Name: EMERSON RADIO CORP Q2 2016 Earnings Call
Start: 2015-11-17T00:00:00.000Z

Executive Summary

Q2 FY2016 net revenues fell 37.2% year over year to $8.943M, with a net loss of $0.710M and diluted EPS of -$0.03, driven by sharply lower product sales and margin pressure .
A key customer informed Emerson it will discontinue Emerson-branded microwave and compact refrigeration products starting Spring 2016; shipments continue only through the remainder of Q3 FY2016, creating a material adverse impact in H2 FY2016 and FY2017 .
Licensing revenue declined to $1.163M and management expects licensing revenue to decrease in Q3 and full-year FY2016 vs prior year, reflecting lower sell-through at licensees .
No formal numerical guidance was issued; commentary points to sustained headwinds from customer product discontinuations, lower retail sell-through and intense competitive pricing pressure—a negative narrative likely to drive cautious sentiment .

What Went Well and What Went Wrong

SG&A was reduced y/y by ~$0.2M in Q2, partially offsetting volume and margin headwinds .
Balance sheet remains liquid with cash and cash equivalents of $38.316M and short-term investments of $10.086M as of September 30, 2015 .
Management continues to pursue pricing, product strategy initiatives and licensing opportunities to improve performance: “The Company continues to seek to implement pricing, product strategy initiatives and licensing opportunities…” (Duncan Hon, CEO) .

Net product sales dropped 39.5% y/y to $7.780M in Q2, driven by lower microwave ovens, compact refrigerators, and audio products; net revenues fell 37.2% y/y to $8.943M .
Operating income turned to a loss of -$0.851M in Q2 (vs $0.030M in Q2 FY2015), reflecting lower volumes and higher cost of sales as % of sales; prior-year cost of sales benefited from a $0.6M reserve reversal not repeated .
A key customer will discontinue Emerson-branded microwave and compact refrigeration products beginning Spring 2016; these SKUs represented ~$3.3M in Q2 shipments (42.5% of Q2 net product sales) and ~$16.5M over the first six months—management expects a material adverse effect going forward .

Metric	Q4 FY2015	Q1 FY2016	Q2 FY2016
Net Revenues ($USD Millions)	$13.235	$19.512	$8.943
Diluted EPS ($USD)	$0.04	$0.00	-$0.03
Operating Income ($USD Millions)	$0.230	$0.113	-$0.851
Net Income ($USD Millions)	$0.941	$0.121	-$0.710
Cost of Sales ($USD Millions)	$10.647	$17.005	$7.546

Segment/Revenue Mix (Quarterly):

Metric	Q2 FY2015	Q2 FY2016
Net Product Sales ($USD Millions)	$12.862	$7.780
Licensing Revenue ($USD Millions)	$1.385	$1.163
Total Net Revenues ($USD Millions)	$14.247	$8.943

KPIs:

KPI	Q2 FY2016
Shipments of discontinued SKUs to key customer ($USD Millions)	$3.3
Share of Q2 net product sales to key customer (%)	42.5%

Metric	Period	Previous Guidance	Current Guidance	Change
Net Product Sales (Housewares: microwave/compact refrigeration)	H2 FY2016	Not provided	Material negative impact from key customer discontinuation; shipments continue only through remainder of Q3 FY2016	Lowered
Net Product Sales (Housewares/audio overall)	FY2017	Not provided	First full-year impact of discontinuation realized in FY2017; expected material adverse effect	Lowered
Licensing Revenue	Q3 FY2016	Not provided	Expected to decrease vs Q3 FY2015	Lowered
Licensing Revenue	Full-year FY2016	Not provided	Expected to decrease vs FY2015	Lowered

Note: No Q2 FY2016 earnings call transcript was published; themes below reflect press releases.

Topic	Previous Mentions (Q4 FY2015)	Previous Mentions (Q1 FY2016)	Current Period (Q2 FY2016)	Trend
Competitive pricing pressure	“Continuing intense competition, including downward pricing pressure”	Competition pressuring margins across categories	“Intense competition, including downward pricing pressure” persists	Deteriorating
Supply chain/logistics	Not highlighted	Port strike effects hurt microwave sell-through	Not highlighted in Q2	Stabilizing (strike effects rolling off)
Product performance (housewares)	Compact refrigerators up; microwaves/wine coolers down	Microwaves down on discontinuations; compact refrigeration/wine up	Housewares down sharply; microwaves/compact refrigeration weak	Weakening
Key customer concentration	FY2016 expected discontinuations (15% of FY2015 gross product sales)	Not specified beyond discontinuations	Formal notice of discontinuation and timing; large revenue exposure	Negative inflection
Licensing revenue trends	Down y/y in Q4 FY2015; FY2015 -3.1%	Up modestly in Q1	Down in Q2; expected declines in Q3 and FY2016	Mixed to negative

“Net income declined significantly… due primarily to lower net sales and margins on those product sales, driven by product discontinuations by the Company’s key customers, lower year-over-year retail sell through on existing models and intense competition…” (Duncan Hon, CEO) .
“The Company continues to seek to implement pricing, product strategy initiatives and licensing opportunities to improve the Company’s results of operations…” (Duncan Hon, CEO) .
Q1 context: “Net product sales… driven mainly by product discontinuations by the Company’s key customers and the effects of the 2014/2015 Los Angeles/Long Beach port strike.” (Duncan Hon, CEO) .

No earnings call transcript or Q&A section was available in company documents for Q2 FY2016; management commentary derived from the earnings press release .

Wall Street consensus EPS and revenue estimates via S&P Global for MSN were unavailable for Q2 FY2016 and the prior quarters; investors should assume limited or no analyst coverage for this micro-cap period .
Implication: With no formal guidance and limited coverage, buyside models need to incorporate the announced key customer discontinuation, anticipated licensing revenue declines, and persistent pricing pressure .

The Q2 print shows a sharp revenue contraction (-37.2% y/y) and a swing to operating loss, underscoring vulnerability to customer concentration and category pressures .
The announced discontinuation at a key customer is a structural headwind; Q2 shipments of affected SKUs were $3.3M (42.5% of net product sales), foreshadowing a material adverse impact in H2 FY2016 and FY2017 .
Licensing revenue momentum turned negative and is expected to decline in Q3 and for the full year FY2016, reducing a comparatively higher-margin income stream .
Near-term trading bias is cautious given lack of numerical guidance, limited sell-side coverage, and negative narrative on volumes/margins; upside would require evidence of channel replacement or successful licensing expansion .
Expense control (SG&A reductions) and a strong cash/investment position provide optionality, but do not offset the magnitude of the expected top-line loss from the customer exit .
Watch for Q3 disclosures to size residual shipments to the key customer and any concrete strategic actions to rebuild the housewares footprint and stabilize licensing .
Position sizing should reflect idiosyncratic risk from customer concentration and the potential for continued downward pricing pressure across categories .