Ladies and gentlemen, thank you for standing by and welcome to the Universal Electronics' Third Quarter 2019 Financial Results. At this time, all participants are in a listen-only. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today Kirsten Chapman, with LHA Investor Relations. Thank you and please go ahead..

Thank you, Deedee, and thank you all for joining us for the Universal Electronics' third quarter 2019 financial results conference call. By now you should have received a copy of the press release. If you've not, please contact LHA at 415-433-3777 or visit the Investor Relations section of the website.

This call is being broadcast live over the Internet. A webcast replay will be available for one year at www.uei.com. Any additional updated material nonpublic information that might be discussed during this call will be provided on the company's website where it will be retained for at least one year.

You may also access that information by listening to the webcast replay. During this call management may make forward-looking statements regarding future events and the future financial performance of the company and cautions you that these statements are just projections and actual results or events may differ materially from those projections.

These statements include the company's ability to timely develop and deliver products and technologies that will be accepted by our customers and enable the company to obtain new customers and enter new markets including the company's QuickSet technologies and platform, voice-enabled advanced control products, Nevo.ai, new advanced hybrid, products, OTT, and Android TV platforms, and home automation and sensing technologies and products.

The continued retention and growth of our customers and the adoption and purchase by them of our technologies and products.

The timing of new products and solution orders from the company's customers as anticipated by management, the continued trend of the industry toward providing consumers with more advanced technologies, managements' ability to manage its business to achieve its net sales, margins, and earnings as guided including managements' ability to improve operating cost and efficiencies.

The timely completion of the transition of certain company's managements manufacturing operations to its Mexico facility; and the effects that trade regulations pertaining to importation of our products and tariffs imposed upon them.

The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today's date and refers you to the press release mentioned at the onset of this call and the documents the company filed with the SEC. In managements' financial remarks adjusted non-GAAP metrics will be referenced.

Management provides adjusted non-GAAP metrics because it uses them for budgeting-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 in other companies. A full description and reconciliation of these adjusted non-GAAP measures versus GAAP is included in the company's press release issued today.

Finally, please note that we are no longer including the effects of the constant currency and ASC 606 revenue recognition in our non-GAAP financial statements. As a result the prior year 2018 non-GAAP figures, as previously reported, have been adjusted to reflect these changes.

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

Good afternoon and thanks for joining us today. For the third quarter of 2019, we posted record results. Quarterly net sales crossed the $200 million milestone and EPS topped $1; both quarterly firsts for our company. 2019 continues to be poised to be the strongest year in our history.

For over 30 years, we have focused on developing innovative wireless control technologies as home entertainment has evolved, so have we. Therefore, our consistent vision to lead sensing and control technologies for the smart home has broadened in scope.

Our market now includes home entertainment, home control, and all the spaces in between; especially as these areas begin to converge. We continue to extend our reach into new channels like home automation and telecom as well as adding more customers in our traditional markets.

In recent quarters, voice-enabled advanced RF products are gaining significant traction in our home entertainment control product category. Our customers' orders have grown in magnitude in a variety of ways.

Firstly they're continuing to transition consumers to more advanced platforms that integrate traditional linear television with over-the-top services which in turn is increasing the overall value of our product and technology solutions.

As a result this is enabling us to grow our market share and revenue in our core subscription broadcasting and consumer electronics channels. To maintain our edge, we are prioritizing investments that enhance our competitive position enter new markets attract new customers and improve account services.

I'm excited to report our efforts are coming to fruition. UEI continues to redefine what remote wireless devices are and what they can do.

Many years ago, we set out to develop products and software where consumers could acquire a new home entertainment device, plug it in and all of their home entertainment devices and sources would automatically configure themselves. That vision has become a reality.

A handful of years ago, we envisioned a device where a consumer can simply speak to their home entertainment system and make it work and now that vision is becoming more mainstream. As you know home entertainment and home automation devices are no longer standalone devices.

Today, many of these products and services form the primary user interface of cloud-connected and voice-enabled systems.

Industry leading companies and home entertainment and home automation across the world are choosing UEI as their partner to provide industry leading control and sensing technologies as the market continues to embrace this evolutionary trend.

Prior to -- similar to prior quarters, we continued to generate strong performance across all our channel and product categories. Our subscription broadcasting channel; particularly in North America is performing well as many of the large service providers continue to promote and ship their advanced platforms.

Further this quarter, we received new product new project wins from several large cable and satellite operators embarking on the rollout of their advanced hybrid and over-the-top platforms.

It bears noting that our consumer electronic sales and margin performance has improved due to the continued expansion in our QuickSet licensing to existing and new accounts. In addition over time we have been improving our product mix by moving our product line upstream.

That is we have enriched the mix towards advanced solutions and away from lower value control products. While this product line rebalancing can lead to a loss of revenue, which we currently have more than offset with growth in advanced products, it has helped to improve our margins and profitability.

At CES in January 2020, we will be showcasing entertainment control and connected home solutions for the six channels that make up UEI's core business; including subscription broadcasting, consumer electronics, HVAC, security, hospitality, and retail.

UEI will offer a broad portfolio of voice-enabled QuickSet ready remote-controlled products that are easy to integrate feature-rich and cost-friendly, ranging from basic to premium categories.

QuickSet continues to be our biggest product and feature differentiator with many of the world's largest entertainment and television brands including Comcast, Charter, AT&T DIRECTV, LGI, Sony, Samsung, and many more all carrying QuickSet-related technologies.

In order to bring these features to medium-sized customers, UEI is developing new remote control products for the Android TV set-top box platform. Android TV is a strong enabler for this channel; offering an advanced TV system with an App Store and voice-enabled search tailored at mid-sized operators worldwide.

Android TV is the fastest growing advanced TV platform, particularly in Europe and Asia-Pacific and has a projected worldwide install base of 130 million subscribers by 2022.

Starting in 2020, we will introduce all the elemental technologies such as QuickSet Cloud, Nevo.ai, and interoperability-as-a-service as licensed technologies for use in our customers upcoming smart home and entertainment devices.

These solutions -- software solutions can be easily integrated on existing platforms to enable more advanced AI powered services, including automated discovery, control and interaction with most entertainment and smart home devices in the consumers homes. I'll now turn the call over to our CFO, Bryan Hackworth, for a review of the financials..

Thank you, Paul. As a reminder, our results for the 2019 third quarter as well as the same period in 2018 will reference adjusted non-GAAP metrics. Third quarter net sales grew 10% to a record $200.9 million from $182.7 million in the third quarter of 2018.

The growth in our top-line was driven by launches of advanced platforms by both existing and new customers as well as continued strength in home automation. Gross profit was $53.8 million or 26.8% compared to $44.9 million or 24.6% in the third quarter of 2018.

This improvement reflects strong operational performance in our China factories, stable mix as we have enriched the mix towards advanced solutions and away from lower value control products including an increase in royalty revenue as consumer electronic companies are embedding our technologies in their devices.

In regards to our manufacturing facility in Mexico as expected our performance improved significantly in the third quarter compared to the prior quarter, at which time a number of products were initially transferred to Mexico, resulting in material inefficiencies.

Although we are pleased with the progress so far we expect further improvement until Mexico is on par with China's operational performance. Operating expenses were $35.1 million compared to $31.1 million in the third quarter 2018. R&D expense increased 41% to $7.6 million this year from $5.4 million in the prior year quarter.

SG&A was $27.5 million this year compared to $25.7 million last year. Overall, operating expenses increased as savings were offset by investment.

As we have said before, we'll continue to invest in technology and product development to continue our longstanding leadership to bring in differentiated solutions to the market as well as investing in the people that help us succeed. Operating income was $18.7 million or 9.3% of revenue, up from $13.8 million or 7.6% of revenue in the prior year.

Our effective tax rate was 21% compared to 11.7% in the prior year quarter. Net income was $14.3 million or $1.01 per diluted share compared to $11.2 million or $0.80 per diluted share in the prior period. Next I'll review our cash flow and balance sheet at September 30, 2019.

Cash and cash equivalence were $54.7 million compared to $49.6 million at June 30 2019. Net cash provided by operating activities was $19.7 million for the quarter and nearly $40 million year-to-date; enabling our outstanding debt balance to be reduced to $88 million at September 30, 2019; a decrease of $7 million from last quarter.

Our cash conversion cycle approximated 107 days as of the third quarter 2019 compared to 102 days in the third quarter of 2018. Now turning to our guidance. For the fourth quarter 2019 as mentioned on the previous call, we expect the back half of the year to follow its typical seasonality with sales in Q4 less than in Q3.

We expect sales in the fourth quarter to range between $173 million and $183 million; compared to $168.3 million in the fourth quarter 2018. EPS is expected to range from $0.79 to $0.89 compared to $0.84 in the fourth quarter 2018.

For the long-term, we remain confident our average annual sales would grow 5% to 10% and average annual EPS will increase 10% to 20%. I would now like to turn the call back to Paul..

Thank you, Bryan. By constantly striving for more, we are achieving our goals; driving long-term profitable growth and delivering shareholder value. We are adding more customers in our traditional channels as well as extending our reach into other industries like home automation and telecom.

In recent quarters voice enabled advanced products are gaining significant traction. The home entertainment market is undergoing a significant change that we have long talked about.

Market participants across the globe realize that future success relies on giving the consumer ease of use and simplified access to all of their entertainment and IoT devices and services. This has led many of them to cloud connected voice driven platforms that are enabled by our advanced control solutions.

While there's still much work to do, we are proud of what we have accomplished thus far. We are undergoing and in many cases have led an industry transition like no other. Over the past few years, we have shifted our product mix to benefit from this vast product and technology change over.

On top of that, we have successfully overcome the challenge of two product supply transitions; the latest required us to move nearly half of our production halfway across the globe.

Despite the challenge and risks involved in all of these changes, we are emerging stronger than ever with more future opportunities ahead of us than ever before and our results reflect this.

As devices and applications proliferate, people have even more home entertainment and home automation choices; all of which will require more advanced control solutions. As we have established ourselves as the world leader in this area, we believe these trends will continue to fuel our long-term profitable growth. Stay tuned.

Operator, we'd now like to open up the call for questions..

[Operator Instructions] Our first question is from Steven Frankel of Dougherty..

Good afternoon and thank you. Paul, maybe for a moment give us a little more detail on the Mexican ramp facilities.

How long do you think it will take you to get that to be margin equivalent with China?.

Well, it will probably be -- I mean we'll still have some transition effects in the Q4. We, obviously, earlier this year starting last year started with the major projects, so we've transitioned most of the cradle [ph] 20% of the projects that deliver most of the sales we started with those.

We still have projects in China that we're moving, not all to Mexico but many of them to Mexico. So that transition is still underway but we think we're through the bulk of it.

If you look at the effects, the effects of the transition are diminishing pretty greatly in Q3 and we'd expect the effect of these transitions to diminish next quarter and probably have some going into the Year 2020 but again this number should continue to diminish..

So we should expect -- in trying to line up your guidance with what you did in Q3, we should -- it sounds like we should expect gross margin improvement sequentially in Q4?.

Yes I would say so Steve, it's Bryan. I expect the gross margin rate to improve upon over Q3. In Q3, it was improved we showed improvement as well but I expect Q4 to be higher than Q3..

And higher than last year, like opened Pandora's box?.

That's a high bar. We were pretty high last year. Last year in Q4, I believe we just started Mexico. As a matter of fact, I don/t even know if we started manufacturing. I know we hired employees, so it's easy to isolate the costs that were unabsorbed.

Right now I think with Mexico there's still leakage in our P&L, so we're definitely going to aspire to hit that number to reach what we did last year but I think that's a little bit of at the high bar..

So, I guess let's talk about the other two puzzle pieces.

So maybe OpEx is down sequentially in Q4 and is the tax rate the same normal 20%-ish?.

Yeah the tax rate is -- it should be about the same. I wouldn't alter that very much. Yeah, I typically -- we give guidance top-line bottom line Steve. I think -- I'd have to look at your model but the margins will improve over Q3..

Okay. Let's get to more interesting things. Paul maybe some more detail on the number of new programs that you started in Q3 and what does that pipeline look like for Q4 and Q1 and comments on programs like Flex.

I know you don't like to talk about particular customers but maybe if the concept of something like Flex is something you're talking about with multiple customers?.

Yeah there have been a number of projects that we've introduced this year. Some of which we can talk about. Dish for instance launched actually late last year. We do have some customers that prefer us to not mention their programs at all, and certainly none of them like us to talk about the individual projects in -- individually. So….

I was really only talking about the number of new designs kind of what the pipeline looks like if you can talk about?.

Yeah well in terms of the number of new designs in Q3 there are probably only a couple, but what's happened is when they introduce a program in say Q1, we'll see a ramp throughout the year. Sometimes they will start slower and then gain momentum as the program goes out. So we did see some of that obviously into Q3.

Now in terms of the projects, I did mention generally and we can't speak to specific programs, but there are a number of companies even in our traditional distribution that are looking to build new platforms that take advantage of over-the-top, and it's more than one.

Obviously, there's a number of subscribers out there that are not using the linear TV from the service providers. There are tens of millions of these subscribers across the industry and a lot of them are planning to continue their relationship with those customers by building these platforms.

So we have won a number of these; some of which are already shipping in smaller amounts have not gone into mass deployment yet, but are in I guess what you'd say as test and we expect that into next year we'll see more of these platforms be rolling out and many of which we've already won..

Okay and what was the revenue concentration in the quarter?.

We had two customers that were greater than 10%; Comcast at 15.2% and Ring at 10.5%..

Okay, that gives me a little hint on the health of the home control business. And then Paul you opened the call with some discussion around licensing QuickSet to some non-traditional customers.

Maybe you could come down 10,000 feet and give us a couple of examples of what that might look like in terms of features and functions for the consumer that you could enable?.

Sure. Yeah I mean there's a lot of different ways that these elemental technologies can be used.

You know the obvious ones are televisions and home entertainment devices; I think most people on this call who have been on our calls many times understand this that home entertainment devices; plug them into the wall, plug them into each other and have them -- not only configure themselves, but potentially search for the services available through those many devices such that it makes it easier for the consumer to find the things they want to watch.

So that's maybe a next layer to QuickSet. It's not just about initial device configuration, but ease of everyday use by polling the devices and understanding what things or services are available through them such that it makes it easier for the consumer to sit down and watch TV which I what our ultimate aim is.

But we have other applications for this; one of which I'll give one idea on how this might apply. Many people don’t realize this, but half of the world's HVAC units are what are known as split units. These are units not unlike -- they're unlike the central systems that are utilized here in the U.S. Many of these are remotely controlled.

Often historically they've been controlled with inferred remotes similar to what we've sold. And we've built relationships with many of these companies. Again about half of the world's HVAC units sold annually are -- systems; probably 55 million of them.

That probably means between a 0.50 billion and 0.75 billion households worldwide are using these types of HVAC systems. When you use one, the only way to turn it on typically is to come home and turn it on and set the temperature.

Well what if you had a device, a QuickSet enabled device that was able to be IP addressed that you could let's say before you left your office turn on the unit in your den and your family room and set them to 25 degrees Celsius that is because most of these are sold outside the U.S., or when you get home you could simply say it's too warm in here and it would answer what temp -- what would you like the temperature to be and you'd say 25 degrees and the thing would simply turn on and set its temperature.

So this is just one application of how voice and IP driven devices could bridge the gap between what is an ever-smarter world and the devices the legacy devices, frankly because you could do a device like this for a product that was sold five years ago that was not IP enabled.

And most of the world today is powered by those types of devices; most of the HVAC systems in this world are like that. So essentially you could make a legacy device smart through the application of these technologies; either adding them to a new product or buying a product from someone like us.

So we see that is just another example of an application of these elemental technologies in a product that could be introduced in the future..

Okay and I have one more last one and maybe this is exactly what you're describing are we now thinking -- I should think of Nevo Butler as in essence that simple statement of I can make a legacy device work in the new IP connected and voice world?.

Well sure, I mean that's one element of what Nevo Butler is, it's not just a product, but it's essentially a platform or a demonstration platform for our elemental technologies.

So things like QuickSet Cloud, Nevo.ai and interoperability as a service all of these things are embedded in something like Nevo Butler, but looking forward into next year into 2020 and beyond you'll see the introduction of these product features either in the form of a product like a Nevo Butler or other hardware product or the inclusion of these technologies in our customers products or services.

So we'll speak more about this as CES approaches and across next year..

Great. Thank you so much Paul..

Sure..

Thank you. Our next question comes from Jeff Van Sinderen of B. Riley..

Good afternoon. Let me say congratulations on the strong Q3 metrics. You motioned companies looking to build new platforms and take advantage of over-the-top.

Can you frame that a little bit more for us? Are they late to move to an integrated solution or are they just taking a different approach for next generation and now shifting, just curious, on your thinking around that?.

Sure yeah. What many have already done is combine the traditional method of delivery with over-the-top to give you an integrated platform where you could enjoy both as people like to say linear with over-the-top service. So you can actually get both and voice-enable both services.

We have a number of customers who have done this already and we've helped them by powering the controlled device that goes with it. What some are doing however is looking at a new opportunity which is to build an over-the-top platform for their customers that are now broadband only.

And some of our customers have announced such platforms, but we'll probably see more of this as next year progresses; more customers that are looking at OTT or Over-The-Top only platforms for specific consumers. They'll also though remain consumers that have both linear and over-the-top combined platforms.

So they want to serve all customers; some who wish to have over-the-top only some who wish to have linear plus over-the-top and they'll have platforms for all of those customers..

Okay good. And then you mentioned royalties increased in the quarter.

Maybe you could just frame your thinking your latest thinking around that for us and I guess the outlook for royalties as we look further out?.

Yeah this is a growth area for us. Essentially what's happened and we've probably mentioned this before, early on we introduced the technologies into the market for essentially televisions and what some of the brands did with the first year they included it only in their highest end units; the highest end SKU's within their portfolio.

As each year has progressed, they are bringing that feature down market. So what happens, as it expands it's kind of like the automotive equivalent of years-ago nav systems were only in the S Class, but then they made their way into most of the units. Similar thing is happening with this type of technology with QuickSet.

It started out in the higher end brands, but is expanding.

Because these companies, of course, believe and should that the consumer wants this ease of use; bring the TV home plug it in the wall, plug in your three things whatever they might be, have the system self-configure and consumers are obviously delighted with this feature; it's been favorably reviewed just about everywhere we've seen.

So our customers are aware of this and are expanding its inclusion. We're also adding more brands in this, so we'll have more to say about that around CES. But there's more companies that see that this ease of use and ease of setup and ease of everyday use is an important element in their product and wish to incorporate it..

Okay. And then one more if I could squeeze it in and I'm approaching this kind of delicately, but without mentioning names, a certain operator is offering a free video solution for their broadband customers and the strategy around it seems fairly disruptive for the broader industry.

Can you share your latest thoughts on that, what it means for that company and what impact it might have on the broader industry and then maybe speak to how the remote portion, voice controlled remote portion attached to that might play out and….

Sure..

…potentially impact the business..

Yeah. Well, look, I think in the industry, it's a great move. I think there are now -- if you count it up across the operators just here in the United States, there are tens of millions of subscribers that are broadband only. So they're receiving broadband from a specific provider, but not opting for the video services.

Obviously, most people here in America do watch television, not all the average five hours a day, as the average American does watch, but many are watching are enjoying home entertainment when they're at home. So the idea here is that they can access those consumers still by offering this type of platform, over-the-top platform.

So we are seeing this as a trend and there will be more than one of these as next year progresses. We've already -- we're already involved with a few of these. Some of which have not launched yet, will launch next year.

But this is probably a trend that's growing, because the number of people in that category is growing, as I said here, just in the U.S. it's tens of millions of homes that they can access with this technology.

And they are voice enabled, they operate very similarly to the voice enabled two-way platforms we've done in the past where you pick up the device you simply say what you want to watch and, of course, the service activates and takes you to the content you want to watch.

In some cases, the remotes are a little simpler, because the interface on the screen is up, down, left, right, enter. It's not -- you don't need channel keys, because there are no channels anymore. It's more an app-like experience, but the control products may change a little bit, but they're all very similar.

They have two-way RF and they're voice enabled..

And so this is a little simpler.

Does that necessarily mean lower ASP? Or does that mean lower margin? Or could that be similar ASP and similar margin?.

Yes. Well, I don't want to really discuss the margins on those, but typically the technology in these products is similar to what they would be using in the regular solution. Again, they're two-way, they're voice enabled, so all of the technologies involved with making those products operate in that way are very similar.

Now the physical product itself could be a little smaller, which is a bit of a savings but not a great deal. Because when you have fewer buttons you can make the product smaller. It can typically cost slightly less, but not significantly, because again the technology inside of these is very much the same.

The chips used, the subcomponents used are very similar to the advanced products; the other advanced products we're already making..

Okay. All right. Good, well, keeping those broadband people watching video; we like it. Thanks for taking my questions..

Our next question comes from Greg Burns at Sidoti & Company..

Good afternoon. So you had a number of advanced remote rollout at the end of last year and were -- you're obviously benefiting from the growth of those deployments.

I missed, in your answer to the earlier question, did you actually have any new advanced remotes rollout or begin deployment this quarter and is there any expected to begin shipping in the fourth quarter?.

To my knowledge there weren't any in Q3 that I can remember. If they were, they were not major. They would not have had a major effect any of the new rollouts in Q3, but I don't think there were any. As far as Q4 goes, we probably have some new products rolling in, but nothing substantial.

Some of the more substantial platforms are targeted for next year..

Okay, great. Thanks.

And then, in terms of the gross margin with the shift in mix to the more advanced platforms and the greater percentage of licensing revenue, is this kind of a new range we think the business is going to operate at from like 27% to 30% how should we think about the gross margin now going forward?.

Yes, Greg. What I said a few minutes ago is that, I expect Q4 to be greater than Q3 in terms of the gross margin rate. Yes, we've showed improvement over the last year. I mean, China has been performing extremely, extremely well. Mexico is showing improvement, still have a ways to go, but it's progressing well.

We expected our Mexico facility to improve significantly from the prior quarter and it did just that.

You know mix is training in our favor, as we said all along that some of the large customers came out of the gate first with advanced platforms, so based on their volumes they were getting pricing that a smaller operator isn't entitled to unless they want to buy the -- hit the volumes the larger ones are. So that helps.

And as you've mentioned the royalties, as our technology is being embedded in consumer electronic devices where sometimes with a chip or sometimes just a pure royalty play in that situation, it's 100% margin.

So everything is trending favorably right now for us but I don’t want to give you an exact number, but I do expect it to be higher than the 26 APA we performed at in Q3..

Okay, thanks. And then in terms of operating expenses, obviously, I guess, you're continuing to invest in the business.

How should we think about that? I think a while back you had kind of implied you were going to try and hold operating expenses at a certain level, but it looks like they're -- there R&A and maybe that's a function of the investment opportunities you see for the business, but how should we think about OpEx from here this quarter, good level?.

Yeah, this year, I would say, it's a pretty good level. I mean, next year I expect it to be relatively flat. I think two things. Our revenue grew substantially from last year. So you have variable costs, I would say is probably $4 million of variable costs associated with -- in excess of $70 million of revenue growth.

And we've done two things recently, one is move from California to Scottsdale, our headquarters, and then also we moved a number of people from Hong Kong to Mainland China and we did save what we expected to save. The thing is, we are investing -- I think we're investing wisely.

I think you're starting to see it pay off where we just talked about royalties and the fact that the technologies that we've invested in are being deployed in multiple channels. So it's something that's necessary. We're seeing the payback and I think from -- comparing this year to next year, I would say we should be relatively flat..

[Operator Instructions] Our next question is from Jeff Feinberg of Feinberg Investments..

Thank you very much. Thanks for the great results guys.

Just to gain some perspective around the technological advancement, innovation in mobile, the cost, different examples that you provided, can you use the baseball analogy, just give us some perspective what inning we're in of these aggregate upgrades/rollouts?.

That's a good question. I think there's two men on and there's two outs in the bottom of the second inning. I think that's about where we're at. I think there have been some of these programs that have been out for some years now but there's a lot of them worldwide that have not been introduced yet.

So the longer-term belief is that this is the way that people are going to go, the consumer, as time goes on, is going to expect this type of ease of use, ease of configuration, ease of use. They're going to want access to literally millions of pieces of entertainment that's out there and they're going to want to be able to find it really fast.

So advanced platforms really are the only way to do that and voice driven, obviously, makes it even easier. So I think this is something that's going to happen over the course of many years and we're still relatively early. Now, some companies are further along, individual companies, but I think as an industry it's still relatively early..

Fantastic, thank you.

Given that analogy, I know you guys provided in the call some long-term, 5% to 10% sales growth, 10% to 20% earnings growth, if I understood correctly, given that we're in these earlier innings, wouldn’t it be fair that these would be more toward the high end of that over the shorter-term, if you will?.

Yeah, all I'm going to say is that's where we think it can range, between 5% to 10% top-line and 10% to 20%..

Okay. Final question without any timeframe, given the improving mix of the business, if I understood correctly, but let me first make sure, I think was the comment about flat next year with the growth to total expenses, was that the tone line in expense, okay.

So yeah, with an improving mix and expenses stable and some top-line growth, can you give some perspective longer-term, what the potential operating margin of the business could be?.

I think you get into the low teens. I mean, right now we're pushing 10% in Q4. So to your point, if we could expand the gross margin rate, which I think is definitely possible given what we just talked about and you keep the operating expenses intact, then the operating margin is, obviously, going to expand.

So I don’t want to give an exact number but to say we give about 10%, absolutely, we're close to it in Q4..

Okay, wonderful.

And finally, you talked a little bit about technology, can you kind of just update us, if I'm not mistaken, we have some patents that we are enforcing and thought there was some positive doings in that regard, just a brief update on patents and litigation?.

Yeah, sure. I mean, we're an innovative company. Obviously patents are an important part of what we do. We come up with a lot of novel methods. As far as any individual litigation matter, we'll update that in our public filings as we go along.

There's nothing really to say on that at this point, but we'll work through whatever issues we have and we're going to -- in the ultimate outcome of those matters..

Wonderful, thank you so much..

Sure..

Mr. Arling, I'm not showing any further questions at this time. Please proceed with any further remarks..

Okay, thank you, for joining us today and your continued support of the Universal Electronics. In December, we will present at the Imperial Capital Annual Security Investor Conference in New York City.

In January, we will exhibit, of course, at the 2020 international CES in Las Vegas and present at the Needham Annual Growth Conference in New York City. We look forward to seeing you at some or all of these events. Thanks for being on the call today. Have a great day..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect..