VOXX International Corporation
Q4 2011 Earnings Call Transcript

Published: 17 May 2011

[Operator:]

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Audiovox Corporation Earnings Conference Call. My name is Francine, and I'm your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Glenn Wiener of Investor Relations. Sir, you may proceed.

[Glenn Wiener:]

Thank you, Francine, and welcome to Audiovox's Fiscal 2011 Fourth Quarter Year End Results Conference Call. As you know, today's call is being webcast on our website, www.audiovox.com and can be accessed in the Investor Relations section. With us today are Patrick Lavelle, President and CEO; and Michael Stoehr, Senior Vice President and Chief Financial Officer; and John Shalam, Chairman of the Board. Before we begin, I'd like to remind everyone that except for historical information contained herein, statements made on today's call and in 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. Risk factors associated with our business are detailed in the company's Form 10-K for the fiscal year ended February 28, 2011, which was filed yesterday after market closed. At this time, I'd like to turn the call over to Pat Lavelle. Pat?

[Patrick Lavelle:]

Thanks, Glenn, and good morning, everyone. Last night, we issued our results for our fiscal fourth quarter and year end. Fourth quarter sales were down, coming in at $138 million versus $150 million in the same period last year. Weakness in our accessory group accounted for the lower revenue number as sales of consumer electronics industry-wide remains lower, and our accessory products are largely attachment to CD sales. For the quarter, both our mobile and international groups continued to show improvement resulting in higher sales. Our margins were up across all categories as we continue to shift from low margin products as previously advised on earlier calls. This enabled us to post gross margins of 25.1% compared to 20% in Q4 of fiscal 2010. Additionally, our operating income came in at $4.9 million versus an operating loss of $400,000, which is a $5.3 million positive swing based on higher margins and lower overheads. We reported $562 million in sales for the year, a 2% increase over fiscal 2010. In general, our fiscal year results tracked with the quarter, with accessory sales down, and mobile and international sales up over last year. Gross margins continued to improve, and we posted a 270 basis point increase with gross margins of 22.1% for the year. As with our quarterly results, there was a positive swing in operating income for the fiscal year, and Mike will provide details in a few moments. Although the economy continues to present a challenging environment, we are looking forward to improvements in our bottom line performance in fiscal 2012. Unlike in years past, we will be giving guidance this year due to the recent Klipsch acquisition. But before I get to that, I wanted to take a few minutes to remind you of our strategic plan since the divestiture of our cellular group. After we sold cellular in 2005, we were predominantly an aftermarket mobile electronics company with some OE business and several niche consumer electronic products sold at retail. Our 5-year plan was to use the cash from cellular to grow our mobile OE business and additionally acquire companies that would give us higher margins and distribution into new channels. We identified the higher-margin accessory market as a target, and today as a result of our acquisitions of RCA, Terk, Oehlbach, Schwaiger and Technuity, we are a dominant global supplier in that space. We've grown this business from essentially nothing in 2005 to a fiscal 2012 projection of approximately $240 million, both domestically and abroad. Concurrently, we increased resources in our OE business and formed our automotive division in Detroit and acquired Incaar in Europe and Invision here in the U.S., the latter of which gives us a manufacturing facility in the U.S. and invaluable R&D capabilities. In 2005, our OE business was approximately $20 million. In fiscal 2012, we have projects with GM, Ford, Toyota, Chrysler, BMW, Nissan, Kia, Porsche, Bentley and others, and are anticipating sales of approximately $115 million. Research identified the high-end audio market as another expansion opportunity for us, the CEDIA channel. CEDIA stands for the Custom Electronic Design and Installation. The CEDIA channel services the professional installation market, and we believe there are opportunities for us to grow in this area, as well as the commercial market. High-end audio, although sold at big box retail, is dominated by smaller independent specialists and professional installers. We first gained entry into this space with our acquisition of Recoton Europe that included several high-end European loudspeaker brands. And over the past few years, we have researched several companies in this space. Our patience has paid off, and as you know in this past quarter, we acquired Klipsch, adding the #1 high-end loudspeaker brand worldwide to our portfolio. Klipsch also adds direct manufacturing in the United States and distribution into the CEDIA and commercial markets. When we sold cellular, we were a $1.8 billion sales company with an infrastructure built to support that volume. We have worked to restructure the company to match overhead to current sales. Our acquisitions have allowed us to retool our product lines and exit many lower-margin products. At the end of fiscal 2004, our consolidated gross margins were 7.8%. Today, they are over 22%, and we are projecting gross margins to exceed 25% this year. Our 5-year plan back in 2005 was to attain $1 billion in sales with a product portfolio of substantially higher-margin products and to increase distribution over broader channels. Unfortunately, the recession extended the time line. However, this plan is very much on track. Today, we are a global accessory company, the #1 manufacturer of high-end loudspeakers in the world. And in mobile, we have the strongest automotive aftermarket distribution and a growing OE program and customer base. Today, we are a different company than we were just a few short years ago, and we believe we are positioned very well for the long term. With that said, we are projecting $730 million in sales this fiscal year, with upside potential dependent largely on macroeconomic factors. Of course like every company, we remain concerned about the continued slow recovery of retail, the surge in oil prices, commodities, Chinese labor costs and a weaker dollar. But on the plus side, the automotive industry is doing well, which should positively impact OE sales. However, until we see stabilization, we are going to take a cautious approach as we talk about the top line. As I said earlier, our gross profit margins should come in north of 25% based on the programs we have in place, and we will continue to focus our efforts on overhead, identifying synergies that can further reduce overall expenses. We're anticipating approximately $42 million of EBITDA in fiscal 2012, with upside based on the economy. We have accomplished much over the past few years. We have restructured, retooled and survived a devastating recession. Although stretched out, our plan is on track and I, along with the management team and board, am confident that our shareholders will be rewarded for their patience. I'm going to turn the call over to Michael now to review the numbers, and I look forward to addressing any questions you may have following his remarks. Michael?

[Charles Stoehr:]

Thanks, Pat. Good morning, everyone. I'm going to provide a recap of our fiscal year results and follow up with fourth quarter comparisons. I'll then discuss the Klipsch acquisition and provide some color around the information that was disclosed in our Form 8-K/A filing. Net sales for fiscal 2011 were $561.7 million compared to $550.7 million in fiscal 2010, an increase of approximately $11 million or 2%. Our electronics group was up approximately $40 million year-over-year, and our accessory group has decline in revenue -- had a decline in revenue of $29 million. The growth drivers for the year were

[Patrick Lavelle:]

Michael, thank you very much, and at this time, I'll open it up for questions.

[Operator:]

[Operator Instructions] We have a question coming in from the line of Aldi Mishan [ph].

[Unknown Analyst -:]

I had a quick question on the pro forma numbers. You mentioned that they include tax benefits in 2010 and 2011. Curious to how much is in each year?

[Charles Stoehr:]

Right. For 2010, if you adjusted for the tax benefits, the earnings would be $0.50 a share. And for 2011, adjusted for the tax benefits, the combined pro forma would be $0.76 a share.

[Unknown Analyst -:]

Okay.

[Charles Stoehr:]

That's the earnings for the company net of the tax benefits.

[Unknown Analyst -:]

Right. Okay. That's helpful. And are there any other sort of onetime, nonrecurring items in the $0.50 to $0.76?

[Charles Stoehr:]

No, no, we adjusted those out. That was just the tax benefits of both. 2010 was the Homeowners Act that was passed by the government. 2011 were deferred tax and valuation on leases.

[Unknown Analyst -:]

Okay. Great.

[Operator:]

[Operator Instructions] I'm showing we have no further questions in the queue.

[Patrick Lavelle:]

Okay. Well, hopefully, we've answered all your questions this morning. So thank you for your support of Audiovox, and be careful driving around in this weather because it is nasty out there. Have a good day, everyone. Thanks. Bye.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.