Universal Electronics (UEIC) 3 Nov 222022 Q3 Earnings call transcript

Welcome to the Universal Electronics Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like to now hand it over to your speaker, Kirsten Chapman from LHA Investor Relations.

Thank you, Therese and thank you all for joining us for the Universal Electronics third quarter 2022 financial results conference call. By now, you should have received a copy of the press release.

please Investor Investor website. Relations not or at have the visit section you contact Relations LHA XXX-XXX-XXXX If of the call live broadcast is Internet. This over the being www.uei.com. be X A available replay will year webcast at for during Any additional updated be website will nonpublic information retained company’s for provided the it X this year. be on that be where call might material discussed will at least

replay. information access You that by listening the may webcast also to

performance those events control, call, the technologies, management of and that and forward-looking accepted hospitality home for sustainability its and and will to power or for security remote results customers, design from channels harvesting may results during cautions materially CES, the that and including successful collaboration and company statements of with technologies and technology future developing and ability increased existing in new customers the existing company’s upgrades low opportunities energy introducing differ ultra by HVAC company. next-generation connectivity leveraging and its monetization, you the just financial the to controls market XXXX, this wireless and operating During climate projections introduced are statements future systems new line attract events capture the be groundbreaking its capabilities customers and make sales statements timely may products, projections. and related continued regarding in which and and year actual new these These develop and deliver products include this

public efficiency, that to may sales through financial challenges and its macroeconomic continue actions, OR. stemming may to in health management; business customers inventories flows are cash constraints, pressures disasters, its supply to financial from its financial with and and conditions supply it manage results impact results company the line respect the and experience and net semiconductor company’s the COVID-XX resurgence its continuation the the impact including business governmental of margins to due and ability product and the earnings experience or natural direct and of indirect chain to discipline, crisis, operational inflationary Management’s including achieve to experiencing and and pandemic

undertakes company documents periodic and to on events these press filed you the that release to has may reports reflect today’s circumstances or XX-K or SEC, revise after annual statements obligation update filed arise report company The call refers onset this the its including and mentioned to the and no then. date the with the the of Form since at

adjusted them provides GAAP remarks, because be decisions adjusted planning and that it and measures Management believes such consistent financial these non-GAAP for evaluates a purposes making measures trends metrics operating helps non-GAAP and will performance In metrics referenced. operational management’s and and non-GAAP investors uses core business financial for providing supplement financial UEI’s budget to management evaluate financial investors as performance how with trends. financial to and

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

the remarks. call Chief return the and Hackworth, Financial overview Officer, Executive Chairman deliver will then Officer, will an who provide closing On Paul to Arling, and who are summarize Bryan Paul Chief financials. will

go ahead, my sir. now introduce Paul pleasure is It to Please Arling.

comprehensive reached earnings delivered million quarter afternoon, more per total line strong our in sales automation. today. control XX.X%. and These reported in we addressable exceeding Products $X, $X.XX. you to contributed IP third some and of strong results. $XXX.X with mix more features leveraging proprietary sales advanced margin that products home very joining to $X.XX strategy of for guidance to Combined our product highly control markets our and new technology differentiated our of discipline solutions penetrate line to significantly bottom cases, Earlier this Thank results gross with expand smart our us reflect market net with and management, share wireless improve by financial

UEI improve consumers’ customers in Throughout invested innovation to has help history, our our lives.

steadfast, commitment Our higher technology we and continue carry to to R&D margins. is that solutions advanced develop

business go. history, past truly mission to are going today enter that apply model growth. and markets it’s define share successes important be of can who we we Our we long-term to our and are understand market little our proven bit capture to culture to where high-growth and tomorrow, drives our To we where believe in a understand

home to obsessed universal with make ago, remotes with products of we generation. We of service dedicated video making making and provider years market, held share of were fact, experience the experience better. these the the better using consumer began configuring entertainment in successive each Many simple but small a

truly that As ones features could upgradable, the we years products, had unfolded, offer. developed one that were universal ones no else

level. that customer Our and of happened developed We value the truly share consumer added grew. at overnight. never products We voice-enabled this None self-configuring rested.

using as considered in standard market we TVs. focus, are where electronics, share to obsession can to smart percentage year, improve world in technologies happen ever-growing that industry technology and the the fact, innovation and setup again, and smart across proudly our their solutions and to has boast of solutions. everyday point not growth, of now has the our products But helped top remarkably consistently our to our our was dedication the drive brands technologies team’s TV consistently easy now consumer overnight. user and an Each use pleasant X This, over the in are decade, experience. progressed, our world. But the make TV enable led the share past did these grew that products with our our in experience commitment your of our to years the too, consumer many In

to a consistently security solutions. our is we obsession improve control, climate channels. the with years Again, and automation fact, user in similar ago, in focus, experience the Some journey our home our began technology and

together a size, few years, smart built around or just billion are for approach These $X worldwide growing slowly past XX% product XX% new at channel, are in their the most we Over in are technologies connected the market newer share have importantly, and embracing in UEI portfolios. we HVAC annually started. OEM and markets getting the

Japan. leadership in numerous demonstrated with and long-standing with relationship have and product our recently the leading the largest names projects HVAC the Starting U.S. we technology our world, win with in Daikin, company begun the to across and HVAC new

in In and as including addition, better wins their at products including Hunter of counting on a name greater tie-in Douglas, over relevant we cannot home and to are and automation systems, of with a a count greater leading list us home variety in These the brands more yet for one years, including project intuitive we be control can are areas home introduced. wireless X low-power of the smart home growing that and past the home security, of control companies Vivint other to Somfy, customers new other IP automation, the the us, connectivity, matter potentially innovations, most most many entertainment.

noticed will recurring growing, in are You that active have we and within grow at not channels namely share that UEI, not we that is themes have might and markets have communicated those our rest. certain I

experiences continued as businesses. to fact, grow bring We and as solutions our obsession customers product will well their our to continue our enable innovation commitment improve technology that and in customers consumer help

said at the ever times strategy I the and to to of levels us bring successful has that same success. made again implement continue As we will before once many outset, UEI higher

and are XXXX to I beyond. During the some contracts deliver review revenue significant in now. that third quarter, expected several of them we secured will

design expanded world premise One the selecting waste to by in follow of eliminate control our the to long-standing the its this is top X ecological video need battery the new and extreme technology our foundation remote low-power to customers service expect green growing, more providers of we decarbonize equipment for as relationship path.

controller selected has video broadcaster current their controllers to our of likely part for state-of-the-art subscription the UEI program, Interestingly, systems. be for several syndication voice-enabled adopted leading advanced larger and are that their large of is their service. solution a by streaming meaning next-generation Another

we products market rollout mass committed feel have have confident customer period multiple variants this winning next have bringing we whom with to customers for in And a customers, XXXX. engagements in of and Comfort several As we thermostat shipping Control start of OEMs. typically we American over semi-custom and our market our After year to new largest ramp the of earlier and of of may mentioned timelines early into new that first while been the Japanese large will quarters, several announced HVAC the at projects XXXX. Climate our year, some platform vertical, expansion

new exciting projects, are deals significant does In security win awarding security bring Somfy we we the mass allow successes. these relationship to solutions new Vivint, Pro yet. with continue with Unfortunately, and us new by also potential. such as market, and that are and customers Leading the seeing market us Douglas automation both of any expanding their home in the Hunter reveal DIY and nature will details to just us not brands

smart to getting entertainment promises control. event, be and showcase CES solutions wireless latest an UEI our and ready to innovation we at home are leads home once in It where Finally, technology exciting XXXX. again

of some I solutions exhibit. will the will we preview

of with First, setup world’s platform smart home Cloud, entertainment technology we’ll interaction the QuickSet the and be control latest and discovery, for generation showcasing leading devices.

adopted a recently new a ecosystem leading protocol launched enhanced and brands by as Google, called We has smart will industry Amazon, standard interoperability Apple, that with been Comcast. demonstrate Samsung control MATTER, such home

to television We screen their providing the their home. an products video control TV capabilities well to a and platforms path OEMs way integrate integrate operators as simple pay easy as into home in smart the home now provide smart into big

platform its native, addition, cloud innovative sensory our all showcased In enhanced Tide and control features. and thermostat smart we

help integrate services. can smart energy as as home be systems existing demonstrating the products how will with efficiency and how home We our well can more the platform and create in new

what sources our remote low-power your technology unique in the very The solution that that underlying in on also demonstrating from have our energy and electronic sustainability with to many technologies. sustainability remote you examples the no and create control. working award-winning handheld need in control the of includes replacement replace cycle promise are customers. solutions of be players We devices so X control light an control serve. agenda, RF we Tier the This leading accounts will battery longer teams our batteries harvest indoor the – active platform are resonates of a eliminate needs markets to well address wireless These few to just which turn

the Bryan. Hackworth, review go turn Please CFO, will I ahead, Now, financials. over Bryan of to the call our for a

you, Paul. Thank

the a without for XXXX the third issues related third XX.X% the for guidance, quarter Net quarter of XXXX a pandemic. the $XXX.X review the I’ll within results for the quarter million quarter were XXXX. COVID $XXX.X third reflected of sales compared third the as factory shutdown Gross to QX sales of Squarely million profit to XXXX. million quarter in QX, First, compared the of to $XX.X was quarter or compared or in XX.X% case third of logistical XXXX. to of in sales was The

and in entertainment an include improved security paying sales as advanced a home Our features, home leading investments profile. margin of as percentage for for in channels off developing to our such are focus technologies automation HVAC, higher and leading

of million As expenses them. devices $XX.X IP-enabled SG&A quarter. Operating the third $X.X to R&D grow, in expenses million the does continues year expenses compared compared from the in quarter in to million $XX.X need to $X.X were million a $XX.X million control year the quarter. of so prior the in XXXX. increased home prior number million to to $XX.X decreased too to

enabled ago, Operating strategic we consistently efficiency corporate streamline improve to resources to expenses the in as sales us or XX.X% investments. XXXX. experience core as These operational increase free years million gain the quarter for earnest few or compared in markets internal channels. of began and to $XX.X new have sales $XX.X share investments our of third to in XX.X% A income user to in million was well market of

XXXX. XXXX Our tax rate was and quarter of third both the XX.X% for

third diluted per income was $XX.X $XX.X or diluted For in to net share of the per the compared XXXX. quarter million of or quarter $X share XXXX, $X.XX million third

strong, at flow ended expect $XX.X continued fourth Next, XXXX. of with We and operations the December in term cash sheet. quarter will was in XX, equivalents third the cash cash from quarter deposits balance of million XXXX for we cash, million flow strength our and $XX.X compared Cash and quarter. million, flow $XX.X review I yielding the to

guidance, dubbed our I’d an update review ports have give on Before parts. I like we and to what

For UEI, the the concerns resolved. substantially or ports logistics are

to the However, factor supply chain remain chips. parts the constraints a related or mainly procuring

parts, part improve as able challenge have a supply will the indicated manageable who more instead, part supplier by over time. but semiconductor to benefits We’ve overnight, experienced that ready period before, and our of lead ability not already to supply the meet said supply continue of we In normalized have suppliers we’ve resolve some a at to online, As maintain backlog enable of we’ll times impacting expect some to return us vendors individual state to each on our the continue products. of they’re demand in times their come long pent-up and XXXX, to to current will we allocation put will of the their have other channels. which while lead current of new customers ship

OEMs to third quarter our year guidance, turning Now holiday highest the for sales our the of as traditionally, season. were ramp the

sales year. same this patterns We expect the

pressures and headwinds. widened the as have sales remains the inflationary We current with macroeconomic environment uncertain range

from to quarter XXXX. compared to quarter For the in sales $XXX.X range to expect the million million $XXX fourth million XXXX, fourth $XXX we of

$X.XX EPS targets to and to our EPS sales reiterate in fourth from between to expect and X% of $X.XX quarter between $X.XX XXXX. of XX%. compared long-term range We XX% XX% We the growth and

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

Brian. Thanks,

of energy the experience. and delivering become While and combined war, ease-of-use costs and on always, we inflation, term. near headwinds keep We, macroeconomic we industry innovating consumer to focused in the mainstays as that have significant challenges create stay are to growth, and that solutions are long-term eventually essential aware well pressures supply

we subside benefit gained greatly. with expanding As markets Then improve, and such, we pressures market economic have project base. proof we wins will and and tangible when our customer share

to While is differentiated embed continue this market, in The brands to gaining its we in number leads managing home in capture we develop profitability. of the increased business. successfully effectively proven do simple, growing our We technology, to ultimately costs foothold working growing value with approach while have leading long-term markets. share that are and our a a in our the solutions fact able

As always, stay tuned.

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

first question Jeff Van you. from Sinderen Instructions] Thank B. Our [Operator Jeff? Riley. comes from

Hi everybody.

guidance guys there the on demand? you the of just you sort the like guidance overall much us caution you how macro the supply Apologies versus of chain So input fire understand is some is demand sounded spoke that – How here. maybe of broader you the issues is It pent-up system help much reflecting had and to. background the strong. could testing how much for

all three So just those trying to reconcile, I guess, factors?

Jeff. Sure. Yes, I can address this,

name we big resolved. and just The certain we the them. happening. prediction, a vendors, made that I don’t that quarterly a Obviously, is not these if about and please – quarter want to said, shortage, conference it’s to, going But as we go the Although semiconductor this from semiconductor off, really exit hurt. can’t this alluded it test. problem of is you is shortage as we Brian we’ve on When happening building. calls up I is get going to and I alarm got hope to in and Brian both. fire or talked before something, the unfortunately, issue our is completely to next use What

of them X have operating to and in pre-COVID principles ready moved meaning shorter lead somewhere X the have pre-shortage of neighborhood times, you indicating actually Some if have parts, of to weeks they that for need you of they an supply this I during I the part, say, need you a of extra you them particular and quarter quarter forecasted, you. and need get X can where – call actually them where million $XXX,XXX, back

And and the in than You you’re vendors wait There on have lead you shortage mode, are time XX are times more to the are want you’re XX is weeks. allocation. other those won’t who a the where extra parts, going still told be year lead weeks. if to

forecast wrestling you to you that the If get but parts, to extra you need get you need. unit want might struggle them, the with help a a trying particular a but sometimes and more are can need if units. extra So match they it’s revenue you vendor – – any if it’s they look, too, to parts they underforecasted was, because

So that has color on little supply this bit – shortage. a anyway, given just more

to as are a there but street quite while, a up time targeted year from by at a capacity industry forecasted this weeks reallocate to supply X It’s here of pace. open is point part before, it’s times parts. And within the that are like next taking certainly the And the will eventually, or true being to added to back is on, be to this they and will they lead vendor, parts we’ve vendor but to improving. more is we’re so. most part, There as and a starting capacity record not yet. will and problem see X marches ours where be We’re that’s vendors by fab ready

have more we do orders we probably can, That’d get we a So XX%, we’re if to I like as that all but could that would would we have. much as deliver say. during parts the quarter XX% be we

highs In have have at families addition, paying rates is Brian in concerned consumer the from interest Families more struggling are Middle-class just groceries. and for they little anybody XX-year plus. reported bit out, other this are inflation gasoline – is seen at the the companies that you mark U.S. are already, for more in X% today as and probably probably and pointed who’s a because markets because still

months. X right the demand hearing it’s the don’t on we who deal exactly And be over consumers, from for going companies I is great so sell little consumer a unpredictable of bit a to as our to to how they them customers’ to And our is think but of what because We to directly do. base. we’re want react next ready sell is – products now do they

predict do exactly do a recessions. are prior better we the and increase before market been. supply long-term, products raise things an through both time but answer, better design little And to better, you’ve this is these seeing can’t consumer do share build probably gain But goes to for our with when difficult bit The product on. customers, be it share. the keep things, ASP and wins, we We’ve the to ready dissipate positioned winning your of but you’re us. effect design, and things when, as things those just to with more these because want I products innovation, from But wins new affecting the dissipate start again, ever done market Long-winded than improve, still about is chain times. affects during Jeff. worry are then thing

Okay. generation and products. might And I new realize you for wins, I mean, kind mix new margin. into at of look But and customer about of about And it’s a we XXXX? think to from mentioned can’t which those number dovetails next products, wins name know new think as know I but products, those is really part you of new those of some great impacting that my question, your bigger what the you the sort gross of see – XXXX, the of the early, necessarily. contribution you new I positively all

be today. it more. exact Clearly, an will number you give can’t I

we pretty then together electronics. consumer right broadcasters video for telling about the providers would not or service we’ve subscription a is putting in win of innovating. to I But got is doing as kept I point, know move was committed when done the we work seen building become we’ve create to And with business to state it, more. and the be We’re what again, it’s you towards recognizable. And as that We it, or, We unlike just some of have harder start never along now some ‘XX. vendors allocating for that on do the We I to just served, from – our I budgets typically, these. times. names this you’ve we the some could the the in not story you that multiple started what kept And and kept art it, figure markets. said, it to obsessed the see big SKUs in now We We are HVAC control side the their probably art. that begin win larger state ago said, than the automation did those bought it because first. and they we of rest service markets same out providing. customers. home We’ve we which the present are part We we never making is a better probably all just many to us. started them done The years we’ve in see and that that opportunity build that, before. right same other further bring with improvement. products use provider and they but in video before these security, features And products them in opportunity wins

then using and then we’re to then before improvements And next even those is the the never business, product you had year, bringing electronics. bringing are this year, more self-configuring, features better, win technology make story We and Each they win them the right? of business. consumer you

we annual won an SKUs, more and improving SKUs. product, that’s and kept kept each we winning why year, And cycle. more we the It’s

we’re approach We’ve had same the So taking already success. here.

which right again, this going at be we to reason me XX% that. no that but pursue we’re good. why heard shouldn’t build all better we think We’re we they you’ve to pretty to our God-given because, to before, And continue committed probably is and and that say – products, – is level,

them So Into they our in we it ‘XX. ‘XX, our good future, increased. share of will can in and the is business because growth markets ‘XX, be account these see

rest enough. Best the of rest luck I fair the of Okay, can QX. take offline. for

Thank you.

call next Ruttenbur Capital. from from Our is Imperial Brian

I’m Thank over. coming much. Hopefully, very

the taking in Can where indication XXXX you into if on quarter? R&D? First R&D us look us question give you you’re going where direction any or can at all, at of is maybe is fourth give And a kind R&D. least gauge an

years, be products, mean the the and We job it’s of channels, reallocate to internally to sales. going great Yes. we the has product the the done effort funds made different a – to and a done we’ve think last approximate concerted few in team, those in SG&A I reduce able that. percentage I etcetera, a different don’t same team doing be able to what invest over

he of Paul As customer quarters. of couple over listed the mentioned, wins a last lot

So this fruition. to is all coming

from But expect deviate I off. mean, too don’t it’s sales. the I percentage to current So definitely of paying much

then us you Okay. on in an of where litigation? give terms Roku can And update we – in Thank you for are the that.

Yes. They is not from quarter. much last update of an

midst We’re now. the cases prevailed we completed. are in in ITC the in multiple have and exclusion as Roku district well. we the and that order an until that Obviously, one are We there won one won now sued such both court as then are cases And the the completed. stayed defensive IPRs time

just the very will very well We’ve unstate case. confident. front. those complete, and before a the matter still We’re judge it’s And IPRs on that then time of done

X expected two kind next Okay. And ballpark that’s we three years and are of the quarters, at? in quarters, what looking

are the to Yes. exactly the have they when likely because but – next be It difficult finalized. IPRs won’t be again, year, it’s not this predict – to year,

know kind going to of a be or further of questions. are Do XXXX. a time. anticipate for at other is to of talk you clip? know about guys yearly moving just out. guidance giving out one Do given anticipate there cloudy things that at you quarter couple one can’t A kind guidance I Okay. guidance forward quarter in I you guidance specific it look

Yes.

we’ve For one years guided quarter now, forward.

shortages couple years rate and factories, out. predict be of with have the the in of would – rises, over environment, inflation to chain able that very difficult a viruses and out today’s While that would do with to interruptions happening been to things it’d guide seem to been supply last realized or we difficult just it’s it all good further interest thing be be

for economy the this On of headwind. if headwind. That don’t those the company. nice it’s knew looking If be breeze an just a things we’d be again, of We going investment that, trailing for wouldn’t just improve, But lack predict things be wireless control in difficult we’re lack in are a good would we point. how while. to We a we move. need side, a need at to

these – enriched mix. We’ve we’re product think, withholding well. So I quite headwinds the

headwind, than going winning that positioned ever. we think get and We’re projects we be lack we’re when better of to

Well, much. thank you very Great.

Sure.

Thank you.

Our Frankel. next question Steven? comes from Steven

win. Thanks. this couple both ASPs talk products? a about margin Are power of Paul, in low let’s What’s profile, accretive ASP remote and they margin? new the of minutes class for this to

margin. specific talk But will I because higher its a slightly product can’t I that generally carries product of ASP obvious Yes. architecture this say about reasons. customer’s a a than traditional for

We’re putting didn’t product before. technology the exist that into

So higher. is ASP the

didn’t but us having pay premium wanted of front advanced because to not landfills. they sustainability batteries get we’re cost So we throwing self-configuring. products change products It’s be but agendas into it’s find similar or up and put on you probably won’t it to have that ever, the a that done to won’t by them also to if bring a won’t Customers a sat advanced the put They frequently that small This user batteries in. consumer you’ve good and be remotes, that channel product those architecture has great landfill. architecture bad, to that. remote will they the not work, if helping different. to obviously, same environmental remotes user, is is them, of the which fewer TV say, is for in as thing value in tune out for do an with upset because and got change batteries, but ever be them are the to your in This The value be – voice-enabled and provides, but do benefit of this your to benefit this there’ll during a their be more, here. brings batteries We the something and into doing. out pulled have and do

But to energy change voice a point. I so batteries as being just clarify, to week, pain know had this this as well is win. remote, remote that this or I harvesting particular

Okay.

advanced remote… it’s So

those remotes features generation be efficient the most featured fully voice, featured battery just QuickSet again, remotes much previous the and used modern architectures plus all more These the than power Yes. be enabled, of fully was can can like self-configuring be

the go stronger you pretty did QX, of sharp. the then midyear, confidence of that to some ship supply the changing in one much And demand getting worse? to Okay. step have that half chain product be How issue, but a and expressed versus keeps half would to down inability back and back back very the QX And is the had. demand you strong picture you’ve is

Yes.

are voice the in season, this As as is The probably have December. is and consumers well. report going some it’s to first TV usually November, I be season, earlier, customers concern January holiday about this. where said really we’re concern They both. to not been the strong

think as because companies occur, this of our yet. them. We of capacity And a now. extra shortage times given vent headwind the to get – out will still of expressed of the operating lead being see pre is the more and added, that the the principles, it consumer we solution have all it’s when difficult vendors reach who I to again, feeling have we vendors that level in of have beginning other principle parts, have we lead ready year need time. because attitude do hasn’t the are operating point but pre-shortage consumers to do more Brian pre-COVID lot economic said still, shorter But as right will you is than it believe supply, semiconductor concerned are, now but to we the we shortage a earlier, are So there who starting returned larger about they of that

able we in we So the supply to because will we products we of for that had that make parts can’t get still be will all products. demand the we have QX, to not –

I feel out. And Bryan to want left Okay. don’t

the about you if could So customers XX% in tell quarter. us

at at We and XX.X% was Yes. Comcast two. had was Daikin XX.X%.

Alright. Thank it for That’s me. you.

Steve. Thanks, Okay.

Thank you. at Arling time, [Operator to it to and final comments. speakers this back Paul for Instructions] our And like turn I’d

December support today Annual Needham’s you UEIC, Security we Conference Thank Annual for in to and of and for at Investor all Okay. January. joining your in Imperial’s us plan Growth present continued Conference

make can all day. be it. at January, great we of in Have Thank As some also mentioned if you there, hope exhibiting we earlier, you see a CES will to or you and

Thank Have participation. and you, disconnect. great program, may you This the does conclude a everybody, for now day. your