Audiovox (VOXX)

Q2 2012 Earnings Call

October 12, 2011 10:00 am ET


Glenn Wiener -

Patrick M. Lavelle - Chief Executive Officer, President and Director

Charles Michael Stoehr - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Director


Matthew Spratford - Sidoti & Company, LLC



Good day, ladies and gentlemen, and welcome to the Audiovox Fiscal Second Quarter Conference Call. My name is Tony and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today's call, Mr. Glenn Wiener, please proceed.

Glenn Wiener

Thank you, and welcome to Audiovox's fiscal 2012 second quarter and 6-month results conference call. As you know, today's call is being webcast on our website, and can be access in Investor Relations section. With us today are Patrick Lavelle, President and Chief Executive Officer; Michael Stoehr, Senior Vice President and Chief Financial Officer; and John Shalam, Chairman of the Board.

Before we begin, I'd quickly 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.

I'd like to thank you for your participation this morning. At this time, I'd like to turn the call over to Patrick Lavelle. Pat?

Patrick M. Lavelle

Thanks, Glenn. I hope you all enjoyed the holiday weekend, and good morning. In the second quarter, our sales were up $29 million or 22.5%, driven primarily by our Klipsch audio business, growth in our mobile OE segment and international sales. Our margins continue to increase with the shift in our product mix and came in at 27.7%, which is 650 basis points higher than the second quarter last year. Core overhead, excluding the addition of expenses associated with Klipsch, acquisition-related costs and stock-based compensation expenses declined by over $1 million for both the 3 months and 6 months period. This helped us post an improvement in our operating income of $7.5 million.

Through the first half of the year, our business perform mostly to plan and we posted net income of $0.26 versus $0.08. Additionally, we reported adjusted EBITDA of $19.9 million, which represents a $12.4 million improvement year-over-year.

Before I go into the details and highlight some of our key product drivers, I want to start by saying that like most in our industry, we're seeing a slow retail environment. Consumer confidence is near record lows and our customers from discount chains and independent stores, the big-box retailers remain cautious in their buying even as we approach the all important holiday season. That said, we are loading in product at retail as projected. However, should the holiday season materialize differently than we expect, sales may be lighter than forecast in the third quarter. We'll have a much clearer sense of our full-year top line in January when we report our third quarter results. However, given that our bottom line performance through the first half of the year is tracking ahead of plan and the fact that our margins and costs are better than our initial forecast, we remain on track to meet our income and EBITDA guidance for the year.

The financial make-up of Audiovox has and continues to change for the better, and I feel good about the future direction of the company. The major thing standing in our way is the economy. And while we may hit some speed bumps along the way, we are generating cash and improving profitability.

Moving on to our groups, sales for our consumer accessory group were down, although margins were up considerably over 600 basis points versus Q2 last year, which is a direct result of our strategy to focus on higher margin categories. We're compensating slowness by expanding distribution channels beyond traditional CE outlets and have several new product introductions slated for the second half, which should help us offset softness at retail.

Specifically, we continue to grow in the wireless speaker category under the Acoustic Research brand, and are now selling in the hardware and home improvement channels with new accounts like Menards, True Value, Lowe's, and Bed, Bath & Beyond. We are actively pursuing the growing hotel industry segment to supply variety of products, including universal remote controls, a move that will increase volume in this category.

The portable power charging market is an area for potential growth as well. Consumers continue to add new charging stations and other devices in their households, and as we have -- and we have a series of new smartphone and tablet charging stations, which will be in stores by the holiday season. They include a unique USB charging clock radio, cradle-styled charging stations and a new wall plate charger, which fits over traditional wall plates and allows for discrete charging of smartphone and tablet devices. All these products have met with good response at retail.

We are also excited about Symphonix,our personal sound amplifier, which just launched at over 2,000 RadioShack stores. Statistics show that there is a growing demographic of active baby boomers who simply want to hear better. Symphonix is a unique nonmedical solution for enhanced hearing in all kinds of situations. In fact, they are like readers for your ears. We believe the RCA Symphonix and the Acoustic Research PSA will have global appeal at retailers, eye care facilities and health chains.

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