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Edited Transcript of VOXX earnings conference call or presentation 11-Oct-19 2:00pm GMT

Q2 2020 VOXX International Corp Earnings Call

HAUPPAUGE Oct 14, 2019 (Thomson StreetEvents) -- Edited Transcript of VOXX International Corp earnings conference call or presentation Friday, October 11, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles Michael Stoehr

VOXX International Corporation - Senior VP, CFO & Director

* John J. Shalam

VOXX International Corporation - Chairman of the Board

* Patrick M. Lavelle

VOXX International Corporation - President, CEO & Director

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Conference Call Participants

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* Braden Michael Leonard

BML Capital Management, LLC - Managing Member and Founder

* Sheldon Grodsky

Grodsky Associates, Inc. - President, Financial & Operations Principal, Treasurer, Secretary, CEO, CFO and CCO

* Thomas Graham Kahn

Kahn Brothers Advisors LLC - Chairman, President, Treasurer, Chief Compliance Officer & Director

* Glenn Wiener

GW Communications LLC - Owner

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the VOXX International 2020 Second Quarter Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference to your speaker today, Glenn Wiener, Investor Relations. Please go ahead, sir.

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Glenn Wiener, GW Communications LLC - Owner [2]

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Good morning, and welcome to VOXX International's Fiscal 2020 Second Quarter Results Conference Call.

I trust everyone had a chance to review our press release, which was issued yesterday after market closed along with our Form 10-Q, which was filed with the SEC. Both documents as well as our updated investor presentation can be found in the Investor Relations section of our website. Today's call is being webcast live on our website and can be found in the Events and Presentations section. A replay will be available approximately 1 hour after the completion of today's call for those who are unable to join.

Speaking from management today will be Pat Lavelle, President and Chief Executive Officer; and Michael Stoehr, Senior Vice President and Chief Financial Officer. John Shalam, Chairman and Founder of VOXX, is also with us; and all executives will be available for commentary during the Q&A portion of our call following management's remarks.

VOXX has undergone a significant realignment of its business over the past several quarters, which will continue in fiscal 2020. Progress has been made and, as Pat will note, the company is on track for profitability in the second half of the year. As we move closer to our third quarter results announcement and in calendar year 2020, we intend to get more active in telling our story to prospective investors and analysts as we believe there are compelling opportunities to further unlock shareholder value, especially with some of the long-term developments Pat will address.

I'd like to remind everyone that except for historical information contained herein, statements made on today's call that -- 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 I would like to point you to the risk factors associated with our business, which are detailed in our Form 10-K for the period ended February 28, 2019.

I'd like to thank you all for your continued interest in VOXX, and at this time, I'd like to turn the call over to Pat Lavelle.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [3]

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Good morning, everyone, and thank you, Glenn.

As we addressed on our fiscal '19 year-end call, we are proactively taking steps to improve our infrastructure, stabilize our business, lower fixed costs and return VOXX to profitability. We've made a lot of progress to date, and there is more that we've done throughout fiscal 2020 to ensure we are positioned to achieve our goals in the years to come and, in turn, enhance value for our shareholders. Near term, there are 2 factors that are leading to lower volumes for both our OEM and aftermarket products: one, a lower car sales that we've seen this year, with global car sales down approximately 3% through July and down at 1.25% in the U.S. year-to-date; and two, the timing of end of life and the start of new programs. We do not believe this will be a long-term trend, however, given recent awards that we've received from our OEM customers.

For the second quarter comparisons, consolidated net sales declined by $18.6 million. And of this, over 70% of the decline was in our Automotive segment, which has historically been one of our more consistent, stable and profitable segments. We are expecting Automotive sales to be down year-over-year, that was communicated previously, and our near-term outlook has not changed. However, as we look out over the next few years, we believe this segment will be one of the key growth drivers for our business.

During the second quarter, VOXX Automotive was awarded the next-generation RSE program, that's rear-seat entertainment program, with 1 of the big 3 U.S. automakers. This program will launch in calendar year 2021 on model year 2022 vehicles and has a total value of approximately $275 million over a 5-year period.

In addition, Nissan awarded us another RSE program for the Armada, slated to begin in August of 2020, which will run for 2 years. We will be launching a new RSE program for the Lincoln Aviator this quarter, and we believe -- and we've recently added new business with Ford for the Expedition XLT, which will begin midyear in 2020.

There are a number of other programs that have been in development, which are nearing final stages of testing and evaluation. And based on what we have won and what is in the pipeline, our Automotive Electronics segment could be poised for growth towards the end of fiscal 2021 and significant growth in fiscal 2022, which would be sustainable based on the long-term nature of the programs. This is what is driving our optimism.

On our Consumer Electronics segment, they posted a sales decline of $5.3 million due to the softness in the European market and declines in domestic accessories. Regarding the domestic business, sales were down $1.8 million due in part to the SKU rationalization program and the discontinuance of several products, which we had discussed previously. However, our domestic business outperformed our budget, both in the second quarter and year-to-date, and we continue to show year-over-year growth in the wearable category based on our position as distributor of Apple, Samsung, Garmin, Fitbit and Striiv activity trackers.

During the second half of the year, we will be expanding distribution of reception connectivity and power products to new countries in the APAC region and launching new products in remote control, karaoke, antenna and audio categories. We are actively managing inventory, reducing our risk and focusing on products that have better margin structures and are more sustainable life cycles, consistent with the strategy I outlined on our past 2 calls.

Our domestic Premium Audio business was down modestly compared to last year's second quarter, which was a strong quarter for that group, a positive when you consider that we had very strong load-ins of the new Reference Premiere and Reference base home speakers last year that obviously did not repeat again this year. Year-to-date, Premium Audio sales are up close to 4%.

Sales of premium mobility and premium wireless and Bluetooth speakers are showing nice growth. New distribution with SnapAV contributed to growth in the commercial installation channel. And the launch of our new T5 series headphones helped drive growth within the mobility category, and the launch of new soundbars helped drive sales of audio system speakers. Klipsch is performing well, and we expect that will continue into the second half of the year.

In our Biometrics segment, we launched the new EXT outdoor perimeter access product line in Q2, and we launched the latest version of our nano NXT perimeter access product with all new upgraded software. During the quarter, these products were in beta testing with customers and potential partners and should help drive sales and income improvements in the fourth quarter.

ViaTouch business is moving slower than we had anticipated, but still holds the same potential as we've indicated on past calls. A positive development for EyeLock this quarter is in the health care space as we have been approved by a major company, which, unfortunately, I'm not at liberty to disclose by name. But what I can say is that we anticipate that we will begin billing for NRE in the fourth quarter and throughout fiscal 2021. And this contribution, in addition to other businesses that have been awarded, should significantly lower EyeLock's operating loss, which had been already improved by $600,000 in the second quarter and by approximately $1 million year-to-date.

There are 3 other primary programs EyeLock is working on, which although they will not contribute to fiscal 2020 results, could have meaningful impact on their business over the next 2 to 3 years. One is in the gaming industry, another in the automotive industry, and the last is in the security industry. As a result of the considerable amount of custom engineering involved with each potential customer, the EyeLock programs have been slow to materialize, which has been frustrating for us and our shareholders, and we recognize that. And we've addressed what we can control by lowering our cost, which has helped lower cash outlays and reduce operating losses.

We are getting much closer to wider-scale adoption of EyeLock's technology and believe the next 6 to 18 months will validate EyeLock's position in the industry and potentially lead to other avenues of growth and profitability for VOXX.

A few other updates before turning the call over to Mike. As you saw from our announcement on October 2, we closed on our real estate sale in Pulheim, generating net proceeds of approximately $9.7 million. In that same release, we announced that HF has rescinded the deal due to their inability to obtain financing at the agreed-upon price and our refusal to renegotiate the price. That business, which includes both Oehlbach and Schwaiger, is profitable, and we rather keep it as part of VOXX than sell it as a discount, especially since following our restructuring as it generates cash and EBITDA. If another opportunity to divest materializes, we will evaluate it as we do with all of our business segments and groups.

We are still realigning certain areas of our business, investing in innovation and looking to expand distribution and partnerships across all 3 segments. We are executing on the share repurchase program as we're able to in the open market, and we will continue to do so as we believe our stock is undervalued and repurchasing shares represents a good use of capital. We're also looking at potential acquisitions that could strengthen our business further and improve EBITDA and cash flow though we are not looking to leverage our balance sheet or overpay for any business or businesses. We are executing on the initiatives we've outlined during our year-end call, and we expect to be profitable in the second half of the fiscal year.

With that, I will turn the call over to Mike for a review of our results and the balance sheet. Michael?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [4]

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Thanks, Pat. Good morning, everyone.

Similar to the second quarter results, the majority of the sales decline for the 6-month period was in our Automotive Electronics segment, which represented close to 90% of our total year-over-year decline, and the majority was in our OEM business for the reasons Pat addressed. We're anticipating the second half of the year to be lower than the second half of fiscal 2019. But based on the launch of new vehicle models, the year-over-year comparison should level off and potentially show a modest increase in Q4.

Consumer Electronics segment sales were up 2% year-to-date but above our initial forecast. Premium Audio auto sales continued to increase based on new products brought to market and expanded distribution and year-to-date are up close to 4%, as Pat noted. Sales of audio products, reception products and wearables continued to trend upwards, offset by declines in the European markets.

Gross margin in the second quarter were down 220 basis points, with the biggest decline in our Automotive Electronics segment based on lower OEM sales and under-absorption of labor. As new OEM programs begin, margin should return to more historical levels in that segment. The second quarter decline in Consumer Electronics segment was primarily related to product mix. The negative margins in the Biometrics segment was due to startup costs related to customer and beta test samples of new product launches. For the year-to-date period, gross margins were down 90 basis points, with only minor declines on a gross dollar basis in the Consumer Electronics and Biometrics segments. The drop was in Automotive, and we expect modest sequential improvements in both the third and fourth quarters.

I'd also like to note that margins were affected by tariffs. The tariffs impacted margins as early tariff increases were not passed on to the customer. The latest round of tariff increase have been passed on in the form of price increases to our customers, but certain customers have a time bar before these increases go through. We are working to lower the impact of the tariffs by moving production out of China in conjunction with our manufacturers. Not all products can be moved. And the products we are successfully moving will still carry higher labor costs than Chinese-manufactured products.

Total operating expenses were down $11 million or close to 26% when comparing the second quarter periods and declined by $10.6 million or just over 14% for the year-to-date comparisons. For the second quarter, we had a $900,000 decline in selling expense due to lower commissions and lower headcount as we have realigned our business. Klipsch, however, has increased headcount to support both current and future growth and new product development.

G&A expenses, excluding the share grant to our CEO, was down approximately $300,000 as we had declines in office expenses, legal fees, third-party fees and office salaries. As a result of the accounting treatment for the share grants, we took a noncash charge of approximately $1 million.

Engineering and technical support expenses declined by approximately $1 million, with the majority of the decline in R&D. This was principally as a result of EyeLock transitioning from outside contractors to in-house engineering.

I'd also -- I'll also note that last year's second quarter included intangible asset impairment charges of $9.8 million. Excluding the impairment charge, total operating expenses declined by approximately $1.2 million or 3.7%. For the 6-month period comparisons, total operating expenses declined by $10.6 million or just over 14%. Excluding the impairment charges, last fiscal year's pickup from the favorable counterfeit lawsuit and noncash charge for stock-based compensation, OpEx declined by approximately $3.8 million or 5.7%. You will see more expense reductions in the second half of the year based on the steps we have taken to realign our operations, both domestically and abroad.

As for other income and expenses, in the fiscal 2020 second quarter, we had other income of $1.7 million compared to other expenses in the second quarter of fiscal 2019 of $2.7 million. Interest and bank charges declined by $230,000. Equity in income of equity investee declined by approximately $370,000. And other net increased by approximately $300,000.

The 2 biggest items are as follows. We recorded an investment gain in this year's second quarter of approximately $800,000 related to the fiscal 2018 sale of our investment at RxNetworks as a portion of the cash proceeds were subject to a holdback provision which was released this quarter. Additionally, in the fiscal 2019 second quarter, we recorded a $3.5 million impairment on our Venezuela investment properties. You can see other income and expenses broken out in our press release and Form 10-Q for the 6-month period.

Operating losses for the second quarter comparisons improved by $3.7 million, and the net loss attributable to VOXX improved by $14.8 million. For the 6-month comparisons, our operating loss improved by $1.7 million, and the net loss attributable to VOXX improved by $14.6 million.

Lastly, we reported an adjusted EBITDA loss of $700,000 for the fiscal 2020 second quarter and a loss of $1.0 million for the 6-month period. This compares to an adjusted EBITDA of $4.3 million and $5.8 million for the 3-month and 6-month periods in fiscal 2019. The breakdown of EBITDA to adjusted EBITDA is in our press release and in our Form 10-Q filing on Page 41.

In our fiscal 2019 year-end call, we had discussed anticipated losses in the first half of the year as we work through our corporate realignment. The shift in automotive market has been a more meaningful impact than we had initially forecasted. However, as we move into the second half of the year, we are anticipating profitability on an operating basis on both third and fourth quarters and expect to show year-over-year improvements.

As for the balance sheet, cash and cash equivalents of August 31, 2019 was $39.3 million as compared to $60 million as of May 31, 2019. The cash usage is based upon seasonal working capital needs to fund operations. As we mentioned in our Form 10-Q, we have temporarily suspended our vendor finance programs as we do not need the funding. If we had used the program, our cash balance for August would have been approximately $9 million higher. We expect our cash position to increase in the third and fourth quarters as we broaden the inventory, and we'll be moving it throughout the remainder of the fiscal year.

Additionally, we announced on October 2, we completed the sale of our Pulheim real estate, and proceeds from the sale will be used to pay down our euro asset-based lending obligations while providing additional working capital to fund our German operations. Our total debt position stood at $14 million as of August 31, representing a decline of $3.6 million since fiscal year-end and a decline of $2 million since May 31. The decline compared to the fiscal year-end is due to a lower outstanding balance on the euro ABL and lower mortgage debt for our German and Florida properties. The company intends to pay down by October 31 the approximately $5.6 million of asset-based debt in our German operations.

We have sufficient cash on hand to fund our operations. We also have available $140 million domestic credit facility with nothing outstanding. Our balance sheet remains strong, and we are maintaining the flexibility needed to continue to invest in R&D, to support future Automotive, Premium Audio and Biometric programs and repurchase our stock in the open market as we are able to.

That concludes my remarks, and we're now ready to open up the call for questions.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [5]

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Thank you, Michael.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Thomas Kahn with Kahn Brothers.

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Thomas Graham Kahn, Kahn Brothers Advisors LLC - Chairman, President, Treasurer, Chief Compliance Officer & Director [2]

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I think you're making progress, and this is good. How many shares did you buy back in the last quarter?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [3]

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202,000, Tom.

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Thomas Graham Kahn, Kahn Brothers Advisors LLC - Chairman, President, Treasurer, Chief Compliance Officer & Director [4]

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Okay. And you're going to continue to buy back? That's a question.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [5]

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Yes. Yes. That's the game plan.

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Thomas Graham Kahn, Kahn Brothers Advisors LLC - Chairman, President, Treasurer, Chief Compliance Officer & Director [6]

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Okay. I would recommend that you, gentlemen, listen to the quarterly calls, John and Pat and you folks, that you've had for the past 3 or 4 years because they all have this optimistic spin to them. And I think what we have to do now is sort of temper in some way the quarterly calls on the optimistic spin and just try to stick to reality and to the facts. So I'm saying, John, listen to the last 4 or 5 years, and Pat and Mike, and tell me if I'm wrong, do I hear something that you folks don't hear? And as you know, you cry wolf so many times, people don't believe you. So what we need is listen to the calls. I'm making a recommendation. I've only been in the investment business for 40 years, so I'm a new player here. I don't have optimistic spin and positive projections. I think it's better off if you back off from that approach.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [7]

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Thank you, Tom. Yes, the one thing that -- I hear what you're saying, but I think it's imperative that we advise the shareholders that -- as I just did, that during the second quarter, we were awarded a major program. This is a production program for 1 of the big 3 car manufacturers that will start in 2021 on 2022 vehicles. We believe that this particular contract not only will lead to others because of the new technology that we're bringing to market that will showcase at CES this year, but this is a production program. So this is based on the number of vehicles that they sell, and we expect that, that business is going to be in the range of $275 million. The other thing...

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Thomas Graham Kahn, Kahn Brothers Advisors LLC - Chairman, President, Treasurer, Chief Compliance Officer & Director [8]

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I congratulate -- Pat, Pat, this is all excellent and it's all very good. But I stand by what I said with respect to the last 4 or 5 years and the quarterly calls and what have been said. I think it would be informative, and I stand by what I said to try to back off. Let the good news come as surprises, if you will. That -- I guess that's the way I would put it. People are better off in that way. I also commend you on share repurchases. That's the smartest way to build shareholder value with our stock where it is. And John, I would encourage you to do more of it. Don't be diffident.

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Operator [9]

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And our next question comes from Sheldon Grodsky with Grodsky Associates.

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Sheldon Grodsky, Grodsky Associates, Inc. - President, Financial & Operations Principal, Treasurer, Secretary, CEO, CFO and CCO [10]

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How many shares were granted to the Chief Executive?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [11]

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There were 200,000 shares granted in the second quarter.

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Sheldon Grodsky, Grodsky Associates, Inc. - President, Financial & Operations Principal, Treasurer, Secretary, CEO, CFO and CCO [12]

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Okay. So it's almost the same thing that was repurchased in the market.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [13]

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Yes.

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Sheldon Grodsky, Grodsky Associates, Inc. - President, Financial & Operations Principal, Treasurer, Secretary, CEO, CFO and CCO [14]

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Okay. I would encourage you as your last speaker did, so I'm not going to -- we agree with everything he said necessarily, but I would encourage you to buy back as much as your stock is fit because you can. It's -- I don't think it's going to ever get cheaper. So the time is right.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [15]

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All right. We agree, and we have a 3 million share repurchase authorization and we plan to move along and purchase when the windows are open for us to purchase.

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Operator [16]

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(Operator Instructions) Our next question comes from Brad Leonard with BML Capital Management.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [17]

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So first of all, Pat, in the prepared remarks, you said that the -- in the press release, that overall operating losses declined in the first half of the year. Now this is technically true because on a GAAP basis, last year, you had a $9.8 million noncash charge. So my question is, do you think that's a fair statement? I mean is that the way we're really looking at this, to say that we had improved operations because we don't have a charge this year?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [18]

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Well, I mean I think what Mike had showed is that we take -- when we took out all the onetime charges, we did have a further reduction in our overhead, both in the quarter and year-to-date.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [19]

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Yes. But on an operating basis, we lost more money, excluding the charge, correct? I mean adjusted EBITDA, which I think is more relevant in this case with all the puts and takes of both quarters, we were down significantly year-over-year in the first half.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [20]

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Yes. We were in the first half, and that's what we anticipated.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [21]

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That's fine. It is anticipated. And I didn't expect anything different, but I think it's a -- it's not a fair statement to say that operations improved in the first half of the year. Expenses were down, excluding the charge, I'll give you that. But operating profit was -- I mean really, on a GAAP basis, you are -- your statement is factually correct. But I don't think anybody is looking at that saying, "Hey, we had a $9.8 million impairment charge, noncash last year, so we're going to say things are better this year." They're just not. And so I think that's a -- it's an unfair statement to put out there. And we can either agree or disagree on that, but I think it's not a correct statement. So on the stock buyback, what are the limitations on the buyback? You guys have -- you can buy, what, 25% of average daily volume or something like that?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [22]

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Yes.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [23]

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Mike, do you want to answer that question?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [24]

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Yes. So it's 25% of the average that we buy.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [25]

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Okay. So the average 3-week volume, is it, or 2?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [26]

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Yes. I think it's 3 weeks.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [27]

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And okay, so that's about, what, 40,000 or 50,000 shares, is average volume?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [28]

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That's correct.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [29]

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Okay. So I guess my question is, you guys had said that the stock is very undervalued, where everybody thinks it's undervalued. It's covered by cash, and on real estate, whatever, maybe not, now that we didn't sell the one division. But it's -- on a sum of the parts, I think we all agree the stock is undervalued. So why so little on the buyback?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [30]

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One of the problems we had is that because we have our first quarter and our year-end kind of roll around at about the same month, we clearly got started late, and then we have to stop when we announce the quarter. We'll commence a few days after this call.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [31]

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I understand. So why not put a 10b5-1 plan in place to buy back in the -- when you're blacked out?

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [32]

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We'll take it under consideration.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [33]

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I mean it's a simple way to go instead of being blacked out for a month. If the stock goes to 350 when -- because the market tanks because of -- the President announces some tariff or something like that, you say, "Gosh, I wish we could be buying but we can't." I mean if you guys are really serious about buying back 3 million shares at or around these prices, you should put a 10b plan in place and say, "We're going to buy the ABV, and now we're 25% of the ABV every day." I mean yesterday, I bought 70,000 shares in the open market, and there's plenty of sellers out there. So it's not a problem to get stock. I realize you guys can't buy 70,000 shares, but there's no reason to be blacked out for whatever it is, 4 to 6 weeks every quarter. So...

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Charles Michael Stoehr, VOXX International Corporation - Senior VP, CFO & Director [34]

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I understand what you're saying.

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John J. Shalam, VOXX International Corporation - Chairman of the Board [35]

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Good. This is an excellent suggestion. I appreciate your comments very much, and we'll certainly take this into consideration.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [36]

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Okay. So the German accessory business that we had sold that these guys backed out, it sounds like you guys did not want to renegotiate. So is there no financial penalty for them not closing?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [37]

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It was part of the -- first off, we're restricted as to what we can say regarding NDAs that were signed. But there were a number -- there were a few MAC clauses in the agreement, and that was one of them.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [38]

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Okay. All right. So this automotive program sounds great. But when you're -- give me the details on this again. You're saying it's going to start in calendar year '21 or your fiscal year '21?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [39]

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Our fiscal '21.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [40]

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Which is next year?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [41]

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Our -- it'll -- no. Excuse me. Calendar year 2021 on model year 2022 vehicles.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [42]

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So we're really out for 2 years from today?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [43]

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Yes, we are. Yes, we are.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [44]

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Okay. Okay. So we're not going to see a lot of -- and the Automotive business could be down meaningfully for the next couple of years?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [45]

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Well, we have new programs...

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [46]

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Or flattish?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [47]

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Well, we have new programs that I announced. The Armada program starts next year. The Aviator program should start in our third quarter, and then we have the XLT program. So there are other programs that will start that will offset end of life that we expect to see some growth in the category. But when you look at the projection on the larger program that I announced that's approximately $55 million a year, that should start in the 2021 calendar year.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [48]

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Okay. So that is on a run rate of last year's Auto was, what, 160?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [49]

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Yes. That's a...

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [50]

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Okay. So is this -- go ahead, Pat. I'm sorry.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [51]

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That's a sizeable increase on top of the 160.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [52]

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No. I understand. Is it going to be replacing potentially other business that is lost?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [53]

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There will be some programs that will -- during the period that will be coming up towards end of life. But we're in discussions with all of our current customers about either developing a new rear-seat entertainment program for them or some sort of continuation. We will be announcing at CES show some of the details around our new product, and we think what we're developing is going to be something that many of our existing customers will want to deliver.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [54]

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Okay. So on the acquisition divestiture front, what is -- I think you said that this German business is still -- you're happy to still run it. It's profitable. But did you say -- make a comment that you would be willing to sell it if somebody else came along or the buyer came back or...

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [55]

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There are other interested parties that have expressed interest in this company. And if we deem their offer is realistic and acceptable to where we are, we would divest. The game plan was -- is to bring the dollars that we have invested in Germany, bring them to the United States and replace those sales and that EBITDA with a domestic operation where we can leverage our existing overhead better and generate more profitability.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [56]

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Yes. I think that's a sound strategy. So then I would go back to -- I mean as you guys are in discussions about -- I don't know what else is going on. But when you have the open window and you want to buy back the stock, if a deal comes up that's meaningful, that would black you guys out for potentially the whole quarter as you're trying to close some things. So when you have the open window, you can set up a 10b plan and just run it for the next 3 quarters -- or 3 months or whatever, or a year, I don't know.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [57]

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There's no question, Brad. The 10b-5 program you're recommending makes sense.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [58]

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Okay. So the -- all right. Let's get to the EyeLock here. I mean I see that you extended the loan again and that you're lowering the interest rate, which doesn't really even matter because they don't have the money to pay you back. So I mean the ViaTouch, which I think I had indicated on a previous call, that it does not sound -- I don't know. I just don't -- I don't even understand the point of it, but it's not being rolled out as fast as you expected or...

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [59]

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It's rolling out now. They are now starting to deliver machines. They've had their own delays in getting everything started, but they are rolling out. And what we can see based on the interest that they have and the customers that they have lined up, the volumes are substantial for them. The other program that we announced is one that we've been working on for a long time. Again, due to the competitive nature of the customer we're working with and the industry that they're working with, they do not want us to talk about it. But it's a -- it's another substantial program and will validate the iris authentication technology that we have. There's another program that we'll be able to announce at CES within the automotive space that could be very interesting for them. And then there's the EXT and the NXT products that I talked about that are now in beta test. These products have to be tested. They have to be integrated with back-end security systems. So when we deliver a new product, there's a lot of testing that has to go on. And we're in the process of doing that. And if everything goes well, we'll see the sales of EXTs and NXTs pick up sharply. So when we look at the potential for them, I -- the potential is good. Iris authentication is real. It's secure. And I do believe that you're seeing more and more interest in iris because of that security. So -- and the fact that it's an opt-in program. It's not facial. This is a program where the consumer has to opt in, but it is more secure than any other form of biometric on the market.

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Braden Michael Leonard, BML Capital Management, LLC - Managing Member and Founder [60]

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Okay. And can you -- on the health care thing that you did announce, you can't say who the customer is, can you describe what that program is for? Is it the access to a facility? Or is it access to pharmaceutical products that are...

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [61]

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I might -- if I describe it, then I'll probably infringe our NDA, so I'm not going to describe it.

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Operator [62]

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And our next question comes from [Eric Egan], a private investor.

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Unidentified Participant, [63]

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I joined the call a bit late, so sorry if you already went over this. But the new contract you announced as well as the (inaudible), so up to $275 million, over what time period is that?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [64]

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That's a 5-year period from its inception.

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Unidentified Participant, [65]

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Yes. And then so you think that until we get there, 2 years from now, the Automotive segment should see revenues of maybe around $30 million a quarter until then?

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [66]

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Based on -- again, there are other factors. I mean if we go into a recession, we -- definitely, car sales get hit. We don't know if we'll see a recession next year or possibly thereafter. But we have new programs that are starting that I've announced that will come and commence during that period of time before we launch this larger program. But on top of that, we may do a tuck-in acquisition into our Automotive group that will further support them during this period. So these are some of the things that we're looking at. But all in all, I would expect that we would exceed where we are right now in revenue.

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Operator [67]

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I'm not showing any further questions at this time. I would now like to turn the call back over to management for any further remarks.

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Patrick M. Lavelle, VOXX International Corporation - President, CEO & Director [68]

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Well, thank you all. And I thank you for your input. I thank you for your interest in our company, and I wish you a good day and a good weekend.

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Operator [69]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.