COVID-19 Safety Fears Disrupting Installations, Says Universal Electronics CEO

COVID-19 “continues to impact near-term demand” in Universal Electronics Inc.'s traditional home entertainment and security businesses, said CEO Paul Arling on a Q2 call. UEI's MVPD and security customers’ “ability or willingness to install hardware in consumers' homes” for new service or upgrades “has been disrupted for the time being," he said Thursday.

Arling said a recent falloff in MPVD activations was driven by “operator policies that restrict new installations due to the risk of COVID-19 to their installers, while in other cases, consumers are reluctant to allow installers in their homes.” Declines in MVPD subscriber counts have been due to “a decrease in professional installations and hence new activations.” Lack of live sports also contributed to a decline in new connections, he said.

Arling sought to distance the company from associations that its core business is focused on traditional MVPD models: “Today, entertainment content is no longer found exclusively at the end of a coax cable,” he said, referencing on-demand libraries, video streaming apps, live TV streaming and linear TV streams. Big-screen TV still dominates consumers’ viewing time, Arling said, whether content is served by a set-top box, streaming stick or smart TV. “Lines defining content sources have blurred," he said: MVPDs added OTT services; OTT services added linear TV, creating “new projects” for UEI with new and existing customers. Comcast generated 19.3% of Q2 revenue.

Expanding content created a need for search tools that make it easy for consumers to find what they want to watch. “Leading companies” have used UEI’s IP-enabled voice-driven systems “with great success,” Arling said. The company’s business is being driven “by this upgrade cycle rather than the much more closely reported and followed subscriber numbers,” he said.

Arling highlighted the QuickSet feature enabled in its advanced platforms that offers self-installation capability, lowering MPVDs’ costs. Over time, QuickSet-enabled systems will replace traditional platforms, “thus eliminating the need for professional installation.”

A “leading telecommunication service provider” signed on to be UEI’s first customer for Nevo Butler, the company's voice-enabled smart home platform; details will be shared later, said Arling. The company is also in talks with brands in the professional security and hospitality markets for the managed smart home platform.

Revenue “continues to be challenged by headwinds related to customers relying on truck rolls for new installs,” Colliers analyst Steven Frankel wrote investors Friday. Frankel sees UEI’s shift to advanced voice remotes and software licensing as higher margin opportunities, but growth “is likely to remain challenging in the next several quarters.”

Chief Financial Officer Bryan Hackworth said the company’s restructuring efforts allowed it to reallocate expenses to R&D “including investments in technologies that can be embedded in a number of devices, sold in various form factors, and distributed through multiple channels.” Q2 revenue was $153.1 million vs. $193.9 million in the year-ago quarter. The company’s Q3 guidance is for revenue of $150 million-$160 million vs. $200.7 million in Q3 2019. The stock closed 5.9% lower Friday at $44.28.