UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
(Address of principal executive offices) |
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(Zip Code) |
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( (Registrant's telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class: |
Trading Symbol: |
Name of Each Exchange on which Registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Number of shares of each class of the issuer's common stock outstanding as of the latest practicable date.
Class |
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As of January 6, 2023 |
Class A Common Stock |
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Class B Common Stock |
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VOXX International Corporation and Subsidiaries
Table of Contents
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PART I |
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Item 1 |
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Consolidated Balance Sheets at November 30, 2022 (unaudited) and February 28, 2022 |
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3 |
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5 |
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6 |
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Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2022 and 2021 |
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9 |
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10 |
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Item 2 |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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35 |
Item 3 |
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50 |
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Item 4 |
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50 |
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PART II |
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Item 1 |
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51 |
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Item 1A |
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51 |
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Item 2 |
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51 |
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Item 6 |
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52 |
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53 |
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2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOXX International Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
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November 30, |
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February 28, |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventory |
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Receivables from vendors |
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Prepaid expenses and other current assets |
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Income tax receivable |
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Total current assets |
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Investment securities |
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Equity investment |
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Property, plant and equipment, net |
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Operating lease, right of use asset |
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Goodwill |
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Intangible assets, net |
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Deferred income tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, Redeemable Equity, Redeemable Non-Controlling Interest, and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Income taxes payable |
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Accrued sales incentives |
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Interim arbitration award payable (see Note 23) |
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Contract liabilities, current |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, net of debt issuance costs |
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Finance lease liabilities, less current portion |
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Operating lease liabilities, less current portion |
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Deferred compensation |
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Contingent consideration, less current portion (see Note 2) |
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Deferred income tax liabilities |
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Other tax liabilities |
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Prepaid ownership interest in EyeLock LLC due to GalvanEyes LLC (see Note 20) |
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Other long-term liabilities |
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Total liabilities |
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(see Note 23) |
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Redeemable equity (see Note 8) |
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Redeemable non-controlling interest (see Note 2) |
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Stockholders' equity: |
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Preferred stock: |
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Common stock: |
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Class A, $ |
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Class B Convertible, $ |
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Paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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Less: Treasury stock, at cost, |
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Less: Redeemable equity |
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( |
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( |
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Total VOXX International Corporation stockholders' equity |
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Non-controlling interest |
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( |
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( |
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Total stockholders' equity |
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Total liabilities, redeemable equity, redeemable non-controlling interest, and stockholders' equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated financial statements.
4
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except share and per share data)
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Three months ended |
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Nine months ended |
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2022 |
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2021 |
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2022 |
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2021 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Selling |
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General and administrative |
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Engineering and technical support |
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Acquisition costs |
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— |
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Total operating expenses |
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Operating income (loss) |
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Other (expense) income: |
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Interest and bank charges |
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( |
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Equity in income of equity investee |
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Interim arbitration award (see Note 23) |
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( |
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Other, net |
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Total other income (expense), net |
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( |
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( |
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Income (loss) before income taxes |
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( |
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( |
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( |
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Income tax benefit |
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( |
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( |
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( |
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( |
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Net income (loss) |
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( |
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( |
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( |
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Less: net loss attributable to non-controlling interest |
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( |
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( |
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( |
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Net income (loss) attributable to VOXX International Corporation and Subsidiaries |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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Derivatives designated for hedging |
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Pension plan adjustments |
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Other comprehensive income (loss), net of tax |
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( |
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( |
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( |
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Comprehensive income (loss) attributable to VOXX International Corporation and Subsidiaries |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Income (loss) per share - basic: Attributable to VOXX International Corporation and Subsidiaries |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Income (loss) per share - diluted: Attributable to VOXX International Corporation and Subsidiaries |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average common shares outstanding (basic) |
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Weighted-average common shares outstanding (diluted) |
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See accompanying notes to unaudited consolidated financial statements.
5
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Stockholders' Equity
For the three and nine months ended November 30, 2022 and 2021
(In thousands, except share and per share data)
6
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Class A |
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Paid-in |
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Retained |
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Accumulated |
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Non- |
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Treasury |
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Redeemable Equity |
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Total |
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Balances at February 28, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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( |
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— |
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( |
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— |
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— |
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( |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Cash settlement of market stock units upon vesting of |
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— |
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( |
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— |
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— |
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— |
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— |
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— |
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( |
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Net settlement of |
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( |
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— |
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— |
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— |
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— |
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— |
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( |
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Reclassification of stockholders' equity to redeemable equity |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balances at May 31, 2022 |
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( |
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( |
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( |
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Net loss |
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— |
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— |
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( |
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— |
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( |
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— |
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— |
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( |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances at August 31, 2022 |
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( |
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( |
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( |
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( |
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Net income (loss) |
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— |
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— |
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— |
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( |
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— |
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— |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Repurchase of |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Balances at November 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Balances at February 28, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income (loss) |
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— |
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— |
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— |
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( |
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— |
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— |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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— |
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Net settlement of |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balances at May 31, 2021 |
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( |
) |
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( |
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( |
) |
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( |
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Net income (loss) |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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7
Other comprehensive income, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
Repurchase of |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Stock-based compensation expense |
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— |
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Balances at August 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Balances at November 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
See accompanying notes to unaudited consolidated financial statements.
8
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
|
|
|
Nine months ended |
|
||||||
|
|
|
2022 |
|
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
||
Net loss |
|
|
$ |
( |
) |
|
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
||
Amortization of debt discount |
|
|
|
|
|
|
|
|
||
Bad debt (recovery) expense |
|
|
|
( |
) |
|
|
|
|
|
Reduction in the carrying amount of the right of use asset |
|
|
|
|
|
|
|
|
||
(Gain) loss on forward contracts |
|
|
|
( |
) |
|
|
|
|
|
Equity in income of equity investees |
|
|
|
( |
) |
|
|
|
( |
) |
Distribution of income from equity investees |
|
|
|
|
|
|
|
|
||
Deferred income tax expense (benefit) |
|
|
|
|
|
|
|
( |
) |
|
Non-cash compensation adjustment |
|
|
|
( |
) |
|
|
|
( |
) |
Stock based compensation expense |
|
|
|
|
|
|
|
|
||
Loss on disposal of property, plant, and equipment |
|
|
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
|
( |
) |
|
Inventory |
|
|
|
( |
) |
|
|
|
( |
) |
Receivables from vendors |
|
|
|
|
|
|
|
( |
) |
|
Prepaid expenses and other |
|
|
|
|
|
|
|
( |
) |
|
Investment securities-trading |
|
|
|
|
|
|
|
|
||
Accounts payable, accrued expenses, accrued sales incentives, contract liabilities, and other liabilities |
|
|
|
( |
) |
|
|
|
|
|
Income taxes payable |
|
|
|
( |
) |
|
|
|
( |
) |
Net cash used in operating activities |
|
|
|
( |
) |
|
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
|
|
( |
) |
|
|
|
( |
) |
Purchase of acquired business |
|
|
|
|
|
|
|
( |
) |
|
Proceeds from sale of property, plant, and equipment |
|
|
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
|
( |
) |
|
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
||
Principal payments on finance lease obligation |
|
|
|
( |
) |
|
|
|
( |
) |
Repayment of bank obligations |
|
|
|
( |
) |
|
|
|
( |
) |
Borrowings on bank obligations |
|
|
|
|
|
|
|
|
||
Deferred financing costs |
|
|
|
|
|
|
|
( |
) |
|
Settlement of market stock unit awards |
|
|
|
( |
) |
|
|
|
|
|
Withholding taxes paid on net issuance of stock award |
|
|
|
( |
) |
|
|
|
( |
) |
Purchase of treasury stock |
|
|
|
( |
) |
|
|
|
( |
) |
Proceeds from the issuance of subsidiary shares to non-controlling interest |
|
|
|
|
|
|
|
|
||
Proceeds from the issuance of long-term debt to non-controlling interest |
|
|
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
||
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents |
|
|
|
( |
) |
|
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
|
$ |
|
|
|
$ |
|
||
See accompanying notes to unaudited consolidated financial statements.
9
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
(1) Basis of Presentation
The accompanying unaudited interim consolidated financial statements of VOXX International Corporation and Subsidiaries ("Voxx" or the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 270 for interim financial information, and in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and include all adjustments (consisting of normal recurring adjustments), which, in the opinion of management, are necessary to present fairly the consolidated financial position, results of operations, changes in stockholders’ equity, and cash flows for all periods presented. The results of operations are not necessarily indicative of the results to be expected for the full fiscal year or any interim period. These unaudited consolidated financial statements do not include all disclosures associated with audited consolidated financial statements prepared in accordance with GAAP. Accordingly, these statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto contained in the Company's Form 10-K for the fiscal year ended February 28, 2022. Certain amounts in the prior year have been reclassified to conform to the current year presentation.
We operate in
(2) Acquisitions
Onkyo
On April 29, 2021, the Company’s subsidiary, Premium Audio Company LLC (“PAC”), signed a Letter of Intent to acquire certain assets of the home audio/video business of Onkyo Home Entertainment Corporation (“OHEC”), along with Sharp Corporation (“Sharp”) as PAC’s partner. On May 26, 2021, PAC and Sharp signed an asset purchase agreement (“APA”) to jointly acquire certain assets of the home audio/video business of OHEC through a joint venture entity. The APA was approved by OHEC’s shareholders at its ordinary general meeting of shareholders on June 25, 2021 and on June 28, 2021, the Company announced that PAC had entered into a joint venture with Sharp in order to execute the transaction. PAC owns
The joint venture agreement between PAC and Sharp also contains a put/call arrangement, whereby Sharp has the right to put its interest in the joint venture back to Voxx and Voxx has the right to call Sharp’s ownership interest in the joint venture at any time after the approval of Onkyo’s annual financial statements for the year ending February 28, 2025 at a purchase price based on a formula as defined in the joint venture agreement.
10
The following summarizes the allocation of the purchase price based upon the fair value of the assets acquired at the date of acquisition:
|
|
September 8, 2021 |
|
|
Measurement |
|
|
September 8, 2021 |
|
|||
Purchase price: |
|
|
|
|
|
|
|
|
|
|||
Cash paid |
|
$ |
|
|
|
- |
|
|
|
|
||
Assignment of notes and interest receivable |
|
|
|
|
|
- |
|
|
|
|
||
Fair value of contingent consideration |
|
|
|
|
|
|
|
|
|
|||
Total transaction consideration |
|
$ |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Allocation: |
|
|
|
|
|
|
|
|
|
|||
Intangible assets |
|
$ |
|
|
|
( |
) |
|
|
|
||
Goodwill |
|
|
|
|
|
|
|
|
|
|||
Total assets acquired |
|
$ |
|
|
|
|
|
|
|
|||
During Fiscal 2022 and during the three and nine months ended November 30, 2022, the Company recorded a cumulative net measurement period adjustment that increased goodwill by $
|
|
September 8, 2021 (as adjusted) |
|
|
Amortization Period (Years) |
|
Goodwill |
|
$ |
|
|
N/A |
|
Tradenames |
|
|
|
|
||
Technology |
|
|
|
|
||
|
|
$ |
|
|
|
|
The fair values of the intangible assets and contingent consideration were determined with the assistance of a third-party valuation expert. Goodwill was determined as the excess of the purchase price over the fair value of the assets acquired, including identifiable intangible assets, and represents workforce and expected cash flow generation for the Onkyo business that does not qualify for separate recognition as intangible assets.
Contingent consideration is payable to OHEC based upon the calculation of
The Company has consolidated the financial results of Onkyo since the acquisition date for financial reporting purposes. The non-controlling interest has been classified as redeemable non-controlling interest outside of equity on the accompanying Consolidated Balance Sheets as the exercise of the put option is not within the Company’s control. The carrying value of the redeemable non-controlling interest of Onkyo cannot be less than the redemption amount, which is the amount Sharp will settle the put option for if exercised. Adjustments to reconcile the carrying value to the redemption amount are recorded immediately to retained earnings. No adjustment was made to the carrying amount of the redeemable non-controlling interest at November 30, 2022, as the carrying amount was in excess of the redemption amount.
11
The following table provides the rollforward of the redeemable non-controlling interest for the nine months ended November 30, 2022:
|
|
Redeemable Non-controlling Interest |
|
|
Balance at February 28, 2022 |
|
$ |
|
|
Net loss attributable to non-controlling interest |
|
|
( |
) |
Comprehensive loss attributable to non-controlling interest |
|
|
( |
) |
Foreign currency translation |
|
|
( |
) |
Balance at November 30, 2022 |
|
$ |
( |
) |
The purpose of this acquisition was to expand the Company’s market share and product offerings within the premium audio industry. The joint venture owns the Onkyo and Integra brands and has the licensing rights to the Pioneer brands. It will market and sell a variety of products under the Onkyo, Integra, and Pioneer brands. Onkyo’s results of operations are included in the consolidated financial statements of Voxx in our Consumer Electronics segment from September 8, 2021, and represents approximately
Historical financial statements for Onkyo prior to the acquisition were not available and it is impracticable for the Company to determine the impact the acquisition would have had on the Company’s revenue or net (loss) income had it been included in the consolidated results of the Company for the three and nine months ended November 30, 2021.
(3) Net (Loss) Income Per Common Share
Basic net income (loss) per common share attributable to VOXX International Corporation is calculated by dividing net income attributable to Voxx, adjusted to reflect changes in the redemption value of redeemable non-controlling interest, by the weighted-average common shares outstanding during the period. The diluted net income (loss) per common share computation reflects the potential dilution that would occur if common stock equivalent securities or other contracts to issue common stock were exercised or converted into common stock. There was
A reconciliation between the denominator of basic and diluted net income (loss) per common share is as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Weighted-average common shares outstanding (basic) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units and market stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares and potential common shares outstanding (diluted) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
12
Restricted stock units and market stock units of
(4) Investment Securities
As of November 30, 2022, and February 28, 2022, the Company had the following investments:
|
|
November 30, 2022 |
|
|
|
|
Fair Value |
|
|
Investment Securities |
|
|
|
|
Marketable Equity Securities |
|
|
|
|
Mutual funds |
|
$ |
|
|
Total Marketable Equity Securities |
|
|
|
|
Total Investment Securities |
|
$ |
|
|
|
|
February 28, 2022 |
|
|
|
|
Fair Value |
|
|
Investment Securities |
|
|
|
|
Marketable Equity Securities |
|
|
|
|
Mutual funds |
|
$ |
|
|
Total Marketable Securities |
|
|
|
|
Total Investment Securities |
|
$ |
|
|
Equity Securities
Mutual Funds
The Company’s mutual funds are held in connection with its deferred compensation plan. Changes in the carrying value of these securities are offset by changes in the corresponding deferred compensation liability.
(5) Fair Value Measurements and Derivatives
The Company applies the authoritative guidance on “Fair Value Measurements," which, among other things, requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. This guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.
Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that market participants would use.
13
The following table presents financial assets and liabilities measured at fair value on a recurring basis at November 30, 2022:
|
|
|
|
|
Fair Value Measurements at |
|
||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and money market funds |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
Mutual funds |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Derivatives designated for hedging |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents financial assets and liabilities measured at fair value on a recurring basis at February 28, 2022:
|
|
|
|
|
Fair Value Measurements at |
|
||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and money market funds |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
Mutual funds |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives designated for hedging |
|
$ |
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Contingent consideration |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
At November 30, 2022, the carrying value of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligations, and long-term debt approximates fair value because of either (i) the short-term nature of the financial instrument; (ii) the interest rate on the financial instrument being reset every quarter to reflect current market rates; or (iii) the stated or implicit interest rate approximates the current market rates or are not materially different from market rates.
Contingent consideration is related to the Company’s Onkyo acquisition (see Note 2). The estimated fair value of the contingent consideration is classified within Level 3 and was determined using an income approach. Under this method, potential future purchases applicable to the contingent consideration were determined using internal estimates for growth. The potential future purchases applicable to the contingent consideration were multiplied by the appropriate percentage of payments due to OHEC, and the resulting contingent consideration amounts were adjusted for risk at the appropriate discount rate. The value of the contingent consideration was further discounted to reflect the credit risk of the Company. Changes in either the revenue growth rate assumptions or the discount rate could result in a material change to the amount of contingent consideration accrued and such changes will be recorded in the Company's Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
The following table provides a rollforward of the Company's contingent consideration balance for the nine months ended November 30, 2022:
|
|
|
|
|
Balance at February 28, 2022 |
|
$ |
|
|
Payments made to OHEC |
|
|
( |
) |
Fair value adjustment |
|
|
|
|
Purchase price allocation adjustment |
|
|
|
|
Foreign currency translation |
|
|
( |
) |
Balance at November 30, 2022 |
|
$ |
|
|
14
Derivative Instruments
The Company’s derivative instruments include an interest rate swap agreement and have also included forward foreign currency contracts in prior periods. The Company’s interest rate swap agreement hedges interest rate exposure related to the outstanding balance of its Florida Mortgage, with monthly payments due through March 2026. The swap agreement locks the interest rate on the debt at
When entered into, forward foreign currency contracts are utilized to hedge a portion of the Company’s foreign currency inventory purchases. Forward foreign currency derivatives qualifying for hedge accounting are designated as cash flow hedges and valued using observable forward rates for the same or similar instruments (Level 2). As of November 30, 2022, there are no open forward foreign currency contracts.
Financial Statement Classification
The following table discloses the fair value as of November 30, 2022 and February 28, 2022 of the Company’s derivative instruments:
|
|
Derivative Assets and Liabilities |
|
|||||||
|
|
|
|
Fair Value |
|
|||||
|
|
Account |
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Designated derivative instruments |
|
|
|
|
|
|
|
|
||
Interest rate swap agreements |
|
Other assets |
|
|
|
|
|
— |
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
( |
) |
|
Total derivatives |
|
|
|
$ |
|
|
$ |
( |
) |
|
Cash Flow Hedges
The Company's policy is to enter into derivative instrument contracts with terms that coincide with the underlying exposure being hedged. As such, the Company’s derivative instruments are expected to be highly effective. For derivative instruments that are designated and qualify as cash flow hedges, the entire change in fair value of the hedging instrument included in the assessment of the hedge ineffectiveness is recorded to Other comprehensive income (loss). When the amounts recorded in Other comprehensive income (loss) are reclassified to earnings, they are presented in the same income statement line item as the effect of the hedged item.
During Fiscal 2022 and through the third quarter of Fiscal 2023, the Company did not enter into any new forward foreign currency contracts. All forward foreign currency contracts entered into during Fiscal 2021 settled as of
15
Activity related to cash flow hedges recorded during the three and nine months ended November 30, 2022 and 2021 was as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
November 30, 2022 |
|
|
November 30, 2022 |
|
||||||||||
|
|
Pretax Gain |
|
|
Pretax Loss |
|
|
Pretax Gain |
|
|
Pretax Gain |
|
||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
November 30, 2021 |
|
|
November 30, 2021 |
|
||||||||||
|
|
Pretax (Loss) Gain |
|
|
Pretax Loss |
|
|
Pretax (Loss) Gain |
|
|
Pretax Loss |
|
||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency contracts |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Interest rate swaps |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
(6) Accumulated Other Comprehensive Loss
The Company’s accumulated other comprehensive loss consists of the following:
|
|
Foreign |
|
|
Pension plan |
|
|
Derivatives |
|
|
Total |
|
||||
Balance at February 28, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Reclassified from accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Balance at November 30, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
During the three and nine months ended November 30, 2022, the Company recorded other comprehensive (loss) income, net of the associated tax impact, of $
The other comprehensive (loss) income before reclassification related to foreign currency translation losses of $(
16
(7) Supplemental Cash Flow Information
The following is supplemental information relating to the Unaudited Consolidated Statements of Cash Flows:
|
|
Nine months ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Recording of redeemable equity |
|
$ |
( |
) |
|
$ |
|
|
Reclassification of stockholders' equity to redeemable equity |
|
|
|
|
|
|
||
Gross issuance of shares |
|
|
|
|
|
|
||
Change in goodwill due to measurement period adjustments, net |
|
|
|
|
|
( |
) |
|
Additional goodwill from the recognition of the fair value of non-controlling interest in connection with business acquisition |
|
|
|
|
|
|
||
Contingent purchase price consideration in connection with business acquisition |
|
|
|
|
|
|
||
Right of use assets obtained in exchange for operating lease obligations |
|
|
|
|
|
|
||
Right of use assets obtained in exchange for finance lease obligations |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
|
|
|
|
|
||
Finance cash flows from finance leases |
|
|
|
|
|
|
||
Cash paid during the period: |
|
|
|
|
|
|
||
Interest (excluding bank charges) |
|
$ |
|
|
$ |
|
||
Income taxes (net of refunds) |
|
|
|
|
|
|
||
(8) Accounting for Stock-Based Compensation
The Company has various stock-based compensation plans, which are more fully described in Note 1 of the Notes to the Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended February 28, 2022.
Restricted stock awards are granted pursuant to the Company's 2012 Equity Incentive Plan (the "2012 Plan"). A restricted stock award is an award of common stock that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are subject to forfeiture if employment terminates for a reason other than death, disability, or retirement prior to the release of the restrictions.
The Company's Omnibus Equity Incentive Plan was established in 2014 (the "2014 Plan"). Pursuant to the 2014 Plan, Restricted Stock Units ("RSUs") may be awarded by the Company to any individual who is employed by, provides services to, or serves as a director of the Company or its affiliates. RSUs vest on the later of
Grant of Shares to Chief Executive Officer
On July 8, 2019, the Board of Directors approved a
17
All stock grants under the Employment Agreement are subject to a hold requirement as specified in the Employment Agreement. The Employment Agreement gave Mr. Lavelle, in certain limited change of control situations, the right to require the Company to purchase shares issued in connection with the Employment Agreement, shares personally acquired by Mr. Lavelle, and shares issued to him under other incentive compensation arrangements. Accordingly, the stock awards issued in connection with the Employment Agreement are presented as redeemable equity on the Consolidated Balance Sheets at grant-date fair value. RSUs previously held by Mr. Lavelle under the 2014 Plan and shares personally purchased by Mr. Lavelle have been reclassified from permanent equity to redeemable equity. As the contingent events that would allow Mr. Lavelle to redeem the shares are not probable at this time, remeasurement of the amounts in redeemable equity have not been recorded. The Employment Agreement contains certain restrictive and non-solicitation covenants.
The following table presents a summary of the activity related to the additional stock grants under the Employment Agreement, and RSU grants under the 2014 Plan for the nine months ended November 30, 2022:
|
|
Number |
|
|
Weighted |
|
||
Unvested award balance at February 28, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Vested and settled |
|
|
( |
) |
|
|
|
|
Unvested award balance at November 30, 2022 |
|
|
|
|
$ |
|
||
At November 30, 2022, there were
During the three and nine months ended November 30, 2022 and 2021, the Company recorded $
18
(9) Supply Chain Financing
The Company has supply chain financing agreements and factoring agreements that were entered into for the purpose of accelerating receivable collection and better managing cash flow. The balances under the agreements are sold without recourse and are accounted for as sales of accounts receivable. Total receivable balances sold for the three and nine months ended November 30, 2022, net of discounts, were $
(10) Research and Development
Expenditures for research and development are charged to expense as incurred. Such expenditures amounted to $
(11) Goodwill and Intangible Assets
The change in goodwill by segment is as follows:
Automotive Electronics: |
|
Amount |
|
|
Beginning balance at March 1, 2022 |
|
$ |
|
|
Activity during the period |
|
|
|
|
Balance at November 30, 2022 |
|
$ |
|
|
Gross carrying value at November 30, 2022 |
|
$ |
|
|
Accumulated impairment charge |
|
|
|
|
Net carrying value at November 30, 2022 |
|
$ |
|
|
Consumer Electronics: |
|
|
|
|
Beginning balance at March 1, 2022 |
|
$ |
|
|
Adjustments to goodwill acquired |
|
|
|
|
Foreign currency adjustments |
|
|
( |
) |
Balance at November 30, 2022 |
|
$ |
|
|
Gross carrying value at November 30, 2022 |
|
$ |
|
|
Accumulated impairment charge |
|
|
( |
) |
Net carrying value at November 30, 2022 |
|
$ |
|
|
Total Goodwill, net |
|
$ |
|
|
The Company's Biometrics segment did
19
At November 30, 2022, intangible assets consisted of the following:
|
|
Gross |
|
|
Accumulated |
|
|
Total Net |
|
|||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Trademarks/Tradenames |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|
|
|||
Patents |
|
|
|
|
|
|
|
|
|
|||
License |
|
|
|
|
|
|
|
|
|
|||
Contracts |
|
|
|
|
|
|
|
|
|
|||
Total finite-lived intangible assets |
|
$ |
|
|
$ |
|
|
|
|
|||
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|||
Trademarks |
|
|
|
|
|
|
|
|
|
|||
Total intangible assets, net |
|
|
|
|
|
|
|
$ |
|
|||
At February 28, 2022, intangible assets consisted of the following:
|
|
Gross |
|
|
Accumulated |
|
|
Total Net |
|
|||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Trademarks/Tradenames |
|
|
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|
|
|||
Patents |
|
|
|
|
|
|
|
|
|
|||
License |
|
|
|
|
|
|
|
|
|
|||
Contracts |
|
|
|
|
|
|
|
|
|
|||
Total finite-lived intangible assets |
|
$ |
|
|
$ |
|
|
|
|
|||
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|||
Trademarks |
|
|
|
|
|
|
|
|
|
|||
Total intangible assets, net |
|
|
|
|
|
|
|
$ |
|
|||
The Company recorded amortization expense of $
Year |
|
Amount |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
(12) Equity Investment
As of November 30, 2022 and February 28, 2022, the Company had a
20
The following presents summary financial information for ASA. Such summary financial information has been provided herein based upon the individual significance of ASA to the consolidated financial information of the Company.
|
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Current assets |
|
$ |
|
|
$ |
|
||
Non-current assets |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Members' equity |
|
|
|
|
|
|
||
|
|
Nine months ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Operating income |
|
|
|
|
|
|
||
Net income |
|
|
|
|
|
|
||
The Company's share of income from ASA was $
(13) Income Taxes
The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.
For the three months ended November 30, 2022, the Company recorded an income tax benefit of $
The effective tax rate for the three months ended November 30, 2022 was an income tax benefit of
For the nine months ended November 30, 2022, the Company recorded an income tax benefit of $
The effective tax rate for the nine months ended November 30, 2022 was an income tax benefit of
21
related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and an increase in valuation allowance.
At November 30, 2022, the Company had an uncertain tax position liability of $
(14) Inventory
Inventories by major category are as follows:
|
|
November 30, |
|
|
February 28, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory |
|
$ |
|
|
$ |
|
||
(15) Product Warranties and Product Repair Costs
The following table provides a summary of the activity with respect to product warranties and product repair costs. The liability for product warranties is included within Accrued expenses and other current liabilities and the reserve for product repair costs is recorded as a reduction of Inventory on the Consolidated Balance Sheets.
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Opening balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities for warranties accrued during the period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities adjusted during acquisition |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Warranty claims settled during the period |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(16) Financing Arrangements
The Company has the following financing arrangements:
|
|
November 30, |
|
|
February 28, |
|
||
Debt |
|
|
|
|
|
|
||
Domestic credit facility (a) |
|
$ |
|
|
$ |
— |
|
|
Florida mortgage (b) |
|
|
|
|
|
|
||
Euro asset-based lending obligation - VOXX Germany (c) |
|
|
— |
|
|
|
|
|
Shareholder loan payable to Sharp (d) |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Less: current portion of long-term debt |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Less: debt issuance costs |
|
|
|
|
|
|
||
Total long-term debt, net of debt issuance costs |
|
$ |
|
|
$ |
|
||
The Company has a senior secured credit facility (the "Credit Facility") with Wells Fargo Bank, N.A. ("Wells Fargo") that provides for a revolving credit facility with committed availability of up to $
22
lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 16(b)). The availability under the revolving credit line of the Credit Facility was $
All amounts outstanding under the Credit Facility will mature and become due on
Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that swingline loans may only be designated as Base Rate Loans. Loans designated as LIBOR Rate Loans bear interest at a rate equal to the then applicable LIBOR rate plus a range of
The obligations under the Credit Facility documents are secured by a general lien on, and security interest in, substantially all of the assets of the borrowers and certain of the guarantors, including accounts receivable, equipment, real estate, general intangibles, and inventory. The Company has guaranteed the obligations of the borrowers under the Agreement.
Charges incurred on the unused portion of the Credit Facility during the three and nine months ended November 30, 2022 totaled $
The Company has deferred financing costs related to the Credit Facility and previous amendments and modifications of the Credit Facility. In conjunction with the amendment to its Credit Facility in April 2021, the Company incurred additional financing fees of $
23
On July 6, 2015, VOXX HQ LLC, the Company’s wholly owned subsidiary, closed on a $
The Company incurred debt financing costs totaling approximately $
On July 20, 2015, the Company entered into an interest rate swap agreement in order to hedge interest rate exposure related to the Florida Mortgage and pays a fixed rate of
Foreign bank obligations include a Euro Asset-Based Lending ("ABL") credit facility, which has a credit limit of €
In conjunction with the capitalization and funding of the Company’s Onkyo joint venture with its partner Sharp, which was created in order to execute the acquisition of certain assets of the home audio/video business of OHEC on September 8, 2021 (see Note 2), Onkyo entered into a loan agreement with the shareholders of the joint venture, PAC and Sharp. The loan balance outstanding at November 30, 2022 represents the portion of the loan payable to Sharp. The loan balance due to PAC eliminates in consolidation. All amounts outstanding under the loan will mature and become payable
24
or call option is exercised in accordance with the joint venture agreement. The rate of interest for the shareholder loan is
(17) Other Income (Expense)
Other income (expense) is comprised of the following:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Foreign currency gain (loss), net |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Miscellaneous |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total other, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
Foreign currency losses included within Foreign currency gain (loss), net, for the three and nine months ended November 30, 2022 were primarily driven by declines in the Japanese Yen, which impacted the re-measurement of the Company's Onkyo subsidiary intercompany loans and interest payable, which are not of a long-term investment nature. The total foreign currency loss attributable to these re-measurements for the three and nine months ended November 30, 2022 was $
We account for leases in accordance with ASC 842 “Leases” (“ASC 842”). We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration.
We have operating leases for office equipment, as well as offices, warehouses, and other facilities used for our operations. We also have finance leases comprised primarily of computer hardware and machinery and equipment. Our leases have remaining lease terms of less than
Refer to Note 7 for supplemental cash flow information related to leases.
The components of lease cost for the three and nine months ended November 30, 2022 and 2021 were as follows:
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating lease cost (a) (c) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of right of use assets (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total finance lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
25
Supplemental balance sheet information related to leases is as follows:
|
|
November 30, 2022 |
|
|
February 28, 2022 |
|
||
Operating Leases |
|
|
|
|
|
|
||
Operating lease, right of use assets |
|
$ |
|
|
$ |
|
||
Total operating lease right of use assets |
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
Operating lease liabilities, less current portion |
|
|
|
|
|
|
||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
Finance Leases |
|
|
|
|
|
|
||
Property, plant, and equipment, gross |
|
$ |
|
|
$ |
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
$ |
|
|||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
Finance lease liabilities, less current portion |
|
|
|
|
|
|
||
Total finance lease liabilities |
|
$ |
|
|
$ |
|
||
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
||||
Finance leases |
|
|
|
|
||||
Weighted Average Discount Rate |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
% |
||
Maturities of lease liabilities on November 30 of each of the succeeding years are as follows:
|
|
Operating Leases |
|
|
Finance Leases |
|
||
2023 |
|
$ |
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
||
Less imputed interest |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
||
As of November 30, 2022, the Company has not entered into any lease agreements that have not yet commenced.
26
The Company owns and occupies buildings as part of its operations. Certain space within these buildings may, from time to time, be leased to third parties from which the Company earns rental income as lessor. This leased space is recorded within property, plant, and equipment and was not material to the Company's Consolidated Balance Sheets at November 30, 2022 and February 28, 2022. Rental income earned by the Company for the three and nine months ended November 30, 2022 and 2021 was $
(19) Capital Structure
The Company's capital structure is as follows:
|
|
|
|
|
Shares Authorized |
|
|
Shares Outstanding |
|
|
|
|
|
|
|
|||||||||||||
Security |
|
Par |
|
|
November 30, 2022 |
|
|
February 28, 2022 |
|
|
November 30, 2022 |
|
|
February 28, 2022 |
|
|
Voting |
|
|
Liquidation |
|
|||||||
Preferred Stock |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
$ |
|
||||||
Series Preferred Stock |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||||
Class A Common Stock |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratably with |
|
|||||||
Class B Common Stock |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratably with |
|
|||||||
Treasury Stock at cost |
|
at cost |
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||||
During the three and nine months ended November 30, 2022, the Company repurchased
(20) Variable Interest Entity
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 – “Consolidation,” an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:
On September 1, 2015, Voxx acquired a majority voting interest in substantially all of the assets and certain specified liabilities of EyeLock, Inc. and EyeLock Corporation, a market leader of iris-based identity authentication solutions, through a newly formed entity, EyeLock LLC. The Company issued EyeLock LLC a promissory note for the purposes of repaying protective advances and funding working capital requirements of the entity. On August 25, 2022, this promissory note was amended and restated to allow EyeLock LLC to borrow up to $
27
We determined that we hold a variable interest in EyeLock LLC as a result of:
We concluded that we became the primary beneficiary of EyeLock LLC on September 1, 2015 in conjunction with the acquisition. This was the first date on which we had the power to direct the activities that most significantly impact the economic performance of the entity because we acquired a majority interest in substantially all of the assets and certain liabilities of EyeLock, Inc. and EyeLock Corporation on this date, as well as obtained a majority voting interest as a result of this transaction. Although we are considered to have control over EyeLock LLC under ASC 810, due to our majority ownership interest, the assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC. As a result of our majority ownership interest in the entity and our primary beneficiary conclusion, we consolidated EyeLock LLC within our consolidated financial statements beginning on September 1, 2015.
On April 29, 2021, EyeLock LLC entered into a
28
Assets and Liabilities of EyeLock LLC
The following table sets forth the carrying values of assets and liabilities of EyeLock LLC that were included on our Consolidated Balance Sheets as of November 30, 2022 and February 28, 2022:
|
|
November 30, |
|
|
February 28, |
|
||
Assets |
|
(unaudited) |
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventory, net |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Partners' Deficit |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Interest payable to VOXX |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Due to VOXX |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Prepaid ownership interest in EyeLock LLC due to GalvanEyes LLC |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Partners' deficit: |
|
|
|
|
|
|
||
Capital |
|
|
|
|
|
|
||
Retained losses |
|
|
( |
) |
|
|
( |
) |
Total partners' deficit |
|
|
( |
) |
|
|
( |
) |
Total liabilities and partners' deficit |
|
$ |
|
|
$ |
|
||
29
Revenues and Expenses of EyeLock LLC
The following table sets forth the revenues and expenses of EyeLock LLC that were included in our Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended November 30, 2022 and 2021:
|
|
For the three months |
|
|
For the nine months |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Engineering and technical support |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and bank charges |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Total other expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
(21) Segment Reporting
The Company operates in
Our Automotive Electronics segment designs, manufactures, markets and distributes rear-seat entertainment devices, remote start systems, automotive security, vehicle access systems, mobile interface modules, mobile multimedia devices, aftermarket/OE-styled radios, car link-smartphone telematics applications, driver distraction products, collision avoidance systems, automotive power accessories, power lift gates, location-based services, turn signal switches, automotive lighting products, automotive sensing and camera systems, USB ports, cruise control systems, heated seats, and satellite radio products.
Our Consumer Electronics segment designs, manufactures, markets and distributes home theater systems, A/V receivers; premium loudspeakers; outdoor speakers; business music systems; streaming music systems; cinema speakers; architectural speakers; wireless and Bluetooth speakers; soundbars; on-ear and in-ear headphones; wired, wireless, and Bluetooth headphones and ear buds; DLNA (Digital Living Network Alliance) compatible devices; T.V. remote controls; karaoke products; personal sound amplifiers; infant/nursery products; as well as A/V connectivity, portable/home charging, reception, and digital consumer products.
Our Biometrics segment designs, manufactures, markets, and distributes iris identification and biometric security related products.
The accounting principles applied at the consolidated financial statement level are generally the same as those applied at the operating segment level and there are no material intersegment sales. The segments are allocated interest expense, based upon a pre-determined formula, which utilizes a percentage of each operating segment's intercompany balance, which is offset in Corporate/Eliminations.
30
Segment data for each of the Company's segments is presented below:
|
|
Automotive |
|
|
Consumer |
|
|
Biometrics |
|
|
Corporate/ |
|
|
Total |
|
|||||
Three Months Ended November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income of equity investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense and bank charges |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) before income taxes (a) (b) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three Months Ended November 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income of equity investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense and bank charges |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) before income taxes (b) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nine Months Ended November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income of equity investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense and bank charges |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) before income taxes (a) (b) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Nine Months Ended November 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income of equity investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense and bank charges |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) before income taxes (b) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
||
(a) Included within Income (loss) before income taxes on Corporate/Eliminations for the three and nine months ended November 30, 2022 are foreign currency losses of $
(b) Included within Income (loss) before income taxes on Corporate/Eliminations for the three and nine months ended November 30, 2021 is a charge of $
31
Company (see Note 23). Included within Income (loss) before income taxes on Corporate/Eliminations for the three and nine months ended November 30, 2022 are interest charges of $
(22) Revenue from Contracts with Customers
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. We apply the FASB’s guidance on revenue recognition, which requires us to recognize the amount of revenue and consideration that we expect to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which requires us to: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy a performance obligation.
Within our Automotive Electronics segment, while the majority of the contracts we enter into with Original Equipment Manufacturers (“OEMs”) are long-term supply arrangements, the performance obligations are established by the enforceable contract, which is generally considered to be the purchase order. The purchase orders are of durations less than one year. As such, the Company applies the practical expedient in ASC paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less for which work has not yet been performed.
Performance Obligations
The Company’s primary source of revenue is derived from the manufacture and distribution of consumer electronic, automotive electronic, and biometric products. Our consumer electronic products are primarily comprised of finished goods sold to retail and commercial customers, consisting of premium audio products and other consumer electronic products. Our automotive electronic products, some of which are manufactured by the Company, are sold both to OEM and aftermarket customers. Our biometric products, primarily consisting of finished goods, are sold to retail and commercial customers. We recognize revenue for sales to our customers when transfer of control of the related good or service has occurred. The majority of our revenue was recognized under the point in time approach for the three and nine months ended November 30, 2022. Certain telematic subscription revenues generated by our Automotive Electronics segment are recognized over time. Contract terms with certain of our OEM customers could result in additional products and services being transferred over time as a result of the customized nature of some of our products, together with contractual provisions in the customer contracts that provide us with an enforceable right to payment for performance completed to date; however, under typical terms, we do not have the right to consideration until the time of shipment from our manufacturing facilities or distribution centers, or until the time of delivery to our customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time may be slightly accelerated compared to our right to consideration at the time of shipment or delivery.
Under ASC 606, we are required to present a refund liability and a return asset within the Consolidated Balance Sheets. The changes in the refund liability are reported in Net sales, and the changes in the return asset are reported in Cost of sales in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss). As of November 30, 2022 and February 28, 2022, the balance of the return asset was $
We warrant our products against certain defects in material and workmanship when used as designed, which primarily range from
Contract Balances
Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become
32
unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had current and non-current contract liability balances totaling $
|
|
|
|
|
Balance at February 28, 2022 |
|
$ |
|
|
Subscription payments received |
|
|
|
|
Revenue recognized |
|
|
( |
) |
Balance at November 30, 2022 |
|
$ |
|
|
The Company had no contract asset balances at November 30, 2022 or February 28, 2022.
Disaggregation of Revenue
The Company operates in
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Automotive Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
OEM Products |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Aftermarket Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Automotive Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Premium Audio Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Consumer Electronic Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Consumer Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biometrics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biometric Products |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Biometrics Segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Net Sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(23) Contingencies
The Company is currently, and has in the past, been a party to various routine legal proceedings incident to the ordinary course of business. If management determines, based on the underlying facts and circumstances of each matter, that it is probable a loss will result from a litigation contingency and the amount of the loss can be reasonably estimated, the estimated loss is accrued for.
The products the Company sells are continually changing as a result of improved technology. As a result, although the Company and its suppliers attempt to avoid infringing known proprietary rights, the Company may be subject to legal proceedings and claims for alleged infringement by patent, trademark, or other intellectual property owners. Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert management’s attention and resources, or require the Company to either enter into royalty or license agreements that are not advantageous to the Company, or pay material amounts of damages.
In March 2007, the Company entered into a contract with Seaguard Electronics, LLC (“Seaguard”) relating to the Company’s purchase from Seaguard of a stolen vehicle recovery product and back-end services. In August 2018, Seaguard filed a demand for arbitration against the Company with the American Arbitration Association (“AAA”) alleging claims for breach of contract and patent infringement. Seaguard originally sought damages of approximately
33
$
On November 29, 2021, the Arbitrator issued an interim award (the “Interim Award”) with Seaguard prevailing on its breach of contract claim. The Company’s affirmative defenses relating to those claims, however, were denied in their entirety. Seaguard was awarded damages in the amount of $
On March 14, 2022, Seaguard filed a Petition in the United States District Court, Central District of California, Western Division, to confirm the Partial Final Award. On April 25, 2022, the Company filed its opposition to Seaguard’s Petition to Confirm and a Counter-Petition to Vacate the Partial Final Award. On May 31, 2022, the Court ordered the matter taken under submission for decision without oral hearing. The court has issued an Order informing the parties that it will rule on the pending Petitions by August 3, 2023.
During Fiscal 2022, the Company recorded an accrual for the interim arbitration award in the amount of $
(24) New Accounting Pronouncements
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU No. 2021-01, “Reference Rate Reform: Scope,” respectively. Together, these ASU’s provide optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 provides, among other things, guidance that modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contract; and, changes in the critical terms of hedging relationships caused by reference rate reform should not result in the de-designation of the instrument, provided certain criteria are met. ASU 2021-01 clarifies the scope and application of ASU 2020-04 and among other things, permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows. The Company’s exposure to LIBOR rates includes its Credit Facility, as well as its Florida Mortgage and related interest rate swap agreement. These optional expedients and exceptions are effective as of March 12, 2020 through December 31, 2024. Adoption is permitted at any time. The Amended and Restated Credit Agreement provides both the Credit Facility and the Florida Mortgage with a Benchmark Replacement that will replace the LIBOR rate (see Note 16). The Company is currently evaluating the impact this update may have on its consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts With Customers,” which amends the accounting for contract assets acquired and contract liabilities assumed from contracts with customers in business combinations (“acquired contract balances”). The update requires contract assets and contract liabilities from contracts with customers that are acquired in a business combination to be recognized and measured as if the acquirer had originated the original contract. Previously, acquired contract assets and liabilities were measured at fair value. The ASU is effective for fiscal years ending after December 15, 2022. Early adoption is permitted. We do not expect the adoption to have a material impact on our consolidated financial statements.
In June 2022, the FASB issued ASU No. 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions," which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We do not expect the adoption to have a material impact on our consolidated financial statements.
34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain information in this Quarterly Report on Form 10-Q would constitute forward-looking statements, including, but not limited to, information relating to the future performance and financial condition of the Company, the impact of the COVID-19 pandemic on our results of operations, the plans and objectives of the Company’s management, and the Company’s assumptions regarding such performance and plans that are forward-looking in nature and involve certain risks and uncertainties. Actual results could differ materially from such forward-looking information and could be exacerbated by the COVID-19 pandemic, continued supply chain issues and chip shortages, increasing interest rates, and any worsening of the global business and economic environment as a result.
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") with an overview of the business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we discuss our results of operations for the three and nine months ended November 30, 2022 compared to the three and nine months ended November 30, 2021. Next, we present EBITDA and Adjusted EBITDA attributable to Voxx for the three and nine months ended November 30, 2022 compared to the three and nine months ended November 30, 2021, in order to provide a useful and appropriate supplemental measure of our performance. We then provide an analysis of changes in our balance sheets and cash flows and discuss our material cash requirements in the sections entitled "Liquidity and Capital Resources." We conclude this MD&A with a discussion of "Related Party Transactions" and "Recent Accounting Pronouncements."
Unless specifically indicated otherwise, all amounts presented in our MD&A below are in thousands, except share and per share data.
Business Overview
VOXX International Corporation ("Voxx," "We," "Our," "Us" or the "Company") is a leading international manufacturer and distributor operating in the Automotive Electronics, Consumer Electronics, and Biometrics industries. The Company has widely diversified interests, with more than 30 global brands that it has acquired and grown throughout the years, achieving a powerful international corporate image, and creating a vehicle for each of these respective brands to emerge with its own identity. We conduct our business through nineteen wholly-owned subsidiaries: Audiovox Atlanta Corp., VOXX Electronics Corporation, VOXX Accessories Corp., VOXX German Holdings GmbH ("Voxx Germany"), Audiovox Canada Limited, Voxx Hong Kong Ltd., Audiovox International Corp., Audiovox Mexico, S. de R.L. de C.V. ("Voxx Mexico"), Code Systems, Inc., Oehlbach Kabel GmbH ("Oehlbach"), Schwaiger GmbH ("Schwaiger"), Invision Automotive Systems, Inc. ("Invision"), Premium Audio Company LLC ("PAC," which includes Klipsch Group, Inc. and 11 Trading Company LLC), Omega Research and Development, LLC ("Omega"), Voxx Automotive Corp., Audiovox Websales LLC, VSM-Rostra LLC (“VSM”), VOXX DEI LLC, and VOXX DEI Canada, Ltd. (collectively, with VOXX DEI, LLC, “DEI”), as well as majority owned subsidiaries, EyeLock LLC ("EyeLock") and Onkyo Technology KK ("Onkyo"). We market our products under the Audiovox® brand name and other brand names and licensed brands, such as 808®, Acoustic Research®, Advent®, Avital®, Car Link®, Chapman®, Clifford®, Code-Alarm®, Crimestopper™, Directed®, Discwasher®, Energy®, Heco®, Integra®, Invision®, Jamo®, Klipsch®, Mac Audio™, Magnat®, Mirage®, myris®, Oehlbach®, Omega®, Onkyo®, Pioneer®, Prestige®, Project Nursery®, Python®, RCA®, RCA Accessories, Rosen®, Rostra®, Schwaiger®, Smart Start®, Terk®, Vehicle Safety Automotive, Viper®, and Voxx Automotive, as well as private labels through a large domestic and international distribution network. We also function as an OEM ("Original Equipment Manufacturer") supplier to several customers, as well as market a number of products under exclusive distribution agreements, such as SiriusXM satellite radio products.
COVID-19
The ongoing COVID-19 pandemic has created significant global economic uncertainty, adversely impacted the business of some of our customers and vendors, and has impacted our business and results of operations in the past and could further impact our results of operations and cash flows in the future. As the impact of the COVID-19 pandemic has evolved, we have continued to face several operational challenges directly or indirectly related to the pandemic, such as global supply chain constraints and logistical issues, including higher freight costs and supplier product delays, as well as inflation with respect to materials and labor costs, which impacted our results for the three and nine months ended November 30, 2022. As countries around the world continue to combat COVID-19, and as government-imposed regulations regarding, among other things, COVID-19 testing, travel restrictions, and vaccine mandates change, there is still a risk that the pandemic may impact the overall demand environment, and our ability to source product and materials to meet demand levels and maintain adequate inventory levels, as well as maintain staffing levels at our own facilities in order to fulfill our customer orders and contractual obligations. Due to the evolving situation,
35
future results of the Company could be impacted in ways we are not able to predict today, including, but not limited to, non-cash write-downs and impairments; foreign currency fluctuations; potential adjustments to the carrying value of inventory; and the delayed collections of, or inability to collect accounts receivables. We will continue to closely monitor updates regarding the spread of COVID-19 and its variants, the distribution of vaccines and vaccine boosters, and any applicable local, state, and federal government-imposed restrictions, and we will adjust our operations accordingly. In light of the foregoing, we may take actions to alter our business operations or such actions that we determine are in the best interest of our employees, customers, suppliers, and shareholders.
The Company continues to focus on cash flow and anticipates having sufficient resources to operate for the coming twelve-month period.
Reportable Segments
The Company operates in three reportable segments based on our products and internal organizational structure. The operating segments consist of Automotive Electronics, Consumer Electronics, and Biometrics. See Note 21 to the Company's Consolidated Financial Statements for segment information.
Products included in these segments are as follows:
Automotive Electronics products include:
Consumer Electronics products include:
36
Biometrics products include:
We believe our segments have expanding market opportunities with certain levels of volatility related to domestic and international markets, new car sales, increased competition by manufacturers, private labels, technological advancements, discretionary consumer spending and general economic conditions. All of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future. Macroeconomic factors, such as fluctuations in the unemployment rate and inflation have been pressured as a result of factors including the COVID-19 pandemic, supply chain shortages, and the war in the Ukraine and have created a challenging demand environment in some of our markets, the duration and severity of which we are still unable to predict.
Our objective is to continue to grow our business by acquiring new brands, embracing new technologies, expanding product development, and applying this to a continued stream of new products that should increase gross margins and improve operating
37
income. In addition, it is our intention to continue to acquire synergistic companies that would allow us to leverage our overhead, penetrate new markets and expand existing product categories through our business channels. Notwithstanding the above, if the appropriate opportunity arises, the Company will explore the potential divestiture of a product line or business.
Acquisitions and Dispositions
On September 8, 2021, the Company’s subsidiary, PAC, completed the transaction to acquire certain assets of the home audio/video business of Onkyo Home Entertainment Corporation with its partner Sharp through the newly formed joint venture, Onkyo Technology KK (see Note 2).
Critical Accounting Policies and Estimates
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; accrued sales incentives; business combinations; expected credit losses on accounts receivable; inventory valuation; valuation of long-lived assets; valuation and impairment assessment of goodwill, trademarks, and other intangible assets; warranties; recoverability of deferred tax assets; and the reserve for uncertain tax positions at the date of the consolidated financial statements. A summary of the Company's critical accounting policies is identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the fiscal year ended February 28, 2022.
During Fiscal 2022, changes to the global economic situation continued to occur as a consequence of the COVID-19 pandemic and related supply chain challenges, chip shortages, and freight issues that have continued during Fiscal 2023. It is possible that this could cause changes to estimates in the future as a result of the financial circumstances of the markets in which the Company operates, the price of the Company’s publicly traded equity in comparison to the Company’s carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the Company’s consolidated financial statements, particularly with respect to the fair value of the Company’s reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment.
Continued negative trends in the business as well as the narrow differences between fair value and carrying value for certain indefinite-lived intangible assets may result in an impairment charge related to goodwill or indefinite-lived intangible assets in the future. Several factors could result in future impairments, including but not limited to: deterioration in macro-economic conditions (including a recession, continued inflation, rising interest rates and foreign currency exchange rates), changes in customer preferences and trends, increased competition, deterioration in the performance of our business or product lines. It is possible that the changes in numerous estimates associated with management judgments, assumptions and estimates made in assessing the fair value of our goodwill and indefinite-lived intangible assets, could result in a future impairment charge which may be significant.
Results of Operations
As you read this discussion and analysis, refer to the accompanying Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss), which present the results of our operations for the three and nine months ended November 30, 2022 and 2021.
The following tables set forth, for the periods indicated, certain statements of operations data for the three and nine months ended November 30, 2022 and 2021.
38
Net Sales
|
|
November 30, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Automotive Electronics |
|
$ |
48,554 |
|
|
$ |
61,589 |
|
|
$ |
(13,035 |
) |
|
|
(21.2 |
)% |
Consumer Electronics |
|
|
94,116 |
|
|
|
129,733 |
|
|
|
(35,617 |
) |
|
|
(27.5 |
)% |
Biometrics |
|
|
255 |
|
|
|
355 |
|
|
|
(100 |
) |
|
|
(28.2 |
)% |
Corporate |
|
|
130 |
|
|
|
194 |
|
|
|
(64 |
) |
|
|
(33.0 |
)% |
Total net sales |
|
$ |
143,055 |
|
|
$ |
191,871 |
|
|
$ |
(48,816 |
) |
|
|
(25.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Automotive Electronics |
|
$ |
125,357 |
|
|
$ |
150,007 |
|
|
$ |
(24,650 |
) |
|
|
(16.4 |
)% |
Consumer Electronics |
|
|
271,068 |
|
|
|
320,805 |
|
|
|
(49,737 |
) |
|
|
(15.5 |
)% |
Biometrics |
|
|
690 |
|
|
|
813 |
|
|
|
(123 |
) |
|
|
(15.1 |
)% |
Corporate |
|
|
377 |
|
|
|
415 |
|
|
|
(38 |
) |
|
|
(9.2 |
)% |
Total net sales |
|
$ |
397,492 |
|
|
$ |
472,040 |
|
|
$ |
(74,548 |
) |
|
|
(15.8 |
)% |
Automotive Electronics sales represented 33.9% of our net sales for the three months ended November 30, 2022, compared to 32.1% in the prior year period and decreased $13,035 for the three months ended November 30, 2022, as compared to the three months ended November 30, 2021. The primary driver of the sales decrease was the decline in sales of aftermarket security products of approximately $11,800, which includes aftermarket remote starts and telematic products. The delay in cold weather, coupled with a slowing of the economy has contributed to the decline in sales of these products for the three months ended November 30, 2022, as several customers purchased large stocks of inventory in the prior year and still have excess inventory on hand, thus delaying current year purchases. Also contributing to this decline is the limited availability of vehicles due to supply chain shortages. Sales of satellite radio products also decreased approximately $1,200 for the three months ended November 30, 2022 as a result of decreased foot traffic at customer retail outlets due to a slowing of the economy. Additionally, sales of aftermarket rear seat entertainment products declined approximately $500 for the three months ended November 30, 2022 as a result of limited vehicle availability due to ongoing supply chain shortages, as well as due to a slowing of the economy, with consumers beginning to spend less. Finally, sales of OEM safety products decreased approximately $300 for the three months ended November 30, 2022 as a result of the phasing out of certain older products. As an offset to these decreases in Automotive Electronics sales, the Company experienced an increase in OEM remote start and security products of approximately $600 during the three months ended November 30, 2022 primarily as a result of the launch of new remote start kits for one of its customer's new model vehicles.
Automotive Electronics sales represented 31.5% of our net sales for the nine months ended November 30, 2022, compared to 31.8% in the prior year period and decreased $24,650 for the nine months ended November 30, 2022, as compared to the nine months ended November 30, 2021. The primary driver of the sales decrease was the decline in sales of aftermarket security products of approximately $22,300, which includes aftermarket remote starts and telematic products. The delay in cold weather, coupled with a slowing of the economy, has contributed to the decline in sales of these products for the nine months ended November 30, 2022, as several customers purchased large stocks of inventory in the prior year and still have excess inventory on hand, thus delaying current year purchases. Also contributing to this decline is the limited availability of vehicles due to supply chain shortages. Sales of satellite radio products have also decreased approximately $2,900 for the nine months ended November 30, 2022 as a result of decreased foot traffic at customer retail outlets due the slowing economy. Additionally, sales of aftermarket rear seat entertainment products declined approximately $1,800 for the nine months ended November 30, 2022 primarily as a result of limited vehicle availability due to ongoing supply chain shortages, as well as due to a slowing of the economy. Finally, sales of OEM safety products decreased approximately $1,200 for the nine months ended November 30, 2022 as a result of the phasing out of certain older products. As an offset to these sales decreases, the Company's OEM rear seat entertainment sales experienced a net increase of approximately $1,600 during the nine months ended November 30, 2022, as a result of the start of new rear seat entertainment programs with Stellantis and Ford in the second half of Fiscal 2022 that were not present for the full nine months of the prior year period. This was offset by the discontinuance of certain other programs, as well as chip shortages. Aftermarket accessory product sales also increased approximately $600 for the nine months ended November 30, 2022 due to continued positive sales of new soundbars for club cars that launched during the prior year. Additionally, the Company experienced an increase in OEM remote start and security products of approximately $300 primarily as a result of the launch of new remote start kits for one of its customer's new model vehicles
Consumer Electronics sales represented 65.8% of our net sales for the three months ended November 30, 2022, compared to 67.6% in the comparable prior year period and decreased $35,617 for the three months ended November 30, 2022, as compared
39
to the three months ended November 30, 2021. This net decrease was a result of several factors. The Company experienced a decrease in domestic sales of its premium home theater speakers and wireless speaker products totaling approximately $32,700 during the three months ended November 30, 2022 due to a slowing of the economy and an increase in borrowing costs, both of which have driven the declines in customer purchases. In Europe, sales of both premium and non-premium speaker products and accessories have decreased approximately $9,400 for the three months ended November 30, 2022, as the war in the Ukraine has negatively affected sales in the surrounding areas and a general slowing of the economy has negatively affected sales across Europe. Additionally, there was a total decrease in domestic sales of accessory products of approximately $2,200 for the three months ended November 30, 2022 impacting most major accessory product lines, including hook-up, nursery, clock, remotes, and reception products. This decline was a result of a slowing of the economy and a general decrease in consumer spending. Sales of karaoke products also decreased approximately $1,400 for the three months ended November 30, 2022 as a result of a decline in online platform sales, which did not materialize as expected. As an offset to these declines, the Company experienced an increase in domestic sales of Onkyo and Pioneer related products of approximately $9,400 for the three months ended November 30, 2022. The Company's 11 Trading Company subsidiary began selling these products through a distribution agreement during Fiscal 2021 and during the third quarter of Fiscal 2022, the Company completed an acquisition of certain assets of the Onkyo Home Entertainment business with its joint venture partner, resulting in the establishment of the Company’s Onkyo subsidiary. Sales of Onkyo and Pioneer products have increased since the acquisition, as there has been higher factory production of these products to meet customer demand. Prior to the acquisition, the Onkyo Home Entertainment parent company was unable to meet customer demand due to financial difficulty.
Consumer Electronics sales represented 68.2% of our net sales for the nine months ended November 30, 2022, compared to 68.0% in the comparable prior year period and decreased $49,737 for the nine months ended November 30, 2022, as compared to the nine months ended November 30, 2021. This net decrease was a result of several factors. The Company experienced a net decrease in domestic sales of its premium home theater speakers and wireless speaker products totaling approximately $57,100 during the nine months ended November 30, 2022 due primarily to a slowing of the economy and a decrease in consumer spending. The Company has also continued to experience chip shortages and temporarily paused the sale of premium soundbars in order to update the firmware in these products, which negatively affected sales for the year to date period. In Europe, sales of both premium and non-premium speaker products and accessories have decreased approximately $16,100 for the nine months ended November 30, 2022, as the war in the Ukraine has negatively affected sales in the surrounding areas. Our European sales have also been negatively affected by a slowing of the economy, as well as chip shortages and a temporary pause in the sale of premium soundbars in order to update firmware. Additionally, there was a total decrease in domestic sales of accessory products of approximately $6,200 for the nine months ended November 30, 2022, impacting most major accessory product lines, including hook-up, nursery, clock, remotes, and reception products. This decline was a result of a slowing of the economy and a general decrease in consumer spending. Finally, the Company experienced a decrease in sales of premium mobility products, including headphones and earbuds, of approximately $2,300 as it moved from a fulfillment model to a direct to customer model for its online platform sales of these products in order to improve pricing, which has resulted in a decrease in sales for the nine months ended November 30, 2022 as a result of the transition. As an offset to these declines, the Company experienced an increase in domestic sales of Onkyo and Pioneer related products of approximately $27,800 for the nine months ended November 30, 2022. The Company's 11 Trading Company subsidiary began selling these products through a distribution agreement during Fiscal 2021 and during the third quarter of Fiscal 2022, the Company completed an acquisition of certain assets of the Onkyo Home Entertainment business with its joint venture partner, resulting in the establishment of the Company’s Onkyo subsidiary. Sales of Onkyo and Pioneer products have increased since the acquisition, as there has been higher factory production of these products to meet customer demand. Prior to the acquisition, the Onkyo Home Entertainment parent company was unable to meet customer demand due to financial difficulty. Sales of premium audio products made by the Company's PAC Australia subsidiary have also increased approximately $3,700 during the nine months ended November 30, 2022, as this entity sells Onkyo and Pioneer products and has benefited from the Company's increased factory production since the September 2021 acquisition.
Biometrics sales represented less than 1% of our net sales for both the three and nine months ended November 30, 2022 and 2021. Sales decreased slightly in the amount of $100 and $123 for the three and nine months ended November 30, 2022, respectively, as compared to the respective prior year periods. Sales decreases were primarily attributable to a decline in sales of the Company's NIXT product as compared to the prior year when it was a newer product on the market.
40
Gross Profit and Gross Margin Percentage
|
|
November 30, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Automotive Electronics |
|
$ |
11,955 |
|
|
$ |
14,648 |
|
|
$ |
(2,693 |
) |
|
|
(18.4 |
)% |
|
|
|
24.6 |
% |
|
|
23.8 |
% |
|
|
|
|
|
|
||
Consumer Electronics |
|
|
24,996 |
|
|
|
36,754 |
|
|
|
(11,758 |
) |
|
|
(32.0 |
)% |
|
|
|
26.6 |
% |
|
|
28.3 |
% |
|
|
|
|
|
|
||
Biometrics |
|
|
58 |
|
|
|
114 |
|
|
|
(56 |
) |
|
|
(49.1 |
)% |
|
|
|
22.7 |
% |
|
|
32.1 |
% |
|
|
|
|
|
|
||
Corporate |
|
|
128 |
|
|
|
188 |
|
|
|
(60 |
) |
|
|
(31.9 |
)% |
|
|
$ |
37,137 |
|
|
$ |
51,704 |
|
|
$ |
(14,567 |
) |
|
|
(28.2 |
)% |
|
|
|
26.0 |
% |
|
|
26.9 |
% |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Automotive Electronics |
|
$ |
29,859 |
|
|
$ |
37,111 |
|
|
$ |
(7,252 |
) |
|
|
(19.5 |
)% |
|
|
|
23.8 |
% |
|
|
24.7 |
% |
|
|
|
|
|
|
||
Consumer Electronics |
|
|
69,186 |
|
|
|
87,854 |
|
|
|
(18,668 |
) |
|
|
(21.2 |
)% |
|
|
|
25.5 |
% |
|
|
27.4 |
% |
|
|
|
|
|
|
||
Biometrics |
|
|
216 |
|
|
|
231 |
|
|
|
(15 |
) |
|
|
(6.5 |
)% |
|
|
|
31.3 |
% |
|
|
28.4 |
% |
|
|
|
|
|
|
||
Corporate |
|
|
372 |
|
|
|
386 |
|
|
|
(14 |
) |
|
|
(3.6 |
)% |
|
|
$ |
99,633 |
|
|
$ |
125,582 |
|
|
$ |
(25,949 |
) |
|
|
(20.7 |
)% |
|
|
|
25.1 |
% |
|
|
26.6 |
% |
|
|
|
|
|
|
||
Gross margin percentages for the Company have decreased 90 and 150 basis points for the three and nine months ended November 30, 2022, respectively, as compared to the three and nine months ended November 30, 2021.
Gross margin percentages in the Automotive Electronics segment increased 80 basis points for the three months ended November 30, 2022, as compared to the prior year period, and decreased 90 basis points for the nine months ended November 30, 2022 as compared to the prior year period. Several factors have contributed negatively to gross margins during both the three and nine months ended November 30, 2022, including the increased cost of materials and shipping, as well as increases in tariffs included in cost of goods sold for such items as OEM rear seat entertainment and OEM automotive safety products, which the Company has been actively working to mitigate through a combination of sales price adjustments and other sourcing strategies, as such supply chain issues are expected to continue through the end of Fiscal 2023. These mitigating actions have helped to stabilize margins for certain product lines within the segment during the three and nine months ended November 30, 2022, or have helped to reduce the negative impact of these supply chain issues, and the Company has begun to see a greater positive impact in the third quarter of the year. Additionally, certain new OEM rear seat entertainment products that began selling during the second half of Fiscal 2022, and that have positively contributed to sales during the three and nine months ended November 30, 2022, have generated lower margins than are normally achieved in this segment, and sales of aftermarket security products, which have higher profit margins than those typically achieved by the segment, have experienced sales declines during both the three and nine months ended November 30, 2022. Both of these factors have contributed negatively to the segment's margins for the three and nine months ended November 30, 2022. Offsetting these negative margin impacts, and in addition to mitigating strategies related to rising supply chain costs noted above, the decrease in sales of satellite radio products for the three and nine months ended November 30, 2022, which typically generate lower margins for the Company, contributed positively to margins overall. The increase in sales of soundbars for club cars during the nine months ended November 30, 2022 also contributed positively to margins for the year to date period.
Gross margin percentages in the Consumer Electronics segment decreased 170 and 190 basis points for the three and nine months ended November 30, 2022, respectively, as compared to the respective prior year periods. Significant increases to container costs, increased cost of materials due to chip shortages, and surcharges affecting cost of sales for many of the products within the segment have caused declines in margins for both the three and nine months ended November 30, 2022, which the Company has actively worked to mitigate through pricing adjustments and other sourcing strategies, and has effectively helped to stabilize margins for some products, or has helped to reduce the negative impact of these issues for others. These supply chain issues are expected to continue through the end of Fiscal 2023. In addition, the Company saw declines in sales of certain premium home theater speaker products during the three and nine months ended November 30, 2022 due primarily to a slowing of the economy and decreased customer spending. As these products have typically generated higher margins for the segment, this decrease in sales negatively impacted margins for the periods. Additionally, an increase in sales of lower margin discount channel customers
41
in Europe during the three and nine months ended November 30, 2022 have contributed negatively to the overall segment margins for the periods. Offsetting these negative margin impacts, sales of Onkyo and Pioneer related products positively impacted margins for both the three and nine months ended November 30, 2022, as there have been higher sales and higher factory production of these products since the acquisition of certain assets of the Onkyo Home Entertainment business in September 2021, as compared to sales under the Company's distribution agreement with Onkyo Home Entertainment Corp. prior to the acquisition. The Company also has more control over pricing and costing of the products since the acquisition, which has further improved these margins. Additionally, the decrease in sales of lower margin accessory products, including remotes, clocks, and reception and power products, have had a positive impact on the overall segment margins for the periods.
Gross margin percentages in the Biometrics segment declined for the three months ended November 30, 2022 and improved for the nine months ended November 30, 2022, as compared to the respective prior year periods. The decline in margins for the three months ended November 30, 2022 was due to the decrease in sales of higher margin NIXT products compared to the prior year, as well as due to certain high volume, low margin discounted sales made during the three months ended November 30, 2022 that negatively affected margins and were not present in the prior year. The increase in margins for the nine months ended November 30, 2022 was a result of tooling costs incurred during the nine months ended November 30, 2021 that did not repeat in the current year.
Operating Expenses
|
|
November 30, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling |
|
$ |
11,413 |
|
|
$ |
13,864 |
|
|
$ |
(2,451 |
) |
|
|
(17.7 |
)% |
General and administrative |
|
|
16,223 |
|
|
|
20,049 |
|
|
|
(3,826 |
) |
|
|
(19.1 |
)% |
Engineering and technical support |
|
|
7,171 |
|
|
|
9,706 |
|
|
|
(2,535 |
) |
|
|
(26.1 |
)% |
Acquisition costs |
|
|
— |
|
|
|
287 |
|
|
|
(287 |
) |
|
|
(100.0 |
)% |
Total operating expenses |
|
$ |
34,807 |
|
|
$ |
43,906 |
|
|
$ |
(9,099 |
) |
|
|
(20.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling |
|
$ |
35,563 |
|
|
$ |
37,169 |
|
|
$ |
(1,606 |
) |
|
|
(4.3 |
)% |
General and administrative |
|
|
54,435 |
|
|
|
56,609 |
|
|
|
(2,174 |
) |
|
|
(3.8 |
)% |
Engineering and technical support |
|
|
23,844 |
|
|
|
23,824 |
|
|
|
20 |
|
|
|
0.1 |
% |
Acquisition costs |
|
|
136 |
|
|
|
3,279 |
|
|
|
(3,143 |
) |
|
|
(95.9 |
)% |
Total operating expenses |
|
$ |
113,978 |
|
|
$ |
120,881 |
|
|
$ |
(6,903 |
) |
|
|
(5.7 |
)% |
Total operating expenses have decreased $9,099 and $6,903 for the three and nine months ended November 30, 2022, respectively, as compared with the three and nine months ended November 30, 2021.
For the three months ended November 30, 2022, selling expenses decreased $2,451. Within selling expenses for the three months ended November 30, 2022, the Company experienced a decrease in commission expense of approximately $1,500 as a result of a decrease in the Company's sales, as compared to the three months ended November 30, 2021. Additionally, salaries and benefits for sales employees decreased approximately $600 due to headcount reductions and bonus reductions company-wide, as well as salary reductions in Europe, as the Company's Germany subsidiaries began a shortened work week during the third quarter of Fiscal 2023 as a cost cutting measure. Finally, there was a net decrease in web platform expenses of approximately $400 for the three months ended November 30, 2022, as a result of lower advertising spending on social media, offset by the higher cost of online platform fees.
For the nine months ended November 30, 2022, selling expenses decreased $1,606. The Company experienced a decrease in commission expense of approximately $2,400 for the nine months ended November 30, 2022 as a result of a decrease in the Company's sales, as compared to the nine months ended November 30, 2021. Additionally, salaries for sales employees decreased approximately $500 due to headcount reductions and bonus reductions company-wide, as well as salary reductions in Europe, as the Company's Germany subsidiaries began a shortened work week during the third quarter of Fiscal 2023 as a cost cutting measure. The Company also experienced a decrease in credit card fees of approximately $200 for the nine months ended November 30, 2022, as a result of the decrease in sales as compared to the prior year period. Offsetting these decreases in selling expenses, the Company incurred higher trade show expenses of approximately $700 for the nine months ended November 30, 2022, as the Company attended the annual Consumer Electronics Show ("CES") in person in 2022. The 2021 CES event was held virtually due to the COVID-19 pandemic. Travel expenses for the nine months ended November 30, 2022 increased
42
approximately $400 due to the lifting of the Company’s COVID-19 related restrictions in Fiscal 2023, which has allowed salesmen to begin traveling to customer sites again, but has been offset by cost cutting measures implemented by the Company in the second half of the fiscal year. The Company also saw a net increase in web platform expenses of approximately $300 for the nine months ended November 30, 2022 as a result of a net increase in online and social media advertising and promotion spending as compared to the nine months ended November 30, 2021, as well as due to the higher cost of online platform fees.
General and administrative expenses decreased $3,826 during the three months ended November 30, 2022, as compared to the prior year period. Salary expense decreased approximately $2,400 for the three months ended November 30, 2022, due to a reduction in bonus accruals resulting from lower Company profitability as compared to the prior year period, as well as due to cost cutting measures. Legal and professional fees decreased approximately $700 for the three months ended November 30, 2022 primarily as a result of lower fees in the current year related to an ongoing arbitration case. Additionally, the Company incurred approximately $300 of restructuring related expenses during the three months ended November 30, 2022 due to the relocation of certain OEM production operations from Florida to Mexico, which began during the second quarter of Fiscal 2023 and consisted primarily of severance expense and moving costs. Finally, bad debt expense decreased approximately $300 for the three months ended November 30, 2022 as a result of greater reserve releases as compared to the prior year period.
General and administrative expenses decreased $2,174 during the nine months ended November 30, 2022, as compared to the prior year period. The Company experienced a decrease in salary expense of approximately $3,300 for the nine months ended November 30, 2022, due to a reduction in bonus accruals resulting from lower Company profitability as compared to the prior year period, as well as due to cost cutting measures. There was also a net decrease in legal and professional fees of approximately $1,000 for the nine months ended November 30, 2022 due to a decrease in certain fees incurred in the prior year related to an ongoing arbitration case, as well as a decrease in patent maintenance fees, offset by fees related to the Company's new Onkyo subsidiary established in September 2021. As an offset to these decreases in general and administrative expense, depreciation and amortization expense increased approximately $900 for the nine months ended November 30, 2022, due to the amortization of intangible assets of the Company’s new Onkyo subsidiary, which was only present during three of the nine months ended November 30, 2021. The Company also incurred approximately $500 of restructuring related expenses during the nine months ended November 30, 2022 due to the relocation of certain OEM production operations from Florida to Mexico, which began during the second quarter of Fiscal 2023, and consisted primarily of severance expense and moving costs. Additionally, benefit expenses increased approximately $300 for the nine months ended November 30, 2022, due to the absence of medical releases in the current year to date period as compared to prior year. Fees related to taxes and licensing also increased approximately $300 during the nine months ended November 30, 2022 due primarily to licenses required for the Company’s Onkyo subsidiary established in September 2021. Finally, the Company experienced an increase in insurance expense of approximately $300 related to an overall increase in insurance policy premiums as compared to the prior year, as well as due to the addition of the Company's Onkyo subsidiary.
Engineering and technical support expenses decreased $2,535 for the three months ended November 30, 2022, as compared to the prior year period. The Company experienced a net decrease in research and development expense of approximately $2,200 for the three months ended November 30, 2022 primarily as a result of headcount reductions in the Biometric segment that took place at the end of Fiscal 2022 and have resulted in lower research and development activity for that segment, as well as due to lower development expense in the Automotive Electronics segment driven by the timing of the completion of certain projects and the start of others. The Company also experienced a decrease in direct labor expense of approximately $400 for the three months ended November 30, 2022 primarily as a result of salary and benefits, as well as bonus reductions due to Company cost cutting measures.
Engineering and technical support expenses were relatively flat for the nine months ended November 30, 2022, increasing $20 as compared to the prior year period. The Company experienced an increase in direct labor expense, which includes salary, benefits, and payroll taxes, of approximately $2,900 for the nine months ended November 30, 2022 primarily as a result of additional headcount created by the September 2021 acquisition resulting in the establishment of the Company’s Onkyo subsidiary. There was also an increase in travel expense of approximately $100 during the nine months ended November 30, 2022 due to the lifting of prior year COVID-19 restrictions. Offsetting these increases, the Company experienced a net decrease in research and development expense of approximately $3,000 for the nine months ended November 30, 2022. This was a result of headcount reductions in the Biometric segment that took place at the end of Fiscal 2022 and have resulted in lower research and development activity for that segment, as well as lower development expense in the Automotive Electronics segment due to the timing of the completion of certain projects and the start of others. This was offset by the Company’s product development projects related to its new Onkyo subsidiary within its Consumer Electronics segment.
Acquisition costs decreased $287 and $3,143 for the three and nine months ended November 30, 2022, respectively, as compared to the respective prior year periods. During the three and nine months ended November 30, 2021, as well as during the nine months ended November 30, 2022, acquisition costs incurred were related to consulting and due diligence fees for the asset
43
purchase agreement signed with Onkyo Home Entertainment Corporation and the joint venture created with Sharp Corporation to complete the transaction. This transaction was completed on September 8, 2021.
Other (Expense) Income
|
|
November 30, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and bank charges |
|
$ |
(1,460 |
) |
|
$ |
(730 |
) |
|
$ |
(730 |
) |
|
|
(100.0 |
)% |
Equity in income of equity investee |
|
|
2,022 |
|
|
|
2,206 |
|
|
|
(184 |
) |
|
|
(8.3 |
)% |
Interim arbitration award |
|
|
(986 |
) |
|
|
(39,444 |
) |
|
|
38,458 |
|
|
|
97.5 |
% |
Other, net |
|
|
460 |
|
|
|
(143 |
) |
|
|
603 |
|
|
|
421.7 |
% |
Total other income |
|
$ |
36 |
|
|
$ |
(38,111 |
) |
|
$ |
38,147 |
|
|
|
100.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and bank charges |
|
$ |
(3,101 |
) |
|
$ |
(1,840 |
) |
|
$ |
(1,261 |
) |
|
|
(68.5 |
)% |
Equity in income of equity investee |
|
|
5,373 |
|
|
|
6,964 |
|
|
|
(1,591 |
) |
|
|
(22.8 |
)% |
Interim arbitration award |
|
|
(2,958 |
) |
|
|
(39,444 |
) |
|
|
36,486 |
|
|
|
92.5 |
% |
Other, net |
|
|
(3,169 |
) |
|
|
675 |
|
|
|
(3,844 |
) |
|
|
(569.5 |
)% |
Total other income |
|
$ |
(3,855 |
) |
|
$ |
(33,645 |
) |
|
$ |
29,790 |
|
|
|
88.5 |
% |
Interest and bank charges represent interest expense and fees related to the Company's bank obligations, shareholder loan, supply chain financing and factoring agreements, interest related to finance leases, and amortization of debt issuance costs. The Company borrowed funds from the Wells Fargo Credit Facility for operating purposes during the three and nine months ended November 30, 2022. This resulted in an increase in interest expense incurred during both periods as compared to the comparable prior year periods in which the Company did not borrow funds from the Credit Facility. Additionally, the Company’s new Onkyo subsidiary entered into a shareholder loan payable to the Company’s joint venture partner, Sharp, during the third quarter of Fiscal 2022, for which interest expense was incurred during the three and nine months ended November 30, 2022. This shareholder loan was only outstanding during the three months ended November 30, 2021.
Equity in income of equity investee represents the Company's share of income from its 50% non-controlling ownership interest in ASA Electronics LLC and Subsidiaries ("ASA"). The decrease in income for the three and nine months ended November 30, 2022 is due to a decrease in ASA revenue, gross profit, and net income primarily resulting from supply shortages and an increase in supply chain and logistics costs impacting all industries.
During the three and nine months ended November 30, 2022, the Company recorded charges of $986 and $2,958, respectively, representing interest expense related to the interim arbitration award accrued during Fiscal 2022, which would be payable if confirmed and not vacated by the U.S. District Court or an appellate court.
Other, net includes net foreign currency gains or losses, interest income, rental income, and other miscellaneous income and expense. During the three and nine months ended November 30, 2022, the Company had net foreign currency gains of $215 and net foreign currency losses of $3,872, respectively, as compared to net foreign currency losses of $382 and $268 for the three and nine months ended November 30, 2021, respectively. Foreign currency losses for the three and nine months ended November 30, 2022 were primarily driven by declines in the Japanese Yen, which impacted the re-measurement of the Company's Onkyo subsidiary intercompany loans and interest payable which are not of a long-term investment nature. The losses attributable to these re-measurements for the three and nine months ended November 30, 2022 were $154 and $3,596, respectively.
Income Tax Provision
The Inflation Reduction Act of 2022 (the “Act”) was signed into U.S. law on August 16, 2022. The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies to U.S. corporations with average adjusted financial statement income over a three year period in excess of $1 billion. The Company does not expect the Act to materially impact its financial statements.
The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary.
For the three months ended November 30, 2022, the Company recorded an income tax benefit of $3,988, which includes a discrete income tax benefit of $141 related primarily to the finalization of the federal and certain state tax return filings. For the three
44
months ended November 30, 2021, the Company recorded an income tax benefit of $641, which includes a discrete income tax provision of $175 related primarily to finalization of the federal and certain state tax return filings.
The effective tax rate for the three months ended November 30, 2022 was an income tax benefit of 168.6% on pre-tax income of $2,366. The effective tax rate for the three months ended November 30, 2022 differs from the U.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and an increase in the valuation allowance. The effective tax rate for the three months ended November 30, 2021 was an income tax benefit of 2.1% on a pre-tax loss of $30,313. The effective tax rate for the three months ended November 30, 2021 differed from the statutory rate of 21% primarily as a result of an increase in the valuation allowance as the Company recorded a limited tax benefit with respect to the Arbitration Settlement as it could not conclude that all of its U.S. deferred tax assets were realizable on a more-likely-than-not basis.
For the nine months ended November 30, 2022, the Company recorded an income tax benefit of $5,788, which includes a discrete income tax benefit of $313 related to the reversal of uncertain tax position liabilities as a result of the lapse of the applicable statute of limitations and the finalization of certain tax filings during the quarter ended November 30, 2022, offset with the accrual of interest for unrecognized tax benefits. For the nine months ended November 30, 2021, the Company recorded an income tax benefit of $374, which includes a discrete income tax provision of $31 related to the the finalization of federal and state tax filings during the quarter ended November 30, 2021 and the accrual of interest for unrecognized tax benefits, offset with the reversal of uncertain tax provision liabilities as a result of the lapse of the applicable statute of limitations.
The effective tax rate for the nine months ended November 30, 2022 was an income tax benefit of 31.8% on pre-tax loss of $18,200. The effective tax rate for the nine months ended November 30, 2022 differs from the U.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and an increase in valuation allowance. The effective tax rate for the nine months ended November 30, 2021 was an income tax benefit of 1.3% on pre-tax loss of $28,941. The effective tax rate for the nine months ended November 30, 2021 differs from the U.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related to EyeLock LLC, state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and an increase in valuation allowance.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are not financial measures recognized by GAAP. EBITDA represents net income (loss) attributable to VOXX International Corporation and Subsidiaries, computed in accordance with GAAP, before interest expense and bank charges, taxes, and depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted for stock-based compensation expense, foreign currency (gains) losses, restructuring expenses, acquisition costs, certain non-routine legal and professional fees, and awards. Depreciation, amortization, stock-based compensation, and foreign currency (gains) losses are non-cash items.
We present EBITDA and Adjusted EBITDA in this Form 10-Q because we consider them to be useful and appropriate supplemental measures of our performance. Adjusted EBITDA helps us to evaluate our performance without the effects of certain GAAP calculations that may not have a direct cash impact on our current operating performance. In addition, the exclusion of certain costs or gains relating to certain events allows for a more meaningful comparison of our results from period-to-period. These non-GAAP measures, as we define them, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA and Adjusted EBITDA should not be assessed in isolation from, are not intended to represent, and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with GAAP.
45
Reconciliation of GAAP Net Income Attributable to VOXX International Corporation to EBITDA and Adjusted EBITDA
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income (loss) attributable to VOXX International Corporation and Subsidiaries |
|
$ |
7,421 |
|
|
$ |
(28,121 |
) |
|
$ |
(9,322 |
) |
|
$ |
(25,094 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense and bank charges (1) |
|
|
1,263 |
|
|
|
565 |
|
|
|
2,500 |
|
|
|
1,357 |
|
Depreciation and amortization (1) |
|
|
3,053 |
|
|
|
3,378 |
|
|
|
9,406 |
|
|
|
8,891 |
|
Income tax benefit |
|
|
(3,988 |
) |
|
|
(641 |
) |
|
|
(5,788 |
) |
|
|
(374 |
) |
EBITDA |
|
|
7,749 |
|
|
|
(24,819 |
) |
|
|
(3,204 |
) |
|
|
(15,220 |
) |
Stock-based compensation |
|
|
145 |
|
|
|
221 |
|
|
|
407 |
|
|
|
694 |
|
Foreign currency (gains) losses (1) |
|
|
(223 |
) |
|
|
382 |
|
|
|
3,867 |
|
|
|
268 |
|
Restructuring expenses |
|
|
303 |
|
|
|
— |
|
|
|
532 |
|
|
|
— |
|
Acquisition costs |
|
|
— |
|
|
|
287 |
|
|
|
136 |
|
|
|
3,279 |
|
Professional fees related to distribution agreement with GalvanEyes LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
325 |
|
Non-routine legal fees |
|
|
28 |
|
|
|
235 |
|
|
|
886 |
|
|
|
1,469 |
|
Interim arbitration award |
|
|
986 |
|
|
|
39,444 |
|
|
|
2,958 |
|
|
|
39,444 |
|
Adjusted EBITDA |
|
$ |
8,988 |
|
|
$ |
15,750 |
|
|
$ |
5,582 |
|
|
$ |
30,259 |
|
Liquidity and Capital Resources
Cash Flows, Commitments and Obligations
As of November 30, 2022, we had working capital of $154,368 which includes cash and cash equivalents of $8,477, compared with working capital of $126,756 at February 28, 2022, which included cash and cash equivalents of $27,788. We plan to utilize our current cash position as well as collections from accounts receivable, the cash generated from our operations, when applicable, and the income on our investments to fund the current operations of the business. However, we may utilize all or a portion of current capital resources to pursue other business opportunities, including acquisitions, or to further pay down our debt. As of November 30, 2022, we did not have material cash balances held in foreign bank accounts, and no foreign cash balances would have been subject to United States federal income taxes if made available for use in the United States. The Tax Cuts and Jobs Act provides a 100% participation exemption on dividends received from foreign corporations after January 1, 2018, as the United States has moved away from a worldwide tax system and closer to a territorial system for earnings of foreign corporations.
Operating activities used cash of $48,301 for the nine months ended November 30, 2022 due to factors including the increase in inventory and the decrease in accounts payable, accrued expenses and other current liabilities, as well as due to losses incurred by EyeLock LLC and the decrease the Company's net sales. This was offset primarily by the decrease in accounts receivable and the increase in accrued sales incentives. For the nine months ended November 30, 2021, operating activities used cash of $10,008 due to factors including the increase in inventory accounts receivable, as well as due to losses incurred by EyeLock LLC. This was offset primarily by the increase in accounts payable, accrued expenses and other current liabilities, and accrued sales incentives.
Investing activities used cash of $2,932 during the nine months ended November 30, 2022 primarily due to capital expenditures. For the nine months ended November 30, 2021, investing activities used cash of $33,452 primarily due the acquisition of certain assets of Onkyo Home Entertainment Corp., as well as due to capital expenditures.
Financing activities provided cash of $27,470 during the nine months ended November 30, 2022 due to borrowings from the Credit Facility. This was offset by repayments of borrowings from the Company's Credit Facility and Euro asset-based loan in Germany, the settlement of market stock unit awards in cash, the purchase of treasury shares, and the payment of withholding taxes on the net issuance of a stock award, as well as repayments of finance leases and the Florida mortgage. During the nine months ended November 30, 2021, financing activities provided cash of $5,160 due to proceeds received from the issuance of shares and long-term debt to the non-controlling interest of the Company's Onkyo joint venture, as well as borrowings under the Company's Euro asset-based loan in Germany. This was offset by the purchase of treasury shares, the payment of withholding
46
taxes on the net issuance of a stock award, the payment of deferred finance fees related to the amendment of the Credit Facility, as well as repayments of finance leases and the Florida mortgage.
Federal, state, and local governments have taken a variety of actions to contain the spread of COVID-19. Many jurisdictions imposed various regulations, including capacity limitations and other restrictions affecting our operations during the Company's 2022 fiscal year, following the mandatory lockdowns imposed during the 2021 fiscal year. Many of the most severe restrictions have been lifted, but could return if there is a resurgence of the pandemic spread. We have proactively taken steps to increase available cash, including, but not limited to, utilizing existing supply chain financing and factoring agreements, and utilizing available funds under our existing Credit Facility.
The Company has a senior secured credit facility (the "Credit Facility") that provides for a revolving credit facility with committed availability of up to $140,000. The availability under the revolving credit line within the Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable, eligible inventory and certain real estate, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 16(b)). The availability under the revolving credit line of the Credit Facility was $91,415 as of November 30, 2022.
All amounts outstanding under the Credit Facility will mature and become due on April 19, 2026; however, it is subject to acceleration upon the occurrence of an Event of Default (as defined in the Agreement). The Company may prepay any amounts outstanding at any time, subject to payment of certain breakage and redeployment costs relating to LIBOR Rate Loans. The commitments under the Credit Facility may be irrevocably reduced at any time, without premium or penalty as set forth in the Agreement.
Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that Swingline Loans may only be designated as Base Rate Loans. Loans designated as LIBOR Rate Loans shall bear interest at a rate equal to the then applicable LIBOR rate plus a range of 1.75 - 2.25%. Loans designated as Base Rate loans shall bear interest at a rate equal to the applicable margin for Base Rate Loans plus a range of 0.75 - 1.25%, as defined in the Agreement, and shall not be lower than 1.75%. The Credit Facility provides for a Benchmark Replacement that will replace the LIBOR rate for all revolver usage. The Benchmark Replacement is subject to the occurrence of a Benchmark Transition Event, as defined in the Second Amended and Restated Credit Agreement and becomes effective after a five-day transition period following the event.
Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess Availability is less than 15% of the Maximum Revolver Amount and ending on a day in which Excess Availability is equal to or greater than 15% for any consecutive 30-day period thereafter), the Credit Facility requires compliance with a financial covenant calculated as of the last day of each month, consisting of a Fixed Charge Coverage Ratio. The Credit Facility also contains covenants, subject to defined carveouts, that limit the ability of the loan parties and certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional indebtedness; (ii) incur liens; (iii) merge, consolidate or dispose of a substantial portion of their business; (iv) transfer or dispose of assets; (v) change their name, organizational identification number, state or province of organization or organizational identity; (vi) make any material change in their nature of business; (vii) prepay or otherwise acquire indebtedness; (viii) cause any change of control; (ix) make any restricted junior payment; (x) change their fiscal year or method of accounting; (xi) make advances, loans or investments; (xii) enter into or permit any transaction with an affiliate of any borrower or any of their subsidiaries; (xiii) use proceeds for certain items; (xiv) issue or sell any of their stock; or (xv) consign or sell any of their inventory on certain terms. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, as defined in the Agreement, the lenders would have the right to assume dominion and control over the Company's cash.
The obligations under the Credit Facility documents are secured by a general lien on and security interest in substantially all of the assets of the borrowers and certain of the guarantors, including accounts receivable, equipment, real estate, general intangibles, and inventory. The Company has guaranteed the obligations of the borrowers under the Agreement.
The Company has a Euro asset-based loan facility in Germany with a credit limit of €8,000 that expires on July 31, 2023. The Company's subsidiaries Voxx German Holdings GmbH, Oehlbach Kabel GmbH, and Schwaiger GmbH are authorized to borrow funds under this facility for working capital purposes.
The Company also utilizes supply chain financing arrangements and factoring agreements as a component of its financing for working capital, which accelerates receivable collection and helps to better manage cash flow. Under the agreements, the Company has agreed to sell certain of its accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements (see Note 9). The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the
47
Company's Consolidated Statements of Cash Flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company.
Material Cash Requirements
Certain contractual cash obligations and other commercial commitments will impact our short and long-term liquidity. At November 30, 2022, such obligations and commitments are as follows:
|
|
Amount of Commitment Expiration per Period |
|
|||||||||||||||||
Contractual Cash Obligations |
|
Total |
|
|
Less than |
|
|
2-3 |
|
|
4-5 |
|
|
After |
|
|||||
Finance lease obligation (1) |
|
$ |
336 |
|
|
$ |
242 |
|
|
$ |
94 |
|
|
$ |
— |
|
|
$ |
— |
|
Operating leases (1) |
|
|
3,931 |
|
|
|
1,196 |
|
|
|
1,355 |
|
|
|
587 |
|
|
|
793 |
|
Total contractual cash obligations |
|
$ |
4,267 |
|
|
$ |
1,438 |
|
|
$ |
1,449 |
|
|
$ |
587 |
|
|
$ |
793 |
|
Other Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Bank obligations (2) |
|
$ |
37,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
37,000 |
|
|
$ |
— |
|
Stand-by and commercial letters of credit (3) |
|
|
50 |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other (4) |
|
|
10,217 |
|
|
|
500 |
|
|
|
1,000 |
|
|
|
1,000 |
|
|
|
7,717 |
|
Contingent consideration (5) |
|
|
5,818 |
|
|
|
609 |
|
|
|
1,545 |
|
|
|
1,036 |
|
|
|
2,628 |
|
Pension obligation (6) |
|
|
238 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
238 |
|
Unconditional purchase obligations (7) |
|
|
108,878 |
|
|
|
108,878 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total other commitments |
|
|
162,201 |
|
|
|
110,037 |
|
|
|
2,545 |
|
|
|
39,036 |
|
|
|
10,583 |
|
Total commitments |
|
$ |
166,468 |
|
|
$ |
111,475 |
|
|
$ |
3,994 |
|
|
$ |
39,623 |
|
|
$ |
11,376 |
|
We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations, available borrowings under bank lines of credit and possible future public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which transactions may require the use of cash. We believe that our cash, other liquid assets, operating cash flows, credit arrangements, and access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures for the next twelve months, including the intercompany loan funding we provide to our majority owned subsidiary, EyeLock LLC, and our accrual related to an unfavorable interim arbitration for which a schedule for the issuance of a final award has not yet been established. In the event they do not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings, as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on terms favorable when required.
48
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
Related Party Transactions
On April 29, 2021 EyeLock LLC entered into a three-year exclusive distribution agreement (“the Agreement”) with GalvanEyes LLC, a Florida LLC, managed by Beat Kahli, the largest holder of Voxx’s Class A Common Shares. The Agreement was included in the Company’s Proxy Statement filed on June 17, 2021 and was approved by the Company’s shareholders at the Annual Meeting of Shareholders held on July 29, 2021. See Note 20 of the Notes to the Unaudited Consolidated Financial Statement of this Form 10-Q.
New Accounting Pronouncements
We are required to adopt certain new accounting pronouncements. See Note 24 to our consolidated financial statements included herein.
49
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Voxx conducts business in various non-U.S. countries, including Germany, Canada, Mexico, China, Hong Kong, Venezuela, Denmark, the Netherlands, France, Australia, and Japan and thus is exposed to market risk for changes in foreign currency exchange rates. As a result, we have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of the U.S., which can adversely impact our net income and cash flows. For the three and nine months ended November 30, 2022, a uniform 10% strengthening of the U.S. dollar relative to the local currency of our foreign operations would have resulted in a decrease in sales of approximately $3,300 and $8,700, respectively, and in net income of $5 and $55, respectively. The effects of foreign currency exchange rates on future results would also be impacted by changes in sales levels or local currency prices.
While the prices we pay for products purchased from our suppliers are principally denominated in United States dollars, price negotiations depend in part on the foreign currency of foreign manufacturers, as well as market, trade, and political factors. The Company also has exposure related to transactions in which the currency collected from customers is different from the currency utilized to purchase the product sold in its foreign operations, and U.S. dollar denominated purchases in its foreign subsidiaries. The Company often enters forward contracts to hedge certain Euro-related transactions. The Company minimizes the risk of nonperformance on the forward contracts by transacting with major financial institutions. During the three and nine months ended November 30, 2022, the Company did not have any forward contracts designated for hedge accounting, and there were no foreign currency hedge contracts outstanding at November 30, 2022. For the three and nine months ended November 30, 2021, unrealized gains recorded in Other comprehensive income (loss) associated with contracts held at November 30, 2021 were $89 and $233.
We are also subject to risk from changes in foreign currency exchange rates from the translation of financial statements of our foreign subsidiaries and for long-term intercompany loans with the foreign subsidiaries. These changes result in cumulative translation adjustments, which are included in Accumulated other comprehensive (loss) income. At November 30, 2022, we had translation exposure to various foreign currencies with the most significant being the Euro. A hypothetical 10% adverse change in the foreign currency exchange rates would result in a negative impact of $165 on Other comprehensive income (loss) for the nine months ended November 30, 2022.
The Company continues to monitor the political and economic climate in Venezuela. Venezuela did not have sales for the three and nine months ended November 30, 2022 and there were minimal cash related assets invested in Venezuela as of November 30, 2022 that would be subject to government foreign exchange controls. The Company has certain long-lived assets in Venezuela, which are held for investment purposes and had no value as of November 30, 2022.
Interest Rate Risk
Our earnings and cash flows are subject to fluctuations due to changes in interest rates on investment of available cash balances in money market funds and investment grade corporate and U.S. government securities. In addition, our bank loans expose us to changes in short-term interest rates since interest rates on the underlying obligations are either variable or fixed. In connection with the Florida Mortgage, we have debt outstanding in the amount of $6,240 at November 30, 2022. Interest on this mortgage is charged at 70% of 1-month LIBOR plus 1.54%. The Company currently has one interest rate swap for the Florida Mortgage with a notional amount of $6,240 at November 30, 2022. This swap locks the interest rate at 3.48% (inclusive of credit spread) on the Florida Mortgage through the mortgage end date of March 2026. The Company also has a Euro asset-based lending facility in Germany with a variable rate. There was no outstanding balance for this facility November 30, 2022 (see Note 16).
As of November 30, 2022, the total net fair value of the interest rate swap recorded in Other assets on our Consolidated Balance Sheet is $162, which represents the amount that would be received upon unwinding the interest rate swap agreement based on market conditions on that date. Changes in the fair value of this interest rate swap agreement are reflected as an adjustment to other assets or liabilities with an offsetting adjustment to Accumulated other comprehensive (loss) income.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, these disclosure controls and procedures are effective as of November 30, 2022 to provide reasonable assurance that information required to be disclosed by the Company in its filing under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no material changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the nine months ended November 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
50
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 23 of the Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and Note 15 of the Form 10-K for the fiscal year ended February 28, 2022 for information regarding legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s Form 10-K for the fiscal year ended February 28, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have an ongoing authorization from our Board of Directors to repurchase shares of the Company's Class A Common Stock. During the three and nine months ended November 30, 2022, the Company purchased 277,961 shares of Class A Common Stock for an aggregate cost of $2,775, as follows:
Period |
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs |
|
||||
10/1/2022 - 10/31/2022 |
|
|
58,308 |
|
|
$ |
7.20 |
|
|
|
58,308 |
|
|
|
2,247,568 |
|
11/1/2022 - 11/30/2022 |
|
|
219,653 |
|
|
$ |
10.68 |
|
|
|
219,653 |
|
|
|
2,027,915 |
|
Total other commitments |
|
|
277,961 |
|
|
|
|
|
|
|
|
|
|
|||
51
ITEM 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101 |
|
The following materials from VOXX International Corporation's Quarterly Report on Form 10-Q for the period ended November 30, 2022, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii), the Unaudited Consolidated Statements of Operations and Comprehensive Income, (iii) the Unaudited Consolidated Statements of Stockholders’ Equity, (iv) the Unaudited Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Consolidated Financial Statements. |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
52
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.
VOXX INTERNATIONAL CORPORATION |
||
|
||
January 9, 2023 |
||
|
|
|
By: |
|
/s/ Patrick M. Lavelle |
Patrick M. Lavelle, |
||
President and Chief Executive Officer |
||
|
|
|
By: |
|
/s/ Charles M. Stoehr |
Charles M. Stoehr, |
||
Senior Vice President and Chief Financial Officer |
||
53
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Patrick M. Lavelle, certify that:
January 9, 2023
|
/s/ Patrick M. Lavelle |
|
Patrick M. Lavelle |
|
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Charles M. Stoehr, certify that:
January 9, 2023
|
/s/ Charles M. Stoehr |
|
Charles M. Stoehr |
|
Senior Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of VOXX International Corporation (the “Company”) on Form 10-Q for the three months ended November 30, 2022 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, I, Patrick M. Lavelle, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
January 9, 2023 |
|
|
|
|
/s/ Patrick M. Lavelle |
|
Patrick M. Lavelle |
|
President and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of VOXX International Corporation (the “Company”) on Form 10-Q for the three months ended November 30, 2022 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, I, C. Michael Stoehr, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
January 9, 2023 |
|
|
|
|
/s/ Charles M. Stoehr |
|
Charles M. Stoehr |
|
Senior Vice President and Chief Financial Officer |