Multiple reports are pouring in that Snap One, a leading custom integration supplier, has just completed a restructuring that resulted in layoffs. It is not clear at this point just how many employees were cut, but it was significant enough to motivate several sources around the country to reach out to Strata-gee.
See what we know so far on the Snap One restructuring
Snap One Holdings Corp. (Snap One) (NASDAQ: SNPO), is a large diversified custom integration-centric company that both manufactures and distributes a broad range of products under multiple brand names – both company-owned brands and third-party brands – to custom integrators around the world. The company generates about $1 billion in annual revenues.
Over the last couple of weeks, multiple sources reached out to Strata-gee to report that Snap One has engaged in a restructuring. That restructuring is said to have resulted in a headcount reduction at the company.
In Some Ways, Not a Total Surprise
A few of the reports suggested that most of the cuts have occurred on the sales side of the company, with some sources pointing specifically to the Control4 sales team. Others have suggested the restructuring has gone further than just sales…but as of this writing, I cannot confirm that.
This development was really not much of a surprise to me. I have been reporting for some time now that informal conversations with many industry executives have suggested that the macroeconomic environment is deteriorating to a degree that is beginning to impact those of us in consumer electronics and custom integration. Certainly, of note, the residential construction market has gone into a pretty serious recession and that is bound to impact the broader custom integration segment to some extent as fewer homes being built means that household formation is also down.
Why Would an Improved Revenue and Profit Spook Investors?
Last month, Snap One released the results of its third-quarter financial performance for its 2022 fiscal year. It was a remarkable result, as the company reported both a revenue increase and a growth in earnings in the form of a dramatically reduced 3rd quarter net loss (although they still had a net loss in the quarter).
Yet even though these results were arguably positive, Snap One’s stock dropped 19% after they released their report. In fact, the stock was setting all-new 52-week lows. Why would a revenue and profit improvement spook investors?
The Specter of Growing Market Difficulties
I believe that there were two major reasons for this reaction by investors. First, after losing money for the last three years, Snap One was expected to turn profitable in the current fiscal year. However, as of this report at the end of three quarters, the company had not yet turned the corner. Their reported results both for revenues and earnings fell short of analyst (and investor) expectations and they were still losing money.
Second, in explaining third-quarter results, management raised the specter of growing market difficulties. To their credit, company management didn’t sugarcoat their discussion of results – they offered a fairly sanguine assessment of the current state of the economy.
A Moderated Pace of Daily Sales
In a conference call with analysts, CEO John Heyman mentioned that the “Q3 results were below our expectations.” He also talked about a “tough climate” with “supply chain issues” and a “softer economy”…along with “foreign currency headwinds” and delayed local branch openings as contributing factors.
He didn’t stop there, adding the company was experiencing “a moderated pace of daily sales in the second half of the quarter,” and that this trend appeared to be continuing at the start of the next quarter. Integrators, he explained to analysts, “remain busy” but are “carrying inventory” that needs to be worked through.
A Conservatism in Buying Leads to a Reduced Outlook for the Year
I would guess what was most chilling to analysts, was when he added the following comments on growing “conservatism.”
The second piece, though, is the market. And I don’t want to leave this call with everyone thinking that we’re saying that the market is as strong as it’s been over the past couple of years… I think there’s a conservatism that’s going on with buying today that is resulting in the de-scoping of projects that might mean 2 speakers in a room instead of 4. It might mean 4 speakers, but they’re cheaper speakers… And so I think it’s a combination of all those things that lead us to having a more cautious outlook around the rest of the year and as we plan for our budgets into next year, we think about our expense structure.
Logical to Adjust Cost Structure
It would be completely logical for the company to take steps to adjust its cost structure if that challenging environment were to continue. Currently, a very popular way to cut costs in tech is through layoffs.
Note that I did reach out to the folks at Snap One on this story, but they declined to comment.
Learn more about Snap One by visiting snapone.com.
As usual for John Heyman, he is not totally honest in his assement. To be clear, I am a stock holder in Snap One, but refuse to continue as a customer due to their terrible sales practices of selling everyone in the marketplace, even end users. Their sales staff for our area pick and choose who they want as winners, offering different pricing and even delivery on products. As a shareholder, I found his assessment of the future way to optimistic and their continued efforts to open more and more distribution further dilutes the marketplace for competition among top tier integration firms. Way to many have access to Control4 in our marketplace, thus driving down profit on this segment as more and more players quote the exact same jobs with the exact same control system. As of this date, their stock has fallen below $10.00 per share, with no effort on managements part in increasing our return, just more platitudes on how integrators are over stocked and working through excess inventories and removing the staff that can make things better for us in the field.