VOXX International Navigates Challenges and Explores New Market Opportunities

2023-12-30

VOXX International Corporation held its fiscal 2023 fourth quarter and year-end conference call on May 16, 2023. The call featured CEO Pat Lavelle and CFO Michael Stoehr as speakers. During fiscal year 2023, the company faced several challenges, including production shutdowns by OEM customers, reduced orders from retailers, inflation, global recession fears, and supply chain issues. Chip scarcity particularly affected VOXX International's expected automotive OEM growth.

Looking ahead to fiscal year 2024, the company expects similar conditions in the first half of the year, with the possibility of easing by the Fed and lower costs due to an improved supply chain. They also anticipate an improvement in chip supply.

In terms of financial performance, fiscal '23 sales declined by 16% compared to the previous year. Gross margins declined by 160 basis points, while operating expenses (excluding noncash impairment charges) decreased by over 5%. The operating loss for fiscal '23 was $27.3 million, with adjusted EBITDA at $8.6 million.

The decline in automotive segment sales was primarily attributed to heavy inventories of remote start products, a decrease in aftermarket satellite radio sales, and a scarcity of vehicles available. The consumer segment sales declined by 17.6%, with the majority of the decline seen in premium audio. Weak retail environment, recessionary pressures, inflation, and overall softness in the CE category impacted sales.

VOXX International's subsidiary, Klipsch, is entering the wireless party speaker market and will feature the Klipsch Reference Premiere audio system in the new all-electric Ram 1500 REV. Another subsidiary, RCA, has entered the multibillion-dollar hearing aid market, aiming to benefit the approximately 30 million Americans who could use hearing aids. The European accessory group has introduced a new solar program for houses and apartments. Klipsch experienced close to a 19% year-over-year increase in biometrics sales and received approval as an authorized iris authentication provider.

EyeLock, another subsidiary, has its access control systems installed in 13 nuclear power plants. The company is working on research and development projects to leverage iris and facial recognition for physical and logical access, expecting continued improvement in this segment throughout the year. Notable contributions to the company have been made by Peter Lesser, a VOXX board member for the past 20 years, and Steve Downing, the president and CEO of Gentex.

In terms of Q4 performance, net sales for VOXX declined by $27.4 million, primarily due to automotive sales being impacted by car manufacturers' production plans. The consumer segment margins decreased by 450 basis points, while the biometric segment margins were close to 40%. The company anticipates gross margins to improve as supply chain issues are mitigated.

To drive sales and improve margins, VOXX International's strategy includes adjusting pricing to be more competitive and restoring normal margins on products. The impact of higher interest rates on auto-related sales is expected to be offset by low-interest or no-interest loans offered by car manufacturers. Consumer spending on travel and services has affected CE spending for the home.

The current macroeconomic environment is unique, with a low unemployment rate, but higher gas prices and food bills are affecting the lower end of the marketplace. Government spending and pent-up demand for new cars also influence the market. The CEO expressed openness to strategic M&A opportunities but emphasized a conservative approach to spending until the market can be assessed. Modest growth is expected this year, with new products and expansion plans contributing to it.

In conclusion, VOXX International Corporation and its subsidiaries are navigating challenges and opportunities in the automotive, consumer, biometric, and audio industries. The company is focused on improving margins, addressing supply chain issues, and capitalizing on new market opportunities to drive growth in the coming years.