VOXX International Corp (VOXX) Q3 2021 Earnings Call Transcript

VOXX International Corp  (NASDAQ: VOXX) Q3 2021 earnings call dated Jan. 12, 2021

Corporate Participants:

Glenn Wiener — Investor Relations

Patrick M. Lavelle — President and Chief Executive Officer

C. Michael Stoehr — Senior Vice President and Chief Financial Officer

Analysts:

Beat Kahli — Kahli Holdings — Analyst

John J. Shalam — Chairman of the Board

Dave Covas — Oberweis Asset — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to VOXX International Fiscal 2021 Third Quarter Results Call. [Operator Instructions]

I will now hand the conference to your speaker today, Mr. Glenn Wiener with Investor Relations. Thank you. Please go ahead.

Glenn Wiener — Investor Relations

Thank you, Carmen. Good morning and welcome to VOXX International’s fiscal 2021 third quarter conference call. Our Form 10-Q was filed with the SEC and we issued our press release after close market — after market close yesterday afternoon. Both documents can be found on the IR section of our website as can our updated investor presentation. Speaking from management today will be Pat Lavelle, President and CEO; and Michael Stoehr, Senior Vice President and Chief Financial Officer. Both will have prepared remarks and we will then open up the call for questions. Our Chairman and Founder, John Shalam is also available for questions.

Note, our call is being webcast live over the Internet and a replay will be available approximately one hour after the completion of the call. 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 are based on currently available information. The Company assumes no responsibility to update any such forward-looking statements. And I would like to point you to the risk factors associated with our business, which are detailed in our Form 10-K for the period ended February 29, 2020.

Usually we’re here in Las Vegas with this call at CES. But given the pandemic, the show has gone virtual this year. And VOXX has had a very large show presence. We are pleased announce that Paul Jacobs [Phonetic], President of the Premium Audio Group, and Pat Lavelle, President and CEO of VOXX will be hosting its keynote sessions as part of CTA’s spotlight service. Paul will be today at 3.15 PM and Pat will be tomorrow at the same time and that can concurs all investors, analysts, bankers, all — anyone joining us today to listen in. You’ll learn a lot about trends in the industry and some of the new products we have coming to market.

You also visit the VOXX virtual group for more information on the Company and our product launches for 2021. If you have any questions, also, please feel free to contact me directly at any time. In closing, Company’s business momentum continues and its outlook remains strong.

At this time, I’ll turn the call over to Pat now to discuss the results and prospects. Pat?

Patrick M. Lavelle — President and Chief Executive Officer

Thank you, Glenn. Good morning, everyone. Let me start off by wishing you all a happy and healthy New Year and all the best in 2021. Our fiscal 2021 third quarter and nine months results are up substantially over the last year. There is a lot of momentum behind us which should carry through into the fourth quarter and barring any unforeseen events should continue thereafter. Third quarter net sales were up over $90 million or approximately 83%. All segments posted year-over-year increases with consumer segment, up 74%; the Automotive segment, up 105%; and the Biometrics segment, up 149%. Premium Audio continues to be very strong for us as sales more than doubled year-over-year, up approximately 112%.

And we reported an increase in both OEM and aftermarket product sales within the Automotive segment. Operating income of $18.6 million was up $18.4 million. And adjusted EBITDA of $24.5 million was up $18.7 million. Mike is going to cover our nine month comparisons, but to quickly put fiscal 2021 in perspective, sales were up 36.5% and adjusted EBITDA of $35.1 million improved by over $31 million. Our balance sheet remains in good shape and our cash position will increase this quarter as we move through inventory and accounts receivable.

There are so many positive things happening at VOXX, we are very encouraged. At the same time, we are mindful about the global environment as the pandemic continues. We are running our business with this in mind. Nevertheless, in spite of all that we have faced, we have been able to move quickly, adjust overhead and grow and are poised to have one of the strongest years from an EBITDA perspective.

I’ll jump into some of the segments for key updates now, but starting with Consumer Electronics. On my last quarter — on last call, last quarter, I said that we expected to see Premium Audio product sales grow by over $100 million this fiscal year. And through the first nine months, we are up over $88 million or close to 70%. Even with retail store closures throughout the year, our third quarter sales grew by approximately 112% and we’re expecting strong growth in the fourth quarter, and thus my prior comments stands.

During the third quarter, we saw very strong growth in the home separates category, sales of home theater and sub woofers in particular, driven by new distribution as well as within our traditional channels. We also experienced strong growth in sales of soundbars, bluetooth products and our pro media computer speakers.

More people are working from home and staying at home, which has led to an increase spending to upgrade home audio and entertainment. We also saw a modest increase in international sales driven by our Magnat and Heco brands and captured our first sales associated with our new alliance with Onkyo and Pioneer Corporation, with our first shipments beginning in September. This will continue to build as we started bringing in inventory in our fiscal third quarter. Demand is increasing, distribution is expanding, and our product assortment continues to improve. The Consumer Electronics segment as a whole delivered pre-tax profits of $20.4 million in the fiscal 2021 third quarter compared to $9.6 million in the same fiscal 2020 period.

Within our automotive segment, net sales were up $31.5 million or over 105% for the comparable third quarter with increases in both OEM and aftermarket products. Our acquisitions of VSM and DEI certainly have contributed to our success and are expected to continue moving forward. The automotive industry as a whole has suffered this year due to COVID with OEMs shutting down plants, retailers and aftermarket dealers closing stores, and an overall softness in car sets. But they have rebounded somewhat and we have weathered the industry downturn and are excited with our outlook based on the contracts we have been awarded and those that we’re pursuing. The new OEM programs with Fiat Chrysler and Ford for our EVO rear seat entertainment system with Amazon’s Fire TV start this calendar year sometime in our fiscal 2022 second quarter.

These are the two big ones for us and there are several other discussions underway with both existing OEM customers and new ones. We also announced last quarter new OEM awards that VSM secured with Volvo, Polaris and Subaru, all of which are multi-year awards with varying start dates in calendar year ’21, ’22, ’23. ASA, our 50:50 joint venture had a strong quarter as well, driven by stronger results in the RV and heavy duty markets, and we delivered $1.8 million in income this past quarter versus $1 million in fiscal 2020 third quarter. We had some slowness, if you recall, in the early part of the fiscal year, but this appears to be behind us.

Our Automotive segment delivered pre-tax profits of $6.6 million in fiscal 2021 third quarter versus approximately $100,000 in fiscal 2020. And when you layer in our core business with the contributions from VSM and DEI and the new incremental OEM business we have secured, the future looks promising. And I see no reason why our automotive business would not double from fiscal 2020 within the next three years or sooner.

As for the biometric segment, there aren’t a lot of material updates to provide right now, but there has been momentum. Sales continued to increase modestly on a dollar basis, up approximately $200,000 in comparable third quarters, but interest is growing in iris authentication throughout many industries given its higher level security and due to the barriers that other modalities such as facial and fingerprints are facing. We are in discussions with a number of parties for both products and embedded solutions. We entered into new alliances this fiscal year, which I talked about on my prior calls and introduced new products, the latest being our nano iXT which has temperature screening, mask detection and access blocks built in. This is a perfect solution for companies in today’s environments. As you all know from the past it does take time to move from launch, data to deals, but we are encouraged by the level of interest and feedback.

I’m happy to note that we have concluded negotiations and are in signature process with the healthcare medical supplier we have discussed in the past. We are moving full steam ahead to launch and we will embed into their systems. And this contract, we believe validates the level of security and ease of use of EyeLock’s technology within the healthcare space.

We are also making progress with respect to the strategic process for EyeLock. We signed a non-binding indication of interest with our largest shareholder, Beat Kahli and related parties. And due diligence is underway, technical due diligence is completed. The consortium is put together, runs the gamut of commercial and residential real estate, healthcare and automotive companies. We are hopeful for a positive outcome, but of course, there are no guarantees. If this does materialize in the structure we’re discussing, it will bring to VOXX a strong financing partner while keeping VOXX in the game to capture the upside we have always believed was there.

To summarize, we are growing and expect this will continue. Profitability has increased significantly and we are poised to one of the best years from a bottom line perspective. Our Premium Audio and automotive businesses are doing very well with more opportunities on the horizon and biometric holds great promise for us. Our balance sheet is strong. We have cash on hand and access to capital, and we are looking to acquire if the transaction improves our business and generates value for shareholders. We set up a 10b5 program to repurchase shares, but the stock has not fallen below $10, thus no shares were repurchased in the third quarter, but we will continue to support our stock and we will evaluate the best structure to do so moving forward. We have always believed that the best stock support was for the company to deliver profits, and we are showing that right now.

All in all, the team has done a great job and I am very proud of them. It has not been easy with most of the staff working remotely and operating our Company has been far from normal. I thank them and I congratulate them for their efforts and these results. We have a lot of opportunities ahead of us, and I believe that our success this year is a precursor and that future years hold the promise to be even better.

At this time, I’ll turn the call over to Mike and then we’ll open it up for questions. Michael.

C. Michael Stoehr — Senior Vice President and Chief Financial Officer

Thanks, Pat. I also would like to wish you all a Happy New Year and better days ahead in 2021. As Pat covered our third quarter comparisons, I will address our nine month year-to-date results and all figures off of the fiscal 2021 and fiscal 2020 nine months ended November 30, 2020 and November 30, 2019 unless noted otherwise. I’ll then cover our balance sheet and we’ll open up the call for questions.

Starting with the income statement. We reported net sales of $401.1 million compared to $293.8 million, up $107.3 million or 36.5%. All segments reported year-over-year growth. Automotive Electronics segment sales increased $24.9 million or 28.8%. OEM product sales were down 13% as several customers had shut down their plants earlier in the year due to COVID. As Pat noted, quarter 3 sales for OEM products were up and with new programs coming online, we are anticipating OEM growth in the fourth quarter and moving forward. Aftermarket product sales increased over 60%. This was driven primarily by acquisitions of VSM and DEI subsidiaries. The first of which occurred in fiscal 2020 fourth quarter and the other in the second quarter of fiscal 2021.

Consumer Electronics segment sales increased $81.9 million or 39.7%. Driving this growth was higher sales of Premium Audio products which were up close to 70%. We reported $216.5 million in Premium Audio product sales, which is the highest total in our history and we are only nine months from fiscal year. Other CE product sales declined by over 8%, mainly driven by our decision to exit certain categories and product lines. Lastly, the Biometric segment reported $700,000 in net sales compared to $400,000 in the comparable fiscal 2020 period.

Fiscal 2021 year-to-date gross margins of 29% increased 130 basis points. Within this segments automotive posted a 180 basis point improvement. Keep in mind our first half of the year was negatively impacted by a lower automotive sales due to OEM shutdowns, which led to lower absorption rates. Consumer generated 70 basis point improvement and gross margins for Biometrics were up slightly with virtually no impact to the P&L. Total operating expenses in fiscal 2021 year-to-date were $96.8 million, up approximately $840,000 or just under 1%. As many know from past results and calls we have taken steps to lower fixed overhead and cut back on non-core expenses during the pandemic. In the fiscal 2021 third quarter some of these expenses did come back as planned, primarily related to payroll and headcount.

As a result of our sales increase, we had higher commission and website expenses related to e-commerce activities. Additionally, acquisitions of VSM and DEI added approximately $9.4 million in total operating expenses for the nine-month period in fiscal 2021. Excluding acquisitions related expenses, other operating expenses declined by $8.5 million or 8.9%. We reported operating income of $19.4 million versus an operating loss of $14.7 million, this is a $34.1 million year-over-year improvement year-to-date, primarily due to significant sales increases and higher gross profits. We reported total other income of $2.2 million for the nine-month period in fiscal 2021, compared to $7.7 million in the comparable fiscal 2020 period. While interest and bank charges declined by approximately $300,000 and we had an $800,000 increase in income related to our 50-50 joint venture with ASA, last year’s nine months included a 4.1 million gain on the sale of real estate in Germany and an investment gain of $800,000 from a prior investment in RX networks.

Lastly, other net declined by $1.8 million as fiscal 2020 nine-month period included a $1 million pick up from a life insurance policy offset by a working capital adjustment related to our sales of the Hirschmann, lower interest income, and higher foreign currency losses compared to the prior year period. This led to a pre-tax profit of $21.6 million during the first nine months of fiscal 2021, compared to a pre-tax loss of $7 million in comparable period, an improvement of $28.6 million. Net income attributable to VOXX was $17.3 million as compared to a net loss attributable to VOXX of $4.6 million, an improvement of $22 million. On a basic and diluted per share basis, this resulted in net income per share attributable to VOXX of $0.72 and $0.71 respectively compared to a net loss per basic individual share of $0.19 in the nine-month period of fiscal 2020. Lastly, we reported EBITDA of $34.1 million versus EBITDA of $7.1 million, a $27 million improvement, and adjusted EBITDA of $35.1 million as compared to $3.3 million, an increase of $31.2 million.

With respect to the balance sheet, we finished the third quarter with $21.3 million in cash and cash equivalents. Cash was used as a result of working capital needs and cash used to fund the DEI acquisition. As you will see in our balance sheet statement, we had a large increase in accounts receivable as a result of favorable sales growth, and our inventory position is set to support higher sales in the fourth quarter. We expect to end the fiscal year with a year-over-year increase in our cash position. I also like to point out, we paid down the $20 million draw on our domestic credit facility and had nothing outstanding as of November 30, 2020.

Our total debt position of $7.2 million as of November 30, 2020 which compares to total debt of February 29, 2020 of $8.2 million. The current debt relates to our Florida mortgage and that is the only debt we carried in November 30. In addition to our positive cash position, we have approximately $107 million available under our credit facility. Our balance sheet is in excellent shape and should improve further as we close out the year.

Operator, we would now be ready to open up the call for questions.

Patrick M. Lavelle — President and Chief Executive Officer

Thank you, Mike.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we have a question from Beat Kahli with Kahli Holdings. Please go ahead.

Beat Kahli — Kahli Holdings — Analyst

Good morning, everybody. Good morning, John. Good morning, Pat.

Patrick M. Lavelle — President and Chief Executive Officer

Good morning, Beat.

Beat Kahli — Kahli Holdings — Analyst

Honestly, I don’t really have a question. Good morning. Honestly, I don’t really have a question. I just want to…

John J. Shalam — Chairman of the Board

Good morning, Beat.

Beat Kahli — Kahli Holdings — Analyst

Good morning, John. I Just want to congratulate you to an outstanding result. I’m proud to be your largest shareholder. I’m looking forward to work with you together on EyeLock and anything else. Congratulations. I think that’s the beginning. Working with you in the last six months has been a pleasure. I hope that we can conclude another outstanding venture with our EyeLock negotiations and just congratulations.

Patrick M. Lavelle — President and Chief Executive Officer

Thank you, Beat. And we too look forward to concluding our discussions. Thank you.

John J. Shalam — Chairman of the Board

Thank you, Beat. We appreciate your participation and your ongoing support. Thank you.

Operator

[Operator Instructions] And we have a question from Dave Covas with Oberweis Asset. Please go ahead.

Dave Covas — Oberweis Asset — Analyst

How are you doing guys? Great quarter on all fronts, just had a couple of questions for you. So your EBITDA margin which looks like at 11.8% for the quarter, up 400 basis points year-over-year. Can you discuss that? Parse that a little bit just in terms of what were the drivers. I know you mentioned some expenses returned in the quarter, I’m guessing others didn’t, so just curious kind of what’s sustainable going forward on that front, where that can go from here?

Patrick M. Lavelle — President and Chief Executive Officer

Well, when we look at the expenses in particular, we know that we made some deep cuts earlier in the year that’s positively impacted the expenses. A lot of those expenses will come back as we move into the first quarter of next year, because, based on the volumes and everything that we’re doing and the acquisitions, we will carry a little bit higher overhead. Now with that said, we will also have full year sales of the acquired companies which we did not have in the first half of last year. And we expect that the growth that has been generated within the Premium Audio group will sustain based on the fact that business, a large part of that business has been our premium group opening up another channel that has not affected our traditional channel. So we believe that is sustainable as well we will be adding in the Fiat Chrysler and Ford Evo sales in the middle of the year. So we believe that even though we might see an increase in overhead, we will see a resulting increase in top line as well.

Dave Covas — Oberweis Asset — Analyst

Okay, that’s great. And can you can you also just comment on what the acquisitions contributed to sales in the quarter and then also the new distribution you guys had with Onkyo, Pioneer that I think you said began in September, just kind of what that ramp looks like, how much did that contribute to the quarter versus the last quarter?

Patrick M. Lavelle — President and Chief Executive Officer

It didn’t have a much of an impact in the quarter as we are ramping up. We expect that even our fourth quarter, as they build inventory, as we receive it, we really not start having impact for us until the first quarter of 2022 fiscal. As far as the additional acquisitions that we’ve done, we don’t really break it out but I could say it has been most of the increase that you’ve seen within the increase that you’ve seen in our automotive business.

Dave Covas — Oberweis Asset — Analyst

Okay, got it, thank you. And I don’t know if you discussed this in the past, but just curious as to your pipeline or path in terms of further M&A?

Patrick M. Lavelle — President and Chief Executive Officer

We believe that there are going to be opportunities for good companies that had a difficult time through COVID but have a strong basic company and good capabilities. We are definitely out on the M&A front at this point, looking for opportunities that would strengthen either our Premium Audio space or our automotive business. So we are actively pursuing targets that we think are beneficial to the Company and shareholders.

C. Michael Stoehr — Senior Vice President and Chief Financial Officer

Pat, this is Mike. On the question on the two acquisitions, in the 10-Q there is a section that’ll give you an idea of what happened. On Page 2, Page 3 or 4.

Dave Covas — Oberweis Asset — Analyst

Okay, thank you, guys.

Patrick M. Lavelle — President and Chief Executive Officer

Thank you, David.

Operator

Thank you. And this concludes our Q&A for today. Back to Pat.

Patrick M. Lavelle — President and Chief Executive Officer

All right. Well, thank you everyone for your interest in VOXX. Thank you for joining us today. Enjoy the rest of the day and please know that visit CES show where you could see all the different products that we are showing this year. It is a digital event and you can get on the site to see what’s happening. So stay safe, stay well, and we’ll speak to you next quarter. Thank you.

Operator

[Operator Closing Remarks]