SEC Filing | Snap One Holdings Corp

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snpo-20220701

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 July 1, 2022


☐			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 75,854,515 shares of common stock as of August 9, 2022.

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	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	47

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	50
	Signatures	51

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 (“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, 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 COVID-19. 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 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 31, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 23, 2022, as amended by the Form 10-K/A filed with the SEC on April 25, 2022 (as amended, our “Annual Report”).

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

(in thousands, except par value)

(Unaudited)


	As of
	July 1, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	31,318	$	40,577
Accounts receivable, net	59,172		52,620
Inventories, net	274,697		210,964
Prepaid expenses and other current assets	31,613		35,114
Total current assets	396,800		339,275
Long-term assets:
Property and equipment, net	24,238		22,603
Goodwill	590,199		580,761
Other intangible assets, net	576,159		587,192
Operating lease right-of-use assets	39,547		—
Other assets	3,530		10,550
Total assets	$	1,630,473	$	1,540,381
Liabilities and stockholders’ equity
Current liabilities:
Current maturities of long-term debt	$	4,650	$	3,488
Accounts payable	84,966		72,781
Accrued liabilities	71,499		75,517
Current operating lease liability	11,772		—
Current tax receivable agreement liability	11,038		—
Total current liabilities	183,925		151,786
Long-term liabilities:
Revolving credit facility, net	45,647		—
Long-term debt, net of current portion	447,700		449,256
Deferred income tax liabilities, net	45,592		48,555
Operating lease liability, net of current portion	30,739		—
Tax receivable agreement liability, net of current portion	101,368		112,406
Other liabilities	21,610		30,103
Total liabilities	876,581		792,106
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $0.01 par value, 500,000 shares authorized; 74,613 shares issued and outstanding as of July 1, 2022 and 74,427 shares issued and outstanding at December 31, 2021	746		744
Preferred stock, $0.01 par value; 50,000 shares authorized, no shares issued and outstanding	—		—
Additional paid-in capital	838,035		826,718
Accumulated deficit	(82,983)		(79,420)
Accumulated other comprehensive loss	(2,130)		(28)
Company’s stockholders’ equity	753,668		748,014
Noncontrolling interest	224		261
Total stockholders’ equity	753,892		748,275
Total liabilities and stockholders’ equity	$	1,630,473	$	1,540,381

See accompanying Notes to the Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)


	Three Months Ended				Six Months Ended
	July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net sales	$	296,905	$	253,305	$	574,339	$	473,773
Costs and expenses:
Cost of sales, exclusive of depreciation and amortization	180,395		152,140		352,727		281,016
Selling, general and administrative expenses	95,394		78,657		181,921		154,014
Depreciation and amortization	14,966		14,198		29,855		27,910
Total costs and expenses	290,755		244,995		564,503		462,940
Income from operations	6,150		8,310		9,836		10,833
Other expenses (income):
Interest expense	7,720		9,543		14,443		19,078

Other expense (income), net	(63)		(296)		(483)		(509)
Total other expenses	7,657		9,247		13,960		18,569
Loss before income taxes	(1,507)		(937)		(4,124)		(7,736)
Income tax (benefit) expense	(163)		119		(524)		(644)
Net loss	(1,344)		(1,056)		(3,600)		(7,092)
Net loss attributable to noncontrolling interest	(17)		(12)		(37)		(34)
Net loss attributable to Company	$	(1,327)	$	(1,044)	$	(3,563)	$	(7,058)

Net loss per share, basic and diluted	$	(0.02)	$	(0.02)	$	(0.05)	$	(0.12)
Weighted average shares outstanding, basic and diluted	74,588		59,217		74,526		59,217

See accompanying Notes to the Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net loss	$	(1,344)	$	(1,056)	$	(3,600)	$	(7,092)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(2,108)		32		(2,102)		(20)
Comprehensive loss	(3,452)		(1,024)		(5,702)		(7,112)
Comprehensive loss attributable to noncontrolling interest	(17)		(12)		(37)		(34)
Comprehensive loss attributable to Company	$	(3,435)	$	(1,012)	$	(5,665)	$	(7,078)

See accompanying Notes to the Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(Unaudited)


	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


	Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)
	Shares		Amount				Accumulated Deficit				Noncontrolling Interest		Total Stockholders’ Equity
Balance - December 25, 2020	59,217		$	592	$	659,093	$	(43,018)	$	756	$	316	$	617,739
Net loss	—		—		—		(6,014)		—		(22)		(6,036)
Foreign currency translation adjustments	—		—		—		—		(52)		—		(52)
Equity-based compensation	—		—		1,060		—		—		—		1,060
Balance - March 26, 2021	$	59,217	$	592	$	660,153	$	(49,032)	$	704	$	294	$	612,711
Equity contributions	—		—		10,025		—		—		—		10,025
Net loss	—		—		—		(1,044)		—		(12)		(1,056)
Foreign currency translation adjustments	—		—		—		—		32		—		32
Equity-based compensation	—		—		1,178		—		—		—		1,178
Balance - June 25, 2021	59,217		$	592	$	671,356	$	(50,076)	$	736	$	282	$	622,890

See accompanying Notes to the Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended
	July 1, 2022		June 25, 2021
Cash flows from operating activities:
Net loss	$	(3,600)	$	(7,092)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	29,855		27,910
Amortization of debt issuance costs	921		3,051


Deferred income taxes	(6,462)		408

Loss on sale and disposal of property and equipment	81		205
Equity-based compensation	12,367		2,238
Non-cash operating lease expense	6,298		—
Bad debt expense	100		180
Fair value adjustment to contingent value rights	(6,075)		2,840

Provision for credit losses on notes receivable	5,872		—
Change in operating assets and liabilities:
Accounts receivable	(4,851)		(6,313)
Inventories	(58,262)		(15,234)
Prepaid expenses and other assets	5,273		(6,481)
Accounts payable, accrued liabilities and operating lease liabilities	(1,070)		(6,327)
Net cash used in operating activities	(19,553)		(4,615)
Cash flows from investing activities:
Acquisition of business, net of cash acquired	(25,639)		(25,821)
Purchases of property and equipment	(6,414)		(4,413)
Issuance of notes receivable	(600)		—


Other	45		(429)
Net cash used in investing activities	(32,608)		(30,663)
Cash flows from financing activities:

Payments on long-term debt	(1,163)		(3,595)

Proceeds from revolving credit facility	47,000		—

Repurchase and retirement of common stock	(918)		—
Payment of deferred initial public offering costs	—		(2,730)

Net cash provided by (used in) financing activities	44,919		(6,325)
Effect of exchange rate changes on cash and cash equivalents	(2,017)		(5)
Net decrease in cash and cash equivalents	(9,259)		(41,608)
Cash and cash equivalents at beginning of the period	40,577		77,458
Cash and cash equivalents at end of the period	$	31,318	$	35,850
Supplementary cash flow information:
Cash paid for interest	$	14,657	$	16,083
Cash paid for taxes, net	$	3,445	$	743
Noncash investing and financing activities:

Noncash equity contribution	$	—	$	10,025
Capital expenditure in accounts payable	$	321	$	251

See accompanying Notes to the Condensed Consolidated Financial Statements.

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

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 Draper, 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 small 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 technology-enabled workflow solutions to support the integrator throughout the project lifecycle, enhancing their operations and helping them to profitably grow their businesses.

Initial Public Offering — On July 30, 2021, the Company completed its initial public offering (“IPO”) of 13,850 shares of its common stock, and on August 18, 2021, completed the sale of 1,171 shares of additional common stock to the underwriters pursuant to their option to purchase additional shares, at an offering price of $18.00 per share. The Company raised net proceeds of $249,154 through the IPO, after deducting underwriting discounts and other offering costs of $21,219. During the three months and six months ended June 25, 2021, the Company expensed $1,210 and $2,921 of IPO-related costs. There were no expenses related to the IPO during the three months and six months ended July 1, 2022. The Company’s registration statement on Form S-1 (File No. 333-257624) relating to its IPO was declared effective by the Securities and Exchange Commission (the “SEC”) on July 27, 2021.

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 31, 2021, 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 31, 2021, appearing in the Company’s Annual Report on Form 10-K for the annual period ended December 31, 2021, as amended by the Form 10-K/A filed with the Securities and Exchange Commission on April 25, 2022 (as amended, the “Annual Report”).

The Company’s fiscal year is the 52- or 53-week period that ends on the last Friday of December. Fiscal year 2022 is a 52-week period, and fiscal year 2021 was a 53-week period. The three months ended July 1, 2022, and June 25, 2021, were 13-week periods, and the six months ended July 1, 2022, and June 25, 2021, were 26-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.

Recent Accounting Pronouncements Pending Adoption — 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”). The amendments in this ASU were put forth in response to the market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. GAAP requires entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. 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

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

provide explicit guidance to help companies applying optional expedients and exceptions. The provisions of these updates are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed. Our exposure related to the expected cessation of LIBOR is limited to the interest expense and certain fees we incur on balances outstanding under our credit facilities. We do not expect that there will be a material impact to the financial statements as a result of adopting these ASUs.

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. We do not expect the adoption of this update to have a material impact to our financial statements.

Recently Adopted Accounting Pronouncements — In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This new guidance requires lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. Recently, the FASB issued ASU 2020-05, which deferred the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company adopted the new leasing standard as of January 1, 2022, using the modified retrospective approach. Therefore, results for reporting periods beginning after January 1, 2022 are presented under Topic 842, while comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. There was not a cumulative-effect adjustment to accumulated deficit at the beginning of the period of adoption. In adopting the new guidance, the Company elected the package of practical expedients permitted under the transition guidance within the standard, which eliminates the reassessment of whether existing contracts contain leases, lease classification and capitalization of initial direct costs. The Company also elected an accounting policy to not recognize assets or liabilities for leases with a term of less than 12 months, to not separate lease and non-lease components for all asset classes and not elect to use the hindsight practical expedient. The adoption of the new leasing standard resulted in the recognition of approximately $40,906 and $43,862 of right-of-use (“ROU”) assets and lease liabilities, respectively, on the Company’s condensed consolidated balance sheets for its operating lease commitments. The difference between the ROU assets and lease liabilities is primarily attributable to deferred rent and lease incentives. The adoption of the standard did not have a material impact on the Company’s condensed consolidated statements of operations or on the condensed consolidated statements of cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses. The ASU sets forth a current expected credit loss (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10 which deferred the effective date to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company early adopted the standard for the fiscal year beginning January 1, 2022. Adoption of the standard did not have a material impact on the condensed consolidated financial statements.

3. Acquisitions

All of 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 consolidated financial statements from their respective dates of acquisition.

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

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 name has 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. Estimated useful life was determined based on management’s estimate of the period of time the name will be in use.

Staub Electronics, LTD. — On January 20, 2022, the Company, through its wholly owned subsidiary, Snap One Acquisition Corp., entered into a Purchase Agreement (“Purchase Agreement”) pursuant to which it acquired the issued and outstanding shares of Staub Electronics, LTD. (“Staub”), a long-time Canadian distribution partner. The acquisition adds two Canadian locations to the Company’s distribution footprint. The Company agreed to a purchase price of $26,395.

The Company recorded tangible and intangible assets acquired and liabilities assumed in the transaction according to the acquisition method of accounting, under ASC 805, Business Combinations. The consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of the closing date and are subject to change within the measurement period, which does not exceed twelve months after the closing date. The purchase price allocation and consideration are considered preliminary based on potential working capital adjustments. As of July 1, 2022, all recorded adjustments relate to working capital. The Company allocated any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill.

The preliminary allocation of the purchase price for the acquisition is as follows:


Total purchase consideration	$	26,395
Cash and cash equivalents	$	756
Accounts receivable	1,801
Inventory	5,472
Prepaid expenses	1,616
Property and equipment	451
Operating lease right-of-use assets	2,309
Identifiable intangible assets	14,209
Total identifiable assets acquired	26,614
Accounts payable	1,570
Accrued liabilities	2,206
Current operating lease liability	343
Deferred income tax liabilities	3,585
Operating lease liability, net of current portion	1,953
Total liabilities assumed	9,657
Net identifiable assets acquired	16,957
Goodwill	9,438
Net assets acquired	$	26,395

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

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


	Useful Lives (Years)	Acquired Value
Customer relationships	10	$	12,684
Trade name	6	1,525
Total intangible assets		$	14,209

The Company recognized $328 of transaction-related expenses, consisting primarily of advisory, legal, and other professional fees related to the acquisition. These transaction-related expenses were incurred by and for the benefit of the Company, and were included in selling, general, and administrative expenses in the condensed consolidated statements of operations.

Pro forma financial information related to the Staub acquisition has not been provided as it is not material to the Company’s consolidated results of operations. The results of operations of the Staub acquisition are included in the Company’s consolidated results of operations from the date of acquisition and were not significant for the three months and six months ended July 1, 2022.

ANLA, LLC — On May 4, 2021, the Company entered into a Purchase Agreement pursuant to which it acquired the issued and outstanding shares of ANLA, LLC. (“Access Networks”), an enterprise-grade networking solutions provider offering networking products, design, configuration, monitoring and support services. The acquisition enhances the Company’s networking solutions for residential and commercial networks. The Company agreed to a purchase price of $36,334, consisting of both cash and equity, plus contingent consideration of up to $2,000 based upon the achievement of specified financial targets. The acquisition closed on May 28, 2021. During the measurement period, certain adjustments were recorded to increase the purchase price to $36,641 and goodwill to $21,026 to account for updated working capital and deferred tax liability calculations.

The Company recorded tangible and intangible assets acquired and liabilities assumed in the transaction according to the acquisition method of accounting, under ASC 805, Business Combinations. The consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of the closing date and are subject to change within the measurement period, which does not exceed twelve months after the closing date. The Company allocated any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. Goodwill arising from the acquisition primarily consists of synergies from integrating the distribution of products through the Company’s existing distribution channels.

The Company may be required to pay additional consideration upon the achievement of a revenue-based earnout. As of the acquisition date, the fair value of the contingent consideration was $2,000.

The acquisition was initially funded using cash consideration of $26,309, rollover equity of $10,025, and contingent consideration of $2,000. During the measurement period, cash consideration increased to $26,616 to account for updated working capital calculations.

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

The allocation of the purchase price for the acquisition is as follows:


Total purchase consideration	$	38,641
Cash and cash equivalents	$	795
Accounts receivable	794
Inventory	2,029
Property and equipment	77
Identifiable intangible assets	17,700
Total identifiable assets acquired	21,395
Accounts payable	1,266
Accrued liabilities	1,218
Other liabilities	586
Deferred income tax liabilities	710
Total liabilities assumed	3,780
Net identifiable assets acquired	17,615
Goodwill	21,026
Net assets acquired	$	38,641

For income tax purposes, a carryover basis in goodwill of $13,616 will be deductible in future periods.

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


	Useful Lives (Years)	Acquired Value
Customer relationships	10	$	14,400
Trade name	6	3,300
Total intangible assets		$	17,700

Other liabilities assumed consisted primarily of warranty reserves and deferred revenue. The long-term warranty reserves are primarily based on historical failure rates, costs to repair or replace the product, and any necessary shipping costs, which are considered to approximate the fair value of the remaining obligation. Deferred revenue was recorded at fair value, resulting in a cumulative balance for the acquisition of $883 in accrued liabilities and $586 in other liabilities.

The Company recognized $197 of transaction-related expenses, consisting primarily of advisory, legal, and other professional fees related to the acquisition. These transaction-related expenses were incurred by and for the benefit of the Company, and were included in selling, general, and administrative expenses in the condensed consolidated statements of operations.

Pro forma financial information related to the Access Networks acquisition has not been provided as it is not material to the Company’s consolidated results of operations. The results of operations of the Access Networks acquisition are included in the Company’s consolidated results of operations from the date of acquisition and were not significant for the three months and six months ended June 25, 2021.

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,

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

hosting, technical support, marketing incentive programs, and subscription services. The following table represents the changes in deferred revenue for the six months ended July 1, 2022, and June 25, 2021:


	Six Months Ended
	July 1, 2022		June 25, 2021
Deferred revenue – beginning of period	$	33,385	$	30,466
Amounts billed, but not recognized	17,686		13,271
Recognition of revenue	(14,907)		(13,592)
Deferred revenue acquired	—		1,469
Deferred revenue – end of period	$	36,164	$	31,614

The Company recorded deferred revenue of $23,613 in accrued liabilities and $12,551 in other liabilities as of July 1, 2022. The Company recorded deferred revenue of $20,944 in accrued liabilities and $12,441 in other liabilities as of December 31, 2021.

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 six months ended July 1, 2022 and June 25, 2021:


	Three Months Ended				Six Months Ended
	July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
United States integrators(a)	$	238,675	$	209,526	$	464,081	$	395,189
United States other(b)	17,814		14,294		31,167		22,709
International(c)	40,416		29,485		79,091		55,875
Total	$	296,905	$	253,305	$	574,339	$	473,773

(a)United States integrators is defined as professional “do-it-for-me” integrator customers who transact with Snap One through a traditional integrator channel and excludes the impact of recently acquired businesses domestically.

(b)United States other is defined as recently acquired entities 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.

The following table sets forth revenue by product type between proprietary products and third-party products for the three months and six months ended July 1, 2022, and June 25, 2021:


	Three Months Ended				Six Months Ended
	July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Proprietary products(a)	$	208,196	$	180,418	$	395,993	$	332,455
Third-party products(b)	88,709		72,887		178,346		141,318
Total	$	296,905	$	253,305	$	574,339	$	473,773

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

(b)Third-party products consist of product that Snap One distributes but to which Snap One does not own the intellectual property.

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

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 six months ended July 1, 2022, and June 25, 2021:


	Three Months Ended				Six Months Ended
	July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Products transferred at a point in time	$	289,279	$	245,776	$	559,432	$	460,181
Services transferred over time	7,626		7,529		14,907		13,592
Total	$	296,905	$	253,305	$	574,339	$	473,773

As of July 1, 2022, and December 31, 2021, the Company’s accounts receivable, net consisted of the following:


	July 1, 2022		December 31, 2021
Accounts receivable	$	61,459	$	55,088
Allowance for doubtful accounts	(2,287)		(2,468)
Accounts receivable, net	$	59,172	$	52,620

5.Inventories, Net

As of July 1, 2022, and December 31, 2021, the Company’s inventory consisted of the following:


	July 1, 2022		December 31, 2021
Finished goods	$	272,655	$	210,540
Raw materials	13,228		10,454
Work in process	342		548
Reserve for obsolete and slow-moving inventory	(11,528)		(10,578)
Total inventories, net	$	274,697	$	210,964

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

6.Goodwill and Other Intangible Assets, Net

Goodwill as of July 1, 2022, and December 31, 2021, was $590,199 and $580,761, respectively. Goodwill increased by $9,438 in 2022 due to the acquisition of Staub. During the year ended December 31, 2021, goodwill increased by $21,026 due to the acquisition of Access Networks. See Note 3 of the Notes to the Condensed Consolidated Financial Statements for more information regarding Staub and Access Networks.

As of July 1, 2022, and December 31, 2021, other intangible assets, net, consisted of the following:


		July 1, 2022
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	5 – 25 years	$	521,846	$	(110,117)	$	411,729
Technology	5 – 15 years	95,078		(46,129)		48,949
Trade names – definite	2 – 10 years	59,185		(20,268)		38,917
Trade names – indefinite	indefinite	76,564		—		76,564
Total intangible assets		$	752,673	$	(176,514)	$	576,159


		December 31, 2021
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	5 – 25 years	$	509,162	$	(96,149)	$	413,013
Technology	5 – 15 years	95,078		(38,221)		56,857
Trade names – definite	2 – 10 years	57,660		(16,902)		40,758
Trade names – indefinite	indefinite	76,564		—		76,564
Total intangible assets		$	738,464	$	(151,272)	$	587,192

Total amortization expense for intangible assets for the three months ended July 1, 2022, and June 25, 2021, was $12,581 and $12,079, respectively. Total amortization expense for intangible assets for the six months ended July 1, 2022, and June 25, 2021, was $25,242 and $23,967, respectively. The weighted-average useful life remaining for amortizing definite lived intangible assets was approximately 14.8 years as of July 1, 2022.

As of July 1, 2022, the estimated amortization expense for intangible assets for the next five fiscal years and thereafter are as follows:


Remainder of 2022	$	24,601
2023	48,705
2024	42,204
2025	34,588
2026	34,588
2027 and thereafter	314,909
Total	$	499,595

7.Debt Agreements

On August 4, 2017, the Company’s wholly owned subsidiary, Wirepath LLC (“Borrower”) entered into a credit agreement (as amended from time to time, “Old Credit Agreement”), consisting of a senior secured term loan (“Initial Term Loan”) and a senior secured revolving credit facility (“Old Revolving Credit Facility”). On February 5, 2018, the Borrower repriced the Old Credit Agreement to reduce the margin on the Initial Term Loan and Old Revolving Credit Facility. On October 31, 2018, the Borrower repriced the Initial Term Loan facility to further reduce the margin under the

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

Initial Term Loan, increased the aggregate amount of the Initial Term Loan, and further reduced the margin under the Old Revolving Credit Facility. On August 1, 2019, the Borrower amended the Old Credit Agreement to borrow an additional senior secured term loan (“Incremental Term Loan” and, together with the Initial Term Loan, as amended, “Old Term Loans”) and increased the commitments under the Old Revolving Credit Facility. The Company made fixed equal quarterly installments on the Old Term Loans in an amount equal to 1.0% per annum of the total aggregate principal thereof immediately after borrowing, with balance due at maturity.

On August 4, 2021, the Company used a portion of the net proceeds from the IPO to prepay $216,902 in aggregate of the amount of the Incremental Term Loan outstanding under the Old Credit Agreement. The prepayment consisted of $215,874 in principal plus accrued interest of $1,028. In connection with the prepayment, the Company incurred a charge of $6,645 related to the write off of the proportionate amount of the unamortized debt issuance costs at the time of the prepayment which was recorded in loss on extinguishment of debt on the Company’s consolidated statement of operations. The unamortized debt issuance costs are allocated between the remaining original loan balance and the portion of the loan paid down on a pro-rata basis.

On December 8, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with various financial institutions consisting of a $465,000 in aggregate principal amount of senior secured term loans maturing in seven years (the “New Term Loan”) and a $100,000 senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) maturing in five years (the “New Revolving Credit Facility”).

In connection with the closing of the Credit Agreement, the Company repaid in full approximately $451,400 of borrowings, including accrued interest, under the Old Credit Agreement. The Old Term Loans and Old Revolving Credit Facility and related agreements and documents under the Old Credit Agreement were terminated upon the effectiveness of the Credit Agreement.

Borrowings under the New 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 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 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 New 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, 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; provided such rate is not lower than a floor of zero. As of July 1, 2022, the interest rates for the New Term Loan and the New Revolving Credit Facility were 5.00%.

The New Term Loan amortizes in fixed equal quarterly installments in an amount equal to 1.0% 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 principal amounts outstanding under the Credit Agreement as of July 1, 2022 and December 31, 2021 were as follows:


Instrument	Maturity Date	7/1/2022		12/31/2021
Credit Agreement
New Term Loan	12/8/2028	$	463,837	$	465,000
New Revolving Credit Facility	12/8/2026	$	47,000	$	—

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

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 July 1, 2022, the Company had $47,000 outstanding under the New Revolving Credit Facility. As of December 31, 2021, the Company had no borrowings outstanding under the New Revolving Credit Facility. As of July 1, 2022 and December 31, 2021, the Company had $5,254 and $4,894 of outstanding letters of credit. The amount available under the New Revolving Credit Facility was $47,746 and $95,106 as of July 1, 2022, and December 31, 2021, respectively.

As of July 1, 2022, the future scheduled maturities of the above notes payable are as follows:


Remainder of 2022	$	2,325
2023	4,650
2024	3,488
2025	4,650
2026	51,650
2027	5,813
Thereafter	438,262
Total future maturities of debt	510,838
Unamortized debt issuance costs	(12,841)
Total indebtedness	497,997
Less: Current maturities of long-term debt	4,650
Long-term debt and revolving credit facility	$	493,347

Unamortized costs related to the issuance of the New Term Loan were $11,488 and $12,256 as of July 1, 2022, and December 31, 2021, and were presented as a direct deduction from the carrying amount of long-term debt. Unamortized costs related to the issuance of the New Revolving Credit Facility were $1,353 as of July 1, 2022, and were presented as a direct deduction from the carrying amount of the revolving credit facility. As of December 31, 2021, unamortized costs related to the issuance of the New Revolving Credit Facility were $1,506 and were included in other assets. The costs related to debt issuances are amortized to interest expense over the life of the related debt. As of July 1, 2022, the future amortization of debt issuance costs was as follows:


Remainder of 2022	$	937
2023	1,925
2024	1,993
2025	2,066
2026	2,123
2027	1,918
Thereafter	1,879
Total	$	12,841

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 July 1, 2022, and December 31, 2021. 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 31, 2021, in the Annual Report.

Snap One Holdings Corp. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(Unaudited)

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 July 1, 2022				As of December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Notes receivable, net	$	1,503	$	1,503	$	6,484	$	6,764
Liabilities
New Term Loan	$	463,837	$	426,731	$	465,000	$	462,675

The fair value of notes receivable are estimated using a discounted cash flow analysis using interest rates currently offered for loans with similar credit quality which represent Level 2 inputs, and are included in other assets and other current assets on the balance sheet. 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 second quarter of 2022, the Company increased its provision for credit losses to $5,872, representing a portion of the principal and accrued interest due to the Company under its unsecured loan to Clare Controls, LLC (“Clare”). The Company evaluated the expected credit losses for the Clare notes receivable as of July 1, 2022, in consideration of internal and external sources which may affect Clare’s ability to repay the loans upon maturity, including the Company’s acquisition of Clare subsequent to fiscal second quarter end. In connection with the transaction, certain credit obligations owed by Clare to third-parties were forgiven or settled at reduced rates. During the three months and the six months ended July 1, 2022, the Company has recorded a provision for credit loss of $5,872 on assets measured at fair value on a nonrecurring basis. The provision for credit losses was derived using Level 3 inputs and was primarily driven by a revised yield and credit rating analysis. The provision for credit losses is included in selling, general and administrative expenses on the condensed consolidated statement of operations for the three and six months ended July 1, 2022.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis — 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

July 1, 2022

Valuation Technique

Unobservable

Input

Volatility

Contingent Value Rights

$2,825

Monte Carlo

Volatility

50 and 60%

Changes in the CVRs for the six months ended July 1, 2022, and June 25, 2021 were as follows:


	July 1, 2022		June 25, 2021
CVR fair value – beginning of period	$	8,900	$	4,000
Fair value adjustments	(6,075)		2,840
CVR fair value – end of period	$	2,825	$	6,840

The fair value of the contingent consideration liability related to the Access Networks acquisition was based on unobservable inputs, including management estimates and assumptions about future revenues, and is, therefore, classified

Snap One Holdings Corp. and Subsidiaries