VOXX - Earnings call transcript Q2 2018 | VOXX International Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the VOXX Fiscal 2018 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to today's host, Glenn Wiener, Investor Relations. Sir, you may begin.

Glenn Wiener

Thank you, Chelsea, good morning, and welcome to VOXX International's fiscal 2018 second quarter results conference call.

being a our are replay make call. is we've www.voxxintl.com, unable today today's up set for call webcast website, on and to Our those who Lavelle, speaking Stoehr, Michael Vice President Financial will With Officer; Chief Senior from our today Chief Executive and be us Pat Officer. President and and and management

to prepared remarks, Q&A Following questions. have their session for ask a we'll any investors wishing

forward-looking XX-K webcast time, like historical on to turn such company I'd update begin, business available to would Form and information for today's our herein, we the our that with the currently call for remind period I'd like over any statements XX, Before factors and Pat? and except this assumes forward-looking made Lavelle. contained statements statements to call CEO, ended Pat on to are that constitute everyone associated no based responsibility At our are detailed President The in February risk XXXX. information.

Pat Lavelle

good Thank Glenn, everyone. and you morning

adjusting and related to As know on of of we networking million. associated us in $X.X a million to further Hirschmann adjustments cash sale was to XX, $XX.X most our exchange of subject any in March cash the million, purchase sale, capital this acquire contracts approximately Hirschmann net XXXX, million to expenses subsidiary profit the of for The Connectivity. cost forward TE with $XXX.X you based closed resulted which of on a It on price $XXX.X debt. August is and

seller lot German there moving was parts. were the our field, this subsidiary As in of

along for focus on off as through discuss envision have remarks call back transaction, our several ops know of the reported was Mike and with and pieces walk picture will our sale business results. I’ll you related start the discontinued the from sheet, gain ops. come the expenses is so our I we going balance the on clear accounted forward and were continuing then QX some segments example, and and in a our moving the you what For future. in

don't Mike, we why So get started?

Michael Stoehr

morning, thank Okay Good you. Pat, everyone.

Before transaction. date The of was the and operation When was sale. value of carried the of going about are both the the into few of on discontinued facts and impact picked continuing the closed, up in quarterly transaction a the the operation. euro review, results the transaction translation sale as

to on mentioned, position operations statement operations constitute results our and the comprehensive in loss. the the position a at and previously XX of discontinued operation we result difference liabilities discontinued close, million presented of time income we As of is the financial balance was hedged operations On in to head the separately recorded Hirschmann our table net between the of were of transaction continuing Page our from continuing that Form net of of classes On Also operations. related our separately amounts was the of find reported $X.X sheet. lines and as which Form euro the presented of you'll the assets in reconciliation XX-Q, of major certain major amounts operations. that tax you'll to discontinued income a consolidated our also carrying expenses XX-Q, operations reconciles which consolidated a of Page see XX for

continuing any not taxes see net discontinued the was on of income a taxes positions you'll from the was loan $XX.X were basis, tax FX our of euro between charges will substantial million. transaction. On the operations million the differences as U.S. result total Further sale As company have this gain income in pure XXXX, the XX, of and August table $XX.X $XX.X a before approximately Hirschmann as head in on taxes million this acquisition combined exchange treatment of the of foreign value, differences with in the the with the original operations.

With the strengthened. our sheet sale now Hirschmann behind balance has us,

outstanding our XXXX financing generated of relates from manufacturing domestic sale, facility virtually in $X.X to $X.X overseas on our off The and we our XX, proceeds $X.X the Florida paid subsidiary all we million. the With credit for remaining a million, as August mortgages debt German facility. of carried approximately million debt of remaining of

August costs an total financing can total our as on Our arrangements of footnote XX, $X.X XXXX, And position stood to million XX, long-term compared August debt of as XXXX, million XXXX be debt of debt to million. $XX.X February reduction of of XXXX net debt found $XX.X in XX-Q. million as and $XX.X million. of our $XXX.X XX, a information XX, XX compared million of improvement of Further was as $XX.X February issuance at Form

of had $XX.X and XXXX $XX.X as of cash our facility August XX, cash So availability and under domestic we million. million equivalents of credit

seasonal Inventory sales. As from brought have has million. August of today merchandised positions increased $XXX.X availability been now is February as for in to

some size turn automotive X.X% Premium Heritage products, in speakers to lines million, last second speakers, entertainment our wireless results. total and focus multiroom streaming a decline in let's XXXX consumer new XX.X% and by and Audio, of Premium $XXX.X HD desktop versus accessories. Pat, fiscal was systems. quarter. I impacted increased of wireless Audio this for quarter and back positively and home soundbars, by the audio decline sales X.X% XX.X% offset second call were now wireless Before revenue year's bookshelf down Klipsch Revenue, was

on margins. help some gross models sales We older on impact that quarter soundbar close-out our our of the promotions discussed which this first call. We've have several

sales we the Automotive, fourth wound have down in half Internationally, OEM preparation expected rear OEM and of sales. anticipate the will QX. ahead, in we third which of XXXX. satellite the sales by progress as the be we Bentley were Domestically, new impacted programs Looking March more in to in and program GM Ford decline entertainment seat with and with improve end quarter. EVO for launching radio continue to second fiscal

our it's with online anticipating about OEM, in domestic coming growth. we programs forward new are operations Moving and

action aftermarket some our entertainment with and in along growth of cameras as sales acquisition in accessories, anticipate reception solutions hookup seat declines sales rear increases Rosen. down a also the with lower were of products. with Consumer in result We the

to the platform but we more of digital in segments restored Gross On saw and were anticipate wireless tracking and sales the due reason up margins the the hand importantly we in quarter lines. in of introduced sales second down margins why new the from growth second were all in to broadcasting which upgrade year. is the margins, gross activity Project Nursery Europe. there bands strive also as Bluetooth of other half clear higher be in sales speakers, we the International product to

consumer should lower were new a I Premium drivers. starting and XXX OEM vendors of sales Project Nursery, aftermarket our sales second or and sales charge gross quarters, in higher there were this, across OEM segments a margins year. lower But expenses impacted contractual automotive, primarily segments. that speakers, higher building sales business. the in are Salary gross For increase Total One, an approximately half. basis positively margins carry to audio accessory during as one we two, was the sales wireless were of impact. and accessory the points. half third fourth product shortfall QX related to fulfillment and were settlement or programs the with increased We of There margins, volumes the to $XXX,XXX or margins QX, lower positive being two margin which up preparations down anticipate Audio XX.X%. of expenses $X.X a lower things fulfillment Offsetting have quarter. of new expected all in just have in by and our second one-time that Premium were for improve again in with higher was within introduced expenses the to impacted consumer margins impact gross advertising million gross operating noted, due marketing higher

some moves had moving higher management We to the during lower we forward. severance expenses as quarter expenses also made

in engineering higher as year-end severance in programs sheet XXXX support increase fall, certain restructured groups discussed development during sales certain the in and well due moving G&A expenses Additionally primarily technical were the that Hirschmann action timing and product had of and to we The the same the half fixed in system charges. we second to as as took the related fiscal new to accruals due and We OEM time our quarter the to to related time under at overhead and increase year. expenses as we our generation, to the payroll second sale was expenses new we lower of the moved line, forward.

last the now for will however quarter us enable transaction. of the drive had we continue to XX,XXX year's behind business exchange fiscal was changes million necessary consistent in income our on million was summary, sale net Other of recorded second the is $X.X we that years currency million. to Hirschmann during a $X.X sale us, net to losses as gain and RxNetworks Other better compared to reported $XX.X the of quarter. in due the ahead. Hirschmann investment second making foreign ASA note XXX,XXX income of team million quarter. In profitability With to expenses to net, the XXXX of in our year-over-year $X.X drive primarily attributable VOXX area

and the and As nature number due losses treatment of there discontinued parts we continuing are call, taxes. the operations, stated moving beginning gains of exchange the to of at of and foreign

call the and to sheet outlook our have to the over little financial more Pat? future. talk position We is for bit Pat results balance about I’ll turn a a strengthened. and our our clean

Pat Lavelle

Mike. Thanks

year-to-date the sales year. total the roughly Hirschmann, excluding line in for While plan are down of sales tracked first half the with X.X%

up quarters OEM Mazda. GM, the programs ramp and in our business new expect fourth third with Ford OEM We to and with

in close accessories on clear-outs Audio year anticipate and coming down to successes to year-to-date. products Consumer inventory Premium market. Our to-date new the the is with the we half despite second up based current year-to-date, half and continued X.X% XX% first the growth ones business is of

that programs have a number the we the fourth to and new of quarters third in will year. begin set overall improve sales for However

but basis Our down expected as gross improve. year-to-date sales are XXX to with they margins are points

the the programs systems. and timing new which half begin of half. second noted, correct decline in This will starting As our Mike ending automotive the affected itself as first production ones due new in second based we was absorption half to on the in

Hirschmann. to lower consumer volume second higher was QX first basis lower a are the a gross half the to The fulfillment that margins of Those will I equate as basis, of to expected expect Additionally profit however the half. increase. as had second segment clear-outs automotive dollars. not spoke anticipated to improved XXX year go-forward our quarter inventory be Mike Premium on segment repeat. from lower In continue higher about than starting into run we on we but sale due Audio margins noted, we program prior are to segment second decline as due the by will get But call, to and have approximately this gross margin points margins margins accessory because events which to segment two the year will in for improve to

our let's a the access was to with to us sale good of Hirschmann the sale cash proceeds strategy pay our credit it few use and point debt, So us unlock the facilities. discuss talk value. in down And and leaves to The about majority just the enabled our of minutes. I'll starting position

the been operations our group. this XXXX Chevy Enclave GMC business on OEM and quarter has throughout and automotive Expedition, based new the Buick remaining the Our and Terrain, and the Mazda consist the Equinox, with change that year XXXX but Chevy the our Traverse, Ford won't Domestic CX-X. OEM domestic Navigator, programs XXXX of Lincoln aftermarket starting down

has from Subaru, increased remote Ford, Chrysler OE with orders season Mopar. started including some of our customers Additionally, our and start

at For placement of business, our assistance backup our to advanced and Group. expect new at of Best Best Crutchfield and aftermarket Mesa due our the Buying the cameras sales Buy, our driver Buy we stronger systems launch

will We and replacement our OEM our which within launch boost key should car also expediter new dealer sales fobs, networks.

The speaker, In earbuds, fiscal had our new As our ENCORE, of a second Bluetooth Block HXO, line. quarter Audio XXX for and XXX new growth EAR anticipating consumer products we Canz number we're new to Rocker for turntable speakers. year. the and Bluetooth the added headphones full accessories, new CANZ Audio wireless

speaker We be with on will which board in first November. will also Audio XXX services voice introduce Alexa available our

security In followed added that monitor, interest. and karaoke bundle our a also will been pack with have by We be security new good new fourth and an two we Singtrix with your met streaming RCA systems first by entry smartphone. introduce quarters, the third cameras could that introduced controlled products door

reception water launching to heaters expands to prevent business increase to first service during washing over include sales Germany version its were were Gross accessory the products dual year QX. we and expenses dishwashers camera machines, we the designed as new Additionally, home. VOXX the performed Nursery we to of than margins introduced February, and consumer expanded Show at in will in at Best expect new we've deliver the Project flooding MyGuard include September. Internationally providers. the distribution [indiscernible] in Buy in and XX lineup and from prior see our better new products line In up

agreement exclusive products That Our renewed introduced two including home activation Saturn for years additional another with at Trigon voice a contract for Alexa automation for and accessories. its was lineup. number we of

gross EyeLock, expanded making strengthened not it's begin be slated provider significant while a fulfillment agreement and income additional finally part we quarter. yet, the will generated discussed will QUALCOMM secured - portfolio, lower the launching has be we as We November but a and QUALCOMM and a This EyeLock to licensing progress. with revenue because is which sales with program And margins quarter Additionally at dollars. we last in it patents distribution agreement or major and third profit our distribution, impact national secured an in healthcare program, IP with we're Life. positively

solutions will market. Factory hardware OnGuard the over system of Iris accelerate over ASIS the pending their with and new EyeLock Show systems, pipeline benefits understand their be are we camera Linnell security continues their our granted look Some the they Iris next we the we the access biometric's course EyeLock This suite to And have system. for. in received which quarter. and them more At to to going patents which patent is full factors their access partnership completed certification at add images, market to into expanded Stanley has contributor. to continuing facial authentication as and for past for work customers with opportunities develop deliver IP currently and XX mobile to EyeLock being XX a and and but QUALCOMM'S in additional will with EyeLock It build a the suite to CSD base bring patents Iris host three patents Iris will additional giving anticipate September, of technology. highlights partnership with offerings. XXXX of to technology of applied to a major time platform. EyeLock, a driven new Security R&D of acquiring products control company is to and our a with solutions across of and market, customer it biometric's Australian multi-form security a software We its a single Iris technology we more is take Security quarter have

have any time, steps taken improve not the the continues are to to the EyeLock periods. our the During be and business and help lot took continuing we determine shortcuts and quarter lower a in reduce with in will second shareholders. strategy and respect expenses to we our for we At and to line the that same of future R&D. of interest invest in burn the outcome some There best fixed and bottom cash has

Moving our Audio Premium to sales on to segment grow. continue

to this While we to improvement were margins half you relative saw second half. QX and of the the QX continue expect in first margin gross in the the year, down in

so the the that conjunction home Forte of Capitol we loudspeaker We During followed, special launched QX line. Heritage in reintroduction with part the of edition and month XXth or classic now III growth anniversary, the line the we expanding Records and XX the saw debuted in nicely audio MasterCraft. Marine the product this the which are systems Klipsch with which of reference models activity sales Dolby our contributed speaker speakers Heresy to pleased theater has at Atmos the and

alliance as headphones close theater to will home the a we provides launch the questions. soon brand, the Atmos call professionals for us access with Jamo custom strategic with additional which Canada, new the before four one bars To year. later also States and which CEDIA. introduce we speakers. We formed of lines for end and debuted Klipsch line in AVAD comments sound And additional expanding as highest the open United will few installation a new architectural the HP-X well this Jamo at

flow a we of sale most our cash hand, our the on strong With strategy enhance our balance of being acquisitions Hirschmann, and With have is mortgages pursue will and to to capital, sheet. cash debt that accretive profitability. access

we most and earnings. markets will there to the strong focused ensure We on lines consistent product that diligent domestic are and important if be are acquisitions synergies, are made,

reviewing entire portfolio inbound did at we interest assets We of our Hirschmann. as looking in are with also such

brands, the driven it partnerships, multifaceted joint are ventures align throughout in half driving value. this may company. into by questions. company profitability. talent for expect have to succeed and time to the for take or finally believe second year, with we balance increase or acquisitions, an Operator? I very the operating we it's organization to we be of expect think is and profitable the call and we we and We future positioned distribution while generate And stronger And loss the sheet, Whether time sales the our first this we fiscal we sustainable great focused to to XXXX, open lower much growth move position the are divestitures, on expenses given strategy that, as half

Operator

with [Operator first line comes And question our the Cowen. from James Medvedeff Instructions] of

open. line Your is

James Medvedeff

for profits have report second is the is the or to enough in of in profit half, second to but full questions. losses there half the Couple we’re year outlook understand still I looking year profit? drive full

Pat Lavelle

so. believe Yes, we

James Medvedeff

are so out? year-over-year for Hirschmann we’re down difficult sales about the think with I comps should How -

Pat Lavelle

Yes.

James Medvedeff

what of rest the growth number be to able for might look some like a sequential some guidance of the or may or you on put year? revenues Are sort

Pat Lavelle

see could We’re over growth you expecting businesses sales segments all to if take I half the that on we’ll point, some see the as say best revenue. in at increased three topline small first in the Hirschmann particular this are and left out

James Medvedeff

HX HX or year-over-year? sequentially growth versus More

Pat Lavelle

Year-over-year.

James Medvedeff

slightly parse to trying looked can't tell I appears way like or now let shifted the in the it Premium just So positive. the I - guess from versus that me noticed Audio, year - operating it actually for sorry last I that looks expense sure. was around negative margin start backing interest some these it of through only Q expense you out interest with But I’m

on in do are that going I Let the like is look to So you going weeds? this so a follow maybe various lines your expense this just should call me what run could kind on do through what thoughts are of - the and forward?

Pat Lavelle

we the to are charges I remove that when quarter the like for driven some I excuse are forward this $XX.X related will if there million. me somewhere look to - by at sale, were that adjusted the quarter talking Hirschmann I’m we’ll expenses that’s of past start OpEx think the of that year somewhere Well, about reflect But full see XX, around expenses around things that going the sale. the

James Medvedeff

the out expenses? sale Hirschmann adjusting That’s

Pat Lavelle

Yes some of well. the expenses detail get follow-up that more on that are as there, but we on into can a

James Medvedeff

level they the and run these rest of tech, But at continues that selling rate engineering sort through of of year? G&A the are

Pat Lavelle

there areas where We are savings have ongoing overhead, changing we’re cutting some overhead. other but

at we’re into some making around severance in in full as recently that based costs. lower $XX But because on overhead year a changes made. the run would looking we second now not that on huge half we're million look somewhere the of based You of moves a the XXXX we rate on see impact

James Medvedeff

do Finally and pre-tax I assume something I that with reported imagine you tax pay taxes, has you jurisdictional. the rate, negative income to on yet

Michael Stoehr

but in year-to-dates is to allowances the came to to always - as follow for - just allowance What happened quarter speaking it adjust restate when and Michael effective dropped popping to is continue of had had use the the seeing did We of the the that transactions discontinued up rate discussed we to XX%. also and it’s we a operations. the because of why the first hard and forward tax is came now charge August with you’re the we this out through models to tax the rate - XX% rates purposes book again this kind that's statutory valuation valuation

Operator

our Thomas [Operator next Instructions] the question of Kahn from line Brothers. with comes And Kahn

open. line Your is

Thomas Kahn

the highlighted that and thing now call disappointed of company acquisitions. VOXX but exciting gave over EyeLock potential EyeLock value way family on I so have and here the on you the of in the folks and homerun John, to EyeLock gave knocking Hirschmann I it's this a the unhappy grand ball because in an exciting little the is cash little next shareholder very congratulations. five and has are what's confused, that on the Pat future most a slam also was be road. be believe the in interesting Pat what's with it description unless at don't a could out two And park there the I description release the acquisitions Congratulations five years going this not good this in and I disappointed should slam the sale going was conversation the of ball can homerun was leather we on of EyeLock think know release press off it two with in the plenty I'm - the think nothing and down knocking about to I’m discussed press grand operation little years. and greatest build your another back the and most you to I was point. zero resources, and because releases think

acquisitions shares risk selling value worth least but $XX we at making buying that risk has diminish the If the And shareholder years, EyeLock, shareholder value worth accrete you believe could VOXX look you excluding shares are now, is it's $XX excluding at value. and stocks look the EyeLock. over back past XX accrete and without range where could if shareholder

authorization you years, but buying much say it where be I to about back a selling been lowest risk. are now, if with can buyback only of will putting I've know, place the not just possible stock the value you that thing to it in do build stocks at but XX shareholder analyzing best an the and they have shares for So as

and consider I have I So want it past to and again cancer, company aggressive unless been you're you’re have going the you but cure seems owners it I’m in you opposed know please, way to unless opposed value me the some you buyback for active to now? is Thank is buying that to program an to it the best build you very much. confused

Pat Lavelle

you, Tom. Thank

Operator

thank Everyone showing at I'm questions all in disconnect. day. further gentlemen, no for have and this conference. today's time. a does And conclude great and you Ladies the may you participating This program

VOXX International (VOXX) 11 Oct 172018 Q2 Earnings call transcript