VOXX International Corporation
Q1 2006 Earnings Call Transcript

Published: 11 Jul 2006

[Operator:]

Good morning ladies and gentlemen, and welcome to the Audiovox conference call. My name is Janelle and I will be your coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today’s call, Mr. Glenn Wiener, Investor Relations. Please proceed, sir.

[Glenn Wiener:]

Thank you and good morning. Welcome to Audiovox’s 2006 fiscal first quarter conference call for the period ended May 31, 2006. As the operator mentioned, today’s call is being webcast from the Company’s website www.audiovox.com, under the Investor Relations section, and a replay has been arranged for those who are unable to participate. The replay will be available approximately one hour after the completion of the call, or by dialing 888-286-8010 and entering passcode 62300820. Fiscal first quarter results were released after market closed yesterday. If you have not received a copy of the announcement, you can obtain one by calling my office after the completion of this call, or by visiting the Company’s website. Additionally, our Form 10-Q was filed yesterday and can be found on our website under SEC filings. Speaking for management this morning will be Patrick Lavelle; President and Chief Executive Officer, and Michael Stoehr; Senior Vice President and Chief Financial Officer. Both will make opening remarks before opening up the call for questions. Before getting started, I’ve been instructed by legal counsel to read the following Safe Harbor statements. Except for historical information contained herein, statements made on today’s call and on today’s webcast that would constitute forward-looking statements may involve certain risks and uncertainties. All forward-looking statements made are based on currently available information and the Company assumes no responsibility to update any such forward-looking statements. The following factors, among others, may cause actual results to differ materially from the results suggested in the forward-looking statements. These factors include, but are not limited to

[Patrick Lavelle:]

Thank you, Glenn and good morning, everyone. I’d like to thank you for joining us on our first quarter conference call. I’ll begin today by providing a brief overview of our results thus far, and then give you an idea of what’s on tap for the remainder of the year. Mike will then provide more details on the financials before we open up the call for your questions. As you saw from yesterday’s announcement, we reported net sales of $111.3 million, which on a sequential basis were up 8% over our last quarter, which was our transition period. Net income from continuing operations was $1.8 million, or $0.08 per diluted share, which was also up sequentially over the transitional quarter from a reported $400,000 or $0.02 per diluted share. On a pro forma basis, taking into consideration extraordinary, one-time occurrences from the comparable period last year that included the unrealized gain on the sale of Bliss-Tel’s stock and a favorable tax benefit, net income from continuing operations was $1.8 million or $0.08 per diluted share, as compared to $1.2 million or $0.05 per diluted share in the same period. Mobile Electronic sales came in at $83.1 million, and represented almost 75% of net sales versus 64.3% in the second quarter of ’05. Consumer sales were $28.2 million, or 25.4% of net sales, compared to 35.7% last year. Our gross margin for the quarter was 18.1%, which compares to 15.8% in the second quarter of ’05, and 15.2% reported in the transition period last quarter. The increase in our gross profit margin was due to a number of factors, which I’ve discussed with you over the past few quarters. Restoring margins to historical levels remains our number one priority. The shift in sales to higher Mobile Electronic products, which traditionally carries higher GP, and our decision to walk away from some consumer deals that did not meet our minimum profit requirements, have played a major role in increase of margins. With new product introductions scheduled throughout the remainder of the year, I feel confident in our ability to sustain and potentially improve upon these levels. Mobile Electronics represented a larger percent of our mix, however ME sales did decline by roughly 10% versus the prior year period, primarily as a result of three factors

[Michael Stoehr:]

Thanks, Pat. Good morning, everyone. Consolidated sales for the first quarter were $111 million versus $144 million last year. Sales in our consumer group were $28.2 million versus $51.6 million last year. This decline was caused by lower sales in the portable DVD category which, as Pat mentioned, are the results of our avoiding certain retail promotions that are not profitable. Sales in Mobile Electronics were $83.1 million versus $93 million last year. There were several factors affecting Mobile Electronic sales

[Patrick Lavelle:]

I’d like to open up the floor to any questions at this time.

[Operator:]

Thank you. (Operator Instructions). Our first question comes from the line of John Bucher of BMO Capital Markets. Please proceed.

[John Bucher:]

Thank you very much. Great job on the gross margin improvement. A couple of questions for you just on the financials and to see what we can do about getting some outlook from you all. In fiscal 2005, you did just under $540 million in revenues. Should we be expecting a flat fiscal 2006? Slightly up? Can you give us any idea on the top line?

[Patrick Lavelle:]

Well John, we haven’t really given any guidance, but with the situation as I’ve indicated on DVD portables, we will see somewhat of a decline in our consumer sales for the year.

[John Bucher:]

You had mentioned in your commentary, Patrick, you mentioned that you thought the gross profit margin levels were sustainable. In fact, there was possible improvement there throughout the year. Should we assume a couple hundred basis points? In the past you had consolidated electronics margins in the low 20% range in some quarters. Is that possible?

[Patrick Lavelle:]

Within the Mobile group, that could be possible. In any one of the categories, there are areas for improvement. As you know, we don’t provide guidance on our gross profit at this time, but as new products roll out, it will impact our gross profit. We’ll update you at that point.

[John Bucher:]

With respect to the Xpress units you mentioned, I think that those remain suspended for the time being. Had those units been shipping as you’d expected, as they were originally going to, what would have been the impact on your gross margin?

[Patrick Lavelle:]

Again, I really couldn’t comment on that, but I don’t believe it would have been material for the quarter.

[Michael Stoehr:]

That’s correct, Pat. John, this is Michael. It would not really have impacted the margins that we reported in the first quarter.

[John Bucher:]

Then Michael, can you give us any outlook for operating expenses as a percentage of revenues for the second quarter on a sequential basis? Should we expect about the same there? Or on an absolute basis, however you want to handle that.

[Michael Stoehr:]

I think what you’ll see, John, as we move into the quarters; there is still a degree of seasonality in the Company even though we’ve shifted the fiscal years. You would see as a percentage of sales, overhead would drop.

[John Bucher:]

Then can you give any comment at all, Michael, on your expectations for the quarter that we’re in right now for the top line?

[Michael Stoehr:]

At this point, John, as Pat said, we gave guidance at the transitional. If you follow the seasonality of the Company, normally you will see in our second and third quarter, which was the old third and fourth quarter; you should see some sequential growth in revenue.

[John Bucher:]

Then just two other quick ones here. Patrick, I think you said that with respect to your strategic M&A plan, you could purchase a company or companies that are premium if they were accretive. Could you elaborate on that?

[Patrick Lavelle:]

Obviously, based on the purchase price, if we can find a company and put a deal together, that would be accretive in the first year of operation, we would consider an acquisition of something like that.

[John Bucher:]

Can you say whether you’re in active due diligence presently?

[Patrick Lavelle:]

I couldn’t comment at this point.

[John Bucher:]

Then Michael, last one for you. On inventory management, we’ve seen some improvement there. Can you say how far through the steps that you have previously described that you are going to be taking to improve inventory management from an MIS IT standpoint, and others? How far through that process are you?

[Michael Stoehr:]

We’re about; I would say about 65% of the way through. The supply chain and change in management with the introduction of our new operations executive are coming together, and the system is now moving into the projection areas.

[John Bucher:]

I’ll give somebody else a chance to ask questions here. Thank you very much for taking my questions.

[Patrick Lavelle:]

Thank you, John.

[Operator:]

At this time there are no audio questions.

[Patrick Lavelle:]

If there are no more questions, I once again would like to thank you for spending time with us this morning, learning a little bit more about Audiovox and I hope you have a good day.

[Operator:]

Thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect. Have a wonderful day.