Universal Electronics Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 20, 2025

Key Takeaways

  • Q4 FY2024 sales grew 13% year-over-year to $110.5 million and adjusted EPS improved by $0.24, exceeding both company projections and consensus estimates.
  • Connected Home momentum continues with new HVAC, home automation and energy-harvesting sensor wins, building a strong long-term pipeline across major OEMs like Daikin and Carrier.
  • Continued cost-saving initiatives and optimization of the manufacturing footprint in Mexico and Vietnam boosted profitability, driving operating income of $4.2 million versus $0.2 million a year ago.
  • Year-end cash and equivalents were $26.8 million, net cash from operations reached $14.8 million, and debt was reduced by over $18 million to a net position of $10 million.
  • Q1 FY2025 guidance forecasts sales of $87 million–$97 million and a net loss of $0.21–$0.11 per share, reflecting revenue timing shifts and weaker seasonal volume.
AI Generated. May Contain Errors.
Earnings Conference Call
Universal Electronics Q4 2024
00:00 / 00:00

Transcript Sections

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Operator

Day and thank you for standing by. 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kirsten Chapman, from Alliance Advisors Investor Relations. Please go ahead.

Kirsten Chapman
Managing Director at Alliance Advisors Investor Relations

Thank you, Gigi, and thank you all for joining us for the Universal Electronics fourth quarter and year-end 2024 financial results conference call. By now, you should have received a copy of the press release. If you've not, please contact Alliance Advisors Investor Relations at four one five four three three three seven seven seven or visit the investor relations section of the website. This call is being broadcast live over the internet. A webcast replay of this call, including any additional updated material, non-public information that might be discussed during this call, will be available on the company's website at www.uei.com for one year. During this call, management may make forward-looking statements regarding future events and the future financial performance of the company and cautions you that these statements are just projections and actual results or events may differ materially from those projections.

Kirsten Chapman
Managing Director at Alliance Advisors Investor Relations

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 and innovative solutions, including the company's QuickSet technologies, TIDE platforms, energy harvesting sensors and solutions, and excellent customer service as anticipated by management. Management's ability to manage its business and profitability through continued cost-saving initiatives, optimization of the company's manufacturing facilities, and improvements in the company's cash flows.

Kirsten Chapman
Managing Director at Alliance Advisors Investor Relations

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, and the stabilization of ordering patterns, and the importance of the company's QuickSet differentiation and innovative remote control and One For All brand design wins, and the company—oh, 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., 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 other hostilities.

Kirsten Chapman
Managing Director at Alliance Advisors Investor Relations

The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today's date and refers you to the press release mentioned at the onset of this call and the documents the company has filed with the SEC, including its 2023 annual report on Form 10-K and the periodic reports filed or furnished since then. In management's financial remarks, adjusted non-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 providing these non-GAAP financial measures to investors as a supplement to GAAP financial measures helps investors evaluate UEI's core operating and financial performance and business trends consistent with how management evaluates such performance and trends.

Kirsten Chapman
Managing Director at Alliance Advisors Investor Relations

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. Also, the company will no longer exclude excess manufacturing overhead costs resulting from the continued transition of its global manufacturing footprint, specifically in Mexico and Vietnam, and depreciation related to the markup from cost to fair market value of fixed assets acquired in business combinations from its adjusted non-GAAP figures. 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 2024. There is no impact to GAAP results.

Kirsten Chapman
Managing Director at Alliance Advisors Investor Relations

A reconciliation of these measures is posted on the website in Q4 2024 quarterly results section. 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 closing remarks and open the call for questions. It's now my pleasure to introduce Paul Arling. Please go ahead, sir.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Thank you, Kirsten, and thank you all for joining us today. I'm excited to report in Q4 2024, our team's efforts delivered sales growth of 13% and improved EPS by $0.24 per share compared to the fourth quarter a year ago. 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. During Q4, our connected home business increased momentum with several new products shipping, and it is beginning to scale as new orders have increased toward the tail end of the quarter. We are excited that our perseverance and commitment to this channel are starting to show results.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Over the past few years, we have managed costs and optimized our manufacturing footprint, improving our profitability. The combination of these accomplishments has strengthened our financial foundation and underpinned our projections for top and bottom line growth for full year 2025 and beyond. Turning to a review of our markets, 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. These include Daikin, Carrier, Vivint, Somfy, Fujitsu, Mitsubishi, and Metis. 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.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

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. Our share of the climate control market is growing, and Q4 results are evidence that we are well-positioned to deliver on our long-term growth strategy. In home entertainment, including video service providers, consumer electronics, and our AV accessories retail business, TV demand increased in the second half of 2024, with shipments growing slightly across all regions. 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. 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.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

As a result, some of our major customers increased overall order quantities during the quarter, positively impacting our Q4 performance. 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 received strong interest in our new products and technologies from many of our new accounts in connected home, as well as existing customers who want us to bring new features and functionality to their platforms. I'll review a few of the highlights. We introduced groundbreaking QuickSet homeSense technology. While protecting user privacy, QuickSet homeSense adds a layer of on-device intelligence that learns from the home environment and location of connected devices and adapts to optimize device usage based on user preferences.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

We unveiled new capabilities in our UEI TIDE family that enhance climate control and energy management by resolving key friction points and providing on-device actionable insights. Elevating the role of smart thermostats within the home, benefits include managing multiple heating and AC systems, central, space, and other, integrated in a single controller, as well as providing optimized climate control and energy savings. We offered a sneak peek of the next-gen UEI TIDE 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 a limited power budget.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

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 preventive maintenance service that many other smart thermostats sold at retail cannot do. This new climate control platform runs UEI's 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. We introduced QuickSet 7 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.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Moving toward the promise of private and intelligent homes, QuickSet 7 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. In addition to CES, earlier this year, we announced our collaboration with Somfy in the connected home space. We've been working with Somfy 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. Consumers will benefit from enhanced comfort and convenience, including saved favorites, reduced energy consumption by adjusting interior temperature based on outside conditions, and low energy power consumption, complying with Somfy's Act for Green requirements. With that, I'll turn the call over to Bryan. Please go ahead.

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

Thank you, Paul. I'll review the results for the fourth quarter of 2024 compared to the fourth quarter of 2023. 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 markup from cost to fair value of fixed assets acquired in business combinations. These changes are reflected in the year-to-date 2024 financials, as well as the corresponding prior year periods. These adjustments have no effect on our GAAP financials. For the fourth quarter ending December 31st, 2024, costs associated with the aforementioned items amounted to $700,000, equivalent to 70 basis points of gross margin or $0.04 per share. For the fourth quarter of 2023, costs for these items were $1.6 million, equivalent to 160 basis points of gross margin or $0.11 per share.

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

Please keep these figures in mind when reviewing our quarterly results. For the fourth quarter of 2024, net sales were $110.5 million, a 13% increase over last year's fourth quarter sales of $97.6 million. Sales exceeded the high end of our guidance range of $109 million due primarily to an increase of orders in the connected home channel, specifically for climate control products. Although not all these orders were shipped as of year-end, we were required under GAAP to recognize this revenue, approximating $4 million in the fourth quarter. We expect this positive connected home trend to continue. While the home entertainment channel still faces headwinds, we continue to see ordering patterns stabilizing. 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.

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

For the fourth quarter of 2024, operating expenses were $27.2 million, compared to $27.6 million in the fourth quarter of 2023. SG&A expenses were reduced to $20.3 million from $21.1 million in the prior year quarter. R&D expenses increased to $6.9 million for the fourth quarter of 2024, compared to $6.5 million in the prior year quarter. Operating income was $4.2 million, compared to $200,000 in the fourth quarter of 2023. Net income for the fourth quarter of 2024 was $2.6 million, or $0.20 per diluted share, compared to a net loss of $500,000, or $0.04 per share in the fourth quarter of 2023. Next, I'll review our cash flow and balance sheet. At December 31st, 2024, cash and cash equivalents were $26.8 million, compared to $42.8 million at December 31st, 2023.

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

For the 12 months ending December 31st, 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. Now, turning to our guidance, several projects 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. As mentioned earlier, certain customers increased their orders for our climate control products, and although not all these orders were shipped as of year-end, we were required under GAAP to recognize this revenue, approximating $4 million in the fourth quarter. This essentially shifted revenue from Q1 2025 to Q4 2024.

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

Taking this into consideration, for the first quarter of 2025, we expect sales to range from $87 million-$97 million, compared to $91.9 million in the first quarter of 2024. We expect a net loss ranging from $0.21-$0.11 per share, compared to a loss of $0.26 per share in the first quarter of 2024. I would now like to turn the call back to Paul.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Thanks, Bryan. We closed 2024 as a much stronger and better-positioned company than we were in 2023, and our financial performance in 2024 reflects that. Our commitment to the connected home market is beginning to pay off as our products and technologies are attracting new customers, and the long lead design wins are beginning to come to fruition. This was also evident at CES 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 through personalization and increased user engagement. While we've made great progress, there's still a ways to go.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

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

Operator

Thank you. As a reminder 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. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steven Frankel from Rosenblatt Securities.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Good afternoon, Paul and Bryan. Thank you. Could we get a little more detail on this notion of climate control products that aren't going to be shipped until Q1, but their revenue recognition was in Q4? Maybe just help me understand what triggered that, and does that normalize after Q1?

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

Yes, it is, Bryan. Yeah, the accounting rules, these changed a handful of years back where basically you used to have to, you had to ship the product to record the revenue. About five years ago, things changed. I won't go through all the details of the rules, but essentially it has to be a customized product. You have to produce it. You have to have a firm commitment, just to name a few. The bottom line is we received orders, increase in orders in the fourth quarter. We produced those products, and these products related to the connected home channel, primarily the climate control. Because we produced them as of year-end, under the accounting rules, we were required to recognize the revenue.

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

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 an additional $4 million of revenue in the fourth quarter.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Okay. In your guidance, it seems to imply both an increase in expenses and a decrease in gross margin. Is that gross margin decrease just because you're missing that $4 million in revenue, so you drop your run rate, and we're having some gross margin pressure, or is there something else going on?

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

I think the important thing with the gross margin for the full year, I do not have a change in outlook. I still expect it to be in the last quarter. I think I said I expect the full year to be 30 points ±1 percentage point. That has not changed. Q1 is typically light. When you have lower volume in the first quarter, you have lower production, so you are not absorbing the overhead as efficiently as you normally do. That takes a little bit of pressure, puts pressure on the gross margin rate. There is a little bit of pressure on the margin rate in Q1, but for the full year, I do not see a difference. I still expect it to be 30 points ±1 percentage point.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

In general, OpEx should have what kind of shrink or growth on a year-over-year basis?

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

I don't expect it to be whatever. I expect OpEx to be similar. I think whatever wage inflation is of that nature, we're going to offset.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Okay. What were your customer concentration numbers in Q4?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

We had two 10% customers, Daikin at 13.4%, and Comcast at 10.7%.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Nice to see that one back. Maybe some detail on the legal judgment that was mentioned in the footnotes.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Yeah. As we previously reported, the U.S. Court of Appeals of the Federal Circuit affirmed our win against Roku. Roku then filed a request for a U.S. Supreme Court review of that decision. In mid-January, the U.S. Supreme Court denied Roku's request, making the decision final. As a result, we expect to seek to get the two district court cases started or unstayed in 2025. Of course, we will update everyone as significant progress is made on this important matter.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

There was a footnote having to do with legal settlement and one of your factories in China. Is that also related to Roku, or is that something different?

Bryan Hackworth
Bryan Hackworth
CFO at Universal Electronics

No. No, that was a labor agency issue, and that related to prior years.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Okay. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Greg Burns from Sidoti.

Greg Burns
Greg Burns
Analyst at Sidoti

Good afternoon. How do tariffs factor into your outlook for 2025?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

That's a complex topic. The tariffs so far aren't complete, and there's a lot, I think, to still occur there. As far as China is concerned, we did some years ago remediate that. We don't have but a small amount of U.S. destined product produced in China. We had to deal with that six years ago and did. Anything that's done with China is somewhat irrelevant to us unless the nature of things change. As far as the threatened tariffs here in the Americas, there could be some effect, but we're already working on ways to mitigate that. It's much smaller than it once was because the production out of Mexico is much smaller than it once was. We use that as a hub, frankly, to begin to remediate the tariffs.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

I think it's now six years ago from China, but the production there has gone down significantly. As far as tariffs go, obviously, as this is fluid, we're going to have to make changes potentially and ameliorate the situation. If something were to happen, we obviously will work with customers to get them the right price. I think we've shown ourselves to be pretty nimble on this front as we had to do many years ago and have since. Again, it's a fluid situation that we'll have to watch. Anything having to do with China is not really relevant to us as it stands now. Mexico could be, but it's relatively small, and we'll remediate that or ameliorate the situation with customers. Beyond that, it's difficult to know what the next tariff move will be.

Greg Burns
Greg Burns
Analyst at Sidoti

Okay. When we normalize for that $4 million that shifted between quarters, based on the order trends that you've been seeing recently, how should we think about the remainder of the year? Do you see growth accelerating or improving on a sequential basis as we move throughout the year? How do you see the year playing out based on the pipeline and order activity that you're currently seeing?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Yeah. 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. Q3 and Q4 are even further out. This is one of the reasons we don't provide long-term guidance because those could improve significantly or be reduced significantly depending on the economic situation and a whole number of factors. It's one of the reasons why we provide guidance one quarter out. However, we do have quite a few new projects. We had a few in the back half of the year that helped positively impact things. We have more this year, and we are bullish about that for sure. We'll have to see how the year progresses, not just for us, but the economy and any number of other variables that could affect demand for home entertainment devices, televisions, HVAC.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

That is why, again, we do not want to provide long-term guidance. If we are just to focus on projects, there is quite a bit to be bullish about because we are gaining share. As I said in the prepared remarks, we are winning second and third, in some cases fourth and fifth projects and bidding for more. It is reminiscent of what happened in home entertainment many years ago. We go in, we prove ourselves with great products, great execution, and then earn more business. We are seeing a similar pattern in these markets. We are very bullish about that. If we can get any sort of lack of economic headwind or even a trailing breeze, it could be even better. We are reluctant to give any real long-term forecast on the total at this point.

Greg Burns
Greg Burns
Analyst at Sidoti

Okay. I guess the relative strength you saw in the subscription broadcast market this quarter, is that sustainable? Do you feel like that part of the business has kind of reached a stable level and order patterns can stabilize there? How do you view what you saw this quarter maybe in terms of the sustainability of that?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

It did. Now, again, it's always difficult to forecast two or three or four quarters out, but certainly the rate of decline has lessened and probably will given that it has gone down quite a bit over the last four or five years. 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 many of these customers. In fact, we did have some increases from them. Maybe it's reached a point where the damage that that part of our business might be doing to the total has reduced, and the growth from the connected home area of our business can shine through, right? Because if we're flattened out or even declining very sparingly on the home entertainment side, then the connected home growth can shine through.

Greg Burns
Greg Burns
Analyst at Sidoti

Okay. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jeff Van Sinderen from B. Riley Securities.

Jeff Van Sinderen
Jeff Van Sinderen
Senior Analyst at B. Riley Securities

Hi, everyone. Let me say congratulations on the return to growth. I wonder if we could just circle back to production geographic considerations. If I recall, you have a facility in Vietnam that is producing predominantly HVAC or connected home products. I'm just wondering if you needed to, could you produce more there if you needed to shift production from Mexico or anything else that's in China? I guess China's not an issue, but from Mexico, perhaps?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Yes. We do make both home entertainment and connected home products in Vietnam already. There could be further shifts made for either classification of product or any of our products to a facility in Vietnam if necessary.

Jeff Van Sinderen
Jeff Van Sinderen
Senior Analyst at B. Riley Securities

Okay. Okay. Good to know. You mentioned 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?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Sure. Yeah. I do not want to give too much away because some of this is brand new. At CES, we typically present these technologies to the OEMs for inclusion in their future product, but a couple of different things. The advanced monetization could be had. We are doing a lot on the device and in the device itself, not necessarily in the cloud even, but in the device, which provides obviously security to potentially bring more consumers. As you know, in the home entertainment business, there is a battle of the OS. 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?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

What we are able to do is help them bring more users to their OS through some of the things we are doing, software-driven things we are doing across the platform. I guess that is the only thing I can say about it right now, which would bring obviously more eyeballs or more viewing hours to their interface, which obviously increases the monetization for those players. Again, we want to do it in a way that the consumer is attracted to because doing it in a way that the consumer is not attracted to does not really work, right? Over the long term, people are going to do what they want to do. 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.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Now, as far as homeSense is concerned, there are a variety of ways that our 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 who is home and essentially where they might be. Of course, it's private because it can be done on-device. This is why we're doing advanced development with some of our partners of platforms, of hardware platforms, chips that can allow them to do this sort of AI within the home to determine who's present. Now, you might say, "Why do I need to know that?" There is a whole bunch of applications for this in the entertainment world, but even importantly on simple things like climate control. Why are you cooling parts of your house where nobody's there or nobody is ever there, right?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Some people on this call probably have large homes where 30% of their home isn't occupied very often. Wouldn't their system be better optimized? Wouldn't it balance comfort with cost better if they actually could locate where people are and optimize the system for that? There is a lot of applications for this in future products in our platforms working alongside these OEMs. This one, the homeSense one, applies across the board: connected home, security, HVAC, entertainment. I think we have a pretty good technology there. Customers were very interested in this along with other QuickSet, QuickSet 7 SDK, and other applications to be built into our future products that we build for them or into their products directly. I hope that answered your question, Jeff.

Jeff Van Sinderen
Jeff Van Sinderen
Senior Analyst at B. Riley Securities

Yes. That's helpful. I appreciate that. I just wanted to maybe think a little bit about growth drivers that you have baked into your guidance for this year. I know you're seeing growth in HVAC control, connected home, but I guess are those the products that you are seeing be the largest drivers of growth this year? Is it largely HVAC-derived products, or are there other products in that that you see driving it? Is it kind of a rebound perhaps in, I don't know, subscription broadcasting? Are there new programs in that that might be up, or maybe you could just help us with that a bit?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Yeah. No, it's a good question. It's a little bit of each. It's not just one thing. I would say predominantly where the biggest opportunity is there are customers on the HVAC side that for us present an opportunity as large as the opportunities we saw in home entertainment, meaning our potential sales to them could be as great as the largest customers we had in home entertainment. That's how big they are and how many products they deploy. We are, of course, working on some of the largest in the world. We've mentioned two names on this call, Daikin and Carrier, who happen to be the two largest HVAC providers in the world. We are working on with others, other names we mentioned, but this market is large, it's growing, and it's changing.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

That change brings about an opportunity to sell in these new platforms that help with their new products because they're trying to change these products as well to make them more efficient, to make them, again, balance comfort with cost because consumers and the cost is not just of the device, it's of the energy that drives them. They are 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. It can do things that it's never done before. This has happened in other markets. It happened years ago in phones. It even happened in remotes. The remotes we once said many years ago were changing what the remote control is and what the remote control is capable of doing. Here is another case.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

The thermostat in many homes is sometimes not even a connected product. Now they're beginning to become connected, meaning they're controlled by an IP device. What if it could do much more? What if it could balance your electric bill? What if it could tell you that if you want it to be 74 degrees right now, if you let me only be 76 degrees, I can turn it down to 74 degrees when the price per kilowatt hour goes down at 7:00 o'clock, you hit yes, and then the thing automatically reprograms itself. There are others who do this sort of thing, but probably not in as complete a way as we do.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

We have the device interconnectivity or 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. We've already done that with other leading names in another market, and this interests these customers. We have a lot to offer here, and that's probably one of the many reasons why we're winning projects there, proving ourselves, and then winning second, third, fourth, and more projects. 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. That's, again, what we've done before. This is how we became the leading company by far in that other control market, and I think there's a similar opportunity here.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

We're at the beginning stage of it, but large and growing market, a lot of large players we're starting to win projects with. I think it's very similar, right? We see that starting to happen right now, and we expect to do more of that this year. This year, we'll win projects that will fuel not just late 2025, but will fuel 2026, 2027, and 2028, right? That's the key for us, and we're pretty bullish about what we're doing right now. The customers are happy with the things we've done so far.

Jeff Van Sinderen
Jeff Van Sinderen
Senior Analyst at B. Riley Securities

Okay. I know you do not break it out, but I am just kind of thinking out loud here about the HVAC business. Is your belief that that business, the growth there, would accelerate, do you think, in the second half of this year and into 2026? How are you thinking about sort of the, I guess, the growth curve of that business?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Yeah. I mean, I guess as we sit today, and it's always difficult to predict two, three, four, five years out, but I do think that based on the growth dynamics that are there today, the connected home business probably will be the majority of our business some time from now. Not this year, but it will be some time from now just because of the growth prospects there, the size of the market, the number of customers that we don't have yet that we are beginning to win, the growth of the market itself. The home entertainment market 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. I do see this as a key to the future. It does not mean home entertainment isn't going anywhere.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

People are still entertaining themselves at home. There's plenty of opportunity there. We do have wins there that will help fuel that business. It may offset any further shrinkage we might have from certain of those markets, right? We are still by far the leader there, and it is very much an important part of our business. Connected home is probably where the growth comes from over the next three to five years.

Jeff Van Sinderen
Jeff Van Sinderen
Senior Analyst at B. Riley Securities

Okay. Good to hear. Thanks for taking my questions.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Sure.

Operator

Thank you. One moment for our next question. We have a follow-up question from Steven Frankel from Rosenblatt Securities.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Paul, if you are in discussion with these HVAC vendors about additional products, where do you think they are in making these smart thermostats a standard part of a new sale rather than something optional that the consumer has to decide to pay up for when they install a new system?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Yeah. I can't speak to the economics on their end. Obviously, we never talk about specific customers' plans. If you're asking, will they one day give them for free, I can't comment on that. That probably is being considered just as an integral part of their system, but that wouldn't be up to us to do, right? We will sell them the product. They will market it in the way they deem appropriate. I will say this: in many discussions in that market, their desire is to become more integral to the smart home, which would mean that they'll want to attach their brand and/or their product to their product. They realize they have to make their product better and very attractive to the consumer because it's just like any market.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

The consumer will want it if it's as good or better than what they have now or what is available to them through other vendors. They are very cognizant of that and are working towards that. This is where, again, the opportunity for us is there, making these products do things that are useful to the consumer, that make them smarter. By smarter, I don't just mean connected to an IP device. I mean they do things that make your life easier that other people aren't doing in their product. We mentioned a few of those features here. They are sometimes not huge features, but they are additional features, right, that make the product a little better. They are all interested in this.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Almost everyone—I think I can faithfully say everyone that's in this market is on that trail towards a product that not only will control their HVAC system better but may do other things as well. May be able to even predict when your device is failing so that the consumer or the installer can be contacted to contact the consumer to say, "Hey, maybe I should come out and look at your system." Because what you don't want to have in the middle of summer is your HVAC system, if anybody's had this, fail, and you have to wait two days for it to be fixed. You particularly don't want that in Phoenix. I can tell you that.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Systems that are smarter, systems that might have proprietary data that are coming from the unit itself—remember, the controller, just like it was in the TV, is separate from the device itself. You're going to have to communicate between devices in a way that will help them predict those happenings and, again, increase the value and potentially increase the value for the OEM and/or the installer as well. There are ways to make these devices have everyone win with a better, more useful product.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Great. Could you review for us, of the top 10 HVAC vendors in the world, how many have you won and how many others are you having material discussions with?

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

I think when you say material discussions, I don't know the definition of that. We're probably talking to all of them. In fact, I'm quite sure we are. I think we've won the majority of them, or at least a project. Because the way these relationships—and it's probably true in any market. It was in home entertainment. It is in HVAC, and it probably is in 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," because most of these companies, particularly if they're of size, are not going to give a new vendor all of their business. You typically have to go through a project where they see how you work. They see how you integrate with their people, their engineers, right? It's a test.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

It's a project that you go through. We've been through this in other markets. Once you prove yourself, you're allowed new projects. You can get to the point where they'll award you multiple projects at once because they're so happy with what you've done on the first or second project. They often do reviews of them after they're done. After the product's been introduced, they'll do a review of the vendor. How did we work together? How can we work better together? They may award you additional projects. That's the stage we're at with a few of these major players. We've been awarded new projects, and we will, of course, execute on those. Like we did in home entertainment, we will decide we want to do as much with them as possible and have them make that choice.

Steven Frankel
Steven Frankel
Managing Director and Senior Research Analyst at Rosenblatt Securities

Great. Thank you.

Operator

Thank you. At this time, I would now like to turn the conference back over to Paul Arling for closing remarks.

Paul Arling
Paul Arling
Chairman and CEO at Universal Electronics

Okay. Thank you for your continued support of Universal Electronics and joining us on the call today. 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. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Bryan Hackworth
      Bryan Hackworth
      CFO
    • Paul Arling
      Paul Arling
      Chairman and CEO
Analysts
    • Jeff Van Sinderen
      Senior Analyst at B. Riley Securities
    • Steven Frankel
      Managing Director and Senior Research Analyst at Rosenblatt Securities
    • Greg Burns
      Analyst at Sidoti
    • Kirsten Chapman
      Managing Director at Alliance Advisors Investor Relations
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