Q4 2021 VOXX International Corp Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin momentarily until that time and your lines and all that can be placed on hold and thank you.
And ladies and gentleman on today's conference is scheduled to begin momentarily until that time and your lines will again be placed on hold and thank you.
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Good day and thank you for standing by welcome to the box International's fiscal 2021 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 one on your telephone and.
Do you have advice that today's conference is being recorded.
I'd now like to hand, the conference Oh, sorry.
Our speaker today Glenn Wiener.
Investor Relations. Please go ahead.
Thank you Laura good afternoon, and welcome to box Internationals fiscal 2021, and fourth quarter and year end conference call. Our form 10-K was filed with the SEC. Our press release announcing results was issued as well just after market closed and both documents can be found on the IR section of our website as can our updated investor presentation.
And the events and presentations section.
Speaking from management today will be Pat Lavelle, President and Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer, and both will have prepared remarks, and we'll open up the call for questions.
Chairman and founder John Shell and <unk> also with US and he is available for questions as well our call is being webcast live over the Internet and a replay will be available approximately one hour. After the completion of this call.
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 on our form 10-K for the period ended February 28 two.
2021 now.
And now in the past we've issued our results after market close and hold our conference call and webcast. The following morning. However, it's tomorrow and Friday, we wanted to avoid that and mainly because as you saw from the documents published boxes momentum has continued and the company improve both its quarterly and annual top and bottom line results significantly on a year over year basis, and we've got continued growth.
Expected, but I'll save that for Pat's remarks, and I'd also like to add that our box will be presenting at the Stifel. 2021 virtual cross sector insight conference. It's a virtual event and box will be hosting one on one meetings all day with a live presentation from Pat Lavelle on June 9th at 240 P. M. Eastern that presentation will be webcast on the <unk>.
International website, and the IR section again under events and presentations and for those who want to meet with management and you can request the meeting by contacting your staples sales rep or if you reach out to my office up but you and touch there are some other conferences and we intend to present that and the second half of the year and we will ride further details as they are confirmed and with that at this.
And it's my pleasure to turn the call over to Pat.
Thank you Glenn and good afternoon, everyone.
And then we build throughout the fiscal year carried into our fourth quarter and.
And we are expecting continued growth and strong profitability and cash flow and our fiscal 2022.
And Mike will provide more on the financial details, but I do want to call out some of the highlights which can provide more color around my business segment commentary.
When comparing our fiscal fourth quarter.
Net sales were up over 60% gross profit well down on a percentage basis due primarily to the new premium audio distribution agreements we set up.
$13 $8 million operating income of $3 9 million, Mark a $38 9 million dollar improvement.
And adjusted EBITDA of $11 9 million was up $10 2 million for the quarter.
Comparing the fiscal 2021 versus fiscal 2020 results net sales grew by 42, 7% operating income of $22 5 million increased 72 8 million over last year adjusted EBITDA of 46.
$6 9 million grew by $42 1 million debt and we ended fiscal 'twenty one.
And with close to $60 million and cash and cash equivalents and only $7 1 million of debt related to our Florida mortgage on our balance sheet is strong and with our cash position anticipated cash from operations and access to capital through our credit facilities are.
We believe we're in excellent financial position and.
This is key and especially now as there are many companies with strong brands products and distribution that may not be and the best financial position to support their business and we are going to be very diligent and our use of cash and we will continue to evaluate strategic transactions that can improve.
Our business and enhance stockholder value.
No doubt this was a challenging year for most companies given the global and garments and the impacts of COVID-19, but we persevered and I.
I have to say I am very proud of the blocks team, especially how they adapted and continue to support our customers.
The steps we took over the past two years to reposition and realigned box has worked and resulted in strong top line growth and significant improvements across the board on the bottom line.
We secured new retail customers and set up new subsidiaries and added powerful brands.
We made two strategic acquisitions, one of which made us the clear cut market leader and remote start and security products and the other added new lines sold to Oems, including the heavy duty truck market.
We entered into an alliance with Amazon to bring fire TV to the vehicle and secured long term awards with Ford as to Lantus.
We launched a number of new high end premium audio products, while expanding our distribution.
And this year, we expect to add more.
And lastly, we entered into a number of new alliances to bring <unk> products to market.
We were officially awarded a large multi year health care contract with a major health care hardware supplier. We are now and the process of integrating <unk> technology into their new product lineup.
We have several projects underway that are and the testing phase and as announced last week. We reached an agreement with galvanized partners and new LLC set up by beyond Cali, our largest shareholder.
Consider our results and add COVID-19 to the mix.
Any big box retailers specialty stores and aftermarket dealers were closed and are operating with fewer shifts and carry less products and store the.
The biggest impact of COVID-19 was on the automotive side with multiple plant closures delaying vehicle production and future launches.
Towards the Lantus Subaru for example, all box customers were forced to close plants during 2021.
However, we were fortunate and that many of our consumer product lines, and especially our premium audio products were in higher demand as they are considered to be stay at home products.
And as we all know people working from home and still are even with the gradual return we are seeing now.
And I'm often asked if the growth experienced in fiscal 2021 is sustainable.
Our projections are for growth over the full year, but we also know it will be choppy in the quarters due to the chipset ports and container shortages.
Not alone here.
Issue most companies are facing right now.
We are almost through our first quarter and our growth has continued but these issues could impact growth in Q2 with container shortages or port delays, pushing some sales out of the quarter or losing a turn here or there. However, we have seen this coming for months and.
And we extended our lead times purchase long lead parts, sometimes out of a year on more and scheduled shipments earlier. So that we can ensure we have the inventory to hit our third quarter projections, which are the most impactful in terms of our annual results.
But why we are so optimistic is about the next few years and I'll turn it now to the segments and it's a highlight one.
And automotive on my last conference call I noted that blocks automotive had received over 400 million from New awards with approximately $330 million of incremental business.
The majority was for our new rear seat entertainment system evolved with Amazons fire TV and built it.
We secured large multiyear contracts with the Lantus and forwards, which will begin this summer and fall respectively.
Other OEM contracts, we were awarded before remote start and security products and through V S and for a variety of products with New awards with Volvo Polaris and Subaru.
This past quarter and and the early part of our fiscal 'twenty 'twenty two first quarter DSM was awarded new programs with Navistar and macro and typically seven year contracts, adding approximately $10 million of New awards in the heavy duty truck market and for school buses.
Additionally for a while we are in discussions with a number of other Oems and it is our belief that we will have new awards in fiscal 'twenty, two which would positively impact results once programs we get.
Our strong automotive segment results were certainly boosted by the acquisitions of DSM, and directed which helped offset lower OEM volume due to COVID-19 and pitch and the plant shutdowns that I just referenced.
With the new programs coming online and in our fiscal second and third quarter, along with a full year of D E and <unk> results. The automotive segment is poised for growth and we believe will double within the next two to three years, when we compare it against fiscal 2020.
This segment has the potential to grow even more and the following years, our core automotive business is strong our customer roster is expanding and we are selling into new markets with new product lines. We are continuously looking at potential tuck in acquisitions that could strengthen our.
<unk> customer base and reach which has always been a key part of our strategy.
The chip shortage will be a factor and near term it is impacting the entire industry and many of our OEM customers with that said, we have been told by the Lantus and fourth that their launch plans are relatively on schedule. So volumes may be a little lower due to part shortage.
It will ramp up thereafter, we are in discussions regarding adding new vehicles, which if successful should more than offset any impact due to shortages over the life of the program.
And to ensure our electronics the group had an exciting year marked by the establishment of a premium audio company led by the clips from management team and the formation of 11 Tc.
We launched several new products, which were well received by our customers and consumers, we expanded our retail distribution and through 11 TC added distribution of the Ankiel pioneer pioneer elite and Integra brands as we announced last week, we are pursuing the acquisition of Monkee old home Entertainment.
And brands with sharp as our partner.
We had modest sales in fiscal 2021, and our outlook and fiscal 'twenty 'twenty. Two is based on the successful resolution of this transaction.
The final agreement will be presented to the Yankee O shareholders on June 25th.
It's our hope that we can finalize the agreement and then work to expand the business significantly.
Business did over $200 million and sales just two years ago, and we believe with our premium audio company management team and existing infrastructure, we can rebuild worldwide sales over the next few years.
On our third quarter call I said that we expected to see premium audio product sales grow by over $100 million and we finished the year with sales up by almost $130 million.
Big retail quarter for us as many of you know as Q3 and that is the big holiday selling season and prior to the holidays, we will be launching a number of new products and home theater sound bar and headphone categories. All with target launch date between June and August.
Coming to market and June will be our cinema 812 hundred sound bars with Dolby Atmos.
Customers are very bullish on these new units as our cinema and 400 600 series did very well and in fact, the 400 series was named the best sound bar for under $300 and placing it.
We will also be launching our new true wireless headphones and August the T. Five two will lead the way and it's a high tech headphones with sound cancellation and the first two have and integrated operating systems control content and your phone through head gestures.
If you get a phone call and or listening to music you shake your head and reject the call or not to accept it and if you'd want to change. It. So you can simply control that with emotions very unique features.
As we announced recently and 11 TC will also carry the Ti and esoteric audio brands and we will start to generate sales and the second quarter with initial distribution being in the United States.
We are expecting the consumer electronics segments to growth in fiscal 2022 should.
Should detract the transaction with <unk> will be consummated that would boost sales gross profit and overall profitability and the back end of our fiscal year.
Our commercial business, which dipped in fiscal 'twenty, one due to COVID-19 should improve as well.
Movie theaters are opening up and we're starting to see an uptick and cinema sales and hotels and restaurants are expanding capacity and that too should have a gradual and positive impact.
One other thing to note on the various clips partnerships. We are the official speaker of Margaritaville hotels, and resorts hard rock hotels and casinos the day.
Jordan group and with mood, which is expanding worldwide.
Last year, we partnered with Mclaren and Formula one and it did very well and helping to expand eclipses reach and to do demographics.
We have a new strategic partnership with the PGA this year, which will launch.
In the summer.
And similar to the Mclaren Alliance, we will come out with co branded products building off our T. Five sport headphone and crude music system again, expanding reach and target audience.
As for the biometric segments, we grew in fiscal 'twenty, one, but the story is about the future.
We were awarded a major health care contract, which I talked about have several projects in the testing phase and brought new solutions to market.
The big milestone is the proposed transaction, we announced with galvanize partners, a new LLC created and run by Kelly.
This agreement was the culmination of the process that we began roughly a year ago. When we were looking to find a strategic partner that could help move I lock technology into markets, we didn't serve and expedite and our growth plans.
Charlie and the team he has assembled a vast networks globally.
And we will be leveraged.
And the nice partners will become the exclusive distributor of biologic products and the EU, Switzerland, Puerto Rico, Malaysia, and Singapore with the exception of any existing business and they also will have the exclusive distribution rights and the United States for the residential real estate market and two specific U S.
Government agencies.
They have nonexclusive rights to other territories and verticals upon on our concern.
As per the agreement they will pay I lost $10 million and the form of an annual fee up to $5 million and any gross profit they generate for Iraq on their product purchases will be deducted from the annual fee.
And Theres, a put call arrangement, which is detailed in our announcement.
Because it missed the Kelly's ownership and box the transaction terms will be in our proxy and presented to the shareholders for approval at our annual meeting on July 29, and if approved this deal will significantly improve <unk> results.
At this time I'll turn the call over to Mike and then we will open it up for Q&A Mike.
Thanks, Pat good afternoon, everyone.
Fourth quarter net sales were up over 60% and as Pat noted all segments grew year over year.
Automotive segment net sales grew close to 90% with OEM up 11, 6% and aftermarket product sales up over 150% principally due to the acquisitions.
Consumer segment net sales were up approximately 50% with premium audio product sales up over 95% and other CE product sales down over 13%, primarily due to store closures domestically as well as and Germany, where we have a significant market presence and accessories while.
While the biometric St and that had a large percentage increase the overall impact was approximately 70000.
Consolidated gross margins were down 210 basis points, though gross profit dollars increased by $13 8 million. This was principally due to product sell through new distribution channels and those through 11 T 11 and T C.
While these sales carry a lower gross margin expenses are where are also lower to support these programs and it has a positive impact on our bottom line.
Total operating expenses declined by $25 1 million year over year, but we had a $32 million of intangible asset impairment charges in fiscal 'twenty.
And fourth quarter, and $1 $3 million and fourth quarter of fiscal 'twenty one we.
We also had 600000 of expenses related to V S and and quarter four of fiscal 'twenty, whereas in fiscal 'twenty, one on fourth quarter operating expenses related to both BSN and D E and I were $4 6 million a.
And that change of $4 million.
Essentially core overhead was flat for the comparable periods, excluding the impairment and operating expenses added from acquisitions.
And fiscal 'twenty two.
Note that we will have one a full year on D E and <unk> expenses to a full year of more normalized employee related expenses.
Three more advertising and marketing expenses as trade resumes, though not and the volume of prior years and of course more travel as the country opens up.
Pat provided bottomline highlights so I'll move onto our annual comparisons.
We reported a $168 7 million increase and total net sales and similar to the fourth quarter all segments experienced gains year over year.
The automotive electronics segment had net sales and close to $164 million up close to $50 million or oral and a 43%.
OEM sales were down approximately $3 5 million due to all of the plant closures, Pat discussed and the aftermarket product sales increased by more than $53 million due to the acquisitions and in spite of store closures around the country.
Our consumer electronics segment had net sales of over $398 million up close to $119 million or 42%.
Similar to my fourth quarter comments premium audio was up significantly over 75% with other CE product sales just under 10.
Biometrics segments net sales were up approximately 400000 year over year.
Consolidated gross margins were 28, 1% up 30 basis points.
Automotive segment gross margins increased 370 basis points CE segment gross margins declined by 100 day 100.
20 basis points and the biometrics segment gross margins were negative for both periods.
The DSM and <unk> acquisitions positively impacted gross margins due to the mix of products.
Sold through lower all items.
Excuse me from lower OEM rear seat entertainment again.
Mostly due to pay and closures potentially offsetting higher gains.
Also note sales through 11, Tc carry lower gross margins, but positively contributed to the year over year increase and gross profit dollars.
Total operating expenses of $136 1 million were down $24 million year over year.
And they were up roughly $4 9 million, excluding the intangible asset impairment charges with $13 6 million or higher expenses due to the acquisitions.
We have significantly lowered our overhead during the early stages of COVID-19 and then the second half of the year gradually added back expenses related to head count Furloughs and PD.
As people return to work and as some of the major shows resumed operations, we anticipate higher expenses accordingly, with that and mine. We are always looking to drive efficiencies and reduce costs, where we can.
Within other income in fiscal 'twenty, one we reported other income of $5 2 million compared to $9 4 million and fiscal 'twenty.
There were some offsetting factors.
But the major variances to $4 1 million gain we recorded related to the sale of a pull time facility and Germany and prior fiscal year.
OSA, our 50 50 joint venture reported a $2 2 million year over year increase which was partially offset by foreign exchange gains and losses from comparable periods as noted in our form 10-K.
As Pat provided operating and net income and adjusted EBITDA comparisons I will move on with a few comments related to our balance sheet.
We ended the fiscal year with $59 4 million and cash and cash equivalents up $22 million compared to the end of fiscal 'twenty.
Nope, we used cash of $11 million this past fiscal year to fund <unk> acquisitions, which closed on July one 2020.
Note the V S M acquisition, which we had discussed once and our fourth quarter of fiscal 'twenty and closed on January 31 and 2020.
And that had a cash purchase price of 16 and a half million.
Our total debt position was $7 1 million or eight.
$8 2 million for the same periods.
Respectively.
Our total long term debt less debt issuance costs was $6 million as of February 28, 2020, compared to $6 1 million at fiscal 'twenty year and.
Barring acquisitions or any major shifts and our business and the world, We anticipate our cash position will increase and fiscal 2022.
We have sufficient working capital and our balance sheet remains strong.
That concludes my remarks, and operator, we're ready to open up the call for questions.
And is on line to ask a question you will need to press star one on your telephone keypad.
A question press the pound key.
Hi, gentlemen, and I got to ask a question. Please press star one on your telephone keypad.
Yeah.
And we have a question from Matthew channel.
Private Investor Your line is open.
Hello, and I'd like to understand a the.
The accounting treatment of the proposed or proposed to accounting treatment of the proposed <unk>.
Distribution agreement with my luck.
I would it appear.
How would it get translated into and to the various balance sheet items.
Well first of all it's a standalone agreement and anything that they purchase would be booked as a sale and the gross profit recorded would be recorded on <unk> books.
But what about the put and call agreement how would they be reflected.
The put and call us.
First of all the puts and calls.
Other than for a sale or an IPO or anything like that.
And would not happen and the first two years of the agreement.
I would have to ask our accounting department.
They are treating the put and call on them.
Books.
There will be a valuation.
And it has done and that will deal with that and.
That will be in the details on our proxy.
At this point as Pat mentioned the.
On the put and call and the transaction itself is going through and fairness opinion, which we're working on at this time.
But as for the balance sheet and they are probably basically stayed neutral, but we're just looking at the accounting treatment as we speak and reference to that put and call.
And then it would impact the real impact on the balance sheet and P&L for that operation is the distribution agreement itself, which holds the company with a minimum of $5 million and let's consider with G. P.
Right right I mean, so that you know you're guaranteed.
A gross.
Gross margin of $5 million per year at.
At least for two years until the options become exercisable I suppose.
That is correct and as and.
And as Pat mentioned because of the strength of the team. That's joining we feel that that's going to give us more on more market potential.
Okay understood.
Thank you for that if there's time I'd like to ask another question relating to the automotive segment as well sure.
I'd just like to understand on what are the.
And the types of products that are being sold by TSM too. The trucking companies that you mentioned, the navistar and a true angle or whatever.
The primary products that we sell through BSM or heavy duty turning signals from trucks okay.
And certain and lighting.
Okay.
Okay understood.
Yeah.
And yet another question since I'm very interested and box.
What about the.
What about the infotainment system is your supply chain are affected at all by the.
The widespread.
News of shortage and the auto or you know as you said you've made agreements and advance for various parts anyway, but generally is.
And my understanding correct that the electronics the chips that are used for the infotainment systems.
Typically more consumer type chips, and theyre not the automotive type Hum devices.
No. These are on it.
And in order to be on the OEM and these are automotive grade chips.
Okay.
Automotive environment, but we have secured.
Enough ships to launch the product and Thats twice the length is pretty much on target as far as the launch the first vehicle that will come out with their new Grand Wagoneer.
And we have secured enough parts.
And for it and get us through that launch and supply additional products for the year.
Okay, great. Thanks for thanks for entertaining my questions and thank you very much.
And Matt.
And again, if he would like to ask a question. Please press star one on your telephone keypad.
And we have a question from Stephen that channel.
Your line is open.
Hi, good evening.
So.
I'm a long term shareholder.
Oh I got it.
I'm in Florida, and I see our products and Costco, all the time and and giving a lot of shelf space, yes. They are.
My question is.
So for the last couple of calls you've mentioned and the medical devices medical device and with high law and is that what you referred for when you finally said something about it because you've never you've mentioned it but there's never been any information around it. So that's what we're looking forward to yes.
Yes, what we're looking forward is there and we have one on <unk>.
Ward debt will incorporate the <unk> technology into certain health care.
Ups that are supplied by a major worldwide health care provider as far as manufacturer.
And we are under NDA, we cannot divulge what the product is or who is for.
But we are and the process of integrating our technology into their new lineup of products that.
For the most part we will we'll have a.
A limited launch in 2023.
Targeted general launch towards the end of the year. These are very sophisticated machines and then.
And quite expensive designed for hospitals.
So this is an award that we think.
Not only generates revenue for us, but really validates.
And our technology.
Within the health care space.
Thank you it sounds great keep up there.
And <unk>.
And again, if you would like to ask a question. Please press star one on your telephone keypad, well pause for just a moment for any additional questions.
There are no further questions on queue per Suntrust you may continue.
Well I know this is unusual that we have our call. This late so I'm sure that everybody wants to get home. If there are no further questions I want to thank you for your interest and box and wish you a nice evening.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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