Forward-looking statements
Certain information in this Quarterly Report on Form 10-Q would constitute
forward-looking statements, including, but not limited to, information relating
to the future performance and financial condition of the Company, the impact of
the COVID-19 pandemic on our results of operations, the plans and objectives of
the Company's management, and the Company's assumptions regarding such
performance and plans that are forward-looking in nature and involve certain
risks and uncertainties. Actual results could differ materially from such
forward-looking information and could be exacerbated by the COVID-19 pandemic,
continued supply chain issues and chip shortages, increasing interest rates, and
any worsening of the global business and economic environment as a result.
We begin Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") with an overview of the business. This is followed by a
discussion of the Critical Accounting Policies and Estimates that we believe are
important to understanding the assumptions and judgments incorporated in our
reported financial results. In the next section, we discuss our results of
operations for the three and six months ended August 31, 2022 compared to the
three and six months ended August 31, 2021 . Next, we present EBITDA and Adjusted
EBITDA attributable to Voxx for the three and six months ended August 31, 2022
compared to the three and six months ended August 31, 2021 , in order to provide
a useful and appropriate supplemental measure of our performance. We then
provide an analysis of changes in our balance sheets and cash flows and discuss
our material cash requirements in the sections entitled "Liquidity and Capital
Resources." We conclude this MD&A with a discussion of "Related Party
Transactions" and "Recent Accounting Pronouncements."
Unless otherwise indicated, all amounts presented in our MD&A below are in thousands, except per share and per share data.
Company overview
VOXX International Corporation ("Voxx," "We," "Our," "Us" or the "Company") is a leading international manufacturer and distributor operating in theAutomotive Electronics , Consumer Electronics, and Biometrics industries. The Company has widely diversified interests, with more than 30 global brands that it has acquired and grown throughout the years, achieving a powerful international corporate image, and creating a vehicle for each of these respective brands to emerge with its own identity. We conduct our business through nineteen wholly-owned subsidiaries:Audiovox Atlanta Corp. ,VOXX Electronics Corporation ,VOXX Accessories Corp. ,VOXX German Holdings GmbH ("Voxx Germany"),Audiovox Canada Limited ,Voxx Hong Kong Ltd. ,Audiovox International Corp. , AudiovoxMexico ,S. de R.L. de C.V. ("Voxx Mexico"),Code Systems, Inc. ,Oehlbach Kabel GmbH ("Oehlbach"),Schwaiger GmbH ("Schwaiger"),Invision Automotive Systems, Inc. ("Invision"),Premium Audio Company LLC ("PAC," which includesKlipsch Group, Inc. and 11Trading Company LLC ),Omega Research and Development, LLC ("Omega"),Voxx Automotive Corp. ,Audiovox Websales LLC ,VSM-Rostra LLC ("VSM"),VOXX DEI LLC , andVOXX DEI Canada, Ltd. (collectively, withVOXX DEI, LLC , "DEI"), as well as majority owned subsidiaries,EyeLock LLC ("EyeLock") and Onkyo Technology KK ("Onkyo"). We market our products under the Audiovox® brand name and other brand names and licensed brands, such as 808®, Acoustic Research®, Advent®, Avital®, Car Link®, Chapman®, Clifford®, Code-Alarm®, Crimestopper™, Directed®, Discwasher®, Energy®, Heco®, Integra®, Invision®, Jamo®, Klipsch®, Mac Audio™, Magnat®, Mirage®, myris®, Oehlbach®, Omega®, Onkyo®, Pioneer®, Prestige®, Project Nursery®, Python®, RCA®, RCA Accessories, Rosen®, Rostra®, Schwaiger®, Smart Start®, Terk®,Vehicle Safety Automotive , Viper®, andVoxx Automotive , as well as private labels through a large domestic and international distribution network. We also function as an OEM ("Original Equipment Manufacturer") supplier to several customers, as well as market a number of products under exclusive distribution agreements, such asSiriusXM satellite radio products. COVID-19 The ongoing COVID-19 pandemic has created significant global economic uncertainty, adversely impacted the business of some of our customers and vendors, and has impacted our business and results of operations in the past and could further impact our results of operations and cash flows in the future. As the impact of the COVID-19 pandemic has evolved, we have continued to face several operational challenges directly or indirectly related to the pandemic, such as global supply chain constraints and logistical issues, including higher freight costs and supplier product delays, as well as inflation with respect to materials and labor costs, which impacted our results for the three and six months endedAugust 31, 2022 . As countries around the world continue to combat COVID-19, and as government-imposed regulations regarding, among other things, COVID-19 testing, travel restrictions, and vaccine mandates change, there is still a risk that the pandemic may impact the overall demand environment, and our ability to source product and materials to meet demand levels and maintain adequate inventory levels, as well as maintain staffing levels at our own facilities in order to fulfill our customer orders and contractual obligations. Due to the evolving situation, 33 -------------------------------------------------------------------------------- future results of the Company could be impacted in ways we are not able to predict today, including, but not limited to, non-cash write-downs and impairments; foreign currency fluctuations; potential adjustments to the carrying value of inventory; and the delayed collections of, or inability to collect accounts receivables. We will continue to closely monitor updates regarding the spread of COVID-19 and its variants, the distribution of vaccines and vaccine boosters, and any applicable local, state, and federal government-imposed restrictions, and we will adjust our operations accordingly. In light of the foregoing, we may take actions to alter our business operations or such actions that we determine are in the best interest of our employees, customers, suppliers, and shareholders.
The Company continues to focus on cash flow and expects to have sufficient resources to operate over the next twelve month period.
Reportable Segments
The Company operates in three reportable segments based on our products and internal organizational structure. The operating segments consist ofAutomotive Electronics , Consumer Electronics, and Biometrics. See Note 21 to the Company's Consolidated Financial Statements for segment information.
The products included in these segments are:
?
mobile multimedia infotainment products, including dome, seatback and headrest systems;
?
automotive security, vehicle access and remote start systems;
?
satellite radios, including plug and play models and direct connect models;
?
telematics applications for smart phones;
?
mobile interface modules;
?
automotive electrical accessories;
?
rear view and collision avoidance systems;
?
driver distraction products;
? power lift gates; ? turn signal switches; ?
automotive lighting products;
?
automotive sensor and camera systems;
? USB ports; ? cruise control systems; and ? heated seats.
Consumer electronics products include:
? premium loudspeakers; ? architectural speakers; ?
commercial and cinema speakers;
?
outdoor speakers;
?
wireless and Bluetooth speakers;
34 --------------------------------------------------------------------------------
? home theater systems; ? business music systems; ? streaming music systems; ? A/V receivers; ?
over-ear and in-ear headphones;
?
wired, wireless and Bluetooth headphones and earphones;
?
Bluetooth headsets and earpieces;
?
sound bars;
?
DLNA (
?
high-definition television (“HDTV”) antennas;
?
Wireless Fidelity (“Wi-Fi”) antennas;
?
high-definition multimedia interface (“HDMI”) accessories;
?
home electronics accessories such as wiring, power cords and other connectivity products;
?
performance enhancement electronics;
?
universal remote controls for televisions;
?
mounting systems for flat screen televisions;
? karaoke products; ? infant/nursery products; ?
power systems and charging products;
?
cleaning preparations for electronic equipment;
? personal sound amplifiers; ? set-top boxes; and ? home and portable stereos.
Biometric products include:
?
iris identification products, and
?
biometric security related products.
We believe our segments have expanding market opportunities with certain levels of volatility related to domestic and international markets, new car sales, increased competition by manufacturers, private labels, technological advancements, discretionary consumer spending and general economic conditions. All of our products are subject to price fluctuations which could affect the carrying value of inventories and gross margins in the future. Macroeconomic factors, such as fluctuations in the unemployment rate and inflation have been pressured as a result of factors including the COVID-19 pandemic, supply chain shortages, and the war in theUkraine and have created a challenging demand environment in some of our markets, the duration and severity of which we are still unable to predict.
Our goal is to continue to grow our business by acquiring new brands, adopting new technologies, expanding product development and applying this to a continuous stream of new products that should increase gross margins and improve operations.
35 -------------------------------------------------------------------------------- income. In addition, it is our intention to continue to acquire synergistic companies that would allow us to leverage our overhead, penetrate new markets and expand existing product categories through our business channels. Notwithstanding the above, if the appropriate opportunity arises, the Company will explore the potential divestiture of a product line or business.
Acquisitions and disposals
OnSeptember 8, 2021 , the Company's subsidiary, PAC, completed the transaction to acquire certain assets of the home audio/video business ofOnkyo Home Entertainment Corporation with its partner Sharp through the newly formed joint venture, Onkyo Technology KK (see Note 2).
Significant Accounting Policies and Estimates
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; accrued sales incentives; business combinations; expected credit losses on accounts receivable; inventory valuation; valuation of long-lived assets; valuation and impairment assessment of goodwill, trademarks, and other intangible assets; warranties; recoverability of deferred tax assets; and the reserve for uncertain tax positions at the date of the consolidated financial statements. A summary of the Company's critical accounting policies is identified in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the fiscal year endedFebruary 28, 2022 . During Fiscal 2022, changes to the global economic situation continued to occur as a consequence of the COVID-19 pandemic and related supply chain challenges, chip shortages, and freight issues that could continue during Fiscal 2023. It is possible that this could cause changes to estimates in the future as a result of the financial circumstances of the markets in which the Company operates, the price of the Company's publicly traded equity in comparison to the Company's carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the Company's consolidated financial statements, particularly with respect to the fair value of the Company's reporting units in relation to potential goodwill impairment and the fair value of long-lived assets in relation to potential impairment. SinceFebruary 28, 2022 , there have been no changes in our critical accounting policies.
Operating results
As you read this discussion and analysis, refer to the accompanying Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income, which present the results of our operations for the three and six months endedAugust 31, 2022 and 2021.
The following tables present, for the periods indicated, certain statements of operating data for the three and six months ended
Net Sales August 31, 2022 2021 $ Change % Change Three Months Ended Automotive Electronics$ 37,218 $ 45,761 $ (8,543 ) (18.7 )% Consumer Electronics 88,015 96,959 (8,944 ) (9.2 )% Biometrics 332 253 79 31.2 % Corporate 140 136 4 2.9 % Total net sales$ 125,705 $ 143,109 $ (17,404 ) (12.2 )% Six Months Ended Automotive Electronics$ 76,803 $ 88,418 $ (11,615 ) (13.1 )% Consumer Electronics 176,952 191,072 (14,120 ) (7.4 )% Biometrics 435 458 (23 ) (5.0 )% Corporate 247 221 26 11.8 % Total net sales$ 254,437 $ 280,169 $ (25,732 ) (9.2 )%Automotive Electronics sales represented 29.6% of the net sales for the three months endedAugust 31, 2022 , compared to 32.0% in the prior year period and decreased$8,543 for the three months endedAugust 31, 2022 , as compared to the three months endedAugust 31, 2021 . The primary driver of the sales decrease was the decline in sales of aftermarket security products of 36 -------------------------------------------------------------------------------- approximately$6,800 , which includes aftermarket remote starts and telematic products. As the economy has begun to slow down, the Company is seeing a decrease in sales of these products. Also contributing to this decline is the limited availability of vehicles due to supply chain shortages. The Company's OEM rear seat entertainment sales also experienced a decline in sales of approximately$900 for the three months endedAugust 31, 2022 . Although new rear seat entertainment programs with Stellantis andFord have contributed positively to sales in the quarter, this has been offset by the discontinuance of certain other customer programs during the quarter, as well as the continuing effect of chip shortages. Additionally, sales of aftermarket rear seat entertainment products declined approximately$800 for the three months endedAugust 31, 2022 primarily as a result of limited vehicle availability due to ongoing supply chain shortages. These sales were also negatively affected by a slowing of the economy, with consumers beginning to spend less on luxury items. Finally, sales of satellite radio products decreased approximately$700 for the three months endedAugust 31, 2022 as a result of decreased foot traffic at customer retail outlets due to a slowing of the economy. As an offset to these decreases inAutomotive Electronics sales, the Company experienced an increase aftermarket automotive safety electronics of approximately$400 for the three months endedAugust 31, 2022 primarily as a result of an increase in available fleet vehicles during the quarter, as well as the ability to obtain and sell more cruise control inventory after experiencing component part shortages. Additionally, the Company experienced an increase in aftermarket accessory product sales of approximately$200 due to continued positive sales of new soundbars for club cars which launched in the prior year.Automotive Electronics sales represented 30.2% of the net sales for the six months endedAugust 31, 2022 , compared to 31.6% in the prior year period and decreased$11,615 for the six months endedAugust 31, 2022 , as compared to the six months endedAugust 31, 2021 . The primary driver of the sales decrease was the decline in sales of aftermarket security products of approximately$10,400 , which includes aftermarket remote starts and telematic products. As the economy has begun to slow down, the Company is seeing a decrease in sales of these products. Also contributing to this decline is the limited availability of vehicles due to supply chain shortages. Sales of satellite radio products have also decreased approximately$1,700 for the six months endedAugust 31, 2022 as a result of decreased foot traffic at customer retail outlets due the slower economy. Additionally, sales of aftermarket rear seat entertainment products declined approximately$1,300 for the six months endedAugust 31, 2022 primarily as a result of limited vehicle availability due to ongoing supply chain shortages. As an offset to these sales decreases, the Company's OEM rear seat entertainment sales experienced a net increase of approximately$1,500 during the six months endedAugust 31, 2022 , as a result of the start of new rear seat entertainment programs with Stellantis andFord that were not present in the comparable prior year period, which was offset by the discontinuance of certain other programs, as well as chip shortages. Aftermarket accessory product sales also increased approximately$600 for the six months endedAugust 31, 2022 due to continued positive sales of new soundbars for club cars that launched during the prior year. Consumer Electronics sales represented 70.0% of our net sales for the three months endedAugust 31, 2022 , compared to 67.8% in the comparable prior year period and decreased$8,944 for the three months endedAugust 31, 2022 , as compared to the three months endedAugust 31, 2021 . This net decrease was a result of several factors. The Company experienced a decrease in domestic sales of its premium home theater speakers and wireless speaker products totaling approximately$13,400 during the three months endedAugust 31, 2022 due in part to a slowing of the economy and a decrease in consumer spending. The Company has also continued to experience chip shortages and temporarily paused the sale of premium soundbars during the quarter in order to update the firmware in these products, which also negatively affected sales for the quarter. InEurope , sales of both premium and non-premium speaker products and accessories have decreased approximately$6,400 for the three months endedAugust 31, 2022 , as the war in theUkraine has negatively affected sales in the surrounding areas. Our European sales have also been negatively affected by a slowing of the economy, as well as chip shortages and a temporary pause in the sale of premium soundbars in order to update firmware. Additionally, there was a total decrease in domestic sales of accessory products of approximately$2,200 for the three months endedAugust 31, 2022 impacting most major accessory product lines, including hook-up, nursery, smart home, clock, and reception products. This decline was a result of a slowing of the economy and a general decrease in consumer spending. As an offset to these declines, the Company experienced an increase in domestic sales ofOnkyo and Pioneer products of approximately$7,600 for the three months endedAugust 31, 2022 . The Company's 11Trading Company subsidiary began selling these products through a distribution agreement during Fiscal 2021 and during the third quarter of Fiscal 2022, the Company completed an acquisition of certain assets of theOnkyo Home Entertainment business with its joint venture partner, resulting in the establishment of the Company's Onkyo subsidiary. Sales ofOnkyo and Pioneer products have increased since the acquisition, as there has been higher factory production of these products to meet customer demand, which the Company is still working toward. Prior to the acquisition, theOnkyo Home Entertainment parent company was unable to meet customer demand due to financial difficulty. Sales of premium audio products made by the Company's PAC Australia subsidiary have also increased approximately$1,000 during the three months endedAugust 31, 2022 , as this entity sellsOnkyo and Pioneer products and has benefited from the Company's increased factory production since theSeptember 2021 acquisition. Additionally, the Company experienced increased sales of its karaoke product of approximately$2,500 during the three months endedAugust 31, 2022 due to the timing of a large customer purchase, which was not made during the comparable quarter of the prior year. Finally, the Company had a net decrease in its reserve for returns of approximately$2,100 for the three months endedAugust 31, 2022 relating to certain premium audio products, which resulted in an improvement to net sales. 37 -------------------------------------------------------------------------------- Consumer Electronics sales represented 69.5% of our net sales for the six months endedAugust 31, 2022 , compared to 68.2% in the comparable prior year period and decreased$14,120 for the six months endedAugust 31, 2022 , as compared to the six months endedAugust 31, 2021 . This net decrease was a result of several factors. The Company experienced a net decrease in domestic sales of its premium home theater speakers and wireless speaker products totaling approximately$24,500 during the six months endedAugust 31, 2022 due in part to a slowing of the economy and a decrease in consumer spending. The Company has also continued to experience chip shortages and temporarily paused the sale of premium soundbars in order to update the firmware in these products, which also negatively affected sales for the year to date period. InEurope , sales of both premium and non-premium speaker products and accessories have decreased approximately$6,700 for the six months endedAugust 31, 2022 , as the war in theUkraine has negatively affected sales in the surrounding areas. Our European sales have also been negatively affected by a slowing of the economy, as well as chip shortages and a temporary pause in the sale of premium soundbars in order to update firmware. Additionally, there was a total decrease in domestic sales of accessory products of approximately$4,100 for the six months endedAugust 31, 2022 impacting most major accessory product lines, including hook-up, nursery, smart home, clock, and reception products. This decline was a result of a slowing of the economy and a general decrease in consumer spending. Finally, the Company experienced a decrease in sales of premium mobility products, including headphones and earbuds, of approximately$1,000 as it moved from a fulfillment model to a direct to customer model for its online platform sales of these products in order to improve pricing, which has resulted in a decrease in sales for the six months endedAugust 31, 2022 as a result of the transition. As an offset to these declines, the Company experienced an increase in domestic sales ofOnkyo and Pioneer products of approximately$18,400 for the six months endedAugust 31, 2022 . The Company's 11Trading Company subsidiary began selling these products through a distribution agreement during Fiscal 2021 and during the third quarter of Fiscal 2022, the Company completed an acquisition of certain assets of theOnkyo Home Entertainment business with its joint venture partner, resulting in the establishment of the Company's Onkyo subsidiary. Sales ofOnkyo and Pioneer products have increased since the acquisition, as there has been higher factory production of these products to meet customer demand, which the Company is still working toward. Prior to the acquisition, theOnkyo Home Entertainment parent company was unable to meet customer demand due to financial difficulty. Sales of premium audio products made by the Company's PAC Australia subsidiary have also increased approximately$3,700 during the six months endedAugust 31, 2022 , as this entity sellsOnkyo and Pioneer products and has benefited from the Company's increased factory production since theSeptember 2021 acquisition. Biometrics sales represented less than 1% of our net sales for both the three and six months endedAugust 31, 2022 and 2021. Sales increased slightly in the amount of$79 for the three months endedAugust 31, 2022 and decreased slightly in the amount of$23 for the six months endedAugust 31, 2022 . Sales increases were driven primarily by a new customer obtained inAugust 2022 that generated additional revenue and contributed to an overall net increase in sales for the quarter. For the six months endedAugust 31, 2022 , these new customer sales were offset by decreases in sales of the Company's older NXT product as compared to the prior year period.
Gross profit and gross margin percentage
August 31,
2022 2021 $ Change % Change
Three Months Ended
Automotive Electronics $ 9,122 $ 10,941 $ (1,819 ) (16.6 )%
24.5 % 23.9 %
Consumer Electronics 19,864 26,051 (6,187 ) (23.7 )%
22.6 % 26.9 %
Biometrics 133 77 56 72.7 %
40.1 % 30.4 %
Corporate 138 117 21 17.9 %
$ 29,257 $ 37,186 $ (7,929 ) (21.3 )%
23.3 % 26.0 %
Six Months Ended
Automotive Electronics $ 17,904 $ 22,463 $ (4,559 ) (20.3 )%
23.3 % 25.4 %
Consumer Electronics 44,190 51,103 (6,913 ) (13.5 )%
25.0 % 26.7 %
Biometrics 158 117 41 35.0 %
36.3 % 25.5 %
Corporate 244 198 46 23.2 %
$ 62,496 $ 73,881 $ (11,385 ) (15.4 )%
24.6 % 26.4 %
38
-------------------------------------------------------------------------------- Gross margin percentages for the Company have decreased 270 and 180 basis points for the three and six months endedAugust 31, 2022 , respectively, as compared to the three and six months endedAugust 31, 2021 . Gross margin percentages in theAutomotive Electronics segment increased 60 basis points for the three months endedAugust 31, 2022 , as compared to the prior year period, and decreased 210 basis points for the six months endedAugust 31, 2022 as compared to the prior year period. Several factors have contributed negatively to gross margins during both the three and six months endedAugust 31, 2022 , including the increased cost of materials and shipping, as well as increases in tariffs included in cost of goods sold for such items as OEM rear seat entertainment and OEM automotive safety products, which the Company has been actively working to mitigate through a combination of sales price adjustments and other sourcing strategies, as such supply chain issues are expected to continue through most of Fiscal 2023. These mitigating actions have helped to stabilize margins for certain product lines within the segment during the three and six months endedAugust 31, 2022 , or have helped to reduce the negative impact of these supply chain issues. Additionally, certain new OEM rear seat entertainment products that began selling during the second half of Fiscal 2022, and that have positively contributed to sales for both the three and six months endedAugust 31, 2022 , have generated lower margins than are normally achieved in this segment. Finally, sales of aftermarket security products, which have higher profit margins than those typically achieved by the segment, have experienced sales declines during both the three and six months endedAugust 31, 2022 and thus have contributed negatively to the segment's margins for the quarter. Offsetting these negative margin impacts, and in addition to mitigating strategies related to rising supply chain costs noted above, the decrease in sales of satellite radio products for the three and six months endedAugust 31, 2022 , which typically generate lower margins for the Company, contributed positively to margins overall. Gross margin percentages in the Consumer Electronics segment decreased 430 and 170 basis points for the three and six months endedAugust 31, 2022 , respectively, as compared to the respective prior year periods. Significant increases to container costs, increased cost of materials due to chip shortages, and surcharges affecting cost of sales for many of the products within the segment have caused declines in margins for both the three and six months endedAugust 31, 2022 , which the Company has actively worked to mitigate through pricing adjustments and other sourcing strategies, and has effectively helped to stabilize margins for some products, or has helped to reduce the negative impact of these issues for others. These supply chain issues are expected to continue through most of Fiscal 2023. In addition, the Company saw declines in sales of certain premium home theater speaker products during the three and six months endedAugust 31, 2022 due to older product offerings, as well as a slowing of the economy. As these products have typically generated higher margins for the segment, this decrease in sales negatively impacted margins for the quarter. Offsetting these negative margin impacts, sales ofOnkyo and Pioneer products positively impacted margins for both the three and six months endedAugust 31, 2022 , as there have been higher sales and higher factory production of these products since the acquisition of certain assets of theOnkyo Home Entertainment business inSeptember 2021 , as compared to sales under the Company's distribution agreement withOnkyo Home Entertainment Corp. prior to the acquisition. The Company also has more control over pricing and costing of the products since the acquisition, which has further improved these margins. Gross margin percentages in the Biometrics segment improved for both the three and six months endedAugust 31, 2022 as compared to the prior year periods. The increase in margins for the three and six months endedAugust 31, 2022 was a result of tooling costs incurred during the three and six months endedAugust 31, 2021 that did not repeat in the current year, as well as due to more sales of licenses during the three and six months endedAugust 31, 2022 as compared to the prior year, which have higher gross margins. 39 --------------------------------------------------------------------------------
Operating Expenses
August 31,
2022 2021 $ Change % Change
Three Months Ended
Operating expenses:
Selling $ 11,865 $ 11,838 $ 27 0.2 %
General and administrative 19,082 17,884 1,198 6.7 %
Engineering and technical support 8,284 7,886 398 5.0 %
Acquisition costs - 2,316 (2,316 ) (100.0 )%
Total operating expenses $ 39,231 $ 39,924 $ (693 ) (1.7 )%
Six Months Ended
Operating expenses:
Selling $ 24,150 $ 23,305 $ 845 3.6 %
General and administrative 38,212 36,560 1,652 4.5 %
Engineering and technical support 16,673 14,118 2,555 18.1 %
Acquisition costs 136 2,992 (2,856 ) (95.5 )%
Total operating expenses $ 79,171 $ 76,975 $ 2,196 2.9 %
Total operating expenses have decreased $693 for the three months ended August
31, 2022 and have increased $2,196 for the six months ended August 31, 2022 , as
compared with the respective prior year periods.
For the three months ended August 31, 2022 , selling expenses were relatively
flat, with an increase of $27 . Within selling expenses for the three months
ended August 31, 2022 , the Company experienced an increase in web platform
expenses of approximately $500 as a result of a net increase in online and
social media advertising and promotion, as well as due to the higher cost of
online platform fees. Offsetting this increase, there was a decrease in
commission expense of approximately $600 for the three months ended August 31,
2022 as a result of a decrease in the Company's sales for the quarter, as
compared to the three months ended August 31, 2021 .
For the six months ended August 31, 2022 , selling expenses increased $845 . The
Company incurred higher trade show expenses for the six months ended August 31,
2022 of approximately $700 , as the Company attended the annual Consumer
Electronics Show ("CES") in person in 2022. The 2021 CES event was held
virtually due to the COVID-19 pandemic. The Company also saw an increase in web
platform expenses of approximately $600 for the six months ended August 31, 2022
as a result of a net increase in online and social media advertising and
promotion, as well as due to the higher cost of online platform fees.
Additionally, travel expenses for the six months ended August 31, 2022 increased
approximately $400 due to the lifting of the Company's COVID-19 related
restrictions which have allowed salesmen to begin traveling to customer sites
again. Offsetting these increases in selling expenses, there was a decrease in
commission expense of approximately $900 for the six months ended August 31,
2022 as a result of a decrease in the Company's sales, as compared to the six
months ended August 31, 2021 . The Company also experienced a decrease in
advertising expenses of approximately $200 as a result of a decrease in display
costs, as well as a reduction in marketing research and public relation costs.
General and administrative expenses increased $1,198 during the three months
ended August 31, 2022 , as compared to the prior year period. Depreciation and
amortization expense increased approximately $800 primarily due to the
amortization of intangible assets of the Company's new Onkyo subsidiary, which
was not present in the prior year period. Office and occupancy expenses
increased approximately $300 in total as a result of costs related to the
Company's new Onkyo subsidiary, as well as the absence of certain COVID-19
related savings and concessions achieved in the prior year. The Company also
experienced a net increase in professional fees of approximately $300 for the
three months ended August 31, 2022 due to expenses related to the new Onkyo
subsidiary, offset by a decrease in legal fees related to an arbitration case
that took place in the prior year, and the absence of consulting fees related to
the EyeLock distribution agreement with GalvanEyes LLC that was approved during
Fiscal 2022. Additionally, the Company incurred approximately $200 of
restructuring expenses during the three months ended August 31, 2022 due to the
relocation of certain OEM production operations from Florida to Mexico , which
began during the second quarter and consisted primarily of severance expense and
moving costs. Finally, the Company experienced increases to both insurance
expense and taxes and licensing expense of approximately $100 each, primarily as
a result of costs related to the Company's new Onkyo subsidiary established in
September 2021 . As an offset to these general and administrative expense
increases, salary expense decreased approximately $800 for the three months
ended August 31, 2022 , due to the reversal of bonus accruals made in the first
quarter due to cost cutting measures, as well as lower Company profitability as
compared to the prior year period.
40
--------------------------------------------------------------------------------
General and administrative expenses increased $1,652 during the six months ended
August 31, 2022 , as compared to the prior year period. Depreciation and
amortization expense increased approximately $1,200 due to the amortization of
intangible assets of the Company's new Onkyo subsidiary, which was not present
in the prior year period. Office and occupancy expenses increased approximately
$400 in total as a result of costs related to the Company's new Onkyo
subsidiary, as well as the absence of certain COVID-19 related savings and
concessions achieved in the prior year. Benefit expenses increased approximately
$300 for the six months ended August 31, 2022 due to the absence of medical
releases in the current year to date period as compared to prior year. Fees
related to taxes and licensing also increased approximately $300 during the six
months ended August 31, 2022 due primarily to licenses required for the
Company's Onkyo subsidiary established in September 2021 . The Company also
experienced an increase in insurance expense of approximately $300 related to an
overall increase in insurance policy premiums as compared to the prior year, as
well as due to the addition of the Company's Onkyo subsidiary. Additionally, the
Company incurred approximately $200 of restructuring expenses during the six
months ended August 31, 2022 due to the relocation of certain OEM production
operations from Florida to Mexico , which began during the second quarter and
consisted primarily of severance expense and moving costs. Finally, travel and
entertainment expense increased approximately $100 during the six months ended
August 31, 2022 as a result of the lifting of COVID restrictions on the
Company's travel policies. As an offset to these increases in general and
administrative expense, the Company experienced a decrease in salary expense of
approximately $900 for the six months ended August 31, 2022 , due to the reversal
of bonus accruals made in the first quarter due to cost cutting measures, as
well as lower Company profitability as compared to the prior year period. There
was also net decrease in professional fees of approximately $300 for the six
months ended August 31, 2022 due to a decrease in certain fees incurred in the
prior year related to an arbitration case, and the absence of consulting fees
related to the EyeLock distribution agreement with GalvanEyes LLC that was
approved during Fiscal 2022, offset by fees related to the Company's new Onkyo
subsidiary.
Engineering and technical support expenses increased $398 for the three months
ended August 31, 2022 , as compared to the prior year period. The Company
experienced an increase in direct labor and related payroll expense of
approximately $1,300 for the three months ended August 31, 2022 primarily as a
result of additional headcount created by the September 2021 acquisition
resulting in the establishment of the Company's Onkyo subsidiary. Offsetting
these increases, the Company experienced a net decrease in research and
development expense of approximately $1,100 for the three months ended August
31, 2022 . This was a result of headcount reductions in the Biometric segment
that took place at the end of Fiscal 2022 and have resulted in lower research
and development activity for that segment, as well as lower development expense
in the Automotive Electronics segment due to the timing of the completion of
certain projects and the start of others. This was offset by the Company's
product development projects related to its new Onkyo subsidiary within its
Consumer Electronics segment.
Engineering and technical support expenses increased $2,555 for the six months
ended August 31, 2022 , as compared to the prior year period. The Company
experienced an increase in direct labor and related payroll expense of
approximately $3,100 for the six months ended August 31, 2022 primarily as a
result of additional headcount created by the September 2021 acquisition
resulting in the establishment of the Company's Onkyo subsidiary. Offsetting
these increases, the Company experienced a net decrease in research and
development expense of approximately $800 for the six months ended August 31,
2022 . This was a result of headcount reductions in the Biometric segment that
took place at the end of Fiscal 2022 and have resulted in lower research and
development activity for that segment, as well as lower development expense in
the Automotive Electronics segment due to the timing of the completion of
certain projects and the start of others. This was offset by the Company's
product development projects related to its new Onkyo subsidiary within its
Consumer Electronics segment.
Acquisition costs decreased $2,316 and $2,856 for the three and six months ended
August 31, 2022 , respectively, as compared to the respective prior year periods.
During the three and six months ended August 31, 2021 , as well as during the six
months ended August 31, 2022 , acquisition costs incurred were related to
consulting and due diligence fees for the asset purchase agreement signed with
Onkyo Home Entertainment Corporation and the joint venture created with Sharp
Corporation to complete the transaction. This transaction was completed on
September 8, 2021 .
41
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Other (Expense) Income
August 31,
2022 2021 $ Change % Change
Three Months Ended
Interest and bank charges $ (911 ) $ (582 ) $ (329 ) (56.5 )%
Equity in income of equity investee 1,763 2,035 (272 ) (13.4 )%
Interim arbitration award (986 ) - (986 ) (100.0 )%
Other, net (1,519 ) 376 (1,895 ) (504.0 )%
Total other income $ (1,653 ) $ 1,829 $ (3,482 ) (190.4 )%
Six Months Ended
Interest and bank charges $ (1,641 ) $ (1,110 ) $ (531 ) (47.8 )%
Equity in income of equity investee 3,351 4,758 (1,407 ) (29.6 )%
Interim arbitration award (1,972 ) - (1,972 ) (100.0 )%
Other, net (3,629 ) 818 (4,447 ) (543.6 )%
Total other income $ (3,891 ) $ 4,466 $ (8,357 ) (187.1 )%
Interest and bank charges represent interest expense and fees related to the
Company's bank obligations, shareholder loan, supply chain financing and
factoring agreements, interest related to finance leases, and amortization of
debt issuance costs. The Company borrowed funds from the Wells Fargo Credit
Facility for operating purposes during the three and six months ended August 31,
2022 . This resulted in an increase in interest expense incurred during both
periods as compared to the comparable prior year periods in which the Company
did not borrow any funds from the Credit Facility. Additionally, the Company's
new Onkyo subsidiary entered into a shareholder loan payable to the Company's
joint venture partner, Sharp, during the third quarter of Fiscal 2022, for which
interest expense was incurred during the three and six months ended August 31,
2022 . This shareholder loan was not outstanding during the three and six months
ended August 31, 2021 .
Equity in income of equity investee represents the Company's share of income
from its 50% non-controlling ownership interest in ASA Electronics LLC and
Subsidiaries ("ASA"). The decrease in income for the three and six months ended
August 31, 2022 is due to a decrease in ASA revenue, gross profit, and net
income primarily resulting from supply shortages and an increase in supply chain
and logistics costs impacting all industries.
During the three and six months ended August 31, 2022 , the Company recorded
charges of $986 and $1,972 , respectively, representing interest expense related
to the interim arbitration award accrued during Fiscal 2022, as the award will
be payable to Seaguard plus interest when settled.
Other, net includes net foreign currency gains or losses, interest income,
rental income, and other miscellaneous income and expense. During the three and
six months ended August 31, 2022 , the Company had net foreign currency losses of
$1,721 and $4,087 , respectively, as compared to net foreign currency gains of $2
and net foreign currency losses of $114 for the three and six months ended
August 31, 2021 , respectively. Net foreign currency losses for the three and six
months ended August 31, 2022 were primarily driven by declines in the Japanese
Yen, which impacted the re-measurement of the Company's Onkyo subsidiary
intercompany loans and interest payable which are not of a long-term investment
nature. The losses attributable to these re-measurements for the three and six
months ended August 31, 2022 were $1,362 and $3,441 , respectively.
Provision for income tax
The Company's provision for income taxes consists of federal, foreign, and state taxes necessary to align the Company's year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary. The Inflation Reduction Act of 2022 (the "Act") was signed intoU.S. law onAugust 16, 2022 . The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies toU.S. corporations with average adjusted financial statement income over a three year period in excess of$1 billion . The Company does not expect the Act to materially impact its financial statements.
For the three months ended
42 --------------------------------------------------------------------------------
discrete tax advantage of
The effective tax rates for the three months endedAugust 31, 2022 and 2021 were an income tax benefit of 6.1% on a pre-tax loss of$11,627 and an income tax benefit of 23.9% on a pre-tax loss of$909 , respectively. The effective tax rate for the three months endedAugust 31, 2022 differs from theU.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related toEyeLock LLC , state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and a tax benefit related to the decrease in the valuation allowance based on current year forecasted earnings. The effective tax rate for the three months endedAugust 31, 2021 differed from the statutory rate of 21% primarily due to a number of factors, including the non-controlling interest related toEyeLock LLC , state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and a tax benefit related to the decrease in the valuation allowance. For the six months endedAugust 31, 2022 , the Company recorded an income tax benefit of$1,800 , which includes a discrete income tax benefit of$172 related primarily to the reversal of uncertain tax position liabilities as a result of the lapse of the applicable statute of limitations. For the six months endedAugust 31, 2021 , the Company recorded an income tax provision of$267 , which includes a discrete income tax benefit of$144 related primarily to the reversal of uncertain tax position liabilities as a result of the lapse of the applicable statute of limitations. The effective tax rates for the six months endedAugust 31, 2022 and 2021 were an income tax benefit of 8.8% on pre-tax loss of$20,566 and an income tax provision of 19.5% on pre-tax income of$1,372 , respectively. The effective tax rate for the six months endedAugust 31, 2022 and 2021 differs from theU.S. statutory rate of 21% as a result of a number of factors, including the non-controlling interest related toEyeLock LLC , state and local income taxes, nondeductible permanent differences, income taxed in foreign jurisdictions at varying tax rates, and a decrease in valuation allowance.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are not financial measures recognized by GAAP. EBITDA represents net (loss) income attributable toVOXX International Corporation , computed in accordance with GAAP, before interest expense and bank charges, taxes, and depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted for stock-based compensation expense, foreign currency losses (gains), restructuring expenses, acquisition costs, certain non-routine legal and professional fees, and awards. Depreciation, amortization, stock-based compensation, and foreign currency losses (gains) are non-cash items. We present EBITDA and Adjusted EBITDA in this Form 10-Q because we consider them to be useful and appropriate supplemental measures of our performance. Adjusted EBITDA helps us to evaluate our performance without the effects of certain GAAP calculations that may not have a direct cash impact on our current operating performance. In addition, the exclusion of certain costs or gains relating to certain events allows for a more meaningful comparison of our results from period-to-period. These non-GAAP measures, as we define them, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA and Adjusted EBITDA should not be assessed in isolation from, are not intended to represent, and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with GAAP. 43 -------------------------------------------------------------------------------- Reconciliation of GAAP Net Income Attributable toVOXX International Corporation to EBITDA and Adjusted EBITDA Three months ended Six months ended August 31, August 31, 2022 2021 2022 2021 Net (loss) income attributable to VOXX International Corporation$ (10,216 ) $ 311 $ (16,743 ) $ 3,027 Adjustments: Interest expense and bank charges (1) 710 420 1,237 792 Depreciation and amortization (1) 3,449 2,735 6,353 5,513 Income tax (benefit) expense (708 ) (217 ) (1,800 ) 267 EBITDA (6,765 ) 3,249 (10,953 ) 9,599 Stock-based compensation 136 237 262 473 Foreign currency losses (gains) (1) 1,728 (2 ) 4,090 114 Restructuring expenses 229 - 229 - Acquisition costs - 2,316 136 2,992 Professional fees related to distribution agreement with GalvanEyes LLC - - - 325 Non-routine legal fees 350 548 858 1,234 Interim arbitration award 986 - 1,972 - Adjusted EBITDA$ (3,336 ) $ 6,348 $ (3,406 ) $ 14,737 (1) For purposes of calculating Adjusted EBITDA for the Company, interest expense and bank charges, depreciation and amortization, as well as foreign currency losses and (gains) have been adjusted in order to exclude the non-controlling interest portion of these expenses attributable toEyeLock LLC and Onkyo Technology KK.
Cash and capital resources
Cash flows, commitments and obligations
As ofAugust 31, 2022 , we had working capital of$137,189 which includes cash and cash equivalents of$4,326 , compared with working capital of$126,756 atFebruary 28, 2022 , which included cash and cash equivalents of$27,788 . We plan to utilize our current cash position as well as collections from accounts receivable, the cash generated from our operations, when applicable, and the income on our investments to fund the current operations of the business. However, we may utilize all or a portion of current capital resources to pursue other business opportunities, including acquisitions, or to further pay down our debt. As ofAugust 31, 2022 , we had cash amounts totaling$111 held in foreign bank accounts, none of which would be subject toUnited States federal income taxes if made available for use inthe United States . The Tax Cuts and Jobs Act provides a 100% participation exemption on dividends received from foreign corporations afterJanuary 1, 2018 , asthe United States has moved away from a worldwide tax system and closer to a territorial system for earnings of foreign corporations. Operating activities used cash of$46,317 for the six months endedAugust 31, 2022 due to factors including the increase in inventory and the decrease in accounts payable, accrued expenses and other current liabilities, and accrued sales incentives, as well as due to losses incurred byEyeLock LLC and the decrease net sales. This was offset primarily by the decrease in accounts receivable. For the six months endedAugust 31, 2021 , operating activities used cash of$5,529 due to factors including the increase in inventory and the decrease in accounts payable, accrued expenses, and accrued sales incentives, as well as due to losses incurred byEyeLock LLC . This was offset by increases in net sales, as well as a decrease in accounts receivable. Investing activities used cash of$2,226 during the six months endedAugust 31, 2022 primarily due to capital expenditures. For the six months endedAugust 31, 2021 , investing activities used cash of$10,228 primarily due the issuance of a promissory note toOnkyo Home Entertainment Corp. , as well as due to capital expenditures. Financing activities provided cash of$20,807 during the six months endedAugust 31, 2022 due to borrowings from the Credit Facility. This was offset by repayments of borrowings from the Company's Credit Facility and Euro asset-based loan inGermany , the settlement of market stock unit awards in cash, the payment of withholding taxes on the net issuance of a stock award, as well as repayments of finance leases and theFlorida mortgage. During the six months endedAugust 31, 2021 , financing activities used cash of$2,375 due to the purchase of treasury shares, the payment of withholding taxes on the net issuance of a stock award, the payment of deferred finance fees related to the amendment of the Credit Facility, as well as repayments of finance leases and theFlorida mortgage, offset by borrowings under the Company's Euro asset-based loan inGermany . 44 -------------------------------------------------------------------------------- Federal, state, and local governments have taken a variety of actions to contain the spread of COVID-19. Many jurisdictions imposed various regulations, including capacity limitations and other restrictions affecting our operations during the Company's 2022 fiscal year, following the mandatory lockdowns imposed during the 2021 fiscal year. Many of the most severe restrictions have been lifted, but could return if there is a resurgence of the pandemic spread. We have proactively taken steps to increase available cash, including, but not limited to, utilizing existing supply chain financing and factoring agreements, and utilizing available funds under our existing Credit Facility. The Company has a senior secured credit facility (the "Credit Facility") that provides for a revolving credit facility with committed availability of up to$140,000 . The availability under the revolving credit line within the Credit Facility is subject to a borrowing base, which is based on eligible accounts receivable, eligible inventory and certain real estate, subject to reserves as determined by the lender, and is also limited by amounts outstanding under the Florida Mortgage (see Note 16(b)). The availability under the revolving credit line of the Credit Facility was$101,571 as ofAugust 31, 2022 . All amounts outstanding under the Credit Facility will mature and become due onApril 19, 2026 ; however, it is subject to acceleration upon the occurrence of an Event of Default (as defined in the Agreement). The Company may prepay any amounts outstanding at any time, subject to payment of certain breakage and redeployment costs relating to LIBOR Rate Loans. The commitments under the Credit Facility may be irrevocably reduced at any time, without premium or penalty as set forth in the Agreement. Generally, the Company may designate specific borrowings under the Credit Facility as either Base Rate Loans or LIBOR Rate Loans, except that Swingline Loans may only be designated as Base Rate Loans. Loans designated as LIBOR Rate Loans shall bear interest at a rate equal to the then applicable LIBOR rate plus a range of 1.75 - 2.25%. Loans designated as Base Rate loans shall bear interest at a rate equal to the applicable margin for Base Rate Loans plus a range of 0.75 - 1.25%, as defined in the Agreement, and shall not be lower than 1.75%. The Credit Facility provides for a Benchmark Replacement that will replace the LIBOR rate for all revolver usage. The Benchmark Replacement is subject to the occurrence of a Benchmark Transition Event, as defined in the Second Amended and Restated Credit Agreement and becomes effective after a five-day transition period following the event. Provided that the Company is in a Compliance Period (the period commencing on that day in which Excess Availability is less than 15% of the Maximum Revolver Amount and ending on a day in which Excess Availability is equal to or greater than 15% for any consecutive 30-day period thereafter), the Credit Facility requires compliance with a financial covenant calculated as of the last day of each month, consisting of a Fixed Charge Coverage Ratio. The Credit Facility also contains covenants, subject to defined carveouts, that limit the ability of the loan parties and certain of their subsidiaries which are not loan parties to, among other things: (i) incur additional indebtedness; (ii) incur liens; (iii) merge, consolidate or dispose of a substantial portion of their business; (iv) transfer or dispose of assets; (v) change their name, organizational identification number, state or province of organization or organizational identity; (vi) make any material change in their nature of business; (vii) prepay or otherwise acquire indebtedness; (viii) cause any change of control; (ix) make any restricted junior payment; (x) change their fiscal year or method of accounting; (xi) make advances, loans or investments; (xii) enter into or permit any transaction with an affiliate of any borrower or any of their subsidiaries; (xiii) use proceeds for certain items; (xiv) issue or sell any of their stock; or (xv) consign or sell any of their inventory on certain terms. In addition, if excess availability under the Credit Facility were to fall below certain specified levels, as defined in the Agreement, the lenders would have the right to assume dominion and control over the Company's cash.
Obligations under the Credit Facility Documents are secured by a general lien and charge on substantially all of the assets of the Borrowers and certain of the Guarantors, including accounts receivable, equipment, real property, general intangible assets and inventory. The Company has guaranteed the obligations of the borrowers under the Agreement.
The Company has a Euro asset-based loan facility inGermany with a credit limit of €8,000 that expires onJuly 31, 2023 . The Company's subsidiariesVoxx German Holdings GmbH ,Oehlbach Kabel GmbH , andSchwaiger GmbH are authorized to borrow funds under this facility for working capital purposes. The Company also utilizes supply chain financing arrangements and factoring agreements as a component of its financing for working capital, which accelerates receivable collection and helps to better manage cash flow. Under the agreements, the Company has agreed to sell certain of its accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements (see Note 9). The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the Company's Consolidated Statements of Cash Flows. Fees incurred in connection with the agreements are recorded as interest expense by the Company. 45 --------------------------------------------------------------------------------
Material cash needs
Certain contractual cash obligations and other business commitments will affect our short-term and long-term liquidity. To
Amount of Commitment Expiration per Period
Less than 2-3 4-5 After
Contractual Cash Obligations Total 1 Year Years Years 5 Years
Finance lease obligation (1) $ 155 $ 155 $ - $ - $ -
Operating leases (1) 4,125 1,201 1,396 659 869
Total contractual cash obligations $ 4,280 $ 1,356 $ 1,396 $ 659 $ 869
Other Commitments
Bank obligations (2) $ 27,400 $ - $ - $ 27,400 $ -
Stand-by and commercial letters of
credit (3) 50 50 - - -
Other (4) 10,341 500 1,000 1,000 7,841
Contingent consideration (5) 5,018 524 1,333 894 2,267
Pension obligation (6) 231 - - - 231
Unconditional purchase obligations
(7) 169,988 169,988 - - -
Total other commitments 213,028 171,062 2,333 29,294 10,339
Total commitments $ 217,308 $ 172,418 $ 3,729 $ 29,953 $ 11,208
1.
Represents total principal payments due under operating and finance lease
obligations. Total current balances (included in Accrued expenses other current
liabilities) due under finance and operating lease obligations are $155 and
$1,201 , respectively, at August 31, 2022 . Total long-term balances due under
finance and operating leases are $0 and $2,924 , respectively, at August 31,
2022 .
2.
Represents amounts outstanding under the Company’s credit facility and VOXX Germany’s asset-based loan facility as of
3.
We issue stand-by and commercial letters of credit to secure certain purchases and certain insurance requirements.
4.
This amount represents the outstanding mortgage balances of our manufacturing plant in
5.
Represents the contingent liability payable to
for future purchases of certain product inventory.
6.
Represents the liabilities of an employer-sponsored defined benefit pension plan covering certain eligible current and former employees of Voxx Germany.
seven.
Purchase obligations in progress represent inventory commitments. These obligations are not recognized in the consolidated financial statements until the commitments are fulfilled, since these obligations are likely to change depending on negotiations with manufacturers.
We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations, available borrowings under bank lines of credit and possible future public or private debt and/or equity offerings. At times, we evaluate possible acquisitions of, or investments in, businesses that are complementary to ours, which transactions may require the use of cash. We believe that our cash, other liquid assets, operating cash flows, credit arrangements, and access to equity capital markets, taken together, provide adequate resources to fund ongoing operating expenditures for the next twelve months, including the intercompany loan funding we provide to our majority owned subsidiary,EyeLock LLC , and our accrual related to an unfavorable interim arbitration for which a schedule for the issuance of a final award has not yet been established. In the event they do not, we may require additional funds in the future to support our working capital requirements or for other purposes and may seek to raise such additional funds through the sale of public or private equity and/or debt financings, as well as from other sources. No assurance can be given that additional financing will be available in the future or that if available, such financing will be obtainable on terms favorable when required.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that could have a material current or future effect on our financial condition or results of operations.
46 --------------------------------------------------------------------------------
Related party transactions
OnApril 29, 2021 EyeLock LLC entered into a three-year exclusive distribution agreement ("the Agreement") withGalvanEyes LLC , aFlorida LLC , managed by Beat Kahli, the largest holder of Voxx's Class A Common Shares. The Agreement was included in the Company's Proxy Statement filed onJune 17, 2021 and was approved by the Company's shareholders at the Annual Meeting of Shareholders held onJuly 29, 2021 . See Note 20 of the Notes to the Unaudited Consolidated Financial Statement of this Form 10-Q.
New accounting statements
We are required to adopt certain new accounting pronouncements. See note 24 to our consolidated financial statements included.
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