Universal Electronics (UEIC) Q1 2026 earnings call transcript

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, 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 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 three structural moves for 2026, aligning our cost structure to our current revenue and margin expectations, tightening R&D and portfolio focused 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 million down 14 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 clearer paths to return, and improving cash generation and financial durability.

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. 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 reduce 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-quarters 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 a lower margin product mix, delayed new product deployments on certain higher margin connected home programs, and commodity cost pressure in resident 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 costs 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 framework including adjusted non diluted EPS of to compared to 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 decline. 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 cost 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. GAP and non-GAP 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 and 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 Gap 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-gap 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 cents compared to 31 cents 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, allying 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.

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