UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 14, 2007
AUDIOVOX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-28839 13-1964841
(Commission File Number) (IRS Employer Identification No.)
180 MARCUS BOULEVARD, HAUPPAUGE, NEW YORK 11788
(Address of Principal Executive Offices) (Zip Code)
(631) 231-7750
(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of file
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(e))
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On May 14, 2007, Audiovox Corporation (the "Company") issued a press release
announcing its earnings for the quarter and year ended February 28, 2007. A copy
of the release is furnished herewith as Exhibit 99.1.
ITEM 8.01 OTHER EVENTS
On May 15, 2007, the Company held a conference call to discuss its financial
results for the quarter and year ended February 28, 2007. The Company has
prepared a transcript of that conference call, a copy of which is annexed hereto
as Exhibit 99.2.
The information furnished under Items 2.02 and 8.01, including Exhibits 99.1 and
99.2, shall not be deemed to be filed for the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and will not be incorporated by
reference into any registration statement filed under the Securities Act of
1933, as amended, unless specifically identified therein as being incorporated
therein by reference.
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUDIOVOX CORPORATION (Registrant)
Date: May 15, 2007 By: /s/ Charles M. Stoehr
----------------------------------------
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
2
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Press Release, dated May 14, 2007, relating to Audiovox
Corporation's earnings release for the quarter and year
ended February 28, 2007 (filed herewith).
99.2 Transcript of conference call held on May 15,2007 at
10:00 am (filed herewith).
3
FOR IMMEDIATE RELEASE
AUDIOVOX REPORTS FISCAL 2007 FOURTH QUARTER AND YEAR-END RESULTS
HAUPPAUGE, NY, MAY 14, 2007 - Audiovox Corporation (NASDAQ: VOXX) today
announced results for its fiscal 2007 fourth quarter and year-ended February 28,
2007.
Audiovox Corporation (the "Company") changed its fiscal year from November 30 to
February 28. Annual results for the fiscal 2007 period will be compared to the
quarters ended May 31, August 31 and November 30, 2005 and February 28, 2006,
respectively. Additionally, fiscal 2007 fourth quarter results will be compared
to the prior year period ended February 28, 2006, which was the Company's fiscal
2006 transition period.
Fiscal 2007 Results
The Company reported net sales for fiscal 2007 of $456.7 million, a decrease of
13.3% compared to $526.8 million reported in the comparable prior year period.
Net income from continuing operations for the fiscal 2007 period was $3.7
million or $0.16 per diluted share compared to a net loss from continuing
operations of $5.8 million or a net loss of $0.25 per diluted share in the
comparable prior year-period. Including discontinued operations, the Company
reported net income of $2.9 million or income of $0.13 per diluted share in
fiscal 2007 compared to a net loss of $8.2 million or a loss of $0.36 per
diluted share in the comparable 2006 period.
Mobile Electronics represented 69.5% of net sales or $317.4 million. This was a
decrease of 5.4% compared to sales of $335.5 million reported in the comparable
prior year period. The decline in mobile electronics sales was due to the
absence of Rampage, Prestige and Video-in-a-Bag sales, product lines the Company
exited during fiscal 2006. Additionally, sales were adversely impacted by
approximately five months of lost sales resulting from the voluntary suspension
of XM satellite radio receivers due to an FCC block which has since been removed
and lower average selling prices in select mobile multi-media lines. Offsetting
these declines were higher sales of Phase Linear, Audiovox Germany, accessories
and Code Systems.
Consumer Electronics sales were $139.3 million or 30.5% of total sales, a
decrease of 27.2% compared to net sales of $191.3 million reported in the
comparable period last year. The decline in sales is related to lower selling
prices in the DVD, LCD and Plasma TV categories, which were seen throughout the
industry. In anticipation of these pricing declines, the Company limited its
exposure, which affected revenue, however it reduced inventory risk and resulted
in higher gross profit margins in this category.
Gross margins for fiscal 2007 ended February 28, 2007 were 17.4% compared to
11.5% reported in the comparable 2006 period. The improvement in gross profit
margins is a direct result of higher margins in the mobile category and
continued improvements in inventory management.
Fiscal 2007 operating expenses were $84.4 million, a decrease of 1.3% compared
to $85.5 million in the comparable fiscal 2006 period. While operating expenses
decreased from the year ago period, a portion of the decrease was offset by
charges related to legal settlement fees, expenses related to the newly acquired
Thomson accessory business and payroll benefits that include health plan costs
and stock-based compensation expenses.
1
AUDIOVOX REPORTS FISCAL 2007 RESULTS
As of February 28, 2007, the Company had $156.3 million in cash and short-term
investments and during the fiscal 2007 period, repurchased 305,100 shares of its
Class A common stock.
Patrick Lavelle, President and CEO of Audiovox stated, "This past year was a
transition year in which we set out to realign our organization on all fronts.
We went from a loss in 2005 to modest profits in 2006 and believe the Company is
in a much better position to improve overall profitability than we were last
year. With the addition of the accessory business, most notably, the RCA brand
worldwide, we now have an accessories group that should post sales of
approximately $200 million and at higher gross margins than our traditional
business lines. I'm also pleased to report that the assimilation of the
acquisition assets, from the product lines, warehouses, systems and personnel
into our own operations went very well. There are many efficiencies we expect to
realize from this acquisition and with significant financial resources at our
disposal, it is our intent to continue to seek acquisitions to fuel growth, lead
to operating profits and most importantly, generate value for our shareholders."
Fiscal 2007 Fourth Quarter Results
The Company reported net sales for the fiscal 2007 fourth quarter of $96.1
million, a decrease of 6.7% compared to $103.1 million reported in the
comparable prior year quarter. Net loss from continuing operations for the
fiscal 2007 fourth quarter was $305,000 or a loss per share of $0.01. This
compares to net income from continuing operations of $367,000 or earnings per
share of $0.02 in the comparable prior year period.
Including discontinued operations, the Company reported a net loss of $485,000
or a loss per diluted share of $0.02 in the quarter ended February 28, 2007, as
compared to net income of $183,000 or net income per diluted share of $0.01 in
the similar 2006 period.
Mobile Electronics sales, which represented 81.5% of net sales, were $78.4
million, an increase of 10.6% compared to sales of $70.8 million reported in the
comparable prior year period. Mobile sales were impacted by higher sales in
Phase Linear, Code Systems and accessories. Consumer Electronics sales, which
represented 18.5% of sales, were $17.8 million, a decrease of 44.7% compared to
net sales of $32.2 million reported in the comparable period last year. As
previously stated, the company intentionally limited exposure to the rapidly
decreasing prices in the DVD and LCD categories, which affected sales but
reduced post holiday inventory risk.
Gross margins for the period ended February 28, 2007 were 18.8% compared to
15.2% in the prior year period and 16.7% in the fiscal third quarter ended
November 30, 2006. Gross margins were favorably impacted by higher margins in
the mobile video and mobile multi-media categories, and accessories product
lines.
Operating expenses for the fiscal 2007 fourth quarter were $20.7 million as
compared to $18.8 million in the comparable fiscal 2006 quarter, which was
primarily related to expenses associated with the integration of the newly
acquired accessory assets.
Lavelle added, "The December, January and February period is traditionally our
lowest quarter, given the post holiday retail slowdown and this quarter matched
that trend. Our gross margins continue to improve and we remain focused on
returning those margins to more acceptable levels. We believe the changes we
have put in place throughout 2006 and into the first quarter will position us to
concentrate on product development and maximize our support teams both for the
existing operations and future acquisitions. As we move into fiscal 2008, we are
optimistic about our Company's market position and growth potential."
2
AUDIOVOX REPORTS FISCAL 2007 RESULTS
Conference Call Information
The Company will be hosting its conference call tomorrow morning on Tuesday, May
15, 2007 at 10:00 a.m. EDT. Interested parties can participate by visiting the
Company's website, www.audiovox.com, and clicking on the webcast in the Investor
Relations section. For those who will be unable to participate, a replay has
been arranged and will be available approximately one hour after the call has
been completed and will last for one week thereafter.
REPLAY NUMBER: (888) 286-8010
INTERNATIONAL REPLAY NUMBER: (617) 801-6888
ACCESS CODE: 95019369
About Audiovox
Audiovox Corporation is a leading international supplier and value added service
provider in the consumer electronics industry. The Company conducts its business
through subsidiaries and markets mobile and consumer electronics products both
domestically and internationally under several of its own brands. It also
functions as an OEM (Original Equipment Manufacturer) supplier to a wide variety
of customers, through several distinct distribution channels. For additional
information, please visit Audiovox on the Web at http://www.audiovox.com.
Safe Harbor Language
Except for historical information contained herein, statements made in this
release that would constitute forward-looking statements may involve certain
risks and uncertainties. All forward-looking statements made in this release 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. The factors include, but
are not limited to, risks that may result from changes in the Company's business
operations; our ability to keep pace with technological advances; significant
competition in the mobile and consumer electronics businesses; our relationships
with key suppliers and customers; quality and consumer acceptance of newly
introduced products; market volatility; non-availability of product; excess
inventory; price and product competition; new product introductions; the
possibility that the review of our prior filings by the SEC may result in
changes to our financial statements; and the possibility that stockholders or
regulatory authorities may initiate proceedings against Audiovox and/or our
officers and directors as a result of any restatements. Risk factors associated
with our business, including some of the facts set forth herein, are detailed in
the Company's Form 10-K/A for the fiscal year ended November 30, 2005 and its
Form 10-Q for the fiscal third quarter ended November 30, 2006.
Company Contacts
Glenn Wiener
GW Communications for Audiovox
Tel: 212-786-6011 or Email: gwiener@GWCco.com
- TABLES TO FOLLOW -
3
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2007 AND 2006
(IN THOUSANDS)
2007 2006
------------------ --------------------
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 15,473 $ 16,280
Restricted cash ....................................................... -- 1,488
Short-term investments ................................................ 140,872 160,799
Accounts receivable, net .............................................. 86,003 88,671
Inventory ............................................................. 104,972 96,150
Receivables from vendors .............................................. 13,935 9,830
Prepaid expenses and other current assets ............................. 11,427 5,985
Income taxes receivable ............................................... 171 8,498
Deferred income taxes ................................................. 2,492 2,339
-------- --------
Total current assets ................................................. 375,345 390,040
Investment securities ................................................... 13,179 14,709
Equity investments ...................................................... 11,353 11,834
Property, plant and equipment, net ...................................... 18,019 18,799
Goodwill ................................................................ 17,514 16,067
Intangible assets ....................................................... 57,874 11,002
Deferred income taxes ................................................... 1,858 1,408
Other assets ............................................................ 631 2,153
-------- --------
Total assets ......................................................... $495,773 $466,012
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 34,344 $ 13,776
Accrued expenses and other current liabilities ........................ 26,564 17,907
Accrued sales incentives .............................................. 7,410 8,512
Bank obligations ...................................................... 2,890 5,329
Current portion of long-term debt ..................................... 1,524 1,371
-------- --------
Total current liabilities ............................................ 72,732 46,895
Long-term debt .......................................................... 5,430 5,924
Capital lease obligation ................................................ 5,676 5,892
Deferred compensation ................................................... 7,573 6,569
-------- --------
Total liabilities .................................................... 91,411 65,280
-------- --------
Commitments and contingencies
Total stockholders' equity .............................................. 404,362 400,732
-------- --------
-------- --------
Total liabilities and stockholders' equity .............................. $495,773 $466,012
======== ========
4
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER AND YEAR ENDED FEBRUARY 28, 2007AND 2006
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
QUARTER QUARTER YEAR YEAR
ENDED ENDED ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2007 2006 2007 2006
---------------- --------------- --------------- ----------------
Net sales ........................................ $ 96,134 $ 103,050 $ 456,690 $ 526,786
Cost of sales .................................... 78,039 87,400 377,371 466,368
------------ ------------ ------------ ------------
Gross profit ..................................... 18,095 15,650 79,319 60,418
------------ ------------ ------------ ------------
Operating expenses:
Selling ........................................ 6,594 6,824 28,220 30,632
General and administrative ..................... 12,238 10,517 48,920 48,643
Engineering and technical support .............. 1,838 1,468 7,256 6,191
------------ ------------ ------------ ------------
Total operating expenses ...................... 20,670 18,809 84,396 85,466
------------ ------------ ------------ ------------
Operating income (loss) .......................... (2,575) (3,159) (5,077) (25,048)
------------ ------------ ------------ ------------
Other income (expense):
Interest and bank charges ...................... (464) (560) (1,955) (2,405)
Equity in income of equity investees ........... 514 474 2,937 2,463
Other, net ..................................... 1,426 1,769 6,253 6,894
------------ ------------ ------------ ------------
Total other income ............................ 1,476 1,683 7,235 6,952
Income (loss) from continuing operations before
income taxes ..................................... (1,099) (1,476) 2,158 (18,096)
Income tax (benefit) expense .................... (794) (1,843) (1,534) (12,328)
Net income (loss) from continuing operations ..... (305) 367 3,692 (5,768)
Net (loss) income from discontinued operations,
net of tax ....................................... (180) (184) (756) (2,435)
------------ ------------ ------------ ------------
Net income (loss) ................................ $ (485) $ 183 $ 2,936 $ (8,203)
============ ============ ============ ============
Income (loss) per common share (basic):
From continuing operations ..................... $ (0.01) $ 0.02 $ 0.16 $ (0.25)
From discontinued operations ................... (0.01) (0.01) (0.03) (0.11)
------------ ------------ ------------ ------------
Net income (loss) per common share (basic) ....... $ (0.02) $ 0.01 $ 0.13 $ (0.36)
------------ ------------ ------------ ------------
Income (loss) per common share (diluted):
From continuing operations ..................... $ (0.01) $ 0.02 $ 0.16 $ (0.25)
From discontinued operations ................... (0.01) (0.01) (0.03) (0.11)
------------ ------------ ------------ ------------
Net income (loss) per common share (diluted) ..... $ (0.02) $ 0.01 $ 0.13 $ (0.36)
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding (basic) .............................. 22,431,284 22,526,497 22,366,413 22,526,497
============ ============ ============ ============
Weighted average number of common shares
outstanding (diluted)............................. 22,431,284 22,766,593 22,557,272 22,526,497
============ ============ ============ ============
5
FINAL TRANSCRIPT
- --------------------------------------------------------------------------------
MAY. 15. 2007 / 10:00AM ET, VOXX - Q4 2006 AUDIOVOX CORPORATION EARNINGS
CONFERENCE CALL
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED][GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONFERENCE CALL TRANSCRIPT
VOXX - Q4 2006 AUDIOVOX CORPORATION EARNINGS CONFERENCE CALL
EVENT DATE/TIME: MAY. 15. 2007 / 10:00AM ET
- --------------------------------------------------------------------------------
CORPORATE PARTICIPANTS
GLENN WIENER
GW Communications - IR
PATRICK LAVELLE
Audiovox Corporation - President, CEO
MICHAEL STOEHR
Audiovox Corporation - SVP, CFO
CONFERENCE CALL PARTICIPANTS
THOMAS KAHN
Kahn Brothers & Company - Analyst
RICHARD GREENBERG
Donald Smith & Company - Analyst
1
PRESENTATION
- --------------------------------------------------------------------------------
OPERATOR
Good day, ladies and gentlemen, and welcome to the Audiovox Corporation
year-end 2006 earnings conference call. My name is Maria and I will be your
audio coordinator for today. At this time, all participants are in a listen-only
mode, and we will be facilitating a question-and-answer session towards the end
of today's conference. (OPERATOR INSTRUCTIONS).
At this time, I will now turn the presentation over to Mr. Glenn Wiener. Please
proceed, sir.
- --------------------------------------------------------------------------------
GLENN WIENER - GW COMMUNICATIONS - IR
Thank you and good morning. Welcome to Audiovox's fiscal 2007 fourth-quarter
and year-end conference call for the period ended February 28, 2007. As the
operator mentioned, today's call is being webcast on 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 1 hour after the completion of today's call.
Fiscal fourth-quarter and year-end results were released after market closed
yesterday. If you did not receive a copy of the announcement, you can obtain one
by calling my office after the call or by visiting the Company's website.
Additionally, our Form 10-K was filed yesterday and can be found on our website
under SEC filings.
Speaking for management this morning will be Patrick Lavelle, President and CEO,
and Michael Stoehr, Senior Vice President and Chief Financial Officer. Both will
be making opening remarks before opening up the call to your questions.
Before getting started, I would like to briefly read our Safe Harbor language.
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.
2
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, risks that may result in changes in the
Company's business operations, our ability to keep pace with technological
advances, significant competition in the mobile and consumer electronics
businesses, relationships with key suppliers and customers, quality and consumer
acceptance of newly introduced products, market volatility, non-availability of
products, excess inventory, price and product competition, new product
introductions, and the possibility that a review of our prior filings by the SEC
may result in changes to our financial statement, and the possibility that
stockholders' regulatory authorities may initiate proceedings against Audiovox
and/or our officers and director as a result of any numerous statements or other
corporate actions.
Risk factors with our business including some of the factors set forth herein
are detailed in the Company's Form 10-K for the period ended February 28, 2007.
Thank you again for your participation, at this time I would like to turn the
call over to Patrick Lavelle, President and CEO of Audiovox. Patrick?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Thank you, Glenn, and good morning, everyone. I would like to welcome all of
you to our fiscal 2007 year-end conference call. I am here in Dubai with John
Shalam, and we are exhibiting at the Hometech Middle East show, so I hope our
connection is good and everyone can hear us.
I know that by now, you have seen the press release on the quarter and the
fiscal year. Mike will cover the numbers in detail when he walks you through the
financials in a few moments, but if I may, I would like to focus my remarks on
the more global issues that have shaped our company over the last year. Although
year-over-year sales declined by 13%, we were able to return to profitability
and post a modest $3.7 million net profit on continuing operations.
On a pretax basis, we went from an $18.1 million loss in 2005 to a $2.1 million
profit in 2006, a $20 million swing. We got there by improving margins and total
gross profit dollars on lower sales and by further reducing overhead. Fiscal
2006 marked the end of a two-year restructure plan, necessitated by the sale of
our wireless group in 2004. Those of you who follow the Company know that upon
the sale, Audiovox went from a $1.7 billion wireless and electronics company to
just over a $500 million electronics company only.
Much of the infrastructure and overhead needed to manage the $1.7 billion in
sales remain, and we believe that it would take us some time to downsize the
Company to match the sales, while at the same time keeping the necessary
infrastructure that we would need for planned acquisitions.
With traditional overhead reductions of $4 million instituted this month and the
restructure I will discuss shortly, we have completed our plan and I believe we
are positioned not only to run our existing and newly acquired businesses
efficiently, but to also assimilate additional acquisitions at little or no
overhead increases. This restructuring of the Company's overhead was not simply
a reduction in services and personnel. It was a complete audit of our systems
and procedures which ultimately included the investment in several new
state-of-the-art operational systems designed to take full advantage of the
technology to increase productivity and generate cost savings.
While implementation of these programs have offset some of our cost reduction,
we believe they are integral to establishing Audiovox as a world-class provider
of services which will be needed to compete in the future.
3
Now let me spend a few moments on some of these programs. A new reverse
logistics warehouse management system that launched this month will streamline
the processing of returns. It will reduce manpower and automatically provide
accurate and timely documentation required to challenge customer chargebacks
over disputes, thereby saving additional dollars and time in our credit groups.
Scheduled to go live in June is a new demand planning program, as well as a
supply chain management and tracking software that will streamline our buying
process and help limit inventory risk and total inventory carry.
We launched a new B2B website to help automate the order and tracking process
with our customers, which has reduced order desk phone calls and provides better
and more timely information to our customers and improves productivity. And we
have completely revamped our consumer website with a focus on getting more
animation, more download material, improved navigation, more complete product
information, and better customer service information which we believe will
reduce call center volumes. Much of this work has been completed, and the site
is scheduled to turn on in stages starting in June with the Jensen site, and
with completion of all stages by September.
The last part of our overhead restructure was the establishment of a shared
services group that will provide operational credit accounting, human resource
display and marketing services to our wholly-owned subsidiaries, allowing those
subs to focus on engineering, product development, and sales. Our shared
services group was established to leverage our volume in purchasing, warehousing
and shipping, and to provide the most efficient non-redundant and lowest
possible cost for support services like IT, accounting and marketing.
We believe this group will also facilitate future acquisitions as they should be
able to provide necessary support without affecting existing operations, and
more than likely at a lower cost than what was being paid by the acquired
company. I have stated previously that future revenue and growth will come from
a combination of continued new product development in our core businesses, focus
on gross margins and acquisitions.
One of the main reasons for divesting the cellular business was to exit an
extremely volatile, low-margin cash-intensive business and replace it with
higher-margin businesses that would add to top-line revenue and enhance
profitability. While we continue to develop new and exciting products for all of
our brands and lines, we believe that it is through acquisition that the most
significant changes in the Company will be realized.
Since the sale of wireless, we have acquired three accessory companies. We
acquired Terk Technologies first, and then we added the accessory business of
Thomson, and most recently the European accessory company OEHLBACH. Combined
sales of these companies place Audiovox as a substantial player in the accessory
business with a group that should post sales of approximately $200 million in
fiscal 2008, and at margins that exceed our core businesses. That was the stated
goal for the use of the proceeds from the cellular sale.
In addition, we have managed to purchase those acquisitions wisely and
assimilate them into the Company and still have close to the same amount of cash
available as we did when we completed the sale of cellular. Our strategic
acquisition plans are ongoing, and we still have sufficient financial resources
to support it.
4
The mobile consumer and accessory businesses are as different as they are
similar, with challenges and problems unique to specific markets. To maximize
the potential of each of these markets and eliminate duplication, we have
implemented new plans that will enable us to place greater focus on specific
markets, product development teams, and products.
Starting this fiscal year, we will report accessory sales separately as they
will fall under a newly-formed wholly-owned subsidiary, Audiovox Accessories
Corp., which will be led by Dave Geise, a Senior Vice President who joined us
from Thomson. The Accessory group will focus on Consumer Electronics Accessory
category, and will incorporate all of the accessory products, the sales and the
engineering teams for the RCA, Jensen, Acoustic Research, Terk, Recoton,
Discwasher, and SpikeMaster brands.
And although an accessory company, OEHLBACH will be integrated into Audiovox
Germany given its geographic focus. However, it will also benefit from the scale
of our other accessory operations.
In order to eliminate duplication, our Audiovox consumer and the Acoustic
Research home product group have been merged and will operate as one. They will
market Audiovox branded consumer electronic products such as LCD TVs, portable
DVDs, portable GPS, GMRS radios, as well as the acoustic research speaker line
and Home Decor line by AR.
The mobile group will now include wholly-owned subsidiaries, Code Systems and
American Radio, as well as the products of Audiovox Mobile Video, Jensen Mobile,
Prestige and Pursuit Security, XM Satellite Radio and Navigation. And both the
consumer and the mobile groups, although consolidated under Audiovox
Electronics, will operate with separate P&Ls so that we can better track
performance of each group.
In April, I proudly announced the appointment of Tom Malone as President of
Audiovox Electronics Corp. Tom has been with our company for over 21 years and
has been an integral part of our success. He is passionate, dedicated, and
commands the respect of our customers, our partners and our employees, and I
have the utmost confidence that with Tom at the helm our Mobile and Consumer
Electronics businesses will continue to grow and succeed.
Looking back at the year in 2006, we returned to profitability despite being in
the middle of a substantial restructure, dealing with an uncertain economy, and
managing several market-related circumstances that negatively impacted both our
top and bottom line. Our margins across all mobile categories continue to climb,
and in particular we have seen mobile video margins come back to historic
levels, albeit at lower volumes.
Mobile Electronics sales were down 5.4% for the year, largely due to the absence
of Rampage, Prestige, and Video-in-a-Bag sales, which were product lines we
exited during the year. In addition, we had approximately five months of lost
sales resulting from the voluntary suspension of XM Satellite Radio due to an
FCC block that has since been removed.
Offsetting these declines were higher sales of Phase Linear, Audiovox Germany
Accessories and Code Systems, and I believe without the XM loss of sales, we
would at least have been on par with last year.
5
On our consumer sales, they were off about 30%. However, much of this decline
was anticipated and planned. We have and continue to move away from low-margin
deals, and during the year we watched the trend in selling prices move
dramatically lower, as much as 30% in LCD TVs. In anticipation of these price
declines, the Company limited its exposure which affected top-line sales.
However, this direction reduced inventory risk and resulted in higher gross
margins.
New products have always been the lifeblood of our company, and in 2007, it will
see its share of exciting new entries to the market. Everyone of our product
groups will be rolling out new products as well as investigating new market
opportunities to drive sales in 2007, like the new mobile multimedia category
that has revitalized auto sound, a category that just a few years ago was
considered too mature for significant growth.
Several new multimedia models including the first with twin-core processor will
hit the shelves during the second quarter, and we anticipate strong demand. Our
Mercedes headrest program designed to work with the active restraint system from
Mercedes ships this month, as does our portable GPS and XM plug-and-play
combination unit, the Jensen NAV 1000.
On the consumer side, revolutionary acoustic research wireless speakers will be
on store shelves in less than 60 days. And while it won't be a driver for us
this year, our entrance into digital picture frames is another example of
category expansion through new product development.
The Accessory group has equally exciting high-tech products coming for the
second quarter. From RCA, a complete line of flat-wire solutions designed
specifically for flat-panel TV applications. They include cables, including
HDMI, low-profile cable covers, flat power cords, even a slimmed-down power
conditioner that fits neatly behind a flat-panel TV. From Acoustic Research, the
focus is on connectivity with the iPod blackVault Speaker system leading the
way.
Under Jensen, we have launched new sport phones which are wireless headphones
with built-in MP3 players with 512 Mb capacity. From Terk, new HDTV antennas
continue to reinforce Terk's position as a leader in reception.
In closing, the past two years have been difficult, marked by change,
restructure, market issues beyond our control, and a challenging economic
environment. But we have prevailed and emerged as a leaner, more automated and
competitive company, and we are committed to profitability and will provide the
necessary resources to ensure that our operations can compete and our brands
will continue to develop innovative products.
And finally, we exit the year with over $156 million in cash to continue to
pursue acquisitions, and we intend to do so. We remain active on the M&A front,
seeking the right opportunity to add profitable business to this company.
I'd like to thank you for your time and your support. I would like to now turn
the call over to Michael, and then we'll open it up for some questions. Mike?
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6
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
Thanks, Pat. Good morning, everyone. I am going to provide a recap of our
fourth-quarter results and then spend a little more time on annual comparisons
and walk you through what transpired throughout the year. Just please note for
fiscal year comparisons, the prior year is March 1, 2005 through February 28,
2006. Also, this is fiscal ending February 28, 2007, or fiscal 2007, and we are
entering fiscal 2008.
Consolidated sales for the fourth quarter were $96.1 million versus $103.1
million last year, a decrease of 6.7%. Sales in our Mobile group were $78.4
million versus $70.8 million in the fourth quarter of 2006, an increase of
10.6%. Mobile sales were up due to higher sales in Phase Linear, Code Systems
accessories and revenue from our European operations, offset by lower other
audio security sales. Mobile sales included approximately $10.4 million
accessories sales from our recent Thomson acquisition, which closed at the end
of January.
Mobile represented 81.5% of the 2007 fourth quarter versus 68.6% in the same
period 2006. Consumer Electronics were $17.8 million, a decrease of 44.7%
compared to the sales of $32.2 million in the comparable 2006 fourth quarter.
Consistent with prior remarks, the Company continued to avoid DVD and LCD TV
quotes as we sought to limit our exposure in the post-holiday season.
As a percentage of sales, CE sales were 18.5% versus 31.2% last year. Gross
margins increased to 18.8%, compared to 15.2% last year. Our margins this year
were favorably impacted by higher margins in mobile video and mobile multimedia
categories, as well as higher margins in our accessory products. Lower margins
in the CE side offset some of these gains.
Gross margin's improvement has also been impacted by actively managing our
inventory and buying programs to limit risk. Fourth quarter gross margins of
18.8% were also up compared to 16.7% in the third fiscal quarter ended November
30. Overhead for the quarter was $20.7 million versus $18.8 million last year up
10%. The increase in overhead is primarily related to higher expenses associated
with the integration of the Thomson acquisition, increased bad debt provisions
as a recovery, which did not happen last year -- which happened last year and
did not occur this year, and increased employee benefits related to healthcare,
increased engineering costs, and legal settlements, and excuse me, and increased
engineering costs.
We reported a net loss from continuing operations of $305,000, or a loss of
$0.01 a share, compared to net income of $367,000, or net income per share of
$0.02, in the fourth quarter of 2006. Including discontinued operations, we
reported a net loss of $485,000, or $0.02 a share, compared to $183,000 profit,
or $0.01 a share last year.
7
Summing up the fourth quarter, one, sales were lower versus last year's quarter,
as we anticipated and have discussed with everyone on previous calls. Two, we
continue to pass on lower CE gross margin deals. Three, we are continually
revamping our product portfolio to achieve higher returns and as a result, our
margins are improving, as Pat has previously outlined. And four, a portion of
the small loss for the quarter relates to expenses from the acquisition, as we
were paying transition fees to Thomson to operate within their systems and
facility.
As of May 1, we will have moved to completely to the Audiovox systems, its
operations, and its facilities and we will begin to enjoy some integration
savings as we move forward. For our existing Audiovox operations, we fully
expect to see improvement in our overhead costs.
As for fiscal year-over-year comparisons, consolidated net sales were $456
million versus $526 million last year, down 13.3%. Revenues for both our Mobile
and Consumer groups declined this year, but the real impact was felt in our
Consumer, as sales were down approximately 27%, or $52 million. CE sales were
$139.3 billion versus $191.3 million last year and represented a 30.5% of total
sales in fiscal 2007, compared to a 36% in fiscal 2006.
Due to our plan to increase margins, we passed on several TV and portable DVD
quotes, as both categories have become increasingly unstable due to continued
price erosion and the gross margin on these transactions did not allow the
inventory or operational risk. In anticipation of the declining CE sales prices
and margins, we have reduced our inventory purchases throughout the year and
primarily around the holiday season.
Mobile electronics sales were $317.4 million, compared to $335.5 million, down
5.4%, and comprised 69.5% of total sales. There were a number of factors which
lead to this decline in sales. First, we lost approximately 5 months of excess
XM plug-and-play sales related to previously discussed issues of an SEC block
which has since been removed. We lost a few lines with multimedia for our mobile
multimedia sales as product was delayed in introduction due to financial
problems for the primary supplier which we replaced. Also as a result of the
mild winter season, we sold few remote starts, a trend which was felt throughout
the industry.
Additionally impacting revenue was our announced exit of the product lines
Rampage, Prestige, and Video-in-the-Bag at the end of fiscal 2006. Offsetting
these declines were increased revenue in Phase Linear, Audiovox Germany, Code
Systems, and approximately $10.4 million accessory revenue as a result of the
Thomson acquisition this past February.
Our gross margins for the year were 17.3%, compared to 11.5% in fiscal 2006.
Gross margins increased as a result of improving margins in our mobile category
based on better pricing as well as improved inventory management. Overall, we
continue to institute and improve existing buying and inventory systems and
control to prevent further write-downs and enhance inventory turnover.
8
Adjusting the 2006 gross profit margin for the inventory write-down which
occurred, as we discussed last year, margin in 2006 would have been 13.4% versus
our 17.3% fiscal 2007. As a result of improving margins, gross profit dollars
increased by $19 million on $70 million fewer sales.
Prior to the new acquisition cost, operating expenses for the year declined $2.2
million, or 3%, compared to fiscal 2006. Including the new acquisition,
operating expenses declined $1.1 million, or 1.3%. Operating expenses this year
were affected by legal settlement fees of $1.6 million, approximately $1.2
million of expenses from Thomson acquisition, and stock-based compensation
expenses of $432,000.
Selling expenses without the acquisition decreased $2.9 million, or 10%, due to
a $1.9 million decrease in commission expenses and lower consumer and print
media advertisements. G&A expenses, without acquisition expenses, increased
$145,000, or less than 1%. We had higher employee benefit costs as a result of
stock-based compensation charges and higher health plan costs, and also higher
legal fees. Offsetting these increases were lower other professional fees, bad
debt expenses, and office hours.
Our engineering and tech-support expenses increased due to increased engineer
hires to improve product development and customer service personnel. Interest
and bank charges decreased $450,000 due to the reduction in outstanding bank
obligations and long-term debt. Interest and bank charges represent expenses for
debt and bank obligations of Audiovox Germany and Venezuela and insurance for
capital leases.
Equity income of the equity investees increased to $474,000 due to higher equity
income of ASA, which saw higher sales and gross margins. Other income declined
due to a one-time unrealized gain of approximately $2.5 million, which was
reported in fiscal 2006. This is in connection with our Bliss-Tel investment and
was partially offset by other (inaudible) charges of $1.8 million related to our
CellStar investment also in fiscal 2006. The decline was further offset by
higher interest income from our short-term investments this year versus last.
The effective tax rate for fiscal 2007 was a benefit of 71.1%, compared to a
benefit of 68.1% in the prior year. The interest income earned on our short-term
investments was tax exempt, which results in our effective tax rate being less
than the statutory rate. Last year's effective tax rate was also impacted by the
favorable outcome of $3.3 million due to completion of certain tax examinations.
Even though revenue declined in 2007 as a result of improved margins and
overhead reductions, fiscal operating loss for the Company was reduced to $5
million versus $25 million loss for fiscal 2006. Our pretax income from
continuing operations was $2.2 million versus an $18.1 million loss for fiscal
2006.
9
We reported net income from continuing operations of 3.7, or $0.16 and share.
This compares to a net loss from continuing ops of $15.8 million, or a net loss
of $0.25 a share, for 2006. Including discontinued operations, we had income of
2.9, or $0.13 and share versus a net loss of $8.2 million, or $0.36 a share,
last year.
The Company generated approximately $43.4 million as a result of net income from
operations and increased balance sheet management. Our accounts receivable turns
were 63 days versus [62] days. Our inventory days on hand were 84 days versus
91. Our inventory balance as of February 28, 2007 due to the acquisition were
$105 million versus $96 million in 2006. When adjusting for the acquisition and
inventory, our inventory balance was $73 million, or a reduction of $23 million
from fiscal 2006.
Working capital was $301 million with cash balances of $156 million for 2007.
This compares to working capital of $340 million with cash balances of $177
million for 2006. This reduction was primarily the acquisition of accessory
business.
To summarize our cash position since the sale of the wireless group in November
2005, we have purchased three businesses for approximately $82 million. When we
started, we had $138 million on cash balances from the wireless sale. After
completing the acquisitions, our cash balance as of February, 28, 2007, was $156
million. During this period we generated an additional $100 million internally.
We have completed our 404 testing and our internal controls are deemed effective
with no material weaknesses or any significant deficiencies.
As it is our policy, we do not provide financial guidance. What I can say is
that in fiscal 2008, we anticipate our sales and profits will be up. We believe
the acquired businesses, most notably the RCA accessory business, will have a
positive impact on our sales and marketing initiatives and our overall
operations.
Collectively Audiovox should be able to post higher margins and lower expenses
as a percentage of sales, which should result in higher returns. I will turn the
call back to Pat and will be available for questions.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Okay. Thank you, Mike, and if anybody has any questions, please identify
yourself and we will be more than happy to review them with you.
10
QUESTION AND ANSWER
- --------------------------------------------------------------------------------
OPERATOR
(OPERATOR INSTRUCTIONS). Thomas Kahn, Kahn Brothers.
- --------------------------------------------------------------------------------
THOMAS KAHN - KAHN BROTHERS & COMPANY - ANALYST
Hi guys. XM satellite, could you tell us how the sales are going with the XM
satellite product and do you also do Sirius as well?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Okay, Tom. Good morning. As far as XM, we -- (technical difficulty)
- --------------------------------------------------------------------------------
OPERATOR
Hi, I'm sorry. It seems as though he must've placed his phone on hold and music
was playing.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Okay.
- --------------------------------------------------------------------------------
OPERATOR
Mr. Khan -- (OPERATOR INSTRUCTIONS)
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Well, to answer Tom's question, we will have three new XM models, XM
plug-and-plays, this year and we continue to have the direct-connect units that
we had last year and we will also be handling all of the accessories for the
plug-and-play products.
So we anticipate an increase in sales of XM for this year for us. As his
question relates to Sirius, we provide Sirius products to Toyota and to Jaguar
on an OEM import basis.
- --------------------------------------------------------------------------------
11
OPERATOR
Pardon the interruption. We do have Thomas Kahn, again, with Kahn Brothers.
Please proceed.
- --------------------------------------------------------------------------------
THOMAS KAHN - KAHN BROTHERS & COMPANY - ANALYST
Sorry. Thank you very much for answering the question, Pat.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
You are very welcome.
- --------------------------------------------------------------------------------
OPERATOR
(OPERATOR INSTRUCTIONS). Richard Greenberg, Donald Smith and Company.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
I have two questions. Mike, just, first, a quick one for you and I haven't had
a chance to read the 10-K, so I apologize if it is in there. But it looked me
like your actual shares outstanding were up about 0.5 million quarter over
quarter. Is that correct and if so, why is that?
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
Yes, Tom, this is Mike speaking, yes it is. And that would be there were some
shares being sold under the options program.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
Okay. Did you guys actually buy back any stock in the fourth quarter?
- --------------------------------------------------------------------------------
12
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
No, we did not.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
Okay. And I guess, Pat, just generally, could you give us some sense of how the
Thomson integration has gone? Are you pleased so far and are the sales
projection for that division and the margins and your expense integration going
as you had hoped?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Yes, actually the sales came in based right on top of the budgets that we were
looking at. We have completely transitioned out -- you know we had a 90 day
transition period with Thomson where they were providing services for us. We
have completely transitioned away from Thomson at this point, so therefore,
those expenses will be eliminated.
We are on our systems. We are in our warehouses now, so the first part of the
major transition has occurred on time and within the budgets that we had given.
And their sales are coming in right where we had predicted.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
Okay.
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
Rick, this is Mike speaking again. I think I read the columns the wrong way.
The shares actually year over year decreased by approximately 100,000 shares.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
Okay, Mike. Just to clarify, because I am just looking at the cover of your
10-K, which shows class A, I believe, it shows 20.643 million shares, which is
up from about 20.1 million, you know, round numbers. So that shows it being up
0.5 million. Am I wrong?
- --------------------------------------------------------------------------------
13
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
No, Tom, I don't have K with me right now, but looking at the share count that
we put out in the press release. As of February 28 and the quarter ending, we
had outstanding 25.526 million. That is without the dilution. And as of the year
ended, it was 22,326 because we use the average of method. But I will take a
look at that for you Rick and get back to you.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
Yes, sure, because sometimes there is confusion that you guys, like in the
outstanding that is shown on the cover of the 10-K, you guys include the
treasury stock and it shouldn't be included.
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
I don't think it is in there, but I will check it out for you.
- --------------------------------------------------------------------------------
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
Okay. Yes, just 10-K versus your last 10-Q, or your proxy, whatever, it looks
like it is up 0.5 million, so if you could just check that out.
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SVP, CFO
I will do it for you.
- --------------------------------------------------------------------------------
14
RICHARD GREENBERG - DONALD SMITH & COMPANY - ANALYST
All right, thanks.
- --------------------------------------------------------------------------------
OPERATOR
At this time, there are no further questions in queue.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT, CEO
Okay everyone. I appreciate your calling in this morning. We appreciate your
interest in Audiovox, your support of Audiovox, and please have a nice day.
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
Thank you for your participation in today's conference, ladies and gentlemen.
All parties may now disconnect. Enjoy your day.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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