Q4 2021 Universal Electronics Inc Earnings Call

February 17, 2022

Good day, ladies and gentlemen, and thank you for standing by welcome to the Universal Electronics fourth 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. During this session you will need to press Star then one on <unk>.

Your telephone keypad.

As a reminder, this conference call is being recorded.

If you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to MS. Kirsten Chapman.

A investor relations ma'am please begin.

Thank you Howard and thank you all for joining us for the Universal Electronics fourth quarter and year end 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 and 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 companys 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 the future financial performance of the company 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 timely develop and deliver new technologies and technology updates and related products introduced this year, including our expanded software capabilities around our world leading quickset platform.

Comprehensive suite of service Jets, and our groundbreaking line of ultra low power and energy harvesting remotes.

Designing for sustainability that will be accepted by our existing customers and attract new customers our ability to manage the global supply chain issues and material shortages that are industries have been dealing with which continue to have both a direct or indirect impact on our volumes.

Continued successful collaboration with existing and new customers and developing and introducing next generation products operating systems and technologies, which result in increased sales opportunities for the company.

The continued trend of the 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 to achieve its net sales margins earnings and the intrinsic value of our stock has guided the.

The impact of the company's financial results that it may experience stemming from issues surrounding its Chinese workforce and inflationary pressures, we are experiencing due to the worldwide supply chain shortages and the weakening of the U S dollar against the Chinese one.

And the continued effects that natural disasters public health crises, including COVID-19 pandemic have on our business and our management's ability to anticipate and mitigate those effects, including the duration severity and scope.

COVID-19, pandemic and the actions and restrictions that may be imposed on the company and its operations by federal state local and international public health and governmental authorities.

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 outset of this call and the documents the company files with the SEC, including its annual report on Form 10-K .

In management's financial remarks, adjusted non-GAAP metrics will be referenced management provides adjusted non-GAAP metrics because it uses them for budget 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 helps investors evaluate <unk> core.

Operating and financial performance and business trends consistent with how management evaluates such performance and trends in.

In addition management believes these measures facilitate comparisons with the core operating in.

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 Companys press release issued today.

On the call 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 CEO Paul Ireland. Please go ahead Paul.

Good afternoon, and thanks for joining us at.

At <unk>, our vision is to connect the home by blending entertainment with Smart home control.

We started 2022 by unveiling many of our latest products and technologies at the international consumer Electronics show or CES in Las Vegas.

This included a comprehensive suite of smart thermostats, a groundbreaking line of ultra low power and energy harvesting remote controls designed for sustainability and expanded software capabilities around our world leading quickset platform.

Customer reaction to our new suite of products as well as our established award winning advanced technologies has been and continues to be very positive, which bodes well for our long term growth.

However, as anticipated for the near term our financial results continued to be impacted by the global supply chain issues and materials shortages.

Which continue to have both the direct and indirect impact on our volumes.

Our results in the fourth quarter were within the guidance range, we provided on our last earnings call.

And for the full year 2021 revenue was 601 million gross margin was 32% and net income was $49 4 million or $3 59 per share.

We continue to execute on our channel strategy by partnering with customers who are leaders in their respective industries as.

As an example in consumer electronics, we have long established relationships with Samsung, Sony and LG, who collectively represent about 40% of the world's televisions.

Similarly, our footprint and video entertainment includes relationships with Comcast Liberty Global Vodafone, who rank amongst the largest.

Video service providers in their respective markets.

Another long term customer is <unk> the market share leader in the global HVAC industry.

We have worked along side <unk> for more than 10 years and they have consistently been at the forefront and delivering innovative connected thermostats and control solutions to their residential and commercial customers.

In addition, we have recently expanded distribution of our wireless connectivity and control solutions by partnering with leading brands such as dividend some fee and Hunter Douglas.

Our channel leaders for their respective connected home categories.

These channels represent strong long term growth potential and as their products and services gained market momentum our position as a technology and manufacturing partner will serve us well.

As I said earlier, we are excited about the new product solutions, we introduced at CES, We show cast showcased our new and enhanced offerings as well as our leadership in supporting and integrating device discovery control and interoperability across major ecosystems, while improving user experiences.

Across entertainment and smart home devices.

I'll review a few of the key advantages we demonstrated.

And the products that exemplify them.

One benefit is that our enhanced control capabilities extend our reach with whole home coverage across ecosystems and protocols. For example, quick set five point enhancements already deliver a smart home dashboard and homes across the world and we will now include the industry's latest smart home connectivity standard Matt.

<unk>.

Our technology seamlessly blends all communication protocols legacy existing and future into a unified experience.

Another advantage is.

Is that our innovative solutions simplify user experiences.

Vivo Butler, the versatile and award winning multi assistant enabled entertainment and smart home hub.

Built around our quickset platform.

Is the first digital assistant optimized for home control applications.

Just last month, Vodafone, Portugal announced it is launching the Knievel Butler Entertainment and smart home hub to its residential TV and broadband customers.

We also have other customers adopting the same platform for non entertainment use cases as a versatile smart home hub, we expect to have more to announce on that later.

In HVAC, we recently announced the expansion of our innovative and exciting line of smart and connected thermostats and accessories. This modular solution is designed to bring the wireless control and sensing interfaces, which are traditionally mounted on a wall.

Two any room in the home, placing the user interface, where the user is and sensing where it really matters.

This platform also allows intuitive integration of thermostats and other devices and services in the home.

The UI comfort line is a white label Smart thermostat platform designed for HVAC Oems as well as hospitality branded applications.

In addition to our comfort line of connected Thermostats. We also launched an expanded set of sensors and wireless adapters that extend the reach of this platform at our recent air conditioning heating and refrigeration Expo Tradeshow.

Our cloud connected wireless connectivity technologies are also helping us grow and new channels.

Such as smart home appliances with new customers.

Those products will be introduced by our customers in late 2022 and began shipping in quantities in 2023.

As I noted earlier, we are excited to announce our latest control platform Aeterna.

And related technologies that address the growing demand for sustainable products that reduce energy use and eliminate waste.

These environmental concerns are quickly, becoming corporate and government mandates that will impact our customers' product requirements.

We are confident that these product introductions are well timed to usher in another evolutionary wave in the life of the remote control.

<unk> has partnered with technology leaders and invested in bringing ultra low power connectivity Soc.

With built in energy harvesting and photovoltaic cells to the market.

This user centered design creates a best of breed solution that delivers value to users and businesses and outperforms any competitor in the field.

The integrate energy harvesting circuitry that recovers energy already present in consumer homes, such as natural and artificial lights and EBIT radio frequencies from wireless devices.

The chips deliver up to two five times more computing power, allowing for more more power hungry features without compromising battery life.

They consume up to 80% less battery power compared to traditional Bluetooth Smart Soc.

Enabling up to 10 times longer battery life.

They reduce battery waste as the ultra efficient power management unit enables true self powering to create a battery for life controller.

Innovations in ambient power devices in the home are the foundation of our sustainable and vibrant smart home that benefits users and businesses alike.

No one wants to change batteries in 20 or 30 devices in their home and we're starting to change that paradigm.

Before I turn the call over to Brian I'd like to review our recent legal win.

In November 2021, the U S International Trade Commission found roku in violation of one of our quickset patents.

Resulting in the issuance of a limited exclusion order many of them they can no longer import product with our technology.

And a cease and desist order, meaning they could no longer sell their streaming products with our technology embedded.

As a result, Roku has decided to modify the universal control functionality on their streaming products, creating a less user friendly setup experience and degrading the control functionality of their platform.

Consequently, Roku has created widespread frustration amongst users who are struggling to control their connected devices, including televisions.

With the ITC matter successfully behind US we can now turn our attention to the two related district Court cases, we have against Roku that have been stayed pending the conclusion of our ITC action.

I'll now turn the call over to our CFO Bryan Hackworth for a review of the financials. Please go ahead, Brian . Thank you Paul and first I'll review the results for the fourth quarter of 2021 compared to the fourth quarter of 2020.

Net sales were $143 9 million compared to $156 4 million for the fourth quarter of 2020.

As expected sales were down versus the prior year due in part to global supply and logistics issues that affect us directly and indirectly as customers have truncated orders because of their inability to procure all necessary parts for companion products.

Our gross profit was $40 9 million or 28, 4% of sales compared to $52 6 million or 33, 6% in the fourth quarter of 2020.

As we mentioned on our last call, we expected inflationary pressures to adversely impact our gross margin rate.

As components and logistics costs have increased significantly over the past year.

In addition, the U S dollar was weaker versus the Chinese one in the fourth quarter of 'twenty, one compared to the prior year quarter.

In order to mitigate the effects inflation has had on our gross margin rate beginning in the first quarter. We are phasing in price increases, which will have a partial impact in the first and second quarter with a full quarter's impact during the back half of the year.

Operating expenses were $30 2 million compared to $33 5 million in the fourth quarter of 2020.

SG&A expenses decreased $22 6 million from $25 3 million in the prior year quarter, due primarily to lower incentive compensation in the current year.

R&D expenses were $7 6 million compared to $8 2 million in the prior year quarter.

Operating income was $10 7 million or seven 5% of sales compared to $19 1 million or 12, 2% of sales in the fourth quarter of 2020.

Our effective tax rate was 16, 1% compared to 15, 5% in the prior year quarter.

For the fourth quarter of 2021, net income was 9 million or <unk> 68 per diluted share.

<unk> to $16 million or $1 14 per diluted share in the fourth quarter of 2020.

For the full year 2021, net sales were $600 9 million compared to $615 4 million for 2020.

Our gross margin was 32% of sales compared to 38% for 2020.

And net income was $49 4 million or $3 59 per diluted share compared to $53 3 million or $3 76 per diluted share in 2020.

Next I'll review, our cash flow and balance sheet. We ended the year with cash and cash equivalents of $60 8 million compared to $57 2 million at December 31, 2020.

Cash flow from operations yielded a $17 4 million for the current quarter, enabling us to fund the purchase of 385000 shares for $15 4 million for.

For the full year cash flow from operations exceeded $40 million and we repurchased over one 2 million shares for a total cost approximating $60 million.

We continue to believe that the current market price of our stock is significantly below intrinsic value given this and the fact, we expect continued strength in free cash flow on February 10th 2022, Our board of directors approved a plan to repurchase an additional 300000 shares contingent on price over the next few months.

Now turning to our guidance the current macroeconomic pressures specifically relating to the shortage of chips and transportation issues throughout the supply chain continue to persist.

Certain vendors have mentioned that we should start to see some relief in the back half of the year.

At a time when several of our customer and product wins in the AAV at home automation space are scheduled to ship.

These products include our traditional two way IP connected voice remotes and as Patricia broadcast channel sensor.

Sensors, and home security and products that control devices, ranging from HVAC to lighting and blinds.

In the short run however, we do expect current headwinds to continue to put pressure on sales.

For the first quarter of 2022, we expect sales to range from $135 to 145 million.

<unk> to a $150 7 million in the first quarter of 2021.

We expect EPS to range from 46 to 56.

Compared to 89 in the first quarter of 2021.

We continue to believe in our long term growth targets of sales between five and 10% and EPS between 10% to 20%.

I would now like to turn the call back to Paul.

Thank you Brian as I have said before it is difficult in this environment for any company that relies on semiconductor supply or movement of goods across the world to meet their growth objectives.

Although we foresee a challenging start to 2022, we remain optimistic regarding our growth prospects for the full year and particularly our long term performance.

We have significant customer and project wins that will help that will begin to ship in the back half of the year and into 2023 further our product team continues to succeed in this mission to build innovative next generation products and technologies.

With more than three decades of experience, we have managed through challenging cycles previously.

While each period is unique one factor has always been true.

<unk> has emerged from difficult periods stronger and better positioned than before.

Today, we remain focused on innovation that creates an intuitive self configuring and seamless control experience within your home.

We remain focused on bringing these groundbreaking technologies to our growing list of the leading companies in the world.

We are quite confident that as these macro pressures subside, our commitment to innovation and customer service will deliver long term growth.

As always stay tuned.

Operator, we can now open up the call for questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue simply press the pound key.

Again, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our first question or comment comes from the line of Greg Burns from Sidoti Your line is open.

Good afternoon.

When you look at the supply chain constraints, how much did that impact revenue this quarter versus.

Your guidance and then when we look at the your guidance for the first quarter how.

How much revenue is being impacted by that those factors.

Yes, I think.

The effect that it's had on our sales Greg it's been pretty consistent the last last few quarters. So.

If you are comparing to the Q4 guidance we came within the range. It was the lower end, but I think we took into consideration.

The impact so I think we were able to fall within the range that it did come in at the lower end, but I can't I can't really point to that as to why we came in at the lower end versus say the middle I mean does it it doesn't take a whole lot. There wasn't one customer that stood out versus our guidance. There is just a little bit here a little bit there. So we wound up at the lower end, but are always as I've always mentioned.

When we provide the range.

I'll provide that range, but I think it could come anywhere within that range and at this time, we came in towards the lower end.

As far as Q1 is concerned we are still impacted by the logistics issues, even though it's a rolling issue I think what is affecting us and youll see with other companies.

You get you get companion products, and if they're not able to get the parts for these companion products than they are truncating orders to us and we've had we've had several customers tell us that they're ordering less because for that reason. So it is it is still affecting us and it probably will be for hopefully it'll start to clear up towards the back half of the year.

Okay.

And then in terms of the.

The Roku litigation.

So I guess.

They were in violation of one patent was there how many patents where you're you're claiming they were <unk>.

And are there any others that.

Then maybe now that.

I guess, the first step that you claimed or in violation of any others that you might.

If I go back to the ITC with and then when we look at the District Court cases.

Well.

What is the potential outcome of that is that strictly a monetary case or can there be any other implications on the.

The ability for roku to produce with.

Produce devices.

Greg This is Paul.

Roku case, the district Court cases, I believe and I don't quote me direct business. There are two separate cases I believe there are 14.

Patents.

In the two across the two cases.

And in District Court those cases are state.

They were partially pending ITC. There are also <unk> that are being processed through P tab.

When that's complete presumably the judge will reinstate the case.

Don't know the exact timeframe on that but it will take a little bit more time.

And then those cases can move forward obviously in district court the remedy would be with a win is the damages phase to the to the case.

Which means monetary.

ITC is a separate venue.

Where they would.

Our win meant an exclusion order and the cease and desist order.

It means the other party who lost in this case can no longer produce products, where the life of the product I'm sorry for the life of the patent.

That violate that IP.

Okay. So thats what was issued.

They've modified the software and we've seen a lot of reviews of the product, stating that people are not able to operate their intelligence.

Can't control volume can't turn it on anymore.

Et cetera, and some users are complaining that they need to use their TV remote again.

So they have to go to a to remote solution, where they turn the TV on and then operate the other device with the remote which is not a good user experience in today's world.

Okay, and then lastly, just the 10% customers in the quarter.

We had two customers Comcast at 16, 5% and daikon at 11, 2%.

Okay. Thank you.

Thank you. Our next question or comment comes from the line of Brian Rutenberg from Imperial Capital. Your line is open.

Yes. Thank you very much so question on guidance.

Youre talking about first half being weak.

In your press release, you said your long term guidance is revenue of 5% to 10% growth in EPS of 10% to 20% I assume that is long term not including 2022.

Is that correct.

When we say long term, we're talking about over the last in the next several years.

That's the way we calculate it so I don't I think sometimes people can play that with.

The current year and I don't want people to think that we're saying we can grow over the long term at a rate of 5% to 10% and 10 to 20, which which we've done historically and I don't see any reason why that can't continue.

Okay is there.

2022, I know you Didnt give specific guidance other than the first quarter.

And thats going to be down likely year over year.

Do you anticipate your 2022 being at 2021 levels or maybe you can give me a better or worse higher or lower number.

We don't provide guidance beyond the quarter, but I will say this we do expect to grow in 2022. So.

As Paul mentioned, we've got a number of wins.

September product wins within number of customer wins that are scheduled to ship in the back half of the year.

I'm, hoping that the suppliers you starts to lighten up we've been told us by a few vendors that they expect it to.

It will be completely resolved, but hopefully at least start to lighten up.

Which will enable us to ship more products. So.

We expect to grow this year I don't I don't expect it to be the same levels as 2021.

Okay, and then asking something from a macro standpoint, I'm hearing residential may be slowing the demand on that for the consumer electronics are you seeing any of the demand side.

The.

On the residential side of the business slowing consumer residential.

You mean, the subscription broadcasting or just generally.

Generally in your products, which is where a lot of your stuff is going as the consumer is there any demand slowing.

Maybe seven.

Again, it's not.

Wouldn't say, it's an overall slowing there are certain customers, who have demanded more product some of whom have told us they would be buying more right now, but they have semiconductor shortages of their own.

And therefore, it may not be.

<unk>.

US who have the shortage that is there.

Critical path.

That they can't get enough parts for the companion product as Brian alluded to earlier and therefore, when we ask them about their forecast. They say, we would have ordered more but we can't build enough of the product to demand.

In those cases the demand is good.

In other cases, it varies by customer of course.

Alright, thank you very much buying more and would be buying even more than that where they able to get semiconductors for their own product.

But they can't at this point.

Okay. Thank you very much.

Thank you. Our next question or comment comes from the line of Steven Frankel from Colliers. Your line is open.

Hi, Good afternoon, Paul Im, hoping you could parse the supply chain.

Issue a little bit.

Maybe.

Give us.

Some feel for how much of the headwind is correct products that you can't get versus the.

The indirect issue there arent enough set top box for example, being produced and therefore youre customers are cutting back orders of move outs.

Right.

Yes, Steve I would like to be able to quantify that precisely, but it's not really possible. The one we could.

Is.

We of course received a forecast from customers.

And then we go through our system to figure out what we can build.

We've estimated that to be double digit millions.

We are.

Unable.

About 10% of sales.

That we can't get enough parts ourselves.

Now the part we can't readily quantify we do talk to customers about their forecast and their businesses in some cases, they share more than others of course.

And.

Some are telling us that.

We're ordering 10 or wording five or whatever the number is.

We would like to order seven or 12, but we are having our own shortages.

Other products typically semiconductors.

That they cannot yet and therefore, they would not order those extra units because the companion product that we're building for them.

There is not required.

Because they can't get enough <unk> to build their own product.

We're hearing those stories from the field from our customers that one Brian can't really quantify it because they don't really give us a precise number.

It's not really relevant anyway as far as our business with them because they said what we would have ordered more but we're.

We're not so will order it later.

They don't really tell us exactly how many units they would've otherwise ordered.

So there is a flow through effect on this now again as Bryan said, we do have vendors this problem won't disappear in three months.

Going to take time, but it's also it's going to happen with time, we have vendors right now.

Who are working with us to bring up parts in the back half of this year. So the supply of specific vendors should begin to increase this year.

Now will all vendors be back to pre 2020 or back to 2019 levels.

Probably not.

We won't be in the situation, where they have more supply than demand.

But there is supply that will come online this year.

That will begin to ease the problem.

And as Brian I think alluded to earlier in the call, it's probably well timed because we have a lot of customers who have some of these designs that we're talking about that I spoke about in the prepared remarks.

Where they want them and the timing of bringing on the capacity to build the chips for it.

Is probably well timed because it'll be about the time the designs will be ready.

And the chips will be more available. So we will start to see this solved this problem correct itself as I said in last conference call I think I used the number $100 billion the numbers now well over $200 billion.

And commitments of semiconductor suppliers to build capacity.

Now some of that capacity will take years, but some of it is coming on starting this year.

So youll see an increase in supply starting this year moving through 'twenty three into 'twenty four.

And likely the industry will go back to a situation whether it will then be greater supply than demand.

That seems like a lot right now, but that that day is coming.

In the not too distant future not next quarter, but that day is coming and it will come on a little bit at a time and it will start.

This mid year.

We're hearing from vendors will start to see a little bit of supply increase.

Okay and is there.

Anything going on below the surface that would prevent gross margin.

From going back to where they were in early 'twenty one.

Once the supply chain issues are behind you.

Don't see any reason why the only caveat I'll give to that is obviously we're in a.

Probably a higher inflationary time than we've seen.

In most of our careers.

I've been doing this for quite a long time I think the last inflationary.

Inflationary time I was in high school.

So it wasn't in the workplace, yet we haven't seen this sort of environment.

We're absorbing that we are talking to customers.

There are obviously situations, where there are price increase to offset it there has been a pretty good acceptance of that I think people generally understand what's going on in the world today.

Commodity prices.

Semiconductor prices et cetera are moving upwards.

That hasn't been typical in the consumer electronics area.

Over the last number of decades, but that is the reality today.

And.

So you might see some movement in it.

A little bit down, but Theres no reason there is no strategic reason.

Longer term I mean, the solutions, we provide in many cases are licensed their best in the world Best in class.

And we charge a fair price for them.

So there is no reason why we couldnt have that long term.

Goal of margin.

30%.

And one of the things coming out of CES last year was higher software content in Tvs like this smart home control panel that you mentioned in your prepared remarks.

Did you get any material expansion of that kind of software.

Capability.

This year at CES for the TV chip in the back.

What we did.

Now the 2022 models are done.

At CES, we'd be working on 'twenty three 'twenty four.

Televisions.

Okay, but because of the 22 Tvs were basically finalized in the summer of 'twenty one.

And then sometime mid this year the 23 models will be completed.

From a design perspective.

So we're working right now in 'twenty, three and 'twenty four.

But yes, there is a lot of interest in as many things that I spoke about in the prepared remarks and others because.

Because I wanted to keep the comments too.

Limited amount of time.

Working on a lot of things here that are pretty innovative.

All of these markets security HVAC and of course, the core business of.

That are quite different I mean, including the Aeterna.

<unk> low power ultra.

Low power Soc, which we think is is also garnering a lot of interest with customers.

Okay, and then one last question for Brian .

Kind of Opex growth.

Embedded in your forecast for Q1.

That's a little bit of growth in Q1, we were at CES.

A rather expensive trade show and then you get.

A little bit on <unk>.

Fringe benefits reset.

That was coupled with an increase so I expect it to be sequentially higher but not.

Anything I would describe is significant.

But below where the 31 seven it was last year.

It would be close.

Okay.

Thanks.

Thank you our next.

Again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad. Our next question is on conference calls are.

Our next comment comes from the line of Jeff Van <unk> from B Riley Your line is open.

Hi, everyone.

Im just wondering given that you are increasing prices.

Any more color you can give us on the outlook for gross margins.

In terms of what we should expect this year, maybe touch on the quarterly progression if you could.

I guess, how how they might evolve and then for the full year do you think gross margin is down or could it be flattish I guess I'm just trying to get a sense is it should we be modeling gross margin down in first half and then up in second half and get to flattish or.

How are you thinking about gross margin.

There are a lot of variables as you know Jeff that go into the gross margin rate and.

Paul It's Bob just mentioned.

Previous question the price increases.

Taking.

Through Q1, and Q2 will take full effect in the back half of the year now I think that.

That pretty much mitigates the.

Offsets the.

The cost price increase for the most part, but it's difficult to tell what's going to happen with inflation and our prices are raw material and component prices are they going to continue to rise that's difficult to predict.

The other components, that's always difficult is the FX rate so right now.

When I look at Q4 versus Q4, the dollar was a little weaker.

Versus the Chinese ones, so that hurts us so that's always difficult to predict so I don't think its going to be dramatically different but if you're I think if youre looking at Q1 versus the rest of the year I expect the rate to improve.

Because the price increases.

We're an accurate can take full effect in the back half of the year, you'll get a full quarters effect versus a partial effect in Q1 and Q2 now.

Assuming that we don't have.

Additional high inflation rates on components. So that's the part that that's the right now the variable that's difficult to predict so hard to say, but I don't think I don't expect it to be significantly different but I do if everything else stays constant.

I think the price.

Because of the price increases that we're enacting our rates should.

Should improve in the back half of the year versus the front half.

Okay.

Helpful.

And then I guess just another question around the business returning to growth.

Call it year over year growth in the second half you have orders for new products. Some of those are going to start to ship in second half.

So I guess my question is this because obviously there are a lot of variables around supply chain.

Does being able to get those new products out the door in sufficient volume depend on supply chain improving from here or is that.

Sort of what you said your vendors are telling you that it's going to get a little better.

Second half is that baked into year over your second half inflection in revenues.

As a risk to that.

That would partially that.

Now again, it's a lot more complex than that because we do have parts that are in tighter supply than others.

Right. So certain semiconductors, we could actually get more of if we were to need them.

For some growth.

I wouldn't say it's.

An unlimited supply, but we could get more there are other parts that are more in short supply.

If the product design included those parts you could be limited.

Again, we are hearing from vendors and we are getting updated regularly on this.

The capacity that they are adding.

Our conversions where they've taken.

<unk> and they are converting them.

That's a higher likelihood event.

It's not a building that has to be built the building is already there so they're converting capacity.

Two our architectures.

So we're confident that and again the updates we're getting from them.

<unk> shown that we're confident that we'll begin to see some <unk>.

Supply increase from.

From certain of our vendors.

So that would be baked into any growth that we have because at this point as you probably well know from many companies that you cover and everybody else covers semiconductors are a shortage.

Almost all of them.

At this point.

If you wished to grow at a double digit rate it would be difficult to do.

Because the price that you would need to do it might not be readily available.

But again we are.

Tracking our vendors talking to them regularly about this problem.

Fighting for every obviously every unit we can get.

And but importantly.

But the problem really begins to solve when capacity is added.

Because we can scramble for the parts that are out there, but when they add capacity what typically happens is the supply goes up.

And often the supply goes up greater than the demand.

And then you're back to a more normalized situation.

Will we see that this year from all vendors the answer is no.

Will we see it from some though the answer to that we're confident is yes.

So the product will begin to ease.

As this year progresses.

And then it will ease further next year.

Because look there industry relies upon it too.

They're not making these chips just for the betterment of us or humankind their growth.

Term relies on it.

After the point at which they've taken price on these items the demand would start to wane in order for them to grow in the ways that their investors or public investors are private.

Expect them to would be to increase supply.

Clearly in the world today, the supply is less than the demand the demand can be satisfied right to create additional sales.

So thats why there is more than $200 billion.

Going into capacity expansion.

And in many parts of the world by the way its government aided the U S has done this it's been done in Europe , Japan.

There's a lot of and I think it's four also national security issues, but theres a lot of investment that governments are making to help companies build these this new capacity.

So it is I think as certain as anything can be it is certain that the capacity in this industry is going to expand.

Anyone who thinks that this limited supply situation is going to last long term.

Isn't seeing the reality.

When there is $200 billion going after partially government funded capacity expansion that will happen.

And again, we will start to see it.

We will start to see some of that this year.

It will not be back to normal this year, but we will see that this year.

Okay, and then speaking about demand Fortunately you do have some new business wins.

Any more color you can give us I know some of this is a little tricky, but any more color you can give us on which of those.

Call, it new product or new business wins.

You expect to contribute most to the.

The second half of this year.

Always hard to know that Jeff because theyre, all great products and.

The customers always have a good.

They of course gives us a forecast of what they want to buy but they hope that they sell out all of the inventory they have orders from the US and then quickly order more if their products as success.

So I wouldn't want to predict which one will be most successful but the good news is it's multiple names and leading names.

You heard a few of them in our prepared remarks, I didn't make comments on the products.

Because I can't but we did mention names and these are some of the leading names in the world some fee.

If you haven't heard of them they are sure Hunter Douglas.

Dividend.

We mentioned Vodafone.

Yes.

Butler, we have some more names there that I can't mention so we've got a lot of projects that are moving forward, we have more in HVAC too.

That I can't mention the names yet but.

Names you would recognize.

There's a lot of again the team here the product team sales team.

Engineering team advanced development team have done a lot of work over the last year.

To create some pretty interesting new products with new features and those products are coming.

So we expect to launch some of them late this year.

The good and bad of those markets are typically theyre long lead projects, meaning they can sometimes take a year to build but the life of the product can often be eight to 10 years.

So after you designed it and build it and go through that process of a year or year and a half in some cases.

The productivity lids for eight to 10 years.

And it's hard to see that later this year.

And it seems like you continue to partner with and provide product for <unk>.

Some of the best and most innovative companies out there so right that's right.

Okay, that's our goal.

We're recognized is that we have both the capability technically and the ability to supply.

Because we are the largest producer.

Also not just the leading producer with the largest producer of these controlled products.

Chip and products and technologies in the world.

Right and if you are a consumer with the roku product that does not have your.

Embedded software in there.

Probably not a very happy camper right now, yes, I guess.

You will have to use one of our other remotes.

Operator television.

Right, alright, not optimal alright, well I appreciate it.

I appreciate you taking the questions.

Best of luck sure. Thank you.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. <unk> for any closing comments alright. Thank you for joining us today and obviously for your continued support of Universal electronics.

I do want to announce we plan to present at Sidoti small cap virtual Investor Conference in March.

And we hope to see you there or hear from you there depending on the forum.

Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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As a reminder, this conference call is being recorded.

If you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to MS. Kirsten Chapman.

L H, a investor relations ma'am please begin.

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, where it will be retained for at least one year. You may also access that information by listening to the webcast replay.

Comprehensive suite of thermostats, and our groundbreaking line of ultra low power and energy harvesting remotes.

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 opportunities for the company.

The continued trend of the 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 to achieve its net sales margins earnings and the intrinsic value of our stock has guided the.

And the continued effects that natural disaster in public health crises, including COVID-19 pandemic have on our business and our management's ability to anticipate and mitigate those effects, including the duration severity and scope of the COVID-19 .

COVID-19 pandemic and the actions of restrictions that may be imposed on the company and its operations by federal state local and international public health and governmental authorities.

Our 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.

Good afternoon, and thanks for joining us at.

<unk> vision is to connect the home by blending entertainment with Smart home control.

We started 2022 by unveiling many of our latest products and technologies at the international consumer Electronics show or CES in Las Vegas.

Customer reaction to our new suite of products as well as our established award winning advanced technologies has been and continues to be very positive, which bodes well for our long term growth.

However, as anticipated for the near term our financial results continued to be impacted by the global supply chain issues and materials shortages.

Which continue to have both a direct and indirect impact on our volumes.

Our results in the fourth quarter were within the guidance range, we provided on our last earnings call.

And for the full year 2021 revenue was 601 million gross margin was 32% and net income was $49 4 million or $3 59 per share.

We continue to execute on our channel strategy by partnering with customers who are leaders in their respective industries as.

As an example in consumer electronics, we have long established relationships with Samsung, Sony and LG, who collectively represent about 40% of the world's televisions.

Similarly, our footprint and video entertainment includes relationships with Comcast Liberty Global and Vodafone, who rank amongst the largest.

Video service providers in their respective markets.

Another long term customer is <unk> the market share leader in the global HVAC industry.

In addition, we have recently expanded distribution of our wireless connectivity and control solutions by partnering with leading brands such as dividend.

<unk> and Hunter Douglas that our channel leaders for their respective connected home categories. These.

These channels represent strong long term growth potential and as their products and services gained market momentum our position as a technology and manufacturing partner will serve us well.

Across entertainment and smart home devices.

I'll review a few of the key advantages we demonstrated.

And the products that exemplify them.

One benefit is that our enhanced control capabilities extend our reach with whole home coverage across ecosystems and protocols. For example, quick set five point O enhancements already deliver a smart home dashboard and homes across the world.

And we will now include the industry's latest smart home connectivity standard matter.

Our technology seamlessly blends all communication protocols legacy existing and future.

Into a unified experience.

Another advantage.

Is that our innovative solutions simplify user experiences.

Nemo Butler, the versatile and award winning multi assistant enabled entertainment and smart home hub <unk>.

Built around our quickset platform.

Is the first digital assistant optimized for home control applications.

Just last month, Vodafone, Portugal announced it is launching the Knievel Butler Entertainment and smart home hub to its residential TV and broadband customers.

We also have other customers adopting the same platform.

Cases, as a versatile smart home hub, we expect to have more to announce on that later.

In HVAC, we recently announced the expansion of our innovative and exciting line of smart and connected thermostats and accessories. This modular solution is designed to bring wireless control and sensing interfaces, which are traditionally mounted on a wall.

To any room in the home.

<unk> user interface, where the user is and sensing where it really matters.

This platform also allows intuitive integration of thermostats and other devices and services in the home.

The UI comfort mine is a white label Smart thermostat platform designed for HVAC Oems as.

As well as hospitality branded applications.

Our cloud connected wireless connectivity technologies are also helping us grow in new channels, such as smart home appliances with new customers.

Those products will be introduced by our customers in late 2022 and began shipping in quantities in 2023.

As I noted earlier, we are excited to announce our latest control platform Aeterna.

And related technologies that address the growing demand for sustainable products that reduce energy use and eliminate waste.

These environmental concerns are quickly, becoming corporate and government mandates that will impact our customers' product requirements.

We are confident that these product introductions are well timed to usher in another evolutionary wave in the life of the remote control.

<unk> has partnered with technology leaders and invested in bringing ultra low power connectivity Soc.

With built in energy harvesting and fault photovoltaic cells to the market.

This user centered design creates a best of breed solution that delivers value to users and businesses and outperforms any competitor in the field.

They integrate energy harvesting circuitry that recovers energy already present in consumer homes, such as natural and artificial lights and EBIT radio frequencies from wireless devices.

The chips deliver up to two five times more computing power, allowing for more more power hungry features without compromising battery life, they consume up to 80% less battery power compared to traditional Bluetooth Smart Soc.

Willing up to 10 times longer battery life.