UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
November 30,or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-28839
VOXX International Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 13-1964841 (IRS Employer Identification No.) | |
2351 J Lawson (Address of principal executive offices) | 32824 (Zip Code) | |
(800) 645-7750 (Registrant's telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class: | Trading Symbol: | Name of Each Exchange on which Registered |
Class A Common Stock $.01 par value | VOXX | The Nasdaq Stock Market LLC |
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).Yes ☒No ☐
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, as defined” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
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).
Number of shares of each class of the issuer's common stock outstanding as of the latest practicable date.
Class | As of January 8, 2024 | |
Class A Common Stock | 20,337,009 Shares | |
Class B Common Stock | 2,260,954 Shares |
VOXX International Corporation and Subsidiaries
Table of Contents
Page | ||||
PART I | ||||
Item 1 | ||||
Consolidated Balance Sheets at November 30, | 3 | |||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
Item 2 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 33 | ||
Item 3 | 47 | |||
Item 4 | 47 | |||
PART II | ||||
Item 1 | 48 | |||
Item 1A | 48 | |||
Item 2 | 48 | |||
Item 6 | 49 | |||
50 | ||||
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)
| November 30, 2017 | February 28, 2017 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 37,514 | $ | 956 | ||||
| Accounts receivable, net | 93,106 | 79,971 | ||||||
| Inventory, net | 125,389 | 122,352 | ||||||
| Receivables from vendors | 568 | 634 | ||||||
| Prepaid expenses and other current assets | 16,390 | 12,332 | ||||||
| Income tax receivable | 1,468 | 1,596 | ||||||
| Assets held for sale, current | — | 55,507 | ||||||
| Total current assets | 274,435 | 273,348 | ||||||
| Investment securities | 9,040 | 10,388 | ||||||
| Equity investments | 22,416 | 21,926 | ||||||
| Property, plant and equipment, net | 65,959 | 65,589 | ||||||
| Goodwill | 54,639 | 53,905 | ||||||
| Intangible assets, net | 151,703 | 154,939 | ||||||
| Deferred income taxes | 23 | 23 | ||||||
| Other assets | 8,483 | 1,699 | ||||||
| Assets held for sale, non-current | — | 86,669 | ||||||
| Total assets | $ | 586,698 | $ | 668,486 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 36,203 | $ | 46,244 | ||||
| Accrued expenses and other current liabilities | 36,638 | 32,110 | ||||||
| Income taxes payable | 3,117 | 703 | ||||||
| Accrued sales incentives | 18,123 | 13,154 | ||||||
| Current portion of long-term debt | 7,675 | 9,215 | ||||||
| Liabilities held for sale, current | — | 28,641 | ||||||
| Total current liabilities | 101,756 | 130,067 | ||||||
| Long-term debt, net of debt issuance costs | 8,583 | 97,747 | ||||||
| Capital lease obligation | 774 | 926 | ||||||
| Deferred compensation | 3,854 | 3,844 | ||||||
| Deferred income tax liabilities | 28,611 | 27,627 | ||||||
| Other tax liabilities | 1,798 | 3,194 | ||||||
| Other long-term liabilities | 3,185 | 2,125 | ||||||
| Liabilities held for sale, non-current | — | 11,641 | ||||||
| Total liabilities | 148,561 | 277,171 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock: | ||||||||
| No shares issued or outstanding (see Note 19) | — | — | ||||||
| Common stock: | ||||||||
| Class A, $.01 par value, 60,000,000 shares authorized, 24,106,194 and 24,067,444 shares issued and 21,938,100 and 21,899,370 shares outstanding at November 30, 2017 and February 28, 2017, respectively | 256 | 256 | ||||||
| Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares issued and outstanding | 22 | 22 | ||||||
| Paid-in capital | 296,291 | 295,432 | ||||||
| Retained earnings | 182,089 | 159,369 | ||||||
| Accumulated other comprehensive loss | (15,427 | ) | (43,898 | ) | ||||
| Treasury stock, at cost, 2,168,094 and 2,168,074 shares of Class A Common Stock at November 30, 2017 and February 28, 2017, respectively | (21,176 | ) | (21,176 | ) | ||||
| Total VOXX International Corporation stockholders' equity | 442,055 | 390,005 | ||||||
| Non-controlling interest | (3,918 | ) | 1,310 | |||||
| Total stockholders' equity | 438,137 | 391,315 | ||||||
| Total liabilities and stockholders' equity | $ | 586,698 | $ | 668,486 | ||||
3
|
| November 30, |
|
| February 28, |
| ||
|
| (unaudited) |
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 10,393 |
|
| $ | 6,134 |
|
Accounts receivable, net of allowances of $2,165 and $2,515 at November 30, 2023 and February 28, 2023, respectively |
|
| 91,631 |
|
|
| 82,753 |
|
Inventory |
|
| 146,244 |
|
|
| 175,129 |
|
Receivables from vendors |
|
| 1,668 |
|
|
| 112 |
|
Due from GalvanEyes LLC (Note 21) |
|
| 2,547 |
|
|
| — |
|
Prepaid expenses and other current assets |
|
| 20,259 |
|
|
| 19,817 |
|
Income tax receivable |
|
| 1,354 |
|
|
| 1,076 |
|
Total current assets |
|
| 274,096 |
|
|
| 285,021 |
|
Investment securities |
|
| 909 |
|
|
| 1,053 |
|
Equity investment |
|
| 21,523 |
|
|
| 22,018 |
|
Property, plant and equipment, net |
|
| 45,857 |
|
|
| 47,044 |
|
Operating lease, right of use assets |
|
| 3,082 |
|
|
| 3,632 |
|
Goodwill |
|
| 64,122 |
|
|
| 65,308 |
|
Intangible assets, net |
|
| 84,760 |
|
|
| 90,437 |
|
Deferred income tax assets |
|
| 1,209 |
|
|
| 1,218 |
|
Other assets |
|
| 2,831 |
|
|
| 3,720 |
|
Total assets |
| $ | 498,389 |
|
| $ | 519,451 |
|
Liabilities, Redeemable Equity, Redeemable Non-Controlling Interest, and Stockholders' Equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 35,818 |
|
| $ | 35,099 |
|
Accrued expenses and other current liabilities |
|
| 41,073 |
|
|
| 41,856 |
|
Income taxes payable |
|
| 170 |
|
|
| 2,276 |
|
Accrued sales incentives |
|
| 24,036 |
|
|
| 21,778 |
|
Contingent consideration, current (Note 2) |
|
| — |
|
|
| 4,500 |
|
Final arbitration award payable (Note 24) |
|
| 46,738 |
|
|
| 43,388 |
|
Contract liabilities, current |
|
| 3,341 |
|
|
| 3,990 |
|
Current portion of long-term debt |
|
| 500 |
|
|
| 500 |
|
Total current liabilities |
|
| 151,676 |
|
|
| 153,387 |
|
Long-term debt, net of debt issuance costs |
|
| 47,088 |
|
|
| 37,513 |
|
Finance lease liabilities, less current portion |
|
| 319 |
|
|
| 63 |
|
Operating lease liabilities, less current portion |
|
| 2,192 |
|
|
| 2,509 |
|
Deferred compensation |
|
| 909 |
|
|
| 1,053 |
|
Deferred income tax liabilities |
|
| 4,777 |
|
|
| 4,855 |
|
Other tax liabilities |
|
| 768 |
|
|
| 966 |
|
Prepaid ownership interest in EyeLock LLC due to GalvanEyes LLC (Note 21) |
|
| 9,817 |
|
|
| 7,317 |
|
Other long-term liabilities |
|
| 2,120 |
|
|
| 2,947 |
|
Total liabilities |
|
| 219,666 |
|
|
| 210,610 |
|
Commitments and contingencies (Note 24) |
|
|
|
|
|
| ||
Redeemable equity (Note 8) |
|
| 4,087 |
|
|
| 4,018 |
|
Redeemable non-controlling interest (Note 2) |
|
| (2,691 | ) |
|
| 232 |
|
Stockholders' equity: |
|
|
|
|
|
| ||
Preferred stock: |
|
|
|
|
|
| ||
No shares issued or outstanding (Note 20) |
|
| — |
|
|
| — |
|
Common stock: |
|
|
|
|
|
| ||
Class A, $.01 par value, 60,000,000 shares authorized, 24,558,184 and 24,538,184 shares issued and 20,332,009 and 21,167,527 shares outstanding at November 30, 2023 and February 28, 2023, respectively |
|
| 246 |
|
|
| 246 |
|
Class B Convertible, $.01 par value, 10,000,000 shares authorized, 2,260,954 shares issued and outstanding at both November 30, 2023 and February 28, 2023 |
|
| 22 |
|
|
| 22 |
|
Paid-in capital |
|
| 297,220 |
|
|
| 296,577 |
|
Retained earnings |
|
| 79,232 |
|
|
| 97,997 |
|
Accumulated other comprehensive loss |
|
| (17,405 | ) |
|
| (18,680 | ) |
Less: Treasury stock, at cost, 4,226,175 and 3,370,657 shares of Class A Common Stock at November 30, 2023 and February 28, 2023, respectively |
|
| (38,940 | ) |
|
| (30,285 | ) |
Less: Redeemable equity |
|
| (4,087 | ) |
|
| (4,018 | ) |
Total VOXX International Corporation stockholders' equity |
|
| 316,288 |
|
|
| 341,859 |
|
Non-controlling interest |
|
| (38,961 | ) |
|
| (37,268 | ) |
Total stockholders' equity |
|
| 277,327 |
|
|
| 304,591 |
|
Total liabilities, redeemable equity, redeemable non-controlling interest, and stockholders' equity |
| $ | 498,389 |
|
| $ | 519,451 |
|
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)
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | $ | 156,563 | $ | 157,411 | $ | 384,856 | $ | 389,636 | ||||||||
| Cost of sales | 115,044 | 113,763 | 284,772 | 281,572 | ||||||||||||
| Gross profit | 41,519 | 43,648 | 100,084 | 108,064 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling | 11,357 | 11,081 | 34,805 | 32,387 | ||||||||||||
| General and administrative | 18,258 | 20,099 | 59,095 | 58,247 | ||||||||||||
| Engineering and technical support | 6,261 | 7,236 | 20,298 | 21,891 | ||||||||||||
| Total operating expenses | 35,876 | 38,416 | 114,198 | 112,525 | ||||||||||||
| Operating income (loss) | 5,643 | 5,232 | (14,114 | ) | (4,461 | ) | ||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest and bank charges | (1,215 | ) | (1,901 | ) | (4,850 | ) | (5,194 | ) | ||||||||
| Equity in income of equity investees | 2,004 | 1,931 | 5,734 | 5,284 | ||||||||||||
| Investment gain | — | — | 1,416 | — | ||||||||||||
| Other, net | 477 | 121 | (7,772 | ) | (136 | ) | ||||||||||
| Total other income (expense), net | 1,266 | 151 | (5,472 | ) | (46 | ) | ||||||||||
| Income (loss) from continuing operations before income taxes | 6,909 | 5,383 | (19,586 | ) | (4,507 | ) | ||||||||||
| Income tax (benefit) expense from continuing operations | (568 | ) | 3,756 | (4,531 | ) | (3,184 | ) | |||||||||
| Net income (loss) from continuing operations | 7,477 | 1,627 | (15,055 | ) | (1,323 | ) | ||||||||||
| Net (loss) income from discontinued operations, net of tax (Note 2) | (368 | ) | 2,283 | 32,342 | 417 | |||||||||||
| Net income (loss) | 7,109 | 3,910 | 17,287 | (906 | ) | |||||||||||
| Less: net loss attributable to non-controlling interest | (1,535 | ) | (1,890 | ) | (5,433 | ) | (5,418 | ) | ||||||||
| Net income attributable to VOXX International Corporation | $ | 8,644 | $ | 5,800 | $ | 22,720 | $ | 4,512 | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | (170 | ) | (6,684 | ) | 27,669 | (3,168 | ) | |||||||||
| Derivatives designated for hedging | 226 | 752 | (960 | ) | 240 | |||||||||||
| Pension plan adjustments | (2 | ) | 96 | 1,688 | 44 | |||||||||||
| Unrealized holding (loss) gain on available-for-sale investment securities, net of tax | (3 | ) | 4 | 74 | (4 | ) | ||||||||||
| Other comprehensive income (loss), net of tax | 51 | (5,832 | ) | 28,471 | (2,888 | ) | ||||||||||
| Comprehensive income (loss) attributable to VOXX International Corporation | $ | 8,695 | $ | (32 | ) | $ | 51,191 | $ | 1,624 | |||||||
| Earnings (loss) per share - basic: | ||||||||||||||||
| Continuing operations | $ | 0.37 | $ | 0.15 | $ | (0.40 | ) | $ | 0.17 | |||||||
| Discontinued operations | $ | (0.02 | ) | $ | 0.09 | $ | 1.34 | $ | 0.02 | |||||||
| Attributable to VOXX International Corporation | $ | 0.36 | $ | 0.24 | $ | 0.94 | $ | 0.19 | ||||||||
| Earnings (loss) per share - diluted: | ||||||||||||||||
| Continuing operations | $ | 0.37 | $ | 0.14 | $ | (0.40 | ) | $ | 0.17 | |||||||
| Discontinued operations | $ | (0.02 | ) | $ | 0.09 | $ | 1.34 | $ | 0.02 | |||||||
| Attributable to VOXX International Corporation | $ | 0.35 | $ | 0.24 | $ | 0.94 | $ | 0.19 | ||||||||
| Weighted-average common shares outstanding (basic) | 24,238,493 | 24,160,324 | 24,222,973 | 24,160,324 | ||||||||||||
| Weighted-average common shares outstanding (diluted) | 24,498,144 | 24,287,431 | 24,222,973 | 24,237,357 | ||||||||||||
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 135,260 |
|
| $ | 143,055 |
|
| $ | 360,828 |
|
| $ | 397,492 |
|
Cost of sales |
|
| 98,918 |
|
|
| 105,918 |
|
|
| 268,281 |
|
|
| 297,859 |
|
Gross profit |
|
| 36,342 |
|
|
| 37,137 |
|
|
| 92,547 |
|
|
| 99,633 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling |
|
| 10,967 |
|
|
| 11,413 |
|
|
| 32,154 |
|
|
| 35,563 |
|
General and administrative |
|
| 15,944 |
|
|
| 15,920 |
|
|
| 52,621 |
|
|
| 53,903 |
|
Engineering and technical support |
|
| 7,063 |
|
|
| 7,171 |
|
|
| 23,257 |
|
|
| 23,844 |
|
Acquisition costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 136 |
|
Restructuring expenses |
|
| 101 |
|
|
| 303 |
|
|
| 2,168 |
|
|
| 532 |
|
Total operating expenses |
|
| 34,075 |
|
|
| 34,807 |
|
|
| 110,200 |
|
|
| 113,978 |
|
Operating income (loss) |
|
| 2,267 |
|
|
| 2,330 |
|
|
| (17,653 | ) |
|
| (14,345 | ) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and bank charges |
|
| (1,892 | ) |
|
| (1,460 | ) |
|
| (5,011 | ) |
|
| (3,101 | ) |
Equity in income of equity investee |
|
| 1,101 |
|
|
| 2,022 |
|
|
| 3,958 |
|
|
| 5,373 |
|
Final arbitration award (see Note 24) |
|
| (752 | ) |
|
| (986 | ) |
|
| (3,350 | ) |
|
| (2,958 | ) |
Other, net |
|
| 156 |
|
|
| 460 |
|
|
| (1,497 | ) |
|
| (3,169 | ) |
Total other (expense) income, net |
|
| (1,387 | ) |
|
| 36 |
|
|
| (5,900 | ) |
|
| (3,855 | ) |
Income (loss) before income taxes |
|
| 880 |
|
|
| 2,366 |
|
|
| (23,553 | ) |
|
| (18,200 | ) |
Income tax expense (benefit) |
|
| 97 |
|
|
| (3,988 | ) |
|
| (54 | ) |
|
| (5,788 | ) |
Net income (loss) |
|
| 783 |
|
|
| 6,354 |
|
|
| (23,499 | ) |
|
| (12,412 | ) |
Less: net loss attributable to non-controlling interest |
|
| (1,129 | ) |
|
| (1,067 | ) |
|
| (3,609 | ) |
|
| (3,090 | ) |
Net income (loss) attributable to VOXX International Corporation and Subsidiaries |
| $ | 1,912 |
|
| $ | 7,421 |
|
| $ | (19,890 | ) |
| $ | (9,322 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
| 279 |
|
|
| 957 |
|
|
| 1,337 |
|
|
| (2,665 | ) |
Derivatives designated for hedging |
|
| (29 | ) |
|
| 78 |
|
|
| (55 | ) |
|
| 264 |
|
Pension plan adjustments |
|
| (1 | ) |
|
| (19 | ) |
|
| (7 | ) |
|
| 53 |
|
Other comprehensive income (loss), net of tax |
|
| 249 |
|
|
| 1,016 |
|
|
| 1,275 |
|
|
| (2,348 | ) |
Comprehensive income (loss) attributable to VOXX International Corporation and Subsidiaries |
| $ | 2,161 |
|
| $ | 8,437 |
|
| $ | (18,615 | ) |
| $ | (11,670 | ) |
Income (loss) per share - basic: Attributable to VOXX International Corporation and Subsidiaries |
| $ | 0.08 |
|
| $ | 0.30 |
|
| $ | (0.85 | ) |
| $ | (0.38 | ) |
Income (loss) per share - diluted: Attributable to VOXX International Corporation and Subsidiaries |
| $ | 0.08 |
|
| $ | 0.30 |
|
| $ | (0.85 | ) |
| $ | (0.38 | ) |
Weighted-average common shares outstanding (basic) |
|
| 23,270,834 |
|
|
| 24,389,375 |
|
|
| 23,510,578 |
|
|
| 24,408,541 |
|
Weighted-average common shares outstanding (diluted) |
|
| 23,467,022 |
|
|
| 24,621,359 |
|
|
| 23,510,578 |
|
|
| 24,408,541 |
|
See accompanying notes to unaudited consolidated financial statements.
5
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
| Nine Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | (15,055 | ) | $ | (1,323 | ) | ||
| Net income (loss) from discontinued operations | 32,342 | 417 | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 12,087 | 13,637 | ||||||
| Amortization of debt discount | 616 | 614 | ||||||
| Bad debt expense | 260 | 191 | ||||||
| Non-cash bank charges | — | 187 | ||||||
| Non-cash interest on borrowings | — | 1,817 | ||||||
| Loss (gain) on forward contracts | 6,602 | (590 | ) | |||||
| Loss on interest rate swap unwind | — | 114 | ||||||
| Equity in income of equity investees | (5,734 | ) | (5,284 | ) | ||||
| Distribution of income from equity investees | 5,245 | 4,889 | ||||||
| Deferred income tax expense (benefit) | 1,157 | (108 | ) | |||||
| Non-cash compensation adjustment | 786 | 1,261 | ||||||
| Stock based compensation expense | 445 | 568 | ||||||
| Gain on sale of property, plant and equipment | (10 | ) | (12 | ) | ||||
| Gain on sale of RxNetworks | (1,416 | ) | — | |||||
| Gain on sale of Hirschmann | (36,118 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (10,862 | ) | (24,299 | ) | ||||
| Inventory | (831 | ) | (15,897 | ) | ||||
| Receivables from vendors | 396 | (67 | ) | |||||
| Prepaid expenses and other | (12,275 | ) | (2,139 | ) | ||||
| Investment securities-trading | 52 | (210 | ) | |||||
| Accounts payable, accrued expenses, accrued sales incentives and other liabilities | (14,975 | ) | 15,006 | |||||
| Income taxes payable | (1,660 | ) | (3,904 | ) | ||||
| Net cash used in operating activities | (38,948 | ) | (15,132 | ) | ||||
| Cash flows provided by (used in) investing activities: | ||||||||
| Purchases of property, plant and equipment | (5,932 | ) | (8,622 | ) | ||||
| Proceeds from sale of property, plant and equipment | 10 | 15 | ||||||
| Issuance of notes receivable | (3,000 | ) | — | |||||
| Proceeds from sale of long-term investment | 2,660 | — | ||||||
| Purchase of business | (1,814 | ) | — | |||||
| Proceeds from sale of Hirschmann, net of settlement of forward contracts | 170,020 | — | ||||||
| Net cash provided by (used in) investing activities | 161,944 | (8,607 | ) | |||||
| Cash flows (used in) provided by financing activities: | ||||||||
| Principal payments on capital lease obligation | (489 | ) | (356 | ) | ||||
| Repayment of bank obligations | (128,591 | ) | (30,763 | ) | ||||
| Borrowings on bank obligations | 37,114 | 48,353 | ||||||
| Proceeds from exercise of stock options | 303 | — | ||||||
| Net cash (used in) provided by financing activities | (91,663 | ) | 17,234 | |||||
| Effect of exchange rate changes on cash | (1,619 | ) | 410 | |||||
| Net increase (decrease) in cash and cash equivalents | 29,714 | (6,095 | ) | |||||
| Cash and cash equivalents at beginning of period | (a) | 7,800 | (a) | 11,767 | ||||
| Cash and cash equivalents at end of period | $ | 37,514 | (a) | $ | 5,672 | |||
For the three and cash equivalents at February 28, 2017, February 29, 2016 andnine months ended November 30, 2016 include $6,844, $6,789,2023 and $4,307, respectively, in current assets held for sale for Hirschmann.
(In thousands, except share and per share data)
|
| Class A |
|
| Paid-in |
|
| Retained |
|
| Accumulated |
|
| Non- |
|
| Treasury |
|
| Redeemable Equity |
|
| Total |
| ||||||||
Balances at February 28, 2023 |
| $ | 268 |
|
| $ | 296,577 |
|
| $ | 97,997 |
|
| $ | (18,680 | ) |
| $ | (37,268 | ) |
| $ | (30,285 | ) |
| $ | (4,018 | ) |
| $ | 304,591 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (10,738 | ) |
|
| — |
|
|
| (649 | ) |
|
| — |
|
|
| — |
|
|
| (11,387 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 177 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 177 |
|
Repurchase of 371,087 shares of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,113 | ) |
|
| — |
|
|
| (4,113 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 258 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23 | ) |
|
| 235 |
|
Balances at May 31, 2023 |
|
| 268 |
|
|
| 296,835 |
|
|
| 87,259 |
|
|
| (18,503 | ) |
|
| (37,917 | ) |
|
| (34,398 | ) |
|
| (4,041 | ) |
|
| 289,503 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (11,064 | ) |
|
| — |
|
|
| (553 | ) |
|
| — |
|
|
| — |
|
|
| (11,617 | ) |
Prior period adjustment (Note 2) |
|
| — |
|
|
| — |
|
|
| 1,125 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,125 |
|
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 849 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 849 |
|
Repurchase of 267,831 shares of Class A common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,859 | ) |
|
| — |
|
|
| (2,859 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 208 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23 | ) |
|
| 185 |
|
Balances at August 31, 2023 |
|
| 268 |
|
|
| 297,043 |
|
|
| 77,320 |
|
|
| (17,654 | ) |
|
| (38,470 | ) |
|
| (37,257 | ) |
|
| (4,064 | ) |
|
| 277,186 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| 1,912 |
|
|
| — |
|
|
| (491 | ) |
|
| — |
|
|
| — |
|
|
| 1,421 |
|
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 249 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 249 |
|
Repurchase of 216,600 shares of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,683 | ) |
|
| — |
|
|
| (1,683 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 177 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23 | ) |
|
| 154 |
|
Balances at November 30, 2023 |
| $ | 268 |
|
| $ | 297,220 |
|
| $ | 79,232 |
|
| $ | (17,405 | ) |
| $ | (38,961 | ) |
| $ | (38,940 | ) |
| $ | (4,087 | ) |
| $ | 277,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balances at February 28, 2022 |
| $ | 267 |
|
| $ | 300,453 |
|
| $ | 126,573 |
|
| $ | (17,503 | ) |
| $ | (35,000 | ) |
| $ | (25,138 | ) |
| $ | (3,550 | ) |
| $ | 346,102 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (6,527 | ) |
|
| — |
|
|
| (707 | ) |
|
| — |
|
|
| — |
|
|
| (7,234 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,375 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,375 | ) |
Cash settlement of market stock units upon vesting of 80% of award |
|
| — |
|
|
| (4,000 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,000 | ) |
Net settlement of 61,337 shares of Class A Common Stock upon vesting of stock awards, net of withholding taxes |
|
| 1 |
|
|
| (404 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (403 | ) |
Reclassification of stockholders' equity to redeemable equity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33 | ) |
|
| (33 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 126 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 133 |
|
|
| 259 |
|
Balances at May 31, 2022 |
|
| 268 |
|
|
| 296,175 |
|
|
| 120,046 |
|
|
| (18,878 | ) |
|
| (35,707 | ) |
|
| (25,138 | ) |
|
| (3,450 | ) |
|
| 333,316 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (10,216 | ) |
|
| — |
|
|
| (583 | ) |
|
| — |
|
|
| — |
|
|
| (10,799 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,989 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,989 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 136 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (333 | ) |
|
| (197 | ) |
Balances at August 31, 2022 |
|
| 268 |
|
|
| 296,311 |
|
|
| 109,830 |
|
|
| (20,867 | ) |
|
| (36,290 | ) |
|
| (25,138 | ) |
|
| (3,783 | ) |
|
| 320,331 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| 7,421 |
|
|
| — |
|
|
| (482 | ) |
|
| — |
|
|
| — |
|
|
| 6,939 |
|
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,016 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,016 |
|
Repurchase of 277,961 shares of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,775 | ) |
|
| — |
|
|
| (2,775 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 145 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (213 | ) |
|
| (68 | ) |
Balances at November 30, 2022 |
| $ | 268 |
|
| $ | 296,456 |
|
| $ | 117,251 |
|
| $ | (19,851 | ) |
| $ | (36,772 | ) |
| $ | (27,913 | ) |
| $ | (3,996 | ) |
| $ | 325,443 |
|
See accompanying notes to unaudited consolidated financial statements.
6
VOXX International Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
|
|
| Nine months ended |
| ||||||
|
|
| 2023 |
|
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
| ||
Net loss |
|
| $ | (23,499 | ) |
|
| $ | (12,412 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
|
|
| 9,445 |
|
|
|
| 9,924 |
|
Amortization of debt discount |
|
|
| 300 |
|
|
|
| 190 |
|
Bad debt expense (recovery) |
|
|
| 65 |
|
|
|
| (125 | ) |
Reduction in the carrying amount of the right of use asset |
|
|
| 1,038 |
|
|
|
| 1,132 |
|
Gain on forward contracts |
|
|
| — |
|
|
|
| (60 | ) |
Equity in income of equity investees |
|
|
| (3,958 | ) |
|
|
| (5,373 | ) |
Distribution of income from equity investees |
|
|
| 4,453 |
|
|
|
| 4,277 |
|
Deferred income tax (benefit) expense |
|
|
| (116 | ) |
|
|
| 1 |
|
Non-cash compensation adjustment |
|
|
| (143 | ) |
|
|
| (63 | ) |
Stock based compensation expense |
|
|
| 643 |
|
|
|
| 407 |
|
(Gain) loss on disposal of property, plant, and equipment |
|
|
| (31 | ) |
|
|
| 11 |
|
Gain on sale of intangible asset |
|
|
| (450 | ) |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
|
| (8,585 | ) |
|
|
| 11,851 |
|
Inventory |
|
|
| 29,593 |
|
|
|
| (20,609 | ) |
Receivables from vendors |
|
|
| (1,556 | ) |
|
|
| 222 |
|
Prepaid expenses and other |
|
|
| (2,149 | ) |
|
|
| 312 |
|
Investment securities-trading |
|
|
| 143 |
|
|
|
| 64 |
|
Accounts payable, accrued expenses, accrued sales incentives, contract liabilities, and other liabilities |
|
|
| 932 |
|
|
|
| (30,213 | ) |
Income taxes payable |
|
|
| (2,605 | ) |
|
|
| (7,837 | ) |
Net cash provided by (used in) operating activities |
|
|
| 3,520 |
|
|
|
| (48,301 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
| ||
Purchases of property, plant, and equipment |
|
|
| (2,706 | ) |
|
|
| (2,933 | ) |
Proceeds from sale of property, plant, and equipment |
|
|
| 33 |
|
|
|
| 1 |
|
Proceeds from sale of intangible asset |
|
|
| 700 |
|
|
|
| — |
|
Net cash used in investing activities |
|
|
| (1,973 | ) |
|
|
| (2,932 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
| ||
Principal payments on finance lease obligation |
|
|
| (244 | ) |
|
|
| (217 | ) |
Repayment of bank obligations |
|
|
| (116,003 | ) |
|
|
| (125,987 | ) |
Borrowings on bank obligations |
|
|
| 125,628 |
|
|
|
| 160,853 |
|
Deferred financing costs |
|
|
| (112 | ) |
|
|
| — |
|
Settlement of market stock unit awards |
|
|
| — |
|
|
|
| (4,000 | ) |
Withholding taxes paid on net issuance of stock award |
|
|
| — |
|
|
|
| (404 | ) |
Purchase of treasury stock |
|
|
| (8,655 | ) |
|
|
| (2,775 | ) |
Net cash provided by financing activities |
|
|
| 614 |
|
|
|
| 27,470 |
|
Effect of exchange rate changes on cash |
|
|
| 2,098 |
|
|
|
| 4,452 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
| 4,259 |
|
|
|
| (19,311 | ) |
Cash and cash equivalents at beginning of period |
|
|
| 6,134 |
|
|
|
| 27,788 |
|
Cash and cash equivalents at end of period |
|
| $ | 10,393 |
|
|
| $ | 8,477 |
|
See accompanying notes to unaudited consolidated financial statements.
7
VOXX International Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(Amounts in thousands, except share and per share data)
(1)
Basis of PresentationThe 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.period due to seasonal variations in operating results and other factors. These unaudited consolidated financial statements do not include all disclosures associated with audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America.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
We operate in three reportable segments,segments: Automotive Premium AudioElectronics, Consumer Electronics, and Consumer Accessories.Biometrics. See Note 2122 for the Company's segment reporting disclosures.
(2)
a) Redeemable Non-controlling Interest
On September 8, 2021, Onkyo Technology KK ("Onkyo"), a joint venture between the Company's subsidiary, Premium Audio Company LLC ("PAC"), and Dispositions
The Company paid $1,814. In addition,has consolidated the Company agreed to pay a 2% fee related to future net sales of Rosen products for three years.
| Assets acquired: | |||
| Inventory | $ | 1,590 | |
| Goodwill | 734 | ||
| Intangible assets including trademarks and customer relationships | 520 | ||
| Total assets acquired | $ | 2,844 | |
| Liabilities assumed: | |||
| Warranty accrual | $ | 500 | |
| Other liabilities acquired | 530 | ||
| Total | $ | 1,030 | |
| Total purchase price | $ | 1,814 | |
|
| Redeemable Non-controlling Interest |
| |
Balance at February 28, 2023 |
| $ | 232 |
|
Net loss attributable to non-controlling interest |
|
| (1,916 | ) |
Comprehensive loss attributable to non-controlling interest |
|
| 84 |
|
Foreign currency translation |
|
| 34 |
|
Prior period adjustment |
|
| (1,125 | ) |
Balance at November 30, 2023 |
| $ | (2,691 | ) |
8
The prior period adjustment of $1,125 relates to the redeemable non-controlling interest that was retrospectively adjusted to reflect the recording of third-party royalty expenses on Onkyo that were previously recorded on a wholly owned subsidiary.
b) Contingent Consideration
The purchase price of the acquisition on September 8, 2021 included contingent consideration payable to OHEC. The original terms of the contingent consideration payable were based upon the calculation of 2% of the total price of certain future product purchases by PAC, as defined in the Asset Purchase Agreement ("APA"). Such payments were due to OHEC in perpetuity. The fair value of the contingent consideration is classified within Level 3 and was determined using an income approach, by estimating potential payments based on projections of future inventory purchases multiplied by the 2% payment and discounting them back to their present values using a weighted average cost of capital. A second discount rate was applied to account for the Company’s credit risk to arrive at the present value of the payments. As there was no set term and the payments were to be made in perpetuity, a one-stage Gordon Growth Model was used to account for expected payments made beyond the last year of projections.
On May 13, 2022, OHEC filed for bankruptcy protection in Japan. On February 10, 2023, the contingent consideration obligation was settled with the bankruptcy trustee of OHEC for $6,000. This settlement relieves Onkyo from the future payments of 2% of the total purchase price of certain future product purchases that were to be made in perpetuity. The $6,000 settlement amount was paid in installments. The first installment of $1,500 was made in February 2023. The remaining installments, totaling $4,500, were made during the three months ended November 30, 2023, as the obligation of the bankruptcy trustee of OHEC under the settlement agreement has been completed.
The following table presentsprovides a reconciliationrollforward of the carrying amounts of major classes of assets and liabilities of the discontinued operation to the amounts presented separately in the Company's Consolidated Balance Sheet:
| February 28, 2017 | ||||
| Cash and cash equivalents | $ | 6,844 | ||
| Accounts receivable, net | 10,670 | |||
| Inventory, net | 30,701 | |||
| Receivables from vendors | 31 | |||
| Prepaid expenses and other current assets | 7,261 | |||
| Assets held for sale, current | $ | 55,507 | ||
| Property, plant and equipment, net | 16,012 | |||
| Goodwill | 49,307 | |||
| Intangible assets, net | 21,350 | |||
| Assets held for sale, non-current | $ | 86,669 | ||
| Accounts payable | 14,899 | |||
| Accrued expenses and other current liabilities | 10,366 | |||
| Income taxes payable | 2,374 | |||
| Current portion of long-term debt | 1,002 | |||
| Liabilities held for sale, current | $ | 28,641 | ||
| Capital lease obligation | 474 | |||
| Deferred compensation | 380 | |||
| Deferred income tax liabilities | 2,528 | |||
| Other long-term liabilities | 8,259 | |||
| Liabilities held for sale, non-current | $ | 11,641 | ||
| Net assets held for sale | $ | 101,894 | ||
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | $ | — | $ | 41,526 | $ | 91,824 | $ | 124,018 | ||||||||
| Cost of sales | — | 26,961 | 63,610 | 81,275 | ||||||||||||
| Gross profit | — | 14,565 | 28,214 | 42,743 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling | — | 1,340 | 2,778 | 3,813 | ||||||||||||
| General and administrative | 12 | 7,141 | 14,688 | 20,967 | ||||||||||||
| Engineering and technical support | — | 4,007 | 7,920 | 14,122 | ||||||||||||
| Total operating expenses | 12 | 12,488 | 25,386 | 38,902 | ||||||||||||
| Operating (loss) income of discontinued operations | (12 | ) | 2,077 | 2,828 | 3,841 | |||||||||||
| Other (expense) income: | ||||||||||||||||
| Interest and bank charges (a) | — | (95 | ) | (279 | ) | (366 | ) | |||||||||
| Other, net | 7 | (19 | ) | 145 | (92 | ) | ||||||||||
| Total other income (expense) of discontinued operations, net | 7 | (114 | ) | (134 | ) | (458 | ) | |||||||||
| Gain on sale of discontinued operations before taxes | — | — | 36,118 | — | ||||||||||||
| Total (loss) income from discontinued operations before taxes | (5 | ) | 1,963 | 38,812 | 3,383 | |||||||||||
| Income tax expense (benefit) on discontinued operations (b) | 363 | (320 | ) | 6,470 | 2,966 | |||||||||||
| (Loss) income from discontinued operations, net of taxes | $ | (368 | ) | $ | 2,283 | $ | 32,342 | $ | 417 | |||||||
| (Loss) income per share - basic | $ | (0.02 | ) | $ | 0.09 | $ | 1.34 | $ | 0.02 | |||||||
| (Loss) income per share - diluted | $ | (0.02 | ) | $ | 0.09 | $ | 1.34 | $ | 0.02 | |||||||
|
|
|
| |
Balance at February 28, 2023 |
| $ | 4,500 |
|
Payments |
|
| (4,500 | ) |
Balance at November 30, 2023 |
| $ | - |
|
| Nine Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities: | ||||||||
| Depreciation and amortization expense | $ | 2,939 | $ | 4,506 | ||||
| Stock-based compensation expense | 50 | 60 | ||||||
| Investing activities: | ||||||||
| Capital expenditures | $ | 2,652 | $ | 4,130 | ||||
| Non-cash investing and financing activities: | ||||||||
| Capital expenditures funded by long-term obligations | $ | 1,916 | $ | — | ||||
(3)
NetBasic net income (loss) per common share from continuing operations,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, is based uponby the weighted-average common shares outstanding during the period. DilutedThe diluted net income (loss) per common share from continuing operations, net of non-controlling interestcomputation 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.
A reconciliation between the denominator of basic and diluted net income (loss) per common share is as follows:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Weighted-average common shares outstanding (basic) |
|
| 23,270,834 |
|
|
| 24,389,375 |
|
|
| 23,510,578 |
|
|
| 24,408,541 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted stock units, market stock units, and stock grants |
|
| 196,188 |
|
|
| 231,984 |
|
|
| — |
|
|
| — |
|
Weighted-average common shares and potential common shares outstanding (diluted) |
|
| 23,467,022 |
|
|
| 24,621,359 |
|
|
| 23,510,578 |
|
|
| 24,408,541 |
|
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| Weighted-average common shares outstanding | 24,238,493 | 24,160,324 | 24,222,973 | 24,160,324 | ||||||||
| Effect of dilutive securities: | ||||||||||||
| Stock options, warrants and restricted stock | 259,651 | 127,107 | — | 77,033 | ||||||||
| Weighted-average common shares and potential common shares outstanding | 24,498,144 | 24,287,431 | 24,222,973 | 24,237,357 | ||||||||
9
Restricted stock units, market stock optionsunits, and warrants totaling 55,918stock grants of 9,266 and 121,2509,306 for the three months ended November 30, 20172023 and 2016,2022, respectively, and 545,102304,260 and 252,067379,113 for the nine months ended November 30, 20172023 and 2016,2022, respectively, were not included in the net income (loss) per diluted share calculation because the exercise pricegrant prices of thesethe restricted stock optionsunits, market stock units, and warrants wasstock grants were greater than the average market price of the Company’s common stock during these periods, or the inclusion of these components would have been anti-dilutive.
(4) Investment Securities
As of November 30, 2023, and February 28, 2023, the Company had the following investments:
|
| November 30, 2023 |
| |
|
| Fair Value |
| |
Investment Securities |
|
|
| |
Marketable Equity Securities |
|
|
| |
Mutual funds |
| $ | 909 |
|
Total Marketable Equity Securities |
|
| 909 |
|
Total Investment Securities |
| $ | 909 |
|
|
| February 28, 2023 |
| |
|
| Fair Value |
| |
Investment Securities |
|
|
| |
Marketable Equity Securities |
|
|
| |
Mutual funds |
| $ | 1,053 |
|
Total Marketable Securities |
|
| 1,053 |
|
Total Investment Securities |
| $ | 1,053 |
|
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 investmentsassets 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 investmentsthese assets and liabilities at fair value. MarketFair value is the price observabilitythat would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is impactedbest determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by a number of factors,the assumptions used, including the typediscount rate and estimates of investment andfuture cash flows. Accordingly, the characteristics specific to the investment. Investments with readily available active quoted prices, or for which fair value canestimates may not be measured from actively quoted prices, generally will have a higher degreerealized in an immediate settlement of market price observabilitythe assets and a lesser degree of judgment used in measuring fair value.
Assets and liabilities 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.
10
The following table presents financial assets and liabilities measured at fair value on a recurring basis at November 30, 2017:
| Fair Value Measurements at Reporting Date Using | |||||||||||
| Total | Level 1 | Level 2 | |||||||||
| Cash and cash equivalents: | |||||||||||
| Cash and money market funds | $ | 37,514 | $ | 37,514 | $ | — | |||||
| Derivatives | |||||||||||
| Designated for hedging | $ | (633 | ) | $ | — | $ | (633 | ) | |||
| Investment securities: | |||||||||||
| Trading securities | $ | 4,043 | $ | 4,043 | $ | — | |||||
| Available-for-sale securities | — | — | — | ||||||||
| Other investments at cost (a) | 4,997 | — | — | ||||||||
| Total investment securities | $ | 9,040 | $ | 4,043 | $ | — | |||||
|
|
|
|
| Fair Value Measurements at |
| ||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and money market funds |
| $ | 10,393 |
|
| $ | 10,393 |
|
| $ | - |
|
| $ | - |
|
Mutual funds |
|
| 909 |
|
|
| 909 |
|
|
| - |
|
|
| - |
|
Interest rate swap agreements |
|
| 153 |
|
|
| - |
|
|
| 153 |
|
|
| - |
|
The following table presents financial assets and liabilities measured at fair value on a recurring basis at February 28, 2017:2023:
|
|
|
|
| Fair Value Measurements at |
| ||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and money market funds |
| $ | 6,134 |
|
| $ | 6,134 |
|
| $ | - |
|
| $ | - |
|
Mutual funds |
|
| 1,053 |
|
| $ | 1,053 |
|
| $ | - |
|
| $ | - |
|
Interest rate swap agreements |
|
| 207 |
|
|
| - |
|
|
| 207 |
|
|
| - |
|
| Fair Value Measurements at Reporting Date Using | |||||||||||
| Total | Level 1 | Level 2 | |||||||||
| Cash and cash equivalents: | |||||||||||
| Cash and money market funds | $ | 956 | $ | 956 | $ | — | |||||
| Derivatives | |||||||||||
| Designated for hedging | $ | 345 | $ | — | $ | 345 | |||||
| Investment securities: | |||||||||||
| Trading securities | $ | 4,094 | $ | 4,094 | $ | — | |||||
| Available-for-sale securities | 6 | 6 | — | ||||||||
| Other investments at cost (a) | 6,288 | — | — | ||||||||
| Total investment securities | $ | 10,388 | $ | 4,100 | $ | — | |||||
The carrying amountvalue of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligationsour other financial instruments did not differ materially from their estimated fair values at November 30, 2023 and long-term debt approximates fair value because of (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.
Derivative Instruments
The Company'sCompany’s derivative instruments include forward foreign currency contracts utilized to hedge a portion of its foreign currency inventory purchases. The 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). The duration of open forward foreign currency contracts ranges from 1 month - 15 months and are classified in the balance sheet according to their terms. The Company also has an interest rate swap agreement as of November 30, 2017 thatand foreign currency options.
The Company’s interest rate swap agreement hedges interest rate exposure related to the forecasted outstanding balance of its Florida Mortgage,Industrial Revenue Bonds ("the Florida Mortgage"), with monthly payments due through March 2026. On May 3, 2023, VOXX HQ LLC entered into an Amended and Restated Confirmation of Swap Transaction with Wells Fargo Bank N.A. related to this interest rate swap. The swap contract was amended to reference the SOFR Rate in conjunction with an amendment to the Florida Mortgage which provided for a replacement benchmark from LIBOR to SOFR (see Note 17). The swap agreement locks the interest rate on the debt at 3.48%3.43% (inclusive of credit spread) through the maturity date of the loan. During the first quarter of Fiscal 2017, the Company unwound an interest rate swap agreement that hedged interest rate exposure related to one of its mortgage notes when that mortgage was paid in full. The fair value of that interest
| Derivative Assets and Liabilities | ||||||||||
| Fair Value | ||||||||||
| Account | November 30, 2017 | February 28, 2017 | ||||||||
| Designated derivative instruments | ||||||||||
| Foreign currency contracts | Prepaid expenses and other current assets | $ | — | $ | 643 | |||||
| Accrued expenses and other current liabilities | (414 | ) | — | |||||||
| Interest rate swap agreements | Other long-term liabilities | (219 | ) | (298 | ) | |||||
| Total derivatives | $ | (633 | ) | $ | 345 | |||||
Foreign currency options are utilized by our German subsidiary to hedge a portion of their U.S. Dollar company’s inventory purchases when management views them to be advantageous. Our foreign currency options do not qualify for hedge accounting and have not been designated as cash flow hedges. The valuation of our foreign currency options is performed based on foreign exchange rates and yield curves built from observable market parameters and, where applicable, on Black Scholes or local volatility models calibrated to available volatility quotes (Level 2). As of November 30, 2023, there are open forward foreign currency option contracts with notional U.S. Dollar equivalent amounts aggregating $6,900 that have not been designated as cash flow hedges. The remaining maturities of all our option contracts are less than one year. In prior periods, forward foreign currency derivatives that qualified for hedge accounting were designated as cash flow hedges.
11
Financial Statement Classification
The following table discloses the fair value as of November 30, 2023 and February 28, 2023 of the Company’s derivative instruments:
|
| Derivative Assets and Liabilities |
| |||||||
|
|
|
| Fair Value |
| |||||
|
| Account |
| November 30, 2023 |
|
| February 28, 2023 |
| ||
Designated derivative instruments |
|
|
|
|
|
|
|
| ||
Interest rate swap agreements |
| Other assets |
| $ | 153 |
|
| $ | 207 |
|
Total derivatives |
|
|
| $ | 153 |
|
| $ | 207 |
|
The fair value of our forward foreign currency contracts and foreign currency options were not significant.
Cash Flow Hedges
The change in the fair value of hedging derivative instruments that are expected to be highly effective and have been designated and qualify as cash flow hedges the effective portion of the gain or loss is reported as a component ofare recorded to Other Comprehensive Income (Loss) and reclassified into earnings incomprehensive income (loss). During the same period or periods during which the hedged transaction affects earnings.
The gain or loss on the Company’s interest rate swap is recorded in Other comprehensive income (loss) and subsequently reclassified into Interest and bank charges in the period in which the hedged transaction affects earnings. As of November 30, 2023, no interest rate swaps originally designated for hedge accounting were de-designated or terminated.
All forward foreign currency contracts entered into in prior years were fully settled as of February 28, 2022 and had been designated as cash flow hedges. The net income recognized in Other comprehensive income (loss) for foreign currency contracts settled in the fourth quarter of Fiscal 2022 were recognized in Cost of sales during the three and nine months ended November 30, 2017 and 2016 was as follows:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| November 30, 2017 | November 30, 2017 | ||||||||||||||||||||||
| Pretax Gain(Loss) Recognized in Other Comprehensive Income | Pretax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Gain (Loss)for Ineffectiveness in Other Income | Pretax Gain (Loss) Recognized in Other Comprehensive Income | Pretax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Gain (Loss) for Ineffectiveness in Other Income | ||||||||||||||||||
| Cash flow hedges | |||||||||||||||||||||||
| Foreign currency contracts | $ | (103 | ) | $ | (218 | ) | $ | 46 | $ | (1,369 | ) | $ | 99 | $ | (49 | ) | |||||||
| Interest rate swaps | 148 | — | — | 79 | — | — | |||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||
| November 30, 2016 | November 30, 2016 | ||||||||||||||||||||||
| Pretax Gain(Loss) Recognized in Other Comprehensive Income | Pretax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Gain (Loss)for Ineffectiveness in Other Income | Pretax Gain (Loss) Recognized in Other Comprehensive Income | Pretax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income | Gain (Loss) for Ineffectiveness in Other Income | ||||||||||||||||||
| Cash flow hedges | |||||||||||||||||||||||
| Foreign currency contracts | $ | 911 | $ | 85 | $ | 166 | $ | 1,663 | $ | 343 | $ | 146 | |||||||||||
| Interest rate swaps | 313 | — | — | 386 | (114 | ) | — | ||||||||||||||||
Activity related to cash flow hedges pertaining to discontinued operations.
| November 30, 2017 | February 28, 2017 | ||||||||||||||||||||||
Cost Basis | Unrealized Holding Gain/(Loss) | Fair Value | Cost Basis | Unrealized Holding Gain/(Loss) | Fair Value | ||||||||||||||||||
| Investment Securities | |||||||||||||||||||||||
| Marketable Securities | |||||||||||||||||||||||
| Trading | |||||||||||||||||||||||
| Deferred Compensation | $ | 4,043 | $ | — | $ | 4,043 | $ | 4,094 | $ | — | $ | 4,094 | |||||||||||
| Available-for-sale | |||||||||||||||||||||||
| Cellstar | — | — | — | — | 6 | 6 | |||||||||||||||||
| Total Marketable Securities | 4,043 | — | 4,043 | 4,094 | 6 | 4,100 | |||||||||||||||||
| Other Long-Term Investments | 4,997 | — | 4,997 | 6,288 | — | 6,288 | |||||||||||||||||
| Total Investment Securities | $ | 9,040 | $ | — | $ | 9,040 | $ | 10,382 | $ | 6 | $ | 10,388 | |||||||||||
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| November 30, 2023 |
|
| November 30, 2023 |
| ||||||||||
|
| Pretax Loss |
|
| Pretax Gain (Loss) |
|
| Pretax Loss |
|
| Pretax Gain (Loss) |
| ||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swaps |
| $ | (28 | ) |
| $ | - |
|
| $ | (55 | ) |
| $ | - |
|
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| November 30, 2022 |
|
| November 30, 2022 |
| ||||||||||
|
| Pretax Gain |
|
| Pretax Gain (Loss) |
|
| Pretax Gain |
|
| Pretax Gain |
| ||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency contracts |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 63 |
|
Interest rate swaps |
|
| 78 |
|
|
| — |
|
|
| 350 |
|
|
| — |
|
12
| Foreign Currency Translation Gains (Losses) | Unrealized gains (losses) on investments, net of tax | Pension plan adjustments, net of tax | Derivatives designated in a hedging relationship, net of tax | Total | ||||||||||||||||
| Balance at February 28, 2017 | $ | (41,831 | ) | $ | (98 | ) | $ | (2,282 | ) | $ | 313 | $ | (43,898 | ) | ||||||
| Other comprehensive income (loss) before reclassifications | 16,930 | (15 | ) | (267 | ) | (1,347 | ) | 15,301 | ||||||||||||
| Reclassified from accumulated other comprehensive income (loss) | 10,739 | 89 | 1,955 | 387 | 13,170 | |||||||||||||||
| Net current-period other comprehensive income (loss) | 27,669 | 74 | 1,688 | (960 | ) | 28,471 | ||||||||||||||
| Balance at November 30, 2017 | $ | (14,162 | ) | $ | (24 | ) | $ | (594 | ) | $ | (647 | ) | $ | (15,427 | ) | |||||
Activity related to the sale of Hirschmann on August 31, 2017 (see Note 2). Within reclassifications for derivativesforeign currency options not designated in a hedging relationship, gains totaling $71 are related toas cash flow hedge activity of discontinued operations for the nine months ended November 30, 2017, and $384 is related to the sale of Hirschmann on August 31, 2017. Within other comprehensive income (loss) before reclassifications for derivatives designated in a hedging relationship, $(501) is related to cash flow hedge activity of discontinued operations for the nine months ended November 30, 2017.
(6) Accumulated Other Comprehensive Loss
The Company’s accumulated other comprehensive loss consists of the Companyfollowing:
|
| Foreign |
|
| Pension plan |
|
| Derivatives |
|
| Total |
| ||||
Balance at February 28, 2023 |
| $ | (18,567 | ) |
| $ | (321 | ) |
| $ | 208 |
|
| $ | (18,680 | ) |
Other comprehensive income (loss) before reclassifications |
|
| 1,337 |
|
|
| (7 | ) |
|
| (55 | ) |
|
| 1,275 |
|
Reclassified from accumulated other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net current-period other comprehensive income (loss) |
|
| 1,337 |
|
|
| (7 | ) |
|
| (55 | ) |
|
| 1,275 |
|
Balance at November 30, 2023 |
| $ | (17,230 | ) |
| $ | (328 | ) |
| $ | 153 |
|
| $ | (17,405 | ) |
For the three and nine months ended November 30, 2023, there were no taxes recorded tax expense (benefit) related to derivatives designated in a hedging relationship of $36 and $(667), respectively, unrealized losses on investments of $0 andor pension plan adjustments of $0.
The other comprehensive (loss) income (loss) before reclassification related to foreign currency translation gains of $16,930$1,337 includes the remeasurement of intercompany transactions of a long-term investment nature of $12,131$34 with certain subsidiaries whose functional currency is not the U.S. dollar, and $4,799$1,303 from translating the financial statements of the Company's non-U.S. dollar functional currency subsidiaries into our reporting currency, which is the U.S. dollar. Foreign currency translation gains (losses) reclassified from accumulated other comprehensive income (loss) of $10,739 include $9,911 due to the settlement of a euro based loan and the recognition of the cumulative translation adjustment of $828 due to the sale of Hirschmann.
(7)
Supplemental Cash Flow InformationThe following is supplemental information relating to the consolidated statements of cash flows, including continuing and discontinued operations:
|
| Nine months ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Non-cash investing and financing activities: |
|
|
|
|
|
| ||
Recording of redeemable equity |
| $ | (69 | ) |
| $ | (85 | ) |
Reclassification of stockholders' equity to redeemable equity |
|
| - |
|
|
| 531 |
|
Gross issuance of shares |
|
| - |
|
|
| 1 |
|
Change in goodwill due to measurement period adjustments, net |
|
| - |
|
|
| 1,051 |
|
Right of use assets obtained in exchange for operating lease obligations |
|
| 635 |
|
|
| 899 |
|
Right of use assets obtained in exchange for finance lease obligations |
|
| 575 |
|
|
| 251 |
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ | 971 |
|
| $ | 1,076 |
|
Operating cash flows from finance leases |
|
| 18 |
|
|
| 3 |
|
Finance cash flows from finance leases |
|
| 244 |
|
|
| 217 |
|
Cash paid during the period: |
|
|
|
|
|
| ||
Interest (excluding bank charges) |
| $ | 3,040 |
|
| $ | 1,646 |
|
Income taxes (net of refunds) |
|
| 2,661 |
|
|
| 2,061 |
|
| Nine Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Non-cash investing and financing activities: | ||||||||
| Capital expenditures funded by long-term obligations | $ | 1,993 | $ | — | ||||
| Mortgage settlement funded by long-term obligations | — | 5,590 | ||||||
| Deferred financing costs funded by long-term obligations | — | 1,779 | ||||||
| Cash paid during the period: | ||||||||
| Interest (excluding bank charges) | $ | 2,675 | $ | 3,321 | ||||
| Income taxes (net of refunds) | 2,359 | 3,610 | ||||||
(8)
Accounting for Stock-Based CompensationThe 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 28,13
Restricted stock awards are granted pursuant to the Company's stock options and warrants is summarized below:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | |||||||
| Outstanding at February 28, 2017 | 116,250 | $ | 7.76 | ||||||
| Granted | — | — | |||||||
| Exercised | 38,750 | 7.76 | |||||||
| Forfeited/expired | 77,500 | 7.76 | |||||||
| Outstanding and exercisable at November 30, 2017 | — | $ | — | 0.00 | |||||
The Company has a Supplemental Executive RetirementCompany's Omnibus Equity Incentive Plan (SERP), which was established in Fiscal 2014. Shares are granted based on certain performance criteria and2014 (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 three years from the date of grant, (or three years from the date of participation in the SERP with respect to grants made when the plan was established in Fiscal 2014), or the grantee reaching the age of 65 years. The sharesRSU awards will also vest upon the sale of all of the Company's issued and outstanding stock, the sale of all, or substantially all, of the assets of a subsidiary of which the grantee serves as CEO and/or President, or the termination of the grantee's employment by the Company without cause, provided that the grantee, at the time of termination, has been employed by the Company for at least 10 years, or as a result of the sale of all of the issued and outstanding stock, or all, or substantially all, of the assets of the subsidiary of which the grantee serves as CEO and/or President. years. When vested, shares are issued to the grantee, theRSU awards willmay be settled in shares of Class A Common Stock or in cash, at the Company's sole option. The grantee cannot transfer the rights to receive shares before the restricted shares vest. There are no market conditions inherent in thean RSU award, only anthe employee performance requirement for performance awards, and the service requirement that the respective employee continues employment with the Company through the vesting date. DuringIn July 2017,2023, the Company granted 74,156 shares of restricted stock18,116 RSU awards to employees under the SERP.2014 Plan. The Company expenses the cost of the restricted stockRSU awards on a straight-line basis over the requisite service period of each employee.grantee. For these purposes, the fair market value of the restricted stockeach RSU is determined based on the mean of the high and low price of the Company's common stock on the grant dates.date. The fair market value of each RSU granted in July 2023 was $9.89.
Grant of Shares to Chief Executive Officer
On July 8, 2019, the restrictedBoard of Directors approved a five-year Employment Agreement (the “Employment Agreement”), effective March 1, 2019, by and between the Company and Patrick M. Lavelle, the Company’s Chief Executive Officer. Under the terms of the Employment Agreement, in addition to a $1,000 annual salary and a cash bonus based on the Company’s Adjusted EBITDA, Mr. Lavelle was granted the right to receive certain stock-based compensation as discussed below:
14
All stock grants under the Employment Agreement are subject to a hold requirement as specified in the Employment Agreement. The remaining unrecognizedEmployment 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. On September 28, 2023, the term of the agreement was extended for one year through February 28, 2025 under which Mr. Lavelle's annual salary will be $750 and he will receive a $250 cash equivalent share grant to be awarded in quarterly increments calculated on the fair market value of the Company's Class A Common Stock on each of June 30, 2024, September 30, 2024, December 31, 2024, and March 31, 2025. We recognized stock-based compensation expense of $40 during the three months ended November 30, 2023 related to this
Grant of Shares to President
On February 6, 2023, Voxx appointed Beat Kahli, the Company’s largest holder of Class A Common Stock, President of the Company. The Company entered into an employment agreement with Mr. Kahli effective February 6, 2023 with a term ending on February 29, 2024. Under the terms of the employment agreement, in addition to a $300 yearly salary, Mr. Kahli was granted the right to receive stock-based compensation in the form of a stock grant of 20,000 shares of the Company's Class A Common Stock to be issued on each of June 30, 2023, September 30, 2023, December 31, 2023 and Subsidiaries
Grant of Shares to Chief Operating Officer
On July 8, 2019, the Board of Directors approved a reductionfive-year Employment Agreement, effective March 1, 2019, by and between the Company and Loriann Shelton, the Company’s Chief Operating Officer. On September 28, 2023, the term of the gainagreement was extended for one year through February 28, 2025 under which Ms. Shelton will receive, in addition to her annual salary, a $100 cash equivalent share grant to be awarded in quarterly increments calculated on salethe fair market value of discontinued operations in the amountCompany's Class A Common Stock on each of $373.
The following table presents a summary of the Company's restrictedactivity related to the additional stock activitygrants under the Employment Agreement, and RSU grants under the 2014 Plan for the nine months ended November 30, 2017:2023:
|
| Number |
|
| Weighted |
| ||
Unvested award balance at February 28, 2023 |
|
| 286,986 |
|
| $ | 7.70 |
|
Granted |
|
| 18,116 |
|
|
| 9.89 |
|
Vested |
|
| (113,790 | ) |
|
| 6.43 |
|
Vested and settled |
|
| (10,000 | ) |
|
| 10.66 |
|
Unvested award balance at November 30, 2023 |
|
| 181,312 |
|
| $ | 8.98 |
|
| Number of Shares | Weighted Average Grant Date Fair Value | |||||
| Balance at February 28, 2017 | 437,443 | $ | 6.99 | |||
| Granted | 74,156 | 6.52 | ||||
| Vested and settled | 72,300 | 5.98 | ||||
| Forfeited | — | — | ||||
| Balance at November 30, 2017 | 439,299 | $ | 7.08 | |||
| Vested and unissued at November 30, 2017 | 56,181 | $ | 13.62 | |||
At November 30, 2023, there were 605,295 vested and unsettled RSU awards under the Company’s 2014 Plan with a weighted average fair value of $6.23.
During the three and nine months ended
November 30,15
(9)
Supply Chain FinancingThe 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,(10)
Research and DevelopmentExpenditures for research and development are charged to expense as incurred. Such expenditures amounted to $2,340$2,007 and $8,526$6,462 for the three and nine months ended November 30, 2017,2023, respectively, compared to $3,193$1,793 and $9,745$6,891 for the three and nine months ended November 30, 2016, respectively,2022, respectively. All amounts are net of customer reimbursements and are included in continuing operations within Engineering and Technical Support Expensestechnical support expenses on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
(11)
Goodwill and Intangible AssetsThe change in goodwill pertaining to continuing operations by segment is as follows:
| Automotive: | Amount | ||
| Beginning balance at March 1, 2017 | $ | 7,372 | |
| Goodwill acquired (see Note2) | 734 | ||
| Balance at November 30, 2017 | $ | 8,106 | |
| Gross carrying amount at November 30, 2017 | $ | 8,106 | |
| Accumulated impairment charge | — | ||
| Net carrying amount at November 30, 2017 | $ | 8,106 | |
| Premium Audio: | |||
| Beginning balance at March 1, 2017 | $ | 46,533 | |
| Activity during the period | — | ||
| Balance at November 30, 2017 | $ | 46,533 | |
| Gross carrying amount at November 30, 2017 | $ | 78,696 | |
| Accumulated impairment charge | (32,163 | ) | |
| Net carrying amount at November 30, 2017 | $ | 46,533 | |
| Total Goodwill, net | $ | 54,639 | |
Automotive Electronics: |
| Amount |
| |
Beginning balance at March 1, 2023 |
| $ | 3,052 |
|
Activity during the period |
|
| — |
|
Balance at November 30, 2023 |
| $ | 3,052 |
|
Gross carrying value at November 30, 2023 |
| $ | 10,425 |
|
Accumulated impairment charge |
|
| (7,373 | ) |
Net carrying value at November 30, 2023 |
| $ | 3,052 |
|
Consumer Electronics: |
|
|
| |
Beginning balance at March 1, 2023 |
| $ | 62,256 |
|
Foreign currency adjustments |
|
| (1,186 | ) |
Balance at November 30, 2023 |
| $ | 61,070 |
|
Gross carrying value at November 30, 2023 |
| $ | 93,581 |
|
Accumulated impairment charge |
|
| (32,511 | ) |
Net carrying value at November 30, 2023 |
| $ | 61,070 |
|
Total Goodwill, net |
| $ | 64,122 |
|
The Company's Consumer AccessoriesBiometrics segment did notnot carry a goodwill balance at November 30, 20172023 or February 28, 2017.2023.
At November 30, 2017,2023, intangible assets consisted of the following:
Gross Carrying Value | Accumulated Amortization | Total Net Book Value | ||||||||||
| Finite-lived intangible assets: | ||||||||||||
| Customer relationships | $ | 50,054 | $ | 25,764 | $ | 24,290 | ||||||
| Trademarks/Tradenames | 415 | 398 | 17 | |||||||||
| Developed technology | 31,290 | 6,122 | 25,168 | |||||||||
| Patents | 2,814 | 2,088 | 726 | |||||||||
| License | 1,400 | 1,400 | — | |||||||||
| Contract | 2,141 | 1,820 | 321 | |||||||||
| Total finite-lived intangible assets | $ | 88,114 | $ | 37,592 | 50,522 | |||||||
| Indefinite-lived intangible assets | ||||||||||||
| Trademarks | 101,181 | |||||||||||
| Total net intangible assets | $ | 151,703 | ||||||||||
|
| Gross |
|
| Accumulated |
|
| Total Net |
| |||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Customer relationships |
| $ | 53,961 |
|
| $ | 45,306 |
|
| $ | 8,655 |
|
Trademarks/Tradenames |
|
| 20,446 |
|
|
| 4,610 |
|
|
| 15,836 |
|
Developed technology |
|
| 19,035 |
|
|
| 15,463 |
|
|
| 3,572 |
|
Patents |
|
| 6,736 |
|
|
| 6,058 |
|
|
| 678 |
|
License |
|
| 1,400 |
|
|
| 1,400 |
|
|
| — |
|
Contracts |
|
| 1,556 |
|
|
| 1,556 |
|
|
| — |
|
Total finite-lived intangible assets |
| $ | 103,134 |
|
| $ | 74,393 |
|
|
| 28,741 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
| |||
Trademarks |
|
|
|
|
|
|
|
| 56,019 |
| ||
Total intangible assets, net |
|
|
|
|
|
|
| $ | 84,760 |
| ||
16
At February 28, 2017,2023, intangible assets consisted of the following:
|
| Gross |
|
| Accumulated |
|
| Total Net |
| |||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
| |||
Customer relationships |
| $ | 53,790 |
|
| $ | 42,786 |
|
| $ | 11,004 |
|
Trademarks/Tradenames |
|
| 21,205 |
|
|
| 3,360 |
|
|
| 17,845 |
|
Developed technology |
|
| 19,434 |
|
|
| 14,645 |
|
|
| 4,789 |
|
Patents |
|
| 6,736 |
|
|
| 5,845 |
|
|
| 891 |
|
License |
|
| 1,400 |
|
|
| 1,400 |
|
|
| — |
|
Contracts |
|
| 1,556 |
|
|
| 1,556 |
|
|
| — |
|
Total finite-lived intangible assets |
| $ | 104,121 |
|
| $ | 69,592 |
|
|
| 34,529 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
| |||
Trademarks |
|
|
|
|
|
|
|
| 55,908 |
| ||
Total intangible assets, net |
|
|
|
|
|
|
| $ | 90,437 |
| ||
Gross Carrying Value | Accumulated Amortization | Total Net Book Value | ||||||||||
| Finite-lived intangible assets: | ||||||||||||
| Customer relationships | $ | 49,005 | $ | 22,615 | $ | 26,390 | ||||||
| Trademarks/Tradenames | 415 | 395 | 20 | |||||||||
| Developed technology | 31,290 | 4,081 | 27,209 | |||||||||
| Patents | 2,755 | 1,930 | 825 | |||||||||
| License | 1,400 | 1,400 | — | |||||||||
| Contract | 2,141 | 1,732 | 409 | |||||||||
| Total finite-lived intangible assets | $ | 87,006 | $ | 32,153 | 54,853 | |||||||
| Indefinite-lived intangible assets | ||||||||||||
| Trademarks | 100,086 | |||||||||||
| Total net intangible assets | $ | 154,939 | ||||||||||
The Company recorded amortization expense for continuing operations of $1,612$1,608 and $4,867, respectively$4,928 for the three and nine months ended November 30, 2017,2023, respectively, compared to $1,629 and $1,618 and $4,858$5,217 for the three and nine months ended November 30, 2016,2022, respectively. The estimated aggregate amortization expense for continuing operations for all amortizable intangibles for November 30 of each of the succeeding years is as follows:
Year |
| Amount |
| |
2024 |
| $ | 5,914 |
|
2025 |
|
| 5,745 |
|
2026 |
|
| 4,061 |
|
2027 |
|
| 3,171 |
|
2028 |
|
| 2,934 |
|
| Year | Amount | |||
| 2018 | $ | 6,379 | ||
| 2019 | 6,311 | |||
| 2020 | 6,217 | |||
| 2021 | 5,985 | |||
| 2022 | 5,831 | |||
(12)
Equity InvestmentAs of
November 30,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, 2023 |
|
| February 28, 2023 |
| ||
Current assets |
| $ | 45,739 |
|
| $ | 48,391 |
|
Non-current assets |
|
| 7,457 |
|
|
| 6,525 |
|
Liabilities |
|
| 10,150 |
|
|
| 10,880 |
|
Members' equity |
|
| 43,046 |
|
|
| 44,036 |
|
|
| Nine months ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales |
| $ | 61,261 |
|
| $ | 83,050 |
|
Gross profit |
|
| 15,883 |
|
|
| 19,852 |
|
Operating income |
|
| 7,253 |
|
|
| 10,738 |
|
Net income |
|
| 7,916 |
|
|
| 10,746 |
|
| November 30, 2017 | February 28, 2017 | |||||||
| Current assets | $ | 44,575 | $ | 43,643 | ||||
| Non-current assets | 6,809 | 6,207 | ||||||
| Current liabilities | 6,552 | 5,998 | ||||||
| Members' equity | 44,832 | 43,852 | ||||||
| Nine Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Net sales | $ | 72,434 | $ | 70,982 | ||||
| Gross profit | 24,397 | 22,936 | ||||||
| Operating income | 11,359 | 10,527 | ||||||
| Net income | 11,467 | 10,567 | ||||||
17
The Company's share of income from ASA was $2,004$1,101 and $5,734, respectively,$3,958 for the three and nine months ended November 30, 20172023, respectively, compared to $2,022 and $1,931 and $5,284$5,373 for the three and nine months ended November 30, 2016,2022, respectively.
(13)
Income TaxesThe 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 ninethree months ended November 30, 2017,2023, the Company recorded an income tax benefit from continuing operationsprovision of $4,531,$97, which includes a discrete income tax benefit of $1,244$198 related primarily to the reduction of unrecognized tax benefits resulting from a lapsefinalization of the applicable statutefederal tax return filing and reversal of limitations. The incomeuncertain tax benefit relates primarily to foreign taxes offset by an income tax benefit for domestic losses incurred during Fiscal 2018, as the U.S. taxable income from discontinued operations is treatedposition liabilities as a sourceresult of income under the intra-period allocation guidance. For the nine months ended November 30, 2016, the Company recorded an income tax benefit from continuing operations of $3,184, which includes a discrete income tax provision of $264 related to the accrual of interest for unrecognized tax benefits.
The effective tax rate for the three months ended November 30, 20172023 differs from the U.S. statutory rate of 35%21% as a result of a number of factors, primarily duerelated to the ability to provide anno income tax benefit recorded on current year U.S and Japanese pre-tax losses given the Company maintains a full valuation allowance, income taxed in foreign jurisdictions at varying tax rates, nondeductible permanent differences, research and development credits, and adjustments to our deferred tax liability related to indefinite lived intangibles.
The effective tax rate for domestic losses asthe three months ended November 30, 2022 differed from the U.S. taxable income from discontinued operations is treatedstatutory rate of 21% as a sourceresult of income under the intra-period allocation guidance, coupled with the mixa number of domestic and foreign earnings,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.
For the nine months ended November 30, 2023, the Company recorded an income tax benefit of $54, which includes a discrete income tax benefit of $515 related primarily to the finalization of certain tax filings and the reversal of uncertain tax position liabilities as a result of the lapse of the applicable statute of limitations, offset by the remeasurement of state deferred taxes based on law changes enacted during the period. 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. The effective tax rates for the nine months ended November 30, 2023 and 2022 were an income tax benefit of 0.2% on pre-tax loss of $23,553and an income tax benefit of 31.8% on a pre-tax loss of $18,200, respectively.
The effective tax rate for the nine months ended November 30, 2023 differs from the U.S. statutory rate of 21% as a result of a number of factors, primarily related to various federalno income tax credits.
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.
At November 30, 2017,2023 and February 28, 2023, the Company had an uncertain tax position liability from continuing operationsbalance of $1,798,$768 and $966, respectively, including interest and penalties. The unrecognized tax benefits include amounts related to various U.S. federal, state, and local, and foreign tax issues.
18
(14)
InventoryInventories by major category are as follows:
|
| November 30, |
|
| February 28, |
| ||
Raw materials |
| $ | 24,846 |
|
| $ | 28,048 |
|
Work in process |
|
| 1,209 |
|
|
| 1,363 |
|
Finished goods |
|
| 120,189 |
|
|
| 145,718 |
|
Inventory |
| $ | 146,244 |
|
| $ | 175,129 |
|
| November 30, 2017 | February 28, 2017 | |||||||
| Raw materials | $ | 28,410 | $ | 20,488 | ||||
| Work in process | 2,808 | 2,270 | ||||||
| Finished goods | 94,171 | 99,594 | ||||||
| Inventory, net | $ | 125,389 | $ | 122,352 | ||||
(15)
Product Warranties and Product Repair CostsThe 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 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Opening balance |
| $ | 6,667 |
|
| $ | 6,239 |
|
| $ | 6,759 |
|
| $ | 5,622 |
|
Liabilities for warranties accrued during the period |
|
| 548 |
|
|
| 1,732 |
|
|
| 2,573 |
|
|
| 5,029 |
|
Warranty claims settled during the period |
|
| (899 | ) |
|
| (1,286 | ) |
|
| (3,016 | ) |
|
| (3,966 | ) |
Ending balance |
| $ | 6,316 |
|
| $ | 6,685 |
|
| $ | 6,316 |
|
| $ | 6,685 |
|
(16) Restructuring Expenses
The Company records liabilities for costs associated with exit or disposal activities in the period in which the liability is incurred. Employee severance costs are accrued when the restructuring actions are probable and estimable. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits are recognized ratably over the future service period.
During the second quarter of Fiscal 2023, the Company began moving certain of its OEM production operations from Florida to Mexico and during the second quarter of Fiscal 2024, the Company implemented a cost reduction initiative in order to streamline operations, reduce costs, and align its business in response to market conditions. As a result of these initiatives, the Company incurred restructuring expenses, consisting primarily of severance payments due to global workforce reductions, of $101 and $2,168 for the three and nine months ended November 30, 2023, respectively, and $303 and $532 for the three and nine months ended November 30, 2022, respectively. For the nine months ended November 30, 2023, $887 of our restructuring charges were incurred by the Automotive segment, $1,077 was incurred by the Consumer Electronics segment, $27 was incurred by the Biometrics segment, and $177 was incurred by Corporate. For the three months ended November 30, 2023 and for the three and nine months ended November 30, 2022, all restructuring charges were incurred by the Automotive segment. At November 30, 2023, $570 of these restructuring charges were not yet settled and are included within Accrued expenses and other current liabilities. The Company expects substantially all of this liability balance to be settled by the first quarter of Fiscal 2025. As of November 30, 2023, the Company's restructuring activities are substantially complete and additional material restructuring charges are not expected to be incurred related to these activities.
19
(17) Financing Arrangements
The Company has the following financing arrangements:
|
| November 30, |
|
| February 28, |
| ||
Debt |
|
|
|
|
|
| ||
Domestic credit facility (a) |
| $ | 39,000 |
|
| $ | 29,000 |
|
Florida mortgage (b) |
|
| 5,740 |
|
|
| 6,115 |
|
Euro asset-based lending obligation - VOXX Germany (c) |
|
| — |
|
|
| — |
|
Shareholder loan payable to Sharp (d) |
|
| 3,841 |
|
|
| 4,079 |
|
Total debt |
|
| 48,581 |
|
|
| 39,194 |
|
Less: current portion of long-term debt |
|
| 500 |
|
|
| 500 |
|
Long-term debt |
|
| 48,081 |
|
|
| 38,694 |
|
Less: debt issuance costs |
|
| 993 |
|
|
| 1,181 |
|
Total long-term debt, net of debt issuance costs |
| $ | 47,088 |
|
| $ | 37,513 |
|
| November 30, 2017 | February 28, 2017 | |||||||
| Debt | ||||||||
| Domestic credit facility (a) | $ | — | $ | 92,793 | ||||
| Florida mortgage (b) | 8,738 | 9,113 | ||||||
| Euro asset-based lending obligation (c) | 6,092 | 3,905 | ||||||
| Schwaiger mortgage (d) | 524 | 644 | ||||||
| Klipsch note (e) | — | 113 | ||||||
| Voxx Germany mortgage (f) | 3,768 | 3,875 | ||||||
| Total debt | 19,122 | 110,443 | ||||||
| Less: current portion of long-term debt | 7,675 | 9,215 | ||||||
| Long-term debt | 11,447 | 101,228 | ||||||
| Debt issuance costs | 2,864 | 3,481 | ||||||
| Total long-term debt, net of debt issuance costs | $ | 8,583 | $ | 97,747 | ||||
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 $140,000, which may be increased, at the option of the Company, up to a maximum of $175,000, and a term loan in the amount of $15,000.$165,000. The Credit Facility also includes a $15,000 sublimit$50,000 sub-limit for letters of credit and a $15,000 sublimit$15,000 sub-limit for swingline loans.Swing Loans. 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, and certain intellectual property, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 15(b)17(b)). In conjunction with the sale of Hirschmann on August 31, 2017 (see Note 2), the Company paid down substantially all of the outstanding balance of the revolving credit facility, as well as the entire outstanding balance of the term loan. As of November 30, 2017, $0 was outstanding under the revolving credit facility. The remaining availability under the revolving credit line of the Credit Facility was $99,097$59,283 as of November 30, 2017.
All amounts outstanding under the Credit Facility will mature and become due on April 26, 2021;19, 2026; however, it is subject to acceleration upon the occurrence of an Event of Default (asas defined in the Second Amended and Restated Credit Agreement)Agreement (“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.time. 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 LIBORSOFR Rate Loans, except that swingline loansSwing Loans may only be designated as Base Rate Loans. Loans designated as LIBORSOFR Rate Loans bear interest at a rate equal to the then applicable LIBORSOFR rate plus a range of 1.75 - 2.25% – 2.25% (7.18% at November 30, 2023). Loans designated as Base Rate loans bear interest at a rate equal to the applicable margin for Base Rate Loans plus a range of 0.75 - 1.25%1.25% as defined in the agreement. As ofAgreement and shall not be lower than 1.75% (9.25% at November 30, 2017,2023).
Provided that the weighted average interest rateCompany is in a Compliance Period (the period commencing on that day in which Excess Availability is less than 15% of the facility was 5.50%.
20
The obligations under the loanCredit 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 Credit Agreement.
Charges incurred on the unused portion of the Credit Facility during the three and nine months ended November 30, 20172023 totaled $123$143 and $241,$548, respectively, compared to $62$144 and $184$536 during the three and nine months ended November 30, 2016,2022, respectively. These charges are included within Interest and Bank Chargesbank charges on the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss).
The Company has deferred financing costs related to the Credit Facility and a previous amendmentamendments and modificationmodifications of the Credit Facility. These deferredDeferred financing costs are included in Long-term debt on the accompanying Consolidated Balance Sheets as a contra-liability balance and are amortized through Interest and bank charges in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) over the five-year term of the Credit Facility.Facility, which expires on April 19, 2026. During the three and nine months ended November 30, 2017,2023, the Company amortized $198$92 and $593$268 of these costs, respectively, as compared to $198$55 and $591 for$166 during the three and nine months ended November 30, 2016,2022, respectively. The net unamortized balance of these deferred financing costs as of November 30, 20172023 was $2,608.
On July 6, 2015, VOXX HQ LLC, the Company’s wholly owned subsidiary, closed on a $9,995$9,995 industrial development revenue tax exempt bond under a loan agreement in favor of the Orange County Industrial Development Authority (the “Authority”) to finance the construction of the Company's manufacturing facility and executive offices in Lake Nona, Florida. Wells Fargo Bank, N.A. ("Wells Fargo") was the purchaser of the bond and U.S. Bank National Association is the trustee under an Indenture of Trust with the Authority. Voxx borrowed the proceeds of the bond purchase from the Authority during construction as a revolving loan, which converted to a permanent mortgage upon completion of the facility in January 2016 (the "Florida Mortgage"). The Company makes principal and interest payments to Wells Fargo, which began March 1, 2016 and will continue through March of 2026. TheOn May 1, 2023, VOXX HQ LLC consented to a First Amendment and Supplement to the Indenture of Trust relating to the Florida Mortgage bearsIndustrial Revenue Bonds, and which provided for a replacement benchmark from LIBOR to SOFR, including a modification to the interest at 70%rate to 79% of 1-month LIBORthe applicable SOFR Rate plus 1.54% (2.44%1.87% (6.08% at November 30, 2017) and2023). The Florida Mortgage is secured by a first mortgage on the property, a collateral assignment of leases and rents and a guaranty by the Company. The financial covenants of the Florida Mortgage are as defined in the Company’s Credit Facility with Wells Fargo dated April 26, 2016.
The Company incurred debt financing costs totaling approximately $332$332 as a result of obtaining the Florida Mortgage, as well as $40 related to the May 2023 amendment, which are recorded as deferred financing costs and included in Long-term Debtdebt as a contra-liability balance on the accompanying Consolidated Balance Sheets and are being amortized through Interest and Bank Chargesbank charges in the Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) over the ten-yearremaining term of the Florida Mortgage. The Company amortized $7$12 and $23$32 of these costs during both of the three and nine months ended November 30, 20172023, respectively, as compared to $8 and 2016,$24 during the three and nine months ended November 30, 2022, respectively.
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 payswhich was amended on May 3, 2023 in conjunction with the amendment to the Florida Mortgage. The swap contract was amended to reference the SOFR Rate, as well as set a fixed rate of 3.48% under the swap agreementequal to 3.43% (See Note 4)5).
Foreign bank obligations include a Euro accounts receivable factoring arrangement, which has a credit limit of up to 60% of eligible non-factored accounts receivable (see Note 9), and a Euro Asset-Based Lending ("ABL") credit facility, which has a credit limit of €8,000 and expires on July 31, 2020
21
€8,000 for the Company's subsidiary, VOXX Germany.Germany, which expires on October 31, 2024. The rate of interest for the factoring arrangement is the three-month Euribor plus 1.6% (1.27% at November 30, 2017) and the rate of interest for the ABL is the three-month Euribor plus 2.3% (1.97%3.55% (7.51% at November 30, 2017)2023). As
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, Onkyo entered into a loan agreement with the shareholders of the joint venture, PAC and Sharp. The loan balance outstanding at November 30, 2017,2023 represents the portion of the loan payable to Sharp. The loan balance due to PAC eliminates in consolidation. All amounts outstanding under these credit facilities,the loan will mature and become payable ten years from the execution date of the acquisition, which are payable on demand, do not exceed their respective credit limits.
(18) Other Income (Expense)
Other income (expense) is comprised of the following:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Foreign currency (loss) gain, net |
| $ | (171 | ) |
| $ | 215 |
|
| $ | (2,419 | ) |
| $ | (3,872 | ) |
Interest income |
|
| 56 |
|
|
| 11 |
|
|
| 89 |
|
|
| 20 |
|
Rental income |
|
| 237 |
|
|
| 230 |
|
|
| 702 |
|
|
| 681 |
|
Miscellaneous |
|
| 34 |
|
|
| 4 |
|
|
| 131 |
|
|
| 2 |
|
Total other, net |
| $ | 156 |
|
| $ | 460 |
|
| $ | (1,497 | ) |
| $ | (3,169 | ) |
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Foreign currency (loss) gain | $ | (77 | ) | $ | 314 | $ | (8,296 | ) | $ | (459 | ) | |||||
| Interest income | 51 | 22 | 82 | 122 | ||||||||||||
| Rental income | 140 | 149 | 415 | 498 | ||||||||||||
| Miscellaneous | 363 | (364 | ) | 27 | (297 | ) | ||||||||||
| Total other, net | $ | 477 | $ | 121 | $ | (7,772 | ) | $ | (136 | ) | ||||||
Losses included within the foreignForeign currency loss for the nine months ended November 30, 2017 is a loss on forward contracts totaling $(6,618) incurred in conjunction with the sale of Hirschmann (see Note 2).
We account for leases in Other Income (Expense)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 3 years to 7 years, some of which include renewal options. We consider these renewal options in determining the lease term used to establish our right-of-use assets and lease liabilities when it is determined that it is reasonably certain that the renewal option will be exercised. The Company had no short-term leases during the three and nine months ended November 30, 2023.
Refer to Note 7 for supplemental cash flow information related to leases.
22
The components of lease cost for the three and nine months ended November 30, 2023 and 2022 were as follows:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating lease cost (a) (c) |
| $ | 335 |
|
| $ | 347 |
|
| $ | 1,038 |
|
| $ | 1,132 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of right of use assets (a) |
|
| 79 |
|
|
| 68 |
|
|
| 248 |
|
|
| 214 |
|
Interest on lease liabilities (b) |
|
| 10 |
|
|
| 1 |
|
|
| 18 |
|
|
| 3 |
|
Total finance lease cost |
| $ | 89 |
|
| $ | 69 |
|
| $ | 266 |
|
| $ | 217 |
|
Supplemental balance sheet information related to leases is as follows:
|
| November 30, 2023 |
|
| February 28, 2023 |
| ||
Operating Leases |
|
|
|
|
|
| ||
Operating lease, right of use assets |
| $ | 3,082 |
|
| $ | 3,632 |
|
Total operating lease right of use assets |
| $ | 3,082 |
|
| $ | 3,632 |
|
Accrued expenses and other current liabilities |
| $ | 971 |
|
| $ | 1,173 |
|
Operating lease liabilities, less current portion |
|
| 2,192 |
|
|
| 2,509 |
|
Total operating lease liabilities |
| $ | 3,163 |
|
| $ | 3,682 |
|
Finance Leases |
|
|
|
|
|
| ||
Property, plant, and equipment, gross |
| $ | 3,328 |
|
| $ | 2,754 |
|
Accumulated depreciation |
|
| (2,739 | ) |
|
| (2,491 | ) |
Total finance lease right of use assets |
| $ | 589 |
|
| $ | 263 |
|
Accrued expenses and other current liabilities |
| $ | 277 |
|
| $ | 203 |
|
Finance lease liabilities, less current portion |
|
| 319 |
|
|
| 63 |
|
Total finance lease liabilities |
| $ | 596 |
|
| $ | 266 |
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
| ||
Operating leases |
| 4.7 years |
|
| 5.0 years |
| ||
Finance leases |
| 2.3 years |
|
| 1.2 years |
| ||
Weighted Average Discount Rate |
|
|
|
|
|
| ||
Operating leases |
|
| 4.11 | % |
|
| 3.83 | % |
Finance leases |
|
| 4.20 | % |
|
| 3.51 | % |
Maturities of lease liabilities on November 30 of each of the succeeding years are as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
2024 |
| $ | 1,057 |
|
|
| 308 |
|
2025 |
|
| 753 |
|
|
| 215 |
|
2026 |
|
| 510 |
|
|
| 125 |
|
2027 |
|
| 262 |
|
|
| — |
|
2028 |
|
| 242 |
|
|
| — |
|
Thereafter |
|
| 607 |
|
|
| — |
|
Total lease payments |
|
| 3,431 |
|
|
| 648 |
|
Less imputed interest |
|
| 268 |
|
|
| 52 |
|
Total |
| $ | 3,163 |
|
|
| 596 |
|
23
As of November 30, 2023, the Company has not entered into any lease agreements that have not yet commenced.
The Company owns and occupies buildings as part of its operations. Certain space within these properties duringbuildings 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, 2023 and February 28, 2023. Rental income earned by the Company for the three and nine months ended November 30, 2017. The Company continues2023 and 2022 was $237 and $702, respectively, as compared to monitor closely the continued economic instability, increasing inflation$230 and currency restrictions imposed by the government$681, respectively, and will continue to evaluate its local properties. Further devaluations or regulatory actions could impair the carrying value of these properties.is recorded within Other income (expense).
Operating Leases | |||
| 2018 | $ | 1,336 | |
| 2019 | 663 | ||
| 2020 | 298 | ||
| 2021 | 257 | ||
| 2022 | 199 | ||
| Thereafter | 387 | ||
| Total minimum lease payments | $ | 3,140 | |
(20) Capital Structure
The Company's capital structure is as follows:
|
|
|
|
| Shares Authorized |
|
| Shares Outstanding |
|
|
|
|
|
|
| |||||||||||||
Security |
| Par |
|
| November 30, 2023 |
|
| February 28, 2023 |
|
| November 30, 2023 |
|
| February 28, 2023 |
|
| Voting |
|
| Liquidation |
| |||||||
Preferred Stock |
| $ | 50.00 |
|
|
| 50,000 |
|
|
| 50,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $50 per share |
| |
Series Preferred Stock |
| $ | 0.01 |
|
|
| 1,500,000 |
|
|
| 1,500,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Class A Common Stock |
| $ | 0.01 |
|
|
| 60,000,000 |
|
|
| 60,000,000 |
|
|
| 20,332,009 |
|
|
| 21,167,527 |
|
|
| 1 |
|
| Ratably with |
| |
Class B Common Stock |
| $ | 0.01 |
|
|
| 10,000,000 |
|
|
| 10,000,000 |
|
|
| 2,260,954 |
|
|
| 2,260,954 |
|
|
| 10 |
|
| Ratably with |
| |
Treasury Stock at cost |
| at cost |
|
|
| 4,226,175 |
|
|
| 3,370,657 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
|
| |||||
During the three and nine months ended November 30, 2023, the Company repurchased 216,600 and 855,518 shares of Class A common stock, respectively, for an aggregate cost of $1,683 and $8,655, respectively. As of November 30, 2023, 941,919 shares of the Company’s Class A common stock are authorized to be repurchased in the open market.
| Shares Authorized | Shares Outstanding | ||||||||||||||||||||
| Security | Par Value | November 30, 2017 | February 28, 2017 | November 30, 2017 | February 28, 2017 | Voting Rights per Share | Liquidation Rights | ||||||||||||||
| Preferred Stock | $ | 50.00 | 50,000 | 50,000 | — | — | — | $50 per share | |||||||||||||
| Series Preferred Stock | $ | 0.01 | 1,500,000 | 1,500,000 | — | — | — | ||||||||||||||
| Class A Common Stock | $ | 0.01 | 60,000,000 | 60,000,000 | 21,938,100 | 21,899,370 | 1 | Ratably with Class B | |||||||||||||
| Class B Common Stock | $ | 0.01 | 10,000,000 | 10,000,000 | 2,260,954 | 2,260,954 | 10 | Ratably with Class A | |||||||||||||
| Treasury Stock at cost | at cost | 2,168,094 | 2,168,074 | N/A | N/A | N/A | |||||||||||||||
(21) Variable Interest Entities
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-formednewly formed entity, EyeLock LLC. In connection withThe Company issued EyeLock LLC a promissory note for the acquisition, the Company entered into a Loan Agreement with EyeLock LLC. The termspurposes of repaying protective advances and funding working capital requirements of the Loan Agreement allowedentity. On August 25, 2022, this promissory note was amended and restated to allow EyeLock LLC to borrow up to $12,000,$71,200. Through March 1, 2019, interest on the outstanding principal of the loan accrued at an10%. From March 1, 2019 forward, interest rate of 10%accrues at 2.5%. During Fiscal 2017,The amended and during the three and nine months ended November 30, 2017, the Company issued four convertiblerestated promissory notes to EyeLock LLC, allowing the entity to borrow up to a total of $21,000 in additional funds.note is due on February 29, 2024. The outstanding principal balance of thesethis promissory notes arenote is convertible at the sole option of Voxx into units of EyeLock LLC. The convertible promissory notes bear interest at 10% and can be used only for working capital purposes related to new business opportunities. If Voxx chooses not to convert
24
into equity, the outstanding loan principal of the amended and restated promissory note will be repaid at a multiple ranging from 1.35 to of 1.50 based on the repayment date. Amounts outstanding under the initial loanThe agreement are due on February 28, 2018, while the four convertible promissory notes executed during Fiscal 2017 and Fiscal 2018 are due on dates ranging from February 28, 2018 through September 1, 2018. All four agreements includeincludes customary events of default and areis collateralized by all of the property of EyeLock LLC.
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 three-year exclusive distribution agreement (the “Agreement”) with GalvanEyes LLC (“GalvanEyes”), a Florida LLC managed by Beat Kahli, Voxx's President, and the largest holder of Voxx's Class A Common Shares. The Agreement provides that GalvanEyes will be the exclusive distributor of EyeLock products in the European Union, Switzerland, Puerto Rico, Malaysia, and Singapore, with the exception of any existing customer relationships prior to the Agreement date. GalvanEyes has also been granted exclusive distribution rights in the United States for the residential real estate market and specific U.S. Government agencies, and non-exclusive distribution rights in all other territories and verticals with the Company’s consent. The Agreement also includes a put/call arrangement, whereby GalvanEyes has the right to put the exclusivity back to EyeLock after the initial two-year period for a 20.0% interest in EyeLock. In turn, EyeLock has the ability to call the exclusivity during the term of the Agreement, based on the occurrence of certain events, which would result in a 20.0% equity interest given to GalvanEyes. Under the Agreement, in addition to paying for any products purchased, GalvanEyes agreed to pay EyeLock $10,000 in the form of an annual fee, over a two-year period, of up to $5,000 per year, with payments on a quarterly basis beginning on September 1, 2021 and ending on August 31, 2023. Any gross profit generated on the sale of EyeLock LLC products by GalvanEyes are deducted from the annual fee. The value of the put/call arrangement was not significant at November 30, 2023. The quarterly installment payments owed by GalvanEyes, totaling $2,500 for the quarters ended May 31, 2023 and August 31, 2023, remain unpaid and are currently past due. GalvanEyes and the Company are considering renegotiating the distribution agreement and have agreed to defer the payments due on May 31, 2023 and August 31, 2023 to February 29, 2024, pending the resolution of the renegotiation. Interest has been accrued on the outstanding balance at a rate of 5%. The past due payments, plus accrued interest, are recorded as receivables due from GalvanEyes at November 30, 2023 on the accompanying Consolidated Balance Sheet. The Company has also recorded a corresponding liability on the accompanying Consolidated Balance Sheets, representing a prepayment made by GalvanEyes of a 20.0% interest in EyeLock upon exercise of the put option. As of November 30, 2023 and February 28, 2023, the balance of the liability was $9,817 and $7,317, respectively. 25 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, 20172023 and February 28, 2017:2023:
|
| November 30, |
|
| February 28, |
| ||
Assets |
| (unaudited) |
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 203 |
|
| $ | 158 |
|
Accounts receivable, net |
|
| 23 |
|
|
| 520 |
|
Inventory, net |
|
| 1,925 |
|
|
| 1,836 |
|
Receivables from vendors |
|
| — |
|
|
| 1 |
|
Due from GalvanEyes LLC |
|
| 2,547 |
|
|
| — |
|
Prepaid expenses and other current assets |
|
| 88 |
|
|
| 92 |
|
Total current assets |
|
| 4,786 |
|
|
| 2,607 |
|
Property, plant and equipment, net |
|
| 2 |
|
|
| 9 |
|
Intangible assets, net |
|
| 1,582 |
|
|
| 1,786 |
|
Other assets |
|
| 5 |
|
|
| 8 |
|
Total assets |
| $ | 6,375 |
|
| $ | 4,410 |
|
Liabilities and Partners' Deficit |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 842 |
|
| $ | 864 |
|
Interest payable to VOXX |
|
| 16,089 |
|
|
| 14,803 |
|
Accrued expenses and other current liabilities |
|
| 289 |
|
|
| 296 |
|
Due to VOXX |
|
| 68,724 |
|
|
| 66,175 |
|
Total current liabilities |
|
| 85,944 |
|
|
| 82,138 |
|
Prepaid ownership interest in EyeLock LLC due to GalvanEyes LLC |
|
| 9,817 |
|
|
| 7,317 |
|
Other long-term liabilities |
|
| 1,200 |
|
|
| 1,200 |
|
Total liabilities |
|
| 96,961 |
|
|
| 90,655 |
|
Commitments and contingencies |
|
|
|
|
|
| ||
Partners' deficit: |
|
|
|
|
|
| ||
Capital |
|
| 41,416 |
|
|
| 41,416 |
|
Retained losses |
|
| (132,002 | ) |
|
| (127,661 | ) |
Total partners' deficit |
|
| (90,586 | ) |
|
| (86,245 | ) |
Total liabilities and partners' deficit |
| $ | 6,375 |
|
| $ | 4,410 |
|
| November 30, 2017 | February 28, 2017 | |||||||
| Assets | (unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 70 | $ | 11 | ||||
| Accounts receivable, net | 103 | 295 | ||||||
| Inventory, net | 149 | 135 | ||||||
| Receivables from vendors | 22 | — | ||||||
| Prepaid expenses and other current assets | 46 | 189 | ||||||
| Total current assets | 390 | 630 | ||||||
| Property, plant and equipment, net | 207 | 276 | ||||||
| Intangible assets, net | 36,891 | 39,187 | ||||||
| Other assets | 90 | 96 | ||||||
| Total assets | $ | 37,578 | $ | 40,189 | ||||
| Liabilities and Partners' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,376 | $ | 710 | ||||
| Accrued expenses and other current liabilities | 1,837 | 3,506 | ||||||
| Current portion of debt | 30,895 | 22,098 | ||||||
| Total current liabilities | 37,108 | 26,314 | ||||||
| Long-term debt | — | — | ||||||
| Other long-term liabilities | 1,200 | 1,200 | ||||||
| Total liabilities | 38,308 | 27,514 | ||||||
| Commitments and contingencies | ||||||||
| Partners' equity: | ||||||||
| Capital | 41,415 | 40,891 | ||||||
| Retained earnings | (42,145 | ) | (28,216 | ) | ||||
| Total partners' equity | (730 | ) | 12,675 | |||||
| Total liabilities and partners' equity | $ | 37,578 | $ | 40,189 | ||||
26
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, 20172023 and 2016, respectively:
|
| For the three months |
|
| For the nine months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net sales |
| $ | 91 |
|
| $ | 255 |
|
| $ | 401 |
|
| $ | 690 |
|
Cost of sales |
|
| 90 |
|
|
| 198 |
|
|
| 295 |
|
|
| 474 |
|
Gross profit |
|
| 1 |
|
|
| 57 |
|
|
| 106 |
|
|
| 216 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling |
|
| 88 |
|
|
| 142 |
|
|
| 305 |
|
|
| 446 |
|
General and administrative |
|
| 399 |
|
|
| 374 |
|
|
| 1,260 |
|
|
| 1,158 |
|
Engineering and technical support |
|
| 385 |
|
|
| 344 |
|
|
| 1,606 |
|
|
| 1,844 |
|
Restructuring expenses |
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| — |
|
Total operating expenses |
|
| 872 |
|
|
| 860 |
|
|
| 3,198 |
|
|
| 3,448 |
|
Operating loss |
|
| (871 | ) |
|
| (803 | ) |
|
| (3,092 | ) |
|
| (3,232 | ) |
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and bank charges |
|
| (435 | ) |
|
| (430 | ) |
|
| (1,296 | ) |
|
| (1,298 | ) |
Other, net |
|
| 47 |
|
|
| (2 | ) |
|
| 47 |
|
|
| (14 | ) |
Total other expense, net |
|
| (388 | ) |
|
| (432 | ) |
|
| (1,249 | ) |
|
| (1,312 | ) |
Loss before income taxes |
|
| (1,259 | ) |
|
| (1,235 | ) |
|
| (4,341 | ) |
|
| (4,544 | ) |
Income tax expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
| $ | (1,259 | ) |
| $ | (1,235 | ) |
| $ | (4,341 | ) |
| $ | (4,544 | ) |
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | $ | 63 | $ | 100 | $ | 277 | $ | 211 | ||||||||
| Cost of sales | 33 | 37 | 90 | 67 | ||||||||||||
| Gross profit | 30 | 63 | 187 | 144 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling | 281 | 553 | 1,636 | 1,639 | ||||||||||||
| General and administrative | 1,437 | 1,759 | 5,114 | 5,056 | ||||||||||||
| Engineering and technical support | 1,492 | 2,154 | 5,310 | 6,248 | ||||||||||||
| Total operating expenses | 3,210 | 4,466 | 12,060 | 12,943 | ||||||||||||
| Operating loss | (3,180 | ) | (4,403 | ) | (11,873 | ) | (12,799 | ) | ||||||||
| Interest and bank charges | (753 | ) | (441 | ) | (2,056 | ) | (1,092 | ) | ||||||||
| Loss before income taxes | (3,933 | ) | (4,844 | ) | (13,929 | ) | (13,891 | ) | ||||||||
| Income tax expense | — | — | — | — | ||||||||||||
| Net loss | $ | (3,933 | ) | $ | (4,844 | ) | $ | (13,929 | ) | $ | (13,891 | ) | ||||
(22) Segment Reporting
The Company operates in three distinct segments based uponon our products and our internal organizational structure. The three operating segments, which are also the Company'sCompany’s reportable segments, are Automotive Premium AudioElectronics, Consumer Electronics, and Consumer Accessories.
Our Automotive Electronics segment designs, manufactures, distributes
Our Premium AudioConsumer Electronics segment designs, manufactures, distributes
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 thereintersegment sales are no material intersegment sales.not material. 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.
27
Segment data for each of the Company's segments is presented below:
|
| Automotive |
|
| Consumer |
|
| Biometrics |
|
| Corporate/ |
|
| Total |
| |||||
Three Months Ended November 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 35,920 |
|
| $ | 99,995 |
|
| $ | 92 |
|
| $ | (747 | ) |
| $ | 135,260 |
|
Equity in income of equity investees |
|
| 1,101 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,101 |
|
Interest expense and bank charges |
|
| 440 |
|
|
| 1,925 |
|
|
| 435 |
|
|
| (908 | ) |
|
| 1,892 |
|
Depreciation and amortization expense |
|
| 773 |
|
|
| 1,466 |
|
|
| 70 |
|
|
| 644 |
|
|
| 2,953 |
|
Income (loss) before income taxes (a) (b) |
|
| 299 |
|
|
| 5,903 |
|
|
| (1,259 | ) |
|
| (4,063 | ) |
|
| 880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Three Months Ended November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 48,554 |
|
| $ | 94,116 |
|
| $ | 255 |
|
| $ | 130 |
|
| $ | 143,055 |
|
Equity in income of equity investees |
|
| 2,022 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,022 |
|
Interest expense and bank charges |
|
| 535 |
|
|
| 2,050 |
|
|
| 430 |
|
|
| (1,555 | ) |
|
| 1,460 |
|
Depreciation and amortization expense |
|
| 790 |
|
|
| 1,497 |
|
|
| 71 |
|
|
| 840 |
|
|
| 3,198 |
|
Income (loss) before income taxes (a) (b) |
|
| 3,124 |
|
|
| 3,379 |
|
|
| (1,235 | ) |
|
| (2,902 | ) |
|
| 2,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nine Months Ended November 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 109,749 |
|
| $ | 251,369 |
|
| $ | 401 |
|
| $ | (691 | ) |
| $ | 360,828 |
|
Equity in income of equity investees |
|
| 3,958 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,958 |
|
Interest expense and bank charges |
|
| 1,484 |
|
|
| 5,991 |
|
|
| 1,296 |
|
|
| (3,760 | ) |
|
| 5,011 |
|
Depreciation and amortization expense |
|
| 2,471 |
|
|
| 4,420 |
|
|
| 210 |
|
|
| 2,344 |
|
|
| 9,445 |
|
Loss before income taxes (a) (b) |
|
| (1,601 | ) |
|
| (1,064 | ) |
|
| (4,341 | ) |
|
| (16,547 | ) |
|
| (23,553 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nine Months Ended November 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
| $ | 125,357 |
|
| $ | 271,068 |
|
| $ | 690 |
|
| $ | 377 |
|
| $ | 397,492 |
|
Equity in income of equity investees |
|
| 5,373 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,373 |
|
Interest expense and bank charges |
|
| 1,385 |
|
|
| 6,035 |
|
|
| 1,298 |
|
|
| (5,617 | ) |
|
| 3,101 |
|
Depreciation and amortization expense |
|
| 2,448 |
|
|
| 5,030 |
|
|
| 216 |
|
|
| 2,230 |
|
|
| 9,924 |
|
Income (loss) before income taxes (a) (b) |
|
| 2,507 |
|
|
| (649 | ) |
|
| (4,544 | ) |
|
| (15,514 | ) |
|
| (18,200 | ) |
(a) Included within Income (loss) before income taxes on Corporate/Eliminations for the three and nine months ended November 30, 2023 and 2022 are foreign currency losses of $174 and $1,521, respectively, compared to $154 and $3,596, respectively, attributable to the Company's Onkyo subsidiary related to intercompany transactions and financial statement translation adjustments.
(b) Included within Income (loss) before income taxes on Corporate/Eliminations are charges related to the Company's unfavorable arbitration award of $752 and $3,350 for the three and nine months ended November 30, 2023, respectively, and $986 and $2,958 for the three and nine months ended November 30, 2022, respectively (see Note 24).
(23) 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
28
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, 2023. 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, 2023 and February 28, 2023, the balance of the return asset was $1,990 and $2,513, respectively, and the balance of the refund liability was $4,189 and $5,181, respectively, and are presented below:
We warrant our products against certain defects in material and workmanship when used as designed, which primarily range from 30 days to Unaudited Consolidated Financial Statements, continued3 years. We offer limited lifetime warranties on certain products, which limit the customer’s remedy to the repair or replacement of the defective product or part for the designated lifetime of the product, or for the life of the vehicle for the original owner, if it is an automotive product.
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 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 $4,095 at November 30, 2023 related to telematic subscription services. The following table provides a reconciliation of the Company’s contract liabilities as of November 30, 2023:
|
|
|
| |
Balance at February 28, 2023 |
| $ | 4,818 |
|
Subscription payments received |
|
| 4,515 |
|
Revenue recognized |
|
| (5,238 | ) |
Balance at November 30, 2023 |
| $ | 4,095 |
|
$3,341 of the contract liability balance at November 30, 2023 will be recognized during the next twelve months. The Company had no contract asset balances at November 30, 2023 or February 28, 2023.
29
Disaggregation of Revenue
The Company operates in thousands, except sharethree reportable segments: Automotive Electronics, Consumer Electronics, and per share data)Biometrics. ASC 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales are disaggregated by segment and product type for the three and nine months ended November 30, 2023 and 2022:
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Automotive Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
OEM Products |
| $ | 10,000 |
|
| $ | 19,138 |
|
| $ | 46,535 |
|
| $ | 51,092 |
|
Aftermarket Products |
|
| 25,920 |
|
|
| 29,416 |
|
|
| 63,214 |
|
|
| 74,265 |
|
Total Automotive Segment |
|
| 35,920 |
|
|
| 48,554 |
|
|
| 109,749 |
|
|
| 125,357 |
|
Consumer Electronics Segment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Premium Audio Products |
|
| 79,874 |
|
|
| 73,473 |
|
|
| 180,677 |
|
|
| 212,620 |
|
Other Consumer Electronic Products |
|
| 20,121 |
|
|
| 20,643 |
|
|
| 70,692 |
|
|
| 58,448 |
|
Total Consumer Electronics Segment |
|
| 99,995 |
|
|
| 94,116 |
|
|
| 251,369 |
|
|
| 271,068 |
|
Biometrics Segment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Biometric Products |
|
| 92 |
|
|
| 255 |
|
|
| 401 |
|
|
| 690 |
|
Total Biometrics Segment |
|
| 92 |
|
|
| 255 |
|
|
| 401 |
|
|
| 690 |
|
Corporate/Eliminations |
|
| (747 | ) |
|
| 130 |
|
|
| (691 | ) |
|
| 377 |
|
Total Net Sales |
| $ | 135,260 |
|
| $ | 143,055 |
|
| $ | 360,828 |
|
| $ | 397,492 |
|
| Automotive | Premium Audio | Consumer Accessories | Corporate/ Eliminations | Total | |||||||||||||||
| Three Months Ended November 30, 2017 | |||||||||||||||||||
| Net sales | $ | 40,634 | $ | 57,386 | $ | 58,461 | $ | 82 | $ | 156,563 | |||||||||
| Equity in income of equity investees | 2,004 | — | — | — | 2,004 | ||||||||||||||
| Interest expense and bank charges | 336 | 2,120 | 1,857 | (3,098 | ) | 1,215 | |||||||||||||
| Depreciation and amortization expense | 216 | 862 | 1,159 | 756 | 2,993 | ||||||||||||||
| Income (loss) before income taxes | 3,486 | 6,262 | (2,013 | ) | (826 | ) | 6,909 | ||||||||||||
| Three Months Ended November 30, 2016 | |||||||||||||||||||
| Net sales | $ | 48,817 | $ | 56,752 | $ | 51,417 | $ | 425 | $ | 157,411 | |||||||||
| Equity in income of equity investees | 1,931 | — | — | — | 1,931 | ||||||||||||||
| Interest expense and bank charges | 119 | 1,398 | 1,272 | (888 | ) | 1,901 | |||||||||||||
| Depreciation and amortization expense | 314 | 898 | 1,191 | 645 | 3,048 | ||||||||||||||
| Income (loss) before income taxes | 5,547 | 6,760 | (3,464 | ) | (3,460 | ) | 5,383 | ||||||||||||
| Nine Months Ended November 30, 2017 | |||||||||||||||||||
| Net sales | $ | 110,342 | $ | 135,055 | $ | 138,976 | $ | 483 | $ | 384,856 | |||||||||
| Equity in income of equity investees | 5,734 | — | — | — | 5,734 | ||||||||||||||
| Interest expense and bank charges | 624 | 6,056 | 5,303 | (7,133 | ) | 4,850 | |||||||||||||
| Depreciation and amortization expense | 768 | 2,655 | 3,496 | 2,229 | 9,148 | ||||||||||||||
| Income (loss) before income taxes | 8,910 | 1,547 | (17,412 | ) | (12,631 | ) | (19,586 | ) | |||||||||||
| Nine Months Ended November 30, 2016 | |||||||||||||||||||
| Net sales | $ | 127,614 | $ | 123,787 | $ | 137,374 | $ | 861 | $ | 389,636 | |||||||||
| Equity in income of equity investees | 5,284 | — | — | — | 5,284 | ||||||||||||||
| Interest expense and bank charges | 421 | 3,885 | 3,444 | (2,556 | ) | 5,194 | |||||||||||||
| Depreciation and amortization expense | 1,002 | 2,628 | 3,513 | 1,989 | 9,132 | ||||||||||||||
| Income (loss) before income taxes | 11,263 | 7,459 | (13,823 | ) | (9,406 | ) | (4,507 | ) | |||||||||||
(24) 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 Company does not believe that any of its current outstanding litigation matters will have a material adverse effect on the Company's financial statements, individually, or in the aggregate.
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 May 2014,March 2007, the Financial Accounting Standards Board ("FASB"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 $10,000 and on the seventh day of an eight-day fact witness portion of the arbitration in June 2021, amended its damages demand to $40,000, which was effected by the service of Claimant’s notice dated July 14, 2021.
On November 29, 2021, the Arbitrator issued Accounting Standards Update ("ASU"an interim award (the “Interim Award”) 2014-09, "Revenues from Contracts with Customers (Topic 606)," which outlines a single comprehensive model for entitiesSeaguard prevailing on its breach of contract claim. The Company’s affirmative defenses relating to use
On August 7, 2023, the transaction priceCourt entered judgment against the Company in the amount of $47,002, of which $40,242 was for damages, attorneys’ fees, and costs and $6,760 was for prejudgment interest.
On August 16, 2023, the Company filed a Notice of Appeal to separate performance obligations, among others. The new standard will be effectivethe Ninth Circuit Court of Appeals.
30
During Fiscal 2022, the Company recorded an accrual for the interim arbitration award in the amount of $39,444. During the three and nine months ended November 30, 2023 and 2022, the Company beginning March 1, 2018. The FASB issued four subsequent standards in 2016 containing implementation guidanceaccrued charges of $752 and $3,350, respectively, and $986 and $2,958, respectively, representing interest due on the award when paid, as well as certain legal fees reimbursable to Seaguard and a patent settlement. At November 30, 2023 and February 28, 2023, the Company had a total accrued balance of $46,738 and $43,388, respectively, on the accompanying Consolidated Balance Sheets related to the new standard. These standards provide additional guidance relatedfinal arbitration award.
On December 22, 2023, the Company and Seaguard entered into a Settlement Agreement and Mutual Release, with an effective date of January 10, 2024, in which the Company agreed to principal versus agent considerations, licensing,pay Seaguard $42,000 in full and identifying performance obligations. Additionally, these standards provide narrow-scope improvementsfinal settlement of all judgments and practical expedients as well as technical correctionsclaims that have been awarded or asserted or could have been asserted by Seaguard against the Company and improvements.
(25) New Accounting Pronouncements
In addition, the Company is currently analyzing our internal control over financial reporting framework to determine if controls should be added or modified as a result of adopting this standard, and reviewing the tax impact, if any, the adoption of the new standard may have. We also expect that the adoption of the new standard will result in expanded and disaggregated disclosure requirements.
In February 2016,March 2023, the FASB issued ASU 2016-02,No. 2023-01, "Leases (Topic 842).: Common Control Arrangements." ASU 2016-02 requiresThe amendment clarifies the accounting for leasehold improvements associated with common control leases, by requiring that aleasehold improvements associated with common control leases be amortized by the lessee recognizeover the assets and liabilities that arise from operating leases. Auseful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee should recognize incontrols the statementuse of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset through a lease. Additionally, leasehold improvements associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases atno longer controls the beginninguse of the earliest period presentedunderlying asset. The guidance will be effective for annual and interim periods beginning after December 15, 2023. We do not expect the adoption to have a material impact on our consolidated financial statements.
In March 2023, the FASB issued ASU No. 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investment Tax Credit Structures Using the Proportional Amortization Method." The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using a modified retrospective approach.the proportional amortization method if certain conditions are met. This amendmentguidance will be effective for fiscal years beginning after December 15, 2018,2023, including interim periods within those fiscal years. Early application is permitted. The Company hasWe do not yet determined the effect ofexpect the adoption of this standardto have a material impact on the Company’sour consolidated financial position and results of operations.
In June 2016,July 2023, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): MeasurementNo. 2023-03, "Presentation of Credit Losses on Financial Instruments.” The standard significantly changes how entities will measure credit losses for most
In August 2023, the FASB issued ASU No. 2023-05, "Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and certain other instruments that aren’t measuredInitial Measurement." The update provides guidance requiring a joint venture to initially measure all contributions received upon its formation at fair value, through net income.largely consistent with ASC 805, Business Combinations. The standard will replace today’s “incurred loss” approachguidance is intended to reduce diversity in practice and provide users of joint venture financial statements with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendmentsmore decision-useful information. ASC 2023-05 should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASUprospectively and is effective for annual periods beginningall newly formed joint venture entities with a formation date on or after December 15, 2019, and interim periods therein.January 1, 2025. Early adoption is permitted, for annual periods beginning after December 15, 2018, and interim periods therein.joint ventures formed prior to the adoption date may elect to apply the new guidance retrospectively back to their original
31
formation date. The Company is currently evaluating the impact of the adoption of this standardupdate may have on its consolidated financial statements.
In August 2016,October 2023, the FASB issued ASU No. 2016-15, "Statement2023-06, "Disclosure Improvements." The new guidance clarifies or improves disclosure and presentation requirements on a variety of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments," which addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classifiedtopics in the statementcodification. The amendments will align the requirements in the FASB Accounting Standard Codification with the SEC’s regulations. The amendments are effective prospectively on the date each individual amendment is effectively removed from Regulation S-X or Regulation S-K. The Company is in the process of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. Theevaluating the impact the adoption of this guidanceASU will have on the financial statements and related disclosures, which is not expected to have a material impact on the Company's consolidated financial statements.
In October 2016,November 2023, the FASB issued ASU No. 2016-16, “Income Taxes2023-07, "Segment Reporting (Topic 740)280): Intra-Entity Transfers of Assets Other Than Inventory,” whichImprovements to Reportable Segment Disclosures." The new guidance is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity.reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until itamendment is sold to a third party remains unaffected. The amendments in this update are effective for public entities for annual reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the impact of the future adoption of this standard on its consolidated financial statements.
In May 2017,December 2023, the FASB issued ASU No. 2017-09, “Compensation-Stock Compensation2023-09, "Income Taxes (Topic 718) - Scope740): Improvements to Income Tax Disclosures." The new guidance is intended to enhance the transparency and decision usefulness of Modification Accounting," which amendsincome tax disclosures. The amendments in the scope of modification accountingASU address investor requests for share-based payment arrangements. The standard provides guidance on the types ofenhanced income tax information primarily through changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions,rate reconciliation and classification of the awards are the same immediately before and after the modification.income taxes paid information. The new standardamendment is effective for annual periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
32
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 and other macroeconomic events 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.
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,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 Premium AudioElectronics, Consumer Electronics, and Consumer AccessoriesBiometrics 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 sixteennineteen wholly-owned subsidiaries: Audiovox Atlanta Corp., VOXX Electronics Corporation, VOXX Accessories Corp., VOXX German Holdings GmbH ("Voxx Germany"), Audiovox Venezuela, C.A., 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"), Klipsch HoldingPremium Audio Company LLC ("Klipsch")PAC," which includes Klipsch Group, Inc. and 11 Trading Company LLC), Omega Research and Development, LLC ("Omega") and, 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 a majority owned subsidiary,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®, AR for Her, Acoustic Research®, Advent®, Ambico®Avital®, Car Link®, Chapman®, Clifford®, Code-Alarm®, Crimestopper™, Directed®, Discwasher®, Energy®, Heco®, Incaar
Macroeconomic Factors
General economic and Singtrix®,political conditions such as recessions; interest rates; fuel prices; inflation; foreign currency fluctuations; international tariffs; social, political, and economic risks; acts of war or terrorism (including, for example, the next generationongoing military conflict between Ukraine and Russia and the economic sanctions related thereto); and the COVID-19 pandemic, have added uncertainty in karaoke.
There still remains uncertainty around the COVID-19 pandemic. The ultimate impact depends on the length and severity of Hirschmann Car Communication GmbHthe pandemic, including new strains and its subsidiaries. See Note 2variants of the virus; infection rates in the markets where we do business; the federal, state,
33
and local government actions taken in response; vaccine effectiveness; and the macroeconomic environment. We will continue to evaluate the extent to which the COVID-19 pandemic impacts our business, consolidated results of operations and financial condition.
The Company continues to focus on cash flow and anticipates having sufficient resources to operate for more details of this transaction.
Reportable Segments
The Company operates in three reportable segments based uponon our products and internal organizational structure. The operating segments consist of the Automotive Premium AudioElectronics, Consumer Electronics, and Consumer Accessories segments. The Automotive segment designs, manufactures, distributes and markets rear-seat entertainment devices, satellite radio products, automotive security, remote start systems, mobile multimedia devices, aftermarket/OE-styled radios, car-link smartphone telematics applications, and collision avoidance systems. The Premium Audio segment designs, manufactures, distributes and markets home theater systems, high-end loudspeakers, outdoor speakers, iPod/computer speakers, business music systems, cinema speakers, flat panel speakers, Bluetooth speakers, soundbars, headphones and DLNA (Digital Living Network Alliance) compatible devices. The Consumer Accessories segment designs, markets and distributes remote controls; wireless and Bluetooth speakers; karaoke products; action cameras, iris identification and security related products; personal sound amplifiers; infant/nursery products; activity tracking bands; and A/V connectivity, portable/home charging, reception and digital consumer products.Biometrics. See Note 2122 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:
34
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. Also, allAll of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future.
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 income. In addition, it is our intention to continue to acquire synergistic companies that would allow us to leverage our overhead,
35
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
The Company did not enter into any acquisition or disposition transactions during the Rosen asset purchase, the Company paid $1,814. In addition, the Company agreed to pay a 2% fee related to future net sales of Rosen products for three years. The purpose of this acquisition was to increase the Company's market share and strengthen its intellectual property related to the rear seat entertainment market. Details of the tangible and intangible assets acquired are outlined in Note 2 of this report.
| Nine Months Ended November 30, | ||||||||
| 2017 | 2016 | |||||||
| Net sales of discontinued operations | $ | 91,824 | $ | 124,018 | ||||
| Income from discontinued operations, net of tax | 32,342 | 417 | ||||||
| Income from discontinued operations per diluted share | $ | 1.34 | $ | 0.02 | ||||
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 reserves;receivable; inventory reserves;valuation; valuation of long-lived assets; valuation and impairment assessment of goodwill, trademarks, and other intangible assets; warranties; stock-based compensation; income taxes;recoverability of deferred tax assets; and the fair value measurementsreserve for uncertain tax positions at the date of the consolidated financial assets and liabilities.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
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), there have been no changes in customer preferences and trends, increased competition, deterioration in the performance of our critical accounting policiesbusiness or product lines. It is possible that the changes to thein numerous estimates associated with management judgments, assumptions and estimates related to them.
Results of Operations
As you read this discussion and analysis, refer to the accompanying consolidated statementsUnaudited Consolidated Statements of operationsOperations and comprehensive income (loss)Comprehensive Income (Loss), which present the results of our operations for the three and nine months ended
The following tables set forth, for the periods indicated, certain statements of operations data from continuing operations for the three and nine months ended
| November 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| Three Months Ended: | |||||||||||||||
| Automotive | $ | 40,634 | $ | 48,817 | $ | (8,183 | ) | (16.8 | )% | ||||||
| Premium Audio | 57,386 | 56,752 | 634 | 1.1 | |||||||||||
| Consumer Accessories | 58,461 | 51,417 | 7,044 | 13.7 | |||||||||||
| Corporate | 82 | 425 | (343 | ) | (80.7 | ) | |||||||||
| Total net sales | $ | 156,563 | $ | 157,411 | $ | (848 | ) | (0.5 | )% | ||||||
| Nine Months Ended: | |||||||||||||||
| Automotive | $ | 110,342 | $ | 127,614 | $ | (17,272 | ) | (13.5 | )% | ||||||
| Premium Audio | 135,055 | 123,787 | 11,268 | 9.1 | |||||||||||
| Consumer Accessories | 138,976 | 137,374 | 1,602 | 1.2 | |||||||||||
| Corporate | 483 | 861 | (378 | ) | (43.9 | ) | |||||||||
| Total net sales | $ | 384,856 | $ | 389,636 | $ | (4,780 | ) | (1.2 | )% | ||||||
Net Sales
|
| November 30, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Automotive Electronics |
| $ | 35,920 |
|
| $ | 48,554 |
|
| $ | (12,634 | ) |
|
| (26.0 | )% |
Consumer Electronics |
|
| 99,995 |
|
|
| 94,116 |
|
|
| 5,879 |
|
|
| 6.2 | % |
Biometrics |
|
| 92 |
|
|
| 255 |
|
|
| (163 | ) |
|
| (63.9 | )% |
Corporate/Eliminations |
|
| (747 | ) |
|
| 130 |
|
|
| (877 | ) |
|
| (674.6 | )% |
Total net sales |
| $ | 135,260 |
|
| $ | 143,055 |
|
| $ | (7,795 | ) |
|
| (5.4 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Automotive Electronics |
| $ | 109,749 |
|
| $ | 125,357 |
|
| $ | (15,608 | ) |
|
| (12.5 | )% |
Consumer Electronics |
|
| 251,369 |
|
|
| 271,068 |
|
|
| (19,699 | ) |
|
| (7.3 | )% |
Biometrics |
|
| 401 |
|
|
| 690 |
|
|
| (289 | ) |
|
| (41.9 | )% |
Corporate/Eliminations |
|
| (691 | ) |
|
| 377 |
|
|
| (1,068 | ) |
|
| (283.3 | )% |
Total net sales |
| $ | 360,828 |
|
| $ | 397,492 |
|
| $ | (36,664 | ) |
|
| (9.2 | )% |
Automotive Electronics sales represented 26.6% of our net sales for the three months ended November 30, 2023, compared to 31.0% and 32.8%33.9% in the respective prior year periods. The Company experienced aperiod and decreased $12,634 for the three months ended November 30, 2023, as compared to the three months ended November 30, 2022. One of the primary factors of this decline was the decrease in automotive sales of OEM rear seat
36
entertainment products of approximately $8,900, driven by the United Auto Workers strike that took place during September and October of 2023 and led to work stoppages at Ford and Stellantis, with whom the Company has active programs in place. Sales of OEM rear seat entertainment products was also negatively impacted during the quarter by the termination of one of the Company's programs with Nissan. Aftermarket security product sales, which includes remote start and telematic product sales, also declined approximately $4,400 in total during the three months ended November 30, 2023. This was due to the slowing of consumer spending amid current economic concerns, as well as a mild start to the winter weather season, which generally has a negative effect on remote start sales. Additionally, sales of aftermarket rear seat entertainment products declined approximately $500 for the three months ended November 30, 2023, as a result of inflated vehicle pricing and high interest rates, which have resulted in lower consumer spending on vehicles. As an offset to these sales declines, the Company's satellite radio product sales increased approximately $500 during the three months ended November 30, 2023, following a prior year pause in purchasing by one of the Company's larger customers due to excess inventory on hand. As this customer has sold through its remaining inventory and reordered product, these sales have begun to improve.
Automotive Electronics sales represented 30.4% of our net sales for the nine months ended November 30, 2017 primarily2023, compared to 31.5% in the prior year period and decreased $15,608 for the nine months ended November 30, 2023, as compared to the nine months ended November 30, 2022. The primary driver of this decrease was the decline in sales of aftermarket security products of approximately $9,700, which includes remote start and telematic product sales. The decline was due to the continued decline in satellite radio sales, as a resultslowing of most vehicles being built equipped with these products as standard vehicle options,consumer spending amid current economic concerns, as well as duea mild start to the winter weather season, which generally has a significantnegative effect on remote start sales. This was slightly offset by sales promotion offered by the Companyof certain new aftermarket security products introduced during the third quarterperiod. Sales of Fiscal 2017 that did not repeat in the current fiscal year. Additionally, the Company had a decrease in salesOEM rear seat entertainment products also declined approximately $5,800 during the nine months ended November 30, 2017 related2023 due in part to its internationalthe United Auto Workers strike that took place during September and October of 2023 and led to work stoppages at Ford and Stellantis, with whom the Company has active programs in place. Sales of OEM manufacturing linerear seat entertainment products was also negatively affected by the termination of one of the Company's programs with Nissan. Additionally, sales of aftermarket rear seat entertainment products declined approximately $2,300 for the nine months ended November 30, 2023 as a result of inflated vehicle pricing and high interest rates, which have resulted in lower consumer spending on vehicles. As an offset to these sales declines, satellite radio product sales increased approximately $1,200 for the completionnine months ended November 30, 2023 following a prior year pause in purchasing by one of a program with Bentleythe Company's larger customers due to excess inventory on hand. As this customer has sold through its remaining inventory and reordered product, these sales have begun to improve. Sales of OEM safety products also increased approximately $800 during the first quarternine months ended November 30, 2023 due to new customer programs, price increases, and high demand for certain new products. Finally, sales of Fiscal 2018, with final spare parts shipmentscollision avoidance products improved approximately $700 during the first halfnine months ended November 30, 2023 due to certain vehicle models that no longer include these products as part of their OEM packages, which has led to more aftermarket purchases.
Consumer Electronics sales represented 73.9% of our net sales for the three months ended November 30, 2023, compared to 65.8% in the comparable prior year period and increased $5,879 for the three months ended November 30, 2023, as compared to the three months ended November 30, 2022. The Company experienced an increase in domestic sales of its premium home theater speakers and wireless speaker products totaling approximately $13,500 during the three months ended November 30, 2023 due primarily to aggressive holiday promotional sales and a large load in of new product at one of the Company's larger customers, as well as the continuation of close-out sales on certain older discontinued products. In Europe, the Company saw an increase in sales of its Onkyo and Pioneer receiver products, as well as premium home theater speakers and wireless speaker products, totaling $1,000, also due to holiday sales and promotions. Additionally, domestic general accessory product sales increased approximately $800 driven by the launch of new hearing aid products during the second quarter of the fiscal year. WithinAs an offset to these increases, the Company'sCompany experienced a decline in domestic OEM manufacturing lines,sales of its Onkyo and Pioneer receiver products of approximately $3,800 during the three months ended November 30, 2023 as a result of a slowing of the economy and decreased consumer spending in comparison to the prior year. In Asia, premium audio product and receiver sales decreased approximately $2,500 for the three months ended November 30, 2023, also due to a slower global economy and lower consumer spending, as well as due to the discontinuing of certain older products. Additionally, there was a decrease in sales of the Company's karaoke products during the three months ended November 30, 2023 of approximately $1,200 as a result of excess inventory held by several customers from the prior year which has led to a decline in current year orders and low holiday sales. In Germany, general accessory product sales declined approximately $600 during the three months ended November 30, 2023, primarily due to lower sales in the Do It Yourself product line. Finally, sales of reception products declined approximately $700 for the three months ended November 30, 2023 due to decreased consumer spending amid current economic concerns.
Consumer Electronics sales represented 69.7% of our net sales for the nine months ended November 30, 2017 related2023, compared to 68.2% in the comparable prior year period and decreased $19,699 for the nine months ended November 30, 2023, as compared to the winding downnine months ended November 30, 2022. The Company experienced a decrease in domestic sales of certain headrest programs with General Motorsits Onkyo and FordPioneer receiver products of approximately $11,600 for the nine months ended November 30, 2023. During the comparable prior year period, the Company experienced large increases in preparationsales of these products as it was still fulfilling backorders and high demand for new programs which have experienced delayed launches. These programs began atproduct following the endCOVID-19 pandemic shutdowns. During the nine months ended November 30, 2023, the Company has
37
been experiencing a more normalized market for these products, as well as some additional slowing of consumer spending in response to current economic concerns. In both Europe and Asia, sales of the third quarterCompany's premium audio products and receiver products decreased approximately $11,900 for the nine months ended November 30, 2023, due to a slower global economy and lower consumer spending, as well as declining sales of Fiscal 2018. The decreases in salesolder products. These declines were partially offset by holiday promotional sales. Domestic sales of the Company's premium home theater speakers and wireless speaker products decreased approximately $6,600 during the nine months ended November 30, 2023 due to a slowing of the economy and a decrease in consumer spending. This was partially offset by holiday promotional sales and a large load in of new premium speaker product at one of the Company's larger customers, as well as the continuation of close-out sales on certain older discontinued products. Karaoke product sales decreased approximately $4,200 during the nine months ended November 30, 2023, as several customers have remaining inventory from the prior year, which has resulted in a decline in current year orders and lower holiday sales of these products. Additionally, the Company experienced a decrease in sales of premium mobility products, including headphones and earbuds, of approximately $2,000 for the nine months ended November 30, 2023, as the Company is moving out of the premium headphone business and discontinuing these products. Finally, sales of reception products declined approximately $1,400 for the nine months ended November 30, 2023 due to decreased consumer spending amid current economic concerns. As an offset to these declines, the Company experienced an increase in aftermarket overhead and headrest DVD playerEuropean accessory product sales of approximately $13,100 for the nine months ended November 30, 2023, which was driven primarily by sales of the Company's new balcony solar power products. Sales of domestic wireless accessory speakers also increased approximately $3,200 as a result of a new program with one of the Company's largest customers that was not in place during the comparable prior year period. Finally, domestic general accessory product sales increased approximately $1,500 for the nine months ended November 30, 2023 primarily as a result of the launch of new hearing aid products during the second quarter of the fiscal year.
Biometrics sales represented less than 1% of our net sales for both the three and nine months ended November 30, 2017 as a result of2023 and 2022 and declined $163 and $289, respectively. The sales decline in both the Company's acquisition of Rosen Electronics LLCthree- and nine-month period was due to certain one-time customer sales during the first quarter of Fiscal 2018.
Gross Profit and 35.1% of our net salesGross Margin Percentage
|
| November 30, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Automotive Electronics |
| $ | 9,262 |
|
| $ | 11,955 |
|
| $ | (2,693 | ) |
|
| (22.5 | )% |
|
| 25.8 | % |
|
| 24.6 | % |
|
|
|
|
|
| |||
Consumer Electronics |
|
| 27,121 |
|
|
| 24,996 |
|
|
| 2,125 |
|
|
| 8.5 | % |
|
| 27.1 | % |
|
| 26.6 | % |
|
|
|
|
|
| |||
Biometrics |
|
| 1 |
|
|
| 58 |
|
|
| (57 | ) |
|
| (98.3 | )% |
|
| 1.1 | % |
|
| 22.7 | % |
|
|
|
|
|
| |||
Corporate/Eliminations |
|
| (42 | ) |
|
| 128 |
|
|
| (170 | ) |
|
| (132.8 | )% |
| $ | 36,342 |
|
| $ | 37,137 |
|
| $ | (795 | ) |
|
| (2.1 | )% | |
|
|
| 26.9 | % |
|
| 26.0 | % |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Automotive Electronics |
| $ | 25,933 |
|
| $ | 29,859 |
|
| $ | (3,926 | ) |
|
| (13.1 | )% |
|
| 23.6 | % |
|
| 23.8 | % |
|
|
|
|
|
| |||
Consumer Electronics |
|
| 65,737 |
|
|
| 69,186 |
|
|
| (3,449 | ) |
|
| (5.0 | )% |
|
| 26.2 | % |
|
| 25.5 | % |
|
|
|
|
|
| |||
Biometrics |
|
| 106 |
|
|
| 216 |
|
|
| (110 | ) |
|
| (50.9 | )% |
|
| 26.4 | % |
|
| 31.3 | % |
|
|
|
|
|
| |||
Corporate/Eliminations |
|
| 771 |
|
|
| 372 |
|
|
| 399 |
|
|
| 107.3 | % |
| $ | 92,547 |
|
| $ | 99,633 |
|
| $ | (7,086 | ) |
|
| (7.1 | )% | |
|
| 25.6 | % |
|
| 25.1 | % |
|
|
|
|
|
| |||
Gross margin percentages for the Company have increased 90 and 50 basis points for the three and nine months ended November 30, 2017,2023, respectively, as compared to 36.1%the three and 31.8%nine months ended November 30, 2022.
Gross margin percentages in the respectiveAutomotive Electronics segment increased 120 basis points for the three months ended November 30, 2023 and decreased 20 basis points for the nine months ended November 30, 2023, respectively, as compared to the prior year periods. The increase in sales is partially a resultprimary driver of improved performance in the European market, primarily due to product mix, as well as due to a modest increase in the Euro. The Company also experienced an increase in sales of several of its existing lines of home entertainment speakersmargin increases during the three and nine months ended November 30, 2017 due2023 has been the relocation of the manufacturing of certain of the Company's automotive products, including its OEM safety products, to successful marketingMexico, which began during the second half of Fiscal 2023. The Company has begun to realize improved margins on the sale of
38
these products during both the three and promotional activity. Additionally, sales have increased in this segmentnine months ended November 30, 2023 as a result of the introductioncost savings generated by this move. Sales of several newhigher margin collision avoidance products including various lines of HD wireless desktop and bookshelf size speakers, wireless soundbars, Klipsch Heritage products, and wireless and multi-room streaming audio systems, including Capital Records branded products, which launched beginning in Fiscal 2017, as well as throughout Fiscal 2018. Finally, the Company offered several close out promotions on certain soundbar models that have been phased outalso contributed positively to make roommargins for newer product lines, which resulted in further sales increases during the nine months ended November 30, 2017. These increases2023, as these sales increased during the year-to-date period. Additionally, sales of the Company's OEM rear seat entertainment products, which have been generating lower than normal margins under its current programs as a result of contractual pricing with customers, coupled with higher supply chain costs, were partiallydown for both the three and nine months ended November 30, 2023, which contributed positively to segment margins in both periods. As an offset by decreasesto these positive margin impacts, the decline in sales of mobilitysome of the Company's higher margin products within the segment, such as wireless headphonesaftermarket security products and portable bluetooth speakers,aftermarket rear seat entertainment products, have resulted in a decrease in margins during the three and nine months ended November 30, 2017, as a result of certain vendor delays on some2023. Additionally, sales of the Company's new headphone and neckband lines, which caused a decrease in sales of thesesatellite radio products in the current periods. The segment also experienced a decrease in commercial speakercontributed positively to sales during the three and nine months ended November 30, 2017 due to2023, however these products generate low margins for the delay of certain projectsAutomotive segment.
Gross margin percentages in the Consumer Electronics segment increased 50 and programs, which is primarily a result of slower box office sales that have affected many of the Company's cinema customers.
Gross margin percentages in the Biometrics segment declined for both the three and nine months ended November 30, 2023 as a result of new orderscompared to the prior year periods. The decrease in margins were due primarily to higher obsolescence reserves and placements at retailers, and the launch of new product lines. Additionally,repair provisions during the three and nine months ended November 30, 2017, the Company experienced an increase in international sales, primarily due to the roll out of an upgrade to the digital broadcasting platform in Europe during Fiscal 2017, which has required consumers to purchase new equipment, such as set top boxes, as well as due to a modest increase in the Euro, which contributed positively to
Operating Expenses
|
| November 30, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling |
| $ | 10,967 |
|
| $ | 11,413 |
|
| $ | (446 | ) |
|
| (3.9 | )% |
General and administrative |
|
| 15,944 |
|
|
| 15,920 |
|
|
| 24 |
|
|
| 0.2 | % |
Engineering and technical support |
|
| 7,063 |
|
|
| 7,171 |
|
|
| (108 | ) |
|
| (1.5 | )% |
Restructuring expenses |
|
| 101 |
|
|
| 303 |
|
|
| (202 | ) |
|
| (66.7 | )% |
Total operating expenses |
| $ | 34,075 |
|
| $ | 34,807 |
|
| $ | (732 | ) |
|
| (2.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling |
| $ | 32,154 |
|
| $ | 35,563 |
|
| $ | (3,409 | ) |
|
| (9.6 | )% |
General and administrative |
|
| 52,621 |
|
|
| 53,903 |
|
|
| (1,282 | ) |
|
| (2.4 | )% |
Engineering and technical support |
|
| 23,257 |
|
|
| 23,844 |
|
|
| (587 | ) |
|
| (2.5 | )% |
Acquisition costs |
|
| — |
|
|
| 136 |
|
|
| (136 | ) |
|
| (100.0 | )% |
Restructuring costs |
|
| 2,168 |
|
|
| 532 |
|
|
| 1,636 |
|
|
| 307.5 | % |
Total operating expenses |
| $ | 110,200 |
|
| $ | 113,978 |
|
| $ | (3,778 | ) |
|
| (3.3 | )% |
Total operating expenses have decreased $732 and nine months ended November 30, 2017 due to factors including a decline in sales of the 360Fly action camera product and Singtrix product. There was also a decrease in sales of hook-up products; remotes; clock radios; docking stations; digital audio products; and power products, such as cables and surge protectors, due primarily to competition, changes in demand and changes in technology during the three and nine months ended November 30, 2017.
| November 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| Three Months Ended: | |||||||||||||||
| Automotive | $ | 9,561 | $ | 12,518 | $ | (2,957 | ) | (23.6 | )% | ||||||
| 23.5 | % | 25.6 | % | ||||||||||||
| Premium Audio | 19,173 | 18,612 | 561 | 3.0 | |||||||||||
| 33.4 | % | 32.8 | % | ||||||||||||
| Consumer Accessories | 12,699 | 12,118 | 581 | 4.8 | |||||||||||
| 21.7 | % | 23.6 | % | ||||||||||||
| Corporate | 86 | 400 | (314 | ) | (78.5 | ) | |||||||||
| $ | 41,519 | $ | 43,648 | $ | (2,129 | ) | (4.9 | )% | |||||||
| 26.5 | % | 27.7 | % | ||||||||||||
| Nine Months Ended: | |||||||||||||||
| Automotive | $ | 28,274 | $ | 33,767 | $ | (5,493 | ) | (16.3 | )% | ||||||
| 25.6 | % | 26.5 | % | ||||||||||||
| Premium Audio | 41,781 | 41,233 | 548 | 1.3 | % | ||||||||||
| 30.9 | % | 33.3 | % | ||||||||||||
| Consumer Accessories | 29,762 | 32,233 | (2,471 | ) | (7.7 | )% | |||||||||
| 21.4 | % | 23.5 | % | ||||||||||||
| Corporate | 267 | 831 | (564 | ) | (67.9 | )% | |||||||||
| $ | 100,084 | $ | 108,064 | $ | (7,980 | ) | (7.4 | )% | |||||||
| 26.0 | % | 27.7 | % | ||||||||||||
For the three months ended November 30, 2023, selling expenses decreased $446. The Company generally earns higher marginsexperienced a decline in employee salaries and related benefits and payroll taxes of approximately $300 due to headcount reductions and bonus reductions company wide. Advertising and website expenses decreased approximately $100 for the segment.three months ended November 30, 2023, primarily as a result of lower sales and certain product lines no longer being sold through online platforms. This was partially offset by an increase in advertising expense related to the Company's new hearing aid products launched during the second quarter of the fiscal year. Additionally, commission expenses decreased approximately $100 as a result of a decrease in the Company's sales for the three months ended November 30, 2023, as compared to the three months ended November 30, 2022.
39
For the nine months ended November 30, 2023, selling expenses decreased $3,409. The Company experienced a decline in sales employee salaries and related benefits and payroll taxes of approximately $1,600 for the nine months ended November 30, 2023 due to headcount reductions and bonus reductions company-wide, as well as due to Employee Retention Credits received during the period related to the COVID-19 pandemic shutdowns, which have offset the Company's payroll tax expenses. Commission expenses also decreased approximately $900 as a result of a decrease in the Company's sales for the nine months ended November 30, 2023, as compared to the nine months ended November 30, 2022. Additionally, advertising and website expenses decreased approximately $700 for the nine months ended November 30, 2023, primarily as a result of lower sales and certain product lines no longer being sold through online platforms. This was offset by an increase in advertising expense related to the Company's new hearing aid products. Finally, credit card fees decreased approximately $300 for the nine months ended November 30, 2023 as a result of the Company-wide decline in sales as compared to the prior year.
General and administrative expenses were relatively flat for the three months ended November 30, 2023, as compared to the prior year period, increasing $24. Salary expense decreased approximately $300 as a result of headcount reductions implemented by the Company during the second quarter of Fiscal 2024. Depreciation and amortization expense also decreased approximately $300 during the three months ended November 30, 2023 due to the prior year impairment of an intangible asset that reduced the amortizable base of the Company's remaining amortizable assets, as well as due to certain assets of the Company that have become fully depreciated or amortized. Additionally, office and occupancy expenses declined approximately $200 for the three months ended November 30, 2023 as a result of cost-cutting measures implemented by the Company during the fiscal year in order to achieve savings. As an offset to these declines, bad debt expense increased approximately $300 for the three months ended November 30, 2023 due to releases made during the prior year that did not repeat. Legal and professional fees also increased approximately $300 during the three months ended November 30, 2023 due to litigation and consulting fees related primarily to the Company's final arbitration award that will begin to be paid during the fourth quarter of Fiscal 2024.
General and administrative expenses decreased $1,282 during the nine months ended November 30, 2023, as compared to the prior year period. Depreciation and amortization expense decreased approximately $600 during the nine months ended November 30, 2023 due to the prior year impairment of an intangible asset that has reduced the amortizable base of the Company's remaining amortizable assets, as well as due to certain assets of the Company that have become fully depreciated or amortized. Additionally, during the nine months ended November 30, 2022, the Company also realized a gain of $450 on the sale of a tradename that was no longer in use. Office expenses decreased approximately $300 during the nine months ended November 30, 2023 due to cost-cutting measures implemented by the Company during the fiscal year in order to achieve savings. Legal and professional fees, as well as taxes and licensing fees, both decreased approximately $200 each for the nine months ended November 30, 2023 primarily due to the streamlining of licenses and outside consulting services used by the Company as a result of cost-cutting measures, in which the Company brought certain work in-house, negotiated fee concessions from certain providers, and consolidated licenses and redundant software and services in order to achieve savings. Finally, payroll taxes decreased $200 during the nine months ended November 30, 2023 due to Employee Retention Credits received during the period related to the COVID-19 pandemic shutdowns, which have offset the Company's payroll tax expenses. As an offset to these declines, the Company saw an increase in bad debt expense of approximately $300 for the nine months ended November 30, 2023 due to releases made in the prior year that did not repeat, and travel expense increased approximately $300 due to the continued lifting of travel restrictions world-wide that has allowed business travel to resume.
Engineering and technical support expenses decreased $108 for the three months ended November 30, 2023, as compared to the prior year period. This decrease was due primarily to a decline in labor expense and related payroll taxes and benefits of approximately $300 resulting from Company-wide headcount reductions and lower use of outside labor during the period. Offsetting this decrease was an increase in research and development expense of approximately $200 for the three months ended November 30, 2023 as a result of the timing of the commencement and completion of projects, as well as due to a reimbursement of expenditures received during the prior year period that did not repeat.
Engineering and technical support expenses decreased $587 for the nine months ended November 30, 2023, as compared to the prior year period. Research and development expense decreased approximately $400 as a result of a reduction in the use of outside labor and the timing of the commencement and completion of projects, as well as due to cost cutting measures that have resulted in the delay of certain higher margin products, such asprojects. Payroll tax expense also decreased approximately $300 during the nine months ended November 30, 2023 due in part to Employee Retention Credits received during the period related to the COVID-19 pandemic shutdowns, which have offset the Company's aftermarket overheadpayroll tax expenses. This was offset by an increase in travel expense of approximately $200 due to an increase in international travel to vendors during the nine months ended November 30, 2023.
Acquisition costs of $136 incurred during the nine months ended November 30, 2022 represent residual consulting and headrest DVD players, due diligence fees related to the acquisition of Rosen,certain assets of Onkyo Home Entertainment Corporation which was completed on September 8, 2021.
40
Restructuring expenses decreased $202 for the three months ended November 30, 2023 and increased $1,636 for the nine months ended November 30, 2023, as well as decreased sales of lower margin products, such as satellite radio fulfillments duringcompared to the respective prior year periods. During the three and nine months ended November 30, 2017.
Other (Expense) Income
|
| November 30, |
|
|
|
|
|
|
| |||||||
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and bank charges |
| $ | (1,892 | ) |
| $ | (1,460 | ) |
| $ | (432 | ) |
|
| (29.6 | )% |
Equity in income of equity investee |
|
| 1,101 |
|
|
| 2,022 |
|
|
| (921 | ) |
|
| (45.5 | )% |
Final arbitration award |
|
| (752 | ) |
|
| (986 | ) |
|
| 234 |
|
|
| 23.7 | % |
Other, net |
|
| 156 |
|
|
| 460 |
|
|
| (304 | ) |
|
| (66.1 | )% |
Total other expense, net |
| $ | (1,387 | ) |
| $ | 36 |
|
| $ | (1,423 | ) |
|
| (3952.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and bank charges |
| $ | (5,011 | ) |
| $ | (3,101 | ) |
| $ | (1,910 | ) |
|
| (61.6 | )% |
Equity in income of equity investee |
|
| 3,958 |
|
|
| 5,373 |
|
|
| (1,415 | ) |
|
| (26.3 | )% |
Final arbitration award |
|
| (3,350 | ) |
|
| (2,958 | ) |
|
| (392 | ) |
|
| (13.3 | )% |
Other, net |
|
| (1,497 | ) |
|
| (3,169 | ) |
|
| 1,672 |
|
|
| 52.8 | % |
Total other expense, net |
| $ | (5,900 | ) |
| $ | (3,855 | ) |
| $ | (2,045 | ) |
|
| (53.0 | )% |
Interest and neckbands, experienced higher sales at higher margins inbank charges represent interest expense and fees related to the prior year, as comparedCompany's bank obligations, shareholder loan, supply chain financing and factoring agreements, interest related to lower sales with heavy close-out promotions in the current year to make way for newer models, which experienced delays coming to market. The combinationfinance leases, and amortization of these factors negatively impacted the blended margin of these portable mobile devices.debt issuance costs. During the nine months ended November 30, 2017, the Company also offered heavy promotions of older soundbar models that have now been phased out in order to make way for a newer line of products.
| November 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| Three Months Ended: | |||||||||||||||
| Operating expenses: | |||||||||||||||
| Selling | $ | 11,357 | $ | 11,081 | $ | 276 | 2.5 | % | |||||||
| General and administrative | 18,258 | 20,099 | (1,841 | ) | (9.2 | ) | |||||||||
| Engineering and technical support | 6,261 | 7,236 | (975 | ) | (13.5 | ) | |||||||||
| Total operating expenses | $ | 35,876 | $ | 38,416 | $ | (2,540 | ) | (6.6 | )% | ||||||
| Nine Months Ended: | |||||||||||||||
| Operating expenses: | |||||||||||||||
| Selling | $ | 34,805 | $ | 32,387 | $ | 2,418 | 7.5 | % | |||||||
| General and administrative | 59,095 | 58,247 | 848 | 1.5 | |||||||||||
| Engineering and technical support | 20,298 | 21,891 | (1,593 | ) | (7.3 | ) | |||||||||
| Total operating expenses | $ | 114,198 | $ | 112,525 | $ | 1,673 | 1.5 | % | |||||||
| November 30, | |||||||||||||||
| 2017 | 2016 | $ Change | % Change | ||||||||||||
| Three Months Ended: | |||||||||||||||
| Interest and bank charges | $ | (1,215 | ) | $ | (1,901 | ) | $ | 686 | (36.1 | )% | |||||
| Equity in income of equity investees | 2,004 | 1,931 | 73 | 3.8 | |||||||||||
| Investment gain | — | — | — | — | |||||||||||
| Other, net | 477 | 121 | 356 | 294.2 | |||||||||||
| Total other (expense) income | $ | 1,266 | $ | 151 | $ | 1,115 | 738.4 | % | |||||||
| Nine Months Ended: | |||||||||||||||
| Interest and bank charges | $ | (4,850 | ) | $ | (5,194 | ) | $ | 344 | (6.6 | )% | |||||
| Equity in income of equity investees | 5,734 | 5,284 | 450 | 8.5 | |||||||||||
| Investment gain | 1,416 | — | 1,416 | 100.0 | |||||||||||
| Other, net | (7,772 | ) | (136 | ) | (7,636 | ) | 5,614.7 | ||||||||
| Total other (expense) income | $ | (5,472 | ) | $ | (46 | ) | $ | (5,426 | ) | 11,795.7 | % | ||||
Equity in income of equity investeesinvestee represents the Company's share of income from its 50% non-controlling ownership interest in ASA Electronics LLC and Subsidiaries ("ASA"). The increasedecrease in income from ASA for the three and nine months ended November 30, 20172023 as compared to the prior year wasperiod is due to lower net income at ASA resulting from a favorable product mix, resultingdecline in higher sales for several ofcaused by current economic conditions.
During the company's existing customers, as well as a special project performed for one of the company's customers during the period.
Other, net includes net foreign currency gains or losses, interest income, rental income, and other miscellaneous income and expense. During the consideration receivedthree and nine months ended November 30, 2023, the Company had net foreign currency losses of $171 and $2,419, respectively, as compared to net foreign currency gains of $215 and losses of $3,872 for the investment held by the Company on the date of the transaction.
Income Tax Provision
The Company’s provision for income taxes consists of federal, foreign, and state taxes necessary to align the statutoryCompany’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 35%
For the three months ended November 30, 2023, the Company recorded an income tax provision of $97, which includes a discrete income tax benefit of $198 related primarily due to the ability to providefinalization of the federal tax return filing and reversal of uncertain tax position liabilities as a result of the lapse of the applicable statute of limitations. 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. The effective tax rates for domestic losses, asthe three months ended November 30,
41
2023 and 2022 were an income tax provision of 11.0% on pre-tax income of $880 and an income tax benefit of 168.6% a pre-tax income of $2,366, respectively.
The effective tax rate for the three months ended November 30, 2023 differs from the U.S. taxable income from discontinued operations is treatedstatutory rate of 21% as a sourceresult of a number of factors, primarily related to no income undertax benefit recorded on current year U.S and Japanese pre-tax losses given the intra-period allocation guidance, coupled withCompany maintains a full valuation allowance, income taxed in foreign jurisdictions at varying tax rates, nondeductible permanent differences, research and development credits, and adjustments to our deferred tax liability related to indefinite lived intangibles.
The effective tax rate for the mixthree months ended November 30, 2022 differed from the U.S. statutory rate of domestic and foreign earnings,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.
For the nine months ended November 30, 2023, the Company recorded an income tax benefit of $54, which includes a discrete income tax benefit of $515 related primarily to the finalization of certain tax filings and the reversal of uncertain tax position liabilities as a result of the lapse of the applicable statute of limitations, offset by the remeasurement of state deferred taxes based on law changes enacted during the period. 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 various federalthe reversal of uncertain tax credits.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. The effective tax rates for the three and nine months ended November 30, 2016 differ from the statutory rate2023 and 2022 were an income tax benefit of 35% primarily due to a mix0.2% on pre-tax loss of domestic and foreign earnings,$23,553 and an income tax provision resultingbenefit of 31.8% on a pre-tax loss of $18,200, respectively.
The effective tax rate for the nine months ended November 30, 2023 differs from the U.S. statutory rate of 21% as a result of a number of factors, primarily related to no income tax benefit recorded on current year U.S and Japanese pre-tax losses given the Company maintains a full valuation allowance, income taxed in foreign jurisdictions at varying tax rates, nondeductible permanent differences, research and development credits, and adjustments to our deferred tax liability related to indefinite lived intangibles.
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 deferred tax liabilities related to indefinite-lived intangibles.
EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per Common Share
EBITDA and Diluted Adjusted EBITDA per common share are not financial measures recognized by GAAP. EBITDA represents net income (loss)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, gains on the sale of discontinued operations,certain assets, foreign currency losses on forward contracts,(gains), restructuring expenses, acquisition costs, certain non-routine legal fees, and investment gains.awards. Depreciation, amortization, and stock-based compensation, and foreign currency losses (gains) are non-cash items. Diluted Adjusted EBITDA per common share represents the Company's diluted earnings per common share based on Adjusted EBITDA.
We present EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per common share in this Form 10-Q because we consider them to be useful and appropriate supplemental measures of our performance. Adjusted EBITDA and diluted adjusted earnings per common share helphelps 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 non-recurringcertain 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 and Diluted Adjusted EBITDA per common share 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.
42
Reconciliation of GAAP Net IncomeLoss Attributable to VOXX International Corporation to EBITDA and Adjusted EBITDA and Diluted Adjusted EBITDA per Common Share (2)
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) attributable to VOXX International Corporation and Subsidiaries |
| $ | 1,912 |
|
| $ | 7,421 |
|
| $ | (19,890 | ) |
| $ | (9,322 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense and bank charges (1) |
|
| 1,688 |
|
|
| 1,263 |
|
|
| 4,405 |
|
|
| 2,500 |
|
Depreciation and amortization (1) |
|
| 2,808 |
|
|
| 3,053 |
|
|
| 9,003 |
|
|
| 9,406 |
|
Income tax expense (benefit) |
|
| 97 |
|
|
| (3,988 | ) |
|
| (54 | ) |
|
| (5,788 | ) |
EBITDA |
|
| 6,505 |
|
|
| 7,749 |
|
|
| (6,536 | ) |
|
| (3,204 | ) |
Stock-based compensation |
|
| 177 |
|
|
| 145 |
|
|
| 643 |
|
|
| 407 |
|
Gain on sale of tradename |
|
| — |
|
|
| — |
|
|
| (450 | ) |
|
| — |
|
Foreign currency losses (gains) (1) |
|
| 144 |
|
|
| (223 | ) |
|
| 2,320 |
|
|
| 3,867 |
|
Restructuring expenses |
|
| 101 |
|
|
| 303 |
|
|
| 2,168 |
|
|
| 532 |
|
Acquisition costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 136 |
|
Non-routine legal fees |
|
| 318 |
|
|
| 28 |
|
|
| 1,549 |
|
|
| 886 |
|
Final arbitration award |
|
| 752 |
|
|
| 986 |
|
|
| 3,350 |
|
|
| 2,958 |
|
Adjusted EBITDA |
| $ | 7,997 |
|
| $ | 8,988 |
|
| $ | 3,044 |
|
| $ | 5,582 |
|
| Three Months Ended November 30, | Nine Months Ended November 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income attributable to VOXX International Corporation | $ | 8,644 | $ | 5,800 | $ | 22,720 | $ | 4,512 | ||||||||
| Adjustments: | ||||||||||||||||
| Interest expense and bank charges (1) | 921 | 1,824 | 4,327 | 5,134 | ||||||||||||
| Depreciation and amortization (1) | 2,685 | 4,225 | 11,162 | 12,715 | ||||||||||||
| Income tax (benefit) expense | (205 | ) | 3,434 | 1,939 | (218 | ) | ||||||||||
| EBITDA | 12,045 | 15,283 | 40,148 | 22,143 | ||||||||||||
| Stock-based compensation | 146 | 205 | 445 | 568 | ||||||||||||
| Gain on sale of discontinued operation | — | — | (36,118 | ) | — | |||||||||||
| Loss on forward contracts attributable to sale of business | — | — | 6,618 | — | ||||||||||||
| Investment gain | — | — | (1,416 | ) | — | |||||||||||
| Adjusted EBITDA | $ | 12,191 | $ | 15,488 | $ | 9,677 | $ | 22,711 | ||||||||
| Diluted income per common share attributable to VOXX International Corporation | $ | 0.35 | $ | 0.24 | $ | 0.94 | $ | 0.19 | ||||||||
| Diluted Adjusted EBITDA per common share attributable to VOXX International Corporation | $ | 0.50 | $ | 0.64 | $ | 0.40 | $ | 0.94 | ||||||||
Liquidity and Capital Resources
Cash Flows, Commitments and Obligations
As of November 30, 2017,2023, we had working capital of $172,679$122,420 which includes cash and cash equivalents of $37,514,$10,393, compared with working capital of $143,281$131,634 at February 28, 2017,2023, which included cash and cash equivalents of $956.$6,134. 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, 2017,2023, we had cash amountsbalances totaling $1,564$923 held in foreign bank accounts, $925none of which would behave been subject to U.S.United States federal income taxes if made available for use in the United States.
Operating activities usedprovided cash of $38,948$3,520 for the nine months ended November 30, 2017, principally2023 due to increasesprimarily the decrease in inventory and the Company'sincrease in accrued sales incentives. This was offset by an increase in accounts receivable prepaid expenses and other assets,a decrease in contingent consideration payable, as well as decreases in accounts payable,due to the decrease the Company's net sales and was offsetlosses incurred by increases in accrued expenses and accrued sales incentives.EyeLock LLC. For the nine months ended November 30, 2016,2022, operating activities used cash of $15,132$48,301 due primarily to increasesfactors 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 in the Company's inventory andnet sales. This was offset primarily by the decrease in accounts receivable balances due to holiday season sales activity, offset byand an increase in accounts payable.
Investing activities providedused cash of $161,944$1,973 during the nine months ended November 30, 20172023 primarily as a result ofdue to capital expenditures, offset by the proceeds from the sale of Hirschmann on August 31, 2017, which was offset by cash used for capital additions, as well as the acquisition of Rosen Electronics LLC and the issuance of notes receivable.intangible assets. For the nine months ended November 30, 2016,2022, investing activities used cash of $8,607,$2,932 primarily as a result ofdue to capital additions made during the period.
Financing activities usedprovided cash of $91,663$614 during the nine months ended November 30, 2017,2023 due primarily to borrowings from the Company's Credit Facility. This was offset by repayments of borrowings from the Credit Facility, the Florida mortgage, and finance leases, as well as due to the repaymentpurchase of balances outstanding on the Company's Credit Facility as a result of the sale of Hirschmann. Financing activities provided cash of $17,234 duringtreasury shares. During the nine months ended November 30, 2016, primarily2022, financing activities provided cash of $27,470 due to borrowings from the Company's Credit Facility. This was offset by repayments of bank obligations,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 repayments.
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, which may be increased, at the option of the Company, up to a maximum of $175,000, and a term loan in the amount of $15,000. The Credit Facility also includes a $15,000 sublimit for letters of credit and a $15,000 sublimit for swingline loans.$165,000. The availability under the revolving credit line within the Credit Facility is subject to a borrowing
43
base, which is based on eligible accounts receivable, eligible inventory, and certain real estate, and certain intellectual property, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 15(b)17(b)). In conjunction with the sale of Hirschmann on August 31, 2017 (see Note 2), the Company paid down substantially all of the outstanding balance of the revolving credit facility, as well as the entire outstanding balance of the term loan. As of November 30, 2017, there was no balance outstandingThe availability under the revolving credit facility. The remaining availability under revolving credit line of the Credit Facility was $99,097$59,283 as of November 30, 2017.
All amounts outstanding under the Credit Facility will mature and become due on April 26, 2021;19, 2026; however, it is subject to acceleration upon the occurrence of an Event of Default (as defined in the Credit 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.time. 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 LIBORSOFR Rate Loans, except that SwinglineSwing Loans may only be designated as Base Rate Loans. Loans designated as LIBORSOFR Rate Loans shall bear interest at a rate equal to the then applicable LIBORSOFR 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.
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 Changechange of Control;control; (ix) make any Restricted Junior Payment;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
The obligations under the loanCredit 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 Credit Agreement.
The Company has a Euro asset-based loan facility in Germany with a credit limit of €8,000 that expires on October 31, 2017,2024. 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 completedhas agreed to sell certain of its saleaccounts 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 Hirschmann to a subsidiaryaccounts 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 Company's Consolidated Statements of TE. The consideration receivedCash Flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company was €148,500. The purchase price, atCompany.
As noted elsewhere in this report, we expect that the exchange rate asresidual effects of the close of businessCOVID-19 pandemic, as well as other macroeconomic factors, may continue to have an adverse effect on August 31, 2017 approximated $177,000,our business. We have proactively taken steps to increase available cash including, but not limited to, utilizing existing supply chain financing agreements and is subject to adjustment based upon the final working capital. At February 28, 2017 a total of $92,793 was outstanding under the Credit Facility. The decrease in the outstanding credit facility balance as compared to November 30, 2017 is principally a result of the Company's decision to pay down the outstanding balance of theamending our Credit Facility in conjunction with the sale of Hirschmann.
44
Material Cash Requirements
Certain contractual cash obligations and other commercial commitments will impact our short and long-term liquidity. At
November 30,
|
| Amount of Commitment Expiration per Period |
| |||||||||||||||||
Contractual Cash Obligations |
| Total |
|
| Less than |
|
| 2-3 |
|
| 4-5 |
|
| After |
| |||||
Finance lease obligation (1) |
| $ | 596 |
|
| $ | 277 |
|
| $ | 319 |
|
| $ | — |
|
| $ | — |
|
Operating leases (1) |
|
| 3,163 |
|
|
| 971 |
|
|
| 1,160 |
|
|
| 460 |
|
|
| 572 |
|
Total contractual cash obligations |
| $ | 3,759 |
|
| $ | 1,248 |
|
| $ | 1,479 |
|
| $ | 460 |
|
| $ | 572 |
|
Other Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bank obligations (2) |
| $ | 39,000 |
|
| $ | — |
|
| $ | 39,000 |
|
| $ | — |
|
| $ | — |
|
Stand-by and commercial letters of credit (3) |
|
| 50 |
|
|
| 50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other (4) |
|
| 9,581 |
|
|
| 500 |
|
|
| 5,240 |
|
|
| — |
|
|
| 3,841 |
|
Unconditional purchase obligations (5) |
|
| 75,819 |
|
|
| 75,819 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total other commitments |
|
| 124,450 |
|
|
| 76,369 |
|
|
| 44,240 |
|
|
| — |
|
|
| 3,841 |
|
Total commitments |
| $ | 128,209 |
|
| $ | 77,617 |
|
| $ | 45,719 |
|
| $ | 460 |
|
| $ | 4,413 |
|
1.
| Amount of Commitment Expiration per Period (9) | ||||||||||||||||||||
| Less than | 2-3 | 4-5 | After | |||||||||||||||||
| Contractual Cash Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
| Capital lease obligation (1) | $ | 1,081 | $ | 307 | $ | 613 | $ | 161 | $ | — | ||||||||||
| Operating leases (2) | 3,140 | 1,336 | 961 | 456 | 387 | |||||||||||||||
| Total contractual cash obligations | $ | 4,221 | $ | 1,643 | $ | 1,574 | $ | 617 | $ | 387 | ||||||||||
| Other Commitments | ||||||||||||||||||||
| Bank obligations (3) | $ | 6,092 | $ | 6,092 | $ | — | $ | — | $ | — | ||||||||||
| Stand-by and commercial letters of credit (4) | 1,161 | 1,161 | — | — | — | |||||||||||||||
| Other (5) | 13,030 | 1,583 | 4,208 | 1,000 | 6,239 | |||||||||||||||
| Pension obligation (6) | 650 | — | — | — | 650 | |||||||||||||||
| Unconditional purchase obligations (7) | 77,336 | 77,336 | — | — | — | |||||||||||||||
| Total other commitments | 98,269 | 86,172 | 4,208 | 1,000 | 6,889 | |||||||||||||||
| Total commitments | $ | 102,490 | $ | 87,815 | $ | 5,782 | $ | 1,617 | $ | 7,276 | ||||||||||
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
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. Under the Agreement, in addition to paying for any products purchased, GalvanEyes agreed to pay EyeLock $10,000 in the form of an annual fee, over a two-year period, of up to $5,000 per year, with
45
payments on a quarterly basis beginning on September 1, 2021 and ending on August 31, 2023. The quarterly installment payments owed by GalvanEyes for both the three months ended May 31, 2023 and August 31, 2023 remain unpaid and are currently past due. GalvanEyes and the Company are considering renegotiating the distribution agreement and have agreed to defer the payments due on May 31, 2023 and August 31, 2023 to February 29, 2024, pending the resolution of the renegotiation. The past due payments, plus accrued interest, are recorded as receivables due from GalvanEyes at November 30, 2023 on the Consolidated Balance Sheet. See Note 21 of the Notes to the Unaudited Consolidated Financial Statement of this Form 10-Q.
On February 6, 2023, the Company appointed Beat Kahli President of VOXX International Corporation. Patrick Lavelle continues to serve as CEO of the Company. Mr. Kahli and Mr. Lavelle continue to serve as members of the Company's Board of Directors, with Mr. Kahli continuing to serve as Co-Vice Chairman of the Board.
New Accounting Pronouncements
We are required to adopt certain new accounting pronouncements. See Note 2325 to our consolidated financial statements included herein.
46
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency
Voxx conducts business in various non-U.S. countries, including Germany, Canada, Mexico, China, Hong Kong, Venezuela, Denmark, the Netherlands, France, Australia, and FranceJapan and thus is exposed to market risk for changes in foreign currency exchange rates. A cumulativeAs a result, we have exposure to various foreign currency translation loss of $(14,162) related to the Company’s foreign subsidiaries is included in Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet at November 30, 2017. The aggregate foreign currency transaction exchange rate losses included in determiningfluctuations for revenues generated by our operations outside of the U.S., which can adversely impact our net income before income taxes were $(77) and $(8,296) for the three and nine months ended November 30, 2017, respectively, compared to $314 and $(459) for the three and nine months ended November 30, 2016, respectively. Included in the foreign currency losses for the nine months ended November 30, 2017 are losses on forward contracts totaling $(6,618) incurred in conjunction with the sale of Hirschmann.cash flows. For the three and nine months ended November 30, 2017,2023, 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 from continuing operations of approximately $2,600$5,500 and $6,500,$8,300, respectively, and a decrease in net income from continuing operations of approximately $200$50 for the three months ended November 30, 2023 and $400, respectively.an increase in net loss of $170 for the nine months ended November 30, 2023. 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 continuesalso has exposure related to monitortransactions in which the politicalcurrency collected from customers is different from the currency utilized to purchase the product sold in its foreign operations, and economic climateU.S. dollar denominated purchases in Venezuela. Venezuela did not have any sales forits 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, 2017. Approximately $68 of assets invested in Venezuela are cash related and are subject to government foreign exchange controls. The2023, the Company also maintains $3,576 in real estate property in Venezuela that could be subject to government foreign exchange controls upon their ultimate sale, or as a result of additional currency restrictions.
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 utilizedincluded in Accumulated other comprehensive (loss) income. At November 30, 2023, we had translation exposure to hedge a portion of itsvarious foreign currencies with the most significant being the Euro. A hypothetical 10% adverse change in the foreign currency inventory purchases. Asrates would result in a negative impact of November 30, 2017,$130 on Other comprehensive income (loss) for the total net fair value of our forward foreign currency contracts recorded in Accrued expenses and other liabilities and Prepaid expenses and other current assets on our Consolidated Balance Sheet was $(414). Total gains recognized related to forward foreign currency contracts related to continuing operations and settled during the three and nine months ended November 30, 2017 were $(218)2023.
Interest Rate Risk
Our earnings and $99, respectively, comparedcash flows are subject to $85fluctuations due to changes in interest rates on investment of available cash balances in money market funds and $343, respectively, duringinvestment 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 threeunderlying obligations are either variable or fixed. We have variable rate indebtedness related to our Credit Facility and nine months endedEuro asset-based lending facility in Germany. Our results of operations, cash flows and financial condition could be materially adversely affected by significant increases in interest rates to the extent that we have balances outstanding under these variable rate loans. At November 30, 2016.
As of
November 30,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,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 three-month periodnine months ended
47
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 2224 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
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,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 common stock repurchased during the threeCompany's Class A Common Stock. During the nine months ended November 30, 2017.
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 |
| ||||
3/1/2023 - 3/31/2023 |
|
| 225,659 |
|
| $ | 11.80 |
|
|
| 225,659 |
|
|
| 1,571,778 |
|
4/1/2023 - 4/30/2023 |
|
| 7,182 |
|
|
| 11.95 |
|
|
| 7,182 |
|
|
| 1,564,596 |
|
5/1/2023 - 5/31/2023 |
|
| 138,246 |
|
|
| 9.78 |
|
|
| 138,246 |
|
|
| 1,426,350 |
|
6/1/2023 - 6/30/2023 |
|
| 220,365 |
|
|
| 11.14 |
|
|
| 220,365 |
|
|
| 1,205,985 |
|
8/1/2023 - 8/31/2023 |
|
| 47,466 |
|
|
| 8.36 |
|
|
| 47,466 |
|
|
| 1,158,519 |
|
9/1/2023 - 9/30/2023 |
|
| 103,511 |
|
|
| 7.80 |
|
|
| 103,511 |
|
|
| 1,055,008 |
|
10/1/2023 - 10/31/2023 |
|
| 112,439 |
|
|
| 7.68 |
|
|
| 112,439 |
|
|
| 942,569 |
|
11/1/2023 - 11/30/2023 |
|
| 650 |
|
|
| 10.02 |
|
|
| 650 |
|
|
| 941,919 |
|
Total other commitments |
|
| 855,518 |
|
|
|
|
|
|
|
|
|
| |||
48
ITEM 6. EXHIBITS
Exhibit Number | Description | |
10.1 | ||
10.2 | ||
10.3 | ||
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, | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
49
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, 2024 | ||
By: | /s/ Patrick M. Lavelle | |
Patrick M. Lavelle, | ||
Chief Executive Officer | ||
By: | /s/ Charles M. Stoehr | |
Charles M. Stoehr, | ||
Senior Vice President and Chief Financial Officer | ||
50