Q1 2021 Universal Electronics Inc Earnings Call
[music].
Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience again todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, Thank you for standing by and welcome to the first quarter 2021 financial results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question here in the session you will need to press star.
One on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Kirsten Chapman <unk> Investor Relations. Please go ahead.
Thank you Mary and thank you all for joining us for the Universal Electronics first quarter 2021 financial results Conference call by now you should have received a copy of the press release. If you have not please contact <unk> at 4154333 777 or visit the Investor Relations section of the website.
This call is being broadcast live over the Internet a webcast replay will be available for one year at UGI dotcom any additional updated material nonpublic information that might be discussed during this call will be provided on the company's website, where it 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 and future potential and actual performance of the company and cautions you that these statements are just projections and actual results or events may differ materially from those projections. These statements include the.
The company's ability to timely develop and deliver new technologies and technology updates and related products that will be accepted by our existing customers and attract new customers, including the company's quickset family of products and technologies Knievel Butler Entertainment and smart home hub and our voice enabled AI powered and other advanced wireless control products.
Technologies and platforms.
The positive traction that management is seeing in various markets and industries in which it serves coming to fruition as expected by management.
The continued successful collaboration with existing and new customers and developing and introducing next generation products operating systems and technologies, which result in increased sales and opportunities for the company.
The continued trend of industry toward providing consumers with more advanced technologies by offering hybrid platforms expanded smart home offerings and interactive services.
Management's ability to continue to manage its business via new product development and product mix and deliveries increased licensing opportunities and operational and administrative efficiencies to achieve its net sales margins and earnings as guided.
Interruptions in the company's supply and logistics change, including the impact that the global shortage of integrated circuits could have in causing delays in production and delivery of its products and.
The continued effect of natural disasters, and public health crises, including COVID-19 pandemic have on our business and management's ability to anticipate and mitigate those effects, including the duration severity and scope of the COVID-19 pandemic any actions and restrictions that may be imposed on the company and its operations by federal state local.
And international public health and government authorities.
The company undertakes no obligation to revise or update these statements to reflect any events or circumstances that may arise. After today's date and refurbished you to the press release mentioned at the onset of this call on the documents the company files with the SEC.
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 providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures help investors evaluate.
<unk> core operating and financial performance and business trends consistent with how management evaluates such performance and trends.
In addition management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies.
A full description and reconciliation of these adjusted non-GAAP measures versus GAAP is included in the company's press release issued today.
Now on the call with me today are chairman and Chief Executive Officer, Paul <unk>, who will deliver an overview and chief Financial Officer, Bryan Hackworth, who will summarize the financials.
Paul will then return to provide closing remarks, it's now my pleasure to introduce Paul Arlene. Please go ahead Sir.
Good afternoon, and thanks for joining us today.
During the first quarter of 2021, we continued to leverage our strength of technology innovation strong customer relations and operational excellence to deliver results as guided net.
Net sales were $150 7 million gross margin was 31 four per cent and EPS was <unk> 89 cents per share.
In mid March many of you joined us for our Investor day during which we highlighted our core tenants and demonstrated our latest technology. The event was very well received.
Case, you missed it we hosted a virtual many see yes for our investors analysts and interested parties. During the event. We provided an overview of our business operations reviewed go to market strategies on our primary sales channels and providing in depth product demonstrations and new feature capabilities that will be.
We will be introducing later this year.
You can catch the webcast on our newly revamped website.
I'll summarize the key takeaways and add in a few of the examples we showcased.
UE I create smarter living.
Our wireless device innovation leads the industry as evidenced by numerous accolades for our voice control quickset and other connectivity solutions.
Last week, our legal Butler Entertainment and Smart home hub, one on Red Dot Design Award.
Other new products presented at the Investor Day included the Quickset widget, a turnkey connectivity solution that adds intelligence and quickset cloud to connected products and enables digital transfer formation of the customer experience.
D. We are comfort family and ambient aware line of connected thermostats.
In UBI virtual agent, our AI powered technology that enable self help capabilities for device on boarding and troubleshooting on any screen.
Our intellectual property has an increasing array of applications that continues to broaden potential use cases.
Enables us to diversify our markets served including providers of in home Entertainment Security Iot HVAC hospitality home automation and any combination thereof.
Many of our largest customers have embraced our product and technology Roadmaps and we continue to work alongside them to integrate our solutions into their next generation platforms.
Such names as Samsung LG, Sony Comcast AT&T dish Liberty Sky and charter to name a few have been working with us for years to ensure they continually delight their users.
Some others are newer <unk> requested confidentiality, regardless when cable satellite consumer electronics home automation and telecom providers.
On advanced wireless control technology UI is consistently selected as the preferred provider.
Our operational prowess and strategic financial management yield significant benefits.
Over the past few years, we have delivered improving gross and operating margins and enhanced our investment profile.
With that let's review some updates.
We continue to expand our reach across home entertainment and smart home devices as momentum for these platforms continue to build for example, we recently announced that Lg's, New Web OS platform will use quickset as its standard for device discovery and control.
We collaborated with LG for several generations on their industry, leading smart T V interface algae knows and trust you AI technology to provide a scalable solution for simplifying on boarding and control.
The global market continues to grow for smart TV platforms LG is expanding its footprint through other TV manufacturing partners.
Once again I will help make this possible by enabling the discovery setup and control of entertainment and smart home devices and services on their TV dashboard.
Now I'll review a few highlights on our commercial performance during the quarter subscription broadcasting primarily outside North America continues to show positive signs as we rolled out new voice remote control products to customers in Latin America and Europe.
Consumer electronics technology sales continue to grow as we deepen our penetration at the major Smart T V brands.
And those brands continue to experience market share growth as they roll out new features services and platforms.
While hospitality remains at a relative standstill, we are seeing traction in our new in room automation and energy management products as we go through testing validation and overall product qualification with major brands in the hospitality channel this bodes well for our future.
H back has also seen positive signs as our relationships with daikon and train continued to grow both at the product line level as well as market share penetration. We are also actively working on several new customer products that will launch later in the year and into 2020.
Two.
I'll now turn the call over to our CFO Bryan Hackworth for a review of the financials. Please go ahead Ron.
Thank you Paul first I'll review the results for the first quarter of 2021 compared to the first quarter of 2020.
Net sales were $150 7 million compared to 152 million from the first quarter of 2020.
Our focus increase in R&D spend over the past couple of years has favorably impacted our sales mix in both royalties and high margin ship sales have increased substantially over this time period include.
Including Q1 2021 over the prior year quarter.
Our technologies are sold to some of the world's largest TV Oems and are embedded in multiple devices and distributed through multiple channels.
We have however continued to be negatively impacted by COVID-19.
The shift from broadcasting on security customers, specifically those without self install capabilities are currently ordering less than during less constrained environments.
Our gross profit was $47 3 million or 31, four percentage of sales compared to $47 million or 39% in the first quarter of 2020.
Strength of our technology sales enables us to earn 30 plus margins. Despite the U S dollar being weaker than in the prior year.
Operating expenses were $31 7 million compared to 32 million for the same period last year.
SG&A expense decreased slightly to $24 1 million from $24 3 million in the prior year quarter.
R&D expense was $7 6 million this quarter compared to $7 7 million in the prior year quarter.
Operating income was $15 7 million or 10, 4% of sales compared to $15 million or nine eight per cent of sales in the first quarter of 2020 on.
Our effective tax rate was consistent at 19, 5%.
Compared to $19 four per cent and the prior year quarter.
For the first quarter of 2021 net income was $12 6 million or <unk> 89 per diluted share an increase of nearly 10 per cent compared to $11 5 million or <unk> 81 cents per diluted share in the same period last year.
Next I'll review, our cash flow on balance sheet at March 31, 2021, cash and cash equivalents were $55 4 million.
Compared to $57 2 million at December 31, 2020.
As is typical in the first quarter, we had cash outflows from operations of $6 7 million compared to $8 3 million in the prior year quarter.
In the first quarter of 2021, we were able to capitalize on our share price trading at a level we believe.
To be below our intrinsic value by repurchasing over 190000 shares for $11 million at.
On an average price of approximately $57 per share.
On April 28, 2021, our board of directors approved a plan to purchase up to an additional 300000 shares.
Contingent on share price over the next few months.
Now turning to our guidance as we stand the day, we face an environment that in addition to COVID-19.
Includes a worldwide supply shortage of integrated circuit components.
To date, our operations team has done a great job working with vendors to procure components as well as customers to qualify product changes you'll be in a minimal impact to sales.
For the second quarter. However, this temporary supply issue will likely affect our ability to meet demand.
We estimate the effect to our net sales for the second quarter to be $5 million and have adjusted our guidance Accordingly.
It's important to also note that our products are usually companion products and a total solution some of our customers have alerted us that supply constraints associated.
With some of their other other vendors have affected their ability to implement their total solution.
Tampering their orders to us.
Unable to quantify this impact.
We expect net sales to range from $153 million to $163 million compared to $153 3 million in the same quarter of 2020.
We expect EPS to range from <unk> 87 cents per 97 stuff.
Compares to 89 cents in the second quarter of 2020.
Keep in mind that in the second quarter of 2020.
We recorded tax incentive refunds in China of $1 1 million.
Equating to a benefit of eight cents per diluted share.
We continue to believe in our long term growth targets on sales between five and 10 per cent.
Between 10 and 20 per cent.
I would now like to turn the call back to Paul.
Thanks Bryan.
Consumer entertainment and smart living choices continue to grow expanding home entertainment and home automation markets as well as creating the opportunity for the convergence of the two.
Our ongoing strategic investments in product development innovation and intellectual property continually broadens, our advanced technologies, which will fuel both our product and technology licensing opportunities.
We know the path to growth has twist and turns it on our 35 plus years of operation we have definitely manage all headwinds that came our way.
There is no doubt we will do so again.
What's critical is that we have established protocols and an experienced team that can quickly address challenges to mitigate short term impacts.
Importantly, we maintain our focus on the future and we are confident we will continue to exceed customer and end consumer expectations to drive long term stakeholder value.
Many leading home control companies, particularly in HVAC have adopted our platforms for their next generation products.
Most of the leading home entertainment companies on this planet have chosen our products and technologies for configuration control and ease of everyday use within their new advanced hybrid platforms.
Given the leadership position, we have achieved within our industry. We've never been more excited about our future prospects as always stay tuned on.
Operator, we can now open up the call for questions.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press star.
Followed by one on your thoughts on telephone.
If your question has been answered or you wish to withdraw your question press the pound key.
Based on Basel IV compounding can idea last day.
First question comes from the line of Jeff Van <unk> of B Riley <unk> Company. Your line is now open.
Yes, Hi, I guess first of all let me say terrific work on the bottom line for the quarter.
I guess, if there's any more you can give us on what you're experiencing in supply chain for components. It sounds like it didn't impact your business for Q1, but there are two elements competing shell's relevant to supply.
For Q2, it sounds like both for you and then for some of the customers that you supply I guess, what is the outlook do you think or relief or improvement and component supply and then finally do you think that the tight tight supply will be limited to the current component shortages or are there other components.
That aren't being impacted currently that are of concern going forward. There's a lot on that yeah. No problem. This is hey, Jeff This is Bryan.
You're correct on that in Q1, the component shortage issue didn't really affect us very much at all.
But the component issue is fluid.
It's changing sometimes a week to week.
I think our ops team continues to work closely with suppliers and have taken several steps to mitigate the issue.
Such as qualifying more suppliers.
They're providing forecast for the remainder of the year.
Spot buying and they're working with customers to to qualify substitute parts. So.
You've done a great job.
As of today I don't think the effect on the back half of the year will be appreciably different than what we mentioned for Q2, So I mean, it's fluid for playing it.
Day by day, but right now I don't see anything or any reason why the back half would be much different than the effect. We said will take place that we think will take place in the second quarter.
Okay Fair enough and then any other color you can give us on how you're thinking about just overall the I mean, you gave a little bit there, but kind of you know.
Thinking beyond as far as the quarterly revenue and margin progression. There other components, we need to think about as far as gross margin for remainder of the year.
Based on what you can see today I guess I'm just wondering do you think that Q3.
Given the component tightness do you think that Q3 will still ramp do you think that's your largest revenue quarter of the year or how should we think about it from revenue it's difficult to tell right now we're still seeing lockdown still has the facts I know certain places in certain certain jurisdictions are opening up.
But as we mentioned in the prepared remarks that currently in North America, we're still see.
Operators that are on the old system Theres ordering less so trying to predict exactly when things will accelerate is difficult right now.
I mean, I think as Paul mentioned things are going well in different parts of the business where.
In Europe, we've launched some new platforms that are going well APAC with the a.
TV Oems has gone extremely well so there's definitely some pluses and are in the business right now I think from a north American standpoint, we're going to open up things are going to get back to normal but right now it's hard for me to predict exactly when when that acceleration will take place from.
Our gross margin perspective.
That's always difficult to predict I don't like to give to quantify that specifically.
I think right now you always have pluses and minuses when it comes to gross margin.
<unk> and foreign currency rates, you've got commodity pricing, but then you also have favorability in raw.
Royalties are growing so there's pluses and minuses throughout the.
Throughout the gross margin line and so far I think we've done a great job in keeping that 30 plus margin. So I think we're still in good shape.
Okay. Thanks for taking my questions and good luck for the rest of the quarter.
Again to ask a question Thats Star one on your thoughts on telephone. Your next question comes from the line of cash Burns of Sidoti and company. Your line is now open.
Good afternoon.
The component supply shortages that.
And any one particular products or.
With one particular customer wasn't localized or just kind of broad based across the.
The company.
Yeah, I wouldn't say, it's a specific customer its day.
Actually the integrated circuit components.
And instead of ancillary products like you got some boosters and accelerometers and things of that nature, but it's basically the integrated circuits that's oh.
Worldwide shortage on you know we went through something similar to this a couple of years ago with the capacitor issue.
You, probably remember where we had that there was a hold on.
On shortage, we had to go out and we got a bid for product. So this isn't the first time. This has happened I mean, we will get through this there'll be eventually supply all of the equal demand, but in the short term you know there's a little bit of an issue we have to navigate but like I mentioned, a few minutes ago I think.
Our operations team has done that.
Very good job and doing everything they can to mitigate the effect.
Okay and.
And is this limiting or delaying any projects like being rolled out is it impacting on kind of existing customers existing programs or is it also kind of delaying the rollout of some of these projects you've talked about in the past.
No it hasn't delayed the launch dates for projects at all it's just sometimes day.
Went into a real difficult spot during COVID-19. So it is slowly emerging they are beginning to engage on their futures.
And frankly some of the ideas, we have actually help on that front for.
For a touch less control and.
Smart control of your home away from home, which is the the lodging industry. So there's a lot of attraction there with designs it probably won't affect much and as far as our financials. This year, but we think it's an important.
Hotels will come back ultimately in there. They are your home away from home. Your home has gotten a lot smarter over the last 10 years. The hotel rooms that you stay on you probably haven't stay on one in a while but they're they're the technology that was in your home after 10 years ago. So the law.
<unk> industry will.
Will transform over the course of the next years.
To give you a smarter experience and we have a lot of product that.
We'll bring that about in that in that area.
As far as the the.
The Apple project is concerned we can't talk a lot about a lot of details there there are many.
Customers.
Engaged on that product and you'll see results on that this year.
Just generally this whole movement towards hybrid platforms.
Apple is billed as as always a brilliant product here that.
<unk> is the gap between linear television live television.
And all of the SVO DRA Vod apps that people enjoy then Netflix prime et cetera, and an easy to use interface through which to use all of that.
And are working with mvpds across the world.
To implement this as a solution.
So you'll see some activity on that as this year progresses, we're already shipping units, but you'll see more on this as larger and larger customers go into launch on this very product at that point, we are hoping to be able to talk about a little bit more detail, but of course, we have to let our customers lead the way on that.
We also.
We'll have Nemo Butler.
Out this year, we're working with a as we've said before a major telecom.
They're still working on the technical development, but it's getting closer to the date of launch.
And again, we will have more on that as time progresses.
So a lot of interesting things going on there's obviously a lot of operators that had been working on advanced platforms hybrid platforms voice driven IP enabled.
That we've launched this year and we've had a lot of success as I mentioned earlier in Europe.
With some of the major players there.
Launching those products so that has helped a little bit.
Okay. So.
Bryan you talked about coming on the North American market.
Being a little bit impacted by like COVID-19 you know my my phone was always you had these.
Is incremental projects kind of rolling out to pick up pick up that slack in.
The momentum on those will build throughout the year and kind of helped on all set that has that kind of.
Yes.
Still a valid view for Friday your progress I mean with all these kind of newer.
Projects bowling out getting some momentum.
You have progressive should should we expect the balance of the year to be.
Mm stronger than the first half.
Well I'm sure niches aside yes.
Yes, Greg that would be our expectation, obviously any operator in any of the high <unk> markets here in the in North America and Europe et.
Cetera meant many of the major markets in Asia anybody who's in those markets.
Is it.
That it wishes to grow into the future is building these hybrid platforms the.
The platforms, we're talking about that have been struggling during COVID-19 or not the modern hybrid platform. They're typically a point to point solution. Many times IR controlled infrared controlled.
With no IP backdrop. So these products are difficult to install so they require a human to come into your home typically.
I mean, I suppose it's possible for a consumer to install them, but that would be about 1% of consumers 99% of people will not attempt to install these systems.
And they've they've struggled so as those companies move to these advanced platforms. It will bring with it the ability to self installed.
So these products can essentially be put on your front doorstep and you could take them in the house plug them into the wall plug the devices into each other and software it takes over including Quickset any quickset cloud.
So there are.
Implementations of that or have yet to be seen.
And.
We're working with customers to get that done and as that happens more and more of these platforms will be unaffected.
Buy things like COVID-19.
Because.
Again as soon as a consumer consult install it's it's simple for them to do themselves.
But we still we've had that issue for the last year during COVID-19 and it's Bryan highlighted while we are well. It seems we are beginning to emerge from the difficulty of COVID-19 that we haven't completely opened up yet consumers are still many consumers are still reluctant.
So I don't think we're back to normal yet we're not we're not back to 2019 environment yet.
Do we think will get their wealth of course I I I don't think this last forever I think it will take time.
But in the meantime, we're going to design programs, where it won't matter.
We're going to design products with customers, where none of that will matter.
And that's what we're doing.
Okay, Great and Bryan could you just give us the 10 per cent customers.
Yeah, Comcast was 18.1% and daikon.
This quarter was 11.6% so 210 per cent customers [noise].
Okay, great. Thank you.
I can't get asked a question that's.
Followed by one on your thoughts on telephone.
Yeah, I know for a day of question it's on the queue.
Well I mean.
Okay. Thank you for joining us today and for your continued support of Universal Electronics, We hope to see you at several investor events on May 19th we will participate in needham's annual virtual technology and media conference.
And in June at Baird's Global consumer Technology and services conference.
We will give more details on those as time goes on but again needham's on the 19th of May.
And bird in June thanks.
Thank you again and have a great day.
This book with today's conference call. Thank you for Ya.
Any you may now disconnect and have a good day.
[music].
[music].
[music].
[music].