Q1 2022 Universal Electronics Inc Earnings Call
Yeah.
Good day, and thank you for standing by welcome to the Universal Electronics first quarter 2022 financial results conference call.
At this time all participants are in.
Listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone.
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You require any further assistance. Please press star zero I would now like to hand, the conference over to Kirsten Chapman.
H a investor relations. Please go ahead.
Thank you Catherine and thank you all for joining us today for the Universal Electronics first quarter 2022 financial results Conference call.
By now you Should've received a copy of the press release, if you've 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 www Dot <unk> 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 the information.
By listening to the webcast replay.
During this call management may make forward looking statements regarding future events and future financial performance of the company cautions you that these statements are 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 quick platform comprehensive suite of smart thermostats, and our groundbreaking line of ultra low power and energy harvesting remote controls designed for.
<unk> that will be accepted by our existing customers and attract new customers.
Our ability to manage the global supply chain issues, which includes material shortages that our industry has been dealing with as well as lockdowns occurring in China due to the COVID-19 pandemic, both of which continue to have a direct and indirect impact on our sales.
The continued successful collaboration with existing and new customers and developing and introducing new right.
Alright next generation products operating systems and technologies, which result in increased sales opportunities for the company, particularly during the second half of 2022.
The continued trend of the industry toward providing consumers with more advanced technologies by offering hybrid platforms expanded smartphone offerings and interactive services.
Management's ability to manage its business and cash flows to achieve its net sales margins and earnings and intrinsic value of all of our stock as guided.
The impact of the company's financial results that it may experienced stemming from those issues surrounding its Chinese workforce and inflationary pressures as we are experiencing due to the worldwide supply chain issues and weakening of the dollar against the Chinese win.
And the continued FX that natural disasters public health crises, including the COVID-19 pandemic has on our business and our management's ability to anticipate and mitigate those effects, including the duration severity and scope of the 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 government 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 onset of this call and the documents the company files with the SEC, including the 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.
<unk> 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 as the <unk>.
<unk> 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.
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 is now my pleasure to introduce Paul <unk>. Please go ahead Sir.
Good afternoon, and thanks for joining us.
Driving toward our mission of creating smarter living.
<unk> continues to nurture a culture of innovation to develop award winning patented technology and to leverage our strong financial foundation to support the company through all economic cycles.
Our supply chain headwinds have persisted our team has worked hard to overcome.
During the first quarter, we continued collaborating with world leading companies in all of the markets, we serve to bring new innovative products and technologies to consumers.
Going forward, we expect to see incremental improvements in our supply chain.
Bind with increased demand from existing and new customers, particularly in HVAC security and home automation, we expect sales in the second half of 2022 to exceed any half year periods since 2019.
With that in mind I will review the first quarter.
We launched more home entertainment.
And automation control solutions, we fostered relationships, yielding new projects in home automation that are expected to fuel revenue growth in late 2002.
And into 2023.
And we controlled costs, we reported EPS of <unk> 47.
With net sales of $132 4 million.
Ian will review the financials in greater detail in a moment.
Regarding innovation and product development, we started the year strong unveiling many of our latest products at CES in January .
We continue to lead the industry by creating solutions to help our customers differentiate themselves.
We supply the user experience, we create whole home coverage across ecosystems and protocols.
And most recently, we introduced technology to foster sustainability.
I'll review some examples.
Our latest control platform eternal.
Related technologies are a groundbreaking line of ultra low power control solutions that reduce energy use and eliminate battery waste.
By using ultra low power connectivity systems on the chip or control solutions harvest energy already present in consumers' homes, such as radio frequencies from wireless devices and natural and artificial light.
Eternal remote use one third of the energy of a typical remote enabling more power hungry features without compromising battery life and are capable of delivering as much as 10 times the battery life.
Or similarly featured remotes.
Ultimately aeterna and the technology surrounding it reduce battery waste, making for a greener planet.
We are confident that these technologies address an important industry trend to deliver on corporate environmental goals that will become the cornerstone of many global company mandates are.
Already we have seen many industry leaders across the world engaging with us on this important goal.
Our white label.
Service that platform comfort line delivers a whole home solution for wireless climate control.
And sensing for HVAC Oems as well as security and hospitality branded applications.
While traditional thermostats are mounted on the wall. The comfort line of products enables mobility and places the user interface conveniently where the user is.
The platform includes sensors and wireless adapters that extend the comfort line reach once again, emphasizing and optimized user experience.
During the quarter. We also upgraded several other technologies our flagship quickset platform delivers a complete smart home dashboard for discovery setup and control of connected devices and homes across the world.
In the first quarter of 2022, we commercially launched the fifth generation of our cloud platform on LG Smart Tvs.
With these additions the quickset cloud platform is scaled and now serves over 50 billion transactions in a single quarter.
During the quarter. We also began shipping in limited quantities or wireless connectivity technologies inside connected home automation products for leaders in the smart home appliance market.
These products are the first in a line of several customer projects.
But our plan to launch later this year and into 2023.
By improving user experience as we capture the attention of the industry leaders.
By enabling device discovery control and interoperability across major ecosystems and continually innovating, we foster long term relationships as well as form new ones.
And consumer electronics, three of our customers alone Samsung Sony and LG collectively represent about 40% of the world's televisions and video Entertainment Comcast Liberty Global Vodafone and many many others ranked amongst the largest video service providers in their respective markets.
With many of them, we are deploying both voice remote controls for their advanced television systems as well as self configuring controllers for their growing streaming services.
And climate control, we have been serving global HVAC market share leader Daikon for over 10 years. In addition, we are now working with other leading international HVAC brands to launch our new comfort lines Smart thermostats.
Newer partners and our home automation and security segments include channel leaders, such as vivid softly and Hunter Douglas.
These customers represent another growth vector as we are actively engaged with them on several new projects across their product lines.
As I noted earlier, we recently signed projects in the HVAC security and home automation channels. There are expected to fuel revenue growth later, this year and into 2023 and beyond.
All of these and many more represent strong long term growth potential.
Their products and services gain market momentum.
We are truly excited about the future.
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 first I'll review the results for the first quarter of 2022 compared to the first quarter of 2021.
Net sales were lower than we expected $132 4 million compared to $150 7 million for the first quarter of 2021.
While we expected sales to be effected by global supply and logistics issues. We did not anticipate the lockdown in China that occurred during the last month of the quarter. This.
This lockdown caused the shortage of workers at our southern China factory, resulting in a decrease of more than 50% and our utilization rate.
During the last two weeks of the quarter.
You will be in a loss of approximately $4 million of revenue.
All of our lines that our southern China factory factory, we're back to normal production rates in early April and labor issue caused by the Lockdown has not resurface in the second quarter of 2022.
Our gross profit was $38 3 million or 28, 9% of sales compared to $47 3 million or 31, 4% in the first quarter of 2021.
During the first quarter, we began phasing in price increases to offset inflationary pressures on components and logistics costs.
Prices. These price increases will continue to be implemented through the second quarter, resulting in a partial impact for the first half of the year.
On a full impact for the back half.
In addition, the U S dollar was weaker versus the Chinese one compared to the prior year.
Operating expenses were $30 4 million compared to $31 7 million in the first quarter of 2021.
SG&A expenses decreased to $23 million from $24 1 million in the prior year quarter.
R&D expenses were consistent at $7 4 million compared to $7 $6 million in the prior year quarter.
Operating income was $7 8 million or five 9% of sales compared to $15 7 million or 10, 4% of sales in the first quarter of 2021.
Our effective tax rate was 19, 9% compared to 19, 5% in the prior year quarter.
For the first quarter of 2022 net income was $6 1 million.
<unk> hundred 40 <unk>.
Per diluted share compared to $12 6 million or <unk> 89 per diluted share in the first quarter of 2021.
Next I'll review, our cash flow and balance sheet, we ended up.
<unk> cash cash equivalents and term deposits of $62 2 million compared to $60 8 million at December 31, 2021.
As is typical we expect cash flows from operations to increase in the second quarter and be strong for the remainder of 2022.
During the first quarter, we purchased 225000 shares for $7 4 million.
As of March 31, 2022, we had 125000 shares remaining on our authorized share repurchase plan.
Now turning to our guidance.
Current macroeconomic pressures specifically related to the shortage of chips and transportation issues throughout the supply chain continue to persist.
Some of our vendors have indicated that we should start to see some relief in the back half of the year at a time when orders from certain existing customers are scheduled to increase as evidenced by their most recent forecast and several of our new customer and product wins in AAV and home automation space are scheduled to begin their initial rollout.
These products include our traditional two way IP connected voice remote and the subscription broadcast channel sensors, and home security and products that control devices, ranging from HVAC to lighting and blinds.
Although we expect current headwinds to continue to put pressure on sales in the second quarter.
Our current forecast reflects sales for the back half of the year to be greater than any two successive quarters since 2019.
For the second quarter of 2022, we expect sales to range from $133 million to $143 million.
Compared to a $150 6 million in the second quarter of 2021.
We expect EPS to range from 53 to <unk> 63.
Paired with <unk> 98 in the second quarter of 2021.
We reiterate our long term growth targets of sales between 5% to 10% and EPS.
EPS between 10, and 20% I would now like to turn the call back to Paul.
Thank you Brian .
I am excited about our opportunities and what lies ahead for <unk> in 2022.
Even though supply chain constraints logistical challenges and most recently unanticipated lockdowns.
Dampened our ability to achieve our near term sales targets our foundation for our long term growth is strong.
We're an industry innovator that is consistently selected by leaders in the industries we serve.
Our products and services are repeatedly recognized by our customers and industry associations for their usefulness and ingenuity.
This long standing leadership in innovation has led to an enviable market position in the industries, we serve it.
It is important to remember that we have been through challenging times before and each and every time, we have emerge from them stronger than ever.
We remain committed to building innovative solutions for an ever smarter home.
We remain committed to building strong long term customer relationships and building some new ones.
We are committed to remaining true to these principles and powering through any short term challenges to create an ever more successful company.
I am also proud of our team and their perseverance.
<unk> dedicated to solid cost management working hard the team the supply chain crisis building, new and deeper customer relationships and continuing to raise the bar by developing new innovative solutions. We are confident that all of these actions will yield positive results, we expect that increased demand.
<unk> from existing and new customers combined with anticipated incremental improvements in supply to positively impact sales in fact, as Brian stated we are forecasting the second half of 2020 to be the strongest half year since 2019.
As always stay tuned.
We would now like to open it up for questions.
Thank you Sir as a reminder to ask a question you will need to press star one on your telephone to withdraw your question you May press the pound key.
Please standby, while we compile the Q&A roster.
And we have our first question from Jeff Van <unk> in theory.
With B Riley you May ask your question.
Okay.
It's Jeff <unk>.
We got the name alone that's up there, which is not unusual but.
In any event.
Wanted to ask you about gross margin.
Good to hear that it looks like the second half is looking up pretty substantially wondering sort of what your gross margin expectations are order of magnitude as far as you can see out, particularly as we're getting into second half, whether we should see gross margin expansion.
Well as you know, Jeff we don't we don't provide.
Guidance on gross margin rates really specifically, even in the given quarter.
While the outer quarters, but I will say that there's definitely potential for expansion right now youre looking at.
As I mentioned.
We've got price increases that are rolling out through the second quarter, which should take a full effect in the back half of the year.
Currently the U S dollar strengthening versus the Chinese one which helps us so there's definitely some some some positives going our way right now, but gross margin had a lot of variables to it I don't want to make a prediction, but it's definitely possible for our for expansion in the back half.
Okay, and then I know you also said second half sales you anticipate to be the strongest since 2019 second half I believe is what you said.
You anticipating year over year growth in both.
Q3, and Q4 for sales.
What we're saying is the back half.
<unk> in Q3 versus Q3 or any quarter Q4 versus Q4 or any prior quarter I'm, saying the back half of the year.
<unk> is going to be we expect to be greater than any two successive quarters. Since 2019, so any rolling two quarters. Since the 2019 time period, whereas you remember 2019 was a very strong year for sales 2020, and 21 were lighter and we're starting to see.
Some positives coming through with all the product lines that we have as Paul mentioned.
We've got we got orders and forecast coming from customers with from existing customers that are increasing.
We've got product wins in the new categories from.
From HVAC to home security to home automation that are scheduled to launch in the back half of the year. So I mean things right now I know are a little rough but the back half is looking very promising.
Okay and then maybe can you can you guys. Just if I can squeeze in one more can you delve a little bit more into the HVAC and home automation products, where youre seeing traction youre seeing pretty good adoption. It sounds like there maybe just touch on those and how we should think about contribution to the P&L.
As the remainder of this year unfolds, and then into 2023 and any order of magnitude of progression.
Thoughts you have around that yes, I can answer that Jeff.
These markets.
Without exception the HVAC.
Security home automation.
All of these markets have.
Good growth rates double digit growth rates as far as markets are concerned.
Sure.
Our share is very high as you know in home Entertainment was our original business that we dedicated ourselves to innovation and have built a very strong position.
I think our market position there if you take all of our competitors combined and add them up it doesn't add up to our position.
Because we've just.
Done a very good job of innovation.
Customer development building long term customer relationships et cetera, we see that same opportunity in these other markets. We've already began that in HVAC. Some time ago as I mentioned in the in the remarks, Daikon, which is the number one to HVAC.
Company in the world as far as market share has been a long term customer of ours and we are now working with others.
Some of which we have not announced yet because they are their products arent out but will in time do that.
And.
They are looking for better solutions.
And I'll say generally that is these all of these areas home automation.
<unk>.
Are all converging in some ways on protocol.
In the old days it used to be that the EV system. The home Entertainment system ran on infrared and these other systems worked in many cases on a wired fashion, what's happening now is theres a lot of low cost two way very energy efficient radiofrequency methods Bluetooth low.
Energy Zigbee et cetera, and they are being shared across these various market areas.
So today's remote control isn't vastly different technologically physically.
Physically theyre very different but technologically fixed.
Extremely different than sensors, or HVAC controllers or other things in the home. So we think that the technologies and the capabilities. We've built in this area.
Transfer to these other markets and we're beginning to see customer traction where they see the same thing.
And we're also including it on both sides. So for instance, the <unk>.
<unk> technology or the newest.
Versions of software we are doing on the TV side are incorporating these home control applications, where we can link them together the user can configure lighting can configure HVAC control and all of these other devices they can be <unk>.
<unk>.
Discovered configured and controlled.
Through that home entertainment device, so there's a lot of convergence going on here.
We're part of the leadership of that.
And we see a lot of potential here and we're going to start to see we've invested quite a bit over the last couple of years.
More of our development dollars have moved into this new area over the last couple of years of course, we're still developing a lot of home entertainment devices, but more than ever before has moved in these new directions HVAC security home automation.
And we're going to start to see those products launch.
Already launched a couple in small quantities, but we'll see growth from that again as this year progresses and into next year.
Okay, great to hear thanks for taking my questions I'll take the rest offline.
And again, if you would like to ask a question you May press Star one on your Dutch don't filing.
And we now have our next question from Greg Burns with Sidoti <unk> Company you May ask your question.
Good afternoon.
Can you just start off with the 10% customers for the quarter.
Sure Comcast is at 15%.
<unk> was at 12, 9%.
Alright. Thanks.
And then.
Thinking about the traditional.
Cable market during the pandemic I guess.
So it was they couldnt get access the houses.
That was part of the reason.
Sales are being impacted.
But now they're just ordering less.
Or is it strictly supply chain or any kind of demand dynamic change in the industry. Because my understanding was that there was kind of a natural.
Slow and steady amount of borders.
The amount of remote that they ordered in any given year given the number of subscribers. They had but I don't know if thats changed at all but can you just talk about maybe the dynamic there and maybe some of the back half this is Mike.
Some of the pent up demand there coming through but I just wanted to better understand.
The demand dynamics in the cable industry, a little bit sure, yes, it's a mixed.
The situation. So we can't speak about specific customers, but we have seen.
Definitely right during the 2020 timeframe even into 2021 there were.
Companies that had not.
Yet gone to a self configuring system.
We're probably hurt more.
And then those who didn't because obviously when you have a self configuring system you could still market your service and have it delivered to consumers without having to have any human being.
Enter their home.
Because that's the very definition of a self configuring system that could be placed on your front doorstep you could bring it in house.
Yourself.
And companies that did that we saw this during the pandemic.
Customers that have adopted that.
Their volumes may have been hurt a little but not as much as companies that had.
Systems that needed to be manually configured.
What we're seeing now is of course, there is the here in the U S. Anyway. There is opening up but you've you've now got the complexity of supply chain not just for us.
But for companion products.
So we have had some customers tell us that.
While they would while their demand is a little greater than what they forecasted.
They are not forecasting more because another vendor.
Was unable to get them the quantities they would like to have.
Now it doesn't mean, they've been zeroed out, but they may not be getting 100%.
What they are forecasting from that other vendor and as we are a companion product.
They will in order as much because they.
We won't do them any good to have the companion product when they don't have the other product.
So we've continued to see that a little bit beyond the pandemic and as we've gotten into the supply chain issues, we are seeing though that many.
Customers many more than before.
To be recovering so as we talk to them about their orders for the remainder of this year.
Our forecasting greater volumes, either because some of the supply chain issues that they're having with other vendors are clearing up.
And their demand is good.
And therefore, they are forecasting to us greater volumes in Qs three and four.
Okay.
Thanks for that color and then I guess.
Just the commentary around the second half youre, not saying that youre going to get back to 19 levels, we're just going to be somewhere in between 19 and kind of.
The highest you've seen over the last two years if.
If you take 2021, and so far in 'twenty two.
Disregarding 19, which was a record year for us that was a long time ago pre pandemic as we all vaguely remember.
But as you go into 2021, and thus far in 2002.
Our forecast today would be that the back half will be the highest level.
Of sales that we've had in any six month period.
2019.
Okay, Alright, Thanks, and then lastly, any update on Nemo Butler.
Progress there or feedback from the customers that have launched it yeah.
Gone well so far it's only in the limited area.
One customer so far has launched the results have been good so far so we will probably talk more about that as time goes forward.
That customer are they.
Okay.
Are they giving it out.
Yes, or as an add on service and our customers for our premium subscribers yes.
Okay Alright.
Alright, thank you.
And speakers there are no more questions on queue I will now turn the call over to back to Paul <unk> for closing comments.
Okay. Thank you for joining us today and your continued support of <unk>.
A couple of.
Logistical things, we plan to present at B Riley's annual Investor.
<unk> Investor Conference in La in May.
So look for announcements on that.
And our annual meeting of stockholders is scheduled for June 7th and Scottsdale Hope to see you soon everybody have a great day.
This concludes today's conference call. Thank you all for joining you may now disconnect.
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