Control4 (CTRL) Shares Plummet on Weak Q1 for Home Automation Sales
Control4 (Nasdaq: CTRL), a leading provider of home automation systems, blames disappointing Q1 2015 on weather and operational challenges, not on losing business to competitors.
Control4 (Nasdaq: CTRL), the only publicly traded pure-play home automation manufacturer, had a pretty disappointing Q1 2015, with revenues of $32.1 million ($31.8 million for its core business), down 22% from the previous quarter (19% for core business) and flat from the same quarter one year ago.
Wall Street reacted pretty decisively to the May 1 news, sending CTRL stock down 18.4% for the day to an all-time low of $9.56. The stock has since traded below $9. The 52-week high for CTRL is $20.20.
Most disappointing, perhaps, is that the shipment of Control4 smart home hubs fell almost 38% to 19,931 units in Q1 2015 compared to 22,737 in the previous quarter. The number of controller shipments in Q1 slipped 14% from the year-ago quarter.
The gist of the Control4 earnings call (transcript) regarding the Q1 shortfall is this: It was a fluke, affected by poor weather that delayed construction projects, as well as operational challenges that stalled product shipments in Q1.
Control4 (Nasdaq: CTRL) quarterly report for Q1 2015
Q1 Operational Challenges
Control4 unleashed several important new products in February at Integrated Systems Europe (ISE), including new touchscreens (with video intercom), remote controls, a thermostat and new features associated with its new OS 2.7 platform.
“Within 36 hours of availability, more than 3,000 homes had been updated to OS 2.7 software by more than 1,200 dealers,” said Control4 CEO Martin Plaehn during the earnings call last week. “And from there, adoption continued. As of last Saturday, April 25, more than 14,000 homes confirmed via our cloud infrastructure to be running OS 2.7.”
The anecdotal reviews from dealers so far have been positive.
“Everything is working good so far. Its FAST!!!” remarked one dealer on RemoteCentral.com in March. “Cant wait for the new TOYS to ship out also.”
“Agreed. 2.7 is very nice,” wrote another. “IP control of Directv, AppleTV, and Marantz is silky smooth.”
Yet another dealer summed up the sentiment nicely: “C4 has had time to really become a polished solution. Once consumers see the value, it sells itself….Trust me, it HASNT always been like this.”
So a key problem for Control4 in Q1, according to Plaehn, is that demand for legacy products slipped when the new solutions were announced. Meanwhile, the company was not quick enough to deliver the newer products. Plaehn remarked in the earnings call:
Accordingly, we were unable to fulfill all new product orders by March 31, which resulted in a significant and unusual backlog of unfulfilled orders at quarter end, consisting primarily of our new 7-inch and 10-inch Android-based In-Wall Touch panels with an approximate revenue value of $1.5 million.
Speaking with CE Pro after the earnings call, Control4 VP of marketing Susan Cashen reiterated Plaehn’s comments that April’s orders are “altogether different” than in Q1 and that several of the new products announced in earlier this year will ship this quarter.
A seven-inch touchscreen and a suite of new 4K HDMI switchers (from Leaf) are among the new products to be released in this quarter.
“Based on these dealers and discussions, we believe from a strategic perspective that our business opportunities in the first quarter were not lost to a competitor.”
Martin Plaehn, Control4 CEO
Even so, the Q1 shortcoming was so dramatic that Control4 doesn’t expect to make it up by year-end. The company, therefore, reduced its growth outlook for the year to 10% to 15% revenue growth, below a 16% consensus and prior guidance of 16% to 20%.
Q2 2015 guidance is healthier: Revenue of $41 million to $44 million and EPS of $0.10-$0.17 vs. a consensus of $41.9 million and $0.15.
During the earnings call, Plaehn spoke about his conversations with dealers and Control4 sales managers this past quarter and said he feels confident about the state of the residential integration business, and especially Control4’s position in the industry.
The conversations “reinforced our perspective that seasonal cyclicality, fluctuations in new project flow, as well as weather-related and construction-related delays specifically in the East and Central regions of North America impacted our Q1 business,” Plaehn said. “Based on these dealers and discussions, we believe from a strategic perspective that our business opportunities in the first quarter were not lost to a competitor.”
Consumer Marketing to Drive Business to Dealers
Exacerbating the Q1 slowdown, according to Plaehn, is the fact that Control4 pulled back on end-consumer marketing for the quarter as the company focused on launching the new products.
Moving forward, however, Control4 plans extensive outreach to consumers, as well as allied trades including home builders.
In April, for example, Control4 hosted a live online presentation for consumers that drew some 5,000 registrants.
“This was our first installment of a direct consumer marketing program,” Plaehn said, adding that Control4 has staffed a new in-house telemarketing team to generate and qualify leads before sending them to dealers.
VP marketing Susan Cashen said it will be a top priority for Control4 to deliver “really qualified consumers to dealers’ doors.”
She explains, “How can marketing drive dealer business apart from supporting the business?
She said the metrics from the live online event – opt-in rates, email open rates, call-ins, for example—indicated a “high level of engagement” among consumers.
And at this point, Plaehn reminded listeners that fulfillment is done by 2,600 North American independent dealers, and that Control4 itself does not sell direct to consumer.
Cashen noted that Control4 continues to recruit dealers without “flooding the market,” especially in several “under-penetrated markets where we need more professionals to meet demand.”
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Julie Jacobson, recipient of the 2014 CEA TechHome Leadership Award, is co-founder of EH Publishing, producer of CE Pro, Electronic House, Commercial Integrator, Security Sales and other leading technology publications. She currently spends most of her time writing for CE Pro in the areas of home automation, security, networked A/V and the business of home systems integration. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, earned an MBA from the University of Texas at Austin, and has never taken a journalism class in her life. She's a washed-up Ultimate Frisbee player currently residing in Carlsbad, Calif. Email Julie at [email protected]