Q1 2024 Universal Electronics Inc Earnings Call

May 2, 2024

Okay.

Operator: Good day, and thank you for standing by. Welcome to the Universal Electronics first quarter 2024 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 that your hand is raised. 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 our first speaker for today, Kirsten Chapman with LHA Investor Relations, a division of Alliance Advisors. Please.

Speaker Change: Good day, and thank you for standing by and welcome to the Universal Electronics first quarter 'twenty 'twenty four financial result conference call. At this time, all participants are in a listen only mode.

Speaker Change: After the Speakers' presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising at your hand is right to withdraw your question. Please press star one one again please.

Speaker Change: Be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to our first speaker for today, Kirsten Chapman with L. H, a investor Relations a division of Alliance advisors.

Kirsten F. Chapman: Go ahead.

Kirsten F. Chapman: Thank you, Crystal. And thank you all for joining us for the Universal Electronics 2024 First Quarter Financial Results Conference Call. By now, you should have received a copy of the press release. If you have not, please contact LHA at 415-433-3777 or visit the Investor Relations section of the website.

Kirsten F. Chapman: Thank you Crystal and thank you all for joining us for the Universal Electronics 2024 first quarter financial results Conference call by now you Should've received a copy of the press release, if you've not.

Kirsten F. Chapman: Please contact <unk> at 4154333, 777 or visit the Investor Relations section of the website.

Kirsten F. Chapman: This call is being broadcast live over the Internet. A webcast replay of the 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 www.uei.com for one year. During this call, management may make forward-looking statements regarding future events and future financial performance of the company. However, management cautions you that these statements are just projections, and actual results or events may differ materially from those projections.

Kirsten F. Chapman: This call is being broadcast live over the Internet and webcast replay of the call, including any additional updated material nonpublic information that might be discussed during this call will be available on the company's website at www dot dot com for one year.

Kirsten F. Chapman: These statements include the company's ability to penetrate the connected home space and particularly the climate control and home automation markets through the development and delivery of unique and innovative solutions as anticipated by management, the acceptance of UEI-tied family products in the global HVAC markets. Management's ability to continue to manage its business inventories and cash flows to achieve its net sales, margins, and earnings through financial discipline and cost savings initiatives, operational efficiency, liquidity requirements, factory optimization strategy, R&D spend, product line and business management, and other investment spending expectations, including our ability to execute our stock repurchase program, the company's successful licensing of the company's quick set technologies, the company's ability to maintain its leading market share in the traditional subscription broadcasting business, and the direct and indirect impact the company may experience with respect to its business and financial results stemming from the continued economic uncertainty affecting consumers' confidence and spending, natural disaster, public health crises, governmental actions or political unrest including war, terrorist activities or other hostilities.

Kirsten F. Chapman: 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 or events may differ materially from those projections.

Kirsten F. Chapman: The acceptance.

Kirsten F. Chapman: Of UBI tied family products.

Kirsten F. Chapman: The global HVAC markets.

Kirsten F. Chapman: Management's ability to continue to manage its business inventories and cash flows to achieve its net sales margins and earnings through financial discipline and cost savings initiatives operational efficiency liquidity requirements factory optimization strategy R&D spend product line of business management, and other investment spending expectations, including.

Kirsten F. Chapman: To execute our stock repurchase programs.

Kirsten F. Chapman: The company's successful life Sydney.

Kirsten F. Chapman: <unk> of the company's quickset technologies, the companys ability to maintain its leading market share in the traditional subscription broadcasting business.

Kirsten F. Chapman: And the direct and indirect impact the company may experience with respect to its business and financial results stemming from the continued economic uncertainty affecting consumers confidence in spending natural disaster public health crises governmental actions or political unrest, including war terrorist activities or other hostilities.

Kirsten F. Chapman: 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 documents the company files with the SEC, including its 2023 Annual Report on Form 10-K and the periodic reports filed or furnished since then. In management's financial remarks, adjusted non-GAAP metrics will be referenced. Management provides adjusted non-GAAP metrics because it uses them for budget planning purposes and for making operational and financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures helps investors evaluate UEI's core operating and financial performance and business trends consistent with how management evaluates such performance and trends.

Kirsten F. Chapman: 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 in documents the company files with the SEC, including its 2023 annual report on Form 10-K, and periodic reports filed or furnished since then.

Kirsten F. Chapman: In management's financial remarks, adjusted non-GAAP metrics will be referenced management provides adjusted non-GAAP metrics because it uses them for budget planning purposes, and for making operational and financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures help investors evaluate U S.

Speaker Change: Core operating and financial performance and business trends consistent with how management evaluates such performance and trends.

Kirsten F. Chapman: In addition, management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies. A full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's press release issued today.

Speaker Change: In addition management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies a full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's press release issued today.

Kirsten F. Chapman: 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 the closing remarks. It is now my pleasure to introduce Paul. Please go ahead, sir.

Speaker Change: 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 Ehrlich. Please go ahead Sir.

Paul D. Arling: Thank you for joining us today. We are building for a better future, shifting sales and product development resources to the connected home space, expanding our end market reach, and implementing cost initiatives. These actions deliver Q1 2024 results as expected, with strong year-over-year gross margin improvement. More importantly, our customer wins, our global footprint optimization, and our expense reductions position us for a profitable year, as well as position us for consistent sales and earnings growth into 2025, 2026, and beyond.

Paul Ehrlich: Thank you for joining us today.

Paul Ehrlich: We are building for a better future shifting sales and product development resources to the connected home space, expanding our end market reach and implementing cost initiatives.

Paul Ehrlich: These actions delivered Q1 2024 results as expected.

Bryan M. Hackworth: With strong year over year gross margin improvement.

Paul Ehrlich: Importantly, our customer wins, our global footprint optimization, and our expense reductions position us for a profitable year as well as position us for consistent sales and earnings growth into 2025 2026 and beyond.

Paul D. Arling: The strengths we have built over the past decades, delivering true, seamless interoperability, discovering, connecting, and controlling all devices and all brands, translate beautifully into the climate control and home automation channel. Our expertise in connectivity protocols from infrared to radiofrequency to IP and our ability to make those devices work better together gives us a competitive advantage that continues to create unique and differentiated solutions.

Paul Ehrlich: The strength, we have built over the past decades, delivering true seamless interoperability disc.

Paul Ehrlich: Discovering connecting and controlling all devices and all brands.

Paul Ehrlich: Translate beautifully into the climate control and home automation channels, our expertise in connectivity protocols from infrared to radio frequency to IP.

Paul Ehrlich: Our ability to make those devices work better together gives us a competitive advantage that continues to create unique and differentiated solutions.

Paul D. Arling: Our capability to design, engineer, and build solutions for the leading brands in the world that are interoperable and self-configuring can help the next generation of products in the home automation and climate control markets become ever more integral to the smart home experience. We are confident in our success as our capabilities align well with the connected home market needs, as evidenced by our new customer activity in this space. As always, the best testament to our success is the partners that choose to work with us on their product solutions.

Paul Ehrlich: Our capability to design engineer and build solutions for the leading brands in the world that are interoperable and self configuring can help the next generation of products in the home automation and climate control markets become ever more integral to the smart home experience.

Paul Ehrlich: We are confident in our success as our capabilities aligned well with the connected home market needs as evidenced by our new customer activity in this space.

Paul Ehrlich: As always the best Testament to our success is the partners that choose to work with us on their product solutions we.

Paul D. Arling: We have won new product designs with six of the top ten HVAC OEM companies on the planet and are working on two more. Furthermore, the market is growing and undergoing constructive change as climate control devices get smarter. For example, there is a transition underway bringing more efficient product forms, such as heat pumps, into popularity. Our ability to quickly address these opportunities is reminiscent of the early innings of our success in the home entertainment market. I'd like to highlight a few of our activities that support our outcome.

Paul Ehrlich: One new product designs with six of the top 10, HVAC OEM companies on the planet and.

Paul Ehrlich: And are working on two more.

Paul Ehrlich: Further the market is growing and undergoing constructive change as climate control devices are getting smarter.

Paul Ehrlich: For example, there is a transition underway, bringing more efficient product forums, such as heat pumps in the popularity.

Paul Ehrlich: Our ability to quickly address these opportunities is reminiscent to the early innings of our success in the home entertainment market.

Paul Ehrlich: I'd like to highlight a few of our activities that support our outlook in.

Paul D. Arling: In climate control, at the Consumer Electronics Show in January, we unveiled new UEI Tide family offerings, including products that bridge to indoor air quality sensors, built-in air purifier control, and additional accessories that broaden our control utility. We also took the show on the road and demonstrated our full suite of innovative climate control solutions to our growing list of HVAC OEM customers in Japan, including Daikin, Toshiba Carrier, Fujitsu, LG, and Panasonic In March, we exhibited at one of the premier events for the HVAC industry in Europe. Our unified family was once again extremely well-received, generating strong interest from the leading brands in Europe.

Paul Ehrlich: In climate control at the consumer Electronics show in January we unveiled new UI tied family offerings, including products that bridge to indoor air quality sensors built in air Purifier control, an additional accessories that broaden our control utility.

Paul Ehrlich: We also took the show on the road and demonstrated our full suite of innovative climate control solutions to our growing list of HVAC OEM customers in Japan, including Daikon, Toshiba carrier, Fujitsu LG and Panasonic.

Paul Ehrlich: In March we exhibited at one of the Premier events for the HVAC industry in Europe.

Paul Ehrlich: Our tied family was once again extremely well received generating strong interest interest from leading brands in Europe. In fact in a few short years, we have engaged 13 of the top 14, HVAC OEM brands in Europe that collectively represent over 80% of that market.

Paul D. Arling: In fact, in a few short years, we have engaged 13 of the top 14 HVAC OEM brands in Europe that collectively represent over 80% of that market. Already, we have secured three active design wins with two of the top three European HVAC OEMs. With the long lead times in this segment, which we have previously discussed, these products are expected to start shipping in 2025. In Home Automation, during Q1, we received our first standard Tide Dial and Tide Touch thermostat orders from a leading multi-dwelling unit integrator in North America. We expect to begin product deliveries later this year. Additionally, Tide Dial is currently in consumer trials with a European utility provider.

Paul Ehrlich: Already we have secured three active design wins with two of the top three European HVAC Oems.

Paul Ehrlich: With the long lead times in this segment, which we have previously discussed these products are expected to start shipping in 2025.

Paul Ehrlich: In home automation during Q1, we received our first standard type dial and tied touch service that orders from a leading multi dwelling unit integrator in North America, we expect to begin product deliveries later this year.

Paul Ehrlich: Additionally, tied dial is currently in consumer trials with a European utility provider, we expect to complete a successful trial and to begin shipping product to them in Q4.

Paul D. Arling: We expect to complete a successful trial and to begin shipping product to them in Q4. Although the market has changed greatly over the last couple of years, we continue to capture market share with new product introductions at small and large operators. In Q1, we began shipping our sustainable remote control to Liberty Global. We continue to add customers on our Android remote control line, including two telecom companies in EMEA.

Paul Ehrlich: In home Entertainment and consumer electronics, although the market has changed greatly over the last couple of years, we continue to capture market share with new product introductions at small and large operators.

Paul Ehrlich: In Q1, we began shipping our sustainable remote control to Liberty Global.

Paul Ehrlich: We continue to add customers on our Android remote control line, including two telecom companies in EMEA.

Paul D. Arling: Both have products in development that are expected to ship in Q3 of this year. We continue to see traction on the XUMO platform across the charter footprint and the XUMO TV branded platforms as this program continues to scale in the market. Regarding licensing our proprietary technology, we recently added Hisense as a licensee of our Quterix Digital Rights Management Provisioning Service. These software services are currently used by Vizio, TCL, and numerous other TV OAMs to ensure secure delivery of digital rights management keys for streaming content services on their smart TV platforms. Our Kwikset licensees and consumer electronics companies, such as Samsung, LG, and Sony, have all announced their 2024 Smart TV product lines and will continue to ship versions of our Kwikset cloud-enabled software.

Paul Ehrlich: Both have products in development that are expected to ship in Q3 of this year.

Paul Ehrlich: We continue to see traction on the zummo platform across the charter footprint and the zoom OTV branded platforms. As this program continues to scale in the market.

Paul Ehrlich: Regarding licensing our proprietary technology, we recently added hyphens as a licensee of our <unk> digital rights management provisioning services.

Paul Ehrlich: These software services are currently used by Vizio, and Tcl and numerous other TV Oems to ensure secured delivery of digital rights management keys for streaming content services on their smart TV platforms.

Paul Ehrlich: Our quickset licensees in consumer electronics, such as Samsung LG and Sony All announced their 2020 for smart TV product lines, and we will continue to ship versions of our quickset cloud enabled software.

Paul D. Arling: Our latest version brings added value to our customers, giving them access to a better user experience, increased user engagement, and reduced onboarding and troubleshooting challenges. These long-term relationships built upon years of working together with these world-leading home entertainment companies continue to be strengthened with these feature-enhanced and give us further confidence in our success going forward. Now to the financials. Brian, please go ahead. Thank you, Paul. First, I'll review

Paul Ehrlich: Our latest version brings added value to our customers, giving them access to a better user experience increased user engagement and reduced onboarding and troubleshooting challenges.

Paul Ehrlich: These long term relationships built upon years of working together with these world leading home entertainment companies continued to be strengthened with these feature enhancements and give us further confidence in our success going forward.

Paul Ehrlich: Now to the financials Brian. Please go ahead. Thank you Paul first I'll review the results for the first quarter of 2024 compared to the first quarter of 2023.

Bryan M. Hackworth: First, I'll review the results for the first quarter of 2024 compared to the first quarter of 2023. Net sales are 91.9 million, within guidance. This compares to 108.4 million for the first quarter of 2023, reflecting cord-cutting in the video service channel in an environment where households, for a variety of reasons, are spending less on discretionary goods.

Brian: Net sales were $91 9 million within guidance. This compares to $108 4 million for the first quarter of 2023, reflecting cord cutting and the video service channel and in an environment where households for a variety of reasons are spending less on discretionary goods.

Bryan M. Hackworth: Gross profit for the first quarter of 2024 was $27.2 million, or 29.6% of sales, compared to 25.4% in the first quarter of 2023. For the past two years, our operations team has been focused on restructuring our manufacturing footprint, and they have executed well, exceeding expectations. These efforts have resulted in a significant reduction of manufacturing overhead, the main driver of the improvement in our gross margin. Our factory optimization plan is nearing completion.

Brian: Gross profit for the first quarter of 2024 was $27 2 million or 29, 6% of sales compared to 25, 4% in the first quarter of 2023.

Brian: For the past two years, our operations team has been focused on restructuring our manufacturing footprint and.

Brian: And they have executed well exceeding expectations.

Paul Ehrlich: Efforts have resulted in significant reduction of manufacturing overhead the main driver of the improvement in our gross margin.

Paul Ehrlich: Our factory optimization plan is nearing completion, we closed 2023 strong completing the first two phases.

Bryan M. Hackworth: We close 2023 strong, completing the first two phases, commencing operations in our new Vietnam facility and closing our factory in southwestern China ahead of schedule. Our Vietnam factory continues to scale and meet or exceed our expectations.

Paul Ehrlich: Mensing operations at our new Vietnam facility and closing our factory in southwestern China ahead of schedule.

Paul Ehrlich: Our Vietnam factory continues to scale and meet or exceed our expectations.

Bryan M. Hackworth: We are currently streamlining our operations in Monterey, Mexico, including moving into a smaller, more efficient facility that will supply product for certain North American customers and will remain on target for its completion in the second quarter of 2024. As we evolve as a company, we will continue to assess our global footprint and identify ways to operate more efficiently. For the first quarter of 2024, operating expenses were $29.4 million, compared to $31.2 million in the first quarter of 2023.

Paul Ehrlich: We are currently streamlining our operations and Monterrey, Mexico, including moving into a smaller more efficient facility that will supply product for certain north American customers. We remain on target for its completion in the second quarter of 2024.

Paul Ehrlich: As we evolve as a company, we will continue to assess our global footprint and identify ways to operate more efficiently.

Paul Ehrlich: For the first quarter of 2024 operating expenses were $29 4 million compared to $31 2 million in the first quarter of 2023, reflecting the execution of our cost savings initiatives.

Bryan M. Hackworth: Reflecting the execution of our cost savings, SG&A expenses decreased to $21.8 million compared to $23.1 million in the prior year quarter. R&D expenses decreased to $7.6 million, compared to $8.1 million in the prior year quarter. Operating loss was $2.2 million, compared to $3.6 million in the first quarter of 2023. Our first quarter of 2023 effective tax rate was 20.6% compared to 19.9% for the first quarter of 2023

Paul Ehrlich: SG&A expenses decreased to $21 8 million compared to $23 1 million in the prior year quarter.

Paul Ehrlich: R&D expenses decreased to $7 6 million compared to $8 1 million in the prior year's quarter.

Paul Ehrlich: Operating loss was $2 2 million compared to $3 6 million in the first quarter of 2023.

Paul Ehrlich: Our first quarter 2023 effective tax rate was 26% compared to 19, 9% for the first quarter of 2023.

Bryan M. Hackworth: The net loss for the first quarter of 2024 was $2.5 million, or $0.19 per share, compared to $3.5 million, or $0.28 in the first quarter of 2023. Next, I'll review our cash flow and balance. At March 31, 2024, cash and cash equivalents were $26.9 million, compared to $42.8 million at December 31, 2023. Cash flows used by operating activities were $2.8 million for the first quarter of 2024, which includes a $5 million security deposit relating to a legal matter.

Paul Ehrlich: Net loss for the first quarter of 2024 was $2 5 million or <unk> 19 per share compared to $3 5 million or 28 cents in the first quarter of 2023.

Speaker Change: Next I'll review, our cash flow and balance sheet.

Speaker Change: At March 31, 2024, cash and cash equivalents were $26 9 million compared to $42 8 million at December 31, 2023.

Paul Ehrlich: Cash flows used by operating activities were $2 8 million for the first quarter of 2024, which includes a $5 million security deposit relating to a legal matter.

Bryan M. Hackworth: This compares the $2 million used by operating activities in the prior year quarter. With interest rates at an elevated level, we repatriated foreign earnings, enabling us to reduce our outstanding debt from $55 million at December 31, 2023, to $46 million at March 31, 2024. We also repurchased approximately 95,000 shares in the open market for $843,000.

Paul Ehrlich: This compares to $2 million cash used by operating activities in the prior year quarter.

Paul Ehrlich: With interest rates at an elevated level, we repatriated foreign earnings, enabling us to reduce our outstanding debt from $55 million at December 31, 2023 to 46 million at March 31 2024.

Paul Ehrlich: We also repurchased approximately 95000 shares in the open market for 843000.

Bryan M. Hackworth: Now turn to our guidance. For the second quarter of 2024, we expect sales to range from $90 to $100 million, compared to $107.4 million in the second quarter of 2023. We expect to range from a loss per share of $0.10 to break even, compared to a loss of $0.06 per share in the second quarter of 2023.

Paul Ehrlich: Now turning to our guidance for the second quarter of 2024, we expect sales to range from $90 million to $100 million compared to $107 4 million in the second quarter of 2023, we expect a range from a loss per share of <unk> 10 to breakeven.

Paul Ehrlich: Impaired to a loss of <unk> <unk> per share in the second quarter of 2023.

Bryan M. Hackworth: 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 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, will yield bottom line growth and full year profitability. I would now like to turn the call back to Paul.

Paul Ehrlich: <unk> 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 in growth areas, such as climate control and home automation.

Paul Ehrlich: Paul mentioned several project wins in these channels with launches scheduled throughout the latter half of 2024 and 2025.

Paul Ehrlich: We believe these project wins in the connected home channel.

Paul Ehrlich: Coupled with a more efficient factory footprint will yield bottom line growth and full year profitability.

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

Paul Ehrlich: Thanks, Brian.

Paul D. Arling: Our expansion into the connected home is broadening our market served and expanding our customer base; unique and innovative solutions supported by years of experience in bringing connected home configuration and control to major global brands make our offerings attractive in these markets. As a result, our sales team and products are gaining traction as the leading brands are increasing their design awards with us. This process can take time.

Paul Ehrlich: Our expansion into the connected home is broadening our market served and expanding our customer base, our unique and innovative solutions supported by years of experience in bringing connected home configuration and control to major global brands.

Paul Ehrlich: Make our offerings attractive in these markets.

Paul Ehrlich: As a result, our sales team and products are gaining traction as the leading brands are increasing their design awards with us.

Paul Ehrlich: This process can take time.

Paul D. Arling: But as we have experienced in home entertainment, one project leads to the next, and as we work more closely with these accounts and innovate to improve their product offering, they award more and more of their business to us. As noted, we have secured tangible wins that will see growth in the second half of 2024 and, importantly, into 2025, 2026, and beyond. We are very encouraged by numerous customer wins and are confident of many more to come based on our design wins and our customers' planned shipping schedules. We are also very encouraged by our customers' strong interest in our product roadmap. The systems in our homes today—entertainment, climate control, health, safety, security, and others—are becoming increasingly interconnected.

Paul Ehrlich: But as we experienced in home Entertainment one project leads to the next and as we work more closely with these accounts and innovate to improve their product offering.

Paul Ehrlich: The award more and more of their business to us.

Paul Ehrlich: As noted we have secured tangible wins that seat growth in the second half of 2024, and importantly into 2025 2026 and beyond.

Paul Ehrlich: We are very encouraged by numerous customer wins and are confident of many more to come based on our design wins in our customers' planned shipping schedules. We're also very encouraged by our customers' strong interest in our product roadmaps.

Paul Ehrlich: The systems in our homes today Entertainment climate control Health safety security and others are becoming increasingly interconnected.

Paul D. Arling: This brings great convenience, functionality, and value to consumers worldwide. Our customers, both current and potential, are very aware of and interested in this change. Given our substantial experience in helping make these systems interconnected and interoperable, we continue to see significant interest from world-leading brands in the markets we serve. As such, we will continue to invest to support the evolution of wireless home control. With our increasing project wins, along with our cost initiatives and global footprint optimization, we expect to be profitable in 2024.

Paul Ehrlich: This brings great convenience functionality and value to consumers worldwide.

Paul Ehrlich: Our customers both current and potential.

Paul Ehrlich: Are very aware and interested in this change.

Paul Ehrlich: Given our substantial experience in helping make these systems interconnected and interoperable, we continue to see significant interest from world leading brands in the markets. We serve as such we will continue to invest to support the evolution of wireless home control.

Paul Ehrlich: With our mounting project wins, along with our cost initiatives and global footprint optimization, we expect to be profitable for 2024, we believe our best years are ahead of us.

Paul D. Arling: We believe our best years are ahead of us, and our employees around the world remain hard at work to make this a reality. As always, stay tuned. Operator, we can now open up the call. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question,

Paul Ehrlich: And our employees around the world remain hard at work to make this a reality as always stay tuned.

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

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Thank you for your patience. Our first question comes from the line of Greg Burns of Sudoti. Your line is now open.

Speaker Change: Thank you.

Speaker Change: We will conduct a question and answer session.

Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Speaker Change: He'll withdraw your question. Please press star one one again please.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Thank you for your patience.

Speaker Change: First question comes from the line of Greg Burns of Sidoti. Your line is now open.

Gregory Burns: Good afternoon.

Gregory Burns: Good afternoon. I guess, can we just start with the 10% customers for the quarter?

Gregory Burns: I guess could we just start with a 10% customers for the quarter.

Speaker: Yeah, we had two customers that exceeded the 10% threshold. The first one is Daikin, at 13.2%, and the second company is Charter Communications, at 11.1.

Gregory Burns: Yes, we had two customers that exceeded the 10% threshold first one of the degen.

Gregory Burns: At 13, 2%.

Gregory Burns: The second company is charter communications at 11, 1%.

Gregory Burns: Okay, good to see, I guess, a cable customer popping back on there. So maybe that leads me to my second question.

Gregory Burns: Okay.

Speaker Change: Good to see I guess, the cable customer popping back on there. So maybe that leads me to my second question Whats what are you seeing in the cable market are you seeing signs of stabilization maybe improvements in order patterns there what's what's the.

Speaker: You know, what are you seeing in the cable market? Are you seeing signs of stabilization, maybe improvements in order patterns there? What's the view on the or the kind of near-term results and the view of the cable market? Yeah, our view is that

Gregory Burns: The view on the kind of the near term results and the view on the cable market.

Speaker: Yeah, our view is that there's obviously a change platforms are either having or are changing to hybrid platforms, some of which are delivered through a set-top box, some through the TV directly. And, you know, we are fully supporting our customers in these changes. As far as the future of the traditional method, we would, of course, not have as part of our plan of growth to have a huge return to the historical pattern of set-top boxes with remotes. But we do think that is still there.

Speaker Change: Yes, our view is that there's obviously change platforms are all either have or are changing.

Gregory Burns: To hybrid platforms, some of which are delivered to set top box some to the TV directly.

Gregory Burns: And we are fully supporting our customers in these changes.

Gregory Burns: As far as the future of the traditional method, we would of course not have as part of our plan of growth to have a huge return to the historical pattern of set top boxes with remote we.

Gregory Burns: We do think that is still there.

Speaker: It frankly can't shrink at the pace it has the last four years, so that is clearly, just mathematically, going to level out somewhat. But there's a change underway. They're powering new televisions with operating systems, and we're part of that, particularly with XUMO and others.

Gregory Burns: It frankly can't shrink at the pace. It has the last four years.

Gregory Burns: So that is clearly just mathematically.

Gregory Burns: Going to level out somewhat.

Gregory Burns: But theres a change underway.

Gregory Burns: They are powering new televisions with with Oss, where part of that.

Gregory Burns: Particularly with the zummo and others.

Speaker: And, you know, that will allow people to get these hybrid platforms, linear content, news, sports, et cetera, alongside all the apps they love, and all through that easy-to-use interface, which we power through QuickSight Cloud. So that's the change that's occurring. You know, home entertainment will be around for the foreseeable future, both here at UEI and generally with people. People aren't watching less television. It's just the way that it's being delivered is changing, and we're changing alongside that.

Gregory Burns: And.

Gregory Burns: That will allow people to get these hybrid platforms linear content news sports, etc. Alongside all the apps, they love and all through that easy to use interface, which we power through quickset cloud.

Gregory Burns: So thats the change that's occurring home entertainment will be around.

Gregory Burns: For the foreseeable future both here at <unk> and generally with people people aren't watching less TV is just the way that it's being delivered is changing and were changing alongside that so the home entertainment business is still good.

Speaker: So the home entertainment business is still good. You know, the licensing business has been OK. We saw a drop last year due to sales of TVs, but that's temporary. TVs grow at a constant rate of single digits. So, over time, that will still be true. Home entertainment is going to be here for a while. It's a good basis, a good foundation for our business, but the connected home segments are growing.

Gregory Burns: The licensing business has been okay. We saw drop off last year due to sales of Tvs, but that's temporal Tvs grow at a constant rate of single digits.

Gregory Burns: So over time that will still be true.

Gregory Burns: Home Entertainment is going to be here for a while it's a good basis, a good foundation for our business, but the connected home segments are growing they're growing fast they are changing and we have capabilities as I said in the prepared remarks.

Speaker: They're growing fast. They're changing, and we have capabilities, as I said in the prepared remarks that are unmatched in that market to help these customers interconnect and make products interoperable, directly with the OEMs who we think will power the market into the long-term future. OK, great. Thank you.

Gregory Burns: That are unmatched in that market to help these customers interconnect and make products interoperable.

Gregory Burns: With directly with the Oems, who we think will power the market into the long term future.

Speaker Change: Okay, great. Thank you.

Operator: Thank you for your question. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, you will press star 11 again. Please stand by for our next question. Our next question comes from the line of Bill Dezellem of Titan Capital Management. Your line is now open.

Speaker Change: Thank you for your question.

Speaker Change: As a reminder, Q <unk>.

Speaker Change: Ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Your quest Dar one one again, please standby for our next question.

Bill Dezellem: Thank you. I have a couple of questions related to your comment that you will be profitable this year. Is that on an adjusted basis or on a gap basis? And then, how do you anticipate that Q3 and Q4 unfolding? Would you anticipate that both of them would be profitable or that Q3 would essentially be breakeven, and then Q4 would have a level of profitability that would override the losses in the first part of the year?

Speaker Change: Our next question comes from the line of Bill does Elam Titan Capital Management. Your line is now open.

Bill: Hi, Thank you I have a couple of questions related to your comment that you will be profitable. This year is that on an adjusted basis or on a GAAP basis.

Bill: Adjusted.

Bill: And then how.

Bill: Do you anticipate kind of that Q3, and Q4 unfolding would you anticipate that both of them would be profitable or is that Q3 would essentially be breakeven and then Q4 would have a level of profitability that would.

Bill: Override the losses in the first part of the year.

Speaker: Yeah, I'm not going to give guidance for Q3 and Q4 specifically, but basically, right now, our forecast for the full year is for us, on an adjusted basis, to be profitable.

Speaker Change: Yes, I am not going to give a give guidance for Q3 and Q4, specifically basically right now our forecast for the full year is for us on an adjusted basis to be profitable.

Bill Dezellem: And then I'm going to have a little bit more fun and try to continue this, if I may, Brian. Relative to 25, do you anticipate that whatever the business level is in Q4, that that will continue as a run rate into 25 that you then build off of, or are you anticipating that there will be some seasonality that will lead to Q4 being higher and then you'll have a step back as you move into 25 and then build from there?

Speaker Change: And then I'm going to have a little bit more fun and try to continue this if I may Brian.

Speaker Change: Relative to 25 do you anticipate that whatever the.

Speaker Change: Business level is in Q4.

Speaker Change: That will continue as a run rate into <unk> into 'twenty five that you then build off of or are you anticipating that there will be.

Speaker Change: Some seasonality that will lead to the Q4 being higher.

Speaker Change: And and then you'll have a step back as the as you move into 'twenty five and then build from there.

Speaker: Well, I'll answer that generally. With all the projects we're winning, there's going to be, there's a layering effect. And as they layer on, I expect the sales to continue to grow. Now, if you're comparing Q4 to Q1, sometimes Q1 could have a drop-off. But in general, I expect the sales to start to ramp. I mean, I know it's small, but sequentially, you're seeing it go from just under $92 million in Q1 to $95 million. And we expect the midpoint to be $95 million.

Bill: After that generally with all the projects, we're winning there is going to be there's a layering effect.

Bill: And as they layer I expect the sale to continue to grow now if youre comparing Q4 to Q1, sorry in Q.

Bill: You won't get.

Bill: Drop off.

Bill: But in general General I expect the sales to start to ramp I mean, I know, it's small but sequentially you're seeing it go from just under $92 million in Q1, and we expect the midpoint to be 95%. So.

Bill: That growth is mainly driven by the project wins that we have so I expect that to continue.

Bill: Projects will layer and I think when you get into 25, I think we're going to be in good shape I expect 25 to be a very good year.

Speaker: So that growth is mainly driven by the project wins that we have. So I expect it to continue. The products will layer. And I think when you get into 25, I think we're going to be in good shape. I expect 25 to be a very good year.

Bill Dezellem: Great, that is helpful. Thank you for taking any questions. Thank you for your questions. Please stand by for our

Speaker Change: Great that is that is helpful. Thank you taking my questions.

Speaker Change: Thank you for your question please.

Operator: Thank you for your questions. Please stand by for our next question. Our next question comes from the line of Benjamin Alexander of Alexander Capital Managers. Your line is now open.

Speaker Change: Please standby for our next question.

Speaker Change: Our next question comes from the line of Benjamin Alexander of Alexander Capital.

Benjamin Alexander: Your line is now open.

Benjamin Alexander: Thank you. Good afternoon, Paul and Brian. I wanted to ask you about the business that you've actually won. You've called out that number in the past as well as the potential opportunities that you're looking at, which is another number you called out on prior calls.

Benjamin Alexander: Thank you good afternoon.

Benjamin Alexander: Paul and Bryan.

Benjamin Alexander: Wanted to ask you about the.

Speaker: Yeah, the one business exceeds 80 million. The potential, as we now call it the sales tube rather than funnel, is in excess of a few hundred million. Again, everyone has to remember that when projects enter the system, they're not won until the end. Once they're won, we then develop them fully and then ship them. So the won projects are almost universally assured, while the ones that are in qualification or quotation are not yet. We win many of our quotes once they proceed to that level, but we don't win all of them.

Speaker Change: Business.

Speaker Change: Actually one you've called out that number in the past as well.

Speaker Change: Potential opportunities that Youre looking at which is another number you called out.

Speaker Change: Our calls.

Speaker Change: Alright.

Speaker: So the few hundred million will get converted into business, but not completely. In other words, some of those projects will be considered by the customer and not moved forward on. That's typically what happens when they don't move forward, but there's a lot of business out there. This is a very large market; HVAC alone exceeds by almost 2x the size of the home entertainment control market. So it's a very large market and is growing.

Speaker Change: Yes, the one business exceed $80 million.

Speaker Change: The potential.

Speaker Change: We now call it the sales tube rather than funnel.

Speaker Change: <unk> is in excess of a few hundred million dollars.

Speaker Change: Now again, everyone has to remember that the one projects enter the system.

Speaker Change: Theyre not one until the end.

Speaker Change: Once they are one we then develop them fully and then ship them. So the one projects are.

Speaker Change: Almost universally assured.

Speaker Change: The ones that are in qualification or quota or not yet.

Speaker Change: We win many of our quotes once they proceed to that level, but we don't win all of them.

Speaker Change: So the few hundred million will get converted into business, but not completely in other words some of those projects will be either considered by the customer and not move forward on.

Speaker Change: That's typically what happens when they don't move forward.

Speaker Change: But there is a lot of business out there. This is a very large market HVAC alone.

Speaker Change: Exceeds by almost <unk> the size of the home entertainment control market.

Speaker Change: It's a very large market and growing and there is as I said in the prepared remarks constructive change taking place there.

Speaker: And there is, as I said in the prepared remarks, constructive change taking place there. Technologies in both the units themselves and the control units are changing. The world on this topic, heat pumps are becoming more popular, they're much more energy efficient, uh... less fossil fuel, of course, and you know that change is underway. Governments are beginning to, on and off, put incentives in place for consumers to buy these and install these systems because, again, they use much less energy.

Speaker Change: Technologies in both the units themselves and the control units is changing the world on this topic heat pumps are becoming more popular than much more energy efficient.

Speaker Change: Less fossil fuel of course and.

Speaker Change: And that changes underway governments are beginning to on and off.

Speaker Change: Put incentives in place for consumers to buy these.

Speaker Change: And install these systems because again they use much less energy.

Speaker: So there's a change underway. This is the same thing that changed our home entertainment market from analog to digital, from non-HD to HD, from non-DVR to DVR. There's a change underway, and we're there to help them power it and make these systems smarter than ever. And that's why we're getting the traction we are, with project wins and a lot of projects entering our sales process. So we're very confident and we're very excited about what's going to happen in not just the coming quarters but the coming years.

Speaker Change: So theres a change underway. This is the same thing that fed our home entertainment market from analog to digital from non HD to HD from non DVR DVR Theres, a change underway and we're there to help them power it and make these systems smarter than ever and it's why we're getting the traction we are with project wins and a lot of progress.

Speaker Change: <unk> entering our sales process.

Speaker Change: So we're very confident we're very excited about what's going to happen and not just the coming quarters or the coming years, because the lead time on these projects is unfortunately, sometimes a year and a half two years some of them can even stretch more than two years.

Speaker: Because the lead time on these projects is sometimes a year and a half, two years; some of them can even stretch more than two years once you've won them, but once you've won them, it provides a layer of sales that usually stays with you for a while. And, by the way, it's not that different than home entertainment. These projects last four years. So we're confident that what we're doing, we've right-sized our manufacturing footprint in contemplation of this business change to more of these types of products, our overhead, we've taken our development money towards these product lines, and we're winning projects.

Speaker Change: Once you've won them, but once you have won them at provides a layer of sales that usually stays with you for a while.

Speaker Change: And by the way, it's not that different than home entertainment.

Speaker Change: These projects last four years.

Speaker Change: So we're confident that what we're doing we're we've right sized our manufacturing footprint in contemplation of this business change.

Speaker Change: Two more of these types of products.

Speaker Change: Our overhead we've taken our development money towards.

Speaker Change: These product lines and we are winning projects.

Operator: Thank you. Thank you so much for your question. At this time, that does conclude our question and answer session. I would now like to turn the call back over to Chairman and CEO, Paul Arling.

Speaker Change: Thank you. Thank you so much for your question.

Speaker Change: At this time that does conclude our question and answer session I would now like to.

Speaker Change: Turn the call back over to the chairman and CEO Paul <unk>.

Paul D. Arling: Yeah, I just want to thank everybody for joining us today and for your continued support of Universal Electronics. Hope to talk to you soon. Have a great day.

Paul Ehrlich: Yes, I just want to thank everybody for joining us today and for your continued support of Universal Electronics Hope to talk to you soon have a great day.

Operator: This does conclude today's conference. You may now disconnect.

Speaker Change: This does conclude today's conference you may now disconnect.

Speaker Change: Yeah.

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Operator: Okay.

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Q1 2024 Universal Electronics Inc Earnings Call

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