VOXX International Corporation

Good day, and thank you for standing by. Welcome to the Vox Fiscal 2022 First Quarter Results Conference. At this time, all participants are in listen-only mode. After the 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. Please be advised that today's conference is being recorded. I would now like to hand the conference to your host, Glenn Winner, Investor Relations. Please go ahead.

Thank you, Carmen. Good morning, and welcome to Vox International's fiscal 2022 first quarter conference call. It's been about approximately two months since we last reported our fiscal 21 results, and I'm pleased to say momentum has continued. Today we'll have prepared remarks from Pat Lavelle, President and Chief Executive Officer, and Michael Storrs, Senior Vice President and Chief Financial Officer, after which we will open up the call for questions. A few quick items to address before turning the call over to management. Our annual meeting of stockholders will be held on July 29th, and it will be a virtual meeting similar to last year's format. Our proxy statement can be found in the investor relations section of our website under SEC Filings. Michael Storr and I will be presenting at the D.A. Davidson Bison Select Conference on August 4th, and we will be hosting meetings throughout the day. And we have registered to present at the Sedoti Summer Virtual Microcap Investor Conference on August August 19th, the time to be determined and announcement, once that's confirmed, will be out. I would also add that we expect to participate in other conferences throughout the back end of the year, and we are active talking with investors, analysts, and other capital parties. 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 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 28, 2021. It is now my pleasure to turn the call over to Pat.

Well, thank you, Glenn, and good morning, everyone. As expected, we reported strong growth across each of our business segments. Our first quarter is typically our most challenging segment, However, in fiscal 22, our Q1 sales were up over 90%. Net income attributable to Vox was $2.7 million, an $11 million improvement, and adjusted EBITDA of $8.3 million increased by $11.5 million when comparing the fiscal 2022 and fiscal 2021 first quarters. All things considered, especially with some of the supply chain issues the industry is facing and the higher costs we've had to absorb, I'm quite pleased with the performance. I'll also note that while we reported a small operating loss, our operations were profitable when excluding the higher legal and professional costs associated with all of the transactions that we have underway with Onkyo, Pioneer, Galvanize, And these are all one-time expenses. Our Q1 results last year were negatively affected by the start of COVID, as many of our larger retailers and OEM customers shut down. As reported, we cut overhead drastically to see what the impact of the pandemic would be on our business. We furloughed employees, stopped certain investments, cut travel, and many third-party expenses until we were able to see the full impact of COVID. As sales improved throughout the year, we essentially restored most of these cuts by the end of our fiscal 2021 third quarter. So as we entered the first quarter of 2022, business was operating at more normal levels and we were able to increase sales dramatically to cover the higher overhead while creating new revenue streams for the future. Our automotive segment grew by over $25 million. Our OEM business was up, aided by the Nissan Amada rear seat entertainment program coming online and higher volumes due to prior year plant shutdowns. We also had sales increases of OEM automotive safety electronic products and higher aftermarket sales across several categories as retailers and aftermarket dealers were operating mostly at pre-COVID levels during fiscal 2022's first quarter. Overall, in automotive, sales were up, gross margins improved, and the segment was profitable with a $6.3 million improvement in pre-tax income year over year. We were awarded a new rear seat entertainment program with Infiniti in support of their QX80 launch, roughly $1.5 million over five years with shipments starting this month. We won a new OEM program from Volvo Europe, approximately $2.1 million, for LED modules on their heavy-duty trucks. This marks the third award with Volvo since we acquired VSM at the end of January 2020. We were also awarded a small OEM program from Nissan for fog light kits, which we hope to expand on. We continue to ship Ford, our current Evo rear seat solution, as we gear up for the Evolve launch with Amazon's Fire TV built in. Evolve will start to ship in November and will be released to dealers in February of 2022. We are in discussions with Ford about adding new vehicles, as I mentioned on our last call, and we are making progress. As projected, we launched our new Evolve program with Stellantis and expect to ramp up volume throughout the year. Over the next several weeks, we expect to finalize additional programs with Stellantis. We were advised that Vox Automotive will be the supplier of record for a headless VRM program, a new type of video system starting in the second quarter next year, along with additional display units starting a year later. We expect to have final details to share by our annual stockholders meeting or by our next quarterly call. But based on discussions, we anticipate this could generate in excess of 75 million in new business. When we receive the official notice, this will bring the total volume of new OEM awards that we have received over the past approximately two years to roughly $500 million. We are in discussions with other OEMs for EVOLVE and our latest solution and have several requests for proposals pending. We are building a strong portfolio of OEM awards a majority of them incremental business that will layer on our core business for several years out. Our consumer electronics segment posted a sales increase of almost 40 million, with the bulk coming from premium audio company, though other consumer electronics products grew as well. We had growth in home theater, subwoofer, premium mobility, and premium wireless audio categories, and benefited from new sales of premium wireless computer speaker systems and Bluetooth products. Additionally, 11TC, the subsidiary established last August to distribute Onkyo and Pioneer products also led to year over year increases. As I mentioned earlier in last year's first quarter, we had the COVID-19 pandemic in full swing and had to deal with retail store closures. We are now operating at more normalized levels with expanded distribution and improved product assortment, which bodes well for the future, even considering many of the initial COVID stay-at-home type purchases that will not be anniversary. During this year's first quarter, margins were impacted by higher inbound freight costs and warehousing overseas, several promotions that were run during the quarter to clear holiday inventory, and certain products that were sold at distributor-like margins, obviously Onkyo. The CE segment as a whole, however, delivered $5.5 million in pre-tax income versus a small loss in last year's first quarter. As we announced just a few weeks ago, the premium audio company formed a joint venture with Sharp Corporation. The JV will acquire Onkyo's home and audio video business and the premium audio company will be the controlling interest holder. The total purchase price is $30.8 million plus certain liabilities and Mike will go through more of those deal terms in his remarks. We are looking to close by the end of August pending regulatory approvals and general closing conditions and assuming all moves Forward as planned, the JV will own Bianchio and Integra brands, all IP, all distribution, engineering, and manufacturing rights. 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 solidified the alliance with Pioneer. reaching a new licensing agreement to manufacture and distribute pioneer and pioneer elite brands for AB products worldwide, except for the People's Republic of China. It will take time for Sharp to ramp up production lines in Malaysia and to secure all parts and inventory needed due to the shortages today. But with that said, if we close this plan, we can do approximately 50 million in net sales this fiscal year, compared to a little under 14 million in fiscal 21. And as I've stated on prior calls, we're talking about an Onkyo business that did well over $200 million 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 boost to both the top and bottom line. Additionally, 11TC, remember, also picked up the Esoteric and TIAD plans in April of last year. I went through many of the new product launches on our last call, so I won't rehash them. But if anyone has questions, feel free to ask. And the same goes for partnerships, with the most recent being the PGA program that we have launching this summer. As for the biometric segment, Things are improving, albeit at a little slower rate than we had hoped. Revenue more than doubled, coming in at a little over $200,000. Gross margins turned positive, and our pre-tax loss was roughly in line with last year's quarter. Driving the improvement were higher sales of a new iXT product that comes with iTemp to take a person's temperature before allowing access via an iris scan. We continue to make progress on additional programs, and remain in discussions with several potential partners for ILOC's embedded technology. We are also moving forward with the healthcare equipment supplier I referenced on prior calls with minor revenue contributions expected this year as we go through beta tests, increased revenue in fiscal 23 as they do a soft rollout and a wider scale buildout in fiscal 24. Everything remains on track. On July 29th, we'll host our virtual annual meeting of stockholders, and up for vote will be the proposed distribution agreement between ILOC and Galvanize LLC, which is majority owned by Biat Kali, our largest shareholder, who is also up for election as a new board director. And what I'd like to just first give you a little bit about Mr. Kali. He currently serves as the founder and CEO of Cali Holding AG and Avalon Park Group, a real estate development company here in Orlando, and as CEO and director of Sightex Properties Holding AG, another real estate company with activities in the U.S. and in Switzerland. He serves on the board of Advent Health Orlando, one of the largest nonprofit health systems in the U.S., and has several other business interests internationally. He has been very supportive since he began investing in Vox, offering to leverage his network to help drive our business forward. We believe his vast experience across diverse industries, his global network, and his current and prior board service will be an asset to our company as we look to expand and drive meaningful shareholder value. I understand from some investors that there is a desire for more disclosure on galvanized Mr. Calley has been made aware of that request, and although he has been holding off on marketing until the deal is approved and finalized, his team has started to expand communications. Galvanize recently launched its website, www.galvanizebiometrics.com, to provide investors with more background on the company, its people, and reach. And I'd also like to recommend you review the Avalon Park Group's website for more information. But here are a few facts. Galvanize is part of Avalon Park Group with over $1 billion in assets globally. Mr. Calley serves as chairman of the board, and the management team he has assembled includes Alan Ibao, CEO, who has a 25-plus year career working on various security, authentication, database, and systems planning projects for departments of transportation, metropolitan planning organizations, local governments, and private companies. Jason Amadori, CTO, also with a 25-plus year career, focused on technical solutions development, specializing in scanning-based technologies such as LIDAR, sensors, authentication, change detection, and risk assessments. and Rick Hammond, a chief growth officer, another with a 25-plus year career in IT, engineering, and cybersecurity services to transportation, government, and the private sector. 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 paths forward to create new business opportunities for iLock. both in the physical security products and in the embedded solutions. This is a seasoned team that has worked together on several programs across the globe. Their backgrounds and Avalon Parks Group's vast reach make them an ideal distribution partner that can help us in markets where we have a limited to no presence. Real estate, critical infrastructure, transportation, U.S. governments, They have dealt with companies and agencies within these areas for over 20 years. Through Galvanize, they provide us with infrastructure in the EU, Switzerland, Puerto Rico, Malaysia, and Singapore, where ILOC has limited reach. And most important, they understand and believe in ILOC's technology and the need for it. As noted in our proxies, Galvanize will pay ILOC $10 million in the form of an annual fee up to $5 million for the first two years with payments by quarter. And any gross profit they generate on sales of ILOC products would be deducted from the annual fee. But essentially, $5 million per year flowing to gross profit, improving ILOC's financial performance and our consolidated results. So, In summary, this has been a very active and a relatively good first quarter. We expect growth in 2Q. However, the cost of doing business will be greater due to higher product and product-related expenses. To offset these increases, we have raised prices in both our automotive and consumer segments that will have a positive impact beginning this quarter and more so in Q3 and beyond. We will also have higher professional fees associated with closing the Onkyo transaction. But for the year, we expect to generate growth, meaningful profitability, and positive cash flow. The supply issues present a near-term challenge, and we are not alone. It's the entire industry. I believe we've managed this process well to this point, and we are poised for a strong second half and even better, fiscal year 23, given the new alliances formed, the new awards, and our momentum. So with that, I'll now turn the call over to Mike, and then when he's done, we'll open it up for questions.