Q3 2019 Earnings Call
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Thank you for standing by and welcome to the Universal Electronics third quarter financial results.
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I would now like to hand, the conference over to your speaker today, Kirsten Chapman with L.A.H.A. Investor Relations.
Thank you and please go ahead.
Thank you DT and thank you all for joining us pretty universe electronics third quarter 2019 financial results Conference call by now you Should've received a copy of the press release, if you've not please contact El <unk> for 154333777 or visit the Investor Relations section of the website <unk>.
This call is being broadcast live over the Internet a webcast replay will be available for one year at www Dot Dot com.
Any additional updated material nonpublic information that might be discussed during this call will be provided on the company's website will be retained for at least one year. You may also access that information by listening to the webcast replay.
During this call management may make forward looking statements regarding future events in future financial performance of the company in cautions you that these statements are just projections and actual results or events may differ materially from those projections.
These statements include the company's ability to time, we develop and deliver products and technologies that will be accepted by our customers. It enabled the company to obtain new customers and enter new markets, including the company's quickset technologies and platform voice enabled advanced control products Nip away.
New advanced hybrid.
Products Oaky, and Android TV platform.
And home automation and sensing technologies and products.
The continued tension and growth of our customers in the adoption and purchase by them of our technology and products the timing of new products and solution orders from the company's customers as anticipated by management to continue trend of the company the of the industry toward providing consumers with more advanced technologies.
Management's ability to manage its business to achieve its net sales margins and earnings is guided including management's ability to improve operating cost inefficiencies.
The timely completion of the transition of certain companies management manufacturing.
Operations to Mexico facility.
And the effects that trade regulations pertaining to.
Importation of our products and tariffs imposed upon them. The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise. After today's date and refers you to the press release mentioned at the onset of this call and the documents the company's files with the FCC.
In management's financial remarks, adjusted non-GAAP metrics will be referenced management provides adjusted non-GAAP metrics because it uses them for budgeting planning purposes, and for making operational and financial decisions and believes that the writing these non-GAAP financial measures to investors as a supplement to GAAP financial measures helps investors evaluates <unk> co.
Our operating and financial performance business trends consistent with how management evaluate such performance and trends.
In addition management believes these measures facilitate comparisons with core operating and financial results and business trends have competitors and other companies.
Full description and reconciliation of these adjusted non-GAAP measures.
Versus gap is included in the company's press release issued today.
Finally, please note, we're no longer including the effects of the constant currency and ASCII six so six revenue recognition in our non-GAAP financial statements as a result, the prior year 2018, non-GAAP figures as previously reported have been adjusted to reflect these changes.
On the call today, Chairman and Chief Executive Officer, Paul Arling will deliver an overview and Chief Financial Officer, Bryan Hackworth will summarize the financials, Paul will return with typified closing remarks, it's now my pleasure to introduce Paul Arling. Please go ahead Sir.
Good afternoon, and thanks for joining us today.
For the third quarter of 2019, we posted record results.
Quarterly enough sales crossed the 200 million milestone and S talk one dollar.
Both quarterly first for our company.
2019 continues to be poised to be the strongest year history.
For over 30 years, we are focused on developing innovative wireless control technologies.
Home Entertainment has evolved so have we.
Therefore, our consistent vision to lead sensing and control technologies for the smart home has broadened in scope or.
Our market now includes home entertainment cone control and all the spaces in between especially as these areas begin to converge.
We continue to extend our reach into new channels like home automation and telecom as well as adding more customers in our traditional markets in recent quarters voice enabled advanced RF products are gaining significant traction in our home entertainment control product category.
Our customers orders have grown in magnitude in a variety of ways, firstly, they're continuing to transition consumers to more advanced platforms that integrate traditional linear television was over the top services, which in turn is increasing the overall value of our product and technology solutions. As a result, this is enabling us to grow our mark.
The chair and revenue in our core subscription broadcasting in consumer electronics channels.
To maintain our edge, we are prior prioritizing investments to enhance our competitive position entering new markets attract new customers and improve account service I'm excited to report our efforts are coming to fruition.
Yeah, I continues to redefine what remote wireless devices are.
And what they can do.
Many years ago, we set out to develop products in software where consumers could acquire a new home entertainment device plug it in and all of their home entertainment devices in sources would automatically configure themselves.
That vision has become a reality.
A handful of years ago, we envision the device, where consumer can simply speak to their home entertainment system and make it work.
And now that vision is becoming more mainstream.
As you know home entertainment and home automation devices are no longer standalone devices today. Many of these products and services for the primary user interface of cloud connected and voice enabled systems.
Industry, leading companies in home entertainment and home automation across the world are choosing <unk> as their partner to provide industry, leading controlling sensing technologies as the market continues to embrace this evolutionary trend.
Priors somewhere in prior quarters, we continued to generate strong performance across all our channel and product categories. Our subscription broadcasting channel, particularly in North America is performing well as many of the large service providers continue to promote and ship their advanced platforms.
Further this quarter, we received new products New project wins.
From several large cable and satellite operators embarking on the rollout of their advanced hybrid and over the top platforms.
It bears, noting that our consumer electronic sales and margin performance has improved due to the continued expansion in or quickset licensing to existing and new accounts.
In addition, overtime, we have been improving our product mix by moving our product line upstream that is we have enriched the mix towards advanced solutions and away from lower value control products.
All this product line rebalancing can lead to a loss of revenue, which we currently have more than offset with growth in advanced products.
Has helped to improve our margins and profitability.
At CES in January 2020 will be showcasing entertainment control and connected home solutions for the six channels that make up you, we ice core business, including subscription broadcasting consumer electronics, each back security hospitality and retail.
Yeah, I will offer a broad portfolio of voice enabled quickset ready remote control products that are easy to integrate feature rich and cost friendly ranging from basic to premium categories.
Quickset continues to be our biggest product and feature differentiator with many of the world's largest entertainment and television brands, including Comcast Charter ATM, T., Directv LG, Sony Samsung and many more all carrying quickset related technologies.
In order to bring these features to medium sized customers you guys developing new remote control products for the Android TV set top box platform.
[noise] Android TV is a strong enabler for this channel offering in advance TV system with an App store and voice enabled search tailored at mid sized operators worldwide.
Android TV is the fastest growing advance TV platform.
Particularly in Europe , and Asia Pacific and has a projected worldwide installed base of 130 million subscribers by 2022.
Starting in 2020, we will introduce all the elemental technologies, such as Quickset cloud Nivo AI and interoperability as a service has licensed technologies for use in our customers upcoming smart home and entertainment devices.
Solution software solutions can be easily integrated on existing platforms to enable more advanced AI powered services, including automated discovery control and interaction with most entertainment and smart home devices in the consumers' homes.
I'll now turn the call over to our CFO Bryan Hackworth for review of the financials.
Thank you Paul as reminder, or results for the 2019 third quarter.
As was the same period in 2018 will reference adjusted non-GAAP metrics.
Third quarter net sales grew 10% to a record 200.9 million from 182.7 million in the third quarter 2018.
Growth in our topline was driven by launches of advanced platforms by both existing and new customers as well as continued strength in home automation.
Gross profit was 53.8 million for 26.8% compared to 44.9 million for 24.6% third quarter 2018.
This improvement reflects strong operational performance in our China factories.
Favorable mix as we have enrich the mix towards advanced solutions and away from lower value control products, including an increase in royalty revenue as consumer electronic companies or embedding our technologies in their devices.
In regards for manufacturing facility in Mexico as expected our performance improved significantly in the third quarter compared to the prior quarter.
Which time a number of products were initially transferred to Mexico, resulting immaterial inefficiencies.
Although we are pleased with the progress so far we expect further improvement until Mexico is on par with China's operational performance.
Operating expenses were 35.1 million compared to 31.1 million in the third quarter 2018.
R&D expense increased 41% to 7.6 million this year from 5.4 million, it's in the prior year quarter.
Yesterday was 27.5 million this year compared to 25.7 million last year.
Total operating expenses increased savings were offset by investment.
As we've said before we'll continue to invest in technology and product development to continue our longstanding leadership, bringing differentiated solutions to the market.
As Walt investing in the people that help us succeed.
Operating income was 18.7 million or 9.3% of revenue up from 13.8 million for 7.6% of revenue in the prior prior year.
Our effective tax rate was 21% compared to 1.7% in the prior year quarter.
Net income was 14.3 million or dollar one per diluted share compared to 11.2 million or 80 cents per diluted share in the prior year period.
Next I'll review, our cash flow and balance sheet at September Thirtyth 2019.
Cash and cash equivalents for 54.7 million compared to 49.6 million at June Thirtyth 2019.
Net cash provided by operating activities was 19.7 million for the quarter and nearly 40 million year to date.
Enabling our outstanding debt balance to be reduced to 80 million at September Thirtyth 2019.
A decrease of 7 million from last quarter.
Our cash conversion cycle, approximately 107 days as of the third quarter 2019, compared to 102 days in the third quarter 2018.
Now turning to our guidance.
For the fourth quarter 2019 as mentioned on the previous call. We expect the back half a year to follow its typical seasonality.
With sales in Q4 lesson in Q3.
We expect sales in the fourth quarter to range between 173 and 183 million.
Compared to 160.3 million in the fourth quarter 2018.
EPS is expected to range from 79 sounds to me nonsense.
Fair to 84 cents in the fourth quarter 2018.
The long term, we remain confident our average annual sales were grow five or 10%.
The average annual EPS will increase 10% to 20%.
Now, let's turn the call at all.
Thank you Brian .
I constantly striving for more we are achieving our goals driving long term profitable growth and delivering shareholder value.
We are adding more customers in our traditional channels as well as extending our reach into other industries like home automation and telecom.
In recent quarters wasn't able to advance products are gaining significant traction the home entertainment market is undergoing a significant change that we have long talked about market participants across the globe realize that future success relies on giving the consumer ease of use and simplified access to all of their entertainment.
And I O T devices and services.
This has led many of them to cloud connected voice driven platforms that are enabled by our advanced control solutions.
While there's still much work to do we are proud what we have accomplished thus far.
We are undergoing and in many cases have led industry transition like no other.
Over the past few years, we've shifted our product mix to benefit from this vast product and technology changeover.
On top of that we have successfully overcome the challenge of two product supply transitions.
The latest required us to move nearly half of our production halfway across the globe.
Despite the challenge and risks involved in all of these changes we are emerging stronger than ever.
With more future opportunities ahead of us than ever before.
And our results reflect this.
As devices and applications proliferate people have even more home entertainment and home automation choices, all of which will require more advanced control solutions.
As we have establish ourselves as the world leader in this area. We believe these trends will continue to fuel our long term profitable growth.
Stay tuned.
Operator, we'd now like to open up the call for questions.
As a reminder to ask question you will need to press star one on your telephone to withdraw your question press the pound key please stand by while we compile the queuing a roster and momentum.
Our first question is from Steven Frankel of Dougherty.
Good afternoon. Thank you.
Paul.
Maybe for a moment just give us a little more detail on on the Mexican ramp for the facility. How long do you think it will take you to get that to be margin equivalent with China.
Well it will probably be I mean, we'll still have some transition effects in the Q4, we obviously earlier this year starting last year started with the major projects. So we.
We've transitioned the most of the credo, the the 20% of the projects that deliver most of the sales we started with those.
We still have projects in China that we're moving.
Not all to Mexico, but.
Many of them to Mexico so.
That transition still underway, but we think were through the bulk of it if you look at the the effects the effects of the transition are diminishing.
Pretty pretty greatly in Q3, and we'd expect the the effect of these transitions to diminish.
Next quarter.
And probably have some going into the year 2020, but.
On this number should continue to diminish.
So we should expect and trying to.
To line up your guidance with.
What you did in Q3.
We should it sounds like we should expect gross margin improvement sequentially in Q4.
Yes, I would I would say associate as Brian I expect gross margin the gross margin rate to improve upon.
Over Q3, Q3 was improved we should improve as well, but expect Q4 to be higher than in Q3.
And higher than last year.
Okay Pandora's box, that's a high bar, we were pretty high last year.
Last year in Q4, I believe we just started in Mexico.
So I don't know, we started manufacturer and I know, we hired employees. So it's easy to isolate the.
The cost that were Unabsorbed right now I think with Mexico, there's still leakage and RPL.
So.
We're just looking aspire to hit that number to reach we did last year, but I think thats a little bit that's a high bar.
So I guess, let's talk about the other two puzzle pieces. So maybe opex is down sequentially in Q4.
And is the tax rate the same normal 20% ish.
Yeah, the tax rate the tax rate is it should be than the same.
I wouldn't ultra that very much I typically when we give guidance topline bottomline, Steve I think I think I'd have to look at your model, but the the margins will improve over over Q3 s.
Okay, let's let's get to more interesting things.
Paul maybe some more detail on the number of new programs that you started in Q3 and what does that pipeline look like for Q4, and Q1 and comments on programs like Flex I know you don't like to talk about particular customers, but maybe if the concept.
Something like flex is something you're talking about with multiple customers.
Yeah. The there've been a note number of projects that we've introduced this year some of which.
We can talk about.
For instance, launched actually late last year.
We do have some customers that prefer us to not mention.
There their programs at all.
And certainly none of them like us to talk about the individual projects in.
In individually. So I was really always talking about the number of new designs going and what the pipeline looks like if you.
Number two times in Q3, there are probably only a couple but what's happened is when they introduce a program and say Q1.
We'll see a ramp throughout the year, sometimes they will start slower and then gain momentum.
As the program goes out.
So we did see some of that.
Obviously in the Q3.
Now in terms of the projects I did mention generally and we can't speak to specific programs.
But there are number of companies.
Even in our traditional distribution that are looking to build.
New platforms.
That take advantage of over the top.
And it's more than one.
Obviously, theres a number of subscribers out there that.
Our are not using the linear TV from these service providers.
There are tens of millions of subscribers across the industry and a lot of them are planning to continue their relationship with those customers.
By building. These platforms. So we have won a number of these are some of which are already shipping and smaller amounts have not gone into mass deployment yet.
But but are in I guess, what you would say as test.
And we expect that into next year, we'll see.
More of these platforms.
Be rolling out and many of which we've already won.
Okay, and what was the revenue concentration in the core.
We had to customers that were greater than 10% Comcast at 15.2%.
And running at 10.5%.
Okay.
It gives me a little hands on the health of the home control business.
And then Paul you open the call with some discussion around licensing quickset to some non traditional customers, maybe you could come down.
10000 feet and give us a couple of examples of what that might look like in terms of features and functions for the consumer that you could enable.
Oh sure yet I mean, theres a lot of different ways that these elemental technologies can be used no obvious the obvious ones are televisions and home entertainment devices I think most people on this call.
I don't recall as many time understand this that home entertainment devices.
Plug them into the wall plug them into each other and have them not not only configure themselves, but potentially search for the services available through those many devices.
Such that it makes it easier for the consumer to find the things they want to watch.
So that's a maybe a next layer to quickset, it's not just about initial device configuration, but ease of everyday use by pulling the devices and understanding what things are services are available through them.
Such that it makes it easier for the consumer to to sit down and watch TV, which is what our ultimate aim is.
But we have other applications for them.
One of which I'll give.
One idea on how this might apply.
Many people don't realize this but half of the worlds.
HVAC units are what are known to split units.
These are units not unless they're unlike the central systems that are utilized here in the US. Many of these are remotely controlled.
Often historically they've been controlled with infrared remote similar to what we've sold.
And we've built relationships with many of these companies again about half of the worlds HVAC unit sold and.
Lets systems, probably 55 million of them.
It probably means between a half in three quarters of the billion households worldwide are using these types of HVAC systems.
When you use one the only way to turn it on typically has to come home and turn it on and set the temperature.
Well, what if you had a device a quickset enabled device that was able to be IP address.
That you could let's say before you left.
Your office turn on the units in your Dan and your family room and set them to 25 degrees.
Celsius that is.
Because most of these are sold outside the U.S.
Or when you get home you could simply say, it's too warm and here and it would answer what Tim what would you like temperature be and you'd say 25 degrees.
And the thing would simply turn on incentives temperature. So this is just one application of how voice.
And IP driven devices could bridge the gap between what is an ever smarter world and the devices. The legacy devices frankly, because you could do a device like this for a product that was sold.
Five years ago that was not IP enabled.
And most of the world today is powered by those types of devices most of the HVAC systems in this world or like that.
So essentially you could make a legacy device smart through the application of these technologies, either adding them do new product or buying the product from someone like us.
So we see that is just another example of an application of these elemental technologies in a product.
That could be introduced in the future.
Okay, and one and one last one and maybe this is exactly what you're describing which are we now thinking I should think of vivo Butler has as in essence that simple statement I can make a legacy device work in the new IP connected invoice.
World.
Well sure I mean, that's one element of what Knievel Butler is it's a it's not just a product, but it's a it's essentially a platform or demonstration platform for our elemental technologies.
So things like Quickset cloud Nivo AI in interoperability as a service all of these things are embedded in something like Nivo Butler, but looking forward into next year into 2020 and beyond you will see the introduction of these product features either in the form of a product.
Like an evil butler or other hardware product or the inclusion of these technologies and our customers products or services.
So we will speak more about this SCS approaches and across next year.
Great. Thank you so much for sure.
Thank you. Our next question comes from Jeff Van Sinderen of B. Riley.
Hi, Good afternoon, let me say congratulations on the strong Q3 metrics. Thank you.
You mentioned companies looking to build new platforms to take advantage of over the top can you frame a little bit more for us are they need to move during integrated solution or what are they just taking a different approach for next generation and now shifting just curious on your thinking around that.
Sure Yeah, what what many have already done is combined.
Traditional method of delivery with over the top to give you an integrated platform or you could enjoy both as people like say linear with over the top service. So you can actually get both and voice enable both services, we have a number of customers who have done this already.
And we've helped them by powering the control device that goes with it.
What some are doing however is.
It is.
Looking at a new opportunity, which is to build in over the top platform for their customers.
That are now broadband only.
And some of our customers have announced such platforms, but we'll probably see more of this as next year progresses more customers that are looking at.
OTI or over the top only platforms.
For specific consumers.
Also though remained.
Tumors that have both linear and over the top combined platforms.
So they want to serve all customers, some who wish to have over the top only.
Some who wish to have linear plus over the top.
And we'll have platforms for all of those customers.
Okay. Good.
And then you mentioned royalties increased in the quarter, maybe you can just frame your thinking your latest thinking around that.
For us and I guess the outlook for royalties is as we look further out.
Yeah. This is a growth area for us essentially what's happened and we've we've probably mentioned this before.
Early on we introduce these technologies into the market for essentially televisions.
And what some of the brands did was the first year. They included only in their highest end.
Units, the highest and skews within their portfolio.
As each year has progressed they are bringing that feature down market. So what happens as it expands its kind of like the automotive equivalent of years ago NAV systems were only in the S class.
But then they made their way into most of the units.
Similar thing is happening with this type of technology with quickset.
It started out in the higher end brands, but is expanding.
Because these companies of course believe and should that the consumer wants this ease of use bringing the TV on plug it in the wall plug in year, three things whatever they might be have the system self configure.
And consumers are obviously delighted with this feature it's been Favourably reviewed just about everywhere. We've seen so our customers are aware of this in our expanding its inclusion.
We're also adding more brands in this so we'll have more to say about that around CES, but there's more companies that see that this ease of use and ease of ease of setup and ease of everyday use is an important element in their product and wish to incorporated.
Okay.
And then one more if I could squeeze it in and purchasing this kind of delicately but.
Without mentioning names.
Certain operator is offering free video salute free video solution for their broadband customers in the strategy around it seems fairly disruptive for the broader industry.
Can you share your latest thoughts or not what it means for that company and what impact that might have on the broader industry and then maybe speak too.
How the remote portion was controlled remote portion attached to that might play out and.
Sure potentially impact business. So look I think in the industry. It's a it's a great move I think there are now if you counted up across the operators just here in the United States. There are tens of millions of subscribers that are broadband only so there is there they're receiving broadband from a specific provider.
But not opting for the video services.
Obviously, most people here in America do watch television not all the average five hours a day as the average American does watch but.
Many are watching.
Our enjoying home entertainment when they're at home so.
The idea here is that they can access those consumers still.
By offering this type of platform over the top platform. So we are seeing this as a trend.
And there will be more than one of these.
As.
The next year progresses.
We've already.
We're already involved with a few of these.
Some of which have not launched yet we'll launch next year, but this is probably a trend that is growing because the number of people in that category is growing as I said here just in the U.S. its tens of millions.
Of homes that they can access but this technology.
And they are voice enabled they operate very similarly to the voice enabled to a platforms. We've done in the past where you pick up the device you simply say, what you want to watch and of course the.
The the service activates and takes you to the content you want to watch in some cases, the remotes are a little simpler because the interface on the screen is.
Up down left right enter it's not you don't need channel keys, because there are no channels anymore.
More app like experience, but.
The control products may change, a little bit, but they're all very similar they have two way RF and their voice enabled.
Uh huh.
So you said a little similar does that necessarily mean, lower SP or does that mean lower margin or could that be similar SP in similar margin.
Well I don't really want to discuss the margins on those but typically the technology. In these products is similar to what they would be using in the regular solution again, there are two way their voice enabled so all of the the technologies involved with making those products are.
Great and that way are very similar.
Now the physical product itself could be a little smaller which is a bit of savings but.
Not a great deal.
Because when you have fewer buttons you can make the product smaller it can typically cost slightly less.
But not significantly because again the technology inside of these as it is very much the same the chips use the sub components used are very similar to the advanced products that the other advanced products were already making.
Okay, all right good won't keep in those broadband people love watching video we like it thanks for taking my questions Eric.
Our next question comes from Greg Burns of Sidoti and company.
Neptune. So you had a number of advanced remote rollouts have been blessed hearing where you're obviously benefiting from the the growth those deployments I missed.
And your answer to the earlier question can you actually have any.
New advanced remotes rollout.
Begin deployment this quarter and is there any expected.
To begin shipping in the fourth quarter.
The to my knowledge there weren't any in Q3 that I can remember if they were they were not major.
They would not have had a major effect.
Any of the new Rollouts in Q3, but I don't think there were any.
As far as Q4 goes we probably have some new products rolling in but nothing I know.
Daniel.
Some of the more some substantial platforms are targeted for next year.
Okay, great. Thanks.
And then.
Turn to the gross margin with the the shift the next to the more advanced platforms and the greater percentage of licensing revenue is this kind of a new the new range. We think the business is going and operate at from like 20.
27% to 30% how should we think about the gross margin now going forward.
Yes.
Greg.
What I said, a few minutes ago that I expect Q4 to be greater than Q3 in terms of the gross margin rate.
We've showed improvement over the last year, I mean, China's been performing extremely extremely well.
Mexico is showing improvement still has a ways to go but is progressing well, we expected our Mexico facility to improve.
If we from the prior quarter and it did just that.
Mix is trending in our favor as we've said all along that some of the large customers came out the gate first with the that's platforms. So based on the their volumes they were getting.
Pricing that a smaller operator.
Isn't entitled to unless they want to buy the pit the volumes at the the larger ones ours that helps and as you've mentioned that there was the royalties as as our technology is being embedded and consumer electronic.
Devices, where sometimes with a chip or us of as just a pure royalty play.
And that situation is 100% margin. So everything is trending favorably right now for us.
But I don't want to give you exact number.
I do expect to be higher than the 26 aggregate we'd be performed in Q3.
Okay. Thanks, and then into in terms of operating expenses.
Obviously, I guess, you're continuing to invest in the business. How should we think about that I think a while back you had kind of.
Implied you know you're going to try and hold operating expenses at a certain level, but it looks like there just aren't in shelf, maybe that's function of the investment opportunities you see for the business, but how should we think about.
Opex.
From here this quarter a good level.
This year I would say, it's a pretty good level I mean next year expected to be relatively flat I think two things. We are revenue grew substantially from from last year. So you have variable costs as assessed by $4 million a variable costs associated with an excess of $70 million of revenue growth.
And we have done two things recently.
One is move from.
California discussed our headquarters and also we moved a number of people from Hong Kong to mainland China, and we did save what we expected. The same thing as we are investing I think we're investing wisely.
I think you're trying to see a pay off or we just talked about royalties and the fact that the technologies that we've invested in are being deployed and multiple channels. So it's something that's necessary, we're seeing the payback and I think I think from comparing this year next year I would say, we should be relatively flat.
Okay, great. Thanks.
Yes.
Again as a reminder to ask a question you want me to press Star one on your telephone.
Draw your question press the pound key.
Our next question.
Our next question is from Jeff Feinberg Feinberg investments.
Thank you very much thanks to the grabbed results guys. Just again, some perspective around the technological advancement innovation and rollout across the different examples that should provide can use the baseball analogy and just give us some perspective what anyway.
These aggregate upgrades slash rollouts.
That's a good question I I think Theres two men on and there's two outs in the bottom of the second inning.
I think thats about where we're at I. I think.
There have been some of these programs that have been out for some years now but.
There's there's a lot.
Of them.
Worldwide that have not.
Been introduced yet.
So the longer term belief is that this is the way that people are going to go the consumer as time goes on is going to expect this type of ease of use visa configuration ease of use.
They're going to want access to literally millions of pieces of.
Of entertainment.
With that are that that's out there and they're going to want to be able to find it really fast.
So advanced platforms really are the only way to do that.
And.
Voice, driven obviously makes it even easier. So I think this is something that's going to happen over the course of many years.
And we're still relatively early now some companies are further along a individual companies.
But I think as an industry, it's still relatively early.
And lastly, thank you and given that.
But analogy I know you guys provided in the coal from long term.
It's 5% to 10% sales go 10% to 20% on its book, but I understood correctly given that were in these early innings wouldn't it be fair that you can be more towards the high end to that over the.
Shorter term if you all.
Yeah, I wouldn't say, that's that's where we think it can range, 5% to 10% topline and 10 to 20.
Yeah.
Oh, Okay final question without any timeframe given the improving mix for the business in the I understood correctly, but let me first Mitchell I think was the comment about flat next year with regard to total expenses was that the tone or on the mix. That's okay. So with an improving mix and expenses stable on some topline growth.
Can you give some perspective longer term, what the potential operating margin the business could be.
I think you get into the low teens I mean, right now we're pushing Tempur center in Q4 so.
To your point, if we can expand the gross margin rate.
Which I think is definitely possible given what we just talked about.
You keep operating expenses and intact.
Operating margins, obviously can expand so I don't want to give an exact number but to say no to say, we get about 10% absolutely we're closer to Q4.
Okay wonderful and finally, you talked a little bit about technology.
I would you kind of just update us from not mistaken we have some patents that we are enforcing.
There were some pause adults in that regard brief update on patent.
Litigation.
Yes, sure I mean, we're an innovative company obviously patents are an important part of what we do we come up with a lot of novel methods.
As far as any individual litigation matter I will update that in our public filings as we go long Theres nothing really to say on that at this point.
But we'll work through whatever issues we have than.
Worker comp in the ultimate outcome of of those matters.
Wonderful. Thank you so much Kurt.
Mr. Arling I'm not showing any further questions. At this time. Please proceed with any further remarks, okay. Thank you for joining us today and your continued support of Universal Electronics in December we will present at the Imperial capital Annual Security Investor Conference in New York City.
In January we will exhibit of course at the 2020 International CES in Las Vegas and present at the Needham Annual growth Conference in New York City.
We look forward to seeing you at some or all of these events.
Thanks for being on the call today have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.