VOXX International: Management Fueling Buyout Hopes - Strong Buy

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Last week, VOXX International reported another set of weak quarterly results with both the Automotive and the Consumer Electronics business suffering substantial sales declines.Recent divestments have...

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Last week, VOXX International reported another set of less-than-stellar quarterly results with both the Automotive and the Consumer Electronics business showing substantial year-over-year revenue declines: Press Releases / Regulatory Filings In addition, consolidated gross margin of 24.5% was disappointing. On the conference call, management attributed the weak performance to sales declines in higher margin products and inventory charges. That said, with the company being in the process of rightsizing its cost structure and divesting underperforming and non-core assets, margins should improve going forward. During the quarter, VOXX International sold parts of its domestic accessories business as well as two of its smaller premium audio brands for aggregate proceeds of $27.9 million. The divestments will impact sales of the company's Consumer Electronics segment going forward. In FY2024, the divested brands accounted for approximately $49.0 million in revenue. Subsequent to quarter-end, VOXX International completed the sale of its manufacturing facility in Lake Nona, Florida for gross proceeds of $20 million. The Company will lease back approximately 18,000 square feet of office and warehouse space in the building for a period of five years. As a result, net debt was reduced from $51.1 million at the end of Q2 to $13.6 million as of October 9. Even more important, management made abundantly clear that the company is indeed up for sale (emphasis added by author):  On August 27, 2024, the Company announced that its board of directors had been conducting an exploration of strategic alternatives in connection with the Company's ongoing effort to maximize shareholder value. As part of the process, the board will consider a range of options including, among other things, a potential sale of the Company, a sale of segments, operational improvements, or other strategic transactions. Per its fiduciary responsibilities and to support its evaluation process, the board has established a strategic transactions committee which has retained Solomon Partners as financial advisor and Bryan Cave Leighton Paisner LLP as legal advisor.  During the questions-and-answers session of the conference call, management made some encouraging statements regarding the potential value of the company. Kudos to Bruce Olephant from Oppenheimer & Co. for asking the right questions. In short, management expects the Klipsch premium audio business to be worth more today than the $166 million paid by VOXX International in 2011, partially due to the recent addition of Onkyo Electronics. According to CEO Pat Lavelle, the strategic review is likely to result in a number of offers for the entire company and also several offers for parts of the business. Please note that earlier this year, strategic shareholder Gentex Corporation or \"Gentex\" (GNTX) has already submitted a non-binding proposal to acquire VOXX International at a price of $5.50 per share. But things started to get really interesting when management was asked about the potential value of the business (emphasis added by author):  Bruce Olephant And the other question I have here what would be the common book value? Would it be around $11 a share now? Patrick Lavelle That -- I would say, yes, Laurie, if you have any -- I mean we've got about 23 million shares out. And when we look at the value of what we believe between the different operations we have, the real estate that we own, it supports a valuation there higher. Loriann Shelton I think that's a conservative number, Pat. $11. Yes. Bruce Olephant What do you think it is right now? What do you think it is? Loriann Shelton Well, what we think it is and what the market thinks it is maybe two different things. But I think the company with its future prospects, stuff, I think you could warrant that type of number.  At least in my opinion, management was telegraphing a valuation of at least $11 in a potential sale and with the company being six weeks into the strategic review, I would expect this number to be supported by offers already received. For my part, I wouldn't be surprised to see VOXX International's assets fetch closer to $15 per share in aggregate proceeds including its 50% stake in profitable niche market mobile electronics distributor ASA Electronics LLC. Much will depend on the valuation of the company's Premium Audio segment including Klipsch which I would expect at around $10 per share based on 1x FY2024 sales. From a shareholder perspective, a sale of the company as a whole would be more desirable, as a potentially lower valuation would likely be more than offset by a rather quick return on investment. Selling VOXX International's assets piecemeal might very well result in a higher valuation but closing on various asset sales and distributing the proceeds to shareholders would likely take a considerable amount of time. Anyway, investors should not expect the strategic review to be completed in the near term as it will likely take more time for the company to sort things out and enter into definitive purchase agreements. While shares are up by almost 40% since my upgrade six weeks ago, there's still considerable upside to the valuation telegraphed by management during the questions-and-answers session of the conference call. Consequently, I am reiterating my \"Strong Buy\" rating on VOXX International's shares. Bottom Line While VOXX International reported another set of mediocre quarterly reports last week, management's comments fueled speculation about the current strategic review resulting in a potential sale of the company at a much higher price. While there's always a risk of a strategic review not yielding tangible results, risk/reward in this particular case continues to look very favorable. Consequently, I am reiterating my \"Strong Buy\" rating on VOXX International's shares.  However, it might still take some time for potential transactions to materialize. Meanwhile, investors should consider building or adding to existing positions on weakness.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2475873154"}