Earnings Transcript for VOXX - Q3 Fiscal Year 2024

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to VOXX International Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please note that today's conference is being recorded. I’ll now hand the conference over to your speaker host, Mr. Glenn Wiener. Please go ahead.

Glenn Wiener: Thank you, Olivia. Good morning, and welcome to VOXX International's fiscal 2024 third quarter and nine month results conference call. Yesterday, we filed our Form 10-Q, and we issued our press and both documents can be found in the Investor Relations section of the website at www.voxxintl.com, and we expect to post an updated investor presentation later this week. Speaking from management today will be Pat Lavelle, Chief Executive Officer, who is currently out in Las Vegas, attending the 2024 Consumer Electronics Show; and Michael Stoehr, Senior Vice President and Chief Financial Officer. Their remarks will be followed by question and answers. As for today, 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 you 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 like to now turn the call over to Pat.

Patrick Lavelle: Thank you, Glenn, and good morning, everyone. Let me start off by wishing you all a happy and healthy new year. As Glenn said, announced with our team at CES and show kicked off yesterday. It's early, but the response to our new lineup and the various projects that we have in development has been very positive, and I'm expecting more of the same over the next few days. 2023 has been tough for everyone, not just as VOXX, our entire industry has had a very challenging year. And we're certainly happy to be turning the page. The global economy remains challenging, and we're doing all that we can to navigate through those challenges, focusing on three primary areas

Michael Stoehr: Thanks, Pat, and good morning, everyone. I'll primarily cover our nine month results and balance sheet, but first, a few comments with respect to the third quarter. As Pat mentioned, net sales were down 5.4%, gross margins grew by 90 basis points and operating expenses declined 2.1%. This resulted in operating income for both fiscal '24 and fiscal 2023 third quarters of $2.3 million. Net income attributable to VOXX was $1.9 million, which declined by approximately $5.5 million. This is principally due to a $4 million income tax benefit recorded in the prior fiscal year period compared to an expense of $100,000. The additional variance was in other income and expense. We reported total other expense of $1.4 million versus total other income of $36,000 in the comparable period -- prior period. Additionally, EBITDA was $6.5 million compared to $7.7 million and adjusted EBITDA was $8 million compared to $9 million. As for the nine month comparisons, all numbers are for the period ended November 30, 2023, and November 30, 2022. We reported nine month sales of $360.8 million, a decline of $36.7 million or 9.2%. Within this, Automotive segment sales were down $15.6 million with OEM product sales down $4.6 million, and aftermarket product sales down $11.1 million. Consumer segment sales were down $19.7 million with Premium Audio product sales down $31.9 million and other CE product sales up by $12.2 million. Biometrics sales declined by approximately $300,000. Sales are down for the year, and we'll continue to see some pressure in Q4 consistent with Pat's remarks. Our Automotive business was impacted by the strike and customer production lines and we're hoping we'll see some more normalization in the coming quarters. Retail is tight, but we're starting to turn the corner with new products in Premium Audio and our accessory products. Those other CE products have held up well this year with solar power balcony products, wireless speakers and hearing aids, helping to offset economic and consumer softness. We continue to take steps to improve our gross margins, which were up 170 basis points sequentially and up 50 basis points year-to-date. For the nine month period comparisons, gross margins came in at 24.6% as compared to 25.1% with Automotive segment margins down 20 basis points and Consumer segment margins up 70 basis points. Over time, we expect Automotive margins to improve with the relocation of manufacturing to Mexico, price increases and other steps we've taken to enhance our supply chain and lower costs. However, we need production to catch up. Consumer segment margins continue to improve sequentially. And again, new products should help continue to drive improvements if we maintain volume and of course, depending on product mix and customer programs. Total operating expenses. For the nine month comparison were $110.2 million as compared to $114 million, an improvement of $3.8 million or 3.3%. Excluding acquisition and restructuring costs, total operating expenses improved by $5.3 million or 4.7%. We're continuing to look at all aspects of our operations to remove non-essential costs and are looking to lower our overhead further in light of the ongoing economic softness. We're tightly managing expenses, inventory and our cash. Selling expenses declined $3.4 million, an improvement of 9.6% versus the prior year. G&A expenses declined $1.3 million, an improvement of 2.4%, and engineering and technical support expenses declined by approximately $600,000, an improvement of 2.5%. We had restructuring costs of approximately $2.2 million, related to our restructuring and manufacturing relocation programs in fiscal 2024 year-to-date. This compares to approximately $500,000 of restructuring costs and $100,000 of acquisition costs in fiscal 2023 nine month period. We reported an operating loss of $17.7 million compared to an operating loss of $14.3 million, principally due to lower sales volume. Net loss attributable to VOXX was $19.9 million compared to a net loss of $9.3 million. EBITDA for fiscal 2024 nine month period was a loss of $6.5 million, and adjusted EBITDA was $3 million. This compares to an EBITDA loss in comparable fiscal 2023 nine month period of $3.2 million and an adjusted EBITDA of 5.6%. Moving on to the balance sheet. As of November 30, we had cash and cash equivalents of $10.4 million, which compares to $6.1 million as of our fiscal 2023 year-end on February 28. Cash and cash equivalents stood at $5.9 million at the end of our fiscal 2024 second quarter ended August 31. Our accounts receivable increased by $8.9 million as we're in the higher volume holiday season. Our inventory declined by $28.9 million for the nine months as we are moving through all the product lines. We still have inventory on hand to move through, and we're focused on that given the launches underway and upcoming, especially in our Consumer segment. As I noted during our last quarterly call, we expect inventories to continue to decline as we move through the fourth and first quarters. Total debt stood at $48.6 million as compared to $39.2 million as of February 28. The increase of $9.4 million relates to $10 million increase in our borrowings associated with our domestic credit line, partially offset by a $400,000 decline to Florida mortgage and a $200,000 decline in the amount owed on the shareholder loan, payable to Sharp as part of our joint venture. Total long-term debt, net of debt issuance costs was $47.1 million as it compared to $37.5 million as of February 28. As noted, the increase in total debt relates to the increase in our borrowings. This is typical during the third quarter as our sales and receivables increased -- than normally collected during the fourth quarter. This will be the case. During the fourth quarter, we'll be using our credit facility to support the final arbitration settlement, which was announced earlier this month. As reported, we entered into a settlement agreement and mutual release with Seaguard with an effective date of today, January 10. We have agreed to pay Seaguard $42 million in total, of which a payment of $10 million was already on December 27 and the final payment of $32 million will be made today. While we're not happy with the rules (ph), we feel it is our best interest as well as our shareholders to move forward and focus on our business and stop accruing interest and legal fees, which continue to mount. With the banking relationships in place, and the cash availability we have, the payment will be made, and we have sufficient working capital to fund our business moving forward. Of course, we're hopeful that market conditions improve sooner rather than later, and we can get back to cash flow generation and profitability. Operator, we're now ready to open the call for questions.

Glenn Wiener: Thank you, Mike.

Operator:

Patrick Lavelle: Okay. Thank you. I want to thank you for taking the time to join us this morning. I look forward to 2024 with enthusiasm as new product has always been the lifeline and the key to our growth, and we have a lot of new products scheduled for next year. So with that, thank you, and have a great day.

Operator: Ladies and gentlemen, that’s all for our conference for today. Thank you for your participation. You may now disconnect.