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VOXX International Corporation (VOXX -7. 47%) Third Quarter 2024 Earnings Call January 10, 2024, 10:00 AMm. , Eastern Time
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to VOXX International third quarter earnings conference call. At this time, all participants are in a listen-only mode.
Following the speakers’ presentations, there will be a Q&A session. [Operator Instructions] Please note that today’s convention is being taped lately. I will now turn to your host, Mr. Glenn Wiener.
Please go ahead.
Glenn Wiener – Investor Relations
Thank you, Olivia. Good morning, and welcome to VOXX International’s fiscal 2024 third quarter nine-month results conference call. Yesterday, we filed our Form 10-Q and we issued our press release, and both documents can be found in the investor relations section of the website at www.voxxintl.xom, and we expect to post an updated investor presentation later this week. Speaking from management today will be Pat Lavelle, chief executive officer, who is currently out in Las Vegas, attending the 2024 Consumer Electronics Show; and Michael Stoehr, senior vice president and chief financial officer.
Your comments will be followed through questions and answers. Turning to today, I would like to remind everyone that, with respect to past data contained herein, statements made on today’s call and webcast that would constitute forward-looking statements are based on recently available data. The Company assumes no obligation to update them. -Appearance statements, and I would like to inform you of the threat points related to our business, which are detailed in our Form 10-K for the era ended February 28, 2023. Thank you for your continued support and now I would like to deliver it to you to Pat.
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Pat Lavelle — President and Chief Executive Officer
Thank you, Glenn, and good morning everyone. Let me start by wishing you all a happy new year. As Glenn said, I’m with our team at CES and the exhibit started yesterday. It’s early days, but the reaction to our new programming and the projects we have in progress has been very positive.
And I’m expecting more of the same over the next few days. 2023 has been tough for everyone, not to just VOXX. Our entire industry has had a very challenging year, and we’re certainly happy to be turning the page. The global economy remains challenging, and we’re doing all that we can to navigate through those challenges, focusing on three primary areas: protecting and growing sales in both the short and long term; improving gross margins through supply chain and internal efficiencies; and lowering both our fixed and variable expenses.
During the quarter, we were successful achieving two of these three objectives as our gross margins grew by 90 basis points and our operating expenses improved by a little over 2%. Sales declined roughly 5.4%, with consumer up and automotive down. But overall, operating income was the same as the prior year. Mike will provide more financial details during his remarks, and I’ll focus on the segments, what’s happening, and what we expect to close out the year and as we move into fiscal 2025.
Let me start with the consumer, because we have a lot of news to announce. Consumer sales grew more than 6% in the third quarter, driven by Premium Audio. This is very positive for us because the segment has been in decline since the big hit we suffered due to COVID. We have made many adjustments to our investments and they are starting to pay off, as evidenced by this quarter’s growth, in a very challenging global economic environment.
Within Premium Audio, we saw good growth in North America market in Q3, driven by home speakers, wireless speaker systems, and our new lines of party speaker systems. Europe was up as well, but our APAC sales declined as the market continues to be hard-pressed. Overall, our Premium Audio business had a strong quarter, with a number of new products on the horizon in new and rapidly growing categories. Looking at the recent NPD report for November, industrywide speaker sales were down approximately 17%, but we were only down 9%.
AVR sales were down 15% and we were down 14%. The effects are positive. Although our sales of Premium Audio products have declined since the beginning of the year, we are expanding our market share, especially domestically. And the new products and categories that we’ve brought here at the show, and the ones that will launch early next year, are expected to help drive long-term expansion in FY25.
Here, at CES, we had a complete lineup on display under all of our audio brands. And as I mentioned last quarter, we have developed a completely new sound bar offering and had a number of new products on display, some of which have launched with others to be launched early this year. Our big announcement was the all new Klipsch Plexus sound system powered by Onkyo. This is the first product that combines the strength of Klipsch’s acoustics with Onkyo’s technology.
It officially hits the market this year and we have high hopes for it, as do our customers. I also talked about previous calls related to our new holiday speakers, our Gig series, which was introduced in September, in time for the holiday season. It worked very well and helped compensate for weaknesses in other areas. Speakers are one of the categories of the industry.
It’s competitive, but the market is open. We have some wonderful products coming up in the coming months. Here at CES, we’re introducing our new Klipsch Gig Series. One of our products, the Gig Max, is the first party speaker to feature the legendary generation of Klipsch speakers that’s been in the works since 1946.
These are powerful portable speakers, top-of-the-line products that deliver Klipsch’s heritage sound. Another highlight was the launch of our Klipsch Music City portable Bluetooth speakers. We unveiled three new models, the Klipsch Austin, the Klipsch Nashville, and the Klipsch Detroit, with the Detroit being the premium model and the biggest in our Music City series. And these speakers along, with other compatible Klipsch models, feature the innovative Klipsch broadcast mode, which allows you to connect up to 100 speakers at once to create a fully immersive listening experience wirelessly through Bluetooth.
We have a strong Premium Audio lineup in 2024 and 2025. And also, on Monday there is big news related to Klipsch and the Panasonic Automotive collaboration he had for several years. Panasonic Automotive Systems Company of America and Infiniti jointly announced the partnership between our corporations on Monday. The new flagship 2025 Infiniti QX80 will be supplied with Panasonic’s Klipsch Reference Premiere premium audio formula.
The car provided with our speaker formula will be on display here at CES at the Panasonic booth and the vehicle is expected to debut later this spring. It features 24 purpose-built drivers, titanium tweeters, a high-performance subwoofer, ceiling-mounted speakers, and Panasonic’s exclusive DJX 3-D surround sound processing. This is in addition to our program we announced last year on the Dodge EV Ram pickup truck. As for other EC products, sales necessarily remained strong compared to last year.
We have noticed an expansion in sales of our newly introduced RCA hearing aid products, with some additional transactions between categories. Since the beginning of the year, other CE sales have increased by approximately 21%. And while we expect some slowdown in the near term due to the overall environment, we have a significant market share and a varied visitor base, and we anticipate expansion in some of the new categories to help combat this phenomenon. The big launch at CES for our accessories organization: the new RCA headphones.
We launched four new products to expand our presence in this category. We also unveiled a new wireless HDMI signal sensors under the Terk brand, which connects devices to TVs and enables streaming content without cables. As well, we had additional other products under our RCA, Terk, and AR brands. Moving on to automotive, we had some challenges in Q3 as our OEM business was almost cut in half as we and our customers felt the impact of the UAW strike.
As always, we base our plans on our customers’ forecasts, which were evidently not fulfilled when production lines were affected or stopped altogether. Now that we are on strike, we hope that the automotive industry will start to normalize. We have been rewarded with the contracts, we deserve to be in a position to grow. However, with the broader economy slowing due to the Federal Reserve’s moves so far and auto costs hitting all-time highs, we should expect some weakness in the coming years. term.
During the quarter, car sales fell 26% due to a lack of OEMs, as I just mentioned. And mainly, in the realm of rear-seat entertainment, which are the most vital programs, you know, for our OEM business. Ford and Stellantis fell due to the UAW strike, and Nissan’s sales also fell. VSM sales increased slightly, taking into account the volume of programs in the truck market and new lighting programs awarded in the past.
We have a lot of OEM business ahead of us. But with all the production and supply chain issues in recent years, it’s been challenging and we’re mitigating emerging prices and margins where we can. Our aftermarket business decreased by approximately $3. 5 million. The overall economy and the slowdown from declining inventories and new car dealerships impacted sales in the top categories, with some up and some down.
But for the year, the automotive segment sales are off about 12.5%, and Q4 is going to be tough based on the current conditions, though, again, some loosening on the OEM side with the strike behind us. And as we move into fiscal ’25 and in the years that follow, we have significant opportunities for value creation through the programs that we’ve been awarded and the ones that we’re working on, which will give us new business opportunities to build our future pipeline. As for biometrics, sales came in less than anticipated, mostly due to a lull in implementation. All of the projects that I had mentioned previously are still in motion.
Nothing has changed. But during the quarter, we experienced very little progression in terms of rollouts. It was more testing, discussions, and planning. We should see sequential improvements in Q4.
And assuming all moves go as planned, there will be a huge expansion in 2025. My second-quarter comments remain the same. Projects are underway with governments, money companies, fitness car companies, car dealerships, etc. , and we hope to have more. report in the coming quarters as those systems are developed.
In summary, our sales declined in the third quarter, but the operating source of revenue remained strong thanks to the innovations we made in our business, resulting in higher gross margins and lower expenses. If we take a look at the fourth quarter of the first 24-hour schedule, we think it’s going to be tight. Look at what’s going on right now, interest rates are almost at all-time highs. And this affects not only consumers but also our customers.
Credit card debt is very high. Government subsidies due to the pandemic have ended. After a holiday season, in the midst of all those challenges, we feel like the economy is slowing down. As a result, we expect the next few months to be mild and we will continue to be diligent in managing our costs.
However, those are the same situations that also lead the Federal Reserve to start cutting rates and stimulating the economy, which will be smart for clients and for VOXX. New product launches, especially in the customer segment, deserve to help offset some of the economic weakness. And the steps taken to reduce overhead costs are expected to bear more fruit in the fourth quarter and next year. Margins are also expected to increase, given new products and systems underway and introduced this year.
We maintain constant communication with our customers, greatly manage our inventory, and analyze all facets of our business to return to profitability. With that, I would like to thank you. And then I move on to pass the call on to Mike. And then we move on to the questions.
Miguel?
Mike Stoehr, Senior Vice President and Chief Financial Officer
Thank you, Pat, and good morning everyone. Basically, I’ll cover our effects and our balance sheet for nine months. But first, a few comments related to the third quarter. As Pat mentioned, net sales decreased by 5. 4%, gross margins increased through 90 foundation issuances, and operating expenses decreased by 2. 1%. %.
This resulted in an operating revenue source of $2. 3 million for the third quarter of FY24 and FY2023. Net source of income attributable to VOXX $1. 9 million, a reduction of approximately $5. 5 million. This is primarily due to a tax benefit of $4 million in the prior year. year, compared to a rate of $100,000. The additional variance is similar to other sources of income and expenses.
We reported total other expense of 1.4 million versus total other income of 36,000 in the comparable prior period. Additionally, EBITDA was 6.5 million compared to 7.7 million, and adjusted EBITDA was 8 million compared to 9 million. As for the nine-month comparisons, all numbers are for the periods ended November 30th, 2023 and November 30th, 2022. We reported nine-month sales of 360.8 million, a decline of 36.7 million or 9.2%.
Against this backdrop, automobile sales decreased by $15. 6 million, OEM sales decreased by $4. 6 million, and aftermarket sales decreased by $11. 1 million. Consumer sales decreased by $19. 7 million, Premium Audio sales decreased by $31. 9 million, and other CE sales increased by $12. 2 million. Biometric products decreased by approximately 300,000 units. Sales are down for the year and we will continue to see some tension in the fourth quarter, in line with Pat’s comments.
Our automotive business has been impacted by strike and visitor production lines, and we expect to see further normalization in the coming quarters. Retail is restricted, but we’re starting to take the plunge with new products in the premium audio and accessories space. These other CE products have held up well this year with solar-powered balcony products, wireless speakers, and headphones helping to make up for economic and customer weakness. We continue to take steps to improve our gross margins, which have increased through 170 foundation issuances sequentially and through 50 foundation numbers year-to-date.
For the nine-month period comparisons, gross margins came in at 25.6% as compared to 25.1%, with automotive segment margins down 20 basis points and consumer segment margins up 70 basis points. Over time, we expect automotive margins to improve with the relocation of manufacturing to Mexico, price increases, and other steps we’ve taken to enhance our supply chain and lower costs. However, we need production to catch up. Consumer segment margins continue to improve sequentially.
And again, new products should help continue to drive improvements if we maintain volume and, of course, depending on product mix and customer programs. Total operating expenses for the nine-month comparisons were 110.2 million as compared to $114 million, an improvement of 3.8 million or 3.3%. Excluding acquisition and restructuring costs, total operating expenses improved by 5.3 million or 4.7%. We’re continuing to look at all aspects of our operations to remove nonessential costs and are looking to lower our overhead further in light of the ongoing economic softness.
We largely manage our expenses, stocks, and cash flow. Selling expenses decreased by $3. 4 million, a 9. 6% improvement over the prior year, general and administrative expenses decreased by $1. 3 million, a 2. 4% improvement, and technical and engineering expenses decreased by approximately $600,000, a 2. 5% improvement. We have had restructuring pricing of approximately $2. 2 million similar to our production relocation and restructuring systems in fiscal year 2024 to date. This compares to approximately $500,000 in structural pricing and $100,000 in acquisition pricing in fiscal 2023, plus a nine-month period.
We recorded an operating loss of $17. 7 million compared to an operating loss of $14. 3 million, primarily due to lower sales volumes. Net loss attributable to VOXX $19. 9 million, compared to a net loss of $9. 3 million. EBITDA for the nine-month period of fiscal 2024 a loss of $6. 5 million and adjusted EBITDA of $3 million. This compares with an EBITDA loss of €3. 2 million in the comparable nine-month period of fiscal 2023 and an adjusted EBITDA of €5. 6.
Let’s move on to the balance sheet. As of Nov. 30, we had $10. 4 million in money and cash equivalents, compared to $6. 1 million at the end of our 2023 fiscal year on Feb. 28. Cash and cash equivalents were $5. 9 million at the end of our second quarter of fiscal 2024. ended on August 31. Our accounts receivable will accrue at $8. 9 million, the same as in the highest-volume holiday season.
Our inventory declined by 28.9 million for the nine months as we were moving through all the product lines. We still have inventory on hand to move through, and we’re focused on that, given the launches underway and upcoming, especially in our consumer segment. As I noted during our last quarterly call, we expect inventories to continue to decline as we move through the fourth and first quarters. Total debt stood at 48.6 million as compared to 39.2 million as of February 28th.
The increase of 9.4 million relates to 10 million increase in our borrowings associated with our domestic credit line, partially offset by a 400,000 decline to our Florida mortgage and a 200,000 decline in the amount owed on the shareholder loan payable to Sharp as part of our joint venture. Total long-term debt, net of debt issuance costs, was 47.1 million as compared to 37.5 million as of February 28th. As noted, the increase in total debt relates to the increase in our borrowings. This is typical during the third quarter as our sales and receivables increase than normally collected during the fourth quarter.
This will be the case. During the fourth quarter, we will use our credit facility for the final arbitration agreement, announced earlier this month. As noted, we have entered into a mutual agreement and release with Seaguard effective today, January 10. pay Seaguard a total of $42 million, of which a $10 million payment was already made on Dec. 27, and the final payment of $32 million will be made today.
While we’re not happy with the ruling, we feel it is our best interest, as well as our shareholders to move forward and focus on our business and stop accruing interest in legal fees which continue to mount. With the banking relationships in place and the cash availability we have, the payment will be made. And we have sufficient working capital to fund our business moving forward. Of course, we’re hopeful that market conditions improved sooner rather than later, and we can get back to cash flow generation and profitability.
Operator, we are now in a position to open the call for questions.
Pat Lavelle – President & CEO
Thanks Mike.
Operator
[Operator’s Instructions] And there doesn’t seem to be any questions in the queue at the moment. I will return the land to Mr. Pat Lavelle.
Pat Lavelle — President and Chief Executive Officer
Fine thank you. I need to thank you for taking the time to sign up with us this morning. I’m looking forward to 2024 with enthusiasm, because new products have been the sustenance and key to our growth. And we have a lot of new things planned for next year.
So, with that, thank you, and have a great day.
Operator
[Operator Approval]
Duration: 0 minutes
Glenn Wiener – Investor Relations
Pat Lavelle – President & CEO
Mike Stoehr, Senior Vice President and Chief Financial Officer
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