Universal Electronics Q4 2025 Earnings Call - Strategic Restructuring to Restore Profitability as Connected Home Slows

Daniel, Conference Operator, Conference Services: 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. 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. If you would like to ask a question at that time, please press star one one on your telephone. As a reminder, this call is being recorded. I will now turn today’s conference call over to Ryan Hochgesang, General Counsel. Please go ahead.

Ryan Hochgesang, General Counsel, Universal Electronics Inc.: 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, non-public 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 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. If 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, Richard 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 Richard Carnifax. Please go ahead, Rick.

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: 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 remain challenging, we drove a strategy to diversify our revenue base, which resulted in connected home growing 16% year-over-year, optimize our global footprint and strengthen our financial foundation. Product and technology focus remained 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 to 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 met 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 underscored 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 roadmap.

In addition, we recognize 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. 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 progressed 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 showed that revenue inflection will take longer than expected. While we did take profitability-focused actions last year, those actions presumed 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 three 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 margin. 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.

Wade Jenke, Chief Financial Officer, Universal Electronics Inc.: Good day. In 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, Connected Home 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 and HVAC, 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 HVAC sales on a non-recurring 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 was $26.1 million or 29.7% of sales, up from 28.4% in the fourth quarter of 2024.

The 1.3 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 of 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 transitioned 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 $40.4 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 proved beneficial, and this marks the first time since 2021 that we’ve 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-$0.65, compared to adjusted non-GAAP profit of $0.31 per share in the fiscal year of 2025. Thanks. Now I’ll hand it back over to Rick.

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: 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 tariff 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 three clear 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.

Daniel, Conference Operator, Conference Services: As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Steven Frankel with Rosenblatt Securities. Your line is open.

Steven Frankel, Analyst, Rosenblatt Securities: Good afternoon. I’d like to dig in to the guidance a little bit, you know, 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?

Wade Jenke, Chief Financial Officer, Universal Electronics Inc.: Yeah. 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 focused on improving cash flow, freeing up working capital, and improving profits.

Steven Frankel, Analyst, Rosenblatt Securities: You give a specific earnings number, which is a pretty big step up from where you were this year. 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?

Wade Jenke, Chief Financial Officer, Universal Electronics Inc.: Yeah. The operating expenses we’re taking a holistic look at to structurally reduce. So it will be material and it will be significant. We’re managing the business in flow with our revenue. If there is more challenges to revenue, then we’ll adjust costs 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-$0.65 on a non-GAAP diluted earnings per share basis.

Steven Frankel, Analyst, Rosenblatt Securities: How big is the RIF that you executed in Q4?

Wade Jenke, Chief Financial Officer, Universal Electronics Inc.: The RIF in Q4 was right around 50 people.

Steven Frankel, Analyst, Rosenblatt Securities: Which is what % of the headcount?

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: Yeah. I think Steven stepping in here from my perspective, we’ve 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 gonna be over a period of time. We’ll keep you updated on that go forward. While the design’s in place, we’re continuing to execute.

Steven Frankel, Analyst, Rosenblatt Securities: Okay. 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. I’m just trying to understand, you know, you 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 breadcrumb?

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: Yeah. Relative to the mix that we’re preserving in the business, that mix is focused on preserving the rev or the margin run rate that, Steve, we’ve historically communicated with is that 28%-30% margins. Obviously by anticipating revenue to decline, we’re not looking to hold on to revenue that would dilute that margin. Our looking forward is in line with what our historical expectation has been.

Steven Frankel, Analyst, Rosenblatt Securities: Okay. What, if any, significant customers did you have in Q4?

Wade Jenke, Chief Financial Officer, Universal Electronics Inc.: Yeah, sure. I can go ahead and answer that customer. We’ve had Daikin, they were at close to 16%, and then we had Comcast close to 11%.

Steven Frankel, Analyst, Rosenblatt Securities: Okay. The license revenue you talked about in Q4, was that in the traditional home entertainment business or that’s kind of new opportunities around connected home where you’re seeing license revenue?

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: Yeah, 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.

Steven Frankel, Analyst, Rosenblatt Securities: All right. Thank you.

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: Thanks, Steve. You got it.

Daniel, Conference Operator, Conference Services: Thank you. This concludes the question and answer session. I would now like to turn it back to Richard Carnifax for closing remarks.

Richard Carnifax, Interim CEO and Chief Operating Officer, Universal Electronics Inc.: Thank you everyone for joining, and have a great day.

Daniel, Conference Operator, Conference Services: Thank you for your continued support of Universal Electronics. Have a great day.