Universal Electronics Inc. Aktie

[Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference call over to your first speaker today, Ryan Hochgesang with Universal Electronics. Please go ahead.

Thank you, operator, and thank you all for joining us for the Universal Electronics Third Quarter of 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 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 90 days.

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, and 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 Chief Executive Officer and President Wade Jenke and Chief Financial Officer Raymond Ho. Wade will provide an overview of our business and Raymond will deliver our financial results. It's my pleasure to introduce Wade Jenke. Please go ahead.

Thank you, Ryan, and thank you all for joining us. This is my first quarterly call since the board appointed me as CEO and President in August. I'm pleased to see the organization embrace the change and jump right into business with energy and passion to make UEI even better than before. Let's talk about top line. Net sales were $89.4 million compared to $90.6 million a year ago. Compared to the previous quarter, sales were up 22%. Connected Home grew nearly 14% to $33.8 million, led by climate control, where HVAC revenue grew 19% year-over-year. Home Entertainment was $55.6 million compared to $60.8 million, reflecting difficult market conditions around memory and component cost inflation, and subscription broadcast demand is still in structural decline due to streaming competition.

Let me provide an update on product sales and market. For Home Entertainment, we were selected as the sole source on two operator remote programs scheduled to enter production this quarter. The battery-free remote entered mass production with its first customer, and a second customer has since selected it. We also received an order for 2 million remotes supporting a streamlined version of our set-top boxless solution to be manufactured in India, an offering that matters more as rising memory costs make set-top box itself harder to sell. For Connected Home, our Smart Thermostat program began shipping to a major HVAC OEM and is now ramping, with demand running above the customer's initial requirements. With Daikin, we won the primary wireless remote program for the Asian market, and a larger share for the fourth-generation Wi-Fi platform for Europe. Our TideTouch thermostat and hub launched with the leading Dutch energy utility partner Eneco and with Stella, a U.S. multi-dwelling property management provider, adding a recurring revenue element to the hardware as we sell.

On profitability, margin remains under pressure. Adjusted non-GAAP gross margin was 26.3% compared to 29.1% a year ago. Higher purchasing costs and unfavorable currency exchange more than offset lower tariff rates and better sales mix. Input costs remain a material drag, and very little of what that is is specific to UEI. Component and commodity pressure has been broad across our industry, and it reaches us on a lag because we built a forecast against orders already placed. In response, we have put in place surcharges and permanent price adjustments that on an annualized basis recover roughly three-quarters of the inflation we have identified. That benefit builds as notice periods run and customers place POs, so it will come through slowly, but the majority will be starting in Q1 of 2027. The balance of our inflationary costs, we will continue to work through sourcing and design to recover the cost and offset.

Let me provide a progress report on our reorganization to reduce structural costs. Adjusted non-GAAP operating expenses were $19.9 million in Q3, down $4.9 million, or 20%, from a year ago. Through nine months, adjusted non-GAAP operating expenses were down $16.4 million, or 21%. In August and October, we took further permanent cost reduction actions, which represent approximately $2.5 million in additional annualized cost savings. The clearest way to see the progress we have been working on is through the earnings trajectory across the year. In Q1, we reported an adjusted non-GAAP loss of approximately $0.10 per share, while in Q3, we earned $0.17 per share on an adjusted non-GAAP basis, more than double the $0.08 we earned a year ago on slightly lower revenue. Adjusted non-GAAP operating income improved to $3.7 million in Q3, compared to $1.6 million in Q3 of 2025.

Our focus on working capital optimization is working well. We ended the quarter with $41.4 million in cash and equivalents, up $9.1 million this year. On inventory, we improved and ended the quarter at $70.1 million, down from $77.8 million at the start of the year. Inventory days are down roughly to 95 days from 128 days a year ago. Operating cash flow was $11.1 million in Q3 and $16.6 million through the nine months. Lead times on printed circuit boards and capacitors have extended from weeks to months as AI infrastructure absorbs supplier capacity. In this environment, forecast accuracy is important to avoid buying reactively at a premium, and we are committing crucial material ahead of time for 2027 where demand carries across programs. As a result, we expect inventory to build modestly in Q4.

Looking forward, our message is unchanged. We continue to expect adjusted non-GAAP diluted earnings per share in the range of $0.45 to $0.65 for fiscal 2026, compared to $0.31 in fiscal 2025, consistent with our prior guidance. Through nine months, we have delivered $0.42. When we look at our outlook for the year, we said it would be grounded in execution rather than in a demand rebound. Q3 is further evidence of our progress. Earnings more than doubled year-over-year on slightly lower revenue. The cost base is still coming down and net cash is nearly twice what it was three months ago. The credit belongs to the team that absorbed a great deal of change and kept doing what customers count on us for: delivering the programs in production today and designing the ones that follow.

With that, I'll turn the call over to our CFO, Raymond Ho, to walk through the quarter in more detail and review our outlook.

Thanks, Wade, and good afternoon, everyone. I will walk through our third quarter 2026 financial performance with a focus on profitability, cost discipline, cash flow, and balance sheet strength, and then touch briefly on our outlook for the remainder of the year. Turning to our third quarter results, net sales were $89.4 million, compared to $90.6 million in the third quarter of 2025, a decline of approximately 1.3%. Revenue was essentially flat year-over-year, as growth in Connected Home largely offset continued pressure in Home Entertainment, and it represents a meaningful sequential improvement from the $73.2 million we reported in the second quarter. Connected Home net sales were $33.8 million compared to $29.8 million in the prior-year quarter, an increase of approximately 13.4%. The increase was driven primarily by stronger sales in the HVAC market and increased sales of our recently launched thermostat products. Home Entertainment net sales were $55.6 million compared to $60.8 million a year ago, primarily reflecting lower demand for subscription broadcasting products. This decline was partially offset by improved performance in our retail business.

GAAP gross margin was 26.3% compared to 27.7% in the prior-year quarter. Adjusted non-GAAP gross margin was also 26.3% compared to 29.1% in the prior-year quarter. The third quarter of 2025 excluded a $1.2 million impairment charge related to the shutdown of our Mexico manufacturing facility. The year-over-year change in gross margin was primarily driven by higher component costs due to market conditions and the strengthening of the Chinese renminbi, which reduced gross margin and had an adverse impact of nearly 6%. These headwinds were partially offset by lower labor and manufacturing costs resulting from productivity improvement, the closure of our Mexico manufacturing facility, and lower tariff rates.

Throughout the quarter, we remained highly focused on cost discipline and structural expense reduction. GAAP operating expenses decreased by $8.9 million year-over-year to $20.7 million, and adjusted non-GAAP operating expenses declined by $4.9 million or approximately 20% to $19.9 million. As a percentage of net sales, adjusted non-GAAP operating expenses improved to 22.2% from 27.3% in the prior-year quarter, reflecting continued progress in aligning our cost structure with current revenue levels. R&D expenses declined to $4.3 million from $6.7 million in the prior-year quarter. SG&A expenses declined to $16.4 million from $22.1 million in the prior-year quarter. The prior-year quarter included a one-time charge of $1.3 million related to the abandonment of an office lease. Excluding that item, the decrease reflected our ongoing cost reduction initiatives, including organizational right-sizing and our continued control of discretionary spending, including travel and professional fees. Through the first nine months of the year, we continue to benefit from the global reduction in force and related cost actions we initiated earlier in the year, which have given us a leaner, more agile cost structure focused on cash generation and profit improvement.

GAAP operating income for the quarter was $2.9 million compared to a GAAP operating loss of $4.5 million in the prior-year quarter. Adjusted non-GAAP operating income more than doubled to $3.7 million compared to $1.6 million in the prior-year quarter. Adjusted non-GAAP operating income as a percentage of net sales expanded 2.4% to 4.1% compared to 1.7% last year. GAAP net loss was $0.3 million, or $0.03 per diluted share, compared to a GAAP net loss of $8.3 million, or $0.62 per diluted share, in the third quarter of 2025. We generated adjusted non-GAAP net income of $2.3 million, or $0.17 per diluted share, compared to adjusted non-GAAP net income of $1.1 million, or $0.08 per diluted share, in the prior-year quarter.

Now turning to cash flow and the balance sheet, cash and cash equivalents at the end of the quarter were $41.4 million compared to $32.3 million at December 31, 2025, an increase of $9.1 million so far this year. Operating cash flow for the quarter was $11.1 million, and for the first nine months of 2026 was $16.6 million. Cash flow benefited from working capital actions, including reduction in inventories and timing of payables and accruals. Capital expenditures for the first nine months were $2.7 million. We also continue to reduce debt and strengthen liquidity. Borrowings under our lines of credit were $19.4 million at September 30, 2026, down from $24.1 million at December 31, 2025. Available borrowing resources in the U.S. were $46 million compared to $42.5 million at December 31, 2025. At quarter-end, there were no borrowings outstanding under the U.S. credit line.

Now turning to our outlook for fiscal year 2026, we remain focused on the areas within our control: cost discipline, profitability, working capital management, and cash flow. We expect our actions to further align our cost structure to market realities, improve profitability versus last year, and strengthen our financial flexibility. For the full year 2026, we are reaffirming our prior guidance. We continue to expect adjusted non-GAAP diluted EPS to range from $0.45 to $0.65, compared to $0.31 per share in fiscal 2025. With $0.42 of adjusted non-GAAP diluted EPS delivered through the first nine months, our guidance remains unchanged as we continue to execute against our 2026 business plan.

Thank you all, and I will hand it back to Wade.

Thanks, Raymond. As I complete my first quarter as CEO, many thanks to our employees who have carried a great deal of change this year and to our customers, suppliers, and the board for their continued support. The plan we are executing is directed at what matters to shareholders: improving profitability, cash, and rebuilding financial flexibility. With that, operator, please open the call for questions.

At this time, I am not showing any questions within the queue. I would like to turn the call back over to management for any final thoughts.

Perfect. Thank you so much for joining us on our Q3 earnings call. Have a fantastic day, and we look forward to the next call.

Thank you for your participation in today's conference call. This concludes today's conference. You may now disconnect. Have a great evening.

This live transcript is auto-generated without human intervention or review.

Thank you. Good afternoon. My name is Angelina and I will be your conference operator today. now, I would like to welcome everyone to Universal Electronics' second quarter 2026 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, 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 11 again. I will now turn today's conference call over to our General Counsel, Ryan Ho-Seng.

Please go ahead.

Thank you, Operator, and thank you all for joining us for the Universal Electronics Second Quarter 2026 Financial Results Conference Call. 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 one year. During this call, management may make forward-looking statements regarding future events and the future financial performance of the company and caution 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 markets, expectations with respect to customer orders and customer demand, including short-term and long-term demand. expectations with respect to supply chain actions and procurement, R&D and product development activities, management transition action, 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 unless required by law or regulation and refers you to the press release mentioned at the end of the day. 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 at Furnished Sons 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 them to 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 Jeky. Rick will provide an overview of our business, and Wade will deliver our financial results.

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

Thank you, Ryan, and thank you all for joining us. Before I turn to the quarter, I want to acknowledge the announcement in this afternoon's release. As disclosed, I will be stepping down as Interim Chief Executive Officer effective today, August 6th. The board has appointed Wade Janke as Chief Executive Officer, and I look forward to supporting him through an orderly transition. The details are in the release and the Form 8K filed this afternoon. This does not change the operating plan. The framework we are reaffirming today are the actions underway across the business, and and I will keep my remarks on the quarter.

Two quarters ago, we outlined three structural moves for 2026, and last quarter, we reported the early proof points. Q2 is the quarter where those actions move from early progress into the results themselves. Total revenue was $73.2 million, down 25% year-over-year, including the impact of customer refund accruals associated with the tariff recovery and reflecting conditions we have described before. Component and memory cost inflation working through our customers' programs, legacy video and structural decline, European retail under pressure, and a connected home inflection still delayed. Those conditions have not eased, and we have not been waiting for them to. What has changed is the company is now profitable through them on less revenue than in Q1. The clearest way to see that is the trajectory across the two quarters.

In Q1, we reported an adjusted non-GAAP loss of approximately 10 cents per share. In Q2, on slightly lower revenue, we earned approximately $0.04 per share, or $0.34 including a one-time recovery of previously paid tariffs. The $5.1 million recovery is non-recurring and is cash recovered rather than operating performance. Excluding it, the company still moved from a loss to a profit on lower revenue, and that came from the cost structure we had been rebuilding since the start of the year. not from any recovery in demand. Let me provide a progress report on the three 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.

In Q2, they were down $6.2 million, or 24%, as roles transitioned, programs wound down, and structural changes annualized. The labor reductions we described last quarter are now carried in the run rate rather than promised into it. They came from decisions already executed rather than spending deferred into later periods. You can see the effect beyond the P&L as well. We ended the quarter with $11.6 million in net cash. Second, tightening portfolio focus. R&D expense stepped down again this quarter as we continued to direct resources toward initiatives with the clearest path to accretive return. This is not about stepping away from what makes UEI valuable.

We are not narrowing what this company is capable of. We are narrowing what we choose to fund to work that carries a defined customer and a defined return. Third, retaining key employees, preserving customer continuity, and keeping suppliers engaged. This is the move that is hardest to show in a line item, and the clearest evidence in Q2 came from what customers themselves decided. With one of our largest video customers, we moved from primary supplier to sole source on a remote control program entering production in November. We also shipped the first mass production lot of a new smart thermostat platform for a major HVAC OEM, which has since asked for additional volume in the fourth quarter, even as the broader timing there continues to be shaped by component supply and integration work across the industry. Those are decisions about who a customer intends to rely on, and they went in our favor at a time when the company was visibly restructuring.

On profitability, Q2 continues to reflect the margin profile under pressure. Adjusted non-GAAP gross margin was 35.4% as reported, and approximately 27% excluding the tariff recovery. against 29.9% a year ago. Input costs remain a material drag, and very little of that is specific to UEI. Component and commodity pressure has been brought across our industry, and it reaches us on a lap because we build to forecast against orders already placed. Where specific input cost is moved and is attributable, we recovered on the evidence account by account. Broader inflation, we worked through sourcing and design. The P&L is carrying this cost today.

Recovery will take time, but the cost work we have done is why we can still hold the framework we set in January. On inventory, the balance moved up modestly from Q1, reflecting the higher volume we expect in the second half. Lead times on memory, capacitors, and printed circuit boards now exceed our planning horizon. In that environment, the discipline is forward commitment against the longer forecast rather than buying reactively at a premium. We are buying ahead where material carries across programs. The work of the last two quarters is being measured across the second half than in any single quarter's balance. Looking forward, our message is unchanged.

We are reaffirming our full-year framework of adjusted non-GAAP diluted EPS of 45 cents to 65 cents against 31 cents in fiscal 2025 on a basis that excludes the tariff recovery. What I said in April was that our outlook would be grounded in execution rather than in demand rebounds. is the evidence, a profit on lower revenue than the prior quarter, a lower cost base, and a stronger balance sheet. The credit belongs to a team that absorbed a great deal of change and kept doing what customers count on us for, delivering on the programs in production today and designing the ones that follow. With that, I'll turn the call over to our CFO, Wade Janke, to walk through the quarter in more detail and review our outlook.

Thanks, Rick, and good afternoon, everyone. I'll walk through our second quarter 2026 financial performance with a focus on profitability, cost discipline, cash flow, and balance sheet strength, and then touch briefly on financial execution for the remainder of the year. Turning to our second quarter results, net sales were 73.2 million compared to 97.7 million in the second quarter of 2025, a decline of approximately 25%. The decline includes an accrual for tariff refunds to customers, plus we continue to see top-line pressure across both our end markets consistent with the difficult demand environment we have previously discussed. Connected home net sales were 25.1 million compared to 34.1 million in the prior year quarter. The decline was primarily driven by reduced demand from large climate control and home automation customers. Home entertainment net sales were 48.1 million compared to 63.6 million a year ago. primarily reflecting lower demand for subscription broadcasting products.

Despite the lower revenue environment, gross margin improved meaningfully. GAAP gross margin and adjusted non-GAAP gross margin were both 35.4% compared to 29.9% in the prior year quarter. The year-over-year margin improvement was primarily driven by the sale of the tariff claims, which contributed approximately 690 basis points, and the tariff refund accrual mix effect of 160 basis points. had improved management of inbound freight costs, which contributed approximately 90 basis points. These benefits were partially offset by higher component costs, which reduced gross margin by approximately 240 basis points, and the weaker U.S. dollar relative to the Chinese which had an adverse impact of approximately 150 basis points. Throughout the quarter, we remained highly focused on cost, discipline, structural, expense reduction, GAAP operating expenses decreased by $7.1 million year over year, and adjusted non-GAAP operating expenses declined by $6.2 million, or 24%, reflecting continued progress in aligning our cost structure with current revenue levels. R&D expenses declined to $4.3 million from $7 million in the prior year quarter, primarily reductions in payroll and related personnel expenses following headcount optimization action. SG&A expenses declined to $16.8 million from $21.2 million in the prior year quarter.

The decrease reflected lower volume-driven expenses, people-related savings from organizational rightsizing, and reductions in discretionary spending, including travel and professional fees. During the first half of the year, we continued to benefit from the global reduction in force and related cost actions we initiated earlier in the year. These actions have led to a leaner, more agile cost structure focused on cost reduction, cash generation, and and profit improvement. Gap operating income for the quarter was $4.8 million, compared to gap operating income of $1 million in the prior year quarter. Adjusted non-GAAP operating income was $5.8 million compared to $2.9 million in the prior year quarter. Adjusted non-GAAP operating income as the percentage of net sales improved to 7.9% compared to 2.9% last year. Gap net income was $1.6 million or $0.12 per diluted share compared to a gap net loss of $2.9 million or $0.22 per diluted share in the second quarter of 2025.

Adjusted non-gap net income was $4.6 million or $0.34 per diluted share. share compared to adjusted non-GAAP NEN income of $2.4 million or $0.18 per diluted share in the prior year quarter. Now, turning to our cash flow and balance sheet. Cash and cash equivalents at the end of the quarter were $32.4 million compared to $32.3 million at the year-end 2025. The first six months of 2026 operating cash flow was $5.5 million positive. Cash flow benefited from working capital actions including an $8.1 million reduction in inventories during the first half of the year. Inventory ended the quarter at 70 million, down from 77.8 million at year-end 2025. Accounts receivable and contract assets increased versus year-end, primarily reflecting the timing of sales, collection activity, and the recognition of the tariff refund receivable.

We also strengthened liquidity during the quarter. available borrowing resources were $48.7 million at June 30, 2026, compared to $42.5 million at December 31, 2025. At quarter end, there were no borrowings outstanding under the U.S. credit line. Now turning to our outlook. For fiscal year 2026, we remain focused on areas within our control, cost, discipline, profitability, working capital management and cashflow. We expect our actions to further align our cost structure to market realities, improve profitability versus last year and strengthen our financial flexibility. For the full year 2026, we are reaffirming our prior guidance. We continue to expect adjusted non-GAAP diluted earnings per share to range from $0.45 to $0.65 compared to $0.31 per share in fiscal 2025. With Q2 now behind us, we have a greater visibility into the year ahead. our guidance remains unchanged as we execute against our 2026 business plan.

Thank you all, and I'll hand it back to Rick. Thanks, Wade.

Overall, the restructuring and refocusing actions we initiated are now delivering measurable results in the areas we control. We're equally clear about what has not yet turned, and component cost and availability remain the central operational risk into the second half. We are reaffirming our earlier framework based on the durable actions we have taken rather than on an assumption about conditions. On a personal note, it has been a privilege to lead this company through this period, and my thanks to our employees, our customers, and suppliers, and the board. The plan we are executing was developed with the board and is directed to what matters to shareholders, improving profitability, generating cash, and rebuilding financial flexibility. That is how we build a stronger UEI. With that, operator, please open the call for questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. If you have any questions, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Stephen Frankel from Rosenblatt Securities. Please go ahead.

Good afternoon. Thank you. First of all, Rick, I wish you good luck and congratulations on your new position. Wade, a couple questions for you. You talked in the release about all litigation against Amazon and give us some thoughts about the timeline here and and while we're at it an update of on the Roku litigation which has been going on for multiple years.

Yes, thank you, Frankel. I appreciate the question. So obviously with Amazon being very fresh, note that lawsuit was just filed today. The timing remains uncertain. But UAI believes filing this action was necessary to protect our IP rights and, you know, we're seeking appropriate remedies. So, the time was right to file, but I can't really comment on the future timing. In terms of ROKU, that case is ongoing and some of those details are moving forward. there is a court date scheduled for 2027, but beyond that I can't comment further.

Okay. And in terms of your guidance for the year, does that incorporate any further tariff refunds or have you gotten all the refunds that you're going to get?.

we've gotten all the refunds that we're going to get the, um, tariff, uh, monetization was for materially the whole lot.

So all of that is in the guidance. Okay. And then just remind us what the customer concentration was in the quarter.

Yes, sure. We had Daikin at 21%, and then we had Comcast at 11.4%, and then followed up third place with Sony at 8%. I'll give you the top three there.

Okay, great. That is helpful. And then maybe the last question. Any more details around this thermostat win? Is this with an existing customer that's now expanding the number of SKUs with you?.

Can you tell us? Yes, absolutely. We're very excited. We began this journey a couple of years years ago with the customer, their major HVAC in the market, and we've been developing the product, and we just had a really big production shipment and more to follow in the second half. So, All right. Thank you very much. Yes, you're welcome.

This concludes the question and answer session. I would now like to turn it back to management for closing remarks.

Thank you, everyone, for participating today in our earnings call for Q2 2026. Big thank you to Rick Carnifax for all his leadership and his great ability to create wonderful strategy here that has made a huge difference. We owe him a lot. We wish you the best in your new career. Thank you so much and thank you everyone.

Thank you, Wade, and thanks, everyone, for your continued support of Universal Electronics.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

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.