Q2 2022 VOXX International Corp Earnings Call
[music].
Good day, and thank you for standing by and welcome to the Fox International International fiscal 2022 second quarter 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 start the number one on your telephone.
If you require any assistance. Please press star zero I would know like the <unk>.
Turning the conference over their speakers to be Glenn Wiener.
Thank you good morning, and welcome to box Internationals fiscal 2022 second quarter Conference call.
Our press release was issued yesterday after the market closed and we filed our Form 10-Q with the SEC. Both documents can be found in the Investor Relations section of our website and an updated investor presentation will be posted later today, we will have prepared remarks from Pat Lavelle, President and Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer.
After which we will open up the call for questions I would 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 28, 2021 also note management will presenting at the Sidoti Investor Conference on December eight at night and hosting one on one meetings with investors throughout the two day period. We have also registered to present at the Imperial Capital Security Conference on December 14th with more details to follow there are other events we are evaluating.
The remainder of the calendar year, and we will update our investors accordingly, I'd like to thank you all for your continued support of box and it is now my pleasure to turn the call over to Pat Lavelle.
Thank you Glenn and good morning, everyone.
In light of what we experienced this past quarter I'm quite pleased with our performance.
If you consider all of the.
One time events, especially considering the worldwide economic turmoil that we've all encountered over the past year the.
The Fox team has done a good job navigating through what we believe was the worst of the supply chain shortfalls.
The initial price increases that we instituted have taken effect and due to the rapid increase in the second quarter of container prices, we instituted a second wave of price increases in September.
We have the inventory on hand to deliver in our all important third quarter.
In addition, we have added new or alternative suppliers to increase component availability, we changed our ordering protocols to compensate for a longer lead times and even modified boards to utilize alternative chips.
We believe all of these measures combined will give us more flexibility in terms of how we manage the business in the quarters ahead.
Revenues grew almost 12% in Q2 and are up 40% through the first six months year over year and this was accomplished despite missing a few inventory turns which were expected due to the corresponding shipping delays.
Gross margins, primarily in our consumer electronics segment were impacted by the supply chain and the added cost associated with freight and warehousing.
And while there will be some continued pressure. The good news is that we expect less of an impact coming out of this calendar year.
The increase in our operating expenses were primarily due to a full six months of <unk> compared to two months in fiscal 'twenty one.
Higher employee costs as we brought back furloughed employees and we're still in salaries.
We also added expenses associated with some of our larger and new OEM programs and had higher professional fees to support the young Theo and galvanize due diligence and transactions.
For the six month period in fiscal 2022, we had an operating loss of $4.0 million versus operating income of 400000.
Taking into account onetime nonrecurring expenses, our operations actually performed better than the first half of last year, especially with the $12.0 million increase in professional fees $12.0 million of which we considered nonrecurring and roughly $11.0 million of added expenses.
For NRT.
And labor and extra warehouses to hold inventory in Asia waiting for shipments.
On an adjusted EBITDA basis, we reported $20.0 million versus $17.0 million for the first halves in fiscal 'twenty, two and 'twenty, one an improvement of $12.0 million.
Looking ahead, we anticipate continued growth in the second half of the year with Q3, a little under in Q4 above the prior year.
We expect to be profitable in both quarters and the variance from the prior year to this year. It was primarily in engineering and tech support.
We expect to see an increase of approximately $9 million year over year to fund growth related programs.
Nearly $5 million of which relates to the addition of <unk> engineering team.
I will add some comments with respect to next fiscal year in my closing comments, but needless to say there is a lot of momentum and blocks.
Our automotive electronics segment grew by 40% in the second quarter and revenues are up 77% through the first half of the year.
In the second quarter comparisons our aftermarket business was up 34% with the added contribution from our <unk> subsidiary.
Our OEM business was up 53% due to new rear seat entertainment programs with Nissan and Atlantis, both of which began this past quarter and should ramp up in volume as customers increase production.
And we have forward starting in the fourth quarter, which will be added boost.
Top line revenue.
We also saw increases in automotive safety and security products.
For the six month comparisons our automotive segment grew by 77% with aftermarket revenue up over 81% and OEM revenue up approximately 70% keep.
Keep in mind. This growth was achieved despite all of the shortages and delays, which impacted not only our aftermarket dealers, but places significant strain on our OEM customers as well.
The environment worsen this past quarter with a number of car manufacturer shutting plants due to lack of parts. We expect this to normalize as we move into next year and more capacity comes online.
Our consumer electronics business grew by approximately 2% in the second quarter and almost 28% year to date.
Premium audio product sales grew by approximately 10% in the second quarter and over 42% through the first six months, which offset declines in other CE product sales.
A majority of the CE segment product sales declines related to inventory and chip shortage, which in turn led to production delays and there were continued store closures closures in Europe.
This also impacted premium audio product sales, but we are still growing and expect this to continue.
During the quarter, we had increases in sales of premium wireless speakers and wireless computer speakers and higher sales of premium audio in Europe.
For the six month period, we grew in virtually all premium audio categories.
11 trading company saw a sales increase of $15.0 million in the second quarter and $24.0 million when comparing the six month period.
As most of you are aware we closed on the acquisition of Biofuels home Entertainment business in September.
Which is our fiscal third quarter and this transaction holds great promise for our company both in terms of growth and added profitability.
And lastly, our biometric segment sales remained relatively flat for the quarter comparisons, but was up 27% for the six month period.
We're expecting this segment to post more meaningful revenue increases and smaller losses as we begin to realize future contributions from the galvanized distribution agreement, our new health care customer, which ramps up next year and other small smaller projects we have been awarded.
Overall.
We have performed well given the environment.
I'd like to shift now to our outlook is we're quite bullish on our prospects.
This optimism is based on the contracts we have been awarded the new additions to the <unk> family of brands and products and a lot of behind the scenes momentum, which has been delayed because of the global supply chain issues and should start to come back to life as things begin to gradually improve.
With Amazons fire TV, we can offer our customers more content than anyone.
Based on the investments we have made over the past two years, we are the clear cut leader with our technology and expertise.
This past quarter, we began shipping to the Lantus and Nissan and soon we'll be delivering to Ford.
Based on what I've been told by our OE customers automotive production is anticipated to increase in the capacity constraints should begin not only stabilize but improve over the coming quarters.
This bodes well for growth and incremental bottom line profits.
We have resumed conversations with several other Oems that had been in limbo for a good part of the year due to supply chain issues and we believe we will see additional incremental awards layering on top of our core.
Even without this we are still positioned to double this business by next year compared to fiscal 2020, our outlook has not changed.
And puts us in new product categories, and new OEM channels.
<unk> has grown since we acquired them and solidifies our position in several automotive security categories.
Premium audio contingency and continues to be a strong growth driver and.
And that will intensify with the addition of the <unk> acquisition and new licensing agreement with pioneer.
I indicated on my last call that we should do approximately $50 million in sales. This fiscal year and provided we don't have any additional shipment issues, we should do a little bit better than that.
As we ramp up production and rebuild distribution with a focus initially on North America. We believe we can reach over 125 million in sales. The next fiscal year and as we expand globally, we expect to see exceed over $200 million.
As we are now the owners, we expect to see gross margins at our 11th TC operations improve as well.
With anticipated revenue increases margins more in line with historical premium audio products 11, Tc should be a significant contributor to our bottom line.
Now, we normally don't provide guidance.
But given all that has transpired wed like to offer some direction for the third and fourth quarters.
Our outlook is based on customer projections, and what we have done to date and barring any unforeseen events, we feel comfortable with the following statements.
We expect sales to be up modestly in the second half of the year with the third quarter below in the fourth quarter above the prior year periods.
<unk> 2022 sales should come in around $640 to $650 million and we believe higher by potentially double digits in fiscal 2023.
Gross margins should be more stable based on our actions to date.
We will have additional expenses associated with startup costs for OEM programs and <unk> operations and expect higher gross profit contributions next fiscal year.
Expenses will be more normalized as the reductions associated with furloughs and salary reductions were essentially back to base levels in last year's third quarter.
We don't expect to incur the level of professional fees that we had in the first half and we will be reporting comparable numbers for DPI.
Total operating expenses in the second half are expected to be approximately $9 million higher in the second half of last fiscal year.
With $8 million related to the addition of <unk>.
Selling expenses and G&A expenses are expected to be mostly in line with the prior year.
Based on what we've accomplished this year I believe we have positioned the company for greater profitability as we move into fiscal 2000, and 2023 and beyond and we have set our sights on exceeding $1 billion in sales over the next few years.
And with that I'll turn the call over to Mike for further detail Mike.
Thank you Pat good morning, everyone, rather than walk through all of the three and six month comparisons I'm going to provide additional background on some of the sales and expense drivers and breakout non routine and non reoccurring expenses.
I believe this will provide more clarity on our results for the first half of the year.
Actual revenues year to date for the comparable six month periods as Pat noted, both our aftermarket and OEM business was up significantly in the first half of the year.
On the OEM side key drivers with the start of the Nissan rear seat entertainment programs for Armada.
Sandy.
Higher sales from Astellas Atlantis as we started the evolve program with Amazon fire, TV and higher sales from Ford.
Component shortages, certainly curtailed some of the growth, but we expect to make it up as production volumes increase.
In the aftermarket we had strong increases in vehicle security and from our <unk> subsidiary and modest increases in the video and telematics categories.
Satellite radio fulfillment sales were down due to limited receive a production for several months of this year.
Premium audio product sales were up and growth is anticipated to continue we.
We saw increases in the traditional passive and several of the categories and mobility products with the launch of several new headphones and in a new cinema sound bars and computer speakers.
Our German operations were up as many of the COVID-19 restrictions were lifted and as we discussed we added approximately $24.0 million in sales from 11 TC as a subsidiary was formed in the second half of last year.
The supply chain issues curtailed some of our expected growth both for premium audio products and then several CE product categories.
Regarding our gross margins.
Our gross margins in fiscal 2022 second quarter came in 370 basis points lower than the prior year period.
We estimate that added cost related to the supply chain issues expenses to cover additional warehouses in Asia for example, and higher freight and fuel cost was approximately $7.0 million for the quarter.
With the majority tied to premium audio.
Similarly for the six month comparable periods gross margins came in at 260 basis points lower year over year.
Gross profit dollars increased by almost $16 million.
The dollar impact was approximately $4.0 million for the six month period.
Keep in mind that were also higher cost of doing business throughout that drove margins lower for the <unk> segment, and we believe we've covered the bulk of our price increases and other steps taken as Pat talked earlier.
As for expenses there were several expenses that came back as a result of the COVID-19 restrictions implemented implemented in fiscal 2021.
And others that were non routine and non reoccurring in nature.
Of the $14.0 million increase Q2 of fiscal 2022 versus Q2 of last year.
We had $4.0 million of professional fees related to transactions.
We had $8.0 million in higher overhead of DDI as we own them for roughly two months in Q2 of last year and the full quarter of this year.
We had one 5 million related to furloughed employees and salary and bonus reductions which were imposed during the COVID-19 lockdown last fiscal year.
And we had $2.0 million and non reimbursed NRG expenses and additional outside labor expenses related to our new OEM program.
The rest of the increase related to commissions E Commerce sales web and advertising expenses and additional R&D.
Taking all of the increases into account, we estimate approximately $12.0 million of the increase is considered non reoccurring.
For the six month comparative periods operating expenses increased by $23.0 million.
$6.0 million relates to dei owning them for six months versus two.
$12.0 million as for professional fees $8.0 million is for furloughed employees at salary and bonus reductions.
One 5 million is for NRG and outside labor.
The remainder is mixed across SG&A and engineering and tech expenses.
This $9.0 million is considered nonrecurring.
Note that the acquisition costs and non routine legal fees are taken into account in our adjusted EBITDA calculations.
Total impact was approximately $9.0 million for the second quarter comparable and $4 million for the six months comparatively.
We grew nicely dealing with the supply chain turmoil.
It did however have a big impact on our gross margins some of which will be offset in the third and fourth quarters, given the second wave of price increases and hopefully more stabilization in the markets.
We aggressively.
<unk> procuring what we need when we can and we took some added steps, which added cost to ensure we had as much inventory on hand, as we can for the second half of this year.
That was a strategic decision as it is the investments patch spoke of in R&D given the volume of automotive awards that we have been awarded and new programs. We believe we are well positioned for the future.
We don't expect this level of professional fees as a transit transactions with Akio and galvanize, who are behind us and we're not expecting NRA expenses of this magnitude in the second half of the year.
Through the first six months of fiscal 2022.
Our operating income is down $8.0 million, though the increase of professional fees made up more than a difference.
Net income attributable to Vox is up $5.0 million and adjusted EBITDA is up $12.0 million.
Moving to the balance sheet.
As of August 31, 2021, we had cash and cash equivalents of $42.0 million compared to $43.0 million as of May 31, 2021, and $68.0 million as of fiscal 2021 year ended on February 28.
The roughly $21.0 million decline since year end takes into account cash usage of $12.0 million to fund <unk> operations in the form of a note.
Which was satisfied in paid off as part of the transaction closed on September eight.
Remainder for general and the remainder was for general working capital purposes.
We funded the remainder of the IPO transaction this quarter and we will be ramping up cash outlays as we typically do as this is our largest selling season.
Cash is expense expected to come back at a back to normal levels at the end of the fourth quarter.
Our total debt stood at $14.0 million as of August 31, 2021, compared to $7 million as of May 31, and $8.0 million as of February 28.2021.
The increase relates to an 800000 usage of our $8 million Bureau alone and Vox, Germany, as we purchase more inventory for the third quarter.
Our only debt is related to our U.
U S that is related to our foreign mortgage which stood at $15.0 million as of August 31, and.
And compared to seven one as of year end.
Total long term debt net of debt issuance costs was $7.0 million compared to $6 million for August 31, and fab 2008.
Periods, respectively.
We have the cash and access to capital to fund our acquisitions invest in growth continue to pursue strategic transaction that can positively impact our business and generate returns.
That concludes my remarks, operator, we're ready to open the call for questions.
As a reminder to ask a question you will need to press star and the number one on your telephone.
All your question press the pound key.
Please stand by while we compile the Q&A drastic.
Your first question comes from the line of Tom Forte from D. A Davidson your line is open.
Great well first off Pat Congrats on navigating an incredibly challenging environment very well.
Yes.
Okay.
Handful.
So at a high level patent.
Optimistic about your business this quarter versus last quarter.
Would you agree with that statement and if you do agree with that statement.
So the increased optimism.
Well I mean, when we look at what transpired I mean, we did close on the <unk> trend.
<unk> that was very positive we closed on the galvanized.
We have started shipping.
Our OEM programs, we have the additional Ford coming on so.
We see this business is layering on the existing business that we have.
And that gives us a great deal of optimism as we look into next year. When we believe that a lot of the supply issues chip shortage issues will start to abate somewhat but its not going to be immediate.
But it will abate and that will give us.
Higher production car manufacturers more dealers cars sitting in dealerships across the country, that's very positive.
The automotive business.
And then the demand that we're seeing.
Globally tour.
<unk> and pioneer is very strong.
And as we move into next year.
Sharp, we'll be adding another factory.
In order to make sure that they can supply.
The demand that we have so it all looks very positive.
Great Alright.
The question is first off congrats on the <unk> deal can you do.
Give your current thoughts on M&A opportunity just at a high level, what you're seeing as far as pricing.
Well I mean.
We have our eyes on a couple of strategic acquisitions that.
And that we would like to pull off in a year or two there is no rush at this point I want to make sure that the entire team is capable of digesting all the work that we've done this year to make sure that everything is solid there, but there are a number of companies.
That in some cases, we've had preliminary conversations with that we think.
Box would be.
The desire to acquire if they were to sell it.
And.
Part of our strategy going forward our strategy to get.
Up to $1 billion in sales is obviously laying on the new business that we've achieved.
Thinking that we could lay around between <unk> and the new OEM awards about $250 million on top of our business that we have now that brings us close to 900.
And then in acquisition of <unk>.
Hundred $150 million company would get US there so that's definitely part of.
The strategy as far as.
The cost.
We will be very very diligent in making sure that we do not overpay I think our history shows that we've been able to do some very strong acquisitions at competitive prices and I think we'll be able to do that again.
Great. Thank you Pat Thanks for taking my questions.
Thank you Tom.
Your next question comes from the line of Stephen Dennis Your line is open.
And I've got a couple of questions I am a private investor a bit on your calls for quite a while.
The stock for quite a while you make a statement in the quarterly report yesterday, we expect growth to continue in the second half of the year and to be up 15% for the full fiscal year, what does that relate to what is it what our numbers are being used to come up with that.
The numbers that were using are the projections that we have from our customers.
Our place.
Placing orders we have promotions scheduled for the second half and if we're able to make sure that we deliver in the second half, which we believe.
Between what we have in the bar so to speak that we will be able to achieve our third quarters and what we have coming in the third quarter for the fourth quarter that we will be able to achieve.
That type of result.
So it's actually not based on any concrete numbers it just the projection.
We are based on earnings per quarter Okay.
Question I have is on the last couple of at least the last couple of quarters.
Earnings.
<unk> you mentioned the company's stock buyback.
It appears to me based on public knowledge that Mr. Colley has bought over 4 million shares.
That seems to be the company has repurchased through this call is that as the company is going to be buying any shares.
Is it first off the company bought about 1 million to shares over the past quarter.
Okay I missed the call. Mr. Colleagues holdings were not acquired in the third quarter or in the second quarter. There was they were acquired over.
I believe an almost two year period.
Okay.
I was just really one of the thing that I've learned in Florida.
Costco.
Both Brian kind of Sarasota constantly heavier products.
Yes, there are always there is always we're all disappointed.
One of the one of the things that we were asked over the past quarters, where is the business sustainable and with Cosco sustaining the program with us, adding we have a big program going with Costco right now.
For the holiday season, So Costco has become a very strong account.
That will continue.
My My my comment is that every day, the supply chain of supply chain, but Europe, but our product is in Costco all the time.
Well, we've worked very hard to make sure we have the inventory step down on rhythm in the early part of the of the second quarter to make sure.
That all the production facilities were firing on.
At full capacity and we had we unfortunately had to take on additional warehousing in Asia to hold the goods because of the delays with getting them on boats and everything but I think that's going to be proven to be the right strategy going into the third quarter. Okay.
So.
Thanks Steven.
No.
I am showing no further questions at this.
This time I would now like to turn the conference back to Patrick Sullivan.
Well thank you all.
Once again, thank you for your support of supportive box.
It has been and it's not just this past year over the last two years.
It has been very very challenging, but as I said earlier I believe the box team.
Has performed exceptionally well.
Remotely and now coming back to work and working through all the logistics issues that we've had so we're anticipating that we will be able to finish the year on a strong note I want to thank you and wish you all a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
Good day, and thank you for standing by and welcome to the box and third National International fiscal 2022 second quarter 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 start the number one on your telephone.
If you require any assistance.
That's a fun. Please press star zero I would know like that.
Turning the conference over their speakers today Glenn Wiener.
Thank you good morning, and welcome to box Internationals fiscal 2022 second quarter Conference call.
This release was issued yesterday after the market closed and we filed our Form 10-Q with the SEC.
Both documents can be found in the Investor Relations section of our website and an updated investor presentation will be posted later today, we will have prepared remarks from Pat and the Bell President and Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer, After which we will open up the call for questions I would 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 28th 'twenty 'twenty. One also note management will present.
<unk> at the Sidoti Investor Conference on December eight at night, and hosting one on one meetings with investors throughout the two day period. We've also registered to present at the Imperial Capital Security Conference on December 14th with more details to follow there are other events. We are evaluating the remainder of the calendar year, and we will update our investors accordingly.
Like to thank you all for your continued support of box and it is now my pleasure to turn the call over to Pat Lavelle bat.
Thank you Glenn and good morning, everyone.
In light of what we experienced this past quarter I'm quite pleased with our performance.
If you consider all of those are one time events, especially considering the worldwide economic turmoil that we've all encountered over the past year the.
The Fox team has done a good job navigating through what we believe was the worst of the supply chain shortfalls.
The initial price increases that we instituted have taken effect and due to the rapid increase in the second quarter of container prices, we instituted a second wave of price increases in September.
We have the inventory on hand to deliver in our all important third quarter.
In addition, we have added new or alternative suppliers to increase component availability, we changed our ordering protocols to compensate for a longer lead times and even modified boards to utilize alternative chips.
We believe all of these measures combined will give us more flexibility in terms of how we manage the business in the quarters ahead.
Revenues grew almost 12% in Q2 and are up 40% through the first six months year over year and this was accomplished despite missing a few inventory turns which were expected due to the corresponding shipping delays.
Gross margins, primarily in our consumer electronics segment were impacted by the supply chain and the added cost associated with freight and warehousing.
And while there will be some continued pressure. The good news is that we expect less of an impact coming out of this calendar year.
The increase in our operating expenses were primarily due to a full six months of <unk> compared to two months in fiscal 'twenty one.
Higher employee cost that we brought back furloughed employees and we're still in salaries.
We also added expenses associated with some of our larger and new OEM programs and had higher professional fees to support the RVO and the galvanize due diligence and transactions.
For the six month period in fiscal 2022, we had an operating loss of $4.0 million versus operating income of 400000.
Taking into account onetime nonrecurring expenses, our operations actually performed better than the first half of last year, especially with the $12.0 million increase in professional fees $12.0 million of which we considered nonrecurring and roughly $11.0 million of added expenses.
For NRT.
And labor and extra warehouses to hold inventory in Asia waiting for shipment.
On an adjusted EBITDA basis, we reported $20.0 million versus $17.0 million for the first halves in fiscal 'twenty, two and 'twenty, one an improvement of $12.0 million.
Looking ahead, we anticipate continued growth in the second half of the year with Q3, a little under in Q4 above the prior year.
We expect to be profitable in both quarters and the variance from the prior year to this year is primarily an engineering and tech support.
We expect to see an increase of approximately $9 million year over year to fund growth related programs.
Only 5 million of which relates to the addition of all Appeals engineering team.
I will add some comments with respect to next fiscal year in my closing comments, but needless to say there is a lot of momentum and blocks.
Our automotive electronics segment grew by 40% in the second quarter and revenues are up 77% through the first half of the year.
For the second quarter comparisons our aftermarket business was up 34% with the added contribution from our <unk> subsidiary.
Our OEM business was up 53% due to new rear seat entertainment programs with Nissan and the Atlantis, both of which began this past quarter and should ramp up in volume as customers increase production.
And we have forward starting in the fourth quarter, which will be added boost.
Topline revenue.
We also saw increases in automotive safety and security products.
For the six month comparisons our automotive segment grew by 77% with aftermarket revenue up over 81% and OEM revenue up approximately 70%.
Keep in mind. This growth was achieved despite all of the shortages and delays, which impacted not only our aftermarket dealers well placed a significant strain on our OEM customers as well.
The environment worsen this past quarter with a number of car manufacturers shutting plants due to lack of parts. We expect this to normalize as we move into next year and more capacity comes online.
Our consumer electronics business grew by approximately 2% in the second quarter and almost 28% year to date.
Premium audio product sales grew by approximately 10% in the second quarter and over 42% through the first six months, which offset declines in other CE product sales.
A majority of the <unk> segment product sales declines related to inventory and chip shortage, which in turn led to production delays and there were continued store closures closures in Europe.
This also impacted premium audio product sales, but we are still growing and expect this to continue.
During the quarter, we had increases in sales of premium wireless speakers and wireless computer speakers and higher sales of premium audio in Europe.
For the six month period, we grew in virtually all premium audio categories.
11 trading company saw a sales increase of $15.0 million in the second quarter and $24.0 million when comparing the six month period.
As most of you are aware, we closed on the acquisition of molecules home Entertainment business in September.
Which is our fiscal third quarter and this transaction holds great promise for our company both in terms of growth and added profitability.
And lastly, our biometric segment sales remained relatively flat for the quarter comparisons, but was up 27% for the six month period.
We're expecting this segment to post more meaningful revenue increases and smaller losses as we begin to realize future contributions from the galvanized distribution agreement, our new health care customer, which ramps up next year and other small smaller projects we have been awarded.
Overall.
We have performed well given the environment.
I'd like to shift now to our outlook as we're quite bullish on our prospects.
This optimism is based on the contracts we have been awarded the new additions to the vocs family of brands and products and a lot of behind the scenes momentum, which has been delayed because of the global supply chain issues and should start to come back to life as things begin to gradually improve.
With Amazons fire TV, we can offer our customers more content than anyone.
Based on the investments we have made over the past two years, we are the clear cut leader with our technology and expertise.
This past quarter, we began shipping to the Lantus and Nissan and soon we'll be delivering to Ford.
Based on what I've been told by our OE customers automotive production is anticipated to increase in the capacity constraints should begin not only stabilize but improve over the coming quarters.
This bodes well for growth and incremental bottom line profits.
We have resumed conversations with several other Oems that had been in limbo for a good part of the year due to supply chain issues and we believe we will see additional incremental awards layering on top of our core.
Even without this we are still positioned to double this business by next year compared to fiscal 2020, our outlook has not changed.
Yes M is doing very well.
And puts us in new product categories, and new OEM channels.
<unk> has grown since we acquired them and solidifies our position in several automotive security categories.
Premium audio contingency and continues to be a strong growth driver in.
And that will intensify with the addition of the <unk> acquisition and new licensing agreement with pioneer.
I indicated on my last call that we should do approximately $50 million in sales. This fiscal year and provided we don't have any additional shipment issues, we should do a little bit better than that.
As we ramp up production and rebuild distribution with a focus initially on North America. We believe we can reach over 125 million in sales. The next fiscal year and as we expand globally, we expect to see exceed over $200 million.
As we are now the owners, we expect to see gross margins at our 11th TC operations improve as well.
With the anticipated revenue increases margins more in line with historical premium audio products 11, PC should be a significant contributor to our bottom line.
Now, we normally don't provide guidance.
But given all that has transpired wed like to offer some direction for the third and fourth quarters.
Our outlook is based on customer projections, and what we have done to date and barring any unforeseen events, we feel comfortable that the following statements.
We expect sales to be up modestly in the second half of the year with the third quarter below in the fourth quarter above the prior year periods.
Fiscal 2022 sales should come in around $640 to $650 million and we believe higher by potentially double digits in fiscal 2023.
Gross margins should be more stable based on our actions to date we.
We will have additional expenses associated with startup costs for OEM programs and <unk> operations and expect higher gross profit contributions next fiscal year.
Expenses will be more normalized as the reductions associated with furloughs and salary reductions were essentially back to base levels in last year's third quarter.
We don't expect to incur the level of professional fees that we had in the first half and we will be reporting comparable numbers for DTI.
Total operating expenses in the second half are expected to be approximately $9 million higher in the second half of last fiscal year with $8 million related to the addition of Ikea.
Selling expenses and G&A expenses are expected to be mostly in line with the prior year.
Based on what we've accomplished this year I believe we position the company for greater profitability as we move into fiscal 'twenty 2023, and beyond and we have set our sights on exceeding $1 billion in sales over the next few years.
And with that I'll turn the call over to Mike for further detail Mike.
Thank you Pat good morning, everyone, rather than walk through all of the three and six month comparisons I'm going to provide additional background on some of the sales and expense drivers and breakout non routine and non reoccurring expenses.
I believe this will provide more clarity on our results for the first half of the year.
Actual revenues year to date for the comparable six month periods as Pat noted, both our aftermarket and OEM business was up significantly in the first half of the year.
On the OEM side key drivers were the start of the Nissan rear seat entertainment programs for Armada.
Sandy.
Higher sales from Astellas Atlantis as we started the evolve program with Amazon fire, TV and higher sales from Ford.
Component shortages, certainly curtailed some of the growth, but we expect to make it up as production volumes increase.
In the aftermarket we had strong increases in vehicle vehicle security and from our <unk> subsidiary and modest increases in the video and telematics categories.
Satellite radio fulfillment sales were down due to limited receive a production for several months this year.
Premium audio product sales were up and growth is anticipated to continue we.
We saw increases in the traditional passive in several of our categories and mobility products with the launch of several new headphones and then the new cinema sound bars and computer speakers.
Our German operations were up as many of the COVID-19 restrictions were lifted and as we discussed we added approximately $24.0 million in sales from 11 TC as a subsidiary was formed in the second half of last year.
The supply chain issues curtailed some of our expected growth both for premium audio products and then several CE product categories.
Regarding our gross margins.
Our gross margins in fiscal 2022 second quarter came in 370 basis points lower than the prior year period.
We estimate that added cost related to the supply chain issues expenses to cover additional warehouses in Asia for example, and higher freight and fuel cost was approximately $7.0 million for the quarter with the majority tied to premium audio.
Similarly for the six month comparable periods gross margins came in at 260 basis points lower year over year.
The gross profit dollars increased by almost $16 million.
The dollar impact was approximately $4.0 million for the six month period.
Keep in mind, there were also higher cost of doing business throughout that drove margins lower for the <unk> segment, and we believe we've covered the bulk through our price increases and other steps taken as Pat talked earlier.
As for expenses there were several expenses that came back as a result of the COVID-19 restrictions implemented implemented in fiscal 2021.
And others that were non routine and nonrecurring in nature.
Of the $14.0 million increase Q2 of fiscal 2022 versus Q2 of last year.
We had $4.0 million of professional fees related to transactions.
We had $8.0 million in higher overhead at <unk> as we own them for roughly two months in Q2 of last year and the full quarter of this year.
We had $6.0 million related to furloughed employees and salary and bonus reductions which were imposed during the COVID-19 lockdown last fiscal year.
And we had $2.0 million and non reimbursed NRG expenses and additional outside labor expenses related to our new OEM program.
The rest of the increase is related to commissions E Commerce sales web and advertising expenses and additional R&D.
Taking all of the increases into account, we estimate approximately $12.0 million of the increase is considered non reoccurring.
For the six month comparative periods operating expenses increased by $23.0 million.
$9.0 million relates to dei owning them for six months versus two.
$12.0 million as for professional fees $8.0 million is for furloughed employees and salary and bonus reductions.
One 5 million is for NRG and outside labor.
The remainder is mixed across SG&A and engineering and <unk> expenses.
Of this <unk>.
$9.0 million is considered non reoccurring.
Yes.
Note that the acquisition costs and non routine legal fees are taken into account in our adjusted EBITDA calculations. The total impact was approximately $9.0 million for the second quarter comparable and $4 million for the six months Comparables.
We grew nicely dealing with the supply chain turmoil.
It did however have a big impact on our gross margins some of which will be offset in the third and fourth quarters, given the second wave of price increases and hopefully more stabilization in the markets.
We aggressively we will aggressively procuring what we need when we can and we took some added steps which added cost to ensure we had as much inventory on hand, as we can for the second half of this year.
That was a strategic decision as.
As is the investments patch spoke of in R&D, given the volume of automotive awards that we have been awarded and new programs. We believe we are well positioned for the future.
We don't expect this level of professional fees as a transit transactions with Akio and galvanized were are behind us and we're not expecting NRA expenses of this magnitude in the second half of the year.
Through the first six months of fiscal 2022, our operating income is down $8.0 million, though the increase of professional fees made up more than a difference net.
Net income attributable to boxes up $5.0 million and adjusted EBITDA is up $12.0 million.
Moving to the balance sheet.
As of August 31, 2021, we had cash and cash equivalents of $42.0 million compared to $43.0 million as of May 31, 2021, and $68.0 million as of fiscal 2021 year ended on February 28.
The roughly $21.0 million decline since year end takes into account cash usage of $12.0 million to fund <unk> operations in the form of a note.
Which was satisfied in paid off as part of the transaction closed on September eight.
The remainder for general and the remainder was for general working capital purposes.
We funded the remainder of the IPO transaction this quarter and we will be ramping up cash outlays as we typically do as this is our largest selling season.
Cash is expense expected to come back are back to normal levels at the end of the fourth quarter.
Our total debt stood at $14.0 million as of August 31, 2021, compared to $7 million as of May 31, and $8.0 million as of February 28.2021.
The increase relates to an 800000 usage of our $8 million Bureau alone and Vox, Germany, as we purchase more inventory for the third quarter.
Our only debt is related to our U.
U S that is related to our foreign mortgage which stood at $15.0 million as of August 31, and.
And compared to seven one as of year end.
Total long term debt net of debt issuance costs was $7.0 million compared to $6 million for August 31 Fab 28.
Periods, respectively.
We have the cash and access to capital to fund our acquisitions invest in growth continue to pursue strategic transaction that can positively impact our business and generate returns.
That concludes my remarks, operator, we're ready to open the call for questions.
As a reminder to ask a question you will need to press star and the number one on your telephone to withdraw.
All your questions Brett that's hockey please stand by while we compile the Q&A drastic.
Your first question comes from the line of Tom <unk> from D. A Davidson your line is open.
Great well first of all Pat Congrats on navigating an incredibly challenging environment very well.
Yes.
And then I had a handful.
Painful.
So at a high level patent you sound more optimistic about your business this quarter versus last quarter.
And would you agree with that statement and if you do agree with that statement what are the three reasons for the increased optimism.
Well I mean, when we look at what transpired I mean, we did close on the <unk> trend.
<unk> that was very positive we closed on the galvanize.
We have started shipping.
Our OEM programs, we have the additional Ford coming on so.
Where we see this business is layering on.
The existing business that we have.
And that gives us a great deal of optimism as we look into next year. When we believe that a lot of the supply issues chip shortage issues will start to abate somewhat but its not going to be immediate.
But it will abate and that will give us.
Higher production car manufacturers more dealers cars sitting in dealerships across the country, that's very positive.
<unk>.
Automotive business.
And then the demand that we're seeing.
Globally tour.
<unk> and pioneer is very strong.
And as we move into next year.
Sharp, we'll be adding another factory.
In order to make sure that they can supply.
The demand that we have so it all looks very positive.
Great and then my.
To your question is yes.
First off congrats in Hangzhou deal can you give your current thoughts on M&A opportunities just at a high level.
Seeing as far as pricing.
Well I mean.
We have our eyes on.
A couple of strategic acquisitions that.
And that we would like to pull all three in a year or two there is no rush at this point I want to make sure that the entire team is capable of digesting.
All the work that we've done this year it make sure that everything is solid there, but there are a number of companies that are in some cases, we've had preliminary conversations with that we think.
Box would be.
The desire to acquire if they were to sell and.
Part of our strategy going forward our strategy to get.
<unk>.
Two $1 billion in sales is obviously lane, where on the new business that we've achieved.
Thinking that we could lay around between <unk> and the new OEM awards about $250 million on top of our business that we have now that brings us close to 900.
And then in acquisition.
100, $150 million company would get US there so that's definitely part of.
The strategy as far as.
The cost.
We will be very very diligent.
Making sure that we do not overpay I think our history shows that we've been able to do some very strong acquisitions at competitive prices and I think we'll be able to do that again.
Great. Thank you thanks for taking my questions.
Thank you Tom.
Your next question comes from the line of Stephen Dennis Your line is open.
I've got a couple of questions I am a private investor.
On your calls for quite a while.
Stock for quite a while you make a statement in the quarterly report you say, we expect growth to continue in the second half of the year and to be up 15% for the full fiscal year, what does that relate to what is it what are the numbers that are being used to come up with that.
The numbers that were using are the projections that we have from our customers.
At our <unk>.
Placing orders we have promotions scheduled for the second half and if we're able to make sure that we deliver in the second half, which we believe.
Between what we have in the bar so to speak that we will be able to achieve our third quarters and what we have coming in the third quarter for the fourth quarter that we will be able to achieve that.
That type of result.
So it's actually not based on any concrete numbers or just the projection.
We are based on earnings per quarter Okay.
Can I have is on the last couple of or at least the last couple of quarterly.
Earnings reports, you mentioned the company's stock buyback.
Here's to me based on public knowledge that Mr. Colley has bought over 4 million shares.
It seems to be the company has repurchased through this call is that as the company is going to be buying any shares.
First off the company bought about $1 million to shares over the past quarter.
Mr. <unk>, Mr colleagues holdings were not acquired in the third quarter or in the second quarter. There was they were acquired over.
<unk> almost two year period.
Okay.
I was just really one of the thing that I've learned in Florida.
Costco.
Both Brian kind of Sarasota constantly heavier products.
Yes, there are always there is always well displayed.
One of the one of the things that we were asked over the past quarters, where is the business sustainable and with Costco sustaining the program with us and adding we have a big program going with Costco right now.
For the holiday season, So Costco has become a very strong account and that will continue.
My My my comment is that every day, the supply chain of supply trend, but Europe, but our product has been Costco all the time.
Well, we've worked very hard to make sure we have the inventory step down on rhythm in the early part of the second quarter to make sure that.
All of the production facilities were firing on.
At full capacity and we had we unfortunately had to take on additional warehousing in Asia to hold the goods because of the delays with getting them on boats and everything but I think that's going to be proven to be the right strategy going into the third quarter.
Okay.
So thanks.
Thanks, Steven Thank you.
I am showing no further questions at this time I would now like to turn the conference back to Patrick.
Well thank you all.
Once again, thank you for your support of supportive box.
It has been and it's not just this past year over the last two years.
It has been very very challenging, but as I said earlier I believe the box team.
Has performed exceptionally well.
Mostly and now coming back to work and working through all the logistics issues that we've had so we're anticipating that we will be able to finish the year on a strong note I want to thank you and wish you all a good day.
This concludes today's conference call. Thank you for participating you may now disconnect.