Universal Electronics Inc.

Good day and thank you for standing by. Welcome to the Universal Electronics First Quarter 2023 Financial Results Conference Call. At this time, all participants are in 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the speaker today, Kirsten Chapman. Please go ahead.

Thank you, Jules, and thank you all for joining us for the Universal Electronics 2023 First Quarter Financial Results Conference Call. By now, you should have received a copy of the press release. If you've not, please contact LHA Investor Relations 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 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. These statements include the company's ability to timely develop and deliver new technologies and technology upgrades and related products introduced this year, including meeting the demand of interoperability across devices, platforms, and ecosystems in the home. The timing and extent of the recovery of the consumer electronics channel is believed by management. Achieving the new product development successes as anticipated by management, including in the HVAC market and its groundbreaking line of ultra-low power and energy harvesting controls products designed to address the growing demand for more sustainable solutions in electronic devices. The continued successful collaboration with existing and new customers in developing and launching next-generation products, software solutions, and technologies into existing and new growing markets, which results in increased sales and market growth share for the company. The ability to optimize the company's manufacturing operations on a timeline and to the extent expected by management. Management's ability to continue to manage its business inventories, and cash flows to achieve its goals of net sales margins and earnings through financial discipline, operational efficiency, manufacturing footprint, and utilization strategies, and product lines and business diversification management. The continued decline of the company's market capitalization and consequent impairment of the company's goodwill. The impact of the company's financial results that it may experience during the supply chain constraints, inflationary pressures, and macroeconomic conditions in its consumers are experiencing. The direct and indirect impact the company may experience with respect to the business and financial results stemming from the continued economic uncertainty affecting consumers' confidence in spending, natural disasters, public health crises, including the continuation or resurgence of COVID-19 pandemic. or governmental actions, including war. 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 files with the SEC, including its 2022 Annual Report on Form 10-K. 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 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 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 Brian Hackworth, who will summarize the financials. Paul will then return to provide closing remarks. It is now my pleasure to introduce Paul Arling. Please go ahead, sir.

Thank you for joining us today. For the first quarter of 2023, while we met the high end of our guidance for net sales and earnings, neither of these measures reach our standards for long-term financial performance. So we are executing strategies to diversify our markets and realign our global operations, in particular, optimizing our manufacturing footprint. While we are experiencing headwinds in our home entertainment channels, we continue to see growth in sales and market share in the connected home market. As we have discussed previously, we are leveraging our foundational competitive advantages, our innovation in device control and connectivity technology, our excellence in new product development, and our commitment to providing a great customer service. Solving the consumer demand for interoperability across devices, platforms, and ecosystems in the home is a core foundation of enabling a truly smart home experience, which is exactly what we are bringing to our customers in the climate control, automation, and security markets. These areas will continue to grow in the long term, driven by underlying macro trends such as global warming, rising energy costs, and the need for smarter and more sustainable product solutions. However, near-term, our new product and customer successes have yet to fully offset the sales decline due to subscriber loss in subscription broadcasting, particularly in the US. Additionally, our consumer electronics customers are also experiencing near-term order declines, driven mainly by economic weakness in the consumer or retail channel. We believe the impact in the consumer electronics channel is temporary, and we expect television sales to recover. as the battle for the primary operating system for entertainment and information in the home escalates. In this regard, we are extremely well positioned with our key accounts and are working to help bring new features and more sustainable solutions to the OEM brands that lead this industry. Looking at our current backlog of customer programs, as well as our product development pipeline, we believe net sales will hit their low watermark in the first half of this year. We are actively refocusing our product development efforts to align with current market dynamics that will help us achieve better sales results later this year and into next. What has been encouraging is that even while we are in a period of higher levels of consumer uncertainty, the number of project design wins in both new and existing accounts is accelerating, the majority of which are for new products, representing incremental sales growth versus replacement business. As we have mentioned before, sales and development cycles in these new channels are typically longer. Subsequently, these new product design wins are expected to contribute modestly to sales in 2023 and then drive top line growth in 2024. More importantly, these design wins give us great confidence that our differentiated solutions and technical capabilities are key assets that will return us to growth and profitability in the not so distant future. In our HVAC channel, we can now boast seven major brands as customers. Collectively, these brands represent over 30% of the world's HVAC market. Many of the newer accounts represent design wins achieved in the past six months and reflect key new products that will drive global customer penetration in the industry. We've won new major awards with leading brands like Daikin, Carrier, and Mitsubishi Train, for their more advanced connected thermostats. In addition, earlier this year, our teams kicked off customer initiated developments for several smart thermostat solutions based on our tide dial and tide touch platforms scheduled to ship in Japan, Europe, and other markets in 2024. These important design wins validate our product roadmap efforts for this channel which we started nearly two years ago and offer a positive view for the future. The success we are achieving in the HVAC market is strikingly reminiscent of the earlier phase of success in home entertainment. We focused on gaining traction through project wins with the leading companies in the world. We then executed on those wins, innovated further in our products and technologies, and as a result, won even more business with leaders in the industry. Our keys to success are stronger today than they have ever been. Our ability to execute at scale for our customers and provide connectivity and importantly, interoperability across an increasingly chaotic smart home infrastructure is proven through our history with some of the largest companies in the world. These attributes are strongly desired by our customer base as they look to become more integrated into the smart home of today and tomorrow. In our home security and automation business, it is a similar story. We are adding to a small but growing customer base, attracting new customers and increasing customer share with our new product design wins for controllers, sensors, and other home automation products with leading brands like Vivint, Hunter Douglas, and Somfy. Product introductions will begin later this year and ramp into 2024. These accounts have expressed a strong commitment to bring more product opportunities to us as a result of their initial exposure to our superior technical know-how, innovation, and customer engagement experience. Even in our video service provider channel earlier this year, we secured major program wins for new television streaming platforms in the US and Europe, that we will begin shipping later this year due to the shorter design and development cycles inherent with these products. As is the nature in our business, we can't provide more details surrounding these customer platforms right now, but rest assured we will continue to expand our market reach even in this more subscriber-challenged market. Turning to a review of our plan to optimize our manufacturing footprint worldwide. To manage the changes in the global supply chain and governmental policies, we have been working on expanding our manufacturing footprint outside of China. Last year, we started building a new energy efficient and sustainable factory in Vietnam that will provide additional capacity. Once it is running at near optimal levels, we plan to ramp down our manufacturing volume in China and reduce our overall manufacturing overhead as we transfer volumes out of our other facilities. Although we will temporarily experience continued overcapacity, our plan ultimately will lead to an optimization of our global supply chain footprint, taking into account the adjustment in product mix and monthly volumes across channels as we continue to transition our business into newer markets with lower volumes and higher ASPs. With all of these wins and actions underway, we are confident we will return to long-term growth and profitability. Now I'll turn the call over to our CFO, Brian Hackworth, for a review of the financials. Please go ahead, Brian. Thank you, Paul.