UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2020May 31, 2021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-28839
VOXX International Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
| 13-1964841 (IRS Employer Identification No.) |
2351 J Lawson Blvd., Orlando, Florida (Address of principal executive offices) |
| 32824 (Zip Code) |
|
|
|
(800) 645-7750 (Registrant's telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: | ||
| ||
Title of each class: | Trading Symbol: | Name of Each Exchange on which Registered |
Class A Common Stock $.01 par value | VOXX | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer | ☐ |
| Accelerated filer | ☒ |
Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ |
|
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of each class of the issuer's common stock outstanding as of the latest practicable date.
Class |
| As of |
Class A Common Stock |
|
|
Class B Common Stock |
| 2,260,954 Shares |
VOXX International Corporation and Subsidiaries
Table of Contents
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| Page |
PART I |
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Item 1 |
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| 3 | |
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| 4 | |
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| 5 | |
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| 6 | |
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| 7 | |
Item 2 |
| MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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Item 3 |
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Item 4 |
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PART II |
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Item 1 |
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Item 1A |
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Item 2 |
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Item 6 |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOXX International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| May 31, 2021 |
|
| February 28, 2021 |
| ||||
|
| (unaudited) |
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|
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|
|
| (unaudited) |
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| ||
Assets |
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|
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|
|
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Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 21,337 |
|
| $ | 37,425 |
|
| $ | 36,710 |
|
| $ | 59,404 |
|
Accounts receivable, net |
|
| 155,322 |
|
|
| 69,714 |
|
|
| 95,498 |
|
|
| 106,165 |
|
Inventory |
|
| 138,607 |
|
|
| 99,110 |
|
|
| 137,723 |
|
|
| 130,793 |
|
Receivables from vendors |
|
| 251 |
|
|
| 230 |
|
|
| 357 |
|
|
| 277 |
|
Prepaid expenses and other current assets |
|
| 17,880 |
|
|
| 10,885 |
|
|
| 26,864 |
|
|
| 22,266 |
|
Income tax receivable |
|
| 454 |
|
|
| 456 |
|
|
| 440 |
|
|
| 434 |
|
Total current assets |
|
| 333,851 |
|
|
| 217,820 |
|
|
| 297,592 |
|
|
| 319,339 |
|
Investment securities |
|
| 1,827 |
|
|
| 2,282 |
|
|
| 1,685 |
|
|
| 1,777 |
|
Equity investment |
|
| 22,182 |
|
|
| 21,924 |
|
|
| 23,145 |
|
|
| 23,267 |
|
Property, plant and equipment, net |
|
| 52,124 |
|
|
| 51,424 |
|
|
| 51,659 |
|
|
| 52,026 |
|
Operating lease, right of use asset |
|
| 4,811 |
|
|
| 3,143 |
|
|
| 4,559 |
|
|
| 4,572 |
|
Goodwill |
|
| 58,928 |
|
|
| 55,000 |
|
|
| 57,408 |
|
|
| 58,311 |
|
Intangible assets, net |
|
| 92,797 |
|
|
| 88,288 |
|
|
| 88,699 |
|
|
| 90,104 |
|
Deferred income tax assets |
|
| 56 |
|
|
| 52 |
|
|
| 101 |
|
|
| 99 |
|
Other assets |
|
| 1,413 |
|
|
| 1,638 |
|
|
| 990 |
|
|
| 1,323 |
|
Total assets |
| $ | 567,989 |
|
| $ | 441,571 |
|
| $ | 525,838 |
|
| $ | 550,818 |
|
Liabilities, Redeemable Equity, and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 80,177 |
|
| $ | 22,096 |
|
| $ | 46,320 |
|
| $ | 61,826 |
|
Accrued expenses and other current liabilities |
|
| 55,695 |
|
|
| 34,046 |
|
|
| 47,893 |
|
|
| 53,392 |
|
Income taxes payable |
|
| 3,166 |
|
|
| 1,523 |
|
|
| 1,868 |
|
|
| 1,587 |
|
Accrued sales incentives |
|
| 27,883 |
|
|
| 12,250 |
|
|
| 21,029 |
|
|
| 25,313 |
|
Contract liabilities, current |
|
| 3,396 |
|
|
| 0 |
|
|
| 4,005 |
|
|
| 4,178 |
|
Current portion of long-term debt |
|
| 500 |
|
|
| 1,107 |
|
|
| 500 |
|
|
| 500 |
|
Total current liabilities |
|
| 170,817 |
|
|
| 71,022 |
|
|
| 121,615 |
|
|
| 146,796 |
|
Long-term debt, net of debt issuance costs |
|
| 5,973 |
|
|
| 6,099 |
|
|
| 5,260 |
|
|
| 5,962 |
|
Finance lease liabilities, less current portion |
|
| 386 |
|
|
| 720 |
|
|
| 229 |
|
|
| 302 |
|
Operating lease liabilities, less current portion |
|
| 3,813 |
|
|
| 2,391 |
|
|
| 3,540 |
|
|
| 3,582 |
|
Contract liabilities, less current portion |
|
| 1,016 |
|
|
| 0 |
| ||||||||
Deferred compensation |
|
| 1,827 |
|
|
| 2,282 |
|
|
| 1,685 |
|
|
| 1,777 |
|
Deferred income tax liabilities |
|
| 7,975 |
|
|
| 3,828 |
|
|
| 7,010 |
|
|
| 6,645 |
|
Other tax liabilities |
|
| 1,123 |
|
|
| 1,225 |
|
|
| 1,079 |
|
|
| 1,170 |
|
Other long-term liabilities |
|
| 5,570 |
|
|
| 3,294 |
|
|
| 4,422 |
|
|
| 5,255 |
|
Total liabilities |
|
| 198,500 |
|
|
| 90,861 |
|
|
| 144,840 |
|
|
| 171,489 |
|
Commitments and contingencies (see Note 25) |
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Redeemable equity (see Note 8) |
|
| 2,959 |
|
|
| 2,481 |
|
|
| 3,226 |
|
|
| 3,260 |
|
Stockholders' equity: |
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Preferred stock: |
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NaN shares issued or outstanding (see Note 21) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Common stock: |
|
|
|
|
|
|
|
|
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|
|
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Class A, $.01 par value, 60,000,000 shares authorized, 24,416,194 and 24,306,194 shares issued and 21,666,976 and 21,556,976 shares outstanding at November 30, 2020 and February 29, 2020, respectively |
|
| 245 |
|
|
| 244 |
| ||||||||
Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares issued and outstanding at both November 30, 2020 and February 29, 2020 |
|
| 22 |
|
|
| 22 |
| ||||||||
Class A, $.01 par value, 60,000,000 shares authorized, 24,476,847 and 24,416,194 shares issued and 21,727,629 and 21,666,976 shares outstanding at May 31, 2021 and February 28, 2021, respectively |
|
| 245 |
|
|
| 245 |
| ||||||||
Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares issued and outstanding at both May 31, 2021 and February 28, 2021 |
|
| 22 |
|
|
| 22 |
| ||||||||
Paid-in capital |
|
| 300,107 |
|
|
| 299,228 |
|
|
| 299,782 |
|
|
| 300,402 |
|
Retained earnings |
|
| 139,458 |
|
|
| 122,139 |
|
|
| 151,622 |
|
|
| 148,906 |
|
Accumulated other comprehensive loss |
|
| (16,046 | ) |
|
| (19,055 | ) |
|
| (14,485 | ) |
|
| (14,977 | ) |
Less: Treasury stock, at cost, 2,749,218 shares of Class A Common Stock at both November 30, 2020 and February 29, 2020 |
|
| (23,918 | ) |
|
| (23,918 | ) | ||||||||
Less: Treasury stock, at cost, 2,749,218 shares of Class A Common Stock at both May 31, 2021 and February 28, 2021 |
|
| (23,918 | ) |
|
| (23,918 | ) | ||||||||
Less: Redeemable equity |
|
| (2,959 | ) |
|
| (2,481 | ) |
|
| (3,226 | ) |
|
| (3,260 | ) |
Total VOXX International Corporation stockholders' equity |
|
| 396,909 |
|
|
| 376,179 |
|
|
| 410,042 |
|
|
| 407,420 |
|
Non-controlling interest |
|
| (30,379 | ) |
|
| (27,950 | ) |
|
| (32,270 | ) |
|
| (31,351 | ) |
Total stockholders' equity |
|
| 366,530 |
|
|
| 348,229 |
|
|
| 377,772 |
|
|
| 376,069 |
|
Total liabilities, redeemable equity, and stockholders' equity |
| $ | 567,989 |
|
| $ | 441,571 |
|
| $ | 525,838 |
|
| $ | 550,818 |
|
See accompanying notes to unaudited consolidated financial statements.
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share and per share data)
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
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| 2021 |
|
| 2020 |
| ||||||
Net sales |
| $ | 201,065 |
|
| $ | 110,112 |
|
| $ | 401,084 |
|
| $ | 293,812 |
|
| $ | 137,060 |
|
| $ | 71,987 |
|
Cost of sales |
|
| 142,937 |
|
|
| 78,648 |
|
|
| 284,905 |
|
|
| 212,570 |
|
|
| 100,365 |
|
|
| 52,012 |
|
Gross profit |
|
| 58,128 |
|
|
| 31,464 |
|
|
| 116,179 |
|
|
| 81,242 |
|
|
| 36,695 |
|
|
| 19,975 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 12,761 |
|
|
| 9,580 |
|
|
| 30,190 |
|
|
| 28,162 |
|
|
| 11,467 |
|
|
| 8,567 |
|
General and administrative |
|
| 21,128 |
|
|
| 16,689 |
|
|
| 51,668 |
|
|
| 51,896 |
|
|
| 19,352 |
|
|
| 14,995 |
|
Engineering and technical support |
|
| 5,676 |
|
|
| 5,059 |
|
|
| 14,942 |
|
|
| 15,901 |
|
|
| 6,232 |
|
|
| 4,485 |
|
Total operating expenses |
|
| 39,565 |
|
|
| 31,328 |
|
|
| 96,800 |
|
|
| 95,959 |
|
|
| 37,051 |
|
|
| 28,047 |
|
Operating income (loss) |
|
| 18,563 |
|
|
| 136 |
|
|
| 19,379 |
|
|
| (14,717 | ) | ||||||||
Operating loss |
|
| (356 | ) |
|
| (8,072 | ) | ||||||||||||||||
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and bank charges |
|
| (471 | ) |
|
| (751 | ) |
|
| (2,334 | ) |
|
| (2,635 | ) |
|
| (528 | ) |
|
| (799 | ) |
Equity in income of equity investee |
|
| 1,761 |
|
|
| 967 |
|
|
| 4,506 |
|
|
| 3,672 |
|
|
| 2,723 |
|
|
| 862 |
|
Gain on sale of real property (see Note 19) |
|
| — |
|
|
| 4,057 |
|
|
| — |
|
|
| 4,057 |
| ||||||||
Investment gain (see Note 4) |
|
| 42 |
|
|
| — |
|
|
| 42 |
|
|
| 775 |
| ||||||||
Other, net |
|
| (121 | ) |
|
| (322 | ) |
|
| 21 |
|
|
| 1,869 |
|
|
| 442 |
|
|
| 685 |
|
Total other income, net |
|
| 1,211 |
|
|
| 3,951 |
|
|
| 2,235 |
|
|
| 7,738 |
|
|
| 2,637 |
|
|
| 748 |
|
Income (loss) before income taxes |
|
| 19,774 |
|
|
| 4,087 |
|
|
| 21,614 |
|
|
| (6,979 | ) |
|
| 2,281 |
|
|
| (7,324 | ) |
Income tax expense |
|
| 2,334 |
|
|
| 2,720 |
|
|
| 6,724 |
|
|
| 1,190 |
|
|
| 484 |
|
|
| 1,781 |
|
Net income (loss) |
|
| 17,440 |
|
|
| 1,367 |
|
|
| 14,890 |
|
|
| (8,169 | ) |
|
| 1,797 |
|
|
| (9,105 | ) |
Less: net loss attributable to non-controlling interest |
|
| (811 | ) |
|
| (1,097 | ) |
|
| (2,429 | ) |
|
| (3,521 | ) |
|
| (919 | ) |
|
| (833 | ) |
Net income (loss) attributable to VOXX International Corporation |
| $ | 18,251 |
|
| $ | 2,464 |
|
| $ | 17,319 |
|
| $ | (4,648 | ) |
| $ | 2,716 |
|
| $ | (8,272 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 79 |
|
|
| (295 | ) |
|
| 3,608 |
|
|
| (1,321 | ) |
|
| 372 |
|
|
| 504 |
|
Derivatives designated for hedging |
|
| (43 | ) |
|
| 13 |
|
|
| (514 | ) |
|
| (271 | ) |
|
| 119 |
|
|
| (177 | ) |
Pension plan adjustments |
|
| (6 | ) |
|
| 2 |
|
|
| (85 | ) |
|
| 25 |
|
|
| 1 |
|
|
| (14 | ) |
Other comprehensive income (loss), net of tax |
|
| 30 |
|
|
| (280 | ) |
|
| 3,009 |
|
|
| (1,567 | ) | ||||||||
Other comprehensive income, net of tax |
|
| 492 |
|
|
| 313 |
| ||||||||||||||||
Comprehensive income (loss) attributable to VOXX International Corporation |
| $ | 18,281 |
|
| $ | 2,184 |
|
| $ | 20,328 |
|
| $ | (6,215 | ) |
| $ | 3,208 |
|
| $ | (7,959 | ) |
Income (loss) per share - basic: Attributable to VOXX International Corporation |
| $ | 0.75 |
|
| $ | 0.10 |
|
| $ | 0.72 |
|
| $ | (0.19 | ) |
| $ | 0.11 |
|
| $ | (0.34 | ) |
Income (loss) per share - diluted: Attributable to VOXX International Corporation |
| $ | 0.74 |
|
| $ | 0.10 |
|
| $ | 0.71 |
|
| $ | (0.19 | ) |
| $ | 0.11 |
|
| $ | (0.34 | ) |
Weighted-average common shares outstanding (basic) |
|
| 24,197,786 |
|
|
| 24,418,313 |
|
|
| 24,196,393 |
|
|
| 24,458,926 |
|
|
| 24,266,242 |
|
|
| 24,224,478 |
|
Weighted-average common shares outstanding (diluted) |
|
| 24,677,525 |
|
|
| 24,625,410 |
|
|
| 24,532,329 |
|
|
| 24,458,926 |
|
|
| 24,925,974 |
|
|
| 24,224,478 |
|
See accompanying notes to unaudited consolidated financial statements.
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity
For the three and nine months ended November 30,May 31, 2021 and 2020 and 2019
(In thousands, except share and per share data)
|
| Class A and Class B Common Stock |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Non- controlling Interests |
|
| Treasury Stock |
|
| Redeemable Equity |
|
| Total Stock- holders' Equity |
| ||||||||||||||||||||||||||||||||||||||||
Balances at February 28, 2021 |
| $ | 267 |
|
| $ | 300,402 |
|
| $ | 148,906 |
|
| $ | (14,977 | ) |
| $ | (31,351 | ) |
| $ | (23,918 | ) |
| $ | (3,260 | ) |
| $ | 376,069 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 2,716 |
|
|
| 0 |
|
|
| (919 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 1,797 |
| ||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 492 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 492 |
| ||||||||||||||||||||||||||||||||
Net settlement of 60,693 shares of common stock upon vesting of stock awards |
|
| 0 |
|
|
| (856 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (856 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| 0 |
|
|
| 236 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 34 |
|
|
| 270 |
| ||||||||||||||||||||||||||||||||
Balances at May 31, 2021 |
|
| 267 |
|
|
| 299,782 |
|
|
| 151,622 |
|
|
| (14,485 | ) |
|
| (32,270 | ) |
|
| (23,918 | ) |
|
| (3,226 | ) |
|
| 377,772 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Class A and Class B Common Stock |
|
| Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Non- controlling Interests |
|
| Treasury Stock |
|
| Redeemable Equity |
|
| Total Stock- holders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balances at February 29, 2020 |
| $ | 266 |
|
| $ | 299,228 |
|
| $ | 122,139 |
|
| $ | (19,055 | ) |
| $ | (27,950 | ) |
| $ | (23,918 | ) |
| $ | (2,481 | ) |
| $ | 348,229 |
|
| $ | 266 |
|
| $ | 299,228 |
|
| $ | 122,139 |
|
| $ | (19,055 | ) |
| $ | (27,950 | ) |
| $ | (23,918 | ) |
| $ | (2,481 | ) |
| $ | 348,229 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| (8,272 | ) |
|
| 0 |
|
|
| (833 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (9,105 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (8,272 | ) |
|
| 0 |
|
|
| (833 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (9,105 | ) |
Other comprehensive income, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 313 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 313 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 313 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 313 |
|
Stock-based compensation expense |
|
| 1 |
|
|
| 351 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (201 | ) |
|
| 151 |
|
|
| 1 |
|
|
| 351 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (201 | ) |
|
| 151 |
|
Balances at May 31, 2020 |
|
| 267 |
|
|
| 299,579 |
|
|
| 113,867 |
|
|
| (18,742 | ) |
|
| (28,783 | ) |
|
| (23,918 | ) |
|
| (2,682 | ) |
|
| 339,588 |
|
|
| 267 |
|
|
| 299,579 |
|
|
| 113,867 |
|
|
| (18,742 | ) |
|
| (28,783 | ) |
|
| (23,918 | ) |
|
| (2,682 | ) |
|
| 339,588 |
|
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 7,340 |
|
|
| 0 |
|
|
| (785 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 6,555 |
| ||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,666 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,666 |
| ||||||||||||||||||||||||||||||||
Settlement of SERP restricted stock units |
|
| 0 |
|
|
| (575 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (575 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| 0 |
|
|
| 335 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (85 | ) |
|
| 250 |
| ||||||||||||||||||||||||||||||||
Balances at August 31, 2020 |
|
| 267 |
|
|
| 299,339 |
|
|
| 121,207 |
|
|
| (16,076 | ) |
|
| (29,568 | ) |
|
| (23,918 | ) |
|
| (2,767 | ) |
|
| 348,484 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 18,251 |
|
|
| 0 |
|
|
| (811 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 17,440 |
| ||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 30 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 30 |
| ||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| 0 |
|
|
| 768 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (192 | ) |
|
| 576 |
| ||||||||||||||||||||||||||||||||
Balances at November 30, 2020 |
| $ | 267 |
|
| $ | 300,107 |
|
| $ | 139,458 |
|
| $ | (16,046 | ) |
| $ | (30,379 | ) |
| $ | (23,918 | ) |
| $ | (2,959 | ) |
| $ | 366,530 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balances at February 28, 2019 |
| $ | 264 |
|
| $ | 296,946 |
|
| $ | 148,582 |
|
| $ | (16,944 | ) |
| $ | (12,571 | ) |
| $ | (21,176 | ) |
| $ | 0 |
|
| $ | 395,101 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| (1,148 | ) |
|
| 0 |
|
|
| (1,224 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (2,372 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (904 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (904 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| 0 |
|
|
| 159 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 159 |
| ||||||||||||||||||||||||||||||||
Balances at May 31, 2019 |
|
| 264 |
|
|
| 297,105 |
|
|
| 147,434 |
|
|
| (17,848 | ) |
|
| (13,795 | ) |
|
| (21,176 | ) |
|
| 0 |
|
|
| 391,984 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| (5,964 | ) |
|
| 0 |
|
|
| (1,200 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (7,164 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (383 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (383 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| 2 |
|
|
| 1,184 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,025 | ) |
|
| 161 |
| ||||||||||||||||||||||||||||||||
Reclassifications of stockholders' equity to redeemable equity (see Note 8) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (745 | ) |
|
| (745 | ) | ||||||||||||||||||||||||||||||||
Repurchase of 208,312 shares of common stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (983 | ) |
|
| 0 |
|
|
| (983 | ) | ||||||||||||||||||||||||||||||||
Balances at August 31, 2019 |
|
| 266 |
|
|
| 298,289 |
|
|
| 141,470 |
|
|
| (18,231 | ) |
|
| (14,995 | ) |
|
| (22,159 | ) |
|
| (1,770 | ) |
|
| 382,870 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
| 0 |
|
|
| 0 |
|
|
| 2,464 |
|
|
| 0 |
|
|
| (1,097 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 1,367 |
| ||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (280 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (280 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation expense |
|
| 0 |
|
|
| 471 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (354 | ) |
|
| 117 |
| ||||||||||||||||||||||||||||||||
Repurchase of 218,453 shares of common stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,057 | ) |
|
| 0 |
|
|
| (1,057 | ) | ||||||||||||||||||||||||||||||||
Balances at November 30, 2019 |
| $ | 266 |
|
| $ | 298,760 |
|
| $ | 143,934 |
|
| $ | (18,511 | ) |
| $ | (16,092 | ) |
| $ | (23,216 | ) |
| $ | (2,124 | ) |
| $ | 383,017 |
|
See accompanying notes to unaudited consolidated financial statements.
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
|
|
| Nine months ended November 30, |
|
|
| Three months ended May 31, |
| ||||||||||||
|
|
| 2020 |
|
|
| 2019 |
|
|
| 2021 |
|
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| $ | 14,890 |
|
|
| $ | (8,169 | ) |
|
| $ | 1,797 |
|
|
| $ | (9,105 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
| 8,224 |
|
|
|
| 9,229 |
|
|
|
| 2,807 |
|
|
|
| 2,543 |
|
Amortization of debt discount |
|
|
| 508 |
|
|
|
| 617 |
|
|
|
| 83 |
|
|
|
| 206 |
|
Bad debt (recovery) expense |
|
|
| (385 | ) |
|
|
| 303 |
| ||||||||||
Bad debt expense (recovery) |
|
|
| 19 |
|
|
|
| (7 | ) | ||||||||||
Reduction in the carrying amount of the right of use asset |
|
|
| 836 |
|
|
|
| 668 |
|
|
|
| 341 |
|
|
|
| 243 |
|
Loss (gain) on forward contracts |
|
|
| 61 |
|
|
|
| (347 | ) |
|
|
| 174 |
|
|
|
| (67 | ) |
Equity in income of equity investees |
|
|
| (4,506 | ) |
|
|
| (3,672 | ) |
|
|
| (2,723 | ) |
|
|
| (862 | ) |
Distribution of income from equity investees |
|
|
| 4,248 |
|
|
|
| 4,169 |
|
|
|
| 2,845 |
|
|
|
| 1,502 |
|
Deferred income tax expense (benefit) |
|
|
| 4,187 |
|
|
|
| (338 | ) | ||||||||||
Deferred income tax expense |
|
|
| 318 |
|
|
|
| 644 |
| ||||||||||
Non-cash compensation adjustment |
|
|
| (455 | ) |
|
|
| (51 | ) |
|
|
| (92 | ) |
|
|
| (541 | ) |
Stock based compensation expense |
|
|
| 1,454 |
|
|
|
| 1,816 |
|
|
|
| 236 |
|
|
|
| 351 |
|
Gain on sale of property, plant, and equipment |
|
|
| — |
|
|
|
| (3,788 | ) | ||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
| (78,692 | ) |
|
|
| (20,880 | ) |
|
|
| 10,803 |
|
|
|
| 14,842 |
|
Inventory |
|
|
| (31,406 | ) |
|
|
| (9,353 | ) |
|
|
| (5,827 | ) |
|
|
| (6,059 | ) |
Receivables from vendors |
|
|
| (19 | ) |
|
|
| 790 |
|
|
|
| (80 | ) |
|
|
| (4 | ) |
Prepaid expenses and other |
|
|
| (6,465 | ) |
|
|
| 528 |
|
|
|
| (1,223 | ) |
|
|
| (255 | ) |
Investment securities-trading |
|
|
| 455 |
|
|
|
| 304 |
|
|
|
| 92 |
|
|
|
| 541 |
|
Accounts payable, accrued expenses, accrued sales incentives, contract liabilities, and other liabilities |
|
|
| 83,049 |
|
|
|
| 3,379 |
|
|
|
| (26,777 | ) |
|
|
| 7,638 |
|
Income taxes payable |
|
|
| 1,388 |
|
|
|
| 908 |
|
|
|
| 164 |
|
|
|
| 675 |
|
Net cash used in operating activities |
|
|
| (2,628 | ) |
|
|
| (23,887 | ) | ||||||||||
Net cash (used in) provided by operating activities |
|
|
| (17,043 | ) |
|
|
| 12,285 |
| ||||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
|
|
| (3,510 | ) |
|
|
| (2,192 | ) |
|
|
| (927 | ) |
|
|
| (586 | ) |
Purchase of acquired business, less cash received |
|
|
| (11,000 | ) |
|
|
| — |
| ||||||||||
Proceeds from sale of property, plant, and equipment |
|
|
| — |
|
|
|
| 11,951 |
| ||||||||||
Net cash (used in) provided by investing activities |
|
|
| (14,510 | ) |
|
|
| 9,759 |
| ||||||||||
Issuance of promissory note |
|
|
| (3,000 | ) |
|
|
| — |
| ||||||||||
Net cash used in investing activities |
|
|
| (3,927 | ) |
|
|
| (586 | ) | ||||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on finance lease obligation |
|
|
| (470 | ) |
|
|
| (477 | ) |
|
|
| (114 | ) |
|
|
| (169 | ) |
Repayment of bank obligations |
|
|
| (20,375 | ) |
|
|
| (9,046 | ) |
|
|
| (125 | ) |
|
|
| (125 | ) |
Borrowings on bank obligations |
|
|
| 20,000 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 20,000 |
|
Deferred financing costs |
|
|
| (260 | ) |
|
|
| — |
|
|
|
| (660 | ) |
|
|
| — |
|
Settlement of restricted stock units |
|
|
| (575 | ) |
|
|
| — |
| ||||||||||
Purchase of treasury stock |
|
|
| — |
|
|
|
| (2,040 | ) | ||||||||||
Net cash used in financing activities |
|
|
| (1,680 | ) |
|
|
| (11,563 | ) | ||||||||||
Withholding taxes paid on net issuance of stock award |
|
|
| (856 | ) |
|
|
| — |
| ||||||||||
Net cash (used in) provided by financing activities |
|
|
| (1,755 | ) |
|
|
| 19,706 |
| ||||||||||
Effect of exchange rate changes on cash |
|
|
| 2,730 |
|
|
|
| (389 | ) |
|
|
| 31 |
|
|
|
| 209 |
|
Net decrease in cash and cash equivalents |
|
|
| (16,088 | ) |
|
|
| (26,080 | ) | ||||||||||
Net (decrease) increase in cash and cash equivalents |
|
|
| (22,694 | ) |
|
|
| 31,614 |
| ||||||||||
Cash and cash equivalents at beginning of period |
|
|
| 37,425 |
|
|
|
| 58,236 |
|
|
|
| 59,404 |
|
|
|
| 37,425 |
|
Cash and cash equivalents at end of period |
|
| $ | 21,337 |
|
|
| $ | 32,156 |
|
|
| $ | 36,710 |
|
|
| $ | 69,039 |
|
See accompanying notes to unaudited consolidated financial statements.
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
(1) | Basis of Presentation |
The accompanying unaudited interim consolidated financial statements of VOXX International Corporation and Subsidiaries ("Voxx" or the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 270 for interim financial information, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the consolidated financial position, results of operations, changes in stockholders’ equity, and cash flows for all periods presented. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year or any interim period. These unaudited consolidated financial statements do not include all disclosures associated with consolidated financial statements prepared in accordance with GAAP. Accordingly, these statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto contained in the Company's Form 10-K for the fiscal year ended February 29, 2020.28, 2021. Certain amounts in the prior year have been reclassified to conform to the current year presentation.
We operate in 3 reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics. See Note 23 for the Company's segment reporting disclosures.
(2) |
|
Directed LLC and Directed Electronics Canada, Inc. Acquisition
On July 1, 2020, the Company completed the acquisition of certain assets and liabilities, which comprise the aftermarket vehicle remote start and security systems and connected car solutions (telematics) businesses of Directed LLC and Directed Electronics Canada Inc. (collectively, with Directed LLC, “Directed”) via an asset purchase agreement. The acquired assets includeincluded inventory, accounts receivable, certain fixed assets, IT systems, and intellectual property. The cash purchase price was $11,000. Net sales from the Company’s newly formed subsidiaries, VOXX DEI LLC and VOXX DEI Canada, Ltd. (collectively, with VOXX DEI LLC, “DEI”), included in our consolidated results for the three and nine months ended November 30, 2020May 31, 2021, represented approximately 11.8% and 7.1%, respectively,8.8% of our consolidated net sales. DEI’s results of operations are included in the consolidated financial statements of Voxx in our Automotive Electronics segment. The purpose of this acquisition was to expand the Company’s market share within the automotive electronics industry.
The following summarizes the allocation of the purchase price based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition:
|
| July 1, 2020 |
|
| Measurement Period Adjustments |
|
| July 1, 2020 (as adjusted) |
|
| July 1, 2020 |
|
| Measurement Period Adjustments |
|
| July 1, 2020 (as adjusted) |
| ||||||
Assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
| $ | 7,054 |
|
|
| - |
|
|
| 7,054 |
|
| $ | 7,054 |
|
|
| 956 |
|
|
| 8,010 |
|
Accounts receivable |
|
| 5,173 |
|
|
| 67 |
|
|
| 5,240 |
|
|
| 5,173 |
|
|
| 214 |
|
|
| 5,387 |
|
Other current assets |
|
| 160 |
|
|
| - |
|
|
| 160 |
|
|
| 160 |
|
|
| - |
|
|
| 160 |
|
Property and equipment |
|
| 2,815 |
|
|
| - |
|
|
| 2,815 |
|
|
| 2,815 |
|
|
| - |
|
|
| 2,815 |
|
Operating lease, right of use asset |
|
| 1,771 |
|
|
| - |
|
|
| 1,771 |
|
|
| 1,771 |
|
|
| - |
|
|
| 1,771 |
|
Customer relationships |
|
| 2,600 |
|
|
| (100 | ) |
|
| 2,500 |
|
|
| 2,600 |
|
|
| (100 | ) |
|
| 2,500 |
|
Trademarks |
|
| 4,500 |
|
|
| - |
|
|
| 4,500 |
|
|
| 4,500 |
|
|
| - |
|
|
| 4,500 |
|
Patented technology |
|
| 1,030 |
|
|
| - |
|
|
| 1,030 |
|
|
| 1,030 |
|
|
| - |
|
|
| 1,030 |
|
Goodwill |
|
| 3,290 |
|
|
| 55 |
|
|
| 3,345 |
|
|
| 3,290 |
|
|
| (1,240 | ) |
|
| 2,050 |
|
Total assets acquired |
| $ | 28,393 |
|
| $ | 22 |
|
| $ | 28,415 |
|
| $ | 28,393 |
|
| $ | (170 | ) |
| $ | 28,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 8,144 |
|
|
| - |
|
|
| 8,144 |
|
|
| 8,144 |
|
|
| - |
|
|
| 8,144 |
|
Accrued expenses |
|
| 1,406 |
|
|
| 11 |
|
|
| 1,417 |
|
|
| 1,406 |
|
|
| (181 | ) |
|
| 1,225 |
|
Contract liabilities |
|
| 4,872 |
|
|
| 11 |
|
|
| 4,883 |
|
|
| 4,872 |
|
|
| 11 |
|
|
| 4,883 |
|
Warranty accrual |
|
| 1,200 |
|
|
| - |
|
|
| 1,200 |
|
|
| 1,200 |
|
|
| - |
|
|
| 1,200 |
|
Operating lease liability |
|
| 1,771 |
|
|
| - |
|
|
| 1,771 |
|
|
| 1,771 |
|
|
| - |
|
|
| 1,771 |
|
Total |
| $ | 17,393 |
|
| $ | 22 |
|
| $ | 17,415 |
|
| $ | 17,393 |
|
| $ | (170 | ) |
| $ | 17,223 |
|
Total purchase price |
| $ | 11,000 |
|
| $ | - |
|
| $ | 11,000 |
|
| $ | 11,000 |
|
| $ | - |
|
| $ | 11,000 |
|
The purchase allocation presented above is preliminary. We are in the process of refining the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation prior to June 30, 2021. During Fiscal 2021 and during the three and nine months ended November 30, 2020,May 31, 2021, the Company recorded a cumulative net measurement period adjustment that increaseddecreased goodwill by $55,$1,240, as presented in the table above. The measurement period adjustment would have resulted in an insignificant decrease in amortization expense related to the customer relationships in the previous quarter.prior year. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired (including the identifiable intangible assets) and represents synergies expected.
Vehicle Safety Holdings Corp.Onkyo Home Entertainment Corporation
On January 31, 2020,April 29, 2021, the Company acquired certain assetssigned a Letter of Intent to acquire the home audio/video business of Onkyo Home Entertainment Corporation (“Onkyo”), along with Sharp Corporation (“Sharp”) as the Company’s partner. On May 28, 2021, the Company and liabilities of Vehicle Safety Holdings Corp. (“VSHC”) viaSharp signed an asset purchase agreement to jointly acquire Onkyo for a preliminarytotal purchase price of $16,610, which included $16,500 in cash and contingent consideration with a fair value of $110. Contingent consideration of up to a maximum of $750 is payable based upon$30,800, plus the achievement of specified operating results, or the occurrenceassumption of certain events overliabilities. The agreement was approved by Onkyo’s shareholders at its ordinary general meeting of shareholders on June 25, 2021 and on June 28, 2021, the twelve-month period followingCompany announced that it has entered into a joint venture with Sharp in order to execute the transaction. Finalization of the transaction is subject to customary and regulatory closing conditions and is expected to be completed on or about August 30, 2021.
In conjunction with the signing of the Letter of Intent on April 29, 2021, Onkyo signed a promissory note with the Company in the amount of $3,000 for the purpose of funding certain operating requirements of the business, including compensation related expenses and payment of accounts payable during the negotiation process and through the completion date of the transaction. The note was amended on June 22, 2021 to provide for additional borrowings of $2,250. The note bears interest at 4.00% and is due on August 30, 2021, or will be deducted from the cash purchase price paid by the Company upon completion of the acquisition. Net sales fromtransaction. As of May 31, 2021, the Company’s newly formed subsidiary, VSM-Rostra, LLC (“VSM”)outstanding balance of the note was $3,000 and is included within Prepaid expenses and other current assets in our consolidated resultsthe Consolidated Balance Sheet. As collateral for the threeamounts borrowed under the promissory note, Onkyo has granted a security interest in certain of its trademarks and nine months ended November 30, 2020 represented approximately 3.2% and 4.3% of our consolidated net sales, respectively. VSM’s results of operations areother assets included in the consolidated financial statements of Voxxasset purchase agreement, as defined in our Automotive Electronics segment. The purpose of this acquisition was to expand the Company’s product offeringsSecurity Agreement signed on April 29, 2021 and market share, as VSM is a leading developer, manufacturer, and distributor of safety electronics.
The following summarizes the allocation of the purchase price based upon the fair value of the assets acquired and liabilities assumed at the date of acquisition:
amended on June 22, 2021.
|
| January 31, 2020 |
|
| Measurement Period Adjustments |
|
| January 31, 2020 (as adjusted) |
| |||
Assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
| $ | 6,982 |
|
|
| (489 | ) |
|
| 6,493 |
|
Accounts receivable |
|
| 3,415 |
|
|
| - |
|
|
| 3,415 |
|
Right of use assets |
|
| 483 |
|
|
| - |
|
|
| 483 |
|
Other current assets |
|
| 145 |
|
|
| - |
|
|
| 145 |
|
Property and equipment |
|
| 714 |
|
|
| - |
|
|
| 714 |
|
Customer relationships |
|
| 5,460 |
|
|
| - |
|
|
| 5,460 |
|
Trademarks |
|
| 560 |
|
|
| - |
|
|
| 560 |
|
Patented technology |
|
| 280 |
|
|
| - |
|
|
| 280 |
|
Goodwill |
|
| 215 |
|
|
| 583 |
|
|
| 798 |
|
Other non-current assets |
|
| 3 |
|
|
| - |
|
|
| 3 |
|
Total assets acquired |
| $ | 18,257 |
|
| $ | 94 |
|
| $ | 18,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
| 757 |
|
|
| - |
|
|
| 757 |
|
Accrued expenses |
|
| 219 |
|
|
| 94 |
|
|
| 313 |
|
Lease liabilities |
|
| 483 |
|
|
| - |
|
|
| 483 |
|
Warranty accrual |
|
| 188 |
|
|
| - |
|
|
| 188 |
|
Total |
| $ | 1,647 |
|
| $ | 94 |
|
| $ | 1,741 |
|
Total purchase price |
| $ | 16,610 |
|
| $ | - |
|
| $ | 16,610 |
|
The purchase allocation presented above is preliminary. We are in the process of refining the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation prior to January 30, 2021. During the three and nine months ended November 30, 2020, the Company recorded a cumulative net measurement period adjustment that increased goodwill by $583, as presented in the table above. The measurement period adjustment had no impact on the results of the previous quarters. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired (including the identifiable intangible assets) and represents synergies expected.
(3) | Net Income (Loss) Per Common Share |
Basic net income (loss) per common share, net of non-controlling interest, is based upon the weighted-average common shares outstanding during the period. Diluted net income (loss) per common share, net of non-controlling interest, reflects the potential dilution that would occur if common stock equivalent securities or other contracts to issue common stock were exercised or converted into common stock.
There are 0 reconciling items which impact the numerator of basic and diluted net income (loss) per common share. A reconciliation between the denominator of basic and diluted net income (loss) per common share is as follows:
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Weighted-average common shares outstanding (basic) |
|
| 24,197,786 |
|
|
| 24,418,313 |
|
|
| 24,196,393 |
|
|
| 24,458,926 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and stock grants |
|
| 479,739 |
|
|
| 207,097 |
|
|
| 335,936 |
|
|
| 0 |
|
Weighted-average common shares and potential common shares outstanding (diluted) |
|
| 24,677,525 |
|
|
| 24,625,410 |
|
|
| 24,532,329 |
|
|
| 24,458,926 |
|
|
| Three months ended May 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Weighted-average common shares outstanding (basic) |
|
| 24,266,242 |
|
|
| 24,224,478 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Restricted stock and stock grants |
|
| 659,732 |
|
|
| 0 |
|
Weighted-average common shares and potential common shares outstanding (diluted) |
|
| 24,925,974 |
|
|
| 24,224,478 |
|
Restricted stock and stock grants totaling 0 and 43,374596,379 for the three months ended November 30,May 31, 2021 and 2020, and 2019, respectively, and 17,009 and 672,531 for the nine months ended November 30, 2020 and 2019, respectively, were not included in the net income (loss) per diluted share calculation because the grant price of the restricted stock and stock grants was greater than the average market price of the Company’s common stock during these periods, or the inclusion of these components would have been anti-dilutive.
(4) | Investment Securities |
As of November 30, 2020,May 31, 2021, and February 29, 2020,28, 2021, the Company had the following investments:
|
| November 30, 2020 |
|
| May 31, 2021 |
| ||
|
| Fair Value |
|
| Fair Value |
| ||
Investment Securities |
|
|
|
|
|
|
|
|
Marketable Equity Securities |
|
|
|
|
|
|
|
|
Mutual funds |
| $ | 1,827 |
|
| $ | 1,685 |
|
Total Marketable Equity Securities |
|
| 1,827 |
|
|
| 1,685 |
|
Total Investment Securities |
| $ | 1,827 |
|
| $ | 1,685 |
|
|
| February 29, 2020 |
|
| February 28, 2021 |
| ||
|
| Fair Value |
|
| Fair Value |
| ||
Investment Securities |
|
|
|
|
|
|
|
|
Marketable Equity Securities |
|
|
|
|
|
|
|
|
Mutual funds |
| $ | 2,282 |
|
| $ | 1,777 |
|
Total Marketable Securities |
|
| 2,282 |
|
|
| 1,777 |
|
Total Investment Securities |
| $ | 2,282 |
|
| $ | 1,777 |
|
Equity Securities
Mutual Funds
The Company’s mutual funds are held in connection with its deferred compensation plan. Changes in the carrying value of these securities are offset by changes in the corresponding deferred compensation liability.
Other Long-Term Investments
In July 2017, the Company sold its investment9
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in RxNetworks, a non-controlled corporation, consisting of shares of the investee’s preferred stock. Voxx recognized a gain of $1,416 during Fiscal 2018 for the sale of this investment. A portion of the cash proceeds for the sale was subject to a hold-back provision, which was not included in the calculation of the gain recognized in Fiscal 2018, as it was considered a gain contingency. During the second quarter of Fiscal 2020, the hold-back provision expired,thousands, except share and the Company received additional proceeds from the sale in August 2019, recording an investment gain of $775 for the nine months ended November 30, 2019. In November 2020, a final disbursement of all remaining proceeds from the sale of RxNetworks attributable to Voxx was received in the amount of $42, which was recorded as an investment gain for the three and nine months ended November 30, 2020.per share data)
(5) | Fair Value Measurements and Derivatives |
The Company applies the authoritative guidance on “Fair Value Measurements," which among other things, requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. This guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
10
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.
Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that market participants would use.
At November 30, 2020May 31, 2021 and February 29, 2020,28, 2021, the Company did not0t have any assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
The following table presents financial assets and liabilities measured at fair value on a recurring basis at November 30, 2020:May 31, 2021:
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
| ||||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market funds |
| $ | 21,337 |
|
| $ | 21,337 |
|
| $ | 0 |
|
| $ | 36,710 |
|
| $ | 36,710 |
|
| $ | 0 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated for hedging |
| $ | (1,026 | ) |
| $ | 0 |
|
| $ | (1,026 | ) |
| $ | (646 | ) |
| $ | 0 |
|
| $ | (646 | ) |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
| $ | 1,827 |
|
| $ | 1,827 |
|
| $ | 0 |
|
| $ | 1,685 |
|
| $ | 1,685 |
|
| $ | 0 |
|
Total investment securities |
| $ | 1,827 |
|
| $ | 1,827 |
|
| $ | 0 |
|
The following table presents financial assets and liabilities measured at fair value on a recurring basis at February 29, 2020:28, 2021:
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using |
| ||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
| ||||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market funds |
| $ | 37,425 |
|
| $ | 37,425 |
|
| $ | 0 |
|
| $ | 59,404 |
|
| $ | 59,404 |
|
| $ | 0 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Designated for hedging |
| $ | (476 | ) |
| $ | 0 |
|
| $ | (476 | ) |
| $ | (765 | ) |
| $ | 0 |
|
| $ | (765 | ) |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds |
| $ | 2,282 |
|
| $ | 2,282 |
|
| $ | 0 |
|
| $ | 1,777 |
|
| $ | 1,777 |
|
| $ | 0 |
|
Total investment securities |
| $ | 2,282 |
|
| $ | 2,282 |
|
| $ | 0 |
|
At November 30, 2020,May 31, 2021, the carrying value of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligations, and long-term debt approximates fair value because of either (i) the short-term nature of the financial instrument; (ii) the interest rate on the financial instrument being reset every quarter to reflect current market rates; or (iii) the stated or implicit interest rate approximates the current market rates or are not materially different from market rates.
10
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Derivative Instruments
The Company’s derivative instruments include forward foreign currency contracts and an interest rate swap agreement. The forward foreign currency contracts are utilized to hedge a portion of the Company’s foreign currency inventory purchases. The forward foreign currency derivatives qualifying for hedge accounting are designated as cash flow hedges and valued using observable forward rates for the same or similar instruments (Level 2). The duration of open forward foreign currency contracts ranges from 1 month to 159 months and are classified in the balance sheet according to their terms. The Company’s interest rate swap agreement hedges interest rate exposure related to the outstanding balance of its Florida Mortgage, with monthly payments due through March 2026. The swap agreement locks the interest rate on the debt at 3.48% (inclusive of credit spread) through the maturity date of the loan. Interest rate swap agreements qualifying for hedge accounting are designated as cash flow hedges and valued based on a
11
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
comparison of the change in fair value of the actual swap contracts designated as the hedging instruments and the change in fair value of a hypothetical swap contract (Level 2). We calculate the fair value of our interest rate swap agreement quarterly based on the quoted market price for the same or similar financial instruments. Interest rate swaps are classified in the balance sheet as either assets or liabilities based on the fair value of the instruments at the end of the period.
Financial Statement Classification
The following table discloses the fair value as of November 30, 2020May 31, 2021 and February 29, 202028, 2021 of the Company’s derivative instruments:
|
| Derivative Assets and Liabilities |
|
| Derivative Assets and Liabilities |
| ||||||||||||||
|
|
|
| Fair Value |
|
|
|
| Fair Value |
| ||||||||||
|
| Account |
| November 30, 2020 |
|
| February 29, 2020 |
|
| Account |
| May 31, 2021 |
|
| February 28, 2021 |
| ||||
Designated derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| Prepaid expenses and other current assets |
| $ | 236 |
|
| $ | 0 |
|
| Prepaid expenses and other current assets |
| $ | 542 |
|
| $ | 412 |
|
|
| Accrued expenses and other current liabilities |
|
| (710 | ) |
|
| 0 |
|
| Accrued expenses and other current liabilities |
|
| (760 | ) |
|
| (731 | ) |
Interest rate swap agreement |
| Other long-term liabilities |
|
| (552 | ) |
|
| (476 | ) |
| Other long-term liabilities |
|
| (428 | ) |
|
| (446 | ) |
Total derivatives |
|
|
| $ | (1,026 | ) |
| $ | (476 | ) |
|
|
| $ | (646 | ) |
| $ | (765 | ) |
Cash Flow Hedges
The Company's policy is to enter into derivative instrument contracts with terms that coincide with the underlying exposure being hedged. As such, the Company’s derivative instruments are expected to be highly effective. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument included in the assessment of the hedge ineffectiveness is recorded to Other comprehensive income (loss). When the amounts recorded in Other comprehensive income (loss) are reclassified to earnings, they are presented in the same income statement line item as the effect of the hedged item.
During the first quarter of Fiscal 2021, the Company entered into forward foreign currency contracts, which have a current outstanding notional value of $13,160$8,100 and are designated as cash flow hedges at November 30, 2020. During Fiscal 2020, the Company did not enter into any forward foreign currency contracts and all previous contracts were settled through February 29, 2020.May 31, 2021. The current outstanding notional value of the Company's interest rate swap at November 30, 2020May 31, 2021 is $7,239.$6,989. For cash flow hedges, the gain or loss is reported as a component of Other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The net (loss) income recognized in Other comprehensive income (loss) for foreign currency contracts is expected to be recognized in Cost of sales during the next eighteentwelve months. NaN amounts were excluded from the assessment of hedge effectiveness during the respective periods. The gain or loss on the Company’s interest rate swap is recorded in Other comprehensive income (loss) and subsequently reclassified into Interest and bank charges in the period in which the hedged transaction affects earnings. As of November 30, 2020,May 31, 2021, 0 interest rate swaps originally designated for hedge accounting were de-designated or terminated.
Activity related to cash flow hedges recorded during the three and nine months ended November 30, 2020 and 2019 was as follows:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| November 30, 2020 |
|
| November 30, 2020 |
| ||||||||||
|
| Pretax Gain (Loss) Recognized in Other Comprehensive Income |
|
| Pretax Loss Reclassified from Accumulated Other Comprehensive Income |
|
| Pretax Loss Recognized in Other Comprehensive Income |
|
| Pretax Loss Reclassified from Accumulated Other Comprehensive Income |
| ||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| $ | (242 | ) |
| $ | (121 | ) |
| $ | (707 | ) |
| $ | (69 | ) |
Interest rate swaps |
|
| 39 |
|
|
| 0 |
|
|
| (76 | ) |
|
| 0 |
|
1211
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Activity related to cash flow hedges recorded during the three months ended May 31, 2021 and 2020 was as follows:
|
| Three months ended |
|
| Nine months ended |
|
| Three months ended |
| |||||||||||||||
|
| November 30, 2019 |
|
| November 30, 2019 |
|
| May 31, 2021 |
| |||||||||||||||
|
| Pretax Gain Recognized in Other Comprehensive Income |
|
| Pretax Gain Reclassified from Accumulated Other Comprehensive Income |
|
| Pretax Gain (Loss) Recognized in Other Comprehensive Income |
|
| Pretax Gain Reclassified from Accumulated Other Comprehensive Income |
|
| Pretax Gain (Loss) Recognized in Other Comprehensive Income |
|
| Pretax Loss Reclassified from Accumulated Other Comprehensive Income |
| ||||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
| $ | 41 |
|
| $ | 134 |
|
| $ | 357 |
|
| $ | 362 |
|
| $ | (28 | ) |
| $ | (176 | ) |
Interest rate swaps |
|
| 79 |
|
|
| 0 |
|
|
| (260 | ) |
|
| 0 |
|
|
| 18 |
|
|
| 0 |
|
|
| Three months ended |
| |||||
|
| May 31, 2020 |
| |||||
|
| Pretax Loss Recognized in Other Comprehensive Income |
|
| Pretax Gain Reclassified from Accumulated Other Comprehensive Income |
| ||
Cash flow hedges |
|
|
|
|
|
|
|
|
Foreign currency contracts |
| $ | 0 |
|
| $ | 68 |
|
Interest rate swaps |
|
| (130 | ) |
|
| 0 |
|
(6) | Accumulated Other Comprehensive |
The Company’s accumulated other comprehensive income (loss)loss consists of the following:
|
| Foreign Currency Translation Losses |
|
| Pension plan adjustments, net of tax |
|
| Derivatives designated in a hedging relationship, net of tax |
|
| Total |
| ||||
Balance at February 29, 2020 |
| $ | (17,739 | ) |
| $ | (887 | ) |
| $ | (429 | ) |
| $ | (19,055 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 3,608 |
|
|
| (85 | ) |
|
| (609 | ) |
|
| 2,914 |
|
Reclassified from accumulated other comprehensive loss |
|
| 0 |
|
|
| 0 |
|
|
| 95 |
|
|
| 95 |
|
Net current-period other comprehensive income (loss) |
|
| 3,608 |
|
|
| (85 | ) |
|
| (514 | ) |
|
| 3,009 |
|
Balance at November 30, 2020 |
| $ | (14,131 | ) |
| $ | (972 | ) |
| $ | (943 | ) |
| $ | (16,046 | ) |
|
| Foreign Currency Translation Losses |
|
| Pension plan adjustments, net of tax |
|
| Derivatives designated in a hedging relationship, net of tax |
|
| Total |
| ||||
Balance at February 28, 2021 |
| $ | (13,374 | ) |
| $ | (869 | ) |
| $ | (734 | ) |
| $ | (14,977 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 372 |
|
|
| 1 |
|
|
| (2 | ) |
|
| 371 |
|
Reclassified from accumulated other comprehensive loss |
|
| 0 |
|
|
| 0 |
|
|
| 121 |
|
|
| 121 |
|
Net current-period other comprehensive income |
|
| 372 |
|
|
| 1 |
|
|
| 119 |
|
|
| 492 |
|
Balance at May 31, 2021 |
| $ | (13,002 | ) |
| $ | (868 | ) |
| $ | (615 | ) |
| $ | (14,485 | ) |
During the three and nine months ended November 30, 2020,May 31, 2021, the Company recorded other comprehensive income (loss), net of the associated tax impact of $38 and $200, respectively,$46 related to derivatives designated in a hedging relationship, and $0 in both periods related to pension plan adjustments.
The other comprehensive income (loss) before reclassification of $3,608$372 includes the remeasurement of intercompany transactions of a long-term investment nature of $(983)$(272) with certain subsidiaries whose functional currency is not the U.S. dollar, and $4,591$644 from translating the financial statements of the Company's non-U.S. dollar functional currency subsidiaries into our reporting currency, which is the U.S. dollar.
1312
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
(7) | Supplemental Cash Flow Information |
The following is supplemental information relating to the Unaudited Consolidated Statements of Cash Flows:
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of redeemable equity |
| $ | - |
|
| $ | 1,379 |
| ||||||||
Reclassification of stockholders' equity to redeemable equity |
|
| 478 |
|
|
| 745 |
| ||||||||
Increase in goodwill due to measurement period adjustments, net |
|
| 638 |
|
|
| - |
| ||||||||
Settlement of debt with receivables |
|
| 607 |
|
|
| - |
| ||||||||
Change in redeemable equity |
| $ | (34 | ) |
| $ | 201 |
| ||||||||
Change in goodwill due to measurement period adjustments, net |
|
| (903 | ) |
|
| - |
| ||||||||
Right of use assets obtained in exchange for operating lease obligations |
|
| 735 |
|
|
| 1,214 |
|
|
| - |
|
|
| 276 |
|
Right of use assets obtained in exchange for finance lease obligations |
|
| - |
|
|
| 1,024 |
| ||||||||
Right of use assets recorded in exchange for operating lease obligations upon the adoption of ASC 842 |
|
| - |
|
|
| 2,227 |
| ||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 836 |
|
| $ | 668 |
|
| $ | 341 |
|
| $ | 243 |
|
Operating cash flows from finance leases |
|
| 23 |
|
|
| 36 |
|
|
| 4 |
|
|
| 9 |
|
Finance cash flows from finance leases |
|
| 470 |
|
|
| 477 |
|
|
| 114 |
|
|
| 169 |
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (excluding bank charges) |
| $ | 831 |
|
| $ | 726 |
|
| $ | 128 |
|
| $ | 291 |
|
Income taxes (net of refunds) |
|
| 1,139 |
|
|
| 565 |
|
|
| 1,553 |
|
|
| 466 |
|
(8) | Accounting for Stock-Based Compensation |
The Company has various stock-based compensation plans, which are more fully described in Note 1 of the Notes to the Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended February 29, 2020.28, 2021.
Restricted stock awards are granted pursuant to the Company's 2012 Equity Incentive Plan (the "2012 Plan"). A restricted stock award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are subject to forfeiture if employment terminates for a reason other than death, disability, or retirement prior to the release of the restrictions.
The Company's Omnibus Equity Incentive Plan was established in 2014 (the "2014 Plan"). Pursuant to the 2014 Plan, Restricted Stock Units ("RSUs") may be awarded by the Company to any individual who is employed by, provides services to, or serves as a director of the Company or its affiliates. RSUs vest on the later of three years from the date of grant, or the grantee reaching the age of 65 years. The RSU awards will also vest upon the sale of all of the Company's issued and outstanding stock, the sale of all, or substantially all, of the assets of a subsidiary of which the grantee serves as CEO and/or President, or the termination of the grantee's employment without cause, provided that the grantee, at the time of termination, has been employed for at least 10 years. When vested, RSU awards may be settled in shares of common stock or in cash, at the Company's sole option. There are no market conditions inherent in an RSU award, only the employee performance requirement for performance awards, and the service requirement that the respective employee continues employment with the Company through the vesting date. In July 2020, the Company granted 48,269 RSU awards to employees under the 2014 Plan. The Company expenses the cost of RSU awards on a straight-line basis over the requisite service period of each grantee. For these purposes, the fair market value of each RSU is determined based on the mean of the high and low price of the Company's common stock on the grant date. The fair market value of each RSU granted in July 2020 was $5.76. In October 2020, the Company granted 40,000 fully vested RSU awards to its non-employee directors. The fair market value of each of these RSU’s was $8.89.
Grant of Shares to Chief Executive Officer
On July 8, 2019, the Board of Directors approved a five-year Employment Agreement (the “Employment Agreement”), effective March 1, 2019, by and between the Company and Patrick M. Lavelle, the Company’s President and Chief Executive Officer. Under the terms of the Employment Agreement, in addition to a $1,000 annual salary and a cash bonus based on the Company’s Adjusted EBITDA, Mr. Lavelle agreedwas granted the right to receive certain stock-based compensation as discussed below:
14
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
| - | An initial stock grant of 200,000 fully vested shares of Class A Common Stock issued in July 2019 under the 2012 Plan. |
| - | Additional stock grants of 100,000 shares of Class A Common Stock to be issued on each of March 1, 2020, March 1, 2021, and March 1, 2022. Compensation expense of |
13
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
100,000 of these stock grants vested, resulting in 60,653 shares of Class A Common Stock issued to Mr. Lavelle and 39,347 withheld for taxes. |
| - | Grant of market stock units (“MSU’s”) up to a maximum value of $5,000, based upon the achievement of a 90-calendar day average stock price of no less than $5.49 over the performance period ending on the third and fifth anniversary of the effective date of the Employment Agreement. The value of the MSU award increases based upon predetermined targeted 90-calendar day average stock prices with a maximum of $5,000 if the 90-calendar day average high stock price equals or exceeds $15.00. The number of shares to be issued related to the MSUs based upon achievement of the maximum award value of $5,000, and if issued at $15.00 per share, is estimated at 333,333 shares. Actual results may differ based upon when the high average stock price is achieved and settled. We recognized stock-based compensation expense of |
All stock grants under the Employment Agreement are subject to a hold requirement as specified in the Employment Agreement. The Employment Agreement gave Mr. Lavelle, in certain limited change of control situations, the right to require the Company to purchase the shares in connection with the Employment Agreement, shares personally acquired by Mr. Lavelle, and shares issued to him under other incentive compensation arrangements. Accordingly, the stock awards issued in connection with the Employment Agreement are presented as redeemable equity on the Consolidated Balance SheetSheets at grant-date fair value. RSUs previously held by Mr. Lavelle under the 2014 Plan and shares personally purchased by Mr. Lavelle have been reclassified from permanent equity to redeemable equity. As the contingent events that would allow Mr. Lavelle to redeem the shares are not probable at this time, remeasurement of the amounts in redeemable equity have not been recorded. The Employment Agreement contains certain restrictive and non-solicitation covenants.
The following table presents a summary of the activity related to the initial stock grant, additional stock grants under the Employment Agreement, and RSU grants under the 2014 Plan for the ninethree months ended November 30, 2020:May 31, 2021:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested award balance at February 29, 2020 |
|
| 715,152 |
|
| $ | 5.07 |
|
Granted |
|
| 88,269 |
|
|
| 7.18 |
|
Vested |
|
| 99,697 |
|
|
| 7.21 |
|
Vested and settled |
|
| 100,000 |
|
|
| 4.15 |
|
Unvested award balance at November 30, 2020 |
|
| 603,724 |
|
| $ | 5.18 |
|
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested award balance at February 28, 2021 |
|
| 603,724 |
|
| $ | 5.18 |
|
Granted |
|
| 0 |
|
|
| — |
|
Vested and settled |
|
| (100,000 | ) |
|
| 4.15 |
|
Unvested award balance at May 31, 2021 |
|
| 503,724 |
|
| $ | 5.39 |
|
At November 30, 2020,May 31, 2021, there were 278,318 vested and unsettled stock grants and RSU awards under the Company’s 2014 Plan with a weighted average fair value of $7.71. In July 2020, the vested RSU awards for two of the Company’s former employees, totaling 105,123 award units, were settled in cash in an amount totaling $575.
During the three and nine months ended November 30,May 31, 2021 and May 31, 2020, the Company recorded $768$236 and $1,454,$351, respectively, in total stock-based compensation related to the 2014 Plan, as well as additional stock grants and MSU’s under the Employment Agreement. As of November 30, 2020,May 31, 2021, there was approximately $1,760$1,233 of unrecognized stock-based compensation expense related to unvested RSU awards, stock grants, and MSU’s.
(9) | Supply Chain Financing |
The Company has supply chain financing agreements and factoring agreements that were entered into for the purpose of accelerating receivable collection and better managing cash flow. The balances under the agreements are sold without recourse and are accounted for as sales of accounts receivable. Total receivable balances sold for the three and nine months ended November 30, 2020,May 31, 2021, net of discounts, were $20,876 and $60,039, respectively,$12,201 compared to $14,062 and $50,897, respectively,$18,875 for the three and nine months ended November 30, 2019.May 31, 2020.
(10) | Research and Development |
Expenditures for research and development are charged to expense as incurred. Such expenditures amounted to $2,321 for the three months ended May 31, 2021 compared to $1,855 for the three months ended May 31, 2020. All amounts are net of customer reimbursements and are included within Engineering and technical support expenses on the Unaudited Consolidated Statements of Operations and Comprehensive Income.
1514
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
|
|
Expenditures for research and development are charged to expense as incurred. Such expenditures amounted to $1,892 and $5,413 for the three and nine months ended November 30, 2020, respectively, compared to $1,672 and $5,434, respectively, for the three and nine months ended November 30, 2019. All amounts are net of customer reimbursements and are included within Engineering and technical support expenses on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
(11) | Goodwill and Intangible Assets |
The change in goodwill by segment is as follows:
Automotive Electronics: |
| Amount |
| |
Beginning balance at March 1, 2020 |
| $ | 8,467 |
|
Activity during the period |
|
| 3,928 |
|
Balance at November 30, 2020 |
| $ | 12,395 |
|
Gross carrying value at November 30, 2020 |
| $ | 12,395 |
|
Accumulated impairment charge |
|
| 0 |
|
Net carrying value at November 30, 2020 |
| $ | 12,395 |
|
Consumer Electronics: |
|
|
|
|
Beginning balance at March 1, 2020 |
| $ | 46,533 |
|
Activity during the period |
|
| 0 |
|
Balance at November 30, 2020 |
| $ | 46,533 |
|
Gross carrying value at November 30, 2020 |
| $ | 78,696 |
|
Accumulated impairment charge |
|
| (32,163 | ) |
Net carrying value at November 30, 2020 |
| $ | 46,533 |
|
Total Goodwill, net |
| $ | 58,928 |
|
Automotive Electronics: |
| Amount |
| |
Beginning balance at March 1, 2021 |
| $ | 11,778 |
|
Activity during the period |
|
| (903 | ) |
Balance at May 31, 2021 |
| $ | 10,875 |
|
Gross carrying value at May 31, 2021 |
| $ | 10,875 |
|
Accumulated impairment charge |
|
| 0 |
|
Net carrying value at May 31, 2021 |
| $ | 10,875 |
|
Consumer Electronics: |
|
|
|
|
Beginning balance at March 1, 2021 |
| $ | 46,533 |
|
Activity during the period |
|
| 0 |
|
Balance at May 31, 2021 |
| $ | 46,533 |
|
Gross carrying value at May 31, 2021 |
| $ | 78,696 |
|
Accumulated impairment charge |
|
| (32,163 | ) |
Net carrying value at May 31, 2021 |
| $ | 46,533 |
|
Total Goodwill, net |
| $ | 57,408 |
|
The Company's Biometrics segment did 0t carry a goodwill balance at November 30, 2020May 31, 2021 or February 29, 2020.28, 2021.
At November 30, 2020,May 31, 2021, intangible assets consisted of the following:
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Total Net Book Value |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Total Net Book Value |
| ||||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 54,604 |
|
| $ | 35,312 |
|
| $ | 19,292 |
|
| $ | 54,697 |
|
| $ | 37,400 |
|
| $ | 17,297 |
|
Trademarks/Tradenames |
|
| 5,545 |
|
|
| 681 |
|
|
| 4,864 |
|
|
| 5,545 |
|
|
| 941 |
|
|
| 4,604 |
|
Developed technology |
|
| 14,144 |
|
|
| 12,448 |
|
|
| 1,696 |
|
|
| 14,144 |
|
|
| 12,583 |
|
|
| 1,561 |
|
Patents |
|
| 6,729 |
|
|
| 4,389 |
|
|
| 2,340 |
|
|
| 6,736 |
|
|
| 4,863 |
|
|
| 1,873 |
|
License |
|
| 1,400 |
|
|
| 1,400 |
|
|
| 0 |
|
|
| 1,400 |
|
|
| 1,400 |
|
|
| 0 |
|
Contracts |
|
| 1,556 |
|
|
| 1,556 |
|
|
| 0 |
|
|
| 1,556 |
|
|
| 1,556 |
|
|
| 0 |
|
Total finite-lived intangible assets |
| $ | 83,978 |
|
| $ | 55,786 |
|
|
| 28,192 |
|
| $ | 84,078 |
|
| $ | 58,743 |
|
|
| 25,335 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
|
|
|
| 64,605 |
|
|
|
|
|
|
|
|
|
|
| 63,364 |
|
Total intangible assets, net |
|
|
|
|
|
|
|
|
| $ | 92,797 |
|
|
|
|
|
|
|
|
|
| $ | 88,699 |
|
1615
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
At February 29, 2020,28, 2021, intangible assets consisted of the following:
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Total Net Book Value |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Total Net Book Value |
| ||||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
| $ | 51,491 |
|
| $ | 31,880 |
|
| $ | 19,611 |
|
| $ | 54,688 |
|
| $ | 36,412 |
|
| $ | 18,276 |
|
Trademarks/Tradenames |
|
| 1,045 |
|
|
| 437 |
|
|
| 608 |
|
|
| 5,545 |
|
|
| 811 |
|
|
| 4,734 |
|
Developed technology |
|
| 14,144 |
|
|
| 12,244 |
|
|
| 1,900 |
|
|
| 14,144 |
|
|
| 12,516 |
|
|
| 1,628 |
|
Patents |
|
| 5,651 |
|
|
| 3,691 |
|
|
| 1,960 |
|
|
| 6,736 |
|
|
| 4,629 |
|
|
| 2,107 |
|
License |
|
| 1,400 |
|
|
| 1,400 |
|
|
| 0 |
|
|
| 1,400 |
|
|
| 1,400 |
|
|
| 0 |
|
Contracts |
|
| 1,556 |
|
|
| 1,556 |
|
|
| 0 |
|
|
| 1,556 |
|
|
| 1,556 |
|
|
| 0 |
|
Total finite-lived intangible assets |
| $ | 75,287 |
|
| $ | 51,208 |
|
|
| 24,079 |
|
| $ | 84,069 |
|
| $ | 57,324 |
|
|
| 26,745 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
|
|
|
| 64,209 |
|
|
|
|
|
|
|
|
|
|
| 63,359 |
|
Total intangible assets, net |
|
|
|
|
|
|
|
|
| $ | 88,288 |
|
|
|
|
|
|
|
|
|
| $ | 90,104 |
|
The Company recorded amortization expense of $1,477 and $3,973, respectively,$1,411 for the three and nine months ended November 30, 2020May 31, 2021 and $1,748 and $5,243$1,169 for the three and nine months ended November 30, 2019,May 31, 2020, respectively. The estimated aggregate amortization expense for all amortizable intangibles for November 30May 31 of each of the succeeding years is as follows:
Year |
| Amount |
|
| Amount |
| ||
2021 |
| $ | 5,741 |
| ||||
2022 |
|
| 4,933 |
|
| $ | 5,417 |
|
2023 |
|
| 4,336 |
|
|
| 4,545 |
|
2024 |
|
| 4,115 |
|
|
| 4,226 |
|
2025 |
|
| 3,991 |
|
|
| 4,052 |
|
2026 |
|
| 3,320 |
|
(12) | Equity Investment |
As of November 30, 2020May 31, 2021 and February 29, 2020,28, 2021, the Company has a 50% non-controlling ownership interest in ASA Electronics, LLC and Subsidiary (“ASA") which acts as a distributor of mobile electronics specifically designed for niche markets within the automotive industry, including RV's; buses; and commercial, heavy duty, agricultural, construction, powersport, and marine vehicles.
The following presents summary financial information for ASA. Such summary financial information has been provided herein based upon the individual significance of ASA to the consolidated financial information of the Company.
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| May 31, 2021 |
|
| February 28, 2021 |
| ||||
Current assets |
| $ | 49,755 |
|
| $ | 47,738 |
|
| $ | 51,128 |
|
| $ | 49,956 |
|
Non-current assets |
|
| 4,755 |
|
|
| 5,453 |
|
|
| 4,669 |
|
|
| 4,757 |
|
Liabilities |
|
| 10,146 |
|
|
| 9,343 |
|
|
| 9,507 |
|
|
| 8,179 |
|
Members' equity |
|
| 44,364 |
|
|
| 43,848 |
|
|
| 46,290 |
|
|
| 46,534 |
|
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Net sales |
| $ | 67,940 |
|
| $ | 75,962 |
|
| $ | 33,225 |
|
| $ | 16,441 |
|
Gross profit |
|
| 21,514 |
|
|
| 23,345 |
|
|
| 8,645 |
|
|
| 4,137 |
|
Operating income |
|
| 8,761 |
|
|
| 7,083 |
|
|
| 5,429 |
|
|
| 1,604 |
|
Net income |
|
| 9,012 |
|
|
| 7,344 |
|
|
| 5,446 |
|
|
| 1,724 |
|
1716
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
The Company's share of income from ASA was $1,761 and $4,506$2,723 for the three and nine months ended November 30, 2020, respectively,May 31, 2021 and $967 and $3,672$862 for the three and nine months ended November 30, 2019, respectively.May 31, 2020.
(13) | Income Taxes |
The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes, including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years. With respect to the technical correction to net operating losses, the Company recorded a discrete income tax provision of $4,275 during the ninethree months ended November 30,May 31, 2020, as its valuation allowance related to net operating losses with limited carryforward periods increased.
For the three months ended November 30, 2020,May 31, 2021, the Company recorded an income tax provision of $2,334,$484, which includes a discrete income tax benefit of $542$74 related primarily to finalization of the federal and certain state tax return filings. For the three months ended November 30, 2019, the Company recorded an income tax provision of $2,720, which includes a discrete income tax provision of $1,035. The Company recorded a discrete tax provision of $1,153 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and a discrete tax benefit of $118 primarily related to the reversal of uncertain tax provisionposition liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.
The effective tax rates forlimitations. For the three months ended November 30, 2020 and 2019 were an income tax provision of 11.8% on pre-tax income of $19,774 and an income tax provision of 66.6% on pre-tax income of $4,087, respectively. The effective tax rate for the three months ended November 30, 2020 differs from the U.S. statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the three months ended November 30, 2019 differed from the statutory rate of 21% primarily due to the calculation of the U.S. tax provision on a discrete basis, the U.S. taxation of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.
For the nine months ended November 30,May 31, 2020, the Company recorded an income tax provision of $6,724,$1,781, which includes a discrete income tax provision of $3,609.$4,292. The Company recorded a discrete tax provision of $4,275 related to an increase in valuation allowance as a result of the technical correction to net operating losses as provided in the CARES Act and a discrete income tax benefit of $697 related to the finalization of federal and state filings during the quarter ended November 30 2020, and the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, offset with a discrete tax provision of $31$17 related to the accrual forof interest for unrecognized tax benefits. For the nine months ended November 30, 2019, the Company recorded an income tax provision of $1,190, which includes a discrete income tax benefit of $345. The Company recorded a discrete tax benefit of $50 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate, and a discrete income tax benefit of $295 primarily related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.
The effective tax rates for the ninethree months ended November 30,May 31, 2021 and 2020 and 2019 were an income tax provision of 31.1%21.2% on pre-tax income of $21,614$2,281 and an income tax provision of 17.1%24.3% on a pre-tax loss of $6,979,$7,324, respectively. The effective tax rate for the ninethree months ended November 30, 2020May 31, 2021 differs from the U.S. statutory rate of 21% primarily due to the anticipated reversalas a result of a portionnumber of factors, including the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at
18
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
varying tax rates.rates, and a tax benefit related to the decrease in the valuation allowance based on current year forecasted earnings. The effective tax rate for the ninethree months ended November 30, 2019May 31, 2020 differed from the statutory rate of 21% primarily due to the calculation of the U.S. taxation provision on a discrete basis, theimmediate U.S. taxation of foreign earnings, non-deductiblenondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.rates.
At November 30, 2020,May 31, 2021, the Company had an uncertain tax position liability of $1,123,$1,079, including interest and penalties. The unrecognized tax benefits include amounts related to various U.S. federal, state, and local, and foreign tax issues.
(14) | Inventory |
Inventories by major category are as follows:
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| May 31, 2021 |
|
| February 28, 2021 |
| ||||
Raw materials |
| $ | 25,124 |
|
| $ | 29,115 |
|
| $ | 20,223 |
|
| $ | 21,228 |
|
Work in process |
|
| 2,080 |
|
|
| 2,366 |
|
|
| 1,673 |
|
|
| 1,732 |
|
Finished goods |
|
| 111,403 |
|
|
| 67,629 |
|
|
| 115,827 |
|
|
| 107,833 |
|
Inventory |
| $ | 138,607 |
|
| $ | 99,110 |
|
| $ | 137,723 |
|
| $ | 130,793 |
|
17
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
(15) | Product Warranties and Product Repair Costs |
The following table provides a summary of the activity with respect to product warranties and product repair costs. The liability for product warranties is included within Accrued expenses and other current liabilities and the reserve for product repair costs is recorded as a reduction of Inventory on the Consolidated Balance Sheets.
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Opening balance |
| $ | 5,520 |
|
| $ | 4,062 |
|
| $ | 4,748 |
|
| $ | 4,469 |
|
| $ | 5,290 |
|
| $ | 4,748 |
|
Liabilities for warranties accrued during the period |
|
| 864 |
|
|
| 1,445 |
|
|
| 2,339 |
|
|
| 3,879 |
|
|
| 700 |
|
|
| 791 |
|
Liabilities acquired during acquisition |
|
| 0 |
|
|
| 0 |
|
|
| 1,200 |
|
|
| 0 |
| ||||||||
Warranty claims settled during the period |
|
| (884 | ) |
|
| (1,076 | ) |
|
| (2,787 | ) |
|
| (3,917 | ) |
|
| (600 | ) |
|
| (973 | ) |
Ending balance |
| $ | 5,500 |
|
| $ | 4,431 |
|
| $ | 5,500 |
|
| $ | 4,431 |
|
| $ | 5,390 |
|
| $ | 4,566 |
|
(16) | Accrued Restructuring Expense |
At February 29, 2020,28, 2021, the Company had accrued restructuring charges of $637$31 included in Accrued expenses and other current liabilities, representing charges incurred in Fiscal 2019 for the realignment of certain businesses within the organization. During the three and nine months ended November 30, 2020, an additional $63 and $532 of the accrual was settled and 0 additional restructuring expensesMay 31, 2021, these remaining accrued charges were incurred. At November 30, 2020, the remaining restructuring accrual in Accrued expenses and other current liabilities is $105.
19
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
settled.
(17) | Financing Arrangements |
The Company has the following financing arrangements:
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| May 31, 2021 |
|
| February 28, 2021 |
| ||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic credit facility (a) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Florida mortgage (b) |
|
| 7,239 |
|
|
| 7,614 |
|
|
| 6,989 |
|
|
| 7,114 |
|
Euro asset-based lending obligation - VOXX Germany (c) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Euro asset-based lending obligation - Magnat (d) |
|
| — |
|
|
| 607 |
| ||||||||
Total debt |
|
| 7,239 |
|
|
| 8,221 |
|
|
| 6,989 |
|
|
| 7,114 |
|
Less: current portion of long-term debt |
|
| 500 |
|
|
| 1,107 |
|
|
| 500 |
|
|
| 500 |
|
Long-term debt |
|
| 6,739 |
|
|
| 7,114 |
|
|
| 6,489 |
|
|
| 6,614 |
|
Less: debt issuance costs |
|
| 766 |
|
|
| 1,015 |
|
|
| 1,229 |
|
|
| 652 |
|
Total long-term debt, net of debt issuance costs |
| $ | 5,973 |
|
| $ | 6,099 |
|
| $ | 5,260 |
|
| $ | 5,962 |
|
2018
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
(a) | Domestic Credit Facility The Company has a senior secured credit facility (the "Credit Facility"), which was amended
All amounts outstanding under the Credit Facility will mature and become due on April
Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that swingline loans may only be designated as Base Rate Loans. Loans designated as LIBOR Rate Loans bear interest at a rate equal to the then applicable LIBOR rate plus a range of
Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess Availability is less than
The obligations under the loan documents are secured by a general lien on, and security interest in, substantially all of the assets of the borrowers and certain of the guarantors, including accounts receivable, equipment, real estate, general intangibles, and inventory. The Company has guaranteed the obligations of the borrowers under the Credit Agreement.
Charges incurred on the unused portion of the Credit Facility during the three
The Company has deferred financing costs related to the Credit Facility and previous amendments and modification of the Credit Facility. In conjunction with the amendment to its Credit Facility
|
19
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
(b) | Florida Mortgage On July 6, 2015, VOXX HQ LLC, the Company’s wholly owned subsidiary, closed on a $9,995 industrial development revenue tax exempt bond under a loan agreement in favor of the Orange County Industrial Development Authority (the “Authority”) to finance the construction of the Company's manufacturing facility and executive offices in Lake Nona, Florida. Wells Fargo Bank, N.A. ("Wells Fargo") was the purchaser of the bond and U.S. Bank National Association is the trustee under an Indenture of Trust with the Authority. Voxx borrowed the proceeds of the bond purchase from the Authority during construction as a revolving loan, which converted to a permanent mortgage upon completion of the facility in January 2016 (the "Florida Mortgage"). The Company makes principal and interest payments to Wells Fargo, which began March 1, 2016 and will continue through March of 2026. The Florida Mortgage bears interest at 70% of 1-month LIBOR plus 1.54%
The Company incurred debt financing costs totaling approximately $332 as a result of obtaining the Florida Mortgage, which are recorded as deferred financing costs and included in Long-term debt as a contra-liability balance on the accompanying Consolidated Balance Sheets and are being amortized through Interest and bank charges in the Unaudited Consolidated Statements of Operations and Comprehensive Income
On July 20, 2015, the Company entered into an interest rate swap agreement in order to hedge interest rate exposure related to the Florida Mortgage and pays a fixed rate of 3.48% under the swap agreement (See Note 5). |
21
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
(c) | Euro Asset-Based Lending Obligation – VOXX Germany Foreign bank obligations include a Euro Asset-Based Lending ("ABL") credit facility, which has a credit limit of €8,000 for the Company's subsidiary, VOXX Germany, which expires on July 31, 2023. The rate of interest for the ABL is the three-month Euribor plus 2.30% (2.30% at |
|
|
(18) | Other Income (Expense) |
Other income (expense) income is comprised of the following:
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Foreign currency gain (loss) |
| $ | 34 |
|
| $ | 61 |
|
| $ | (445 | ) |
| $ | 297 |
|
| $ | 116 |
|
| $ | (116 | ) |
Interest income |
|
| 6 |
|
|
| 199 |
|
|
| 77 |
|
|
| 814 |
|
|
| 7 |
|
|
| 86 |
|
Rental income |
|
| 188 |
|
|
| 176 |
|
|
| 556 |
|
|
| 460 |
|
|
| 164 |
|
|
| 186 |
|
Miscellaneous |
|
| (349 | ) |
|
| (758 | ) |
|
| (167 | ) |
|
| 298 |
|
|
| 155 |
|
|
| 529 |
|
Total other, net |
| $ | (121 | ) |
| $ | (322 | ) |
| $ | 21 |
|
| $ | 1,869 |
|
| $ | 442 |
|
| $ | 685 |
|
The decrease in interest income for the three and nine months ended November 30, 2020 as compared to the prior year periods primarily relates to the decrease in interest rates applicable to the Company’s short-term money market investments. For the nine months ended November 30, 2019, miscellaneous included proceeds from a key man life insurance policy in the amount of $1,000 related to a former employee of Klipsch Group, Inc. that Voxx became the beneficiary of in conjunction with the acquisition of Klipsch in Fiscal 2012, offset by a payment of $804 in settlement of the final working capital calculation related to the sale of the Company’s former Hirschmann subsidiary in Fiscal 2018. The final working capital settlement impacted both the three and nine months ended November 30, 2019.
(19) | Foreign Currency |
The Company has a subsidiary in Venezuela. Venezuela has experienced significant political and civil unrest, as well as economic instability for several years, and has implemented various foreign currency and price controls. The Company accounts for its Venezuela subsidiary as hyper-inflationary in accordance with the guidelines in ASC 830, "Foreign Currency." A hyper-inflationary economy designation occurs when a country has experienced cumulative inflation of approximately 100 percent or more over a 3-year period. The hyper-inflationary designation requires the local subsidiary in Venezuela to record all transactions as if they were denominated in U.S. dollars. As of November 30, 2020, the DICOM rate for the Sovereign Bolivar was approximately 1,033,000 bolivarsThe Company’s
20
VOXX International Corporation and Subsidiaries
Notes to the U.S. dollar compared to 38,109 at November 30, 2019. The Company’s Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
operations in Venezuela are suspended and net currency exchange gains and losses for the three and nine months ended November 30, 2020May 31, 2021 were not significant.
The Company has certain long-lived assets in Venezuela, which are held for investment purposes. These properties had 0 value at November 30, 2020May 31, 2021.
(20) | Lease Obligations |
We account for leases in accordance with ASC 842 “Leases” (“ASC 842”). We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration.
We have operating leases for office equipment, as well as offices, warehouses, and other facilities used for our operations. We also have finance leases comprised primarily of computer hardware and machinery and equipment. Our leases have remaining lease terms of less than 1 year to 10 years, some of which include renewal options. We consider these renewal options in determining the lease term used to establish our right-of-use assets and lease
22
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
liabilities when it is determined that it is reasonably certain that the renewal option will be exercised. The Company had 0 short-term leases during the three and nine months ended November 30, 2020.May 31, 2021.
Refer to Note 7 for supplemental cash flow information related to leases.
On September 30, 2019, the Company, through its subsidiary Voxx German Holdings GmbH, executed a sale leaseback transaction, selling its real property in Pulheim, Germany to CLM S.A. RL (“the Purchaser”) for €10,920. Net proceeds received from the transaction were approximately $9,500. The transaction qualified for sale leaseback accounting in accordance with ASC 842. Concurrently with the sale, the Company entered into an operating lease arrangement (“lease”) with the Purchaser for a small portion of the real property to continue to operate the combined Magnat/Klipsch sales office in Germany. The Company recognized a gain related to the execution of the sale transaction of $4,057 for the three and nine months ended November 30, 2019, which is recorded in Other income (expense) on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
The components of lease cost for the three and nine months ended November 30,May 31, 2021 and 2020 and 2019 were as follows:
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Operating lease cost (a) (c) |
| $ | 328 |
|
| $ | 209 |
|
| $ | 836 |
|
| $ | 668 |
|
| $ | 341 |
|
| $ | 243 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right of use assets (a) |
|
| 139 |
|
|
| 167 |
|
|
| 465 |
|
|
| 516 |
|
|
| 121 |
|
|
| 169 |
|
Interest on lease liabilities (b) |
|
| 6 |
|
|
| 12 |
|
|
| 23 |
|
|
| 36 |
|
|
| 4 |
|
|
| 9 |
|
Total finance lease cost |
| $ | 145 |
|
| $ | 179 |
|
| $ | 488 |
|
| $ | 552 |
|
| $ | 125 |
|
| $ | 178 |
|
| (a) | Recorded within Selling, General and administrative, Engineering and technical support, and Cost of sales on the Unaudited Consolidated Statement of Operations and Comprehensive |
| (b) | Recorded within Interest and bank charges on the Unaudited Consolidated Statement of Operations and Comprehensive |
| (c) | Includes immaterial amounts related to variable rent expense. |
Supplemental balance sheet information related to leases is as follows:
|
| November 30, 2020 |
|
| February 29, 2020 |
| ||
Operating Leases |
|
|
|
|
|
|
|
|
Operating lease, right of use assets |
| $ | 4,811 |
|
| $ | 3,143 |
|
Total operating lease right of use assets |
| $ | 4,811 |
|
| $ | 3,143 |
|
Accrued expenses and other current liabilities |
| $ | 1,111 |
|
| $ | 784 |
|
Operating lease liabilities, less current portion |
|
| 3,813 |
|
|
| 2,391 |
|
Total operating lease liabilities |
| $ | 4,924 |
|
| $ | 3,175 |
|
Finance Leases |
|
|
|
|
|
|
|
|
Property, plant, and equipment, gross |
| $ | 2,503 |
|
| $ | 2,503 |
|
Accumulated depreciation |
|
| (1,674 | ) |
|
| (1,209 | ) |
Total finance lease right of use assets |
| $ | 829 |
|
| $ | 1,294 |
|
Accrued expenses and other current liabilities |
| $ | 469 |
|
| $ | 613 |
|
Finance lease liabilities, less current portion |
|
| 386 |
|
|
| 720 |
|
Total finance lease liabilities |
| $ | 855 |
|
| $ | 1,333 |
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
|
|
Operating leases |
| 6.1 years |
|
| 4.4 years |
| ||
Finance leases |
| 2.1 years |
|
| 3.9 years |
| ||
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.54 | % |
|
| 5.98 | % |
Finance leases |
|
| 3.87 | % |
|
| 3.87 | % |
2321
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Supplemental balance sheet information related to leases is as follows:
|
| May 31, 2021 |
|
| February 28, 2021 |
| ||
Operating Leases |
|
|
|
|
|
|
|
|
Operating lease, right of use assets |
| $ | 4,559 |
|
| $ | 4,572 |
|
Total operating lease right of use assets |
| $ | 4,559 |
|
| $ | 4,572 |
|
Accrued expenses and other current liabilities |
| $ | 1,162 |
|
| $ | 1,119 |
|
Operating lease liabilities, less current portion |
|
| 3,540 |
|
|
| 3,582 |
|
Total operating lease liabilities |
| $ | 4,702 |
|
| $ | 4,701 |
|
Finance Leases |
|
|
|
|
|
|
|
|
Property, plant, and equipment, gross |
| $ | 2,503 |
|
| $ | 2,503 |
|
Accumulated depreciation |
|
| (1,926 | ) |
|
| (1,805 | ) |
Total finance lease right of use assets |
| $ | 577 |
|
| $ | 698 |
|
Accrued expenses and other current liabilities |
| $ | 366 |
|
| $ | 418 |
|
Finance lease liabilities, less current portion |
|
| 229 |
|
|
| 302 |
|
Total finance lease liabilities |
| $ | 595 |
|
| $ | 720 |
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
|
|
Operating leases |
| 5.9 years |
|
| 6.0 years |
| ||
Finance leases |
| 1.8 years |
|
| 1.8 years |
| ||
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.40 | % |
|
| 4.49 | % |
Finance leases |
|
| 3.87 | % |
|
| 3.87 | % |
Maturities of lease liabilities on November 30May 31 of each of the succeeding years are as follows:
|
| Operating Leases |
|
| Finance Leases |
|
| Operating Leases |
|
| Finance Leases |
| ||||
2021 |
| $ | 1,303 |
|
|
| 483 |
|
| $ | 1,319 |
|
|
| 374 |
|
2022 |
|
| 1,119 |
|
|
| 274 |
|
|
| 1,022 |
|
|
| 193 |
|
2023 |
|
| 807 |
|
|
| 118 |
|
|
| 756 |
|
|
| 40 |
|
2024 |
|
| 632 |
|
|
| — |
|
|
| 558 |
|
|
| — |
|
2025 |
|
| 456 |
|
|
| — |
|
|
| 397 |
|
|
| — |
|
Thereafter |
|
| 1,228 |
|
|
| — |
|
|
| 1,196 |
|
|
| — |
|
Total lease payments |
|
| 5,545 |
|
|
| 875 |
|
|
| 5,248 |
|
|
| 607 |
|
Less imputed interest |
|
| 621 |
|
|
| 20 |
|
|
| 546 |
|
|
| 12 |
|
Total |
| $ | 4,924 |
|
|
| 855 |
|
| $ | 4,702 |
|
|
| 595 |
|
As of November 30, 2020,May 31, 2021, the Company has not entered into any lease agreements that have not yet commenced.
22
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
The Company owns and occupies buildings as part of its operations. Certain space within these buildings may, from time to time, be leased to third parties from which the Company earns rental income as lessor. This leased space is recorded within property, plant, and equipment and was not material to the Company's Consolidated Balance Sheets at November 30, 2020May 31, 2021 and February 29, 2020.28, 2021. Rental income earned by the Company for the three and nine months ended November 30,May 31, 2021 and 2020 was $164 and 2019 was $188 and $556,$186, respectively, and $176 and $460, respectively, which is recorded within Other income (expense).
(21) | Capital Structure |
The Company's capital structure is as follows:
|
|
|
|
|
| Shares Authorized |
|
| Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares Authorized |
|
| Shares Outstanding |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Security |
| Par Value |
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| Voting Rights per Share |
|
| Liquidation Rights |
|
| Par Value |
|
| May 31, 2021 |
|
| February 28, 2021 |
|
| May 31, 2021 |
|
| February 28, 2021 |
|
| Voting Rights per Share |
|
| Liquidation Rights |
| ||||||||||||||
Preferred Stock |
| $ | 50.00 |
|
|
| 50,000 |
|
|
| 50,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
| $50 per share |
|
| $ | 50.00 |
|
|
| 50,000 |
|
|
| 50,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
| $50 per share |
| ||
Series Preferred Stock |
| $ | 0.01 |
|
|
| 1,500,000 |
|
|
| 1,500,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
| $ | 0.01 |
|
|
| 1,500,000 |
|
|
| 1,500,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
|
| — |
|
Class A Common Stock |
| $ | 0.01 |
|
|
| 60,000,000 |
|
|
| 60,000,000 |
|
|
| 21,666,976 |
|
|
| 21,556,976 |
|
|
| 1 |
|
| Ratably with Class B |
|
| $ | 0.01 |
|
|
| 60,000,000 |
|
|
| 60,000,000 |
|
|
| 21,727,629 |
|
|
| 21,666,976 |
|
|
| 1 |
|
| Ratably with Class B |
| ||
Class B Common Stock |
| $ | 0.01 |
|
|
| 10,000,000 |
|
|
| 10,000,000 |
|
|
| 2,260,954 |
|
|
| 2,260,954 |
|
|
| 10 |
|
| Ratably with Class A |
|
| $ | 0.01 |
|
|
| 10,000,000 |
|
|
| 10,000,000 |
|
|
| 2,260,954 |
|
|
| 2,260,954 |
|
|
| 10 |
|
| Ratably with Class A |
| ||
Treasury Stock at cost |
| at cost |
|
|
| 2,749,218 |
|
|
| 2,749,218 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
|
|
|
| at cost |
|
|
| 2,749,218 |
|
|
| 2,749,218 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
|
|
|
(22) | Variable Interest Entity |
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation,– “Consolidation,” an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:
| • | the power to direct the activities that most significantly impact the economic performance of the VIE; and |
| • | the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE. |
On September 1, 2015, Voxx acquired a majority voting interest in substantially all of the assets and certain specified liabilities of EyeLock, Inc. and EyeLock Corporation, a market leader of iris-based identity authentication solutions, through a newly-formednewly formed entity, EyeLock LLC. The Company issued EyeLock LLC a promissory note for the purposes of repaying protective advances and funding working capital requirements of the entity. On October 9, 2020,April 5, 2021, this
24
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
promissory note was amended and restated to allow EyeLock LLC to borrow up to $60,600.$64,600. Through March 1, 2019, interest on the outstanding principal of the loan accrued at 10%. From March 1, 2019 forward, interest accrues at 2.5%. The amended and restated promissory note is due on June 30, 2021.2022. The outstanding principal balance of this promissory note is convertible at the sole option of Voxx into units of EyeLock LLC. If Voxx chooses not to convert into equity, the outstanding loan principal of the amended and restated promissory note will be repaid at a multiple of 1.50 based on the repayment date. The agreement includes customary events of default and is collateralized by all of the property of EyeLock LLC.
We determined that we hold a variable interest in EyeLock LLC as a result of:
| • | our majority voting interest and ownership of substantially all of the assets and certain liabilities of the entity; and |
| • | the loan agreement with EyeLock LLC, which has a total outstanding balance of |
We concluded that we became the primary beneficiary of EyeLock LLC on September 1, 2015 in conjunction with the acquisition. This was the first date on which we had the power to direct the activities that most significantly impact the economic performance of the entity because we acquired a majority interest in substantially all of the assets and
23
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
certain liabilities of EyeLock, Inc. and EyeLock Corporation on this date, as well as obtained a majority voting interest as a result of this transaction. Although we are considered to have control over EyeLock LLC under ASC 810, due to our majority ownership interest, the assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC. As a result of our majority ownership interest in the entity and our primary beneficiary conclusion, we consolidated EyeLock LLC within our consolidated financial statements beginning on September 1, 2015.
25
VOXX International CorporationOn April 29, 2021, EyeLock LLC entered into a three-year exclusive distribution agreement (the “Agreement”) with GalvanEyes LLC (“GalvanEyes”), a Florida LLC managed by Voxx’s largest shareholder, Beat Kahli. The Agreement provides that GalvanEyes will become the exclusive distributor of EyeLock products in the EU, Switzerland, Puerto Rico, Malaysia, and Subsidiaries
NotesSingapore with the exception of any existing customer relationships. GalvanEyes was also granted exclusive distribution rights in the United States for the residential real estate market and specific U.S. Government agencies, and non-exclusive distribution rights in all other territories and verticals with the Company’s consent. In consideration of the grant of exclusivity, GalvanEyes has agreed to Unaudited Consolidated Financial Statements, continued
(Amountspay EyeLock $10,000 in thousands, except sharethe form of an annual fee of up to $5,000, with payments on a quarterly basis. Any gross profit generated by GalvanEyes on the sale of EyeLock LLC products by GalvanEyes will be deducted from the annual fee. The transaction is subject to certain closing conditions, including formal approval by the Company’s Board of Directors and per share data)
approval by the Company’s stockholders at the Annual Meeting of Stockholders scheduled for July 29, 2021.
Assets and Liabilities of EyeLock LLC
The following table sets forth the carrying values of assets and liabilities of EyeLock LLC that were included on our Consolidated Balance Sheets as of November 30, 2020May 31, 2021 and February 29, 2020:28, 2021:
|
| November 30, 2020 |
|
| February 29, 2020 |
|
| May 31, 2021 |
|
| February 28, 2021 |
| ||||
Assets |
| (unaudited) |
|
|
|
|
|
| (unaudited) |
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Accounts receivable, net |
|
| 210 |
|
|
| 147 |
|
|
| 59 |
|
|
| 167 |
|
Inventory, net |
|
| 2,212 |
|
|
| 2,052 |
|
|
| 2,173 |
|
|
| 2,245 |
|
Prepaid expenses and other current assets |
|
| 253 |
|
|
| 313 |
|
|
| 56 |
|
|
| 30 |
|
Total current assets |
|
| 2,675 |
|
|
| 2,512 |
|
|
| 2,288 |
|
|
| 2,442 |
|
Property, plant and equipment, net |
|
| 27 |
|
|
| 69 |
|
|
| 47 |
|
|
| 39 |
|
Intangible assets, net |
|
| 2,397 |
|
|
| 2,600 |
|
|
| 2,260 |
|
|
| 2,329 |
|
Other assets |
|
| 60 |
|
|
| 76 |
|
|
| 60 |
|
|
| 60 |
|
Total assets |
| $ | 5,159 |
|
| $ | 5,257 |
|
| $ | 4,655 |
|
| $ | 4,870 |
|
Liabilities and Partners' Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,427 |
|
| $ | 2,086 |
|
| $ | 1,357 |
|
| $ | 1,396 |
|
Interest payable to VOXX |
|
| 11,077 |
|
|
| 9,994 |
|
|
| 11,850 |
|
|
| 11,453 |
|
Accrued expenses and other current liabilities |
|
| 1,000 |
|
|
| 252 |
|
|
| 562 |
|
|
| 824 |
|
Due to VOXX |
|
| 59,033 |
|
|
| 54,074 |
|
|
| 63,114 |
|
|
| 61,072 |
|
Total current liabilities |
|
| 72,537 |
|
|
| 66,406 |
|
|
| 76,883 |
|
|
| 74,745 |
|
Other long-term liabilities |
|
| 1,200 |
|
|
| 1,200 |
|
|
| 1,200 |
|
|
| 1,200 |
|
Total liabilities |
|
| 73,737 |
|
|
| 67,606 |
|
|
| 78,083 |
|
|
| 75,945 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners' deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
| 41,416 |
|
|
| 41,416 |
|
|
| 41,416 |
|
|
| 41,416 |
|
Retained losses |
|
| (109,994 | ) |
|
| (103,765 | ) |
|
| (114,844 | ) |
|
| (112,491 | ) |
Total partners' deficit |
|
| (68,578 | ) |
|
| (62,349 | ) |
|
| (73,428 | ) |
|
| (71,075 | ) |
Total liabilities and partners' deficit |
| $ | 5,159 |
|
| $ | 5,257 |
|
| $ | 4,655 |
|
| $ | 4,870 |
|
2624
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Revenue and Expenses of EyeLock LLC
The following table sets forth the revenues and expenses of EyeLock LLC that were included in our Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended November 30, 2020, respectively:May 31, 2021 and 2020:
|
| For the three months ended November 30, |
|
| For the nine months ended November 30, |
|
| For the three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Net sales |
| $ | 343 |
|
| $ | 138 |
|
| $ | 703 |
|
| $ | 412 |
|
| $ | 205 |
|
| $ | 97 |
|
Cost of sales |
|
| 293 |
|
|
| 178 |
|
|
| 674 |
|
|
| 592 |
|
|
| 163 |
|
|
| 119 |
|
Gross profit |
|
| 50 |
|
|
| (40 | ) |
|
| 29 |
|
|
| (180 | ) |
|
| 42 |
|
|
| (22 | ) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 132 |
|
|
| 173 |
|
|
| 434 |
|
|
| 535 |
|
|
| 163 |
|
|
| 177 |
|
General and administrative |
|
| 446 |
|
|
| 1,123 |
|
|
| 1,303 |
|
|
| 3,500 |
|
|
| 344 |
|
|
| 429 |
|
Engineering and technical support |
|
| 1,178 |
|
|
| 1,232 |
|
|
| 3,427 |
|
|
| 3,951 |
|
|
| 1,487 |
|
|
| 1,155 |
|
Total operating expenses |
|
| 1,756 |
|
|
| 2,528 |
|
|
| 5,164 |
|
|
| 7,986 |
|
|
| 1,994 |
|
|
| 1,761 |
|
Operating loss |
|
| (1,706 | ) |
|
| (2,568 | ) |
|
| (5,135 | ) |
|
| (8,166 | ) |
|
| (1,952 | ) |
|
| (1,783 | ) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and bank charges |
|
| (372 | ) |
|
| (324 | ) |
|
| (1,094 | ) |
|
| (939 | ) |
|
| (401 | ) |
|
| (354 | ) |
Other, net |
|
| — |
|
|
| 79 |
|
|
| — |
|
|
| 79 |
|
|
| — |
|
|
| — |
|
Total other expense, net |
|
| (372 | ) |
|
| (245 | ) |
|
| (1,094 | ) |
|
| (860 | ) |
|
| (401 | ) |
|
| (354 | ) |
Loss before income taxes |
|
| (2,078 | ) |
|
| (2,813 | ) |
|
| (6,229 | ) |
|
| (9,026 | ) |
|
| (2,353 | ) |
|
| (2,137 | ) |
Income tax expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
| $ | (2,078 | ) |
| $ | (2,813 | ) |
| $ | (6,229 | ) |
| $ | (9,026 | ) |
| $ | (2,353 | ) |
| $ | (2,137 | ) |
(23) | Segment Reporting |
The Company operates in 3 distinct segments based on our products and our internal organizational structure. The 3 operating segments, which are also the Company’s reportable segments, are Automotive Electronics, Consumer Electronics, and Biometrics.
Our Automotive Electronics segment designs, manufactures, markets and distributes rear-seat entertainment devices, remote start systems, automotive security, vehicle access systems, mobile interface modules, mobile multimedia devices, aftermarket/OE-styled radios, car link-smartphone telematics applications, driver distraction products, collision avoidance systems, location-based services, turn signal switches, automotive lighting products, automotive sensing and camera systems, USB ports, cruise control systems, heated seats, and satellite radio products.
Our Consumer Electronics segment designs, manufactures, markets and distributes home theater systems, high-end loudspeakers, outdoor speakers, business music systems, cinema speakers, flat panel speakers, wireless and Bluetooth speakers, soundbars, wired and wireless headphones and ear buds, DLNA (Digital Living Network Alliance) compatible devices, remote controls, karaoke products, personal sound amplifiers, infant/nursery products, activity tracking bands, healthcare wearables, smart-home security and safety products, as well as A/V connectivity, portable/home charging, reception, and digital consumer products.
Our Biometrics segment designs, manufactures, markets, and distributes iris identification and biometric security related products.
The accounting principles applied at the consolidated financial statement level are generally the same as those applied at the operating segment level and there are no material intersegment sales. The segments are allocated interest expense, based upon a pre-determined formula, which utilizes a percentage of each operating segment's intercompany balance, which is offset in Corporate/Eliminations.
2725
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Segment data for each of the Company's segments is presented below:
|
| Automotive Electronics |
|
| Consumer Electronics |
|
| Biometrics |
|
| Corporate/ Eliminations |
|
| Total |
|
| Automotive Electronics |
|
| Consumer Electronics |
|
| Biometrics |
|
| Corporate/ Eliminations |
|
| Total |
| ||||||||||
Three Months Ended November 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Three Months Ended May 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales |
| $ | 61,488 |
|
| $ | 139,039 |
|
| $ | 343 |
|
| $ | 195 |
|
| $ | 201,065 |
|
| $ | 42,657 |
|
| $ | 94,113 |
|
| $ | 205 |
|
| $ | 85 |
|
| $ | 137,060 |
|
Equity in income of equity investees |
|
| 1,761 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,761 |
|
|
| 2,723 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,723 |
|
Interest expense and bank charges |
|
| 537 |
|
|
| 2,290 |
|
|
| 372 |
|
|
| (2,728 | ) |
|
| 471 |
|
|
| 373 |
|
|
| 1,975 |
|
|
| 401 |
|
|
| (2,221 | ) |
|
| 528 |
|
Depreciation and amortization expense |
|
| 876 |
|
|
| 1,002 |
|
|
| 75 |
|
|
| 981 |
|
|
| 2,934 |
|
|
| 783 |
|
|
| 1,001 |
|
|
| 76 |
|
|
| 947 |
|
|
| 2,807 |
|
Income (loss) before income taxes |
|
| 6,601 |
|
|
| 20,351 |
|
|
| (2,078 | ) |
|
| (5,100 | ) |
|
| 19,774 |
|
|
| 3,230 |
|
|
| 5,468 |
|
|
| (2,353 | ) |
|
| (4,064 | ) |
|
| 2,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Three Months Ended May 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales |
| $ | 29,985 |
|
| $ | 79,914 |
|
| $ | 138 |
|
| $ | 75 |
|
| $ | 110,112 |
|
| $ | 17,276 |
|
| $ | 54,514 |
|
| $ | 97 |
|
| $ | 100 |
|
| $ | 71,987 |
|
Equity in income of equity investees |
|
| 967 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 967 |
|
|
| 862 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 862 |
|
Interest expense and bank charges |
|
| 137 |
|
|
| 2,560 |
|
|
| 324 |
|
|
| (2,270 | ) |
|
| 751 |
|
|
| 168 |
|
|
| 2,134 |
|
|
| 355 |
|
|
| (1,858 | ) |
|
| 799 |
|
Depreciation and amortization expense |
|
| 187 |
|
|
| 1,093 |
|
|
| 783 |
|
|
| 1,038 |
|
|
| 3,101 |
|
|
| 466 |
|
|
| 965 |
|
|
| 86 |
|
|
| 1,026 |
|
|
| 2,543 |
|
Income (loss) before income taxes |
|
| 92 |
|
|
| 9,583 |
|
|
| (2,813 | ) |
|
| (2,775 | ) |
|
| 4,087 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Nine Months Ended November 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales |
| $ | 111,397 |
|
| $ | 288,545 |
|
| $ | 703 |
|
| $ | 439 |
|
| $ | 401,084 |
| ||||||||||||||||||||
Equity in income of equity investees |
|
| 4,506 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,506 |
| ||||||||||||||||||||
Interest expense and bank charges |
|
| 1,058 |
|
|
| 6,584 |
|
|
| 1,094 |
|
|
| (6,402 | ) |
|
| 2,334 |
| ||||||||||||||||||||
Depreciation and amortization expense |
|
| 2,050 |
|
|
| 2,921 |
|
|
| 247 |
|
|
| 3,006 |
|
|
| 8,224 |
| ||||||||||||||||||||
Income (loss) before income taxes |
|
| 3,730 |
|
|
| 33,087 |
|
|
| (6,229 | ) |
|
| (8,974 | ) |
|
| 21,614 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Nine Months Ended November 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net sales |
| $ | 86,472 |
|
| $ | 206,601 |
|
| $ | 398 |
|
| $ | 341 |
|
| $ | 293,812 |
| ||||||||||||||||||||
Equity in income of equity investees |
|
| 3,672 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,672 |
| ||||||||||||||||||||
Interest expense and bank charges |
|
| 354 |
|
|
| 7,427 |
|
|
| 939 |
|
|
| (6,085 | ) |
|
| 2,635 |
| ||||||||||||||||||||
Depreciation and amortization expense |
|
| 567 |
|
|
| 3,356 |
|
|
| 2,352 |
|
|
| 2,954 |
|
|
| 9,229 |
| ||||||||||||||||||||
Income (loss) before income taxes |
|
| 869 |
|
|
| 8,976 |
|
|
| (8,835 | ) |
|
| (7,989 | ) |
|
| (6,979 | ) | ||||||||||||||||||||
Loss before income taxes |
|
| (3,110 | ) |
|
| (53 | ) |
|
| (2,137 | ) |
|
| (2,024 | ) |
|
| (7,324 | ) |
(24) | Revenue from Contracts with Customers |
The Company recognizes revenue in accordance with ASC Topic 606, Revenue“Revenue from Contracts with CustomersCustomers” (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. We apply the FASB’s guidance on revenue recognition, which requires us to recognize the amount of revenue and consideration that we expect to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which requires us to: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy a performance obligation.
Within our Automotive Electronics segment, while the majority of the contracts we enter into with Original Equipment Manufacturers (“OEM”OEMs”) are long-term supply arrangements, the performance obligations are established by the enforceable contract, which is generally considered to be the purchase order. The purchase orders are of durations less than one year. As such, the Company applies the practical expedient in ASC paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, for which work has not yet been performed.
Performance Obligations
The Company’s primary source of revenue is derived from the manufacture and distribution of consumer electronic, automotive electronic, and biometric products. Our consumer electronic products primarily consist of finished goods sold to retail and commercial customers, consisting of premium audio products and other consumer electronic products. Our automotive electronic products, some of which are manufactured by the Company, are sold both to
28
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
OEM and aftermarket customers. Our biometrics products, primarily consisting of finished goods, are sold to retail and commercial customers. We recognize revenue for sales to our customers when transfer of control of the related good or service has occurred. The majority of our revenue was recognized under the point in time approach for the three and nine months ended November 30, 2020.May 31, 2021. Certain telematic subscription revenues generated by our Automotive Electronics segment are recognized over time. Contract terms with certain of our OEM customers could result in additional products and services being transferred over time as a result of the customized nature of some of our products, together with contractual provisions in the customer contracts that provide us with an enforceable right to payment for performance completed to date; however, under typical terms, we do not have the right to consideration until the time of shipment from our manufacturing facilities or distribution centers, or until the time of delivery to our customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time may be slightly accelerated compared to our right to consideration at the time of shipment or delivery.
Under ASC 606, we are required to present a refund liability and a return asset within the Consolidated Balance Sheets. The changes in the refund liability are reported in Net sales, and the changes in the return asset are reported in
26
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
Cost of sales in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).Income. As of November 30, 2020May 31, 2021 and February 29, 2020,28, 2021, the balance of the return asset was $1,822$2,185 and $1,544,$2,404, respectively, and the balance of the refund liability was $4,185$4,575 and $3,779,$5,145, respectively, and are presented within Prepaid expenses and other current assets and Accrued expenses and other current liabilities, respectively, on the Consolidated Balance Sheets.
We warrant our products against certain defects in material and workmanship when used as designed, which primarily range from 30 days to 3 years. We offer limited lifetime warranties on certain products, which limit the customer’s remedy to the repair or replacement of the defective product or part for the designated lifetime of the product, or for the life of the vehicle for the original owner, if it is an automotive product. We do not sell extended warranties.
Contract Balances
Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had current and non-current contract liability balances totaling $4,412$5,037 at November 30, 2020May 31, 2021 related to telematic subscription services of the Company’s DEI subsidiary established in connection with the Company’s acquisition in July 2020 (see Note 2). Revenue recognized for the three months ended November 30, 2020May 31, 2021 that was included in the contract liability balance for the Company’s August 31, 2020 quarter-end date was $2,767. There were 0 contract liability balancesof $5,265 at February 29, 2020.28, 2021 was $1,847. The Company had 0 contract asset balances at November 30, 2020May 31, 2021 or February 29, 2020.
29
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
28, 2021.
Disaggregation of Revenue
The Company operates in 3 reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics. ASC 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales are disaggregated by segment and product type for the three and nine months ended November 30, 2020May 31, 2021 and 2019:2020:
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Automotive Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OEM Products |
| $ | 14,089 |
|
| $ | 10,628 |
|
| $ | 32,462 |
|
| $ | 37,391 |
|
| $ | 14,914 |
|
| $ | 7,659 |
|
Aftermarket Products |
|
| 47,399 |
|
|
| 19,357 |
|
|
| 78,935 |
|
|
| 49,081 |
|
|
| 27,743 |
|
|
| 9,617 |
|
Total Automotive Segment |
|
| 61,488 |
|
|
| 29,985 |
|
|
| 111,397 |
|
|
| 86,472 |
|
|
| 42,657 |
|
|
| 17,276 |
|
Consumer Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium Audio Products |
|
| 112,681 |
|
|
| 53,250 |
|
|
| 216,501 |
|
|
| 128,056 |
|
|
| 71,593 |
|
|
| 34,538 |
|
Other Consumer Electronic Products |
|
| 26,358 |
|
|
| 26,664 |
|
|
| 72,044 |
|
|
| 78,545 |
|
|
| 22,520 |
|
|
| 19,976 |
|
Total Consumer Electronics Segment |
|
| 139,039 |
|
|
| 79,914 |
|
|
| 288,545 |
|
|
| 206,601 |
|
|
| 94,113 |
|
|
| 54,514 |
|
Biometrics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biometric Products |
|
| 343 |
|
|
| 138 |
|
|
| 703 |
|
|
| 398 |
|
|
| 205 |
|
|
| 97 |
|
Total Biometrics Segment |
|
| 343 |
|
|
| 138 |
|
|
| 703 |
|
|
| 398 |
|
|
| 205 |
|
|
| 97 |
|
Corporate/Eliminations |
|
| 195 |
|
|
| 75 |
|
|
| 439 |
|
|
| 341 |
|
|
| 85 |
|
|
| 100 |
|
Total Net Sales |
| $ | 201,065 |
|
| $ | 110,112 |
|
| $ | 401,084 |
|
| $ | 293,812 |
|
| $ | 137,060 |
|
| $ | 71,987 |
|
(25) | Contingencies |
The Company is currently, and has in the past, been a party to various routine legal proceedings incident to the ordinary course of business. If management determines, based on the underlying facts and circumstances of each matter, that it is probable a loss will result from a litigation contingency and the amount of the loss can be reasonably estimated, the estimated loss is accrued for. The Company does not believe that any current outstanding litigation matters will have a material adverse effect on the Company's financial statements, individually, or in the aggregate.
The products the Company sells are continually changing as a result of improved technology. As a result, although the Company and its suppliers attempt to avoid infringing known proprietary rights, the Company may be subject to legal proceedings and claims for alleged infringement by patent, trademark, or other intellectual property owners. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result
27
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
in costly litigation, divert management’s attention and resources, or require the Company to either enter into royalty or license agreements that are not advantageous to the Company, or pay material amounts of damages.
(26) | New Accounting Pronouncements |
Accounting Pronouncements Recently Adopted
In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2020. The amendments in ASU 2018-14 must be applied on a retrospective basis. The Company is currently assessing the effect, if any, thatadoption of ASU 2018-14 willdid not have a significant effect on the disclosures in itsthe Company’s consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This guidance is effective for fiscal years beginning after December 15, 2020. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effectadoption of this ASU No. 2019-12 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
30
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
In January 2020, the FASB issued ASU No. 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions by clarifying the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting under Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 todid not have a material impact on the Company’s consolidated financial statements.
Standards Issued Not Yet Adopted
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU No. 2021-01, “Reference Rate Reform: Scope,” respectively. Together, these ASU’s provide optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 provides, among other things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; modifications of contracts within the scope of Topic 840, Leases, should be accounted for as a continuation of the existing contract; and, changes in the critical terms of hedging relationships caused by reference rate reform should not result in the de-designation of the instrument, provided certain criteria are met. ASU 2021-01 clarifies the scope and application of ASU 2020-04 and among other things, permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows. The Company’s exposure to LIBOR rates includes its Credit Facility, as well as its Florida Mortgage and related interest swap agreement. The amendments are effective as of March 12, 2020 through December 31, 2022. Adoption is permitted at any time. The Company is currently evaluating the impact this update may have on its consolidated financial statements.statements.
28
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements, continued
(Amounts in thousands, except share and per share data)
(27) | Subsequent Events |
The Company evaluated subsequent events and transactions that occurred after the Unaudited Balance Sheet date of May 31, 2021 up to the issuance date of the Company’s Unaudited Consolidated Financial Statements. Except as disclosed in Note 2 related to the pending acquisition of Onkyo Home Entertainment Corporation, there have been no events that have occurred that would require adjustments to the disclosures in the Unaudited Consolidated Financial Statements. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain information in this Quarterly Report on Form 10-Q would constitute forward-looking statements, including, but not limited to, information relating to the future performance and financial condition of the Company, the impact of the COVID-19 pandemic on our results of operations, the plans and objectives of the Company’s management, and the Company’s assumptions regarding such performance and plans that are forward-looking in nature and involve certain risks and uncertainties. Actual results could differ materially from such forward-looking information and could be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result.
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") with an overview of the business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we discuss our results of operations for the three and nine months ended November 30, 2020May 31, 2021 compared to the three and nine months ended November 30, 2019.May 31, 2020. Next, we present EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per common share attributable to Voxx for the three and nine months ended November 30, 2020May 31, 2021 compared to the three and nine months ended November 30, 2019,May 31, 2020, in order to provide a useful and appropriate supplemental measure of our performance. We then provide an analysis of changes in our balance sheets and cash flows and discuss our financial commitments in the sections entitled "Liquidity and Capital Resources." We conclude this MD&A with a discussion of "Related Party Transactions" and "Recent Accounting Pronouncements."
Unless specifically indicated otherwise, all amounts presented in our MD&A below are in thousands, except share and per share data.
Business Overview
VOXX International Corporation ("Voxx," "We," "Our," "Us" or the "Company") is a leading international manufacturer and distributor operating in the Automotive Electronics, Consumer Electronics, and Biometrics industries. The Company has widely diversified interests, with more than 30 global brands that it has acquired and grown throughout the years, achieving a powerful international corporate image, and creating a vehicle for each of these respective brands to emerge with its own identity. We conduct our business through nineteen wholly-owned subsidiaries: Audiovox Atlanta Corp., VOXX Electronics Corporation, VOXX Accessories Corp., VOXX German Holdings GmbH ("Voxx Germany"), Audiovox Canada Limited, Voxx Hong Kong Ltd., Audiovox International Corp., Audiovox Mexico, S. de R.L. de C.V. ("Voxx Mexico"), Code Systems, Inc., Oehlbach Kabel GmbH ("Oehlbach"), Schwaiger GmbH ("Schwaiger"), Invision Automotive Systems, Inc. ("Invision"), Premium Audio Company LLC ("Klipsch"), Omega Research and Development, LLC ("Omega"), Voxx Automotive Corp., Audiovox Websales LLC, VSM-Rostra LLC (“VSM”), VOXX DEI LLC, and VOXX DEI Canada, Ltd. (collectively, with VOXX DEI, LLC, “DEI”), as well as a majority owned subsidiary, EyeLock LLC ("EyeLock"). We market our products under the Audiovox® brand name and other brand names and licensed brands, such as 808®, Acoustic Research®, Advent®, Avital®, Car Link®, Chapman®, Clifford®, Code-Alarm®, Crimestopper™, Directed®, Discwasher®, Energy®, Heco®, Invision®, Jamo®, Klipsch®, Mac Audio™, Magnat®, Mirage®, myris®, Oehlbach®, Omega®, Prestige®, Project Nursery®, Python®, RCA®, RCA Accessories, Rosen®, Rostra®, Schwaiger®, Smart Start®, Terk®, Vehicle Safety Automotive, Viper® and Voxx Automotive, as well as private labels through a large domestic and international distribution network. We also function as an OEM ("Original Equipment Manufacturer") supplier to several customers, as well as market a number of products under exclusive distribution agreements, such as SiriusXM satellite radio products and Onkyo & Pioneer Corp. products in North America.
COVID-19
During March 2020, a global pandemic was declared by the World Health Organization and a National Emergency was declared by the President of the United States related to the rapidly growing outbreak of COVID-19. The pandemic has significantly impacted economic conditions in the United States, as federal, state, and local governments have reacted to the public health crisis, creating significant uncertainties in the United States, as well as the global economy. In the interest of public health and safety, U.S. jurisdictions (national, state, and local) where our primary operations and those of many of our customers are located required mandatory business closures, capacity limitations, or other restrictions for those permitted to continue to operate or allowed to reopen since the initial shut-downs in March 2020. As of the date of this filing, all of our operating locations are open, with certain locations operating at reduced capacity.
As a result of these developments, the Company’s business has been impacted for the three and nine months ended November 30, 2020. Although the Company’s revenues have increased for the three and nine months ended November 30, 2020,May 31, 2021, as compared to the prior year periods, sales within certain product lines acrossperiod, the Company’s segments have been negatively affected. The situation is still rapidly changing and additional impacts to the business may arise that we are not
aware of currently, which could have an adverse impact on revenues, results of operations, and cash flows for the 20212022 fiscal year. We cannot predict whether, when, or the manner in which the conditions surrounding COVID-19 will change, including the timingultimate
duration and scope of lifting any restrictions and/the pandemic; the severity of the virus, including the emergence of new variants; the impact of the COVID-19 vaccines, including the speed at which they are disseminated and their effectiveness; the actions taken by governments to contain the virus or any subsequent re-impositions.treat its impact; and how quickly and to what extent normal economic and operating conditions can resume. Due to the evolving situation, future results of the Company could be impacted in ways we are not able to predict today, including, but not limited to, non-cash write-downs and impairments; foreign currency fluctuations; potential adjustments to the carrying value of inventory; and the delayed collections of, or inability to collect accounts receivables.
During April 2020, as a precautionary measure to ensure financial flexibility and maintain maximum liquidity in response to the COVID-19 pandemic, the Company borrowed $20,000 from its Credit Facility in the U.S. This $20,000 precautionary borrowing was repaid in November 2020. As of the date of this report, theThe Company continues to focus on cash flow and anticipates having sufficient resources to operate for the coming twelve-month period.
In addition,April 2021, the Company implemented a number of other measuresamended its Credit Facility in Fiscal 2021the U.S. in order to help mitigateincrease the operatingmaximum borrowing base under the facility and financial impactto extend the maturity date of the pandemic, including: (i) furloughing approximately 20% of its employees globally; (ii) implementing temporary salary and hour reductions for both management and non-management level employees Company-wide, including its executive officers, and the Company’s board of directors; (iii) executing substantial reductions in expenses, service provider costs, occupancy costs, capital expenditures and overall costs; and (iv) working globally with management teamsCredit Facility to actively explore and identify all eligible government and other initiatives available to businesses or employees impacted by the COVID-19 pandemic. As of our filing date, less than 1% of our employees worldwide remain on furlough. The above-referenced temporary salary and hour reductions were eliminated by the Company during the three months ended November 30, 2020.April 2026 (see Note 17(a)).
Reportable Segments
The Company operates in three reportable segments based on our products and internal organizational structure. The operating segments consist of Automotive Electronics, Consumer Electronics, and Biometrics. See Note 23 to the Company's Consolidated Financial Statements for segment information.
Products included in these segments are as follows:
Automotive Electronics products include:
| ▪ | mobile multi-media |
| ▪ | automotive security, vehicle access, and remote start |
|
|
| ▪ | satellite radios, including plug and play models, and direct connect |
| ▪ | smart phone telematics |
| ▪ | mobile interface |
| ▪ | automotive power |
| ▪ | rear observation and collision avoidance |
| ▪ | driver distraction |
| ▪ | power lift |
| ▪ | turn signal |
| ▪ | automotive lighting |
| ▪ | automotive sensing and camera |
| ▪ | USB |
| ▪ | cruise control |
| ▪ | heated seats. |
Consumer Electronics products include:
| ▪ | premium |
| ▪ | architectural |
| ▪ | commercial |
| ▪ | outdoor |
|
|
| ▪ | wireless and Bluetooth |
| ▪ | home theater |
| ▪ | business music |
| ▪ | streaming music |
| ▪ | on-ear and in-ear |
| ▪ | wired and wireless |
| ▪ |
|
▪ | Soundbars; |
| ▪ | DLNA (Digital Living Network Alliance) compatible |
| ▪ | High-Definition Television ("HDTV") |
| ▪ | Wireless Fidelity ("WiFi") |
| ▪ | High-Definition Multimedia Interface ("HDMI") |
| ▪ | home electronic accessories such as cabling, power cords, and other connectivity |
| ▪ | performance enhancing |
| ▪ | TV universal |
| ▪ | flat panel TV mounting |
| ▪ | karaoke |
| ▪ | infant/nursery |
|
|
|
|
| ▪ | power supply systems and charging |
| ▪ | electronic equipment cleaning |
| ▪ | personal sound |
| ▪ | set-top |
| ▪ | home and portable |
|
|
Biometrics products include:
| ▪ | iris identification products, and |
| ▪ | biometric security related products. |
We believe our segments have expanding market opportunities with certain levels of volatility related to domestic and international markets, new car sales, increased competition by manufacturers, private labels, technological advancements, discretionary consumer spending and general economic conditions. All of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future. Macroeconomic factors, such as increases in the unemployment rate, have been pressured as a result of the COVID-19 stay at home orderspandemic and have created a challenging demand environment in some of our markets, the duration and severity of which we are still unable to predict.
Our objective is to continue to grow our business by acquiring new brands, embracing new technologies, expanding product development, and applying this to a continued stream of new products that should increase gross margins and improve operating income. In addition, it is our intention to continue to acquire synergistic companies that would allow us to leverage our overhead, penetrate new markets and expand existing product categories through our business channels. Notwithstanding the above, if the appropriate opportunity arises, the Company will explore the potential divestiture of a product line or business.
Acquisitions and Dispositions
On July 1, 2020, the Company completed the acquisition of certain assets and liabilities, which comprise the aftermarket vehicle remote start and security systems and connected car solutions (telematics) business from Directed LLC and Directed Electronics Canada Inc. (collectively, with Directed LLC, “Directed”) (see Note 2).
On January 31, 2020, the Company acquired certain assets and liabilities of Vehicle Safety Holdings Corp. (“VSHC”) (see Note 2).
Critical Accounting Policies and Estimates
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; accrued sales incentives; expected credit losses on accounts receivable; inventory valuation; valuation of long-lived assets; valuation and impairment assessment of goodwill, trademarks, and other intangible assets; warranties; stock-based compensation; recoverability of deferred tax assets; and the reserve for uncertain tax positions at the date of the consolidated financial statements. A summary of the Company's critical accounting policies is identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the fiscal year ended February 29, 2020.28, 2021. During the fourth quarter of the Company’s 2020 fiscal year, as well as subsequent to February 29, 2020,Fiscal 2021, there have beenwere significant changes to the global economic situation as a consequence of the COVID-19 pandemic.pandemic that could continue during Fiscal 2022. It is possible that this could cause changes to estimates in the future as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment. Since February 29, 2020,28, 2021, there have been no changes in our critical accounting policies, with the exception of the Company’s adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on March 1, 2020.policies.
Results of Operations
As you read this discussion and analysis, refer to the accompanying Unaudited Consolidated Statements of Operations and Comprehensive Income, (Loss), which present the results of our operations for the three and nine months ended November 30, 2020May 31, 2021 and 2019.2020.
The following tables set forth, for the periods indicated, certain statements of operations data for the three and nine months ended November 30, 2020May 31, 2021 and 2019.2020.
Net Sales
|
| November 30, |
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|
| May 31, |
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|
| 2020 |
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| 2019 |
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| $ Change |
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| % Change |
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| 2021 |
|
| 2020 |
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| $ Change |
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| % Change |
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Three Months Ended |
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Automotive Electronics |
| $ | 61,488 |
|
| $ | 29,985 |
|
| $ | 31,503 |
|
|
| 105.1 | % |
| $ | 42,657 |
|
| $ | 17,276 |
|
| $ | 25,381 |
|
|
| 146.9 | % |
Consumer Electronics |
|
| 139,039 |
|
|
| 79,914 |
|
|
| 59,125 |
|
|
| 74.0 | % |
|
| 94,113 |
|
|
| 54,514 |
|
|
| 39,599 |
|
|
| 72.6 | % |
Biometrics |
|
| 343 |
|
|
| 138 |
|
|
| 205 |
|
|
| 148.6 | % |
|
| 205 |
|
|
| 97 |
|
|
| 108 |
|
|
| 111.3 | % |
Corporate |
|
| 195 |
|
|
| 75 |
|
|
| 120 |
|
|
| 160.0 | % |
|
| 85 |
|
|
| 100 |
|
|
| (15 | ) |
|
| (15.0 | )% |
Total net sales |
| $ | 201,065 |
|
| $ | 110,112 |
|
| $ | 90,953 |
|
|
| 82.6 | % |
| $ | 137,060 |
|
| $ | 71,987 |
|
| $ | 65,073 |
|
|
| 90.4 | % |
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Nine Months Ended |
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Automotive Electronics |
| $ | 111,397 |
|
| $ | 86,472 |
|
| $ | 24,925 |
|
|
| 28.8 | % | ||||||||||||||||
Consumer Electronics |
|
| 288,545 |
|
|
| 206,601 |
|
|
| 81,944 |
|
|
| 39.7 | % | ||||||||||||||||
Biometrics |
|
| 703 |
|
|
| 398 |
|
|
| 305 |
|
|
| 76.6 | % | ||||||||||||||||
Corporate |
|
| 439 |
|
|
| 341 |
|
|
| 98 |
|
|
| 28.7 | % | ||||||||||||||||
Total net sales |
| $ | 401,084 |
|
| $ | 293,812 |
|
| $ | 107,272 |
|
|
| 36.5 | % |
Automotive Electronics sales represented 30.6% and 27.8%31.1% of the net sales for the three and nine months ended November 30, 2020, respectively,May 31, 2021, compared to 27.2% and 29.4%24.0% in the respective prior year periods. Sales in this segmentperiod and increased during both$25,381 for the three and nine months ended November 30, 2020,May 31, 2021, as compared to three months ended May 31, 2020. One of the prior year periods. The primary driverdrivers of sales increases in this segment for both periods werewas sales of OEM and aftermarket products related to the Company’s VSM and DEI subsidiaries,subsidiary, established in connection with the Company’s acquisitionsacquisition in the fourth quarter of Fiscal 2020 and the second quarter of Fiscal 2021, respectively.2021. Sales from these two new subsidiariesDEI totaled approximately $12,100 during the three months ended May 31, 2021, and comprised approximately 49% and 41%28% of the segment’s sales for the quarter. These sales were not present during the three and nine months ended November 30, 2020, respectively, neitherMay 31, 2020. The Company’s OEM rear seat entertainment sales increased approximately $5,300 during the three months ended May 31, 2021, primarily as a result of which was present in the rebound from prior year periods. The Company also saw an increase inCOVID-19 shut-downs, as several automotive manufacturing plants were not operating during the first quarter of Fiscal 2021, including Ford, GM, Stellantis (FCA), and Subaru, as well as due to the start of a new rear seat entertainment program. Sales of OEM automotive safety electronics increased approximately $3,200 both as a result of rebounding sales following the COVID-19 shut-downs of itsautomotive manufacturers, and due to backordered sales from the fourth quarter of Fiscal 2021 that that were fulfilled during the three months ended May 31, 2021. In addition, the Company’s aftermarket security products, which include aftermarket remote starts; aftermarket rear seat entertainment products; and satellite radio products increased by approximately $2,200, $1,800, and $1,000, respectively, for the three months ended May 31, 2021. All of these increases were due to rebounding sales following brick and mortar business re-openings following the COVID-19 pandemic restrictions, which were in effect during the three months ended May 31, 2020, as well as increased demand experienced for certain aftermarket security products. As an offset to these increases, the Company experienced a decrease in OEM remote start products during the three and nine months ended November 30, 2020, respectively, partly due to a boost in demand following business re-openings after the COVID-19 shut-downs, as purchases could not be made by customers during the shut-downs. During the three months ended November 30, 2020, there was an increase in salesMay 31, 2021 of the Company’s OEM rear seat entertainment products due to a pick-up in sales following the shut-downs, as well as due to the successful launch of a new program with one of its customers in October 2020. Offsetting these increases, the segment experienced sales declines in certain product lines during the three and nine months ended November 30, 2020 related to the COVID-19 pandemic, as well as certain other factors. The Company’s OEM remote start sales decreased during both the three and nine months ended November 30, 2020approximately $400, primarily as a result of an increase in the use of Tier 1 factory installed remote start products by many automotive manufacturers (which the Company does not sell) over accessory level remote starts. This hasglobal semi-conductor shortages which have negatively impactedaffecting the Company’s salesability to fulfill certain of its OEM remote start customers. Sales of aftermarket headrest products also decreased during the three and nine months ended November 30, 2020 due to the COVID-19 related shut-downs of car dealerships and other brick and mortar businesses during the first quarter of the year, followed by stock-outages of several products in the third quarter, which continued to negatively impact sales. For the nine months ended November 30, 2020, the Company experienced a decrease in sales of OEM rear seat entertainment products due to several automotive manufacturing plant shut-downs beginning in March 2020 as a result of COVID-19, including Ford, GM, FCA, and Subaru. Many plants began to gradually re-open during the second quarter of our fiscal year, and while some of the programs have begun to ramp up production again, others have yet to return to pre-COVID levels, thus negatively impacting sales for the year-to-date period. Additionally, OEM rear seat entertainment sales were negatively impacted during the nine months ended November 30, 2020 by the cancellation of a program with one of the Company’s larger customers that had been in production during the prior year period.orders.
Consumer Electronics sales represented 69.2% and 71.9%68.7% of our net sales for the three and nine months ended November 30, 2020, respectively,May 31, 2021, compared to 72.6% and 70.3%75.7% in the comparable prior year periods. Salesperiod and increased $39,599 for the three and nine months ended November 30, 2020May 31, 2021, as compared to the prior year due primarily to the positive sales and promotion of several of the Company’s premium audio products. During both the three and nine months ended November 30, 2020, theMay 31, 2020. The Company experienced greatercontinues to experience high consumer demand and has achieved market share growth in its domestic premium home theater, subwoofer, and subwooferpremium wireless categories, and launchedlaunching a new premium wireless computer speaker system whichand other new Bluetooth speakers during the second quarter of Fiscal 2021, and began selling many of its products through warehouse club channels. Additionally, the lifting of many of the COVID-19 restrictions that were in place during the three months ended May 31, 2020 has also contributed positively to sales in both periods and was not available in the prior fiscal year. The Company also experienced increased salessale of premium mobilitythese products due to the discounting of older wireless ear buds in preparation for the launch of new product. Sales of hookup products increased during the three and nine months ended November 30, 2020 due toMay 31, 2021, which resulted in a total sales increase of approximately $28,900 for the large number of individuals working from home as a result of the COVID-19 pandemic, which caused an increase in demand for cabling and other hookup related products. Within Europe, the Company experienced stronger online sales during the three and nine months ended November 30, 2020 due to many consumers shopping from home during the pandemic, as well as an increase in sales in its Do It Yourself (“DIY”) line of products, a new sales channel of discount retailers, and a shift in focus of premium audio products
in Europe from low margin to traditional home theater products, which has contributed positively to sales. Additionally, during the three and nine months ended November 30, 2020, thequarter. The Company’s newly formed subsidiary, 11 Trading Company LLC subsidiary, which was established during the second quarter of Fiscal 2021 and began selling Onkyo and Pioneer products through new distribution agreements. Offsetting these sales increases were decreasesagreements during the third quarter of Fiscal 2021, contributed to an increase of approximately $6,400 in sales related tofor the COVID-19 pandemic, as well as other factors.three months ended May 31, 2021. These sales were not present for the three months ended May 31, 2020. The Company also experienced decreasesincreases in sales of approximately $2,300 related to certain other consumer electronic and accessory products for the three months ended May 31, 2021, such as receptionwireless speakers, remotes, karaoke products, and wireless speakers, primarilynursery products, due to the rebound in sales following nationwide COVID-19 brick and mortar business closures related to the COVID-19 pandemic,and delayed customer orders due toduring the pandemic,three months ended May 31, 2020, as well as due to the Company’s continuing rationalization of SKU’slimited inventory for certain nursery products in the prior year. Within Europe, the Company experienced increases in both premium and other consumer accessory products of approximately $1,400 as a result of the lifting of many COVID-19 restrictions and the re-opening of brick-and-mortar businesses where these products withare sold, as well as continued strong sales from online platforms. Finally, the goal of limitingCompany experienced increases in sales of lower margin products. Forpremium mobility products of approximately $1,100 for the three and nine months ended November 30, 2020, there was alsoMay 31, 2021, as a result of both the re-opening of brick-and-mortar businesses due to COVID-19 restrictions lifting, and the launch of new wireless earbud products in the fourth quarter of Fiscal 2021. Offsetting these increases, the Company experienced a decrease in sales of hook-up products of approximately $600 during the Company’s premium commercial speakerthree months ended May 31, 2021, as these products saw a large increase in sales during the three months ended May 31, 2020 due to the shut-downsignificant number of cinemaspeople working from home during the COVID-19 pandemic. Additionally, oneDuring the first quarter of the Company’s healthcare programs ended in September 2020, resulting in a decrease inFiscal 2022, sales of its motionthese products for both the three and nine months ended November 30, 2020. For the nine months ended November 30, 2020, sales of the Company’s smart home products decreased, as the Company began exiting this category during Fiscal 2020.have normalized.
Biometrics sales represented 0.2%0.1% of our net sales for both the three and nine months ended November 30, 2020, compared to 0.1% in both of the respective prior year periods.May 31, 2021 and 2020. Sales during the three and nine months ended November 30, 2020May 31, 2021 increased $108 compared to the prior year periodsperiod due primarily to an increase in sales of its EXT outdoor perimeter access
NIXT product, and the updated version of its Nano NXT perimeter access product, both of which launched in the second quarter of Fiscal 2020. Additionally, the Company began selling itsduring the second half of Fiscal 2021. The NIXT product during the three months ended November 30, 2020, which can be optionally fitted with iTEMP, a product that can take an individual’s temperature before allowing iris access.
Gross Profit and Gross Margin Percentage
|
| November 30, |
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| May 31, |
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| 2020 |
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| 2019 |
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| $ Change |
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| % Change |
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| 2021 |
|
| 2020 |
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| $ Change |
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| % Change |
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Three Months Ended |
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Automotive Electronics |
| $ | 15,777 |
|
| $ | 6,023 |
|
| $ | 9,754 |
|
|
| 161.9 | % |
| $ | 11,522 |
|
| $ | 3,056 |
|
| $ | 8,466 |
|
|
| 277.0 | % |
|
|
| 25.7 | % |
|
| 20.1 | % |
|
|
|
|
|
|
|
|
|
| 27.0 | % |
|
| 17.7 | % |
|
|
|
|
|
|
|
|
Consumer Electronics |
|
| 42,109 |
|
|
| 25,627 |
|
|
| 16,482 |
|
|
| 64.3 | % |
|
| 25,052 |
|
|
| 16,844 |
|
|
| 8,208 |
|
|
| 48.7 | % |
|
|
| 30.3 | % |
|
| 32.1 | % |
|
|
|
|
|
|
|
|
|
| 26.6 | % |
|
| 30.9 | % |
|
|
|
|
|
|
|
|
Biometrics |
|
| 50 |
|
|
| (39 | ) |
|
| 89 |
|
|
| 228.2 | % |
|
| 40 |
|
|
| (22 | ) |
|
| 62 |
|
|
| 281.8 | % |
|
|
| 14.6 | % |
|
| (28.3 | )% |
|
|
|
|
|
|
|
|
|
| 19.5 | % |
|
| -22.7 | % |
|
|
|
|
|
|
|
|
Corporate |
|
| 192 |
|
|
| (147 | ) |
|
| 339 |
|
|
| 230.6 | % |
|
| 81 |
|
|
| 98 |
|
|
| (17 | ) |
|
| (17.3 | )% |
|
| $ | 58,128 |
|
| $ | 31,464 |
|
| $ | 26,664 |
|
|
| 84.7 | % |
| $ | 36,695 |
|
| $ | 19,976 |
|
| $ | 16,719 |
|
|
| 83.7 | % |
|
|
| 28.9 | % |
|
| 28.6 | % |
|
|
|
|
|
|
|
|
|
| 26.8 | % |
|
| 27.7 | % |
|
|
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Nine Months Ended |
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Automotive Electronics |
| $ | 25,555 |
|
| $ | 18,228 |
|
| $ | 7,327 |
|
|
| 40.2 | % | ||||||||||||||||
|
|
| 22.9 | % |
|
| 21.1 | % |
|
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|
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| ||||||||||||||||
Consumer Electronics |
|
| 90,166 |
|
|
| 63,040 |
|
|
| 27,126 |
|
|
| 43.0 | % | ||||||||||||||||
|
|
| 31.2 | % |
|
| 30.5 | % |
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|
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| ||||||||||||||||
Biometrics |
|
| 28 |
|
|
| 13 |
|
|
| 15 |
|
|
| 115.4 | % | ||||||||||||||||
|
|
| 4.0 | % |
|
| 3.3 | % |
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|
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|
|
|
|
| ||||||||||||||||
Corporate |
|
| 430 |
|
|
| (39 | ) |
|
| 469 |
|
|
| 1202.6 | % | ||||||||||||||||
|
| $ | 116,179 |
|
| $ | 81,242 |
|
| $ | 34,937 |
|
|
| 43.0 | % | ||||||||||||||||
|
|
| 29.0 | % |
|
| 27.7 | % |
|
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|
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|
Gross margin percentages for the Company have increased 30 and 130decreased 90 basis points for the three and nine months ended November 30, 2020, respectively,May 31, 2021, as compared to the three and nine months ended November 30, 2019.May 31, 2020.
Gross margin percentages in the Automotive Electronics segment increased 560 and 180930 basis points for the three and nine months ended November 30, 2020, respectively,May 31, 2021, as compared to the prior year periods.period. The primary driver of the margin increases in this segment has been sales of OEM and aftermarket products related to the Company’s VSM and DEI subsidiaries,subsidiary, whose products have higher profit margins than those typically achieved by the segment, and whose sales were not present in the prior year periods.period. The increase in sales of higherhigh margin OEM automotive safety electronics, as well as rebounding sales of OEM rear seat entertainment, aftermarket remote startsecurity, and securityaftermarket rear seat entertainment products following the COVID-19 pandemic shut-downs also contributed positively to the segment’s margins during the three and nine months ended November 30, 2020, and for the three months ended November 30, 2020, an increase in sales of the Company’s OEM rear seat entertainment products positively impacted margins for the segment.May 31, 2021. Offsetting these positive impacts, the decline in sales of higherhigh margin OEM security and remote start products during the three and nine months ended November 30, 2020 due to the shiftMay 31, 2021 resulted in demand from accessory level remote starts to production level, factory installed remote starts caused a decline in margins in both periods.negative impact on margins. In addition,
although there was a declinean increase in aftermarket headrestsatellite radio sales duringfor the three and nine months ended November 30, 2020, which typically generate higherMay 31, 2021, the low margins generated by these product sales did not result in a positive impact on margins for the segment and thus negatively impacted margins for both periods.period.
Gross margin percentages in the Consumer Electronics segment decreased 180430 basis points for the three months ended November 30, 2020, but increased 70 basis points for the nine months ended November 30, 2020May 31, 2021 as compared to the prior year periods.period. Margin declines during the three and nine months ended November 30, 2020May 31, 2021 were primarily driven by the Company’s newest line of premium wireless computer speakers, as well as other premium audio products sold through warehouse club channels, which have contributed positively to sales, but have been sold at lower margins than those typically associated with the Company’s premium wireless speakeraudio products. The Company also offered additional discounts on some of these products particularlyduring the first quarter of the fiscal year following the holidays and incurred increased shipping costs due to surcharges related to container shortages and port delays, which negatively impacted margins. The Company’s premium headphone margins also declined during the three months ended November 30, 2020 as a result of holiday promotions. The Company’s premium headphone margins have also been negatively impacted in the three and nine months ended November 30, 2020May 31, 2021 due to close out sales ofpost holiday discounts on certain older products at lower margins in preparation for the launch of its newest line of wireless earbuds.and increased shipping costs and surcharges related to container shortages and port delays. Additionally, although sales in Europe have increasedfrom the Company’s 11 Trading Company subsidiary positively impacted the Company’s revenue, as they were not present in the three and nine months ended November 30, 2020,prior year, the increase in sales generated from a new sales channel of discount retail customers has generatedmargins earned for these premium audio products are lower margins and had a negative impact on both periods.than those typically earned for similar products within the segment. As an offset to these negative impacts,margin declines, the segment has experienced increasesincrease in margins during both the three and nine months ended November 30, 2020 due to factors including the increased sales of the Company’s high margin premium home theater speaker products,in Europe, as well as anthe increase in sales of hookup products in both periods. In Europe, a shift in focus of premium audio products from low margin to traditional home theater products, as well as less discounting of product,other consumer accessory wireless speakers during the three months ended May 31, 2021 contributed positively to both sales and overall margins related to this product line. Additionally, while the Company experienced decreases in sales of certain product lines during the three and nine months ended November 30, 2020, such as reception products and remotes, the margins earned on these products improved during both periods as compared to the prior year, due to the movement of production out of China. Finally, sales within the Company’s newly formed subsidiary, 11 Trading Company LLC, which began selling Onkyo and Pioneer products through new distribution agreements during the three and nine months ended November 30, 2020, has contributed positively to margins in both periods.segment’s margins.
Gross margin percentages in the Biometrics segment improved in bothfor the three and nine months ended November 30, 2020May 31, 2021 as compared to the respective prior year periods.period. The increase in margins for the three and nine months ended November 30, 2020May 31, 2021 was primarily a result of prior year events that negatively impacted the segment’s marginsincrease in Fiscal 2020. Certain tooling and defective repair costs incurred insales for the three and nine months ended November 30, 2019, as wellquarter, as the provision of beta samples to certain customers at no cost duringCompany’s NIXT product has generated high margins for the prior year periods, negatively impacted margins in the prior fiscal year. A large sale made at a loss during the nine months ended November 30, 2019 also caused lower marginssegment. Additionally, in the prior year, to date period. In the current year, the Company provided more onsite and remote support to customers during the three and nine months ended November 30, 2020, which generates higher margins for the segment. Offsetting these positive margin impacts for the three and nine months ended November 30, 2020 has been the reduction inreduced pricing on certain products, which has helped to drive highergenerate sales, in Fiscal 2021, but has resulted in lower margins for the segment. Additionally, the release of inventory reserves in the comparable prior year periods had a positive impact on the segment’s gross margin for the prior year, thus negatively impacting the current year margin comparisons.
Operating Expenses
|
| November 30, |
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| May 31, |
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| 2020 |
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| 2019 |
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| $ Change |
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| % Change |
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| 2021 |
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| 2020 |
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| $ Change |
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| % Change |
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Three Months Ended |
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Operating expenses: |
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Selling |
| $ | 12,761 |
|
| $ | 9,580 |
|
| $ | 3,181 |
|
|
| 33.2 | % |
| $ | 11,467 |
|
| $ | 8,567 |
|
| $ | 2,900 |
|
|
| 33.9 | % |
General and administrative |
|
| 21,128 |
|
|
| 16,689 |
|
|
| 4,439 |
|
|
| 26.6 | % |
|
| 19,352 |
|
|
| 14,995 |
|
|
| 4,357 |
|
|
| 29.1 | % |
Engineering and technical support |
|
| 5,676 |
|
|
| 5,059 |
|
|
| 617 |
|
|
| 12.2 | % |
|
| 6,232 |
|
|
| 4,485 |
|
|
| 1,747 |
|
|
| 39.0 | % |
Total operating expenses |
| $ | 39,565 |
|
| $ | 31,328 |
|
| $ | 8,237 |
|
|
| 26.3 | % |
| $ | 37,051 |
|
| $ | 28,047 |
|
| $ | 9,004 |
|
|
| 32.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Selling |
| $ | 30,190 |
|
| $ | 28,162 |
|
| $ | 2,028 |
|
|
| 7.2 | % | ||||||||||||||||
General and administrative |
|
| 51,668 |
|
|
| 51,896 |
|
|
| (228 | ) |
|
| (0.4 | )% | ||||||||||||||||
Engineering and technical support |
|
| 14,942 |
|
|
| 15,901 |
|
|
| (959 | ) |
|
| (6.0 | )% | ||||||||||||||||
Total operating expenses |
| $ | 96,800 |
|
| $ | 95,959 |
|
| $ | 841 |
|
|
| 0.9 | % |
Total operating expenses have increased $9,004 for the three and nine months ended November 30, 2020May 31, 2021 as compared with the prior year periods.period.
For both the three and nine months ended November 30, 2020, the Company experienced a net increase in selling expenses. Increases inMay 31, 2021, selling expenses werehave increased $2,900. This increase was primarily attributable to increases inhigher salary and commission expenseexpenses during both the three and nine months ended November 30, 2020May 31, 2021, as a result of higher sales.compared to the prior year. Salary expense alsoand related payroll taxes increased forapproximately $1,600 due primarily to the threeabsence of COVID-19 related furloughs and nine months ended November 30, 2020salary and bonus reductions that were present in the comparable prior year period, as well as due to the additional headcount created by acquisitionsthe July 2020 acquisition resulting in the establishment of the VSMCompany’s DEI subsidiary and DEI subsidiariesnew hires related to the 11 Trading Company subsidiary in the fourth quarter of Fiscal 2020 and the second quarter of Fiscal 2021. Commission expense increased approximately $1,200 as a result of the increase in the Company’s sales for the three months ended May 31, 2021, respectively,as compared to the prior year. Advertising expenses and web fees increased approximately $900 for the three months ended May 31, 2021, due to new product displays being used at customer sites, as well as additional hires related to the Company’s distribution agreements for Onkyo and Pioneer products. While advertising expense decreased for the nine months ended November 30, 2020 due to the COVID-19 pandemic closure and phased re-opening of many brick and mortar stores during the year,increased web advertising expenses increased in both periods dueresponse to higher online traffic and sales. Additionally, the Company experienced an increase in online traffic, with many consumers working and shopping from homecredit card fees of approximately $300 during the mandatory quarantines and business shut-downs throughoutthree months ended May 31, 2021, due primarily to sales generated by the country.Company’s new DEI subsidiary, as its telematic subscription sales are paid by customers through credit card transactions. Offsetting these increases in selling expenses for the three and nine months ended November 30, 2020, were decreasesMay 31, 2021, was a decrease in trade show expenses of approximately $1,000 as all trade shows have continued to be either cancelled or held virtually due to factors related to the COVID-19 pandemic, which resulted in the temporary shut-down of many brickpandemic.
General and mortar stores and mandatory quarantine ordersadministrative expenses increased $4,357 during the first quarter of our Fiscal 2021 year, with phased re-openings taking place beginning in the second quarter. Company-wide furloughs and pay reductions at all levels, as well as the elimination of all non-essential travel, resulted in a decrease in salary and travel and entertainment expenses for the nine months ended November 30, 2020. Pay reductions and most of the Company’s furloughs ended in the third quarter of Fiscal 2021; however, non-essential travel was still limited through November 30, 2020, affecting both periods. Additionally, trade show expenses decreased for both the three and nine months ended November 30, 2020 as a result of the cancellation of all events year-to-date due to COVID-19.
For the three months ended November 30, 2020, there was a net increase in general and administrative expenses, while there was a net decrease during the nine months ended November 30, 2020May 31, 2021, as compared to the respective prior year periods. Increases to general and administrative expenses during bothperiod. Professional fees increased approximately $2,600 for the three and nine months ended November 30, 2020 werequarter due primarily to salary expenseconsulting and professional fees. Increases in salary expense were due diligence fees related to higher bonus accruals forthe asset purchase agreement signed with Onkyo Home Entertainment Corporation during the three and nine months ended November 30, 2020 as a result ofMay 31, 2021 and the positive performance ofjoint venture the Company. ProfessionalCompany is creating with Sharp Corporation to complete the transaction, increased litigation fees, were higher for both periods asconsulting fees related to the result of ongoing acquisition-related services provided in connectionEyeLock distribution agreement with GalvanEyes LLC signed during the three months ended May 31, 2021 and subject to stockholder approval at the Company’s new DEI and VSM subsidiaries,July 29, 2021 Annual Meeting of Stockholders, as well as due to a stock grant awardedlegal and professional fees related to the Company’s non-employee directors during the third quarter of Fiscal 2021. During the nine months ended November 30, 2020, insurance expense increased as a result of the deductible related to an IT security incidentnewest DEI and 11 Trading Company subsidiaries established in the second quarter of Fiscal 2021. Professional fees were also higher during the fiscalthree months ended May 31, 2021, due to the lifting of many COVID-19 related restrictions, as both the Company and many of its professional service providers had temporary office closures during the three months ended May 31, 2020. Salary expense increased approximately $1,100 during the three months ended May 31, 2021, due to the absence of COVID-19 related furloughs and salary and bonus reductions that were present in the comparable prior year as well as dueperiod. Additionally, the Company’s occupancy expense and depreciation and amortization expense increased approximately $200 and $300, respectively, during the three months ended May 31, 2021, primarily related to the Company’s new VSM, DEI and 11 Trading Company LLC subsidiaries. As an offset to these general and administrative expense increases were decreases related to the COVID-19 pandemic, as well as other factors. Office and occupancy expenses decreased for both the three and nine months ended November 30, 2020 due to lower overhead, as certain of the Company’s offices were shut down during the first and second quarters of the fiscal yearsubsidiary, due to the COVID-19 pandemic,acquired assets and most re-opened offices have remained at a reduced capacity through November 30, 2020. Bad debt expense decreased for the three and nine months ended November 30, 2020 as a result of the recovery of certain receivable balances that were previously written off. Depreciation and amortization expense also decreased, net, for the three and nine months ended November 30, 2020 as a result of the impairment of certain definite-lived intangible assets at EyeLock in the fourth quarter of Fiscal 2020, which reduced the amortizable base of these assets. This was offset by increases inoffice space required. Increases to depreciation and amortization expense related to newly acquired tangible and intangiblewere offset by Company assets within the VSM and DEI subsidiaries. Additionally, while the Company experienced a net increase in salary expensethat were fully depreciated or amortized during both the three and nine months ended November 30, 2020, Company-wide furloughs and pay reductions at all levels dueMay 31, 2021, as compared to the pandemic, as well as the elimination of non-essential travel, resulted in salary and travel and entertainment expense decreases during the nine months ended November 30, 2020. Pay reductions and most of the Company’s furloughs ended in the third quarter of Fiscal 2021; however, non-essential travel was still limited through November 30, 2020. Finally, during the second quarter of Fiscal 2020, the Company granted 200,000 fully vested shares of Class A Common Stock to the Company’s Chief Executive Officer in accordance with his employment agreement, resulting in compensation expense of approximately $800 for the nine months ended November 30, 2019 that did not repeat in the current fiscalprior year.
Engineering and technical support expenses increased $1,747 for the three months ended November 30, 2020 and decreased for the nine months ended November 30, 2020May 31, 2021, as compared to the respective prior year periods. Thereperiod. The Company experienced a net increase in direct labor and related payroll tax expense of approximately $1,300 primarily as a result of additional headcount created by the July 2020 acquisition resulting in the establishment of the Company’s DEI subsidiary, as well as due to the reimbursement of engineering labor expense incurred in prior periods, and the absence of Company-wide furloughs and pay reductions related to COVID-19 that were increases in salary expenseplace during both the three and nine months ended November 30, 2020 drivenMay 31, 2020. This was offset by additionallower utilization of outside services and a post-acquisition headcount and labor related toadjustment at the Company’s new VSM and DEI subsidiaries establishedsubsidiary. There was also a net increase in connection with the Company’s acquisitions in the fourth quarter of Fiscal 2020 and second quarter of Fiscal 2021, respectively. Researchresearch and development expense increasedof approximately $500 for the three months ended November 30, 2020 due toMay 31, 2021, as a result of the timingstart of new product launches compared to the prior year. For the nine months ended November 30, 2020, Company-wide furloughs and pay reductions at all levels, as well as the elimination of non-essential travel, contributed to decreases in salary and travel and entertainment expense. Pay reductions and most of the Company’s furloughs endeddevelopment projects in the third quarterAutomotive Electronics segment and headcount increases within the Biometrics segment, offset by the delay of Fiscal 2021; however, non-essential travel was still limited through November 30, 2020, affecting both periods.certain soundbar and headphone launches in Consumer Electronics.
Other (Expense) Income
|
| November 30, |
|
|
|
|
|
|
|
|
|
| May 31, |
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and bank charges |
| $ | (471 | ) |
| $ | (751 | ) |
| $ | 280 |
|
|
| 37.3 | % |
| $ | (528 | ) |
| $ | (799 | ) |
| $ | 271 |
|
|
| 33.9 | % |
Equity in income of equity investee |
|
| 1,761 |
|
|
| 967 |
|
|
| 794 |
|
|
| 82.1 | % |
|
| 2,723 |
|
|
| 862 |
|
|
| 1,861 |
|
|
| 215.9 | % |
Gain on sale of real property |
|
| — |
|
|
| 4,057 |
|
|
| (4,057 | ) |
|
| (100.0 | )% | ||||||||||||||||
Investment gain |
|
| 42 |
|
|
| — |
|
|
| 42 |
|
|
| 100.0 | % | ||||||||||||||||
Other, net |
|
| (121 | ) |
|
| (322 | ) |
|
| 201 |
|
|
| 62.4 | % |
|
| 442 |
|
|
| 685 |
|
|
| (243 | ) |
|
| (35.5 | )% |
Total other income |
| $ | 1,211 |
|
| $ | 3,951 |
|
| $ | (2,740 | ) |
|
| (69.3 | )% |
| $ | 2,637 |
|
| $ | 748 |
|
| $ | 1,889 |
|
|
| 252.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest and bank charges |
| $ | (2,334 | ) |
| $ | (2,635 | ) |
| $ | 301 |
|
|
| 11.4 | % | ||||||||||||||||
Equity in income of equity investee |
|
| 4,506 |
|
|
| 3,672 |
|
|
| 834 |
|
|
| 22.7 | % | ||||||||||||||||
Gain on sale of real property |
|
| — |
|
|
| 4,057 |
|
|
| (4,057 | ) |
|
| (100.0 | )% | ||||||||||||||||
Investment gain |
|
| 42 |
|
|
| 775 |
|
|
| (733 | ) |
|
| (94.6 | )% | ||||||||||||||||
Other, net |
|
| 21 |
|
|
| 1,869 |
|
|
| (1,848 | ) |
|
| (98.9 | )% | ||||||||||||||||
Total other income |
| $ | 2,235 |
|
| $ | 7,738 |
|
| $ | (5,503 | ) |
|
| (71.1 | )% |
Interest and bank charges represent interest expense and fees related to the Company's bank obligations, supply chain financing agreements and factoring agreements, interest related to finance leases, and amortization of debt issuance costs. For the three months ended May 31, 2021, interest expense was lower due primarily to the amendment of the Company’s Credit Facility on April 19, 2021, which resulted in a decrease in amortization of debt issuance costs and credit card fees. Forof $123 for the three and nine months ended November 30,May 31, 2021. In addition, during the three months ended May 31, 2020, the Company made a precautionary borrowing from the Credit Facility of $20,000 related to COVID-19 pandemic concerns. This balance was repaid during the third quarter of Fiscal 2021 and there was no balance outstanding at May 31, 2021. This resulted in a decrease in interest expense was lower duerelated to reduced factoring and supply chain financing fees. While the Company sold a larger balanceCredit Facility of customer accounts receivable during these periodsapproximately $75 for the three months ended May 31, 2021, as compared to the prior year, the related fees charged have been lower in Fiscal 2021.year.
Equity in income of equity investee represents the Company's share of income from its 50% non-controlling ownership interest in ASA Electronics LLC and Subsidiaries ("ASA"). The increase in income for the three and nine months ended November 30, 2020May 31, 2021 is due to an increase in ASA net income resulting from improved sales in all markets due primarily as a resultto the lifting of improved margins, lower overhead,COVID-19 restrictions on customers and growth in the RV and marine markets.
On September 30, 2019, the Company, through its subsidiary Voxx German Holdings Gmbh (the “Seller”), sold its real property in Pulheim, Germany to CLM S.A. RL (the “Purchaser”) for €10,920. Net proceeds received from the transaction were approximately $9,500 after transactional costs and repayment of the outstanding mortgage. Concurrently with the sale, the Seller entered into an operating lease arrangement (“lease”) with the Purchaser for a small portion of the real property to continue to operate its sales office in Germany. The transaction qualified for sale leaseback accounting in accordance with ASC 842 and the Company recognized a gain on the execution of the sale transaction for the three and nine months ended November 30, 2019.
During Fiscal 2018, the Company sold its investment in RxNetworks, a non-controlled corporation, consisting of shares of the investee’s preferred stock. Voxx recognized a gain during Fiscal 2018 on the sale of this investment; however, a portion of the cash proceeds were subject to a hold-back provision, and was not included in the gain recognized in Fiscal 2018. During the second quarter of Fiscal 2020, the hold-back provision expired, and the Company received the majority of the remaining proceeds from the sale, recording an investment gain of $775 for the nine months ended November 30, 2019. A final pay-out of $42 received in November 2020 was recorded as an investment gain for the three and nine months ended November 30, 2020.end consumers.
Other, net includes net foreign currency gains or losses, interest income, rental income, and other miscellaneous income and expense. During the three and nine months ended November 30,May 31, 2020, interest income decreased as a result of lower interest rates applicable to the Company’s short-term money market investments. Additionally, during the nine months ended November 30, 2020, the Company had foreign currency losses of $(445) as compared to foreign currency gains of $297 for the nine months ended November 30, 2019. During the nine months ended November 30, 2019, the Company received the proceeds of a key man life insurance policy in the amount of $1,000, related to a former employee of Klipsch Group, Inc. that Voxx became$444, which did not recur in the beneficiary ofcurrent year period. Offsetting this decrease in conjunction with the acquisition of Klipsch in Fiscal 2012, which were offset by a charge of $804 related to a payment made to TE Connectivity Ltd. in final settlement of the working capital calculation related to the Fiscal 2018 sale of Hirschmann Car Communication GmbH. This settlement impacted bothother income, net, during the three and nine months ended November 30, 2019.May 31, 2021, the Company had foreign currency gains of $116 as compared to foreign currency losses of $116 for the three months ended May 31, 2020.
Income Tax Provision
The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical corrections so that qualified improvement property can be immediately expensed under IRC Section 168(k) and net operating losses arising in tax years beginning in 2017 and ending in 2018 can be carried back two years and carried forward twenty years without a taxable income limitation as opposed to carried forward indefinitely, and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years. With respect to the technical correction to net operating losses, the Company recorded a discrete income tax provision of $4,275 during the ninethree months ended November 30, 2020,May 31, 2021, as its valuation allowance related to net operating losses with limited carryforward periods increased.
For the three months ended November 30, 2020,May 31, 2021, the Company recorded an income tax provision of $2,334,$484, which includes a discrete income tax benefit of $542$74 related primarily to the finalization of the federal and certain state tax return filings. For the three months ended November 30, 2019, the Company recorded an income tax provision of $2,720, which includes a discrete income tax provision of $1,035. The Company recorded a discrete tax provision of $1,153 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate and a discrete tax benefit of $118 primarily related to the reversal of uncertain tax provisionposition liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.
The effective tax rates forlimitations. For the three months ended November 30, 2020 and 2019 were an income tax provision of 11.8% on pre-tax income of $19,774 and an income tax provision of 66.6% on pre-tax income of $4,087, respectively. The effective tax rate for the three months ended November 30, 2020 differs from the U.S. statutory rate of 21% primarily due to the anticipated reversal of a portion of the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates. The effective tax rate for the three months ended November 30, 2019 differed from the statutory rate of 21% primarily due to the calculation of the U.S. tax provision on a discrete basis, the U.S. taxation of foreign earnings, nondeductible permanent differences, non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax rates.
For the nine months ended November 30,May 31, 2020, the Company recorded an income tax provision of $6,724,$1,781, which includes a discrete income tax provision of $3,609.$4,292. The Company recorded a discrete tax provision of $4,275 related to an increase in valuation allowance as a result of the technical correction to net operating losses as provided in the CARES Act and a discrete income tax benefit of $697 related to finalization of federal and state tax filings during the quarter ended November 30, 2020, and the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, offset with a discrete tax provision of $31$17 related to the accrual forof interest for unrecognized tax benefits. For the nine months ended November 30, 2019, the Company recorded an income tax provision of $1,190, which includes a discrete income tax benefit of $345. The Company recorded a discrete tax benefit of $50 in connection with excluding the U.S. tax jurisdiction from the estimated annual effective tax rate, and a discrete income tax benefit of $295 primarily related to the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations, the remeasurement of deferred tax assets and liabilities for enacted state law changes, offset by an income tax provision related to the finalization of federal and state tax filings during the quarter ended November 30, 2019.
The effective tax rates for the ninethree months ended November 30,May 31, 2021 and 2020 and 2019 were an income tax provision of 31.1%21.2% on pre-tax income of $21,614$2,281 and an income tax provision of 17.1%24.3% on a pre-tax loss of $6,979,$7,324, respectively. The effective tax rate for the ninethree months ended November 30, 2020May 31, 2021 differs from the U.S. statutory rate of 21% primarily due to the anticipated reversalas a result of a portionnumber of factors, including the U.S. valuation allowance based on projected current year earnings, immediate U.S. taxation of foreign earnings, non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, and income taxed in foreign jurisdictions at varying tax rates.rates, and a tax benefit related to the decrease in the valuation allowance based on current year forecasted earnings. The effective tax rate for the ninethree months ended November 30, 2019May 31, 2020 differed from the statutory rate of 21% primarily due to the calculation of the U.S. taxation provision on a discrete basis, theimmediate U.S. taxation of foreign earnings, nondeductible permanent differences,
non-controlling interest related to EyeLock LLC, an increase in the valuation allowance, state and local income taxes, and income taxed in foreign jurisdictions at varying tax ratesrates..
EBITDA and Adjusted EBITDA
EBITDA and Diluted Adjusted EBITDA per Common Share
EBITDA, Adjusted EBITDA, and Diluted Adjusted EBITDA per common share are not financial measures recognized by GAAP. EBITDA represents net income (loss) attributable to VOXX International Corporation, computed in accordance with GAAP, before interest expense and bank charges, taxes, and depreciation and amortization. Adjusted EBITDA represents
EBITDA adjusted for stock-based compensation expense, acquisition costs, certain settlements, gains,non-routine legal and professional fees, and life insurance proceeds. Depreciation, amortization, and stock-based compensation are non-cash items. Diluted Adjusted EBITDA per common share represents the Company's diluted earnings per common share based on Adjusted EBITDA.
We present EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per common share in this Form 10-Q because we consider them to be useful and appropriate supplemental measures of our performance. Adjusted EBITDA and Diluted Adjusted EBITDA per common share helphelps us to evaluate our performance without the effects of certain GAAP calculations that may not have a direct cash impact on our current operating performance. In addition, the exclusion of certain costs or gains relating to certain events allows for a more meaningful comparison of our results from period-to-period. These non-GAAP measures, as we define them, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per common share should not be assessed in isolation from, are not intended to represent, and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with GAAP.
Reconciliation of GAAP Net Income Attributable to VOXX International Corporation to EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per Common Share
|
| Three months ended November 30, |
|
| Nine months ended November 30, |
|
| Three months ended May 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Net income (loss) attributable to VOXX International Corporation |
| $ | 18,251 |
|
| $ | 2,464 |
|
| $ | 17,319 |
|
| $ | (4,648 | ) |
| $ | 2,716 |
|
| $ | (8,272 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and bank charges (1) |
|
| 325 |
|
|
| 625 |
|
|
| 1,907 |
|
|
| 2,269 |
|
|
| 372 |
|
|
| 661 |
|
Depreciation and amortization (1) |
|
| 2,904 |
|
|
| 2,796 |
|
|
| 8,128 |
|
|
| 8,313 |
|
|
| 2,778 |
|
|
| 2,509 |
|
Income tax expense |
|
| 2,334 |
|
|
| 2,720 |
|
|
| 6,724 |
|
|
| 1,190 |
|
|
| 484 |
|
|
| 1,781 |
|
EBITDA |
|
| 23,814 |
|
|
| 8,605 |
|
|
| 34,078 |
|
|
| 7,124 |
|
|
| 6,350 |
|
|
| (3,321 | ) |
Stock-based compensation |
|
| 768 |
|
|
| 471 |
|
|
| 1,454 |
|
|
| 1,816 |
|
|
| 236 |
|
|
| 351 |
|
Gain on sale of real property |
|
| — |
|
|
| (4,057 | ) |
|
| — |
|
|
| (4,057 | ) | ||||||||
Settlement of Hirschmann working capital |
|
| — |
|
|
| 804 |
|
|
| — |
|
|
| 804 |
| ||||||||
Investment gain |
|
| (42 | ) |
|
| — |
|
|
| (42 | ) |
|
| (775 | ) | ||||||||
Acquisition costs |
|
| 676 |
|
|
| 125 |
| ||||||||||||||||
Professional fees related to distribution agreement with GalvanEyes LLC |
|
| 325 |
|
|
| — |
| ||||||||||||||||
Non-routine legal fees |
|
| 686 |
|
|
| 82 |
| ||||||||||||||||
Life insurance proceeds |
|
| — |
|
|
| — |
|
|
| (420 | ) |
|
| (1,000 | ) |
|
| — |
|
|
| (444 | ) |
Adjusted EBITDA |
| $ | 24,540 |
|
| $ | 5,823 |
|
| $ | 35,070 |
|
| $ | 3,912 |
|
| $ | 8,273 |
|
| $ | (3,207 | ) |
Diluted income (loss) per common share attributable to VOXX International Corporation |
| $ | 0.74 |
|
| $ | 0.10 |
|
| $ | 0.71 |
|
| $ | (0.19 | ) | ||||||||
Diluted Adjusted EBITDA per common share attributable to VOXX International Corporation |
| $ | 0.99 |
|
| $ | 0.24 |
|
| $ | 1.43 |
|
| $ | 0.16 |
|
(1) | For purposes of calculating Adjusted EBITDA for the Company, interest expense and bank charges, as well as depreciation and amortization, have been adjusted in order to exclude the non-controlling interest portion of these expenses attributable to EyeLock LLC. |
Liquidity and Capital Resources
Cash Flows, Commitments and Obligations
As of November 30, 2020,May 31, 2021, we had working capital of $163,034$175,977 which includes cash and cash equivalents of $21,337,$36,710, compared with working capital of $146,798$172,543 at February 29, 2020,28, 2021, which included cash and cash equivalents of $37,425.$59,404. We plan to utilize our current cash position as well as collections from accounts receivable, the cash generated from our operations, when applicable, and the income on our investments to fund the current operations of the business. However, we may utilize all or a portion of current capital resources to pursue other business opportunities, including acquisitions, or to further pay down our debt. As of November 30, 2020,May 31, 2021, we had cash amounts totaling $3,742$2,792 held in foreign bank accounts, none of which would be subject to United States federal income taxes if made available for use in the United States. The Tax Cuts and Jobs Act provides a 100% participation exemption on dividends received from foreign corporations after January 1, 2018, as the United States has moved away from a worldwide tax system and closer to a territorial system for earnings of foreign corporations.
Operating activities used cash of $2,628$17,043 for the ninethree months ended November 30, 2020May 31, 2021 due to factors including the decrease in accounts payable and accrued expenses, the increase in both accounts receivable and inventory, as well as losses incurred by EyeLock LLC. This was offset primarily by increasesthe increase in consolidated net sales, as well as decreases in accounts payable,receivable and accrued expenses, and sales incentives. For the ninethree months ended November 30, 2019,May 31, 2020, operating activities usedprovided cash of $23,887$12,285 due to factors including decreases in accounts receivable driven in part by the Company’s domestic supply chain financing arrangements, as well as due to an increase in accounts payable. These operating cash inflows were offset primarily by sales declines due to COVID-19 and losses incurred by EyeLock LLC, as well as increases in accounts receivable due in part to the suspension of the Company’s domestic supply chain finance arrangements, increases in inventory, and decreases in accrued expenses. These operating cash usages were offset primarily by decreases in receivables from vendors and increases in accrued sales incentives.
Investing activities used cash of $14,510$3,927 during the ninethree months ended November 30, 2020May 31, 2021 primarily due the acquisitionissuance of the Directed business,a promissory note to Onkyo, as well as capital expenditures. For the ninethree months ended November 30, 2019,May 31, 2020, investing activities providedused cash of $9,759$586 primarily due to the proceeds received from the sale of the Company’s real property in Pulheim, Germany, offset by capital expenditures.
Financing activities used cash of $1,680$1,755 during the ninethree months ended November 30, 2020May 31, 2021 due to the repaymentpayment of withholding taxes on the Company’s precautionary borrowingnet issuance of $20,000 from the Credit Facility, the repayment of the Magnat subsidiary’s Euro asset-based loan balance upon its expiration, repayments of finance leases, anda stock award, the payment of deferred finance fees related to the amendment of the Credit Facility, offset byas well as repayments of finance leases and the FL mortgage balance. During the three months ended May 31, 2020, financing activities provided cash of $19,706 primarily due to the precautionary borrowing of $20,000 from the Credit Facility made in April 2020. During the nine months ended November 30, 2019, financing activities used cash of $11,563 primarily due to the repayment2020, offset by repayments of bank obligations, including the entire outstanding balance of Voxx Germany’s Euro asset-based loan facility, and the repurchase of shares of the Company’s Class A common stock.obligations.
Federal, state, and local governments have taken a variety of actions to contain the spread of COVID-19. Many jurisdictions required mandatory business closures during the Company’s 2021 fiscal year and imposed capacity limitations and other restrictions affecting our operations.operations, some of which have continued into Fiscal 2022. Many of these restrictions were lifted in phases throughout Fiscal 2021 but could return if there is a resurgence of the pandemic spread. We have proactively taken steps to increase available cash, including, but not limited to, utilizing existing supply chain financing and factoring agreements, and utilizing available funds under our existing Credit Facility. The Company also implemented a number of other measures to help preserve liquidity, as further described in our Form 10-K for the year ended February 29, 2020.
The Company has a senior secured credit facility (the "Credit Facility") that provides for a revolving credit facility with committed availability of up to $127,500.$140,000. The availability under the revolving credit line within the Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable, eligible inventory and certain real estate, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 17(b)). The availability under the revolving credit line of the Credit Facility was $107,033$101,450 as of November 30, 2020.May 31, 2021.
All amounts outstanding under the Credit Facility will mature and become due on April 26, 2022;19, 2026; however, it is subject to acceleration upon the occurrence of an Event of Default (as defined in the Credit Agreement). The Company may prepay any amounts outstanding at any time, subject to payment of certain breakage and redeployment costs relating to LIBOR Rate Loans. The commitments under the Credit Facility may be irrevocably reduced at any time, without premium or penalty as set forth in the agreement.
Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that Swingline Loans may only be designated as Base Rate Loans. Loans designated as LIBOR Rate Loans shall bear interest at a rate equal to the then applicable LIBOR rate plus a range of 2.001.75 - 2.50%2.25%. Loans designated as Base Rate loans shall bear interest at a rate equal to the applicable margin for Base Rate Loans plus a range of 1.000.75 - 1.50%1.25%, as defined in the agreement.agreement, and shall not be lower than 1.75%. The Credit Facility provides for a Benchmark Replacement that will replace the LIBOR rate for all revolver usage. The Benchmark Replacement is subject to the occurrence of a Benchmark Transition Event, as defined in the Second Amended and Restated Credit Agreement and becomes effective after a five-day transition period following the event.
Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess Availability is less than 20.0%15% of the Maximum Revolver Amount and ending on a day in which Excess Availability is equal to or greater than 20.0%15% for any consecutive 30-day period thereafter), the Credit Facility requires compliance with a financial covenant calculated as of the last day of each month, consisting of a Fixed Charge Coverage Ratio. The Credit Facility also contains covenants, subject to defined carveouts, that limit the ability of the loan parties and certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional indebtedness; (ii) incur liens; (iii) merge, consolidate or dispose of a substantial portion of their business; (iv) transfer or dispose of assets; (v) change their name, organizational identification number, state or province of organization or organizational identity; (vi) make any material change in their nature of business; (vii) prepay or otherwise acquire indebtedness; (viii) cause any change of control; (ix) make any restricted junior payment; (x) change their fiscal year or method of accounting; (xi) make advances, loans or investments; (xii) enter into or permit any transaction with an affiliate of any borrower or any of their subsidiaries; (xiii) use proceeds for certain items; (xiv) issue or sell any of their stock; or (xv) consign or sell any of their inventory on certain terms. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, as defined in the agreement, the lenders would have the right to assume dominion and control over the Company's cash.
The obligations under the loan documents are secured by a general lien on and security interest in substantially all of the assets of the borrowers and certain of the guarantors, including accounts receivable, equipment, real estate, general intangibles, and inventory. The Company has guaranteed the obligations of the borrowers under the Credit Agreement.
The Company has a Euro asset-based loan facility in Germany with a credit limit of €8,000 that expires on July 31, 2023. The Company's subsidiaries Voxx German Holdings GmbH, Oehlbach Kabel GmbH, and Schwaiger GmbH are authorized to borrow funds under this facility for working capital purposes.
The Company also utilizes supply chain financing arrangements and factoring agreements as a component of ourits financing for working capital, which accelerates receivable collection and helps to better manage cash flow. Under the agreements, the Company has agreed to sell certain of its accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements (see Note 9). The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's Consolidated Statements of Cash Flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company.
Certain contractual cash obligations and other commercial commitments will impact our short and long-term liquidity. At November 30, 2020,May 31, 2021, such obligations and commitments are as follows:
|
| Amount of Commitment Expiration per Period |
|
| Amount of Commitment Expiration per Period |
| ||||||||||||||||||||||||||||||||||
Contractual Cash Obligations |
| Total |
|
| Less than 1 Year |
|
| 2-3 Years |
|
| 4-5 Years |
|
| After 5 Years |
|
| Total |
|
| Less than 1 Year |
|
| 2-3 Years |
|
| 4-5 Years |
|
| After 5 Years |
| ||||||||||
Finance lease obligation (1) |
| $ | 855 |
|
| $ | 469 |
|
| $ | 386 |
|
| $ | — |
|
| $ | — |
|
| $ | 595 |
|
| $ | 366 |
|
| $ | 229 |
|
| $ | — |
|
| $ | — |
|
Operating leases (1) |
|
| 4,924 |
|
|
| 1,111 |
|
|
| 1,692 |
|
|
| 980 |
|
|
| 1,141 |
|
|
| 4,702 |
|
|
| 1,162 |
|
|
| 1,572 |
|
|
| 862 |
|
|
| 1,106 |
|
Total contractual cash obligations |
| $ | 5,779 |
|
| $ | 1,580 |
|
| $ | 2,078 |
|
| $ | 980 |
|
| $ | 1,141 |
|
| $ | 5,297 |
|
| $ | 1,528 |
|
| $ | 1,801 |
|
| $ | 862 |
|
| $ | 1,106 |
|
Other Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank obligations (2) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Stand-by and commercial letters of credit (3) |
|
| 7,257 |
|
|
| 7,257 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19,949 |
|
|
| 19,949 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other (4) |
|
| 7,239 |
|
|
| 500 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 4,739 |
|
|
| 6,989 |
|
|
| 500 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 4,489 |
|
Pension obligation (5) |
|
| 818 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 818 |
|
|
| 533 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 533 |
|
Unconditional purchase obligations (6) |
|
| 170,367 |
|
|
| 170,367 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 207,307 |
|
|
| 207,307 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total other commitments |
|
| 185,681 |
|
|
| 178,124 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 5,557 |
|
|
| 234,778 |
|
|
| 227,756 |
|
|
| 1,000 |
|
|
| 1,000 |
|
|
| 5,022 |
|
Total commitments |
| $ | 191,460 |
|
| $ | 179,704 |
|
| $ | 3,078 |
|
| $ | 1,980 |
|
| $ | 6,698 |
|
| $ | 240,075 |
|
| $ | 229,284 |
|
| $ | 2,801 |
|
| $ | 1,862 |
|
| $ | 6,128 |
|
1. | Represents total principal payments due under operating and finance lease obligations. Total current balances (included in other current liabilities) due under finance and operating lease obligations are |
2. | Represents amounts outstanding under the Company’s Credit Facility and the VOXX Germany asset-based lending facility at |
3. | We issue standby and commercial letters of credit to secure certain purchases and insurance requirements. |
4. | This amount represents the outstanding balance of the mortgage for our manufacturing facility in Florida. |
5. | Represents the liability for an employer defined benefit pension plan covering certain eligible current and former employees of Voxx Germany. |
6. | Open purchase obligations represent inventory commitments. These obligations are not recorded in the consolidated financial statements until commitments are fulfilled given that such obligations are subject to change based on negotiations with manufacturers. |
We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations, available borrowings under bank lines of credit and possible future public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which transactions may require the use of cash. We believe that our cash, other liquid assets, operating cash flows, credit arrangements, and access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures for the next twelve months, including the intercompany loan funding we provide to our majority owned
subsidiary, EyeLock LLC. In the event they do not, we may require additional funds in the future to support our working
capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings, as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on terms favorable when required.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
Related Party Transactions
None noted.
New Accounting Pronouncements
We are required to adopt certain new accounting pronouncements. See Note 26 to our consolidated financial statements included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Voxx conducts business in various non-U.S. countries, including Germany, Canada, Mexico, China, Denmark, the Netherlands, France, and FranceAustralia and thus is exposed to market risk for changes in foreign currency exchange rates. As a result, we have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of the U.S., which can adversely impact our net income and cash flows. For the three and nine months ended November 30, 2020,May 31, 2021, a uniform 10% strengthening of the U.S. dollar relative to the local currency of our foreign operations would have resulted in a decrease in sales of approximately $3,500 and $6,500, respectively,$2,600, and in net income of approximately $360 and $490, respectively.$190. The effects of foreign currency exchange rates on future results would also be impacted by changes in sales levels or local currency prices.
While the prices we pay for products purchased from our suppliers are principally denominated in United States dollars, price negotiations depend in part on the foreign currency of foreign manufacturers, as well as market, trade, and political factors. The Company also has exposure related to transactions in which the currency collected from customers is different from the currency utilized to purchase the product sold in its foreign operations, and U. S.U.S. dollar denominated purchases in its foreign subsidiaries. The Company enters forward contracts to hedge certain euro-related transactions. The Company minimizes the risk of nonperformance on the forward contracts by transacting with major financial institutions. For the three and nine months ended November 30, 2020,May 31, 2021, unrealized losses recorded in Other comprehensive income (loss) associated with these contracts were $242 and $707.$28. A hypothetical 10% adverse change in the fair value of our forward exchange contracts would result in a negative impact of $47$22 on the fair value of these forward exchange contracts at November 30, 2020May 31, 2021.
We are also subject to risk from changes in foreign currency exchange rates from the translation of financial statements of our foreign subsidiaries and for long-term intercompany loans with the foreign subsidiaries. These changes result in cumulative translation adjustments, which are included in Accumulated other comprehensive (loss) income. At November 30, 2020,May 31, 2021, we had translation exposure to various foreign currencies with the most significant being the Euro. A hypothetical 10% adverse change in the foreign currency exchange rates would result in a negative impact of $98$27 on Other comprehensive income (loss) for the ninethree months ended November 30, 2020.May 31, 2021.
The Company continues to monitor the political and economic climate in Venezuela. Venezuela did not have sales for the three and nine months ended November 30, 2020May 31, 2021 and there were minimal cash related assets invested in Venezuela as of November 30, 2020May 31, 2021 that would be subject to government foreign exchange controls. The Company has certain long-lived assets in Venezuela, which are held for investment purposes and had no value as of November 30, 2020.May 31, 2021.
Interest Rate Risk
Our earnings and cash flows are subject to fluctuations due to changes in interest rates on investment of available cash balances in money market funds and investment grade corporate and U.S. government securities. In addition, our bank loans expose us to changes in short-term interest rates since interest rates on the underlying obligations are either variable or fixed. In connection with the Florida Mortgage, we have debt outstanding in the amount of $7,239$6,989 at November 30, 2020.May 31, 2021. Interest on this mortgage is charged at 70% of 1-month LIBOR plus 1.54%. The Company currently has one interest rate swap for the Florida Mortgage with a notional amount of $7,239$6,989 at November 30, 2020.May 31, 2021. This swap locks the interest rate at 3.48% (inclusive of credit spread) on the Florida Mortgage through the mortgage end date of March 2026. The Company also has a Euro asset-based lending facility in Germany with a variable rate, which did not have an outstanding balance at November 30, 2020May 31, 2021 (see Note 17).
As of November 30, 2020,May 31, 2021, the total net fair value of the interest rate swap recorded in other liabilities on our Unaudited Consolidated Balance Sheet is $552,$428, which represents the amount that would be paid upon unwinding the interest rate swap agreement based on market conditions on that date. Changes in the fair value of this interest rate swap agreement is reflected as an adjustment to other assets or liabilities with an offsetting adjustment to Accumulated other comprehensive (loss) income.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures are effective as of November 30, 2020May 31, 2021 to provide reasonable assurance that information required to be disclosed by the Company in its filing under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no material changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the ninethree months ended November 30, 2020May 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 25 of the Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and Note 15 of the Form 10-K for the fiscal year ended February 29, 202028, 2021 for information regarding legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s Form 10-K for the fiscal year ended February 29, 2020.28, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have an ongoing authorization from our Board of Directors to repurchase shares of the Company's Class A Common Stock. During the three and nine months ended November 30, 2020,May 31, 2021, we did not repurchase any shares of the Company’s Class A Common Stock.
ITEM 6. EXHIBITS
Exhibit Number |
| Description |
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|
31.1 |
| |
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|
31.2 |
| |
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|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101 |
| The following materials from VOXX International Corporation's Quarterly Report on Form 10-Q for the period ended |
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|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VOXX INTERNATIONAL CORPORATION | ||
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By: |
| /s/ Patrick M. Lavelle |
Patrick M. Lavelle, | ||
President and Chief Executive Officer | ||
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By: |
| /s/ Charles M. Stoehr |
Charles M. Stoehr, | ||
Senior Vice President and Chief Financial Officer |
4944