Q1 2022 VOXX International Corp Earnings Call
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This is the operator todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good day, and thank you for standing by and welcome to the box fiscal 2022 first quarter results conference. At this time all participants are in a 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 for your host Glenn Wiener Investor Relations. Please go ahead.
Thank you Carmen good morning, and welcome to box Internationals fiscal 2022 first quarter conference call. It's.
It's been about approximately 2 months since we last reported our fiscal 'twenty, 1 results and I'm pleased to say momentum has continued.
Today, we will have prepared remarks from Pat Lavelle, President and Chief Executive Officer, and Michael Stoehr, Senior Vice President 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 on the Investor Relations section of our website on direct T SEC filings.
Michael Stoehr, and I will be presenting at the D. A Davidson <unk> select conference on August 4th and we will be hosting meetings throughout the day and we have registered to present at the Sidoti Summer virtual Microcap Investor Conference on August 19th at 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 others 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 on 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 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 however in fiscal 'twenty 2 our Q1 sales were up over 90%.
Net income attributable to box was $2.7 million and $11 million improvement in adjusted EBITDA of $8.3 million increased by 11.5 million when comparing the fiscal 2022 in fiscal 2020, 1 first quarters.
All things considered especially with some of the supply chain issues. The industry is facing and the higher cost 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 transaction the transactions that we have underway.
Pioneer galvanize on these are all onetime 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 it depends on it would be on our business.
We furloughed employees stop certain investments cut travel and many third party expenses until we were able to see the full impact of Covid.
Our 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.
New streams for the future.
Our automotive segment grew by over $25 million, our OEM business was up aided by the Nissan Armada rear seat Entertainment program coming on line and higher volumes due to prior year plant shutdowns.
We also had sales increases of OEM automotive safety electronic products and higher aftermarket sales growth several categories as retailers and aftermarket dealers, we're operating mostly at pre COVID-19 levels during fiscal 2020 twos for this quarter.
Overall in automotive sales were up gross margins improve in the segment was profitable with a $6.3 million improvement in pretax income year over year.
We were awarded a new rear seat entertainment program with Infinity in support of their <unk> launch roughly $1.5 million over 5 years with shipments starting this month.
We want a new OEM program from Volvo Europe, approximately $2.1 million for Leds modules on their heavy duty trucks. This marks the third award with Volvo Since we acquired the S. M. At the end of January 2020.
We were also awarded a small OEM program for Nissan for fog like kits, which we hope to expand on.
We continue to ship for our current Evo rear seat solution as we gear up for the evolve launch with Amazons fire TV built it.
Evolved will start to ship in November and will be released the dealers in February of 2022.
We are in discussions with board 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 the Atlantis and expect to ramp up volume throughout the year.
Over the next several weeks, we expect to finally finalize additional programs with the lenses.
We were advised at box automotive will be the supplier of record for a headless VRM program.
New type of video system, starting in the second quarter next year, along with additional display units starting a year late.
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 OE Awards that we have received on the past approximately 2 years to roughly $500 million.
We were in discussions with other Oems for evolve and our latest solution.
And have several.
Request for proposals pending.
We are building a strong portfolio of OEM awards on majority of them incremental business that will layer on our core 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 the other consumer electronics products grew as well.
We had growth in home theater sabol for premium mobility, and premium wireless audio categories and benefited from new sales of premium wireless computer speaker systems and Bluetooth products.
Additionally, 11 T C. The subsidiary established last August to distribute.
Thank you 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.
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-19 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 on keel.
The CE segment as a whole however delivered $5.5 million pre tax income versus a small loss in last year's first for.
As we announced just a few weeks ago. The premium audio company formed a joint venture with Sharp Corporation.
The JV will acquire uncle Joe's home on audio video business on the premium audio company will be the controlling interest holder.
The total purchase price was 38 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 in general closing conditions.
Sumit all moves forward as planned the JV will own the young Kyo and Integra brands, all I T 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.
A new licensing agreements from manufacturer and distributor pioneer and pioneer elite brands for ABB products worldwide, except for the People's Republic of China.
It will take time for shop to ramp up production lines in Malaysia and to secure all parts and inventory needed due.
Due to the shortage is today, but with that said.
If we close as planned we could do approximately $50 million in net sales this fiscal year compared to a little under $14 million in fiscal 'twenty 1.
And as I've stated on prior calls we're talking about on uncle business that did well over $200 million, just a few years ago and more than prior years.
No doubt, we have the distribution and infrastructure to rebuild worldwide sales in the us over the next few years this would be a big boost.
To both the top and bottom line.
Additionally, 11 T. C. Remember also picked up the esoteric and tiered 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 P. G. A program that we have launching this summer.
As for the biometric segment things are improving how better or a little.
Slower rate than we had hoped revenue more than doubled coming in at a little over 200000 gross margins turned positive and our pretax losses roughly in line with last year's quarter.
Driving the improvement were higher sales of our new <unk> product.
It comes with items 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 <unk> embedded technologies.
We are also moving forward with the health care equipment supplier I referenced on prior calls.
With minor revenue contribution is expected this year as we go through beta test.
Increased revenue in fiscal 'twenty, 3 as they do a soft rollout and wider scale build out in fiscal 'twenty for <unk>.
Everything remains on track.
On July 29.
We will host our virtual annual meeting of stockholders and up for vote will be the proposed distribution agreement between Iraq, and galvanize LLC, which is majority owned by Dr. Kelly, Our largest shareholder who was also up for election as a new board director.
And what I'd like to just first give you a little bit about Mr. Cali.
He currently serves the serves as the founder and CEO of Cali, holding a G and Avalon Park group, a real estate development company here in Orlando.
And as CEO and director of <unk> properties holding AG.
Another real estate company with activities in the U S and Switzerland.
He serves on the board of advent health Orlando, 1 of the largest nonprofit health systems in the U S and have several other business interests international.
He has been very supportive since you began investing in box offering to leverage this network to help drive our business forward.
We believe his vast experience across diverse industry as 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 and Mr. Kelly has been made aware of that request and although he has been holding off on marketing until the deal is approved and finalized. This team has started to expand communications.
Galvanize recently launched its web site www galvanized biometrics dot com to provide investors with more background on the company its people and reach.
I 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.
Fatality serves as chairman of the board and the management team he has assembled.
<unk> Allen eyeball.
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 I'm a dori CTO also was at 25 plus year career focused on technical solutions development specializing in scanning based technologies, such as lidar sensors for them.
Occasion change detection and risk assessment.
And Rick Hammond and Chief growth officer, another with a 25 plus year career, and I T engineering, and cyber security services to transportation government and the private sector.
But this team is backed by an advisory group and while awaiting shareholder approval day, we're in the process of setting up operations leveraging contacts and determining the best the best path forward to create new business opportunities for <unk>, both in the physical security products and in the embedded salute.
This is a seasoned team.
That has worked together on several programs across the globe their backgrounds and Avalon partner group for vast reach make them an ideal distribution partner that can help us in markets, where we have limited to no presence real estate critical infrastructure transportation U S governments, they have dealt with company.
He's on 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 I lock has limited reach.
And most important they.
They understand and believe in <unk> technology and the need for it.
As noted in our proxy galvanize will pay off $10 million in the form of an annual fee of 2.5 million for the first 2 years with payments by quarter.
And any gross profit they generate on sales of biologic products would be deducted from the annual free for the essentially $5 million for a year flowing through gross profit improving <unk> financial performance and to our consolidated results.
So in summary.
This has been a very active on a relatively good first quarter.
We expect growth into Q. 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 be.
John.
We will also have higher professional fees associated with closing Dr. T O transaction for.
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.
An even better fiscal year 'twenty 3 given the new alliances for them, the new awards and our momentum.
So with that I'll now turn the call over to Mike and then when he is done we'll open it up for questions Michael.
Thanks, Pat Good morning, everyone, Pat discussed our first quarter financial highlights and I will provide a little more color around key P&L drivers yonker transaction and close with a review of our balance sheet.
All of my P&L comments from the comparable fiscal 'twenty 'twenty 2 in fiscal 2021 period.
Unless noted otherwise.
Total sales were up $65.1 million.
Although.
Automotive segment sales were up $25.4 million with OEM product sales up $7.3 million driven by higher RSC volumes and growth in heavy duty truck are H D T market, where we service the S. M. A recent acquisition.
Aftermarket product sales were up $18.1 million with roughly $12 million of this attributed to the D E acquisition, which was in our final.
It was not in our final 21 first quarter.
In the aftermarket we experienced year over year gains in the video and we're seeing entertainment remote start and security telematics and satellite radio categories among others.
<unk> segment sales were up $939.6 million with premium audio product sales up $37.1 million and other CE product sales up $2.5 million.
Within premium audio the biggest growth within home separate category, followed by sales of speaker systems, and computer systems for mobility products and through custom installers.
Premium audio sales were up both domestically and in Germany, and we added approximately $6.4 million of new business through 11 T C, which began operations in the second half of fiscal 2021.
We had sales increases in several CE accessories categories again as retailers are mostly shutdown in FY 'twenty, 1 first quarter, but also due to increased distribution and product placement.
Bluetooth wireless speakers karaoke product home audio remote controls digital clocks smart home and nursery product sales were up in all of these categories and we saw a modest increase in our German operation as online sales for strong and we're starting to see retail stores reopening.
And biometric segment sales were up a little over $100000.
While consolidated gross margins were down 90 basis points gross profit dollars were up $16.7 million.
Automotive segment had gross margin increase of 930 basis points on our gross profit increased by $8.5 million.
Higher OEM sales led to better absorption rates and efficiencies helped drive margins as did.
The addition of the D E business.
Yeah.
Traditionally carry higher product margins and segment margins and an increase in sales of higher margin OEM and aftermarket safety security and <unk> products.
The consumer segment had gross margin decline of 430 basis points, but gross profit was up $8.2 million for.
The driver of this margin declines were 1 strong sales of premium audio computer systems launched in the second quarter of last year and other premium audio products sold through the warehouse club chat on the.
The margin structure is lower but the contribution in dollars greatest given the volume.
We also ran new promotions on some of these products in the following the holidays.
<unk> sales positively impacted the segments overall business, but are sold on fulfillment margins and for we incurred higher shipping costs and surcharges related to container shortages and port delays and higher cost for parts.
The first 3 drivers are in the normal course of business and part of our strategy to increase profitability and fund growth driven programs.
The latter is something that we are controlling as best we can.
There will be some residual impact in the second quarter, but as Pat indicated the price increases we implemented as we begin to offset this in the second quarter with a bigger impact in the third quarter and beyond.
Lastly, biometric segment margins were positive at 19, 5% versus a negative gross margin of 22, 7%. So the overall impact was minimal.
Operating expenses were up 9 million, but as a percentage of net sales declined from 39% at quarter, 1 of fiscal 'twenty, 1% to 27% in quarter of fiscal 'twenty.
2022.
This is with a lot of additional costs, we had $1.3 $7 million on P. E. R related expenses, which were not included in Q1 of last year.
2.
A $2.6 million increase in professional fees with the majority related to the transaction Pat discussed.
316 million of higher salary and related payroll taxes recorded as selling expenses and a $1.1 million increase in salary expenses recorded on the G&A.
Please note last year's Q1 included furloughs and salary and bonus cuts that we've put in place in the early stages of the pandemic.
This year's first quarter did not have that.
A number for $1.2 million higher commissions, given the higher sales and finally, <unk> 5.900000, and higher advertising expenses with new product displays created and in support of higher online traffic and sales.
Pat address the bottom line comparisons and our year over year improvement, but I'd like to make 1 other comment professional fees were up $2.6 million of this end of this we had approximately $1.7 million of expenses related to the on field transaction galvanized distribution.
And non routine legal expenses piece takes.
Taking this into account our operating income was positive for Q1 and as you can see the breakout in our adjusted EBITDA schedule in our release and form 10-Q.
We continue to lower costs in other areas and are mindful of all expenses, especially as the country or rather the world continues to open up.
Our income of $2.6 million was up $1.9 million.
Driving this was our 50.50 joint venture with ASI electronics.
Posted a $1.9 million improvement year over year, and we report this as equity and income of equity Investees.
Chris and bank charges declined 300000, which offset the 200000 increase in other net.
Moving on to the balance sheet in ASEAN.
Balance sheet comparisons for the periods ended May 31, 2021, and February 28, 2021 at the end of our fiscal 'twenty, 2 first quarter and fiscal 'twenty 1 year end.
We had cash and cash equivalents of $36.7 million as compared to $59.4 million.
Total debt stood at $7 million compared to $7.1 million.
All related to our Florida.
Mortgages on the property.
And long term debt net of debt issuance costs $5.3 million versus $6 million.
As for the ocular transaction.
The joint venture between <unk>, and sharp will incur a total purchase price of $30.8 million and includes the assumption of certain liabilities.
In conjunction with the letter of intent we signed in April 29, 2021, we issued a $3 million secured promissory note to Ontario, So they could continue to fund certain operations and support the business. While we are in discussion.
The $3 million is included within prepaid expenses and other current assets on our balance sheet.
We amended the note on June 22nd and provided an additional $2 million and 250000.
The note bears interest at 4% and will be satisfied upon the completion of the transaction.
As collateral we received the security interest in certain akio trademarks and asset.
Of the total purchase price or cash portion is expected to be approximately $26 million and the total amount loan net interest accrued will be deducted from the cash purchase upon closing.
We expect we will need roughly $5 million to support the joint venture for the remainder of the fiscal year.
This concludes my remarks, and operator, we are ready to open up the call for questions.
Secondly.
As a reminder to ask a question simply press star 1 on your telephone to withdraw your question press the pound or hash key.
Meanwhile, we compile the Q&A roster.
We have a question from the line of Tom Forte with D. A Davidson your line is open.
Great. Thanks, So patent Mike first off congrats on the quarter I had a handful of questions I wanted to walk through on the 1 at a time so first off Chad there's a longtime participant in the consumer electronics category was hoping you could provide some historical context for the current challenging supply chain situation. For example, it's just the most challenging it's been in 10 years.
20 years.
How should I think about it in a historical context.
Well historically I don't think we've seen situations like this.
Before there had been part shortages, but COVID-19 really has.
Impacted so many different areas, whether it's chip.
Chip production.
[laughter] excuse me chip production raw material.
On the container delay in shipment delays port problems because of Covid.
This is essentially caused us to really expand the lead times that we normally have for.
For purchasing product in procuring products, we've almost doubled our lead times to ensure that.
Know that we have product.
When we need it.
Through the first quarter.
You know these problems existed a boat with a 90% increase in sales it did not it did not affect us.
On the problems continue.
We're prepared to bring in products in any way that we need to bring in we have built up.
A big supplier of products that are waiting to be shipped.
And we're fortunate from the standpoint, we have the cash on hand, we have the line is open to us.
To support the inventory purchases.
You know, which which will be higher to make sure that any delays.
Have additional products in our warehouses.
That we do not miss any sales, but when it comes to historical I've been doing this for 40 plus years I don't believe I've seen anything.
As problematic as this but as I said I think we're handling it well.
Excellent that's very helpful. So the next question I had is how should I think about it in this manner is it more challenging today in July than it was 3 months ago on 6 months ago, and what signs are you looking for for improvement.
Okay.
Well I think we're.
From the chip shortages and things like that we had anticipated when we started to hear about the chip shortages.
So we were out purchasing and we've extended our long lead items in some cases over a year. So the chip shortages have not really affected us the price increases.
We will affect us as those the higher price products get delivered to us, but that's the reason why we instituted the price increases to offset.
The raw material price increases and then there's also from the increase in containers and free and bringing the products in which we instituted a surcharge on.
And we feel we are quite competitive with the rest of the market because everybody is facing the same thing. So the prices the prices are going up to offset it.
Obviously, the holiday season is always a crunch. So I think it's going to be challenging and that is the reason why we have gone out.
And late in orders so that 1 we would have product now.
The goal is getting that product into the country, However, which way we have to bring it in to secure sales.
Great 2 more so following our initiation of your stock we've had a lot of questions from investors on your automotive efforts and how youre able to land Amazon.
As a customer and the significance of what Youre doing with Amazon as part of your product portfolio can you provide some additional details on that.
Well, obviously, when Amazon look to enter into the automotive space.
They looked around and they wanted to get their fire TV into into vehicles and they looked around at the companies that have the expertise from the field and seeing as it had been a niche business.
And we were by far the number 1 supplier of rear seat entertainment and cars, both in the aftermarket and to the OEM manufacturer.
They approached us and when they saw the capability that we had we feel very comfortable with moving ahead and essentially.
Making us the only company in North America that they are working with to develop.
On to develop.
Amazon TV in the car.
And.
With our involvement in OEM automotive for a number of years, we knew what to expect and obviously our successes we have delivered.
Tusa lenses there was 1 other manufacturer that they chose to.
To produce product for some European car manufacturers.
A way behind where we are so I think we've performed very very well and I know that we have the confidence of Amazon to recommend blocks to any and all other OEM manufacturers that are looking to add clarity to the call.
Great. So thanks, Pat last 1 final 1 so the.
National interest program looks really interesting to us can you talk about at a high level on what it can mean for box international.
I'm, sorry, which plan was this.
Atlantis.
As for Lantus.
Yes, yes, the Lantus is.
It's primarily starting with.
Pretty much all the jeeps in the Pacific debt Okay.
In the end of this month, they will be delivering the new Grand Wagoneer, which is their flagship vehicles and that will contain our products with rear seats.
And fire TV.
Again, we've had relationships with these car manufacturers. Some number of years, we've worked with Chrysler for a number of years on risk on them.
Car start.
And again when when Amazon.
Who's recommending box for Chrysler.
Had the experience with box over many many years.
And based on again, our knowledge of the consumer the rear seat space, what we had already achieved which is way ahead of the market.
They were comfortable in working with us for.
Financially.
Stable company that allows them to make the decision to move ahead with us. So there were a lot of different factors that played into it.
Experience Amazon's desire to work with us they have met with our engineering team. They knew we had the capability and then we have the financial wherewithal to work with them in May.
They will roll out now.
We're getting near the Jeep Cherokee Pacifica over a period of time and.
You know that's that's how it how it develops.
Great. Thanks, Pat Thank you Mike for taking my questions.
Tom Thank you.
Thank you again, ladies and gentlemen, if you have a question simply press star 1 on your telephone.
Yeah.
Sir I'm not showing any further questions in queue.
Okay. Thank you I want to thank everyone for joining the call. This morning, we are pretty excited about the prospects for the company as we look into the future as we close the on field deal the pioneer license agreements and as we start to ship board.
And <unk> is the.
Amazon fire, TV, which we believe will generate additional business.
As it will be the most technology.
Logically advanced system on the market and I think it will it will drive focus on 2 blocks from other OEM suppliers, So guys Lady.
Ladies have a great day. Thank you for your interest.
Thank you and this concludes today's conference. Thank you for your participation and you may now disconnect.
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