Good day, ladies and gentlemen, and welcome to the VOXX International Fiscal 2019 First Quarter Conference Call. [Operator Instructions] Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, today's conference is being recorded. I would now like to turn introduce your host for today's conference, Mr. Glenn Wiener, Investor Relations. Sir, please go ahead.

Thank you, Les. Good morning, and welcome to VOXX International's Fiscal 2019 First Quarter Results Conference Call. Our call today is being webcast live on our Web site, www.voxxintl.com, and a replay is available for those who aren't able to make today's call. Speaking for management this morning will be Pat Lavelle, President and Chief Executive Officer; and Michael Stoehr, Senior Vice President and our Chief Financial Officer. Following their remarks, we'll have a Q&A session for those investors wishing to ask questions. John Shalam, Chairman of the Board, is also with us today and will be available during the Q&A portion of the call. Before we begin, I'd like to remind everyone that except for historical information contained herein, statements made on today's call and webcast that would constitute forward-looking statements are based on currently available information. The company assumes no responsibility to update any such forward-looking statements. And risk factors associated with our business are detailed in our Form 10-K for the period ended February 28, 2018. Further, if anyone has any follow-up questions, please feel free to reach me at my office at 212-786-6011, or you can send me an email at gwiener@GWCco.com. At this time, I'd like to turn the call over to our President and CEO, Pat Lavelle. Pat?

Thank you, Glenn. As you saw from our results, although sales are down as expected, our expenses were significantly lower, resulting in a smaller operating losses for the comparable quarters. As I noted on our year-end call, we expect top line to be lower in the first-half of the year, but up in the second-half as we have new programs, new retail launches within our Premium Audio segment and two very positive developments in our Consumer Accessories segments, EyeLock's commercialization and our expanded distribution in the healthcare space. In addition, we anticipate further improvements on the expense side, and we continue to take steps to realign our business and lower fixed cost. And I will cover all of this in my remarks, and then Mike will summarize our financial results. Within Automotive, net sales in our Automotive segment increased $2.6 million and operating expenses declined by nearly 17%, resulting in an approximate $1 million operating income improvement. The segment was profitable both on an operating and pre-tax net income basis, which we expect will continue. Our outlook for Automotive has not changed, and we believe we're positioned for modest growth this year driven by our new programs for the Lincoln play and Ford play and the additional programs with GM. We have additional vehicles rolling out this year and next in addition to EVO programs with Mazda and Nissan later this fiscal year. The level of inbound interest has increased, and we're actively engaged with other OEMs, and if successful, this will generate momentum for several years, which is why we invested the R&D resources that we did developing EVO. Remote starts were down slightly in Q1 when including both our aftermarket and OEM business, but will pick up with a new multiyear OEM program with Subaru starting in the second-half. Our aftermarket business continues to see modest declines, but some categories like audio and telematics group. We have new products in the ADAT and remote start categories launching this quarter. Overall, the anticipated gains in our OEM business should give us better year-over-year results and profitability. In Premium Audio, consistent with my remarks last quarter, Premium Audio will show top line declines in fiscal 2019 as we cut back certain programs to protect distribution and improve margins. This is evidenced in our first quarter results as sales declined by $5.3 million and gross margins improved by 710 basis points. Additionally, operating expenses declined by $3.4 million. The key takeaway is we generated a $4.3 million operating income improvement and a $5.5 million increase in pre-tax net income. This segment is anticipated to show bottom line improvements in fiscal 2019. Q2 will see the launch of our new series of Reference and Reference Premiere speakers and subwoofers, and will be loaded in Best Buy in August. With the first products launched over 60 years ago, we have the sixth generation of our iconic Klipsch Orange speaker being introduced this month. And we have by far our most advanced subwoofer coming to market in August as well, a system compatible with industry-leading smart home control platforms enhancing our custom installation portfolio. Our new Heritage line, our new Heritage soundbars, speakers, amps, and headphones were introduced in Q1, and is now moving into higher-end distribution channels. Our commercial business declined quarter-over-quarter in Q1, but we're anticipating growth this fiscal year due to the many new programs I'd previously discussed. The biggest are with Margaritaville, iPic Theaters, and Hard Rock Hotels. For Margaritaville, we are working on our fourth project encompassing 1,200 vacation rentals, the Margaritaville Hotel, the restraunts, and a huge water park. We are working on Phase 2 drawings now with a number of rollouts planned. And for Hard Rock Hotels, we're working on our first project in New Orleans with several more in the pipeline over the next two years. Within Consumer Accessories, our Consumer Accessories segment continues to go through a transition. Results are down when comparing the first fiscal quarters, and we anticipate this will continue into the second quarter, but with new programs that have been recently secured, along with new products and distribution in the smart home and security markets, we should see top line growth in the second-half of the year, and a much stronger platform moving into next year. During our year-end conference call, I spoke about a new wearable program in the healthcare space, and today I'm able to provide you with some of the details as this program is expected to be a strong contributor to our Consumer Accessory results in the years ahead. VOXX International has been named the distribution partner providing logistics and fulfillment service for all VOXX-supplied Striiv wearables as well as Samsung, Garmin, and Apple wearables as part of the UnitedHealthcare Motion program, a national wellness program, a program that offers financial incentives to UnitedHealthcare's millions of members for simply meeting daily walking goals. Over time, as technology innovation continues to evolve, it could incorporate wearable tracking for other health and wellness-related issues such as blood pressure, heart rates, glucose levels, asthma, and respiratory tracking, and more. A report from Endeavour's Partners noted that more than 13 million wearables and fitness tracking devices were expected to be incorporated into corporate wellness programs this year, and that figure is expected to grow exponentially in the coming years as more and more companies and healthcare providers are making wellness a top priority. This is a program we've been working on for quite some time, and we're excited to be working with such world-class partners as UnitedHealthcare and Qualcomm Life. Additionally, EyeLock continues to gain traction moving into the commercialization phase. We have signed our definitive agreement and received our first POs from ViaTouch Media, and are working with them to launch the new artificial intelligent vending machines embedding EyeLock's technology which will launch this quarter. This is a program that will build over time with a small revenue and income impact in fiscal 2019, but much larger next fiscal year. We're [technical difficulty] advancement in the gaming and pharmaceutical markets, and while we can't talk yet about the companies and the opportunities, we are moving into more advanced discussions testing and field-use applications. Also within our Consumer Accessories, we will also have new smart home security products launching in the second and third quarter, and a lot of momentum on the distribution side. Our video doorbell, floodlight camera and siren, and rechargeable battery pack will now be sold through Home Depot, Myer, PRIZE, Menards, True Value, ABC Warehouse, Dish Network, Lowes.com, and Lowe's Canada, and several other domestic location which bodes well for our build-out in this growing category. The Consumer Accessories segment is expected to be down in the first-half of the year, but we anticipate will build more momentum in the quarters thereafter, especially with the UHC and EyeLock programs in place. In summary, we are looking at growth within our Automotive segment, significantly stronger margins in our Premium Audio segment resulting in stronger profitability. And with on-time launch dates scheduled in the second-half of the year we expect to see improvement in the Consumer Accessories segment. We continue to look at cost reduction and efficiency programs, and we're continuing to evaluate potential acquisitions and divestitures leveraging our strong cash position and balance sheet. This concludes my remarks. And now I'll turn the call over to Mike now. Michael?

Thanks, Pat. Good morning, everyone. I'll provide a few additional comments with respect to our P&L building off Pat's remarks. As we discussed previously, sales were down 12.2%, while our gross margins improved by 110 basis points with Premium Audio the key driver. You can see the segment breakdown in our press release and our Form 10-Q. Our operating expenses declined by $6.5 million or 16.7% with declines across selling, general administrative expenses, and engineering and technical support expenses. We have taken steps to lower fixed cost, which led to lower salaries commissions, T&E [ph] advertising and marketing expenses, and other G&A expenses such as professional fees, partially offset by higher online platform fees related to web advertising for our ecommerce sales. While engineering and technical support expenses declined by approximately $700,000, a portion of this reduction was timing-related as we're continuing to invest in innovation. Interest and bank charges declined by approximately $700,000 as we reduced debt. Equity and income of equity investees related to our ownership interest in ASA Electronics was relatively unchanged at $1.8 million for both first quarter periods. And other net resulted in income of approximately $700,000 in fiscal 2019, the first quarter as compared to other net expenses of $1 million in the last year's first quarter. The major shift was in net foreign currency as we recorded a gain of $335,000 compared to a loss, a foreign currency loss of approximately $800,000 last year. Interest income also increased by approximately $200,000. I'd like to draw attention to footnote 22 in our Form 10-Q, which provides sales in select financial information for our segments. As you will see, our Automotive segment posted pre-tax net income of $4.5 million and an improvement of approximately $950,000. Premium Audio posted a pretax net income of $1.6 million, a $5.5 million improvement. And our Consumer Electronics segment posted a pretax loss of $7.5 million approximately $400,000 higher than last year's first quarter. However, we expect Consumer Accessories to improve in the second-half of the year based on new sales from the UHC Motion Program Pat covered, and high margin revenue associated with EyeLock though that will build more in the next year. While we lost money in the first quarter, this is anticipated due to the seasonality of our business. We anticipate profits in the second-half of the year should more than offset any losses in the first-half. The company is projecting an annual effective tax rate of 32.04% excluding discreet items. The annual effective tax rate is higher than the U.S. statutory rate of 21% as a result of state and local taxes, losses from non-controlling interests related to EyeLock LLC, foreign income taxes at rates higher than the U.S. statutory rate of 21% offset by a partial income tax benefit for R&D credits. There were no major changes with respect to our balance sheet. As you will see in the footnote 16 of our Form 10-Q, our deposition of $18.6 million was reduced by approximately $250,000. And our long-term debt was reduced by approximately $500,000. All debt relates to mortgages and a small working capital line in Europe. There is nothing outstanding on our debt domestic credit facility. This concludes our prepared remarks and we're now ready to open up the call for questions.

Okay…

[Operator Instructions] Our first question comes from the line of James Medvedeff with Cowen and Company. Your line is now open.

Hi, good morning, guys.

Good morning, James.

Good morning.

So I wanted to ask a couple of questions about the outlook for some of these expense items. You mentioned that R&D or technical support had a sort of $700,000 benefit from timing, what did you mean by that?

Basically -- you know, some of the expenses that we had planned to incur in the first quarter, probably moved into the second or third quarter depending on the projects. There's also NRE timing. As the NRE comes in, it will offset some of the expenses. So, those things move around depending on where we are with the particular customer at times in the development process.

So $5.9 million in the quarter down from 6.7, bounces back to kind of what, something in between or all the way back up to 6.7?

Again, this is -- so I would say that you probably see it somewhere more in the $6 million range.

Okay, perfect, thank you. The other question that I had is the -- so EBITDA was quite a bit below what we were looking for. So the question is how does that unfold for the rest of the year, and do you have a sort of a thought about what that totals for the year?

Well, I mean the thing is that what we're anticipating is that the second-half of the year will be stronger as a number of different programs launch. We have launched a schedule for a number of GM vehicles that will happen in the second, third, and fourth quarter. And we have the start of different programs under the motion program. And we'll start this quarter with EyeLock. So we anticipate a much better performance as we move in to the second-half of the year when these programs are slated to start.

Okay, thanks. And I'll just ask one more for now, which is the -- you talked about EyeLock, and there is a rather significant benefit to you from them from the -- sharing the losses with the partner or with the other -- the lot sharing arrangement…

Yes, the minority partners.

Yes.

Yes.

That looks as though it's been trending to be a smaller number probably as the losses go down, but what does that look like say next year?

Well, it depends on where we are with the programs that we're working on. We have been advised that we've won some programs, but it's too early to talk about them. That probably would probably say be 12 to 15-16 months away, depending on when those programs start, and hitting projections of what we're being advised, we could be positive at EyeLock late next year.

Late next fiscal year?

Yes.

Okay, all right. Thank you.

You're welcome, and thank you, James.

Our next question comes from the line of Eric Landry with BML Capital. Your line is now open.

Good morning.

Good morning.

What was the amount of the reimbursement to G&A that was mentioned for professional fees?

We had a recovery of legal fees due to a counterfeit lawsuit and that was approximately $2 million for the quarter.

So that $18 million run rate in G&A, is that what we would look forward to in quarters ahead…

What I had indicated on my call last year or the last quarter that we're planning on dropping our overhead by approximately $10 million year-over-year. Okay. Obviously, it will tail off as we move into the latter part of the year, because we started the process in the second-half of the year, okay, and we started, and we started to drop our overhead in the second-half of the year. But we're projected for approximately $10 million. We expect that we'll do a little bit better than that obviously, because of the impact of the counterfeit decision.

Okay, great. Would you please go over the revenue model for EyeLock, in other words…

So EyeLock works on a royalty basis, okay? So what we're looking at with EyeLock is a high, let's say, gross profit, because of the fact that it's based on a royalty. So depending on the different types of applications where we're applying our technology there will be different levels of royalty applied. But when we look at it, it would be almost 100% gross profit the way it would hit our P&Ls.

Okay, are you paid per scan or per device?

We are paid per device.

Okay, great. So you mentioned a multiyear program with Subaru in the remote start program?

Yes.

How many other OEs are you on with them?

Currently, we're supplying products to Motorola, Ford, Subaru, and that's pretty much it on our remote start business. There are some that we are working on right now. We have some RFQs in place, but I really can't speak to that at this point.

Okay. And what percent of automotive revenue is satellite radios?

I would say less than 10% at this point.

Okay. And then lastly, would you mind going over why it is that interest expense is higher than what I would have expected given all the cash in the balance sheet?

Right. This is Mike Stoehr speaking. The interest expense if you see includes bank charges, interest, factoring fees, the amortization of debt, debt cost when we put the lines together, and the unused charge for not using the credit facility. Interest itself is a small component of that number right now. The bank charges were $703,000 to just give you a rough idea. Of that, $240,000 was amortization of the debt cost, $204,000 was the unused portion, and a $169,000 was the credit card cost. So that number not only carries interest, but carries bank charges worldwide.

Thanks.

Our next question comes from Thomas Kahn with Kahn Brothers. Your line is now open.

Hi, Pat. Probably the most exciting part of the -- of VOXX family is EyeLock. And during your presentation, you only spoke very briefly you -- maybe one or two sentences on EyeLock. And what I am trying to figure out is we see that some are pushing facial recognition very hard. And we know that EyeLock is better than facial but you may not need better in many different cases. So for example, if someone who had facial and they were charging and making a dollar per unit for facial and someone else had iris and they were charging $1.50 for iris or any number you want. It very well be that in some cases, iris is more desirable that extra element of security is more desirable and that's the market that EyeLock should be addressing. Could you give us a little commentary on EyeLock please?

Sure. We agree a 100% with you. There are certain applications were facial might be sufficient but the numbers speak for themselves. When you compare a fingerprint, you have got one point -- one is 50,000 false positives. When you compare facial, you have one in a million false positives. And when you compare it to a double live eye iris scan, which is what we do, it's one in over 2.25 trillion false positives. So, the level of security that comes from…

Pat, can I ask -- can I just interrupt, I know you said that before and I agree with you a 100% on what you are saying. The question is, is there a way to address the broad market with iris either on a price competitive basis where people are paying more for facial and they say, look, we will give you for less and it's better, or do we have to address a completely different market which says this is the lock that gets you into Fort Knox and we don't want facial. We have to have the most secure, we want iris. You follow what I am saying?

Yes, and then from a competitive standpoint, iris is not a -– there is not a major premium for iris over facial as far as the cost to implement the technology, okay? So, there is an advantage there for iris because you end up with lot more security. Right now with the introduction of some of the new facial schemes that came out, there was a focus on facial. Our feeling is and what we see is that people were now coming back and looking at iris because of the level of security. And we're seeing that with programs and the companies that we are talking to. And the programs that we are working on require a higher level of security and those companies recognize it. I wish I could go further and talk about some of the things we are working on, but it's too early to tell. But hopefully, we will have some very good news in the future on these things.

Well, thank you, Pat. And I hope at the annual meeting either you or someone from EyeLock can further talk about the company and what it's doing because among all of the things VOXX is doing, that's probably the most exciting.

Yes, that has great potential. And we'll be prepared for that on our meeting next week. Thank you, Tom.

Our next question comes from line of Drew Dillon [ph] with Crimson Advisors. Your line is now open. Mr. Dillon, you may be on mute.

Operator, are there any more questions?

Our next question comes from the line of Tim Chan Chow [ph] with G2 Investment Partners. Your line is now open.

Hey, guys, good morning.

Good morning, Tim.

Good morning.

My first question is which factors led to lower international sales in the premium audio segment? And will this continue?

There is a situation that's going on within the German market with some of the big retailers in Germany that based on their inventory position coming out of Christmas; they have curtailed a lot of inventory buying to pull down their total inventory carry. That has affected our throughout the first quarter. We anticipate with the World Cup that some of the inventory that they were carrying was sold through. And hopefully, we would see a -- them getting back to normal purchasing practices towards the end of the second quarter.

Okay, great. That's really helpful. My second question is you guys have really strengthened your balance sheet. I was just wondering if there is anything that you are planning to do in the coming quarters as a result.

In the coming quarters, obviously what I said on the call was that we are always evaluating potential acquisitions, potential divestures of some of the operations that we have, so that is an ongoing process. We also have an authorization for about 1.4 million shares repurchase. We look at that option. We will be discussing that at our board meeting next week.

Okay, great. Thank you.

You're welcome.

Our next question comes from the line of David Williamson, Private Investor. Your line is now open.

Thank you. What was the adjusted EBITDA in the quarter without the EyeLock losses?

[Indiscernible]

Mike, you are going to [indiscernible] look at that…

Well, right now the EBITDA for EyeLock is -- the negative EBITDA for EyeLock without the attributable loss, but totally was roughly loss of $2.5 million. So you would add $2.5 million to it.

Okay. Does that make the breakeven for EyeLock in the future around $3 million sales a quarter?

I can't say…

If it's 100%?

Yes, yes, yes, that would…

Okay.

That would exceed -- there is two parts of when we are looking at EyeLock is the actual cash burn. And then there is the P&L impact with depreciation and interest cost and things like that, but $12 million would more than offset our expenses.

Okay. Top line increase from the other division, it seems that the EVO product is the hot product to grow the overall top line of the company. In previous conference calls, it was discussed that EVO is to be about half of the automobile division run rate by yearend. Does that mean that about 75 million of existing auto revenue will be either exited or wound down and replaced with EVO, or does it mean that the current 150 auto division sales will be kept and then we add 75, and so it would 150 plus 75 is 225?

Well, you have to understand that part of our automotive business at OEM already includes rear seat entertainment, okay, whether that be EVO or whether that be our older product. So in the case of EVO, EVO will replace most of the older products that we have currently at OEM, and we are winning additional business, okay. So I would expect that you would see our OEM portion of our business grow to be a greater percentage. We're looking at approximately flat sales within the aftermarket. So that's where we're looking at an increase in the total automotive picture.

And how many car models would EVO be on by year-end?

There's, I would say at this particular point when we launch the rest of the GM vehicles, we're probably looking somewhere around 14 or 15 different car models.

Okay. One last question on the balance sheet, there's a line of $22 million on the assets for equity investments, the 10-K, I wanted to know if that $22 million is the original cost basis for ASA, or is the $22 million equity investments totally separate than ASA?

The equity investment in A&A is as of quarter-to-date. We receive dividend payments out on a quarterly basis from it. Also, there's a small investment in a company called Phantom in there. But the principle is ASA.

Okay, so the $20 million to $22 million is the original cost basis primarily for ASA?

No. There's some funds left in ASA as we operated over the years. But basically, yes, we'll be taking some money math each year.

Okay, because, obviously, if ASA is doing $7.5 million to $8 million year portion that, with a 10-PE that's already $70 million to $80 million value. And I was just wondering shouldn't that be mark-to-market on the balance sheet is what I was getting at.

No, we carry the investment as the value of the investment on its balance sheet. We don't mark it to market.

Okay, thank you. Those were my questions, thank you.

Thank you.

Our next question comes from the line of Josh Goldberg with G2. Your line is now open.

Good morning, guys. Can you hear me?

Yes, Josh.

How are you doing?

Good.

So, I just had a few quick questions that I think pretty obvious, but I just want to make sure. Your share count at the end of the quarter was, last I checked just to make sure I have the right number…

24.3 million

Okay. Is that a fully diluted number?

Yes.

Okay. So your mark-to-cap for the company is between $100 million and $125 million, value of the company?

Yes.

Okay, is that fair?

Yes.

You're sitting on $50 million of cash with $18.6 million of debt, so you have about $32 million of cash per share on that $130 million of value?

Yes.

Is that a right number?

You're close, yes.

Okay. You have $118 million of inventory. Love to get a sense of how valuable it is to have so much inventory on your books, but that's why a second question. And you have $63.8 million of property, plant, and equipment that I believe according to your 10-K was filed is recorded as cost, fair to say as well?

Yes.

Okay. So your book value is well above the current price of the stock?

Yes.

Okay, happens sometimes. What I'm trying to understand is how do we unlock this value together? And I know people are talking about EyeLock and others things, and obviously you have good NOLs as well. A size of a company of yours, it's hard for me to understand how with $500 million of revenue or $450 million you're not able to generate some income from that business? And maybe if you could just give us a glimpse of which are kind of your fastest growing lines or the ones that are most profitable that might help investors really put a spotlight on what you guys really are doing underneath the covers, which is pretty exciting right now.

Yes. Look, I think the thing that obviously is depressing the stock price is the losses that they see, which are primarily coming from EyeLock investment. When I look at biometrics and I look at authentication there's no question that we will all be authenticated by our biometric in the future. We have the most secure biometric, and therefore we will leave that the future bodes well for our EyeLock investment. What we're seeing happening now, as I indicated previously, where companies are not still internal with facial as they had seemed to be last year. They are coming back to reality that the EyeLock solution or the iris solution is most secure. We have a number of programs that we're working that unfortunately I cannot speak to, but it encourages us to continue to build out our EyeLock program. So that's an area where we see growth in the future. Now that growth may be 12, or 14, or 16 or 18 months out, but we believe based on the customers that we're talking to, the projects they're working on, and the volumes that we're seeing that this could be a very profitable portion of our business. When I look at our automotive business, we are the leading supplier of rear seat entertainment in the car. Many people have thought that with the advent of iPads and things like that that we would see a big reduction in those sales. And we may have seen that in the aftermarket, but we do not see it at the OEM level. In fact, we see the OEMs more interested in brining more and more content into the car and utilizing their own screens and their own programs to do that. So that's another area of growth that we anticipate.

What needs to happen to your company to be profitable on a quarterly basis going forward?

Simply EyeLock becoming profitable would make the entire company profitable.

Okay. Give or take, are you spending $5 million a year on it or more than that?

On what?

On EyeLock?

As we indicated earlier, that the -- yes, that our expenses at EyeLock are greater than that.

Greater than $5 million a year?

Yes. You're in the $10 million range.

$10 million range, okay.

By the way, EyeLock's financials are in the 10-Q.

Okay.

And the definition of what goes on with EyeLock; you'll see a balance sheet P&L.

Is it the first time do you separate that EyeLock like that?

No, it's been carried that way since we acquired it.

Okay. In terms of some of the other things that you're looking at, it would seem to me that the company getting a little smaller, do we need that type of property, plant, and equipment. Can you just talk a little bit about that and the inventory being so high as well?

Well, the inventory is in line with the way we do our business because a lot of the product comes in from overseas, and therefore we have a long lead time, in many cases as much as five to six months. Not that we carry five to six months on hand, but our lead times alone. And that's traditionally where we've been in the businesses that we distribute. When we look at the business on a go-forward basis we have a manufacturing plant for our premium audio in Hope, Arkansas. We have a manufacturing plant for our OEM business in Orlando. Our shared services facilities are based in New York, and we have engineering offices in Detroit. And our management and business segments for both Klipsch and the RCA accessory group reside in Indianapolis. We've looked at this over the past. The fact that we own the buildings is the least expensive way for us to go, and we do get depreciation on the properties over the years. In light of where the business would be going depending on the success of individual operations, we will assess whether or not we need to add or close down particular facilities.

Got it. Okay, great. Thanks so much.

You're welcome.

Our next question comes from the line of Isaac Meyer [ph] with Bow Street Capital [ph]. Your line is now open.

Hi, good morning guys. How are you?

Good morning.

I'm looking at last year's 10-Q regarding automotive sales. And the automotive segment was significantly higher than it is this fiscal. Can you give me some color on that please?

Yes. Last year, if you're looking at the numbers from last year it included our Hirschmann operation which we divested for $177 million in August of last year.

Right. And with most of that cash I assume you paid down debt?

Yes. We paid down all of our outstanding debt other than mortgages that we have on the buildings and some small factoring programs that we have for our German operation with the remainder.

Correct. And from the transactions what else do you see in terms of the Premium Audio segment sales also? The decrease was from last year you went from $37.7 million from $32.1 million, and then this year you're down from $37.7 million.

Right.

So is there something that you think there's seasonality about it, like you said, but at the same time what do you think is attributable for the Premium Audio segment's decrease?

As I indicated on my statement, the Premium Audio segment, if you've listened in on our calls over the past year, the amount of last year, with excess inventory, had a number of promotional programs to generate top line revenue. However, as we went through the year we made the decision to protect margins for our customers. We needed to cut back on certain forms of distribution, and make that decision. And I had indicated as such on our last call, that we expect that we will pull down some of the sales, eliminate some of the distribution that we had, but we would increase margins while doing so. And that's exactly what happened, sales were down approximately $5 million and gross profit percentage was up over 700 basis points.

Right. So your basis point increased in sales, your margins are decent, but at the same time don't you think that your expenses are just going to go up especially on SG&A moving forward…

No, if you looked at our expenses when they pertain to the Premium Audio space, if you looked at expenses they came down significantly. Yes, part of it was due to the pickup that we had in professional fees, but we have anticipated lower overhead as we go forward. Obviously if you warehouse you ship, you pay commissions on lower sales you'll have lower overhead. But with a higher gross profit you'll generate more bottom line profit, and that's our focus within our Premium Audio group.

Right, so moving forward your SG&A will continue to increase, especially as you come of the…

I think you'll see a little bit more of a flattening out in the revenue sector when you look at our Premium Audio because we had some big promotional sales in the first half of the year. And I think you'll see the revenue start to flatten out a little bit more than we've seen the first quarter.

Okay. And then just one last question, you said that Ford was one of your buyers of the new stuff?

Yes, we have the Lincoln Play and the Ford Play systems of rear seat entertainment.

And what percentage of those went to the F-150, if any?

None.

Okay. And with Subaru, they happen to be increasing sales significantly year-over-year.

Yes.

Is there any promotional aspect to your attempt to drive sales to the better selling cars like the Subaru?

What I had indicated on my statement is that we expect to have an increase in sales with some new programs with Subaru, which will generate increased overall remote start sales for the year. And that's a combination of new programs with Subaru and the success that Subaru is having.

Okay, thank you very much.

You are welcome.

Our next question comes from line of James Medvedeff with Cowen & Co. Your line is now open.

Hi, and thanks for taking my follow-up call. I just -- follow-up question, I just want to double check and make sure that these expense reductions, this year-over-year are not impacted by Hirschmann. That the year-over-year comps are already excluding Hirschmann?

Yes. What I indicated on our last call was we are expecting to lower our overhead by $10 million that would be after Hirschmann.

Right. Just to understand the 10-Q that you see does not have Hirschmann in the comparative last year numbers.

Okay. Well, yes, thanks. The other question that I have is on CapEx. It was kind of light in the quarter. And I am wondering how we should think about that for the next -- for the while?

The only thing that will impact our CapEx is if we look at acquiring any other facilities as we go forward for the year, engineering facilities et cetera. As Hirschmann was the biggest user of CapEx with consolidated is now off the statement, you see more of a distribution CapEx, computer programs and that type of stuff.

And the only thing that may impact CapEx and if anything it would happen probably towards the end of the year. We will be to talk about it would be if the tariff situation continues to become a problem, we would then move certain board manufacturing that we do in Asia to our facility in Orlando. I am surprised I haven't got any questions on it. But where we are right now through the first tranche of tariffs, we were able to move some production back to some of our manufacturers that we work with are Taiwanese, and we were able to move some of the manufacturing back to Taiwan without having the impact of the higher tariffs. Some were depending on the classification we have them in based on the product we were able to re-class the product. And that has been approved by customs. And we were able to get around the individual tariffs there. The ones that we have gotten hit on are basically lower valued products some things like cables and remotes which we don't anticipate will be a problem. But if this situation continues, then you will see us move manufacturing to different parts of Asia and quite possibly move some manufacturing back to the United States, which then you will see a CapEx expense.

Great. That's really helpful and actually raises another question. How might that sort of stuff or how has it and how might it in the future impact expense levels?

I am sorry. Can you repeat that?

It came a little garbled.

Expense -- sorry about that, expense levels, are they impacted at all by the move in production that you've already done? And if it turns out to be a lot more production moving around, what sort of impact might that have on expenses?

Really it's not going to have that much of expense unless we decide that we are going to do it ourselves in one of our facilities. Having the -- our manufacturing partners move from plant to plant, in many cases, they were already producing some of our product. Let's say in the Taiwanese plant and some of it in Chinese plant. They will just move newer products in. We have inventory that we have in our warehouses of at least 60 days on hand. So it gives them the time to move. We are not going to have much of an impact in expenses there.

Okay, thanks.

You're welcome.

Our next question comes from Eric Landry with BMO Capital. Your line is now open.

Great, thanks. I just have a couple of follow-ups. So in answer to a prior question you mentioned I think second quarter was going to flatten out. Does that mean revenues will be down less than 12%? Is that weird?

Within our premium space is what I was referring to.

I got you. Okay, thanks.

You are welcome.

And then lastly, I am just wondering what the logic is of continuing the factoring program when you've got such a high cash balance and a lack of profitability?

We anticipate that that will go away within the next few months the factoring program.

No, the U.S. factoring program is with Wal-Mart and Best Buy. And as things go on, to let it go, trying to get back would be a very high -- of course the 55 basis points factor of the money, we put $22 million into it, it costs us $107,000. And you get the money in 10 days.

There are two programs that we have; one in Europe and one domestically with Best Buy and Wal-Mart. The one in Europe we'll probably move out of that within a few months' time. The one in the United States, we will maintain.

And the one in the United States in relatively low cost?

That's correct.

Yes.

You get their borrowing rate.

Okay, great. Thanks for answering my questions.

You're welcome.

Our next question comes from Thomas Kahn with Kahn Brothers. Your line is now open.

Just as a follow-up. Everyone got very excited after you were in Barcelona and Qualcomm was going to use EyeLock on their chip. And we really haven't heard anything more about it. In other words where that's going because everybody said, "Jeez, Qualcomm is a classic company, a big company. This is a positive." And I guess Barcelona was in -- whatever it was? Eight months ago, I don't know when the hell it was.

Year ago.

A year ago. So we've got one year gone by. Everybody is silent. Is it dead? There is nothing happening with Qualcomm. Maybe at the annual meeting, you will be kind enough to either have someone from EyeLock on the phone or someone from VOXX, who could tell us what's going on with Qualcomm and what's going on in general with EyeLock that would be very useful?

I hear you. As we indicated on our calls, we still have a program with Qualcomm to develop our technology on to their 835 and 845 chip.

But Pat, we're a year into this thing and we need a little more color. We need a little more…

I will give it to Tom, all right.

Pardon me.

There was a pause in the business when a certain company introduced facial. And we see that pause in the business starting to turn around as people start to realize and company start to realize that facial whether it would be 2D or 3D does not give sufficient security. So, these are things that are beyond our control, but these are things that happen and we're dealing…

Hi, Pat, we understand that and nobody is criticizing anyone. All I am suggesting is that what the kind of dialog you are giving us now about what's going on because everyone got kind of juiced up, if you will, about Qualcomm that kind of color and dialog would be appropriate to discuss at the annual meeting. What's going on, what's going to go on in the future because we got people kind of all revved up. Qualcomm that's a big company with a big name and they are even talking to us. And here we are over a year later and there is no conversation about that. So a lot of people say what's going on. And we say, "Well, company's got to communicate with it to the shareholders."

All I can say at this particular point, I am not free to discuss all the different things we are working on with different companies. We have NDAs in place. All I can discuss is that we are continuing to work with Qualcomm on the application of the iris technology into the 835 and 845 chip. I cannot expound on some of these issues because of the NDAs we have signed.

But Pat, I certainly don't want you to disclose anything which is confidential. And I certainly don't want you to file any of your nondisclosure agreements. But I would respectfully request that you figure out a way to communicate more with the owners on this whole subject because people feel that EyeLock is potentially the most exciting part of our business. Not just another me too cliché speaker that has to compete with somebody else. It's probably the most exciting part of our business. And you ought to figure out a way to be able to talk with us within the bounds of your legal requirements and tell us what's going on, what the future is of EyeLock because it's been awhile. Everyone got juiced up. With Barcelona, we thought this was the greatest thing since mother's milk. We were going to be in the Qualcomm booth yadi-yadi-ya, and then nothing. So, I very much ask if you could at the annual meeting figure out a way to give lowly owners little more color on what's going on please.

Okay, we will take a look at it.

Thank you.

Welcome.

Our next question comes from the line of Matthew Jen [ph], Private Investor. Your line is now open.

Hi, guys. I have a question about a really small -- probably really small part of your business which is the cameras, the body cams. So I guess you guys were excited about it I think last year. And I wonder if you could just give us an update on what's going in that space?

Right now we're in development of a body cam that has the ability to do 4G live streaming. We are in the process of developing that particular camera which is where we think the future of body cams are going. And that's pretty much where we are with that. I would expect that we would see within the next I will say eight to nine months a product.

Okay. And any update on your penetration into the public safety market?

We are working with a number of different companies that have penetration into the market already, work with different municipalities, work with different police agencies. And they will be the ones that will be taking the product into the market.

Okay. Thank you, guys.

You're welcome.

And that concludes today's question-and-answer session. I would like to turn the call back to Mr. Lavelle for closing remarks.

Okay. Well, thank you all for joining us this morning. I hope we were able to answer most of your questions. And I wish you all a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.