VOXX International Corporation

Q1 2022 Earnings Conference Call

7/13/2021

spk_0: that only this is the operator today's conference is scheduled to begin shortly please continue to samurai thank you for your patience good day and thank you for standing by a welcome to the box fiscal two thousand and twenty two first quarter results conference at this time all participants iron alison on him out after the presentation there will be a question and answer session to ask a question during the session you will need to press star wanting your telephone please the advice at today's conference is being recorded our now like to hand a conference your host green winner investor relations please go ahead
spk_1: maggie carmela good morning and welcome the that international fiscal two thousand and twenty two first quarter hours call i've been of up roughly three months since we last supported our fiscal twenty one results and i'm pleased to say momentum has continued i today will have prepared remarks about labelle present chief executive officer and michael store senior vice president chief financial officer after which we will have it of called the questions a few quick items to address before turning the color management our annual meeting of stock holders will be held on july twenty ninth and will be a virtual meeting similar last year's format our proxy statement can be found an industrialist and section of her website and or fcc balance a michael store and i will be presenting at the the a davidson by conflict conference in august fourth and we will be hosting meeting throughout the day and we have registered present at the pseudo the summer virtual micro cap and us operates on august nineteenth of the time to be determined an announcement one that's confirmed or the out on i would also add that week specs participate in other conferences throughout the back end of year and we are active talking with investors analysts and others either got parties ah i'd like to remind everyone that it's separate store acl information contained herein statements made on today's call and webcast that would constitute forward looking statements are based are currently available information the company seems no responsibility to the them such for looking statements and i would like point you to the respects associate with their business which are detailed in a form ten k for the period ended february twenty eight twenty twenty one it is now my letter cute and the call of expat
spk_2: oh thank you glenn and law good morning everyone as expected we reported strong growth across each of our business segments of first quarter is typically or most challenging however in fiscal twenty to argue on sales were up over ninety percent net income attributable to blot was two point seven million and eleven million improve my kids and adjusted ebitda of eight point three million increase by eleven point five million when comparing the fiscal twenty twenty two and fiscal twenty twenty one his quarters
spk_1: all things considered especially with some of the supply chain issues the industry is facing and the higher cause we've had to absorb i'm quite pleased with the performance ah i'll also note that while we reporters small operating loss or operations were profitable when excluding the higher legal and professional cause the so oh see a with all of the transaction transactions that we have underway with on yo pioneer galvanize and these are all one time expenses argue one results last year when negatively affected by the start of coven as many of our larger retailers and oh yeah i'm customers shut down as reported we cut overhead drastically to see what the impact of the pandemic would be other business we followed employees stop certain investments cut travel and many the body expenses
spk_3: until we were able to see the full impact of covered
spk_2: a sales improve throughout the year we essentially restored most of these cards by the end of our fiscal twenty twenty one third quarter so as we entered the first quarter of twenty twenty two business was operating at more normal levels and we were able to increase sales dramatically to cover the higher overhead while creating
spk_3: new revenue streams to the future
spk_1: or automotive segment grew by over twenty five million dollars or oh yeah business was up aided by the nissan a mater rear seat entertainment program coming online and higher volumes to prior your plant shutdowns we also had sales increases of oh yeah automotive safety electronic raw
spk_2: others and higher aftermarket market sales growth several categories as retailers and a half the market dealers were operating mostly at recalled with levels during fiscal twenty two and two first quarter overall and automotive sales were up gross margins peru and the segment was profitable with the six point three million improvement in pretax income year over year we were awarded a new rear seat entertaining program with infinity in support of their qx a launch roughly one and a half million dollars over five years with shipments starting this month we wanted a new oh he and program from volvo europe approximately two point one million or l e d modules on their heavy duty trucks this marks the third award with although since we acquired the assume at the end of january twenty twenty we are also awarded a small only on program for nissan for fog
spk_3: like it's which we hope to expand the
spk_2: we continue to ship for our current evil rear seat solution as we gear up for the evolved launch with amazon fire tv built it evolve will start to ship in november and will be released the dealers in february of twenty twenty two we are in discussions with board about adding new vehicles as i mentioned on our last call and we are making progress as projected we launched our new evolved program woods the lantus and expect to ramp up volume throughout the year open the next several with respect to finalize finalize additional programs with slant this we were advised that box automotive movie the supplier of record for a headless be and program a new type of video system starting in the second quarter next year along with additional display units starting a yeah you're late we expect to have final details to share by our annual stockholders' meeting or by our next court on call when they start discussions we anticipate this could generate in excess of seventy five million in new business
spk_1: one was received the official notice this will bring the total volume of new over wards that we have received though the press approximately two years to roughly five hundred million dollars
spk_2: we're in discussions with other orleans for evolve and our latest solution and have several request for proposals pendant
spk_1: we are building a strong portfolio a volume awards a majority of them incremental business that will later on our core are poor business for several years out our consumer electronics segment posted a sales increase of almost forty nine with the ball coming from premium audio company though other consumer electronics products grew as well we had growth and home theater sub woofer premium mobility and premium wireless audio categories and benefited from new sales of premium wireless computer speaker systems and bleed to products additionally eleven t c the subsidiary established last august to distribute aren't audio and pioneer products also led to year over year increase
spk_2: as i mentioned earlier in last year's first quarter we had the covered maintain ah
spk_3: pandemic in full swing and had to deal with retail store closures we are now operating at more not normalize levels with expand the distribution and improve product incitement which bodes well for the future even considering many of the initial coverage stay at home type purchases that will
spk_2: not be anniversary during this year's first quarter margins were impacted by higher in bound freight cars and warehousing overseas several promotions that will run during the quarter tickle your holiday inventory and certain products that were sold at distributor like margins obviously aren't you
spk_1: the c e segment as a whole however delivered five point five million pretax income versus a small loss in last year's first one
spk_2: as we announce just a few weeks ago the premium audio company formed a joint venture with sharp corporation the jb will acquire on feels home and audio video business and the premium audio company will be the controlling interest holder the total purchase price is thirty point eight million plus certain liabilities and like will go through more of those deal terms in his remarks
spk_1: we're looking to close by the end of august pending regulatory approvals and general closing to the and annual and assuming all moves forward as planned the jv will own beyond yo and integra brags all i ip all distribution engineering and manufacturing rights
spk_2: this deal will provide us with more normalized margins that typically drive the premium audio space rather than the distribution level margins we were working on this past year when the agreement was reached we also solidify the alliance with pioneer reaching a new licensing agreement to manufacture and distribute pioneer and pioneer elite grants for a be products worldwide except for the people's republic of china
spk_1: it will take time for shop to ramp up production lines and major of malaysia and just cure all parts of inventory needed due to the shortages today or with that said
spk_2: if we causes plan we could do approximately fifty million in that sales this fiscal year compared to a little under fourteen million fiscal twenty one
spk_1: and as i've stated on prior cause were talking about along your business that did well over two hundred million dollars just a few years ago and more in prior years there is no doubt we have the distribution and infrastructure to rebuild worldwide sales and thus over the next few years this would be a big
spk_2: boost to got the top and bottom line additionally eleven tc c remember also picked up the esoteric and t had plans in april of last year i went through many of the a new product watches on our last call ah so i won't rehash them about but if anyone has questions feel a feel free to ask ah and the same goes for partnerships with the most recent being the pj program that we have launching this summer
spk_1: as for the biometric segment things are improving i'll bet of a little slower rate than we had hoped revenue more than doubled coming in at a little over two hundred thousand gross margins turn positive and are pre tax laws roughly in line with less use quarter
spk_4: driving improvements were higher sales of a new i xd product that comes with item to take a person's temperature before allowing access via an iris scan we continue to make progress on additional programs and were made in discussions with several potential partners for i liked it better
spk_2: technology we also moving forward with the healthcare equipment supply i referenced on prior calls or with minor revenue contributions expected this year as we go through beta test ah increase revenue in fiscal twenty thirty as they do a soft rollout and a wider scale build out into school twenty four one
spk_4: everything remains on track
spk_2: on july twenty nine will host our virtual annual meeting of stockholders and up for vote will be the proposed distribution agreement between iraq and galvanize l l c which is majority owned by be a collie or largest shareholder who was also up for election as a to board director and what i'd like to disperse give you a little bit about the cali he currently serves the serves as the founder and ceo of cali holding a tree and avalon park group a real estate development company here in orlando and as ceo director of sight tax properties holding age another real estate company with activities in the us and in switzerland he serves on the board of advent help orlando one of the largest non profit health systems in the us and have several other business interests international
spk_3: he has been very supportive since you began investing in box
spk_1: offering to leverage is network that helped drive our business forward
spk_2: we believe his vast experience across the verse industry says global network and his current and prior board service will be an asset to our company has looked to expand and drive meaningful shareholder value i understand from some investors that there is a desire for more disclosure on galvanize mr kelly has been made aware that the glass and although he has been holding off on marketing until the deal is a proven finalize the same has started to expand mutations galvanize recently launched it's website www galvanized biometrics dot com to provide investors with more background on the company it's people and reach and i'll also like to recommend you review the avalon park roots zipper website for more information or here here a few flat galvin eyes is part of avalon park group with over one billion in assets global mr tally serves as chairman of the board and management team he assemble includes allen eyeball ceo who has a twenty five plus year career working on various security authentication database and systems planning projects for department of transportation
spk_1: metropolitan planning organizations local governments and private companies
spk_2: jason i'm a dork ctl also with a twenty five plus year korea focused on technical solutions development specializing in scanning based technologies such as light our sensors authentication change detection and which risk assessment
spk_5: and recommend achieve growth officer another with a twenty five plus year career in i t engineering and cyber security services to transportation government and the private sector
spk_6: this team is backed by an advisory group and while awaiting shareholder approval they are in the process of setting up operations leveraging contacts and determining the best the best paths forward to create new business opportunities for i love both in the physical security products and then the embedded
spk_2: solutions this is a season feed that has worked together on several programs across the both their backgrounds and avalon part group the bass reach make them an ideal distribution partner that can help us in markets we have a limited to no presents real estate critical infrastructure transportation us government they have dealt with companies and agencies within these areas for over twenty years through galvanize they provide us with infrastructure and you switzerland porto rico malaysia and singapore where i like has limited reach and most important they understand and believe and i locked technology and the need for
spk_3: as noted in our traci galvanize will pay i like ten million dollars in the form of an annual fee up to five million for the first two years with payments by quarter
spk_7: and any gross profit they generate on sales of by lot products would be deducted from the on your feet are essentially five million dollars per year flowing to gross profit
spk_2: improving i watch financial performance and are consolidated results so in summary
spk_1: at this has been a very active and a relatively good first quarter we expect growth into view however the cost of doing business will be greater due to high a product and product related expenses
spk_3: was that these increases we have raised prices in both are automotive and consumer segments that will have a positive impact beginning this water and more so into three and beyond
spk_2: we will also have hire professional fees associated with closing the outfield transaction
spk_1: what for the year
spk_2: we expect to generate growth meaningful profitability and positive cash flow the supply issues present the near term challenge and we are not alone it's the entire industry
spk_8: i believe we'd manage this process well to this point and we are poised for strong second have an even better fiscal year and twenty three given a new alliances for the new awards and our momentum so with that are now turn the call that a might and then when he's done will open it up for questions i got
spk_9: okay fact the morning everyone had discussed or first quarter financial highlights and i will provide a little more tolerant ppl drivers the akio your transaction and close with view of our balance sheet
spk_8: all my piano comments were the comparable fiscal twenty twenty two and fiscal twenty twenty one period
spk_10: unless noted otherwise
spk_8: total sales rub sixty five point one million although i've seen a have automotive segment sales were up twenty five point four million with away and product sales up seven point three million driven by higher rsc volumes and growth and heavy duty truck or h d t market will we we service be of the sm a recent acquisition after market product sales or up eighteen point one million with roughly twelve million of this attributed to the d i've acquisition which was in our final which was not in our final twenty one fifth first quarter in the aftermarket we experienced year over year games in the video and were seen entertainment remote start and security telematics and satellite radio categories among others
spk_11: see segment sales were up not thirty nine point six million with premium audio product sales of thirty seven point one million and other see a product sales up two point five million
spk_8: within premium audio the biggest growth was in home separate category followed by sales of speaker systems and computer systems mobility products and to customers dollars premium audio sales were up both domestically and in germany and we added approximately six point four million have no business to eleven p c which began operations in the second half of fiscal twenty twenty one we had sales increases in several see accessory categories again as retailers are mostly shut down and f y twenty one first quarter but also due to would increase distribution and product placement bluetooth wireless speakers karaoke product home audio remote controls digital clocks smart home and know sri product sales were up in all of these categories and we saw a modest increase in our german operation as online sales was strong and was starting to see retail stores reopening and biometric segment sales rep a little over one hundred thousand dollars while consolidated gross margins were down ninety basis points gross profit dollars or up sixteen point seven million the automotive segment had gross margin increase of nine hundred thirty basis points and gross profit increase by eight point five million higher only m sales lead to better absorption rate and efficiencies helped drive margins as did the addition of at the d v d isis which traditionally carry hired product margins and segment mortgage and an increase in sales of higher margin oh am an app the market safety security and as products the consumer segment had gross margin decline of four hundred and thirty basis points but gross profit was up a point two million the driver of these march and declines were one strong sales a premium audio computer systems in the second quarter of last year and other premium audio products sold through the warehouse club out the marches structure is lower but the contribution and dollars great and given the volume we also ran new promotions on some of these products in the following the holidays eleven tc sales positively impacted the segments overall business but i sold on fulfillment margins and for we heard higher shipping costs and surcharges religious containers shortages and poor delays and higher costs for parts the first three drivers are in the normal course of business and part of our strategy to increase profitability and fonda growth driven programs the latter is something that we're controlling as best we can there will be some residual impact in the second quarter but as pad indicated the price increases we implemented we begin to offset this in the second quarter with a bigger impact and the third quarter and beyond wesley biometric segment marches were positive that nineteen point five percent versus a negative gross margin of twenty two point seven percent though the overall impact was minimal and expenses rub my million but as a percentage of that sales declined from thirty nine percent according want of fiscal twenty one to twenty seven percent a quarter of fiscal two twenty twenty two this is with a lot of additional costs we had one three point seven million of the i related expenses which were not included in few one of last year to a two point six million increase in professional pj's with the majority related to the transaction had the stuff three one point six million of higher salary and related payroll taxes recorded is selling expenses and a one point one million increases our expenses recorded on the dna please no less years to warn included for allows and salary and bonus cut that we put in place in the early stages of the pandemic this year's first quarter did not have that
spk_11: a number for one point two million higher commission's given the higher sales and finally point five nine hundred thousand and higher advertising spencer's with new product displays created and in support of fire online traffic and sales
spk_8: had address the bottom line comparisons and are year over year improvements but i like to make one other comment professional fees are up two point six million of this and of this we had approximately one point seven million of expenses related to the akio transaction galvanize distribute
spk_11: in agreement and non routine legal offenses of he's taking this into account or operating income was positive things you want and as you can see the breakout in are adjusted ebitda schedule and i release and form ten field
spk_8: we continue to lower costs in other areas and are mindful of all expenses especially as the country or rather the world continues to open up
spk_11: our income of two point six million was up one point nine million
spk_9: driving this was our fifty fifty joint venture with a a say electronics
spk_8: who posted a one point nine million improvement year over year
spk_12: and will report this as equity and income of equity investors
spk_8: issue bank charges decline three hundred thousand which offset the two hundred thousand and increase in other net moving onto the balance sheet and audio fallacy comparisons for the periods and and mark may thirty one twenty twenty one and february twenty eight twenty twenty one the end of our fiscal twenty two first quarter and fiscal twenty one year and
spk_11: we had cash and cash equivalents of thirty six point seven million as a occurred that outfit a compared to fifty nine point four million
spk_8: total debt stood at seven million compared to seven point one million or related to our florida
spk_11: ah mortgages on the property
spk_8: and long term debt net of damage was caused by point three million versus six million
spk_11: as for the off your transaction
spk_8: the joint venture between thc and shop will encourage total purchase price of thirty point eight million and includes the assumption of certain liability in conjunction with the letter of intent we sign in april twenty nine twenty twenty one we should a three million secured promissory note akio so they could continue to fun certain operations and support the business while we're in discussions the three million is included within prepared expenses and other current assets are balance sheet we measured the know on june twenty second and provide an additional two million two hundred fifty thousand the know bears interested four percent and will be satisfied upon the completion of the transaction as collateral we received the security interests and certain off your trade march and asses of the toll purchase price our cash portion expected to be approximately twenty six million and the total amount loud and interest accrued will be deducted from the cat purchase upon closer
spk_0: we've spent will need roughly five million to support the joint venture for the remainder the fiscal year ah to close my remarks and operator we're ready to open up the call for question
spk_1: certainly enough a reminder to ask a question simply press star one on your telephone to withdraw your question press the pound or key one woman while we compile a key on a roster
spk_13: never question from the line of tom forte with the a david turn your line is open
spk_1: go to surpass my first off and grad a quarter i had a handful questions or wanted to walk through august one is fine so first up cat as a long time for to spend the consumer electronics category was hoping you could provide some historical context for the current challenging supply chain situation for example the most challenging than and ten
spk_2: years twenty years and how much i think about it and historical context well as starkly i don't think we've seen situations like this
spk_3: for there have been portuguese would call the really has as impacted so many different areas where there and see is the chip
spk_2: your production scuse me to production car material container delay shipment the ladies what problems because and covered this is essentially caused us to really expand the lead times that we normally have for purchasing products in procuring product we've almost doubled our times to ensure that you know that we have products
spk_1: when we need it obviously through the first quarter
spk_3: in all these problems existed about the the ninety percent increase in sales if it did not it did not affect us ah the problems continue our were prepared to bring in products anyway that we need to bring in we have built up a big supply of products that are waiting to be ship
spk_1: and we're fortunate from the standpoint we have the cash on hand we have lines open to us
spk_2: to support the inventory purchases
spk_13: wow you know which which will be higher to make sure that any delays are we have additional products in our warehouses are so that we do not miss any sales but when it comes to a historical i've been doing this for and forty plus years don't believe i've seen anything
spk_2: as problematic is this but as i said i think we're handling it well
spk_1: i excellent that's very helpful for the next question i had is how should i think about it in this manner is it more challenging today in july than it was three months ago and six months ago and what signs are you looking for for improvement
spk_2: why they were a you know from the chip shortages and things like that we had anticipated will be started to hear about the chip shortages so we were out purchasing and we've extended are long lead item so in some cases over year so the chips shortages have not really affected us the price increases it will affect us as those a higher price products get delivered to us but that's the reason why we instituted the price increases to offset
spk_1: the the raw material chip price increases and then there's also and
spk_2: the
spk_13: in containers and freight and bringing the products in which we instituted a surcharge on and we we feel we're we're quite competitive with the rest of the market because everybody is facing the same thing so the prices with prices are going up to offset it obviously the holiday season is always a crunch so i think it's going to be challenging and that is the reason why we have gone out
spk_2: and and lady and orders so that one we would have product now that he loved this the goal is getting that product into the country however which way we have to bring it in to secure sales
spk_14: great to more so now he's calling our initiation of you're stuck with had a lot of questions from investors on your automotive efforts and how you're able to and man amazon
spk_2: as a customer and a significant of what you do with amazon as party proof product portfolio he provides some additional details on that well obviously one amazon look to enter into the automotive space ah you know they looked around and they wanted to get the fire tv into what in you know into vehicles and they looked around at the companies that have the expertise in the field and the seeing as if it had been a niche business arm
spk_1: and we were by far the number one supplier of rear seat entertainment and cars both in the aftermarket market and to the oh we're manufacturer ah they approached us and when they saw the capability that we had they feel very comfortable with moving ahead and essentially
spk_2: making us the only company or in north america if they're working with to develop
spk_13: a to developer amazon tv in the car
spk_2: and you know with our involvement in oh yeah more motives for a number of years of we knew what to expect and and obviously our successes me have delivered to the lantus them with one other manufacturer that they chose a to produce products for some european car manufacturer errors or that are way behind where we are so i think we performed very very well and i know that we have the confidence of amazon to recommend blocks to any and all other oh yum manufacturers gotta love looking to add fire tv to the car
spk_3: great so thanks at what last one final one to the national anxious program looks really interesting to us i can you talk about a high level my coming for box international what i'm sorry which plan was this
spk_2: the lana else glances ill and the last this fiasco as this is i you know it's it's primarily starting with a pretty much all the jeeps and the pacifica okay in know the end of this month they will be delivering the their lou grant wagon year which is their flagship vehicle and that will contain of our products which rear seat and and fire tv ah again we've had relationships with these car manufacturers and number of years we've worked with chrysler for a number of years on rears on on remote course not and again when when amazon it was recommending bots the chrysler on you know had the experience with blocks over many many years of and you know based on again our knowledge of the concert as the rear seats face what we had already achieved which was way ahead of the market they were comfortable in working with us have a financially were were stable company that allows them to make the decision to move ahead with us so though a lot of different factors that played into it or experience amazon's desire to work with us they've met with our engineering team that knew we had the capability and that we had the financial wherewithal to work with them and
spk_0: named you know they will roll out now you know the jeep wagon the or the jeep cherokee pacifica over a period of time and
spk_2: you know that's that's how it how it develops great thanks past taking micro take my question okay town thank you
spk_1: thank him again it is and gentlemen if you have a question simply press star one on your telephone sir i'm not showing any forget question think you
spk_0: okay thank you i want to thank everyone for joining the call this morning
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