Glenn Wiener - GW Communications Pat Lavelle - President and CEO Michael Stoehr - SVP and CFO.

Sean McGowan - Needham & Company Steve Dyer - Craig-Hallum Rob Stone - Cowen & Company.

Good day ladies and gentlemen and welcome to the VOXX Fiscal 2015 Year End Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions]. Please note, today's conference call is being recorded.

I would now like to hand the meeting over to today’s host Glenn Wiener. Please go ahead, sir..

Thank you, Karen and good morning everyone and welcome to Voxx International’s fiscal 2015 results conference call. Today’s call is being webcast from our website www.voxxintl.com, it can be accessed in the Investor Relations section of the site. We also have a replay available for those who are unable to join this morning.

We issued our press release yesterday after market close and the copy can be found on our website in the IR section.

Additionally, the Company intends to file its Form 10-K with the SEC for the period ended February 28, 2015 by close of business today within the SEC reporting guidelines and once filed that can be found on our website in the IR section under SEC filings.

Pat Lavelle, President and CEO and Michael Stoehr, Senior Vice President and Chief Financial Officer will be making remarks today and will be available for any questions along with our Chairman John Shalam.

Before I turn the call over to Pat, I'd like to remain everyone that except for historical information contained herein, statements made on today’s call and webcast that would constitute forward-looking statements are based on currently available information. The Company assumes no responsibility to update any such forward-looking statements.

Risk factors associated with our business are detailed in our Form 10-K for fiscal year ended February 28, 2014 and updated risk factors will be on our Form 10-K for the fiscal 2015 period once filed. At this time, I’d like to turn the call over to Pat..

Thank you Glenn and good morning everyone. Yesterday we reported our fiscal 2015 fourth quarter and year-end results and needless to say, the quarter was disappointing, though as we look at other companies reports on the quarter, we are clearly not alone with the government reporting a weak 0.2% GDP.

Our fourth quarter results were affected by three major factors, the port closure, a drastic drop in the value of the euro, which has affected our top-line revenue, and domestic sales that were negatively impacted by poor weather.

I will try to give you a little more clarity around the true performance of our operations taking out some of the extraneous events. I'll also cover our operations and what we see in fiscal 2016's first quarter and then Mike will provide more of the financial details and discuss the balance sheet.

Fourth quarter sales were down $17 million, but taking into account the euro impact, they were down $8 million. Of the $8 million, we lost $4 million in sales due to the port closure and we're still suffering delays which we estimate will finally be cleared up this month.

The other $4 million is due to the change of our business model in Mexico and finally overall weakness at retail domestically. On a positive side, our gross margins in 4Q were up -- were 29%, up 80 basis points over last year's fourth quarter.

And our overhead was more than $2 million lower when we take out the non-cash impairment charges, the euro impact and some severance charges. During the quarter, we took a non-cash impairment charge of $9.3 million to markdown to fair market our real estate holdings in Venezuela, due to the continuing currency devaluation.

And finally, we also took aggressive measures to lower our fixed overhead in fiscal 2016 and beyond. On a segment basis, automotive sales were down $3 million or when factoring in the euro conversion, both domestic and European businesses were up quarter-over-quarter but the increase was offset by 12% euro devaluation.

Gross margins in the automotive group improved by 40 basis points and our overhead was down $1.2 million after we removed the impact of last year's non-cash charge and the euro. Within premium audio, sales were down $5.4 million for the quarter or $3.7 million adjusted for the euro.

The lower sales were driven by domestic retail weakness during the quarter, some of which can be attributed to weather. Despite lower sales, gross margins were up 80 basis points and overhead for this segment is basically flat, net of adjustments.

In our consumer accessory business, sales were down $8.6 million and adjusted for the euro were down $7.4 million. Our accessory business was impacted the most by the port shutdown, where we lost approximately $4 million in sales for the quarter. However, a majority of those sales have shifted into our first quarter.

Gross margins were up 190 basis points and our overhead was flat, net of impairments, severance charges and foreign currency adjustments. As we look to fiscal 2016, we are changing our strategy on guidance and will only give full year guidance on margins and overhead.

We will however project revenue for the following quarter on each call to keep you updated on our progress and near-term outlook. We are taking this step, because in recent years, forecasting revenues for the entire year has been extremely difficult to do with accuracy.

For instance, discussions with our key retail partners for holiday promotions do not even start until the June timeframe. We simply cannot predict the potential impact of bad weather in our fourth quarter. It is difficult to know consumer sentiment far in advance given the fluctuation in the government GDP estimates.

And finally, we see no signs of the euro stabilizing. In fiscal 2015, the weighted average of the euro was 1.29. In our business plan for the year, we have conservatively estimated the euro at 1:1, and at this rate, it would have impacted our fiscal 2015 sales by more than $60 million or 20% of euro business.

In the first quarter of this fiscal year, the euro hit a low of $1.05. Although it is now around $1.14, there are still too many factors that could drag the euro below parity.

That said, we expect sales in fiscal ’16 to increase in US and euro-denominated currencies since we have a number of new products, programs and opportunities that should materialize.

For the year, we project our gross margins in the 29% range and we have taken additional steps to lower our overhead, which we expect will be in the $185 million to $190 million range. For the first quarter outlook, we are projecting sales of $168 million versus $187 million in last year’s first quarter.

However, taking into account the euro, it is essentially flat with last year. Gross margins for the quarter should come in around 28%, building out throughout the year, consistent with prior years. And our operating expenses are expected to be around $48 million.

This should give us an operating loss of approximately $700,000 to $800,000 for the quarter, but that is within our plan. We expect our operations to be profitable in each subsequent quarter this year.

Within the automotive group, where we have the largest concentration of European business, sales are being most affected by the euro and we’re expecting sales to be down a bit with a conversion, but we have a lot of exciting programs and products under development and I believe our long-term positioning has never been better.

Our previously announced five-year $160 million reward for multi-digital tuner modules with Daimler-Benz is expected to begin in December and should add approximately $30 million in annualized revenues each year.

We announced a similar contract with the Jaguar Land Rover, which will ship in July and over life of a three-year contract should generate $58 million. Our contract with Audi for 4G antennas has begun and we expect it to also expand to other VW models within the VW Audi Group.

We also won two programs for Rear Seat Entertainment with our EVO-based system. Mazda begin shipping in late fall and the second contract with another OEM has the potential to represent more than $25 million to $30 million of annualized sales over the lifetime of the contract, which begins with the 2018 models.

GM’s all new Cadillac Escalade Platinum, which launched late in 2014 is Cadillac’s flagship in SUV luxury. We are including the Klipsch premier Image ONE earphone with the dual headrest Rear Seat Entertainment system for this vehicle.

This is the first time we are using a Klipsch product and brand in the OEM space and needless to say, we are very pleased to be associated with the premier Cadillac brand.

In the aftermarket, we continue to gain momentum with Car Connection and now have 27 insurance companies on board and our partner AT&T just launched Car Connection 2.0, which offers more consumer sought after functions and features such as roadside assistance, Automatic Crash SOS and Stolen Vehicle Recovery alerts.

All these added to the already robust suite of features of Car Connection plus the increased number of insurance carriers now on board should allow this category to continue to grow. In our Premium Audio segment, we are getting good placement at retail for our new Reference Series speakers.

We have also launched our Vizio-enabled Reference wireless home theater system that won the Digital Trends Top Tech of CES awards, a testament to the quality and the potential of the system. Our Klipsch headphones remain one of the best premium brands in the market.

And we introduced our first on-ear headphone under the Reference brand in January and those products are now available on several retail outlets and online.

Our gaming handsets are selling at GameStop and other national and regional retailers and our in-ears have gotten best-in-class reviews from Time magazine, Digital Trends, Men’s Journal and a lot more.

In March, Klipsch announced a three-year partnership with The Rock and Roll Hall of Fame, where Klipsch was the first ever presenting sponsor at their 30th anniversary induction ceremony. The media attention was tremendous. USA TODAY, Rolling Stone, Billboard magazine and others resulted in several hundred million impressions for the Klipsch brand.

It’s important to note that in the NPD year-end report, Klipsch ranked Number 1 in the home speaker category, both in units and dollar sales. For the entire 12-month period, from January 14 to January 15, Klipsch had Number 1 market share at 17%. And over the last three month period of that report, our market share grew to 22%.

As we discussed it prior quarters, the introduction of our Reference Series should result in improved margins and profitability for the year. Within Consumer Accessories, we are anticipating growth this year mostly due to the success of our 808 line, contributions from myris, Singtrix and the launch of 360fly.

Our 808 products are doing great and resonating well with the youth audience. We have increased distribution significantly with products now selling at the Target, Walmart, Sam's Club and other major US retailers. We’ll be introducing our 808 HEX in NRG GLO Bluetooth speakers this year and we expect to see continued growth in 808.

Our Acoustic Research outdoor speakers are also selling well with increased distribution now featured at Best Buy, Costco, Home Depot, Bed Bath & Beyond and other retail and furniture chains.

Our new RCA AIR ultra-thin antenna will be arriving at retailers later this year and should help us continue our dominance in the antenna category, where we believe we have an estimated 65% market share.

Singtrix introduced last year, virtually sold out within days after airing of Shark Tank is gaining traction at retail and online with Amazon, Crutchfield and Sears. We’ve recently added Target and Toys "R" Us and we expect Singtrix to help drive sales in the consumer accessory category this year. And our two new offerings, 360Fly and myris.

360 will ship in July with retail availability in August, a little off our last projected launch date, but retailers remain anxious to wear 360 to their action camera offerings. myris, our iris authentication product introduced last fall continues to gain popularity, especially in the enterprise segment.

While we are placed well at retail, our real opportunity for growth remains in the enterprise market. We are constantly reading reports about security breaches and identity thefts and costing enterprises millions of dollars to address.

This is potentially a huge market opportunity, but like fingerprint biometrics, it will take time for enterprises to adapt to this new technology.

We are currently in talks with several enterprise customers and we are anticipating one large financial institution coming on board later this summer and have several others across the number of market segments under development.

I am very excited about the reception of myris and EyeLock that they have received, and I think this as one of the great long-term drivers for our company today. I can certainly go on and on, and add more and more about our products, but I will hold additional comments until Q&A.

I am going to turn the call over to Mike now and then we will open it up for questions.

Michael?.

Thanks, Pat. Good morning, everyone. As Pat already covered sales, margins and some of our operating expenses for the fourth quarter, I will start off with the rest of the income statement before moving to balance sheet. We are going to keep our remarks to the quarter, but we can certainly address any fiscal year questions when we open up the call.

For the fourth quarter, operating expenses for the quarter were $50.2 million down $4.7 million or 8.6% from last year’s fourth quarter when you exclude the non-cash impairment charges. We had a $2.1 million decline in selling expenses principally due to lower advertising and T&E offset by higher benefit cost.

G&A expenses were down $2.9 million without the impairments mostly as a result of cost control measures we have been instituting throughout the year.

And our engineering and tech support expenses were down $900,000 as we had higher customer reimbursements offset by increases in support of newer product lines such as our EVO Rear Seat Infotainment and security and higher benefits cost.

We also had $1.1 million in restructuring expenses as we took further steps in fourth quarter to reduce overhead and lower future fixed expenses, the effect of which will be realized throughout fiscal ’16.

This resulted in an operating loss of $700,000 versus an operating loss, excluding the impairments of $2 million last year – excluding the impairments of $2 million last year, an improvement of $1.3 million. The three months comparison, there were virtually no changes in our interest and bank charges, approximately $1.8 million for both periods.

And equity income derived from our ASA joint venture was approximately $1.2 million in fiscal ’15 fourth quarter versus $1.3 million prior-year’s quarter. Other net was approximately $100,000, $79,000 versus approximately $600,000 or $574,000. There was a non-cash charge for our Venezuelan property amounting to $9.3 million.

This as a result of when we valued the property for 02/28/14, the conversion rate was 11.7. When we valued the property at 02/28/15 the rate was 177. We still own the buildings, we are collecting rent and covering local expenses with local currency.

The remaining building balance of 3.8 million may be written off at some point based upon the continued volatility of the currency. For the quarter, we had a tax expense of $3 million principally in Europe versus a benefit last year’s fourth quarter of $10.3 million. We did not receive any tax benefits for the Venezuelan payments.

We reported a net loss of $14.4 million for the quarter or loss of $0.60 per diluted share versus a net loss of $49 million or $2.01 per share in last year’s fourth quarter.

On a pre-tax basis, excluding impairment charges in fiscal ’14 fourth quarter and all Venezuelan impairments for bonds and buildings in fiscal ’15 fourth quarter, the company would have reported a pre-tax loss of $1.4 million versus a pre-tax loss of $1.7 million in the fourth quarter last year.

We had an EBITDA loss of $6.2 million compared to a loss of $53.4 million. On an adjusted basis EBITDA was $5.2 million versus $3.8 million and the adjustments are as follows.

In fiscal ’15 fourth quarter we had $9.3 million Venezuelan impairment charges, $1.1 million of restructuring charges, $694,000 related to the Venezuelan bond remeasurements and $230,000 of stock-based compensation.

This compares to fiscal ’14 fourth quarter where we had $57.6 million of impairment charges, $475,000 in net legal settlements and a customer settlement payments combined, and an $89,000 in stock-based compensation. Now, for our balance sheet. Our cash position as of February 28, 2015 was $8.4 million versus $10.6 million as of February 28, 2014.

Accounts receivable declined by $44.3 million and our inventory position increased by $12.3 million. The inventory increase is primarily related to products stuck on the water due to the West Coast port issues and increased inventory in Hirschmann for planned production.

Our total debt as of February 28, 2015, which is inclusive of all mortgages and capital leases, stood at $86.3 million compared to $115.3 million as of February 28, 2014, an improvement of $29 million.

This also takes into account $6 million in new investments in EyeLock and EyeSee360 during fiscal 2015 as well as $2.6 million in stock repurchases and $2.9 million spend in the fourth quarter for the purchase of land in Florida for our new facility.

Additionally, our domestic bank obligations were $67.7 million as of February 28, 2015 versus $88 million at the same time last year, a $20.3 million improvement. Our total leverage was 2.18.

CapEx, which we initially guided to $12 million to $13 million with the addition of the planned investments in our Orlando OEM facility came in at $17.1 million for year, all within the ranges provided on our last quarterly conference. As a result, we generated free cash flow of $15 million for this year.

Our balance sheet continues to improve and we tend to use free cash from operations to pay down debt and potentially for any M&A activity that may arise in the future.

We've taken a lot of costs out of the business and while we expect to realize some savings in fiscal '16, we are also reinvesting in business and in structural areas in support of projected growth such as our OEM manufacturing facility in Florida, our solar initiatives in Hauppauge, the consolidation of operations in Indi and in Germany and things of this nature.

Operator, this concludes my remarks and we will open up the call now for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Sean McGowan from Needham & Company..

Good morning, guys. Thanks for taking my questions. Mike, I had a couple of questions that are probably grouped under the currency heading.

And to start with, what impact currency may have had on the gross profit margin in the fourth quarter of last year?.

Just could you ask that question again please?.

What impact did currency have on the gross margin in the fourth quarter?.

It's none..

On your operating cost, I would imagine that you have some operating costs and it's denominated in euros..

The operating cost would be reduced as you convert euros at a lower rate. .

And would you quantify what that impact may have been?.

For the quarter or for the year? Right up through the third quarter it was pretty constant, for the fourth quarter it would be several million dollars..

Okay. And, Pat, on your guidance commentary for the year saying you expect growth in dollars and in local currency, did you mean your sales in the US would be up and your sales in local currencies outside the US would be up, but perhaps on a full year basis it would not be up, I’m trying to interpret that. .

Our euro-denominated business should be up next year and so should our US-denominated businesses. So we are projecting increases in each of the group. Whatever the conversion is it will affect that..

Okay.

And then finally, could you just give us some detail on why the 365 was delayed?.

It's just getting the software tuned in so that it's working perfectly. Obviously, we are going to get one chance to launch this product and we want to make sure that everything is working properly.

We are comfortable with the final changes that have been instituted and we feel confident that we will be able to produce in July and deliver to retail in August..

Would you say your confidence is higher in that than it was that it would be out be in May?.

Yeah, I know that the issues that were giving them some pause have been corrected, so, yeah, I’m much more confident..

Okay, great. Thank you..

Thank you. And our next question comes from the line of Steve Dyer from Craig-Hallum..

Thank you. Good morning. I had a follow on to the 365. I think it was sort of one of a kind product when it was first discussed a while back. It's my understanding there is some competitive sort of 360 panoramic type products particularly from GoPro coming to the market.

Do you still feel like there is kind of a unique competitive aspect to yours or has that changed at all?.

Yeah, basically everything that we've seen on the market that is 360. We think that our product is far superior to that product in its operation, its intended use. Some of the 360 products that are on the market are really not designed for heavy action.

So we are comfortable with the technology that has been developed, with the IP that surrounds that technology and I think obviously when we get to retail, the consumer is going to make the decision, but we are confident that our product is superior to what's coming..

Okay.

And then just some clarification on some of the guidance metrics you gave, gross margin for the year, is that a blended rate of 29% you anticipate?.

Yes..

And then operating expenses, I think I heard 185 to 190, first, is that correct? Secondly, do you expect any additional restructuring charges that will run through the P&L as a result of taking that kind of cost up?.

Well, a big portion of that cost reduction obviously is also the currency, so 185 to 190 is where we project that we were going to be, I don't see any major restructuring, there will be things that we always do to fine-tune the company, but I don't see anything at this point that I would consider to be major..

Okay, thank you..

Thank you. And our next question comes from the line of Rob Stone from Cowen & Company..

Hi, guys..

Hi, Rob..

Just a follow up on that last one, so you may still be taking some minor restructuring actions during the year?.

Well, we still have Venezuelan operation, we still have the Mexican operation that we've been changing the business model and so there might be some expenses that come through for restructuring those, but the basic ones and the core ones are pretty intact going into the year.

So we did a lot of restructuring and rightsizing towards the end of last year, so I don't see anything major at this point..

Okay.

And I hate to keep beating the dead horse here, but coming back to your comments about growth in all three, in the businesses, I guess Q1 is going to be down after accounting for FX, are you expecting a big chunk of year-over-year growth in the second half or should we start to see an upturn in the second quarter? I know you're not giving guidance for full-year revenue or for future quarters, but any directional commentary would be helpful?.

Well, the thing where we are looking at is that we have some new -- we have [indiscernible] coming out, we have 360 coming out, we have the enterprise unit coming out, we have Singtrix that we will have, so we are looking at the second half, as we get into the second half where we are going to get contributions from all these new products.

In the late part of the year, we have the contribution from the Daimler-Benz program, so that's where we are seeing the growth, again offsetting some declines in the core business to average selling price declines and some products that have reached the end of their life cycle..

Okay. A couple of housekeeping questions for Mike if I may.

Mike, what was the weighted average shares you used in computing EPS for Q4?.

That would be 23 million. I don't have an exact count -- I want to make sure, so could you just check the K, I want to give you the right statement, 24 million and 330 [ph]..

Okay.

And you have this kind of unusual situation where you are paying taxes though you reported a loss, I know the moving parts by jurisdiction maybe a little tough, but what kind of normalized tax rates should we be thinking about for this year?.

I think for your purposes and I tell this to the analysts, usually, we book the GAAP tax rate. We do -- the company does have a lot of -- we do take an aggressive tax position on a tax return on deferred taxes. So particularly your projections use the normal 37%.

Okay.

And then finally, CapEx, you bumped up a little bit this past year versus your original thoughts, do you have a CapEx figure in mind that you can disclose for fiscal '16?.

Yes, between 14 million to 15 million..

Okay.

And any sense of how that plays out through the year, is it more towards the front, as you're working on this new facility or spread over the year?.

Yes. First -- if you look at it, first six months, you will see more than -- about half will go, more than half will go. It will tail off in six months..

Okay, all right. Thank you..

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for closing comments..

Okay. If there are no more questions, I want to thank you all for your interest. I do feel that we are embarking with some of the new products and some of the new categories that we are getting in that we will see some new areas of growth as we try to continue to evolve the company, innovate so that we are relevant in the market in the years ahead.

So I appreciate your interest and I wish you all a good day..

Thank you..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day..