Q4 2024 Universal Electronics Inc Earnings Call
Good day, and thank you for standing by and welcome to Universal Electronics fourth quarter and year end 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 one one on your telephone.
Speaker Change: Well, then you're 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 speaker today, Kirsten Chapman from Alliance Advisors Investor.
<unk>. Please go ahead.
Kirsten Chapman: Thank you Gigi and thank you all for joining us for the Universal Electronics fourth quarter and year end 2024 financial results Conference call.
Kirsten Chapman: Now you should have received a copy of the press release, if you've not please contact alliance advisors Investor Relations at 4154333, 777 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 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 Chapman: During this call management may make forward looking statements regarding future events and the future financial performance of the company cautions you that these statements are just projections and actual results or events may differ materially from those projections.
Kirsten Chapman: These statements include the company's ability to continue capturing new product and new customer wins in the connected home space, particularly in climate control HVAC and home automation security and hospitality markets through the development and delivery of unique.
Kirsten Chapman: Including the Companys Quickset technologies type platforms.
Kirsten Chapman: Harvesting sensors and solutions and excellent customer service as anticipated by management.
Kirsten Chapman: Management's ability to manage its business and profitability to continued cost saving initiatives optimization of the company's manufacturing facilities.
Kirsten Chapman: And the company's cash flows.
Kirsten Chapman: The company's abilities to capture potential upside opportunities in the home entertainment markets and particularly in the traditional subscription broadcasting due to its continued long lead market share.
Kirsten Chapman: [noise] of ordering patterns and the importance of the Companys quickset differentiation and innovative remote control and one for all brands.
Kirsten Chapman: England.
Kirsten Chapman: And the company.
Kirsten Chapman: Pardon 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 rising energy and freight costs natural disasters governmental actions, including increasing tariffs on products brought into the U S.
Kirsten Chapman: Reducing incentives to business worldwide, the risk of doing business or operating in certain parts of the world and political unrest, including war terrorist activities or their 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.
Kirsten Chapman: Arctic reports filed or furnished since then.
Kirsten 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.
Kirsten Chapman: These non-GAAP financial measures to investors as a supplement to GAAP financial measures helps investors evaluate.
Kirsten Chapman: 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 with the core operating and financial results and business trends of competitors and other companies.
Kirsten Chapman: A full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's press release issued today.
Kirsten Chapman: Also the company will no longer exclude excess manufacturing overhead costs, resulting from the continued transition of its global manufacturing footprint, specifically in Mexico, Vietnam and depreciation related to the Mark up from cost to fair market value of fixed assets acquired in business combinations from its adjusted non-GAAP.
Kirsten Chapman: Figures.
Kirsten Chapman: This impacts adjusted non-GAAP gross profit gross margin operating income or loss income or loss before provision or benefit of income taxes, and net income or loss in the quarterly results for 2023 and 'twenty 'twenty four there is no impact to GAAP results.
Kirsten Chapman: A reconciliation of these measures is posted on the website in Q4 2024 quarterly results section.
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 will summarize the financials. Paul will then return to provide closing remarks and open the call for questions. It's now my pleasure to introduce Paul Ehrlich. Please go ahead Sir.
Kirsten Chapman: Thank you Kirsten and thank you all for joining us today.
Kirsten Chapman: I am excited to report in Q4 2024, our team's efforts delivered sales growth of 13%.
Kirsten Chapman: And improved EPS by <unk> 24 per share compared to the fourth quarter a year ago. We.
Kirsten Chapman: We exceeded both our own projections and consensus over the past few years, we have been executing initiatives to support new customer acquisition and long lead design wins to fuel ongoing sales growth, particularly in the connected home, which is a large and growing market.
Kirsten Chapman: During Q4, our connected home business increased momentum with several new product shipping and that is beginning to scale as new orders have increased towards the tail end of the quarter.
We're excited that our perseverance and commitment to this channel are starting to show results.
Kirsten Chapman: Over the past few years, we have managed cost and optimized our manufacturing footprint improving our profitability.
Kirsten Chapman: Combination of these accomplishments have strengthened our financial foundation and underpin our projections for top and bottom line growth for full year 2025 and beyond.
Kirsten Chapman: Turning to a review of our markets.
Kirsten Chapman: In the connected home market, which includes HVAC and home automation security and hospitality, we continue to gain traction with new customers and build on existing relationships. We already have across many of the top OEM brands in North America, Europe and Asia.
Kirsten Chapman: These include Daikon carrier dividend, some fee Fujitsu, Mitsubishi and met us in.
Kirsten Chapman: In Q4 revenues benefited from a full quarter of shipments of new products launched during Q3 as well as new products introduced during the quarter.
Kirsten Chapman: Now we are starting to win additional projects with satisfied repeat customers leading to a strong pipeline of new products that will fuel long term revenue growth.
Kirsten Chapman: Our share of the climate control market is growing.
Kirsten Chapman: Q4 results are evidence that we are well positioned to deliver on our long term growth strategy.
Kirsten Chapman: And home entertainment, including video service providers consumer electronics, and our accessories retail business TV demand increased in the second half of 2024 with shipments growing slightly across all regions.
Kirsten Chapman: This was especially true in North America, and Western Europe, though the growth in TV shipments was driven primarily at the lower end of the market.
Kirsten Chapman: In Q4 video subscriber declines at some of our key accounts narrowed compared to prior years, reflecting new pricing and packaging of video service products introduced earlier in the year.
Kirsten Chapman: As a result, some of our major customers increased overall order quantities during the quarter positively impacting our Q4 performance.
Kirsten Chapman: Many of our reasons for optimism both near and long term were highlighted at the international consumer Electronics show in January.
The event was a major success for US we've received strong interest in our new products and technologies for many of our new accounts and connected home as well as existing customers, who want us to bring new features and functionality to their platforms.
Kirsten Chapman: Review a few of the highlights.
Kirsten Chapman: We introduced groundbreaking quickset <unk> technology, while protecting user privacy.
Kirsten Chapman: Quickset home cents adds a layer of on device intelligence that learns from the home environment and location of connected devices and adopt to optimize device usage based on user preferences.
We unveiled new capabilities in our <unk> tied family that enhanced climate control and energy management by resolving key friction points and providing on device actionable insights.
Kirsten Chapman: Elevating the role of smart thermostats within the home benefits include managing multiple heating and AC systems central space and other.
Kirsten Chapman: Integrated in a single controller as well as providing optimized climate control and energy savings.
Kirsten Chapman: We offered a sneak peek of the Nextgen UBI tied pro platform with a larger higher resolution display and support for on device AI processing and other communication protocols. The new architecture introduces an advanced software framework, enabling the development of operating systems and graphical user interfaces under.
Kirsten Chapman: Limited power budget.
Kirsten Chapman: In our customer discussions this climate control platform is considered the ideal solution for many of our OEM customers, who are looking to bring their proprietary protocol technologies to smart thermostats to give consumers optimal HVAC system control, while delivering a better predictive and preventative maintenance service.
Kirsten Chapman: That many other smart thermostat sold at retail cannot do.
Kirsten Chapman: This new climate control platform runs <unk> latest quickset widget Pro module. This high performance processor enables complex tasks, such as edge AI processing video stream decoding and enhanced security features to protect user data and ensure the integrity of the smart home ecosystem.
Kirsten Chapman: We introduced quickset, seven SDK and the new quickset cloud capabilities to further expand monetization opportunities to our Oems.
Through better personalization and increased user engagement quickset cloud now supports a broader range of device and content sources spanning video and audio consumption in the home.
Kirsten Chapman: Moving toward the promise of private and intelligent homes quick set seven now learns and adapts to changes in the home to precisely target the right audience at the optimal moment delighting, the user and maximizing monetization potential for entertainment and smart home brands.
Kirsten Chapman: In addition to CES earlier this year, we announced our collaboration with some fee and the connected home space.
Kirsten Chapman: We've been working with <unk> for several years now to create innovative products and solutions that deliver better motorized shade control experience such as their latest outdoor remote lineup and energy harvesting sensors.
Kirsten Chapman: Consumers will benefit from enhanced comfort and convenience, including saved favorites reduced energy consumption by adjusting interior temperature based on outside conditions.
Kirsten Chapman: And low energy power consumption complying with some fees act for green requirements.
Brian: With that I'll turn the call over to Brian. Please go ahead.
Speaker Change: Paul I'll review the results for the fourth quarter of 2024 compared to the fourth quarter of 2023.
Speaker Change: As previously noted our adjusted non-GAAP financial statements no longer exclude excess manufacturing overhead costs, resulting from our factory footprint transition and depreciation related to the mark up from cost to fair value of fixed assets acquired in business combinations. These changes are reflected in the year to date 2020 for financials as well as the core.
Speaker Change: Responding prior year periods.
Speaker Change: These adjustments have no effect on our GAAP financials.
Speaker Change: For the fourth quarter, ending December 31, 2020 for costs associated with the aforementioned items amounted to 700000.
Speaker Change: Clinton wants to 70 basis points of gross margin or four cents per share.
Speaker Change: For the fourth quarter of 2023 cost for these items were $1 6 million equivalent to 160 basis points of gross margin or <unk> 11 per share.
Speaker Change: Please keep your figures in mind when reviewing our quarterly results.
Speaker Change: For the fourth quarter of 2024 net sales were $110 5, million% to 13% increase over last year's fourth quarter sales of $97 6 million.
Speaker Change: Sales exceeded the high end of our guidance range of $109 million due primarily to an increase of orders in the connected home channel.
Speaker Change: Specifically for climate control products.
Speaker Change: Although not all of these orders were shipped as of year end, we were required under GAAP to recognize this revenue approximating.
Speaker Change: $4 million in the fourth quarter.
Speaker Change: We expect this positive connected home trend to continue while the home Entertainment channel still faces headwinds we continue.
Speaker Change: To see ordering patterns stabilizing.
Speaker Change: Yes.
Speaker Change: Gross profit for the fourth quarter of 2024 was $31 4 million or 28, 4% of sales compared to 28, 5% in the fourth quarter of 2023.
Speaker Change: For the fourth quarter of 2024 operating expenses were $27 2 million compared to $27 6 million in the fourth quarter of 2023.
Speaker Change: SG&A expenses were reduced to $20 3 million from $21 1 million in the prior year quarter.
Speaker Change: R&D expenses increased to $6 9 million for the fourth quarter of 2024 compared to $6 5 million in the prior year quarter.
Speaker Change: Operating income was $4 2 million compared to 200000 in the fourth quarter of 2023.
Speaker Change: Net income for the fourth quarter of 2024 was $2 6 million or <unk> 20 per diluted share.
Speaker Change: Compared to a net loss of 500000 or <unk> <unk> per share in the fourth quarter of 2023.
Speaker Change: Next I'll review, our cash flow and balance sheet at December 31, 2024, cash and cash equivalents were $26 8 million compared to $42 8 million at December 31, 2023.
Speaker Change: For the 12 months ending December 31, 2024, net cash provided by operating activities was $14 8 million of which $8 4 million was used for internal investments.
We reduced our outstanding line of credit by over $18 million in 2024, resulting in a net debt position at year end of approximately $10 million.
Speaker Change: Now turning to our guidance several products won over the past couple of years in the connected home channel have begun to ship and we expect this trend to continue throughout 2025.
Speaker Change: As mentioned earlier certain customers increase their orders for our climate control products.
Speaker Change: And although not all of these orders were shipped as of year end, we were required under GAAP to recognize this revenue approximating $4 million in the fourth quarter.
Speaker Change: This essentially shifted revenue from Q1 2025 to Q4 2024.
Speaker Change: Taking this into consideration for the first quarter of 2025, we expect sales to range from 87% to $97 million compared to $91 9 million in the first quarter of 2024, we expect a net loss ranging from 21 cents to <unk> 11 per share compared to a loss of 26 per share in the first quarter of 2024.
I would now like to turn the call back to Paul.
Paul Ehrlich: Thanks, Brian.
Speaker Change: We closed 2024 is a much stronger and better positioned company than we were in 2023.
Speaker Change: In our financial performance in 2024 reflects that our commitment to the connected home market is beginning to pay off.
Speaker Change: As our products and technologies are attracting new customers and the long lead design wins are beginning to come to fruition.
Speaker Change: This was also evident at CES.
Speaker Change: This year as we unveiled innovative solutions to address customer needs and ultimately deliver end user benefits. Our advanced features and functionality appeal to a wide customer base as they ensure privacy feature advanced technologies support for on device AI processing and offer customer monetization opportunities.
Speaker Change: Through personalization and increased user.
Speaker Change: Engagement.
Speaker Change: While we've made great progress there is still a ways to go based on our recent successes our orders and our strong pipeline. We are reiterating our projections for both top and bottom line growth for full year 2025, and beyond as always stay tuned.
Speaker Change: Operator, we can now open up the call for questions.
Speaker Change: Thank you Sir.
Speaker Change: Binder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Steven Frankel from Rosenblatt Securities.
Steven Frankel: Good afternoon, Paul and Brian Thank you.
Speaker Change: Yeah.
Speaker Change: If we get a little more detail on this notion of.
Climate control products that are going to be shipped until Q1, but their revenue recognition.
Speaker Change: In Q4.
Speaker Change: Can you just help me understand what triggered that and does that normalize after Q1.
Brian: Yes, it was Brian.
Speaker Change: County rules. These changes in a handful of years back where basically you used to have to you have to ship the product to record the revenue and about five years ago things change so.
Speaker Change: I won't go through all the details of the rules, but essentially have to be a customized product you have to produce it you have to have.
Speaker Change: Firm commitment.
Speaker Change: Just to name a few but the bottom line as we received orders increase in orders in the fourth quarter. We produced those products and these products related to the connected home channel primarily in the climate control and because we can produce them.
As of year end under the accounting rules, we are required to recognize the revenue now under the old rules that revenue would have been recognized in Q1 upon shipment, but with the new rules. It got recognized in Q4 and it provided for additional $4 million of revenue in the fourth quarter.
Speaker Change: Okay, and then in your guidance it seems to imply.
Speaker Change: Both an increase in expenses and a decrease in gross margin is that gross margin decreased just because you are missing that $4 million in revenue. So you drop your run rate and we're having some gross margin pressure or was there something else going on.
Speaker Change: I think it's important that the gross margin for the full year I don't have a change in outlook I still expect it to be in the last quarter like I said I expect the full year to be 30 points plus or minus one percentage point. So that hasnt changed Q1 is typically light when you have when you have lower volume in the first quarter you have lower production, so you're not absorbing the overhead as efficiently as you normally do so that takes.
Speaker Change: You know a little bit of pressure puts pressure on the gross margin rate. So.
Speaker Change: There is a little bit of pressure on the margin rate in Q1, but for the full year I don't see a difference.
Speaker Change: Still expected to be 30 points plus or minus one.
Speaker Change: And in General Opex.
Speaker Change: Should have what kind of shrink or growth on a year over year basis.
Speaker Change: I don't expect it to be whatever I think I expect opex to be similar I think whatever wage inflation because that nature were going to offset.
Speaker Change: Okay, and then what were your customer concentration numbers in Q4, we.
Speaker Change: We had 210% customers daikin at 13, 4% and Comcast at 10 seven.
Speaker Change: Nice to see that come back.
Speaker Change: Yes.
Speaker Change: And then maybe some detail on legal judgment that was mentioned.
Speaker Change: I mentioned in the footnotes.
Speaker Change: Yes.
Speaker Change: As we previously reported the U S Court of Appeals of the Federal Circuit affirmed our win against Roku.
Speaker Change: Okay.
Speaker Change: Broker then filed a request for a U S. Supreme Court review of that decision in mid January the U S. Supreme Court denied brokers request, making the decision final.
Speaker Change: As a result, we expect to seek to get the two district Court cases started or Unstate in 2025 and of course, we will update everyone. As significant progress is made on the <unk> on this important matter.
Speaker Change: Okay.
Speaker Change: Another way to put that we're having to deal with.
Speaker Change: Legal settlement and what are your factories in China is that.
Speaker Change: Also related to Roku, roku or is that something different.
Speaker Change: That was a labor agency issue.
Speaker Change: And that relates to prior years.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Greg Burns from Sidoti.
Greg Burns: Good afternoon.
Speaker Change: The terrorists factor into your outlook for 2025.
Speaker Change: Well.
Speaker Change: It's a complex topic.
Speaker Change: As we.
Speaker Change: The tariff so far aren't complete and there is a lot I think to still occur there.
Speaker Change: As far as China is concerned.
Speaker Change: We've already we did some years ago remediate that we don't have.
Speaker Change: But a small amount of U S destined product.
Speaker Change: <unk> in China, So we had to deal with that six years ago.
Speaker Change: Dan did.
Speaker Change: So.
Speaker Change: The thing that's done with China is.
Speaker Change: Somewhat irrelevant to us unless the nature of things change.
Speaker Change:
Speaker Change: As far as the threatened tariffs here in the Americas.
Speaker Change: There could be some effect.
Speaker Change: But we're already working on ways to mitigate that it's much smaller than it once was because our the production out of Mexico is much smaller than it once was.
Speaker Change: We use that as a hub.
Speaker Change: Frankly to begin to remediate the tariffs those I think it's now six years ago.
Speaker Change: From China, but.
Speaker Change: But the production there has gone down significantly.
Speaker Change: But as far as tariffs go obviously.
Speaker Change: This is fluid.
Speaker Change: We're going to have to.
Speaker Change: Make changes potentially.
Speaker Change: And ameliorate the situation if something were to happen, we obviously will work with customers to get them the right price.
Speaker Change: I think we've shown ourselves to be pretty nimble on this front.
Speaker Change: As we had to do many years ago.
Speaker Change: <unk>.
Speaker Change: So.
Speaker Change: Again, it's a fluid situation that we'll have to watch, but again anything having to do with China is not really relevant to us as it stands now.
Speaker Change: Mexico could be but it's relatively small.
Speaker Change: And we will remediate that or ameliorate the situation with customers.
Speaker Change: Beyond that it's difficult to know what the next tariff move will be.
Speaker Change: Okay.
Speaker Change: And then when we normalize for that $4 million that shifted.
Speaker Change: Between quarters.
Speaker Change: Based on the order trends that you've been seeing.
Speaker Change: How should we think about the remainder of the year does grow do you see growth.
Speaker Change: Accelerating or improving on a sequential basis as we move throughout the year like how do you see the.
Speaker Change: Youre playing out based on the pipeline and order activity that you're currently seeing.
Speaker Change: Yes, again, Greg difficult to answer we of course have gotten an outlook from customers, but it's pretty far out Q3, and Q4, even Q2.
Speaker Change: Q3, Q4, or even further out. So this is one of the reasons, we don't provide long term guidance because those those could improve significantly or be reduced significantly depending on the economic situation in a whole number of factors.
Speaker Change: It's one of the reasons why we provide guidance one quarter out.
Speaker Change: However, we do have quite a few new projects. We've had a few we had a few in the back half of the year that help positively impact things we have more this year.
Speaker Change: And.
Speaker Change: We are bullish about that for sure.
Speaker Change: But we'll have to see how the year progresses, not just for us, but the economy in any number of other variables that could affect demand for.
Speaker Change: Home Entertainment devices televisions HVAC.
Speaker Change: And that's why again, we don't provide.
Speaker Change: To provide long term guidance if were just to focus on projects there is quite a bit of.
Speaker Change: There was quite a bit to be bullish about because we are gaining share as I said in the prepared remarks, we're winning second and third.
Speaker Change: Some cases fourth and.
Speaker Change: And fifth projects and bidding for more.
Speaker Change: Reminiscent of what happened in home entertainment many years ago.
Speaker Change: We go in we prove ourselves with great products.
Speaker Change: Great execution.
Speaker Change: And then earn more business and we're seeing a similar pattern.
In these markets. So we're very bullish about that if we can get any sort of economic.
Speaker Change: Lack of economic headwind or even a trailing breeze.
It could be even better, but we're reluctant to give any real long term forecast on.
Speaker Change: The total.
Speaker Change: At this point.
Speaker Change: Okay and then.
Speaker Change: So I guess the relative strength you saw in the subscription broadcast market this quarter.
Speaker Change: Is that sustainable or do you feel like the business that part of the business has.
Speaker Change: Kind of reached a.
Speaker Change: Stable level and order patterns.
Speaker Change: Can stabilize there or how do you view what you saw this quarter, maybe in terms of the sustainability of that.
Speaker Change: It did now.
Speaker Change: Now again, it's always difficult to forecast, 2% or three or four quarters out but.
Speaker Change: Certainly the rate of decline has lessened and probably will.
Speaker Change: Given that it has gone down quite a bit over the last four or five years.
Speaker Change:
Speaker Change: But again difficult the forecast, we've gotten and the performance we've had over the last few quarters would show a lessening of that decline with with many of these customers. In fact, we did have some increases.
Speaker Change: From them. So maybe it's reached the point, where the damage that that part of our business might be doing to the total has reduced.
Speaker Change: And the growth from the connected home area of our business can shine through.
Speaker Change: Right, because if we've gotten worse.
Speaker Change: Flattened out.
Speaker Change: Or even declining vary.
Speaker Change: Sparingly on on the homeowners.
Speaker Change: Home entertainment side than the connected home growth can shine through.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you one moment for our next question.
Jeff Van: Our next question comes from the line of Jeff Van <unk> from B Riley Securities.
Speaker Change: Hi, everyone. Let me say congratulations on the return to growth.
Speaker Change: I Wonder if we could just circle back to production.
Speaker Change: Graphic considerations.
Speaker Change: I recall, you have a facility in Vietnam.
Speaker Change: Is producing predominantly <unk>.
Speaker Change: HVA.
Speaker Change: Our connected home products and I'm, just wondering if you alluded to could you produce more there if you needed to shift production from Mexico or.
Speaker Change: Anything else that's in I guess, China is an issue, but for Mexico, perhaps yes.
Speaker Change: We do make both home entertainment and connected home products in Vietnam.
Speaker Change: Already.
Speaker Change: So there could be further shifts made.
Speaker Change: For either classification of product or any of our products.
Speaker Change: To our facility in Vietnam if necessary.
Speaker Change: Okay, Okay good to know.
Speaker Change: And then you mentioned.
Speaker Change: Enhanced monetization opportunities in some of the products that you showcased at CES can you elaborate a little bit more on that and the potential contribution to your business that could have.
Speaker Change: Sure, Yes, well I don't want to give too much away because some of this is brand new and we at CES. We typically present these technologies to the Oems.
Speaker Change: For inclusion in their future product.
Speaker Change: But a couple of different things.
Speaker Change: Advanced monetization could be had.
Speaker Change: We're doing a lot on the device.
Speaker Change: And in the device itself not necessarily in the cloud even but in the device.
Which provides obviously security.
Speaker Change: To potentially bring more consumers as you know in the home Entertainment business. There is a battle of the OS.
Speaker Change: So a lot of companies are building an OS within the device and consumers are sometimes connecting other products to the device, which creates a battle of OS right.
Speaker Change: And what we're able to do is help them bring more users to their OS.
Speaker Change: Through some of the things we're doing.
Speaker Change: Software driven things, we're doing across the platform.
Speaker Change: I guess, that's the only thing I can say about it right now which would bring more obviously more eyeballs are more viewing hours.
Speaker Change: To their interface, which obviously increases the monetization.
Speaker Change: For those players.
Speaker Change: And again, we want to do it in a way that the consumer is attracted to.
Speaker Change: It's doing it in a way that the consumer isn't attracted to doesn't really work.
Speaker Change: Over the long term people are going to do what they want to do so we are developing ways to make it more attractive for people to come to your OS to view the various things they wish to watch.
Speaker Change: Now as far as home sense is concerned there are a variety of ways that are different customers home entertainment HVAC other smart home applications, because essentially what it does is and I won't get too deep into the technology here, but it can determine.
Speaker Change: Who is home and essentially where they might be.
Speaker Change: And of course, it's private because it can be done on device.
Speaker Change: And this is why we're doing advanced development with some of our partners of platforms of hardware platforms chips.
Speaker Change: That can allow them to do this sort of AI within the home.
Speaker Change: To determine who's present.
Speaker Change: You might say why do I need to know that we will there's a whole bunch of applications for this in the entertainment world, but even importantly on simple things like climate control.
Speaker Change: Why are you cooling parts of your house, where nobody's, there or nobody has ever there.
Speaker Change: Some people on this call probably have large homes, where 30% of their home is it occupied very often.
Speaker Change: When their system be better optimized wouldn't it balanced comfort with cost better if they actually could locate where people are and optimize the system for that.
Speaker Change: So theres a lot of applications for this and future products and our platforms.
Speaker Change: Working alongside these Oems and this one the home centers one applies across the board connected home.
Security.
Speaker Change: <unk> Entertainment.
Speaker Change: And I think we have a pretty good technology, there and customers were very interested in this along with other quickset quickset seven SDK and other applications to be built into our future products that we build for them or into their products directly.
Jeff Van: I hope that answered your question Jeff.
Jeff Van: Yeah. That's helpful. I appreciate that.
Jeff Van: Just wanted to maybe.
Jeff Van: I think a little bit about growth drivers that you have baked into your guidance for this year I know you are seeing growth in HVAC control.
Jeff Van: Connected home, but I guess.
Are those the products that you are seeing being the largest drivers of growth. This year is it largely HAC derived products or are there other products and that you see driving it is it kind of a rebound perhaps.
Jeff Van: Yeah.
Jeff Van: I don't know subscription broadcasting are there new programs that.
Speaker Change: That might be up or maybe you could just help us with that a bit.
Jeff Van: No. It's a good question.
Jeff Van: A little bit of of each it's not just one thing I would say predominantly where the biggest opportunity is there are customers on the HVAC side.
Jeff Van: That for US presented an opportunity as large as the opportunities we saw in home entertainment, meaning our potential sales to them.
Jeff Van: It could be as great as the largest customers we had in home entertainment.
Jeff Van: That's how big they are and how many products they deploy.
Jeff Van: And we are of course working on some of the largest in the world. We've mentioned two names on this call daikon and carrier who happened to be the two largest HVAC providers in the world.
Jeff Van: We are working on with others. Other names we mentioned, but this market is large it's growing and it's changing.
So that change brings about an opportunity to sell in these new platforms that help with their new products because they are trying to change these products as well to make them more efficient to make them again balanced comfort.
Jeff Van: With cost because consumers and the cost is not just of the device is up the energy that drives them.
Jeff Van: So theyre looking for ways to do that and we have some methods in the controller that can help them do that we can also make that device much more functional.
Jeff Van: It can do things that has never done before.
Jeff Van: No.
Jeff Van: That's and this has happened in other markets. It's happened years ago in phones, it's happened and it's even happened and remotes.
Jeff Van: Remote we once said many years ago, we are changing with a remote control is and what the remote control is capable of doing.
Jeff Van: Well here's another case the thermostat in many homes is sometimes not even the connected product.
Jeff Van: Now they are beginning to become connected meaning they are controlled by an IP device, but what if it could do much more what does it could balance your electric bill what if it can tell you that if you. If you wanted it to be 74 degrees right now.
Jeff Van: If you let me only be 76 degrees I can turn it down to 74, when the price per kilowatt hour goes down at seven o'clock.
Jeff Van: You hit yes, and then the thing automatically reprograms itself.
Jeff Van: There are others, who do this sort of thing, but probably not in this complete away as we do.
And then on top of it we have the device interconnectivity interoperability that we've proven in other markets, including home entertainment that is very attractive to this market because they want to become more integral to the smart home.
Jeff Van: We've already done that with other leading names in another market and this interest. These customers. So we have a lot to offer here and thats, probably one of the many reasons why we're winning projects there proving.
Jeff Van: Proving ourselves and then winning second third fourth and more projects. So we have a lot of we have a lot to offer here a lot of differentiation, we're continuing to innovate in this area. Some of the things I just mentioned.
Jeff Van: And Thats again, what we've done before this is how we became the leading company by far.
Jeff Van: And that other control market and I think there is a similar opportunity here and we're at the beginning stage of it but.
Jeff Van: Large and growing market a lot of large players we're starting to wind projects with I think it's very similar right.
Jeff Van: So we see that starting to happen.
Jeff Van: Right now and we expect to do more of that this year. This year, we'll wind projects that will fuel.
Jeff Van: Not just late 'twenty, five but will fuel 26, 2007 2008 right.
Jeff Van: Right and Thats the key.
Jeff Van: For us and we're pretty bullish about what we're doing right now and the customers are happy with the things we've done so far.
Okay.
Jeff Van: No you don't break it out, but I'm, just thinking kind of thinking out loud here about the insurance the hash business.
Speaker Change: And is your belief that that business will to growth there what accelerated do you think in second half of this year and into 2026 or how are you thinking about sort of the.
Jeff Van: I guess, the Roth curve of that business, yes.
Jeff Van: As we as we sit today and it's always difficult to predict 2345 years out.
Jeff Van: But I do think that based on the growth dynamics that are there today the connected home business.
Jeff Van: Probably will be the majority of our business.
Jeff Van: Some time from now not this year, but it will be sometime from now just because of the growth the growth prospects. There the size of the market the number of customers that we don't have yet.
Jeff Van: That we are beginning to win.
Jeff Van: The growth of the market itself.
Jeff Van: And the home entertainment market is.
Jeff Van: It has been difficult for the last few years and probably doesn't grow at the same pace anywhere in the next five years as the connected home market. So I do see this as a key.
Jeff Van: To the future. It does not mean home entertainment isn't going anywhere people are still entertaining themselves at home. There is plenty of opportunity. There we do have wins there that will help.
Jeff Van: You will that business.
Jeff Van: May offset any further shrinkage, we might have from certain of those markets right.
Jeff Van: So we're still by far the leader there and it is part of it is very much an important part of our business, but connected home is probably where the growth comes from over the next three to five years.
Speaker Change: Okay. Good to hear thanks for taking my questions sure.
Speaker Change: Thank you one moment for our next question.
Speaker Change: We have a follow up question from Steven Frankel from Rosenblatt Securities.
Speaker Change: Paul.
Speaker Change: Discussion with the HVAC vendors about additional products.
Where do you think they are.
Speaker Change: In may.
Speaker Change: Making these smart thermostats, a standard part of a new sale.
Speaker Change: Rather than something optional.
Speaker Change: Consumer has to decide to pay up for when they install a new system.
Speaker Change: Well I can't speak to the economics on their end.
Speaker Change: And obviously, we never talk about specific customers plans.
Speaker Change: So if youre asking where they one day give them for free I can't comment on that that probably is being considered.
Speaker Change: As a just as an integral part of their system, but that wouldn't be us up to us to do right. We will sell them the product they will marketed in a way they deem appropriate.
Speaker Change: But I will say this that.
Speaker Change: In many discussions in that market their desire is to become more integral to the smart home, which would mean that they will want to attach their brand <unk> their product.
Speaker Change: To their products, but they realize they have to make their product better and very attractive to the consumer because it's just like any market. The consumer want it if it's as good or better than what they have now or what is available to them through other vendors.
Speaker Change: So they are very cognizant of that and are working towards that.
Speaker Change: And this is where again the opportunity for us as they're making these products do things that are useful to the consumer that make them smarter and buy smarter I don't just mean connected to an IP device I mean, they do things.
Speaker Change: That make your life easier that are that other people aren't doing in their product. We mentioned a few of those features here and there sometimes not huge features but there.
Speaker Change: Additional features that make the product a little better.
Speaker Change: And they're all interested in this.
Speaker Change: Almost everyone I.
Speaker Change: I think I can safely say everyone.
Speaker Change: In this market is.
Speaker Change: On that on that trail towards a product that not only will control their HVAC system, better, but may do other things as well.
Speaker Change: May be able to even predict when your device is failing.
Speaker Change: So that we that the consumer.
Speaker Change: Or the installer can be contacted to contact the consumer to say, hey, maybe I should come out and look at your system.
Speaker Change: What you don't want to have in the middle of summer is your HVAC system, if anybody's had this fail.
Speaker Change: And you have to wait two days for it to be fixed.
Speaker Change: Particularly don't want that in Phoenix, and I can tell you that.
Speaker Change: So.
Speaker Change: Systems that are smarter systems that might have proprietary data that are coming from the unit itself remember the controller is just like it was in the TV is separate from the device itself.
Speaker Change: So youre going to have to communicate between devices in a way that will help them predict.
Speaker Change: Those happenings and again increase the value and potentially increase the value for the OEM Android the installer as well.
Speaker Change: So there are ways to make these devices have everyone win with a better more useful product.
Speaker Change: Okay, Great and then could you review for us.
Speaker Change: The top 10 HVAC vendors in the world how many.
Speaker Change: Have you won.
Speaker Change: Any others or you have a material discussions with.
Speaker Change: Well I think when you say material discussions I don't I don't know the definition of that were probably talking to all of them.
Speaker Change: In fact, I'm quite sure we are.
Speaker Change: And I think we've won the majority of them or at least a project.
Speaker Change: Because the way these relationships and that's probably true in any market. It wasn't home entertainment. It is an HVAC and it probably isn't any market. When you want to break into an account. That's large you usually don't go in and are able to pitch I want all your business today.
Speaker Change: Because most of these companies, particularly if they're of size are not going to give a new vendor all of their business.
Speaker Change: So you typically have to go through a project where.
Speaker Change: Where they see how you work they see how you integrate with their people their engineers right. It's a test.
Speaker Change: A project that you go through.
Speaker Change: We've been through this in other markets than once you prove yourself you're allowed new projects.
Speaker Change: You can get to the point, where they will award you multiple projects at once because they are so happy with what you've done on the first or second project.
Speaker Change: And they often do reviews of them after they're done after the product's been introduced they will do a review of the vendor how did we work together how can we work better together.
Speaker Change: And then they May award you additional projects.
Speaker Change: That's the stage we're at with the.
Speaker Change: A few of these major players.
Speaker Change: Yeah.
Speaker Change: We've been awarded great projects and we will.
Speaker Change: Of course execute on those.
Speaker Change: And then.
Speaker Change: Like we did in home entertainment, we will.
Speaker Change: Decide we want as much.
Speaker Change: To do as much with them as possible and have them make that choice.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Thank you.
Speaker Change: At this time I would now like to turn the conference back over to Paul Arlene for closing remarks.
Speaker Change: Okay. Thank you for your continued support of Universal electronics, and joining us on the call today.
Speaker Change: We will present at the Sidoti small cap virtual conference on March 19th and 20th we look forward to seeing some or all of you there have a great day.
Speaker Change: Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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