Q2 2024 Universal Electronics Inc Earnings Call
Thank you.
Operator: 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. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kirsten Chapman, with the LHA Investor Relations Division of Alliance Advisors. Please go ahead.
Speaker Change: Good day and thank you for standing by. Welcome to the Universal Electronics second 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.
Speaker Change: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Kirsten Chapman: 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 first speaker today, Kirsten Chapman with LHA Investor Relations, Division of Alliance Advisors. Please go ahead.
Kirsten Chapman: Thank you, Andrea, and thank you all for joining us for the Universal Electronics 2024 second quarter financial results conference call. By now, you should have received a copy of the press release. If you haven't, please contact LHA at 415-433-3777 or visit the Investor Relations section of the website.
Kirsten Chapman: Thank you, Andrea, and thank you all for joining us for the Universal Electronics 2024 Second Quarter Financial Results Conference Call. By now, you should have received a copy of the press release. If you've not, please contact LHA at 415-433-3777 or visit the Investor Relations section of the website.
Kirsten Chapman: This call is being broadcast live over the internet. A webcast replay of this call, including any additional updated material, non-public information that might be disclosed during this call, will be available on the company's website at www.uei.com for one year.
Kirsten Chapman: During this call, management may make forward-looking statements regarding future events and the future financial performance of the company and cautions you that these statements are just projections and actual results or events may differ materially from those projections.
Kirsten Chapman: These statements include the company's ability to continue capturing design wins in the connected home and home entertainment markets, particularly in the climate control and home automation markets through the development and delivery of unique and innovative solutions and excellent customer service, as anticipated by management, to continue growth as a business with the company's largest customers in the climate control space, which can be leveraged to attract industry leaders to our product technology offering. Management's ability to continue to manage its business through cost-saving initiatives and optimization of the company's manufacturing facilities and cash flows to achieve improved results as expected by management.
Kirsten Chapman: These statements include the company's ability to continue capturing design wins in the connected home and home entertainment markets, particularly in the climate control and home automation markets through the development and delivery of unique and innovative solutions and excellent customer service as anticipated by management.
Kirsten Chapman: The continued growth of the business with the company's largest customers in the climate-controlled space, which can be leveraged to attract industry leaders to our product and technology offerings.
Kirsten Chapman: Management's ability to continue to manage its business through cost-saving initiatives and optimization of the company's manufacturing facilities and cash flows to be achieved improved results by expected by management.
Kirsten Chapman: The continued successful expansion of the company's IP portfolio and the licensing of the company's technologies, and the company's ability to capture potential upside opportunities in the traditional subscription broadcasting business due to its continued strong leadership. Strong, leading market share 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 disasters, public health crises, governmental actions, or political unrest, including war, terrorist activities, or other hostilities.
Kirsten Chapman: The continued successful expansion of the company's IP portfolio and the licensing of the company's technologies, the company's ability to capture potential upside opportunities in the traditional subscription broadcasting business due to its continued strong leadership... strong...
Speaker Change: Leading Market Chair.
Speaker Change: 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 disasters, public health crises, governmental actions, or political unrest, including war, terrorist activities, or other hostilities.
Kirsten 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 the documents the company has filed 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-gap metrics will be referenced. Management provides adjusted non-gap metrics because it uses them for budget 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 UEI's core operating and financial performance and business trends consistent with how management evaluates such performance and trends.
Speaker Change: 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 2023 annual report on Form 10-K and the periodic reports filed or furnished since then.
Speaker Change: 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 financial decisions and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures help investors
Speaker Change: evaluate UEI's core operating and financial performance and business trends consistent with how management evaluates such performance and trends.
Kirsten Chapman: In addition, management believes these measures facilitate comparisons and core operating and financial results and business trends of competitors and other companies. A full description and reconciliation of these adjusted non-gap measures versus gap are included in the company's press release issued today. Also, the company will no longer exclude excess manufacturing overhead costs resulting from the continued transition of its global manufacturing footprint, Specifically, in Mexico and Vietnam, and the depreciation related to the markup from the cost of value of six assets and business combinations from its adjusted Don Gap figure.
Speaker Change: In addition, management believes these measures facilitate comparisons in core operating and financial results and business trends of competitors and other companies.
Speaker Change: A full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's press release issued today. Also, the company will no longer exclude excess manufacturing overhead costs resulting from the continued transition of its global manufacturing footprint.
Speaker Change: specifically in Mexico and Vietnam, and the depreciation related to the markup from the cost of fair value of fixed assets in business combinations from its adjusted non-GAAP figures.
Kirsten Chapman: This impacts adjusted non-GAAP gross profit, gross margin, operating income or loss, income or loss before provision or benefit from income taxes, and income or loss in the quarterly results for 2023 and 2024. However, there is no impact on GAAP results.
Speaker Change: This impacts adjusted non-GAAP gross profit, gross margin, operating income or loss, income or loss before provision or benefit from income taxes, and income or loss in the quarterly results for 2023 and 2024. There is no impact to GAAP results.
Kirsten Chapman: A supplemental table of these reconciliations is posted on the website in the Q2 2024 quarterly results section. On the call today are Chairman and CEO, Paul Arling, who will deliver no review, but CFO, Bryan Hackworth, who will summarize the financials. Paul will then return to provide closing remarks. It's now my pleasure to introduce Paul Arling. Please go ahead, sir.
Speaker Change: A supplemental table of these reconciliations is posted on the website in the Q2 2024 quarterly results section.
Speaker Change: On the call today are Chairman and CEO Paul Arling, who will deliver an overview, and CFO Bryan Hackworth, who will summarize the financials. Paul will then return to provide closing remarks. It's now my pleasure to introduce Paul Arling. Please go ahead, sir.
Paul Arling: Thank you for joining us today. Our innovative wireless control solutions and patented technologies continue to capture design winds from major global household brands, in both the connected home and the home entertainment market. We lead wireless device control, and our design wins are laying the foundation for a stronger future.
Paul Arling: Thank you for joining us today. Our innovative wireless control solutions and patented technologies continue to capture design wins from major global household brands in both the connected home and home entertainment markets.
Speaker Change: We lead wireless device control, and our design wins are laying the foundation for a stronger future.
Paul Arling: We are fortifying our business by building new customer relationships and, as we always have, expanding existing relationships. We are expanding our IP and technology portfolio and, importantly, reducing our expenses while still investing in future product and technology solutions that will drive future growth in sales and earnings. We continue to focus our cost management on optimizing our global manufacturing footprint, which has yielded higher margins. In the second quarter of 2024, gross margin increased 580 basis points over the prior year quarter.
Speaker Change: We are fortifying our business by building new customer relationships and, as we always have, expanding existing relationships.
Speaker Change: We are expanding our IP and technology portfolio, and importantly, reducing our expenses.
Speaker Change: while still investing in the future product and technology solutions that will drive future growth in sales and earnings.
Speaker Change: We continue to focus our cost management on optimizing our global manufacturing footprint, which has yielded higher margins.
Speaker Change: In the second quarter of 2024, gross margin increased 580 basis points over the prior year quarter.
Paul Arling: As a result of these efforts, we were more profitable in the first half of 2024 than we were in the same period of 2023. Looking forward, we expect to be more profitable in the second half of 2024 than in the second half of 2023. In addition, we are positioned to deliver consistent sales and earnings growth into 2025, 2026, and beyond. Now, we review our markets and some recent customer activity. We continue to execute our successful land and expand strategy.
Speaker Change: As a result of these efforts, we were more profitable in the first half of 2024 than we were in the same period in 2023.
Speaker Change: Looking forward, in the second half of 2024, we expect to be more profitable than in the second half of 2023. In addition, we are positioned to deliver consistent sales and earnings growth into 2025, 2026, and beyond.
Speaker Change: Now I'll review our markets and some recent customer activity. We continue to execute our successful land and expand strategy.
Paul Arling: Once we get our foot in the door, our design and development expertise, superior technologies, and great customer service continue to deliver new product design wins. We have demonstrated this tactic in home entertainment, building our share to become the global leader in universal control technology. Emulating the same approach in climate control and other markets, we are targeting the largest providers in the industry and have already secured design wins with seven of the top nine that meet our margin threshold.
Speaker Change: Once we get our foot in the door, our design and development expertise, superior technologies, and great customer service continue to deliver new product design wins.
Speaker Change: We have demonstrated this tactic in home entertainment, building our share to become the global leader in universal control technology.
Speaker Change: Emulating the same approach in climate control and other markets, we are targeting the largest providers in the industry.
Speaker Change: And I've already secured design wins with seven of the top nine that meet our margin threshold.
Paul Arling: Now we are scaling with these customers and are in discussions about projects with the remaining two. These relationships tend to be very sticky, and we look forward to extending our reach. Our history with Daikin, the world's largest climate control company, exemplifies this strategy execution. Daikin was an account we acquired through an acquisition in 2010. At that time, Diken represented less than 5 million of our global revenues, and our product solutions were comprised mostly of handheld and wall-mounted controllers, and we represented less than 10% of Daikin's total controller purchases.
Speaker Change: Now we are scaling with these customers and are in discussions about projects with the remaining two.
Speaker Change: These relationships tend to be very sticky, and we look forward to extending our reach.
Speaker Change: Our history with Daikin, the world's largest climate control company, exemplifies this strategy execution.
Speaker Change: Daikin was an account we acquired through an acquisition in 2010.
Speaker Change: At that time, Daikin represented less than $5 million of our global revenues, and our product solutions were comprised mostly of handheld and Walmart controllers, and we represented less than 10% of Daikin's total controller purchasing.
Paul Arling: Today, UEI is Daikin's largest climate control solutions provider, and our portfolio of products has expanded to include advanced cloud-connected and Zigbee-enabled thermostats that connect to sensors around the home that deliver a more optimized energy management solution for consumers. As a result of our design, development, delivery, and service quality, we are proud to call Dijk a 10% customer for UEI. Our goal is to scale our existing business with other industry leaders, including carrier, train, Fujitsu, Mitsubishi, Toshiba, and LG, while adding new customers that are world leaders in this important growing market.
Speaker Change: Today, UEI is Diken's largest climate control solutions provider, and our portfolio of products has expanded to include advanced cloud connected.
Speaker Change: and Zigbee-enabled thermostats that connect to sensors around the home that deliver a more optimized energy management solution for consumers.
Speaker Change: As a result of our design, development, delivery, and service quality, we are proud to call Daikin a 10% customer for UEI. Our goal is to scale our existing business with other industry leaders, including Carrier, Train, Fujitsu, Mitsubishi, Toshiba, and LG.
Paul Arling: Looking at the connected home and climate control in particular, we expect continued growth driven by rising demand, government incentives, and a focus on energy efficiency and sustainability. While the industry is still working to clear accumulated inventory, we expect the temporal issue to be resolved by the end of 2024.
Speaker Change: while adding new customers that are world leaders in this important growing market.
Speaker Change: Looking at the connected home and climate control in particular, we expect continued growth driven by rising demand, government incentives, and a focus on energy efficiency and sustainability.
Speaker Change: While the industry is still working to clear accumulated inventory, we expect the temporal issue to be resolved by the end of 2024. Meanwhile, there is no doubt that the trend in climate control is to more energy efficient, greener products.
Paul Arling: Meanwhile, there is no doubt that the trend in climate control is for more energy-efficient, greener products. Product development amongst the world leaders in this industry is intensely focused on driving this change. HVAC manufacturing providers are introducing more energy-efficient heat pumps that are becoming more common than the rest of the world. This market change can tend to introduce complexity, however, many homes still need supplemental heating to handle more extreme coal, and with other smart home products and technologies entering everyday life, there is a growing desire and need to simplify this setup and use of these sometimes disparate systems into a single, simple user interface. This is exactly the type of challenge that has been our hallmark for decades.
Speaker Change: Product development amongst the world leaders in this industry are intensely focused on driving this change.
Speaker Change: HFAC manufacturing providers are introducing more energy-efficient heat pumps that are becoming more common than the rest of the world.
Speaker Change: This market change can tend to introduce complexity, however. Many homes still need supplemental heating to handle more extreme cold.
Speaker Change: And with other smart home products and technologies entering everyday life, there is a growing desire and need to simplify the setup and use of these sometimes disparate systems.
Speaker Change: into a single simple user interface.
Paul Arling: And our solutions are gaining traction with world leaders in this market because we have long demonstrated our excellence in this challenge of interoperability. In Smart Home Automation, we are at the early stages of building a solid foothold and delivering smart control solutions from major household brands, leveraging this strong pipeline of new product introductions, including smart thermostats, connected remote controls, smart sensors, and more. In addition, our hospitality channel, which includes multi-dwelling unit integrators, is building momentum as we begin to penetrate the major smart home automation service providers in this channel.
Speaker Change: This is exactly the type of challenge that has been our hallmark for decades.
Speaker Change: And our solutions are gaining traction with world leaders in this market because we have long demonstrated our excellence in this challenge of interoperability.
Speaker Change: In Smart Home Automation, we are at the early stages of building a solid foothold and delivering smart control solutions from major household brands, leveraging a strong pipeline of new product introductions including smart thermostats.
Speaker Change: connected remote controls, smart sensors, and more. In addition, our hospitality channel, which includes multi-dwelling unit integrators, is building momentum as we begin to penetrate the major smart home automation service providers in this channel.
Paul Arling: These customers offer smart apartment systems integrating our turnkey climate control and sensing solutions. This channel represents strong, long-term potential for retrofit upgrades and new building opportunities. In home entertainment, we continue to see a level of stabilization in orders across our customer base. While some of our customers continue to experience declines, others are showing some resilience, and we are seeing a level of activity that we have not seen in the past three years.
Speaker Change: These customers offer smart apartment systems integrating our turnkey climate control and sensing solutions.
Speaker Change: This channel represents strong long-term potential for retrofit upgrades and new building opportunities.
Speaker Change: In home entertainment, we continue to see a level of stabilization in orders across our customer base.
Speaker Change: While some of our customers continue to experience declines, others are showing some resilience, and we are seeing a level of activity that we have not seen in the past three years.
Paul Arling: Due to our strong market position and leading product and technology solutions, we are able to capture any potential upside. Our engagements include supplying control devices for hybrid streaming and live services, providing sustainability technologies and solutions, supporting full-service refurbishment programs, as well as engaging with broadband suppliers to bring new functionality to their gateways. Overall, the combination of existing long-term customer relationships in home entertainment and the momentum we are building with new customer relationships in ships and connected home continue to bear fruit and will drive long-term growth. Now to the financials, Bryan. Please go ahead. Thank you, Paul.
Speaker Change: Due to our strong market position and leading product and technology solutions, we are able to capture any potential upside. Our engagements include supplying control devices for hybrid, streaming, and live services.
Speaker Change: providing sustainability technologies and solutions, supporting full service refurbishment programs, as well as engaging with broadband suppliers to bring new functionality to their gateways.
Speaker Change: Overall, the combination of existing long-term customer relationships in home entertainment and the momentum we are building with new customer relationships and connected home continue to bear fruit and will drive long-term growth.
Bryan Hackworth: Thank you, Paul. I'll review the results for the second quarter of 2024 compared to the second quarter of 2023. But first, I would like to explain a change to our adjusted non-gap financials resulting from a recent SEC comment letter.
Bryan Hackworth: Now to the financials, Bryan. Please go ahead. Thank you, Paul. I'll review the results for the second quarter of 2024 compared to the second quarter of 2023. But first, I'd like to explain a change to our adjusted non-GAF financials resulting from a recent SEC comment letter.
Bryan Hackworth: Our adjusted non-GAAP financial statements no longer exclude excess manufacturing overhead costs resulting from our factory footprint transition and depreciation related to the market for cost to fair value of six to half its acquired in business culmination. These changes are reflected in the year-to-date 2024 financials, as well as the corresponding prior year period. He's a Justin's have had no effect on our gap, by now, of the right to more detailed manufacturing updates in a minute, which is a quick reminder of the expansion of our factory footprint in recent years as necessary given the changes, sometimes sudden, in governmental policies, as well as the overall global environment.
Bryan Hackworth: Our adjusted non-GAAP financial statements no longer exclude excess manufacturing overhead costs resulting from our factory footprint transition.
Speaker Change: and depreciation related to the markup from cost to fair value of six to assets acquired in business combinations.
Speaker Change: These changes are reflected in the year-to-date 2024 financials, as well as the corresponding prior year periods.
Speaker Change: These adjustments have no effect on our GAAP financials.
Speaker Change: I'll provide a more detailed manufacturing update in a minute.
Speaker Change: But just as a quick reminder, the expansion of our factory footprint in recent years has been necessary given the changes, sometimes sudden, in governmental policies as well as the overall global environment.
Bryan Hackworth: These changes have led to duplicative factories in the short run, and consequently, temporal excess manufacturing overhead. The second quarter, ending June 30, 2024, the cost associated with the aforementioned items amounted to 1.4 million, equivalent to 160 basis points of gross margin, or 9 cents per share, in the second quarter of 2023. The cost for these items was $2.7 million, equivalent to 250 basis points of gross margin or $0.18 per share. Please keep these figures in mind when reviewing our quarterly results.
Speaker Change: These changes have led to duplicative factories in the short run, and consequently, temporal excess manufacturing overhead.
Speaker Change: For the second quarter ending June 30, 2024, costs associated with the aforementioned items amounted to $1.4 million.
Speaker Change: equivalent to 160 basis points of gross margin, or 9 cents per share.
Speaker Change: For the second quarter of 2023.
Speaker Change: Costs for these items were 2.7 million equivalent to 250 basis points of gross margin, or 18 cents for share.
Bryan Hackworth: Net sales were 90.5 million, within guidance, but near the low end of the range provided as certain customers pushed out orders from the second quarter to the beginning of the third quarter. In addition, court cuts to the video service channel and less consumer spending on discretionary durable goods continue to act as headwinds.
Speaker Change: Please keep these figures in mind when reviewing our quarterly results.
Speaker Change: That feels we're 95 million within guidance that near the low end of the range provided as certain customers pushed out orders from the second quarter to the beginning of the third quarter.
Speaker Change: In addition, court cutting the video service channel and less consumer spending on discretionary durable goods continue to act as headwinds.
Bryan Hackworth: Sales in the prior quarter were $107.4 million. Gross profit for the second quarter of 2024 was $26 million, or 28.7% of sales, compared to 22.9% in the second quarter of 2023. 28.3% in the first quarter of 2024. He continues to improve in gross margin, both year over year and sequentially, is a testament to our operations, teams, and efforts on optimizing our global manufacturing foot. This multi-faceted transition has resulted in a much more efficient global footprint coupled with a lower cost structure.
Speaker Change: Sales in the prior quarter were $107.4 million.
Speaker Change: Gross profit for the second quarter of 2024 was $26 million, or 28.7% of sales, compared to 22.9% in the second quarter of 2023.
Speaker Change: and 28.3% in the first quarter of 2024.
Speaker Change: The continuous improvement in our gross margin rate, both year over year and sequentially, is attributable to our operations team's efforts on optimizing our global manufacturing footprint.
Speaker Change: This multi-faceted transition has resulted in a much more efficient global footprint coupled with a lower cost structure.
Bryan Hackworth: This effort is nearing completion. We close 2023 strong, completing the first two phases ahead of schedule, commencing operations in our new Vietnam facility and closing our factory in southwestern China. The Vietnam Facility continues to scale and meet or exceed our expectations. Recently, the Vietnam Facility successfully completed an RBA VAP audit and received recognition for demonstrating a high level of compliance.
Speaker Change: This effort is nearing completion. We close 2023 strong, completing the first two phases ahead of schedule.
Speaker Change: commencing operations in our new Vietnam facility and closing our factory in southwestern China.
Speaker Change: Our Vietnam factory continues to scale and meet or exceed our expectations.
Speaker Change: Recently, the Vietnam facility successfully completed an RBA-VAP audit and received recognition for demonstrating a high level of compliance.
Bryan Hackworth: In the second quarter of this year, we moved into a smaller, more efficient facility in Monterey, Mexico that supplies product for certain North American customers. Continue to analyze and balance production for products destined for North America between Vietnam and Mexico in order to maximize fish. The rebalancing of our production is scheduled to be completed in the first quarter of 2025, and at this point, our annualized gross margin rate should approximate 30 points.
Speaker Change: In the second quarter of this year, we moved into a smaller, more efficient facility in Monterey, Mexico that supplies product for certain North American customers.
Speaker Change: We continue to analyze and balance production for products destined for North America between Vietnam and Mexico in order to maximize efficiencies.
Speaker Change: The rebalancing of our production is scheduled to be completed in the first quarter of 2025. And at this point, our annualized gross margin rate should approximate 30 points.
Bryan Hackworth: The second quarter of 2024 operating expenses decreased to 27.1 million compared to 29.2 million in the second quarter of 2023 due to collecting our coffee and conditions. SG&A expenses decreased to $19.7 million compared to $21 million in the prior year quarter. R&D expenses decreased to 7.4 million compared to 8.2 million in the prior quarter.
Speaker Change: For the second quarter of 2024, operating expenses decreased to $27.1 million, compared to $29.2 million in the second quarter of 2023, reflecting our cost-savings initiatives.
Speaker Change: SG&A expenses decreased to $19.7 million compared to $21 million in the prior year quarter.
Speaker Change: R&D expenses decreased to $7.4 million compared to $8.2 million in the prior year quarter.
Bryan Hackworth: Operating loss was 1.1 million compared to 4.5 million in the second quarter of 2023. Net loss for the second quarter of 2024 was $1.2 million, or $0.09 per share, compared to $3.1 million, or $0.24 in the second quarter of 2023. Next, I'll review our cash flow and balance sheet. At June 30, 2024, cash and cash equivalents were $23.1 million, compared to $42.8 million at December 31st, 2023. For the six months ended June 30, 2024, net cash provided by operating activities was $2.7 million, which includes the mandatory $5 million security positive relating to a contract dispute with a former labor agency in China.
Speaker Change: Operating loss was $1.1 million compared to $4.5 million in the second quarter of 2023.
Speaker Change: That lost for the second quarter of 2024, was 1.2 million, or 9 cents per share, compared to 3.1 million, or 24 cents in the second quarter of 2023.
Speaker Change: Next, I'll reveal our cash flow in balance sheet at June 30, 2024, or cash in cash for $23.1 million.
Speaker Change: Comparative 42.8 million at December 31st, 2023.
Speaker Change: for the six months and a June 30th, 2024, NetCast provided by Operant Activities was 2.7 million.
Speaker Change: which include the mandatory $5 million security deposit relating to a contract dispute with a former labor agency in China.
Speaker Change: Year-to-date, we repurchased 122,000 shares in the open market for $1.1 million and reduced our outstanding credit by $14 million, from $55 million on December 31, 2023 to $41 million on June 30, 2024.
Bryan Hackworth: Year-to-date, we repurchased 122,000 shares in the open market for $1.1 million and reduced our outstanding credit by $14 million. 55 million at December 31st, 2023, and 41 million at June 30, 2024. Now turning to our guidance. For the third quarter of 2024, we expect sales to range from 98 to 108 million, compared to 107.1 million in the third quarter of 2023. We expect EPS to range from 1 cent to 11 cents and a pair of six cents for dilute share in the third quarter of 2023. We also expect the second half of 2024 to be stronger than the second half of 2023. I'd now like to turn the call back to Paul.
Speaker Change: Now, turning to our guidance. For the third quarter of 2024, we expect sales to range from 98 to 108 million.
Speaker Change: compared to $107.1 million in the third quarter of 2023.
Speaker Change: We expect EPS to range from 1 cent to 11 cents, compared to 6 cents for dilute share in the third quarter of 2023.
Speaker Change: We also expect the second half 2024.
Speaker Change: to be stronger than the second half of 2023. I'd now like to turn the call back to Paul. Thanks, Bryan.
Paul Arling: We are quite positive about the future. Even while cutting SG&A costs, we have continued to invest in product development and our intellectual property. Now we have more than 730 issued and pending U.S. patents, as well as many foreign counterparts.
Paul Arling: We are quite positive about the future, even while cutting SC&A costs we have continued to invest in product development and our intellectual property.
Paul Arling: Now, we have more than 730 issued and pending U.S. patents, as well as many foreign counterparts. Our differentiated features and technology continue to secure new projects, and the customers we are winning in the connected home are
Paul Arling: Our differentiated features and technology continue to secure new projects, and the customers we are winning in the connected home are beginning to enter the next stage of their journey, expansion. We have run this path before, and it is progressing favorably once again. First, our differentiating features attract new customers, and our innovation wins us new projects. Next, we prove to the customer that we can deliver high-quality solutions that delight the end-user. And, of course, we deliver high-quality products and solutions on time.
Speaker Change: beginning to enter the next stage of their journey, expansion.
Speaker Change: We have run this path before, and it is progressing favorably once again. First, our differentiating features attract new customers, and our innovation wins us new projects.
Speaker Change: Next, we prove to the customer we can deliver high-quality solutions that delight the end-user. And of course, we deliver high-quality products and solutions on time.
Paul Arling: Then our customers award UEI more and more projects. This pattern is reminiscent of our growth in home entertainment, where we are now the undisputed leader in wireless control. It's true that HVAC, security, and other channels in the connected home have longer product cycles than home entertainment. This may elongate our runway and expand our timetable. Yet we also believe it will make our winds sticky.
Speaker Change: Then our customers award UEI more and more projects.
Speaker Change: This pattern is reminiscent of our growth in home entertainment, where we are now the undisputed leader in wireless control.
Speaker Change: is true that HFAC security and other channels in the connected home have longer products cycles than home entertainment. This may elongate our land and expand timetable. Yet we also believe it will make our winds stick year.
Paul Arling: While this transition has taken longer than we or anyone else would have liked, we are making great progress towards building strong, long-term customer relationships with the leading companies in the industry. And we are doing it similarly to how we have done it before. We are building momentum with new customer relationships in the connected home that will drive long-term growth, strengthened by our continued focus on creating products and feature enhancements that bring value and innovation to the markets we serve.
Speaker Change: While this transition has taken longer than we or anyone else would have liked, we are making great progress towards building strong, long-term customer relationships with the leading companies in the industry.
Speaker Change: We are doing it similarly to how we have done it before.
Speaker Change: We are building momentum with new customer relationships in the connected home that will drive long-term growth, strengthened by our continued focus on creating products and feature enhancements that bring value and innovation to the markets we serve.
Paul Arling: These exciting new product technologies and associated customer development, combined with our cost reduction efforts, make us confident that we are positioned to deliver consistent long-term sales and earnings growth into next year and beyond. As always, stay tuned. Operator, we can now open up the call for questions. Thank you.
Speaker Change: These exciting new product technology and associated customer developments.
Speaker Change: Come in with our cost reduction efforts, make us confident that we are positioned to deliver consistent, long-term sales and earnings growth into next year and beyond. As always, stay tuned.
Operator: Thank you. At this time, we will conduct the 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 list. Our first question comes from Steven Frankel with Rosenblatt's Securities. Please go ahead.
Speaker Change: Operator, we can now open up the call for questions.
Speaker Change: Thank you. At this time we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Steven Frankel with Rosenblatt Securities. Please go ahead.
Steven Frankel: Good afternoon. Thank you, Paul. I want to dig in on the comments you made about
Steven Frankel: inventory issues I think that was in HVAC and tie that to your comments in the last couple of quarters about a back half ramp in some of these new design ones for smart thermostats and kind of
Speaker Change: where are we and what's the outlook for them?
Paul Arling: Yeah, a couple elements of that question. One, on existing designs that we have out, we have seen, and I think any inventory that they have may have been for them, forecasting a better second half than theirs. We have seen in certain parts of the world some of the incentives for these new energy-efficient technologies drawn back a little bit. But we, and our customers who have experienced this, do not think it's a long term solution.
Speaker Change: next couple of quarters with those products.
Speaker Change: Yeah, a couple elements to that question. One, on existing designs that we have out, we have seen, and I think any inventory that they have may have been, for them, forecasting a better
Steven Frankel: second half than they're seeing. We have seen in certain parts of the world some of the incentives for these new energy efficient technologies drawn back a little bit.
Steven Frankel: We and our customers who have experienced this do not think it's long term.
Steven Frankel: These incentives are typically put in place not to get into more detail than we should hear, but the heat pumps and other energy-efficient technologies are typically more expensive to the consumer.
Steven Frankel: So governments across the world have incentivized them. We've even done some of that here in the U.S.
Steven Frankel: because they want to incentivize the movement towards these products. They can cool your home and heat your home without using any fossil fuels at all or natural gas.
Speaker Change: So, essentially they're incentivized. Those incentivized were drawn back, so some of our customers feel that that will will be impacting demand as we go through the rest of the year.
Steven Frankel: But they don't think it's long-term because again the movement towards these technologies has been happening for some years and will probably continue into the next decade or two.
Speaker Change: All of the companies, as I said in the prepared remarks, are spending a great deal of time and effort and money on R&D in making these heat pumps even more efficient, even more affordable, and maybe even get them to the point where they could replace even in the northern climates.
Steven Frankel: and the combination of AC and furnace.
Speaker Change: which is really what they're attempting to do long-term.
Steven Frankel: So, those incentives are also being put in place. There's another one in Europe that's coming. I think it's at the end of 25 or into 26. I think it's called the Super Climate Fund. It's about 90 billion euros to help this transition to these more energy efficient technologies.
Steven Frankel: You know, so it's things like this that they are customers see as a real prompting for demand.
Speaker Change: They may see temporal shortfalls or draw downs of inventory or build up a inventory.
Speaker Change: That can affect us for a quarter or two, but I think the movement in this market is like movements we've seen in others, where the movement of technology forward happens. Sometimes it's bumpy, but it will happen over a, you know, one to ten year period.
Steven Frankel: All right, well, let me go at it a different way. Of your seven HVAC partners, helmet with.
Speaker Change: with bumps along the way, but it's a movement that is underway.
Speaker Change: All right, well, let me go at it a different way. Of your...
Speaker Change: seven HVAC partners.
Speaker Change: How many, with how many of those are you?
Paul Arling: I don't I don't think we're with all of them yet. With the majority of them, we are, of course, with Dike, and it's a long-term relationship, so we've been in the market with them for quite a long time. But many of the other customers in regions of the world, like the U.S. and Europe, we are brand new.
Speaker Change: in Market.
Speaker Change: today with product.
Speaker Change: I don't think we're with all of them yet, with the majority of them we are, of course with dyke and it's a long-term relationship so we've been in the market with them for quite a long time.
Speaker Change: Many of the other customers in the regions of the world, like the U.S. and Europe , we are brand new.
Paul Arling: So those projects are still on track. Some of them got delayed by months. The testing regimens for these products are both more stringent and take longer.
Speaker Change: So, those projects are still on track. Some of them got delayed by months. The testing regimens for these products
Paul Arling: So, you know, we have seen some month-long or a few month delays in those testing regimens for those companies, but it doesn't affect our long-term view Two months on a product, we don't like it, but it doesn't affect our long-term view of a line of that product or a relationship with that customer. So most of them, we do have some projects on a few of them that haven't launched yet. So they're still at the early stage of this customer development, where typically, as I was saying, customers start with one, maybe two SKUs or projects.
Speaker Change: are both more stringent and take longer so you know we have seen some month-long or a few month delays.
Speaker Change: in those testing regiments for those companies.
Speaker Change: But it doesn't affect our long-term view. Two months on a product is... We don't like it, but it doesn't affect our long-term view of either that product or our relationship with that customer.
Speaker Change: So when you see the most of them, we do have some projects on a few of them that haven't launched yet, so they're still at the early stage of this customer development, where typically, as I was saying, customer start with one.
Paul Arling: Then you go through the lessons learned with them, just like we did in home entertainment. And then what happens is, you know, if you do well, which we have been so far with each of these customers, they typically will award you more of their portfolio. It happened in Consumer Electronics with televisions, and it happened in subscription broadcasting. In that regard, it's not that dissimilar here.
Speaker Change: maybe two SKUs or projects.
Speaker Change: Then you go through lessons learned with them, just like we did in home entertainment. And then what happens is you know, if you do well, which we have been so far with each of these customers, they typically will award you more of their portfolio of business.
Speaker Change: It happened in consumer electronics with televisions. It happened in subscription broadcasting. In that regard, it's not that dissimilar here.
Steven Frankel: Okay, and in the script, Bryan talked about some orders that were... pushed from Q2 to Q3, with those in... the HVAC space, or was that in another part of your... A little bit bold.
Bryan Hackworth: Okay, and in the script, Bryan talked about some orders that were pushed from Q2 to Q3. Were those in the...
Paul Arling: A little bit of both, Steve, that's from Q2, Q3.
Speaker Change: HVAC space, world was found in another part of your business.
Speaker Change: A little bit of both to see if that transferred from Q2 to Q3.
Steven Frankel: And then to understand this new gross margin accounting treatment, you're basically now the only thing that comes out of gross margin, or things like StockBaseComp, and did your EPS guidance for the quarter contemplate this change, or was it done under the prior method?
Bryan Hackworth: Kirsten Chapman, Paul Arling, Paul Arling, Paul
Speaker Change: Okay, and then to understand this new gross margin accounting treatment.
Speaker Change: you're basically now the only thing that comes out of gross margin or things like
Speaker Change: StockBase.com
Speaker Change: and did your EPS guidance for the quarter contemplate this change or was it done under the prior method? Q2's guidance was done on...
Bryan Hackworth: Q2's guidance was done under the old method, and if not for, you know, we were, we ended up in the new method at nine steps loss. Now the..., quantify the effect of the excess manufacturing overhead, it was equivalent to nine cents. So I'll let you do the math, and then for Q3, obviously, we took any consideration to know if the guys included the SNE methodology.
Speaker Change: under the old method, and if not for, you know, we were, we ended up with a new method at a nine cents loss. Now the...
Speaker Change: To quantify the effect of the excess manufacturing overhead it was equivalent to nine cents, so I'll let you do the math
Speaker Change: and then for Q3, obviously we took any considerations and they include the SNU methodology.
Steven Frankel: So this quarter Steve, the guidance did not include this effect, but going forward, as it is our new method, the guidance is provided on the new method.
Bryan Hackworth: So this quarter, Steve, the guidance did not include this effect, but going forward, as it is our new method, the guidance is provided on the new method.
Bryan Hackworth: And is that nine cents? kind of the number we should think about. Just seeing it in our models, or do we think about, well, take where the gross margin is now and just say, okay, you made a comment that it's going to hit 30 in early 25. I draw a line between those two points.
Steve: And is that $0.09?
Steve: Kind of the number we should think about.
Steve: adjusting in our models or do we think about well take where the gross margin is now and just say okay you've made a comment that it's going to hit 30 and
Steve: Sometime in early 25, Jeff, draw a line between those two points.
Steven Frankel: We're a latter, I think, we're at 287 in the second quarter, I expect Q3 to be slightly better than that, and I expect Q1 to be better than that. So what we're seeing is, especially since we're not including the excess manufacturing overhead, every in the pro-format on a go-for basis, any improvement we see as a factor you're seeing and dropping into the bottom line. So right now, we're free, far through the transition.
Jeff: Yeah, more of the latter. I think, you know, we're at 28-7 in the second quarter. I expect...
Speaker Change: Q3 to be slightly better than that, and then I expect Q1 to be better than that. So what we're seeing is, especially since we're not including the excess manufacturing overhead in the pro forma on a go-forward basis.
Steve: Any improvement we see at the factory, we're seeing drop into the bottom line, so right now we're...
Steve: Pretty far through the transition, we spun up Vietnam, we shut down GTQ, we streamlined Mexico, we're doing some rebalancing now.
Steve: We're probably 80-90% through the transition of the manufacturing footprint optimization, so we're probably a couple quarters away from getting to the full 30 points that we expect to be at.
Steven Frankel: Okay, very helpful, thank you.
Steve: Okay, very helpful, thank you.
Gregory Burns: Our next question comes from Greg Burns with the Doty, please go ahead.
Gregory Burns: Just to follow up on the orders that were pushed out from the second quarter, could you quantify the amount? That was delayed.
Speaker Change: Our next question comes from Greg Burns with the Doty. Please go ahead.
Speaker Change: Just to follow up on the orders that were pushed out from the second quarter, could you quantify the amount?
Paul Arling: Look up, I'm Paul singing in the past. Of course, it'll maybe be quantified, the pipeline of HVAC and Home Automation Opportunity, and I think the number was like 80 million to annual New Project Wins, with maybe a total pipeline value of 200. When you look at your third-quarter guidance, are you starting to deliver against that $80 million? And has there been any change, has the, either the One contract number increased, or did the total pipeline value increase still? Yeah, no, they're, they're similar to before.
Speaker Change: That was delayed.
Speaker Change: That was a few more minutes, okay?
Speaker Change: Okay, I'm Paul. I think in the past...
Speaker Change: A couple quarters ago, maybe you quantified.
Speaker Change: the pipeline of HVAC and home automation opportunity and I think I think the number was like 80 million of annualized
Speaker Change: New Project Wins, with maybe a total pipeline value of 200.
Speaker Change: When you look at your third quarter guidance, are you starting to deliver against that 80 million?
Speaker Change: and as there have been any changes as the...
Steve: either the
Paul Arling: Yeah, no, they're similar to before. The pipeline we track, and there are hundreds of millions of projects. I think I did, of course, explain that those are the projects we aren't working to develop to ship. We have multiple categories of leads. We have qualification quotes, and then one. One is where we do the most work because the customer, at that point, is committed to buying the product on a certain time schedule.
Speaker Change: One contract, number increased or the total pipeline value increased.
Speaker Change: Yeah, no, they're similar to before, the pipeline we track, and there are hundreds of millions of projects. I think I did, of course, explain that those are the projects we aren't working to develop to ship.
Steve: We have multiple categories of leads, we have qualification quotes, and then one.
Steve: One is where we do the most work because the customer at that point is committed to
Paul Arling: Um, so that's where the, the, uh, we do engineering work before that on leads, uh, qualifications, and quotes, of course, because we have to define the product and work with the customer to define it. But most of the work happens after you've won the project. And then there are usually dates set for it, etc.
Speaker Change: buying the product on a certain time schedule. So that's where we do engineering work before that on leads, qualifications, and quotes, of course, because we have to define the product and work with the customer to define it.
Steve: But the most work happens after you've won the project.
Paul Arling: So the pipeline is still very strong. There are hundreds of millions of dollars in it. We will, of course, strive to win all of it, but probably will not win all of it.
Steve: Kirsten Chapman, Paul Arling, Paul Arling, Paul Arling,
Steve: And then there are usually dates set for it and etc. So the pipeline still is very strong. There are hundreds of millions of dollars in it. We will, of course, strive to win all of it.
Paul Arling: And so that's what we're trying to get across. There's a lot of business in this market that's out there. The size is even bigger than that.
Steve: But probably will not win all of it.
Steve: and so that's what we're trying to get across. There's a lot of business in this market that's out there. The size is even bigger than that. Those are the only projects we've identified so far.
Paul Arling: Those are the only projects we've identified so far. This market is almost $2 billion and growing. So there's a lot of business out there for us to go gain, and we are doing that. We expect next year and the years after, as we said in the prepared comments, to be layering on business, new projects. Hopefully, every quarter, new projects that are driving revenue.
Steve: This market is almost 2 billion and growing.
Steve: So, there's a lot of business out there for us to go gain, and we are doing that. We expect next year and the years after, as we said in the prepared comments, to be layering on business, new projects.
Steve: hopefully every quarter, new projects that are driving revenue.
Paul Arling: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Paul Arling for closing remarks.
Steve: Kirsten Chapman, Paul Arling, Paul Arling, Paul
Paul Arling: Thank you.
Speaker Change: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Paul Arling for closing remarks.
Paul Arling: Okay, thank you for joining us today. We will be at the Sudoti virtual conference in September and look forward to seeing you there or meeting with you there. Thank you for your continued support of Universal Electronics. Have a great day.
Paul Arling: Okay, thank you for joining us today. We will be at the Sudoti virtual conference in September and look forward to seeing you there or meeting with you there. Thank you for your continued support of Universal Electronics. Have a great day.
Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Speaker Change: Thanks for watching!
Steven Frankel: Thank you, Paul. I wanted to dig in on the comments you made about inventory issues, I think that was in HVAC, and tied that to your comments in the last couple of quarters about a back-half ramp in some of these new design wins for smart thermostats. Where are we and what's the outlook for that?
Paul Arling: So, essentially, they're incentivized. But those incentives have been drawn back, so some of our customers feel that that will be impacting demand as we go through the rest of the year. But they don't think it's long term because, again, the movement towards these technologies has been happening for some years and will probably continue into the next decade or two. All of the companies, as I said in the prepared remarks, are spending a great deal of time and effort and money on R&D to make these heat pumps even more efficient, even more affordable, and maybe even get them to the point where they could replace, even in the northern climate, the combination So those incentives are also being put in place. There's another one in Europe that's coming soon. I think it's at the end of 25 or into 26. I think it's called the Super Climate Fund.
Paul Arling: These incentives are typically put in place, not to get into more detail than we should hear, but heat pumps and other energy and vision technologies are typically more expensive to the consumer, so governments across the world have incentivized them. We've even done some of that here in the U.S. Because they want to incentivize the movement toward these products. They can cool your home and heat your home without using any fossil fuels at all or natural gas.
Paul Arling: It's about 90 billion euros to help this transition to these more energy-efficient technologies. So it's things like this that their customers see as a real stimulus for demand. They may see temporary shortfalls or draw downs of inventory or build-up of inventory. That can affect us for a quarter or two, but I think the movement in this market is like movements we've seen in others, where the movement of technology forward happens. Sometimes it's bumpy, but it will happen over a one to ten-year period, with bumps along the way, but it's a movement that is underway.
Kirsten Chapman: This call is being broadcast live or on the internet. A webcast replay of this call, including any additional updated material non-public information that might be disclosed during this call, will be available on the company's website at www.uii.com for one year. During this call, management may make forward-looking statements regarding future events and the future financial performance of the company, and caution is advised that these statements are just projections, and actual results or events may differ materially from those projections.
Steven Frankel: We, you know, we spun up Vietnam, we shut down GTQ, we streamlined Mexico, we're doing some rebalancing now, so we're probably 80% through the transition of the manufacturing footprint optimization. So we're probably a couple of quarters away from getting to the full, called 30 points that we expect to have. Okay, very helpful. Thank you.