VOXX International Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Box International Fiscal 2021 Second Quarter Conference Hall. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to the speaker for today, Mr. Glenn Wiener, Investor Relations. Thank you, sir. Please go ahead. Thank you, John.

Good morning and welcome to Vox International's fiscal 2021 second quarter conference call. Our Form 10-Q was filed with the SEC and we issued our press release after market closed yesterday afternoon. Both documents can be found on the IR section of our website and we will shortly be posting an updated investor presentation to our site as well, either by the end of this week or next week. Our call is being webcast live over the Internet, and a replay will be available approximately one hour after the completion of this call. Speaking for management today will be Pat Lavelle, President and Chief Executive Officer, and Michael Storr, 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 Shallum, is also here with us and available for questions. I'd 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. Lastly, as you saw from our results, and I will assume here on today's conference call, Vox's business has improved, and we believe the outlook is stronger today at any point in recent years. As such, we will be resuming proactive IRF initiatives to mark the Vox story. And all shareholders, prospective shareholders, analysts, and bankers joining us today or listening to our replay, please feel free to contact me directly with any follow-up questions and or to arrange a call with management. We look forward to the second half of our fiscal year and reporting on our progress. And to all those joining us, please remain safe. Thank you, and at this point, I'd like to turn the call over to Pat LaBelle, CEO. Pat?

Pat LaBelle Thanks, Glenn, and good morning, everyone. I'm pleased to say that this quarter we delivered substantial year-over-year improvements on both the top and bottom line. Consolidated sales increased by close to 42 percent, with all segments showing growth. Gross margins were up 340 basis points, and operating expenses declined by 6.7 percent. We reported operating income of 8.7 million versus an operating loss of 7.7 million, a 16.4 million improvement over last year. We delivered adjusted EBITDA of 13.9 million, a 14.8 million improvement over the second quarter of fiscal 2020. All of this despite the continued impact of COVID on the global economy. Needless to say, I am very proud of the Vox team and how hard they have worked throughout this disruption. During Q2, we wiped out the losses from Q1 and are profitable through the first half of the fiscal year, a trend we believe will continue as we continue to win new multi-year OEM contracts, expand our retail and aftermarket distribution. We have new products coming to market, and with the additional contributions from our acquisitions of DEI and VSM roster. Barring any major unforeseen catastrophe in the economy, we are poised for a strong second half and expect major improvements in fiscal 21, which we also believe will be sustainable. Lastly, our balance sheet remains very strong, and we intend to reinitiate the share repurchase program, while concurrently evaluating strategic transactions that will strengthen our business. There are a lot of positive developments at Vox, and we are excited with what the future holds. I'm going to start with the consumer electronics segment this morning. Second quarter sales were up over 50%, and our outlook for the second half of the year is even better. This segment consists of both premium audio and consumer accessory products, And over the past year and a half, we have made a lot of changes to better align the organization, expand distribution, and bring to market the right products in the categories where we have leading market positions and opportunities for growth. Within our premium audio operations, Klipsch branded products did exceptionally well, growing close to 90% year over year. This was driven by higher sales of home speakers, subwoofers, products for home theater, and pro-media speaker systems. We also saw an over 40% increase in the German premium audio product sales with Magnat and Heco as the drivers. As I mentioned last quarter, additional distribution was added within our premium audio group pre-COVID. This has proven to be the right strategy since we were in place and able to continue to sell while many retailers shut down store locations. Additionally, consumers who were shut in looked to create a better environment for entertainment or work from home, thus creating higher demand. Klipsch has been able to expand overall assortment at many of these new outlets. At the same time, our core distribution for premium audio grew by over 40%. When combined, this led to a consolidated sales increase of over 80%. Keep in mind, Best Buy, a key customer, only reopened at the end of June, and we grew in spite of this. They are now back up, and we have several programs slated in the second half of the year. Premium audio grew by double digits as an industry, and we believe this is sustainable. These high-end products are essential in today's home for movies, gaming, home gym, outdoor. The future is bright because we've expanded the core premium audience that we believe will continue to upgrade, replace, and add on in the future. We believe e-sports and gaming is the next area of growth as we have seen this with the success of our pro media life. At the end of July, we finalized our alliance with Ankeo Pioneer Corporation to become the exclusive distributor of Ankeo Pioneer, Pioneer Elite, and the Integra-branded audio products in the Americas. We set up a new subsidiary, Eleven Trading Company, which will market and distribute these products, as well as sell our Magnat and Heco German brands in the Americas. Keep in mind, Our 2Q results do not include contributions from this alliance. We will start delivery in Q3, wrapping up next year, and contributing to overall premium audio revenue. Without giving a firm number on guidance, as we all know things can change, I do feel confident in saying that our premium audio product sales should see growth well over $100 million in fiscal 21 versus last fiscal year. And as I have mentioned last quarter, Klipsch in particular is poised for its best year in its history. During the second quarter, consumer electronic product sales grew by approximately 800,000 compared to last year's second quarter. Overall, sales of accessory products are expected to be down for the year, largely due to the discontinuance of products as part of our strategy. Gross margins have improved, and we are profitable both domestically and internationally. And we continue to look for new areas where we can differentiate Vox and leverage our distribution. Moving on to automotive electronics segment. Second quarter sales were up 21% with OEM product sales down 1.1 million and aftermarket product sales up approximately 7 million. The aftermarket business was aided by the acquisitions of DEI and VSM, but also note the timing of the acquisitions. While we had a full quarter of VSM sales, we only had DEI sales from July onwards. Both acquisitions are performing two or better than expectations, and VSM in particular just added new multi-year OEM programs with Volvo, Polaris, and Subaru. Our 50-50 joint venture with ASA is doing well and building momentum. Last quarter, I talked about some of the weakness brought about by COVID, and while their business was down in Q1, they remained profitable. We are now seeing stronger results driven by the RV and heavy-duty markets. Momentum has carried through into September and looks to be promising in the second half. In Q2, We were awarded approximately $30 million of new OEM business, building upon the $375 million I announced last quarter. Our collaboration with Amazon to integrate Fire TV into our rear seat entertainment systems has been a key driver in securing the major portion of our future OEM business and has put Vox Automotive significantly ahead of the competition. Of the over 400 million in new awards we've received over the past three quarters or so, approximately 330 million is incremental. The business we won has varying launch dates, some in calendar year 21, calendar year 22, and 23, and stretch out over three or five years, with some smaller ones as long as 10 years. As to our recent acquisitions, we have completely transitioned the VSM roster business into our Orlando facility as planned and on time. And we have completed the integration of DEI as well. Based on the moves that we have made and the awards we have won, we expect to double our automotive business over the next three years. Moving on to the biometric segment, Although the quarter showed modest improvement, we are seeing increased interest in ILOX iris technology, driven by the difficulties of the other modalities created by COVID. Facial cannot identify individuals with masks or PPE, and many consumers are much more comfortable with a touchless application. We have announced a number of new partnerships over the past quarter and have begun receiving some of the new products that were in development, ramping up production based on increased demand. As a result, we expect to see higher sales, but more importantly, more consistency in sales of our secure solution applications. And some good news to report. In the second quarter, we were advised that we were awarded the program that we have discussed in the past within the healthcare space. We are in negotiations on final terms, and when the contract is signed, we will have more liberty to discuss the positive impact this will have on ILOC. As you know, we also hired an investment banker, Imperial Capital, to look at alternatives to enhance ILOC's position. We have had a number of interested parties and are evaluating several to determine the best fit for Box and its shareholders. To sum it all up, we had a strong second quarter The second half should be even better. Automotive long-term looks more promising than ever. Consumer, driven by premium audio, is poised for significant expansion this year, which we believe can be sustained barring any major change at retail or within the economy. Biometrics interest is picking up. Our pipeline is growing, and we have a number of interested parties that want to share in ILOC's future and upside. Our acquisitions were done at what we believe to be a very attractive price and will positively contribute to our top and bottom line. We have a strong balance sheet with cash on hand and access to capital. We are planning to reinitiate the share repurchase program, entering into a 10b-5 plan for 500,000 shares to begin, and we'll revisit throughout the next few quarters. We are also going to start marketing the VoxStory again, given our outlook, and believe we are in a great position to continue to increase shareholder value. Thank you, and at this time, I'll turn the call over to Mike, and then we'll open it up for questions. Mike?