Q2 2021 VOXX International Corp Earnings Call
At this time all participants are in a listen only mode.
Please be advised that todays conference is being recorded.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session even need to press star one on your telephone if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your speaker for today Mr.
Glenn Wiener Investor Relations. Thank you Sir Please go ahead.
John Good morning, and welcome the box International's fiscal 2021 second quarter Conference call.
Our form 10-Q was filed with the FCC and we issued our press release after market close yesterday afternoon. Both documents can be found on the IR section of our website.
And we will shortly be posting an updated investor presentation to our side as well either by the end of this week or next week I recall is being webcast live over the Internet and a replay will be available approximately one hour. After the completion of this call.
Speaking for management today will be Pat Lavelle, President and Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer.
Our prepared remarks, and we'll then open up the call for questions, Our chairman and founder John Shalam is also here with us and available for questions.
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 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 29 2020.
Lastly, as you saw from our results and I will soon fear on todays conference call boxes business has improved and we believe the outlook is stronger today than at any point in recent years as such we will be resuming proactive IRS initiatives to Mark the box story, and all shareholders perspective shareholders analysts and bankers joining us.
They were listening to a replay please.
Please feel free to contact me directly with any follow up questions endorsing arrange a call with management.
We look forward to the second half of our fiscal year and reporting on our progress and to you all those joining US please remain safe.
Thank you and at this point I'd like to turn the call over to Pat So yeah that.
Thanks, Glenn and good morning, everyone.
I'm pleased to say that a this quarter, we delivered substantial year over year improvements on both the top and bottom line.
Consolidated sales increased by close to 42% with all segments showing growth gross margins were up 340 basis points and operating expenses declined by 6.7%.
The reported operating income of 8.7 million versus an operating loss of 7.7 million, a 16.4 million improvement over last year.
We delivered adjusted EBITDA of 13.9 million, a 14.8 million improvement over the second quarter of fiscal 2020.
All of this despite the continued impact of cobot on the global economy, Needless to say I am very proud of the black sea and how far they have worked throughout this disruption.
During Q2, we wiped out the losses from Q1, and our profitable through the first half of the fiscal year.
A trend we believe we believe will continue as we continue to win new multiyear OEM contracts expand our retail and aftermarket distribution.
New products coming to market.
And with the additional contributions from our acquisitions of the envy of some roster.
Barring any major unforeseen catastrophe in the economy, we are poised for a strong second half and expect major improvements in fiscal 21, which we also believe will be sustainable.
Lastly, our balance sheet remains very strong and we intend to re initiate the share repurchase program, while concurrently evaluating strategic track transactions that will strengthen our business there.
There are a lot of positive developments at box and we are excited with what the future holds.
Going to start with the consumer electronics segment. This morning.
Second quarter sales were up over 50% and our outlook for the second half of the year is even better.
This segment consists of both premium audio and consumer accessory products and over the past year and a half we have made a lot of changes to better align the organization expand distribution and bring to market the right products and the categories, where we have leading market positions and opportunities for growth.
Within our premium audio operations Klipsch branded products did exceptionally well growing close to 90% year over year.
This was driven by higher sales of homes speakers sell motors products for home theater and Promedia Speaker systems. We also.
We also saw an over 40% increase in the German premium audio product sales with Magna and Heco as the drivers.
As I mentioned last quarter additional distribution was added within our premium audio group pre colder this.
This has proven to be the right strategy since we were in place and able to continue to sell while many retailers shutdown store locations. Additionally, consumers who were shut in look to create a better environment for entertainment will work from home, thus, creating higher demand.
Klipsch has been able to expand overall assortment at many of these new outlets at.
At the same time, our core distribution for premium audio grew by over 40% when.
When combined this led to a consolidated sales increase of over 80% keeping.
Keep in mind.
Best by a key customer only reopened at the end of June and we grew in spite of this they are now back up and we have several programs slated in the second half of the year.
Premium audio grew by double digits as an industry.
And we believe this is sustainable.
These high end products are essential in today's home for movies gaming home gym outdoor.
The future is bright because we've expanded the core premium audience that we believe will continue to upgrade or replace an add on in the future.
We believe E sports and gaming is the next area of growth as we have seen this with the success of our Promedia line.
At the end of July we finalized our alliance with Onkyo Pioneer Corporation to become the exclusive distributor of Onkyo pioneer pioneer elite and the integrity branded audio products in the Americas, we set.
We set up a new subsidiary 11 trading company, which will market and distribute these products as well as sell our magnet and heck in Heco German brands in the Americas.
Keep in mind, our two.
Our Twoq results do not include contributions from this alliance.
We will start delivery in Q3 ramping up next year and contributing to overall premium audio revenue.
Without giving a firm number on guidance as we all know things can change.
I do feel confident in saying that our premium audio product sales should see growth well over $100 million in fiscal 21 versus last fiscal year.
And as I have mentioned last quarter clips.
Klipsch in particular is poised for its best year in its history.
During the second quarter consumer electronic product sales grew by approximately 800000 compared to last years second quarter.
Overall sales of accessory products are expected to be down for the year largely due to the discontinuance of products as part of our strategy. However, gross.
Gross margins have improved and we are profitable both domestically and internationally.
And we continue to look for new areas, where we can differentiate box and leverage our distribution.
Moving onto automotive electronics segment.
Second quarter sales were up 21% with OEM product sales down 1.1 million, an aftermarket product sales up approximately $7 million the.
The aftermarket business was aided by the acquisitions of D E and via Sem, but also note the timing of the acquisitions.
Well, we had a full quarter of DSM sales, we only had the sales from July onwards, both acquisitions are performing to or better than expectations and we assume in particular, just added new multiyear OEM programs with Volvo Polaris and Subaru.
Our 50 50 joint venture with a ill say is doing well and building momentum.
Last quarter I talked about some of the weakness brought about by cobot and while the business was down in Q1. They remain profitable. We are now seeing stronger results driven by the RV and heavy duty markets momentum has carried through into September and looks to be promising in the second half.
In Q2, we were awarded approximately $30 million of new OEM business building upon the $375 million I announced last quarter.
Our collaboration with Amazon to integrate fire TV into our rear seat entertainment systems has been a key driver and securing the major portion of our future OEM business and has put blocks automotive significantly ahead of the competition.
Over the over 400 million in New awards, we've received over the past three quarters or so approximately 330 million is incremental.
The business. We won has varying launch dates some in calendar year 2001 calendar year, 22, and 23 and stretch out over three to five years with some smaller ones as long as 10 years.
As to our recent acquisitions, we have completely transitioned the DSMB roster business into our Orlando facility as planned and on time.
And we have completed the integration of the <unk> as well.
Based on the moves that we have made and the awards. We have one we expect to double our automotive business over the next three years.
Moving on to the biometric segments.
Although the quarter showed modest improvement we are seeing increased interest in eyelock Iris technology, driven by the difficulties of the other modalities created by Kobin.
Facial cannot identify individuals with masks or pp and many consumers are much more comfortable with the touchless application.
We have announced a number of new partnerships over the past quarter and have begun receiving some of the new products that were in development ramping up production based on increased demand as.
As a result, we expect to see higher sales, but more importantly, more consistency in sales of our secure solution applications.
And some good news to report in the second quarter. We were advised that we were awarded the program that we have discussed in the past within the health care space.
We are in negotiations on final terms and when the contract is signed we will we will have more liberty to discuss the positive impact this will have on Iowa.
As you know, we also hired an investment banker imperial capital to look at alternatives to enhance eyelock position we.
We have had a number of interested parties and are evaluating several to determine the best fit for box and its shareholders.
To sum it all up.
We had a strong second quarter, the second half should be even better.
Automotive long term looks more promising than ever.
Consumer driven by premium audio is poised for significant expansion this year, which we believe can be sustained barring any major change at retail for within the economy.
Biometrics interest is picking up our pipeline is growing and we have a number of interested parties that want to share and eyelock future and upside.
Our acquisitions were done at what we believe to be a very attractive price and will positively contribute to our top and bottom line.
We have a strong balance sheet with cash on hand and access to capital.
We are planning to re initiate the share repurchase program entering into a tenbfive plan for 500000 shares to begin and we'll revisit throughout the next few quarters.
We are also going to start marketing the back story again, given our outlook and believe we are in a great position to continue to increase shareholder value.
Thank you and at this time I'll turn the call over to Mike and then we'll open it up for questions Mike.
Thanks, Pat Good morning, everyone has provided a lot of details regarding our second quarter performance and our outlook.
As such I will provide a recap of our first half of the year results with some commentary around second quarter that address our balance sheet before we open the call for questions note all comparisons for the second quarter and first half of fiscal 21 in fiscal 20 for the period ended August 31.
For the first half of fiscal 2021, consolidated net sales of $200 million increased by $16.3 million or close to 9%.
Automotive segment sales were down 6.6 million.
Are we on product sales declined by 8.4 million, while aftermarket product sales increased by $1.8 million as many.
As many of you know from prior calls and from various news reports the automotive market was hit hard by called it and there were several plant shutdowns.
That was one of the primary drivers for the OEM decline and the growth in our aftermarket business was primarily driven by our recent acquisitions.
This impact was hardest in Q1, but.
But for the second quarter comparisons note that automotive segment sales were up approximately 22%.
Consumer electronics segment sales were up $22.8 million or 18% with big sales increases opinion motor products up close to 39% others.
Other CE products declined by approximately 12%.
But no. This takes into account products that were sold in the prior fiscal year period that have since been discontinued.
We did not grow other CE product sales in the second quarter year over year.
The biometric segment posted sales of 360000 up 100000, but the real growth is anticipated based on new programs, new partnerships and some of the new products that were recently brought to market.
Our second quarter gross margins of 29.7% increased by 340 basis points and are forced first half margins of 29% increase by 190 basis points.
Driving the year over year increases for both periods was our CE segment up 390, and 260 basis points respectively.
Second quarter total operating expenses declined by 6.7% and for this first six months declined by 11.4% versus the prior year periods.
We have taken a lot of fixed costs out of the business tyranny of course has been down due to the current travel environment and when it either removed a lowest salary and other third party costs throughout the year no.
No there will be some costs coming back in the second half of the year.
Which was part of our plan and given the anticipated increase in sales and the added costs from the acquisitions.
We will continue however to be diligent managing capital allocations.
For the six month period, selling expenses declined by 6.2%.
Gionee expenses declined by 13.3% and engineering and technical support expenses declined by 14.5%.
Second quarter operating income of 8.7 million Mark to 16.4 million year over year improvement.
Adam This and for the six month period, we went from a loss of $14.9 million to an operating profit of 800000.
We anticipate profitability in the second half of the fiscal year as Pat indicated.
Barring any major changes, we made the covis elections and global economy.
This is based on customer projections, which we continually monitor and try to offset year end risk as well as our buying forecasts and future programs that will rollout rollout throughout the second half.
Other income for the three month comparisons declined by $1.2 million and for the six month comparisons declined by $2.8 million. The key drivers was 775000 investment gain in last year's second quarter, a $1 million pick up from a life insurance, possibly also in the prior year and other minor factors.
This leads to a pre tax profit of 9.2 million compared to a pre tax loss of six meringue million when comparing the second quarter periods and for the.
And for the six month periods pre tax profit in fiscal 21 was 1.8 million versus a pre tax loss of $11.1 million in the comparable period last year.
We reported EBITDA of $13.5 million in fiscal 21 second quarter Bresser's inhibit a loss of $1.3 million in second quarter of fiscal 2000 14.9 million increase.
And adjusted EBITDA 13, nine marked a 14.8 million improvement over second quarter of last fiscal year.
For the six month period comparisons EBITDA.
EBITDA of $10.3 million increased by 11.7 million and adjusted EBITDA of $10.5 million increased by $12.4 million.
With respect to the balance sheet.
We finished the second quarter with 45.9 million of cash and cash equivalents up $8.5 million compared to our fiscal year end.
The increase is due to a $20 million youre on a credit facility, which we discussed previously and was done admits the earliest stages of the global pandemic.
And this also takes into account cash used for acquisitions, we will.
We will continue to utilize our cash as we move into our heaviest sellers selling season, and there was there and there are a lot of inventory purchase based on an anticipated increase in sales.
You can see in footnote 17 about form 10-Q, the breakdown of our debt, which stood at 26.3 million as of August 30, Onest compared to 6.1 million as of our fiscal 2020 year end.
There was very little change less than 20 million to our on our credit facility.
In closing our balance sheet remains in excellent condition, and we have sufficient capital and access to capital to fund operations support our customers re initiate the share repurchase program and to continue to seek out other opportunities that will strengthen our business in line with Pat's comments.
Operator, we're now ready to open up the call for questions.
Yeah.
And as a reminder to ask a question you will need to press Star then the number one on your kind of thought so without a question press the pound or hash key again to ask a question. Please press star one on your telephone.
Send biweekly compiles acuity roster.
First question comes from beat Collie from probably holding piece.
Yes, Sir your line is now open.
Good morning, everybody good morning, Pat Mike John.
Just wanted to say congratulations there is not much more to pay after comment I'm proud of you try out through past almost worn off medium or even be happy today with your performance in the second quarter, but I understand too that you're welcome the mifi past, but what I would be equally you know like after I have a chance to get up.
Very early today to study you will release of yesterday evening, if the outlook I mean, the outlook is priced them I can tell everybody because I was always open about this I don't see any reason by coffee holding guidance when opportune continue to buy I mean, the stock went up because I still believe that you have a great book.
Central here.
Needless to say with our 400 million reason or share. So we're watching walks very closely from our office in Singapore from our office in Orlando whatever information, we can probably three guidance. We are seeking and we believe you have you are at the beginning.
And stay tuned we will continue to invest in box and we will continue.
You know to monitor.
Monnet toward.
Possible, probably even support.
So thank you very much for the performance and congratulations I, particularly as the bow will like it because I was a little bit skeptical do impact announced.
Acquisitions, I kind of like Taobao, I mean, why now acquisitions, but I'm not seeing that what goes through aftermarket automotive acquisition really dig for that segment.
More power to you both acquisition as I can see and I don't have every single information, obviously, but a great move so you don't have to.
I have to admit to I, if I would say I would have probably knocked on those acquisition patch or might you did a dumb it helps.
My question today, well base I mean looking at the booking.
The profitability.
Actually I mean to my fellow shareholders, maybe not a secret because path actually announced a lot of those things, but we probably didn't want always not that time by the told us about the contract Ritchie securing new automotive when he told US on the law of coal that Klipsch is doing well, we probably just thought while that's.
No because the stock is down to feel make some good comments, but most of those fruits rich Fox walks with now running in the second quarter and I have no doubt you know to a much greater degree.
It will be earning over the next quarters. The next few years or the fruits of stores.
Information, which Pat gave us.
Several months ago, and those calls when we roll.
We're all a little bit skeptical. So my question to you Pat is Mike.
How do you see the sustainability of this I mean are you.
We're delivering the quarter pretax profit almost 10 million and still I mean, you've got all the quarter, which was challenging coate there was still a federal district.
Travel restrictions you feel is sustainable or are we looking at a company who can deliver while our underwriting ball at the beginning of the year about to be made and efficient feedback involved in steps if they sustainable what do you see Pat or.
Or Mike or John on that from for Us with our fellow shareholders.
All right.
Ill take that and thank you for your time.
Kind words.
As I said, we believe let's talk about the premium audio.
Business.
We believe the premium audio uptick is sustainable for a number of reasons first the entire industry has seen a game.
Colby Cobot, certainly impacted sales to the upside and it seems consumers.
I have read this rediscovered quality audio.
And not just for listening to us.
Two a stereo system, but for movies, where we've seen growth in home theater and high end Soundbars.
But also as I said home gyms outdoor.
Gaming certainly work from home, which we believe is an integral part of today's workplace. So.
From the marketplace, we've seen the market grow and.
And we have seen the audience growth.
Secondly, the additional distribution that we that I mentioned is theater, saying we're doing.
We're doing very well with them and giving and they're giving us additional outlets that.
That we believe will help maintain the growth.
And then third when I look at premium audio our live.
Our 11, TC trading group, which will distribute onkyo pioneer and integra.
Plus the magnet and heckle brands.
Across the Americas is just getting started.
And it's just getting started in the third quarter. So this is this will be a big contributor.
To the topline sales of premium audio so that's where we see the sustainability there.
Finally, what you know when we look at our automotive business first off the first the first quarter was really impacted by Copel, but the car manufacturers are back.
The OEM wins, which we've announced plus the ones. We know that were now working on to secure any acquisitions.
Have given us a much clearer picture of the next few years, where we believe we can double our automotive sales based on the activity. So all in all and again barring any major economic impact.
I think our prospects look very good.
Thank you very much Pat.
Thank you Bob.
Again to ask a question. Please press star one on that side of phone again, that's star then the number one on your telephone.
You don't have any more questions at this time please continue.
Okay. If there are no more questions I want to thank you all for your participation this morning and interest in blocks.
I wish you have the.
A great rest of the day.
And please remain safe. Thank you all.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please stay on the line for your post conference.
[music].
[music].
[music].
[music].
[music].