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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): April 10, 2006
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))
1
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 10, 2006, Audiovox Corporation (the "Company") issued a press release
announcing its earnings for the three months ended February 28, 2006. A copy of
the release is furnished herewith as Exhibit 99.1.
ITEM 8.01 OTHER EVENTS
On April 11, 2006, the Company held a conference call to discuss its financial
results for the three months ended February 28, 2006. 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.
2
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: April 12, 2006 By: /s/ Charles M. Stoehr
--------------------------------------------
Charles M. Stoehr
Senior Vice President and
Chief Financial Officer
3
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Press Release, dated April 10, 2006, relating to
Audiovox Corporation's earnings release for the three
months ended February 28, 2006 (filed herewith).
99.2 Transcript of conference call held on April 11, 2006
at 10:00 am (filed herewith).
4
AUDIOVOX CORPORATION REPORTS RESULTS FOR THREE MONTHS ENDED FEBRUARY 28, 2006
HAUPPAUGE, NY, APRIL 10, 2006 - Audiovox Corporation (Nasdaq: VOXX) today
announced results for its transition period, ended February 28, 2006.
The Company had previously indicated in its February 13, 2006 press release that
it would be changing its fiscal year end from November 30 to February 28 and
that it would file a Form 10-K for the transition period. However, after
evaluating the internal resources and requirements necessary for the transition
period, the Company has decided to file the transition report for the change in
year-end on Form 10-QT. The report may be viewed by visiting the Company's
website, www.audiovox.com or the Securities and Exchange Commission site,
www.sec.gov.
Audiovox Corporation (the "Company") reported net sales for the transition
period ended February 28, 2006 of $103.1 million, a decrease of 11.1% compared
to net sales of $116.0 million reported in the same period last year ("fiscal
2005 first quarter"). Net income from continuing operations was $0.4 million or
income of $0.02 per diluted share compared to a net loss of $0.6 million or a
loss of $0.02 per diluted share in the comparable prior year period. Including
discontinued operations, the Company reported net income of $0.2 million or net
income per diluted share of $0.01 compared to a net loss of $1.2 million or
$0.05 per diluted share in the similar 2005 period. Net income was favorably
impacted by a tax benefit of $1.9 million during the transition period ended
February 28, 2006.
Mobile Electronics, which represented 68.7% of net sales, reported revenue of
$70.8 million compared to net sales of $74.7 million reported in the comparable
prior year period. Mobile Electronics sales were adversely impacted by a sales
decline in private label products and lower priced satellite radio units
compared to the prior year period. Offsetting these declines were increased
sales generated from the Terk product line, which was acquired in January 2005,
higher sales of Jensen mobile multi-media product lines and higher sales of our
DVD Shuttle system. Consumer Electronics, which represented 31.3% of net sales,
had sales of $32.2 million, a decrease of 22.0% compared to net sales of $41.3
million reported in the comparable 2005 period. This decrease was due primarily
to lower sales of portable DVD and LCD flat panel TV's as a result of a
non-recurrence of one-time retail promotional offers that occurred in the prior
year comparable period.
Gross margins for the period ended February 28, 2006 were 15.2%, as compared to
13.9% reported in the comparable year-ago period and 6.2% reported at fiscal
year-end. The increase in gross profit margins, both year-over-year and
sequentially, was related primarily to higher margins in the mobile video
category as new mobile video products were introduced earlier this year, higher
margins associated with the Jensen product line as well as a reduction in lower
margin products in the portfolio mix which are now considered "discontinued."
Operating expenses for the transition period ended February 28, 2006 were $18.8
million, a decrease of $3.1 million or 14.0% as compared to operating expenses
of $21.9 million reported in the fiscal first quarter ended February 28, 2005.
The reduction in operating expenses was seen in most areas, as SG&A expenses
were down due to lower sales volume and corporate expenses were down due to
reduced advertising costs, officer salaries and professional fees.
-MORE-
EXHIBIT 99.1
AUDIOVOX REPORTS RESULTS FOR THE THREE MONTHS ENDED FEBRUARY 28, 2006
PAGE 2 OF 5
Patrick Lavelle, President and CEO of Audiovox stated, "Our results this quarter
reflect many of the changes that were implemented over the past six months and
we believe we're on track to restoring historical profitability levels in the
near-future. While our sales were off versus the comparable period last year,
there are several lines that are no longer in the product mix and there were a
number of one-time retail promotions that took place last year and did not
repeat this year. Most of our product lines are performing well and as we gear
up for new product introductions over the next 90 days and beyond, we feel
confident that we will begin posting stronger results, both on the top and
bottom-lines."
Lavelle continued, "We are especially pleased with the outlook for our satellite
radio, mobile video, mobile multi-media and LCD TV line-up in fiscal 2006.
Customer demand has been strong and there has been a lot of interest regarding
our new offerings, which were displayed at CES earlier in the year.
Additionally, there's been a great deal of interest in Home Decor, our new home
speaker concept under the Acoustic Research brand, which is in active market
test this quarter. Acquired brands have been performing well, our partnerships
are strong and our new supply agreements in satellite radio, one of our
identified growth categories, should protect us from market volatility that may
occur. With new products coming to market this Summer, a solid cash position,
strong balance sheet and improved operating structure, we believe Audiovox is
well-positioned for the future."
During the transition period, Audiovox repurchased 168,800 shares of its common
stock for a total purchase price of approximately $2.3 million. This is part of
the Share Repurchase Program previously authorized by the Board of Directors in
September, 2000.
TRANSITION PERIOD CONFERENCE CALL
The Company will be hosting its conference
call tomorrow morning on Tuesday, April 11th at 10:00 a.m. EDT. Interested
parties can participate by logging onto the Audiovox website at
http://www.audiovox.com under "Investor Relations". For those who will be unable
to participate on the call, 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.
TOLL-FREE CALL-IN NUMBER (REPLAY): 888-286-8010
INTERNATIONAL CALL-IN NUMBER (REPLAY): 617-801-6888
ACCESS CODE: 19305716
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
- MORE-
AUDIOVOX REPORTS RESULTS FOR THE PERIOD ENDED FEBRUARY 28, 2006
PAGE 3 OF 5
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-QT for the
transition period ended February 28, 2006.
Company Contacts:
- -----------------
Glenn Wiener
GW Communications for Audiovox
Tel: 212-786-6011 or Email: gwiener@GWCco.com
- MORE -
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOVEMBER 30, FEBRUARY 28,
2005 2006
---------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 14,164 $16,280
Restricted cash 1,474 1,488
Short-term investments 108,766 160,799
Accounts receivable 128,430 88,671
Inventory 129,120 96,150
Receivables from vendors 8,075 9,830
Prepaid expenses and other current assets 6,749 6,023
Deferred income taxes 9,992 8,218
-------- -------
Total current assets 406,770 387,459
Investment securities 11,998 14,709
Equity investments 12,073 11,834
Property, plant and equipment, net 19,717 18,799
Excess cost over fair value of assets acquired 16,138 16,067
Intangible assets 11,060 11,002
Deferred income taxes 6,054 3,989
Other assets 2,054 2,153
-------- -------
Total assets $ 485,864 $ 466,012
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,998 $13,776
Accrued expenses and other current liabilities 24,574 17,907
Accrued sales incentives 9,826 8,512
Income taxes payable 1,770 -
Bank obligations 4,757 5,329
Current portion of long-term debt 1,357 1,371
------- ------
Total current liabilities 66,282 46,895
Long-term debt 6,357 5,924
Capital lease obligation 5,917 5,892
Deferred compensation 6,151 6,569
------ ------
Total liabilities 84,707 65,280
Commitments and contingencies
Total stockholders' equity 401,157 400,732
------- -------
Total liabilities and stockholders' equity $485,864 $ 466,012
======== =========
4
AUDIOVOX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
2005 2006
---- ----
Net sales $ 115,980 $ 103,050
Cost of sales 99,909 87,400
--------- ---------
Gross profit 16,071 15,650
--------- --------
Operating expenses:
Selling 7,991 6,824
General and administrative 12,414 10,517
Engineering and technical support 1,467 1,468
-------- -------
Total operating expenses 21,872 18,809
-------- -------
(5,801) (3,159)
Operating loss --------- -------
Other income (expense):
Interest and bank charges (633) (560)
Equity in income of equity investees 353 474
Other, net 4,605 1,769
--------- -------
Total other income, net 4,325 1,683
--------- -------
Loss from continuing operations before income taxes (1,476) (1,476)
Income tax benefit 924 1,843
-------- -------
Net (loss) income from continuing operations (552) 367
Net loss from discontinued operations, net of tax (653) (184)
-------- -------
Net (loss) income $ (1,205) $ 183
========= ======
Net (loss) income per common share (basic):
From continuing operations $ (0.02) $ 0.02
From discontinued operations (0.03) (0.01)
--------- -------
Net (loss) income per common share (basic) $ (0.05) $ 0.01
========= ======
Net (loss) income per common share (diluted):
From continuing operations $ (0.02) $ 0.02
From discontinued operations (0.03) (0.01)
--------- --------
Net (loss) income per common share (diluted) $ (0.05) $ 0.01
========= =======
Weighted-average common shares outstanding (basic) 22,051,443 22,526,497
=========== ===========
Weighted-average common shares outstanding (diluted) 22,051,443 22,766,593
=========== ===========
5
Final Transcript
CONFERENCE CALL TRANSCRIPT
VOXX - Q1 2006 AUDIOVOX CORPORATION EARNINGS CONFERENCE CALL
EVENT DATE/TIME: APR. 11. 2006 / 10:00AM ET
Exhibit 99.2
1
CORPORATE PARTICIPANTS
GLENN WIENER
GW Communications - Investor Relations
PATRICK LAVELLE
Audiovox Corporation - President and CEO
MICHAEL STOEHR
Audiovox Corporation - Senior Vice President and CFO
CONFERENCE CALL PARTICIPANTS
JOHN BUCHER
Harris Nesbitt - Analyst
THOMAS KAHN
Kahn Brothers & Company - Analyst
PRESENTATION
- --------------------------------------------------------------------------------
OPERATOR
Good day ladies and gentlemen. Thank you for standing by, and welcome to the
Audiovox Corporation's First Quarter 2006 Earnings Conference Call. My name is
Carlo, and I'll be your coordinator for today's presentation.
[OPERATOR INSTRUCTIONS]
I would now like to turn the presentation over to your host for today's
conference Glenn Wiener, Investor Relations. Please proceed, sir.
- --------------------------------------------------------------------------------
GLENN WIENER - GW COMMUNICATIONS - INVESTOR RELATIONS
Thank you, and good morning everyone. Welcome to Audiovox's transition period
conference call for the quarter ended February 28, 2006. As the operator
mentioned today's call is being webcast from the company's website
www.audiovox.com under the Investor Relations section, and a replay has been
arranged for those that are unable to [participate] today. A replay will be
available approximately one hour after the completion of the call or by dialing
888-286-8010 and entering pass code 19305716.
Transition period results released yesterday after market close, if you have not
received a copy of the announcement you can obtain one by calling my office at
the completion of this call or by visiting the company's website. Additionally,
Forms 10-Q [technical difficulty] for the quarter ended February 28th filed
yesterday can be found on our website under SEC filing.
Now to the matter at hand. Speaking from management this morning will be Patrick
Lavelle, President and CEO and Michael Stoehr, Senior Vice President and Chief
Financial Officer. Both will make opening remarks before opening up the call for
questions. Before getting started, I've been instructed by legal counsel to read
the following Safe Harbor statement.
Except for historical information contained herein statements made on today's
call and 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. 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 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; 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.
2
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 numerous restatements or other core
factions. Risk factors associated with our business, including some of the
factors set forth herein, are detailed in the Company's Form [10-K/A] for the
fiscal year ended November 30, 2005 and on our Form 10-QT for the transition
period ended February 28, 2006. Thank you again for your participation.
And at this time I'd like to introduce Patrick Lavelle, President and CEO of
Audiovox.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Thank you Glenn, and good morning everyone. I'd like to start today's call by
briefly reviewing our transition period of results and updating you on the
Company's initiatives as we move through 2006. I'll then turn the call over
Michael who will provide more details on the financials. As you know from
previous announcements the Company has changed its fiscal year to begin March
1st and end February 28th, so what was our first quarter has now become a
transition period quarter.
Yesterday we reported transition period sales for the period December 1st, 2005
to February 28th, 2006, 103.1 million versus 116 million in the same period last
year. We reported net income from continuing operations of approximately 400,000
or $0.02 per diluted share, compared to a loss per share of $0.05 in the first
quarter of '05.
Including discontinued operations, we reported transition period income of
183,000 or a penny per share compared to a net loss of $0.05 in the comparable
period last year. Mobile Electronics represented 68.7% of our sales at 70.8
million, versus 64.4% or 74.4 million in the first quarter of '05. Consumer
sales were 32.2 million or 31.3% of sales this year, versus 41.3 million or
35.6% for sales last year.
Our gross margin for the period was 15.2% versus 13.9 for the same period last
year. Sequentially, margins are up 9% from 6.2% reported in Q4. Keep in mind
that many of the discontinued lines that were sold last year are for the most
part out of the mix now. Additionally, our margins were favorably impacted by
higher margins associated with new mobile video products in the Jensen line.
On a sequential basis, margins were also impacted positively in the satellite
radio category given our new relationship with XM. We expect margins will
continue to rise and reach historic levels as we move to new products with
higher grosses over the coming quarters. For those who are unfamiliar with our
business the December 1st to February 28th period is traditionally our weakest
marked by slower sales and post-holiday return.
Lower Consumer Electronics sales contributed to the revenue reduction during the
transition period due to a combination of lower portable DVD and LCD TV sales as
several one-time retail promotions from 2005 did not repeat, as well as our
decision to pass on several portable DVD deals where profit potential was
questionable. As I said before our focus in 2006 is on profitability. Of course
we are looking to grow the top line and believe that there are many
opportunities to do so whether organically or via acquisition but not at the
expense of profit.
In Mobile Electronics most categories were up or even with 2005 except for
satellite radio where unit sales exceeded unit sales of '05, but at selling
prices that were roughly 50% below the selling prices last year at this time. In
addition, the Company is no longer supplying plug-n-play systems at retail for
Sirius, but rather concentrating our efforts for Sirius on OE programs. As I've
indicated before our focus in satellite radio this year was to modify our
business model in order to mitigate our exposure in this volatile category and
we have accomplished this with XM.
Now I'd like to discuss the balance of the year. Over the past 18 months sales
of our mobile video products have been hit hardest, having a material impact on
our sales and profits. However, as expected, this category is stabilizing with
improving margins. Sales of our mobile video show are increasing monthly as we
expand distribution beyond big box retailers and our new headrest systems
started shipping this month. In June, we expect delivery of the balance of our
'06 program and our new largest ring overheads. These new products carry higher
margins overall which as I've indicated will help this category return to
traditional gross profit levels though not at the volume of years past.
Satellite radio continues to be a strong component of our mobile electronic
sales. Since we began shipments of our XM Express Plug-n-Play Receiver we have
literally shipped every unit that has arrived. Demand has been such that we are
expanding production and expect that to positively impact sales in the second
half of the year. Our new agreement with XM puts us in a position to be the
number one supplier of XM products in the after market while mitigating much of
the market risk that we had faced last year. Margins in this category will
improve dramatically due to this agreement and the discontinuance of the Sirius
plug-n-play business which had a big drag on margins in 2005.
3
The Jensen car audio line exceeded projections and our mobile multimedia systems
remain number one and number two in market share. New multimedia systems now
delivering take advantage of the latest convergence technologies that marry
communications, navigation and entertainment in one system with features such as
Bluetooth, touch screens, satellite radio, navigations, iPod and MP3
capabilities to name a few. Margins will improve here as well as the multimedia
units replace older CD products and we have completed the closeout of the
Rampage and Prestige audio lines.
In 2005, we entered the collision avoidance market which we believe will enjoy
good growth. We are supporting "Kids In Cars," a non-profit organization focused
on drawing attention to accidents with children and cars and working to secure
legislation to protect kids. Our products in this category include backup
sensors, unique cameras like our trail hitch and license plate systems and
screens embedded in rearview mirrors to limit driving distraction. Look for
these products at major retailers this summer.
Much of our 2006 Mobile Electronics lineup is on the way as I speak. It is a
deep line supported by respected brands. We expect to get back to traditional
profit levels in this category and return Mobile Electronics to the profit
driver that it has been for most of our history. In addition, we anticipate that
mobile will grow throughout the year as a percentage of sales thus improving our
overall profitability levels.
Our Consumer Electronics group is perhaps the most volatile in our mix. Unlike
Mobile Electronics their trends are somewhat more predictable. CE can post wide
fluctuations as a result of one-time retail promotions at big box retailers.
This was the case when comparing our results in this period versus last year.
Portable DVD which represents a significant portion of our CE sales is one
product category that also is easily affected by market volatility especially as
retailer directive support programs become more popular.
In 2005 I cautioned -- in 2004, excuse me, I cautioned everyone that portable
DVDs have become a commoditized item. That situation continues in 2006, and we
believe that there will be substantial volatility as prices continue to erode
particularly on entry level units. We will still be a major player in the
portable DVD category, but we do not expect to see year-over-year sales
increases. Again, this is consistent with our focus of increasing overall
profitability.
LCD TV's continue to sell well and our new lineup is scheduled to arrive in
June. Our new offerings will consist of LCD TV's in 32 and 37-inch models and
new 42 and 50-inch plasma models. Our strength in this market continues to be
with regional power retailers and smaller chains and we continue view this
market as a major contributor to our overall sales mix.
New to our consumer electronics group will be our portable GPS system designed
primarily for car to car use. We will introduce three models in June that
feature built-in maps, XM ready capability and a variety of high-tech extras
like MP3 and PDA. We are especially excited over the fourth quarter model
scheduled to arrive in August which will double as an XM plug-n-play receiver as
well as GPS unit. As I've said on our last conference call, I believe that the
uniqueness of this particular GPS product will allow us to hold margin in a
category that is growing very quickly.
Our new Home Decor line which we are marketing under the Acoustic Research brand
will test market in the two largest consumer electronics retailers at the end of
this month and we anticipate the full rollout to our customer base should return
sometimes towards summer, but higher volumes should occur by the end of the
year. We are very excited about this product potential, as initial response from
our retailers is very strong and we anxiously await the test market results and
full rollout of this line.
Our acquisitions have all been successfully integrated into our operations. All
performed well and were profitable in the transition quarter with the exception
of our European operation which lost money for the quarter due largely to a
sluggish German economy and lower sales in Russia due to a particularly cold
winter. We fully expect this business unit to rebound as we move into the spring
season especially with the impressive lineup of mobile multimedia products that
were unveiled at the tradeshow in Germany just a few days ago and the reaction
and orders which exceeded last year's event.
We have done a great deal of work in 2005 and in the early months of 2006 to
position this company to be consistently profitable. We are working with two
investment banking firms to identify the appropriate acquisitions that fit with
our long term growth plan. We have substantially cut overhead down 14% as
compared to last year. We have rationalized every product line and eliminated
duplicity in the underperforming lines and feel very confident about our
existing portfolio. We've developed a strong 2006 lineup across all brands that
we expect will generate stronger margins.
4
We've restructured vendor and supplier agreements to mitigate market uncertainty
and volatility where we can, which will help us become more consistent and
maintain better overall profitability, and we have added strengthened depth to
our operational team so that we can continue to squeeze our efficiencies and
improve systems and controls.
In closing, we believe our performance is improving and we will continue to
strengthen as we progress in 2006. While we have indicated our first priority is
to use our capital to invest in the business, we have also made investments in
our own securities because we feel our stock is undervalued in the marketplace.
During the transition period we repurchased 168,800 shares or $2.3 million.
Today, we have over $180 million in cash to invest in our business and for the
strategic acquisitions which puts this company in a very strong financial
position. While I cannot share details with you at this time, as I said we are
very active on the M&A front and hope to make acquisitions that make the best
sense for this company and its shareholders. As we begin fiscal 2006, we believe
we have all the elements in place to return this company to consistent and
improving profitability.
Now I'd like to turn the call over to Michael. Michael?
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SENIOR VICE PRESIDENT AND CFO
Thanks, Pat. Good morning everyone. Consolidated sales for the transitional
quarter were 103.1 million, versus 116 last year. Sales in our consumer group as
we reported were 32.2 million versus 41 million, and in our Mobile Electronics
group 70.8 million versus 74.7 million. Our consumer group experienced reduced
sales in two categories, portable DVD and LCD TVs. The company did not
participate this quarter in several retail promotions which we did last year at
this time. We still anticipate LCD TV to be a growth driver for the company, but
we believe we will continue to experience price pressure on portable DVD
product.
Mobile Electronics was impacted by lower sales and private-label video as
certain OEM programs have ended. Also though unit sales were up in our satellite
product our lower average sale price affected total revenue. Another effect --
another factor affecting the transitional quarter, were sales were down 38% in
Europe reflecting the slowdown in the German economy. So as mentioned, we see
signs of improvement this quarter.
This was partially offset by increased sales in Venezuela as we've shipped more
product to our OEM customers. We have had favorable increases in our Jensen,
Terk, and shuttle product line up. Gross margins for the transitional quarter
were 15.2% as compared to 13.9% last year. We're beginning to see some margin
improvement in our key categories as the lower margin product being sold this
year is less than last year. During the transitional quarter, we were also
selling inventory which was reserved for during the 11/30 quarter, but was
actually sold at cost during this quarter -- transitional quarter, which affects
our gross margin.
New products introduced earlier this year have begun shipping, and we expect to
see gradual and sequential improvements in our gross margin in the quarters
ahead. Additionally our gross margins should be favorably impacted, as Mobile
Electronics begins to represent a large percentage of our overall sales mix, as
Mobile Electronics has a higher gross margin than consumer goods.
Overhead for the quarter was 18.8 million, a decrease of 3.l million or 14%
versus the 21.9 million last year. This was a result of reduction in officer
salaries -- office salaries, headcount, professional fees, provision for bad
debt, selling expenses, basically all the expenses across the board, as well as
lower advertising expenditures. Offsetting this decline was additional audit
fees associated with the change in fiscal year-end. As a percentage of net
sales, operating expenses decreased to 18.3 from 18.9% in the comparable 2005
period.
Net income from continuing operations was 367,000 or $0.02 a share, compared to
loss of 552,000 or $0.02 a share last year. Including our discontinued operation
net income was 180,000 or $0.01 a share, versus a loss of 1.2 million or $0.05 a
share last quarter--that last year. Discontinued ops in the three months ended
February 28th, 2005 included the write down related to Audiovox Malaysia which
was sold November 2005. The loss in 2006 for discontinued ops in the transition
period is for legal and other costs associated with contingencies related to our
discontinued side of our business.
Interest and bank charges decreased by about 90,000 due to reductions in
outstanding bank obligations of long-term debt. Interest and bank charges
represent expenses for debt and bank obligations in Audiovox Germany, Venezuela,
and for interest on a capital lease. Our equity income increased due to
increased income of ASA which is a result of higher sales and gross margins in
their Jensen Audio and Voyager product lines.
5
Other income declined compared to last year due to a 2.5 million unrealized gain
recorded during the first quarter last year from the [Voicetel] IPO and also
decreased royalty income this quarter due to lower sales by licensees. Partially
offsetting these declines was a higher interest income from our short- term
investments as a result of, one, available cash and two, higher interest rates
compared to the prior year.
The company reported in the transitional quarter a tax benefit of 1.9 million
for the quarter. This benefit was primarily due to accrual reversals related to
the expiration of statutory limits on state taxes and an increase in tax-exempt
interest income earned on our short-term investments. Operating activities
provided cash of 55.3 million, compared to 3.8 million last year. Cash flows
were favorably impacted by a decrease in accounts receivable primarily from
collections and reduced inventory balances after taking into account the impact
of reserves we booked 11/30.
We had a working capital of approximately 340 million which includes cash, cash
equivalents, and short-term investments of 177 million. This compares to similar
working capital of 340 million as of 11/30/2005 except that our cash and cash
equivalents, etcetera, were 122 million. We have increased the cash balances as
of February 28th by 55 million. The increase is primarily due to the collection
of accounts receivable and a reduction of inventory. Our accounts receivable
terms improved and also our inventories improved even taking into effect -- the
effect of the write downs in the inventory.
As of March 31st -- as of today, the cash balances are 189 million or an
additional $12 million increase. During the transition period we repurchased
168,000 shares of our common stock of 2.3 million, and as we stated last quarter
and in yesterday's press release our fiscal year is now February 28th, and we
will be reporting the results for our new fiscal first quarter ended May 31st,
2006.
As we discussed in our last call in February we expect revenues and gross
margins for the next three quarters to be up sequentially from the transitional
quarter. Thank you, and I'm here to address any of your questions. Pat?
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PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Okay, if anyone did have any questions at this time we'll be available to answer
them.
QUESTION AND ANSWER
- --------------------------------------------------------------------------------
OPERATOR
Thank you, sir.
[OPERATOR INSTRUCTIONS]
Sir, our first question is from the line of John Bucher with Harris Nesbitt.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Hi good morning, John Bucher. Questions for you on the expectation for margins
to rise to traditional and historic levels. I know, Michael, you just said that
they were -- you did expect a gradual improvement sequentially throughout the
year. Could you give an idea for the historical levels is that the 18 to 21%
range that -- could you just clarify that?
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MICHAEL STOEHR - AUDIOVOX CORPORATION - SENIOR VICE PRESIDENT AND CFO
Hi, John, this is Mike speaking. Yes, I think what we've--we've kind of held
between 18, 19, 20% somewhere in that range.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay and do you expect that by the end of the new fiscal year that you will get
into that range?
6
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SENIOR VICE PRESIDENT AND CFO
Yes.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay very good, and then questions on some of the product-specific things for
Patrick. On the portable GPS that you mentioned you had three models coming in
June. Did I understand that one of those has built in XM Satellite radio?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
One of them is a plug-n-play unit that doubles as a plug-n-play for XM and also
a GPS unit which has XM Live real-time traffic.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Entertainment as well as traffic or just traffic?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Well it will play as a plug-n-play unit as well.
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JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
It will double as a plug-n-play, a GPS portable and the GPS portable will have
XM real-time traffic.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay so as a plug-n-play it probably does not have its own battery source that
needs to be plugged into something, either a 12-volt source or another power
source?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Correct.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
More product for our use.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Got it. And the -- any opportunity for you to private-label that product or to
put that in with an automotive dealer point-of-sale type of deal?
7
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PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Yes, we would explore every possibility. We would, you know, with this
technology that we would develop here we would take it to every channel that we
have and see what interest could be ascertained and what kind of sales we could
make out of it.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
It sounds like the trends are most positive for the new XM product for some of
the new mobile multi-media products. Do you think that this category could
become one of your top growing categories and one of your top contributors?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Which one, multi-media?
- -------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
No the portable GPS. Could it approach mobile multi-media in--?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Well, right now it's a crowded field and that's one of the reasons why we waited
so long is that we wanted to have a unique item that will allow us let's say a
compelling reason for a buyer to bring it into his mix. And we think we're there
with the XM plug-n-play unit. Once we get into the mix then our hope is to bring
in our other units.
But it is a crowded field. We do expect to do well and get our market share. It
is a growing field, but I would not see -- I would not see the sales growing to
the levels to match one of our other products this year.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay and then if were just to have you characterize for us the fastest growing,
not in terms of total contribution, but just in terms of fastest growth would
have that have been in some of your new mobile multi-media products?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
You know mobile multi-media did very well. We've got a number of new units
coming out. That was a fast growing category last year. But in number of units
the XM Xpress and the follow-on piece would probably be -- the number one
selling unit by volume unit.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay and then finally for products that you've talked about but have yet to ship
in substantial volume yet, that also have high-growth potential, would that be,
would Home Decor probably fit that category the best and are there any other
products that you've talked about that have not started ramping in high volume
yet?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Well, Home Decor is just testing right now and because of the number of SKUs
associated with that program and the complexity of really getting that message
across at retail, we're very anxious to see how these test in large--large
retailers. We do expect this program based on the response to do very well but
the volume depending on where it gets placed, the volume will be indicated as to
how well it does at certain types of retailers. It may not be a category for a
Big Box store. So that will limit the volume but we are anticipating some good
movement on that and that good margin.
8
Our Terk products continue to do well. The mobile multi-media will be a driver
for us this year and our new line of LCD TVs it's a very attractive line, very
competitively priced, and I believe Audiovox is making some very, very good
inroads into the channel that we have targeted for this product. So these I
would think would be the drivers that we would look at this year.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay and then for Michael, any type of outlook or range that you can provide for
either the full fiscal year or either top-line or bottom-line or if not for the
full fiscal year for the next quarter, for the May quarter? And then also just a
housekeeping item, the effective tax rate that you're anticipating for the full
fiscal year?
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SENIOR VICE PRESIDENT AND CFO
Well, I'll let Pat take you just a little bit through how he looks at the year
and then I'll come back up on the tax.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
You know when we--what we had guided I guess on the previous calls is that we
would be looking at--our focus is going to be more on profitability this year.
So therefore we're looking at flat sales over a 12-month period, but we do see
improving margins especially now that we've gotten past the inventory situation
of mobile video so I'm not going to comment on the quarters, but I would say
that we'd be looking at flat sales for the year.
- --------------------------------------------------------------------------------
MICHAEL STOEHR - AUDIOVOX CORPORATION - SENIOR VICE PRESIDENT AND CFO
Coming back to the taxes, John, with the tax-exempt income it gets a little hard
on the models. What you really need to do is make an estimate for the [F-tax]
interest and subtract it from the pre-tax line. And then apply 35% state,
4%--35% federal and 4% state.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay previously you all discussed a 5% operating margin target. Do you think
that on a quarterly basis that would be achievable by the end of this year?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Yes, we do.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Okay, thank you very much.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Okay thank you, John.
- --------------------------------------------------------------------------------
OPERATOR
9
[OPERATOR INSTRUCTIONS]
And sir, we have a question from the line of Thomas Kahn with Kahn Brothers &
Company.
- -------------------------------------------------------------------------------
THOMAS KAHN - KAHN BROTHERS & COMPANY - ANALYST
Hi, Pat, could you give us a little more color on how your new supply agreement
in satellite radio will protect the company against the volatility that it had
experienced in the past?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
One of the -- I really can't go into the details of the agreement, but one of
the things that we had a problem with is because of the subsidized nature of
this product category and the fact that both Sirius and XM really make their
money on subscription, the hardware can be exposed to some pretty dramatic price
declines if they have a promotion to drive subscription similar to the
telephone, the cellular telephone area where they gave away the phone to drive
sales.
- --------------------------------------------------------------------------------
THOMAS KAHN - KAHN BROTHERS & COMPANY - ANALYST
Right.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
So those were the areas that we were trying to protect against, because
obviously last year when the prices fell we were sitting with inventory. So
we've mitigated that exposure on our inventory and at our retailers as well.
- --------------------------------------------------------------------------------
THOMAS KAHN - KAHN BROTHERS & COMPANY - ANALYST
So this is a deal with XM?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Yes it is.
- --------------------------------------------------------------------------------
THOMAS KAHN - KAHN BROTHERS & COMPANY - ANALYST
I see. Thank you, very much.
- --------------------------------------------------------------------------------
OPERATOR
And sir, we have another question from the line of John Bucher.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Yes thank you, another satellite radio question. You mentioned in the call that
you're no longer providing Sirius plug-n-play at retail.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
That's right.
10
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Are you supplying Sirius product through the OE channel still?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Yes, we continue with our programs with Toyota and [Jaguar].
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
And there's -- as you cease the plug-n-play at retail, are you still holding
substantial inventory of that product or are those levels lean?
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Those levels are very lean.
- --------------------------------------------------------------------------------
JOHN BUCHER - HARRIS NESBITT - ANALYST
Great, thank you.
- -------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
You're welcome.
- --------------------------------------------------------------------------------
OPERATOR
[OPERATOR INSTRUCTIONS]
And sir, we have no further questions at this time.
- --------------------------------------------------------------------------------
PATRICK LAVELLE - AUDIOVOX CORPORATION - PRESIDENT AND CEO
Okay everyone, thank you for joining us this morning and we appreciate your
interest in Audiovox and have a nice day.
- --------------------------------------------------------------------------------
OPERATOR
Ladies and gentlemen, we thank you for your participation in today's conference.
This concludes your presentation and you may now disconnect.
11
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