Good afternoon. My name is Rashida, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Electronics’ Second Quarter 2012 Results Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Ms. Becky Herrick of LHA. Ma'am, you may begin your conference.

Thank you, Rashida, and good afternoon, everyone. Thank you for joining us for the Universal Electronics 2012 second quarter conference call. By now, you should have received a copy of the press release. If you have not, please contact LHA at 415-433-3777 and we will forward a copy to you. This call is being broadcast live over the internet. A webcast replay will be available at www.uei.com for one year at www.uei.com. Also, any additional updated material non-public 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. After reading a short Safe Harbor statement, I will turn the call over to management. During the course of this conference call, management may make projections or other forward-looking statements regarding future events and the future financial performance of the company, including the benefits the company anticipates as a result of its continued growth on average of TV sales and household TV viewing habits, the continued growth in the subscription broadcasting business, its continued development of new and innovative products and technologies including the UEI QuickSet technologies and its solutions for smartphones and tablets that are accepted by and meet the needs of our customers and consumers, the company’s ability to successfully anticipate the needs and demands of the consumer with respect to new and more advanced products and technologies, the continued strong relationships with the company’s existing customers, the ability to attract and retain new customers, the benefits the company expects via the growth of new markets in certain geographies including Latin America, Brazil, Eastern Europe and Russia, the strength of the company’s financial position and its ability to manage its operating expense initiatives…

Thank you, Becky, and welcome everyone. Our results for the second quarter of 2012 in line with our expectations demonstrated solid performance in both our business and consumer categories. Over the years we have remained committed to pursuing our core philosophy of winning new customers, deepening existing relationships and introducing innovative yet simple solutions to the ever changing home entertainment environment. This strategy has proven successful time and time again for UEI as we continue to be at the forefront of changing trends in home entertainment. We hold the firm belief in the future growth of our business and the pervasiveness of the Universal Control technology. While the traditional definition of a remote may change, and while television viewing habits may evolve to include additional devices and technologies, UEI continues to play an increasingly integral role in connecting controlling and simplifying the entertainment experience. Whether you believe the traditional universal remote control will continue to be a mainstay in people's homes, or if you believe people will increasingly integrate advanced devices such as smartphones and tablets into their TV watching habits, the fact is that remote control technology is required for both and it is here to stay. UEI is well positioned to take advantage of the blooming synergy between remote control, smartphone and tablet platforms. Our focus has been on identifying challenges consumers face in their home entertainment control experience and are applying new technologies to solve these problems. UEI's QuickSet is one example of how we simplify the universal control setup experience for a consumer. QuickSet is an onscreen remote programming function that enables an affordable, intuitive, step-by-step interface that simplifies the programming of the remote control. Through an HDMI cable, the TV sends data to the set top box and the QuickSet software automatically picks up that…

Thanks, Paul. As a reminder, our second quarter 2012 and second quarter 2011 results will reference adjusted pro forma metrics. Second quarter 2012 net sales were $116.7 million, compared to $121.7 million in the second quarter of 2011. Business Category net sales were $103.9 million, compared to the second quarter of 2011 net sales of $111.1 million. Our Consumer Category net sales were $12.8 million, compared to the second quarter of 2011 net sales of $10.6 million. Gross profit for the second quarter was $33.2 million or 28.5% of sales, compared to a gross margin of 28.9% in the second quarter of 2011. Total operating expenses were $25.5 million, compared to $25.6 million in the second quarter of 2011. Breaking down our operating expenses, R&D expense was $3.4 million, compared to $3.2 million reported in the second quarter of 2011. SG&A expenses were $22.1 million, compared to $22.4 million in the second quarter of 2011. Operating income was $7.7 million in the second quarter of 2012 compared to $9.6 million in the second quarter of 2011. The effective tax rate was 18.2% in the second quarter of 2012, compared to 22.2% in the second quarter of 2011. Net income for the second quarter of 2012 was $6.2 million or $0.41 per diluted share, compared to $7.1 million or $0.46 per diluted share in the second quarter of 2011. For the 6-month period ended June 30, 2012, net sales of $220.4 million, compared to $227.5 million in the same period of 2011. Gross margin for the first 6 months of 2012 was 28.1%, compared to 27.7% in the same period a year ago. Total operating expenses were $50.3 million, compared to $50 million in 2011. Net income for the 6-month period was $9 million or $0.60 per diluted share, compared to…

Thanks, Bryan. Let me close by reinforcing our commitment to providing technology leadership in home entertainment control. We continue to develop practical, affordable solutions that solve real consumer needs. The opportunities for UEI devices, technology and software are vast and evolutions in the home entertainment environment will always provide us with new applications for our products and technology. We are proud to be at the forefront of building the solutions that foresee the needs of consumers tomorrow while continuing to satisfy their mainstream control needs today. As such, our outlook for 2012 remains unchanged but our excitement over the long term application of our technologies has never been greater. Stay tuned. I would now turn the call over to the operator and open it for questions.

[Operator Instructions] Your first question comes from Jonathan Goldberg from Deutsche Bank.

So, I guess, I just wanted to understand a little bit more of the dynamics you are seeing in the business today. So I was wondering if you could just talk, give us a little bit more color, a little bit detail about what your customers are telling you, particularly your business customers, not the TV OEMs? And without referencing your products or future technologies what are you seeing in the market right now in terms of demand?

Well, I think, as much as we talked about last quarter, Jonathan, I think, as you pointed that the A/V side or the CE side, TV, Bluray, et cetera, still challenging, as we talked about last time. On the subscription broadcasting side, things are going pretty well. There is obviously regions of the world where there is pretty significant opportunity and growth and then consumer has done pretty well. Although a small part of the business, it has done very well so far this year. So not very much has changed from our viewpoint on the last call.

Okay, so in terms of pay TV, your pay TV customers, what kind of trends are you seeing in terms of churn and marketing promotions? Things that would drive churn, that would drive adoption of purchases of new remotes?

Obviously churn continues. It is usually not something we talk a lot about. Customers would like to reduce it, but the churn has been a pretty constant thing in our industry for ever. So we are not seeing, we don’t see great changes in that in upturns, downturns, side turns, doesn’t really matter. There is always churn. What we are seeing though, again, is that the subscription group broadcasting build out in certain regions of the world is quite strong. The U.S. not as much but again, regions within the Americas, in Europe, there are specific countries where we are seeing a lot of activity, both in terms of subscriber adds and of course the constant of churn, upgrades and repair and replacement which bolsters our industry all the time. So we are seeing pretty good results in the subscription broadcasting side of thing. Really no change from last quarter. I think we highlighted last quarter it was pretty strong and it remains pretty good.

And in terms of international? Are you seeing any change in the competitive landscape?

Not really. Look, it’s always competitive as it always has been, but it’s the same players pretty much in every region of the world.

Okay, so just one last quick housekeeping question for Bryan. Could you just repeat the percentage of sales for business and for consumer?

Yes, I can. Business category sales were $103.9 in the current year, compared to net sales of $11.1. I think I will calculate the percentage in a moment. Let me get it for you.

That’s all right. I can figure that. That’s good enough for me.

Your next question comes from Jason Ursaner from CJS Securities.

Just first, I wanted to talk a little bit about the new evolution or Nevo that you talked about. These are owned remotes that are touch screen? Or are you talking about a new embedded solution in the smartphone and tablet market.

No, that’s a good question. Nevo is a product that we had made. What we are talking about here is Nevo for smart devices. So it would be control app that would ride on other people's hardware. It is actually, to be honest with you, for those who follow this a long time, it is where Nevo started. We originally did a Nevo software sometime ago for mobile devices. We then turned it into a product that was sold through the CDA channel and now Nevo for smart devices is a control app that would ride on smartphones and/or tablets. So it is essentially an app that ties together our various technologies and control codes on to smart devices.

But it doesn’t actually need any hardware put into the device for the IR vibrator, any of that?

Well, we would have that all built in. The point of Nevo would be, Nevo for smart devices as well as QuickSet, UCE and the universal control code databases, for it all to be built in, because we believe that the solutions that require external devices are essentially a small percentage of the population or as we internally call them geek products, because most of them you have to connect something up to your router and then configure your system internally. We believe that the consumer wants something that’s built-in. The app is embedded in the device and all the hardware necessary is already in your devices, either in your television, your cable set top box and the smart device itself. So we want to build a solution that requires the user to not have to install anything. It just simply works as an app along with the devices and it's automatic.

And is there any crossover to work with your existing hardware that you would also be putting in? Or would it be on their hardware?

Well, it could be. Yes, we have another product concept where we would work with our F protocol to actually work in concert with, as we say, the lean back remote, the traditional remote. We have done some work on that. You may have seen announcements from us regarding Wi-Fi Direct which is becoming very common in Android, in the world of Android, Ice Cream Sandwich, many of those devices already have Wi-Fi Direct built in. What that would allow is a control interface on the smart device that could actually communicate without the users knowledge through the remote itself to help control the system, which would again would also require no new hardware, because again, our big thing is, we want this to be seamless for the consumer. Having to have them install another part, another dongle, another device that sits on your coffee table, we think that that’s a limited market of people that want to reconfigure their internal Wi-Fi networks and their home to accommodate these router specific products. We would rather have it all built into the device itself, either the remote, the smartphone or smart device, or the A/V devices themselves. It should be built in and automatic for the user.

And you talked about the market opportunity there over the course of the years, potentially eclipsing even some of what you do in TV. Can you just talk about how that would get monetized? If the price of a low end remote is a couple of dollars, but you have to actually have the cost of manufacturing it and assembling it, how would that compare to be more of an embedded solution.

Well, I mean that’s the part of the reason why the margin opportunity is so large. First you start with the unit. Television sold annually are somewhere between 230 and 280 million, depending on the year. So somewhere south of 300 million. Smartphones, this year would be 686 million and growing quickly. Tablets, that will exceed 100 million units and also growing quickly. You add those together just this year, you are talking about a number that’s near 800 million units. It wouldn’t take very much conversion of those devices to become controllers with UEI technology embedded and again we feel that the easier we make this for the consumer, the more likely it is to be something that’s adopted. Obviously, statistics we have talked about on prior calls, the average Americans watching 5 hours of television a day, the average world citizen is watching 3.25 hours of TV a day. This is one of the most common activities in life on our planet and we feel what better app to embed in a smart device than one that can help the consumer to better control that experience, particularly if it’s easy to set up or automatic to set up. So we really, firmly believe that overtime, the margin here, just because of the immensity of the units and the margin, when we say margins, we are talking about margin dollars. The margin percentage could potentially be higher because we may not, would probably, or unlikely in the smart device case in particular, unlikely to sell much hardware. It would probably be an embedded solution, potentially a chip that would go into the device, not the entire device. So our announcement today is not to say we are not going to start making smartphones or tablets, it's that we are going to build technologies, either chip solutions and/or embedded technologies that will work in them as well as the A/V devices to create a better system for the user.

Sure, and how many did you mention? Did you talk about customers? How many are evaluating this or trying it? I think you mentioned about Android but I didn’t quite hear it.

QuickSet has already been adopted and on the QuickSet side, we have already got, I think we have 30 projects right now that are either active or are already implemented. So we are working with most of the major players in the industry. On the smart device side, the list is there and we haven’t announced very many yet. We already are in for tablet designs and again, announcements on that and more discussion of it are forthcoming in the coming weeks, months and probably over the next couple of years.

Okay, and more short term focus, the TV market, you mentioned as 230 million to 280 million units, that’s really been the challenge for you guys recently as the sales there haven’t been so great. Is there any update on what you are hearing from customers in terms of the seasonal peak? How the Olympics or the football season or any of those potentially help be a catalyst for demand, just what you are hearing?

Yes, well I think they certainly help but I think this year is a challenging year for the consumer electronics industry in general. So I don’t think our opinion has changed any from when we spoke last time on our last conference call and our view of the year is unchanged. So as I said earlier to Jonathan, the CE still tops. We don’t think it’s getting any. It’s not tougher than it was before because it was pretty tough before, subscription broadcasting is going well, our consumer business is performing well. Just about every part of the business, other than CE is going better. I guess, I could say that CE is probably performing to our expectations that we reset a few months ago but when we started the year they were much higher. Our expectations were much higher, but we reset them and we are comfortable with what we set.

And just last question for me for Bryan. I think you already said, you plan to pursue a more aggressive stock repurchase plan. With the stock at 7 to 8 times this year's guidance, can't really blame you there, but what's left on the buyback authorization at this point?

We have got 1 million shares left on the buyback authorization.

[Operator Instructions] Your next question comes from John Bright from Avondale Partners.

Paul, I am going to follow up on a couple of questions if I can. The first is that, you talked about the penetration in the Americas and Europe within subscription broadcasting, you didn’t mention Asia. Was that just an oversight or is it not going as well?

No, it's going fine. Our penetration in subscription broadcasting is as higher. It is highest in the U.S., followed by Europe and then Asia would be the lowest and that by the way is the order in which we entered the markets. So the U.S., we began many years ago, 16 years ago, about the time I started here, followed by Europe.

Paul, I was asking more about the accelerating growth. You are talking seeing greater growth in the Americas area. I think you said Europe and then you just didn’t say Asia because that is what I was asking about.

[indiscernible] by country, John. Because here in the Americas as we define it, you have Canada and the U.S. and then you have got Brazil, Argentina. So you are going to see differential growth rates even within the region and obviously in Latin America we are seeing pretty strong growth. That’s one of the regions where we are seeing a lot of activity, both in terms of customer wins, but importantly the market there is pretty vibrant right now. Similarly, in Europe, you have got some countries where it is not going as well and then some of the countries in Eastern Europe, I may have announced last quarter, a rough telecom in Russia. I mean these are areas that are experiencing some pretty vibrant activity. So, then again, the same is true in Asia, you have got a variety, it’s almost have to go through country-by-country to determine, not so much by region but by country to determine what the growth prospects are.

So, if we exclude the traditional sources of revenue, subscription, as well as in consumer remotes, if you help me categorize this into non-traditional type revenue efforts that you alluded to in your prepared remarks. Can you give me an order of magnitude what the size of those are and what the, I assume the growth rates is enormous, but generally what the size of those are?

Well, today, they are relatively small, because that market is just beginning to adopt this type of functionality for their products. So if you are talking specifically about the smart device market, it is quite small today.

I wasn’t talking about smart device necessarily but then go to smart device and try that. So smartphones, in my memory, this is one of the, I don’t remember you bringing it up and talking about it on a call, and if I walk through what you are telling is you are talking about the 3 of your existing customers that control a significant 45% of the TV shipped also control 40% of the smartphone market. So you feel like you have the relationships there. You feel like it is something where they are going to want to have within their smartphones the embedded capability to use this as remotes. Do I understand that as a go-to-market thought at the moment, correct me?

It is, for a couple of reasons, it’s relationships but it’s also again those companies’ level of interest in the TV market is probably pretty high because they are responsible for almost half of the TV shipped on the planet. So their interest in this type of application, this type of functionality, this type of feature that they may want to build into future tablet, and/or smartphone devices would obviously be pretty wrong because their brand is quite strong in the A/V market, T/V in particular and they also have a significant share of the smartphone market.

Should I think about in terms of near term, this remains an R&D effort with these existing customers, existing relationships, it is something that probably materializes next year, the year after that, something of that nature. Is that probably correct way to think about it?

Somewhat, although, I guess, don’t be surprised, I mean we are working on it right now. So you may see or hear announcements, I think I said in the coming months or years. Everything starts with a customer win, a unit win. It is not unlike TV. When you go into a TV account, they will typically have somewhere in the neighborhood of 70 skews. You win 5. Then through great effort and a great product you win another 5. This is the story of UEI. We started out in a lot of our markets with a very small market share and then through hard efforts, a great product, a great IP portfolio, serving the customer well, we went from 5% to 70%. So we think it’s a type of thing that is like that. Long winded way of saying, John, don’t just think of this as something that is going to happen 2 or 3 years from now. It is something that should begin happening more near term. The beginnings of it will happen near term.

A follow-up question to the macro environment. You reset some expectations last quarter. This quarter, you are reaffirming the expectations. Why is it that you feel confident now when the trends for TV, for instance, the news we see out of Sony today, or news we see out of I don’t know, there was another player, but 2 of the TV players, negative news and then subscriber trends, at least in mature markets are somewhat challenging. Why is that you feel so comfortable with your guidance to the remainder of the year?

Well, we don’t rely on any one specific product or one thing. When you are in the market with 35 different effects, when the current gets a little bit against you in one, you just got to paddle harder in another. So we are comfortable that we have enough new technologies, new things going on, new products we are about to ship. A lot of things are going on that go beyond some of the facts you mentioned there. And when you add it all up, we are confident that we will get to the guidance that Bryan put in front of you.

Finally, Logitech, on their conference call mentioned a legal settlement where they paid money to a "remote" company. Is that included and are you that company and is that included in this quarter's numbers?

We are currently in settlement negotiations with Logitech and we don’t about our customers generally speaking, we are factoring all probable outcomes in our guidance range which is why we typically have $0.20 EPS range for the full year. So we take everything into consideration.

[Operator Instructions] you have no further questions. I will turn it back to Mr. Arling.

Okay, thank you. I want to thank everybody for joining us today and for your continued interest in UEI. We look forward to speaking with you next quarter, of course. One announcement will be at the Deutsche Bank technology conference in Las Vegas, September 11-13. So we look forward to seeing you there if you can make it. We will talk to you next time. Thanks.

This concludes today's conference. You may now disconnect.