Becky Herrick - LHA Paul Arling - Chairman & CEO Bryan Hackworth - SVP & CFO.

Steven Frankel - Dougherty & Company Les Sulewski - Sidoti & Company.

Welcome to the Universal Electronics Third Quarter Results Conference Call. [Operator Instructions]. I would now like introduce your host for today’s conference, Ms. Becky Herrick, of LHA. Ma'am you may begin..

the benefits anticipated by the company due to the continuation and expansion of benefits the company has experienced and anticipates to the licensing of the company's technology and patents such as the smart device in QuickSet technology; the continued adoption, selection and acceptance of the company’s technologies and products by the world’s largest companies in the home entertainment industries, such as Comcast XFINITY product; the successful integration of the Ecolink assets and business lines, the significant percentage of the company's revenue attributed to a limited number of customers.

The timely development, delivery and market acceptance of products and technologies such as home security, home automation, wireless sensors and other smart home and security technologies; the continued innovation of next generation solutions that are accepted by the company’s customers and end-users; management’s continued to ability to identify and execute on opportunities that maximize shareholder value, including the effects repurchasing the company’s share have on the company’s stock value; the continued sales and earnings growth as experienced in the past; management’s ability to identify and execute upon growing trends and market; management’s ability to manage its cash and cash equivalents and achieving its revenue and earnings as guided and the other factors described in the company’s filings with the U.S.

Securities and Exchange Commission. The actual results the company achieves may differ materially from any forward-looking statement due to such risks and uncertainties.

Management wishes to caution you that these statements are just projections and actual results or events may differ materially and the company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today’s date.

For further detail on risks, management refers you to the press release mentioned at the onset of this call and the documents the company files from time-to-time with the SEC, including the Annual Report on Form 10-K for the year-ended December 31, 2014, and the periodic and quarterly reports filed since then.

These documents along with risks identified earlier contain and identify various factors that could cause actual results to differ materially from those contained in management’s projections or forward-looking statements.

In management’s financial remarks it will reference adjusted pro forma metrics, a full description and reconciliation of these adjusted pro forma measures versus GAAP is included in the company’s press release issued after the close of market today.

Adjusted pro forma metrics are provided, because management uses them in making financial, operating and planning decisions; and in evaluating the company’s performance. The company believes these measures will assist investors in assessing the company’s underlying performance for the periods being reported.

Adjusted pro forma metrics exclude amortization expense relating to intangible assets acquired, depreciation expense relating to the increase in fixed assets from cost to fair market value resulting from acquisitions, increase in inventories from cost to fair market value resulting from acquisitions, a court ordered award to a defended and a law suit for a portion of its legal fees, stock-based compensation and other employee related restructuring cost.

On the call today are Chairman and Chief Executive Officer, Paul Arling, who will deliver an overview; and Chief Financial Officer, Bryan Hackworth, who will summarize the financials, Paul will return to provide closing remarks. It’s now my pleasure to introduce Paul Arling. Please go ahead, Paul..

Thank you, Becky and thank you all for joining us today For the third quarter of 2015 we reported that sales of 160.5 million reflecting a 9% growth over the same quarter last year and the EPS was within guidance at $0.78. The world is changing as consumers need for more advanced functionality is paired with an increasing desire for simplification.

New home entertainment platforms in development are cloud connected and paired with advanced two-way remote controls? These platforms are changing the way that home entertainment is controlled and consumed. They also provide an opportunity to add new home control or home safety and security services desired by consumers.

This provides an enormous opportunity for us as this is right where UEI excels. For years we have helped our customers provide devices and technologies that substantially increase functionality while remaining simple to set up and use every day.

A good example of this is Comcast who chose UEI to supply its XFINITY voice remote control which uses voice commands as well as traditional manual operations to control functions such as changing channels in volume and it incorporates our advanced control technology to enable easy home set up and configuration.

We are beginning to see the positive impacts of this and other new product rollouts in Q4. And anticipate it will continue to build into 2016 as customers continue to ramp into their new product releases. We remain on plan with the integration of Ecolink intelligent technology, the acquisition we announced on August 6th.

Ecolink is a leading provider of wireless security sensing and home automation products and services. According to data from ABI Research the global market for home safety and security sensors and connected devices is projected to more than double over the next four years from 1.4 billion in 2015 to 4 billion in 2019.

We’re currently working on several new products in this emerging and rapidly expanding industry which we expect to introduce with our industry partners throughout 2016. As we introduce our innovative products and technologies into new markets we are also expanding our presence within our existing markets with new and current customers.

Our embedded software solutions continued to be adopted by more of the world's largest home entertainment companies. We expect to launch several advanced remote control solutions as well as home safety and security products with major industry players in the next few quarters. We will provide details as these programs roll out.

With that I have now like to turn the call over to our CFO, Bryan Hackworth to discuss our financial results..

Thank you Paul. As a reminder our results for the third quarter and first nine months for 2015 as well as the same period in 2014 will reference adjusted pro-forma metrics. Third quarter of the 2015 net sales 160.5 million compared to 147.8 million for the third quarter of 2014.

Third quarter sales were less than expected mainly due to a couple of customers delaying their shipments relating to advance platforms. We expect these shipments to commence in the fourth quarter. Business category net sales were 148.6 million compared to one 135.2 million. Consumer category net sales were 11.9 million compared to 12.6 million.

As a result of the stronger U.S. dollar versus the Euro and British pound consumer sales were adversely affected by 1.3 million.. Gross profit was 43.1 million or 26.9% of sales compared to a gross margin of 30.7% in the third quarter of 2014.

The decrease on our gross margin rate is due primarily to a higher percentage of our sales being made to large customers who receive favorable pricing as a result of higher volumes. We've also experienced a decrease in ship and royalty revenue as there were a number of new product introductions in the prior year, one with a significant brand name.

Co-operating expense were 25.9 million compared to 28.9 million in the third quarter of 2014. Breaking down our operating expenses, R&D expenses 4 million compared to 4.2 million in the third quarter of 2014. SG&A expenses decrease from 24.8 million to 21.9 million primarily as a result of lower incentive compensation.

Operating income was 17,2 million compared to 16.4 million in the third quarter of 2014. The effective tax rate was 29% compared to 18.8%. Net income for the third quarter of 2015 was 11.8 million or $0.78 per diluted share compared to 12.9 million or $0.80 per diluted share in the third quarter of 2014.

For the nine months ended September 30 2015 compared to the same period in 2014. Net sales were 440.7 million compared to 423.9 million. Gross margin was 27.5% compared to 29.7%. Total operating expenses were 81.5 million compared to 86.3 million. Operating income was 39.8 million compared to 39.7 million.

Net income was 30 million or a $1.89 per diluted share compared to 29.8 million or a $1.85 per diluted share in the prior year period. Next I will review our cash flow and balance sheet at September 30, 2015, we ended the quarter with cash and cash equivalents of 64.3 million compared to 112.5 million at December 31, 2014.

During the third quarter we completed the acquisition of Ecolink which resulted in a cash outflow of 12.5 million net of cash acquired. During the third quarter we repurchased approximately 945,000 shares for 44.4 million representing an average price of approximate $47 per share.

At the current price we expect to continue to buy back our shares over the next few months as a promising trends in our industry and our growing market position support our positive long term outlook, DSOs were approximately 63 days at September 30, 2015 compared to 65 days a year prior.

Net inventory turns were approximately 4.2 turns at September 30, 2015 compared to 4.5 turns a year prior. Now turning to our guidance, it's important note the implementation of next generation IP connected two way platforms are upon us and we couldn't be more excited about the short and long term prospects for our business.

Our fourth quarter guidance reflects a continued transition of our customer base to higher-end platforms as we will begin shipping remotes with more advanced features to three additional customers in the fourth quarter, because of this transition the seasonality of our business in 2015 is different than in the past as our fourth quarter is expected to not only be the largest quarter of the year, but also in our company's history.

For the fourth quarter of 2015 we expect revenue between 159 million and 167 million compared to last year's fourth quarter revenue of 138.4 million. EPS for the fourth quarter is expected to range from $0.79 to $0.89 per diluted share compared to $0.70 reported for the fourth quarter of 2014.

Based on the aforementioned positive trends in our industry we are reaffirming our long term financial outlook, we expect average annual sales growth of 5% to 10% and average earnings growth of 10% to 20% over the next five years. I would now like to turn the call back to Paul..

Thank you, Bryan. There is an important celebration coming to our business. And I'd like to take a minute to discuss where the business has come from and where we think it is going. Almost 20 years ago when this current team started to take hold, UEI sold universal remotes and had approximately a 3% market share in the United States.

Perhaps the first large inflection point for UEI came when the digital to analog conversion took place.

Our customers identified that they needed to take control of other devices in the home entertainment stack and if a service tech could shave minutes off an infield visit and the remote worked perfectly with the devices that the consumer already had in place, their service costs could be lowered and customer satisfaction could be increased.

UEI lead this transition by building the best device technology in the world. Jumping forward to today, the greatest testament to the technology leadership position we have built is the market share we enjoy. We have the majority share of control technology in the U.S. and by far the leading share of our market worldwide.

Today another powerful inflection point is now making itself available to UEI and we are ideally position to capitalize on it. The technology of today includes cloud connected TV's, set top boxes and over the top devices that are smarter than ever.

These devices are being linked to the remote control to perform automated set up and every day ease of use features that have never been possible before.

These remote control systems are not just a dream or interesting idea, some have already been introduced, some are about to be introduced and some are in development for introduction next year with many of the leading names in home entertainment worldwide.

In addition these cloud connected two way platforms have also opened up an opportunity for us to sell other products to support new home control and home security services that our customers have been planning.

This movement toward smarter, more advanced remote control systems has begun and represents an enormous market and financial opportunity for us at UEI in the coming years. Frankly, these ideas are not new to us as we contemplated this day many years ago.

But the technology is now available and the consumer's appetite for these new products and services combined for a powerful opportunity today. Our unmatched world leading technologies, intellectual property and products have us ideally positioned to excel at this inevitable transition to the smart home takes place.

We are more excited than ever before about the future prospects of our company. Stay tuned. I'd like to now open it up for questions.

Eric?.

[Operator Instructions]. And our first question will come from Steven Frankel from Dougherty. Your line is now open..

Let me just start with a couple housekeeping items and then more strategic question.

So what was Comcast percent of revenue in the quarter?.

Comcast was, they were at 26.6% of sales..

And were there any other customers over 10%?.

There was a drug [indiscernible] was also 10% customer, they were at 13.7%..

And what tax rate should we assume or where is assumed in your fourth quarter guidance?.

I would prep with low to mid--20s. Right now, the R&D tax credit hasn’t passed yet so the tax rate runs a little higher than it was finalized last year..

And then the advanced remote customer that slipped out of this quarter.

How do you have confidence that they will ship in Q4? Have they already begun shipments?.

Well we communicate with them daily. So it's something that we are salespeople. They work with their team in terms of [indiscernible] apartments, so in constant contact with them and from our understanding they are going to ship in Q4, so I think our conference level is high in that regard.

The one thing - the set top boxes are much more complex than in the past so the fact that some of these customers delayed shipment by a month or two isn't - we don’t like it but I can't say it's a complete surprise, when you're dealing with these used to be old analog boxes and now you've got two ARF, you've got IP connections.

You've got voice control, they're much more complex so again we’re not happy that it got delayed a little bit but in the grand scheme of things for the long term perspective it's very minor..

OK And for Paul.

Could you maybe give us an idea of the Ecolink opportunity for you, what kind of revenue contribution might we expect kind of short run in '16 and then longer term how big of an opportunity is this for you out of that $4 billion pie?.

Yes well I'm not willing to give me the exact figure or guidance for next year but what I will say is this. As we said in the prepared remarks that the platforms that are being put into your home today are IP connected or cloud connected. So they're connected to the Internet, they all have built into two way RF capabilities.

So this architecture makes a perfect host for these other products these other services, door sensors, window sensors, protection against fire and other types of safety and security products potentially home control products. All the protocol, necessary to bring such services will already be in place.

And basically justified on the back of the video business. So anyway these platforms are out there. We see this as a big opportunity it's important to note as we did in the prepared remarks.

We're not talking about a market that doesn't currently exist and that we hope will develop, the market for these products, these home safety and security products is already a $1.5 billion a year and it's projected to more than double over the next four years. Probably on the basis of some of the smart platforms that are coming out.

Our customers have been talking to us about this for some time. They obviously realize that the architecture they've put in place will lead to a small incremental investment, necessary to bring this type of service revenue to them.

We've talked to current industry players in the home safety and security business and we have some unique innovative product that we think can make a real difference there so you know we do think that we have - we can carve out a real good market position in this new market which is about a $1.5 billion growing to almost 3 billion.

So that would tell you how big this could potentially be. You know do your market statistics, take 10% of that market and you've got a very large number..

And I think you've said before that there are existing contracts in place today for 2016 delivery of new products right, so it's not like you're just going to knock on doors today trying to get started..

No those doors have already been knocked on and we already have projects that are ready, well not ready for deployment yet but are in development for deployment early next year..

[Operator Instructions]. And our next question comes from the line of Les Sulewski from Sidoti & Company. Your line is now open..

Bryan, if I can ask you on the shipment delay if it wasn’t for that issue would the revenue on the top line and third quarter be somewhere within that previous guidance that you gave?.

It would have. Yes..

Okay and then I guess when we talked about on the previous quarter, we had a revenue probably somewhere in line with what the third quarter would have been.

Do you think the guidance for 4Q is a little bit light and does it include the shipment that you're expecting to deliver next quarter?.

Yes. I want to say I think Q4 revenue guidance is light, it is where I think it's going to - where we’re going to be, we think it's going to be between 159 and 167 which amounts to 15% to 20% growth over the prior year.

So we expect strong growth for all the reasons that we've mentioned on the prepared remarks but that’s what - it's the range I think we’re going to fall within..

Perhaps kind of a big picture. Maybe Paul you can take this one.

Can you kind of go over what you're seen by each geography, region specifically on the fiber [ph] side?.

Yes. I would say that particularly for these advanced platforms there are two way or cloud connected boxes with two way protocol, that is probably clustered mostly in North America and Western Europe, but I would say it's either in development being ready to be introduced in a couple cases will be introduced or has been introduced in the near term.

So this is not something that is isolated to just two players. We've counted almost two dozen now that are again at various stages of development on this type of platform, so this is becoming a trend or a movement rather than just an isolated incident.

We think that the world is changing in the area of home entertainment and so we're pretty excited about this we're going to see some platforms launched in Q4, but we have many more beyond that that we see happening next year and probably the year after that..

Maybe you can also mention what are you seeing on the OEM side of the business?.

Well OEM is going strong I mean on that you'll see some things that will change early next year mainly because they're on typically on an annual product cycle. So TV's AV receivers and other OEM types of consumer electronics devices are typically designed once a year.

They're being designed now through this past summer through the end of this year to be introduced early next year. So you'll see changes and we'll talk more about that as next year progresses, the platforms for this year though are already designed. So the impetus is this year other than the sale of products that we're currently in..

I guess last one and on the royalty revenue, you mentioned an increase an uptick there.

Can you provide a little more detail on that?.

No, I said the royalties were lower Q3 of '15 versus last Q3, it has actually gone down..

And any commentary on that one then?.

We had some product introduction, so we had some strong surge in licensing revenue for a while. We sell into the TV market and some of our customers have lost a little bit of market share. So it's resulted in the adverse effect on our royalty revenue.

But we've been able to compensate for it and with the transition to lower end platform to the higher end platform which is really driving the growth right now for us..

We have a much more diverse list of customers than ever before, so there is higher count of customers, unfortunately they will compare to last year, there were two major programs that were relatively new one which was brand new with a major name that has diminished. So that's what caused the royalty to come down a little bit in Q3.

This was not a surprise though this isn't really what caused any difference, but we knew that where the quarter started..

And our next question comes from the line of Steven Frankel from Dougherty. Your line is now open..

Bryan, just a quick follow up, what was Comcast in the year ago quarter? Was it over 10% revenue?.

I believe they were Steve, I have to go back and look to see exactly what it was but I think they're in the low teens but I will go back and double check..

And I'm showing no further questions in the queue. I would now like to turn the call back over to Paul Arling for any closing remarks..

Okay. Thank you all for joining us today and for your continued interest in UEI.

Coming up early next year as always we will be exhibiting at the Consumer Electronics Show or otherwise known as CES in Las Vegas from January 6 through the 9th and we will be participating in the Needham 18th Annual Growth Conference in New York held the next week January 12 through the 14th. Hope to see some or all of you there. Thanks very much.

Goodbye..

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day..