VOXX International Q3 2024 Earnings Call Transcript

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January 10, 2024

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Vauxhall International Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

You will then hear an automatic message advised when your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Mr. Glenn Munoz. Please go ahead.

Speaker 1

Thank you, Olivia. Good morning, and welcome to Box International's fiscal 2024 Q3 9 month results conference call. Yesterday, we filed our Form 10 Q and we issued our press release and both documents can be found in the Investor Relations section of the website

Speaker 2

atwww.voxintl.com,

Speaker 1

and we expect to post an updated investor presentation later this week. Speaking from management today will be Pat Lavelle, Chief Executive Officer, who is currently out in Las Vegas attending the 2024 Consumer Electronics Show And Michael Storz, Senior Vice President and Chief Financial Officer. Their remarks will be followed by question and answers. As for today, I would like to remind everyone that except for historical information contained herein, statements made on today's call and webcast that would constitute forward looking statements Based on currently available information, the company assumes no responsibility to update any such forward looking statements, and I'd like you To point you to the risk factors associated with our business, which are detailed in our Form 10 ks for the period ended February 28, 2023. Thank you for your continued support.

Speaker 1

And I would like to now turn the call over to Pat.

Speaker 2

Thank you, Glenn, and good morning, everyone. Let me start off by wishing you all a happy and healthy New Year. As Glenn said, I'm out with our team at CES and the show kicked off Yesterday, it's early, but the response to our new lineup and the various projects that we have in development has been very positive, And I'm expecting more of the same over the next few days. 2023 has been tough for everyone, not just VOXX. Our entire industry has had a very challenging year.

Speaker 2

And we're certainly happy to be turning the page. The global economy remains challenging, and we're doing all that we can to navigate through those challenges, focusing on 3 primary areas: Protecting and growing sales in both the short and long term, improving gross margins through supply chain and internal efficiencies And lowering both our fixed and variable expenses. During the quarter, we were successful Achieving 2 of these three objectives, as our gross margins grew by 90 basis points and our operating expenses improved by a little over 2%. Sales declined roughly 5.4 percent with consumer up and automotive down. But overall, operating income was the same as the prior year.

Speaker 2

Mike will provide more financial details during his remarks and I'll focus on the segments, what's happening and what we expect to close out the year And as we move into fiscal 2025. So let me start with consumer as we have a lot of news to report. Consumer sales came were up over 6% in Q3, with Premium Audio the driver. This is a big positive for us as the segment has been on the decline since the big bump that we had from COVID. We made a lot of changes and investments and they're starting to pay off as evidenced by the growth this quarter amidst very challenging global economic environments.

Speaker 2

Within premium audio, we saw good growth in North America market in Q3, driven by home speakers, Wireless speaker systems and our new lines of party speaker systems. Europe was up as well, But our APAC sales declined as the market continues to be hard pressed. Overall, our premium audio business had a strong quarter, with a number of new products on the horizon in new and rapidly growing categories. Looking at the recent NPD report For November, industry wide speaker sales were down approximately 17%, but we were only down 9%. ABR sales were down 15% and we were down 14%.

Speaker 2

The takeaway is somewhat positive. While our premium audio sales are down To date, we are growing our market share, especially domestically and the new products and the new categories that we introduced here at the show and those that We'll launch in the early part of next year should help drive future growth into fiscal 2025. Here at CES, we had a complete lineup on display under all of our audio brands. And as I mentioned last quarter, We have developed a completely new soundbar offering and had a number of new products on display, some of which have launched With others to be launched early this year, our big announcement was the all new Klipsch Flexus sound system powered by Ankyo. This is the first product that combines the strength of Klipsch's acoustics with Onkyo's electronic technology.

Speaker 2

It officially comes to market this year and we have high host for this product as do our customers. I also talked on prior calls About our new party speakers, our Gig series, which was introduced in September in time for the holiday season, And it has done very well and has helped to offset weakness in other areas. Party speakers are one of the hottest categories in the industry. It is competitive, but the market is open. We have great products slated for launch in the coming months.

Speaker 2

Here at CES, we unveiled our new Klipsch Gig Series. One product, the Gig Max, is the 1st party speaker that will be introduced with Klipsch's legendary horn loaded technology that we have been perfecting since 1946. These are powerful portable speakers, top of the line products that deliver Klipsch's heritage sound. Another highlight was the launch of our new Klipsch Music City Portable Bluetooth Speakers. We unveiled 3 new models, The Klipsch Austin, the Klipsch Nashville and the Klipsch Detroit, with the Detroit being the premier model and the biggest in our Music City series.

Speaker 2

These speakers, along with other compatible Klipsch models, feature the innovative Klipsch broadcast mode, which allows you to connect up to 100 speakers at once to create a fully immersive listening experience And also some big news on Monday with respect to Klipsch and the Panasonic Automotive Collaboration that we've had for a number of years. Panasonic Automotive Systems Company of America and Infinity jointly announced on Monday the partnership between our companies. The all new and flagship 2025 Infiniti QX80 will feature the premium Klipsch Reference Premier Audio System Powered by Panasonic. The car with our speaker system is being featured here at CES in Panasonic's booth And the vehicle is set to debut later this spring. It has 24 specifically designed speakers, titanium tweeters, A high performance subwoofer, roof mounted speakers and Panasonic's proprietary DJX 3 d surround sound processing.

Speaker 2

This adds to our program that we announced last year on the Dodge EV Ram Truck. As for other CE products, sales were essentially flat with last year. We saw growth in sales of our recently launched RCA hearing aids products With some other puts and takes between the categories, year to date, other CE sales are up approximately 21% And while we expect some softness near term due to the overall environment, we have strong share and a diverse customer base and we expect to see growth in some of the newer categories to help combat this. The big launch at CES for our accessory group With the new hearing aids under RCA, we launched 4 new products to expand our presence in this category. We also unveiled the new wireless HDMI signal senders under the Turk brand, which connects devices to TVs and enables streaming content without cables.

Speaker 2

As well, we have additional other products under our RCA, Turk and AR Brands. Moving on to automotive, we had some challenges in Q3 as our OEM business was almost cut in half As we and our customers felt the impact of the UAW strike. As always, we base plans on our customer forecast, which obviously were not met When production lines were either impacted or completely shut down. With the strike now behind us, We expect to see the automotive business begin to normalize. With the contracts that we have been awarded, We should be in a position of growth.

Speaker 2

However, with the general economy slowing based on the Fed's moves to date and car prices at all time highs, We anticipate some near term softness. During the quarter, automotive sales were down 26% With the miss in OEM, as I just mentioned, and primarily in rear seat entertainment, which are the biggest programs for our OEM business. Business with Ford and Stellantis were both down due to the UAW strike With Nissan sales also down. VSM sales were up slightly given the volume of programs in the heavy duty truck market And the new lighting programs previously awarded. We have a lot of OEM business in front of us, but with all of the supply chain and production issues over the past A year or 2, it has been challenging and we are mitigating higher costs and improving our margins where we can.

Speaker 2

Our aftermarket business was down approximately $3,500,000 The general economy and the slowdown due to lower inventories at new car dealers impacted sales across most categories with some up and others down. For the year, the automotive segment sales Are off about 12.5 percent and Q4 is going to be tough based on the current conditions, though again some loosening on the OEM side with strike behind us. And as we move into fiscal 2025 and in the years that follow, we have significant opportunities for value creation Through the programs that we've been awarded and the ones that we're working on, which will give us new business opportunities to build our future pipeline. As for biometrics, sales come in less than anticipated, mostly due to a low in implementation. All of the projects that I had mentioned previously are still in motion.

Speaker 2

Nothing has changed. But during the quarter, we experienced very little progression in terms of rollouts. It was more testing, discussions and planning. We should see sequential improvements in Q4 And assuming all moves as planned, some nice growth in 2025. My comments from Q2 remain.

Speaker 2

Projects with governments, financial service companies, healthcare companies, car dealerships and more continue We hope to have more to report in the coming quarters as these programs build. To sum it up, our Sales were down in Q3, but operating income remained flat with the improvements we made to our business, resulting in better gross margins and lower expenses. As we look into Q4 and the first half of calendar twenty twenty four, we believe it's going to be tight. Look at what's happening now. Interest rates almost all time highs and that impacts not only consumers, but our customers as well.

Speaker 2

Credit card debt is very high. Government subsidies from the pandemic are over. After a decent holiday season and All of these challenges, we feel the economy is slowing. And therefore, we expect the next few months may be soft and we're going to continue to be diligent in managing our costs. However, these are the same conditions And also get the Fed to start cutting rates and stimulating the economy, and that will be good for consumers and for Box.

Speaker 2

The new launch of products, especially within the consumer segment, should help offset some of the economic softness And the steps to reduce overhead that have taken place should materialize further in the Q4 and throughout next year. Margin should also increase given the new products and programs underway and those launching this year. We are in constant communication with our customers. We're managing our inventory tightly, and we're looking at all aspects of our business to get back to profitability. With that, I'd like to thank you.

Speaker 2

And then I'll turn the call over to Mike, and then we'll open it up for questions. Michael?

Speaker 3

Thanks, Pat, and good morning, everyone. I'll primarily cover our 9 month results and balance sheet, but first a few comments with respect to the 3rd quarter. As Pat mentioned, net sales were down 5.4%, gross margins grew by 90 basis points And operating expenses declined 2.1%. This resulted in operating income for both fiscal 2024 and fiscal 2023 3rd quarters of $2,300,000 Net income attributable to Box was $1,900,000 declined by approximately $5,500,000 This was principally due to a $4,000,000 income tax benefit recorded in the prior fiscal year period compared to an expense of $100,000 The additional variance was in other income and expense. We reported total other expense of 1,400,000 versus total other income of $36,000 in the comparable period prior period.

Speaker 3

Additionally, EBITDA was $6,500,000 Compared to $7,700,000 and adjusted EBITDA was $8,000,000 compared to 9,000,000 As for the 9 month comparisons, all numbers are for the periods ended November 30, 2023 November 30, 2022. We reported 9 month sales of $360,800,000 a decline of $36,700,000 or 9.2 percent. Within this, Automotive segment sales were down $15,600,000 with OEM product sales down $4,600,000 And aftermarket product sales down $11,100,000 Consumer segment sales were down $19,700,000 with premium audio product sales Down $31,900,000 and other CE product sales up by $12,200,000 Biometric sales declined by approximately 300,000. Sales are down for the year and will continue to see some pressure in Q4 consistent with Pat's remarks. Our Automotive business was impacted by the strike and customer production lines and we're hoping we'll see some more normalization in the coming quarters.

Speaker 3

Retail is tight, but we're starting to turn the corner with new products in premium audio and our accessory products. Those other CE products have held up well this year with solar powered balcony products, wireless speakers and hearing aids helping to offset Economic and consumer softness. We continue to take steps to improve our gross margins, which were up 170 basis points sequentially and up 50 basis points year to date. For the 9 month period comparisons, gross margins came in at 25.6% as compared 25.1 percent with Automotive segment margins down 20 basis points and Consumer segment margins up 70 basis points. Over time, we expect automotive margins to improve with the relocation of manufacturing to Mexico, price increases and other steps we've taken to enhance our supply chain and lower costs.

Speaker 3

However, we need production to catch up. Consumer segment margins continue to improve sequentially and again new products should help continue to drive improvements if we maintain volume and of course depending on product mix and customer programs. Total operating expenses For the 9 month comparisons were $110,200,000 as compared to $114,000,000 an improvement of $3,800,000 or 3.3%. Excluding acquisition and restructuring costs, total operating expenses improved by $5,300,000 or 4.7%. We're continuing to look at all aspects of our operations to remove non essential costs and are looking to lower our overhead further in light of the ongoing economic softness.

Speaker 3

We're tightly managing expenses, inventory and our cash. Selling expenses declined $3,400,000 an improvement of 9.6% versus the prior year. G and A expenses declined $1,300,000 an improvement of 2.4 percent and engineering and technical Board expenses declined by approximately $600,000 an improvement of 2.5%. We had restructuring costs of approximately $200,000 related to our restructuring and manufacturing relocation programs in fiscal 2024 year to date. This compares to approximately $500,000 of restructuring costs $100,000 of acquisition costs In fiscal 2023, 9 month period, we reported an operating loss of $17,700,000 Compared to an operating loss of $14,300,000 principally due to lower sales volume.

Speaker 3

Net loss attributable to Box was $19,900,000 compared to a net loss of $9,300,000 EBITDA for fiscal 2024 9 month period Was a loss of $6,500,000 and adjusted EBITDA was $3,000,000 This compares to an EBITDA loss in comparable fiscal 20 23 9 month period of $3,200,000 and an adjusted EBITDA of $5,600,000 Moving on to the balance sheet. As of November 30, we had cash and cash equivalents of $10,400,000 which compares $6,100,000 as of our fiscal 2023 year end on February 28. Cash and cash equivalents stood at 5 $900,000 at the end of our fiscal 2024 Second Quarter Ended August 31st. Our accounts receivable increased by 8,900,000 As we're in the higher volume holiday season, our inventory declined by $28,900,000 for the 9 months as we're moving through all the product lines. We still have inventory on hand to move through and we're focused on that given the launch is underway and upcoming, especially in our consumer segment.

Speaker 3

As I noted during our last quarterly call, we expect inventories Continued decline as we move through the 4th and 1st quarters. Total debt stood at $48,600,000 As compared to $39,200,000 as of February 28. The increase of $9,400,000 Relates to $10,000,000 increase in our borrowings associated with our domestic credit line, partially offset By a $400,000 decline to our Florida mortgage and a $200,000 decline in the amount owed on the shareholder loan payable to Sharp as part of our joint venture. Total long term debt, net of debt issuance cost was 47,100,000 As compared to $37,500,000 as of February 28. As noted, the increase in total debt relates to the increase This is typical during the Q3 as our sales and receivables increased than normally collected during the Q4.

Speaker 3

This will be the case. During the Q4, we'll be using our credit facility to support the final arbitration settlement, Which was announced earlier this month. As reported, we entered into a settlement agreement and mutual release with CGuard With an effective date of today, January 10. We have agreed to pay CGuard $42,000,000 in total, Of which a payment of $10,000,000 was already made on December 27, and the final payment of $32,000,000 will be made today. While we're not happy with the ruling, we feel it is our best interest as well as our shareholders to move forward And focus on our business and stop accruing interest and legal fees, which continue to mount.

Speaker 3

With the banking relationships in place And the cash availability we have, the payment will be made and we have sufficient working capital to fund our business moving forward. Of course, we're hopeful that market conditions improve sooner rather than later and we can get back to cash flow generation and profitability. Operator, we're now ready to open the call for questions.

Speaker 2

Thank you,

Operator

And there appear to be no questions in the queue at this time. I'll turn the call back over to Mr. Pat LaBelle.

Speaker 2

Okay. Thank you. I want to thank you for taking the time to join us this morning. I look forward to 2024 with enthusiasm as new product Has always been the lifeline and the key to our growth, and we have a lot of new products scheduled for next year. So with that, thank you and have a great day.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
VOXX International Q3 2024
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