00:03 Good day and thank you for standing by, welcome to the VOXX International Fiscal twenty twenty two Second Quarter Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will a question-and-answer session. . 00:36 I would now like to turn the conference over to your speaker today Glenn Wiener.

00:44 Thank you. Good morning, and welcome to VOXX International’s fiscal fiscal twenty twenty two second quarter conference call. A press release was issued yesterday after the market closed and we filed our Form 10-Q with the SEC. Both documents can be found in the Investor Relations section of our website, and an updated investor presentation will be posted later. Today, we will have prepared remarks from Pat Lavelle, President and Chief Executive Officer; and Michael Stoehr, Senior Vice President and Chief Financial Officer. After which, we will open up the call for questions. 01:13 I would like to remind everyone that expect 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 I would like to point you to the risk factors associated with our business, which are detailed in our Form 10-K for the period ended February twenty eight, twenty twenty one. 01:35 Also note, management will be presenting at the Sidoti Investor Conference on December eight and nine, and hosting one-on-one meetings with investors throughout the two day period. We have also registered to present at the Imperial Capital Security Conference on December fourteen with more details to follow. There are other events we are evaluating the remainder of the calendar year, and we will update our investors accordingly. 01:55 I'd like to thank you all for your continued support to VOXX and it is now my pleasure to turn the call over to Pat Lavelle. Pat?

2:02 Thank you, Glenn, and good morning, everyone. In light of what we experienced this past quarter, I'm quite pleased with our performance. If you consider all of the one-time events, especially considering the worldwide economic turmoil that we’ve all encountered over the past year. The VOXX team has done a good job navigating through what we believe was the worst of the supply chain short falls. 02:27 The initial price increases that we instituted have taken effect and due to the rapid increase in the second quarter of container prices, we instituted a second wave of price increases in September. We have the inventory on hand to deliver in our all-important third quarter. In addition, we have added new or alternative suppliers to increase component availability. We changed our ordering protocols to compensate for longer lead times and even modified boards to utilize alternative chips. We believe all of these measures combined will give us more flexibility in terms of how we manage the business in the quarters ahead. 03:11 Revenues grew almost twelve percent in Q2 and are up forty percent through the first six months year-over-year. And this was accomplished despite missing a few inventory turns, which were expected due to the corresponding shipping delays. Gross margins, primarily in our consumer electronics segment were impacted by the supply chain and the added costs associated with freight and warehousing. And while there will be some continued pressure, the good news is that, we expect less of an impact coming out of this calendar year. 03:43 The increase in our operating expenses were primarily due to a full six months of DEI compared to two months in fiscal twenty twenty one. Higher employee costs as we brought back furloughed employees and were still in salaries. We also added expenses associated with some of our larger and new OEM programs and had higher professional fees to support the Onkyo and GalvanEyes diligence and transactions. 04:10 For the six month period in fiscal twenty twenty two, we had an operating loss of three point one million dollars versus operating income of four hundred thousand. Taking into account one-time non-recurring expenses, our operations actually performed better than the first half of last year, especially with the five point seven million dollars increase in professional fees, four point eight million dollars of which we consider non-recurring, and roughly two point nine million dollars of added expenses for NRE and labor and extra warehouses to hold inventory in Asia waiting for shipment. 04:49 On an adjusted EBITDA basis, we reported fourteen point six million dollars versus ten point seven million dollars for the first half in fiscal twenty twenty two and twenty twenty one, an improvement of three point nine million. Looking ahead, we anticipate continued growth in the second half of the year with Q3 a little under and Q4 above the prior year. We expect to be profitable in both quarters and the variance from the prior year to this year is primarily in an engineering and tech support as we expect to see an increase of approximately nine million dollars year-over-year to fund growth related progress, nearly five million dollars of which relates to the addition of Onkyo’s engineering team. 05:33 I will add some comments with respect to next fiscal year in my closing comments, but needless to say, there is a lot of momentum at VOXX. Our Automotive Electronics segment grew by forty percent in the second quarter and revenues are up seventy seven percent through the first half of the year. 05:52 For the second quarter comparisons, our aftermarket business was up thirty four percent with the added contribution from our DEI subsidiary. Our OEM business was up fifty three percent due to new rear-seat entertainment programs with Nissan and Stellantis, both of which began this past quarter and should ramp-up in volume as customers increase production. And we have forward starting in the fourth quarter, which will be added boost to top-line revenue. We also saw increases in automotive safety and security products. 06:27 For the six month comparisons, our automotive segment grew by seventy seven percent with aftermarket revenue up over eighty one percent and OEM revenue up approximately seventy percent. Keep in mind, this growth was achieved despite all of the shortages and delays, which impacted not only our aftermarket dealers, but placed a significant strain on our OEM customers as well. The environment worsened this past quarter with a number of car manufactured shutting plans due to lack of parts. We expect this to normalize as we move into next year, and more capacity comes online. 07:07 Our consumer electronics business grew by approximately two percent in the second quarter and almost twenty eight percent year to date. Premium audio product sales grew by approximately ten percent in the second quarter and over forty two percent through the first six months, which offset declines in other CE product sales, a majority of the CE segment product sales declines related to inventory and chip shortage, which in turn led to production delays. And there were continued store closures in Europe. 07:42 This also impacted premium audio product sales, but we are still growing and expect this to continue. During the quarter, we had increases in sales of premium wireless speakers and wireless computer speakers and higher sales of premium audio in Europe. For the six month period, we grew in virtually all premium audio categories. 08:03 11 trading company saw a sales increase of eleven point four million dollars in the second quarter and seventeen point seven million dollars when comparing the six month period. As most of you are aware, we closed on the acquisition of Onkyo's Home Entertainment A/V business in September, which is our fiscal third quarter, and this transaction holds great promise for our company, both in terms of growth and added profitability. 08:31 And lastly, our biometric segment sales remained relatively flat for the quarter comparisons, but was up twenty seven percent for the six month period. We're expecting this segment to post more meaningful revenue increases and smaller losses as we begin to realize future contributions from the GalvanEyes distribution agreement, our new healthcare customer, which ramps up next year and other smaller projects we have been awarded. Overall, we have performed well given the environment. 09:05 I'd like to shift now to our outlook as we're quite bullish on our prospects. This optimism is based on the contracts we have been awarded, the new additions to the VOXX family of brands and products and a lot of behind the scenes momentum, which has been delayed because of the global supply chain issues, and should start to come back to life as things begin to gradually improve. 09:29 With Amazon's Fire TV we can offer our customers more content than anyone. Based on the investments we have made over the past two years, we are the clear cut leader with our technology and expertise. This past quarter, we began shipping to Stellantis and Nissan and soon will be delivering to Ford. Based on what I've been told by our OE customers, automotive production is anticipated to increase and the capacity constraints should begin not only to stabilize, but improve over the coming quarters. This bodes well for growth and incremental bottom line profits. 10:08 We have resumed conversations with several other OEMs that have been in LIMBO for a good part of the year due to supply chain issues and we believe we will see additional incremental awards layering on top of our core. Even without this, we are still positioned to double this business by next year compared to fiscal twenty twenty. Our outlook has not changed. 10:33 VSM is doing very well and puts us in new product categories and new OEM channels. VDI has grown since we acquired them and solidifies our position in several automotive security categories. Premium audio continues to be a strong growth driver and that will intensify with the addition of the Onkyo acquisition and new licensing agreement with Pioneer. 11:01 I indicated on my last call that we should do approximately fifty million dollars in sales this fiscal year. And provided that we don't have any additional shipping issues, we should do a little bit better than that. As we ramp-up production and rebuild distribution with a focus initially on North America, we believe we can reach over one hundred and twenty five million dollars in sales for next fiscal year. 11:25 And as we expand globally, we expect to exceed over two hundred million dollars. As we are now the owners, we expect to see gross margins at our 11 TC operations improve as well. With the anticipated revenue increases, margin is more in line with historical premium audio products, 11 TC should be a significant contributor to our bottom-line. 11:52 Now, we normally don't provide guidance, but given all that has transpired we'd like to offer some direction for the third and fourth quarters. Our outlook is based on customer projections and what we have done to date and barring any unforeseen events we feel comfortable with the following statements. 12:12 We expect sales to be up modestly in the second half of the year with the third quarter below and the fourth quarter above the prior year periods. Fiscal twenty twenty two sales to come in around six forty million dollars to six fifty million dollars and we believe higher by potentially double digits in fiscal twenty twenty three. 12:33 Gross margins should be more stable based on our actions to date. We will have additional expenses associated with startup costs for OEM programs and the Onkyo’s operations and expect higher gross profit contributions next fiscal year. 12:50 Expenses will be more normalized as the reductions associated with furloughs, and salary reductions were essentially back to base levels in last year's third quarter. We don't expect to incur the level of professional fees that we had in the first half, and we will be reporting comparable numbers for DEI. 13:10 Total operating expenses in the second half are expected to be a nine million dollars higher in the second half of last fiscal year with eight million dollars related to the addition of Onkyo. Selling expenses and G&A expenses are expected to be mostly in-line with the prior year. 13:30 Based on what we've accomplished this year, I believe we’ve positioned the company for greater profitability as we move into fiscal twenty twenty three and beyond, and we have set our sights on exceeding one billion dollars in sales over the next few years. 13:47 And with that, I'll turn the call over to Mike for further detail. Mike?

13:52 Thank you, Pat. Good morning, everyone. Rather than walk through all of the three and six month comparisons, I'm going to provide additional background on some of the sales and expense drivers and breakout non routine and non-recurring expenses. I believe this will provide more clarity on our results for the first half of the year. 14:12 As for revenues year to date for the comparable six month periods, as Pat noted, both our aftermarket and OEM businesses was up significantly in the first half of the year. On the OEM side, key drivers were the start of the Nissan rear- seat entertainment programs for QXAD, higher sales from Stellantis as we started the EVOLVE program with Amazon's Fire TV and higher sales from Ford. 14:42 Component shortages certainly curtailed some of the growth, but we expect to make it up as production volumes increase. In the aftermarket, we had strong increases in vehicle security and from our DEI subsidiary, and modest increases in the video and telematics categories. 15:01 Satellite radio fulfillment sales were down due to limited receiver production for several months this year. Premium audio product sales were up and growth is anticipated to continue. We saw increases in the traditional passive and subwoofer categories and mobility products with the launch of several new headphones and in new cinema sound bars and computer speakers. 15:25 Our German operations were up as many of the COVID-nineteen restrictions were lifted. And as we discussed, we added approximately seventeen point seven million dollars in sales from 11 TC as this subsidiary was formed in the second half of last year. 15:41 The supply chain issues curtailed some of our expected growth, both for premium audio products and in several CE product categories. Regarding our gross margins, our gross margins in fiscal twenty twenty two second quarter came in three seventy basis points lower than the prior year period. We estimate that added costs related to the supply chain issues, expenses to cover additional warehouses in Asia, for example, and higher freight and fuel cost was approximately one point six million dollars for the quarter, with the majority tied to premium audio. 16:18 Similarly for the six month compatible periods, gross margins came in two sixty basis points lower year over year, the gross profit dollars increased by almost sixteen million dollars. The dollar impact was approximately two point two million dollars for the six month period. Keep in mind, there were also higher cost of doing business throughout that drove margins lower for the CE segment and we believe we've covered the bulk through our price increases and other steps taken as Pat talked earlier. 16:51 As for expenses, there were several expenses that came back as a result of the COVID restrictions implemented in fiscal twenty twenty one. And others that were non-routine and non-recurring in nature. Of the ten point four million dollars increase Q2 of fiscal twenty twenty two versus Q2 of last year, we had three point one million dollars of professional fees related to transactions. We had one point seven million dollars in higher overhead at DEI as we own them for roughly two months in Q2 of last year and the full quarter of this year. We had one point five million dollars related to furloughed employees and salary and bonus reduction which were imposed during the COVID lockdown last fiscal year. And we had one point one million dollars in non-reimbursed NRE expenses and additional outside labor expenses related to a new OEM program. 17:47 The rest of the increase related to commissions, e-commerce sales, web and advertising expenses and additional R&D. Taking all of the increases into account, we estimate approximately four point eight million dollars of the increase is considered non-recurring. For the six month comparable periods, operating expenses increased by nineteen point four million dollars, five point four million dollars relates to DEI, owning them for six months versus two; four point eight million dollars is for professional fees; three point five million dollars is for furloughed employees and salary and bonus reductions; one point five million dollars is for NRE and outside labor; the remainder is mixed across SG&A and engineering and tech expenses. Of this, six point three million dollars is considered non- recurring. 18:45 Note that the acquisition costs and non-routine legal fees are taken to account in our adjusted EBITDA calculations. The total impact was approximately two point seven million dollars for the second quarter comparable and four million dollars for the six month comparable. We grew nicely dealing with the supply chain turmoil. We did, however, have a big impact on our gross margins. Some of which will be offset in the third and fourth quarter, just given the second wave of price increases and hopefully, more stabilization in the market. 19:17 We aggressively -- we were aggressively procuring what we need when we can and we took some added steps which added costs to ensure we had as much inventory on hand as we can for the second half of this year. 19:32 That was a strategic decision as is the investments Pat spoke of in R&D, given the volume of automotive awards that we have been awarded and new programs we believe we are well positioned for in the future. 19:46 We don't expect this level of professional fees as the transactions with Onkyo and GalvanEyes were behind us, and we're not expecting NRE expenses of this magnitude in the second half of the year. 19:59 Through the first six months of fiscal twenty twenty two, our operating income is down three point five million dollars, though the increase of professional fees made up more than the difference. Net income attributable to VOXX is up four point one million dollars and adjusted EBITDA is up three point nine million dollars. Moving to the balance sheet. 20:21 As of August thirty one twenty twenty one we had cash and cash equivalents of forty one point one million dollars compared to thirty six point seven million dollars as of May thirty one twenty twenty one. And fifty nine point nine million dollars as of fiscal twenty twenty one year ended on February twenty eight. 20:39 The roughly eighteen point three million dollars decline since year-end takes into account cash usage of eight point four million dollars to fund Onkyo's operations in the form of a note, which was satisfied and paid off as part of the transaction close on September, eight. The remainder for general -- and the remainder was for general working capital purposes. We funded the remainder of the Onkyo transaction this quarter and we will be ramping up cash outlays as we typically do as this is our largest selling season. Cash is expected to come back to normal levels at the end of the fourth quarter. 21:18 Our total debt stood at seven point seven million dollars as of August thirty one twenty twenty one compared to seven million dollars as of May thirty one, and seven point one million dollars as of February twenty eight twenty twenty one. The increase relates to an eight hundred thousand usage of our eight million (ph) loan in VOXX Germany as we purchased more inventory for the third quarter. 21:42 Our only debt is related to our – our only U.S. debt is related to our Florida mortgage, which stood at six point nine million dollars as of August thirty one and compared to seven point one as of year-end. Total long term debt net of debt issuance cost was five point two million dollars compared to six million dollars for August thirty one and February twenty eight periods respectively. 22:06 We have the cash and access to capital from our acquisitions, invest in growth, continue to pursue strategic transaction that can positively impact our business and generate returns. 22:18 That concludes my remarks. Operator, we're ready to open the call for questions.

22:24 Your first question comes from the line of Tom Forte from D.A. Davidson. Your line is open.

22:53 Great. Well, first off, Pat, congrats on navigating an incredibly challenging environment very well.

22:59 Thank you, Tom.

23:00 had a handful is, to the high level Pat, you sounds more optimistic about your business this quarter versus last quarter. A, would you agree with that statement? And if you do agree with that statement, what are the three reasons for the increased optimism?

23:18 Well, I mean, when we look at what transpired, I mean, we did close on the Onkyo transaction, that is very positive. We closed on the GalvanEyes. We have started shipping our OEM programs, we have the additional Ford coming on. So, we see this business is layering the existing business that we have. And that gives us a great deal of optimism as we look into next year and we believe that a lot of the supply issues, chip shortage issues will start to abate somewhat. It's not going to be immediate. But it will abate and that will give us higher production at car manufacturers, more dealers cars sitting in dealerships across the country. That's very positive for the automotive business. 24:14 And then the demand that we're seeing globally for Onkyo and Pioneer is very strong. And as we move into next year, Sharp will be adding another factory in order to make sure that they can supply the demand that we have. So, it all looks very positive.

24:40 Great. And then my other question is, first off, congrats on Onkyo deal. Can you give your current thoughts on M&A opportunities? Is at a high level than what you're seeing as far as pricing?

24:54 Well, I mean, we have our eyes on a couple of strategic acquisitions that we would like to pull off in a year or two. There's no rush at this point. I want to make sure that the entire team is capable of digesting all the work that we've done this year to make sure everything is solid there. But there are a number of companies that in some cases we've had preliminary conversations with that we think VOXX would be the desire acquirer if they were to sell. 25:30 And part of our strategy going forward, our strategy to get up to one billion dollars in sales is obviously layering on the new business that we've achieved, we're thinking that we layer on between Onkyo and the new OEM Awards, about two fifty million dollars on top of our business that we have now. That brings us close to nine hundred and then an acquisition of one hundred million dollars or one hundred and fifty million dollars company would get us there. So that's definitely part of the strategy. As far as the cost, we will be very, very diligent in making sure that we do not overpay, I think our history shows that we've been able to do some very strong acquisitions at competitive prices, and I think we'll be able to do that again.

26:28 Great. Thank you Pat. Thank for taking my questions.

26:31 Thank you, Tom.

26:33 Your next question comes from the line of (ph) your line is open.

26:40 I've got a couple of questions I’m a private investor. I have been your calls for quite a while. And I like the stock for quite a while. You make a statement in the quarterly report, you say, we expect growth to continue in the second half of year, and to be up fifteen percent for the full fiscal year. What does that relate to? What are the numbers that’s being used to come up with that?

27:01 The numbers that we're using are the projections that we have from our customers that are placing orders, we have promotion scheduled for the second half and if we're able to make sure that we deliver in the second half, which we believe between what we have in the box, so to speak, that we will be able to achieve our third quarters and what we have coming in the third quarter for the fourth quarter that we will be able to achieve that type of result.

27:34 So, it's actually not based on any concrete numbers, it's just a projection?

27:38 Yes.

27:40 Not based on earnings per-quarter. Okay. The other question I have is, in the last couple of -- at least the last couple of quarterly earnings reports, you’ve mentioned the company stock buyback. It appears to me based on public knowledge that Mr. Kahli has bought over four million shares. That seems to be the company's repurchase through Mr. Kahli, is the company going to be buying any shares?

28:06 First off the company bought about one million two shares over the past quarter.

28:11 Okay.

28:12 Mr. Kahli’s holdings were not acquired in the third quarter or in the second quarter. They require over, I believe, in almost two year period.

28:24 Okay. All right. I'll just -- really one of the thing that I live in Florida, your Costco in both and Sarasota constantly have your products.

28:34 Yes.

28:35 They're always there. It's always well displayed.

28:39 One of the things that were asked over the past quarter is, whereas it is the business sustainable. And with Costco sustaining the program with us and adding, we have a big program going with Costco right now for the holiday season. So, Costco have become a very strong account and that will continue.

29:00 My comment is that, everyday supply chain -- supply chain , but our product is in Costco all the time.

29:09 We've worked very hard to make sure we had the inventory. We stepped out in the early part of the second quarter to make sure that all the production facilities were firing on at full capacity and we unfortunately had to take on additional warehousing in Asia to hold the goods because of the delays with getting them on boats and everything, but I think that's going to be proven to be the right strategy going into the third quarter.

29:39 Okay. Hope so.

29:41 Thanks, Steven.

29:43 Thank you.

29:47 I’m showing no further questions at this time. I would now like to turn the conference back to Patrick Lavelle.

29:55 Well, thank you. Once again, thank you for support of VOXX. It has been and it's not just this past year over the last two years, it has been very, very challenging. But as I said earlier, I believe the VOXX team has performed exceptionally well remotely and now coming back to work and working through all the logistic issues that we've had. So we're anticipating that we will be able to finish the year on a strong note. I want to thank you and wish you all a good day.

30:31 This concludes today's conference call. Thank you for participating. You may now disconnect.