Good afternoon. My name is Therese, and I will be your conference operator today. Now I would like to welcome everyone to Universal Electronics Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn today's conference call over to Richard Land of Alliance Advisors Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us for the Universal Electronics Third Quarter 2025 Financial Results Conference Call. This afternoon, UEI issued a press release for the third quarter ended September 30, 2025. If you do not already have a copy of this press release, it can be found in the Investor Relations section of the company's website. This call is being broadcast live over the Internet. A webcast replay of this call, including any additional updated material or nonpublic information that might be discussed during this call, will be available on the company's website at www.uei.com for 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 can be found in the press release issued today and on the website. The company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today's date, and we refer you to the press release mentioned at the onset 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. The financial remarks will reference adjusted non-GAAP metrics. 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 provide context for the operating performance. 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 Chief Operating Officer and Interim Chief Executive Officer, Rick Carnifax; and Interim Chief Financial Officer, Raymond Ho. Rick will provide an overview of our business, and Raymond will deliver the detailed financial results. Rick will then open the call for questions. With that, it's my pleasure to introduce Rick Carnifax. Please go ahead, Rick.

Thank you, Richard, and thank you all for joining us. We remain committed to advancing our control and sensing technologies while directing investment toward areas that drive profitable growth. As part of our channel diversification strategy, we are expanding beyond core HVAC OEM offerings, entering adjacent markets such as utilities and multi-dwelling unit property management while also increasing our presence in the security channel. At the same time, we continue to refine our operating model to nurture long-term growth in the connected home channel and focus our home entertainment R&D on projects that offer strong returns. Innovation remains central to our strategy as we gain traction with new technologies and markets. In Q3 2025, due to rightsizing and cost controls, we delivered solid margin performance and strong cash generation while facing revenue headwinds. Revenue was $90.6 million, slightly below expectations due to temporary and structural market factors. In connected home, revenue grew 13%, broadly in line with our expectations. However, we encountered market softness reflected in customer inventories, limiting purchases as product works its way through the channel. In home entertainment, structural challenges in Latin America and Europe persisted, while lower-than-expected television sales impacted our Asian customer volumes. As outlined in our last call, in Q4 2025, we expect our quarterly revenue to decline year-over-year and expect to deliver full year growth in connected home compared to 2024. Gross margin was 29.1% and EPS was within our guidance range at $0.08. Our net cash position increased significantly this quarter by $9.1 million, reflecting disciplined execution in a challenging environment. To counter headwinds and enhance agility, we continue executing actions on cost in Q3. We began the closure of our Mexico facility, which remains on schedule. We achieved target milestones at our Vietnam facility and production transfer is progressing as planned.…

Thank you, Rick. I will review the third quarter of 2025 compared to the third quarter of 2024. Net sales were $90.6 million, down 11% from $102.1 million in the prior year period. Our connected home channel grew 13% to $29.8 million. This was driven by the strong performance from new products launched earlier this year, particularly within climate control and continued scale expansion with existing customers. Sales in home entertainment declined 20% to $60.8 million. This reflects soft demand for subscription broadcasting products in Latin America and EMEA, particularly basic remote controls at lower price points and limited advanced features. Broader industry weakness in consumer electronics, including fewer television sales among our customers also contribute to lower remote control volumes. The retail channel performance softened as well due to elevated inventories and slower sell-through. Gross profit was $26.3 million or 29.1% of sales compared to 30.1% in the prior year period. We benefited from procurement savings and favorable currency rates across Asia and EMEA. However, we experienced a temporary gross margin headwind related to tariff timing that will continue in Q4 and be resolved in 2026. In Q3, this impact reduced gross margin by approximately 120 basis points. Excluding this effect, Q3 gross margin would have exceeded our 30% target. Operating expenses decreased to $24.8 million from $28.2 million in the prior year period, reflecting ongoing benefits of cost reduction initiatives, including headcount optimization and lower fixed or discretionary spending. SG&A was $18.2 million versus $21.1 million in the prior year period. R&D was $6.6 million compared to $7.1 million in the prior year period. Operating income reduced to $1.6 million from $2.6 million in the prior year period. Net income was $1.1 million or $0.08 per diluted share compared to $1.4 million or $0.10 per diluted share last…

Thanks, Raymond. In summary, we are focusing investments on markets and technologies where we see both near-term and long-term potential while managing through unpredictability and headwinds with operational discipline. While we continue to focus on materially improving profitability and balance sheet, we are diversifying our target markets to create value for customers, creating additional growth opportunities for our solutions and delivering positive return for our stockholders. Looking forward, we are excited by the opportunities in our adjacent markets, driven by innovative technologies, new products and expanding partnerships. With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from Steven Frankel with Rosenblatt Securities.

Let me start with maybe a question that's more appropriate for the Chairman. But since he's not here, maybe you can give us some insight. You have an acting CEO and acting CFO. Kind of where are we in the search or the decision process around getting permanent people in those slots?

Sure. Relative to the leadership positions, as I'm in the interim CEO role, and I've been in this role, I'm acting with confidence of the Board to navigate us through this process, and I will keep you updated if there's any changes to that at this time. Relative to the interim CFO position with Raymond, we are conducting an ongoing search and interviewing at this time.

Okay. Now let's pivot to the business. I think the big surprise is a significant downturn in connected home, which was -- that was the path forward for the company. Maybe give us a little more insight into the dynamics of what happened in Q3 and how that affected the Q4 shipments and when you would anticipate that business to return to year-over-year growth?

Yes. I mean relative to connected home, I think the key is, unfortunately, we've talked about is that there is some unevenness in that order patterns as product works its way through the channel. As was highlighted in the call, while we look forward to Q4 and do see a decline. We see full year growth versus 2024, forecasting between 12% and 16%. So while the quarter-to-quarter fluctuations remain, we still see full year momentum there. Now relative to the broad question about addressing this unevenness, the key thing we're working on here is looking for different channels to market, right? So as we have partnered with OEMs, we have also now launched a standard product, our TIDE Touch platform that allows us a white labeling opportunity with these adjacent channels, which we highlighted utilities and MDUs. So the core for us is to take the standard product and one, increase presence within those channels and build on those opportunities as well as continue to explore additional avenues for that product.

All right, but that's a multi-quarter, if not kind of years long process to get meaningful revenue from that channel? Or has enough work been done that, that's something you could get material revenue from in 2026?

Yes, it's a good question. I think the key reason we want to highlight it on this call is we've talked about development of this platform for some time. And as we've partnered with lead customers and began shipping product, I thought it was an appropriate time to start that discussion. And the goal is to ramp next year. Now obviously, this does not happen immediately, we have to build momentum with these customers with the solution. But the absolute goal is to provide a smoothening out of what we've seen on the OEM channel is something more consistent with the TIDE Touch platform. So it will take some time to build, but it's exciting that we've got a couple of channels with lead customers we're working through product with.

Okay. And then a couple of things for Raymond. First of all, if my memory is accurate, last quarter, you kind of said that tariffs weren't really a big deal because you were shipping so much product away from the U.S. So I'm surprised to hear you say that it was 100 basis points or so impact in Q3. And then when I look at the guidance you gave and maybe it's just trying to model on the slide here in the call, I have a hard time getting to kind of the middle of your EPS range if you're going to have gross margins that are similar to Q4 -- I'm sorry, Q3 and Q4. So maybe help me understand what else is changing that you didn't guide to? How material is the expense reductions, for example, on a sequential basis? And what are you assuming for a tax rate in your guidance?

I can speak a little bit, Steve, on the tariff situation. As we've talked about in the last couple of calls, our goal is obviously to mitigate tariff impacts where possible through a combination of negotiations with key customers as well as transition of production locations where required. We wanted to highlight the risk go forward because the timing of the tariff negotiations with the key customers and the transition of production locations is ongoing. So we've mentioned before, we have a partner that we've stood up, a contract manufacturer in Mexico that we're working with. And as we work through these timing issues and transfer product, there's just still risks that remain. Relative to the question around the EPS, we continue to highlight the operational cost controls we put in place and the rightsizing efforts. And we expect that to be a material benefit to the EPS as we look forward.

But specifically in Q4, what's your assumption on OpEx? Are they materially lower than Q3?

Yes, Steve, actually, yes, as Rick said, our efforts on optimizing headcount organization is always in progress. And then we expect Q4 -- yes, basically, we are still on track with that. So on the OpEx side, we expect Q4 to be much lower than Q3 as well. We are looking at not only the organization, but also all the fixed cost, discretionary spending, travel. So we are on track on continue to rightsize the organization.

Sorry, one more, Raymond. Customer concentration in the quarter?

Okay. We had 2 10% customers in the quarter. Daikin was at 20.5% and Comcast at 14.9%.

This does conclude our question-and-answer session. So I would now like to turn it back to Mr. Carnifax for closing remarks.

Sure. Yes. Thank, everyone, for their continued support of Universal Electronics. I'd like to note that you should come visit us and see demonstrations of our technology at CES January 6 through 9. Have a great day.

This concludes our call. You may now disconnect.