Audiovox Q2 Earnings Improve on Strong Klipsch Sales

Q2 net revenue rose to $158.3 million from $129.9 million a year ago, including $39.5 million in Klipsch-related sales. Minus Klipsch, Audiovox’s revenue would have declined to $118.8 million. Klipsch revenue increased from a year ago, but Audiovox officials declined to disclose the amount of sales. CE sales, which included Klipsch, improved to $126.6 million from $95.1 million a year earlier, while those from accessories dipped to $31.6 million from $34 million. The company’s Q2 gross margins increased to 27.7 percent from 21.2 percent last year.

Klipsch sales helped offset Q2 revenue declines in camcorders, radios, digital audio players and digital voice recorders, satellite radio and audio, the company said. Audiovox’s earnings also benefitted from increases in its OEM automotive business. Audiovox’s OEM sales are expected to be about $115 million this year, with mobile after-market totals $175 million, company officials have said. The automotive business includes sales of remote start products and rear-seat entertainment systems featuring LCDs built into a vehicle’s headrest.

Audiovox incurred $239,000 in Q2 in expenses related to its $169.5 million acquisition of Klipsch earlier this year. Klipsch added about $9.6 million to Q2 total operating expenses, which rose to $36.2 million from $27.2 million, company officials said. Within operating expenses, general and administrative costs jumped to $20.7 million from $16 million. Sales incentive expenses increased by $2 million in Q2 as a result of the addition of Klipsch, Audiovox said. Audiovox borrowed $89 million under a $175 million credit facility with Wells Fargo Capital Finance to fund the Klipsch purchase, $50 million of which was outstanding as of Aug. 31, the company said. The credit facility matures March 1, 2016.

Audiovox’s improved Q2 earnings came despite a $877,000 impairment charge on its investment in Bliss-tel. Audiovox, which owned 20 percent of Bliss-tel, has 36 million shares and 22.5 million warrants valued at $48,000 and $8,000. Trading of Bliss-tel was suspended earlier this year on the Security Exchange of Thailand as the company suffered “significant losses” and got a loan from a managing director to fund working capital, Audiovox said. Audiovox also has $7.9 million in contingent earn-out payments as part of its 2006 acquisition of Thomson’s accessories business (CED Dec 22/06 p1), including $3.5 million that’s due in less than a year, the company said. Audiovox acquired the rights to the RCA brand for AV products from Thomson a year later (CED Oct 17/07 p3).

Audiovox thinks its fiscal Q3 earnings will benefit from shipments this fall of new Sirius XM 2.0 receivers that are expected to increase the number of channels available and broaden content offerings, Audiovox CEO Patrick LaVelle said. An Audiovox spokesman declined comment on product details. But the new platform has time-shift recording capability, increased storage for portable devices and on-demand services, industry officials have said. Sirius XM 2.0 also is expected to include two-way Internet communication to support so-called “personalized radio channels,” industry officials familiar with the products have said. Listeners will be able to vote on the music being listened to and the system will queue up music based on tastes. The 2.0 platform is expected to be available in the OEM automotive business within one to two years, Audiovox said.

The company also has benefitted from expanded distribution, including sales of Acoustic Research indoor/outdoor wireless speakers through Menards, True Value and Bed, Bath & Beyond. The AR AW826 speakers ($84.99 a pair) use the 900 MHZ spectrum and have a range up to 150 feet. An RCA brand version of the speakers in being sold through Lowe’s.

Audiovox also added new product lines, including its first entry in the location-based services market. The Audiovox Car Connection Powered by Sprint will be introduced at CES in January and ship in Q1. The device will plug into a vehicle’s on-board diagnostics port to allow for tracking vehicles, speed notification and driver-scoring for fleet and consumer use. Another application being considered is disabling texting while a vehicle is in motion. Audiovox is selling its RCA Symphonix personal sound amplifier ($299) through 2,000 RadioShack stores, company officials said. The Symphonix fits behind an ear, enhancing speech frequencies using a HD digital signal processor, while reducing background noise. Audiovox also has entered Verizon and AT&T stores with Klipsch headphones, including the Image S4A for Android cellphones ($99). Klipsch also is shipping the Mode noise cancelling headphones ($349). The company is seeking to expand into hotels with universal remotes.