VOXX International (US:VOXX)2021-01-11 21:07PART I FINANCIAL INFORMATION Item 1. Financial Statements Presents the company's unaudited consolidated financial statements, detailing financial position and performance Consolidated Balance Sheets Total assets, liabilities, and stockholders' equity significantly increased as of November 30, 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 30, 2020 (unaudited) | Feb 29, 2020 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $333,851 | $217,820 | | Total assets | $567,989 | $441,571 | | Liabilities & Equity | | | | Total current liabilities | $170,817 | $71,022 | | Total liabilities | $198,500 | $90,861 | | Total stockholders' equity | $366,530 | $348,229 | Consolidated Statements of Operations Net sales surged in Q3 2020, significantly increasing operating income and net income attributable to VOXX Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $201,065 | $110,112 | $401,084 | $293,812 | | Gross profit | $58,128 | $31,464 | $116,179 | $81,242 | | Operating income (loss) | $18,563 | $136 | $19,379 | $(14,717) | | Net income (loss) attributable to VOXX | $18,251 | $2,464 | $17,319 | $(4,648) | | Basic EPS | $0.75 | $0.10 | $0.72 | $(0.19) | | Diluted EPS | $0.74 | $0.10 | $0.71 | $(0.19) | Consolidated Statements of Cash Flows Operating cash outflow significantly improved, with cash used in investing for acquisitions and in financing for debt repayment Cash Flow Summary for Nine Months Ended Nov 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,628) | $(23,887) | | Net cash (used in) provided by investing activities | $(14,510) | $9,759 | | Net cash used in financing activities | $(1,680) | $(11,563) | | Net decrease in cash and cash equivalents | $(16,088) | $(26,080) | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, key acquisitions, segment performance, revenue recognition, and financing arrangements - On July 1, 2020, the Company acquired the aftermarket vehicle remote start and security systems business of Directed LLC for a cash purchase price of $11.0 million. This acquisition is included in the Automotive Electronics segment20 - On January 31, 2020, the Company acquired assets of Vehicle Safety Holdings Corp. (VSHC) for a preliminary purchase price of $16.6 million to expand its Automotive Electronics product offerings and market share23 - The company operates in three reportable segments: Automotive Electronics, Consumer Electronics, and Biometrics19111 Disaggregation of Revenue by Segment (in thousands) | Segment | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Automotive Electronics | $61,488 | $29,985 | $111,397 | $86,472 | | Consumer Electronics | $139,039 | $79,914 | $288,545 | $206,601 | | Biometrics | $343 | $138 | $703 | $398 | | Total Net Sales | $201,065 | $110,112 | $401,084 | $293,812 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 and nine-month fiscal 2021 financial results, highlighting sales and profitability growth, acquisitions, and liquidity Results of Operations Net sales and gross profit grew substantially year-over-year, driven by acquisitions and increased consumer demand Net Sales by Segment (in thousands) | Segment | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Automotive Electronics | $61,488 | $29,985 | $31,503 | 105.1% | | Consumer Electronics | $139,039 | $79,914 | $59,125 | 74.0% | | Biometrics | $343 | $138 | $205 | 148.6% | | Total net sales | $201,065 | $110,112 | $90,953 | 82.6% | - Automotive sales growth was primarily driven by the VSM and DEI acquisitions, which comprised approximately 49% of the segment's Q3 sales. Consumer Electronics growth was due to higher demand for premium home theater, subwoofers, and hookup products as more people worked from home146147 - Overall gross margin percentage increased by 30 basis points in Q3 2020. The Automotive segment's margin improved significantly by 560 basis points due to higher-margin products from acquisitions, while the Consumer Electronics segment's margin decreased by 180 basis points due to product mix and promotions150151153 - Total operating expenses increased 26.3% in Q3, a rate lower than the 82.6% sales growth. The increase was mainly due to higher selling commissions from increased sales and additional operating costs from the newly acquired VSM and DEI subsidiaries155156 EBITDA and Adjusted EBITDA Adjusted EBITDA significantly increased in Q3 2020 and for the nine-month period, reflecting strong operational performance Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to VOXX | $18,251 | $2,464 | $17,319 | $(4,648) | | EBITDA | $23,814 | $8,605 | $34,078 | $7,124 | | Adjusted EBITDA | $24,540 | $5,823 | $35,070 | $3,912 | Liquidity and Capital Resources The company maintains strong working capital and liquidity, with adequate cash and credit facilities for future operations - Working capital was $163.0 million at November 30, 2020, compared to $146.8 million at February 29, 2020174 - The company has a senior secured credit facility providing up to $127.5 million, with $107.0 million available as of November 30, 2020179 - In April 2020, the company borrowed $20.0 million from its credit facility as a precautionary measure due to COVID-19, which was fully repaid in November 2020136 Contractual Cash Obligations (in thousands) | Obligation | Total | Less than 1 Year | | :--- | :--- | :--- | | Finance lease obligation | $855 | $469 | | Operating leases | $4,924 | $1,111 | | Unconditional purchase obligations | $170,367 | $170,367 | | Total commitments | $191,460 | $179,704 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rate fluctuations, using hedging strategies to mitigate exposure - A hypothetical 10% strengthening of the U.S. dollar would have resulted in a decrease in sales of approximately $3.5 million and in net income of approximately $0.36 million for the three months ended November 30, 2020193 - The company has an interest rate swap for its Florida Mortgage with a notional amount of $7.2 million, which locks the interest rate at 3.48% through March 2026196 Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures are effective as of November 30, 2020198 - No material changes in internal control over financial reporting occurred during the nine months ended November 30, 2020199 PART II OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings, with no expected material adverse effect on financial statements - The company does not believe that any current outstanding litigation matters will have a material adverse effect on the Company's financial statements, individually, or in the aggregate125200 Risk Factors No material changes occurred from the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Company's Form 10-K for the fiscal year ended February 29, 2020201 Unregistered Sales of Equity Securities and Use of Proceeds The company has authorization for share repurchases, but no Class A Common Stock shares were repurchased during the period - During the three and nine months ended November 30, 2020, the company did not repurchase any shares of its Class A Common Stock202 Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and iXBRL formatted financial statements - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and iXBRL data files (101, 104)203