Universal Electronics Inc (UEIC) 2003 Q3 法說會逐字稿

Welcome to the Universal Electronics third quarter 2003 conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. To ask a question, please star, 1 on your touch-tone phone. If anyone has difficulty hearing the conference, press star, 0 for operator assistance.

As a reminder, this conference is being recorded today, October 28th, 2003.

I would now like to turn the conference over to Kristen Chapman. Please go ahead, madam.

Thank you, and good afternoon. Thank you for joining us for the Universal Electronics third quarter 2003 results conference call. By now, you have received a copy of the press release. If you have not, please contact 415-433-3777 and we will forward a copy to you. This call is being broadcast live over the Internet. A Web cast replay will be available at www.uei.com until Thursday, October 28, 2004 at 12:00 a.m. eastern time.

In addition a telephone replay of this call will be made available for 48 hours beginning approximately two hours after the conclusion of this call. To listen to the telephone replay in the United States, please call 800-642-1687. For international dialers, please call 706-645-9291, enter access code 317-6676. Also, any additional or up dated material, non-public information that might be discussed during this call will be provided on the company Website at www.uei.com shortly after the call will it will remain for 12 months. You may access that information by listening to the Web cast replay of this call. 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 forward-looking statements regarding future events and future performance of the company including benefits the company expects as a result of contracts with customers that have recently been announced, development and success of products and technologies, the continued convergence of the company's technology and the continued sales and operating income growth and strength of the company's financial position.

We wish to caution you that these statements are just projections and the actual events or results may differ materially. For further details on risks, we refer you to the press release I mentioned at the onset of this call and the documents that the company files from time to time with the SEC., including the annual report on Form 10-K filed for the year December 31, 2002 and the subsequently filed quarterly reports and Forms 10Q. These documents contain and identify various factors that could cause actual results to differ materially from those contained in our projections for forward-looking statements. We under take no obligation to revise or up dated any statements after the date on which such statements are made to reflect unanticipated events.

Now we turn the call over to Paul Arling, Chairman and CEO of Universal Electronics. Paul?

Good afternoon. Thank you for joining us today. With me today are Mark Belzowski, our Chief Financial Officer, and Robert Lilleness, our President and Chief Operating Officer. After I open the call, Mark will review the financial statements and guidance and Rob will provide an update on operations. Then I will conclude the prepared remarks and begin the question-and-answer session.

During the third quarter of 2003, we recorded sales of $30.3 million and earnings of .12 cents per diluted share. For the nine months ended September 30, 2003, we recorded sales of $84.9 million and earnings of .27 cent per diluted share.

We are pleased with this performance for a number of reasons. Most importantly these results prove that our implementation of our strategic plan is achieving UEI's goals to diversify and grow our revenue stream.

We have made strategic investments to fortify and expand in three areas, our customer base, our product line, and our intellectual property portfolio. During the quarter our revenue reflected broad-based growth.

Retail sales increased over 30% and our OEM sales increased over 45%, while cable sales trended upward in a very competitive environment. This quarter growth was driven by success in a number of product lines. Nevo, Kameleon, Atlas, Phoenix-and sky -- accessories and a number of different market leaders as well as our own brand in Europe, one-for-all.

The combination of these efforts diversified our revenue stream and improved results. Looking forward, we will levy our property foundation to win new customers. We will continue to employ these proven principles as we identify for uses for our technology in the connected home and expand the markets we serve. We will elaborate on each of these topics during the call.

Now Mark Belzowski our Chief Financial Officer, will review the results for the quarter and nine months ended September 30, 2003 and then provide for the quarter and full year, 2003 guidance.

Mark?

Thank you, Paul. Net sales for the third quarter of 2003 were $30.3 million, up 17% compared to $26 million for the same quarter last year. Now I will break down the revenue mix. For the third quarter 2003, technology revenue represented approximately 64% of total sales, or $19.3 million. And retail revenue represented approximately 36%, or $11 million. This compares to a revenue mix in last year's third quarter of 68% technology and 32% retail.

This quarter, retail revenue rose 31% compared to the same quarter last year, primarily due to increased Kameleon shipments in the US and retail channels, additional new products and accessory sales in Europe, and increased demand in other international retail markets.

Compared to the third quarter 2002 which included call center revenue of approximately $1.1 million, technology revenue increased 9.8%. Excluding call center revenue, technology revenue increased 17% compared to the same quarter last year. This increase represents growth in sales to OEM in Europe and the United States primarily driven by demand and subscription broadcasting.

Gross profit for the third quarter was $11.8 million, gross margin for Q3, 2003, was 39.1%, compared to 38.6% in Q3, 2002 and higher than our projection of 38% in our last quarterly call. This increase is primarily due to a more favorable product and customers mix in our retail and OEM lines combined with overall production and manufacturing and component costs. SG&A including research and development came in at $9.4 million for the quarter, compared to $8.2 million in the same quarter last year. This increase was attributable to the effect of a 15% increase in the strength of the euro against the U.S. dollar on our European expenses, higher delivery and freight costs from increased shipments and increased payroll costs and performance-based bonus accruals.

Importantly, operating income increased 33% from $1.8 million during the third quarter of 2002 to $2.4 million this quarter.

The effect active annual tax rate during the quarter remained unchanged from the first half of 2003 at 34%. This compared unfavorably to an effective tax rate of 6%, used in the third quarter of 2002. This lower tax rate in Q32002 was a blended rate resulting from a change in the estimated annually effective tax rate from 35% to 24% during that quarter, which I will explain later. Consequently, earnings per diluted share came in at 12 cent this quarter versus 13 cent in the 2002 third quarter.

For the first nine months of 2003, net sales were $84.9 million, up 15% from $74 million for the same period of 2002. Operating income increased 17% from $4.5 million for the first three quarters of 2002, to $5.3 million for the first three-quarter of 2003.

However, as noted above, the estimated annually effective tax rate remained at 34% for 2003 compared to 24% during the nine months ended September 30, 2002. The 24% annual effective tax rate for 2002 reflected the use of remaining prior year catch up research and development credits that were recorded in 2002.

As a result, net income for the nine months ended September 30, 2003 was $3.8 million or 27 cent per diluted share compared to $3.9 million or 27 cent per diluted share for the same period last year.

Our balance sheet continues to provide a very strong foundation for the company and it's broad-based growth.

During the quarter we generated net cash of $6.8 million and ended the quarter in cash and equivalents of $52.1 million. DSO's came in at 83 days at the end of Q3 2003, which is comparable to DSO at 83 days in last year's third quarter. And now for our guidance.

For the quarter ending December 31, 2003, we anticipate revenue will range between 32 and $34 million. Margins will be approximately 38% plus or minus. SG&A will be approximately $9.5 million plus or minus. And EPS will range from 14 cent to 17 cents per diluted share.

For the full year ending 2003, we project revenue will range between 117 million and $119 million, and EPS will range from 41 cents to 44 cents per diluted share.

Now I will turn the call over to Rob Lilleness, our President and Chief Operating Officer to discuss the operations of the company.

Thanks Mark, 2003 continues to be a period of growth for UEI. Our results are due in forth for investment in new technology and product development over the last two years, which has enabled UEI to enter new markets, expand our research in our current customer base and increase sales and profitability.

The strength of our new products is based on our core connectivity software, our portfolio patents and intellectual property and our investment in new technology addressing the emerging needs of the connected home.

During the third quarter, we added numerous function codes in the DVD, home theater, and high-definition television space. The database now contains over 160,000 codes representing 21% year-over-year growth enabling UEI to speak the language of virtually any device in living rooms around the world. As the home is changing, we are hard as work-developing novel means to control the power of wireless networking, I.P. addressable consumer products, digital media and of course infrared devices.

As the result, our strength in intellectual property has expanded. In fact we have practically doubled our portfolio in the past two years.

During the third quarter, we filed for four new patents and were should one patent bringing the total number of should and pending patents to 95. Our portfolio of patents and database of connectivity software are key to our success. In addition we have also worked to greatly reduce component and production prices to remain cost competitive and continue to take market share.

We should also note that supporting all of these efforts has been UEI's increase emphasis on marketing and media relations, to build awareness for UEI and increased demand for our products. Approximately two years ago, we changed the way we marketed UEI technology, and the results have been extraordinary.

During the third quarter, UEI products were covered in over 50 publications in Germany, Spain, England and America including time.com, Detroit Free Press, the Philadelphia Inquirer, (Inaudible), and maxim to name a few.

To give you an example of the coverage of - received TV Guide which has a circulation of $9 million readers recently reviewed 5 universal remotes and awarded Kameleon as the best device over a $130 RCA products and $200 Phillips Protoenea (ph). The Kameleon stating that setup was a breeze and the product was intuitive and fun to use with a cool blue screen and sleek design. In the U.S. alone, the publications that covered the UEI products reached tens of millions of readers, which would definitely help to drive awareness of our new products. In fact, new products contributed 20% to our top line year to date.

Regarding sales, I would like to give an overview of the industries that we served in the progress in each. In cable we continue to grow in what has been a difficult and changing market. Our sales force is more focused than ever to take market share and win customers during these difficult times. This quarter we started shifting the new Comcast for customer mode and we also added new customers at time Warner systems and a myriad of other independent systems.

Our Atlas remote designed specifically for scientific Atlanta systems and enhanced for digital video recording, has also been a key to our success in cable. Since the launch of Atlas last year we have shipped hundreds of thousands of units. In computing, Microsoft launched Windows XP media center edition in 2004 in September with much fanfare for bringing together the consumer electronics and the P C. Making that union of consumer electronics and the PC possible, however, UEI's connectivity software within XP media center edition.

MIVO also continues to bring UEI technology to the computing industry. Public figures estimate that HP has shipped over 1.5 million units including MIVO and we're hard at work building the next general of MIVO, which has the power to control digital media in the home. We expect the new software to ship around the middle of next year.

In retail, UEI's one for all product line has been an important factor in driving our growth this year and our product pipeline continues to deliver. On June 30, we launched the one for all Kameleon 8 for North America at Best Buy and we have increased our channel coverage to include Circuit City, Price Electronics,

The Good Guys, QVC, Tweeter and most recently added the Sharper Image and Wal-Mart. There's definitely a buzz about the product and we look forward to the impact of our press work that focused on getting Kameleon into the key gift guide publications for the holiday season. Expect to see some great coverage.

International retail has also been a big driver of UEI's growth. In the third quarter we attended the most important trade show for our European retail business. The international (inaudible). This is one of the largest consumer electronic trade shows in the world and it's held every two years in Berlin. At the show, we launched a broad set of one for all branded products including audiovisual senders, phone ex-wireless telephone line extenders, a new line of antennas, a new midline range of remotes and a new Kameleon.

The new line of products was designed to expand the footprint of the UEI products on the retailer shelves and also to reduce our overall cost of goods. We had great traffic in the booth, and opened a number of promising conversations.

Overall, in Q3, we continued down the path of a strong 2003. Though we continue to face challenging economic times, our commitment to fortify our product line in technology has enabled UEI to generate new revenue streams, increase unit volumes and diversify customer base. We have also worked hard to control expenses and utilize our unit volumes to reduce factoring and component costs. As a result, UEI is more competitive is financially stronger than ever before.

Now I would like to turn the call back over to Paul.

Thanks, Rob. As Mark and Rob discussed, we strongly believe our performance is the combination of all of our efforts to fill the product pipeline, step up our innovation to build our IP portfolio, and expand our markets served, while continuing to tightly manage our expenses. Our product line in technology has enabled UEI to generate new revenue streams, increase our unit volume and diversify our customer base and our press coverage proves our products are meeting customers needs and wants. We will continue to execute our strategy and build our two greatest assets. Our customer base and our technology.

And we will continue to diversify income via new market trends. Recently, we have been encouraged by the rapid rates of adoption of digital video recorders and Hi-Fi networking in the home. We have also seen the introduction of personal computers powered with home entertainment capabilities and consumer electronics with networking capabilities. It is clear the connected home is emerging and we're working to develop the technology and products to enable it and we're beginning to see the results of our efforts.

Year date 2003 our sales have grown 15% and operating income has grown 17%. Factoring in our fourth quarter projections, sales growth will be between 12% and 14% and operating income will grow between 15% and 25% for 2003. In summary, we believe the third quarter and year to date revenue growth proves the combination of consistent well-executed strategic plans to deliver growth.

Our technology investments are yielding strong product lines which combined with customer service are diversifying and growing the revenue stream. Going forward, defensively, we will continue to manage our expenses and offensively leveraging other expertise and intellectual property portfolio. As we approach the end of 2003, we are confident in our strategy.

Each day the connected home becomes a greater reef at. Our customers are becoming more aware of the end-consumers' desire to have a simplified environment and more and more companies are introducing products that interact with each other to bring consumers entertainment, information, and services in new ways. We believe our role will grow as we provide solutions for customers to interact in their home environment.

Thanks for joining us today. Operator, we're now ready for questions.

Ladies and gentlemen, if you wish to register for a question for today's question-and-answer session, you will need to press star then the number "1" on your telephone. You will hear a property to acknowledge your request. If your question has been answered and you wish to withdraw your polling request you may press star, 2. If you're using a speakerphone, please pick up your hand set before entering your request.

One moment please, for the first question.

Our first question comes from Ian Corydon of B. Riley & Company.

Thanks. In the text segment, what committed the growth this quarter came from new or recently acquired customers?. In other words how much growth came from new customers versus existing customers in the tech segment?

That's a tough one.

Just trying to get a sense for, you know, how much the recent customers

I would say it's in the 5-10% range.

5 to 10%?

Yes.

Overall technology growth was around 9%?

9%, correct.

OK. So, most of that is coming from new customers, then?

Or, you know, sales to existing customers, many customers starting to grow in some places again. So, it's a combination. I think, Ian, you know our business is fairly diverse and let's just take one area, which is cable.

In cable, with Atlas for example, we are having higher attach rates to scientific Atlanta boxes where we traditionally had the highest attachment to Motorola boxes. So if you look at cable, you probably see technology growth in that space because of that, and then we can walk through, you know, other examples. That's probably the most sail debt one where you see an expansion of our footprint in certain industry with certain customers. But we also continue to add new customers in the cable arena. So it's really difficult to give you an accurate number. We would have to do some additional work to really parse that out.

That included additional Kameleon sales over many of our markets, and, you know, we can say, though, in our OEM Europe area we have been have adding new customers of more significance. So that's where we feel we're trending in more significant customers.

OK. And on the retail side, you put up pretty strong growth against a tough comparison last year. Can we expect similar growth in the fourth quarter in retail?.

Yes, I think it should trend in the same range.

OK. And it seems like the margin guidance for Q4 is a little lower than maybe what we expected. Is that conservatives on your part or is there a reason you expected them to drop a little bit?

No, there are just a lot of factors that may affect the margins. And to the extent that we have to expedite more in the fourth quarter, we will have higher freight costs. To the extent that we continue to get some additional cost reductions, we have lower margins. The mix is going to be key in our retail area. So that's pretty much where we feel comfortable at this point.

All right. Thank you.

Your next question comes from Scot Ciccarelli of Harris Nesbit.

Hello, guys. A couple of questions. First of all, you had said, I believe, that the OEM business was up over 35%. Was that an inaccurate figure?.

Paul Arling Yes.

What drove that? Retail was Kameleon and then expansion on the international side but what was able to drive the growth on the OEM side, first of all? And part two of that, from kind of looking at the technology segment, you know, what part of that is -- is made up of cable at this point? Obviously the OEM business is growing lot faster. Where does that mix kind of lie at this point? Thanks.

You're talking about the growth in OEM first, right?

That's correct.

Yes, that is -- you know, we saw a lot more addition of new customers in our OEM Europe market. We have been working hard to add customers in other European countries such as Italy. We have always had a presence in the UK and in Israel.

And we have seen some growth in new customers in that area and that's where a lot of the growth came from this quarter. And in terms of cable, it's roughly -

It's 25-35% of our business now. That's sales direct to MSO's.

That's 25 to 35% total?

Correct. And the -- what's happening, Scot, as you can imagine, I mean, the retail has grown obviously very strongly and the OEM has grown strongly. Cable shown a slightly upward trend but growing slower than the other two and therefore it makes up a lower and lower percentage of our sales.

Understood. But following that you said you saw your first sequential uptick in -- I'm assuming it's a number of quarters. If you can tell us when was the last time we actually saw sequential growth? That would be interesting.

And as digital television starts to take hold here and we're seeing more and more of that gaining traction, at least on the retail end, you're starting to see the satellite companies stepping up, you know, DirectTV offering a package, cable companies seem to be becoming more aggressive on that. How do you play in that and when do you think that you should start to benefit? Thanks.

I think you're right. Those trends are beginning to emerge. In terms of cable, we're up sequentially slightly. We were up over last year slightly.

And, You know, embedded in the Q4 number is a slight sequential uptick again. But it's not really time for us to declare next year and how it will be up in Q's 1-4 of next year just yet. But we're seeing a few mildly encouraging signs.

So are you not seeing maybe the uptick that you thought you might on the cable side, given what is going on with digital television or is it in line -- just relative to expectations, somehow that playing out, and I will pass the torch here.

It's along with expectations.

Thanks a lot, guys.

Next question is from April Horace of Janco Partners.

A couple of quick questions. Number one, the 20% new products, does that -- can you tell me which products those include again?

Sure, it's really products that we have shipped in the last two years. So you would include Kameleon, Atlas, NEVO, and you can start to add our skyline of digital accessories that are entering the market. Those products really are making up.

Do you have any 10% customers this quarter?

Comcast again.

Anybody else close?.

Not really.

And then you said that you're expanding the NEVO to control digital media. Can you expand on what that means from a device standpoint?

Sure. What we're looking at is all of the different fat pipes into the home, whether they come from cable or the Telephone Company, et cetera. And what people are doing is not only ripping their own media, whether it be music files or even in certain cases DVDs, and downloading music, but they may buy off the apple store and they're storing that on their PC.

What our R&D guys are working on is how from a device, can you not only have a unified interface for all of the different devices that you have in the home but also a unified interface for all of the digital media, like a list of songs that you may have on your computer but you want to play them on your Kenwood stereo system. We're busy at work trying to make that easy for the consumer in a graphical user interface, otherwise known as NEVO.

So this is a way to connect your PC favorite songs to your Kenwood stereo receiver?

Absolutely. If you look at where we've played traditionally, Universal Electronics has really gone out and spoken the different language that each device speaks. 95 to 99% of the devices in the home speak infrared today. But they're increasingly becoming IP-addressable or Internet protocol addressable and what we're doing is embracing radio frequency, whether it be 80211BAG, 433-megahertz, 900 megahertz 2.4 gigahertz, radio frequency Blue tooth, making sure we continue our tradition of speaking whatever language is spoken in the home, to deliver that universal, unified interface to the consumer. In the case of NEVO, we're doing that in a rich graphical environment. Which makes sense, considering it would be hard to do that in a traditional buttoned remote.

OK. And then -

What we're beginning to see, April is a simple consumer need. Because as these devices come out, you see quite a few consumer electronics devices that will have a USB or an ether net input of some sort that will allow it to become IP connectable and you're seeing computing products capable of storing digital media and some of which can broadcast it via Internet or Wi Fi. When the consumer wants to connect those two devices, it's great. They can now access their thousand music files from the PC. The only problem is they may not want to get up and go to the den, go to the mouse pad to skip a track. They are going to want to render a control of that entertainment experience through their hand-held through a we Phi connected or other wireless connected hand-held. That's what we do. That's the link we create.

OK. Last question: What is the price point at Kameleon that is going to be offered at best buy and all of these places in?

At best buy and Circuit City they're selling right around $99. It's sub 100.

And if you remember last year -- and it was a tough economic year last year -- you guys to spiff the Radio Shacks of the world. Are you seeing that same trend again this year or do you think you won't have to do that?

No, no spiffs.

No spiffs in.

No.

And then when is the availability in Wal-Mart?

Yes.

It's just starting to roll out of Wal-Mart, what is considered the higher end Wal-Mart stores. We're in about 80 stores today. It's a higher price for our Wal-Mart stores, so they're really testing that in the higher end stores.

Yes, but it's a foot in the door.

Yes.

Thanks.

Next question is from Jason Sam of Seidler.

Hello, guys. A couple of questions. First, one clarification. I think Mark commented on the retail growth trend for Q4 and he said that it's similar, a similar type of growth to that of Q3, about 30%.

Yes, it's subject to a wide range. But 25%-35%. Somewhere around that.

OK. And in terms of the retail segment, can you give me an idea in terms of the split between international retail and domestic retail, which is sort of private label, right?

Actually, that is more our -- you're talking about retail for the quart?

Yes.

Yes, that is more our direct import product line. It's our selling of Kameleons into the retail channel in the U.S. So that's probably about 20% and the rest is international retail.

So import is about 20%?

Correct.

OK. Now, Paul, you mentioned that cable sales were up slightly on a sequential basis. Are OEM sales down on a sequential basis?

No.

And can you talk a little bit about why then on a sequential basis technology sales are down slightly?

Do you mean Q2?

Yes:

Let's see. I think that is mainly because of the timing of some of our -- for instance, private label was lower in this quarter versus last quarter. That's probably a good chunk of the decrease.

OK. And the reason private libel was lower was what, timing issues?

Yes. It's pretty unpredictable in terms of the timing. They do typically have a bigger second quarter. And then third quarter we have seen both. We have seen slightly lower quarters and higher quarters in the past but this one was a little bit lower.

OK. And most of the private label sales go into what sector?

Retail.

Retail?

Yes.

Domestic retail, right?

Correct. We have always included that our technology line. We have not reclassified that.

OK, great. On NEVO, Rob, can you give us an idea in terms of how many platforms you have been designing to?

We're on a number of platforms right now with HP in terms of devices. In terms of platforms in terms of technology platforms, we're on the pocket PC, or Windows mobile platform. We also have a beta version for palm. But the way we have architected NEVO, we could be easily ported to Linux or a proprietary OS if we see fit in the future.

The so the beta version of palm is a palm OEM type or you just doing as third party -- add on?

It's a palm OEM thing, but it could be a third party add on etc.

Did you have an agreement with palm or something?

No. We just developed to their OS.

OK. And did you have an OEM relationship in that arena or you just basically built the technology?

We're talking to anyone that has a display device that enters the home as a potential licensee of NEVO.

Great. Thank you.

Once again, ladies and gentlemen, as a reminder, to register for a question, please star, 1 on your telephone.

Next question comes from Michael Kim of Roth Capital Partners.

Good afternoon gentlemen. Out of the 20% revenues that you mentioned came from new products could you break that down in terms of contribution from, say, like Kameleon or Atlas or provide a little more color on how that shapes up?

Michael, we typically haven't gone into that level of detail.

Maybe just a flavor? Was it mostly Kameleon or the majority of it Kameleon then?

A good portion of it was Kameleon..

OK. And can you give a little -- go a little into your product road map? You talked about Kameleon, but any other directions that you plan to take your product?

Sure, we can. But it's a very competitive market out there. So until we launch, we really don't go into much detail on a product that we're coming up within. So for competitive reasons, it's probably best not to comment.

Would you characterize mostly sort of evolutionary improvements to existing products or all new products or maybe a 50/50 mix of that?

Well, I think it depends on the space. If you look at what we do today, we really have three platforms of products. The first is a traditional remote control or button remote control. Those are more than likely going to be evolutionary, taking advantage of digital video recording, for example, or perhaps a cable company wants to add a button to tune into high definition television line up of channels.

The next platform is really Kameleon; which is a touch screen device that is in the sub 100-dollar level. And that also has some evolutionary components. Some of the things we're working on is really quite revolutionary in terms of ease of use and ease of functionality and knowing which function you're in and the components that you can have access to.

And then finally, our third platform is NEVO, which is our Graphical User Interface for the home, and that really, we tried to give you a flavor for where we're going and that base is really revolutionary for UEI as a company but also for the living rooms of America, Japan and Europe in terms of being able to connect to digital media, move that around the home and be able to control content as well as devices. I hope that gives you a bit of the flavor for the three platforms and the evolutionary or revolutionary nature of each.

Definitely that's helpful. Then just turning to Comcast, obviously you guys have been awarded this-- one of two vendors for the standard remotes. Can you talk about how that should carry out of the next few quarters? More of a steady role out or should we expect the acceleration within a couple of quarters or what cause should we think about that going forward?

Well, I think it's -- we shouldn't expect really anything different than has already occurred in Q3. We have started the program already and embedded in our Q4 forecast is what we expect from them in Q4. So, you know, it should just what you will see in Q's three and four.

OK, then more of a steady roll out rather than kind of an accelerated pace?

Well, in cable, not speak particularly about Comcast but in cable, you will occasionally see surges of demand. But again in our plan, we don't --for Comcast expect a 3X quarter and then a 1X quarter. It could happen but that's not what we're expecting.

OK. And then could you talk a little about the sort of the competitive environment right now in the U.S, description broadcasting market and whom you're bumping into out there on a regular basis, and then the tone for the business overall in terms of CAPEX at the NSL and so forth.

Sure. It remains very competitive. I think over the past few years, UEI has increasingly taken market share and we have used that market share to turn around to our component suppliers and factories, and request cost reductions.

And with increased share, we get increased cost reductions. And we believe we have one of the most cost competitive products on the market. If you add to that the value that we bring in terms of the database and the intellectual property that most cable companies license from us, we're in a very competitive position. Even with that, though, we still face price competition from smaller companies that may be competing on price and not necessarily functionality of what the cable company wants. But in general, when we walk through that with the cable company, they have traditionally selected our value-added products.

Great. Thanks very much.

Thanks.

Your next question is from Ian Corydon of B. Riley & Company.

What was international sales growth for the quarter and what was the currency impact?.

Sales growth for international was about, let's see, about 20%. And the effect on currency was about 650,000.

To add a little color to that, we have really invested in our team in Germany in terms of putting a new person in place, and we have seen substantial growth in Germany. We have also put greater emphasis on Australia and have done very well there. In addition to just overall growth in our international markets.

OK. And then, mark, if you have D.N.A. for the quarter?

Yes, D.N.A. was about 770,000 for the quarter.

Thanks.

Next question is from Bion Stephen of H.G. Wellington.

Further to the competitive pricing situation, is it -- I find it hard to relate it to the higher quality, more features, etc., that your new products have and yet you are presumably continually faced with competition from the cheap-and-dirties, and I don't I don't quite understand how that fits.

Paul Arling Well, it really varies by market. I think on the retail side, the ASP's in the overall retail market have been lifted. And recently with the effect of Kameleon. I think on a well-featured product, an extremely well featured product with innovative technology, it can drive your ASP's up.

Now, on the other side, you've got people who want to implement millions of households, millions of boxes, and sometimes they will try to make tradeoff on database and make tradeoffs on features and in those cases we have to make a decision, do we want to retain the business?

I think because we have become more and more cost competitive across the last number of years, on a continual basis, we're able to compete at those levels, make a respectable margin, not as much as we would make on a higher end product but a respectable margin to make it a profitable enterprise for us. But -- again, as the average selling price drops, how much a customer is willing to pay for those extra features comes into question. So it does vary by market.

On the higher end, we don't really have as much price pressure. There's some. There's always some but less. On the lower end you have quite a bit of pricing pressure.

Thank you.

Next question is from Jason Sam of Siedler.

Hey, guys, just a few follow-ups. Rob, I'm sorry, I missed the total patent number.

It's 95, issued and pending.

Great. Number of total customers and head counts for the -- head counts for the quarter, employee head counts.

Head count 60.

How about customers?

Customers, we have 3,000-plus in our retail business.

Jason, if you look at it, we estimate maybe 200 million people touch our technology in some form or fashion every thing if you really want to count of customers that we hit.

Any significant OEM adds for the quarter?

I would say in the OEM Europe business we did have -- we have one that I can think of, but I can't really tell you who that is.

OK. And the top 10, what percentage of revenues do they represent?.

About 65%.

OK, and off the top 10, how many are in the MSO's?.

That includes about four of the MSO's.

Great. A question, Paul. On the cable business, you know, it's been, you know, fairly flat for the past few quarters. Any word on, you know, any kind of near (Inaudible) company specific or industry specific that, you know, you could talk about?.

Well, actually, I mean, the only guidance that we provided is for Q4, and we're confident in that. The catalyst would be on a system by system or a company-by-company basis. And to the extent they begin rolling out boxes, H.D. boxes, D.V.R. boxes, which is being talked about, and in some cases done, we have developed products to go along with those boxes.

So to the extent you begin to see from the MSO's, the rollout of those boxes, you know, that would give us a -- whenever the boxes start rolling out, that gives us additional selling opportunities and we grow with that. But you will have to ask them. We don't -- we don't really want to disclose the MSO's plans in terms of their roll out of boxes. We let them do that.

Now, in terms of threshold, I mean, most of them are at what, about the 40% area? And, you know, in terms of incremental growth; there any kind of underlying trend aside from the P.D.R. functionality type of things that we could potentially see, just like when digital boxes first came on you had that incredible growth period. Is anything on the horizon that we could look at that could potentially be something like that?

Well again, the only thing I will say there is I will look to our customers' base to speak to that and also MOT, SFA. And just what we have recently heard there and these are taken from their words at our conference called. MOT said they felt the market had bottomed out and they felt they would see near-term upside. I don't know if they quantified that so you will have to look to their comments and our reports.

SFA, some of the analysts like feel in them feel that there will be an uptick during this fiscal year, 2004, which they're in the midst of, for their boxes as well. So I think there are many who are predicting it. And, you know, we again, we're taking more of a wait-and-see attitude and we feel good about what is happening. It's up slightly sequentially but before we get too excited over it we want to see how it unrolls over the next 3-quarters.

OK. And in terms of market share for the digital market, has it changed any?

You mean in terms of our share?

Yes.

Yes, we feel that it's picked up slightly over the last year and a half.

So you guys are greater than 70 percent now?

Yes. We're probably greater than if you include our technology inside of other people's products, because we understand, we also, as you know, sell chips to other vendors. So if you include those products where our technology is inside as well as that which we sell direct to the MSO, yes, we believe our share has increased.

Great. And final question a on the component side, with e square lead-time is extending out; you don't have any issues with getting components in.

No

OK.

Our next question is from Myrick Debonator (ph) of Systematic Financial.

Hello guys, how are you doing?

Good.

What are you guys' plans for the $50 million of cash on the balance sheet? Doesn't look like you're buying back any stock?

Yes, Mike, we have, again, three areas that we look at. One is MNA. I can't speak a lot about that but we will be investigating that arena. The stock buy back is another, as you mentioned. I guess the only thing I will say on that is, I guess the fact that we haven't bought any does not necessarily say that we won't. It just so happens that in the last quarter, we didn't.

And the last would be, again, the consideration of a dividend. This is an ongoing discussion that we have both as a management team and at the board. So to the extent the cash balance continues to build, we want to find the most efficient way to return it to the shareholders. And we will find the most efficient way. But as you can imagine, that can be a fairly complex issue when you weigh-in MNA versus stock buy back versus stock buy back versus dividend in the cash back

Thanks, guys. Good job.

Yes, there are no further questions at this time. Please proceed with your presentation or any closing remarks.

OK, I want to thank everyone for participating today. We're available to answer any further questions if you have them. And we look forward to seeing many of you during our Investor Relations travels or at the Seidler's company's tech conference, which will be out on November 6 in Newport Beach. If you happen to be in Southern California the next few months, call ahead to arrange a meeting with us at headquarters. Thanks very much for participating.

That concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.