Universal Electronics Inc. Aktie

Good afternoon. My name is Kevin, and I'll be your conference operator today. I would like to welcome everyone to Universal Electric's (sic) [Electronics] First Quarter 2026 Financial Results Conference Call.[Operator Instructions] I will now turn the call over to General Counsel, Ryan Hochgesang. Please go ahead.

Thank you, operator, and thank you all for joining us for the Universal Electronics First Quarter 2026 Financial Results Conference Call. By now, you should have received a copy of the press release. If you have not, please visit the Investor Relations section of our 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 a period of 1 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 these projections. These statements include the company's goals, focus, strategies and opportunities, market trends, including in the Connected Home and the Home Entertainment markets, expectations with respect to customer orders and customer demand, including short-term and long-term demand, R&D and product development activities, restructuring plans and actions, including expected benefits and timing, financial projections and forecasts, including revenue, gross profit, operating profit and net income, adjusted free cash flow, cash, cost reductions and working capital, our ability to respond to business and regulatory changes such as tariffs and macroeconomic conditions and expectations with respect to our ongoing litigation.

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 beginning of this call and the documents the company has filed with the SEC, including its 2025 annual report on Form 10-K and the periodic and current 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. 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.

Joining me today are Interim CEO and Chief Operating Officer, Rick Carnifax; and Chief Financial Officer, Wade Jenke. Rick will provide an overview of our business, and Wade will deliver our financial results. It's my pleasure to introduce Rick Carnifax. Please go ahead, Rick.

Thank you, Ryan, and thank you all for joining us. Last quarter, we outlined 3 structural moves for 2026, aligning our cost structure to our current revenue and margin expectations, tightening R&D and portfolio focus on opportunities with the clearest path to accretive results and retaining the people, customers and suppliers that define what UEI does well. Q1 played out consistent with the environment and framework we described last quarter, reinforcing why we initiated the strategic restructuring and refocusing when we did. Total revenue was $79 million, down 14.4% year-over-year, with both Home Entertainment and Connected Home reflecting the headwinds we highlighted last quarter, HVAC industry consolidation, European retail pressure and extended customer deployment timelines. Home Entertainment continues along its current trajectory as a mature business, and Connected Home growth remains slower and less predictable than we projected during the first half of 2025.

Our focus remains on executing the actions within our control rather than waiting for the near-term demand to rebound. That means maintaining cost discipline, prioritizing investments with clear paths to return and improving cash generation and financial durability. Let me provide a progress report on the 3 structural moves. First, aligning our cost structure to our current revenue and margin expectations. In Q1, adjusted non-GAAP operating expenses were down $5.3 million year-over-year. Additionally, decisions made and actions started in Q1 will structurally reduce labor expense by approximately $5 million on an annualized run rate basis. Q1 captured the early portion of the cost reductions and savings will continue to materialize as roles transition, programs wind down and structural changes annualize.

Second, tightening R&D and portfolio focus. R&D expense was $5.4 million, down from $7.2 million a year ago as we direct resources toward initiatives with the clearest path to accretive return and reduced activities that do not meet that threshold. This is not about stepping away from what makes UEI valuable. It is about focusing our efforts where we can better serve customers and support profitable growth.

Third, retaining key employees, preserving customer continuity and keeping suppliers engaged. Execution here is less about one quarter's numeric line item and more about operating cadence, staying close to key customers, protecting service levels and being deliberate about the roles and capabilities we retain as we simplify the operating model. On profitability, Q1 reflects the combined effect of lower revenue and a margin profile that remains under pressure.

Margin was challenged by lower margin product mix, delayed new product deployments on certain higher-margin Connected Home programs and commodity cost pressure in resin and electronic components. At the same time, adjusted non-GAAP earnings improved year-over-year despite lower revenue, reflecting early progress from the cost actions and discipline we have put in motion. These dynamics reinforce why the restructuring actions were necessary and why disciplined execution remains our priority. A meaningful execution outcome was working capital discipline, particularly inventory, which was reduced by $9.8 million. This work is a direct extension of the simplification effort, aligning stock levels to demand, reducing complexity where we can and freeing up cash over time.

On the commercial side, we completed direct outreach to our largest accounts to reaffirm service continuity and roadmap commitments and the feedback has been positive. In Connected Home, engagement around homeSense occupancy sensing in our TIDE smart thermostat portfolio is ongoing, supported by roadmap discussions with new HVAC OEM prospects in North America. OEM interest in higher thermostat attach rates supports our view that the opportunity remains meaningful even as residential demand and new product deployments remain uneven.

We are being realistic about that timing while staying closely engaged where our technology can support long-term customer roadmaps and future adoption. In Home Entertainment, we are managing conservatively and driving profitability, extracting costs, simplifying the product line and optimizing the supply chain footprint. Memory cost and allocation issues continue to create forecast volatility in parts of the set-top box market and European consumer demand remains pressured. At the same time, we are seeing selective opportunities where our product and supply chain capabilities can create value, and we will continue to pursue those with a clear path to accretive returns.

Looking forward, our message is consistent with what we communicated last quarter. For fiscal year 2026, revenue expectations remain tempered in both Home Entertainment and Connected Home. Against that backdrop, we are reaffirming our full-year framework, including adjusted non-GAAP diluted EPS of $0.45 to $0.65 compared to $0.31 in fiscal year 2025. Importantly, our outlook is grounded in execution, cost alignment, portfolio focus and working capital discipline, not in the expectation of a near-term demand rebound. In summary, Q1 reinforces the rationale for the strategic restructuring and refocusing we communicated last quarter and supports the actions currently in motion. The early proof points are evident in operating expense reduction, R&D discipline and inventory improvement. Growth still matters, but during this transition, our priority is to improve profitability, generate cash, rebuild flexibility and make UEI a stronger, healthier and more resilient company. With that, I'll turn the call over to our CFO, Wade Jenke, to walk through the quarter in more detail and review our outlook.

Thanks, Rick, and good afternoon, everyone. I'll walk through our Q1 2026 financial performance with a focus on profitability, cost discipline, cash flow and balance sheet strength and then briefly touch on how we're thinking about the financial execution for the remainder of the year. Turning to our first quarter results. Net sales for the quarter decreased 14.4% to $79 million compared to $92.3 million in the first quarter of 2025. The decline reflects continued top-line pressure across both our end markets, consistent with previous commentary. Connected Home net sales were $28.3 million, down from $31.7 million in the prior year quarter. Demand for Connected Home products continues long-term, but short-term volatility will occur with adoption and volume ramp-up taking longer than we initially anticipated. Home Entertainment net sales were $50.7 million compared to $60.6 million a year ago. This decline reflects ongoing secular pressure in subscription broadcasting markets as well as lower volume across consumer electronics and retail customers globally.

Adjusted non-GAAP profit for the first quarter was $20.6 million or 26.1% of sales compared to 28.3% in the prior year period. The year-over-year margin decline is primarily driven by volume and absorption declines. We also saw unfavorable product mix impact of 1.7 gross margin points. The majority came from lower retail sales, which is expected to be comparatively temporary. In addition, tariff costs negatively impacted quarterly margin, partially offset by favorable purchase savings and productivity as well as FX.

Throughout the quarter, we remained highly focused on cost discipline and structural expense reduction. GAAP and non-GAAP operating expenses declined by $5.3 million year-over-year, reflecting meaningful progress in aligning our cost structure with current revenue levels. R&D expenses declined $1.8 million, reflecting prioritization of investment toward higher-return programs and core platforms. SG&A expenses declined $3.5 million, driven by organizational restructuring and lower discretionary spending. During the quarter, we executed a global reduction in force, primarily impacting selling and general administrative roles as well as select engineering and R&D positions. These actions and decisions are expected to result in approximately $5 million annualized cost savings with associated one-time severance costs of approximately $1.3 million.

Importantly, these actions are structural in nature and will create a leaner cost profile. We remain focused on improving the profitability and financial strength of the business as we align our operating model to be more agile. GAAP operating loss for the quarter was $3.9 million compared to a loss of $3.8 million in the prior year despite a significant decline in revenue.

Adjusted non-GAAP operating loss was $1.6 million compared to $1.5 million in the prior year quarter. Adjusted non-GAAP net loss was $1.3 million or $0.10 per diluted share compared to a net loss of $1.5 million or $0.12 per share last year, reflecting improved profitability from decisive cost reductions. Now turning to cash flow and balance sheet. Cash and cash equivalents at the end of the quarter were $29.8 million. Operating cash flow for the quarter had a modest decline of $0.8 million, primarily due to timing and reductions of accrued liabilities and restructuring costs of $1.3 million. Importantly, we made meaningful progress on working capital. Inventories declined by $9.8 million and accounts receivable and contract assets declined by approximately $2.8 million sequentially. Working capital efficiency and cash generation remain top financial priorities for us in 2026.

Now turning to our outlook. For fiscal year 2026, our revenue expectations are tempered as Home Entertainment continues to face secular market headwinds and Connected Home products have yet to fully scale to offset. As a result, we expect revenue to decline year-over-year, as previously communicated. Given this environment, we are fanatically focused on cost discipline, profitability and cash flow. We expect our actions to further align our cost structure to market realities, improve profitability versus last year and structurally reduce working capital to free up cash. For the full-year, we expect adjusted non-GAAP diluted earnings per share to range from $0.45 to $0.65 compared to $0.31 in 2025. With Q1 completed, our visibility into the full year gains higher resolution and our confidence increases. Our previous guidance is holding and remains consistent as we continue to execute our business plan for 2026. Thank you, and I'll hand it back to Rick.

Thanks, Wade. Overall, the strategic restructuring and refocusing actions we initiated last quarter are underway, and we are seeing progress in the areas we control. We remain focused on disciplined execution, aligning the cost structure to our current revenue and margin expectations, focusing R&D and portfolio resources where we see the clearest path to return and protecting the people, customers and suppliers that define UEI's capabilities. We are reaffirming our full year framework, and we remain focused on improving profitability, generating cash and rebuilding the flexibility needed to make UEI stronger and more resilient over time. With that, operator, please open the call for questions.

[Operator Instructions] And I'm not showing any questions at this time. I'd like to turn the call to Rick for any further remarks.

Thank you, everybody, for joining, and thank you for your continued support of Universal Electronics. Have a good day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good afternoon. My name is Daniel, and I will be your conference operator today. Now I would like to welcome everyone to Universal Electronics Fourth Quarter and Year-End 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I will now turn today's conference call over to Ryan Hockgesang, General Counsel. Please go ahead.

Thank you, operator, and thank you all for joining us for the Universal Electronics Fourth Quarter 2025 Financial Results Conference Call. By now, you should have received a copy of the press release. If you have not, please 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 a period of 1 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 goals, focus, strategies and opportunities market trends, including in the connected home and the home entertainment space, expectations with respect to customer orders and customer demand, including short-term and long-term demand, restructuring plans and actions, including expected benefits and timing, financial projections and forecasts, including revenue, gross profit, cost savings, operating profit and net income adjusted free cash flow, cash and working capital, our ability to respond to business and regulatory changes such as tariffs and macroeconomic conditions and expectations with respect to our ongoing litigation.

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 beginning of this call and the documents the company has filed with the SEC, including its 2024 annual report on Form 10-K and the periodic and current 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. 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.

Joining me today are Interim CEO and Chief Operating Officer, Rick Carnifax; and Chief Financial Officer, Wade Jenke. Rick will provide an overview of our business and Wade will deliver the detailed financial results and conclusion. It's my pleasure to introduce Rick Carnifax. Please go ahead, Rick.

Thank you, Ryan, and thank you all for joining us. Q4 and 2025 overall were defined by decisive action, operational discipline and measurable progress toward putting UEI back on the path towards profitability, delivering the company's first profitable year since 2022. As the dynamics of our traditional home entertainment business remained challenging, we drove a strategy to diversify our revenue base, which results in connected home growing 16% year-over-year, optimized our global footprint and strengthened our financial foundation.

Product and technology focus remains central as we launched our TIDE thermostat product with partners in the MDU and utility spaces while continuing to collaborate with partners on adoption of our QuickSet homeSense solution. While these trends reflect confidence in our strategic direction, as we look at 2026, continued turbulence in home entertainment and softening in connected home that began in the second half of 2025 underscores our outlook and action plan for 2026.

Q4 revenue expectations in both home entertainment and connected home, while exceeding EPS expectations, driven by stronger-than-expected licensing revenues and continued operational improvements. New program wins in both the U.S. and abroad strengthened UEI's positioning with major OEMs in connected home. On the technology front, UEI's presence at CES and AHR underscore strong customer interest in QuickSet homeSense and advanced TIDE Touch capabilities, both of which position UEI well in connected home and HVAC ecosystems.

Customer engagements reaffirm that occupancy sensing, predictive logic and energy insight solutions are becoming essential differentiators in the market in alignment with our homeSense road map. In addition, we recognized emerging trends in our markets, and we will seek opportunities to go beyond our traditional hardware approach in ways that are aligned with our strengths and provide additional ways for customers to leverage our technology.

At the same time, both in our internal outlook and in feedback from the trade shows, we began to see signs of slowdown due to industry consolidation in HVAC, shifts in retail demand due to economic pressure in Europe and challenges in subscription broadcast tied to set-top box memory shortages. As we move to 2026, we expect the headwinds that we have highlighted to continue. The structural decline in parts of our home entertainment business has been understood and over the past year, we've taken steps to tighten costs and refocus on profitability, improving mix, being more selective on low-margin projects and pushing for better operating discipline.

During the first half of 2025, our connected home business gained momentum and offered us a credible path back to growth. However, as we progress through our fourth quarter last year and began planning for the year ahead during the early months of Q1 2026, customer forecasts, orders and projections for new product introductions planned show that revenue inflection will take longer than expected. While we did take profitability focused actions last year, those actions presume that connected home would continue its expected trajectory.

With the updated outlook, the profile has changed, and we concluded that the incremental measures taken last year are not sufficient. We believe we need to take a step back and pursue a strategic restructuring of the cost base and portfolio of the company. We are making 3 structural moves. First, resizing the company to the revenue and margin profile we actually see for 2026, not the one implied by last year's run rate. That includes a reduction in force and structural cost reductions across SG&A, our supply chain footprint and overhead so that even at a more modest and volatile revenue level, we can drive improved operating profit and cash flow.

Second, optimizing and tightening our R&D and portfolio focus on the highest revenue and margin opportunities that have a clear path to accretive results. The goal is fewer, better funded initiatives that show up in both revenue and margins.

Third, retaining key employees, preserving customers and keeping suppliers engaged through the process, being deliberate about which roles we retain, maintaining service and quality and working closely with suppliers so they understand the plan and can support us as we simplify and reduce our operating costs. We are reducing complexity and cost not walking away from the capabilities that define UEI.

The design of the program is in place, but the work will continue throughout the year. There will be transitional activities as we wind down exited projects, transfer responsibilities and adjust teams. We expect ongoing operational and organizational changes as we implement this. At the management level, we will judge ourselves on adjusted operating performance and margins, adjusted free cash flow and cash and liquidity to improve the economics of the business.

For the reasons cited earlier, we are choosing not to provide quarterly guidance for the fiscal year 2026. In a restructuring phase, we believe it's more appropriate to focus on delivering the full year plan that reflects our priorities rather than optimizing quarter-to-quarter. The guidance we are providing today reflects a conservative view of the business, continuing to recognize the mature declining nature of home entertainment and a more tempered outlook for connected home.

With that, I'll turn the call over to CFO, Wade Jenke, to walk through our results in more detail and review our full year outlook.

Good day. For the fourth quarter of 2025 net sales decreased 20.6% to $87.7 million compared to $110.5 million for the fourth quarter of 2024. Full year net sales were down 6.7% with $368.3 million in 2025 versus $394.9 million in 2024. On a full year basis, the connected home's channel continued to exhibit strong growth as sales increased by $17.1 million or 15.8% to $125.4 million. This growth reflects new orders for products launched earlier this year, primarily in Climate Control HVAC and HASH with new products to new customers.

For Q4 2025, net sales were down 13.7% to $29.7 million compared to $34.4 million in the prior year quarter. driven by lower HASH and HVAC sales on a nonrecurring business. For the full year, home entertainment decreased by $43.7 million or 15.2% to $242.9 million. In the fourth quarter ending December 31, 2025, net sales were down 23.8% to $58 million, reflecting lower demand for subscription broadcasting products across all regions as well as lower volume from consumer electronics and retail business.

Adjusted non-GAAP profit for the fourth quarter of 2025 and was $26.1 million or 29.7% of sales, up from 28.4% in the fourth quarter of 2024. The $1.3 million improvement in margin was driven by material cost savings, labor productivity improvements and favorable product mix, including partial royalty revenue, offset by higher tariff costs. For the full year 2025, gross margin improved to 29.2% compared to 28.9% in 2024. This performance was achieved despite tariff cost increases and lower sales volume as our team successfully offset headwinds through targeted cost reduction initiatives.

Throughout 2025, we executed structural cost-saving actions focused on reducing fixed costs and improving operating leverage. These actions included reducing our manufacturing footprint, lowering overhead and simplifying operations. In the fourth quarter, we shut down our Mexico factory and transition production to a contract manufacturer and to our Vietnam factory, improving scale efficiency and lowering fixed manufacturing costs. These actions increased flexibility, reduced capital intensity and enhanced our ability to respond to changing demand.

In addition, on our operational expenses, we implemented company-wide restructuring and expense reduction initiatives in response to lower revenue levels. As a result, fourth quarter non-GAAP operating expenses declined by $4.4 million to $22.8 million. These reductions reflect deliberate actions to align our cost structure with current market conditions while continuing to support our customers.

SG&A expenses decreased by $2.8 million to $17.5 million in the fourth quarter driven by tighter cost controls, organizational streamlining and reduced discretionary spending. R&D expenses declined by $1.5 million to $5.3 million reflecting prioritization of development resources toward higher-return programs while maintaining focus on key product platforms.

These cost-saving measures contributed to a return to positive operating income in the fourth quarter and a significant improvement in full year adjusted non-GAAP profitability. Importantly, many of these actions are structural in nature, positioning the company for improved margins stronger cash generation and greater operating leverage going forward.

Net income in the fourth quarter of 2025 was a loss of $1.1 million or $0.08 per diluted share compared to a net loss of $4.5 million or $0.35 per share in the fourth quarter of 2024. Adjusted non-GAAP net income was $2.3 million or $0.17 per diluted share compared to $2.6 million or $0.20 per share in the prior year quarter. Full year adjusted non-GAAP net income was $4.2 million or $0.31 per share compared to a loss of $0.6 million or $0.05 per share in 2024. Over the past year, we have significantly improved our profitability, thanks to the strategic actions taken to improve operating leverage and reduce costs.

Next, let's review our cash flow and balance sheet. We have made significant progress this year by taking strategic actions to improve our working capital and generate positive operating cash flow. In the full year of 2025, we generated $23.6 million in cash flow from operations. These actions prove beneficial, and this marks the first time since 2021 that we achieved a positive net cash position. Our net cash balance is $8.2 million with cash of $32.3 million and debt of only $24.1 million.

Now turning over to our guidance. For the full year of 2026, our revenue expectations are tempered as home entertainment has secular market headwinds and the connected home products have yet to reach an inflection point. Our full year expectation for revenue is a decline year-over-year. We expect to rapidly reduce operational costs to increase profits given the revenue uncertainty. We plan to align our cost structure to market realities to generate improved profits over last year. The strategic actions are expected to structurally reduce working capital and free up more cash from operations.

Adjusted non-GAAP diluted profit per share is expected in the range of $0.45 to $0.65 compared to adjusted non-GAAP profit of $0.31 per share in the fiscal year of 2025.

Thanks. And now I'll hand it back over to Rick.

Thanks, Wade. Home entertainment is a mature business where the legacy trends are well understood. The connected home revenue inflection is taking longer than expected and the volatility that creates on top of continued tariffs and macro uncertainty means that incremental tweaks are no longer adequate.

We are singularly focused on executing a restructuring and refocusing of the company, protecting and engaging key employees, customers and suppliers throughout and aligning our guidance and priorities to 3-year objectives: further improve operational efficiency, strengthen profitability and generate more free cash flow. We believe this is the right path to build a stronger foundation for durable growth over time.

With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from Steven Frankel with Rosenblatt Securities.

I'd like to dig into the guidance a little bit given the severe drop off you saw in Q4 on a year-over-year basis. And maybe help define decline, are we talking about kind of high single-digit to low double-digit decline in 2026? Or is it something steeper that you're planning for?

Yes. Thank you for the question. Given the revenue uncertainty in connected home and home entertainment, we can't give those specifics. Right now, we're just very, very focused on improving cash flow, freeing up working capital and improving profits.

But could you give a specific earnings number, which is pretty big step up from where you were this year. So I'm just trying to understand how one gets there, or maybe give us an idea of how much more expense are you planning to take out of the business from the Q4 run rate?

Yes, the operating expenses were taking a holistic look at to structurally reduce so it will be material and it will be significant. And so we're managing the business inflow with our revenue. And so if there is more challenges to revenue, then we'll adjust cost to make sure we hit the cost targets in order to bring about the profit targets that we highlighted in the guidance of $0.45 to $0.65 on a non-GAAP diluted earnings per share basis.

And how big is the RIF that you executed in Q4?

The RIF in Q4 was right around 50 people.

Which is what percent of the headcount?

Yes. I think Steve, stepping in here. From my perspective, we have designed the program that we're targeting to execute. At the same time, there's transitions of projects, there's handover of projects. So the realization of that is going to be over a period of time. So we'll keep you updated on that go forward. But while the design is in place, we're continuing to execute.

Okay. And again, this is all good, but I'm just trying to get some detail to get some credibility to the guidance number. It's hard to get there so I'm just trying to understand. You've made some comments about licensing being a little better than expected. Does that imply that even with a lower revenue run rate, gross margins might be at least at Q4 levels, if not higher going forward? Or you're not willing to even give us that breakdown?

Yes, relative to the mix that we're preserving in the business. That mix is focused on preserving the margin run rate that, Steve, we've historically communicated with this is that 28% to 30% margins. Obviously, by anticipating revenue to decline, we're not looking to hold on to revenue that would dilute that margin. So our looking forward is in line with what our historical expectation has been.

Okay. What, if any, significant customers do you have in Q4?

Yes, sure. I can go ahead and answer that customer. And so we've had Daikin. They were at close to 16%. And then we had Comcast close to 11%.

Okay. So the license revenue you talked about in Q4, was that in the traditional entertainment business? Or that's kind of new opportunities around connected home where you're seeing license revenue?

That license revenue was in our traditional business for Q4. I mentioned as I walked through the results and the look ahead that we're obviously looking to expand that within connected home through our homeSense solution, and we'll keep everyone updated as we seek those opportunities going forward.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Rick Carnifax for closing remarks.

Thank you, everyone, for joining, and have a great day.

Thank you for your continued support of Universal Electronics. Have a great day.

Good afternoon. My name is Therese, and I will be your conference operator today. Now I would like to welcome everyone to Universal Electronics Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn today's conference call over to Richard Land of Alliance Advisors Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us for the Universal Electronics Third Quarter 2025 Financial Results Conference Call. This afternoon, UEI issued a press release for the third quarter ended September 30, 2025. If you do not already have a copy of this press release, it can be found in the Investor Relations section of the company's website.

This call is being broadcast live over the Internet. A webcast replay of this call, including any additional updated material or 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 cautions you that these statements are just projections and actual results or events may differ materially from those projections. These statements can be found in the press release issued today and on the website. The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today's date, and we refer you to the press release mentioned at the onset of this call and the documents the company has filed with the SEC, including its 2024 annual report on Form 10-K and the periodic and current reports filed or furnished since then.

The financial remarks will reference adjusted non-GAAP metrics. 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 provide context for the operating performance. A full description and reconciliation of these adjusted non-GAAP measures versus GAAP are included in the company's press release issued today.

Joining me today are Chief Operating Officer and Interim Chief Executive Officer, Rick Carnifax; and Interim Chief Financial Officer, Raymond Ho. Rick will provide an overview of our business, and Raymond will deliver the detailed financial results. Rick will then open the call for questions.

With that, it's my pleasure to introduce Rick Carnifax. Please go ahead, Rick.

Thank you, Richard, and thank you all for joining us. We remain committed to advancing our control and sensing technologies while directing investment toward areas that drive profitable growth. As part of our channel diversification strategy, we are expanding beyond core HVAC OEM offerings, entering adjacent markets such as utilities and multi-dwelling unit property management while also increasing our presence in the security channel. At the same time, we continue to refine our operating model to nurture long-term growth in the connected home channel and focus our home entertainment R&D on projects that offer strong returns.

Innovation remains central to our strategy as we gain traction with new technologies and markets. In Q3 2025, due to rightsizing and cost controls, we delivered solid margin performance and strong cash generation while facing revenue headwinds. Revenue was $90.6 million, slightly below expectations due to temporary and structural market factors. In connected home, revenue grew 13%, broadly in line with our expectations. However, we encountered market softness reflected in customer inventories, limiting purchases as product works its way through the channel.

In home entertainment, structural challenges in Latin America and Europe persisted, while lower-than-expected television sales impacted our Asian customer volumes. As outlined in our last call, in Q4 2025, we expect our quarterly revenue to decline year-over-year and expect to deliver full year growth in connected home compared to 2024. Gross margin was 29.1% and EPS was within our guidance range at $0.08. Our net cash position increased significantly this quarter by $9.1 million, reflecting disciplined execution in a challenging environment.

To counter headwinds and enhance agility, we continue executing actions on cost in Q3. We began the closure of our Mexico facility, which remains on schedule. We achieved target milestones at our Vietnam facility and production transfer is progressing as planned. We also initiated qualification and transfer processes for products that will remain in Mexico with our contract manufacturing partner in Mexicali. These steps should be wrapped up by year-end, minimizing disruption risk and ensuring continuity for key customers. We also implemented targeted reductions in force to streamline operations in August and later again in late September and reallocated resources toward growth priorities. Additionally, we identified and eliminated fixed and variable expenses that no longer deliver the requisite value. These actions are expected to yield annualized cost savings of approximately $5 million beginning in Q4.

To broaden our connected home presence, we are leveraging our TIDE Touch platform to pursue new opportunities in adjacent channels. Energy management is a growing priority in Western Europe. To meet this demand, we enhanced TIDE Touch with new features that support energy efficiency and provide utilities with actionable insights. Following 2 years of testing with a lead European customer, initial shipments began in Q3 with volumes expected to ramp in 2026. We are applying a similar approach to serve multi-dwelling unit property managers. By integrating interoperability with smart devices such as door locks and water leak detectors, TIDE Touch offers a turnkey solution. It delivers energy efficiency, convenience and remote management capabilities while reducing the risk of costly failures. Official launch is planned for 2026.

In home entertainment, we remain focused on high-value commercial opportunities. In Q3, we secured a new design win for our batteryless hybrid supercap remote control, which eliminates the need for replaceable batteries, reinforcing UEI's leadership in sustainable product innovation. In addition, software licensing, which carries our highest gross margin, continues to be a strong profit driver. During Q3, we secured 2026 commitments for our QuickSet Cloud platform across our 3 primary smart TV customers. We also added 4 new smart TV brands, including Sharp and Xiaomi, which will employ our digital rights management protection software services beginning in Q1 2026.

Overall, innovation remains a cornerstone of UEI's long-term strategy. QuickSet homeSense introduced at CES 2025 represents a meaningful step forward in smart home intelligence. The platform adds on-device learning that interprets environmental data and device activity to deliver personalized real-time automation. Built on UEI's expanding knowledge graph, homeSense can detect user presence, identify anomalies and optimize settings, making homes more efficient, secure and intuitive. Its software-defined sensing framework can be activated via a simple firmware update on most connected devices. For example, it can automatically adjust HVAC settings based on user proximity or set the home to away mode when unoccupied.

Since launch, homeSense has gained strong traction with major HVAC brands currently in testing and home entertainment partners committed to 2026 product introductions. We will also integrate homeSense into our TIDE Touch smart thermostats, creating an optimized privacy-driven energy management solution.

Finally, regarding the ongoing litigation against Roku, as discussed on our last call, the District Court has lifted the stay, ruled in our favor to consolidate actions and proceed to trial. The trial date has been set for March 2027, which we view as a favorable time line. Discovery is underway, and we will continue to provide updates as appropriate as the case progresses toward a jury trial.

With that, I'll now turn the call over to our Interim CFO, Raymond Ho, to provide an update on our financial results.

Thank you, Rick. I will review the third quarter of 2025 compared to the third quarter of 2024. Net sales were $90.6 million, down 11% from $102.1 million in the prior year period. Our connected home channel grew 13% to $29.8 million. This was driven by the strong performance from new products launched earlier this year, particularly within climate control and continued scale expansion with existing customers. Sales in home entertainment declined 20% to $60.8 million. This reflects soft demand for subscription broadcasting products in Latin America and EMEA, particularly basic remote controls at lower price points and limited advanced features.

Broader industry weakness in consumer electronics, including fewer television sales among our customers also contribute to lower remote control volumes. The retail channel performance softened as well due to elevated inventories and slower sell-through. Gross profit was $26.3 million or 29.1% of sales compared to 30.1% in the prior year period. We benefited from procurement savings and favorable currency rates across Asia and EMEA. However, we experienced a temporary gross margin headwind related to tariff timing that will continue in Q4 and be resolved in 2026.

In Q3, this impact reduced gross margin by approximately 120 basis points. Excluding this effect, Q3 gross margin would have exceeded our 30% target. Operating expenses decreased to $24.8 million from $28.2 million in the prior year period, reflecting ongoing benefits of cost reduction initiatives, including headcount optimization and lower fixed or discretionary spending.

SG&A was $18.2 million versus $21.1 million in the prior year period. R&D was $6.6 million compared to $7.1 million in the prior year period. Operating income reduced to $1.6 million from $2.6 million in the prior year period. Net income was $1.1 million or $0.08 per diluted share compared to $1.4 million or $0.10 per diluted share last year.

Turning to cash flow and the balance sheet. We continue to make strong progress in improving our cost structure and working capital efficiency. Through the first 9 months of 2025, we generated $27.8 million in operating cash flow, in which $10.1 million was generated in Q3. Our net cash position strengthened to $13.2 million as of September 30, 2025, up from $4.1 million at June 30. This marks the second consecutive quarter of positive net cash since December 2021. The improvement was driven primarily by strong receivable collection and disciplined expense management.

We ended the quarter with $31.5 million of cash and $18.3 million of debt. Reflecting our continuous confidence in our long-term growth strategy, the Board has authorized the repurchase of the lesser of $3.5 million or approximately 778,000 shares pursuant to our previously announced stock repurchase program.

Now turning to guidance. For the fourth quarter of 2025, we expect net sales to range from $82 million to $92 million. This compares to $110.5 million in Q4 2024 when we recognized approximately $4 million of revenue for connected home orders produced but not yet shipped upon meeting certain U.S. GAAP criteria. This, combined with the fact we expect order patterns tied to connected home new product launches to fluctuate, contribute to the year-over-year revenue decline we anticipate in Q4 2025.

Connected home sales are projected to be between $26 million to $30 million, representing a decrease of 13% to 24% from $34.5 million last year. For the first 9 months of 2025, connected home sales grew 30%, and we still expect to finish the year with approximately 12% to 16% growth versus 2024. In Q4, home entertainment sales are expected to range from $56 million to $62 million, a decline of 18% to 26% versus $76 million in Q4 2024.

While we do not provide gross margin guidance, we expect the tariff timing issue to persist through Q4 and be resolved in 2026. Additionally, although the closure of the plant in Mexico will enhance long-term profitability, we expect associated costs to have a modest impact on Q4 gross margin.

Finally, due to the decisive actions we have taken to manage our cost structure, we expect to remain profitable in Q4 and anticipate EPS to range from $0.01 to $0.11 compared to $0.20 in Q4 2024. Based on this guidance, full year 2025 is projected to be our first year of profitability since 2022.

With that, I will turn the call back to Rick.

Thanks, Raymond. In summary, we are focusing investments on markets and technologies where we see both near-term and long-term potential while managing through unpredictability and headwinds with operational discipline. While we continue to focus on materially improving profitability and balance sheet, we are diversifying our target markets to create value for customers, creating additional growth opportunities for our solutions and delivering positive return for our stockholders. Looking forward, we are excited by the opportunities in our adjacent markets, driven by innovative technologies, new products and expanding partnerships.

With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from Steven Frankel with Rosenblatt Securities.

Let me start with maybe a question that's more appropriate for the Chairman. But since he's not here, maybe you can give us some insight. You have an acting CEO and acting CFO. Kind of where are we in the search or the decision process around getting permanent people in those slots?

Sure. Relative to the leadership positions, as I'm in the interim CEO role, and I've been in this role, I'm acting with confidence of the Board to navigate us through this process, and I will keep you updated if there's any changes to that at this time. Relative to the interim CFO position with Raymond, we are conducting an ongoing search and interviewing at this time.

Okay. Now let's pivot to the business. I think the big surprise is a significant downturn in connected home, which was -- that was the path forward for the company. Maybe give us a little more insight into the dynamics of what happened in Q3 and how that affected the Q4 shipments and when you would anticipate that business to return to year-over-year growth?

Yes. I mean relative to connected home, I think the key is, unfortunately, we've talked about is that there is some unevenness in that order patterns as product works its way through the channel. As was highlighted in the call, while we look forward to Q4 and do see a decline. We see full year growth versus 2024, forecasting between 12% and 16%. So while the quarter-to-quarter fluctuations remain, we still see full year momentum there. Now relative to the broad question about addressing this unevenness, the key thing we're working on here is looking for different channels to market, right? So as we have partnered with OEMs, we have also now launched a standard product, our TIDE Touch platform that allows us a white labeling opportunity with these adjacent channels, which we highlighted utilities and MDUs. So the core for us is to take the standard product and one, increase presence within those channels and build on those opportunities as well as continue to explore additional avenues for that product.

All right, but that's a multi-quarter, if not kind of years long process to get meaningful revenue from that channel? Or has enough work been done that, that's something you could get material revenue from in 2026?

Yes, it's a good question. I think the key reason we want to highlight it on this call is we've talked about development of this platform for some time. And as we've partnered with lead customers and began shipping product, I thought it was an appropriate time to start that discussion. And the goal is to ramp next year. Now obviously, this does not happen immediately, we have to build momentum with these customers with the solution. But the absolute goal is to provide a smoothening out of what we've seen on the OEM channel is something more consistent with the TIDE Touch platform. So it will take some time to build, but it's exciting that we've got a couple of channels with lead customers we're working through product with.

Okay. And then a couple of things for Raymond. First of all, if my memory is accurate, last quarter, you kind of said that tariffs weren't really a big deal because you were shipping so much product away from the U.S. So I'm surprised to hear you say that it was 100 basis points or so impact in Q3. And then when I look at the guidance you gave and maybe it's just trying to model on the slide here in the call, I have a hard time getting to kind of the middle of your EPS range if you're going to have gross margins that are similar to Q4 -- I'm sorry, Q3 and Q4. So maybe help me understand what else is changing that you didn't guide to? How material is the expense reductions, for example, on a sequential basis? And what are you assuming for a tax rate in your guidance?

I can speak a little bit, Steve, on the tariff situation. As we've talked about in the last couple of calls, our goal is obviously to mitigate tariff impacts where possible through a combination of negotiations with key customers as well as transition of production locations where required. We wanted to highlight the risk go forward because the timing of the tariff negotiations with the key customers and the transition of production locations is ongoing. So we've mentioned before, we have a partner that we've stood up, a contract manufacturer in Mexico that we're working with. And as we work through these timing issues and transfer product, there's just still risks that remain. Relative to the question around the EPS, we continue to highlight the operational cost controls we put in place and the rightsizing efforts. And we expect that to be a material benefit to the EPS as we look forward.

But specifically in Q4, what's your assumption on OpEx? Are they materially lower than Q3?

Yes, Steve, actually, yes, as Rick said, our efforts on optimizing headcount organization is always in progress. And then we expect Q4 -- yes, basically, we are still on track with that. So on the OpEx side, we expect Q4 to be much lower than Q3 as well. We are looking at not only the organization, but also all the fixed cost, discretionary spending, travel. So we are on track on continue to rightsize the organization.

Sorry, one more, Raymond. Customer concentration in the quarter?

Okay. We had 2 10% customers in the quarter. Daikin was at 20.5% and Comcast at 14.9%.

This does conclude our question-and-answer session. So I would now like to turn it back to Mr. Carnifax for closing remarks.

Sure. Yes. Thank, everyone, for their continued support of Universal Electronics. I'd like to note that you should come visit us and see demonstrations of our technology at CES January 6 through 9. Have a great day.

This concludes our call. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Universal Electronics Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Kirsten Chapman, Alliance Advisors Investor Relations. Please go ahead.

Thank you, Angelina, and thank you all for joining us for the Universal Electronics Second Quarter 2025 Financial Results Conference Call. By now, you should have received a copy of the press release. If you have not, please contact Alliance Advisors 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 uei.com for 1 year.

During this call, management may make forward-looking statements regarding future events and the future financial performance of companies and cautions you that these statements are not -- are just projections, and actual results or events may differ materially from those projections. These statements include the company's goals focused strategies and opportunities, market trends, including the connected home and home entertainment channels; expectations with respect to customer orders and customer demand, including short-term and long-term demand; plans with respect to closing our Mexico facility, including expected benefits and timing; financial projections and forecasts, including the revenue and gross profit; our ability to respond to business and regulatory changes such as tariffs; and expectations with respect to ongoing litigation. 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 with the SEC, including its 2024 annual report on Form 10-K and the periodic and current 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. 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.

Joining me today are Chief Operating Officer and Interim Chief Executive Officer, Rick Carnifax; and Chief Financial Officer, Bryan Hackworth. Rick will provide an overview of our business, and Bryan will deliver the detailed financial results and conclusions.

It's my pleasure to introduce Rick Canafax. Please go ahead, Rick.

Thank you, Kirsten, and thank you all for joining us. I'm excited to be here leading UEI's transition to capture more of the home with our industry-leading patented wireless control technology. I joined UEI 5 years ago in manufacturing and operations and helped drive our footprint optimization resulting in strong margin recovery and a return to healthy cash generation. Our foundation to bring innovation and value to our customers is fortified by our strong balance sheet. As Bryan will review, we are on the right track relative to debt. Notably, we have achieved a net cash position for the first time since December 2021.

In Q2, we delivered 46% revenue growth in connected home, helping to drive overall business gross margins to 29.9% and EPS of $0.18. Year-to-date operating cash flow was also very strong at almost $18 million. We remain focused on allocating investment to profitable growth areas, particularly in connected home, where we see attractive long-term opportunities. During Q2 2025, we continue to scale revenue on core connected home accounts and collaborate with them on the next product solutions, including kicking off 3 new design projects with 1 of our major HVAC OEM accounts for release in 2026 and 2027.

Also, during the quarter, we shipped a new smart home security product to be launched later this year by a new customer in the consumer DIY security and home automation space. In parallel, we are nearing completion on our standard climate control solutions, which will be delivered to customers in OEM, energy and multi-dwelling unit channels later this year. Our customer traction gives us confidence in our long-term vision for growth in connected home. But as we stated previously, customer orders in this channel can be inconsistent as the product makes its way through the distributors dealers and HVAC contractors and ultimately, into consumer homes.

Over time, we expect this to stabilize as we grow the number of customers and products in this channel. For the time being, this variability in order demand can and does influence quarterly revenue forecast, which we expect to be evident in the latter half of 2025. In addition to the connected home trends we are seeing, we expect home entertainment to continue to be uncertain over the next 12 to 24 months. While we continue to develop and ship new products in North America with major telecom and pay TV operators, revenues for these new products are being offset by the impact of our value remote business in EMEA and Latin America. We expect these trends to continue and our home entertainment business overall to continue to decline into 2026 and beyond.

Overall, our revenues in the first half of 2025 were strong. However, we expect total revenue to decline in the third and fourth quarters compared to the same periods last year, reflecting the inconsistency in connected home and continued pressure in home entertainment. That said, for full year 2026, we expect new and existing connected home product projections to support growth in the channel. To support both strong financial performance and funding of investments in the more attractive long-term potential of connected home, we will continue to refine our operating model and ensure the business is sized appropriately for the opportunities we see ahead.

For example, having achieved strong productivity at our facility in Vietnam and with the current trends in home entertainment resulting in lower volume in our facility in Mexico, we have decided to optimize our footprint further. We will close our facility in Mexico and expect to complete the process by the end of this year. It is critical to customer continuity and stable financial performance that we have the flexibility to respond to business and regulatory changes, such as tariffs, that can quickly shift volumes and impact factories.

We have proven to be adept at navigating similar challenges in the past, and we are confident in our ability to continue this in the future. as we have built this into our supply chain through both internal capacity and external partners. We are also reviewing contribution margins, and we'll act to reallocate resources to areas that better drive value, such as adjacent product categories in connected home and potentially complementary products and services and home entertainment.

Finally, protecting our IP remains critical to UEI. I want to provide a recent update regarding the pending litigation against Roku, which was stated in the District Court. The court has ruled in our favor to consolidate our actions and move forward with the case. We will know more after our scheduling conference with the judge in late September 2025. The judges posed many questions to both sides, which will be answered at the hearing. But this latest ruling is a very positive sign that UEI will finally be able to move forward and present our case in court.

Now I'll turn it over to Bryan to provide an update on our financials.

Thank you, Rick. Just as a reminder, beginning in the first quarter, we began breaking out sales between 2 channels, connected home and home entertainment. The connected home channel represents climate control, smart home and security products sold primarily to HVAC, security, home automation and home appliance customers. The home entertainment channel represents entertainment-related product sales sold primarily to video service providers, consumer OEMs and retailers. It also includes sales associated with IP licensing and our cloud software solutions. .

In the second quarter of 2025, net sales grew 8% to $97.7 million compared to $90.5 million for the second quarter of 2024. Sales in our connected home channel continued to exhibit strong growth as sales increased by $10.8 million or 46% to $34.1 million for the quarter ending June 30, 2025. This growth reflects new orders for products launched earlier this year, primarily in climate control, SKU expansion with existing customers and an innovative security product recently launched with a new customer. Home entertainment decreased by $3.6 million or 5% to $63.6 million for the quarter ending June 30, 2025, reflecting lower demand for subscription broadcasting products in Latin America. The majority of our sales in Latin America are basic remote controls with limited to no advanced features. As a result, we compete on price with low-cost providers in this region.

Gross profit for the second quarter of 2025 was $29.2 million, or 29.9% of sales, up from 28.3% in the first quarter of 2025 and 28.7% in second quarter of 2024. We continue to improve operationally at our Vietnam factory with production metrics now on par with those at our more experienced factory in China. Favorable currency rate fluctuations in Asia and EMEA also contributed to our gross margin rate improvement. We expect continued strength in our gross margin rate for the remainder of the year.

Operating expenses decreased $26.3 million from $27.1 million in the second quarter of 2024, reflecting actions taken to reduce expenses. SG&A expenses decreased to $19.5 million from $19.7 million in the prior year quarter. R&D expenses decreased to $6.8 billion for the second quarter of 2025 compared to $7.4 million in the prior year quarter. Operating income was $2.9 million compared to an operating loss of $1.1 million in the second quarter of 2024. Net income for the second quarter of 2025 was $2.4 million or per diluted share compared to a net loss of $1.2 million or $0.09 per diluted share or per share in the second quarter of 2024.

Next, I'll review our cash flow and balance sheet. We have made significant progress over the past several quarters in improving our cost structure and working capital. In the first half of 2025, we generated $17.7 million in cash flow from operations. And the first time since December 2021, we are in a net cash position of $4.1 million with cash of $34.3 million and debt of only $30.2 million.

Now turning to our guidance. For the third quarter of 2025, we expect sales to range from $92 million to $102 million compared to $102.1 million in the third quarter of 2024. We expect connected home sales to range from $30 million to $34 million compared to $26.4 million in the third quarter of 2024, representing growth between 14% and 29%. In home entertainment, we expect sales to range from $62 million to $68 million compared to $75.7 million in the third quarter of 2024, representing a 10% to 18% decline. We expect EPS to range from $0.08 to $0.18 per diluted share compared to $0.10 per diluted share in the third quarter of 2024.

Before I turn the call back to Rick for closing remarks, I would like to point out a few things. For the 6 months -- for the first 6 months of the year, connected home sales in terms of dollars have exceeded the sales decline in home entertainment. Connected home grew 39% compared to a decline of 8% in home entertainment versus the same period in the prior year. Our guidance for the third quarter suggest the same will be true for the 9 months ending in September. This is important because to achieve sustainable top line growth, sales in the connected home channel must continue to outpace the persistent headwinds in home entertainment.

As Rick mentioned earlier, we expect ordering patterns from customers related to new launches in the connected home Channel to be inconsistent and at times unpredictable. The fourth quarter is expected to exhibit this type of market dynamic. While the connected home grew in the first 3 quarters, as we stand today, we expect fourth quarter connected home and home entertainment sales to be down sequentially. That said, because we have taken measures to rightsize our cost structure, we're able to maintain profitability in the fourth quarter. There's only one way to alleviate this problem and that is to continue to launch products already secured and to win new projects with existing and new customers.

Now I'll turn the call back to Rick.

Thanks, Bryan. In summary, we are focused on nurturing the long-term growth potential we see in connected home, while continuously evaluating and improving our operating model. Our goal is to materially improve profitability and continue to strengthen the balance sheet, creating value for customers and generating a positive return for our stockholders. We are actively engaged in driving initiatives in support of this goal, with the support of our Board and operational review committee, and we look forward to reporting progress in future quarters.

Operator, we can now open the call for questions.

[Operator Instructions] Our first question comes from Steven Frankel of Rosenblatt Securities.

You made some comments about weakness in Latin America in the subscription broadcast business. What can you tell us about your North American business, especially as it pertains to looking towards Q3 and maybe into Q4.

Yes. So as we look at North America, we see the trends continuing in line with what we've seen so far. I think the problem is they're being offset by what we covered in the call relative to Latin America and Europe.

Remind me what -- are you -- so you're still seeing stabilization? That was, I believe, your comments in the prior quarter.

Yes. So relative to major customers, we are seeing that stabilization. I'll see -- I would say that relative to previous year, there was a unique product launch that drove growth, but we're not seeing any tremendous declines beyond -- like we're seeing in Latin America and Europe. .

Okay. And what was the customer concentration in the quarter?

There were 2 10% customers, Daikin is at 18.7% in Comcast is at 12.2%.

All right. SP114603752 And then just help us understand this dynamic with the Q4 declines. Could you tell us what connected home and home entertainment did last year in Q4.

Last year, it was 26 -- connected home was $26.4 million in the third quarter of 2024, and home entertainment was $75.7 million in the third quarter of 2024.

Yes, I was asking about Q4.

I'm not providing -- for Q4, we're not providing specific guidance. All we're saying -- we're just giving general guidance from a top level saying that right now, as we currently stand in the fourth quarter, I expect the sales in total to be down sequentially, actually for both them as well, both connected home and home entertainment, down sequentially versus Q3. But it's still early, Steve. We've got a ways to go. And as you know, in the past, we've always provided you guys 1 quarter out...

Again, Bryan, I'm not asking for guidance. I'm asking for historically in Q4 of last year what connected home and home entertainment did. Just understand that -- what that business...

Yes, I don't -- we're still breaking that out. Because what we're doing on a quarterly basis, Steve, is because we're now breaking this out, we don't have our systems in place. So we're having to do some things manually. So right now, we're going quarter-to-quarter. So from a specific breakout between connected home and home entertainment, I don't have that number yet. That's why in total, I felt comfortable telling you it's going to -- we expect it currently to be down sequentially for both, but I can't give you an exact number. .

Okay. Let me switch gears. I wouldn't be -- the current environment, if we didn't talk a little bit about tariffs, it wasn't in your script, so maybe give us some insight on how tariffs impact the 2 different business units, especially with the decision to pull out of Mexico, which may or may not have helped you. [indiscernible]

Yes. I mean, obviously, the last few months have been as eventful as the whole earlier in the year has been. I think from our perspective, we continue to monitor the situation because even as we see these deals come into place, particularly the 20% on Vietnam, we continue to see amendment of deals or different discussions of those other deals with other countries evolve. From our perspective, within our supply chain through the balance we alluded to in our internal factories as well as external partners, we're confident we can manage through that and are working closely with customers and suppliers on managing that. And that's reflected in our margin guidance for the rest of the year. .

All right. So you don't think you're going to have a problem where you're going to have to eat material tariff costs at this point?

Not at this point.

Thank you. This concludes the question-and-answer session. I will now turn it back to Richard Carnifax.

Yes. Thank you for your continued support of Universal Electronics, and have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.