VOXX International Corporation

today and thank you for standing by. Welcome to the Vox International's fiscal 2021 conference call. At this time, all participants are in the listen-only mode. 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. And please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Glenn Wiener, Investor Relations. Please go ahead.

Thank you, Laurie. Good afternoon, and welcome to Vox International's fiscal 2021 fourth quarter and year-end conference call. Our Form 10-K was filed with the SEC. Our press release announcing results was issued as well just after market closed. And both documents can be found on the IRS section of our website, as can our updated investor presentation, which is in the events and presentation section. Speaking from 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 will open up the call for questions. Our chairman and founder, John Shalem, is also with us, and he is available for questions as well. Our call is being webcast live over the Internet, and a replay will be available approximately one hour after the completion of this call. 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'd 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 28, 2021. Now, in the past, we've issued our results after market closed and held our conference call and webcast the following morning. However, as tomorrow is Friday, we wanted to avoid that, and mainly because, as you saw from the documents published, Vox's momentum has continued, and the company improved both its quarterly and annual top and bottom line results significantly on a year-over-year basis. And we've got continued growth expected, but I'll save that for Pat's remarks. I'd also like to add that Vox will be presenting at the stifled 2021 Virtual Cross-Sector Insight Conference. It's a virtual event, and Vox will be hosting one-on-one meetings all day with a live presentation from Pat Lavelle on June 9th at 2.40 p.m. Eastern. That presentation will be webcast on the Vox International website in the IR section, again, under Events and Presentations. And for those who want to meet with management, you can request a meeting by contacting your Stifle sales rep, or if you reach out to my office, I'll put you in touch. There are some other conferences we intend to present at in the second half of the year, And we will provide further details as they are confirmed. And with that, at this time, it's my pleasure to turn the call over to Pat.

Pat Gulliver Thank you, Glenn, and good afternoon, everyone. The momentum that we built throughout the fiscal year carried into our fourth quarter, and we are expecting continued growth and strong profitability and cash flow in fiscal 2022. Mike will provide more of the financial details, but I I do want to call out some of the highlights, which would provide more color around my business segment commentary. When comparing our fiscal fourth quarter, MET sales were up over 60 percent. Gross profit, while down on a percentage basis due primarily to the new premium audio distribution agreements we set up, was up $13.8 million. Operating income of $3.9 million marked a $38.9 million improvement, and adjusted EBITDA of $11.9 million was up $10.2 million for the quarter. Comparing the fiscal 2021 versus fiscal 2020 results, net sales grew by 42.7%, operating income of 22.5%, million increased 72.8 million over the last year. Adjusted EBITDA of 46.9 million grew by 42.1 million. And we ended fiscal 21 with close to 60 million in cash and cash equivalents and only 7.1 million of debt related to our Florida mortgage. Our balance sheet is strong, and with our cash position, anticipated cash from operations and access to capital through our credit facilities, we believe we're in excellent financial position. And this is key, especially now as there are many companies with strong brands, products, and distribution that may not be in the best financial position to support their business. And we are going to be very diligent in our use of cash and we'll continue to evaluate strategic transactions that can improve our business and enhance stockholder value. No doubt this was a challenging year for most companies given the global environment and the impact of COVID, but we persevered, and I have to say I am very proud of the Vox team, especially how they adapted and continue to support our customers. The steps we took over the past two years to reposition and realign Vox has worked, and resulted in strong top line growth and significant improvements across the board on the bottom line. We secured new retail customers, set up new subsidiaries, and added powerful brands. We made two strategic acquisitions, one of which made us the clear-cut market leader in remote start and security products, and the other added new lines sold to OEMs, including the heavy-duty truck market. We entered into an alliance with Amazon to bring Fire TV to the vehicle and secured long-term awards with Ford and Stellantis. We launched a number of new high-end premium audio products while expanding our distribution. And this year, we expect to add more. And lastly, we entered into a number of new alliances to bring iLOX products to market. We were officially awarded a large multi-year healthcare contract with a major healthcare hardware supplier. We are now in the process of integrating ILOX technology into their new product lineup. We have several projects underway that are in the testing phase, and as announced last week, we reached an agreement with Galvanize Partners, a new LLC set up by Biat Kali, our largest shareholder. Consider our results and add COVID to the mix. Many big box retailers, specialty stores, and aftermarket dealers were closed and are operating with fewer shifts and carrying less products in store. The biggest impact of COVID was on the automotive side with multiple plant closures, delaying vehicle production, and future launches. GM, Ford, Stellantis, Subaru, for example, all Vox customers were forced to close plants during 2021. However, we were fortunate in that many of our consumer product lines, and especially our premium audio products, were in higher demand, as they are considered to be stay-at-home products. As we all know, people were working from home and still are, even with the gradual return we are seeing now. And I'm often asked if the growth experienced in fiscal 2021 is sustainable. Our projections are for growth over the full year, but we also know it will be choppy in the quarters due to chipsets, parts, and container shortages. We're not alone here. It's an issue most companies are facing right now. We are almost through our first quarter and our growth has continued, but these issues could impact growth in Q2 with container shortages or port delays pushing some sales out of the quarter or losing a turn here or there. However, we have seen this coming for months and extended our lead times, purchased long lead parts, sometimes out a year or more, and scheduled shipments earlier. so that we can ensure we have the inventory to hit our third quarter projections, which are the most impactful in terms of our annual results. But why we are so optimistic is about the next few years, and I'll turn now to the segments to highlight why. In automotive, on my last conference call, I noted that Vox Automotive had received over $400 million in new awards this with approximately 330 million of incremental business. The majority was for our new rear-seat entertainment system Evolve with Amazon's Fire TV built in. We secured large multi-year contracts with Stellantis and Ford, which will begin this summer and fall respectively. Other OEM contracts we were awarded were for remote start and security products and through VSN for a variety of products with new awards with Volvo, Polaris, and Subaru. This past quarter, and in the early part of our fiscal 2022 first quarter, VSM was awarded new programs with Navistar and Mecra Lang, typically seven-year contracts, adding approximately $10 million of new awards in the heavy-duty truck market and for school buses. Additionally, for Evolve, we are in discussions with a number of other OEMs, and it is our belief that we will have new awards in fiscal 22, which would positively impact results once programs begin. Our strong automotive segment results were certainly boosted by the acquisitions of VSM and Directive, which helped offset lower OEM volume due to COVID and the plant shutdowns that I just referenced. With the new programs coming online in our fiscal second and third quarter, along with a full year of DEI's results, the automotive segment is poised for growth and we believe will double within the next two to three years when compared against fiscal 2020. This segment has the potential to grow even more in the following years. Our core automotive business is strong. Our customer roster is expanding. and we are selling into new markets with new product lines. We are continuously looking at potential tuck-in acquisitions that could strengthen our offerings, our customer base and reach, which has always been a key part of our strategy. The chip shortage will be a factor near term. It is impacting the entire industry and many of our OEM customers. With that said, We have been told by Stellantis and Ford that their launch plans are relatively on schedule. The volumes may be a little lower due to part shortage, but will ramp up thereafter. We are in discussions regarding adding new vehicles, which, if successful, should more than offset any impact due to shortages over the life of the program. In consumer electronics, The group had an exciting year marked by the establishment of the premium audio company led by the Klipsch management team and the formation of 11TC. We launched several new products which were well received by our customers and consumers. We expanded our retail distribution and through 11TC added distribution of the Ankeo, Pioneer, Pioneer Elite, and Integra brands. As we announced last week, we are pursuing the acquisition of Onkyo Home Entertainment Brands with Sharp as our partner. We had modest sales in fiscal 2021, and our outlook in fiscal 2022 is based on the successful resolution of this transaction. The final agreement will be presented to the Onkyo shareholders on June 25th. It's our hope that we can finalize the agreement and then work to expand the business significantly. This business did over $200 million in sales just two years ago, and we believe with our premium audio company management team and existing infrastructure, we can rebuild worldwide sales over the next few years. On our third quarter call, I said that we expected to see premium audio product sales grow by over $100 million, And we finished the year with sales up by almost $130 million. The big retail quarter for us, as many of you know, is Q3, as that is the big holiday selling season. And prior to the holidays, we will be launching a number of new products in home theater, sound bar, and headphone categories, all with target launch dates between June and August. Coming to market in June will be our Cinema 800 and 1200 soundbars with Dolby Atmos. Customers are very bullish on these new units, as our Cinema 400 and 600 series did very well, and in fact, the 400 series was named the best soundbar for under $300 by Cine. We will also be launching our new True Wireless headphones in August. The T5 II will lead the way and it's a high-tech headphone with sound cancellation and the first to have an integrated operating system to control content and your phone through head gestures. If you get a phone call and are listening to music, you shake your head and reject the call or nod to accept it. If you want to change a song, you can simply control that with motions. Very unique features. As we announced recently, 11TC will also carry the TIAC and Esoteric audio brands and will start to generate sales in the second quarter with initial distribution being in the United States. We are expecting the consumer electronics segments to grow in fiscal 2022. Should the transaction with Onkyo be consummated, that would boost sales, gross profit, and overall profitability in the back end of our fiscal year. Our commercial business, which dipped in fiscal 21 due to COVID, should improve as well. Movie theaters are opening up, and we're starting to see an uptick in cinema sales. Hotels and restaurants are expanding capacity, and that, too, should have a gradual and positive impact. One other thing to note are the various CLPS partnerships. We are the official speaker of Margaritaville Hotels and Resorts, Hard Rock Hotels and Casinos, the Darden Group, and with Mood, which is expanding worldwide. Last year, we partnered with McLaren and Formula One, and it did very well, helping to expand Klipsch's reach into new demographics. We have a new strategic partnership with the PGA this year, which will launch in the summer, and similar to the McLaren Alliance, we will come out with co-branded products, building off our T5 sport headphone and groove music system. Again, expanding reach and target audience. As for the biometric segments, we grew in fiscal 21, but the story is about the future. We were awarded a major healthcare contract, which I talked about, have several projects in the testing phase, and brought new solutions to market. The big milestone is the proposed transaction we announced with Galvanize Partners, a new LLC created and run by Vietcali. This agreement was the culmination of the process that we began roughly a year ago where we were looking to find a strategic partner that could help move iLOC technology into markets we didn't serve and expedite our growth plans. Vietcali and the team he has assembled have vast networks globally that will be leveraged. Galvanized Partners will become the exclusive distributor of ILAC products in the EU, Switzerland, Puerto Rico, Malaysia, and Singapore, with the exception of any existing business. They also will have the exclusive distribution rights in the United States for the residential real estate market and to specific U.S. government agencies. They have non-exclusive rights to other territories and verticals upon our consent. As per the agreement, they will pay ILOC $10 million in the form of annual fee up to $5 million, and any gross profit they generate for ILOC on their product purchases will be deducted from the annual fee. There's a put-call arrangement, which is detailed in our announcements. Because of Mr. Kelly's ownership in Vox, the transaction terms will be in our proxy and presented to the shareholders for approval at our annual meeting on July 29th. If approved, this deal will significantly improve ILOC's results. At this time, I'll turn the call over to Mike, and then we will open it up for Q&A. Mike?