Snap One Holdings Corp. [SNPO] Filings

10-Q 1 snpo-20230929.htm 10-Q snpo-20230929

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 001-40683

SNAP ONE HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

1800 Continental Boulevard, Suite 200

Charlotte, North Carolina

(Address of principal executive offices)

82-1952221

(I.R.S. Employer Identification No.)

28273

(Zip Code)

(704) 927-7620

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $.01 per share	SNPO	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding 76,530,395 shares of common stock as of November 2, 2023.

Table of Contents


		Page No.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

	PART I. FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Comprehensive Loss	7
	Condensed Consolidated Statements of Stockholders' Equity	8
	Condensed Consolidated Statements of Cash Flows	10
	Notes to the Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	45

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
	Signatures	49

Unless otherwise indicated, references to the “Company,” “Snap One,” “we,” “us,” and “our” in this report refer to Snap One Holdings Corp. and its consolidated subsidiaries. References to the “Former Parent Entity” means Crackle Holdings, L.P., the entity that, until the completion of our initial public offering, held all of our outstanding equity.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements made in this report that are not statements of historical fact, including statements about our beliefs and expectations, including without limitation statements regarding product plans, future growth, market opportunities, strategic initiatives, industry positioning, customer acquisition and retention, and revenue growth, are forward-looking statements, and should be evaluated as such. The following list is not intended to be an exhaustive list of all our forward-looking statements. Forward-looking statements include information concerning possible or assumed future results of operations, including statements relating to individual components thereof, and descriptions of our business plan, strategies, environment and the impact of global conflict and other macroeconomic conditions. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “targets,” “projections,” “should,” “could,” “would,” “may,” “might,” “will,” and other similar expressions. These forward-looking statements are contained throughout this report.

We base these forward-looking statements on our current expectations, plans and assumptions, which we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at this time. As you read and consider this report, you should understand that these statements are not guarantees of performance or results. The forward-looking statements contained herein are subject to and involve risks, uncertainties and assumptions, and therefore you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual operational and financial results, and therefore actual results might differ materially from those expressed in the forward-looking statements and projections. Factors that might materially affect such forward-looking statements include:

•Risks Related to Our Business, Industry and Market Conditions;

•Risks Related to Our Products;

•Risks Related to Our Manufacturing and Supply Chain;

•Risks Related to Our Distribution Channels;

•Risks Related to Laws and Regulations;

•Risks Related to Cybersecurity and Privacy;

•Risks Related to Intellectual Property;

•Risks Related to Our International Operations;

•Risks Related to Our Indebtedness;

•Risks Related to Our Financial Statements;

•Risks Related to Our Common Stock; and

•the other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the annual period ended December 30, 2022 (the “Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 15, 2023) and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the SEC on May 10, 2023.

The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations about future events. There are important factors that could cause our actual results, level of activity, performance, or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Before investing in our common stock, investors should be aware that the occurrence of the events described under the caption “Risk Factors” in our Annual Report and elsewhere in this report could have a material adverse effect on our business, results of operations and future financial performance.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report, to conform these statements to actual results or to changes in our expectations.

Part I - Financial Information

Item 1. Financial Statements

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited, in thousands, except par value)


	As of
	September 29, 2023		December 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	40,030	$	21,117
Accounts receivable, net	53,849		48,174
Inventories	275,469		314,588
Prepaid expenses	20,349		22,913
Other current assets	2,712		5,930
Total current assets	392,409		412,722
Long-term assets:
Property and equipment, net	45,725		34,958
Goodwill	592,214		592,186
Other intangible assets, net	517,146		554,419
Operating lease right-of-use assets	53,578		54,041
Other assets	8,163		4,195
Total assets	$	1,609,235	$	1,652,521
Liabilities and stockholders’ equity
Current liabilities:
Current maturities of long-term debt	$	5,200	$	5,063
Accounts payable	66,602		77,443
Accrued liabilities	66,274		64,605
Current operating lease liability	11,071		10,574
Current tax receivable agreement liability	21,107		10,191
Total current liabilities	170,254		167,876
Long-term liabilities:
Revolving credit facility, net	—		10,800
Long-term debt, net of current portion	494,884		496,795
Deferred income tax liabilities, net	32,045		43,515
Operating lease liability, net of current portion	54,085		50,896
Tax receivable agreement liability, net of current portion	80,929		101,262
Other liabilities	19,284		24,206
Total liabilities	851,481		895,350
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.01 par value, 500,000 shares authorized; 75,758 shares issued and outstanding as of September 29, 2023 and 75,042 shares issued and outstanding at December 30, 2022	758		750
Preferred stock, $0.01 par value; 50,000 shares authorized, no shares issued and outstanding	—		—
Additional paid-in capital	865,453		848,703
Accumulated deficit	(103,618)		(88,046)
Accumulated other comprehensive loss	(4,839)		(4,236)


Total stockholders’ equity	757,754		757,171
Total liabilities and stockholders’ equity	$	1,609,235	$	1,652,521

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Net sales	$	270,144	$	281,234	$	796,591	$	855,573
Costs and expenses:
Cost of sales, exclusive of depreciation and amortization	156,580		167,435		459,610		520,162
Selling, general and administrative expenses	84,037		89,379		271,627		271,300
Depreciation and amortization	15,371		14,812		45,967		44,667
Total costs and expenses	255,988		271,626		777,204		836,129
Income from operations	14,156		9,608		19,387		19,444
Other expenses (income):
Interest expense	14,893		10,244		43,730		24,687
Other expense (income), net	511		620		(652)		137
Total other expenses	15,404		10,864		43,078		24,824
Loss before income taxes	(1,248)		(1,256)		(23,691)		(5,380)
Income tax benefit	(348)		(238)		(8,119)		(762)
Net loss	(900)		(1,018)		(15,572)		(4,618)
Net loss attributable to noncontrolling interest	—		(8)		—		(45)
Net loss attributable to Company	$	(900)	$	(1,010)	$	(15,572)	$	(4,573)

Net loss per share, basic and diluted	$	(0.01)	$	(0.01)	$	(0.21)	$	(0.06)
Weighted average shares outstanding, basic and diluted	75,854		74,650		75,577		74,567

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(unaudited, in thousands)


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Net loss	$	(900)	$	(1,018)	$	(15,572)	$	(4,618)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	(1,507)		(2,873)		(603)		(4,975)
Comprehensive loss	(2,407)		(3,891)		(16,175)		(9,593)
Comprehensive loss attributable to noncontrolling interest	—		(8)		—		(45)
Comprehensive loss attributable to Company	$	(2,407)	$	(3,883)	$	(16,175)	$	(9,548)

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited, in thousands)


	Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)
	Shares	Amount				Accumulated Deficit				Total Stockholders’ Equity
Balance - December 30, 2022	75,042	$	750	$	848,703	$	(88,046)	$	(4,236)	$	757,171
Net loss	—	—		—		(14,548)		—		(14,548)
Foreign currency translation adjustments	—	—		—		—		253		253
Equity-based compensation	—	—		7,577		—		—		7,577
Repurchase and retirement of common stock	(27)	—		(238)		—		—		(238)
Issuance of common stock pursuant to equity incentive plans	332	3		(3)		—		—		—
Tax withholding on net share settlement of equity awards	(95)	(1)		(1,023)		—		—		(1,024)
Employee stock purchase plan	—	—		186		—		—		186
Balance - March 31, 2023	75,252	$	752	$	855,202	$	(102,594)	$	(3,983)	$	749,377
Net loss	—	—		—		(124)		—		(124)
Foreign currency translation adjustments	—	—		—		—		651		651
Equity-based compensation	—	—		5,334		—		—		5,334

Issuance of common stock pursuant to equity incentive plans	177	2		(2)		—		—		—
Employee stock purchase plan	186	2		1,412		—		—		1,414
TRA distribution to shareholders	—	—		(396)		—		—		(396)
Balance - June 30, 2023	75,615	$	756	$	861,550	$	(102,718)	$	(3,332)	$	756,256
Net loss	—	—		—		(900)		—		(900)
Foreign currency translation adjustments	—	—		—		—		(1,507)		(1,507)
Equity-based compensation	—	—		4,066		—		—		4,066

Issuance of common stock pursuant to equity incentive plans	179	2		(2)		—		—		—
Tax withholding on net share settlement of equity awards	(36)	—		(356)		—		—		(356)
Employee stock purchase plan	—	—		195		—		—		195
Balance - September 29, 2023	75,758	$	758	$	865,453	$	(103,618)	$	(4,839)	$	757,754


	Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)
	Shares	Amount				Accumulated Deficit				Noncontrolling Interest		Total Stockholders’ Equity
Balance - December 31, 2021	74,427	$	744	$	826,718	$	(79,420)	$	(28)	$	261	$	748,275
Net loss	—	—		—		(2,236)		—		(20)		(2,256)
Foreign currency translation adjustments	—	—		—		—		6		—		6
Equity-based compensation	—	—		5,599		—		—		—		5,599
Issuance of common stock pursuant to equity incentive plans	53	1		(1)		—		—		—		—
Balance - April 1, 2022	74,480	$	745	$	832,316	$	(81,656)	$	(22)	$	241	$	751,624
Net loss	—	—		—		(1,327)		—		(17)		(1,344)
Foreign currency translation adjustments	—	—		—		—		(2,108)		—		(2,108)
Equity-based compensation	—	—		6,768		—		—		—		6,768
Repurchase and retirement of common stock	(94)	(1)		(1,047)		—		—		—		(1,048)
Issuance of common stock pursuant to equity incentive plans	227	2		(2)		—		—		—		—
Balance - July 1, 2022	74,613	$	746	$	838,035	$	(82,983)	$	(2,130)	$	224	$	753,892
Net loss	—	—		—		(1,010)		—		(8)		(1,018)
Foreign currency translation adjustments	—	—		—		—		(2,873)		—		(2,873)
Equity-based compensation	—	—		5,570		—		—		—		5,570
Repurchase and retirement of common stock	(128)	(1)		(1,395)		—		—		—		(1,396)
Issuance of common stock pursuant to equity incentive plans	183	2		(2)		—		—		—		—
Balance - September 30, 2022	74,668	$	747	$	842,208	$	(83,993)	$	(5,003)	$	216	$	754,175

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)


	Nine Months Ended
	September 29, 2023		September 30, 2022
Cash flows from operating activities:
Net loss	$	(15,572)	$	(4,618)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	45,967		44,667
Amortization of debt issuance costs	2,354		1,388
Deferred income taxes	(11,592)		(6,169)


Equity-based compensation	17,544		17,937
Non-cash operating lease expense	8,250		9,859
Bad debt expense	902		532
Unrealized gain on interest rate cap	(813)		—
Fair value adjustment to contingent value rights	300		(6,200)
Valuation adjustment to TRA liability	775		86
Provision for credit losses on notes receivable	—		5,872
Other, net	(135)		81
Change in operating assets and liabilities:
Accounts receivable	(6,482)		2,117
Inventories	38,413		(85,134)
Prepaid expenses and other assets	1,994		3,286
Accounts payable, accrued liabilities and operating lease liabilities	(16,197)		935
Net cash provided by (used in) operating activities	65,708		(15,361)
Cash flows from investing activities:
Acquisition of business, net of cash acquired	—		(30,539)
Purchases of property and equipment	(19,988)		(10,024)
Issuance of notes receivable	—		(600)


Other, net	51		75
Net cash used in investing activities	(19,937)		(41,088)
Cash flows from financing activities:

Payments on long-term debt	(3,900)		(2,325)
Proceeds from revolving credit facility	38,000		57,000
Payments on revolving credit facility	(50,000)		—
Proceeds from interest rate cap	539		—
Repurchase and retirement of common stock	(293)		(2,410)
Proceeds from employee stock purchase plan	1,228		—
Payment of tax withholding obligation on settlement of equity awards	(1,380)		—
Payments of tax receivable agreement	(10,191)		—
Payments of contingent consideration	(250)		—

Net cash (used in) provided by financing activities	(26,247)		52,265
Effect of exchange rate changes on cash and cash equivalents	(611)		(850)
Net increase (decrease) in cash and cash equivalents	18,913		(5,034)
Cash and cash equivalents at beginning of the period	21,117		40,577
Cash and cash equivalents at end of the period	$	40,030	$	35,543
Supplementary cash flow information:
Cash paid for interest	$	42,295	$	14,904
Cash paid for taxes, net	$	6,014	$	4,943
Noncash investing and financing activities:


Capital expenditure in accounts payable	$	218	$	613

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

1.Organization and Description of Business

Snap One Holdings Corp. (referred to herein as “Snap One” or the “Company”) is incorporated in Delaware with its principal executive offices located in Charlotte, North Carolina and Lehi, Utah. The Company provides products, services, and software to its network of professional integrators that enable them to deliver smart living experiences for their residential and business end users. The Company’s hardware and software portfolio includes leading proprietary and third-party offerings across connected, infrastructure, and entertainment categories. Additionally, the Company provides value-added services and workflow solutions to support the integrator throughout the project lifecycle, enhancing their operations and helping them to profitably grow their businesses.

2.Significant Accounting Policies

Basis of Presentation — The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial statements. The condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. The condensed consolidated financial statements include the accounts of the Company and all subsidiaries required to be consolidated. All intercompany balances and transactions have been eliminated in the condensed consolidated financial statements. The condensed consolidated balance sheet as of December 30, 2022, has been derived from the audited consolidated financial statements of the Company.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 30, 2022, appearing in the Company’s Annual Report on Form 10-K for the annual period ended December 30, 2022, filed with the Securities and Exchange Commission on March 15, 2023. There have been no changes to the Company’s critical accounting estimates and policies or application since the date of the Annual Report except as discussed below.

The Company’s fiscal year is the 52- or 53-week period that ends on the last Friday of December. Fiscal year 2023 is a 52-week period, and fiscal year 2022 was a 52-week period. The three months ended September 29, 2023 and September 30, 2022 were 13-week periods, and the nine months ended September 29, 2023 and September 30, 2022, were 39-week periods.

Use of Accounting Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Accordingly, the actual amounts could differ from those estimates. If actual amounts differ from estimates, revisions are included in the condensed consolidated statements of operations in the period the actual amounts become known.

Recently Adopted Accounting Pronouncements — In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Accounting Standards Codification 848, “ASC 848”). ASC 848 provides practical expedients and exceptions for an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The objective of the new reference rate reform standard is to clarify the scope of Topic 848 and provide explicit guidance to help companies applying optional expedients and exceptions. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 which extends the availability of the provisions of ASU 2021-01 until December 31, 2024. The Company’s exposure related to the cessation of the London InterBank Offered Rate (“LIBOR”) is limited to (i) the interest expense and certain fees it incurs on balances outstanding under its credit facilities, which the Company amended on April 17, 2023 to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”) (see Note 7 for further discussion), (ii) certain interest rates that may become applicable pursuant to the Company’s Tax Receivable Agreement (“TRA”) which may be amended by the Company and the TRA Party Representative if such interest rates become applicable and (iii) the Company’s interest rate cap agreement, which was amended on June 30, 2023 to replace LIBOR with SOFR as the interest rate benchmark for the Term Loan. The Company utilized the practical expedients set forth in Topic 848 and has continued to account for its

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

interest rate cap at fair value and has not applied modification accounting to its debt instruments. The Company fully adopted the standard as of June 30, 2023 and the adoption did not have a material impact on our condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and liabilities from contracts with customers in a business combination in accordance with ASC 606 as if it had originated the contracts. The amendment in this update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. The Company adopted the standard as of the beginning of fiscal year 2023 and the adoption did not have a material impact on the condensed consolidated financial statements. However, the ultimate impact is dependent upon the size and frequency of future acquisitions.

In September 2022, the FASB issued ASU 2022-04, Liabilities- Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires buyers in a supplier finance program to disclose information related to the key terms of the program and the obligations the buyer has confirmed as valid to the finance provider or intermediary. The buyers are required to disclose obligations outstanding in interim reporting periods. The amendment in this update is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted the standard as of the beginning of fiscal year 2023 and the adoption did not have an impact on the Company’s disclosures as the impact of supplier finance programs is not material to the Company’s condensed consolidated financial statements.

3. Acquisitions

The Company completed no acquisitions during the three months and nine months ended September 29, 2023 and three acquisitions during fiscal year 2022, as described further in the section below. The Company’s acquisitions have been accounted for under ASC 805, Business Combinations. Accordingly, the accounts of the acquired companies, after adjustments to reflect fair values assigned to assets and liabilities, have been included in the condensed consolidated financial statements from their respective dates of acquisition.

The Company records purchase price in excess of amounts allocated to identifiable assets and liabilities as goodwill. Goodwill includes, but is not limited to, the value of the workforce in place, ability to generate profits and cash flows, and an established going concern.

Customer relationships have been valued using the multi-period excess earnings method, a derivative of the income approach. The multi-period excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Estimated useful lives were determined based on the length and trend of projected cash flows. The length of the projected cash flow period was determined based on the expected attrition of the customer relationships, which is based on the Company’s historical experience in renewing and extending similar customer relationships and future expectations for renewing and extending similar existing customer relationships. The useful life of the customer relationships intangible assets represents the number of years over which the Company expects the customer relationships to economically contribute to the business.

The trade names have been valued using the relief from royalty method under the income approach to estimate the cost savings that will accrue to the Company, which would otherwise have to pay royalties or license fees on revenue earned by using the asset. The useful lives of the assets were determined based on management’s estimate of the period of time the name will be in use.

Technology has been valued using the multi-period excess earnings method, a derivative of the income approach. The net earnings attributed to the existing technology considers items such as projected research and development costs expected to be incurred to maintain the technology. The useful lives were determined based on the length and trend of projected cash flows after considering items such as the projected research and development expected to be incurred to maintain the technology.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Transactions Completed in fiscal year 2022

On October 24, 2022, the Company acquired the remaining outstanding interest of its majority-owned subsidiary, Remote Maintenance Systems LP, doing business as Parasol (“Parasol”), the provider of 24/7 remote support service to the Company’s integrators based on the Company’s remote management tool, OvrC.

The Company acquired the remaining outstanding equity shares of Parasol in exchange for $1,100 of the Company’s common shares. The Company made an initial investment and established its controlling interest in 2018, and has included the results of operations, assets and liabilities in its consolidated financial reports since 2018.

The Company completed two additional acquisitions during fiscal year 2022 with Clare Controls, LLC (“Clare”), on August 8, 2022 and Staub Electronics, LTD (“Staub”), on January 20, 2022. The acquisitions added either products to the Company’s proprietary product lines or distribution services. The final allocation of the purchase price for Clare and Staub is as follows:


	Clare		Staub
Total purchase consideration	$	6,300	$	26,395
Cash and cash equivalents	$	—	$	756
Accounts receivable	—		1,801
Inventory	—		5,472
Prepaid expenses	263		1,616
Property and equipment, net	26		451
Operating lease right-of-use assets	160		2,309
Identifiable intangible assets	4,300		14,209
Total identifiable assets acquired	4,749		26,614
Accounts payable	568		1,570
Accrued liabilities	284		2,206
Current operating lease liability	43		343
Deferred income tax liabilities	—		3,585
Operating lease liability, net of current portion	117		1,953
Other liabilities	183		—
Total liabilities assumed	1,195		9,657
Net identifiable assets acquired	3,554		16,957
Goodwill	2,746		9,438
Net assets acquired	$	6,300	$	26,395

The Company recorded intangible assets related to the acquisitions based on estimated fair value, which consisted of the following:


	Clare			Staub
	Useful Lives (Years)	Acquired Value		Useful Lives (Years)	Acquired Value
Customer relationships	—	$	—	10	$	12,684
Technology	4	3,400		—	—
Trade name	6	900		6	1,525
Total intangible assets		$	4,300		$	14,209

Goodwill arising from the Clare acquisition primarily consists of synergies from integrating Clare’s automation and security products into the Company’s existing product portfolio. Goodwill arising from the Staub acquisition primarily consists of synergies from integrating the distribution channels of Staub into the Company’s distribution channels.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

As a result of the Clare transaction, the Company has, for income tax purposes, goodwill of $2,746 that will be deductible in future periods.

The Company recognized $328 of transaction-related expenses for Staub, consisting primarily of advisory, legal, and other professional fees, which were included in selling, general, and administrative expenses in the consolidated statement of operations. The Company recognized $303 of transaction-related expenses for Clare, consisting primarily of advisory, legal, and other professional fees, during the nine months ended September 30, 2022, which were included in selling, general, and administrative expenses in the consolidated statement of operations.

Pro forma financial information related to the Staub and Clare acquisitions has not been provided as it is not material to the Company’s consolidated results of operations. The results of operations of the Staub and Clare acquisition are included in the Company’s consolidated results of operations from the date of acquisition.

4.Revenue and Geographic Information

Contract Balances — Amounts invoiced in advance of revenue recognition are recorded as deferred revenue on the condensed consolidated balance sheets. Deferred revenue primarily relates to unspecified software updates and upgrades, hosting, technical support, marketing incentive programs, and subscription services. The following table represents the changes in deferred revenue for the nine months ended September 29, 2023 and September 30, 2022:


	Nine Months Ended
	September 29, 2023		September 30, 2022
Deferred revenue – beginning of period	$	35,051	$	33,385
Amounts billed, but not recognized	26,477		25,809
Recognition of revenue	(26,788)		(24,641)
Deferred revenue acquired	—		218
Deferred revenue – end of period	$	34,740	$	34,771

The Company recorded deferred revenue of $22,813 and $22,611 in accrued liabilities and $11,927 and $12,440 in other liabilities as of September 29, 2023 and December 30, 2022, respectively.

Disaggregation of Revenue — The following table sets forth revenue by geography between the United States and all geographies outside of the United States for the three months and nine months ended September 29, 2023 and September 30, 2022:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Domestic integrators(a)	$	226,021	$	230,173	$	666,307	$	694,254
Domestic other(b)	9,962		14,940		30,389		46,107
International(c)	34,161		36,121		99,895		115,212
Total	$	270,144	$	281,234	$	796,591	$	855,573

(a)Domestic integrators is defined as professional “do-it-for-me” integrator customers who transact with Snap One through a traditional integrator channel in the United States, excluding the impact of revenue earned by the Company’s Access Networks enterprise grade network solution business.

(b)Domestic other is defined as Access Networks revenue and revenue generated through managed transactions with non-integrator customers, such as national accounts.

(c)International consists of all integrators and distributors who transact with Snap One outside of the United States.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The following table sets forth revenue by product type between proprietary products and third-party products for the three months and nine months ended September 29, 2023 and September 30, 2022:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Proprietary products(a)	$	176,172	$	192,172	$	531,372	$	588,165
Third-party products(b)	93,972		89,062		265,219		267,408
Total	$	270,144	$	281,234	$	796,591	$	855,573

(a)Proprietary products consist of products and services internally developed by or for Snap One and sold under one of Snap One’s proprietary brands.

(b)Third-party products consist of products that Snap One distributes but for which Snap One does not own the associated product brands.

Additionally, the Company’s revenue includes amounts recognized over time and at a point in time, and are as follows for the three months and nine months ended September 29, 2023 and September 30, 2022:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Products transferred at a point in time	$	261,075	$	271,500	$	769,803	$	830,932
Services transferred over time	9,069		9,734		26,788		24,641
Total	$	270,144	$	281,234	$	796,591	$	855,573

5.Balance Sheet Components

Accounts Receivable, net:

As of September 29, 2023 and December 30, 2022, the Company’s accounts receivable, net consisted of the following:


	September 29, 2023		December 30, 2022
Accounts receivable	$	56,100	$	50,445
Allowance for credit losses	(2,251)		(2,271)
Accounts receivable, net	$	53,849	$	48,174

Inventories:

As of September 29, 2023 and December 30, 2022, the Company’s inventory consisted of the following:


	September 29, 2023		December 30, 2022
Finished goods	$	275,046	$	308,768
Raw materials	15,304		19,457
Work in process	333		500
Reserve for obsolete and slow-moving inventory	(15,214)		(14,137)
Total inventories	$	275,469	$	314,588

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Accrued Liabilities:

Accrued liabilities as of September 29, 2023 and December 30, 2022, consisted of the following:


	September 29, 2023		December 30, 2022
Deferred revenue	$	22,813	$	22,611
Payroll, vacation, and bonus accruals	16,791		11,068
Warranty reserve	8,977		10,682
Customer rebate program	5,586		5,863
Sales return allowance	5,295		5,148
Incurred but not reported self-insurance	1,545		1,860
Taxes	695		944

Interest payable	659		1,578
Other accrued liabilities	3,913		4,851
Total accrued liabilities	$	66,274	$	64,605

6.Goodwill and Other Intangible Assets, Net

Goodwill as of September 29, 2023 and December 30, 2022, was $592,214 and $592,186, respectively. Changes in goodwill reflect the impact of foreign currency translation.

As of September 29, 2023 and December 30, 2022, other intangible assets, net, consisted of the following:


		September 29, 2023
	Estimated Useful Life	Gross Carrying Amount (a)		Accumulated Amortization		Net Carrying Amount
Customer relationships	5 – 25 years	$	520,864	$	(143,143)	$	377,721
Technology	4 – 15 years	98,478		(66,890)		31,588
Trade names – definite	2 – 10 years	59,967		(28,694)		31,273
Trade names – indefinite	indefinite	76,564		—		76,564
Total intangible assets		$	755,873	$	(238,727)	$	517,146


		December 30, 2022
	Estimated Useful Life	Gross Carrying Amount (a)		Accumulated Amortization		Net Carrying Amount
Customer relationships	5 – 25 years	$	520,825	$	(123,393)	$	397,432
Technology	4 – 15 years	98,478		(54,391)		44,087
Trade names – definite	2 – 10 years	59,963		(23,627)		36,336
Trade names – indefinite	indefinite	76,564		—		76,564
Total intangible assets		$	755,830	$	(201,411)	$	554,419

(a) Amounts also include any net changes in intangible asset balances for the periods presented that resulted from foreign currency translation.

Total amortization expense for intangible assets for the three months ended September 29, 2023 and September 30, 2022 was $12,439 and $12,536, respectively. Total amortization expense for intangible assets for the nine months ended September 29, 2023 and September 30, 2022 was $37,316 and $37,794, respectively. The weighted-average useful life remaining for amortizing definite lived intangible assets was approximately 14.1 years as of September 29, 2023.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

As of September 29, 2023, the estimated amortization expense for intangible assets for the next five fiscal years and thereafter are as follows:


Remainder of 2023	$	12,275
2024	43,204
2025	35,588
2026	35,233
2027	34,417
2028 and thereafter	279,865
Total	$	440,582

7.Debt Agreements

On December 8, 2021, the Company entered into and became a party to a credit agreement by and between the Company, various financial institutions and Morgan Stanley Senior Funding, Inc., as administrative agent (the “Administrative Agent”) (as amended from time to time, the “Credit Agreement”) consisting of $465,000 in aggregate principal amount of senior secured term loans maturing seven years from the effective date (the “Term Loan”) and a $100,000 senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) maturing five years from the effective date (the “Revolving Credit Facility”).

Additionally, on October 2, 2022, the Company became a party to an incremental agreement (the “Incremental Agreement”) with the lenders party thereto and the Administrative Agent to provide incremental term loans (the “Incremental Term Loan”) in an aggregate principal amount of $55,000. The Incremental Term Loan matures three years from the effective date. The Incremental Agreement amended the Credit Agreement (the Credit Agreement, as amended by the Incremental Agreement, the “Amended Credit Agreement”).

On October 26, 2022, the Company entered into an interest rate cap agreement on the floating rate component of interest (LIBOR, subsequently transitioned to SOFR) for the Term Loan, with Bank of America as the counterparty. The interest rate cap became effective December 31, 2022. The Company will pay a premium of $6,573 at the maturity date of December 31, 2025. For the period ended September 29, 2023, the notional amount of the interest rate cap is $348,500 of the Term Loan and has a strike rate of 4.79%, which effectively caps SOFR on the notional amount at 4.79%. As of September 29, 2023, the three-month SOFR rate was 5.24%.

On April 17, 2023, the Company entered into an Amendment to the Credit Agreement (the “Amendment to the Credit Agreement”), further amending the Credit Agreement dated as of December 8, 2021 (as amended by the Amended Credit Agreement dated as of October 2, 2022). The Amendment to the Credit Agreement replaces LIBOR with SOFR as the interest rate benchmark for certain loans as provided thereunder along with other conforming changes. Other than the foregoing, the parties to the Credit Agreement continue to have the same obligations set forth in the Credit Agreement prior to the effectiveness of the Amendment to the Credit Agreement.

Borrowings under the Term Loan will bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the federal funds effective rate, (b) the prime rate and (c) the eurocurrency rate determined by reference to the cost of funds for U.S. dollar deposits (subsequently changed to the forward-looking term rate based on SOFR for rates initiated after the effective date of the Amendment to the Credit Agreement) for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a eurocurrency rate determined by reference to the cost of funds for U.S. dollar deposits (subsequently changed to the forward-looking term rate based on SOFR for rates initiated after the effective date of the Amendment to the Credit Agreement) for the interest period relevant to such borrowing adjusted for certain additional costs; provided that such rate is not lower than a floor of 0.50%.

Borrowings under the Incremental Term Loan will bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the federal funds effective rate, (b) the prime rate and (c) the forward-looking term rate based on the SOFR for an interest period of one month plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) an applicable margin plus

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

a forward-looking rate based on SOFR for the interest period relevant to such borrowing provided that such rate is not lower than a floor of 0.50%.

The interest rate for the Term Loan was 9.89% as of September 29, 2023 and 7.38% as of December 30, 2022. The interest rate for the Incremental Term Loan was 11.99% as of September 29, 2023 and 10.42% as of December 30, 2022.

Borrowings under the Revolving Credit Facility will bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the federal funds effective rate, (b) the prime rate and (c) the eurocurrency rate determined by reference to the cost of funds adjusted for certain additional costs (subsequently changed to the forward-looking term rate based on SOFR for rates initiated after the effective date of the Amendment to the Credit Agreement) for an interest period of one month, plus 1.00%; provided such rate is not lower than a floor of 1.00% or (2) a eurocurrency rate determined by reference to the applicable cost of funds for such borrowing adjusted for certain additional costs (subsequently changed to the forward-looking term rate based on SOFR for rates initiated after the effective date of the Amendment to the Credit Agreement); provided such rate is not lower than a floor of zero, subsequently changed to 0.50% based on SOFR for rates initiated after the effective date of the Amendment to the Credit Agreement. There were no borrowings under the Revolving Credit Facility as of September 29, 2023. The interest rate for the Revolving Credit Facility was 9.22% as of December 30, 2022.

The Term Loan amortizes in fixed equal quarterly installments in an amount equal to 1.00% per annum of the total aggregate principal amount thereof immediately after borrowing, with the balance due at maturity. The Company may voluntarily prepay loans or reduce commitments under the Credit Agreement, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty (subject to customary exceptions).

The Company’s outstanding debt as of September 29, 2023 and December 30, 2022 was as follows:


Instrument	Maturity Date	September 29, 2023		December 30, 2022
Credit Agreement
Term Loan	December 8, 2028	$	458,025	$	461,513
Incremental Term Loan	October 2, 2025	$	54,588	$	55,000
Revolving Credit Facility	December 8, 2026	$	—	$	12,000
Outstanding Letters of Credit	December 8, 2026	$	4,940	$	5,060

The amount available under the Revolving Credit Facility was $95,060 and $82,940 as of September 29, 2023 and December 30, 2022, respectively.

As of September 29, 2023, the future scheduled maturities of the above notes payable are as follows:


Remainder of 2023	$	1,300
2024	3,900
2025	58,688
2026	4,650
2027	5,813
Thereafter	438,262
Total future maturities of debt	512,613
Unamortized debt issuance costs	(12,529)
Total indebtedness	500,084
Less: Current maturities of long-term debt	5,200
Long-term debt	$	494,884

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Unamortized costs related to the issuance of the Term Loan were $12,529 and $14,655 as of September 29, 2023 and December 30, 2022, respectively, and were presented as a direct deduction from the carrying amount of long-term debt. Unamortized costs related to the issuance of the Revolving Credit Facility were $972 as of September 29, 2023, and were included in other assets in the consolidated balance sheet. Unamortized costs related to the issuance of the Revolving Credit Facility were $1,200 as of December 30, 2022, and were presented as a direct deduction from the carrying amount of the outstanding Revolving Credit Facility. The costs related to debt issuances are amortized to interest expense over the life of the related debt. As of September 29, 2023, the future amortization of debt issuance costs was as follows:


Remainder of 2023	$	813
2024	3,396
2025	3,374
2026	2,123
2027	1,918
Thereafter	1,877
Total	$	13,501

Debt Covenants and Default Provisions — There have been no changes to the debt covenants or default provisions related to the Company’s outstanding debt arrangements or other obligations during the current year. The Company was in compliance with all debt covenants as of September 29, 2023 and December 30, 2022. For additional information on the Company’s debt arrangements, debt covenants and default provisions, see Note 8 of the Notes to the Consolidated Financial Statements for the year ended December 30, 2022, in the Annual Report.

The Company may also be required to make additional payments under the financing agreement equal to a percentage of the Company’s annual excess cash flows or net proceeds from any non-ordinary course asset sales or certain debt issuances, if any. The lender has the option to decline the prepayment. As of December 30, 2022, the Company did not incur a required additional payment.

8.Fair Value Measurement

Fair Value of Financial Instruments — The fair values and related carrying values of financial instruments that are not required to be remeasured at fair value on the condensed consolidated statements of operations were as follows:


	As of September 29, 2023				As of December 30, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities
Term Loan	$	458,025	$	440,849	$	461,513	$	421,130
Incremental Term Loan	$	54,588	$	51,312	$	55,000	$	51,700

The fair value of long-term debt was established using current market rates for similar instruments traded in secondary markets representing Level 2 inputs. The fair value of the Revolving Credit Facility approximates carrying value as the related interest rates approximate the Company’s incremental borrowing rate for similar obligations. Additionally, cash and cash equivalents, accounts receivable, net, prepaid expenses, accounts payable, and accrued liabilities are classified as Level 1 and the carrying value of these assets and liabilities approximates the fair value due to the short-term nature of these financial instruments.

Notes Receivable — During the nine months ended September 30, 2022, the Company acquired Clare, which had an outstanding unsecured loan with the Company. The Company recorded a $5,872 loss on the settlement of the unsecured loan from Clare during the nine months ended September 30, 2022. At the acquisition date, the Company settled the notes receivable for $1,400 as part of the transaction. See Note 3 for more information regarding the Clare acquisition.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis — On October 26, 2022, the Company entered into an interest rate cap agreement on the LIBOR (subsequently transitioned to SOFR) component of interest. The interest rate cap became effective December 31, 2022. The interest rate cap agreement does not qualify for

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

hedge accounting treatment and accordingly, the Company records the fair value of the agreement as an asset or liability and the change in fair value as income or expense during the period in which the change occurs. The fair value of the interest rate cap is determined using widely accepted valuation techniques based on its maturity and observable market-based inputs, including interest rate curves. This measurement is considered a Level 2 measurement. The interest rate cap had a fair value of $1,750 and $2,563 as of September 29, 2023 and December 30, 2022, respectively, and is recorded in other liabilities on the Company’s condensed consolidated balance sheet. The change in fair value was recognized as a component of other expense (income), net, in the condensed consolidated statements of operations and was $313 of expense and $813 of income for the three months and nine months ended September 29, 2023. As there was an other-than-insignificant financing element present at inception of the interest rate cap agreement, proceeds from periodic settlements of the interest rate cap were reflected as a financing activity on the Company’s condensed consolidated statements of cash flows.

The fair value of the contingent consideration liability related to the Access Networks acquisition is based on unobservable inputs, including management estimates and assumptions about future revenues, and is, therefore, classified as Level 3. During the year ended December 30, 2022, the agreement was modified to change the covered revenue period, reducing expected payouts based on future revenues. As a result of the modification, the fair value of the contingent consideration was reduced to $250 and was paid during the nine months ending September 29, 2023. The Company recorded a liability of $250 as of December 30, 2022 in accrued liabilities.

The Company utilizes a Monte Carlo simulation in an option pricing framework, where a range of possible scenarios are simulated, in order to determine the fair value of the contingent value rights (“CVRs”). Any future increase in the fair value of the CVR obligations, based on an increased likelihood that the underlying milestones will be achieved, and the associated payment or payments will, therefore, become due and payable, will result in a charge to selling, general and administrative expenses in the period in which the increase is determined. Similarly, any future decrease in the fair value of the CVR obligations will result in a reduction in selling, general and administrative expenses. CVR liabilities are categorized as other liabilities in the accompanying condensed consolidated balance sheets and are classified as Level 3.

Fair value at

September 29, 2023

Valuation Technique

Unobservable

Input

Volatility

Contingent Value Rights

$2,000

Monte Carlo

Volatility

50 and 55%

Changes in the CVRs for the nine months ended September 29, 2023 and September 30, 2022 were as follows:


	September 29, 2023		September 30, 2022
CVR fair value – beginning of period	$	1,700	$	8,900
Fair value adjustments	300		(6,200)
CVR fair value – end of period	$	2,000	$	2,700

There were no transfers into or out of Level 3 during the three months and nine months ended September 29, 2023 or September 30, 2022.

9.Warranties

Changes in the Company’s accrued warranty liability for the nine months ended September 29, 2023 and September 30, 2022 were as follows:


	September 29, 2023		September 30, 2022
Accrued warranty – beginning of period	$	15,039	$	18,772
Warranty claims	(10,710)		(9,211)
Warranty provisions	7,896		6,625
Accrued warranty – end of period	$	12,225	$	16,186

As of September 29, 2023, the Company has recorded accrued warranty liabilities of $8,977 in accrued liabilities and $3,248 in other liabilities in the accompanying condensed consolidated balance sheet. As of December 30, 2022, the Company has recorded accrued warranty liabilities of $10,682 in accrued liabilities and $4,357 in other liabilities.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

10.Retirement Plan

The Company has a 401(k) plan that covers eligible employees as defined by the plan agreement. The Company matches 100% of employee contributions to the plan, up to 3% of the employees’ total compensation, and 50% of employee contributions to the plan, up to 6% of the employees’ total compensation. Company contributions to the plan, net of forfeitures, were $1,135 and $1,161 for the three months ended September 29, 2023 and September 30, 2022, respectively. Company contributions to the plan, net of forfeitures, were $3,805 and $3,984 for the nine months ended September 29, 2023 and September 30, 2022, respectively.

11.Equity Agreements and Incentive Equity Plans

Former Parent Incentive Plan — In October 2017, the Former Parent Entity approved the Class B Unit Incentive Plan (the “2017 Plan”) pursuant to the Company’s partnership agreement. Class B-1 Incentive Units (“B-1 Units”) issued under the 2017 Plan vest in installments over a five-year period, subject to the grantee’s continued employment or service. Class B-2 Incentive Units (“B-2 Units” and collectively with the B-1 Units, “Incentive Units”) issued under the 2017 Plan contained both service conditions consistent with the B-1 Units and market-based vesting conditions that required the achievement of a specified return hurdle to the controlling shareholders in order to vest.

2021 Incentive Plan — On July 16, 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”) in order to provide a means through which to attract, retain, and motivate key personnel. Awards available for grant under the 2021 Plan include non-qualified and incentive stock options, restricted shares of the Company’s common stock, and other equity-based awards tied to the value of the Company’s common stock and cash-based awards.

During the nine months ended September 29, 2023, upon the settlement date of certain outstanding equity awards, shares were withheld to cover the required withholding tax, which was based on the value of a share on the settlement date as determined by the closing price of the Company’s common stock on the trading day of the applicable settlement date. The remaining shares were delivered to the recipient as shares of the Company’s common stock. The amount remitted to the tax authorities for the employees’ tax obligation was reflected as a financing activity on the Company’s condensed consolidated statements of cash flows. These shares withheld by the Company as a result of the net settlement of equity awards issued under the 2021 Plan were not considered issued and outstanding. These shares were returned to the 2021 Plan reserve and are available for future issuance thereunder. For vesting events where shares are not withheld, the Company required employees to sell a portion of the shares that they received upon the vesting of equity awards in order to cover any required withholding taxes.

Equity Award Conversion — During the year ended December 31, 2021, and in connection with the Company’s initial public offering (“IPO”), all outstanding unvested Incentive Units were replaced with newly issued shares of the Company’s restricted common stock. Vested Incentive Units were exchanged into shares of the Company’s common stock using the same formula as unvested Incentive Units (together, the “Equity Award Conversion”). The restricted shares of common stock that the holders received in exchange for their unvested B-1 Units are subject to the same vesting terms that applied to the B-1 Units prior to the Equity Award Conversion.

The restricted stock awards issued to replace B-2 Units vest based upon achievement of one or more hurdles, which are substantially the same as the previous market-condition vesting criteria of the B-2 Units. Although the restricted stock awards that replace the B-2 Units do not contain an explicit service condition, the vesting is subject to continued employment, resulting in a derived service period. For additional information on the Equity Award Conversion, see Note 13 of the Notes to the Consolidated Financial Statements for the fiscal year ended December 30, 2022, in the Annual Report.

Restricted Stock Awards

In connection with the IPO, the Company issued restricted common stock to holders of unvested B-1 Units and B-2 Units. The grant date fair value of restricted stock awards was determined to be $18.00 per share, based on the initial listing price of the Company’s common stock on the grant date.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The summary of the Company’s restricted stock awards activity is as follows:


	Restricted Stock Awards
	B-1 Incentive Units			B-2 Incentive Units
	Number of Units	Weighted- Average Grant-Date Fair Value		Number of Units	Weighted- Average Grant-Date Fair Value
Outstanding at December 30, 2022	223	$	18.00	792	$	18.00
Granted	—	—		—	—
Vested	101	18.00		—	—
Forfeited	13	18.00		130	18.00
Outstanding at September 29, 2023	109	$	18.00	662	$	18.00

Stock Options

In connection with the IPO, the Company granted options to holders of B-1 Units (“Time-based Options”) and options to holders of B-2 Units (“Market-based Options”), as further discussed in Note 13 of the Notes to the Consolidated Financial Statements for the year ended December 30, 2022, in the Annual Report.

The summary of the Company’s option activity is as follows:


	Time-based Options					Market-based Options
	Number of Units	Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value (a)		Number of Units	Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value (a)
Outstanding at December 30, 2022	4,233	$	6.47	$	—	1,125	$	5.66	$	—
Granted	—	—		—		—	—		—
Exercised	—	—		—		—	—		—
Forfeited	466	6.18		—		190	5.66		—
Outstanding at September 29, 2023	3,767	$	6.50	$	—	935	$	5.66	$	—
Options exercisable at September 29, 2023	3,171	$	6.34	$	—	—	$	—	$	—

(a) The intrinsic value represents the amount by which the fair value of the Company’s stock exceeds the option exercise price as of September 29, 2023 and December 30, 2022.

Restricted Stock Units — The Company grants restricted stock units (“RSUs”) with time-based vesting requirements under the 2021 Plan. These RSUs typically have an initial annual cliff vest and then vest quarterly over the remaining service period, which is generally four years. The fair value of RSUs is based on the Company’s closing stock price on the date of grant.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The summary of the Company’s RSU activity is as follows:


	Restricted Stock Units
	Number of Units	Weighted-Average Grant-Date Fair Value
Outstanding at December 30, 2022	1,360	$	17.05
Granted	1,911	11.20
Vested	568	16.67
Forfeited	201	13.34
Outstanding at September 29, 2023	2,502	$	12.96

As of September 29, 2023, there were 74 vested and unissued restricted stock units.

Performance Stock Units — During the nine months ended September 29, 2023 and September 30, 2022, the Company granted performance-based restricted stock units (“PSUs”) to certain employees under the 2021 Plan. The fair value of PSUs granted is based on the Company’s closing stock price on the date of grant. Total units earned for grants may vary between 0% and 200% of the units granted based on the attainment of company-specific targets during the performance period and upon continued service. Compensation expense for PSUs is recognized on a graded-vesting basis if it is probable that the performance conditions will be achieved. Adjustments to compensation expense are made each period based on changes in the Company’s estimate of the number of PSUs that are probable of vesting. PSUs will vest with continued service and upon achievement of the relevant performance targets.

The awards issued during the nine months ended September 29, 2023 contain three separate tranches, each for a separate one-year performance period and each with a performance target to be established concurrently with the annual budget process. Accordingly, each tranche is accounted for as a separate grant. The Company-specific targets include: (i) adjusted EBITDA, (ii) adjusted EBITDA margin, and (iii) the results of an engagement survey administered annually in the fourth quarter to employees below the level of director.

The awards issued during the nine months ended September 30, 2022, vest in annual tranches over a three-year service period, subject to a one-year performance target. Total units earned for grants are based on the attainment of net sales and Company-specific adjusted EBITDA targets during the performance period (the fiscal year of the date of the grant) and upon continued service. For the year-ended December 30, 2022, the Company determined that, based on actual performance with respect to Adjusted EBITDA and Net Sales combined, the awards were earned at 51%.

The summary of the Company’s PSU activity is as follows:


	Performance Stock Units
	Number of Units	Weighted-Average Grant-Date Fair Value
Outstanding at December 30, 2022	254	$	17.96
Granted	322	11.31
Vested	132	15.65
Forfeited	37	13.70
Outstanding at September 29, 2023	407	$	13.83

As of September 29, 2023, there were 71 vested and unissued performance share units.

Total equity-based compensation expense — Equity-based compensation expense is included within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. For all equity-based compensation awards, the Company recognizes forfeitures as they occur. Compensation expense for the three months and

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

nine months ended September 29, 2023 and September 30, 2022, and unrecognized stock compensation expense and weighted average remaining expense period as of September 29, 2023 consisted of:


	Compensation Expense								As of September 29, 2023
	Three Months Ended September 29, 2023		Three Months Ended September 30, 2022		Nine Months Ended September 29, 2023		Nine Months Ended September 30, 2022		Unrecognized Compensation Expense		Weighted-Average Remaining Contractual Term (Years)
2021 Plan
Restricted stock awards	$	457	$	1,082	$	1,609	$	3,390	$	2,324	0.47
Time-based options	788		1,672		2,758		5,077		4,215		1.42
Market-based options	523		645		959		1,935		735		0.35
Restricted stock units	2,001		1,726		8,634		5,132		28,229		3.02
Performance stock units	197		165		2,717		1,864		1,547		0.55
Other equity-based compensation	100		100		300		279		527		1.31
Total	$	4,066	$	5,390	$	16,977	$	17,677	$	37,577	1.65

Employee Stock Purchase Plan — The Company’s board of directors adopted, and its shareholders approved, the Snap One Holdings Corp. 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP initially reserved 750 shares for issuance. The number of shares available for issuance under the ESPP is subject to adjustment for certain changes in the Company’s capitalization. In addition, the ESPP contains an evergreen provision such that each January 1, starting in 2022 and ending in 2031, the number of shares available for issuance shall be increased by that number of shares equal to the lesser of (i) a number of shares such that the aggregate amount of shares available following the increase is equal to 1% of the fully diluted shares outstanding on December 31 of the preceding year, or (ii) a lesser amount determined by the Company’s Compensation Committee. Pursuant to this provision the Company increased the number of shares in the ESPP by approximately 186 shares. Under the ESPP, shares of common stock may be purchased by eligible participants during defined purchase periods at 85% of the lesser of the closing price of the Company’s common stock on the first day or last day of each purchase period. The Company used a Black-Scholes option pricing model to value the common stock purchased as part of the Company’s ESPP. The fair value estimated by the option pricing model is affected by the price of the common stock as well as subjective variables that include assumed interest rates, the Company’s expected dividend yield, and the expected share volatility over the term of the award.

Offering periods are generally six months long and begin on May 23 and November 23 of each year. For the nine months ended September 29, 2023, 186 shares of common stock were purchased under the ESPP at an average price of $6.60 per share. The Company did not have any shares purchased under the ESPP during the three months ended September 29, 2023. Stock-based compensation expense recognized related to the ESPP was $195 and $567 for the three months and nine months ended September 29, 2023 and $180 and $260 for the three months and nine months ended September 30, 2022, and is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. Eligible participants contributed $752 and $287 as of September 29, 2023 and December 30, 2022, respectively, which is included in accrued liabilities in the accompanying condensed consolidated balance sheet. Unrecognized compensation expense as of September 29, 2023 associated with the remaining ESPP purchase period through November 22, 2023 was $120.

12.Income Taxes

The effective income tax rate for the Company was a benefit of 27.9% and 34.3% for the three months and nine months ended September 29, 2023, as compared to a benefit of 18.9% and 14.2% for the three months and nine months ended September 30, 2022. The change in the effective tax rate for the three months and nine months ended September 29, 2023, and the difference from the U.S. federal statutory rate of 21%, was primarily the result of nondeductible contingent value rights, stock compensation, foreign derived intangible income, research & development (“R&D”) credits and changes to the valuation allowance.

Income tax benefit was $348 and $8,119 during the three months and nine months ended September 29, 2023, compared to a benefit of $238 and $762 during the three months and nine months ended September 30, 2022.

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

13.Tax Receivable Agreement

On July 29, 2021, the Company executed a Tax Receivable Agreement (“TRA”) with certain pre-IPO owners (“TRA Participants”). The TRA provides for payment by the Company to the TRA Participants of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that the Company utilizes in the future from net operating losses and certain other tax benefits that arose prior to the IPO. The Company recognizes this contingent liability in its condensed consolidated financial statements when incurrence of the liability becomes probable and amounts are reasonably estimable. Subsequent changes to the measurement of the TRA liability are recognized in the condensed consolidated statements of operations as a component of other expense (income), net. The Company will retain the benefit of the remaining 15% of these cash tax savings.

As of September 29, 2023, the Company recognized a total liability of $102,036, of which $21,107 and $80,929 are recorded within the current and noncurrent tax receivable agreement liability financial statement line items, respectively. As of December 30, 2022, the Company recognized a total liability of $111,453, of which $10,191 and $101,262 was recorded within the current and noncurrent tax receivable agreement liability financial statement line items, respectively. For the three months and nine months ended September 29, 2023, the Company recognized measurement adjustments of $631 and $775, respectively, which were recognized in other expense (income), net, on the condensed consolidated statements of operations. For the three months and nine months ended September 30, 2022, the Company recognized measurement adjustments of $86, which were recognized in other expense (income), net, on the condensed consolidated statements of operations. During the nine months ended September 29, 2023, the Company made its first payment to TRA participants of $10,468, which included interest of $277.

With respect to certain pre-IPO owners that are not TRA Participants, the Company has recorded amounts held in escrow for these participants in prepaid expense of $329 and $1,169 as of September 29, 2023 and December 30, 2022, respectively. During the nine months ended September 29, 2023, $396 of the amount held in escrow was forfeited by a pre-IPO owner and distributed to certain shareholders, resulting in a reduction of the prepaid expense balance and reversal of compensation expense. As a result, the Company recorded $205 and $438 during the three months and nine months ended September 29, 2023, in compensation expense within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. During the three months and nine months ended September 30, 2022, the Company recorded $279 and $837, respectively, in compensation expense within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

14.Commitments and Contingencies

Legal Proceedings — During the normal course of business, the Company is occasionally involved with various claims and litigation. Reserves are established in connection with such matters when a loss is probable, and the amount of such loss can be reasonably estimated. As of September 29, 2023 and December 30, 2022, no significant reserves were recorded. The determination of probability and the estimation of the actual amount of any such loss are inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. However, the Company does not expect the outcome of the matters currently pending will have a material adverse effect on the condensed consolidated financial statements.

15.Leases

The Company determines if an arrangement is a lease or contains a lease at inception. For all leases with a term longer than 12 months, operating leases are recorded under the noncurrent asset operating lease financial statement line item and the current and noncurrent operating lease liability financial statement line items on the Company’s condensed consolidated balance sheets. The Company has lease agreements with lease and non-lease components, which the Company has elected to account for as a single lease component for all asset classes. Lease expense is recognized on a straight-line basis over the lease term.

Right-of-Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Since most of the Company’s leases do not provide an implicit rate, the Company uses its own incremental borrowing rate

Snap One Holdings Corp. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(“IBR”) on a collateralized basis in determining the present value of lease payments. The Company utilizes a market-based approach to estimate the IBR.

The Company’s lease arrangements primarily consist of operating leases for offices, warehouse space, and distribution centers. The leases have remaining lease terms of 1 year to 10 years, some of which include options to extend for up to an additional 5 years, and some of which include options to terminate prior to completion of the contractual lease term with or without penalties. The Company’s lease term only includes periods covered by options if those options are reasonably certain of being exercised (or not reasonably certain of being exercised as it relates to termination options). Variable lease payments that depend on an index or rate (such as the Consumer Price Index or a market interest rate) are included in the measurement of ROU assets and lease liabilities using the index or rate at the commencement date. Variable payments, other than those dependent upon an index or rate, are excluded from the measurement of the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The variable lease cost primarily represents variable payments related to common area maintenance and utilities. The Company’s leases do not contain any material residual value guarantees.

The components of the Company’s lease costs are:

Three Months Ended

Nine Months Ended

September 29,
2023

September 30,
2022

Snap One Holdings Corp. [SNPO] Filings
10-Q	[2023-11-08]
10-Q	[2023-08-09]
10-Q	[2023-05-10]
10-K	[2023-03-15]
10-Q	[2022-11-10]
10-Q	[2022-08-12]
10-Q	[2022-05-13]
10-K	[2022-03-23]
10-Q	[2021-11-05]
10-Q	[2021-08-27]
S-1	[2021-07-02]