VOXX International Corp (VOXX) 2015 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the VOXX fiscal 2015 second-quarter conference call. (Operator Instructions). As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Glenn Wiener. Please go ahead.

Thank you Kate and good morning everyone. Welcome to VOXX International's fiscal 2015 second-quarter results conference call. Today's call is being webcast from our website, www.VOXXINTL.com, and can be accessed in the Investor Relations section of the site. We also have a replay available for those who are unable to join us this morning. We filed our Form 10-Q and issued our press release yesterday after the market closed and both documents can be found on our website, again in the Investor Relations section under SEC Filings and News Releases respectively.

Before turning the call over to Pat Lavelle, I'd like to remind everyone that, except for historical information contained herein, statements made on today's call 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. Risk factors associated with our business are detailed in our Form 10-K for the fiscal year ended February 28, 2014.

At this time, I'd like to turn the call over to our President and CEO Pat Lavelle.

Thank you Glenn and good morning everyone.

Despite the fact that product delays and the softer-than-expected second-quarter sales have forced us to lower our guidance for fiscal 2015, I wanted to start this call by saying we remain optimistic with our potential moving into next year. While we may have some temporary issues, we also have a lot of exciting programs nearly ready for launch as well as some potentially explosive opportunities as we explore new markets and execute contracts over the coming years. I'll discuss some of them in more detail after I review the quarter.

Sales came in at $177.3 million, $6.5 million lower than last year's second quarter. We were expecting sales to be flat with the prior year, but the retail softness that I spoke about on our last call has continued, primarily affecting Premium Audio. On the other hand, our gross margins held, coming in at 29.5%, 10 basis points better than last year's second quarter.

On the cost side, our operating expenses were down a little over $0.5 million, or down 1.1%. And while we expect that expenses will increase over the year, we have taken steps to reduce that and now expect to see increases of only 3% to 3.5%, rather than the 4% to 5% I had previously guided to.

We reported operating income of $1.1 million versus $2.2 million in last year's second quarter, and we reported a net loss of $2.7 million versus net income of $4.9 million. Note, however, in the fiscal 2015 second quarter, we took a non-cash currency devaluation charge in Venezuela of approximately $6.7 million as the country continues to have issues and we have essentially stopped operating there. The non-cash charges related to the devaluing of the Bolivar and has no impact on our operations or our cash flow.

Additionally, in fiscal 2014 second quarter, we had approximately $6.1 million in gains related to a class-action settlement and recoveries from one of our customers offset by $1.2 million in patent settlement fees. So, there are a lot of moving parts that affected the net income.

Let me now address the quarter so you can see what's driving our business and where we see opportunities for growth. First off, our Automotive segment. Sales came in at $92.9 million, down $4 million compared to last year. The year-over-year decline is largely the result of program timing as we have some programs active in last year's second quarter which were not active this year, one that was temporarily halted that we expect to resume in the third quarter. There was also roughly $1 million in sales in Venezuela in last year's second quarter that did not repeat this year as we have essentially shut down.

Domestic car sales continued to increase and our VOXX Hirschmann subsidiary is developing the next generation of content-rich rearseat entertainment and the latest in antenna and tuner technology. Gross margins have increased, expenses are lower, and operating income for the Automotive segment is up for the comparable periods.

Our Premium Audio segment. We reported sales of $39 million versus $40.8 million in last year's second quarter, down a little under $2 million and due primarily to a 30-day delay of the introduction of our new Reference Series speaker line. Our commercial business is increasing, as are sales of soundbars, both of which are anticipated to be growth categories for us. Our new personal music systems are gaining traction as well, and we continue to receive rave reviews for our in-ear headphones which are consistently ranked among the top performance headphones in the market.

Our margins, however, continue to come under pressure due primarily to product mix, as soundbars and personal music systems grow to represent a larger percentage of sales. Additionally, over the past two quarters, we have been clearing out inventory of some of our older product lines to pave the way for the introduction of the new Reference Series and we now believe that margins in this segment should begin to show improvement.

Our expenses were also up, primarily in engineering and advertising, as we geared up for the launch of the new Reference Series gaming headphones and personal audio. As I've indicated on previous calls, we are not anticipating growth in Premium Audio this year although margins should improve, expenses are coming down, and we continue to expand distribution, which should position us well as we move forward.

Within our Consumer Accessories segment, we reported sales of $45.2 million, which is roughly in line with last year's second quarter. Margins were down 100 basis points, though our core business is performing to plan. However, we had anticipated some growth due to the planned introductions of myris, our biometrics offering, and the 360 degree action camera initially slated for late 2Q shipment. We have delayed both launches as we tweak the software to deliver optimum performance from both of these new product categories. They are receiving high interest and acceptance from our distribution partners, who are anxious to get them. We now expect to launch limited quantities of myris in November and our action camera starting in fiscal 2016 with the MicroFly smartphone attachment to follow. The delays will impact our fiscal year sales by approximately $20 million, which will of course require us to lower our guidance. However, we remain confident that both products will contribute to our topline performance in fiscal 2016 and we are gearing up for an aggressive rollout.

I also want to add that, during the second quarter, we had higher engineering, marketing and overhead expenses to support these programs without the benefit of sales to offset them.

Bluetooth and wireless speakers, reception products, and the launch of our 808 audio brand are all performing well domestically and we are experiencing growth in our international accessory brands as we gain additional distribution in Saturn retail stores and the do-it-yourself channel.

While we had anticipated first-quarter sales being down, we did not have that anticipation built into the second quarter. A $6.5 million miss in 2Q combined with the impact of the delayed product launches leaves us with approximately $26-plus million in sales that will not materialize this year. Subsequently, we have lowered our sales guidance to approximately $800 million range.

Regarding margins, we believe that we will meet or exceed the 29% guidance we previously indicated.

On the expense side, we had forecasted a 4% to 5% year-over-year increase. Through the first half of the year, expenses are up 1.8%, and we have taken additional steps to bring overhead down without sacrificing sales driven initiatives. For the fiscal year and as I mentioned earlier, we are now expecting operating expenses to be up between 3% and 3.5%, exclusive of the impairment charge from last year. As a result, EBITDA for the year should be approximately $40 million and adjusted EBITDA approximately $47 million.

Now, before turning the call over to Mike, I would like to provide you with some updates on product development initiatives, new programs and the reasons for our optimism. Within Automotive, mid-2016 fiscal, we begin a five-year contract with Daimler Benz for our new mobile multimedia tuner. This is the first contract for this level product and we are in discussions with several OEMs now to offer them similar technology. We are also set to deliver a multimedia tuner to Jaguar Land Rover, and that is slated to begin in 2015.

Our asset-based tracking system is an area that we believe will fuel added growth. I've talked to you in the past about our intelligent antenna system and our partnership with AT&T. Our Smart antenna system is a new product which is a solar powered antenna with a 15-year life span that we have developed for logistics companies, retailers, or any company looking to track assets or shipping containers worldwide. We will be showing our solar powered antenna systems at Intermodal Europe in Rotterdam in November.

The VOXX Hirschmann team has signed a letter of intent, creating a strategic partner with EchoStar's Sling Media where we will be integrating a Sling player directly into our rearseat entertainment products to bring the TV content you enjoy in your home directly into the vehicle. Consumers want the content they have at home on the road and our product will deliver the richest content of any rearseat entertainment system on the market.

Within Consumer Accessories, September selling indicates our retail partners are planning for a good holiday season across the board for Bluetooth speakers, reception products, and headphones.

I am particularly excited about the potential that myris has at the corporate enterprise level. Every day, there are reports of data breaches that are in the millions and we believe that biometrics will provide the ultimate data security system.

I've already discussed the 360 action camera, but I will reiterate that, based on retailer response to our presentations, the growing size of the market, the action camera category will be a driver for us. We are planning aggressive promotions for the launch of this product as well as for the 360 MicroFly, which is a smartphone accessory that will allow your smartphone to take 360 degree pictures and videos. We showed new home automation systems from Schwaiger and new Magnat headphones designed by Pininfarina at IFA in Europe, and based on early feedback, these too should do well as we continue development and rollout over the next year.

We continue to promote the Klipsch brand with exciting promotions and sponsorships and just yesterday, the Rock 'n Roll Hall of Fame announced our sponsorship with them that will begin in March of 2015. We will supply details as we get closer to that date.

And finally, our personal music systems and soundbars in the Premium Audio group are well-positioned at retail and they are posting strong sales. And our new Reference line should perform well through the holiday season and help improve overall margins in the category.

In summary, our story has not changed. We are investing in R&D, engineering, and new product development with an eye on the future and we feel good with our prospects despite some of the headwinds at retail and launch delays. We keep paying down debt and will continue to do so barring any acquisitions we may make.

At this point, I'll turn the call over to Michael for a more detailed financial review, and then we will open it up for questions. Mike?

Thanks Pat. Good morning everyone. We have already provided a lot of detail around our second-quarter performance, so I'll focus my remarks on our six-month results and balance sheet before we open up the call for questions. All comparisons are for the six-month periods ended August 31, 2014 and August 31, 2013.

We reported net sales of $364.2 million versus $376.8 million, down 3.3%. Within this, the Automotive segment was down 2.9%, Premium Audio was down 8.4% and Consumer Accessories were up 0.5%. Factors that impacted the results for the six-month periods were very similar to our three-month results but I'd like to add a few points.

In Automotive, we saw a nice gain in our security aftermarket lines driven by new telematic product offerings and sales of remote starts, the latter driven by a new program with Subaru which started in our second quarter.

Satellite radio fulfillment sales declined a bit but were offset by other fulfillment sales.

VOXX Hirschmann sales were down approximately $5.6 million. However, the decline is really more about timing given the temporary shutdown of one of our programs which, as Pat noted, will resume again in our fiscal third quarter. This impacted our domestic OEM operations and it is certainly worth knowing that our international business at Hirschmann was up, driven by increases in both mobile tuners and antennas.

Additionally, the year-over-year decline in Venezuela is approximately $2 million. I will address Venezuela further in my remarks.

In Premium Audio, sales were down approximately $6.8 million with declines in Canada and in Europe as well as general softness at the retail domestically. During the first half of the year, we reduced certain inventories at lower than traditional margins in order to pave the way for the launch of new products, particularly our Reference Series speakers. Our commercial speakers increased year-over-year, as did soundbars and personal music systems.

Our business was positively impacted by growth overseas as both Schwaiger and Oehlbach saw increases in sales for the comparable six-month periods. Reception products grew nicely, as did our 808 audio speaker lines and many of our newer Bluetooth and wireless speakers. Offsetting some of the increases were lower sales of some of our older CG products such as clock radios, digital voice recorders, as well as traditional AV cables and other power product lines.

Our consolidated gross margins for the six months were up 20 basis points, 29% versus 28.8%. We experienced a 230 basis point improvement in our Automotive segment, a 330 basis point decline in Premium Audio and a 100 basis point decline in Consumer Accessories.

In our Premium Audio segment, margins have been coming down for several quarters as there are two factors. The first is product mix as we are selling more soundbars and music systems versus traditional audio systems, and this will continue.

However, the second piece has more to do with inventory management. As mentioned, we have been dressing our inventory in preparation for new product introductions. As a result, our margins have been lower than in the past. However, with the launch of our Reference series and other new products coming to market this quarter, we should start to see gross margins in this segment moving upwards.

In our Consumer Accessories segment, margins have come down a bit again, mostly due to product mix. There has recently been certain cost improvements which will impact margins favorably going forward. We've had some added costs for new products, particularly for the IC-360 and myris product lines without the revenues to offset this. We should see stability in margins and hopefully a little improvement as we move forward into the next year.

In regard to operating expenses, total expenses were up $1.8 million, or 1.8%, for the six-month period. This is below our internal budget and as Pat indicated, we have taken some steps to lower future overhead throughout the year. Engineering labor was up $2.6 million, principally in Hirschmann. Professional fees were up $700,000. Advertising expenses were up $1.1 million. Engineering and advertising directly correlate to the new product and programs we've introduced or have plans to introduce in the near future. This was offset by lower management salaries, occupancy costs as a result of our facilities and systems consolidation. And though salesman salaries were up, we've staffed up in anticipation of penetrating new markets.

Operating income was $672,000 versus $5.7 million, down roughly $5 million. Lower sales were principally the driver, partially offset by the improvements in our gross margins.

As we mentioned on the last call, there were some big movements in other income and other expense lines which impacted net income. We had approximately a $600,000 decline on interest and bank charges for the bank obligations as we continue to pay down debt. Equity and income of our equity investee related to our joint venture, ASA, improved by $134,000.

As we indicated earlier we took a non-cash charge of $6.7 million, representing the remeasurement of our Venezuelan bonds as of August 31, 2014. These bonds were initially issued to reset to the ongoing devaluation of the Bolivar rate versus the US dollar.

During our second quarter, there were three conversion rates. The bonds were converted at one rate to reset the Bolivar amount and the dollar value was translated using a lower Bolivar rate. These bonds mature March 2015. At this time in Venezuela, we have reduced our operations and our primary assets are only these bonds and property. The Company provides no cash support in Venezuela today. There can be no assurances based upon the current situation there that there won't be further remeasurements or impairments which could impact the Company's financials.

Other net primarily included net foreign currency gains of $365,000, interest income of $138,000, and rental income of $591,000 for the fiscal 2015 six-month period. As I mentioned in the first quarter, for the fiscal 2014, we had received $5.2 million in class-action settlement, $900,000 related to recovery of funds from Circuit City that had previously been written off by Klipsch prior to our acquisition, offset by accrual of $1.2 million for estimated patent settlements with certain third parties. The variance in other net for these two six-month periods was $4.4 million.

As a result of lower operating income, specifically the impact of other net income expenses, we reported a net loss of $2.2 million, or a loss of $0.09 per diluted share. This compares to net income of $7 million, or net income per diluted share of $0.29. Just to give a little clarity, without the Venezuela charge, we would have reported pretax income for the six months of $2.6 million.

As for EBITDA, reported EBITDA of $7.1 million for the fiscal 2015 six-month period as compared to $26.6 million for the comparable periods fiscal 2014. On an adjusted basis, without the Venezuela charge, EBITDA would have been $13.8 million versus $19.2 million adjusted last year.

The effective tax rate for the six months ended August 31, 2014 was a tax benefit of 46.3% as compared to a provision for income taxes of 35.5% in last year's six-month period.

Now, for our balance sheet. Our cash position as of August 31, 2014 was $9.4 million versus $10.6 million as of February 28, 2014. The Company continues to monitor its inventory position, and inventory as of August 31, 2014 was $153.8 million versus $174.5 million as of August 31, 2013. Our total debt as of August 31, 2014, which is inclusive of all mortgages and capital leases, stood at $102.1 million compared to $115.5 million as of February 28, 2014, an improvement of $13.2 million, as compared to $132.8 million as of August 31, 2013, a year-over-year improvement of $30.7 million.

Our domestic bank obligations were $74 million as of August 31, 2014. This compares to $88 million as of February 28 and $108 million as of August 31, 2013. As of today, our bank debt is $89 million with availability of $111 million. We are now moving into the Company's high point of borrowings, preparing for our fiscal third quarter, which includes the holiday season. Last year at this high point, our bank borrowings were $118.3 million.

Free cash flow now with lowered sales guidance is expected to be approximately $26 million. Our CapEx estimates remain unchanged at $12 million to $13 million this fiscal year, barring any changes in our facility structures.

To summarize our guidance, we now anticipate sales of approximately $800 million due to delayed launches and second-quarter retail softness. Gross margin estimates remain unchanged at 29%, and we've lowered overhead for the year versus our plan and now anticipate operating expenses will increase 3% to 3.5% versus prior guidance of 4% to 5%. EBITDA adjusted for the Venezuela, which is not a cash item, should come in at approximately $47 million.

I will reiterate Pat's comments about our outlook. Yes, there are a few factors which caused us to lower our numbers this year, but our outlook and ability to grow organically next year looks promising.

And at this time, we will be ready to take questions. Pat?

Thank you Mike. Operator?

(Operator Instructions). Sean McGowan, Needham and Company.

I have a couple of questions. The first two have to do with trying to get a sense of the size or the magnitude of some of these timing items, so the suspension of the program and the delay, the 30-day delay in Reference. Can you give us just some ballpark figure about how much that accounts for the adjustment in revenue or the shortfall in the short-term?

When I look at the Automotive business, the one program was temporarily halted due to one of our manufacturers having to re-look at all of their quality issues, and that probably -- I'd have to look, but that would be in the $2 million to $3 million plus range over the period of time we have been involved in.

Do you expect to get all of that back by the end of the fiscal year?

No. We don't expect to get all of that back by the fiscal. What we expect is that we will resume shipments of those products within our third quarter, pending approval by the manufacturer.

Okay, so there was some net loss to this fiscal year anyway.

Yes, that's (multiple speakers)

As there is to them, right? I mean, they are not selling vehicles so --.

That's exactly right. The other is -- I'd have to look to give you, but it was obviously a delay of launch. We lost one month's worth of sales where we would've had some sell-through, where we would've had some reorders within the quarter. That's a little bit harder number to nail down, but based on the size of the launch, it could have been $1 million, but I really would have to check that.

And would you anticipate being able to get that back once the --?

Well, depending on how the program sells through at Christmas. The reception has been good so far, so we are confident that the numbers that we are projecting will come in. If we see some pickup in the Christmas business over years past, then yes, there could be some upside to those numbers.

Okay. And then another question. I can imagine you being quite hesitant to get too specific on the timing, but is the delay in the 360 -- do you expect that to be very, very early in fiscal 2016 or is it still --?

You know what, I could tell you what we are looking to do is we need to tweak some of the software. All of these products, whether it be myris or the 360, have to interface with other hardware. And making sure that it's seamless, it works properly, there is no glitches, requires a tremendous amount of testing. Both of these products are very important. We think they are very, very unique. The response that we've gotten to date from our retail customers has been very, very good. And we want to make sure that when we introduce, the products are working properly, free of glitches, and we're taking some extra time to make sure that that happens. But we believe with the importance of both of these launches, that's a prudent, prudent step.

Right. Okay, thanks. And then I would just like a couple of questions for Mike then. When you were giving us margin trend commentary, that was for the six months in the various segments?

Yes.

Would you mind repeating them? Because I didn't catch all of them.

Sure. Hang on a second.

And then while you are looking that up, the other, the final question was what drove that effective tax rate? I know it's a benefit, but what drove that higher?

The calculation is that the Venezuelan funds -- we did have some taxes -- we actually pay taxes in Europe and we had a higher loss in the US.

That's what I figured, okay.

And I want to point out to you when you look at the Q, so everybody is aware of this, that we had a favorable settlement with the IRS and there will be a lot of tax credits coming through the financial statements in the third quarter.

Woo-hoo.

Okay, on the gross margin that we talked about, basically I said the margins were up for the six months 29% versus 28.8%. 230 basis points in the Automotive segment increased, a 330 basis point decline in Premium and 100 basis point decline in Consumer Accessories.

Great. Thank you very much.

Rob Stone, Cowen and Company.

I have a few questions as well. Following up on the gross margins, can you say what in particular drove the strength in the automotive gross margin and is that sustainable?

Yes, we believe, based on our booked business, it is sustainable. It's really coming from the production facilities being more efficient where we've adjusted overhead within our domestic operation. Last year, we had geared up for a second shift, and that increased overhead within the facilities. We've now been able to rationalize that and bring down overhead within the production facilities, both domestically and within our international operations, and that's what's driving the better margin.

Okay. A second margin question. In Premium Audio, you noted that there was a mix impact from soundbars and personal music systems. How much lower roughly are the margins for those products versus the segment margin?

I'm not going to get into specifics. But obviously, within the high-end audio sector, the Premium Audio sector, the high-end audio margins generally run better. When we look at soundbars, we look at music systems. They tend to operate more like consumer electronic products than premium audio products. And therefore, the margins skew a little bit lower. So, that combined with the fact that we have -- during the last two quarters, we pulled back on our sales to clear their shelves of existing products so we can make way for the Reference Series that made the situation even worse. But now that we have the Reference Series and we are introducing our new Jamo Concert series, we'll see our mix skew a little bit better to where margins should improve.

So, can you characterize -- is that going to be a big improvement, a few basis points? So, overall, in the blend, Auto margins were up more than 200 basis points in the first six months of the year.

I would look to see a couple of hundred basis points improvement within that sector.

Okay. With respect to the action camera, I think you had talked in the past about having a fair amount of promotional spending associated with the launch of that. And I know the exact launch timing may still be to be determined. But should we be looking for seasonally some kind of an unusual first-half level of expenses around a launch? Can you say at least whether it's first half, second half of fiscal 2016?

It was always in the second half. Okay? So basically our second half numbers as far as promotion, marketing, and things like that shouldn't change for the later introduction. You know, our plan is to introduce this either late in our fiscal 2015 or early in our fiscal 2016, so really launch expenses, things like that will still fall into this year.

Okay. I thought, in your prepared remarks, you had suggested that myris was coming out in limited quantities but the camera wouldn't be out until the next fiscal year.

That's March, and if we introduce on March 1, the expenses will fall into this current fiscal year.

Yes, okay. And just a final question for Michael. With respect to the tax rate, how should we think about an effective tax rate for the balance of the year?

In the Q, the latest Q, on the subsequent events, there will be a $5.9 million credit coming through in the third quarter.

Okay.

Plus interest, and then you could use, in the fourth quarter, you could use 36%.

Great, thank you.

Steve Dyer, Craig-Hallum Capital.

It's actually Greg Palm on for Steve. Thanks for taking our questions.

First, I was hoping maybe you could elaborate a bit more on the two major product launches coming up. Kind of what are you thinking about for revenue contribution for the combination in fiscal year 2016? And kind of how are you launching each of those? Are they both with retail partners or is the myris initially launching just with enterprise?

Well, obviously, what we were looking at this year was somewhere around $20 million in sales that we would have with both products. As we get into a full year's worth of sales, that's going to be a different number. So, at this point, we don't have that budgeted, so I'm not going to venture to put a number out there.

But as far as myris is concerned, the product is going to launch at first with retail. We do have a number of retail customers who are interested in carrying it, and our limited launch will go to retail at first and then obviously we'll expand as we close contracts with some enterprise operations.

And is your expectation that the action cam will launch with an exclusive retail partner, or will there be several partners with that launch?

At this point, most likely it will be several.

Several, okay.

Yes.

Just one last one. You talked about kind of clearing out old inventory in Premium Audio. Do you feel like you've finished that or should we expect a little bit more margin pressure from the inventory clear outs here?

Yes, no, basically what we were doing is we were getting ready for the launch of the new Reference Series. So it was making sure that our customers cleared their shelves, and we cleared whatever inventories we have left. We don't have any old inventory laying around. Instead of giving markdown money, we would just allow the accounts to just sell through. We didn't ship much of the older product into them so that they can clear their shelves and get ready for the launch. And that's exactly what happened.

Okay, thanks. That's all for us.

Scott Tilghman, B. Riley.

I have a few things to run through. First, Pat, on the Auto side, I'm wondering if you can maybe talk about programs that you are pursuing at this point, just in broad terms, that obviously aren't factoring into the numbers. You gave us a few examples of what is coming up but maybe the ones that you are pursuing. And related to that, unless I missed it, I don't think you called out anything on the OBD programs. I'm wondering if there are any updates there.

Okay, well, I'll start with the traditional OE business. We continue to win new contracts for antennas as a natural progression of our business. The tuner business is one where -- obviously you've heard me mention about Mercedes-Benz and the Jaguar Land Rover program. This is a technology that we believe many of the car manufacturers will gravitate to. We have had some requests from other companies to look at developing systems for them. We are also in conversation with existing partners in this technology to possibly look at other or additional radios. So, these are ongoing discussions with current customers that we do business with maybe not in this particular product but ones that we have relationships with that would feel comfortable moving in our direction if they think this technology is something for them.

As far as the OBD, we have it placed in about 20,000 retail locations at this particular point. We've got the Walmart program under the TracFone brand, and we are talking to a number of additional insurance companies that will offer discounts for driver scoring or user-based insurance.

How far along do feel you are in those discussions?

You know, we've been having discussions with one large insurance company for quite some time. We have the American General -- or we have the American Insurance Company. We have The General. We have Liberty Mutual. So, I think we are in good position to announce another one.

On the Consumer Accessories side, I noticed in the Q, you called out some weakness in older categories like clock radios and digital voice recorders. It seemed to me you had largely exited a lot of those legacy products. So the question is what's left there that really doesn't make sense, given the strategy of updated products and more premium products across the three operating segments going forward?

What we have in the line, we've pretty much done clearing the line out of end-of-life products. We'll continue to sell clock radios and we will continue to sell other products within the Accessory group. However, the newer products, our reception products do very, very well. We lead the market in the United States. Our Bluetooth speakers, outdoor speakers which are streaming audio are doing very, very well. So that's offset a lot of the end-of-life programs.

But you know, we don't expect sales of certain categories to really increase, but we don't believe they are at end-of-life. They still generate significant business for us. They still generate good margin for us. So they will stay in the line, but they are not ones that really would be growing. Pretty much the closeout of lines that have reached end-of-life, as I've indicated on last calls, the big shots of lost revenue there are pretty much gone and pretty much over.

On the retail distribution side, one of your partners clearly is against the ropes, scrambling for financing just to get their inventory in front of the holidays. Is there any risk there to you? And then I'll just throw in my last question now. That is Mike, I don't think you called out a year-end debt target. I was wondering if there is one.

Yes, there is. We're looking between $55 million and $60 million on the commercial bank lines.

Okay. And to answer your question, I don't believe, as they move into Christmas and past Christmas, I don't believe that we are in a position where we have much risk with that account.

Thank you.

And that by the way, that's the commercial bank lines. You've got to add to that the mortgages and the debt overseas, which is in the 10-Q.

Right.

Okay?

Yes. Thank you.

(Operator Instructions). Dmitry Gino, Noster.

I was wondering if you can comment a little bit on the competitive environment for the action cameras. It seems like there's quite a few 360 products that are coming to market or being introduced as we speak. Maybe the field was a lot less crowded earlier in the year, but it seems like there's more and more products coming. And so I'm just wondering too if you can just sort of comment on that competition.

Okay. Obviously, we see all the 360 cameras that are slated to be introduced. We don't believe there's, at this particular point in time, any 3-D -- or 360-degree technology that will come, actually come to market prior to us.

We've seen the statements by some of the other companies. We've seen the product, and we know the challenges that they will be facing as they interface their products into other hardware that would have to be used along with it. So, we're pretty confident that our system, which you know is not stitch screens and things like that, our IP is strong.

Our camera works very well. Obviously, the software development is around having it work seamlessly with some of the other hardware. So, yes there's 360 stuff being talked about but I believe we'll be the first to market with it.

Thank you.

I would like to turn the call back over to management for closing remarks.

If there are no more questions, again, it was a challenging quarter. There is no question. The surprise we've gotten from Venezuela was certainly not welcome. However, the Company's core business is intact. Our management teams, our deep experience within each one of the subsidiaries that we have, and we have within each group a number of new products that I believe that will carry us as we move into next year and give us organic growth. We continue to look at acquisitions that make sense for us, that would strengthen any one of the segments that we are in. So, with all the things that we have going on, we remain -- we are very optimistic about what we see as the potential of this Company.

I want to thank you for your time this morning and your support of VOXX. Have a good afternoon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a good day.

Thank you.