Voxx International Corp. engages in the manufacturing and distribution of consumer electronic products. It operates through the following segments: Automotive, Premium Audio, and Consumer Accessories. The Automotive segment designs, manufactures, distributes and markets rear-seat entertainment devices, satellite radio products, automotive security, remote start systems, digital TV tuners, mobile antennas, mobile multimedia devices, aftermarket/OE-styled radios, car-link smartphone telematics application, collision avoidance systems, and location-based services. The Premium Audio segment focuses in marketing home theater systems, high-end loudspeakers, outdoor speakers, iPod/computer speakers, business music systems, cinema speakers, flat panel speakers, bluetooth speakers, soundbars, headphones, and digital living network alliance. The Consumer Accessories segment deals in the distribution of remote controls; wireless and bluetooth speakers; karaoke products; action cameras; iris identification and biometric security related products; personal sound amplifiers; smart-home security and safety products; infant and nursery products; and A/V connectivity, portable, and home charging, The company was founded by John J. Shalam in 1960 and is headquartered in Orlando, FL.
Our businesses are highly competitive and face significant competition from Original Equipment Manufacturers (OEMs) and direct imports by our retail customers.
OEM sales are dependent on the economic success of the automotive industry.
Sales in our businesses are dependent on new products, product development and consumer acceptance.
The impact of future selling prices and technological advancements may cause price erosion and adversely impact our profitability and inventory value.
We purchase a significant amount of our products from suppliers in Pacific Rim countries and we are subject to the economic risks associated with inherent changes in the social, political, regulatory and economic conditions not only in these countries, but also in other countries we do business in, including our own.
A portion of our workforce is represented by labor unions. Collective bargaining agreements can increase our expenses. Labor disruptions could adversely affect our operations.
We depend on our suppliers to provide us with adequate quantities of high-quality competitive products and/or component parts on a timely basis.
We have few long-term sales contracts with our customers that contain guaranteed customer purchase commitments.
Our success will depend on a less diversified line of business.
We depend on a small number of key customers for a large percentage of our sales.
We plan to continue to expand the international marketing and distribution of our products, which will subject us to risks associated with international operations, including exposure to foreign currency fluctuations.
A decline in general economic conditions could lead to reduced consumer demand for the discretionary products we sell.
Conditions in the global economy, the geographic markets we serve, and the financial markets may adversely affect us.
Our stock price could fluctuate significantly.
We invest, from time to time, in marketable securities and other investments as part of our investing activities. These investments fluctuate in value based on economic, operational, competitive, political and technological factors. These investments could be subject to loss or impairment based on their performance.
From time to time, we provide funding to certain entities in the form of loans. Based on the performance of these entities, these loans may become partially or entirely uncollectible.
We are subject to governmental regulations.
The Tax Cuts and Jobs Act could adversely affect our business and financial condition.
A data privacy breach or failure to comply with data privacy laws could damage our reputation and customer relationships, expose us to litigation risk and potential fines and adversely affect our business.
We are responsible for product warranties and defects.
We must comply with restrictive covenants in our debt agreements.
We may be unable to collect amounts owed to us by our customers.
We provide financial support to one of our subsidiaries through an intercompany loan agreement and may need to secure additional financing for our own operations, but we cannot be sure that additional financing will be available.
Our capital resources may not be sufficient to meet our future capital and liquidity requirements.
We have recorded, and may record in the future, goodwill and other intangible assets as a result of acquisitions, and changes in future business conditions could cause these investments to become impaired, requiring substantial write-downs that would reduce our operating income.
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
If our sales during the holiday season fall below our expectations, our annual results could also fall below expectations.
Our business could be affected by unseasonal or severe weather-related factors.
Our products could infringe the intellectual property rights of others and we may be exposed to costly litigation.
Acquisitions and strategic investments may divert our resources and management attention; results may fall short of expectations.
We depend heavily on existing directors, management and key personnel and our ability to recruit and retain qualified personnel.
We exercise our option for the "controlled company" exemption under NASDAQ rules.
As you read this discussion and analysis, refer to the accompanying Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income, which present the results of our operations for the three and six months ended August 31, 2019 and 2018.
Automotive sales represented 29.7% and 30.7% of the net sales for the three and six months ended August 31, 2019, respectively, compared to 36.7% and 38.0% in the respective prior year periods. Sales in this segment decreased during the three and six months ended August 31, 2019 as compared to the prior year due to various factors, including a decline in sales of the Company’s EVO rear seat entertainment product line, which was due in part to launch delays for certain vehicle models, as well as slower sales for certain programs that began in the prior year, which is attributable to a softening of global automotive industry sales in both periods. The Company’s OEM security and remote start sales also declined during the three and six months ended August 31, 2019 as a result of competition, as well as the discontinuation of passive entry programs with one of the Company’s customers. Additionally, sales of aftermarket satellite radio and headrest products have declined in the three and six months ended August 31, 2019, as compared to the prior year, as a result of an increase in standard factory equipped vehicles with these options, as well as due to price competition for aftermarket headrest products. Offsetting the sales declines in this segment for the three and six months ended August 31, 2019 were increases in sales of certain aftermarket safety and security products as compared to the prior year periods.
Consumer Electronics sales represented 69.8% and 69.0% of our net sales for the three and six months ended August 31, 2019, respectively, compared to 62.8% and 61.6% in the comparable prior year periods. Sales decreased for the three and six months ended August 31, 2019 as compared to the prior year due to several factors. The Company experienced decreases in sales of certain products, such as the its Project Nursery line, as a result of the elimination of baby video monitors, and in wireless and bluetooth speakers, due a reduction in product placement with one of the Company’s larger customers and the timing of purchases by another. The Company also continued to see a decline in sales of certain hook-up and power products, as well as headphones and remotes, as a result of changes in customer demand and technology, and due to the Company’s continuing rationalization of SKU’s with the goal of limiting sales of lower margin products. Within Europe, the Company experienced decreases in sales across all product lines, as well as in the DIY business during the three and six months ended August 31, 2019 as a result of a slowdown in the European market. For the three months ended August 31, 2019, there was also a decrease in sales of the Company’s premium home separate speaker products, as a result of prior year load-in sales of two new product lines that launched during the second quarter of Fiscal 2019 that did not repeat in the current year period. Offsetting these decreases, the Company had an increase in sales within both of its premium mobility and premium wireless and bluetooth speaker categories as a result of the launch of new lines of soundbars and wireless earbuds, as well as stronger sales of several existing products. Additional distribution partners for the Company’s premium commercial speaker products have also had a favorable impact on sales for the three and six months ended August 31, 2019. Both reception and karaoke product sales were up for the three and six months ended August 31, 2019 as a result of expanded SKU offerings with certain customers and stronger market share, and sales of the Company’s activity bands have increased year over year as a result of increased motion program participants, as well as additional product offerings for participants, including the Apple watch. For the six months ended August 31, 2019, the Company’s premium home separate speaker product sales increased as a result of the continued success of its new domestic product lines that launched during the second quarter of Fiscal 2019