Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Margins improved by 310 basis points in Q1.
- Operating expenses were reduced by over 16% year-over-year.
- Premium Audio business showed growth despite market pressures.
- Aggressive steps taken to improve margins and lower working capital needs.
- Plans to reduce debt significantly through asset sales and restructuring.
Negative Points
- Sales declined by approximately 18% year-over-year.
- Automotive segment faced significant challenges with OEM and aftermarket sales down.
- Company reported losses on both operating income and adjusted EBITDA basis.
- Current debt levels and depressed share price are major concerns.
- International sales, particularly in Asia, were impacted negatively.
Q & A Highlights
Q: Can you provide more details on the steps VOXX is taking to improve margins and reduce operating expenses?
A: (Patrick Lavelle, CEO) During the first quarter, we took aggressive steps to improve margins and lower both our operating expenses and working capital needs. Margins were up 310 basis points, and expenses were cut significantly, down over 16% year-over-year. We engaged Accordion, a leading management consulting company, to assist us in evaluating avenues to support our restructuring and profitability initiatives. Additionally, we are optimizing our operations and supply chain, focusing on categories and customers with stable business and growth prospects.
Q: What are the key factors behind the decline in the Automotive segment sales?
A: (Loriann Shelton, CFO) Our Automotive business declined by $10.7 million, with $7.4 million of the decline in OEM sales and $3.3 million in aftermarket sales. The OEM business was down due to lower volume in rear seat entertainment, no revenue from the Nissan program, lower domestic volume with Ford, and lower revenue from Stellantis as the program is terminating. The aftermarket decline was spread across multiple categories.
Q: How is VOXX addressing its current debt levels and what are the plans for debt reduction?
A: (Patrick Lavelle, CEO) Our total debt as of quarter end stood at approximately $69 million and stands at approximately $62 million today. Our plan is to eliminate approximately $45 million of this debt through a series of transactions that are in process now. We are currently in contract to sell our Orlando facility, and we are in discussions regarding divesting some of our business assets and potentially some of our brands. Net proceeds will be used to pay down the debt incurred in connection with the CGuard ruling.
Q: What are the expectations for the Premium Audio segment and any new product launches?
A: (Patrick Lavelle, CEO) Our Premium Audio business grew in Q1 despite domestic retail and consumer pressure. We anticipate continued growth this year. We are introducing new products, including the Klipsch Flexus sound system, Klipsch Music City broadcast Bluetooth speakers, and a new line of party speakers towards the fourth quarter. We are also looking at ways to improve both sales and margins while controlling costs.
Q: Can you elaborate on the ERP upgrade and its expected impact on the business?
A: (Loriann Shelton, CFO) Our ERP upgrade kicked off on June 1 with Oracle Fusion. This project is estimated to take 18 months to complete and will result in significantly greater efficiencies, better automation, data and technology tools, and ultimately savings in overheads. It will allow us to automate most of our back-office functions, making it easier for customers to do business with us and enabling us to leverage technology for revenue-generating tasks.
Q: What are the future projections for VOXX's profitability and financial performance?
A: (Loriann Shelton, CFO) We expect to lose money in the second quarter but to be profitable in the second half on an operating income basis. We aim to be profitable for the fiscal year. Our focus is on compressing overhead and driving more profitable revenue, and we are rightsizing our business based on anticipated size this year while realigning operations to drive savings and efficiencies.
Q: How is VOXX handling the challenges in the aftermarket segment?
A: (Patrick Lavelle, CEO) The aftermarket segment has been challenging due to the economy. Pressure will continue this year, though customer inventory levels have improved. We expect stronger remote start and alarm business as we move into our third quarter. We are rationalizing brands and SKUs to maximize profitability and focusing on categories and customers with stable business and growth prospects.
Q: What are the key initiatives in the Automotive segment to optimize operations and supply chain?
A: (Patrick Lavelle, CEO) We are nearing completion of the move of our OEM production to Mexico, which will allow us to significantly reduce our physical footprint in Florida. We are exiting our RSE program with Stellantis and have new programs with Ford, Nissan, and Volvo. We are also working on several projects for remote starts, turn signals, lighting, safety, and more. The focus is on optimizing operations and supply chain, and improving our margin and cost structure.
Q: How is VOXX planning to manage its product portfolio and capital allocation?
A: (Patrick Lavelle, CEO) We are looking at every product and SKU, every customer program, and determining our true cost to serve. We plan to generate capital efficiencies by either improving or eliminating programs that do not meet profitability criteria. We are also redirecting capital to programs that help us achieve stability, profitability, and growth potential.
Q: What are the expectations for the Consumer segment, particularly in non-premium audio CE products?
A: (Loriann Shelton, CFO) The Consumer segment sales were down due to non-premium audio CE products, with the biggest impacts being lower sales of wireless speakers and lower international sales related to our solar balcony power products. We expect the solar product sales to rebound in future periods as the shortfall was more timing-related. We are retooling our business to focus on categories that generate better returns and leveraging strong customer relationships.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
