UNIVERSAL ELECTRONICS INC Q3 FY2024 earnings call

• In the Connected Home, they continue to foster relationships with top OEM brands in climate control, working with Carrier on advanced smart thermostats and with Daikin aligning development roadmaps. The TIDE platform is garnering design wins, and they have secured various design wins for smart devices. - In Home Entertainment, they are growing share with telecom providers, QuickSet software offers differentiation, and they secured a design win for a battery-free remote control using photovoltaic energy harvesting. - Market drivers include the global HVAC market being driven by energy costs and incentives, and home entertainment market seeing tapering decline in shrinkage. - Financials for Q3 2024: Net sales $102.1M, gross profit $30.8M (30.1% of sales), operating income $2.6M, net income $1.4M ($0.10 per diluted share).

The company has two main segments: Connected Home and Home Entertainment. In the Connected Home segment, there is growth, particularly in the climate control, HVAC, and home automation markets. For example, they are working with top OEM brands like Carrier and Daikin, with initiatives such as the TIDE platform development and design wins for smart hub Gateway and wireless RF controllers. In the Home Entertainment segment, there is still some decline, though the rate of decline is lessening. In Q3 2024, net sales were $102.1 million compared to $107.1 million in Q3 2023. Gross profit for Q3 2024 was $30.8 million (30.1% of sales) compared to 26.3% in Q3 2023. The growth in the Connected Home segment is primarily driving the overall positive trends, offsetting some decline in the Home Entertainment segment.

• For Q4 2024, sales are expected to range from $99 million to $109 million, marking the first quarterly year-over-year growth since 2021. - Diluted earnings per share are expected to range from $0.10 to $0.20. - Expect growth trends to continue into 2025 and beyond.

• Economic uncertainty affecting consumers' confidence and spending. - Rising energy and freight costs. - Natural disasters, public health crises, governmental actions (e.g., reduction in incentives). - Risk of doing business in certain parts of the world or political unrest (war, terrorist activities, etc.).

Q: Paul congratulations on the return to growth. I'm just trying to get a feel for how much of this is driven by let's call it an unlocking of frozen designs and you talked a little bit about that versus a combination of a bottoming pay TV business and some new momentum in end demand that's driving higher volumes?

A: Yes. Good question and it's a combination therein. There are many projects that we're working on, which is we're thankful for that customers have placed their trust in us. Some of them were delayed by them for a variety of reasons, resources or other things on their end but they've reengaged on those projects. So that obviously, helps because in one month's time – some number of months' time we can complete the project and get it launched and have it in the revenue stage. We also of course, have won projects, some of which we've won almost two years ago, that not because of our development path but our joint development path with customer and testing has taken 1.5 years, in some cases maybe even a little longer, but they eventually again make it to the revenue stage. And we are seeing in home entertainment a tapering, while we still won't say that there are parts of it that won't continue to wane. The level of wane I guess you could say is lessening. So – and of course it would because the number was once so large that – the shrinkage was large until it got a lot smaller. So the percentage at this point that it can shrink is beginning to taper and our growth efforts can then pay off because the projects that we're putting out can overwhelm any continued flat or shrinking volumes that we have from specific customers.

Q: And then from a high level kind of how does the business split this year between your legacy home entertainment businesses and this new kind of smart device world?

A: Yes. We don't break that out but I will say that the growth that we're starting to experience is primarily in the connected home channel. So going from year-over-year, it's primarily all connected home. And as Paul talked about, the home entertainment business it's still – we still are experiencing some decline. It's starting to wane but there is decline. So the growth really from a connected home perspective is even greater because you're offsetting – not only you're offsetting the decline in the home entertainment channel but you're – we're still growing.

Q: At what point do you expect to not be recording any of these excess manufacturing costs? And what is contemplated in the guidance for the fourth quarter? Is it a similar like $1 million number?

A: We no longer record the excess manufacturing overhead. I only stated in the -- in my remarks, just to let you know what they were but they're not included in the financials. We stopped that last quarter. And we made -- they're not in our financial statements. All the numbers we read do not include -- included in the EPS number, do not include anything related to excess manufacturing. I only stated what they were, just so you could compare.

Q: And when we look at kind of the outlook for growth next year when you're looking at the pipeline of some of these new projects that are getting to the revenue recognition stage or the production stage, is it going to be kind of ratable? Is it more back-end loaded? Do you have visibility on kind of the timing of when some of the stuff is going to be coming to market in -- maybe in terms of the cadence throughout 2025?

A: We do. We're always careful though to not provide forward guidance Greg, because we're sitting now in November. We have projects scheduled to launch throughout next year Q1, Q2, Q3 and Q4. In fact we have some scheduled for 2026 already with customers. And as we go through the year, obviously, we look at status of each project and will some of them ship early, will some of them ship late. So we're reluctant to provide guidance on that. But there are quite a few projects as I mentioned in the prepared remarks that are coming, some early in the year, some later. And as these things go each layer -- each project as many of them get introduced, they'll introduce revenue in the period they're first shipped and then they typically order every quarter. So every new project that comes on provides another layer of revenue. So as time goes on these new projects usually layer on top of one another. In our historic growth in home entertainment that's exactly what happened. As we won each project and each customer with multiple projects, the layers just kept building. And then we would win what we call replacement products or derivatives. You win those and the revenue just continues, right? So layer after layer, you build it and that's where we're at now. Q4 is partially the result of the projects and sometimes they're small projects, sometimes they're slightly larger. But every quarter the customer that once they start ordering, they continue to order on those projects. And as long as you don't lose them, which we typically do not, they layer on top of each other. So we think that we're in a place now where these projects can start to pay off. And like I said, we're not done in home entertainment. There's some interesting things happening there. We have growth areas to offset some of the shrinkages we've had. And we think we're at a point now where Q4 over last year's Q4 will be up, our guidance. Even the lowest end of our guidance range is a growth. The midpoint is a decent growth and the high end of our range is a pretty good growth rate for year-over-year quarter. And earnings obviously are up. Last year, we lost money in Q4. This year we're targeting a profit