Q1 2021 VOXX International Corp Earnings Call
Hearing of ethics, ladies and gentlemen, thank you for standing by and welcome to box International's first quarter conference call.
At this time, all participants Oh listen only mode.
After the speakers presentation, there will be a question answer session.
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If you acquire additional systems you Me Press Star then Cmos reached an operator.
Oh, no its hand, the call over to Glenn Wiener Investor Relations. Please go ahead.
Thank you Michelle good morning, and walking to box International's fiscal 2021 first quarter conference call for forms 10-Q was filed with the FCC and we have to their press release after market close on Friday July seven.
Occupants can be found on the IR section of our website.
Our call today is being webcast live over the Internet and a replay will be available approximately one hour. After the completion of this call speaking from absent today would be Pat Lavelle, President Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer, both will have prepared remarks, I mean, we'll then open up the call for questions, Our chairman and founder John Shell is also available.
Question I.
I'd like to remind everyone that except for historical information contained herein statements made on todays 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 I would like to point you to the risk factors associated with our business, which are detailed in the form 10-K cups.
Period ended February 29, 2020.
I'll now turn the call over the Bible, though huh.
Thank you Glen and a good morning, everyone.
As I indicated in our yearend call a few weeks ago. The first quarter fiscal 21 would be slow given the impact of coping 19, and indeed it was.
The March through many time period was the height of covert shutdowns and although sales for the quarter were better than first anticipated they were still off considerably.
Consolidated sales were down 21.5 million from the same period last year.
We were impacted on the automotive side by the closure of all domestic OEM manufacturers idling, our production facilities in Orlando in New Jersey.
Our aftermarket sales were hit by the closure of the majority of new car dealers and what about a 12 all retailers across the country. In fact April was reported to be the worst month for car sales in over 30 years.
On our consumer side, we were equally impacted by the closure of most retailers and all movie theaters, which forced us to shutdown or eclipse production facility in Arkansas.
Well, we produce commercial speakers for large venues.
The only bright spot, where some of the large brick and mortar retailers that sold food and remained open we saw increases at retailers, such as Walmart Cosco and others.
Online activity picked up as well, but this was mostly offset by Amazon focusing on essentially.
For a large part of the quarter.
As I said on my last call cognizant of aluminum nationwide shutdown, we moved quickly in the first quarter to slash overhead.
Following over 20% of our workforce, reducing salaries, 10% to 25% across the remaining workers, eliminating all travel trade shows cut back on advertising and all outside third party expenses, causing our stock repurchase program and generally preserving cash in two weeks.
Determined the length and the severity of this pandemic.
We reduced our core overhead by nearly 7 million in the quarter.
Which was partially offset by the DSMB acquisition, which began operations in February.
Overall, we were able to achieve a five point threemillion reduction for the quarter in operating expenses.
We drew down 20 million from our revolver is due to initial concerns about possible liquidity problems in the banking system.
And to support business based on inventory purchases moving into the third quarter as we were expecting an improvement.
Our operating loss came in at 7.9 million, which was better than we projected.
However, the impact from this pandemic is far from over but we remain cautiously optimistic.
In June the first month of our second quarter, we saw a rebound with sales up 30% year over year.
Although a good portion is due to some pent up demand.
We sourcings ease as the country slowly open.
Sales of consumer accessory and premium audio products, both domestically and internationally were up as were automotive aftermarket and fulfillment sales.
And we expect additional contributions from the vs and.
Acquisitions as we move forward.
Our OEM sales were down as expected, but came in higher than forecasted.
On a consolidated basis, we anticipate higher sales in July and August.
As to the automotive segment, we expect gradual improvement for the balance of year without our OEM and aftermarket groups as well, we should see improvement at say, our 50% zone joint venture who to was hit hard in the first quarter, but remained profitable.
We are seeing an uptick in RV production, which bodes well for them going forward.
Our BSM acquisition is on target to have 100% of production move to our Florida facility with their synergies, we anticipated will be realized and we expect to have this completed by the end of volumes.
By moving into Florida, we eliminate two facilities in New Jersey.
Employee costs improved manufacturing efficiencies and remove DNA expenses. There are several million dollars of savings, we expect to realize over the next year.
Last week, we announced the acquisition of majority of directed electronics aftermarket business.
We acquired the number one competitor of ours within the remote start and security space.
Powerful brands.
Longstanding and loyal customer base.
In a talented engineering group.
We also added they're connected car solutions business in the transaction strengthening our own telematics offering.
Let me highlight the positives of this transaction.
The cash payment was only $11 million and in return we received inventory valued at 9.1 million net of reserves accounts receivables of approximately 4.9 million net of reserves, all intellectual property computer and software systems and engineer.
During testing and validation.
For the release and form 8-K, we also assumed certain liabilities.
With the brands, we acquired plus our own we are the unquestioned market leader in the remote start and security categories with a stronger telematic product line and an expanded distribution network.
We expect to add approximately $50 million, an annualized sales again barring any further deterioration in the economy due to cold.
But we expect the acquisition to be accretive this fiscal year.
And with the sale of inventory and eight our collections. We believe we will be able to generate the cash purchase price within the next two quarters.
And on one final note.
The bulk of the liabilities assume we're two new Tech Corporation.
A long time standing vendor to box, who agreed to exchange payment for 25% of the newly created subsidiary.
To be clear, even with the additional business. The fiscal 21 will still be challenging for the automotive segment due to the market environment and lower car sales as a result.
But we are not in this business for one year.
The investments we have made in technology. The addition of content into the vehicle. The alliances we have established such as the most recent one with Amazon for fire TV.
I'll begin to play out next year as we deliver on the New awards that we announced last quarter.
We're also making investments in vs them now to improve their processes to grow their business and expands in categories box has not been in.
The combination with vs and with the enhances our technology, our engineering and product offerings the synergies, particularly in engineering, we believe will lead to new products for Oems as well and should enable us to grow and enhance profitability over the next few.
Here is within the automotive group.
Our consumer segment.
Posted a 9.1 million decline in net sales due to the reasons I addressed earlier pretty much all covered related and brick and motor retail closures.
Despite this the segment was essentially breakeven on a pre tax income basis, and then a more normalized environment should be our highest profit generator. This year, especially with the new programs and products that will be launched in the latter part of the second quarter and into the third.
Klipsch branded products are doing very well.
And in spite of the cobot impact.
Which is poised to post their highest sales and profitability in their history. This year.
With respect to the biometric segment sales were up but they were small.
I talked about the partnership with CMS Eyetech last quarter and earlier. This month, we formed another partnership with integral technology solutions a company now focused on integrating Iris biometrics solutions for life Sciences.
Another partnership Eyelock has form that will soon be announced is the mirror Bonnie is with mirabelli to distribute eyelock technology in the Japanese market and throughout Asia.
Our bidding has the right to deliver I locks NXT and DXP offerings to their partners covering a diverse set of industries, including automotive financial and construction.
We're also working with them to develop embedded solutions.
As to Idealogues progress, we expect to hear the results of the final test within the healthcare space this quarter.
And based on the volume anticipated with this program it would be very impactful for Iowa.
Other projects I've discussed.
Previously on my calls are ongoing and we expect and hope to report further progress within the next few months.
As for the strategic process, our investment banker Imperial capital has entered into a number of MD eightys with companies. Some very large who are interested in eyelock technology, especially in light of the barriers companies are facing with fingerprint and facial biometrics.
We will be exploring a number of different scenarios looking for the best option to bring eyelock technology to the forefront while maximizing value for our shareholders.
Due to the Spike and cobot cases in certain parts of the country and travel research the restriction policies that remain in place we will adjust our original timing to reflect this.
At this point I'll turn the call over to Mike to review our financials Michael.
Thanks, Pat Good morning, everyone I'll start with some details around our Q1 results and then shift to the balance sheet before we open up the call for questions.
Total net sales were down 21.5 million with the automotive segment down 12.4 million the consumer consumer electronics segment down 9.1 million and the biometric segment up approximately 100000.
Within the automotive electronics segment, OEM sales were down 5.3 million and aftermarket aftermarket product sales were down 7 million.
DSMB acquired in the fourth quarter of fiscal 2020 added approximately $5 million in net sales during the fiscal 2021 first quarter.
Within the consumer electronics segment.
Premium audio product sales were down 2.2 million and other CE product sales were down seven Pat already discussed the drivers for both.
We reported gross margins are 27.7% compared to 27.8%.
Essentially flat year over year.
Automotive electronics segment margins were down 470 basis points due to product mix and lower volume, which resulted in lower overhead absorption.
Partially offset by higher margins associated with the DSMB acquisition.
Consumer electronics segment margins were up 90 basis points, primarily due to higher sales of premium wireless and Bluetooth speakers and lower fulfillment sales activity brand fans.
Within the biometric segment in last year's first fiscal first quarter, we had to release of inventory reserves, leading to a significantly higher gross margins on small cells, whereas in this year's first quarter margins were negative due to products produced for testing and validation.
Total operating expenses declined by 5.3 million and as Pat noted earlier before operating expenses associated with DSME B S. M. Our core overhead was down approximately 7 million year over year approximately 21%.
We instituted aggressive cost control measures in Q1, and we'll continue to do the same until we see the market improvement.
Total other income for the first quarter was approximately 500000 compared to 2.1 million in Q1 of fiscal Twentytwenty, a 1.5 million difference.
Hey, assays income, which is reported as equity income of equity Investee was down 600000 due to the impact of 12, it similar to the rest of our business.
And other net declined by 1.1 million due to a 1 million pick up on a life insurance policy in last year's first quarter and a 400000 pickup in Q1 of this year.
Our lower interest rates related to our short term money market investments year over year.
For the three months ended May 31 2020.
We had an income tax provision of 1.8 million.
Which includes a discrete income tax provision of 4.3 million related to an increase in valuation allowances as a result of the technical correction to our annual wells as provided in the cares Act.
This compares to an income tax benefit of 2.6 million for the three months ended May 31 2019.
The effective tax rate for fiscal 2021, and fiscal 2021st quarters or an income tax provision of 24.3% and an income tax benefit of 52.7% respectively.
We reported an operating loss of $7.9 million versus an operating loss of 7.1 million for the comparable first quarter periods.
Net loss attributable to locks was 8.3 million compared to a net loss attributable box of 1.1 million for the same periods.
And we reported an adjusted EBITDA loss of 3.4 million compared to an adjusted EBITDA loss of 1 million for the fiscal 2021 and fiscal 2021st quarters, respectively.
As noted in our form 10-Q, we ended the quarter was 69 million in cash compared to 37.4 million as of February 29 2020.
A portion of that cash increase is the 20 million defensive draw we made in April.
As Pat mentioned, we are anticipating stronger and third quarter sales and also want to ensure that have sufficient availability to fund working capital needs.
We are maintaining a defensive position with our balance sheet given the increases in cobot cases after the gradual reopenings.
Our total debt as of May 31st was 28.1 million with $20 million associated with our domestic credit facility.
Seven and a half million related to our Florida mortgage and 600000 related to our euro ABL from magnet.
This compared to the total debt as of February 29, 2020 of 8.2 million.
And we have nothing out and we had nothing outstanding on the domestic credit facility at that time.
Note that debt position is up due to the George anticipated inventory purchases Lee leading into this quarter three.
Our balance sheet remains strong we are managing expenses inventory and buying programs and taking a conservative approach.
And our capital allocation strategies.
This concludes my remarks, and we will now open up the call for questions.
As a reminder.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question does depend on key.
Please standby why we compile the Ken a roster.
Our first question comes from be Colliery of calling holding your line is open.
Okay.
Good morning, everybody. Good morning, Pat Good morning, John glad to be review.
Good morning.
Normally if I feel off in a quarter.
Some time to through Twoq correctly et cetera, but what would it weakened since you published your 10-Q on Friday evening was looking to read carefully every page backing for time that Rps an expert on for 30 years. After tell you you did well through this terrible quarter.
March April may were almost everything well shut down around the globe.
Lastly.
Holding my breath, when I saw the publication.
Needless to say a loss is not good for all of us, but considered what was happening in the world considered what's happening in your industry.
Particularly the autumn automotive, but ask while the consumer segment I have to tell you you react quickly.
Can't always complain.
Recall art.
Im pleased that you did you know what do you Dave to keep the company Marty days I'm pleased with the balance sheet. So.
Thank you for your reaction Jacoby 19, but doesn't obviously mean.
We're out of the hawk longer, but I'm more confident that you're studying balks more more on a daily basis with our entire team that hearing it's a company who has gone through you know.
Six decades of ups and downs again, thank you to the management for.
No.
Getting us to Dave really really rough time.
I'm optimistic that if you can do those three months.
Thanks can only get better to all my questions I mean interchanging world.
My first question, obviously being around the globe in all our businesses.
Oh potential in both insolvency cases.
If you go home health checks on your supplier distribution partners or do you expect there any key suppliers distributers retailers do you have to.
Hey, solvency issues.
Good morning, and thank you at this particular point, we believe we have reserved for any questionable of.
Bad debt based on what we had seen within our customer base.
And at this point, we do not see.
Any problems within any of the vendor base, we have as you know due to.
The.
The tariff situation over the past two years move some of our manufacturing out of China into Vietnam back into into Taiwan, and some other areas that may have created some stress on some of our vendors.
But we believe that they are that they are solid.
And in many cases, we are operating in the new countries.
Got it.
I mean, you've been watching clips.
It looks like that E commerce tasks.
After every works well for you in college and when you're looking at the automotive segment do you still see brick and mortar estimate sales channel or are you also taking steps towards adding more E. Commerce auctions, absolutely. The E commerce impact that we had this year was primarily.
As on which focused on for the better part of the quarter focused on essentially is only and we're not we're not really delivering on speakers or some of the other things that we carry however, we had a strong uptick.
In our own online sales and with customers, who are primarily online operation. We believe that is going to continue.
Because they've had a very successful quarter through coated because of their on online deliveries and we believe that Theres no reason why that should change.
That's great I mean I'll also note isn't that you know obviously very important after 60 million plus span that when Eyelock first sales are occurring.
Interesting.
Partnerships may occur I mean, it's always good to go into the sales mode. After many many yourself off investing in general how do you expect your retail distribution channels to change going forward that not only koby 19, but in general.
And with a few I mean, you have a general comment how the distribution channels going forward will change for you.
I think when you've got to look at each segments separately in the automotive I don't see a major shift only from the standpoint of the installation complexity of the product. It is probably going to say similar to where.
It is today with the types of products that we sell certainly consumer products will mean.
More online wherever they can but we still have a certain portion of our business.
With integrators and with large venues that require installation, which will again keep.
Thats segments of the market active in the integrator and.
And installation market.
On the on the.
The biometric side.
We own.
The portion of the sales that we have today, our primary primarily perimeter access products that we sell through.
All security integrators, because it's really the security integrate is back end that we tie into so if you have leonelle system in your corporation, we're working with them.
To have them install our product the other side of our business, which is what I referred to in passes the most explosive side of the biometric business is the embedded solution, where we can embed our software our technology onto someone else's products.
Who may have very very large sales are those products and that's the area that we're focusing on certainly our NXT and X C and our new CFO Mitek product that will be introduced earlier in the third quarter.
I think you'll you'll see continued growth there only from.
The fact that the various as I indicated on facial and fingerprint.
Continue to grow so I think.
Lock is a beneficiary of that but as you look into the more sophisticated systems that either required do mold Dallas. Please.
To open up the system Iris is in our estimation definitely going to be part of those modalities.
No. Thank you very much packed.
We'll hang in there I mean.
More and more of your watching this company you so Michael off six year ago. Some optimax 60 here and we'll be youre loyal shareholders going through to future accumulating where possible I think you're doing a good job through growing 19, and obviously the jury valves into future. So.
Good luck.
Thank you for answering your question.
Hi.
Have a good.
This is John gentlemen.
We did your remarks and I want to thank you for your support.
Yes.
Our next question comes from Thomas Khan of Kahn Brothers. Your line is open.
And I see that you paid 11 million cash.
But this directed company, yes, you said you're going to get your money back in four to five months.
Selling 25% of it.
And.
Thanks, again $3 million.
Well, if you will have $8 million cash in it.
Can we expect you to get that $8 million cash back.
By.
31, yes.
Tom when you look at the situation to wage structure.
There was no multiple of earnings there is no blue Sky paid we essentially.
Picked up about $4.9 million of receivable and we picked up 9.1 million of inventory the inventory should go out over the next two quarters.
And the first part of the receivables should be received over the first 60 days.
So that's where we believe that the initial purchase price will be recovered quickly.
Because the inventory net of reserves is nine one and we expected to to be able to move the bulk of inventory over the next two quarters.
So yes.
Let me finish going forward, obviously, there's going to be working capital required to continue the business and continue the sales.
But thats really no different than us buying inventory.
To to make sales of let's say block.
And that's that's that's the way we're looking at it.
Thank you that said I want to sell.
Tell this business.
As such an advantageous.
Range, whereby you get all your money back.
Yes.
They were faced.
Personal if they were owned by private equity company. The fund had closed okay and they had been trying to sell this company for a number of years, we had been in contact with them for a number of years.
And when cobot hit that kind of put it.
To the point, where.
They were not going to supported any further and based on that.
We were able to negotiate what we perceive us to be very very good terms well it sounds to me like should this all come about if I talk to you on January Youre going to tell me, we got all our money back and we own the business.
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Right. That's our that's our anticipation we own the business one of the larger receivables as I indicated was to newtek. So instead of laying out the cash that was though to Newtek and then you have to remember we have a longstanding relationship with Charles Chen the owner of Newtek I've known for over 40.
Years.
And there was a strong trusts there and therefore.
The amount of Vantivs that world to him.
He decided to put into the company.
Okay, well I'm, just saying that normally if I would and fast in a business, which entails some degree of risk.
11 million cash into it.
I would expect.
You know a million one on a 10% that would be a reasonable kind of return.
If you get there that would be great, but as they say on from misery.
Yes, I guess and but we're very confident that.
When we look at the structure that was there.
In our release, we had indicated we've taken I think 64 people.
The company had recovered over 200, and I think 20 people.
We're required to run the company post covert they had cut down to 139 and the employees that we took were primarily engineering, which enhances our own engineering capability.
But with the fact that box has the basic infrastructure in place and this is a business that is very very close to what we do in a certain segment of our automotive business that is where we believe we can generate.
Very good return given the margin structure of the company that we required okay, we acquired and and.
The amount of overhead that is necessary to move forward.
Okay I'll put it in my diary for 2021 January 15, or we can talk about all right. That's the deal.
Next question operator.
There are no further questions at this time.
Okay.
Once again I'd like to thank you for taking some time to come on on the call. This morning.
Obviously, we are in unprecedented times, we are concerned with the fact that Cold-blood continues.
You know to rise in certain areas that may create some uncertainty, but also we're hoping that with the work that is being done on a vaccine that we're going to be able to live with it.
The the constraints of cobot and still do business. Thank you stay safe and have a good day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
Bye bye.
Hi.
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