Common Electronics Inc. (NASDAQ:UEIC) Q1 2024 Earnings Convention Name Might 2, 2024 4:30 PM ET
Firm Contributors
Kirsten Chapman – LHA Investor Relations
Paul Arling – Chief Government Officer
Bryan Hackworth – Chief Monetary Officer
Convention Name Contributors
Gregory Burns – Sidoti & Firm, LLC
Invoice Dezellem – Tieton Capital Administration
Benjamin Alexander – Alexander Capital Administration, LLC
Operator
Good day, and thanks for standing by. Welcome to the Common Electronics First Quarter 2024 Monetary Outcomes Convention Name. Right now, all members are in a listen-only mode. After the speaker’s presentation, there will likely be a question-and-answer session. [Operator Instructions] Please be suggested that at the moment’s convention is being recorded.
I might now like handy the convention over to our first speaker for at the moment, Kirsten Chapman with LHA Investor Relations, a division of Alliance Advisors. Please go forward.
Kirsten Chapman
Thanks, Krystal, and thanks all for becoming a member of us for the Common Electronics 2024 first quarter monetary outcomes convention name. By now, you must have obtained a duplicate of the press launch. When you have not, please contact LHA at 415-433-3777 or go to the Investor Relations part of the web site. This name is being broadcast dwell over the Web. A webcast replay of the decision, together with any extra up to date materials private info that is likely to be mentioned throughout this name will likely be obtainable on the corporate’s web site at www.uei.com for 1-year.
Throughout this name, administration might make forward-looking statements relating to future occasions and future monetary efficiency of the corporate and cautions you that these statements are simply projections and precise outcomes or occasions might differ materially from these projected. These statements embody the corporate’s capacity to penetrate the linked dwelling house and, notably, the local weather management and residential automation markets by way of the event and supply of distinctive and progressive options as anticipated by administration.
The acceptance of UEI TIDE household merchandise within the international HVAC market, administration’s capacity to proceed to handle its enterprise, inventories and money flows to realize its internet gross sales margins and earnings by way of monetary self-discipline and value financial savings initiatives, operational effectivity, liquidity necessities, manufacturing facility optimization technique, R&D spend, product line and enterprise administration and different funding spending expectations, together with our capacity to execute our inventory repurchase program.
The corporate’s profitable life-sustaining [ph] of the corporate’s QuickSet applied sciences, the corporate’s capacity to keep up its main market share within the conventional subscription broadcasting enterprise and the direct and oblique affect the corporate might expertise with respect to its enterprise and monetary outcomes stemming from the continued financial uncertainty affecting customers’ confidence and spending pure catastrophe, public well being crises, governmental actions or political unrest, together with struggle, terrorist actions, or different hostilities.
The corporate undertakes no obligation to revise or replace these statements to replicate occasions or circumstances that will come up after at the moment’s date and refers you to the press launch talked about on the onset of this name and paperwork the corporate recordsdata with the SEC, together with its 2023 annual report on Kind 10-Okay and the periodic stories filed or furnished since then.
In administration’s monetary remarks, adjusted non-GAAP metrics will likely be referenced. Administration supplies adjusted non-GAAP metrics, as a result of it makes use of them for price range planning functions and for making operational monetary choices, and believes that offering these non-GAAP monetary measures to traders as a complement to GAAP monetary measures, assist traders consider UEI’s core working and monetary efficiency and enterprise traits in line with how administration evaluates such efficiency and traits.
As well as, administration believes these measures facilitate comparisons with the core working and monetary outcomes and enterprise traits of rivals and different corporations. A full description and reconciliation of those adjusted non-GAAP measures versus GAAP are included within the Firm’s press launch issued at the moment.
On the decision at the moment are Chairman and Chief Government Officer, Paul Arling, who will ship an summary; and Chief Monetary Officer, Bryan Hackworth, who will summarize the financials. Paul will then return to supply the closing remarks.
It’s now my pleasure to introduce Paul Arling. Please go forward, sir.
Paul Arling
Thanks for becoming a member of us at the moment. We’re constructing for a greater future, shifting gross sales and product growth assets to the linked dwelling house, increasing our finish market attain and implementing value initiatives. These actions delivered Q1 2024 outcomes as anticipated with robust year-over-year gross margin enhancements. Extra importantly, our buyer wins, our international footprint optimization and our expense reductions place us for a worthwhile yr in addition to place us for constant gross sales and earnings progress into 2025, 2026 and past.
The strengths now we have constructed over the previous many years, delivering true seamless interoperability, discovering, connecting and controlling all gadgets and all manufacturers translate superbly into the local weather management and residential automation channels. Our experience in connectivity protocols from infrared to radiofrequency to IP, and our capacity to make these gadgets work higher collectively provides us a aggressive benefit that continues to create distinctive and differentiated options.
{Our capability} to design, engineer and construct options for the main manufacturers on the earth which can be interoperable and self-configuring will help the subsequent era of merchandise within the dwelling automation and local weather management markets change into ever extra integral to the sensible dwelling expertise. We’re assured in our success as our capabilities align effectively with the linked dwelling market wants, as evidenced by our new buyer exercise on this house. As at all times, the most effective testomony to our success is the companions that select to work with us on their product options.
We’ve gained new product designs with 6 of the highest 10 HVAC OEM. corporations on the planet and are engaged on to extra. Additional, the market is rising and present process constructive change as local weather management gadgets are getting smarter. For instance, there’s a transition underway, bringing extra environment friendly product types similar to warmth pumps into reputation. Our capacity to rapidly tackle these alternatives is reminiscent to the early innings of our success within the dwelling leisure market.
I’d like to focus on just a few of our actions that help our outlook. In local weather management, on the Shopper Electronics Present in January, we unveiled new UEI TIDE household choices, together with merchandise that bridge to indoor air high quality sensors, built-in air air purifier management and extra equipment that broaden our management utility. We additionally took the present on the street and demonstrated our full suite of progressive local weather management options to our rising record of HVAC OEM prospects in Japan, together with Daikin, Toshiba Provider, Fujitsu, LG and Panasonic.
In March, we exhibited at one of many premier occasions for the HVAC business in Europe. Our TIDE household was as soon as once more extraordinarily effectively obtained producing robust curiosity from the main manufacturers in Europe. In actual fact, in just a few quick years, now we have engaged 13 of the highest 14 HVAC OEM manufacturers in Europe that collectively characterize over 80% of that market. Already, now we have secured three lively design wins with two of the top-3 European HVAC OEMs. With an extended lead occasions on this phase, which now we have beforehand mentioned. These merchandise are anticipated to start out transport in 2025.
In dwelling automation, throughout Q1, we obtained our first normal TIDE Dial and TIDE Contact thermostat orders from a number one multi-dwelling unit integrator in North America. We count on to start product deliveries later this yr. Moreover, TIDE Dial is presently in shopper trials with European utility supplier. We count on to finish a profitable trial and to start transport product to them in This autumn.
In dwelling leisure and shopper electronics, though the market has modified enormously during the last couple of years, we continued to seize market share with new product introductions at small and huge operators. In Q1, we started transport our sustainable distant management to Liberty International.
We proceed so as to add prospects on our Android distant management line, together with two telecom corporations in India. Each have merchandise in growth which can be anticipated to ship in Q3 of this yr. We proceed to see traction on the Xumo platform throughout the Constitution footprint and the Xumo TV branded platforms, as this program continues to scale available in the market.
Relating to licensing our proprietary expertise, we not too long ago added Hisense as a licensee of our Qterics digital rights administration provisioning providers. These software program providers are presently utilized by Vizio, TCL and quite a few different TV OEMs to make sure safe supply of digital rights administration keys for streaming content material providers on their sensible TV platforms.
Our QuickSet licensees in shopper electronics similar to Samsung, LG and Sony all introduced their 2024 sensible TV product strains and can proceed to ship variations of our QuickSet cloud-enabled software program. Our newest model brings added worth to our prospects, giving them entry to a greater consumer expertise, elevated consumer engagement and diminished onboarding and troubleshooting challenges. These long-term relationships constructed upon years of working along with these world main dwelling leisure corporations continued to be strengthened with these characteristic enhancements and provides us additional confidence in our success going ahead.
Now to the financials. Bryan, please go forward.
Bryan Hackworth
Thanks, Paul. First, I’ll evaluation the outcomes for the primary quarter of 2024 in comparison with the primary quarter of 2023. Web gross sales have been $91.9 million inside steering. This compares to $108.4 million for the primary quarter of 2023, reflecting wire reducing within the video service channel and in an setting the place households for quite a lot of causes are spending much less on discretionary items. Gross revenue for the primary quarter of 2024 was $27.2 million or 29.6% of gross sales, in comparison with 25.4% within the first quarter of 2023.
For the previous 2 years, our operations workforce has been centered on restructuring our manufacturing footprint and have executed effectively exceeding expectations. These efforts have resulted in important discount of producing overhead, the principle driver of the advance in our gross margin. Our manufacturing facility optimization plan is nearing completion. We closed 2023 robust, finishing the primary two phases, commencing operations in our new Vietnam facility and shutting our manufacturing facility in southwestern China forward of schedule. Our Vietnam manufacturing facility continues to scale and meet or exceed our expectations.
We’re presently streamlining our operations in Monterrey, Mexico, together with shifting right into a smaller, extra environment friendly facility that can provide product for sure North American prospects. We stay on track for its completion within the second quarter of 2024. As we evolve as an organization, we are going to proceed to evaluate our international footprint and determine methods to function extra effectively.
For the primary quarter of 2024, working bills have been $29.4 million in comparison with $31.2 million within the first quarter of 2023, reflecting the execution of our value financial savings initiatives. SG&A bills decreased to $21.8 million in comparison with $23.1 million within the prior yr quarter. R&D bills decreased to $7.6 million in comparison with $8.1 million within the prior yr’s quarter.
Working loss was $2.2 million in comparison with $3.6 million within the first quarter of 2023. Our first quarter 2023 efficient tax charge was 20.6% in comparison with 19.9% for the primary quarter of 2023. Web loss for the primary quarter of 2024 was $2.5 million or $0.19 per share in comparison with $3.5 million or $0.28 within the first quarter of 2023.
Subsequent, I’ll evaluation our money movement and stability sheet. At March 31, 2024, money and money equivalents have been $26.9 million in comparison with $42.8 million at December 31, 2023. Money flows utilized by working actions have been $2.8 million for the primary quarter of 2024, which features a $5 million safety deposit regarding a authorized matter. This compares to $2 million money utilized by working actions within the prior yr quarter.
With rates of interest at an elevated degree, we repatriated international earnings, enabling us to cut back our excellent debt from $55 million at December 31, 2023 to $46 million at March 31, 2024. We additionally repurchased roughly 95,000 shares within the open marketplace for 843,000.
Now, turning to our steering. For the second quarter of 2024, we count on gross sales to vary from $90 million to $100 million in comparison with $107.4 million within the second quarter of 2023. We count on to a spread from a loss per share of $0.10 to breakeven in comparison with a lack of $0.06 per share within the second quarter of 2023.
UEI continues to evolve as an organization. Whereas we stay dedicated to creating progressive options within the dwelling leisure house. Lately, we’ve elevated our focus in progress areas similar to local weather management and residential automation. Paul talked about a number of mission wins in these channels with launches scheduled all through the latter half of 2024 and 2025. We imagine these mission wins within the linked dwelling channel, coupled with a extra environment friendly manufacturing facility footprint will yield backside line progress and full yr profitability.
I might now like to show the decision again to Paul.
Paul Arling
Thanks, Bryan. Our enlargement into the linked house is broadening our market served and increasing our buyer base. Our distinctive and progressive options supported by years of expertise in bringing linked dwelling configuration and management to main international manufacturers, make our choices engaging in these markets. Because of this, our gross sales workforce and merchandise are gaining traction because the main manufacturers are rising their design awards with us. This course of can take time, however as we skilled in dwelling leisure, one mission results in the subsequent, and as we work extra carefully with these accounts and innovate to enhance their product providing, they award increasingly of their enterprise to us.
As famous, now we have secured tangible wins that search progress within the second half of 2024 and, importantly, into 2025, 2026 and past. We’re very inspired by quite a few buyer wins and are assured of many extra to come back. Primarily based on our design wins and our prospects’ deliberate transport schedules. We’re additionally very inspired by our prospects’ robust curiosity in our product roadmaps.
The methods in our properties at the moment, leisure, local weather management, well being, security, safety and others have gotten more and more interconnected. This brings nice comfort performance and worth to customers worldwide. Our prospects, each present and potential, are very conscious and on this change. Given our substantial expertise in serving to make these methods interconnected and interoperable, we proceed to see important curiosity from world main manufacturers within the markets we serve.
As such, we are going to proceed to speculate to help the evolution of wi-fi dwelling management. With our mounting mission wins, together with our value initiatives and international footprint optimization, we count on to be worthwhile for 2024. We imagine our greatest years are forward of us and our workers all over the world stay laborious at work to make this a actuality. As at all times, keep tuned.
Operator, we will now open up the decision for questions.
Query-and-Reply Session
Operator
Thanks. Right now, we are going to conduct the question-and-answer session. [Operator Instructions] Our first query comes from the road of Greg Burns of Sidoti. Your line is now open.
Gregory Burns
Good afternoon. I suppose, might we simply begin with the ten% prospects for the quarter?
Bryan Hackworth
Yeah, we had two prospects that exceeded the ten% threshold. First one is Daikin at 13.2% and the second firm is Constitution Communications at 11.1%.
Gregory Burns
Okay. Good to see, I suppose, a cable buyer popping again on there. So perhaps that leads me to my second query, what are you seeing within the cable market? Are you seeing indicators of stabilization, perhaps enhancements so as patterns there? What’s the near-term ends in the view on the cable market?
Paul Arling
Sure. Our view is that there’s clearly change, platforms both have or are altering to hybrid platforms, a few of that are delivered to set-top field, some to the TV instantly. And we’re totally supporting our prospects in these adjustments. So far as the way forward for the normal methodology, we’d, after all, not have as a part of our plan of progress to have an enormous return to the historic sample of set-top packing containers with remotes. We do suppose that’s nonetheless there. It frankly can’t shrink on the tempo it has the final 4 years. So that’s clearly simply mathematically going to degree out considerably, however there’s a change underway. They’re powering new televisions with OSs, we’re a part of that, notably with the Xumo and others. And that can enable individuals to get these hybrid platforms, linear content material, information, sports activities, et cetera, alongside all of the apps they love and all by way of that, easy-to-use interface, which we energy by way of QuickSet cloud. In order that’s the change that’s occurring.
Dwelling leisure will likely be round for the foreseeable future, each right here at UEI and customarily with individuals, individuals aren’t watching much less tv is simply the way in which that it’s being delivered is altering and we’re altering alongside that. So the house leisure enterprise remains to be good. The licensing enterprise has been okay. We noticed a drop off final yr resulting from gross sales of TVs, however that’s temporal TVs develop at a relentless charge of single digits. So, over time, that can nonetheless be true. Dwelling leisure goes to be right here for some time. It’s a great foundation, a great basis for our enterprise. However the linked dwelling segments are rising. They’re rising quick they’re altering, and now we have capabilities, as I mentioned within the ready remarks which can be unmatched in that market to assist these prospects interconnect and make merchandise interoperable with instantly with the OEMs. We predict we’ll energy the market into the long-term future.
Gregory Burns
Okay. Nice. Thanks.
Operator
Thanks to your query. [Operator Instructions] Please stand by for our subsequent query. Our subsequent query comes from the road of Invoice Dezellem of Tieton Capital Administration. Your line is now open.
Invoice Dezellem
Thanks. I’ve a few questions associated to your remark that you may be worthwhile this yr. Is that on an adjusted foundation or on a GAAP foundation?
Bryan Hackworth
Adjusted.
Invoice Dezellem
After which, how do you anticipate type of that Q3 and This autumn unfolding? Would you anticipate that each of them can be worthwhile or that Q3 would basically be breakeven after which This autumn would have a degree of profitability that may override the losses within the first a part of the yr?
Bryan Hackworth
Yeah. I’m not going to offer a steering for Q3 and This autumn particularly. Principally, proper now, our forecast for the complete yr is for us on an adjusted foundation to be worthwhile.
Invoice Dezellem
After which, I could have slightly bit extra enjoyable and attempt to proceed this, if I could, Bryan. Relative to 2025, do you anticipate that regardless of the enterprise degree is in This autumn, that can proceed as a run charge into 2025 that you simply then construct off of? Or are you anticipating that there will likely be some seasonality that can result in the This autumn being larger, and you then’ll have a step again as you progress into 2025 after which construct from there?
Bryan Hackworth
Invoice, I’ll reply that usually. With all of the initiatives we’re profitable, there’s going to be a layering impact. And as they layer, I count on the sale to proceed to develop. Now, should you’re evaluating This autumn to Q1, someday Q1 might have a drop-off. However normally, I count on gross sales to begin to ramp. I imply, I do know it’s small, however sequentially you’re seeing it go from slightly below $92 million in Q1, and we count on the midpoint to be $95 million. In order that progress is especially pushed by the mission wins that now we have. So I count on that to proceed the initiatives we’ll layer. And I believe if you get into 2025, I believe we’re going to be in fine condition and I count on that 2025 to be an excellent yr.
Invoice Dezellem
Nice. That’s useful. Thanks for taking the questions.
Operator
Thanks to your query. Please stand by for our subsequent query. Our subsequent query comes from the road of Benjamin Alexander of Alexander Capital Administration. Your line is now open.
Benjamin Alexander
Thanks. Good afternoon, Paul and Bryan. I wished to ask you concerning the enterprise that you’ve got truly gained. You’ve known as out that quantity previously in addition to the potential alternatives that you simply’re taking a look at, which is one other quantity you known as out on prior calls?
Paul Arling
Proper. Yeah, the one enterprise exceeds $80 million of the potential, as we now name the gross sales tube fairly than funnel is in extra of some hundred million. Now, once more, everybody has to keep in mind that the one initiatives enter the system, they’re not one till the tip. As soon as they’re one, we then develop them totally after which ship them. So the one initiatives are nearly universally assured. Those which can be in qualification or quote should not but. We win lots of our quotes as soon as they proceed to that degree, however we don’t win all of them. So the few hundred million will get transformed into enterprise, however not utterly.
In different phrases, a few of these initiatives will likely be both thought-about by the shopper and never transfer ahead on. That’s sometimes what occurs once they don’t transfer ahead. However there’s plenty of enterprise on the market. This can be a very massive market. HVAC alone exceeds by nearly 2x the dimensions of the house leisure management market. So it’s a really massive market and rising. And there’s, as I mentioned within the ready remarks, constructive change going down there. Applied sciences in each the models themselves and the management models is altering. The world on this matter, warmth pumps are gaining popularity. They’re way more vitality environment friendly, much less fossil gasoline, after all, and that change is underway.
Governments are starting to on and off, put incentives in place for customers to purchase these and set up these methods as a result of, once more, they use a lot much less vitality. So there’s a change underway. The identical factor that’s at our dwelling leisure market from analog to digital from non-HD to HD, from non-DVR to DVR. There’s a change underway and we’re there to assist them energy it and make these methods smarter than ever. And that’s why we’re getting the traction we’re with mission wins and plenty of initiatives coming into our gross sales course of.
So we’re very assured, we’re very enthusiastic about what’s going to occur in not simply the approaching quarters, however the coming years, as a result of the lead time on these initiatives is, sadly, generally 1.5, 2 years, a few of them may even stretch greater than 2 years when you’ve gained them. However when you’ve gained them, it supplies a layer of gross sales that normally stays with you for some time. And by the way in which, it’s not that completely different than dwelling leisure, these initiatives final 4 years. So we’re assured that what we’re doing. We’ve rightsized our manufacturing footprint in contemplation of this enterprise change to extra of a majority of these merchandise, our overhead, we’ve taken our growth cash in the direction of these product strains and we’re profitable initiatives.
Operator
Thanks. Thanks a lot to your query. Right now, that does conclude our question-and-answer session. I might now like to show the decision again over to the Chairman and CEO, Paul Arling.
Paul Arling
Yeah, I simply wish to thank all people for becoming a member of us at the moment and to your continued help of Common Electronics. Hope to speak to you quickly. Have an important day.
Operator
This does conclude at the moment’s convention. You might now disconnect.