Directed Electronics Sales Soar 69.2%

By Jeff Malester -- TWICE, 3/31/2006

Vista, Calif. —Directed Electronics recorded a 69.2 percent increase in fourth-quarter net sales, rising to $135.5 million, up from $80.1 million in the year-ago three months, driven by the continued momentum of its security and entertainment business, as well as strong growth of its Sirius satellite radio product sales.

Gross sales of security and entertainment products reached $62.4 million in the fourth quarter, ended Dec. 31, an increase of 7.2 percent over the prior year’s $58.2 million. Gross sales of satellite radio products in the quarter more than tripled, hitting $75.9 million, compared with $24.6 million in the same quarter in 2004.

Pro forma net income increased to $11.1 million in the fourth quarter, up from a pro forma $7.2 million year-on-year. Including items and charges, the company reported a net loss of $10.3 million in the fourth quarter, compared with $7.2 million in income in the same three months the prior year.

Gross margin, as reported, slipped to 29.3 percent in the fourth quarter, compared with 37.9 percent a year ago. The drop was due to the company’s product mix shifting toward lower margin satellite radio products.

Directed Electronics, which completed its initial public offering in the fourth quarter of 2005, said it is the largest designer and marketer of consumer branded vehicle security and convenience systems in the United States, based on sales, and is a major supplier of home audio, mobile audio and video and satellite radio products.

The company offers a broad range of merchandise — including security, remote start, hybrid systems, GPS tracking and accessories — sold under its Viper, Clifford and Python brands. Mobile audio products — including speakers, subwoofers and amplifiers — are sold under its Orion, Precision Power and Directed Audio brands.

For the 12 months, Directed Electronics net sales reached $304.6 million, a 66.1 percent increase over the pro forma $183.4 million recorded the previous year. Including a one-time $6.5 million royalty payment, 2004 sales reached $189.9 million, a 60.4 percent jump.

Gross sales of security and entertainment products hit $190.5 million for the 12 months, up 19.2 percent from the $159.9 million posted the prior year. Gross sales of satellite products for the 12 months climbed 310.8 percent, to $120.9 million, compared with the previous year’s $29.4 million.

Pro forma net income for the 12 months hit $17 million, up from a pro forma $13.2 million in 2004. Including charges and items, the company reported a net loss of $5.1 million for the 12 months, compared with income of $14 million a year earlier.

Gross margin in the full year declined to 33 percent, as reported, down from a year-ago 42.8 percent, due again to a product mix shift toward lower margin products and also to the one-time $6.5 million royalty payment received in 2004.

“While both our security and entertainment, and satellite radio products experienced strong sales growth in 2005, the 311 percent growth rate of our lower margin satellite radio products outpaced the 19 percent growth rate of our higher margin security and entertainment products,” said James Minarik, president/CEO.

“The resulting product mix shift significantly increased our gross profit dollars, while reducing our blended gross margin percentage. The 2005 decline in gross margin percentage was further impacted by the fact we only began selling satellite radio products in August 2004,” continued Minarik.

“In 2006, we plan to continue to focus on increasing total product sales and gross profit dollars, while maintaining our consistently high security and entertainment margins.”