Voxx Q3 Revenue Took Hit From Chip Shortages, Production Shutdowns
Voxx fiscal Q3 revenue fell short year on year, as several OEM customers temporarily halted production due to component and chip shortages, said CEO Pat Lavelle on a call Tuesday for the quarter ended Nov. 30. Revenue was $191.9 million, down nearly 5%, Voxx reported Monday.
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Sales would have been in line with 2020 figures without the shutdowns and shortages, following a strong Q3 2020, one of the company’s best in its history, Lavelle said. After reaching a 52-week low of $8.51 Tuesday morning, the stock closed 3.7% higher at $9.95.
Consumer segment sales dropped by 6.7% to $9.3 million, said Chief Financial Officer Mike Stoehr. Premium wireless and home separate speakers were down $12.6 million due to shipping delays and chip shortages that resulted in product backorders, Stoehr said. CE segment gross margin was 28.3%, vs. 30.3% in the year-ago quarter, with the decline due to higher container costs and surcharges, lower margins associated with the new ProMedia line of wireless computer speakers, and distribution mix, said the company.
Higher margins from products sold through Voxx's Eleven Trading, plus a positive impact from 20% price hikes instituted to combat supply chain costs, helped offset CE revenue declines, the company said. Year-to-date, consumer segment sales are up 11.2%, Lavelle said.
The premium audio segment had “extremely high order volume” from continued stay-at-home trends and the launch of the ProMedia computer speakers, Lavelle said. The company took steps in the first half to secure inventory to meet demand, he said. The purchase of Onkyo assets, completed in September (see 2109090028), added $7.8 million to Q3.
Voxx is “aggressively working with Sharp to rebuild manufacturing and distribution,” Lavelle said. “Barring any additional supply chain issues or unforeseen events,” Voxx believes it will achieve $125 million in FY 2023 with a goal of reaching $200 million as it expands globally. The addition of the Onkyo, Integra and Pioneer brands to the Klipsch speaker line gives Voxx the ability to offer consumers a “much wider assortment of complete, sophisticated home audio solutions,” he said. The premium audio business is up nearly 17% for the year; Lavelle believes it's “sustainable” on continued strong demand.
Commenting in Q&A on when Voxx expects supply chain issues to improve, Lavelle said, “We do see some modification of pricing on the logistics side, but we are not baking that in 100%.” Factors that will determine price changes include the volume of goods coming in to the U.S. and the COVID-19 omicron variant. Management is concerned about "omicron really taking hold in different parts of Asia, which could create shutdowns at ports, at plants.” If that happens, “pricing will start to reflect that.”
If the situation “stays the course,” Lavelle expects some drop in logistics costs for bringing products in, but he doesn’t see chip prices dropping in the near future. “We’re out 52 weeks on lead times for purchase of needed chips,” he said, saying he doesn’t expect the situation to change until 2023. The concern is that the logistics chain could again be hit by “a breakout of COVID in the different countries.”
In Voxx's automotive business, gross margins shrank to 23.8% in Q3 from 25.7% a year ago due to higher materials, shipping costs and tariffs; a “general increase in the cost of doing business"; and costs related to Voxx’s new OEM rear-seat entertainment (RSE) programs. It counteracted cost increases with price hikes.
Voxx received an award from Stellantis for OEM RSE systems, estimated at $125 million, said Lavelle. Higher OEM sales for RSE programs and automotive safety electronics products helped offset declines in the aftermarket business resulting from chip and part shortages and customers stocking up earlier in the year to avoid product shortages.
Q4 volume has been lower than expected due to chips and parts shortages and the “starts and stops” with customers’ production, Lavelle said. The company ratcheted up negotiations with suppliers and customers in recent months: “As we incur higher costs, we must cover them.” Though Voxx expected a bigger impact from price hikes in Q4, by year's end its automotive business will have nearly doubled from 2020, he said.
Voxx is reviewing its legal options over a breach of contract claim by Seaguard Electronics over a stolen vehicle product dating back to 2007, Lavelle said. Seaguard initially sought damages of $10 million in a demand for arbitration filing in 2018; on the seventh day of an eight-day fact witness portion of the arbitration in June, Seaguard raised the damages demand to $40 million. An arbitrator issued an interim award in favor of Seaguard in November, Lavelle said: "We were shellshocked by this, and we are going to fight it."
The arbitrator deferred scheduling until next month for the balance of the bifurcated arbitration related to alleged patent infringement, Voxx said. It has an “indemnification” from its supplier for the alleged infringing products. A schedule hasn't been set for issuing a final arbitration award. Voxx is reviewing its legal options and has moved in the arbitration proceeding to modify the interim award, it said. If that’s unsuccessful, it will seek to have a court “vacate, modify, or correct the interim award," Lavelle said.