Universal Electronics Inc.

Good day, and thank you for standing by. Welcome to the Universal Electronics Second 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 you 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 your speaker today, Kirsten Chapman, LHA Investor Relations. Please go ahead.

Thank you, Gerald, and thank you all for joining us for the Universal Electronics 2023 Second 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 this call, including any additional updated material, nonpublic 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 caution to 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 for interoperability across devices, platforms, and the hybrid systems in the home, achieving new product development and design near and longer-term successes as anticipated by management in the connected home space, and its line of ultra-low power and energy harvesting control 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 projects, software solutions, and technologies into existing and new markets, which results in increased sales and market share growth for the company. The ability to optimize the company's manufacturing footprint on a timeline and to the extent expected by management. Management's ability to continue to manage its business inventories and cash flow to achieve its net sales, margins, and earnings through financial discipline, operational efficiency, liquidity requirements, manufacturing footprint utilization strategy, including the recording of material impairment and severance charges, and product line and business diversification, the continued fluctuation of the company's market capitalization, the impact of the company's financial statements that may experience due to supply chain constraints and inflationary pressures and macroeconomic conditions its consumers are experiencing, 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 in spending, natural disasters, public health crises, governmental actions, or political unrest, 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 documents the company has filed with the SEC, including its 2022 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 financial GAAP 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 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. Our market diversification strategy is starting to take hold, and we are confident it will drive long-term growth and profitability for several reasons. First, our quality, innovation, and service continue to be valued by our customers and end users, and our market share continues to grow in all the markets we serve. Next, the connected home market which includes HVAC, home automation, and security, approaches $2 billion in size, and is growing at a compound annual growth rate of nearly 10%. It represents a significantly greater revenue growth opportunity than the home entertainment market. Finally, and most importantly, we have quantifiable evidence that the product and technology solutions that brought us much success in home entertainment bring tangible value to our customers in the growing connected home market. In this market, we have secured design wins for over 30 products currently in development. We have expanded our list of customers to include six of the top 10 largest HVAC companies in the world, who together account for about one third of the global HVAC market. And we are confident of more to come. I'll provide more context to each of these critical points as we talk a little about our history, where we are now, and where we expect to go from here. First, UEI is and has always been about interoperability. Interoperability is defined as the ability for different systems, devices, applications, or products to connect and communicate in a coordinated way with minimal effort from the end user. This core value proposition was central in our growth and ultimate market share leadership in home entertainment. Our engineers created world leading products that delivered seamless interoperability to all devices in the AV stack. We solved our customer's challenge to gain control over these disparate devices and systems. Not just some devices, but all devices and all brands. Our solutions delivered a home entertainment control experience second to none. With automated device discovery set up and control over everything in the home AV ecosystem, consumers today are able to enjoy true interoperability in their home entertainment experience. Our expertise in connectivity protocols, from infrared to radio frequency 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. These strengths translate beautifully to the connected home space. Over the last three plus decades, the home entertainment market has changed greatly, and even more so over the last couple of years. Since our net sales peaked in 2019, our primary home entertainment market customers, the video service providers, have experienced dramatic net subscriber losses, which were exacerbated by the impact we endured since the pandemic began. Even with this market decline, it is important to note that our technology leadership continue to grow and we continue to win new projects in the channel. In fact, today, our market share in home entertainment is as high as it's ever been. However, our absolute dollar amount of sales, particularly in subscription broadcasting, has decreased substantially. We remain committed to this market and continue to support our customers with next generation solutions, including many hybrid systems that combine linear and stream content in our new line of low-power, sustainable energy harvesting products. While we lead the industry with innovative home entertainment control technologies, we continue to invest in growing our position in connected home applications. As noted, our customers and end users value our quality, innovation, and service, and our patented leading wireless control technology creates interoperability that is highly desired by customers seeking to extend the reach of their standalone or point solutions to become more integral to a connected smart home experience. With the average U.S. home now exceeding 20 connected devices, the need for interoperability is greater than ever as these smart home devices bring connectivity and convenience to the home. However, these devices are often difficult to configure. in part due to a variety of often incompatible communication protocols, and in part because their value of operating collectively is not yet fully explored. Today we are actively engaged with the leading brands and various smart home applications to explore how their devices and features can work together to bring additional comfort, convenience, safety, and security to the home. By way of example, In the climate control space, we developed a solution with a global HVAC brand to bring more product value and consumer benefit by enabling intelligent wireless connectivity between their existing wall mounted HVAC controller and smart sensors throughout the home. These sensors, all designed and developed by UEI, include sensors for temperature and humidity, CO2, windows and doors, as well as the presence of people. These devices communicate to the controller to enable automatic energy management features that turn the HVAC system on or off depending on the status of the various sensors. These sensors working together through software create a truly smart home as they can provide better comfort and energy savings automatically with no user intervention, the very definition of interoperability. We believe all future HVAC control systems will evolve to offer this level of sensing capability, and UEI has the expertise, products, and technologies to deliver these types of solutions. Similarly, in the security space, we recently introduced a comprehensive retrofit smart lighting control system with a leading security brand that brings their installers a new smart home product category to their portfolio. without requiring installers to touch the home's electrical wiring. The smart lighting system communicates through a UEI-developed smart home hub that connects to the security panel, extending the safety and security features and creating a more feature-rich end-user experience. Also in climate control this month, after 18 months of development, we began shipping the UEI Tide Touch connected thermostat with Mitsubishi Electric Train US, known as METIS. The first of many new design wins on our newest connected thermostat platform, this product works with Mitsubishi Train's existing line of ductless systems and brings advanced features, including advanced humidity control and built-in presence detection for automatic screen wake up. This offers METIS a solution to simplify their overall controller system interface streamline the installation process with on-screen instructions, and optimize deployment costs utilizing UEI's modular power pack architecture designed into all our Tide Comfort family products. Another example is in the motorized shades area. In this space, UEI is uniquely positioned to connect disparate devices in the home to enable a higher degree of energy management by connecting smart motorized shades with a climate control system, namely our UEI TideTouch thermostat. This system intelligently opens and closes blinds in the home to deliver a more automated temperature control experience. Through these examples and many more, we are excited about our progress. The connected home markets on which we focus, again, are nearly 2 billion in size, growing quickly, and represent fertile revenue growth potential. Not that different from our early days in the home entertainment channel when our market share was small and our desire and belief in the value of our technology innovation was big. While we cannot disclose details of our other design wins in this market, these developments represent significant potential new product revenue that will add to our top line in the coming 12 to 18 months. As noted, we are working on developments with six of the world's leading HVAC OEMs, and we expect to introduce over 30 connected home products currently in development between now and the end of 2024. We estimate that most of the new customer design wins in this market will launch by mid 2024, with the remainder likely to follow later in the year, driving year-over-year net sales growth in 2024 and more revenue growth into 2025. This is just the beginning, as we have approximately 100 projects new and replacement at the quote and qualification stage as well. In summary, I'm confident that on the evidence of new design wins and the customer momentum we have right now, that we are already on the path to long-term sales and profitability growth. Now I'll turn the call over to our CFO, Brian Hackworth, for a review of the financials.