Q4 2023 Universal Electronics Inc Earnings Call
Operator: www. Universal Electronics Inc. Good day, and thank you for standing by. Welcome to the Universal Electronics Fourth Quarter 2023 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 the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Okay.
Good day, and thank you for standing by welcome to the Universal Electronics fourth quarter 2023 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 the session you will need to press star one one on your telephone you will then hear an automated message advisory hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.
Operator: To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kirsten Chapman, LHA Investor Relations, a division of Alliance Advisors. Please go ahead.
I would now like to hand, the conference over to your speaker today, Kirsten Chapman L. H eight Investor Relations a division of Alliance Advisors. Please go ahead.
Kirsten F. Chapman: Thank you, Amy. And thank you all for joining us for the Universal Electronics 2023 fourth quarter and year-end financial results conference call. By now, you should have received a copy of the press release. If you have not, please contact LEJ at 415-433-3777 or visit the investor relations section of the website. This call is being broadcast live over the Internet.
Thank you Amy and thank you all for joining us for the Universal Electronics 2023 fourth quarter and year end financial results Conference call by now you Should've received a copy of the press release, if 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 this call, including any additional updated material nonpublic information that might be discussed during this call will be available at the company's website at <unk> dot.
Kirsten F. Chapman: A webcast replay of this call, including any additional updated material, and non-public information that might be discussed during this call, will be available on the company's website at uei.com for at least one year. During this call, management may make forward-looking statements regarding future events and future financial performance of the company, and cautions you that these statements are just projections, and actual results may differ materially from those projected. These statements include the company's ability to timely develop and deliver new technologies and technology updates and related products introduced at this year's Consumer Electronics Show, including new products and technologies in the climate control, smart home, and security space; continuing to achieve new product development and design near and longer-term successes as anticipated by management in the connected home space and particularly in the climate control market.
Dot com for at least one year.
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 just projections and actual results.
May differ.
Materially from those projected.
These statements include the company's ability to timely develop and deliver new technologies and technology updates.
<unk> introduced at this year's consumer.
Show, including new products and technologies in climate control Smart home and security spaces.
Continuing to achieve new product development and design near and long term or longer term successes as anticipated by management in the connected home space and particularly in the climate control market.
Kirsten F. Chapman: The continued successful collaboration with existing and new customers in developing and launching next generation products, software solutions, and technologies into existing and new markets, which results in increased sales and share growth in new markets for the company. Management's ability to continue to manage its business inventories and cash flows to achieve its net sales margins and earnings through discipline, financial discipline, and cost-saving initiatives. Operational Efficient, liquidity requirements. Factory Optimization Strategy, R.D. Spence
<unk> successful collaboration with existing and new customers and developing and launching next generation products software solutions and technologies into existing and new markets, which resulted in increased sales.
Growth in new markets for the company.
Management's ability to continue to manage its business inventories and cash flows to achieve its net sales margins and earnings through disciplined.
Our financial discipline.
The cost saving initiatives.
Operational efficiency liquidity requirements.
<unk> optimization strategy.
Kirsten F. Chapman: Product Line and Business Management, and other investment spending expectations, including our ability to execute on our stock repurchase program and the company's continued ability to enforce its patented technology against Roku. The decline of the traditional subscription broadcasting business dissipating, as management anticipated. The continued fluctuation of the company's market capitalization and the direct and indirect impact that the company may experience with respect to its business and financial results stemming from the continued economic uncertainty affecting consumers' confidence in spending, natural disasters, public health crises, and the impact of climate change. Government actions or political unrest, including war, terrorist activities, or other hostilities.
Product line of business management and other investment.
That's been spending expectations, including our ability to execute on our stock repurchase programs.
The company's continued ability to enforce its pad.
Technology against Roku.
The decline of the traditional subscription broadcasting business dissipating as management anticipated.
They continue fluctuation of the company's market capitalization and the direct and indirect impact of the company may experience with respect to its business and financial results stemming from the continued economic uncertainty affecting consumers' confidence and spending natural disasters public health crises government actions or political unrest, including war.
Terrorist activities rather hostilities.
Paul D. Arling: 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 has filed with the SEC, including its 2022 annual report on Form 10-K and the periodic reports filed or furnished since that date. In management's financial remarks, adjusted non-gap metrics will be referenced. Management provides adjusted non-gap metrics because it uses them for budgeting, planning purposes, and for making operational and financial decisions and believes that providing these non-gap financial measures to investors as a supplement to gap financial measures helps investors evaluate UAI's core operating and financial performance and business trends consistent with how management evaluates such performance and trends.
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 has filed with the SEC, including its 2022 annual report on Form 10-K, and the periodic reports filed or furnished instead.
His financial remarks, adjusted non-GAAP metrics will be referenced management provides adjusted non-GAAP metrics, because it uses them for budgeting and planning purposes.
<unk> operational and financial decisions and believes that providing these non.
non-GAAP financial measures to investors as a supplement to GAAP financial measures help investors evaluate U S core operating and financial performance and business trends consistent with how management evaluates such performance and trends in.
Paul D. Arling: In addition, management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and others. A full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's press release issued today. On the call today are Chairman and Chief Executive Officer, Paul Arling, 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 Arling. Please go ahead, Paul.
In addition management believes these measures facilitate comparisons with the core operating and financial results.
Business trends of competitors and other companies a full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's 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 Paul Ireland. Please go ahead Paul.
Thank you for joining us today.
Our vision to connect the home and our mission to create smarter living are coming to fruition where.
Paul D. Arling: Thank you for joining us today. Our vision to connect the home and our mission to create smarter living are coming to fruition. We are building for a better future and made significant progress transforming UEI during 2020. We continued our product expansion into the growing climate control and home automation market. We executed footprint optimization, efficiency, and corporate restructuring initiatives, and recent public events such as the affirmation of our patent and our powerful CES 2024 showcase, combined with ongoing customer wins, have fortified our foundation to drive growth. Based on our improved foundation, our continued streamlining, and our outlook on customer and product shipment projections, we expect to be profitable for the full year of 2024. Confident in our strategy and long-term growth, we initiated a stock repurchase program in the fourth quarter, which we plan to continue in 2024.
We are building for a better future and made significant progress transforming UBI during 2023.
We continued our product expansion into the growing climate control.
Markets.
We executed footprint optimization efficiency and corporate restructuring initiatives.
Recent public events, such as the affirmation of our patents.
And our powerful CES 2024 showcase.
Bind with ongoing customer wins have fortified our foundation to drive growth.
Based on our improved foundation.
Continued streamlining in our outlook in customer and product shipment projections, we expect to be profitable for the full year of 2024.
Confidence in our strategy and long term growth. We initially initiated a stock repurchase program in the fourth quarter, which we plan to continue in 2024.
Brian will review in greater detail, our financial results, our progress in our footprint optimization and efficiency initiatives.
Our 2024 outlook now I'd like to discuss our patents our products and our customers.
Paul D. Arling: Bryan will review in greater detail our financial results, our progress, and our footprint optimization and efficiency initiatives and our 2024 house. Now, I'd like to discuss our patents, our products, and our customers. At UEI, we pride ourselves on providing the most innovative, highest level of quality products.
At <unk>, we pride ourselves in providing the most innovative highest level of quality products over the past 30 years, we have amassed over 500 issued patents with over 200 more pending.
Create significant differentiation in the features and capabilities, we offer our customers compared to our competitors as evidenced by our strong and sustained gross margin delivery over the many years.
Paul D. Arling: Over the past 30 years, we have amassed over 500 issued patents with over 200 more pending, which creates significant differentiation in the features and capabilities we offer our customers compared to our competitors, as evidenced by our strong and sustained gross margin delivery over the many years. We provide customers with advanced wireless control through finished goods, embedded technology, and licenses for software and services. It is important to note that most of the leading home entertainment companies in the world have chosen to partner with us on these advanced solutions. When non-customers use our technology, we react. Our first path to compensation is the license. If an agreement is not achieved, we vigorously protect our intellectual property, www.
We provide customers with advanced wireless control through finished goods embedded technology and licenses for software and services.
It is important to note that most of the leading home entertainment companies in the world have chosen to partner with US on these advanced solutions.
With non customers use our technology, We act or.
Our first path to compensation as licensing if.
If an agreement is not achieved we vigorously protect our intellectual property.
As we have communicated before we have been in litigation regarding patent issues with Roku for quite a few years.
Last month the U.
Quarter of Appeals for the Federal Circuit affirmed our prior ruling by the U S International Trade Commission, confirming roku as infringement of one of our quickset patents.
This decision will support strongly are returned to the U S District court to recap to request the case be reviewed for monetary damages regarding the infringing activities of Roku and its TV partners.
Paul D. Arling: UniversalElectronics.com, As we have communicated before, we have been in litigation regarding patent issues with Roku for quite a few years. Last month, the U.S. Court of Appeals for the Federal Circuit affirmed a prior ruling by the U.S. International Trade Commission confirming Roku's infringement of one of our Quickset patents. This decision will strongly support our return to the U.S. District Court to request the case be reviewed for monetary damages regarding the infringing activities of Roku and its TV partners.
We are confident in our position.
Look forward to moving ahead with the case towards positive conclusion.
Also in January we had a productive week at CES, which provides a once in a year industry opportunity to connect with customers expand our business partnerships.
Capturing new opportunities.
We demonstrated our latest products and technologies across all our business lines to a worldwide audience of customers prospects and business partners.
Paul D. Arling: We are confident in our position and look forward to moving ahead with the case to its positive conclusion. Also, in January, we had a productive week at CES, which provides a once-in-a-year industry opportunity to connect with customers, expand our business partnerships, and capture new opportunities. We demonstrated our latest products and technologies across all our businesses to a worldwide audience of customers, prospects, and business partners. I'll review some of our CES product highlights. This year, CES had the largest in-person presence since 2020, pre-COVID.
I'll review some of our CES product highlights this year CES had the largest in person presence there is 2020 pre COVID-19.
At this show we hosted over 340 visitors to our booth representing over 200 different companies a third of those meetings were with new potential customers that we do not currently do business with.
A testament to the strength of our overall product and technology offerings.
Continuing our expansion into the climate control space, we expanded our <unk> portfolio of smart thermostats.
With the addition of four new products to our product roadmap as well as two new HVAC system accessories designed to simplify and extend climate control installation and functionality.
Paul D. Arling: At this show, we hosted over 340 visitors to our booth representing over 200 different companies. A third of those meetings were with new potential customers that we do not currently do business with, a testament to the strength of our overall product and technology offer. Continuing our expansion into the climate control space, we expanded our UEI-tied portfolio of smart thermostats with the addition of four new products to our product roadmap, as well as two new HVAC system accessories designed to simplify and extend climate control installation and functionality. Our lineup now includes a wireless bridge that allows for portability of the thermostat controllers anywhere in the home. A bridge with built-in Zigbee and Matter capabilities for whole home control. Indoor air quality sensor integration with built-in control of in-room air purifiers.
Our lineup now includes a wireless bridge that allows for portability of the thermostat controllers anywhere in the home.
A bridge with a built in zigbee and matter capabilities for whole home control.
Indoor air quality sensor integration with built in control of in room Air Purifiers.
Compatibility with <unk> supplied smart Herman static radiator valve accessory for European households, and the C wire adapter for easy installation of low voltage thermostats in older homes.
Our customers are quite interested in these solutions as they improve the performance of the existing system systems in new ways.
As well as create new systems that are more integral to the smart home.
We also unveiled the full capabilities of our quickset widget and Nebo software running on a wireless UBI type platform.
Paul D. Arling: Compatibility with a UEI-supplied smart thermostatic radiator valve accessory for European households and a C-wire adapter for easy installation of low-voltage thermostats in older homes. Our customers are quite interested in these solutions as they improve the performance of existing systems in new ways, as well as create new systems that are more integral to the smart home. We also unveiled the full capabilities of our Kwikset Widget and Nebo software running on a wireless UEI-tied platform. This product delivers a complete climate control and smart home control dashboard. It also enables unique control experiences between different brands and device categories without the need for an additional hub, all from the same Tide Thermostat Control.
This product delivers a complete climate control and smart home control dashboard.
It also enables unique control experiences between different brands and device categories.
Without the need for an additional hub.
All from the same type thermostat control interface.
We showcased our family of UBI Butler Smart control hubs powered by quickset complemented by <unk> sensors, and accessories that deliver a tailored experience for increased interoperability with diverse brands and ecosystems for the smart home.
As reviewed on recent calls we have been.
Growing the number of customers as well as increasing our level of engagement with them, especially in home automation climate control and security.
Paul D. Arling: We showcased our family of UEI Butler SmartControl Hubs, powered by UEI's QuickSet, complemented by UEI's ZigBee sensors and accessories that deliver a tailored experience for increased interoperability with diverse brands and ecosystems for the smart home. As reviewed on recent calls, we have been growing the number of customers as well as increasing our level of engagement with them. Specialty in Home Automation, Climate Control, and Security
During Q4 in our <unk> channel, which is home automation security and hospitality.
We were awarded a new project for our smart door lock and added three new channel partners for our tied climate control products and the multi dwelling unit energy and utilities and custom integration space.
We were also awarded two new product design wins for an existing motorized shade customer and secured a new product win with a major DIY home security customer.
Paul D. Arling: During Q4, in our HASH channel, which is Home Automation, Security, and Hospitality, we were awarded a new project for a smart door lock and added three new channel partners for our tied climate control products in the multi-dwelling unit, energy, and utilities, and custom integrations. We were also awarded two new product design wins for an existing motorized shade customer and secured a new product win with a major DIY home security customer. We expect some of these products to begin shipping in late 2024 and into 2025. In the HVAC OEM channel, we are actively working on three new products for Dike, our largest HVAC OEM customer. Two are targeted at the European market, and the other is bringing connectivity to their existing footprint of HVAC systems worldwide.
We expect some of these products to begin shipping in late 2024 and into 2025.
And the HVAC OEM channel, where we are actively working on three new products for <unk>, our largest HVAC OEM customer.
Through our targeted at the European market and the other is bringing connectivity to their existing footprint of HVAC systems worldwide in.
In addition, we have product and technology design proposals active at five other major HVAC OEM brands.
Leveraging the design features and architecture.
Currently deployed and are tied to climate control products.
And home Entertainment.
We are seeing a slight uptick in new product engagements with major customers in North America, EMEA and India.
While the volumes on these new product opportunities are not huge the shorter development cycles relative to new smart thermostat developments offer potential near term revenue in the back half of 2024.
Bryan M. Hackworth: In addition, we have product and technology design proposals active at five other major HVAC OEM brands, leveraging the Design, Features, and Architecture currently deployed in our Tide climate control product. In home entertainment, we are seeing a slight uptick in new product engagements with major customers in North America, EMEA, and India. While the volumes of these new product opportunities are not huge, the shorter development cycles relative to new smart thermostat developments offer potential near-term revenue in the back half of 2024. Based on the growing backlog of active new product developments, we continue to be optimistic about our long-term revenue potential as these new products are introduced and begin to ramp. Now to the financials, Brian, please go ahead. Thank you, Paul.
Based on the growing backlog of active new product developments, we continue to be optimistic about our long term revenue potential as these new products are introduced and begin to ramp.
Now to the financials Brian. Please go ahead. Thank.
Thank you Paul first I'll review the results for the fourth quarter of 2023 compared to the fourth quarter of 2022.
Net sales were $97 6 million within guidance. This compares to $122 8 million for the fourth quarter of 2022.
Reflecting core cutting and the video service channel and in an environment, where households are spending less on discretionary goods.
Gross profit for the fourth quarter of 2023 was $29 5 million or 32% of sales.
Compared to 37% in the fourth quarter of 2022.
Our gross margin rate exceeding 30 points as a result of a more optimized factory footprint.
A favorable product mix and a strong U S dollar.
Bryan M. Hackworth: First, I'll review the results for the fourth quarter of 2023 compared to the fourth quarter of 2022. Net sales were $97.6 million, within guidance. This compares to $122.8 million for the fourth quarter of 2022, reflecting court cuts in the video service channel in an environment where households are spending less on discretionary goods.
I'll now take a moment provide an update on our factory optimization plan.
As mentioned on the previous call we closed our southwestern China factory in September after having gained confidence our newly formed Vietnam facility with operating at the required level of efficiency.
We're pleased with the progress our Vietnam factory has made to date is it has met or exceeded our expectations and we expect additional operating efficiencies to be achieved as it continues to scale.
Bryan M. Hackworth: Gross profit for the fourth quarter of 2023 was $29.5 million, or 30.2% of sales, compared to 30.7% in the fourth quarter of 2022. Our gross margin rate exceeding 30 points is the result of a more optimized factory footprint and a favorable product mix. A strong U.S. dollar. I'll now take a moment to provide an update on our factory optimization plan. As mentioned on the previous call, we closed our Southwestern China factory in September.
We're now exiting the third phase of our planned streamlining our operations and Monterrey, Mexico.
Target to commence operations in the second quarter of 2024, and a smaller more efficient facility that will supply product for certain north American customers.
As we evolve as a company.
We will continue to analyze our global footprint and identify ways to operate more efficiently.
For the fourth quarter of 2023 operating expenses were $27 6 million compared to $29 4 million in the fourth quarter of 2022, reflecting the execution of our cost savings initiatives.
Bryan M. Hackworth: After having gained confidence, our newly formed Vietnam facility was operating at the required level of efficiency. We're pleased with the progress our Vietnam factory has made to date, as it has met or exceeded our expectations, and we expect additional operating efficiencies to be achieved as it continues to scale. We're now executing the third phase of our plan, streamlining our operations in Monterey, Mexico. We're on target to commence operations in the second quarter of 2024 in a smaller, more efficient facility that will supply product for certain North American customers. As we evolve as a company, we will continue to analyze our global footprint and identify ways to operate more efficiently. For the fourth quarter of 2023, operating expenses were $27.6 million compared to $29.4 million in the fourth quarter of 2022, reflecting the execution of our cost-savings initiative. SG&A expenses were reduced to $21.1 million compared to $21.7 million in the prior quarter.
SG&A expenses were reduced to $21 1 million compared to $21 7 million in the prior year quarter.
R&D expenses were $6 5 million compared to $7 7 million in the prior year's quarter.
Operating income was $1 8 million compared to $8 3 million in the fourth quarter of 2022.
Our fourth quarter of 2023 effective tax rate was 23% compared to 27, 3% for the fourth quarter of 2022.
Earnings per diluted share was <unk> <unk> for the fourth quarter of 2023.
Compared to <unk> 44 in the fourth quarter of 2022.
Next I'll review, our cash flow and balance sheet at December 31, 2023, cash and cash equivalents were $42 8 million compared to $66 7 million at December 31, 2022.
For full year 2023 cash flows provided by operating activities were $25 2 million.
With interest rates at an elevated level, we repatriated foreign earnings, enabling us to reduce our outstanding debt from $88 million at December 31, 2022.
Bryan M. Hackworth: R&D expenses were $6.5 million, compared to $7.7 million in the prior year's quarter. Operating income was $1.8 million, compared to $8.3 million in the fourth quarter of 2022. Our fourth quarter of 2023 effective tax rate was 23%, compared to 27.3% for the fourth quarter of 2022.
To 55 million at December 31, 2023.
We also repurchased 100000 shares in the open market in the fourth quarter for approximately 860000 and plan to buyback additional shares in the first quarter of 2024.
Now turning to our guidance UTI continues to evolve as a company.
While we remain committed to developing innovative solutions in the home entertainment space.
Bryan M. Hackworth: Earnings per diluted share were $0.07 for the fourth quarter of 2023, compared to 44 cents in the fourth quarter of 2022. Next, I'll review our cash flow and balance sheet. At December 31, 2023, cash and cash equivalents were $42.8 million, compared to $66.7 million at December 31, 2022. For a full year in 2023, cash flows provided by operating activities were $25.2 million.
Years, we've increased our focus on growth areas, such as climate control and home automation.
Paul mentioned several project wins in these channels with launches scheduled throughout the latter half of 2024 and 2025.
We believe these project wins in the connected home channel, coupled with a more efficient factory footprint.
<unk> and earnings growth in full year profitability.
For the first quarter of 2024, we expect sales to range from $86 million to $96 million.
Compared to $108 4 million in the first quarter of 2023, we.
We expect loss per share to range from 27 to.
To 17.
Impair it to a loss of 28 cents per share in the first quarter of 2023.
I would now like to turn the call back to Paul Thanks, Brian.
Bryan M. Hackworth: With interest rates at an elevated level, we repatriated foreign earnings, enabling us to reduce our outstanding debt from $88 million at December 31st, 2022 to $55 million at December 31, 2023. We also repurchased 100,000 shares in the open market in the fourth quarter for approximately $860,000, and we plan to buy back additional shares in the first quarter of 2024. Now turning to our guidance, UEI continues to evolve as a company. While we remain committed to developing innovative solutions in the home entertainment space, in recent years, we've increased our focus on growth areas such as climate control and home automation. Paul mentioned several project wins in these areas with launches scheduled throughout the latter half of 2024 and 2025.
As you know our business has been greatly affected by cable and satellite operators purchasing far less volume than in prior periods.
This yields two important questions when does the subscription broadcasting market begin to stabilize and when do the connected home channels produce sufficient revenue growth to offset any remaining weakness.
While we will not venture to forecast the precise occurrence of either of these developments. We are confident that the actions we have taken in all areas of the business cost management, and most importantly product and customer development.
Yield sales and profitability improvements.
We believe that the decline of our traditional subscription broadcasting business is gradually dissipating.
We expect in 2020 for the level of slowdown to be at its lowest level in four years.
While some customers continued to be light new projects in hybrid and streaming services are providing an offset.
As we have highlighted before.
Over the past two years, we have shifted our product and customer development focus towards connected home markets projects.
Paul D. Arling: We believe these project wins in the connected home channel, coupled with a more efficient factory footprint, will result in earnings growth and four-year profitability. For the first quarter of 2024, we expect sales to range from 86 to 96 million, compared to $108.4 million in the first quarter of 2023. We expect the loss per share to range from $.27 to $.17, compared to a loss of $0.28 per share in the first quarter of 2020. I would now like to turn the call back to Paul.
Projects that we won last year and frankly, the year before are finalizing development and test this year and.
And we expect to begin enjoying revenue from these project projects as this year progresses, we have secured tangible wins that seat growth in the second half of 2024 and into 'twenty five 'twenty six and beyond.
We are adding new customers and new product design wins every quarter in.
In addition, we are working with customers to secure long term future business in these new product categories, and our pipeline of new project opportunities just counting the connected home space.
Paul D. Arling: As you know, our business has been greatly affected by cable and satellite operators purchasing far less volume than in prior periods. This raises two important questions. When does the subscription broadcasting market begin to stabilize? And when do the connected home channels produce sufficient revenue growth to offset any remaining? While we will not venture to forecast the precise occurrence of either of these developments, we are confident that the actions we have taken in all areas of business cost management, and most importantly, product and customer development, will yield sales and profitability improvement. We believe that the decline in our traditional subscription broadcasting business is gradually dissipating, and we expect the level of slowdown in 2024 to be at its lowest level in four years.
<unk> 200 million.
Potential annualized revenue.
Potential annualized revenue.
Just as our ability to layer, new customer and new product design wins helped us achieve dominance in home Entertainment control. We are replicating this approach to achieve long term success in these new markets.
Bottom line is that our innovative products and technology solutions are driving our ability to capture new customers and design wins, which is helping to create new revenue streams are long term opportunities are plentiful.
Confident in this growth strategy and our long term success, we are investing in our future.
As always stay tuned.
Operator, we can now open up the call for questions.
As a reminder.
To ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby we compile the Q&A roster.
Operator: While some customers continue to be light, new projects in hybrid and streaming services are offering an offer. As we have highlighted before, Over the past two years, we have shifted our product and customer development focus towards connected home markets. Projects that we won last year and, frankly, the year before, are finalizing development and testing this year, and we expect to begin enjoying revenue from these projects as this year progresses. We have secured tangible wins that will see growth in the second half of 2024 and into 2025, 2026, and beyond. We are adding new customers and new product design wins every quarter. In addition, we are working with customers to secure long-term future business in these new product categories, and our pipeline of new project opportunities, just counting the connected home space, exceeds $200 million in potential annualized revenue.
And our first question comes from Steven Frankel with Rosenblatt Securities. Your line is open.
Good afternoon, Paul and Brian Thank you.
These insights are really helpful but.
Maybe first let's start with the guidance and the numbers you did institute.
Cost savings, but is that fully reflected in Q4 or should we expect opex to come down a little more as we go through 2024.
Most of it's incorporated Steve we are the Opex component. If you look at the 2023 total Opex versus 22 2022, it came down by about $5 million. So a lot of what we plan to execute we actually executed in 2023 now there is a little more that will carryover to 2024, but but the team did a good.
Operator: Just as our ability to layer new customers and new product design wins helped us achieve dominance in home entertainment control, we are replicating this approach to achieve long-term success in these new markets. The bottom line is that our innovative products and technology solutions are driving our ability to capture new customers and design, which is helping to create new revenue. Our long-term opportunities are plentiful. Confident in this growth strategy and our long-term success, we are investing in our. As always, stay tuned. Operator. We can now open up the call for you to ask a question. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Job from an operating expense perspective, and we executed pretty quickly.
Last fiscal year.
Okay.
That implies some gross margin pressure in Q1 would you expect.
Gross margins to bounce back as these new products shipped in the back half of the year.
When you say gross margin pressure, but I think the gross margins. It gets story I think.
The operations team has done a great job in executing that as well so.
As we as I said in prepared remarks, we.
We spun up Vietnam.
June that went well so we were able to shutdown GT Q.
Steven Frankel: To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from Steven Frankel with Rosenblatt Securities. Your line is open. Good afternoon, Paul and Brian.
Head of schedule.
And now the last last leg is to shut down or to streamline in Mexico, which we expect to occur in the second.
Second quarter now.
Gross margins for the fourth quarter of 30, 32%.
And as you know I pro forma some of the anticipated savings from the factories related to the unabsorbed overhead, but I've been pretty conservative so one of the reasons.
Bryan M. Hackworth: Thank you. These insights are really helpful. But maybe first, let's start with the guidance and the numbers. You did institute some Cost Savings, but is that fully reflected in Q4 or should we expect OPEX to come down a little more as we go through 2024? Most of it's incorporated, Steve.
The margin has crept up is because the team has done a great job of executing and the amount that the actual savings being incurred are greater than the amount that I pro forma so.
And I expect a little bit of the same potentially in for Mexico were again, I'm being a bit conservative.
Bryan M. Hackworth: We, we, uh, the OPEX. If you look at the 2023 total OPEX versus 2022, it came down by about 5 million. So a lot of what we planned to do, we actually did in 2023. Now there is a little more that we'll carry over to 2024, but the team did a good job from an operating expense perspective. We executed pretty quickly.
So.
I actually think there's potential in that same there's a lot of variables that go into gross margin. So I'm not saying raise the gross margin rate, but I actually think there's a little bit of maybe upside related to Mexico.
But there are a lot of variables that go into the to the gross margin rate as you know FX etcetera, right now have a strong U S dollar and hopefully that continues but there are a lot of variables.
Okay, and then while I have the floor for a couple more questions.
<unk> customers in Q4.
Daikon 10, 7%.
And then yeah.
Kind of where do you think the mix of the business is today roughly between this new world home control security.
Bryan M. Hackworth: Okay, so that implies some gross margin pressure in Q1. Would you expect gross margins to bounce back as these new products shift in the back half of the year? Yeah, when you say gross margin pressure, I think gross margin is a good story.
Hospital hospitality in the traditional CE business.
Yes.
Well, it's still majority home entertainment.
Bryan M. Hackworth: I think the operations team has done a great job in executing that as well. You know, as I said in the prepared remarks, we... spun up Vietnam in June.
With consumer electronics.
Everything having to do with home entertainment would still be the majority.
But we do see that changing as time goes on.
Bryan M. Hackworth: That went well, so we were able to shut down GTQ ahead of schedule. And now the last leg is to shut down or streamline Mexico, which we expect to occur in the second quarter.
No.
Quite get there this year, but.
It's clear that the markets for.
Well, the HVAC market alone not even including anything having to do with home automation security hospitality that market alone is larger than the home entertainment market.
Bryan M. Hackworth: Now, gross margins for the fourth quarter were 30.2 percent, and as you know, I pro forma some of the anticipated savings from the factories related to the unabsorbed overhead, but I've been pretty conservative so one of the reasons Mars has crept up is because the team has done a great job executing, and the amount that the actual savings... incurred are greater than the amount that I perform it, so and I expect a little bit of the same potentially in So, I actually think there's potential, I'm not saying, there's a lot of variables that go into gross margin, so I'm not saying raise the gross margin rate, but I actually think there's a little bit of potential upside related to Mexico. But there are a lot of variables that go into the gross margin rate, as you know, FX, etc. Right now, we have a strong U.S. dollar. Hopefully, that will continue. There are a lot of people. Okay, and then, while I have the floor for a couple more questions, significant customers in Q4? Daikin 10.7.
As time goes on well our success there.
Many years ago, our share in home entertainment was 4%.
Later in some parts of the year it was near 100.
We see the same runway here, there's a lot of products out there that.
You need to control your home we.
We think there are many ways to improve them.
To have them.
Become more like home entertainment controls, which in the early days we are dedicated.
It Didnt do much but turn your TV and change the channel.
We made them much more.
Much more advanced two way self configuring, so theres a lot of innovation to come in this area and we think we're leading it we're showing customers at these tradeshows many of the things I mentioned in the prepared remarks.
They are quite impressed.
Theyre looking for solutions to become more integral to the smart home and to improve the systems that are already in the home.
And we've taken a new approach on this and are bringing them new protocol.
Paul D. Arling: And then, Paul, kind of, where do you think the mix of the business is today, roughly, between this new world, home control, security, Hospitality, and the traditional CE business? Yeah, well, it's still mainly home entertainment with consumer electronics. Everything having to do with home entertainment would still be the majority, but we do see that changing as time goes on. I don't know if it'll quite get there this year, but it's clear that the markets for – well, the HVAC market alone, not even including anything having to do with home automation, security, and hospitality. That market alone is larger than home entertainment. So as time goes on, our success there will depend on our success there. Many Later in some parts of the year, it was near 100.
New design new.
<unk> capabilities to these products that they are quite interested in so we're racking up the wins now just like we did in home entertainment those many years ago.
And as we build those relationships, we see that being a much bigger business long winded way of saying this connected home area will.
One day be the majority of our business home Entertainment is still a good market.
Subscription broadcasting not so much.
That one has shrunk to a point, where I don't think it returns to its prior glory. However.
However, home entertainment is still an integral part of our business.
People are watching less TV.
And so theres a lot of activity there.
But I think the majority of revenue will come from these connected home customers.
Paul D. Arling: We see the same runway here. There are a lot of products out there that you need to control your home. We think there are many ways to improve them, to have them become more like home entertainment controls, which in the early days were dedicated and didn't do much but turn your TV on and change the channel. We have made them much, much more advanced, two-way, self-configuring. So there's a lot of innovation to come in this area, and we think we're leading it. We're showing customers at these trade shows many of the things I mentioned in the prepared remark. They're quite impressed.
Okay, and then on HVAC, you've talked a while last couple of quarters about.
A major.
North American win is that still on track for shipment this year and.
The other factoid, you've talked about is you had a large number of the top 10 players.
Around the globe as maybe if you could update us on how many of those.
Companies you have design wins, yet there are there are good sized projects that are coming many projects. We do our smaller always have been even in home entertainment.
Paul D. Arling: They're looking for solutions to become more integral to the smart home and to improve the systems that are already in the home. And we've taken a new approach to this and are bringing them new protocols, new design, new capabilities, and products that they're quite interested in. So we're racking up the wins now, just like we did in home entertainment those many years ago. And as we build those relationships, we see that as a much bigger business. Long-winded way of saying this connected home area will one day be the majority of our business. Home entertainment is still a good market. Subscription broadcasting, not so much. That one has shrunk to a point where I don't think it will return to its prior glory. However, home entertainment is still an integral part of our business, but people are watching less television.
But there are large ones out there that helped more.
There is one.
This year that's.
<unk> average size that we expect to ship in the probably Q3.
Around that timeframe there are more projects as I alluded to there is more than $200 million is closer to $230 million in the pipeline. We haven't won the projects, yet, but theres not much potential.
In that $2 30, there is a few projects even bigger.
Then the one I just mentioned.
So a lot of potential out there.
In this arena.
We are winning projects here you had a pretty good clip racking them up just like again, we did years ago and home entertainment.
So our share will increase.
We will continue to improve the products.
It's a tireless effort just like it was in home entertainment.
And as they as we improve the functionality of these products.
Paul D. Arling: And so there's a lot of activity there, but I think the majority of revenue will come from these connected home customers. Okay, and then on HVAC, you talked a while last couple quarters about a major North American win. Is that still on track for shipment this year?
It makes it easier.
It's never easy, but it makes it easier to sell these these customers on these.
On these projects.
Okay, Great I'll jump back in the queue. Thank you Paul.
Our next question comes from the line of Greg Burns with Sidoti Your line is open.
Good afternoon.
Paul D. Arling: And the other factoid you've talked about is that you have a large number of the top 10 players around the globe. Maybe if you could update us on how many of those companies you have designed with WIND today? There are some good-sized projects that are coming. Many projects we do are smaller, always have been, even in home entertainment. But there are large ones out there that help more. There is one, This year, that's above average in size that we expect to ship in probably Q3, around that time frame.
Brian I just wanted to circle back on the first question around the first quarter guidance.
Can you just bridge us to the revenue the high end of the revenue range is right around where you were for the fourth quarter, but you're still projecting.
At a minimum a loss of 17 and Youre at seven cents of earnings in the fourth quarter can you just bridge us between the disconnect. There like is the gross margin, taking a big step back in the first quarter or.
Paul D. Arling: There are more projects, as I alluded to, there are more than 200 million. It's closer to 230 million in the pipeline. We haven't won the projects yet, but there's that much potential. In that 230 million, there are a few projects even bigger than the one I just mentioned. So there's a lot of potential out there in this arena.
Expenses that are coming online, yes, if you're comparing Q4 Q1 2024 versus Q4 2023 operating expenses will be a little higher.
Sequentially because in Q1, you've got CE, we at CES.
You've got wage.
Greg J. Burns: And we're winning projects here at a pretty good clip, racking them up, just like, again, we did years ago at home. So our share will increase. We'll continue to improve the products because it's a relentless effort, just like it was in home entertainment. And as we improve the functionality of these products, it, you know, it makes it easier. It's never easy, but it makes it better to sell these customers on these products. Okay, great. I'll jump back in the queue. Thank you. Our next question comes from the line of Greg Burns with SIDADI. Your line is open. Afternoon, Brian.
Wage increases merit increases and then you've got fringe rate benefits that reset things of that nature. So Q Q1.
24 versus Q4 2003.
We'll increase that might be part of the gap you're looking at.
Okay, and then that first quarter is kind of a good run rate to build the rest of the euro.
Not necessarily I think.
Q1 is can be a little high because for the reasons I just mentioned okay.
Okay Alright.
Okay.
And then in terms of.
Roku.
Is that a.
The monetary.
Settlement to you potentially four.
Is it back back damages for.
Greg J. Burns: I just want to circle back on the first question around the first quarter guidance. Can you just bridge us to the high end of the revenue range, right around where you were for the fourth quarter, but you're still projecting?
Products that are in the market or are they still currently infringing like how should we consider the potential magnitude of the.
The settlement for you.
Bryan M. Hackworth: At a minimum, a loss of $0.17, and you're at $0.07 of earnings in the fourth quarter. Can you just bridge the gap between the disconnect there? Is the gross margin taking a big step back in the first quarter, or are there some expenses that are coming online? Yeah, if you're comparing Q1 2024 versus Q4 2023, operating expenses will be a little higher, sequentially, because in Q1 we had CES. You've got wage increases, merit increases, and then you've got fringe rate benefits that reset, things of that nature.
Yes, well the answer is they are.
Long been infringing these.
These patents.
Would of course, probably.
State differently.
Although.
The ITC would disagree with that they were found to have infringed.
So yes.
Yes.
Is obviously.
A fair amount a good deal of prior infringement right because they've been infringing these patents for.
Years.
Which is what we will argue.
In the case.
Sure.
We feel that our arguments right now to Unstate as case are really quite strong.
Bryan M. Hackworth: So Q1. 24 versus Q4, 23 will increase. That might be part of the gap. Okay, and then that first quarter is kind of a good run rate to build the rest of the year off of, then? Uh, not necessarily. I think Q1 can be a little high because of the reasons I just mentioned.
And you know.
This day will come where a case Kent state by state Forever.
We think that there are good arguments to say this case should be on stage now and we can have our day in court to argue.
Their infringement of these patents.
Do you have an estimate of how many.
Devices are in the market that infringe on your patents as it there.
Bryan M. Hackworth: Okay. Okay. And then in terms of Roku, is that a monetary settlement to you, potentially for, is it back? damages for products that are in the market, are they still currently infringing?
Streaming devices Tvs.
If you have a sense of what the numbers.
It's both.
Half that number because again I don't I don't know that they disclose.
Paul D. Arling: Like how should we consider the potential magnitude of the settlement for you? Oh, yes. Well, the answer is they've long been infringing these patents. They would, of course, probably, state differently.
Did volumes, but as you would imagine it's quite a few.
We presume millions tens of millions over that timeframe.
Okay and have they would have the I don't have the exact number on that though and couldnt disclose in any way.
Paul D. Arling: Although the ITC would disagree with that, they were found to have infringed. So, yeah, and there is obviously a fair amount, a good deal of prior infringement, right, because they've been infringed upon, patents for, which is what we will argue. We feel that our arguments right now to unstay this case are really quite strong. You know, you know this day will come when a case can't be stayed forever.
Okay.
Fumes are but people could do their own math on.
How many they've sold over the last.
Many years.
It's a lot of units.
Let's just put it that way and.
Again, it's all their product categories their controllers air sticks their boxes their televisions.
Paul D. Arling: We think that there are good arguments. The case should be on stage now, and we can have our day in court. Their infringement of, Do you have an estimate of how many devices are in the market that infringe on your patents? Is it, is it not?
Okay.
Our current our new products still currently infringing or are they worked around your patents.
Well that's a good question.
<unk>.
There are many patents in this lawsuit so I can't go through.
Each patent.
Paul D. Arling: Streaming devices, their TVs, like. Do you have a sense of what the number is? It's both, and I don't have that number because, again, I don't know that they disclosed... unit volumes, but as you'd imagine, it's quite a few.
Some of the patents would apply not to the televisions, but only to the.
Set top boxes et cetera, so, it's a little bit more complex than.
Just saying that all of them violate all.
But again, if you violated the IP at any point you're liable for damages.
Paul D. Arling: We presume millions, tens of millions, over that time. Don't have the exact number on that, though, and couldn't disclose it anyway. I don't know what their volumes are, but people could do their own math on, you know, how many they've sold over the last, you know, many years. It's a lot of units. Let's just put it that way, you know, again, all their product categories, their controllers, their sticks, their boxes, their Okay, are current or new products still currently infringing, or have they worked around your patent? Well, that's a good question.
Okay.
Okay and then the the.
The 200 plus million dollar pipeline I think last quarter. You had also set a number I think it was $80 million around what you've actually one was actually in the process has that number changed at all.
Got any legacy yes, there have been some more wins piled on that it's still those projects are still in development as we said there they're being developed they'll go through development and test with customers and then be introduced at some future date.
Okay. So.
Again, we won as I said the stated remarks, they were one actually not last year, but the year before.
Paul D. Arling: There are many patents in this lawsuit, so I can't go through them all. YouTube Patrons. Some of the patents would apply not to the televisions but only to the set-top boxes, etc. So it's a little bit more complex than that, just saying that all of them violate all, um, But again, if you violated the IP at any point, you're liable for damage.
<unk>.
<unk> been in development.
And are targeting Theyre targeting introduction of those products this year.
Okay.
And then I guess, the the list of new products.
Customer wins, you announced for the fourth quarter those were all net new for the fourth quarter and not just updates on that that previous eight.
Paul D. Arling: Okay. Okay, and then the $200-plus million pipeline, I think last quarter you also set a number, I think it was $80 million, around what you've actually won, what is actually in the process. Has that number changed at all? Has it gotten any bigger?
$80 million that's right.
That's correct there new projects in our system go through when I mentioned 200, we have different categories. There is theres qualification projects Theres quotes.
Paul D. Arling: Yeah, there have been some more wins piled on top of that. But it's still, those projects are still in development, as we said. They're being developed. They'll go through development and testing with customers and then be introduced at some future date. Again, we won, as I said in the stated remarks, they were won actually not last year but the year before. They've been in development since, and they're targeting the introduction of those products. Okay. And then I guess the list of new products and customer wins you announced for the fourth quarter. Those are all net new for the fourth quarter, not just updates on that previous $80 million group of... That's right. That's correct. They're new.
And that's progressing towards what we called one W. O N.
One.
So qualification is the first stage, where you begin to do some work on the product to define it with the customers interest.
Quote means you've moved to quote the customer has said I'm interested in this product and I want you to quote on it I want you to make final decisions.
Decisions with along with us on specs.
And quote right give us a price for the product.
Sometimes it's competitive sometimes is not because again when youre doing an innovative product that's unique to you.
Sometimes what theyre doing is making a decision between that new product with new features and the one they are currently selling so don't think of quotes as it's some sort of.
Active bidding.
Paul D. Arling: That's right. Yeah, projects in our system go through... When I mentioned 200, we have different categories. There are qualification projects, there are quotes, and that's progressing towards what we call WON, W-O-N, WON. So qualification is the first stage where you begin to do some work on the product to define it in the customer's interest. Quote means you've moved a quote.
Bidding process with other vendors, sometimes it's simply they are interested in the innovation that you brought them and they want you to quoted.
Right and then there is one.
W O and we've won the project.
So the $80 million, we talked about before was one.
The 200 plus million then the number is actually higher than that.
Paul D. Arling: The customer said, "I'm interested in this product, and I want you to quote on it. I want you to make final decisions along with us on the specification and quote, right, give us a price for the product." Sometimes it's competitive, sometimes it's not because, again, when you're doing an innovative product that's unique to you. Sometimes, what they're doing is making a decision between that new product with new features and the one they're currently selling. So don't think of quotes as some sort of..., you know, active, you know, bidding process with other vendors sometimes. Simply, they're interested in the innovation that you've brought them, and they want you to quote on it. Right? And then there's one.
Are in the qualification and quote stage, meaning we have not won them yet.
But when they get to quote stage our rate of win is much higher than 50%.
Okay, great. Thank you.
Our next question comes from the line of Jeff Van <unk> with B Riley Your line is open.
Yes, hi, everyone.
Yes, just if we could circle back to the Roku for a minute I'm just curious what you think the probability is that roku.
My final license with deal it's not too late I guess and then also are there any other companies that are infringing in a similar way.
Yeah, well first of all as far as Roku is concerned I couldnt speak to that that would be a decision they would have to make.
Of course, along with plus sitting down to agree upon that I will only say this that from the very start of this activity many years ago now.
Paul D. Arling: WON. We've won the project. So the $80 million we talked about before was one; the 200 plus million, and the number is actually higher than that, are in the qualification and quote stage, meaning we have not won them yet. But when they get to the quote stage, our rate of win is much higher. Okay, great. Thank you. Our next question comes from the line of Jeff Van Sinderen with B Riley. Your line is open. Hi everyone.
All we want all we've asked for all we will ask for.
Is they are using properties of ours.
And we wish them to pay a fair.
Market based.
License for those properties.
We've made that clear this whole time to them.
Jeff Van Sinderen: Um, I guess we can circle back to Roku for a minute. I'm just curious what you think the probability is that Roku might sign a license with you—not too late, I guess. And then also, are there any other companies that are infringing in a similar way?
And to anyone else who asks.
That is what we want and that's what we wanted from the start is what we wanted two years ago three years ago is what we want now.
And we're going to continue until that happens.
Now that they were willing to talk.
On a reasonable basis to do that then we would be more than willing to sit down and do that.
Paul D. Arling: Yeah, well, first of all, as far as Roku is concerned, I couldn't speak to that. That would be a decision they would have to make, of course, along with us sitting down to agree upon that. I will only say this: from the very start of this activity, many years ago now, all we want, all we've asked for, all we will ask for... is that they are using properties of ours, and we wish them to pay a fair market base license for those properties. We've made that clear this whole time to them and to anyone else who has asked. That is what we want. It's what we wanted from the start. It's what we wanted two years ago, three years ago.
We're not in this to litigate where in this because again we've created.
New novel ideas in this marketplace features and products that no one else had ever created before.
We've patented them under patent law, and we expect to be paid for them and as I said in the prepared remarks.
Most of the leading companies in home Entertainment are utilizing these features in their products.
They've respected this they bought they've either licensed from us but chips from us.
Bought products from us that exhibit. These features so our view is that we simply want to be paid for what they've created if they are willing to sit down and do that we've been willing to do that all along.
Paul D. Arling: It's what we want now, and we're going to continue until that happens. Now, if they were willing to talk on a reasonable basis to do that, then we would be more than willing to sit down. We're not in this to litigate.
As far as well.
Late this there.
But there aren't very many only because again most major companies are customers of ours, who are buying products or licensing from us in some way.
Paul D. Arling: We're in this because, again, we've created new, novel ideas in this marketplace, features, and products that no one else has ever created before. We've patented them under patent law, and we expect to be paid for them. And as I said in the prepared remarks... Most of the leading companies in home entertainment are utilizing these features in their products.
Okay, that's fair enough well, let's hope brokerage so theyre sensing.
Besides the sign.
Our license.
Can you speak to what you think the growth rate of the HTC attached business. If you kind of look at those together this year what that growth rate might be looking at all the new projects. You are taking on we will start to ramp later in the year and so forth.
Paul D. Arling: They've respected this; they've either licensed from us, bought chips from us, or bought products from us that we exhibit. So, our view is that we simply want to be paid for what they've created. If they're willing to sit down and do that, we've been willing to do that all along, right? But there aren't very many, only because again, most major companies are customers of ours who are buying products or licensing from us in some way. Okay, that's fair enough. Let's hope Brokley comes to his senses and... decides to sign a license.
Yes, well I can't give you the exact growth rate because again it will depend on a lot of things.
Months certain things ship in this year I don't want to provide that sort of precise guidance.
But what I will tell you is again it's Sim.
Similar to home entertainment those many years ago.
Growth rate and it was probably lower actually than it is in home automation and HVAC is a growing market, probably 8% to 10% somewhere in that range.
In home Entertainment back in the day it was probably five.
Paul D. Arling: Can you speak to what you think the growth rate of the HVAC and Hatch business might be if you kind of look at those together this year, what that growth rate might be, looking at all the new projects you're taking on and we'll start to ramp up later in the year and so forth. Yeah, well, I can't give you the exact growth rate because, again, it will depend on a lot of things, such as what month certain things ship this year. I don't want to provide that sort of precise guidance.
But our growth was greater we typically grew at least 5% to 10% because we were shifting share.
So if the market growth in a particular year was three we might have grown eight because again, we were winning business our products were better and we were able to convert.
New customers to our solutions.
Because of it.
That's how we built a great home entertainment control business.
Over time, we see a similar approach here.
Paul D. Arling: But what I will tell you is, again, it's similar to home entertainment those many years ago. The growth rate in it was probably lower actually than it is in home automation, and HVAC is a growing market, probably 8-10%, somewhere in that range. In home entertainment, back in the day, it was probably five, but our growth was greater. We typically grew at least five to 10% because we were gaining share. So if the market growth in a particular year was 3, we might have grown 8 because, again, we were winning business, our products were better, and we were able to convert new customers to our solutions because of that. And that's how we built a great home entertainment control business. Over time, we see a similar approach here.
The growth rate is 8%.
Our expectation would be to grow greater than that because we will.
Be replacing products that are currently in the market probably ended by someone else.
With our new advanced better product.
That will be our approach wasn't home entertainment will be here.
Same approach.
And we've got a lot of active engagement, Steve asked this earlier I apologize I've forgotten we've sold.
We already have projects sold into five of the top eight.
<unk> companies in the World.
Obviously <unk> is known because it's now our largest customer.
They are one of the top eight.
But five of the top eight are now buying from us and we are close to closing the sixth.
Paul D. Arling: The growth rate is 8%, but our expectation would be to grow much greater than that because we will be replacing products that are currently in the market, probably vended by someone else, with our new, advanced, better product. That will be our approach. Was in Home Entertainment; we'll be here, same approach, and we've got a lot of active engagement. Steve asked this earlier; I apologize; I'd forgotten. We've sold. We already have projects sold into five of the top eight. HVAC companies in the world.
When we do that we will have six of the top eight HVAC companies in the world.
Either currently buying from us or working on projects to buy from us.
And again back to home Entertainment. This is how it starts you win a project or two.
If the company then has 30 projects your goal over the next number of years is to win all of them.
You will not win all of them.
All at once.
<unk>.
Do those projects you do them well you build a great product for them.
Paul D. Arling: Obviously, Daikin is known because it's now our largest customer. They are one of the top eight. But five of the top eight are not buying from us, and we are close to closing the six. When we do that, we will have six of the top HVAC companies in the world either currently buying from us or working on projects to buy from us. And again, back to home entertainment. This is how it starts. Did you win a project or two?
And then you win more projects. So that's our goal and it is what we are achieving already.
Okay. So just to clarify on that it sounds like you will have six of the eight is there any reason you couldnt get the other two and have all eight.
Correct, we can.
That will be again as you probably have heard me say many years ago in home Entertainment I used to say this what our market share was 4%.
Paul D. Arling: If the company then has 30 projects, your goal over the next number of years is to win all of them. However, you will not win all of them, all at once.
We are pursuing a god given right to 100% market share.
Alright, Okay, and then just we only had sorry go ahead, so people thought I was crazy.
Paul D. Arling: You do those projects, you do them well, you build a great product for them, and then you win more projects. So that's our goal, and that is what we are achieving already. Okay, so just to clarify that it sounds like you will have six of the eight. Is there any reason you couldn't get the other two and have all eight?
But in some areas of the world through product innovation not anything else.
<unk> built a better solution, we were manic about building. It we went out and did build it often with unique features that were covered under patent, but we also have the unique capability, both through data and knowhow and IP to build a better product than anybody in the world.
Paul D. Arling: Correct. We can. That will be the goal. Again, as you probably have heard me say many years ago in home entertainment, I used to say this when our market share was 4%. We are pursuing our God-given right to 100% market share. Right. Okay. And then, just because we only had so people thought I was crazy.
We are beginning to do the same thing here.
Climate control is a great market the products there are good.
Paul D. Arling: But in some areas of the world, through product innovation, not anything else. We built a better solution. We were manic about building it.
In many cases in many cases they are not so good the current vendors are.
Paul D. Arling: We went out and did build them, often with unique features that were covered by patents, but we also had the unique capability, both through data and know-how and IP, to build a better product than anybody in the world. We are beginning to do the same thing here. Climate control is a great market. The products there are good. In many cases, in many cases, they're not so good.
Again, just okay, and we think we can go to these companies and help them.
Build design and build better products.
With more features more integration with other systems in the home.
<unk>.
Make it more integral to the smart home that's what we're doing is what we're showing at places like CES in the EHR Tradeshows.
Paul D. Arling: The current vendors are again just okay, and we think we can go to these companies and help them build, design, and build better products, with more features, more integration with other systems in the home, making it more integral to the smart home. That's what we're doing, and that's what we're showing at places like CES and AHR, trade shows, and getting in front of customers, and they, again, five of the top eight are currently engaged with us on projects or are currently buying, and we're, hopefully, closing in on the sixth. And to your point, Jeff, there's no reason why the other two wouldn't see this video.
Getting in front of customers and date, but again five of the top eight are currently engaged with us on projects or currently buying from us.
And we are.
Hopefully closing in on the sixth.
Your point, Jeff There is no reason why the other two.
I wouldn't see the same thing.
Alright, well.
And then also I just wanted to clarify on guidance for the year. I believe you said you expected to be profitable for the full year.
I'm just wondering your thoughts on.
Paul D. Arling: And then also, I just wanted to clarify in guidance for the year, I believe you said you expected to be profitable for the full year. And I'm just wondering your thoughts on when you think revenues are going to be up year over year in one of those particular quarters. Is that Q2, Q3, or Q4? Maybe it's the second half combined.
When do you think revenues are you thinking revenues are going to be up and up year over year and one of those particular quarters is that Q2 Q3 or Q4, maybe into the second half combined just any thoughts on when revenues might look like an upward year over year and then the same part EPS, maybe theyre different quarters, but just any thoughts around that.
Yeah, well, obviously if were profitable for the year.
Ceded earnings because we.
We did not right.
Paul D. Arling: Just any thoughts on what revenues might affect upward year over year and then the same for EPS, maybe they're different quarters, but just any thoughts around that? Yeah. Well, obviously, if we're profitable for the year, we've exceeded earnings because we did not earn money in 2024. So we will have a better quarter. In fact, I believe our guidance in Q1 is actually slightly lower than what our actual performance was in. 1 of 23, but we do see improvement as this year progresses.
Earn money in 2024.
So we will we will have a quarter better.
In fact, I believe our guidance in Q1 is actually slightly better than what our actual performance was in Q.
One of 23.
But we do see improvement as this year progresses as far as I don't want to provide specific revenue guidance, but everyone here is focused on.
Not only winning projects for this year.
And also next because some projects when a customer wants to give you a nice sized project and they say well we're not shipping this until April of next year.
We're obviously not going to say no to them.
We're building a better future.
Paul D. Arling: As far as revenue guidance goes, I don't want to provide specific revenue guidance, but everyone here is focused on not only winning projects for this year but also next, because some projects when a customer wants to give you a nice-sized project, and they say, well, we're not shipping this until April of next year.
We'd like to create also a way better 'twenty five and 'twenty six.
But we are working hard to.
Make sure that the projects, we have piled up already plus.
Plus some new projects, we can put in place will get us to revenue growth in the near future I can't tell you exactly which quarter, but.
Our goal would obviously be to make that happen this year.
Paul D. Arling: We're obviously not going to say no to them; we're building a better future; we'd also like to create a way better 25 and 26. But we are working hard to make sure that the projects we have piled up already, plus some new projects we can put in place will get us to revenue growth in the near future. I can't tell you exactly which quarter, but our goal would obviously be to make that happen this year and then go into next year with nice growth.
Right and then go into next year with a nice growth here.
And Thats, what I was trying to get.
These projects all in get them developed tested shipping.
It just builds one layer of revenue again same thing we did in home entertainment.
We had big projects like with Comcast, but the business was really built off of one project at a time right and you pile them on top of each other and never lose them, which we did we would not only when the project that we would win all the derivative projects after that.
Paul D. Arling: And that's what we're working to do, get these projects all in, get them developed, tested, and shipping, and it just builds one layer of revenue. Again, the same thing we did in home entertainment. We had big projects, like with Comcast, but the business was really built off of one project at a time, right?
Because we again did a great job for these customers.
We need to do the same thing here to build the layers of revenue it'll pile up as time goes on.
Perform that build good quality project products delivered on time.
Paul D. Arling: And you pile them on top of each other and never lose them. If we did, we would not only win the project, but we'd win all the derivative projects after that because we, again, did a great job for these customers. We need to do the same thing here, build the layers of revenue. It will pile up as time goes on, you know, perform, and build good quality products delivered on time. If you come to them with new innovations, you'll win the next one, and this is the way great businesses are built. It's what we do. We're already doing it, and we need to keep executing it across this year and, of course, in the next.
Come to them with new innovations you'll win the next one and this is the way great businesses are built in.
It's what we're doing we're already doing it we just need to keep executing across this year and of course in the next.
And we're confident in what's going to happen.
Okay, great. Thanks for taking my questions I can take care hospital offline.
Showing no further questions at this time I would now like to turn the conference back to Paul for closing remarks, alright. Thank you for joining us today and for your continued support of <unk>, We plan to present at Sidoti Virtual small cap conference in March we look forward to seeing you there if you could be there.
Paul D. Arling: And we're confident in what's going on. Okay, great. Thanks for taking my questions. I can take the rest offline. Showing no further questions at this time, I would now like to turn the conference back to Paul for closing remarks. All right. Thank you for joining us today and for your continued support of UEI. We plan to present at Sidoti's virtual Small Cap Conference in March. We look forward to seeing you there. If you can't be there, have a great day. And this concludes today's conference call. Thank you for participating. You may now disconnect, www.universityatbuffalo.edu, or use this link to find out how to connect to your university's network.
Have a great day.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
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