Voxx Premium Audio Sales to Fall 'Modestly' Under Effort to ‘Protect Margins'

Klipsch sales this year “will be somewhat lower” than a year earlier “because in order for them to maintain and protect margins,” for Voxx and its retail customers, “we have to control where the product goes and what type of distribution” it goes into, said Lavelle in Q&A. “That’s one of the reasons we’ve canceled some programs that were not as profitable as we wanted it to be,” he said. “What we’re looking at is an improvement on the bottom line at Klipsch, which we think will be much better next year.” Sales in the premium audio segment increased 3.4 percent in the year ended Feb. 28, but gross margin fell 2 percentage points to 31 percent on product “close-outs to make way for newer models in the coming year,” said the company.

In premium audio, HD wireless speakers, wireless soundbars, Klipsch Heritage speakers and Jamo systems “with upgraded designs and features should be drivers in fiscal 2019,” said Lavelle. Heritage speakers “are making their way into high-end audio distribution channels,” and new Heritage soundbars “will launch this spring,” he said. “We continue to expand Heritage headphones, speakers and amplifiers in select lifestyle segments and high-end distribution channels.” Klipsch also will ship its first Google “voice-assisted product” this fall, he said. “Our inventory position coming into this year is lower than last year’s, so Q1 and to a large extent Q2 will see margin improvements versus last year,” when Klipsch was forced to sell off excess product at deep discounts, he said.

Lavelle took it on the chin in Q&A from frustrated shareholders, irate that the stock hovers just around $5 and shows no sign of improving, contrary to management’s past forecasts of better "shareholder value.". Shares closed 4.6 percent lower Tuesday at $5.15. After years of owning Voxx shares, said Oppenheimer broker Bruce Olephant, “there’s no motivation at all for me to continue to be in the stock or even consider buying more,” Voxx stock “is cheap, and it remains cheap, because management just doesn’t take any action,” he said.

Lavelle responded that Voxx won’t rule out a stock buyback that could temporarily boost the share price, and that it has a 1.4-million-share SEC “authorization” to do so. On Olephant’s follow-up complaint that Voxx needs to beef up its investor relations department because the stock “has very little coverage on Wall Street,” Lavelle promised that “is something we will address this year.”

Earlier on the call, in scripted remarks, Lavelle conceded he knows “there are some shareholders that believe a stock buyback is the best route to improving shareholder value, but we believe the best path forward” is an approach that includes possible acquisitions or partnerships. “We have decided at this time to preserve our capital so that we are in a position to move on the right acquisition,” or “weather any potential downturn in the economy,” he said.

Having incurred a $19.1 million operating loss in fiscal 2018, one of management’s top goals is to restore Voxx to an operating profit, said Lavelle. Facing down another shareholder who complained the stock price is the same as when he bought the stock 20 years ago and that he has “nothing to look forward to,” Lavelle assured him “the company is in a transition.” As Voxx moves into “new technologies that are going to take us into the future, those technologies require investment,” he said. All of fiscal 2018's operating losses “were driven by one investment that we’re making” in EyeLock “iris-biometric” security technology, he said. “We believe that we will continue to see adoption of iris, adoption of iris over facial, adoption of multi-modal biometric authentication.”

EyeLock generated only about $335,000 in revenue for Voxx in fiscal 2018, and Lavelle is sure the business will “ramp” the next 12-24 months, but isn’t committing to how much, he said. “Market reception” to EyeLock is growing, said Lavelle, answering why, if the technology is as good as he says, adoption hasn’t been stronger. “Only in the last two years were we able to focus on embedded solutions in other people’s products,” including smartphones, he said. “That’s where you see other types of biometrics being used at this particular point.” In an somewhat embarrassing admission that came in reply to a question about why Voxx hadn't yet reported any EyeLock royalty revenue on sales of the Samsung Galaxy S9, Lavelle said that's because EyeLock technology isn't built into the latest Samsung smartphone.