Voxx Bullish on FY '22 Outlook Despite Supply Chain 'Turmoil,' Says CEO
Voxx has a “great deal of optimism” for FY 2022, after navigating the "global turmoil" of components shortages and supply chain bottlenecks, said CEO Pat Lavelle on a Wednesday call, reporting fiscal Q2 earnings. The company instituted two price increases to address higher supply chain costs -- the latest in September to offset a steep hike in container pricing -- and has the inventory "on hand to deliver in our all-important third quarter," he said.
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The company added new or alternative suppliers to augment component availability, changed its ordering protocol to compensate for longer lead times and modified circuit boards to use alternative chips, Lavelle said. The methods combined "will give us more flexibility in terms of how we manage the business in the quarters ahead."
Voxx "grew nicely" dealing with the supply chain turmoil, but at the expense of gross margin, said Chief Financial Officer Michael Stoehr. Some of the higher costs will be offset in Q3 and Q4 by a second wave of price increases “and hopefully more stabilization in the markets,” Stoehr said. The company is “aggressively procuring what we need when we can,” he said. It took on costs for added ways “to ensure we had as much inventory on hand as we can” for the second half.
Q2 revenue grew 15% year on year in Q2 to $143.1 million and is up 40% for the first half, “despite missing a few inventory turns” due to shipping delays, said Lavelle. Gross margins in the CE segment were hit by higher supply chain costs for freight and warehousing, he said, forecasting “continued pressure” through the year.
The company’s automotive segment grew by 40% year on year to $45.8 million, “despite all of the shortages and delays” that affected aftermarket dealers and placed “significant strain” on OEM customers, Lavelle said. The environment “worsened” in Q2, with some carmakers shutting plants for lack of parts, he said. Voxx expects the supply situation to normalize next year when more capacity comes on line.
Voxx had higher sales from its DEI subsidiary, higher OEM sales for rear-seat entertainment with Amazon's Fire TV, and a bump in sales for automotive safety and security products, it said. The OEM business was up 53% year on year on rear-seat entertainment programs with Nissan and Stellantis that began last quarter “and should ramp up in volume” as customers increase production, Lavelle said. Ford will begin producing Amazon Fire TV entertainment systems in Q4, he said.
The CE segment grew by 2% in the quarter with Premium Audio sales up 10%, offsetting declines in other category products, said Lavelle. Most CE declines involved inventory and chip shortages, which led to production delays, he said, also citing “continued store closures in New York.” The CE group had gains in premium wireless speakers, computer speakers and premium headphones in Europe. Voxx expects Premium Audio to deliver $50 million in revenue this fiscal year and, “provided we don’t have any additional shipment issues,” could top that, said Lavelle.
Eleven Trading, with North American distribution rights for the Onkyo, Pioneer, Pioneer Elite, Integra, Magnat and Heco brands, had an $11.4 million sales increase in Q2, Lavelle said. Biometric segment sales were relatively flat for the quarter at about $300,000. The company expects more meaningful revenue increases and smaller losses for Biometrics in the future.
Voxx had a Q2 operating loss of $3.1 million vs. operating income of $400,000 in the prior year, Lavelle said. About $20 million increase in operating expenses in Q2 was due to higher selling, administrative, engineering and technical support costs, plus $2.7 million in acquisition costs for the purchase of Onkyo’s home audio business and a new distribution deal with GalvanEyes, said Lavelle. The company brought back furloughed employees in the quarter and invested in large OEM programs, he said.
On potential acquisitions, Lavelle said Voxx has its eyes on strategic buys it would like to “pull off in a year or two.” He said there’s “no rush,” saying the company is still digesting purchases it’s made over the past couple of years, toward a goal of reaching $1 billion in annual revenue. The September Onkyo buy (see 2109100052) “brings us close to $900 million,” he said.
Voxx doesn’t typically provide revenue guidance, “but given all that has transpired, we’d like to offer some direction for Q3 and Q4,” said Lavelle, with the outlook based on projections and recent results. “Barring any unforeseen events,” it expects sales to be up “modestly” in the second half “with the third quarter below and the fourth quarter above" prior year periods. Revenue guidance for FY 2022 is $640 million-$650 million, with guidance of double-digit growth in 2023, he said. The stock closed 7.8% lower Wednesday at $10.19.