VOXX International Corporation

Good day and thank you for standing by. Welcome to Vox International's Fiscal 2023 Fourth Quarter and Year End Conference Call. At this time, all participants are in a 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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. Good morning, and welcome to Vox International's fiscal 2024 fourth quarter and year-end conference call. Yesterday, we filed our Form 10-K and issued our press release, and this morning, we posted an updated investor presentation. Documents can be found in the investor relations section of our website at www.boxintl.com. I'd be more than happy to send them along upon request as well. Today, we'll have prepared remarks from Pat Lavelle, Chief Executive Officer, and Michael Storr, Senior Vice President and Chief Financial Officer, after which we'll open up the call for questions. Fiat Kali, our newly appointed president, is also with us and will be available during the Q&A portion of our 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, 2023. Thank you for your continued support, and I would now turn the call over to Pat. Thank you, Glenn.

While we had a lot of positive developments and continued to win the new business globally, fiscal 23 was certainly a challenging year. We were faced with a myriad of roadblocks throughout, OEM customers shutting down production, retailers cutting back on orders, inflation, and fears of recession globally, which had a big impact on consumer spending and our retail business. Supply chain issues improved during the year, but the hangover of high costs on inventory lasted throughout the year. Chip scarcity was a major issue and come into some of our expected automotive OEM growth. Virtually all of our competitors and industry peers have been feeling the pinch, and we continue to see layoffs, particularly across the technology and consumer sectors. We have been vigilant about controlling costs while working to enhance margins to offset some of these pressures. As we look into fiscal 24, and particularly the first half, we see more of the same with respect to the global economy. We hope to see better conditions in the second half of the year with some possible easing by the Fed and lower costs due to an improved supply chain. Ship supply is also expected to improve In fact, we've seen more availability in recent months, which I think bodes well for our OEM business. Our view of the opportunities ahead has not changed, and we remain confident that when there is a return to a more normalized operating environment, Vox is poised for significant growth and value creation. As for fiscal 23 and our results, 23 sales were down, 16% year-over-year, gross margins declined by 160 basis points, and operating expenses, excluding the non-cash impairment charges, declined by over 5%. We reported an operating loss of $27.3 million and an adjusted EBITDA of $8.6 million in fiscal 23. Both, however, were down versus fiscal 22. Again, it was a tough year with the sales coming in below expectations, particularly in the second half of the year. We made a lot of internal changes to realign and lower costs during the back end of fiscal 23 and into this year. Automotive segment sales declined by approximately 26 million, with OEM sales up 8 million and aftermarket product sales down close to 34 million. Our OEM sales growth was driven by some of the new contracts we've been awarded for our rear seat entertainment systems with Stellantis, Ford, and Nissan. We also had higher OEM sales of remote starts and security projects driven by higher business with Subaru and some other programs. Our truck business declined despite several new customers and awards, but the pipeline remained strong. Overall, while OEM sales were up in fiscal 23, growth was curtailed by ongoing supply chain issues faced by our customers, and we estimate approximately 18 million in lost revenue as a result during the year. The automotive aftermarket business was hit hard for several reasons. One, aftermarket customers took heavy inventories of remote start products last year to ensure they had adequate supply for the season given the supply chain issues. This left an overhang which impacted this year's business, but should not be as big a factor in fiscal 24. We also saw a 30% decline in sales of aftermarket satellite radios as one of our key retailers cut back on purchases for most of the year. And three. Roughly half of our aftermarket business is done at new car dealers, and there was a scarcity of vehicles on the lots throughout 2022. We expect that to improve as the car manufacturers increase production this year. Moving into fiscal 24, we are anticipating growth in automotive. Though the extent will be dependent on more consistency in chip availability and more consistent OEM production. We didn't expect such a big drop in the aftermarket, and assuming things begin to normalize, we should see an uptick in aftermarket sales as well. Moving on to our consumer segment, net sales declined by 17.6%, with the majority of the decline in premium audio. The weak retail environment in Q3 continued into the fourth quarter, and our sales came in considerably below the prior year in our forecast. It's been a challenging environment, and consumers continue to pivot away from CE products for the home, which during COVID, as you know, was very strong, and we believe this has pulled some sales forward. Premium audio sales declined roughly $70 million year over year, with the majority in home separate category. However, Our market share has been holding steady, and our brands and placements are not the issue. We've been impacted by recessionary pressures and inflation, the pivot, and the overall softness in the CE category. And we're not the only ones having this issue. We're seeing it pretty much across the board. Sales of Onkyo and Pioneer-related products were up $33 million year over year, though lower than we projected due to a combination of supply chain constraints and the retail environment. We're planning for continued softness throughout the year. However, growth will come from launches of new products and by expanding into new categories and new territories. For example, we are progressing with our plans to expand distribution of Onkyo and Pioneer and Integra brands globally into India, China, Japan, and the EMEA region. We are launching new Klipsch reference premier subwoofers, new Cinema One soundbars, new Klipsch powered monitors, and new Onkyo Pioneer and Pioneer Elite and Integra receivers. We will also be entering a new and growing market this summer with Klipsch's first ever wireless party speaker line. This category, has become an important audio segment and is growing. In the second half of the year, the new all-electric RAM 1500 REVS will launch and will feature the Klipsch Reference Premier audio system with a powerful state-of-the-art 23-speaker audio system. For no stranger to automotive, this is a major placement for Klipsch and one of several vehicles we believe will materialize in the coming years. Our placement remains strong, new markets and channels are part of our plan, and growth over the second half comparables should be attainable. Other CE product categories and sales were down roughly 7 million for the year, but in the fourth quarter, and for the first time ever, We began shipping wireless speakers under the Acoustic Research brand to both Costco US and Costco Canada. This category was up to the year, helping to offset some of the other declines, primarily due to the retail environment. Our accessory sales in Germany were essentially flat year over year, and obviously due to the difficulties that we see in Europe due to the problems that they have there. We have a number of new product launches in our accessory business, some of which I highlighted on our last call. But just a few weeks ago, we announced the entrance of RCA into the multibillion-dollar hearing aid market with an assortment of products. The FDA's recent ruling created a new category of over-the-counter hearing aids, enabling consumers to purchase hearing aids directly from stores, or online retailers without medical exams or prescriptions. There are close to 30 million Americans in the U.S. alone that could benefit from hearing age, ranging in ages, but the greatest amount of hearing loss is in those aged over 60. RCA has been one of the most well-known and trusted CE brands for a century and is a brand that appeals to this target demographic well. We rolled out an aggressive direct response TV campaign across major TV networks, social media, and on Amazon.com. This is the beginning launch and a category we believe could open up new channels for growth. Additionally, our European Accessory Group introduced a new solar program for houses and apartments that will generate power directly into the home's electrical system This has proven to be very popular considering the drastic increase in electricity rates due to the conflict in the Ukraine. This technology has been approved in Germany, Austria, and the Netherlands. And based on quick sell-through of initial inventories and response from our customers, we expect this category will drive growth for our European accessory group. Moving on to biometrics. The biometric sales came in at 1 million, up close to 19% year over year. And we're also up in the fourth quarter. We are expanding various programs that we've been awarded and are in the process of pursuing others which have potential to scale. With respect to the healthcare company, we have been working with well over the past number of years. I am pleased to report that we have passed the final rounds of testing and have been approved for production. We'll have a greater sense of timing and the impact over the next several months. We are excited to have finally been approved, as we are now an authorized IRIS authentication provider to them, and there are other products and equipment that they manufacture that we can expand into. Our work with Axiom Bank continues, and we remain on track to complete the development of our IRIS biometric token for their banking as a service solution by the end of this quarter. And we continue to expand business in high throughput facilities, such as auto dealers, rental agencies, and other infrastructures, where you have multiple access points, multiple drivers, and where security and control is paramount. Our work with the Miami Auto Mall continues, and our proof of concept is currently in testing with a major car rental company. Additionally, I am pleased to report that ILOC's access control systems are now installed at 13 nuclear power plants, up from four the prior quarter, as this industry recognizes the ease and high level of security that IRIS biometric offers. There are various R&D projects underway, which we expect will result in new commercial solutions, leveraging both IRIS and facial recognition across both physical and logical access. Momentum is building, and I believe our results in the segment should continue to improve throughout the year as we seek to reach profitability. As I said, it was a challenging year in 23, and it's a challenging start to fiscal 24. And we are going to be cautious in managing our business and look to new launches and addition of new market segments to drive growth. Before I turn the call over to Mike, I'd like to extend my sincere appreciation and gratitude to Peter Lesser, who has served on the Vox board for the past 20 years. Peter has provided invaluable oversight and strategic direction to the board and management throughout the years, leveraging his vast experience in the CE industry. After a long and distinguished career, he has decided to spend more time with his family and will not be standing for reelection at our fiscal annual shareholder meeting. All of us at Vox would like to thank him for his contributions, and we wish he and his family well. I would also like to take a moment to discuss the board's nomination of Steve Downing to serve as director of our company. Steve is currently the president and CEO of Gentex, a global company serving the automotive industry and one with a market capitalization of nearly $7 billion. He's had a very successful and distinguished career serving in various leadership roles at Gentex throughout the past two decades. Having worked with Gentex and at times competing against them, we couldn't be happier to have someone of Steve's caliber join our board. We look forward to working more closely with him, both as a director and as a partner. looking for ways to build the Vox-Gentex relationship. And at this point, I want to thank you and turn the call over to Mike. Michael?