VOXX International Corporation Q4 2023 Earnings Call
Yeah.
Good day and thank you for standing by welcome to Vox Internationals fiscal 2023 fourth quarter and year end 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 <unk>.
You will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Glenn Wiener Investor Relations. Please go ahead.
Thank you good morning, and welcome to box Internationals fiscal 'twenty 'twenty, four fourth quarter and year end conference call yesterday, we filed our Form 10-K and issued our press release and this morning, we posted an updated investor presentation documents can be found in the Investor Relations section of our website at Www Dot box I N T L dot com it'd be more.
Happy to send him a long upon request as well today will have prepared remarks from Pat Lavelle, Chief Executive Officer, and Michael Stoehr, Senior Vice President and Chief Financial Officer, After which we'll open up the call for questions beyond Cali, our newly appointed President is also with US and will be available during the Q&A portion of our call.
I'd like to remind everyone that except for historical information contained herein statements made on today's call and webcast that would constitute forward looking statements are based on currently available information.
The company assumes no responsibility to update any such forward looking statements and I'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 2023. Thank you for your continued support and I would now turn the call over to Pat.
Thank you Gwen.
While we had a lot of positive developments and continue to win new business globally fiscal 'twenty three was certainly a challenging year.
We were faced with a myriad of roadblocks to route.
M customers shutting down production retailers cutting back on orders inflation and fears of recession globally.
It's had a big impact on consumer spending in our retail business.
Supply chain issues improve during the year, but the hangover of high cost inventory lasted throughout the year.
Scarcity was a major issue and come into some of our expected automotive OEM growth.
Actually all of our competitors and industry peers have been feeling the pinch and we continue to see layoffs, particularly across the technology and consumer sectors.
We have been vigilant about controlling costs, while working to enhance margins to offset some of these pressures.
As we look into fiscal 'twenty, four and particularly the first half we see more of the same with respect to the global economy.
We hope to see better conditions in the second half of the year with some possible easing by the fed and lower costs due to an improved supply chain.
Chip supply is also expected to improve in fact, we've seen more availability in recent months, which I think bodes well for our OEM business.
Our view of the opportunities ahead has not changed and we remain confident that.
When there is a return to a more normalized operating environment.
<unk> is poised for significant growth and value creation.
As for fiscal 'twenty, three and our results.
43 sales were down.
16% year over year gross margins declined by 160 basis points and operating expenses, excluding the noncash impairment charges declined by over 5%.
We reported an operating loss of $27 3 million and an adjusted EBITDA of $8 6 million in fiscal 'twenty three.
Both however were down versus fiscal 'twenty two.
Again, it was a tough year with sales coming in below expectations, particularly in the second half of the year.
We made a lot of internal changes to realign and lower costs. During the back end of fiscal 'twenty three and into this year.
Automotive segment sales declined by approximately $26 million with OEM sales up $8 million and aftermarket product sales down close to $34 million.
Our OEM sales growth was driven by some of the new contracts, we've been awarded for our rear seat Entertainment systems, what's the Lantus Ford and Nissan we.
We also had higher OEM sales of remote starts and security projects.
Driven by higher business with Subaru and some other programs.
Our truck business declined despite several new customers and awards, but the pipeline remains strong.
Overall, while OEM sales were up in fiscal 'twenty three growth was curtailed by ongoing supply chain issues faced by our customers and we estimate approximately $18 million in lost revenue as a result during the year.
The automotive aftermarket business was hit hard for several reasons.
One aftermarket customers took heavy inventories of remote start products last year to ensure they had adequate supply for the season, given the supply chain issues. This left an overhang, which impacted this year's business, but should not be as big a factor in fiscal 'twenty four we also.
So sorry, 30% decline in sales of aftermarket satellite radios as one of our key retailers cut back on purchases for most of the year.
And tree rougher.
Roughly half of our aftermarket business is done at new car dealers and there was a scarcity of vehicles on the launch throughout 2022.
We expect that to improve as the car manufacturers increased production this year.
Moving into fiscal 'twenty, four we our anticipated growth in Automotives.
So the extent that will be dependent on more consistency and chip availability and more consistent OEM production.
We didn't expect such a big drop in the aftermarket and assuming things begin to normalize we should see an uptick in aftermarket sales as well.
Moving on to our consumer segment.
Net sales declined by 17, 6% with the majority of the decline in premium audio.
The weak retail environment in Q3 continued into the fourth quarter and our sales came in considerably below the prior year and our forecast.
It's been a challenging environment and concern you and consumers continue to pivot away from CE products for the home.
Which during Covid as you know with very strong and we believe this has pulled some sales forward.
Premium audio sales declined roughly $770 million year over year, but the majority in home separate category.
However, our market share has been holding steady and our brands and placements are not the issue.
Been impacted by recessionary pressures and inflation, the pivot and the overall softness in the CE category.
We're not the only ones having this issue we're seeing it pretty much across the board.
Sales of <unk> and pioneer related products were up $33 million year over year.
Lower than we projected due to a combination of supply chain constraints and the retail environment.
We're planning for continued softness throughout the year, however growth will come from launches of new products and by expanding into new categories and new territories.
For example.
We are progressing with our plans to expand distribution of banking on pioneering tiger brands globally into India, China, Japan, and the EMEA region.
We are launching new clips referenced premier Subwoofers.
New cinnamon one cinema, one sound bars, new clips powered monitors and new Ankiel pioneer and pioneer elite and Integra receivers.
We will also be entering a new and growing market. This summer with glitches first ever Wireless Party Speaker line. This category has become an important audio segment and is growing.
In the second half of the year.
The new all electric Ram <unk> hundred reps will launch and will feature the clips referenced premier audio system with a powerful state of the art twenty-three speaker audio system.
No stranger to automotive this is a major placement for eclipse and one of separately vehicles. We believe will materialize in the coming years, our placement remains strong new markets and channels are part of our plan and growth over the second half comparable should be attainable.
Other CE product categories, and sales were down roughly $7 million for the year, but in the fourth quarter and for the first time ever we began shipping wireless speakers under the acoustic research brand to build Costco U S and Costco Canada.
This category was up to the year, helping to offset some of the other declines primarily due to the retail environment.
Our accessories sales in Germany were essentially flat year over year.
And obviously due to the difficulties that we see in Europe due to the problems that they have there.
We have a number of new product launches and our accessories business some of which I'll highlight I highlighted on our last call.
Just a few weeks ago, we announced the entrance of RCA into the multibillion dollar hearing aid market with an assortment of products.
The Fda's recent ruling created a new category of all the over the counter hearing AIDS, enabling consumers to purchase hearing AIDS directly from stores or.
Our online retailers without medical exams or prescriptions.
There are close to 30 million Americans in the U S alone that could benefit from hearing AIDS ranging in ages, but the greatest amount of hearing loss is in those aged over 60.
RCA has been one of the most well known and trusted brands for a century and is a brand that appeals to this target demographic well.
We rolled out an aggressive direct response television campaign across major television networks, social media and on Amazon Dot Com.
This is the beginning launch in a category, we believe could open up new channels for growth.
Additionally, our European accessory group introduced the new solar programs for houses and apartments that will generate power directly into the homes electrical system. This has proven to be very popular considering the drastic increase in electricity rates due to the conflict in the Ukraine.
Technology has been approved in Germany, Austria, and the Netherlands and based on quick sell through of initial inventories and response.
You know from our customers. We expect this category will drive growth for our European accessories.
Moving on to biometrics, the biometrics sales came in at $1 million up close to 19% year over year and were also up in the fourth quarter. We are expanding various programs that we've been awarded and are in the process of pursuing others, which have potential to scale.
With respect to the health care company, we have been working with well over the past number of years I am pleased to report that we have passed the final rounds of testing and have been approved for production.
We'll have a greater sense of timing and the impact over the next several months. We are excited to have finally been approved as we are now an authorized iris authentication provider to them and there are other products and equipment that they manufacturer that we can expand into.
Our work with Axiom Bank continues and we remain on track to complete the development of our Iris biometric token for their banking as a service solution by the end of this quarter.
And we continue to expand business in high through throughput facilities, such as auto dealers rental agencies and other infrastructures, where you have multiple access points multiple drivers and where security and control is paramount our.
I'll work with the Miami Auto Mall continues and our proof of concept is currently in testing with a major car rental company.
Additionally, I am pleased to report that <unk> access control systems are now installed at 13 nuclear power plants upfront for the prior quarter.
As this industry recognizes the ease and high level of security that Iris biometric offers.
There are various R&D projects underway, which we expect will result in new commercial solutions, leveraging both iris and facial recognition across both physical and logical access momentum is building and I believe our results in this segment should continue to improve throughout the year as we seek to reach profitability.
<unk>.
As I said.
It was a challenging year in 'twenty, three and it's a challenging start to fiscal 'twenty four.
And we are going to be cautious in managing our business and look to new launches and addition of new market segments to drive growth.
Before I turn the call over to Mike I'd like to extend my sincere appreciation and gratitude to Peter Lessor, who has served on the box board for the past 20 years Peter.
Peter has provided invaluable oversight and strategic direction to the board and management throughout the years leveraging his vast experience in the CE industry.
After a long and distinguished career, he has decided to spend more time with his family and will not be standing for reelection at our physical annual shareholder meeting.
All of us at blocks, we'd like to thank him for his contributions and we wish he and his family well.
I would also like to take a moment to discuss the board's nomination of Steve Downing to serve as director of our company.
Steve is currently the president and CEO of Gentex, a global company, serving the automotive industry and one with a market capitalization of nearly $7 billion.
He has had a very successful in this.
English Courier service.
<unk> in various leadership roles at Gentex throughout the past two decades.
We can work with Gentex and that times competing against and we couldnt be happier to have someone of Steve's caliber join our board.
We look forward to working more closely with him both as a director and as a partner looking for ways to build the vocs gentex relationships.
And at this point.
Thank you and turn the call over to Mike <unk>.
Michael.
Thanks, Pat Good morning, everyone. I'll review, our Q4 results and then close with a few comments around our balance sheet before we open up the call for questions.
Q4, net sales declined by $27 $4 million with automotive down $1 1 million consumer down $26 4 million and biometrics up approximately 300000.
Within our automotive segment OEM product sales were up approximately 44%.
Our OEM growth was driven primarily by increases at four for both our evolve and our <unk> systems and higher sales as to Lantus is the chip situation eased somewhat.
We also had higher sales of remote starts security systems related to new programs with Subaru.
On the other hand, our aftermarket business declined by approximately 22% due to higher inventory stocking by customers at the end of last year's winter season, and slow retail traffic.
The decline in consumer segment was primarily in premium audio category with premium audio product sales down by approximately 32%.
We had lower sales of premium home theater wireless speakers and mobility products domestically and lower sales under a magnet Mac audio heiko brands internationally.
The decline was driven primarily by the state of the global economies and both lower retail and consumer purchasing.
Additionally, other CE product sales increased by approximately 14% due to the growth growth in wireless speaker category and higher sales of reception products domestically and higher European sales due to the new solar program.
Biometrics sales were up approximately 300000 for the comparable periods.
Gross margins of 25, 4% was down 140 basis points for the comparable fourth quarter periods.
Automotive segment margins were up 530 basis points consumer segment margins were down 450 basis points and biometrics segment margins were close to 40% compared to negative gross margins in Q4 fiscal 2022.
We expect to see gross margins improve throughout the year as the cost of supply chain issues have been largely mitigated.
We reported fiscal 2023, Q4 operating expenses of $47 6 million.
Representing a $6 9 million increase this includes approximately $8 7 million in noncash impairment charges.
Excluding these charges our operating expenses declined for the comparable fourth quarter periods by four 3%.
Selling expenses declined by $1 9 million due to lower commissions and salaries and a decline in website and credit card expenses, which was partially offset by a modest increase in advertising and trade show expenses among other factors.
G&A expenses decreased by 700000 due to lower executive management bonuses and a decline in office expenses, partially offset by higher restructuring related expenses.
Engineering and tech support expenses were essentially flat.
We also had $400000 decline in acquisition costs associated with the <unk> acquisition joint venture with sharp.
Inclusive of noncash impairment charges, we reported an operating loss of $12 9 million for the fiscal 'twenty three.
Quarter compared to operating income of $3 2 million in Q4 of fiscal 2022.
Total other income net was 200000 up approximately 300000 interest and bank charges increased by 900000, we had an expense of $1 million related to interest associated with the CCAR to arbitration and as discussed a ruling is expected by August .
Lastly, we reported adjusted adjusted EBITDA of $3 million as compared to adjusted EBITDA of $9 7 million and comparable fiscal 2020 to fourth quarter.
Moving on to the balance sheet.
We had cash and cash equivalents of $6 1 million as compared to $27 8 million as of February 28 2022.
$8 5 million as at the end of our fiscal 2023 third quarter on November 30 of 2022.
Total debt was $39 9 million as compared to $13 2 million at the end of fiscal 2022.
Total debt stood at $47 2 million as of November 32022, a sequential reduction of $8 million.
Our total debt for the comparable year over year periods increased to increased due to $29 million outstanding on our domestic credit facility, which was used to fund inventory stock repurchase and for working capital purposes.
We expect our balance on the revolver to decline in Q1, as we collect Q4 receivables and reduce inventory.
The additional variances related to a 500000 payment reduction on our Florida mortgage and a 600000 decline and our shareholders payable sharp as a result of the strengthening of the U S dollar versus the yen.
To close we expect sales to be modestly lower for the first half comparable in fiscal 2024, and then increase thereafter.
Gross margins are expected to improve throughout the year and our operating expenses expenses, while expected to increase should decline as a percentage of net sales.
Thus a better fiscal 2024 for box baring any major downturn in the global economies.
Operator, we're ready now to open up for questions.
As a reminder to ask a question. Please press star one to one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Brian Ruttenberg from Imperial capital.
Just wanted to go over that again.
That seem to be very significant in terms of guidance or at least your.
Your broad guidance in the first half of.
2020 for fiscal 'twenty 'twenty four you expect revenues to be down in all categories is that right or just overall.
I would think that as I indicated before there are some areas, where we're expecting growth due to.
In our accessories group, we expect to see growth in the first quarter.
Due to the programs that they have in place that they are shipping in both.
The acoustic research program that we have placed that Costco and then.
Also the new hearing aid program.
And the newer the new.
Solar program.
And in Germany.
As far as the core business.
It all depends on what we see happening with production.
The car manufacturers are still good.
Planning production and then last minute.
Advising us that they are not producing so.
But if they do produce I would expect to see increase in the OEM sector the regular retail business.
Is still soft we expect it to be soft.
As we move into this year.
Okay. So.
To summarize then let's just talk total revenue in the first half of the year is going to be weaker than the first half.
2023 is that correct in terms of a summary.
Yes, I mean, I think what we're looking at.
Yes.
What we're looking at four.
The full year is an increase.
Okay.
Pretty much across the board with the second half increases coming primarily from premium audio okay, and the aftermarket which are their normal heavier seasons as far as sales we have as I indicated we have a number of new <unk>.
<unk> launches on the premium audio side that will.
Some of it will come in in the second quarter.
It will impact the third and fourth quarter.
More and that is true and that is also the traditional.
Heavy selling season.
Or remote start in security product, which is a main product category within the aftermarket.
Okay, and then in terms of gross margin just to drill down one more financial question you expect gross margins to improve from 2024 versus 2023 is that what I'm hearing.
Yes.
What we have.
Lot of the inventory.
We're starting the year with is inventory that came in.
Because we had to stretch our supply chain out so far we have to bring in inventory.
A lot of that inventory came in on the high priced containers.
So now as the container cost or getting back to normal okay. As we move into the year that replacement product coming in will be able to generate a better margin than the inventory that we're sitting in that sitting in the warehouses right now so we see a gradual.
<unk> improvement throughout the year of margins just based on the cost of bringing this in.
So for example, I mean last year.
<unk>.
We went from $3500 a container is in many cases, we are paying $20. Okay.
In the case of our premium audio.
Yes.
If you take $3500, but you can only get 2200 units in that container, that's roughly $17 50 a unit.
But at $2100 a unit so we could only raise our margins and.
Our prices so much otherwise we would absolutely killed off all the sales so as we move back to normal prices for bringing product in.
We expect that we will be able to do two things one make our pricing more competitive.
And lower and raise the margins that we get.
Great and then just last question on the container costs, where are we now you talked about.
<unk> been on containers, but I think that's one of the major.
Factors, where your container costs running right now or are they five 8000 4000, yes.
They are lower than that I mean, it ranges from where its coming in but it's getting close to where it was historically.
Okay closer to the 4025.
Correct, yes, Okay, Oh, yes, Oh, yes.
Okay, great. Thank you very much.
Thank you Brian .
Thank you one moment for our next question.
Our next question comes from the line of Tom Forte from D. A Davidson.
Great.
So I've got five questions I'll go one at a time.
So can you talk about.
The strategy of potentially investing some of that margin improvement and lower supply chain costs.
Such as the containers.
Investing that in price to drive sales.
Yes, I mean as I, just said I mean, some of the price increases that we have put in place curtail sales and.
As we adjust pricing.
As the costs of product coming in is lower we can be more we can do two things we can be more competitive on.
The ultimate price to the consumer but start to restore normal margins on these products.
Okay, and then can you talk about channel inventory and if things changed versus last quarter for the better for the worse.
Yes, the inventory channel inventory is coming down.
We're moving through inventory.
Obviously, we've got to place orders for new inventory and that will that will be coming in but we are seeing an overall drop in total inventory that we're carrying at this point and thats been a concerted effort. Because there is also a cost of holding on to excess inventory.
Okay, and then on the <unk>.
Auto related sales to what extent at all if at all are you impacted by the higher interest rates.
Well, that's going to be another challenge for the for the car manufacturers.
Look I've been doing this a long time.
No that the car manufacturers and the dealers.
They're not going to sit still I do expect to see.
As the interest rates become more and more of a problem purchasing a new car I do expect to see that the car manufacturers themselves.
We will be offering low interest loans to buy car no interest loans to buy cars.
Which which are traditional things that they've done in the past.
What we're looking at here is three years worth of pent up demand that has not been met.
And its our feeling is even though we may see.
A let's say a mild recession coming into the second half of the year.
I do think the car manufacturers.
Are poised and ready to offset some of those higher interest rates.
Okay and then.
From your vantage point do you think consumers are spending more money on travel and services and that's impacting our results.
Absolutely.
We indicated when we look at the entire CE category, when we look at things for the home.
We definitely see the pivot.
We're in the first few years of Covid. It was very strong for us and it's obvious that when people are sitting at home. They wanted to do something that either worked on their hallmark.
They wanted to improve their entertainment systems and in some cases.
Consumers bought forward they bought during the recession during COVID-19 when they may have waited a year or two more replace their TV or sound system.
But if you look at the numbers that were up with the recent report that came out.
Airlines are up dining out is up vacationing is up and that really unfortunately is coming at the expense.
<unk> spending for the home and general home spending.
In that regard, though could you talk about what's the historical refresh rates and how do you think that might change in the current cycle if at all.
It depends on the type of product.
New technology will come in and kind of obsolete obsolete some of the technology that as they're making it different that's why we're looking at new products. A party speakers are a very hot category right now very very easy to use Bluetooth connections.
So some of those products.
<unk> will generate interest.
This year, but I mean, if youre looking at a home theater system, a refresh rate on home theater system is really a new technology coming through that obsolete the existing one.
But makes it a.
A better experience. So there is a long lead between an initial purchase on a replacement and that's what we're feeling.
Alright, and then last one and thanks for taking my questions.
Can you compare and contrast, the current macroeconomic environment with the great recession and start of the pandemic.
I feel like there's been a lot of talk about the recession, that's not in the GDP numbers yet.
I understand that there is.
Housing related sales.
Road home depot at some pretty poor results today.
From your vantage point.
How does this compare with the great recession, how does this compare with the start of the pandemic I think you've talked before about how the current situation may be unique because.
Unemployment rates still quite low.
Alright.
Yes.
There is.
Is there any bright spot it is that the consumer has been somewhat resilient because of the low unemployment rates.
What's lacking here is what we saw in Colgate the government money that a lot of people who received his.
Has been spent.
The more affluent.
Is spending more time traveling.
Going on vacation.
So.
I do believe and I've been saying it is that there is a big pent up demand for new cars.
The car manufacturing in the United States has not met demand for three years and the differences cars warehouse, it's not like a home theater system that would sit in your home. It can work for years, So I do believe that.
There's a good chance, we'll see higher car sales and again I do knowing the car manufacturers and the only car dealers. They are very competitive group and they're going to fight for business and they're going to fight to the consumers' dollar.
Great Alright, sorry, inspired me to ask one more so valuation is done a lot of assets has come in can you give your current thoughts on strategic M&A.
At this particular point.
We're always we're always looking okay.
If there is an opportunity that presents itself that we think is compelling we will move.
But as I indicated on my opening remarks.
Going to be very conservative with our with our spend.
Until we can really see how the market is shaping out.
So that we can make sure that we can not only launch all the products that we have coming in but do the marketing and everything to drive those sales so it's going to be.
Depending on what we see.
And what the market is shaping up to look like in 'twenty and our fiscal 'twenty four.
Thank you Pat for taking all my questions I appreciate it.
Thanks, Tom.
Thank you at this time I would now like to turn the conference back over to Pat Lavelle for closing remarks.
Okay.
I know disappointing results.
Based on.
What you heard this morning, but when I look at.
Blocks.
The brands that we have the placement that we have.
Across the world and the expansion that.
We're planning.
It gives me hope that we can see growth this year modest we.
We have a lot of new product coming in that should help add to it and with <unk>.
Lowering of the products the problems that we've seen over the years that supply chain and chips and things like that that should give us more opportunity to get our products onto more and more cars.
Thank you for taking the time to listen today and I wish you a good day.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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