Q1 2024 VOXX International Corporation Earnings Call
Yeah.
Yeah.
And good day, and thank you for standing by and welcome to the first quarter results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer.
Session to ask a question during the session you'll need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like to introduce your host for today's conference Glenn Wiener. Please go ahead.
Thank you and good morning, everyone. Welcome to box Internationals fiscal 2021 first quarter conference call yesterday, we filed our Form 10-Q and issued a press release spoke documents, which can be found in the Investor Relations section of our website at Www Dot box I N T L Dot com.
Speaking from management today will be Pat Lavelle, Chief Executive Officer, and Michael Stoehr.
And your Vice President and Chief Financial Officer, our President be Icarly is also with US today and following prepared remarks, all will be available during the Q&A portion of the call.
As a reminder, next week on Thursday July 20th we'll be hosting our fiscal 2023 annual meeting of shareholders. This will be a virtual meeting held at 10, a M eastern and shareholders can attend by visiting Www Dot virtual shareholder meeting Dot com back Slash B O X X 2023.
For today I'd like to remind everyone that except Turkey, 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 it's my pleasure to now turn the call over to Pat.
Yeah.
Thank you Glenn and good morning, everyone.
The market remains challenging and the impact is reflected in our first quarter results the retail environment is tough.
Globally.
And while we have a number of good things materializing throughout our segments. The economy remains a primary obstacle near term.
Q1, net sales were down roughly 13% with the automotive segment down 3% and the consumer segment down approximately 17, 5%.
Our business continues to be impacted by changing consumer patterns higher interest rates.
Good.
Everyone Who's not speaking mute. Please thank you.
Higher interest rates, all time high credit card debt and continued production issues at our OEM customers and I can tell you box is not alone our peers are facing the same issues. We are we are not losing market share and in some areas, we're expanding and this bodes well for long term.
We've been around for over 60 years for a reason and we remained steadfast in moving forward with our growth plans.
At the same time, managing our expenses and capital.
But near term with best buy target Walmart and many other retailers reporting weaker outlooks for 2023, it's about maintaining and capitalizing opportunistically.
As for our automotive segment, our OEM business was up over 21% driven.
Driven by higher volumes with Ford, the Lantus and Nissan for our rear seat entertainment systems we.
We have seen some increases in customer production, but not in all cases and chip issues appear to be easing, but we're still being cautious.
Margins are tight based on current contract pricing and we are working to mitigate this with production shifts to Mexico, which began in fiscal 2023 and will be mostly complete by the end of our second quarter.
Volume remains pretty consistent with Ford and we're continuing to develop the RSC systems for model year 2025.
Volume with Nissan and landed.
Okay.
Somewhat.
Lantus.
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Volume.
And we're now supplying the evolve system for the Wagoneer Cherokee specifically.
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We are now supplying to evolve system. So the wagoneer.
Parakeet in the Pacific.
The tailing higher growth in the OEM RFC category with some customer production related issues as some plants have been slowing down for various reasons on the other hand chip supply has been improving which is a good sign for the industry.
Looking out our OEM business remains poised for growth due to a number of reasons. Firstly OEM production is becoming more consistent and should increase the.
The demand for vehicles remains very high.
Third we have a number of large multi year long term contracts in place across several of our OEM product lines with new programs coming in fiscal 2024.
The automotive aftermarket continues to be challenged due to a lack of cars and the overall retail environment.
There hasnt been much change since I reported last quarter other than our aftermarket customers working through their inventory positions from the prior year dealers and distributors are continuing to watch inventory levels closely as they don't want them repeat the issues. They had last year, but we expect things to loosen a bit.
As we move into the fall and winter seasons.
As for our consumer segment sales were down roughly 17, 5% and it was all in premium audio as other CE product sales were up almost 36%.
More than half of that growth was in wireless speaker category as we captured sales both in the U S and Canada and expanded our Costco program.
Germany accessories sales were up over 77% and schwaiger sales nearly doubled as the new balcony power product. We introduced in fiscal 'twenty. Three is doing very well, we expect sales from these two new programs to help offset economic softness and potentially drive growth this year.
Premium audio category has been hit hard and it's not just due to the economy and retailers we saw.
A big uptick in premium audio sales when COVID-19.
Covid first hit.
And over the following year.
As people were staying at home and making purchases for the hall now we're seeing the opposite.
Discretionary income is being spent on travel restaurants and other services.
The global environment is worse off today than it was at this time last year.
On the other hand, the supply chain, which over the past year has led to significantly higher cost longer lead times added storage and shipping and product scarcity has improved dramatically, which should help margins improve.
As for the quarter sales were down across categories brands and geographies. We spent the past several months in fact, rather the better part of the.
The past year looking at new opportunities, where our premium audio lineup could excel and offset some of the global the global economic pressures, while continuing to drive innovation in our existing lines.
One of our new innovations as our eclipse reference premiere powered subwoofers, which are doing extremely well and leading to increased market share.
Another is our gig exhale and gate X XL party speakers, marking our entrance into the hottest category in CE right now with new products slated in the coming months.
We will also be launching our new clips music city portable Bluetooth Speaker line, which will expand our presence in the category and we've received strong advanced orders that bode well for this category.
And lastly, we will be launching a new clips plexus, a new sound bars coming to market late in the second half of the year. This is a connected audio sound system. The first ever product developed in tandem by eclipse and <unk>.
The category will continue to be pressured through the year. There are new products should help offset the pressures were expecting.
We will expand the distribution of Ikea and pioneer related products, especially in China, where pioneer has recently expanded our license.
Partnerships.
Are also new sales drivers and there are a few that we believe will help drive growth in the years ahead.
Our flagship brand clips isn't homes cinemas commercial establishment on the water and soon will be on the road as quick reference Premier speakers will be on the first ever Dodge Ram EV truck to trim levels with the Ram 1500, tungsten and the Ram punish them with a state of the.
'twenty three speaker audio system that in fact will blow you away.
And we've had a partnership with Mastercard that four year supply and clip speakers and master craft bulbs. Soon <unk> will be integrated into luxury crest pontoon boats and rvs are a day yards expanding this relationship further.
Other programs with hard rock.
Redeveloped PGA and others will continue.
A few years ago, the premium audio market saw an unusually high volume of stay at home purchases.
I had an equally fast downturns things everyone experienced it the market will continue to be challenged due to this and the continued slowdown in the economy new products will have this year and when market conditions begin to improve our consumer segment results will as well.
Lastly, our biometric segment sales of $1 million in line with last year in Q4 of fiscal 2023, but were light compared to budget due to timing of some projects moved slowly throughout the quarter, but will continue throughout the year and drive growth in fiscal 'twenty four.
We're moving forward with health care program that I've covered for several calls.
Authentication solution was validated by third party testing and accepted by our customers to be incorporated into their next generation medication dispensing solution with.
We're working on any final design changes through the third quarter with production expected to start in fiscal 'twenty four.
This customer plans to expand our technology implementation across three other product lines and discussions are underway.
We are also working with several pharmaceutical companies selling our logical authentication devices, which are used to authorized approved personnel into their manufacturing execution systems.
As you May recall in Q3 of last year, we developed a proof of concept program for a nationwide rental car agency. This program is in testing at Dulles and Reagan Airport and if successful we'll rollout in many additional additional locations are.
Our business with nuclear power plants in the U S continues as well and we are working with several operators throughout the U S to deploy <unk> technology to secure a physical access which should bring our total to 20 nuclear facilities domestically.
Within the financial space, we continue to work with axiom bank to complete the development of the Iris biometric token for their banking as a service solution and we are also discussing with our largest financial customer and update you all I lock physical access systems that they have installed throughout the years to our newest FX T system.
In closing, we anticipate fiscal 'twenty four will be difficult due to the uncertainty of the global economy and the continued impact of shifting consumer preferences, we expect markets to remain hard pressed.
Many economists are expecting that we'll be in recession.
In this fourth quarter or first quarter of next year. Therefore, clearly more action is needed we began adjusting overheads in the second half of last year and given the outlook, we will be making necessary adjustments to our infrastructure and expenditures adjusting to meet reality.
We are completing the move to Mexico to improve all overall automotive OEM margins. We are adjusting our workforce based on expected fiscal 2000 and for sales volumes and realigning to ensure were operating effectively ended and supporting customers.
We're actively managing G&A looking at all expenses, both internal and external and we are implementing brand and product rationalization programs in order to get a better ROI.
Although we anticipate near term softness some of it should be mitigated by the positives we are seeing and the things. We are planning for as example improvements in the supply chain should help improve margins chip availability should help our OEM customers stabilized production new OEM programs started next year.
Here and beyond we have new premium audio products set to launch this year, we have begun delivering our new Eclipse party speakers entering the fastest growing segment of the audio business will be expanding geographically with RTL pioneer and Integra premium audio partnerships I discussed are expanding.
Our accessories business has been growing with the introduction of our new solar product and expanded distribution and we have a number of biometric projects, which should drive growth and lead the segment to profitability.
At this point I'll turn the call over to Michael and then we will open it up for questions Mike.
Thanks, Pat Good morning, everyone with respect to our first quarter results all comparisons over the periods ending May 31, 2023, and May 31 2022, respectively.
Total net sales of $111 9 million declined by $16 8 million or 13, 1% with automotive down $1 2 million consumer down $15 6 million and biometrics flat.
Within automotive OEM sales were up $3 6 million in aftermarket sales were down $4 7 million within consumer premium audio sales were down $22 3 million and other CE CE sales were up $6 7 million.
<unk> spoke to the drivers for the segments in his remarks, so I'll move onto margins.
Gross margin of 24, 6% was down 120 basis points for the comparable first quarter periods with automotive down 120 basis points consumer down 190 basis points and biometric was immaterial on a gross profit basis.
Automotive segment margins were adversely impacted by lower sales of security products and aftermarket remarks.
Remote systems with traditionally carry higher margins as well as lower margins on some of our current OEM and rear seat entertainment programs.
While we are at with.
Which we're addressing.
Consumer segment margins were down year over year, primarily due to lower sales of premium audio products.
Moving through the fiscal year and as we start cycling through our inventory coupled with improvements in the supply chain, we should see gross margins increase.
Total operating expenses were $39 million, a $1 million or two 4% improvement for the comparable periods.
Selling expenses declined by $1 1 million due to lower commissions salaries and credit card expenses.
Our G&A expenses increased by approximately $400000 with professional fees and travel expenses higher for comparable periods.
Also had approximately 100000 increase in restructuring related expenses associated with the transition of some of our OEM production to Mexico, which as Pat noted will be mostly complete by the end of this quarter.
And our engineering and technical support expenses declined by roughly $100000.
Acquisition costs also declined by $100000 as these costs were incurred only in the prior year period.
As a reminder, the costs relate to the asset purchase agreement signed with Nokia and the JV with sharp.
We reported an operating loss of 11 4 million compared to an operating loss of $6 seven.
$7 million in Q1 of fiscal 2023.
Total other expenses in Q1 of fiscal 'twenty four were $1 6 million compared to total other expense of $2 2 million in Q1 of fiscal 'twenty three.
Within this interest and bank charges increased by 800000, as we had higher borrowings outstanding on our facility compared to last year.
Equity income of equity Investees, which is our 50 50 joint venture with HSA electronics with $1 6 million essentially flat.
And we recorded an expense of $1 million for the interim arbitration award related to the <unk> arbitration in both fiscal year periods.
Other net improved by $1 4 million, primarily due to the positive changes in foreign currency.
We reported inhibitor loss of $7 6 million compared to a loss of $4 2 million.
And we reported an adjusted EBITDA loss of $4 nine compared to a loss of approximately 100000.
When comparing Q1 of fiscal 'twenty four 'twenty two 'twenty three.
As of May 30, <unk> moving on to the balance sheet.
As of May 31, we had cash and cash equivalents of $5 2 million as compared to $6 1 million as of our fiscal 'twenty three year end on February 28.
Our accounts receivable decrease compared to fiscal 2023 fourth quarter due to lower sales and our inventory position increased due to the new products. We brought in for our wireless speaker programs and a new solar power product, we launched in Germany.
We will continue to lower our inventory balances as unconditional purchases are approximately $90 million at the end of fiscal 2020 for Q1 compared to approximately $171 million and comparable fiscal 'twenty three period.
Our total debt stood at $36 7 million as compared to $39 2 million a two point.
$5 million reduction.
This is principally due to a $3 4 million reduction in the amount outstanding on our debt domestic credit facility offset by a $1 1 million outstanding on our Euro ABL for box, Germany, which was not present at year end.
Our Florida mortgage declined by approximately 100000 as did the amount owed on the shareholder loan payable to shock as part of the joint venture <unk>.
Total long term debt net of debt issuance costs was $33 9 million as of May 31, as compared to $37 5 million as of February 28.
The company has available with senior secured asset based facility with a committed availability of up to $165 million with availability as of May 31, 2023 of $71 3 million.
Our availability under normal conditions would be higher as this formula that takes into account the amortization of the real estate proper.
Properties in Florida, and the <unk> arbitration.
We anticipate a ruling by the court on CCAR matter to occur on or before August 3rd as we've previously communicated and we are preparing for it.
Operator, we're now ready to open the call for questions.
Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait.
For your name to be announced to withdraw your question. Please press star one again, please standby we compile the Q&A roster and our first question is going to come from Thomas Forte from.
One moment please.
Christoph.
And pardon pardon me Thomas Thomas from D. A Davidson your line is now open.
Yes, hi, good morning, So I had a couple of questions. Pat So can you put the current challenging macroeconomic environment.
Longer term perspective.
So.
Going backwards you can have the great recession as the most recent example of.
Regina Recessionary period.
I recognize there's a pretty significant recession.
Can you compare what youre seeing today with prior recessions such as that one as a starting point.
Alright, well the first thing is is that.
We did not see the big impact that we're having right now is the strong run up in sales when everybody was home.
And now we're seeing a major.
Shift in preferences by the consumer and they'd rather be doing more experiential things, so it's a little bit different.
Or home theater system or speaker system or some of our bigger products are not something that you buy every two years. So there was a pull forward by Florida as we say.
When everybody was home so we're expecting.
Another year.
As far as the higher end systems more costly systems.
It would take to roll through.
First off the recession and then the pivot.
And then but it can be offset by some of the new things that we're coming out with the new flex is sound bar would be new for US The party speakers as a fast growing business. We expect the dominant dominate in that space. So we can offset some of that weakness in the other areas, but I would think that this stretches.
Out through the balance of the year and sometime into next year as well.
Okay that was very helpful. Thank you and then on the automotive front can you you touched on this in the prepared remarks, but can you explain the current situation. It sounds like the supply chain issues for the most part are in the rearview mirror and that the challenge today is.
I'm trying to understand what the challenges today, if it's not supply chain is it also.
The macro or is it something else.
Well, there is still a little bit of supply chain issues on the chips that were needed and sometimes chips are used.
To do other critical things in the vehicles and therefore, the chips that they need to do let's say rear seat.
Our seats.
We are taking to use other more critical.
Functions of the vehicle that's one.
Other thing is there is a buildup of inventory with some of our customers.
And that's that's changing production forecast and things like that.
Sales may not be as strong as they produce.
Our.
<unk>.
The consumer being impacted by the sticker shock coming in and buying some new cars. So I think that what we're seeing.
Just on some of the production cuts that we get advise though at the time is a combination of all of it.
And I think that the car manufacturers.
Or are struggling to meet demand, but at the same time in vehicles that they are building theyre not seeing the sell through.
And I think that will change over time.
As they adjust with either interest rate reductions or lower prices on some of the vehicles.
Okay, and then going back to your original answer.
As a longtime follower of the consumer electronics industry. If we had a pull forward and I agree with you that we did.
We're in the early stages of pandemic consumers bought a lot of consumer electronics.
Do you have.
Historical proxies is it just the.
Typical refresh rate for the products and when consumers normally.
By then.
Net debt that you are gauging.
Yes.
True ordeal trials by equipment often okay.
But when you look at.
The impact that Covid had on the buying patterns.
Like I said that was in 2000 22021.
And Thats why I am saying 2022 we started to see it we'll see at all this year and it will probably start to improve somewhat.
As we move into 2024.
That youll start to see normal buying patterns again.
Okay, and then last question and thanks for taking all my questions.
It takes a repeat from last quarter, maybe the last two quarters, but has.
Supply chain costs have improved.
Can you talk about your strategy on potentially reinvesting some of the improvement in and promotional pricing.
Yes, well the thing is is that when we're at.
At the height of the.
The supply chain problems.
We were seeing.
What would normally be 30 days on the water, we were experiencing depending on where the product was coming as high as 97 days.
Which means that in order to protect the holiday season, and things like that we had to bring in a lot of excess inventory and that excess inventory is impacting storage costs.
And it is preventing us to get.
Some of it not all of it is preventing us from getting.
New pricing based on lower cost of freight and in some cases negotiating better prices for the same product so.
We expect that we'll probably see another quarter.
Of inventory being moved out.
And everything coming in now.
Would be coming in at lower freight rates and.
In some cases better pricing with the.
We have negotiated so I would I would estimate that we will see an improvement month over month throughout.
The balance of the year, and then start to get back to historical levels.
Of profitability within the premium space, especially because of the size of the equipment the freight component.
Does was crazy on it and.
And therefore now that we're back to.
Pretty much pre pandemic levels on pricing that we should see pricing come down.
And you will see adjustments to pricing to move out inventory that we want to move and then youll see adjustment in retail pricing based on lower cost. So we can maintain.
<unk> of nature with our competition.
Great. Thanks for taking my questions Pat I appreciate it.
Very welcome Tom.
And thank you.
And one moment.
And I am showing no further questions I would now like to turn the call back over to Pat Lavelle for closing remarks alright.
Alright very good.
There are no further questions I'd like to thank you for.
For your interest in box coming out on the call today and I wish you a very good day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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