VOXX International (VOXX) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited consolidated financial statements show declining assets, significant net losses, and negative operating cash flow Consolidated Balance Sheets Total assets and stockholders' equity decreased, driven by reductions in cash and accounts receivable Consolidated Balance Sheet Summary | Metric | August 31, 2022 (unaudited) (in thousands) | February 28, 2022 (in thousands) | Change (in thousands) | | :-------------------------- | :--------------------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents | $4,326 | $27,788 | $(23,462) | | Accounts receivable, net | $80,375 | $105,625 | $(25,250) | | Inventory | $192,931 | $174,922 | $18,009 | | Total current assets | $301,165 | $330,772 | $(29,607) | | Total assets | $546,822 | $586,664 | $(39,842) | | Accounts payable | $50,851 | $76,665 | $(25,814) | | Total current liabilities | $163,976 | $204,016 | $(40,040) | | Total liabilities | $223,029 | $236,501 | $(13,472) | | Total stockholders' equity | $320,331 | $346,102 | $(25,771) | Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income The company reported a significant net loss due to decreased sales, lower gross profit, and higher operating losses Operations and Comprehensive (Loss) Income Summary | Metric (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | Change (YoY) | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | Change (YoY) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net sales | $125,705 | $143,109 | $(17,404) | $254,437 | $280,169 | $(25,732) | | Gross profit | $29,257 | $37,186 | $(7,929) | $62,496 | $73,881 | $(11,385) | | Operating loss | $(9,974) | $(2,738) | $(7,236) | $(16,675) | $(3,094) | $(13,581) | | Net (loss) income attributable to VOXX International Corporation | $(10,216) | $311 | $(10,527) | $(16,743) | $3,027 | $(19,770) | | (Loss) income per share - basic | $(0.42) | $0.01 | $(0.43) | $(0.69) | $0.12 | $(0.81) | Unaudited Consolidated Statements of Stockholders' Equity Total stockholders' equity declined primarily due to net losses and foreign currency translation adjustments Stockholders' Equity Summary | Metric (in thousands) | Balance at Feb 28, 2022 | Balance at Aug 31, 2022 | Change | | :------------------------------------------ | :---------------------- | :---------------------- | :------- | | Total Stockholders' Equity | $346,102 | $320,331 | $(25,771) | | Net loss attributable to VOXX International Corporation | N/A | $(16,743) (6 months) | $(16,743) | | Other comprehensive loss, net of tax | N/A | $(3,364) (6 months) | $(3,364) | | Cash settlement of market stock units | N/A | $(4,000) | $(4,000) | | Stock-based compensation expense | N/A | $262 | $262 | Unaudited Consolidated Statements of Cash Flows A significant net decrease in cash was driven by cash used in operations, offset by financing from borrowings Cash Flow Summary | Metric (in thousands) | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | | Net cash used in operating activities | $(46,317) | $(5,529) | $(40,788) | | Net cash used in investing activities | $(2,226) | $(10,228) | $8,002 | | Net cash provided by (used in) financing activities | $20,807 | $(2,375) | $23,182 | | Net decrease in cash and cash equivalents | $(23,462) | $(18,353) | $(5,109) | | Cash and cash equivalents at end of period | $4,326 | $41,051 | $(36,725) | Notes to Unaudited Consolidated Financial Statements Notes detail segment operations, the Onkyo acquisition, accounting policies, and significant financial changes (1) Basis of Presentation - The unaudited interim consolidated financial statements are prepared in accordance with GAAP and SEC rules, including normal recurring adjustments[20] - The Company operates in three reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics[21] (2) Acquisitions - On September 8, 2021, the Company's subsidiary, Premium Audio Company LLC (PAC), completed the acquisition of certain assets of Onkyo Home Entertainment Corporation (OHEC) through a joint venture[22] - The acquisition expanded the Company's market share and product offerings in the premium audio industry, including Onkyo, Integra, and Pioneer brands[27] Acquisition Metrics | Acquisition Metric (in thousands) | September 8, 2021 (as adjusted) | | :-------------------------------- | :------------------------------ | | Total transaction consideration | $37,184 | | Intangible assets acquired | $19,024 | | Goodwill acquired | $18,160 | (3) Net (Loss) Income Per Common Share - Restricted stock units, stock grants, and market stock units were excluded from diluted EPS calculation for the three and six months ended August 31, 2022, as their inclusion would have been anti-dilutive[32] Weighted-Average Common Shares Outstanding | Metric | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Weighted-average common shares outstanding (basic) | 24,423,577 | 24,281,220 | 24,418,020 | 24,273,731 | | Weighted-average common shares outstanding (diluted) | 24,423,577 | 24,855,307 | 24,418,020 | 24,890,641 | (4) Investment Securities - Mutual funds are held in connection with the Company's deferred compensation plan, with changes in carrying value offset by corresponding liability changes[34] Investment Securities Fair Value | Investment Type (in thousands) | August 31, 2022 (Fair Value) | February 28, 2022 (Fair Value) | | :----------------------------- | :--------------------------- | :----------------------------- | | Mutual funds | $1,225 | $1,231 | | Total Investment Securities | $1,225 | $1,231 | (5) Fair Value Measurements and Derivatives - Contingent consideration, related to the Onkyo acquisition, is a Level 3 liability valued using an income approach based on future purchase projections[39] - The Company uses an interest rate swap to hedge interest rate exposure on its Florida Mortgage, locking the rate at 3.48%[41][42] Fair Value of Financial Instruments | Financial Instrument (in thousands) | August 31, 2022 (Total Fair Value) | February 28, 2022 (Total Fair Value) | | :---------------------------------- | :--------------------------------- | :----------------------------------- | | Cash and money market funds (Level 1) | $4,326 | $27,788 | | Mutual funds (Level 1) | $1,225 | $1,231 | | Derivatives designated for hedging (Level 2) | $84 | $188 (liability) | | Contingent consideration (Level 3) | $5,018 | $6,435 | (6) Accumulated Other Comprehensive Loss - Foreign currency translation losses of $(3,622) thousand for the six months ended August 31, 2022, were primarily due to the remeasurement of intercompany transactions[49] Changes in Accumulated Other Comprehensive Loss | Component (in thousands) | Balance at Feb 28, 2022 | Net Current-Period Other Comprehensive (Loss) Income (6 Months Ended Aug 31, 2022) | Balance at Aug 31, 2022 | | :------------------------------------------ | :---------------------- | :----------------------------------------------------------------- | :---------------------- | | Foreign Currency Translation Losses | $(16,691) | $(3,622) | $(20,313) | | Pension plan adjustments, net of tax | $(711) | $72 | $(639) | | Derivatives designated for hedging, net of tax | $(101) | $186 | $85 | | Total Accumulated Other Comprehensive Loss | $(17,503) | $(3,364) | $(20,867) | (7) Supplemental Cash Flow Information Non-Cash Investing & Financing Activities | Non-Cash Investing & Financing Activities (in thousands) | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------------------------------- | :-------------------------- | :-------------------------- | | Recording of redeemable equity | $(108) | $85 | | Reclassification of stockholders' equity to redeemable equity | $341 | - | | Right of use assets obtained for operating lease obligations | $659 | - | | Change in goodwill due to measurement period adjustments, net | - | $(1,353) | | Cash paid for interest (excluding bank charges) | $671 | $310 | | Cash paid for income taxes (net of refunds) | $1,742 | $402 | (8) Accounting for Stock-Based Compensation - The Company granted 46,556 Restricted Stock Units (RSUs) in July 2022 under the 2014 Plan[53] - For the CEO, Patrick M. Lavelle, 80% of his Market Stock Unit (MSU) award vested on March 1, 2022, and was settled in $4,000 thousand cash[56] Stock-Based Compensation Expense | Stock-Based Compensation (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation expense | $136 | $237 | $262 | $473 | (9) Supply Chain Financing - The Company uses supply chain financing and factoring agreements to accelerate receivable collection and manage cash flow[59] Receivable Balances Sold | Receivable Balances Sold (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total receivable balances sold, net of discounts | $21,478 | $29,975 | $41,682 | $42,176 | (10) Research and Development - Research and development expenditures are expensed as incurred and are included within Engineering and technical support expenses[61] R&D Expenditures | R&D Expenditures (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total expenditures | $2,528 | $3,624 | $5,097 | $5,945 | (11) Goodwill and Intangible Assets - Goodwill for Consumer Electronics decreased by $2,908 thousand due to foreign currency adjustments[62] - Amortization expense for intangible assets increased to $1,663 thousand and $3,588 thousand for the three and six months ended August 31, 2022, respectively[64] Net Carrying Value of Goodwill and Intangible Assets | Asset Type (in thousands) | August 31, 2022 (Net Carrying Value) | February 28, 2022 (Net Carrying Value) | | :------------------------ | :----------------------------------- | :----------------------------------- | | Total Goodwill, net | $71,412 | $74,320 | | Total Intangible Assets, net | $94,599 | $101,450 | (12) Equity Investment - The Company holds a 50% non-controlling ownership interest in ASA Electronics, LLC[65] - The Company's share of income from ASA decreased due to a decline in ASA's revenue, gross profit, and net income[67][171] ASA Financials | ASA Financials (in thousands) | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :---------------------------- | :-------------------------- | :-------------------------- | | Net sales | $56,199 | $61,560 | | Net income | $6,702 | $9,516 | | Company's share of income | $3,351 | $4,758 | (13) Income Taxes - The Inflation Reduction Act of 2022 is not expected to materially impact the Company's financial statements[70][175] - The effective tax rates for both periods differed from the U.S. statutory rate of 21% due to various factors including non-controlling interest and valuation allowances[72][74] Income Tax Metrics | Income Tax Metric (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax (benefit) expense | $(708) | $(217) | $(1,800) | $267 | | Effective tax rate | 6.1% (benefit) | 23.9% (benefit) | 8.8% (benefit) | 19.5% (provision) | (14) Inventory Inventory Breakdown | Inventory Category (in thousands) | August 31, 2022 | February 28, 2022 | Change | | :-------------------------------- | :-------------- | :---------------- | :----- | | Raw materials | $21,492 | $23,904 | $(2,412) | | Work in process | $1,279 | $1,519 | $(240) | | Finished goods | $170,160 | $149,499 | $20,661 | | Total Inventory | $192,931 | $174,922 | $18,009 | (15) Product Warranties and Product Repair Costs - The liability for product warranties is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets[77] Warranty Activity | Warranty Activity (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Opening balance | $6,268 | $5,390 | $5,622 | $5,290 | | Liabilities accrued | $1,299 | $537 | $3,297 | $1,237 | | Warranty claims settled | $(1,328) | $(1,080) | $(2,680) | $(1,680) | | Ending balance | $6,239 | $4,495 | $6,239 | $4,495 | (16) Financing Arrangements - The Company's Credit Facility has a committed availability of up to $140,000 thousand, with $101,571 thousand available as of August 31, 2022[80][81][83][84] - The Florida Mortgage bears interest at 70% of 1-month LIBOR plus 1.54% and is hedged with an interest rate swap to a fixed rate of 3.48%[88][90] - The shareholder loan payable to Sharp, related to the Onkyo joint venture, has a 2.5% interest rate and matures on September 8, 2031[92] Debt Summary | Debt Type (in thousands) | August 31, 2022 | February 28, 2022 | Change | | :----------------------- | :-------------- | :---------------- | :----- | | Domestic credit facility | $27,400 | $0 | $27,400 | | Florida mortgage | $6,365 | $6,614 | $(249) | | Shareholder loan payable to Sharp | $3,976 | $4,718 | $(742) | | Total debt | $37,741 | $13,238 | $24,503 | (17) Other (Expense) Income - Foreign currency losses for the three and six months ended August 31, 2022, were primarily due to declines in the Japanese Yen[94] Other (Expense) Income Breakdown | Other (Expense) Income (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Foreign currency (loss) gain | $(1,721) | $(2) | $(4,087) | $114 | | Interest income | $4 | $5 | $9 | $12 | | Rental income | $230 | $197 | $451 | $361 | | Miscellaneous | $(32) | $176 | $(2) | $331 | | Total other, net | $(1,519) | $376 | $(3,629) | $818 | (18) Lease Obligations - The Company has operating leases for office equipment, offices, and facilities, and finance leases primarily for computer hardware and machinery[96] Lease Summary | Lease Type (in thousands) | August 31, 2022 | February 28, 2022 | | :------------------------ | :-------------- | :---------------- | | Operating lease, right of use assets | $4,106 | $4,464 | | Total operating lease liabilities | $4,125 | $4,553 | | Total finance lease right of use assets | $149 | $295 | | Total finance lease liabilities | $155 | $302 | | Weighted Average Remaining Lease Term (Operating) | 5.2 years | 5.5 years | | Weighted Average Remaining Lease Term (Finance) | 1.0 years | 1.3 years | (19) Capital Structure Capital Structure Summary | Security Type | Shares Authorized (Aug 31, 2022) | Shares Outstanding (Aug 31, 2022) | Voting Rights per Share | Liquidation Rights | | :---------------- | :------------------------------- | :-------------------------------- | :---------------------- | :----------------- | | Preferred Stock | 50,000 | — | — | $50 per share | | Class A Common Stock | 60,000,000 | 21,675,966 | 1 | Ratably with Class B | | Class B Common Stock | 10,000,000 | 2,260,954 | 10 | Ratably with Class A | | Treasury Stock | 2,862,218 (at cost) | N/A | N/A | N/A | (20) Variable Interest Entity - VOXX is the primary beneficiary of EyeLock LLC, a market leader in iris-based identity authentication solutions[103][104][106] - EyeLock LLC entered into an exclusive distribution agreement with GalvanEyes LLC, which includes an annual fee of up to $5,000 thousand per year[105] EyeLock LLC Financials | EyeLock LLC Financials (in thousands) | August 31, 2022 | February 28, 2022 | | :------------------------------------ | :-------------- | :---------------- | | Total assets | $4,598 | $4,500 | | Total liabilities | $88,336 | $84,929 | | Partners' deficit | $(83,738) | $(80,429) | EyeLock LLC Revenues & Expenses | EyeLock LLC Revenues & Expenses (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :--------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $332 | $253 | $435 | $458 | | Net loss | $(1,494) | $(2,575) | $(3,309) | $(4,928) | (21) Segment Reporting - The Company operates in three reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics[109] - Automotive Electronics includes mobile multimedia and security systems; Consumer Electronics covers home theater and audio; Biometrics focuses on iris identification[110][111][112] Segment Net Sales | Segment Net Sales (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Automotive Electronics | $37,218 | $45,761 | $76,803 | $88,418 | | Consumer Electronics | $88,015 | $96,959 | $176,952 | $191,072 | | Biometrics | $332 | $253 | $435 | $458 | | Total Net Sales | $125,705 | $143,109 | $254,437 | $280,169 | (22) Revenue from Contracts with Customers - The Company recognizes revenue primarily from the manufacture and distribution of products, with most revenue recognized at a point in time[119] Contract Balances | Contract Balances (in thousands) | August 31, 2022 | February 28, 2022 | | :------------------------------- | :-------------- | :---------------- | | Return asset | $1,332 | $2,619 | | Refund liability | $2,745 | $5,469 | | Current & non-current contract liabilities | $4,670 | $5,412 | Disaggregated Net Sales | Disaggregated Net Sales (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Automotive Electronics Segment | $37,218 | $45,761 | $76,803 | $88,418 | | Consumer Electronics Segment | $88,015 | $96,959 | $176,952 | $191,072 | | Biometrics Segment | $332 | $253 | $435 | $458 | | Corporate/Eliminations | $140 | $136 | $247 | $221 | | Total Net Sales | $125,705 | $143,109 | $254,437 | $280,169 | (23) Contingencies - The Company is involved in a legal proceeding with Seaguard Electronics, LLC, which resulted in an interim arbitration award against the Company for $39,444 thousand[127][128][130] - The Company has filed a Counter-Petition to Vacate the Partial Final Award, and the patent portion of the arbitration is set for October 2023[129] (24) New Accounting Pronouncements - The Company is evaluating ASU No. 2020-04 and ASU No. 2021-01 regarding LIBOR transition, which could impact its Credit Facility and Florida Mortgage[131] - ASU No. 2021-08 (Accounting for Contract Assets and Liabilities) is not expected to have a material impact[132] - ASU No. 2022-03 (Fair Value Measurement of Equity Securities) is not expected to have a material impact[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance, highlighting sales declines driven by macroeconomic and supply chain issues Forward-Looking Statements - The report contains forward-looking statements subject to risks including COVID-19, supply chain issues, chip shortages, and a worsening global economy[135] Business Overview - VOXX International Corporation is a leading manufacturer and distributor in the Automotive Electronics, Consumer Electronics, and Biometrics industries[137] - The ongoing COVID-19 pandemic, global supply chain constraints, and inflation have adversely impacted the business[138][139][142] - The Company's objective is to grow by acquiring new brands, embracing new technologies, and expanding product development[143][144] Critical Accounting Policies and Estimates - Key accounting policies include revenue recognition, business combinations, inventory valuation, and goodwill impairment[146] - Global economic conditions could cause future changes to estimates, potentially leading to material impacts on goodwill and long-lived asset impairment[146] Results of Operations - Automotive Electronics sales decreased due to declines in aftermarket security products and rear seat entertainment, driven by a slowing economy and chip shortages[148][149] - Consumer Electronics sales decreased due to reduced domestic demand, chip shortages, and the negative impact from the war in Ukraine on European sales[150][151] - Overall gross margin percentages decreased due to increased material and shipping costs, chip shortages, and tariffs[157][158][159] - General and administrative expenses increased due to amortization of Onkyo intangible assets, higher office costs, and professional fees[164][165] - Engineering and technical support expenses increased due to additional headcount from the Onkyo acquisition[166][167] - Interest and bank charges increased due to borrowings from the Wells Fargo Credit Facility and interest on the shareholder loan to Sharp[170][171] - The Company recorded significant foreign currency losses, primarily driven by declines in the Japanese Yen[173] Segment Net Sales Performance | Segment Net Sales (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | % Change | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | % Change | | :------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Automotive Electronics | $37,218 | $45,761 | (18.7)% | $76,803 | $88,418 | (13.1)% | | Consumer Electronics | $88,015 | $96,959 | (9.2)% | $176,952 | $191,072 | (7.4)% | | Biometrics | $332 | $253 | 31.2% | $435 | $458 | (5.0)% | | Total net sales | $125,705 | $143,109 | (12.2)% | $254,437 | $280,169 | (9.2)% | Gross Margin Percentage by Segment | Gross Margin Percentage | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | Change (bps) | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | Change (bps) | | :---------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Company Total | 23.3% | 26.0% | (270) | 24.6% | 26.4% | (180) | | Automotive Electronics | 24.5% | 23.9% | 60 | 23.3% | 25.4% | (210) | | Consumer Electronics | 22.6% | 26.9% | (430) | 25.0% | 26.7% | (170) | | Biometrics | 40.1% | 30.4% | 970 | 36.3% | 25.5% | 1080 | Operating Expenses | Operating Expenses (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | % Change | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Selling | $11,865 | $11,838 | 0.2% | $24,150 | $23,305 | 3.6% | | General and administrative | $19,082 | $17,884 | 6.7% | $38,212 | $36,560 | 4.5% | | Engineering and technical support | $8,284 | $7,886 | 5.0% | $16,673 | $14,118 | 18.1% | | Acquisition costs | $0 | $2,316 | (100.0)% | $136 | $2,992 | (95.5)% | | Total operating expenses | $39,231 | $39,924 | (1.7)% | $79,171 | $76,975 | 2.9% | Other (Expense) Income | Other (Expense) Income (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | % Change | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :-------------------------- | :-------------------------- | :------- | | Interest and bank charges | $(911) | $(582) | (56.5)% | $(1,641) | $(1,110) | (47.8)% | | Equity in income of equity investee | $1,763 | $2,035 | (13.4)% | $3,351 | $4,758 | (29.6)% | | Interim arbitration award | $(986) | $0 | (100.0)% | $(1,972) | $0 | (100.0)% | | Other, net | $(1,519) | $376 | (504.0)% | $(3,629) | $818 | (543.6)% | | Total other income | $(1,653) | $1,829 | (190.4)% | $(3,891) | $4,466 | (187.1)% | EBITDA and Adjusted EBITDA - EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate performance, excluding non-cash and non-routine items[181][182] EBITDA and Adjusted EBITDA Reconciliation | Metric (in thousands) | 3 Months Ended Aug 31, 2022 | 3 Months Ended Aug 31, 2021 | 6 Months Ended Aug 31, 2022 | 6 Months Ended Aug 31, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income attributable to VOXX International Corporation | $(10,216) | $311 | $(16,743) | $3,027 | | EBITDA | $(6,765) | $3,249 | $(10,953) | $9,599 | | Adjusted EBITDA | $(3,336) | $6,348 | $(3,406) | $14,737 | Liquidity and Capital Resources - Operating activities used $46,317 thousand cash, primarily due to increased inventory and decreased accounts payable[186] - Financing activities provided $20,807 thousand cash, driven by borrowings from the Credit Facility[188] - The Company has a senior secured Credit Facility with $101,571 thousand available as of August 31, 2022[190][196] - The Company believes its cash and credit arrangements provide adequate resources to fund ongoing operations for the next twelve months[199] Key Liquidity Metrics | Metric (in thousands) | August 31, 2022 | February 28, 2022 | Change | | :-------------------- | :-------------- | :---------------- | :----- | | Working capital | $137,189 | $126,756 | $10,433 | | Cash and cash equivalents | $4,326 | $27,788 | $(23,462) | Contractual Cash Obligations | Contractual Cash Obligations (in thousands) | Total | Less than 1 Year | 2-3 Years | 4-5 Years | After 5 Years | | :---------------------------------------- | :---- | :--------------- | :-------- | :-------- | :------------ | | Finance lease obligation | $155 | $155 | $0 | $0 | $0 | | Operating leases | $4,125 | $1,201 | $1,396 | $659 | $869 | | Bank obligations | $27,400 | $0 | $0 | $27,400 | $0 | | Shareholder loan payable to Sharp | $3,976 | $0 | $0 | $0 | $3,976 | | Contingent consideration | $5,018 | $524 | $1,333 | $894 | $2,267 | | Unconditional purchase obligations | $169,988 | $169,988 | $0 | $0 | $0 | Related Party Transactions - EyeLock LLC has an exclusive distribution agreement with GalvanEyes LLC, managed by Beat Kahli, the largest holder of Voxx's Class A Common Shares[201] Recent Accounting Pronouncements - The Company refers to Note 24 for details on new accounting pronouncements related to Reference Rate Reform and Fair Value Measurement[202] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks from foreign currency exchange rates and changes in interest rates - A uniform 10% strengthening of the U.S. dollar would have resulted in a decrease in sales of approximately $5,300 thousand for the six months ended August 31, 2022[204] - A hypothetical 10% adverse change in foreign currency exchange rates would result in a negative impact of $62 thousand on Other comprehensive income (loss)[206] - The Company manages interest rate risk on its Florida Mortgage with an interest rate swap, locking the rate at 3.48%[208][209] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of August 31, 2022 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of August 31, 2022[210] - There were no material changes in the Company's internal control over financial reporting during the six months ended August 31, 2022[211] PART II OTHER INFORMATION Item 1. Legal Proceedings The Company refers to Note 23 for details on legal proceedings, including the Seaguard Electronics arbitration - Information regarding legal proceedings is detailed in Note 23 of the Notes to the Unaudited Consolidated Financial Statements[212] Item 1A. Risk Factors There have been no material changes to risk factors previously disclosed in the Company's Form 10-K - 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, 2022[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company did not repurchase any shares of its Class A Common Stock during the reporting period - The Company did not purchase any shares of Class A Common Stock during the three and six months ended August 31, 2022[214] Item 6. Exhibits This section lists all exhibits filed, including employment agreements, certifications, and XBRL-formatted financials - Exhibits include Second Amendments to Employment Agreements for key executives[215] - Certifications from the CEO and CFO are included pursuant to Exchange Act Rules and the Sarbanes-Oxley Act[215] - The Consolidated Financial Statements and Notes are provided in Inline eXtensible Business Reporting Language (iXBRL) format[215] SIGNATURES The report was duly signed on October 11, 2022, by the President/CEO and SVP/CFO on behalf of the Company - The report was signed on October 11, 2022, by Patrick M. Lavelle, President and Chief Executive Officer, and Charles M. Stoehr, Senior Vice President and Chief Financial Officer[216]