VOXX International Management Discusses Q1 2013 Results - Earnings Call Transcript

VOXX International (VOXX)

Q1 2013 Earnings Call

July 11, 2012 10:00 am ET

Executives

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

Analysts

Michael Fawzy Malouf - Craig-Hallum Capital Group LLC, Research Division

Matthew Spratford - Sidoti & Company, LLC

R. Scott Tilghman - Caris & Company, Inc., Research Division

Thomas Graham Kahn - Kahn Brothers Advisors LLC

Jeffrey Osher - Harvest Capital Strategies LLC

Presentation

Glenn Wiener

Good morning, everyone, and welcome to the VOXX Internation Fiscal 2013 First Quarter Results Conference Call. Today's call is being webcast on our website, www.voxintl.com and can be accessed in the Investor Relations section. With me this morning are Pat Lavelle, President, Chief Executive Officer; Michael Stoehr, Senior Vice President and Chief Financial Officer; and John Shalam, our 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 webcast that would constitute forward-looking statements 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 Form 10-K for the fiscal year ended February 29, 2012.

We'll begin today with opening remarks from Pat and Mike, and we'll then open up the call for your questions. And if anyone has any follow-ups thereafter, please feel free to contact me directly at the office. And at this time, I'm going to turn the call over to you, Pat.

Patrick M. Lavelle

Thank you, Glenn. Good morning, everyone, and thank you for joining us. Yesterday, we released our first quarter results, and as you can see from our announcement and intention filing, we have lots to discuss this morning.

On the sale side, our domestic operations performed mostly to plan, and there are several new programs within each group: mobile, OEM, accessories and high-end audio, which should have a positive impact in the coming quarters.

Internationally, we did experience some weakness, driven primarily by the lower Euro translation. We also had a number of anticipated onetime acquisition expenses, which we outlined on our last conference call. And finally, last week, we filed a Form 8-K announcing a settlement on a long-standing patent litigation.

Before going into all the details, let me start off by saying we have maintained our guidance, only adjusting for the settlement charge and its impact to EBITDA.

In the first quarter, we reported net sales of $194 million, an increase of 17.4%, compared to $165.3 million. Hirschmann, our most recent acquisition, accounted for $36.6 million, while the other areas of our business were down approximately $8 million. However, the Euro was down a little over 9% for us over the same quarter last year and has -- had a negative impact of $2.5 million to top line revenue.

Additionally, approximately $5.4 million of the decline was related to our strategy to deemphasize lower margin commoditized products. We also have approximately $3.6 million in lower sales related to timing sequences within our OEM group, which I will touch on in a moment.

A big part of our fiscal 2012 success story was international sales. In fiscal '13, the international markets are quite different than at this time last year. For example, Germany, where we do significant business, was generally immune to the pressures felt in Greece, Spain and other parts of the world last year. That changed in this first quarter, and we experienced some weakness for the first time in years.

In addition to the Eurozone countries, China, which has been the world's strongest market as of late, also slowed a bit in the first quarter. However, even with this softness and the lower Euro translation, our international sales, less Hirschmann, were up 3.5%, primarily driven by an increase in Accessories business.

We accounted for the Euro challenges in our budget planning; and overall, our net revenue was in line with our projections. Our domestic accessory product lines grew nicely this quarter, up 28.7%, building upon the momentum we had in the second half of last year.

I am pleased with the reception our wireless speakers have received by the market, and I expect this to continue to grow. I also expect our domestic accessory group to gain market share this year.

Klipsch sales domestically are continuing to gain traction in the headphone space, and we have new sales from our G17 AirPlay-enabled music system, recently introduced sound bars and other high-end speaker systems.

Our domestic OEM group declined by approximately $3.6 million. However, this was mostly due to timing of OEM programs. An OEM program with Ford ended in the first quarter and will be replaced by 2 new Ford programs in 2Q.

In addition, the Nissan program that I announced last year was initially slated to begin in the third quarter. This has been pushed up to Q2. These programs will more than offset the shortfall in the first quarter. Additionally, we will begin the rollout of our new LBS program with Sprint this quarter. And with everything going on, we fully expect to meet mobile projections.

Domestically, our business is mostly tracking to plan, and we see potential for upside based on new products coming to the market within all groups. This had and should help offset the lower Euro translation and is a primary reason we are reiterating top line guidance.

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