Q3 2022 VOXX International Corp Earnings Call

January 11, 2022

Good day and thank you for standing by welcome to the Fox International fiscal 2022 third quarter results Conference call.

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Thank you good morning, and welcome to box Internationals fiscal 2022 third quarter Conference call yesterday, we filed our Form 10-Q and issued our press release and this morning, we uploaded a new investor presentation and all documents can be found in the Investor Relations section of our website at Www Dot box I N T L Dot com.

We have prepared remarks, and Pat Lavelle, President and Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer, After which we'll 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'd 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.

We're coming off a very active week in Las Vegas at CES 2022, and next week on January 19th and 20th.

Starting at the Sidoti Conference, Let me end by wishing you all a happy new year and I'd like to thank you for your continued support of box and that now it is my pleasure to turn the call over to Pat.

Yeah.

Thank you Glenn and before I start I would also like to wish everyone, a healthy and prosperous new year.

You know last year, we had one of the best.

Third quarters in our history.

And this year, we did not repeat at those levels given the strength of last year's Q3, but overall, we had a strong quarter.

We outperformed our plan exceeding our latest projections for revenue margins and operating income and nothing has changed with respect to our outlook, we see growth and improve profitability going into next fiscal year and beyond especially with the New OEM Award. We received this past quarter from the Lantus, which is.

Estimated to be approximately $125 million.

Before I cover the results I want to address the Seagull electronics arbitration.

They are a former supplier of ours, providing stolen vehicle recovery systems, and we signed a supply agreement with them in 2007 and more than 10 years later, they filed claims for breach of contract and patent infringement.

Throughout the process, we have been advised by legal counsel that the case was unlikely to go against us and if it did.

<unk> was not material a few million dollars at most.

Based on that advice the company did not specifically disclosed this matter in footnote 24 towards financial statements, which covers contingencies.

The initial damages that we're sort with $10 million.

And the day before the fact witness portion of the arbitration concluded.

Guard amended its claim and saw $40 million.

The arbitrator allowed this to happen and awarded Siegel, our $39.4 million of damages.

Needless to say we were shell shocked by this.

There's no other way to say it and we are going to fight it.

We have reviewed our legal options and made emotion and the arbitration proceeding to modify the interim award based on the plain language of the supply agreement.

If this motion is unsuccessful, we intend to seek the California court to vacate or modify the award on legal and ethical equitable grounds.

While the initial award is for $39 million, we are not paying this out rather we took a charge this quarter, which is reported in other income and reflected on our balance sheet.

Just about every law firm we spoke to.

Afterwards concurred with our initial assessment and believe the arbitrator's ruling was egregious as the calculation of damages. It was an equitable and that she overstep tariffs already has an arbitrate.

We hired a new California based national law firm to represent us to vacate or modify the award one specializing in these types of situations.

Currently we have three options seek a modification a reconsideration of the interim award.

Seek to have the court vacate modify or correctly interim award or negotiate.

We are aware of the challenges in having an award overturned challenging but attainable and are confident we will get the case hurt.

We have been advised there is precedent for modification given the facts of the case, how this process unfolded and the legal basis of the ruling.

Our balance sheet is strong and we have cash and substantial availability availability on our credit facility and again, we are not paying out cash at this time and should the ruling be overturned a modified resulted in a lesser amount we will reverse the charge accordingly, resulting in a potential positive pickup in that.

Income.

<unk> could take up to a year or more until it's resolved and we are going to exhaust all options.

Now, let's move to the business in the third quarter and as I stated, we did not repeat the exceptional performance of last year's fiscal third quarter, but we did beat plan and remain on track to finish the year on a positive note with significant growth prospects ahead.

In Q3, we reported net sales of 192 million down less than 5% had it not been for some OEM customers pausing production due to their chip and part shortages, we would've come in around last year's Q3.

Gross margins, while down year over year, we're about 100 basis points higher sequentially compared to Q2 and came in better than forecast.

The second wave of price increases, we instituted are having a bigger impact offsetting the higher cost of doing business.

Our automotive segment was impacted by temporary pauses that OEM plants and tie the margins due to price increases.

Higher operating expenses were primarily a result of R&D and engineering expenses within the automotive segment to support new OEM launches and the addition of the <unk> engineering team.

Operating income of seven 8 million was down 10.4 million year over year.

And adjusted EBITDA of $15 5 million down $9 2 million.

Again, our Bottomline performance came in above plan.

I'll give you a quick snapshot of our year to date performance through Q3 total net sales are up $71 million or close to 18% gross profit margins are down 240 basis points due to the sharp run up in supply chain related cost, but gross profit dollars are up 9.4.

$9 4 million due to higher revenue and adjusted EBITDA of $30 million is down $5 3 million.

Considering the difficulties posed by CT and labor shortages and price increases transportation and warehousing cost increases the global pandemic in 2020 and its resurgence in 2021, we have managed through it all.

We go on fiscal 'twenty, one was tough managing through Covid, but I have to say in my 40, plus years of doing business fiscal 'twenty. Two has been the most challenging by far all things being equal I am proud of the team we've grown we're profitable and have many paths to create value.

Let me move on to the segments for the quarter.

Automotive segment sales were up year over year by about $100000 with OEM product sales up $12 4 million and with aftermarket down $4 3 million, primarily due to chip shortages and some delays as we move from air freight to boat.

Driving our OEM business, where RSV programs with Ford still Lantus, and Nissan and ongoing business with the top heavy duty truck manufacturers, such as Daimler truck Pat car Volvo and Navistar.

While these events have driven OEM sales grow volumes have been less than initially expected given chip and part shortages and the starts and stops with our customers' production.

In light of the price increases, we constantly negotiate with suppliers and customers and even more so in recent months as we incur higher costs, we must cover them.

We got some pickup from the second wave of increases we instituted last quarter and expect it to see a bigger impact in the fourth quarter as some contracts were quiet a notice period before taking effect.

By the end of the year. The automotive segment will have nearly doubled from where we were in fiscal 2020, we're expecting more significant growth in the years ahead based on the awards that we have secured.

The good news that I have to report today is the new OEM Award with the Lantus Our original award.

Lantus was for approximately $300 million.

Based on their revised projections. The ward forecast now is about $275 million and this covers the Chrysler Pacifica, the Jeep wagoneer and the Jeep Cherokee vehicles for model years 2022 through 2026.

We received an additional award for the Dodge Ram recovering model years 2024 through 2026, which is estimated to be approximately $125 million. So still lantus now represents awards of approximately $400 million.

With Ford We received an initial award for $75 million covering the Lincoln Navigator and the Ford Expedition co model years, 2022 through 2000 and for.

This award is now projected at $80 million.

And we have the $20 million award from Nissan for our Evo system, and we have a variety of awards from the truck manufacturers and tier one suppliers for approximately $30 million some spanning as long as 10 years. This equates to approximately $530 million and OEM Awards, we have received over the past two in here.

Two and a half years.

Production in its early stages.

There are three other things driving our optimism for Automotives.

I talked about adding other potential customers for Amazon fire TV prior to the supply chain outbreak.

Covid and the industry environment held back negotiations on projects, but more recently, we've begun to see increased activity and this bodes well for future growth as any additional OEM business would layer on top of our core and the incremental business we've already been awarded.

<unk> has performed better than projected and they added strong brands and a powerful distribution network. We are the clear cut leader in aftermarket security and remote starts with the best selling products in the market.

BSM as I indicated has received a number of long term OEM awards, while expanding its customer base.

We have production secured for many years out and new products coming to market.

Adding new OEM channels and product lines was the big reason behind this acquisition and it's beginning to show results.

You can summarize our automotive segments incentives, we continue to win New OEM awards with a lot of room for growth as we penetrate new customer accounts.

Moving on to consumer electronics.

Consumer electronics segment sales declined by approximately six 7% in the third quarter as we expected and are up 11, 2% year to date.

Premium audio product sales last year benefited from exceptionally high order volume was more stay at home purchases and new sales from the pro media Speaker launch we took steps in the first half of the year to secure inventory to meet customer demand and we succeeded.

The acquisition of Ankiel further strength in the segment was $7 8 million in higher sales over Q3 of fiscal 'twenty one we.

We are aggressively working with sharp to rebuild manufacturing and distribution and the demand is certainly there.

Barring any additional supply chain issues or unforeseen events. We believe we can reach sales of $125 million next fiscal year with a goal of reaching $200 million as we expand worldwide.

The addition of Ankiel Integra, and the pioneer brands, along with Cliff and our other speaker brands gives us the ability to offer our retailers and consumers a much wider assortment of complete sophisticated home audio solutions.

Year to date premium audio sales are up 16, 7%.

At CES the premium audio company showcased its 2022 product lineup.

To another year of a lot of excitement, we had strong media coverage and customer interest.

I'm just going to go over three of the new lines. We debuted but you can read more about them on the clips website.

The glitch Jubilee.

Is the new flagship product of the Heritage Speaker series is a horn loaded two way loudspeaker incorporating the latest acoustic technology and designed to deliver the ultimate in listening experience. The clips Jubilee is priced at $35000 per.

The new Eclipse reference speakers features tractrix horns for high frequency reproduction, resulting in soundstage quality.

Of audio.

Lastly, the Mclaren edition of our fives powered speakers.

Features a high efficiency DSP amplifier for high resolution.

And ultra low mass carbon fiber for enhanced performance.

This takes the best from both Mclaren racing and clinch.

Staying within consumer our other CE product sales, primarily accessory lines were down five 7% year over year in Q3, and five 3% year to date nothing was out of the ordinary sales were down modestly across several categories due to limits on inventory supply and some decisions.

We made to address rising cost in lieu of certain sales.

Our customer relationships remain very strong and we expect to expand with some key accounts in the coming years. For example, our sensation program has done very well with Costco, Canada, and we secured the fiscal 'twenty three program with more than two times the volume of.

Our reception programs with Walmart has been very strong in the U S and we will be adding additional skus to our lineup and have expanded programs with them and other retailers throughout North America.

Overall.

We're operating a smaller but profitable business, which globally should be $90 million to $100 million in sales, we're always looking to enhance our product lineup and remain focused on stable and profitable growth.

Moving on to biometrics.

The biometrics segment remained relatively flat for the quarter.

And is up 15, 6% year to date, we received our first payment from galvanized following approval of the agreement at our annual meeting of shareholders and the cash received will be accounted for on our balance sheet not flow to the gross profit as initially informed this is because galvanize has the right to.

Convert to equity based on the value would pace to I locked in the future.

But during the quarter, we made progress with respect to current projects and secured future awards.

First the Health Care Award we received we are on schedule for beta launches in the coming quarters and deployment in late 2022 with a ramp up thereafter.

Through galvanize in Q3, we were awarded new business from a Switzerland based customer in life Sciences and entered into an MSA and license agreement with our home health care and AI diagnostic company.

Additionally, we are working on a prototype for an auto mall in Miami and if successful we plan to roll this out through our automotive aftermarket group.

Delivery is set for Q1 of fiscal 'twenty, two and during the third quarter. I Lock also was awarded a small piece of business from a U S government agency.

We also made a change in management appointing Alan I box to the role of President the bylaw.

Based on his extensive background and knowledge of the markets. He has the right individual for the job. He has over 25 years of experience in technology has served as the CEO of technology companies, including data transfer solutions a business. He cofounded and successfully ran before it was sold to SMC.

A lot of them in one of the largest companies in Canada. He has very strong relationships with target customer accounts, particularly with government agencies.

There are several projects I lock is currently working on that have great promise and as we have learned from the past. These do take time, especially when discussing embedded solutions and the modifications that are typically required.

Some of the more recent work has centered around access control systems authentication software for health care professionals, and pharmacies and embedded applications and large volume public settings.

In closing.

We continue to perform well in what is a very challenging environment.

We remain on track with our sales forecast for the fiscal year with the only caveat being the car manufacturers keep to their production schedule.

Next year should show growth with schedule OEM launches and the addition of Ikea.

Gross margins have and should continue to improve modestly near term, especially has the automotive price increases take hold and Oems returned to more consistent production.

And operating expenses are in line with our prior comments with the second half increased primarily related to <unk> R&D and automotive engineering.

Let me make it clear.

We are not chasing growth at the risk of losing profits. We are focused on securing long term profitable partnerships, we have proven to be agile and disciplined and with the foundation. We built over the past few years will leave the company can drive significant top and bottom line improve.

<unk>.

At this point I'll now turn the call over to Mike.

Michael.

Thank you Pat good morning, everyone and I too will start with my well wishes.

2022, happy and healthy new year to all.

Let me start with a bit more detail around sales for Q3 and year to date comparisons.

In Q3, OEM sales increase with Atlantis OEM program driving sales growth.

This is new and incremental business our sales with forward were also up with increased volumes related to the Ford Explorer program.

Finally, <unk> sales were up almost 40% year over year.

Aftermarket sales were down roughly $4 3 million due primarily to supply chain issues and heavier load ins last year as Pat discussed.

The three biggest categories were impacted where satellite radio fulfillment backup cameras lighting products and turn signal switches, which collectively made up approximately $2 6 million a decline with the rest spread out and offset by growth at our <unk> subsidiary, which was up over eight per.

<unk> year over year.

Year to date automotive segment sales were up $38 6 million with OEM sales up $17 4 million and aftermarket sales up $21 2 million.

OEM growth was due to higher rear seat entertainment sales and higher Vivus with Atlantis Ford as well as significant increases in sales of DSM.

There were a number of offsetting factors in the aftermarket and overall growth was primarily driven by the addition of D of the dei subsidiary, which was owned for the full nine months in fiscal 2022.

Within the consumer segment, we had lower sales than last year's Q3 down $9 3 million.

Premium wireless speakers and home separate speakers were down $12 6 million combined with the decline directly related to shipping delays and shortages as well as chip shortages, resulting in product back orders.

We had higher load engine sales last year quarter, three for a pro media Speaker line, which was introduced that.

11, Tc positively contributed increasing by $7 8 million, principally due to IPO and CAGR and pioneer products.

As noted in September the acquisition of <unk> Home Entertainment Group was completed and we move from a distributor joint owner.

With higher sales expected rebuild distribution and ramping up production with sharp and our JV our JV partner.

Consistent with past remarks sensation has performed well in Q3 sales were up over 90% precious Q3 of last fiscal year.

Year to date.

Year to date, our consumer segment is up $32 $3 million with premium audio driving the increase.

<unk> contributed to this growth up $25 5 million year to date.

Premium home theater speakers wireless accessories speakers and sensation was the three biggest scanners within this segment.

The biometrics segment Pat covered.

Gross margins were down 200 basis points in Q3, and 240 basis points year to date.

I think we've covered the impact in detail throughout the year and it's pretty much the same story.

We have been able to mitigate the higher cost of doing business through two price increases instituted throughout the fiscal year.

The second price increase was put in place in Q2 and had a positive impact on Q3 margins up 90 basis points.

Sequentially.

The full impact however was not felt as OEM customers typically required notice periods as pattern also mentioned and we will start to absorb some of these costs in Q4 and in Q1 of fiscal 2023.

The pauses with OEM customer reduction also impacted gross margins during the quarter, but on the positive side gave us a chance to change some of our logistics and future costs.

Operating expenses were in line this quarter, no surprises and consistent with our Q2 conference call remarks.

We had a $3 9 million increase in operating expenses and added $4 million of expenses, primarily due to Ikea to the Yankee O JV, particularly impacting engineering and technical support expense lines.

For the nine months year to date period, we had a $23 3 million year over year increase in operating expenses. They were approximately $6 8 million of non reoccurring expenses, we outlined in our Q2 call through the first six months of fiscal 2022.

$4 8 million for professional fees and $2 million for Anne Marie and outside labor.

We also had $8 million of expenses that were added in fiscal 2022.

<unk> subsidiary and for furloughed employees and salary and bonus reductions.

<unk>, we owned for the full eight months in fiscal 2022, and five months in fiscal 2021, and the lateral with lateral relates to the reduction we implemented in early stages of Covid in fiscal 2021.

Then we have the additional $4 million of expenses related to the Yankee <unk> acquisitions. Additionally.

Additionally, as $4 $5 million with the remainder made up of higher professional fees related to the Seeger arbitration higher R&D expenses for various projects across each segment expenses related to our newest trailing a premium audio company subsidiary and there were other offsetting factors.

Youll see acquisition costs in Iraq are in.

Income statements. The Q3 increase was approximately 300000 and year to date increase was $3 million. This isn't cooperated professional fees I just provided.

On an operating basis operating income of $7 8 million in Q C represents a decline of $10 4 million as we have outlined.

To put this year's Q3 performance in perspective, the last time, we reported higher than $8 million in operating income with fiscal 2015.

We had increases in other income and expenses, primarily due to the CCAR to arbitration.

I believe this has been covered thoroughly so I'll speak only to the financial impact, which resulted in a current noncash charge of $39 4 million.

For Q3 interest and bank charges increased by 300000 due to part to a shareholder loan as a result of the capitalization of our new <unk> subsidiary with sharp.

The JV capitalize with a portion of equity and a portion of shareholder loans to set up the tax structure.

We had a decrease in interest expenses related to our credit facility.

The income of our equity Investees, which relates to our 50 50 joint venture with assay.

<unk> increased by 400000.

Which was offset by an increase in other net expenses and income.

Year to date interest and bank charges declined by 400000 equity and income of our equity Investees increased by $2 5 million up more than 50% representing growth and improve profitability of assay with minimal impacts elsewhere.

Net income attributable to Vox was adversely impacted by the arbitration decision, but as a reminder, currently the cash has not been paid out and there is a possibility this could be reversed or a portion of it in future periods. If we are successful in our legal pursuit.

We reported adjusted EBITDA of $15 4 million in the third quarter.

And adjusted EBITDA of $30 million year to date compared to $24 6 million.

And $35 3 million for the comparable periods.

This represents a decline of $9 2 million and $5 3 million versus fiscal 2021 third quarter and nine month period.

In summary on November 30th sales were up close to 18% and we had over 5 million of adjusted EBITDA year to date and.

And we are only 5 million of adjusted EBITDA year to date we.

We have had a lot of added cost this year dealing with the supply chain costs and delays, which we have worked and continue to work to mitigate higher professional fees related to acquisitions.

Please note we added <unk>, which will result in higher expenses without the full impact of production yet. So next year, we expect to increase the top line generate production efficiencies and bottom positive bottom line contribution.

And our cash is anticipated to follow historical patterns and increase in the fourth quarter.

That concludes my remarks, operator, we are ready to open up the call for questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

And while we compile the Q&A roster.

Our first question comes from Brian <unk> with Imperial capital. Your line is open.

Yes, thank you very much good quarter operating cut.

Couple of quick questions in terms of price increases.

Stated you increased prices in the second quarter can you give us a ballpark I know, it's a lot of different products, but on average how much you increased.

In the second quarter, and how sticky those price increases were and then on the fiscal year. If you can talk about price increases how much you've gone up for these first.

Three quarters of this fiscal year.

Alright, Brian It does change from product category to product category.

But based on.

Changes in the logistics costs of bringing containers, especially for bigger products, we've seen increases in excess of 20% in our consumer group.

We've had.

Multiple increases all along whether or not we are taking product by air freight.

With some surcharges and things like that because the airfreight versus boat really changes the picture on the landed cost of the products. So I can't give you one solid number but needless.

Needless to say were well above double digits within our.

Automotive group.

And.

Over 20% within the.

Consumer group.

Okay. So that's on the year is that correct roughly are.

North of 20% consumer.

That percent automotive.

That would be on the year and then obviously.

What were assessing is what does the future look like are we going to continue to see it's a combination of.

Chip problems increased chip cost increased raw material cost increased trucking costs increase.

Freight coming in from overseas.

So as some of these problems mitigates throughout the year.

We'll be we will be adjusting and.

Matching it to where we believe.

These costs are going to come in but let me let me just say this one from a chip shortage standpoint, we believe that the chip problems.

For the car manufacturers well into fiscal 'twenty.

<unk> to 'twenty two.

Possibly into 'twenty three.

And that's something that.

Obviously, we have a rough time determining exactly what that does as they move chips around to build certain vehicles and take chips away from other vehicles. So that's the caveat that I gave was as long as they stay to the production schedules that they've given us we should be we should be pretty good.

Okay. Thank you very much for that color that's helpful and I know that you don't give specific.

Guidance on a quarterly basis, but I was trying to understand at least trends.

Comparing you versus maybe last year or something like that as we look forward into fourth quarter, you're going to have.

Akio contributing.

So revenues should be better than the fourth quarter last year overall is that the right statement.

It all depends on what we get in product.

In the case of <unk>, we're getting pretty much we're selling everything we get our hands on.

So nothing sitting around everything thats going out the demand is very strong.

So depending on.

Sharp, primarily holding to production schedules and not having issues either with COVID-19 , where it shuts down the plants and things like that.

We expect to continue to expand our.

<unk>.

Our <unk> sales.

Okay and then in terms of you typically have a drop in gross margins in the fourth fiscal quarter overall.

Do you anticipate that with this new mix with <unk> coming in and everything going on would you still see a sequential from third quarter to fourth quarter a drop in gross margins are kind of maintained levels.

What we're looking at is we're looking at improving our margins in the near term.

I have said because some of the price increases we've already put through.

The 60 or 90 day periods have expired and we expect those price increases to go into effect. So this might be a little bit different than our typical fourth quarter.

From a margin standpoint, as we expect to see improving margins.

As price adjustments coming.

And the merchant price that will be selling in the fourth quarter it was pretty much.

In the barn, so meaning that we don't expect the cost to go up.

For importing those goods.

<unk> there will be some because we are still waiting on some sort of product deliveries.

Okay now Thats very helpful. And then just in terms of operating expense is in the third quarter looking at third quarter expenses, just the normal ongoing the selling G&A engineering and tech support is <unk> fully in there. So we could be able to model from those levels going forward or do we still need to do.

The ramp up a little bit.

<unk> four for the quarter, we started in September .

So they were in there for the for the full third quarter, we expect to see the same.

There could be again.

Part of the.

The overhead calculation when we when we partnered with US to know is the amount of product that they could ship us okay. The more they ship us.

The lower the cost of carry of the Japanese offices.

Okay.

Understood.

And then pivoting real quick and then I'll.

Yield before.

So to speak.

Is.

This potential arbitration settlement.

With the guard.

Alright so.

Can you tell us the timeline.

I believe that there's going to be certain milestones in February and can you walk us through what we should be looking for in terms of decisions from either quartz or I know, it's not necessarily appeal, but.

Where are the next steps are in the next milestones and the timing of those milestones.

We have.

We have asked the arbitrator to review the award the interim award that will be done sometime in February .

And then from there it's going to be.

Based on the decisions she makes as to whether or not we take this to either federal court or state court.

So what I said is it could be as much as a year or more.

Okay. Thanks.

Thank you very much.

Alright, great.

Thank you. Our next question comes from James <unk> with D. A Davidson your line is open.

Happy New year. Thank you for taking my call.

Just Scott.

Thank you I've got two questions related to your comments that you made in your remarks, so first as long time industry participants.

I would love a little bit more color on what youre seeing in the supply chain and if applicable whether or not youre seeing any signs that supply chain and logistic trends are improving.

First as last quarter.

Okay.

From a standpoint of pricing, we do see some modification.

Pricing.

On the logistics side.

But we are not we're not baking that in 100% only from the standpoint it depends it depends on the volume of goods coming in and we also are concerned about the army crop.

Really taking hold in different parts of Asia, which could create shutdowns at ports plants.

Once that happens then pricing will start.

Reflect that so.

But if I was if everything was to stay.

On course, I would think we will see some drop in logistics cost as far as bringing products in.

<unk> believe we're going to see much in the way of.

Chip prices changing much.

And we're at 52 weeks on lead times for purchase of needed chips I don't I don't think that changes till sometime in 'twenty three.

But as far as logistics.

The thing that could hit the logistics that could raise the prices again.

Is going to be a breakout.

Covid in the different countries.

That's very helpful.

And then my second question is in.

In your remarks, you mentioned that stay at home really drove order volume for.

Premium audio products last year I mean, what are your current thoughts on consumer demand for premium audio products and what are the implications for eclipse considering that you just dropped three new lines of speakers right.

Yes.

We've done it.

We had a big launch of our.

Of our computer speaker last year.

What is particularly appropriate for a stay at home situation. So we had large sales there we knew those sales would not repeat at the level.

They were last year, but when I look at the overall were up almost 17% in our premium audio business over the year.

<unk> remained strong now obviously some of that demand comes from the dollars stimulus dollars that were in the economy.

But at this particular point I've got to believe a good portion of that was gone for Christmas and we had a very solid Christmas.

The projections, where we're looking at on a go forward basis.

As I said in the past we do believe this business is sustainable.

Wonderful. Thank you so much.

Youre welcome.

Thank you as a reminder to ask a question. Please press Star and then one our next question comes from Alex <unk> with extra capital. Your line is open.

Hi, guys. Thanks for taking my call.

Let me go back to the.

The arbitration issues again.

It's my understanding that Theres been two claims brought under arbitration wanted for breach of contract where there's been a $40 million Award and then second question being hurt with respect to patent infringement now there is some chatter in the market at the patent infringement claim is actually a much larger claim could you could you comment on that or provide us guy.

<unk>.

On the magnitude of a potential award now no I also get that you can densify by your suppliers on that claim alright, but I know as a lawyer and myself. These claims are usually very difficult current course from permanent <unk> point of view.

So that that would be helpful. There if you could start there and then I've got another one if you could start there first.

Okay, well the first one as you know.

We do not believe that.

The patents first off we do not.

Infringe the patent.

Okay.

And secondly, as you rightly mentioned, we do have an indemnity there, but any infringement. If we were to lose the case would be based on the number of products that we sold and that would be the determining factor for the most part as to what any claim would be paid and therefore based on that we do not believe.

It would even be material.

And could you guide us on revenues generated from the products that don't party or in print or alleges infringement them.

At this particular point because we're involved in a case I would not be at liberty to discuss that.

Okay. That's fair enough and then the second question, Ohio, and again I've been involved in a few of these arbitration disputes.

Is it if you appeal that award.

Or if it's entered as it judgment into a state or federal court my understanding that as Youll Peel. It you have to post the bond cash bond.

So could you could you comment I know.

The payment has been crystallized, but there there could be a payment that needs to go into court at some at some point could you comment on that.

Well. The thing is is that first of all there is no appeal process in the in an arbitration.

We're either going to sit and speak with you arbitrate it to see if she can.

Modify the award.

In some case if that's not successful then we would plan to take it to federal or state Court. If we have to post the bond we've already discussed with our insurance companies.

And it would not be.

Again in our estimation would not be material as to the cost of post stockpile.

Okay and then the last question on this matter is.

I understand under the terms of your revolver that you werent able to draw funds to incur additional debt and I would assume that means the.

Any any of those judgments, so with $20 million of cash on balance sheet.

Cash was obviously higher but assuming you have to post the bond or or payout that award plus a.

A potential patent infringement award.

Do you think you have enough capital here they need to go back to the market.

Whether an equity raise or or some type of Denver facility.

No we can use our facility.

Way, we launch and so may be alone so we're free to join.

And use that money in any way, we want providing we have enough inventory and enough accounts receivable.

To support the.

<unk>.

The level of evolved.

The facility that we have which we do.

Okay and then the last point, we've picked up on some data showing your your imports for consumer electronics have trended down and Thats publicly available information from.

Angie.

And I'm just curious why imports have dropped off in November and December .

Quite a clip that drop and just wondering if you can comment on that is that a supply chain issue.

Nearing up in inventory that that'd be great. Thank you.

We're a cyclical business and this is the time that our inventories would start to come down after the holiday season, We also had.

And getting ready for the holiday season brought in sufficient amount early to make sure we have enough inventory for the holiday season. So this is this is very typical of what you would see.

Our inventories would come down and we would in fact cash up.

Towards the end of our fiscal year, so it's cyclical.

Thank you very much.

Welcome.

Thank you and I'm currently showing no further at this time I'd like to turn the call back over to Pat Lavelle for closing remarks.

Well thank you all.

I want to thank you for your interest in blocks your support and once again I wish you all the best in this coming year. Thank you and have a good afternoon.

This concludes today's conference call. Thank you for participating you May now Act.

Okay.

[music].

Okay.

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Yes.

Okay.

Thanks.

Okay.

Yes.

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Yes.

[music].

Good day and thank you for standing by welcome to the Fox International fiscal 2022 third quarter results 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 this session you will need for one of your telephone please.

Please be advised that today's conference is being recorded Embryocardia further assistance. Please press star zero.

I'd now like to hand, the conference over to your speaker today.

<unk> of Investor Relations. Please go ahead.

Thank you good morning, and welcome to box International fiscal 2022 third quarter Conference call yesterday, we filed our Form 10-Q and issued our press release and this morning, we uploaded a new investor presentation and all documents can be found on the Investor Relations section of our website at Www Dot box I N T L Dot com.

Today, we have prepared remarks, and Pat Lavelle, President and Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer, After which we'll 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.

<unk> 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 in our Form 10-K for the period ended February 28 2021.

Coming off a very active week in Las Vegas at CES 2022, and next week on January 19th and 20th we will be presenting at the Sidoti Conference. Let me end by wishing you all a happy new year and I'd like to thank you for your continued support of box and that now it is my pleasure to turn the call over to Pat.

Thank you Glenn and before I start I would also like to wish everyone, a healthy and prosperous new year.

You know last year, we had one of the best third quarters in our history.

And this year, we did not repeat at those levels given the strength of last year's Q3, but overall, we had a strong quarter.

Estimated to be approximately $125 million.

Before I cover the results I want to address the SEDAR in electronics arbitration.

Throughout the process, we have been advised by legal counsel that the case was unlikely to go against us and if it did our exposure was not material a few million dollars at most.

Based on that advice the company did not specifically disclosed this matter in footnote 24 to its financial statements, which covers contingencies.

The initial damages that were sort with $10 million.

And the day before the fact witness portion of the arbitration concluded.

Guard amended its claim and saw $40 million.

The arbitrator allowed this to happen and awarded Siegel, our $39.4 million in damages.

Needless to say we were shell shocked by this.

There's no other way to say it and we are going to fight it.

We have reviewed our legal options and made a motion in the arbitration proceeding to modify the interim award based on the plain language of the supplier agreement.

If this motion is unsuccessful, we intend to seek the California court to vacate or modify the award on legal and Ecmo and equitable grounds.

While the initial award is for $39 million, we are not paying this out rather we took a charge this quarter, which is reported in other income and reflected on our balance sheet.

Just about every law firm we spoke to.

We hired a new California based national law firm to represent us to vacate or modify the award one specializing in these types of situations.

Currently we have three options seek a modification a reconsideration of the interim award.

Seek to have the court vacate modify or correct the interim award or negotiate.

We are aware of the challenges in having an award overturned challenging but attainable and are confident we will get the case hurt.

We have been advised there is precedent for modification given the facts of the case, how this process unfolded and the legal basis of the ruling.

Our balance sheet is strong and we have cash and substantial availability availability on our credit facility and again, we are not paying out cash at this time and should the ruling be overcharged, a modified and result in a lesser amount we will reverse the charge accordingly, resulting in a potential positive pickup in that.

Income.

Losses could take up to a year or more until it's resolved and we're going to exhaust all options.

Gross margins, while down year over year, we're about 100 basis points higher sequentially compared to Q2 and came in better than forecast.

The second wave of price increases, we instituted are having a bigger impact offsetting the higher cost of doing business.

Our automotive segment was impacted by temporary pauses that OEM plants and tighter margins due to price increases.

Higher operating expenses were primarily a result of R&D and engineering expenses within the automotive segment to support new OEM launches and the addition of the <unk> engineering team.

Operating income of seven 8 million was down 10 4 million year over year.

And adjusted EBITDA of $15 5 million down $9 $2 million, but again, our bottomline performance came in above plan.

$5.3 million.

Considering the difficulties posed by cart and labor shortages and price increases transportation and warehousing cost increases the global pandemic in 2020 and its resurgence in 2021, we have managed through at all.

We go on fiscal 21 was tough managing through Covid, but I have to say in my 40, plus years of doing business physical 22 has been the most challenging by far all things being equal I am proud of the team we've grown we're profitable and have many paths to create value.

Let me move on to the segments for the quarter.

Automotive segment sales were up year over year by about $100000 with OEM product sales up 4.4 million and with aftermarket down for $3 million, primarily due to chip shortages and some delays as we moved from air freight to boat.

Driving R O M business, where RFC programs with Ford still Lantus, and Nissan and ongoing business with the top heavy duty truck manufacturers, such as Daimler trucks, Paccar Volvo and Navistar.

While these events have driven OEM sales grow volumes have been less than initially expected given chip in parts shortages and the starts and stops with our customer's production.

In light of the price increases, we constantly negotiate with suppliers and customers and even more so in recent months as we incur higher costs, we must cover that.

We got some pick up from the second wave of increases we instituted last quarter and expected to see a bigger impact in the fourth quarter as some contracts required a notice period before taking effect.

By the end of the year you automotive segment will have nearly doubled from where we were in fiscal 2020, we're expecting more significant growth in the years ahead based on the awards with that we have secured.

The good news that I have to report today is the new OEM award with Atlantis or.

Our original award.

<unk> was per approximately $300 million based on their revised projections. The ward forecast now is about $275 million and this covers the Chrysler Pacifica the Jeep wagoneer in the Jeep Cherokee vehicles for model years 2022 through 2026.

We received an additional award for the Dodge Ram covering model year 2024 through 2026, which is estimated to be approximately $125 million. So still anthos now represents awards of approximately $400 million.

With Ford We received an initial award for $75 million covering the Lincoln Navigator and the Ford expedition model years 2022 through 24.

This award is now projected at $80 million.

And we have the $20 million award from Nissan for our Evo system, and we have a variety of awards from the truck manufacturers and tier one suppliers for approximately 30 million some spanning as long as 10 years. This equates to approximately $530 million OEM Awards, we have received over the past two in here.

Two and a half years.

With production in its early stages.

There are three other things driving our optimism for automotive.

I talked about adding other potential customers for Amazon fire television prior to the supply chain outbreak.

<unk> and the industry environment held back negotiations on projects, but more recently, we've begun to see increased activity in this bodes well for future growth as any additional OEM business would layer on top of our core ending incremental business, we've already been awarded.

D E. I has performed better than projected and they added strong brands and a powerful distribution network. We are that clear cut leader, an aftermarket security and remote starts with the best selling products in the market.

V. S M. As I indicated has received a number of long term OEM awards, while expanding its customer base.

We have production secured for many years out in new products coming to market.

Adding new OEM channels and product lines was a big reason behind this acquisition and is beginning to show results.

You can summarize our automotive segments incentives, we continue to win New William Awards with a lot of room for growth as we penetrate new customer accounts.

[noise] moving on to consumer electronics.

Consumer electronics segment sales declined by approximately 6.7% in the third quarter as we expected and are up 11, 22% year to date.

Premium audio product sales last year benefited from exceptionally high order volume with more stay at home purchases and new sales from the pro media Speaker lunch, we took steps in the first half of the year to secure inventory to meet customer demand and we succeeded.

The acquisition of Akio further strengthen the segment was seven $8 million and higher sales or with Q3, a fiscal 21, we.

We are aggressively working with sharp to rebuild manufacturing and distribution and the demand is certainly there barring any additional supply chain issues are unforeseen events. We believe we can reach sales of $125 million next fiscal year with a goal of reaching 200 million as we expand worldwide.

<unk>.

The addition of Akio Integra and the pioneer brands, along with Klich and our other speaker brands gives us the ability to offer our retailers and consumers a much wider assortment of complete sophisticated home audio solutions.

Year to date premium audio sales are up 16.7%.

I'd say, yes to premium audio company showcase it's 2022 product lineup.

To another year of a lot of excitement, we had strong media coverage and customer interest in it.

I'm just going to go over three of the new lines. We did you, but you can read more about them on the <unk> website.

The glitch Jubilee.

Is the new flagship product of the heritage Speaker Sears it as a horn loaded to wait loudspeaker incorporating the latest acoustic technology and designed to deliver the ultimate and listening experience. The clips Jubilee is priced at $35000 a pair.

The new clips reference speakers features tractrix horns for high frequency reproduction, resulting in soundstage quality.

Of audio.

Lastly, the Mclaren edition of our fives powered speakers.

Features of high efficiency DSP amplifier for high resolution.

And ultra low mass carbon fibre for enhanced performance.

This takes the best from both Mclaren racing and clinch.

Staying within consumer or other C product sales, primarily accessory lines were down 5.7% year over year in Q3, and 5.3% year to date nothing was out of the ordinary sales were down modestly across several categories due to limits on inventory supply and some decisions.

To address rising costs in lieu of certain sales.

Our customer relationships remain very strong and we expect to expand with some key accounts in the coming year. For example are sensation program is done very well with Costco, Canada, and we secured the fiscal twenty-three program with more than two times the volume.

Our reception programs with all Mart have been very strong in the U S and we will be adding additional skews to a lineup and have expanded programs with them and other retailers throughout North America.

Overall.

Moving on to biometrics.

And the biometric segment remained relatively flat for the quarter.

And is up 15.6% year to date, we received our first payment from galvanized following approval of the agreement at our annual meeting of shareholders and the cash received will be accounted for on our balance sheet not flow to the gross profit as initially informed this is because galvanise has the right to.

Invert to equity based on the value it pays to eyelock in the future.

During the quarter, we made progress with respect to current projects and secured future awards.

First the Health Care Award we received we are on schedule for beta launches in the coming quarters and deployment in late 2022 with a ramp up thereafter.

To galvanize in Q3, we rewarded new business from a Switzerland based customer and life Sciences and entered into an MSA and license agreement with a home health care and AI Diagnostics company.

Additionally, we are working on a prototype for an auto mall in Miami and if successful we plan to roll this out through our automotive aftermarket group.

Delivery is set for Q1, a physical 22 and during the third quarter. Eyelock also was awarded a small piece of business from a U S government agency.

We also made a change in management appointing Alan Ibox to the role of President of Iowa.

Based on his extensive background and knowledge of the markets. He has the right individual for the job. He has over 25 years of experience and technology has served as the C. E O of technology companies, including data transfer solutions a business. He cofounded and successfully ran before it was sold to S. N C.

<unk> one of the largest companies in Canada. He has very strong relationships with target customer accounts, particularly with government agencies.

There are several projects Eyelock is currently working on that have great promise and as we have learned from the past. These do take time, especially when discussing embedded solutions and the milk modifications that are typically required some of the more recent work is centered around access control systems authentication software for health care.

Professionals in pharmacies and embedded applications and large volume public settings.

In closing.

We continue to perform well in what is a very challenging environment.

We remain on track with our sales forecast for the fiscal year with the only caveat being the car manufacturers keep to their production schedule next.

Next year should show growth with schedule OEM launches and the addition of Ikea.

Gross margins have and should continue to improve modestly near term, especially as the automotive price increase or stay cold and Oems returned to more consistent production.

And operating expenses are in line with our prior comments with the second half increased primarily related to Ankiel R&D and automotive engineering.

Let me make it clear.

We are not chasing growth at the risk of losing profits. We are focused on securing long term profitable partnerships, we've proven to be agile and discipline and with the foundation. We built over the past few years believe the company can drive significant top and bottom line and.

<unk>.

At this point I will now turn the call over to Mike.

Michael.

Thank you Pat good morning, everyone and I too will start with my well wishes and 2022 happy and healthy new year to all.

Let me start with a bit more detail around sales for Q3 and year to date comparisons.

In Q3, Oh am sales increase with Atlantis OEM program driving sales growth.

This is new and incremental business or sales referred were also up with increased volumes related to the Ford Explorer program.

Finally.

Oh I am a sales were up almost 40% year over year.

Aftermarket sales were down roughly $4.3 million due primarily to supply chain issues and heavy load into last year as pad discussed.

The three biggest categories were impacted where satellite radio fulfillment backup cameras lighting products and turn signal switches, which collectively made up approximately $2.6 million a decline with the rest spread out and offset by growth at our dei subsidiary, which was up over eight <unk>.

<unk> year over year.

Year to date automotive segments sales are up 38, 6 million with OEM sales up $17.4 million, an aftermarket sales up $21.2 million.

Oh am growth was due to higher rear seat entertainment sales and higher virus with the Lantus Ford as well as significant increases in sales at BSN.

There were a number of offsetting factors in the aftermarket an overall growth was primarily driven by the addition of D of the dei subsidiary, which was only for the full nine months in fiscal 2022.

Within the consumer segment, we have lower sales in last year's Q3 down $9.3 million.

Premium wireless speakers and home separate speakers were down $12.6 million combined with the decline directly related to shipping delays and shortages as well as chip shortages, resulting in product back orders.

We had higher load into sales last year quarter, three for our Prometea Speaker line, which was introduced that.

11, Tc positively contributed increasing by seven 8 million, principally due to akio integra and pioneer products.

As noted in September the acquisition of all all came home Entertainment group was completed and we moved from a distributor joint owner.

With higher sales expected rebuild distribution and ramp up production with sharp NR JV, our JV partner.

[noise] consistent with Patrick remarks sensation has performed well in Q3 sales were up over 90% precious Q3 of last fiscal year.

Year to date.

Year to date or consumer segment is up $32.3 million with premium audio driving the increase.

11, Tc contributed to this growth up $25 $5 million a year to date.

Premium home theater speakers wireless accessories speakers and sensation with the three biggest scanners within the segment.

The biometric segment pack covered.

Gross margins were down 200 basis points in Q3, and 240 basis points here today.

I think we've covered the impact in detail throughout the year and it's pretty much the same story.

We have been able to mitigate the higher cost of doing business through to price increases instituted throughout the fiscal year.

The second price increase was put in place in queue too and had a positive impact on Q3 margins up 90 basis.

Sequentially.

The full impact however was not felt as OEM customers typically required notice periods as pad also mentioned and will start to absorb some of these costs in Q4 and Q1 of fiscal 2023.

The pauses with OEM customer reduction also impacted gross margins during the quarter, but on the positive side gave us a chance to change some of our logistics in future costs.

Operating expenses were in line this quarter, no surprises and consistent with our queue to conference call remarks.

We had a 3.9 million increase in operating expenses and added $4 million of expenses, primarily due to <unk> to the Yankee O J V, particularly impacting engineering and technical support expense lines.

For the nine months here today period, we had a 23.3 million year over year increase in operating expenses. There were approximately six 8 million of non reoccurring expenses, we outlined in our queue to call through the first six months of fiscal 2022.

Four $8 million for professional fees and $2 million for anarchy and outside labor.

We also had $8 million of expenses that were added in fiscal 2022, So the dei subsidiary and for furloughed employees in salary and bonus reductions.

Packers.

Youll see acquisition costs in our in our income statements. The Q3 increase was approximately 300000 and year to date increase was $3 million. This is incorporated professional fees I just provided.

On an operating basis operating income of $7 8 million in Q3 represents a decline of $10 4 million as we have outlined.

To put this year's Q3 performance in perspective, the last time, we reported higher than $8 million in operating income with fiscal 2015.

We had increases in other income and expenses, primarily due to the <unk> arbitration I believe this has been covered thoroughly saw speak only to the financial impact which resulted in a current noncash charge of $39 4 million.

For Q3 interest and bank charges increased by 300000.

Due to part to a shareholder loan as a result of the capitalization of our new <unk> subsidiary with sharp.

The JV capitalize with a portion of equity and a portion of shareholder loans to set up the tax structure.

We had a decrease in interest expenses related to our credit facility.

The income of our equity Investees, which relates to our 50 50 joint venture with assay.

<unk> increased by 400000.

Which was offset by an increase in other net expenses and income.

Net income attributable to box was adversely impacted by the arbitration decision, but as a reminder, currently the cash has not been paid out and there is a possibility this could be reversed or a portion of it in future periods. If we are successful in our legal pursuit.

We reported adjusted EBITDA of $15 4 million in the third quarter.

And adjusted EBITDA of $30 million year to date compared to $24 6 million.

And $35 3 million for the comparable periods.

This represents a decline of $9 2 million and $5 3 million versus fiscal 2021 third quarter and nine month period.

In summary, though November 30th sales were up close to 18% and we had over $5 million of adjusted EBITDA year to date and.

And we are only 5 million of adjusted EBITDA year to date we.

We have had a lot of added cost this year dealing with the supply chain costs and delays, which we have worked and continue to work to mitigate higher professional fees related to acquisitions.

Please note we added <unk>, which will result in higher expenses without the full impact of production yet. So next year, we expect to increase the topline generate production efficiencies and bottom positive bottom line contribution.

And our cash is anticipated to follow historical patterns and increase in the fourth quarter.

That concludes my remarks, operator, we're ready to open up the call for questions.

Thank you and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

And while we compile the Q&A roster.

Our first question comes from Brian <unk> with Imperial capital. Your line is open.

Yes, thank you very much good quarter operating cut.

Couple of quick questions in terms of price increases.

Stated you increased prices in the second quarter can you give us a ballpark I know, it's a lot of different products, but on average how much you increased.

In the second quarter, and how sticky those price increases were and then on the fiscal year. If you can talk about price increases how much you've gone up for the first.

Three quarters of this fiscal year.

Alright, Brian It does change from product category product category.

But based on.

Changes in the logistics costs of bringing containers, especially for a bigger products, we've seen increases in excess of 20% in our consumer group.

We've had.

Multiple increases all along whether or not we are taking product by air freight.

With some surcharges and things like that because the air freight versus boat really changes the picture on the landed cost of the product. So I can't give you one solid number but.

Needless to say, we're well above double digits within our.

Automotive group.

And.

Over 20% within the.

The consumer group.

Okay. So that's on the year is that correct roughly.

North of 20% consumer.

What percent automotive, yes that would be on the year and then obviously.

What were assessing is what does the future look like are we going to continue to see a combination of chip problems increased chip cost increased raw material cost increased trucking costs increase.

Freight coming in from overseas.

So as some of these problems mitigates throughout the year.

We'll be we'll be adjusting and.

Matching it to where we believe.

These costs are going to come in but let me let me just say this from a chip shortage standpoint, we believe that the chip problems.

For the car manufacturers well into fiscal 'twenty calendar.

Calendar 'twenty, two perhaps possibly into 'twenty three.

And that's something that.

Okay. Thank you very much for that color that's helpful and I know that you don't give specific.

Guidance on a quarterly basis, but I was trying to understand at least trends.

Comparing you versus maybe last year or something like that as we look forward into fourth quarter, you're going to argue contributing.

So revenues should be better than the fourth quarter last year overall is that the right statement.

It all depends on on what we get in product.

<unk>, we're getting pretty much we're selling everything we get our hands on.

So nothing sitting around everything that's going out the demand is very strong.

Depending on.

Sharp, primarily holding to production schedules and not having issues either with COVID-19 , where it shuts down the plants and things like that.

We expect to continue to expand our.

<unk>.

Our <unk> sales.

Okay and then in terms of you typically have a drop in gross margins in the fourth fiscal quarter overall.

What we're looking at is we're looking at improving our margins in the near term as I've said, because some of the price increases we've already put through.

<unk>.

The 60 or 90 day periods have expired and we expect those price increases to go into effect. So this might be a little bit different than our typical fourth quarter from.

From a margin standpoint, as we expect to see improving margins.

As price adjustments coming.

And the merchant price that will be selling in the fourth quarter it was pretty much.

In the barn, so meaning that we.

We don't expect the cost to go up.

For importing those goods.

Much there will be some because we are still waiting on some sort of product deliveries.

Okay now Thats very helpful. And then just in terms of operating expense.

In the third quarter looking at third quarter expenses, just the normal ongoing the selling G&A engineering and Tech support is argue fully in there. So we could be able to model from those levels going forward or do we still need to ramp up a little bit.

Yes, <unk> four for the quarter, we started in September .

So they were in there for the for the full third quarter, we expect to see the same.

There could be again.

Part of the.

The overhead calculation when we when we partnered with US to know is the amount of product that they can ship us okay. The more they ship us.

The lower the cost of carry of the Japanese offices.

Okay.

Understood.

And then pivoting real quick and then I'll.

Yield before.

So to speak.

Is.

This potential arbitration settlement.

With C Guard.

Alright so.

Can you tell us the timeline.

I believe that there is going to be certain milestones in February and can you walk us through what we should be looking for in terms of decisions from either quartz or I know, it's not necessarily appeal, but.

Where are the next steps are in the next milestones and the timing of those milestones.

We have.

We have asked the arbitrator to review the award the interim award that will be done sometime in February .

And then from there it's going to be.

Based on the decisions she makes as to whether or not we take this to either federal court or state court.

So what I said is it could be as much as a year or more.

Okay.

Thank you very much.

Alright, great.

Thank you. Our next question comes from James with D. A Davidson your line is open.

Happy New year. Thank you for taking my call.

Just Scott.

Thank you I've got two questions related to your comments that you made in your remarks, so first as long time industry participants.

I would love a little bit more color on what youre seeing in the supply chain and if applicable whether or not youre seeing any signs that supply chain and logistic trends are improving.

First as last quarter.

Okay.

From a standpoint of pricing, we do see some modification.

Pricing.

On the logistics side.

But we are not we're not baking that in 100% only from the standpoint depends it depends on the volume of goods coming in and we also are concerned about the army crop.

Really taking hold of different parts of Asia, which could create shutdowns at ports at plants.

Once that happens then pricing will start to.

Reflect that so.

But if I was if everything was to stay.

Encores I would think we will see some drop in logistics costs as far as bringing products in.

Don't believe were going to see much in the way of.

Chip prices.

Ranging much.

And we're at 52 weeks on lead times for purchase of needed chips I don't I don't think that changes till sometime in 'twenty three.

But as far as logistics.

The thing that could hit the logistics that could raise the prices again.

Is going to be a breakout.

Covid in the different countries.

That's very helpful. And then my second question is in.

In your remarks, you mentioned that stay at home really drove order volume for.

Yes.

We've done this.

We had a big launch of our.

Of our computer sneaker last year.

<unk> was particularly appropriate for a stay at home situation. So we had large sales there we knew those sales would not repeat at the level that they were last year, but when I look at the overall were up almost 17% in our premium audio business over the year.

<unk> remained strong obviously some of that demand comes from the dollars stimulus dollars that were in the economy.

But at this particular point I've got to believe a good portion of that was gone for Christmas We had a very solid Christmas.

The projections, where we're looking at on a go forward basis.

<unk>.

As I said in the past we do believe this business is sustainable.

Wonderful. Thank you so much.

Youre welcome.

Thank you as a reminder to ask a question at this one please press Star then one our next question comes from Alex <unk> with extra capital. Your line is open.

Hi, guys. Thanks for taking my call.

Let me go back to the.

These arbitration issues again.

<unk>.

On the magnitude of a potential award now now I also get that you've been indemnified by your suppliers on that claim right, but I know as a lawyer and myself. These claims are usually very difficult current course from permanent <unk> point of view.

So that that would be helpful. There if you could start there and then I've got another one if you could start there first.

Okay, well the first one is.

We do not believe that.

The patents first of all if we do not.

Infringe the patent.

Okay.

And secondly, as you rightly mentioned, we do have an indemnity there, but any infringement. If we were to lose the case would be based on the number of products that we sold and that would be the determinant factor for the most part as to what any claim would be paid and therefore based on that we do not believe.

It would even be material.

And could you guide us on revenues generated from the products that those parties are.

Alleges infringement them.

At this particular point because we're involved in a case I would not be at liberty to discuss that.

Okay. That's fair enough and then the second question I had and again I've been involved in a few of these arbitration disputes.

If you appeal that award.

Or if it's entered as it judgment into a state or federal Court my understanding that as you Peel. It you have to post the bond cash bond.

So could you comment I know.

The payment has been crystallized, but there there could be a payment that needs to go into court at some at some point could you comment on that.

Well. The thing is is that first of all there is no appeal process and be in an arbitration.

We're either going to sit and speak with you arbitrate it to see if she can.

Modify the award.

In some case if that's not successful then we would plan to take it to federal or state Court. If we have to post the bond we have already discussed with our insurance companies.

And it would not be.

Again in our estimation would not be material as to the cost imposed by Bob.

Okay and then the last question on this matter is.

I understand under the terms of your revolver that you werent able to draw funds to incur additional debt and I would assume that means the.

Any any of those judgments, so with $20 million of cash on balance sheet cash.

Cash was obviously higher but assuming you have to post the bond or or payout that award plus a.

A potential patent infringement award.

Do you think you have enough capital here they need to go back to the market.

Whether an equity raise or or some type of debt facility.

No we can use our facility.

The way, we launch and so may be alone. So we're free to do.

And use that money in any way, we want providing we have enough inventory and enough accounts receivable to.

To support the.

<unk>.

The level of evolved.

<unk> facility that we have which we do.

Okay and then the last point, we've picked up on some data showing your your imports for consumer electronics have trended down and Thats publicly available information from.

Angie.

And I'm just curious why imports have dropped off in November and December .

Quite a clip that drop and just wondering if you can comment on that is that a supply chain issue.

Nearing up in inventory that that'd be great. Thank you.

We're a cyclical business and this is the time that our inventories would start to come down after the holiday season, We also had.

And getting ready for the holiday season brought in sufficient amount early to make sure we have enough inventory for the holiday season. So this is this is very typical of what you would see.

Our inventories would come down and we would in fact cash up.

Towards the end of our fiscal year so cyclical.

Okay. Thank you very much.

Welcome.

Thank you and I'm currently showing no further at this time I'd like to turn the call back over to Pat Lavelle for closing remarks.

Well thank you all.

I want to thank you for your interest in blocks you support and once again I wish you all the best in this coming year. Thank you and have a good afternoon.

This concludes today's conference call. Thank you for participating you may now.

Q3 2022 VOXX International Corp Earnings Call

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