Yahoo Finance Universal Electronics Inc. (NASDAQ:UEIC) Q1 2024 Earnings Call Transcript
Universal Electronics Inc. (NASDAQ:UEIC) Q1 2024 Earnings Call Transcript May 4, 2024
Universal Electronics Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Universal Electronics First Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to our first speaker for today, Kirsten Chapman with LHA Investor Relations, a division of Alliance Advisors. Please go ahead.
Kirsten Chapman: Thank you, Krystal, and thank you all for joining us for the Universal Electronics 2024 first quarter financial results conference call. By now, you should have received a copy of the press release. If you have not, please contact LHA at 415-433-3777 or visit the Investor Relations section of the website. This call is being broadcast live over the Internet. A webcast replay of the call, including any additional updated material non-public information that might be discussed during this call will be available on the company’s website at www.uei.com for 1-year. During this call, management may make forward-looking statements regarding future events and 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 projected.
These statements include the company’s ability to penetrate the connected home space and, particularly, the climate control and home automation markets through the development and delivery of unique and innovative solutions as anticipated by management. The acceptance of UEI TIDE family products in the global HVAC market, management’s ability to continue to manage its business, inventories and cash flows to achieve its net sales margins and earnings through financial discipline and cost savings initiatives, operational efficiency, liquidity requirements, factory optimization strategy, R&D spend, product line and business management and other investment spending expectations, including our ability to execute our stock repurchase program.
The company’s successful life-sustaining [ph] of the company’s QuickSet technologies, the company’s ability to maintain its leading market share in the traditional subscription broadcasting business and the direct and indirect impact the company may experience with respect to its business and financial results stemming from the continued economic uncertainty affecting consumers’ confidence and spending natural disaster, public health crises, governmental actions or political unrest, including war, terrorist activities, or other hostilities. The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today’s date and refers you to the press release mentioned at the onset of this call and documents the company files with the SEC, including its 2023 annual report on Form 10-K and the periodic reports filed or furnished since then.
In management’s financial remarks, adjusted non-GAAP metrics will be referenced. Management provides adjusted non-GAAP metrics, because it uses them for budget planning purposes and for making operational financial decisions, and believes that providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures, help investors evaluate UEI’s core operating and financial performance and business trends consistent with how management evaluates such performance and trends. In addition, management believes these measures facilitate comparisons with the core operating and financial results and business trends of competitors and other companies. A full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the Company’s press release issued today.
On the call today are Chairman and Chief Executive Officer, Paul Arling, who will deliver an overview; and Chief Financial Officer, Bryan Hackworth, who will summarize the financials. Paul will then return to provide the closing remarks. It’s now my pleasure to introduce Paul Arling. Please go ahead, sir.
Paul Arling: Thank you for joining us today. We are building for a better future, shifting sales and product development resources to the connected home space, expanding our end market reach and implementing cost initiatives. These actions delivered Q1 2024 results as expected with strong year-over-year gross margin improvements. More importantly, our customer wins, our global footprint optimization and our expense reductions position us for a profitable year as well as position us for consistent sales and earnings growth into 2025, 2026 and beyond. The strengths we have built over the past decades, delivering true seamless interoperability, discovering, connecting and controlling all devices and all brands translate beautifully into the climate control and home automation channels.
Our expertise in connectivity protocols from infrared to radiofrequency to IP, and our ability to make those devices work better together gives us a competitive advantage that continues to create unique and differentiated solutions. Our capability to design, engineer and build solutions for the leading brands in the world that are interoperable and self-configuring can help the next generation of products in the home automation and climate control markets become ever more integral to the smart home experience. We are confident in our success as our capabilities align well with the connected home market needs, as evidenced by our new customer activity in this space. As always, the best testament to our success is the partners that choose to work with us on their product solutions.
We have won new product designs with 6 of the top 10 HVAC OEM. companies on the planet and are working on to more. Further, the market is growing and undergoing constructive change as climate control devices are getting smarter. For example, there is a transition underway, bringing more efficient product forms such as heat pumps into popularity. Our ability to quickly address these opportunities is reminiscent to the early innings of our success in the home entertainment market. I’d like to highlight a few of our activities that support our outlook. In climate control, at the Consumer Electronics Show in January, we unveiled new UEI TIDE family offerings, including products that bridge to indoor air quality sensors, built-in air purifier control and additional accessories that broaden our control utility.
We also took the show on the road and demonstrated our full suite of innovative climate control solutions to our growing list of HVAC OEM customers in Japan, including Daikin, Toshiba Carrier, Fujitsu, LG and Panasonic. In March, we exhibited at one of the premier events for the HVAC industry in Europe. Our TIDE family was once again extremely well received generating strong interest from the leading brands in Europe. In fact, in a few short years, we have engaged 13 of the top 14 HVAC OEM brands in Europe that collectively represent over 80% of that market. Already, we have secured three active design wins with two of the top-3 European HVAC OEMs. With a long lead times in this segment, which we have previously discussed. These products are expected to start shipping in 2025.
In home automation, during Q1, we received our first standard TIDE Dial and TIDE Touch thermostat orders from a leading multi-dwelling unit integrator in North America. We expect to begin product deliveries later this year. Additionally, TIDE Dial is currently in consumer trials with European utility provider. We expect to complete a successful trial and to begin shipping product to them in Q4. In home entertainment and consumer electronics, although the market has changed greatly over the last couple of years, we continued to capture market share with new product introductions at small and large operators. In Q1, we began shipping our sustainable remote control to Liberty Global. We continue to add customers on our Android remote control line, including two telecom companies in India.
Both have products in development that are expected to ship in Q3 of this year. We continue to see traction on the Xumo platform across the Charter footprint and the Xumo TV branded platforms, as this program continues to scale in the market. Regarding licensing our proprietary technology, we recently added Hisense as a licensee of our Qterics digital rights management provisioning services. These software services are currently used by Vizio, TCL and numerous other TV OEMs to ensure secure delivery of digital rights management keys for streaming content services on their smart TV platforms. Our QuickSet licensees in consumer electronics such as Samsung, LG and Sony all announced their 2024 smart TV product lines and will continue to ship versions of our QuickSet cloud-enabled software.
Our latest version brings added value to our customers, giving them access to a better user experience, increased user engagement and reduced onboarding and troubleshooting challenges. These long-term relationships built upon years of working together with these world leading home entertainment companies continued to be strengthened with these feature enhancements and give us further confidence in our success going forward. Now to the financials. Bryan, please go ahead.
Bryan Hackworth: Thank you, Paul. First, I’ll review the results for the first quarter of 2024 compared to the first quarter of 2023. Net sales were $91.9 million within guidance. This compares to $108.4 million for the first quarter of 2023, reflecting cord cutting in the video service channel and in an environment where households for a variety of reasons are spending less on discretionary goods. Gross profit for the first quarter of 2024 was $27.2 million or 29.6% of sales, compared to 25.4% in the first quarter of 2023. For the past 2 years, our operations team has been focused on restructuring our manufacturing footprint and have executed well exceeding expectations. These efforts have resulted in significant reduction of manufacturing overhead, the main driver of the improvement in our gross margin.
Our factory optimization plan is nearing completion. We closed 2023 strong, completing the first two phases, commencing operations in our new Vietnam facility and closing our factory in southwestern China ahead of schedule. Our Vietnam factory continues to scale and meet or exceed our expectations. We are currently streamlining our operations in Monterrey, Mexico, including moving into a smaller, more efficient facility that will supply product for certain North American customers. We remain on target for its completion in the second quarter of 2024. As we evolve as a company, we will continue to assess our global footprint and identify ways to operate more efficiently. For the first quarter of 2024, operating expenses were $29.4 million compared to $31.2 million in the first quarter of 2023, reflecting the execution of our cost savings initiatives.
SG&A expenses decreased to $21.8 million compared to $23.1 million in the prior year quarter. R&D expenses decreased to $7.6 million compared to $8.1 million in the prior year’s quarter. Operating loss was $2.2 million compared to $3.6 million in the first quarter of 2023. Our first quarter 2023 effective tax rate was 20.6% compared to 19.9% for the first quarter of 2023. Net loss for the first quarter of 2024 was $2.5 million or $0.19 per share compared to $3.5 million or $0.28 in the first quarter of 2023. Next, I’ll review our cash flow and balance sheet. At March 31, 2024, cash and cash equivalents were $26.9 million compared to $42.8 million at December 31, 2023. Cash flows used by operating activities were $2.8 million for the first quarter of 2024, which includes a $5 million security deposit relating to a legal matter.
This compares to $2 million cash used by operating activities in the prior year quarter. With interest rates at an elevated level, we repatriated foreign earnings, enabling us to reduce our outstanding debt from $55 million at December 31, 2023 to $46 million at March 31, 2024. We also repurchased approximately 95,000 shares in the open market for 843,000. Now, turning to our guidance. For the second quarter of 2024, we expect sales to range from $90 million to $100 million compared to $107.4 million in the second quarter of 2023. We expect to a range from a loss per share of $0.10 to breakeven compared to a loss of $0.06 per share in the second quarter of 2023. UEI continues to evolve as a company. While we remain committed to developing innovative solutions in the home entertainment space.
In recent years, we’ve increased our focus in growth areas such as climate control and home automation. Paul mentioned several project wins in these channels with launches scheduled throughout the latter half of 2024 and 2025. We believe these project wins in the connected home channel, coupled with a more efficient factory footprint will yield bottom line growth and full year profitability. I would now like to turn the call back to Paul.
Paul Arling: Thanks, Bryan. Our expansion into the connected home is broadening our market served and expanding our customer base. Our unique and innovative solutions supported by years of experience in bringing connected home configuration and control to major global brands, make our offerings attractive in these markets. As a result, our sales team and products are gaining traction as the leading brands are increasing their design awards with us. This process can take time, but as we experienced in home entertainment, one project leads to the next, and as we work more closely with these accounts and innovate to improve their product offering, they award more and more of their business to us. As noted, we have secured tangible wins that seek growth in the second half of 2024 and, importantly, into 2025, 2026 and beyond.
We are very encouraged by numerous customer wins and are confident of many more to come. Based on our design wins and our customers’ planned shipping schedules. We are also very encouraged by our customers’ strong interest in our product roadmaps. The systems in our homes today, entertainment, climate control, health, safety, security and others are becoming increasingly interconnected. This brings great convenience functionality and value to consumers worldwide. Our customers, both current and potential, are very aware and interested in this change. Given our substantial experience in helping make these systems interconnected and interoperable, we continue to see significant interest from world leading brands in the markets we serve. As such, we will continue to invest to support the evolution of wireless home control.
With our mounting project wins, along with our cost initiatives and global footprint optimization, we expect to be profitable for 2024. We believe our best years are ahead of us and our employees around the world remain hard at work to make this a reality. As always, stay tuned. Operator, we can now open up the call for questions.
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