Vista, Calif. — Directed Electronics reported a 5 percent gain in net sales but lower net income during the first quarter, ended March 31.
Net sales in the first quarter of 2007 were $78 million, an increase of 5 percent over the prior year’s first-quarter net sales of $74 million. Gross sales of security and entertainment products in the first quarter were $65 million, an increase of 65 percent over the prior year’s first quarter, primarily driven by the Polk acquisition and strong performance of the definitive technology business, the company said.
Polk Audio represented $25 million of gross security and entertainment sales in the first quarter. Gross sales of satellite radio products were $15 million in the first quarter, compared with $36 million in the prior year’s first quarter.
Pro forma net income for the first quarter was $1.2 million compared with pro forma net income of $3.6 million in the first quarter of 2006. GAAP net loss for the first quarter was $2.8 million, which includes $5.5 million of expense related to the previously disclosed Omega lawsuit. GAAP net income for the first quarter of 2006 was $4 million, included $400,000 million of one-time income tax benefit related to the revaluation of deferred tax assets and liabilities.
“Our first-quarter gross sales and pro forma earnings results were in line with our expectations, and we remain confident we will achieve our sales and earnings guidance for the full year of 2007,” stated Jim Minarik, Directed’s president/CEO.
“In our core security and entertainment business, we achieved a 65 percent sales increase, primarily driven by our home audio business which includes the Polk acquisition as well as continued strong growth in our Definitive Technology business. Our security and convenience business was up for the first quarter of 2007 driven primarily by our Canadian acquisitions. Our mobile audio business increased principally due to the Polk acquisition which offset a decline in our mobile video business which was reflective of an overall decline in the mobile video industry,” Minarik said.
“This strong revenue growth combined with lower satellite radio sales improved overall gross margins to 40.6 percent, compared with 30.6 percent in the first quarter of 2006,” he noted.
In commenting on the satellite radio business, Minarik said in its first-quarter satellite radio gross sales of $15 million included a $4.0 million reduction due to a price protection action initiated and funded by Sirius in the first quarter of 2007. “This move reduced the retail price of our SL100 (Stiletto) from $349 retail to $249 and the SL10 (Stiletto) from $249 to $149. These price reductions did not have any effect on our margins as the cost of the associated price protection of our inventory and our retailers’ inventory was reimbursed to us by SIRIUS. Excluding this adjustment, our satellite radio sales in first quarter of 2007 would have been $19 million which is within the range of our Q1, 2007 guidance.”
He said Directed continues to be “the leading provider of satellite radio receivers with a 47 percent market share and we represented approximately 87 percent of Sirius’s aftermarket hardware in the first quarter of 2007.For satellite radio products, Sirius recently reiterated their guidance of over 2 million new net subscribers in 2007, down from 2.7 million in 2006. This reduced subscriber demand along with higher inventory levels at retail at the end of 2006 had a negative impact on our sales of satellite radio products during the first quarter.”