Glenn Wiener - Investor Relations Pat Lavelle - President and Chief Executive Officer Michael Stoehr - Senior Vice President and our Chief Financial Officer.

James Medvedeff - Cowen.

Good day, ladies and gentlemen and welcome to the VOXX Fiscal 2017 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Glenn Wiener, Investor Relations. Please go ahead..

Thank you, Candice and good morning everyone. Yesterday, after market closed, we issued our fiscal 2017 third quarter results over PRNewswire and we filed our Form 10-Q with the Securities and Exchange Commission. Both documents can be found in the Investor Relations section of our website at www.voxxintl.com.

Additionally, we issued a number of press announcements from last week’s Consumer Electronic Show and there are number of releases, which were not issued over the wire, so whenever you have some time, you can view each of the releases on our website under the VOXX in the Media tab on our homepage.

You can also see news issued by Klipsch on their website at www.klipsch.com. Today’s call is being webcast on our website and a replay will be available for those who are unable to make today’s call.

Speaking for management this morning will be Pat Lavelle, President and Chief Executive Officer; and Michael Stoehr, Senior Vice President and our Chief Financial Officer. Following their prepared remarks, we will have a Q&A session for those investors wishing to ask questions.

Now before I turn the call over to Pat, I would like to remind 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 and risk factors associated with our business are detailed in our Form 10-K for the period ended February 29, 2016. We had a great week in Vegas, lot of excitement over the products. And without further adieu, I would like to now turn the call over to Pat..

Thank you, Glenn. Good morning, everyone and let me start off by wishing you all a healthy and happy New Year.

As you know last week, we are in Las Vegas for the 50th anniversary of the Consumer Electronics Show, where VOXX International and one other company, Panasonic were recognized for being the only two companies that exhibited in 1967 and every year since.

We had a high level of activity at our booth demonstrating products and I will touch on some of the highlights, but you can get full details from the releases on our website. Operationally, we are performing better in fiscal 2017 with Premium Audio driving a good deal of our financial improvements.

For the fiscal third quarter comparisons, we reported improvements in net sales, gross margins, operating expenses and operating income. Net sales were up 3.3%, gross margins were up 30 basis points and operating expenses declined by 2.6%. This resulted in operating income of $7.3 million, more than doubling what we reported in Q3 of last year.

Through the first nine months of the fiscal year, net sales were up roughly 0.5%, gross margins are again up 30 basis points and operating expenses were reduced by 1%. Note, this includes approximately $8.7 million of higher expenses associated with EyeLock when comparing with fiscal years.

In total, we are operating at just about breakeven or a loss of $600,000, whereas last year we reported an operating loss of $4.1 million. As far as the segments go, fiscal 2017 remains a transition year for automotive. As I indicated on previous calls, sales will be flat to down for this segment. In our OE business, there are two primary causes.

First, we are in the middle of a production cycle for rear-seat entertainment and second, one of our larger digital tuner customers indicated that they would miss their targets for the year impacting our volume. At retail, warmer weather in the beginning of the year hampered remote start sales.

We continue to see gradual declines in aftermarket satellite radio sales. And we did not anniversary our Jensen Mobile sales since we licensed all Jensen Mobile inventory in fiscal ‘16. As a result, automotive sales were down 2.4% for the comparable third quarters and 5.7% for the nine-month period.

Margins, however, were up at 30% versus 29.2% in Q3 of last year. Within our OEM group, we won an additional $16 million in new awards. And over the past year or so, we have won awards for approximately $400 million with most contracts stretching over a 3 to 5-year span.

With many starting in fiscal 2018 and 2019, this bodes well for our OEM sales over the coming years. These most recent awards were from Daimler, Audi, Porsche, Renault and Skoda. While our aftermarket business will be down for the reasons I have just mentioned, this business is a viable part of our overall automotive strategy.

With the constant introduction of new technologies and the fact that it takes years to be widely adopted by OEMs and couple this with our unmatched distribution channels in automotive retailers and car dealers, we have always been able to capitalize on early trends. And this year’s CES was the showcase of many of the new aftermarket solutions.

At CES, we were an innovation award winner for the Advent Blind Spot Detection System. This is the first aftermarket product that uses microwave-based detections with a 30-foot range.

We are expanding our offerings in advance to driver safety with a new partnership with Gentex to market their full display mirrors and no limits enterprises for radar-related products. Our next-generation digital streaming rear seat entertainment solutions were on display and will be made available in the aftermarket in the spring.

And our CarLink 1-mile range remote starts continue to build on our strong leadership in this category. As I said with close to $400 million in new OE contracts over the past 12 to 15 months along with several new solutions we will introduce into the aftermarket, we are quite bullish on our automotive business looking ahead.

Although, consumer accessories sales were down 6.2% in Q3, they are down by less than 1% through the first nine months. We had lower volumes across several categories such as cables, surge protectors, remotes and clock radios due mostly to changes in the technology.

This was offset by higher wireless speaker sales and international sales, the latter being driven by the digital broadcasting platform upgrade in Europe. We still anticipate a slight uptick in sales for this group for the year and had strong interest in new products and partnerships, which were unveiled at CES. Some of the highlights.

Within our 808 Audio Group, we introduced several new speakers. We have expanded our retail assortment with Wal-Mart by almost 30% and we will expand in-store displays and increased marketing.

Also in the 808 brand will be the dual SIM, a high fidelity blue Bluetooth-enabled speaker and charging case, developed specifically for the iPhone 7 and launching in the spring. New lines of Acoustic Research Bluetooth Wireless Speakers are already placed for spring sets in retailers such as Costco, Lowe’s, Bed Bath & Beyond, Dillards and more.

In reception products, new torque and tenants now include TV tuners that should help us capitalize on the growing movement by consumers to get HDTV network programming for free and lower their cable cost.

Our Project Nursery baby monitors have moved us into new avenues of distribution and we are now in retailers such as Toys“R”Us, Babies R Us, Bye-bye Baby, Bed Bath & Beyond, Sears and a number of online retailers as well.

The Project Nursery line is growing and this year’s products include a projector, baby suitors and the first ever wearable device for parents called Smart Band. Smart Band enables parents to track things like feedings, naps, medications and weight. It also has an app that can sync data directly to your pediatrician, OB or family and friends.

Building on our expansion into the fitness category, we introduced freeways. A smart wireless earphone that comes with fitness monitoring and tracking capabilities to measure oxygen saturation, a first in wearables as well it will measure heart rates, calories burned, steps, speed and distance.

Within the camera category, we unveiled new products and applications. Our 360Fly 4K action camera continues to gain traction. And last week at CES, we debut a new single lens 360-degree 4K camera, which will be introduced in the spring. It’s the latest innovation from 360Fly.

The new applications will be used in body cameras, in vehicle dash cameras and helmet cameras and we expect this will result in new distribution channels. This technology can be used in many applications and across multiple markets retail, consumer, private security and law enforcement, which brings us to another CES unveiling.

We introduced our new streaming 4G body camera for law enforcement. Developed in partnership with S4 Worldwide and optimized for the Verizon network, which will also be available in late spring. As for EyeLock, we introduced the NXT into one of the world’s largest banks and it’s scheduled to rollout to a few thousand locations.

Our revenue from perimeter access controls is growing with many of the world’s top security integrators now offering EyeLock NXT as part of their regular assortment.

We continue to work with many partners, who are looking to embed iris authentication into ATMs, copiers, computers, airport security solutions, automotive, hospital solutions, cell phones and more. With the advancement in our stand off distance, we lead the industry in fast, no touch and vastly more secure biometric authentication.

Although, it continues to run at a loss, we fully expect to capitalize on the many opportunities that we see with the acceptance and growth in biometrics. Needless to say there is a lot happening in our consumer and electronics accessory group and the expansion into new categories and markets is fueling our optimism.

Moving to premium audio, as I have explained on a number of calls, fiscal 2016 was a transition year for this segment, due to the rapid development of new technology that our Klipsch and Magnet engineering teams had to integrate into their product portfolio. That work has begun to pay off and premium audio was our best performer in Q3.

We reported a 27% increase in sales and through nine months, sales are up almost 19% year-to-date. We have experienced double-digit growth in the home theater and home audio traditional loudspeaker category. Sound bar sales are up over 190% and we continue to expand the line by bringing both the Atmos and All-In-One sound bar products to.

As well, our pro-installation segment has grown by double digits. Best Buy recently tested an in-store Klipsch branded audio space and they plan to triple the number of stores with the Klipsch displays on a go-forward basis.

Similarly, we have branded store displays unique to each retail in Nebraska Furniture Mart, BrandsMart Florida, hhgregg, and Dillards, all of which are helping to drive the double-digit growth.

At CES last week, we had on display an entire new assortment of Klipsch and Jamo products, new Bluetooth and wireless speakers, our new heritage line up under Klipsch and the landscape series under Jamo. New sound bars, headphones, new Atmos-enabled speakers and subwoofers.

We also announced an anniversary partnership with Capital Records, as we are both celebrating big anniversaries. For Klipsch, it is our 70th year in business and Capital Records, their 75th. In support of these, we have developed specialized addition products, which will be available at select retailers and promoted as such.

Looking ahead, we will continue to expand our high definition and audio leadership with next level products with a focus on HD wireless multi-channel audio platforms and multi-room streaming.

With the year-to-year – year-to-date sales up close to 20%, gross margins up slightly and our overhead down by 18%, we are significantly more profitable and now have several quarters of momentum within this group.

With less than two months to go to finish our fiscal year, I am confident that we will deliver year-over-year growth, flat to better gross margins and lower overhead compared to last year.

We are more optimistic about next fiscal year, given the strong performance within the premium audio group, our expected growth in automotive based on prior contract awards and our backlog and new products and categories within the consumer accessory space.

I will now turn the call over to Michael to touch upon our balance sheet and then we will open it up for questions.

Mike?.

Thanks Pat. Good morning, everyone. I will make a few additional comments on our third quarter and year-to-date performance and focus my remarks on our balance sheet. We reported operating income of $7.3 million versus $3.6 million in quarter three of last year. Other income was $36,000 versus $5.5 million in last year.

Note, the fiscal 2016 third quarter included $4.7 million associated with the gain on bargain purchase associated with our EyeLock acquisition. This resulted in net income of $3.9 million versus $6.1 million last year.

The nine months period, we reported an operating loss of approximately $600,000 versus an operating loss of $4.1 million in fiscal 2016, an improvement of approximately $3.5 million.

Total other expenses net declined by $6.3 million year-to-date, especially due to the bargain purchase gain, I just discussed and $1.3 million increase in other net, which relates to foreign currency gains and losses.

Additionally, interest and bank charges increased by approximately $600,000 and equity of our equity investee, which is our ASA joint venture increased by about $300,000.

While we had a net loss of $900,000 versus net income of approximately $1 million when factoring EyeLock, net income attributed to VOXX International was $4.5 million versus $2.7 million, an increase of $1.8 million. This resulted in earnings per share both basic and diluted for fiscal 2017 nine months period of $0.19 versus $0.11 in fiscal 2017.

EBITDA for the three months comparison was $15.3 million versus $16.8 million and on an adjusted basis, was $15.5 million versus $13.1 million. The adjustments were primarily related to the gain on our bargain purchase and the acquisition related costs in fiscal 2016 third quarter.

For the nine months comparisons, EBITDA was $22.1 million versus $19.8 million, adjusted EBITDA was $22.7 million versus $22.8 million, essentially unchanged. Adjusted EBITDA incorporates two factors I have mentioned, in addition to $6.2 million associated with intangible asset impairment charges in fiscal 2016.

The effective tax rate for the three months and nine months periods for fiscal 2017, were an income tax provision of 46.8% and an income tax benefit of 19.4%, respectively. This compares to an income tax provision of 32.8% and 44.7% in the comparable three months and nine months period.

The effective tax rate is higher than the statutory of 35% to the income tax provision resulting from the increased deferred tax liabilities related to investment intangibles. Now for the balance sheet, our cash position as of November, 30, 2016 was $5.7 million compared to $11.8 million.

Cash receivable net were $110.4 million, an increase of $23.4 million, while our accounts payable net was $71.8 million, up $16 million.

Our inventory position stood at $158.6 million, up $14.6 million and this is principally due to the higher inventory in support of product loading that’s planned for the fourth quarter within our consumer accessories and premium audio segment.

Our total debt as of November 30, less our current portion of long-term debt and less debt issuance cost, stood at $105.3 million compared to $88.2 million as of February 29.

This increase was in our domestic credit facility, not only to support working capital needs, but as we reported, we paid down a $5.6 million mortgage of our Woodview Trace properties in Indianapolis and as Pat had mentioned, we are of funding the R&D building in our EyeLock acquisition.

You can find a break out of our debt position in footnote 15 of our 10-Q. Additionally, our excess availability under the borrowing base was $28.4 million. We are within our financial covenants and after working capital needed to support all of our operations. This concludes my prepared remarks. At this time, I will turn it back to Pat.

Pat?.

Okay. Thank you, Mike. And we can open the call for questions now..

[Operator Instructions] And our first question comes from James Medvedeff of Cowen. Your line is now open..

Good morning guys..

Good morning James..

Good quarter..

Thank you..

Nice to see the premium audio really on fire, great..

Yes, it is..

Yes.

So when we look into the fourth quarter, which is Christmas has come and gone, you should have some numbers back on how the holiday season went, with that in mind, can you talk a little bit about what those growth rates might look like at the segment level for the fourth quarter?.

Well, it’s – we end, at the end of February that ends our fiscal, we have 2 months to go. Within each one of the groups and the segments, again, we expect to see strength within the Premium Audio group.

The Consumer Accessories group depending on some of the spring sets whether or not they fall into a February shipment or March shipment would affect sales for the year, but we anticipate some slight uptick in our premium or our consumer and accessory business.

And we expect that will probably be flat year-over-year when we look at our automotive business.

Again, those businesses are – especially the automotive business, some NRE payments, which are due according to milestones that we hit would be impactful if they split into the first quarter of next year from this year, but we anticipate that both milestones will be hit and the NRE will be paid on time..

Okay, thanks.

So you did indicate in the press release that you expect year-over-year growth for the whole company in Q4, so I guess, we can work backwards from that?.

Yes..

In the automotive segment – sorry, pardon me, one second. Okay.

So, in the automotive segment, can you breakout the $90 million of sales, how much of that is OE and how much of it is aftermarket?.

I would have to look exactly at the numbers right now, but we are running about two-thirds of our business in OE..

Okay, great. And then when you talk about $400 million of contracts, so just eyeballing here, you have about roughly $350 million of sales maybe little less.

Two-thirds of that is OE, $400 million of new contract, I guess, what I am getting at is some of this also matures and goes away, so of the $400 million of new contracts, how much of that will be net of sunset?.

Well, the thing is most of the contracts that we have been reporting are either new wins or additional business over existing contracts. So that means if we won another contract that takes us out 3 or 4 years, we are basically looking at the upside to that new contract, not just the fact that we won additional business.

When we look at our domestic business, most of the new awards are awards on new vehicles that we have not been on in the past..

Okay, thank you.

And if I am doing the math right, EyeLock, you said had about $8.7 million of operating expenses and operating loss of about $600,000 is that what you said?.

Well, the company has an operating loss of $600,000 and yes, it’s $8.7 million in expenses over at EyeLock..

Okay, great. Thanks for that clarification..

That’s over and above where we were last year. Remember, we had the EyeLock for the second half of the year last year..

I understand completely. So if we have sort of – I was just trying to return to the growth rate question for a second. The first 9 months you have grown about 0.5%, it’s good to see some growth..

Yes, yes, I know..

Would you think that Q4 would be an acceleration from that? And once that’s setup how should we think about – is that kind of a run-rate growth or can we accelerate from that next year?.

Well, the thing is that we have had some explosive growth within the Premium Audio space. I would hope that we continue at that rate, but I am a little bit more realistic than that. We believe the growth that we are going to see looking into next year is going to be primarily within the automotive space. We have a number of new contracts.

We have number of new contracts coming out in the middle, not contracts, launch dates that are scheduled for the middle of the calendar year. And again depending on both launch dates happening, we don’t – we are not the only one that controls the launch date of particular vehicle.

So as long as those launch dates occur at those times, we would expect to see some nice growth within the automotive space. We also have full year’s worth of sales in 4K cameras within the accessories group.

We have new products that we introduced at the show that will be set for spring of this year, which will help grow the consumer and accessories base, although there are product categories that will be sunsetting over the next few years within that. So we will have to overcome that with new sales, but I expect to see growth in all three segments..

Okay, that’s all. I will turn it over to someone else at this point and get back in the queue. Thank you..

Thanks, James..

Thank you. [Operator Instructions] And our next question comes from James Medvedeff of Cowen. Your line is now open..

Good morning, again..

Okay, James..

Sorry, just one follow-up here. On the Best Buy rollout that cliff audio space. Just curious as to how big that initial – you said it’s going to triple in terms of the number of stores that they have put that in. I am just curious, how big the initial rollout was and…..

We were in a few 100 stores last year with displays. So I would think that will be a sizable increase in the number of stores carrying our displays..

Are you able to – are you able to track how much that particular platform was able to increase sales?.

Well, we know that the – let’s put it this way, most stores that have the displays are over-indexing any other store..

By order of magnitude, a few percent or a lot?.

I couldn’t give you at this point..

Okay, thanks..

Alright, James..

Yes, bye for now..

Okay..

Thank you. And I am showing no further questions at this time. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone..