VOXX International Corporation
Q3 2019 Earnings Call Transcript

Published: 10 Jan 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the VOXX International Fiscal 2019 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Glenn Wiener of Investor Relations. Sir, you may begin

[Glenn Wiener:]

Thank you, Ashley, and good morning, everyone. Let me start by wishing you all a healthy and happy New Year. Welcome to our fiscal 2019 third quarter results conference call and as you know, the call today is being webcast live on our website, www.voxxintl.com, and there's a replay available for those who aren't able to make today's call. Speaking from management this morning will be Pat Lavelle, President and Chief Executive Officer; and Michael Stoehr, Senior Vice President and our Chief Financial Officer. Following their remarks, we'll have the Q&A session for those investors wishing to ask any questions. John Shalam, Chairman of the Board is also with us this morning and he will be available during the Q&A portion of the call as well. Before I turn the call to Pat, I'd like to remind everyone that except for historical information contained herein, statements made on today's call and webcast that would constitute forward-looking statements are based on currently available information. The company assumes no responsibility to update any such forward-looking statements. And risk factors associated with our business are detailed in our Form 10-Q for the period ended November 30, 2018 -- excuse me, in our Form 10-K for the period ended February 28, 2018. At this time, I'd like to turn the call over to our President and CEO, Pat Lavelle, to share some of the exciting news and progress that we've had at VOXX International. Pat?

[Pat Lavelle:]

Thank you, Glenn, and good morning, everyone. We're here at the 2019 Consumer Electronics Show and similar to past years, there's been an excellent reception to many of our new products, and we've had very productive meetings with our retail and automotive customers. We are also celebrating the 100th anniversary of the RCA brand, which has stood for the best in value in consumer electronic products, with a tremendous focus on innovation and technology. As you know from our last call, we are in the process of extensive changes to improve our business and streamline operations. And between now and our year-end report expect to have news that further outlines our realignment and plans for the future. We fully expect to generate more consistent profitability in the years ahead. I'll begin today with a recap of our Q3 results, then cover some of our more important product launches, partnerships, after which Mike will provide additional details regarding our nine-month results and balance sheet. Q3 net sales were down $27 million with the vast majority in our Consumer Accessories segment, which was down $24 million, driven by the exit of some of our older legacy product categories and high initial load-ins of our wearable products that were not expected to repeat. Yet Premium Audio net sales were down $7.7 million, mostly inline with our projections, as last year we made the decision to limit certain online distribution to protect margins and our retail customers, a strategy which is working as gross margins are up and the segment is more profitable. Another positive is our Automotive segment sales were up $4.4 million, driven by strength in our OEM business. Gross margins were up in all segments, coming in at 30%, up 350 basis points. Within this Automotive segment margins improved by 200 basis points, Premium Audio segment margin improved by 330 basis points and Consumer Accessories segment margins improved by 360 basis points. We also continue to take steps in lower cost and report total operating expenses of $33.2 million, which represented a $2.7 million reduction and a 7.4% improvement over Q3 of last year. Operating income of $5.7 million was up $100,000 compared to last year and this was with a net sales decline of close to $27 million. As we complete our SKU rationalization program, consolidate and restructure our Consumer Accessories groups, and integrate our international Premium Audio groups under Klipsch, we expect our business to be more profitable, especially when you add some of the programs that are underway with EyeLock and those that are on the horizon. Let's move into the segments now, first Automotive. Over the past several quarters, I talked about our next-generation rear-seat entertainment system EVO and OEM programs with GM, Ford, Nissan, and Mazda. These programs, along with our OEM remote start program with other OEMs and gains from Subaru, continue to drive our performance. Total OEM sales in Q3 were up close to 37%. I did note on our Q2 call that the OEM momentum would continued into the third quarter and likely slow a bit in Q4 and that remains the case. But for the year OEM is anticipated to be strong. Additionally, we are prepping for a second quarter launch of EVO on the new Lincoln Aviator, which should further support our OEM rear-seat business, with several other OEM partnerships and discussions. Our aftermarket sales declined by $2.2 million or 9.5%, but sales declines in this segment should be lessening in future periods. We believe the host of new products introduced at CES, seatback, and power systems, new remote start systems, under Code Alarm, Pursuit and Prestige, new products FOR the ADAS category, and new telematics combined with the fact that satellite radio sales have leveled off and although no longer a growth category, should hold steady in fiscal 2020. Additionally, Q3 pretax income for Automotive was $5.6 million, up $2.1 million and year-to-date through the first nine months was $11.1 million, up $2.2 million over fiscal 2018 nine-month period. Two other significant developments in Automotive; the first is our recent Q1 status at Ford, which is a big achievement and recognition by Ford of our excellence in quality, performance, processes. And secondly, the November announcement are being named as a finalist for the 2019 Automotive News PACE Awards for our game-changing eFob Mobile Phone Vehicle Access System. Within Premium Audio, while Q3 and year-to-date segment sales were down 13.5% and 9.9% respectively, they were in line with our budget with gross margins continuing to trend upward. We have lowered expenses in this segment and when comparing Q3 performance, pre-tax income was up $200,000. The real story is our year-to-date performance as pre-tax income in fiscal 2019 was $9.6 million, whereas last fiscal year it was $1.5 million, an increase of $8 million. We continue to focus on lowering expenses through better efficiencies and by realigning our international operations by combining Magnat and Heco under the Klipsch group umbrella. As a result, we expect to have some one-time severance and restructuring charges in our fourth quarter, when comparing the fiscal third quarter's Premium Audio operating expenses improved by $1.3 million and year-to-date have been improved by $4.8 million or 14.6%. The end result with continued efficiencies and the impact of our realignment should be a more profitable segment one which we believe will also grow over time. We continue to have success with our Reference, Reference Premiere and Heritage product lines and expect to expand our custom installation alliances beyond our current programs with Margaritaville and Hard Rock Hotels. This quarter we secured a new partnership with Klipsch, where they are now the official speaker supplier for First Watch restaurants. We are also in discussions with a number of other large global organizations and success with just one or two of them should help drive performance and heightened visibility of the Klipsch brand. At CES, we unveiled many of the Klipsch and the almost 2019 product introductions ranging from wireless headphones, wireless portable and tabletop speakers, upgraded sound for television with new sound bars, powered speakers and multichannel speakers with Visor Technology. We will also be launching exclusive soundbar and subwoofer program for direct import with Amazon, which we'll begin in March. And you can visit the Klipsch website for the press kit and for additional product information. As for Consumer Accessories, here is where the heavy lifting comes into play. Last quarter we announced an aggressive SKU rationalization program, which is in place now and will remove several of our legacy products from our lineup through the duration of this fiscal year and into next. On our year-end call, we will provide more details around the exit product lines, the impact of our fiscal 2019 results and fiscal 2020 expectations. We are focusing on products where we have strong distribution, opportunities for expansion and margin structure which meet our bottom line criteria. Last quarter, we began the official restructuring of our two German accessories groups into one company operating out of the Schwaiger facility in Germany. The move was completed in the third quarter and the remaining IT work will be completed by the end of our fiscal year. We also announced our intent to sell our German Accessory business and several companies have expressed interest. The combined operation has good market penetration. There's approximately €30 million and is profitable. As things progress, we will determine whether we proceed with the sale or maintain the restructured operation. I'm confident that with a clear role of focus on more profitable category, growth from our wearable program and new revenue and income strings from EyeLock, we will make this a profitable segment. As with all product lines, we see our website for the CES releases, as I will only highlight a few of the announcements and I will also provide updates on key programs. The wearable program was down Q3 more than $10 million, which was attributed to the initial loading in sales for our Striiv wearable device last year. As we announced last quarter, VOXX is handling the distribution and logistics for the motion program that includes wearable devices from

[Michael Stoehr:]

Thanks Pat. Good morning everyone. As Pat covered our [Indiscernible] I'll make just a few comments with respect to our nine month year-to-date results and then focus on sequential improvements in our balance sheet. Net sales were down 11.8% on a consolidated basis with Automotive up 13%. Premium Audio down 9.9% [Indiscernible] the reasons Pat gave are fully comparative to remain true for the nine-month period. Gross margins were up 280 basis points coming in at 28.8%. Premium Audio segment gross margins were up 460 basis points, Consumer Accessories segment was up 250 basis points and the Automotive segment gross margins were down 30 basis points. Total expenses year-to-date declined by $5.7 million, an improvement of 5%. However, note that in the second quarter of fiscal 2019, we had intangible asset impairment charges of $9.8 million. Excluding these non-cash charges, total operating expenses for the nine-month comparisons declined by $15.6 million or 13.6%. The biggest impact was G&A expense, down $9.5 million or 16%, but selling expense and engineering and technical support expenses declined as well. There are a number of actions underway to lower our expenses further in fiscal 2020. So, in fiscal 2019 fourth quarter, we have one-time restructuring charges, which Pat discussed earlier. With respect to other income and expenses, there wasn't a lot of noise in our Q3 results, but for the nine-month comparisons, there were a number of one-time events. We had a $3.5 million non-cash impairment on our Venezuela properties in fiscal 2019 and a $6.6 million expense associated with FX related to our sale of Hirschmann in last year's fiscal nine-month period, which was partially offset by a $1.4 million investment gain related to our sale of Rx Networks. Total other expenses net were $500,000 compared to $5.5 million for fiscal 2019 and fiscal 2018 nine-month periods. We reported an operating loss of $10.8 million versus an operating loss of $14.1 million, an improvement of $3.3 million. Remember that in addition to other expenses recorded, we also had a large gain from our sales in Hirschmann in August of 2017, which skewed net income and net income attributable to VOXX. On a pretax income basis, our Automotive segment reported pretax income of $11.1 million, up $2.2 million. Our Premium Audio segment, as Pat mentioned earlier, reported pretax income of $9.6 million, up $8 million and our Consumer Accessories segment reported a pretax loss of $28.8 million, an $11.4 million increase from fiscal 2019 to fiscal 2018, which is what is driving many of the actions underway. Our adjusted EBITDA which taking into account the non-cash charges and respective gains all one-time factors came in at $17.4 million, which represents a $7.8 million year-over-year improvement. Regarding taxes, for the three months ended November 30th, 2018 the company recorded an income tax benefit of $4.1 million on pretax earnings of $6.5 million, a negative effective tax rate of 62.8%. For the nine months ended November 30th, 2018, the company recorded an income tax provision of $3.1 million on pretax loss of $11.3 million, a negative effective tax rate of 27.8%. If the annual pretax income is achieved for the remainder of the fiscal year, the company anticipates recognizing an additional tax benefit for the fourth quarter of fiscal 2019. Pursuant to accounting literature, the company is required to utilize a negative effective tax rate based on our annual pretax income forecast, which includes profitable jurisdictions, anticipating an income tax provision, and loss jurisdictions from which a limited tax benefit can be recognized. The mix of jurisdictions produces a negative effective tax rate which results in an income tax benefit when applied to pretax earnings for the three months ended November 30th, 2018, an income tax expense when applied to pre-tax loss for the nine months ended November 30th, 2018. The income tax provision for the nine months ended November 30th, 2018 is not representative of our cash tax liability, which is expected to be approximately $1.6 million for the fiscal 2019. Now for our balance sheet which has improved sequentially over the second quarter. As of November 30th, we had $48.7 million of cash and cash equivalents, this is down $3 million compared to February 28, 2018, our year end, but up $4.5 million since the end of the second quarter on August 31. Our total debt position of $18.2 million increased by approximately $600,000 compared to year end with minor adjustments in our euro asset-based lending obligation and mortgages accounting for the difference. Total long-term debt net of debt issuance cost of $5.8 million marked its $2.7 million improvement when comparing November 30 to February 28. We have no debt outstanding on our domestic credit facility and the only debt we hold today is for mortgages outstanding on our properties in the U.S. and Germany and the euro asset-based loan which support our German operations. Our balance sheet remains strong and we anticipate further improvements in the coming year. Operator, we are now ready to open up the call for questions.

[Operator:]

[Operator Instructions]

[Glenn Wiener:]

Ashley, I'm showing multiple questions. I'm not sure why you are not on your screen. We got four right now in the queue.

[Operator:]

Okay just give me one moment.

[Glenn Wiener:]

First question is from Tom Kahn of Kahn Brothers.

[Operator:]

Thank you. And our first question comes from the line of Thomas Kahn with Kahn Brothers. Your line is now open.

[Thomas Kahn:]

Hi. Am I open? Am I live?

[Pat Lavelle:]

You're good, Tom.

[Thomas Kahn:]

Thank you. Good morning. I'm glad that you people are hiring a consultant to review your businesses, am I correct in that?

[Pat Lavelle:]

Yes, we have worked with them recently.

[Thomas Kahn:]

Okay. Because I had recommended a number of years ago that you hire a qualified consultant to review all of your businesses and make recommendations. So, I'm very pleased that you are working with a consultant to review all of your businesses. So, I'm glad you're doing that. Would you share what the consultant tells you after you've gotten the report?

[Pat Lavelle:]

I think what you'll see is when we announced our plan for the fourth quarter; you will see the result of our discussions with any of the consultants that we spoke with.

[Thomas Kahn:]

Okay. That's good. I hope that you would consider sharing a synopsis of what the consultant recommends and that the consultant also considered aside from tweaking the businesses, selling them, reducing costs consider the possibility of share repurchase program to enhance shareholder value. I don't know whether the consultant is the right type of consultant to consider that, but I would certainly think if they are, that should be an agenda item for them?

[Pat Lavelle:]

As we did, and Tom as we discussed in our last call and as I've been stating, the board is looking at every option that we have available too. Now based on the balance sheet that we have and our debt position, we will look at every option to help and improve total shareholder value.

[Thomas Kahn:]

That's good. I'm glad to hear that. And I do hope that one of the things that you would not consider is an acquisition because if you look at the -- Pat, if we look at the acquisitions over, let's say, the past half dozen years and what's happened to the share price, we found that it really has not helped us, but probably a share repurchase program to shrink the outstanding shares would. So I think we need independent eyes of consultant to say, should we do more acquisitions the way we have done in the past? Or should we consider shrinking the number of shares to enhance shareholder value because the reality is the shares have not done well during this full market?

[Pat Lavelle:]

Yes. Well, we're making investments in new technologies that obviously have drained the profitability a bit. And as I said we are looking at every option to improve our business, improve our EBITDA, improve shareholder value. So let us go through the plan. I think what you will see from our fourth quarter announcements is something that would be good for the company and good for the shareholders.

[Thomas Kahn:]

Thank you. And please be tough for the consultants because we really need to have surgery of some radical type, because I remember at one of the shareholder meetings that I did not attend out in Long Island, some of the management said that, the stock is worth $20 or $30 a share. I wasn't there at the meeting, but I believe it. The question is, how do we get from here to there?

[Pat Lavelle:]

That's what we're working on Tom.

[Thomas Kahn:]

Okay. Thank you very much.

[Pat Lavelle:]

Okay. Right.

[Operator:]

Thank you. And our next question comes from the line of Brad Leonard with BML Capital Management. Your line is now open.

[Brad Leonard:]

Hi. Thanks for taking my question.

[Pat Lavelle:]

Good morning, Brad.

[Brad Leonard:]

Good morning. On the EyeLock, you guys have a -- to remind me where this sits on the balance sheet? You've loaned $42 million to EyeLock, but it's a consolidated entity. So, on the consolidated balance sheet where does that sit the $42 million?

[Pat Lavelle:]

Its company right.

[Brad Leonard:]

Because in the footnoted it says, it's in a short term or the current loan?

[Pat Lavelle:]

Mike you want to take that?

[Michael Stoehr:]

The EyeLock is consolidated into the financial statements and that the inter-company loan because it’s considered intercompany loan sort of eliminates which is you see on the financials if you look at -- if you'll see the investment accounts, it would be in there.

[Brad Leonard:]

Okay. So in the footnote it shows it's the full $42 million is in current portion of debt, but that obviously gets consolidated out, because there's only $10 million on the balance sheet. So as an asset where is it in? It's in investment.

[Michael Stoehr:]

It would be the original investment that we made would show up the investments portion. As we originally see the footnote, it’s a VIE and that's why we separated out to let you look at it.

[Brad Leonard:]

So it's not in current assets?

[Michael Stoehr:]

No.

[Brad Leonard:]

The investment -- it's an equity investment?

[Michael Stoehr:]

Yes.

[Brad Leonard:]

The $22 million?

[Michael Stoehr:]

Well, no. The $22 million is the investment that we have in ASA. It would be in -- let me just look at it for you. We found it in long-term assets. Intangibles, probably it's sitting up in intangibles.

[Brad Leonard:]

Okay. So it's part of that, in the intangibles. Okay. All right. Just want to clarify that. And then, it looks like the 360Fly, which I asked you guys about last quarter that you've loaned them $15 million and that is sitting in prepaid and other current assets?

[Michael Stoehr:]

That is correct

[Brad Leonard:]

Okay. So in the Q, you mentioned that this company is looking like they're going to filing Chapter 11?

[Pat Lavelle:]

Yes

[Michael Stoehr:]

Pat, if you – on a business basis, I think, what Pat will take you through, as he mentioned in his remarks, well, this is a legacy – there's legacy issues of the old company, when the company pivoted from a consumer electronics company, our last resort, and has now moved into new technology, which we're involved as a senior creditor with three other lenders, one is also a customer of the company and in order to clean this up, we may take this through a pre-pack Chapter 11 and bring it back out again.

[Brad Leonard:]

Okay.

[Pat Lavelle:]

So right now what we're looking at, well right now what we looking at, we're having ongoing negotiations with the secured lenders of 360 with respect to potential filing by 360 of a voluntary petition. And we have spoken with a number of their customers who are desirous of continuing with the product or introducing the product that they have worked on with 360 that has been recently approved. So the secured lenders, along with the customers, some of the customers may make an additional investment, or make an investment in 360, but we're studying all the options that are available to us and if the negotiations are fruitful, we would provide the debt financing to take them through reorganization and come out on the other side with a clean company with proper financing and with business that should bring them to profitability. That is the game plan.

[Brad Leonard:]

Okay. And how much would you potentially own of the company?

[Pat Lavelle:]

Coming out of the bankruptcy would be close to 80%, if that was the case. But obviously, if we have other interested parties that would be investing, then we would make arrangements for them to come in as an investor.

[Michael Stoehr:]

Which would be taking our shares Pat?

[Pat Lavelle:]

Yes, we'll be selling our shares back to them. But the intent would be, if we can negotiate all the different issues that need to be done, would be to have control over the company, so we can manage it, and develop the product for other -- for the -- who in many cases would be investors as well.

[Brad Leonard:]

Okay. And currently, we have no equity in this, right?

[Michael Stoehr:]

That is correct.

[Pat Lavelle:]

No equity. We're lender only.

[Brad Leonard:]

Lender only. So, is there any chance that you just get your $15 million back and move on down the road or no?

[Pat Lavelle:]

Well, obviously, if the secured lenders credit bid for the company and they get topped, then there'll be a question as to whether or not we raise that. And if we -- if we're not successful in getting the company, then there is a very good chance that all these senior secured lenders get paid out.

[Brad Leonard:]

Okay. But your first choice would be to take control of the company?

[Pat Lavelle:]

Yes. We think -- we think the technology that they worked on, the customers that they are working with are large customers and we think that the technology is something that, if they had a little bit more runway, they would be able to bring those products to market and grow their business.

[Brad Leonard:]

Okay. All right, that's all I have. Thank you.

[Pat Lavelle:]

You’re welcome.

[Operator:]

Thank you. And our next question comes from the line of David Williamson, Private Investor. Your line is now open.

[David Williamson:]

Yes. Thank you. Adjusted EBITDA, $17.5 million was the adjusted EBITDA for nine months. If one does the exercise to determine the nine-month adjusted EBITDA without losses at EyeLock, then what was the nine-month adjusted EBITDA?

[Pat Lavelle:]

All right. Mike you'll take that.

[Michael Stoehr:]

Yes. That's okay. If you take a look at it, the adjusted EBITDA without EyeLock would be probably $17 million-plus, I think we had -- we are showing $12 million, if I remember rightly is the loss. So, it would be $29 million to $25 million, $29 million.

[David Williamson:]

Okay. It would be $29 million of adjusted EBITDA for nine months?

[Michael Stoehr:]

That's correct.

[David Williamson:]

Okay.

[Michael Stoehr:]

We tend to look at -- then you have to -- what you have to subtract out is the portion that belongs to the other shareholders, which is the other 36% -- the other 46%. So, it would be a little bit north -- south to that number. If you give me a second, I could give it to you. All right.

[David Williamson:]

Sure.

[Michael Stoehr:]

We have -- as you know, we own 54% of the investment. And here we go I'm sorry, taking me a little bit to get there. Okay, $12.7 million is the loss here for the nine months, its $17.2 million, $12.7 million, take 40% of the $12.7 million, say that's $5 million would be sitting at about $24 million, $24 million approximately.

[David Williamson:]

Okay Yes. So, since the company owned over 50% of EyeLock, you're required to put 100% of the EyeLock losses on your financials, but then we later have to add back the 46% that you do not own, that's what you just did?

[Michael Stoehr:]

That's correct. When you see the financials up to the pretax line, that's inclusive of the total consolidation and then after that you see that of the -- on the statement, if you look at that, where it says the owe to the others, it's in the -- right after the after-tax line on the financials.

[David Williamson:]

Okay. If one does the same exercise without the Consumer Accessories division, what does the nine-month adjusted EBITDA come out to?

[Michael Stoehr:]

I'm sorry?

[David Williamson:]

If we did the same exercise without the entire CA division, what was the nine month adjusted EBITDA?

[Michael Stoehr:]

Okay.

[Pat Lavelle:]

At this point I would -- we don't really break it out like that.

[David Williamson:]

Okay. Let me have one other question then.

[Michael Stoehr:]

Yes.

[Pat Lavelle:]

Sure.

[David Williamson:]

For EyeLock, are the top companies in Iris Recognition in the same pre-revenue stage as EyeLock?

[Pat Lavelle:]

I would say yes, for the most part, yes. Revenue in a number of the companies are -- it's small at this particular point. But the run rate and basically what we see there because of the level of security of Iris being so much higher than all the other biometrics, we see companies and for certain applications moving towards that higher level of securities.

[David Williamson:]

Okay. It's not that the competitors are already profitable and EyeLock is not?

[Pat Lavelle:]

You're correct.

[David Williamson:]

Okay. Thank you. I have one other question, but I will get back in the queue right now.

[Michael Stoehr:]

Could you ask a question again about the – were you asking about the Consumer Accessories?

[David Williamson:]

Yes. The adjusted EBITDA, if we -- if there is no Consumer Accessories division, was wondering what that was for nine months?

[Michael Stoehr:]

Well just if you remember any Consumer Accessories group is EyeLock. And also included in the Consumer Accessories group for this nine months to date is the $9.3 million impairment charge. On page 3 of the 10-Q, it gives you a rough outline of what basically the loss for the nine months was 28.7 and the attributable interest and depreciation of that group was approximately $9 million. So inclusive in there you've got $28 million minus $9 million is $19 million minus $9 million for the impairment, so you'd figure it's about a $10 million difference roughly on the adjustment inclusive of EyeLock.

[David Williamson:]

I see. Okay. I will get back in the queue, but I did have one other question, but I will wait until others have the chance to ask question.

[Michael Stoehr:]

Okay.

[Operator:]

Thank you. And our next question comes from the line of Matthew Chang, Private Investor. Your line is now open.

[Matthew Chang:]

Hi. Yes. I'd like to follow-up on the impairment regarding the -- in the Consumer Accessories group of $9.65 million. I guess that was against the intangible assets, the finite life intangible assets?

[Michael Stoehr:]

Yes, that was in the second quarter.

[Matthew Chang:]

Right. I think this -- was this the first time that was seen or was it also already disclosed in the last 10-Q?

[Pat Lavelle:]

It was already disclosed and discussed.

[Matthew Chang:]

Okay, okay. So it's not something new, okay, understood. Well could you -- is there any -- do you have -- could you give any more color on that then? Is the -- I guess this has to do with the rationalization of the SKUs is -- I mean…

[Pat Lavelle:]

Yes. As part of the restructure of the entire accessory group, where we are eliminating certain categories that are legacy categories, bringing down sales in certain areas, moving profitability up, bringing down overhead. So as we bring down some sales, some of the intangibles are going to have to be adjusted for that and that's primarily the case.

[Matthew Chang:]

Okay. Understood. Thank you.

[Pat Lavelle:]

You’re welcome.

[Operator:]

Thank you. [Operator Instructions] And we have one more follow-up question from the line of David Williamson, private investor. Your line is now open.

[David Williamson:]

Yeah. Thank you. EyeLock, again. What kind of royalty per device for EyeLock if it's on a phone or if it's on a door lock or if it's on a cabinet lock in the hospital for example or for banking app, how does that work for royalties for EyeLock?

[Pat Lavelle:]

The royalties for each customer for each program will be different. Royalties is primarily going to be based on volume. Obviously, if you are in a device that has millions and millions of sales than the royalty rate we charge is going to be considered the overall volume. So it set for individual program that we work with.

[David Williamson:]

Okay. It doesn't come out to $0.50 per device or something like that?

[Pat Lavelle:]

It could if you were talking millions and millions of devices being sold. But it depends on each one of the different programs we are working on based on their volume, and of course, based on the competitive nature of competing biometrics in that particular product.

[David Williamson:]

Okay. And remind me please on your fiscal fourth quarter the seasonality, typically is it the -- which one of -- is it you’re seasonally peak I mean, not the peak that was just occurring, but which one is the seasonally the trough, which quarter is that typically?

[Pat Lavelle:]

I would look at probably the first quarter of a New Year is typically the quieter months. We have some programs that are kicking off in the fourth quarter that we had announced previously. So, again, depending on the restructuring charges, as we go through the plan, the severance charges that will be in there will effect the quarter and that's why we're advising everyone that with the restructuring plan, we may see some of that, but I would say the first quarter is probably our lowest.

[David Williamson:]

Okay. Management has done a great job growing ASA.

[Pat Lavelle:]

Yes.

[David Williamson:]

That seems to have -- I have seen the improvement there over the years and also management has done a great job in the last call it, nine months to a year stabilizing the premium audio and the Auto division.

[Pat Lavelle:]

Yes.

[David Williamson:]

The last question I had was on the Auto division. How many models or OEM models is the EVO -- how many models is it going to be on basically once it gets in full production?

[Pat Lavelle:]

Yes. We are already on a number of different models within GM, Ford, Mazda lineup and also Nissan. At this particular point, I'd have to tell you which ones, but it's numerous, well over 20 different vehicles where we have our Rear Seat Entertainment as an option. Then we've got a few more launches scheduled for fiscal 2020 and that should help continue to grow the business and the one big one being the Lincoln Aviator that we should launch in the second quarter.

[David Williamson:]

Okay. What I was indirectly asking was for the topline growth of the entire company, is EVO the main topline grower? Or is it a different division or a different product?

[Pat Lavelle:]

Well, within our Automotive space, we have a number of new products that we are looking at. Right now, EVO is the main growth driver within the space. And I just checked, we have about 40 different vehicles where we have EVO placed already. So depending on some of the new products, I mentioned on my call that our new eFob is a finalist for one of the PACE Awards which is a very, very prestigious award within the trade circles. And that's a product that we plan to introduce some time in 2020 fiscal. And this is a device that allows your phone to replace your key, so you do not have to carry a key with you. As you get close to the car, close enough for the sensor to detect, it will allow you to enter the car. It will know when you're in the car and we also use our Iris Biometric for authentication purposes that allow you then to start the car. So a new product that we've shown here at the show and obviously I think this is an area of growth that we see for the company in the years ahead.

[David Williamson:]

Super. Thank you. Those were my questions.

[Pat Lavelle:]

You are welcome.

[Operator:]

Ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to management for any closing remarks.

[Pat Lavelle:]

Well, I want to thank everyone for taking the time to -- and interest in VOXX. We're all heading back over to the show right now. We’ve got two days left of the show and we’re looking forward to the customer response, we're looking forward to the delivery of some of our new products as early as the spring to help drive sales and shareholder value. Thank you again and have a great day.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.