring with Morgan Stanley. Your line is now open.
How many integrators and spend for integrator trended in 2023 can you just give us a bit of detail on how you expect that to trend in 2024, and how you expect that to care compared to the broader industry, meaning how much share do you expect to gain or lose and why that might be and then I have a follow up please thank you.
Erik William Richard Woodring: Hey guys, thank you very much for taking my questions. I just have two, maybe just on the maybe the first one is just kind of high level. We went through how you were, how many integrators, and spend for integrators trended in 2023. Can you just give us a bit of detail on how you expect that to trend in 2024? And how you expect that to matter compared to the broader industry, meaning how much share do you expect to gain or lose and why that might be? And then I will follow up, please. Thank you. Sure, I'll jump on that. How are you doing?
Sure Jonathan how are you doing.
I think as we think about our guidance for this year and the components of it we would expect our integrator pattern 2024 to be relatively consistent with 2023, our focus as we go into 2024 is on the launch of control for production assistance John talked about is on the platform adoption activities that we have we obviously are continuing to add into.
Great is all the time, but obviously some folks a lot of business every year, there's some turnaround that generally when people start buying from us.
Michael Carlet: Uh, I think as we think about our guidance for this year and the components of it, we would expect our integrator count in 2024 to be relatively consistent with 2023. Our focus as we go into 2024 is on the launch of control port connection assist, as John talked about. It's on the platform adoption activities that we have. We obviously are continuing to add integrators all the time, but obviously, some folks go out of business every year.
Our molecular business.
But right now we would expect the majority of our growth come more from share of wallet activities and platform adoption activities that we're driving.
So we really think about our guidance for next year, there's really three components of it.
The market is going to do what is the.
Platform adoption chart, while we're going through what was the channel inventory impacts Sean.
Towards 4% to 5% you'll get as we think about what happened last year, that's a pretty durable number to us.
We're we're definitely what the market's going to do right now to go to market it looks like.
It's a bit challenging.
And so we're predicting the market could be for the year anywhere from.
Michael Carlet: There's some upside that generally, when people start buying from us, you know, we retain them for the life of their business. But right now, we would expect the majority of our growth to come more from share of wallet activities and platform adoption. So if we really think about our guidance for Nixa, there are really three components to it.
Flattish to down 5%.
Our best guess, but the further out you go the more we're guessing about as we think about the end of year and trying to predict the housing market and remodel market and then we think we have confidence in our opportunity to grow share of wallet and market share.
The data that we get from talking to <unk>.
Michael Carlet: There's what the market is going to do, what the platform adoption chart is, what we're going to do, and what's the channel inventory impact. Channel inventory is four to 5%. You know, again, as we think about what happened last year, that's, that's a pretty noble number to us.
Industry buying groups from interacting with our customers from thinking about Hoelzel information and how we show up on that Ah continues to indicate that we are growing share.
So we continue to expect to see that happen.
We're not talking about significant share gains up a couple points of growth.
Driving the spread performance that we're forecasting for next year.
Michael Carlet: We're guessing what the market's going to do, and right now, you know, the market looks like it's a bit challenging. And so we're predicting the market to be for the year anywhere from, you know, flattish to down 5% is our best guess. But the further out you go, the more we're guessing at that, as we think about the end of the year and try to predict the housing market and the remodel market. And then we think we have confidence in our opportunity to grow share of wallet and market share. The data that we get from talking to industry buying groups, from interacting with our customers, from thinking about the whole information and how we show up on that continues to indicate that we are growing market share. And so we continue to expect to see that happen. However, we're not talking about significant share gains.
Hey, Mike Let me just add to that before Eric asked his follow up question.
Eric.
We came out of a.
A period of time, where we were significantly constrained on certain products from an inventory standpoint as you know.
And I think that at the same time, we were delivering a lot of product innovation, especially during 2024 or 2023 is componentry.
<unk> M.
And.
What are the things we are very focused on now is we have 20000 integration partners, but there is a.
Segment of them, who are fully adopted in our ecosystems and understand how that drives more profitability for them and a better experience for the end customer and so to the number of integrators. We're looking to add this year were certainly continuing to add integrators, but I would say our.
John H. Heyman: That's a couple of points of growth, which drives the spread of performance that we're forecasting. Hey, Mike, let me just add to that before Erik asks his follow-up question. Erik, you know, we came out of a period of time where we were significantly constrained on certain products from an inventory standpoint, as you know.
Focus has shifted to with the products. We now have in the inventory availability easing up to driving share of wallet and we're doing that in a number of ways and we're starting to see some success. So that will be something we continue to talk about this year with you all.
John H. Heyman: And I think that at the same time, we were delivering a lot of product innovation, especially during 2024 or 2023 as componentry eased up. And one of the things we are very focused on now is that we have 20,000 integration partners. But there is a segment of them who are fully adopted in our ecosystems and understand how that drives more profitability for them and a better experience for the end customer. And so to the number of integrators we're looking to add this year, we're certainly continuing to add integrators, but I would say our focus has shifted to the products we now have and the inventory availability easing up to drive share of wallet. And we're doing that in a number of ways, and we're starting to see some success. So that will be something we continue to talk about this year with y'all. Okay. Thank you, and take care. No, that was very fair.
Okay.
Thank you.
Take your follow up.
No.
Thank you for all that detail I guess the second question was just on.
Some of the drivers of your contribution margin. Obviously this year, some really nice improvements that you've made on supply chain cost management initiatives, obviously pricing actions had a pretty significant on contribution margin. In 2023 can you just help us understand some of those factors and how they relate to contribution margins in 2024.
And kind of understand the shape of the curve between operating leverage and contribution margin expansion as you get to kind of operate as you get to that EBITDA guidance that you provided for us and Thats. It for me. Thank you so much Mike. Thanks, Eric Yes, we don't guide to the contribution numbers specifically.
Erik William Richard Woodring: Thank you for all that detail. I guess the second question was just about some of the drivers of your contribution margin. Obviously, this year, some really nice improvements that you made in the supply chain, cost management initiatives, and obviously pricing actions had a pretty significant impact on contribution margins in 2023. Can you just help us understand some of those factors and how they relate to contribution margins in 2024, just so we can kind of understand the shape of the curve between operating leverage and contribution margin expansion as you get to that EBITDA guidance that you provided for us? And that's it for me. Thank you so much. Mike?
You think about last year pricing was an overall, 3% growth last year year over year, we actually saw very little pricing in <unk>.
Most of the pricing impact from 23 record carryover from late 'twenty, two pricing action and we expect minimal pricing action in 'twenty, four we announced about 1% blended price change at some skus that will help some skus going down but overall it was a 1% which went into effect in January.
Now we're not you got additional pricing action this year.
Thinking about it based on market conditions that are out there. So pricing is a small component of it really having said all that we do expect contribution margin to continue to grow our team has been doing lots of work from a sourcing standpoint, with our suppliers driving costs down driving efficiency.
Michael Carlet: Thanks, Erik. Yeah, we don't guide to the contribution numbers specifically. If you think about last year, pricing was an overall 3% growth last year. However, year over year, we actually have done very little pricing in 2023. Most of the pricing impacts in 2023 were actually carryover from late 2022 pricing action, and we expect minimal pricing action in 2024. We announced about a 1% blended price change. That's some skus that went up, some that went down, but overall, it went into 1%, which went into effect in January.
Ross.
Supply chain and we do expect to see continued contribution margin expansion as we go forward.
Great. Thank you so much for the color guys. Thanks, Eric.
Q.
One moment for our next question.
Our next question comes from the line of Cory Carpenter with Jpmorgan. Your line is now open.
Hey, good afternoon, I wanted to ask on the recent software product launches.
Hoping you could expand a bit on the early reception, you're seeing and then maybe more specifically what you're building into the guide around adoption and monetization as we progress through the year. Thank you.
Michael Carlet: And as of now, we're not thinking about additional pricing action this year. But we'll always be thinking about it based on market conditions that are out there. So pricing is a small component of it. Really, having said all that, we do expect contribution margin to continue to grow. Our team has been doing lots of work from a sourcing standpoint with our suppliers, driving costs down, driving efficiency across the supply chain, and we do expect to see continued contribution margin expansion as we go forward. Thank you so much for the color, guys.
Well, we kicked off the.
Launch Corey with.
Summit, where we invited some of our top control for <unk>.
Customers when I say, some 200 and we spent.
Two to three days with them. This of course was after a.
The pilot period beta if you will with tens of them.
Erik William Richard Woodring: Thanks, Eric. Thank you. One moment for our next question. Our next question comes from the line of Corey Carpenter with J.P. Morgan. Your line is now open. Hey, good afternoon.
And it's also on top of the experience we've had with hundreds of parasol partners.
Corey Carpenter: I wanted to ask about the recent software product launches, hoping you could expand a bit on the early reception you're seeing and then maybe more specifically what you're building into the guide around adoption and monetization as we progress through the year. Thank you. Well, we kicked off the launch, Corey, with Summit, where we invited some of our top Control 4 customers, when I say some, hundreds, and we spent two to three days with them. This, of course, was after a pilot period, or beta, if you will, with tens of them. And it's also on top of the experience we've had with hundreds of Parasol partners and over 100,000 Foresight subscribers. And I think, you know, the announcement was quite notable in the industry. I think it met with great press coverage, maybe with the exception of one column, and inside our summit, the response was fantastic. I couldn't literally not have been more pleased, and Amon Optimus.
And over 100000 foresight subscribers.
And I think the announcement was.
Is quite notable in the industry.
I think it met with <unk>.
Great press coverage, maybe with the exception of one.
Columnist.
And.
Inside our summit.
Response was fantastic I couldnt literally not have been more pleased.
I'm, an optimist and when we did a survey afterwards.
The sentiment on.
Those who attended the reception reception was staggering.
And.
While we had a.
The subscription offering for the software was mandatory.
The assist the support offering where dealers.
May or may not.
John H. Heyman: And when we did a survey afterwards, the sentiment from those who attended the reception was staggering. And while we had a, you know, the subscription offering for the software was mandatory, the assist, the support offering where dealers, you know, may or may not pride themselves on the level of service they provide the end customer. It was amazing to me, like people really see that as a way to provide their end customers with more service, and they can't do it themselves. They just don't have the manpower to staff seven days a week, 24 hours a day.
Pride themselves on the level of service they provide the end customer.
It was it was amazing to me like people really see that as a way to provide their end customer with more service and they can't do it themselves. They just don't have the manpower to staff seven days, a week 24 hours a day.
And so we.
We're quite pleased with that.
The sale sentiment. So we had the top couple of hundred control for partners, but there is over 3000 control for partners, who werent at the event.
John H. Heyman: And so we're quite pleased with that. The sales sentiment, so we had the top couple hundred Control 4 partners, but there were, you know, over 3,000 Control 4 partners who weren't at the event. The sentiment from our sales force post-event has been exceptionally strong. There are always nitpickers out there in terms of social media and so forth, but we continue to educate them.
Sentiment from our sales force post event has been exceptionally strong there is always Nit pickers out there in terms of social media and so forth, but we continue to educate them and what's been really interesting is watching other dealers educate.
John H. Heyman: And what's been really interesting is watching other dealers educate the nitpickers, if you will. So we have strong conviction. We're starting to see it in the numbers, by the way, like even though it's not required today, it's not required till the end of April. We're giving the market some time to absorb this and teach their salespeople about it, etc. literally, the first week after the summit, we started seeing subscribers come online.
The net <unk>, if you will so.
We.
Have strong conviction, we're starting to see it in the numbers by the way like to even though it is not required today, it's not required until the end of April we're giving the market some time to absorb this and teach their salespeople about it et cetera.
Literally the first week after the summer we started seeing subscribers come online the pace of the subscribers coming online is.
John H. Heyman: The pace of the subscribers coming online is increasing, but it won't really turn upwards in my mind until it becomes mandatory. What we have done in terms of our own guidance to the street is we've been conservative. We are only launching this inside the US; it's not being launched outside the US right now.
Increasing it won't really turn upwards.
Mind until it becomes mandatory.
What we have done in terms of our own guidance to the street as we've been.
<unk>.
<unk>.
Conservative.
We are only launching this.
Inside the U S. It has not been launched outside the U S right now.
We are.
Inside our.
John H. Heyman: We are inside our model. We are assuming that with the launch, we'll have around 15,000 to 20,000 subscribers for our Connect offering by the end of the year. So that will start to really ramp up in May. We'll be able to talk to you more about that after the second quarter.
Models.
We are assuming that with the launch we'll have.
Around these are round numbers.
No.
15% to 20000 subscribers for our connect offering.
By the end of the year, so that will start to really ramp in may we'll be able to talk to you more about that after the second quarter.
John H. Heyman: We're modeling the assist and the assist premium. Those are the two levels of support to have a much lower attach rate for them, less than 10% of the subscribers. I think we'll I'm expecting to see some upside there by early next year.
We're modeling.
The assessed and assist premium those are the two levels of support to have a much lower attach rate.
For them less.
Less than 10% of the subscribers I think.
I'm expecting to see some upside there.
John H. Heyman: So that's how this will ramp up this year. So kind of our exit run rate, you know, we're anticipating to be in the high teens to 20,000 subscribers. That translates, by the way, when you add it all up to uh recognized revenue because there's a difference between booked revenue versus recognized revenue because they don't start paying until the system's installed, and so this year, we expect to have a fairly small amount of recognized revenue, roughly $2 million. But that increases, you know, quite significantly next year into the tens of millions as the installation base grows, and we make this available outside So to sum it all up, I would say high teens to about 20,000 subscribers this year.
By early next year. So that's how this will ramp this year, so kind of our exit run rate.
Anticipating to be in the high teens.
20000 subscribers that translates by the way when you add it all up too.
Recognized revenue because theres a difference between booked revenue.
Versus recognized revenue because they don't start paying until the systems installed and so this year, we expect to have a fairly small amount of recognized revenue roughly.
$2 million, but that increases quite significantly next year into the tens of millions as the installed base grows and we make this available outside the United States. So to sum it all up I would say high teens to about 20000 subscribers. This.
John H. Heyman: Think about that growing 50,000 plus subscribers a year. The mandatory offering of $250 a year should be applied to those numbers. The integrators share a percentage of that, roughly 40% of the connect fee and 30% of the assist fees since we do work with them more, you know, we've manned the phones there. Those offerings cost $900, and the service offerings are either $900 or $3,000, depending on which service offering you elect.
Year think about that growing 50000, plus subscribers a year.
The mandatory offering of $250 a year should be applied to those numbers the integrator share a percentage of that roughly 40% of the connect fee and 30% of the assist fees since we do work.
More work with.
We may end up bones, there those offerings cost 900, the service offerings are either 900 or 3000, depending on which surface offer a new elect.
John H. Heyman: Those are all well-tested price points in the market at this point now, and so that's how we build the model. If you'll let me for a second, none of those numbers sound big when I start with $2 million this year. By the way, we do about 13 million right now with Foresight and Parasol, so that'd be 15 million total. But if you let yourself think out five years, and you think about the history of our installs, and you apply a very low 10% penetration rate of our Service Offerings Assist, and you multiply every single one of our installs by $250 for Connect, then you end up with somewhere around 270,000 subscribers in five years, and that drive. Roughly.
Those are all well tested price points in the market at this point now and so that's how we build a model and so.
If you'll let me for a second.
None of those numbers sound big.
When I start with $2 million this year.
By the way, we do about $13 million right now with fore sight and parasol, so that would be $15 million total.
But if you let yourself think out five years and Youll think about the history of our installed base.
And you apply dairy like less than 10%.
<unk> of our service offerings assist and you multiply every single one of our in source by $250 for connect.
And you end up with somewhere around 270000 subscribers in five years.
And that drives.
John H. Heyman: $95 million of revenue when you apply our mix. That's all highly profitable recurring revenue, and that does not include.
Roughly.
95 million of revenue when you apply our mix.
That's all highly profitable recurring revenue.
And that does not include.
John H. Heyman: Boss, creating an offering for the 500,000 or so install base of existing Control 4 customers that we would want to put on top of that $270,000. This is why we've invested, you know, well over $10 million over the past couple of years building this. This is why we've been spending time with the Foresight subscription product, the Parasol service product. We think it can transform the P&L of our company, but we also think it can transform the P&L of every integrator out there who is trying to develop recurring revenue. I'll stop there.
Thus, creating an offering for the 500000 or so installed base of existing control for customers that we would want to put on top of that 270000. This is why we've invested.
Well over $10 million over the past couple of years building. This this is why we have been spending time with the foresight subscription product. The parasol service product. We think it can transform the P&L of our company, but we also think it can transform the P&L of every <unk>.
Greater out there who is trying to develop recurring revenues.
I'll stop there.
Corey Carpenter: Thank you. That was super comprehensive. Thank you. One moment for our next question. Our next question comes from the line of Stephen Folkman with Jeffrey. Your line is now open.
Great. Thank you that's super comprehensive I appreciate it.
Thank you.
Our next question please.
Okay.
Our next question.
Comes from the line of Stephen Volkmann with Jefferies. Your line is now open.
Stephen Folkman: Great. Thanks, guys. John, that was very comprehensive.
Great. Thanks, guys, John that was very comprehensive and you mentioned strong margin on these recurring revenues.
John H. Heyman: And you mentioned strong margins on these recurring revenues. Is it reasonable to think of those as just kind of normal SAS type margins, like 80% or something? Or would there be some other costs in there we should just keep in mind?
Is it reasonable to think of those as just kind of a normal SaaS type margins like 80% or something or would there be some other costs in there we should just keep in mind.
Michael Carlet: I think there are two different offerings. There's the Connect offering, and the way I would think about that model is... of a dollar of revenue, we share 40% with the integrator, so 60% goes to the bottom line. There's some costs against that, call it 5% other variable costs. And so think of that as kind of a mid-50s margin product, project, product, sorry. And then with the assist offerings, think of them similarly.
I think theres two different offerings there is the.
Hi.
The connect offering.
And the way I would think about.
That model is.
Of of a dollar of revenue.
We share.
40% with the integrator, so 60% goes to the bottom line, there's some cost against that call it 5% other variable costs.
And so think of that as kind of mid fifties margin product project product excuse me and then with the assist offerings.
Think of them similarly.
John H. Heyman: But we have a smaller share for the integrator. They only get 30%, and we get 70%. But we're still at mid-50s gross margins because we have to do some work there in terms of cost of sale, specifically labor. And so that's how you should think about it. It's great.
But we have a smaller share for the integrator, they only get 30%, we get 70%, but we're still at mid <unk> gross margins because we have to do some work there in terms of cost of sales specifically labor and so that's how you should think about it.
Michael Carlet: Thanks. And then maybe a little more granularly, Mike, your waterfall relative to contribution margin in the quarter, the 2.7% from various cost goodness, I guess, how should we think about that going forward? Is that sort of a catch-up, and we're kind of done?
Okay. Thanks, and then maybe a little more Granularly Mike.
Your waterfall relative to contribution margin in the quarter, the two 7% from various cost.
Good news I guess.
Should we think about that going forward is that sort of a catch up and we're kind of done is there more you can do in that particular bucket of costs.
Michael Carlet: Is there more you can do in that particular bucket of costs that we can expect going forward? Yeah, thanks, Peter. We're not done by any stretch, but I don't think we expected to grow that much going forward. I think, as you think about 23 versus 22, a lot of the weights that everybody was doing the system and sort of self-corrected, whether that's, you know, ocean transportation, some other things that were out there.
If we can expect going forward.
Hey, Steve.
We're not done by any stretch I don't think we expect that to grow that much going forward I think as you think about 23 versus <unk> 22, a lot of the.
Waste that everybody was doing system and sort of salt correctly, whether thats Ocean transportation. Some other things are out there. So part of that $2. Seven I think is just something that everybody has experienced those things have normalized.
Michael Carlet: So part of that 2.7, I think, is just something that everybody's experienced as things have normalized, not to take credit away from all the supply chain teams everywhere that have worked really hard to make that happen. As we go forward, we continue to have a focus on driving additional incremental opportunities across the supply chain. And so we would say that we would expect, you know, a 50 basis points type of improvement from additional cost activities as we go forward next year. That's a relatively conservative internal number that we have. Our internal goals are higher than that. But I think, as you think about our guidance, you know, that's what we think is still out there from the efforts that we're putting forth that we can generate with, hopefully, upside from there. But that's real activity from our teams.
Hey credit way for all of the supply chain teams everywhere and worked really hard to make that happen.
As we look forward, we continue to focus on driving additional incremental.
Opportunities across the supply chain.
So we would say that.
We would expect.
The basis points type of improvement from additional cost activity as we go forward next year, that's a relatively conservative internal number that we have Australia. Our internal goals are are higher than that but I think as you think about our guidance.
What we think is still out there from the efforts that we're putting forth that we can generate.
Upside from there.
Real activity from our team desktop market activity or freshness really things that our teams are doing to drive effectiveness and efficiency of the supply chain Hey, just real quick this is John Steve.
John H. Heyman: That's not market activity or correction. That's really things that our teams are doing to drive effectiveness. Hey, just real quick. This is John, Steve.
Stephen Folkman: Our supply chain teams and our engineering teams, now that all these componentry issues are out of the way, are getting back to what they were doing before COVID and supply chain, which was figuring out how to take costs out of products for the industry. Some of that will remain in terms of margin. Some of that will pass on to the industry in terms of price. But the amount of replatforming that the company has done, engineering, working with the supply chain, and our purchasing operations, I think will continue to see benefits from that. And I just want to call those efforts out of those teams.
Our supply chain teams and our engineering teams now that all these componentry issues are out of the way our getting back to what they were doing before COVID-19 and supply chain, which was figuring out how to take costs out of the products for the industry. Some of that will retain in terms of <unk>.
Margin some of that will pass on to the industry in terms of price, but the amount of re platforming that the company has done engineering working with supply chain and our purchasing operations I think we'll continue to see benefit out of that and I just wanted to call those efforts out of those teams.
Michael Carlet: Super. Okay, thanks. And then just a final quick one.
Okay. Thanks, and then just a final quick one.
Michael Carlet: 1P, 3P mix, any visibility into that going forward? Um, I think we expect two things to happen. While on a like-for-like basis, we would expect the 3P mix to continue to be, you know, a slightly higher percentage of sales. It's going to grow 50 to 100 basis points more for the next couple years. That's mostly driven by our local store openings. The mix at local, as we add, you know, TVs at local stores will continue to drive that mix down. Right now, I think for the year, we ended at about 66%. I know I put it in earlier; I just don't have it right in front of me.
<unk> mix any visibility into that going forward.
I think we expect two things to happen.
On a like for like basis, we would expect.
Continue to see the repeat mix continue to be a slightly higher percentage of sales.
It's going to grow to 100 basis points more for the next couple of years Thats, mostly driven by our local store openings the mix at all as we add Televisa local stores will continue to drive that mix down.
Right now I think for the year, we ended at about 66% Euro zone right in front of me.
Michael Carlet: But it's about 66% priority product, which was, you know, I think compared to close to 68% the year before. And, you know, I'd expect that to continue to slip down a little bit, offsetting that. As this RMR revenue grows, not this year, as John said, the impact of control for connectedness is pretty minor this year.
66%.
It's very product.
Which was compared to 68% the year before.
And I would expect that to continue to.
Slipped down a little bit offsetting that.
As this RMR revenue growth map to assure as John said the impact of Controle Orchidectomy systems pretty minor this year, but going forward as we think about 25 and beyond that should offset that so after this year.
Michael Carlet: But going forward, as we think about 25 and beyond, that should offset that. So after this year, our models say that the 1P, 3P mix should hold relatively flat with the incremental RMR offsetting, you know, whatever happens from local store openings and the introduction of 3P products on a, you know, sort of steady state basis. We might always do things in the future that would change that, but at least as we think about the current model, that's what we would expect. Got it. Thanks so much.
Our models say that the <unk> mix.
Mix should hold relatively flat, whereas the incremental RMR offsetting whatever happens more store openings and the introduction of new products on a sort of steady state basis, we might only two things in the future that would change that but at least as we think about the current model. That's what we would expect in the future.
Stephen Folkman: I'll pass it on. Thanks, Peter. Thank you. One moment for our next question. Our next question comes from the line of Robert Jamieson with UBS. Your line is now open.
Got it thanks, so much I'll pass it on thanks, Nick.
Thank you one moment for our next question. Please.
Our next question comes from the line of Robert Jameson with UBS. Your line is now open.
Robert Jamieson: Hey, thank you. Congratulations on the numbers today. Nice margin performance. Um, you know, one thing I, you know, how should we think about the physical store locations? I know you're pausing, but you talked about transferring all these stores to a single operating system. I'm just curious what you think, you know, are there margin benefits that we should expect there? There are some small operating margin benefits. If you think about what we've had to do over the last four years, we've really been operating almost six different platforms in the company. The old Snap AD platform, this old Control Core platform, and a platform for each one of the four legacy local businesses that we bought back in 2018 and 19. And, you know, I can tell everybody we're two years into our five-year plan that existed pre-COVID, and the whole COVID disruption, supply chain disruption, causes us to go very consciously a lot slower on those things as we focus on, you know, the supply chain and maintaining As we bring all those systems together, we've combined Control Core and Snap in the US into a single portal instance.
Hey, Thank you congrats on the numbers today are nice margin performance.
One thing.
How should we think about the.
The physical store locations I know youre pausing, new openings that you talked about transferring all of these stores to a single operating system.
Just curious what you think is there margin benefits that we should expect there.
There are some small operating margin benefits. If you think about what we've had to do over the last four years, we've been really operated almost six different platforms of the company the old stock as these platforms old control platform and a platform for each one of the core legacy local business that we bought back in 2018 and 19 and.
So everybody we are two years into our five year plan that existed pre COVID-19 and the whole COVID-19 disruptions disruption causes it to go.
Very consciously a lot slower on those things as we focused on the supply chain and maintaining inventory suppliers and all the other things that lots of folks in the world.
As we bring all of those systems together with combined control or in snap in the U S into a single portal instance, we're in the process, we've about half of our local source.
Michael Carlet: We're in the process. We have about half of our local stores as of this week operating on our new platform. There are more conversions coming.
As of this week operating on our new platform. There is more convergence coming we expect to have that done sometime around the middle of the year with all the source that obviously provides effectiveness and efficiency, where you don't have four different platforms that you're operating on its not a huge amount maybe ameliorate some on the bottom line by that effectiveness, but we do think going forward in the future some of the <unk>.
Michael Carlet: We expect to have that done sometime around the middle of the year with all the stores. That obviously provides effectiveness and efficiency where you don't have four different platforms that you're operating on. It's not a huge amount, you know, maybe a million or two on the bottom line because of that effectiveness. But we do think going forward in the future, some of the soft benefits of having one system to maintain, being able to be more consistent with our marketing messages are all out there. And even in the future, we have more work to do. We have different international systems that we have to continue to consolidate.
<unk> benefits of having one system that.
It would be more consistent with our marketing messages.
All out there and even the future we have more work to do we have different international system Griffith consolidated Theres. Some other things that we have to continue to think about from a platform standpoint, but it just really gets a lot of the effectiveness of staffing control for coming together in a local source coming together.
Michael Carlet: There are some other things that we have to continue to think about from a platform standpoint, but this really gets a lot of the effectiveness of Snap and Control or coming together in the local stores together. That's great.
Robert Jamieson: Thank you. Very helpful. And then just a quick one on seasonality. I know it's embedded in the guidance to expect the second half to be stronger. But should we think about that more like, you know, if I'm looking back in history, like a 45% in the first half, 55% in the second half? Is that kind of like fair to think about?
That's great. Thank you very helpful. And then just a quick one on seasonality I know you said embedded in the guidance to expect second half to be stronger.
Should we think about that more like.
If im looking back in history.
Like 45% in the first half 55% in the second half is that kind of like fair to think about it.
Michael Carlet: Yeah, I think directionally; I don't have the quarters in front of me, but I think the issue really is this market activity. I think what we're saying is, right now, the market continues to be a bit weak, and we're continuing to capture share. And, you know, there's no expectation that in the next two, three months, the market's gonna see a dramatic turnaround. But I think there is optimism in the back half of the year.
Yes, I think directionally.
The quarters in front of me, but I think the issue really is this market activity I think what we're saying is right now the market continues to be a bit and we're continuing to capture share and there's no expectation that the next two three months the market is going to see a dramatic turnaround, but I think there was optimism on the back half of the year. So theyre always has some seasonality in the business.
Michael Carlet: So there always is some seasonality in the business, which I think is usually, you know, again, 46, 47%, 45, 46%. I've even got, as we go, the impact of local store openings as you go through the year and the timing of them that is affected as well. But I think this year is going to be even a little bit more dramatic, just given the overall market activity that we're into. Okay, that's great. Thank you very much. I appreciate it. I'll pass it back to you.
I think it's usually you know again 46, 47% 45, 46% of EBITDA as we can.
There's impacts of local store openings as you go through the year and the timing of them that impacted as well.
But I think this year is going to be even a little bit more dramatic just given the overall market activity that we're anticipating.
Okay. That's great. Thank you very much I appreciate it best of luck.
Robert Jamieson: Thank you. One moment for our next question. Our next question comes from the line of Adam Tindle with Raymond James. The line is now open. Okay, thanks. Good afternoon, John.
You.
One moment for our next question.
Our next question comes from the line of Adam Tindle with Raymond James Your line is now open.
Adam Tyler Tindle: I wanted to return to the software platform release and say you gave a comprehensive overview that was very helpful. I wonder if you could, you know, just maybe touch on the discussions about the strategy. You know, when we think about Snap One, it's a sizable upfront investment and adding a recurring fee on top. On the one hand, though, it's probably a minor part of the bill of materials based on the pricing that you're suggesting here. On the other hand, you know, a lot of customers are kind of expecting to pay that one-time large capital type purchase and not have an ongoing stream. So, I guess the question there would be, you know, when you analyze that, were there other models that you looked at to do this, whether it's maybe like a Tesla or somebody like that, and how did you come up with the pricing strategy?
Okay. Thanks, Good afternoon, John I wanted to return to the software platform release, and you went through a comprehensive overview that was very helpful. I Wonder if you could just maybe touch on.
The discussions on the strategy.
When we think about.
Snap on is the sizable upfront installation and adding a recurring fee on top on one hand, it's probably a minor part of the.
The bill of materials based on the pricing that you're suggesting here on the other hand, a lot of the customers are kind of expecting to pay that one time large capital type purchase did not have an ongoing stream. So I guess the question there would be when you analyze that was there other models that you looked at to do this.
Whether it's maybe like a tesla or somebody like that and how did you come up with the pricing strategy and the second piece would be you laid out a very strong case for this to become very material over time I Wonder how you think about perhaps even expanding that <unk> over time with additional features and maybe just take us through the roadmap on how that could become.
Adam Tyler Tindle: And the second piece would be, you know, you laid out a very strong case for this to become material over time. I wonder how you think about perhaps even expanding that ARPU over time with additional features, and maybe just take us through the roadmap on how that could become more material from an ARPU and feature standpoint. Hey Adam, I want to just congratulate you. I think you squeezed a number of questions into there besides one. So, well done.
More material from the <unk> and feature standpoint. Thanks.
Hey, Adam I wanted to just congratulate you I think you squeezed a number of questions into there. Besides one so well done.
John H. Heyman: All very good questions, by the way. So, yes, our end customer typically pays a significant price for the acquisition cost of a system. We looked at this in detail. And the prices do range, by the way, and for what we call very light systems, single room, low number of devices, while there's a subscription, for Control4Connect, that subscription is actually free. Now, that's a small number of our actual installs, but for the price sense of customers, there is a free solution, and what we would hope is that they step up to our more robust solutions over time. The other element of the testing pricing was the subscription.
All very good questions by the way.
<unk>.
So yes.
Our end customer.
Typically.
Pays a significant price for the acquisition cost of our system with.
We looked at this in detail.
And the prices do range by the way and for what we call very light systems single room.
Low number of devices.
While there is a subscription for <unk>.
Control for connect.
That subscription is actually free now thats, a small number of our actual installs, but for the price sensitive customer there is a free solution.
And what we would hope is that they step up into <unk>.
More robust solutions over time.
The other element of testing pricing was for the subscription we have a product called foresight that over 100000 customers use we have historically charged the dealer around $130 a year for that product the deal.
John H. Heyman: We have a product called Foresight that over 100,000 customers use. We have historically charged the dealer around $130 a year for that product. The dealers then mark that product up and sell it to the end customer.
Then mark that product up and sell it to the end customer.
John H. Heyman: So when we looked at what the price realization was at the end market level, we were able to get a good sense of willingness to pay. And that number, that $250 number, felt right. We looked at having a pricing grid that was more or less than $250. We just decided to keep it simple.
So when we looked at what the price realization was at the end market level.
We're able to get a good sense of willingness to pay.
And that number that $250 number felt right.
We looked at having.
Pricing grid that was more or less than $2 50, we just decided to keep it simple.
John H. Heyman: Part of the messaging then is with the homeowner, where you're asking about willingness to pay, is that if your provider isn't offering you this, this is a system that runs on software, and that the software helps the system improve over time. And this is the first time ever that a manufacturer is standing behind the software and committing to improve it. And the market will see notable improvements to the software this year. By the time we felt like, Why would you ever want to buy a system from someone who isn't charging you this fairly moderate fee to keep your system updated and current, in terms of all the number of integrations you have to do, continuing to improve the security of your system, etc.
Part of the messaging then is with the homeowner where youre asking about willingness to pay is that if your providers not offering you. This that this is a system that runs on software and that the software helps the system improve over time and this is the first time ever.
When a manufacturer is standing behind the software and committing to improvement in the market will see notable improvements to the software this year by the way.
That we felt like.
Why would you ever want to buy a system from someone who isn't charging you. This fairly moderate fee to keep your system updated current in terms of all the number of integrations you have to do continuing to improve the security of your system et cetera.
John H. Heyman: So that was how we addressed kind of the one-time or Tesla Model or the model we ended up on, which was Control 4 Connect, which is kind of the annual $250. We did have to build a lot of plumbing into that system because our market is not used to doing recurring revenues. So we did build out the recurring revenue platform for the industry, and that includes billing the customer directly and sharing it with the industry. So that's one.
So that was that was how we addressed kind of the one time or Tesla model or.
Or the model, we ended up one with which was control for connect which is kind of the.
Annual $250, we did have to build a lot of plumbing into that system, because our market is not.
Not used to doing recurring revenues. So we did build out the recurring revenue platform for the industry and that includes billing the customer directly and sharing it with the integrator. So that's one two I think I addressed the pricing point, mostly through foresight, but with assist and with us.
John H. Heyman: Two, I think I addressed the pricing point mostly through foresight, but with assist and with assist premium, we also had a bench. We know what dealers charge. It's all over the place, by the way.
Premium we also had benchmarks we know what.
Dealers charge, it's all over the place by the way some people think $3000 a year for a premium service is super expensive others think it's incredibly inexpensive we've had experience with parasol, which.
John H. Heyman: Some people think $3,000 a year for a premium service is super expensive. Others think it's incredibly inexpensive. We've had experience with Parasol, which is, you know, roughly anywhere from $500 to $720 a year, and we can't, in control for assist and assist premium, do more than Parasol.
Is.
Roughly anywhere from 500 to $720, a year and we cant and control for assist and assist premium due more than parasol and so after being in market with while again with a number of our members of our partner Advisory Board.
John H. Heyman: And so after being in the market worthwhile, again, with a number of our members of our partner advisory board, we felt like the right price for the service part of the model was either $900,000 or $3,000. And then in terms of materiality over time, I mean, the numbers start to get very big if, you know, that I spoke about, and you can see what I mentioned around $100 million if you run those at 55% margins. You know, $55 million on top of our existing operating income today is number one, quite significant. If we are successful in transforming half of our install base. Just half of our installed base. Again, multiply 250,000 more sites times $250 a year, and then add on some service businesses. So it becomes quite significant there.
<unk>, we felt like the right pricing.
For the service part of the model was either 900 or 3000.
And then in terms of the materiality over time, I mean, the numbers start to get very big.
That I spoke about it and you can you can see what.
I mentioned around $100 million.
Run those at 55% margins.
$55 million on top of our existing operating income today is number one quite significant.
If we are successful transforming half of our installed base.
Just half of our installed base again multiply 250000 more sites times $250 a year and then add on some services businesses. So it becomes quite significant there and then the other component is the <unk>.
John H. Heyman: And then the other component is the ARPU, which, yes, we're thinking about it. We feel like we're building the rails for the industry to deliver services to their end customers. We came out with a new product this past year, and it's won a number of awards. It's getting great reception. It's our Luma X20 surveillance lineup, and it comes with the software product Luma Insight.
Which.
Yes, we're thinking about it where we feel like we are building the rails for the industry to deliver services to their end customer we came out with a new product. This past year. It's one of the number of awards is getting great reception as far Luma X 20 surveil.
Surveillance lineup and it comes with a software product luma insights.
John H. Heyman: The market is not used to those types of software services. We've included a three-year subscription for now in Luma Insights, and that's free up front. But over time, we'll continue to expand the video analytics that we have in the system. We think cybersecurity is a big opportunity for the company. The industry's got a lot of talk about it. And so, you know, I think my old company, we started off with one software-as-a-SIRIS product.
The market is not used to.
That.
Those types of.
Software services. We've included a three year subscription for now and luma insights and that will be that's free upfront, but over time, we will continue to expand the video analytics that we have in the system. We think cyber security is a big opportunity for the company. The industry has got a lot of talk about it and.
So.
Think my Old company, we started off with one software as a <unk> product we ended up with 20.
John H. Heyman: We ended up with 20. And today, we've got, I think, a few, and we'll continue to evolve that to help provide the right service to the customer and develop healthier models for our integration partners. Great, that's super helpful.
Today, we've got I think a few.
And we will continue to evolve that to help provide the right service to the customer and develop healthier models for our integration partners.
Adam Tyler Tindle: And, I mean, it's only right that I follow up with the two-parter for Mike, but I'll keep it a little bit more brief. Mike, sorry if I missed, but I'm just wondering if you could maybe touch on expectations for cash flow in 2024, the TRA piece of that, and what the capital structure should look like at the end of the year. Yeah, so on the TRA piece, the payment that is being made in Q1, actually has already been made, was $22 million. For 2025, the expectation right now would be about $13 million. That's obviously subject to change. There are all kinds of things that are out there that could change that, but that's at least where we sit here today.
Great.
Super helpful.
It's the only REIT that I follow up with the two partner for Mike, but I'll kick it off with harbor.
Sure.
Brief Mike.
Sorry, if I missed but just wondering if you could maybe touch on expectations for cash flow in 2020 for the TRA piece of that and what capital structure should look like.
At the end of the year.
Yes.
So on the CRE piece the payment that is being made in Q1 actually was already made was $22 million.
For 2025, the expectation right now would be about $13 million Thats all subject to change there's all kinds of things that are out there.
That could change that but that's the least where we sit here today.
Michael Carlet: As far as specific cash flow, you know, we don't guide cash flows, but I would say that we still believe there's some opportunity for inventory on a run rate basis. Obviously, as we think about our guidance, if we do see growth, we would expect inventory to grow a little bit. We think our inventory, plus or minus, is at the right level right now, and so we should see no significant inventory growth or decrease. However, if we see some growth in revenue, we probably will see a little bit of growth in inventory. If we open a few more stores in the back half of the year, that would take a little bit of inventory. Having said that, we think it's at the right level. Don't tell my supply chain team that.
As far as specific cash flow, we don't guide to cash flows, but I would say that we still believe there is some opportunity on inventory on a run rate basis.
Obviously, as we think about our guidance if we do see growth, we would expect inventory to grow a little bit we think our inventory plus or minus is that the right level right. Now so we should see those significant inventory growth no significant decreases if we see some growth in revenue, we probably see a little bit of growth in the report as we open a few more stores in the back half of the year.
That would take a little bit of inventory.
Having said, we think it's the right level don't from our supply chain.
Michael Carlet: We keep telling them they've got an opportunity to keep reducing it, so maybe we'll get a little bit more benefit there. But overall, we would expect EBITDA outside our normal CapEx. I think our CapEx the last couple years has been a little bit inflated due to the relocation of our Lehigh headquarters. I think we spent – I think the CapEx number is about $7 million each year, $7 million in 22 and $7 million in 23. About a third of that, maybe almost a half, was actually TI's payment, and so it wasn't actually attached to the door. There's some classification. But if you think about real CapEx, it's been around $21, $22 million the last couple years. Really, the run rate should be about 15.
We keep talking about they've got opportunity to keep reducing it so maybe we'll get a little bit more benefit there so but overall we would expect.
EBITDA outside our normal Capex, our capex. The last couple of years has been a little bit inflated due to the relocation of our Lehigh.
Headquarters I think we spent.
The Capex number is about $7 million each year 7 million $2 7 million or 23 about a third of that.
ASP was actually Ti.
And so it wasn't actually captures our door with some classification.
Real capex spend around $21 million last couple of years really the run rate should be about 15.
Michael Carlet: Working capital, pretty much neutral, a little bit of growth in line with our revenue growth, and then everything else should be free cash flow, which should be pretty robust and allow us to continue to make good operating decisions as we go forward. Very helpful. Thank you. Thank you. As a reminder, to ask a question, that's star 11, and please wait for your name to be announced. At this time, this concludes our Q&A session. I'd now like to turn the call back over to Mr. Heyman for his closing remarks.
Working capital pretty much neutral a little bit of growth in line with.
Our revenue growth.
And then everything else should be free cash flow.
Which should be pretty robust and allow us to debate.
Operating decisions as we go forward.
Very helpful. Thank you.
Thank you as a reminder to ask a question Thats Star one one and please wait for your name to be announced.
At this time. This concludes our Q&A session I would now like to turn the call back over to Mr. Hagan for his closing remarks.
John H. Heyman: Norma, thank you very much. Again, thanks to all our shareholders out there. I want to say thanks to all of our integration partners who are working so hard, week in, week out. But most of all, I want to single out the Snap One team.
Normal. Thank you very much again, thanks to all our shareholders out there.
Wanted to say thanks to all of our integration partners, who are working so hard weekend week out most of all I want to single out the snap one team you guys have been amazing.
John H. Heyman: You guys have been amazing. And the efforts you deliver every day for our end customers, integration partners, and our shareholders will pay dividends in the future. Appreciate it, everyone. Thank you for joining us today for Snap One's fiscal fourth quarter and full year 2023 earnings conference call. You may now disconnect. Everyone have a wonderful day.
And the efforts you deliver every day for our end customers integration partners and our shareholders.
<unk> will pay dividends in the future.
Appreciate it everyone.
Thank you for joining us today for staff once fiscal fourth quarter and full year 2023 earnings Conference call. You May now disconnect everyone have a wonderful day.
[music].
Okay.
[music].
Okay.
Okay.
Thanks.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
[music].
Yeah.