Universal Electronics Inc (UEIC) 2005 Q3 法說會逐字稿

Welcome to the Universal Electronics Third Quarter 2005 Earnings Conference Call. (Operator Instructions). I would now like to turn the conference over to Ms. Kirsten Chapman. Please go ahead, ma'am.

Thank you, Derek, and good afternoon, everyone. Thank you for joining us for the Universal Electronics third quarter 2005 earnings conference call. By now, you should have received a copy of the press release. If you have not, please contact Lippert Heilshorn & Associates at 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 November 2, 2006. 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. The US number is 800-642-1687 and the international number is 706-645-9291. Enter access code 1441176.

Also any additional updated material non-public information that might be discussed during this call will be provided on the Company's Web site at www.UEI.com shortly after the call where it will be retained for at least 12 months. And you may access that information by listening to the Web cast replay of this call.

After 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 future financial performance of the Company, including benefits the Company expects, as a result of the development and success of products and technologies including the Company's Nevo(SL) products, and recently announced new contracts with existing customers and new market penetration; the continued convergence of the Company's technology; and the continued sales and operating growth, including subscription broadcasting cable and satellite markets and the strength of the Company's financial position.

Management wishes to caution you that these statements are just projections and actual events or materials -- or results may differ materially. For further detail on risk, management refers you to the press release mentioned at the onset of this call and the documents the Company files from time to time with the SEC, including the annual report Form 10-K for the year ended December 31, 2004 and the quarterly reports Form 10-Q filed since that time. These documents contain and identify various factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

On the call today are Paul Arling, Chief Executive Officer and Chairman, and Rob Lilleness, President and Chief Operating Officer. Now I'll turn the call over to Paul Arling. Paul?

Thank you, Kirsten. Good afternoon and thank you all for joining the call today. I will start with a brief summary of the quarter and then provide a review of the financials, after which Rob will provide an operating activity update. Then I will conclude the prepared remarks and begin a question and answer session.

2005 is shaping up as another successful year for UEI, as our financial results are again strong showing a 15% growth in sales and 44% growth in net income over the third quarter of 2004. We have focused our Company on developing the products and technologies that will simplify an evermore complex home environment. Our results to date have proven our ability to grow dramatically and become the leader in wireless control.

Over the past three years, we have recorded compound annual sales growth of approximately 20% and compound annual earnings growth of approximately 25%. In addition, the opportunity to increase our reach into new markets is very exciting and opening up like never before into three main areas, each of which I'd like to now review their size and scope.

In our core Universal remote control business, we have succeeded on the basis of developing industry best connectivity software, eve of these features, and most importantly, building strong long-term relationships with the leaders in the subscription broadcasting and OEM markets. During conference calls, we have spoken to you about and dedicated ourselves to building a stronger market share in these markets to position ourselves for the inevitable growth of new services such as HDTV and DVR and the new devices that power them. Our growth in this area has and will continue to be the result of our dedication to building the world's best audio/video control solutions and aligning ourselves with the leaders in this market.

Our retail business has grown successfully on the strength of new products and our expanding distribution network, particularly in Europe. New remote products such as Kameleon as well as non-remote products such as our industry leading antenna line have helped us build a strong presence. Nevertheless, we currently hold just 2% of this 4 billion-plus global market for consumer electronic accessories, a market that is growing at an estimated 10% annually. We strongly believe that the position we have build here can be leveraged to gain a larger share of this growing global market.

In the digital home arena, the market growth potential is enormous. With subscription broadcasting, consumer electronics, computing and even cell phone companies joining in the race to build the digital home of the future, there is a tremendous opportunity for us to leverage our vast technology portfolio and build new solutions that redefine wireless control within the home. As we have said previously, the era of digital media is upon us. Consumers are searching for better solutions to connect and control entertainment media across their homes.

Looking forward, however, we are targeting three markets -- automobiles, cell phones, and home networking. There are more than 60 million automobiles sold each year with a growing percentage of them containing advanced entertainment systems. We are working with the leading global tier one suppliers in automotive industry on designing solutions to link the automobile to the digital entertainment network within the home and on imbedding our digital media stack within the car. Testament to our progress, we recently signed a development agreement with Delphi, a world leader in mobile electronics and transportation components and systems technology to develop products that enable control of digital media with devices in the home and in the automobile.

There were 650 million cell phones sold last year with predictions of nearly 1 billion being sold annually by the year 2010. It is also estimated that 80% of those cell phones will have digital media capability by that time. We are currently in discussions with the world's leading cell phone manufacturers to examine how they can use UEI technology to bridge the link between two digital media devices, the PC and the cell phone. And we feel this will be another important node in the connected home. We will speak more on this in upcoming quarters.

Regarding home networking, as BusinessWeek recently pointed out, the digitization of devices and the growth of personal Wi-Fi networks is proving fertile ground for a new generation of products. The mission of our Nevo platform is to deliver the ultimate handheld for the networked home. We're out to build a network controller capable of managing all your devices and all of your digital content as well.

So how big is this market? There are 25 million networked homes in the US today. By 2010 this number is expected to rise to 47 million. Households are just starting to buy network controllers like Nevo(SL). While prices for these devices are relatively high now, as prices fall home networking becomes more prevalent, Wi-Fi networks become simpler to install and the inevitable expansion of digital media continues more consumers will buy a network controller.

In the United States alone, if just 5% of households have a networked controller by 2010, and we assume retail prices are approximately $400, this market represents a $1 billion market in the US alone. As the US typically accounts for 25% to 33% of global demand, this projects to a $3 to $4 billion market by that time. Obviously, we believe that the opportunities to expand our presence in these markets are immense and UEI will lead the way in redefining wireless control within the home.

Now, I'll review our financials for the quarter. Net sales for the third quarter of 2005 was 46.2 million, up 15% compared to $40 million for the same quarter last year. The largest increases were key subscription broadcasting customers and the result of our launch of Nevo(SL).

Business category revenue was 31.3 million, representing 68% of the total revenue. Our consumer category revenue was 14.9 million, representing 32% of the total revenue. The third quarter 2004 mix was similar to this year's mix with 67% business category revenue and 33% consumer category.

Gross profit for third quarter was 17 million or 36.8% of sales, slightly below our guidance of 38%, plus or minus one point, and lower than the third quarter of 2004 gross profit of 39.4%. The third quarter margin reflects the shift towards the Company's highest volume customers. Operating expenses were 13.3 million for the third quarter of 2005, favorable to our guidance of 13.8 million to 14.2 million, compared to 12.5 million for the third quarter of 2004. This reduction relative to guidance is the result of lower compensation and other expenses.

Research and development expense was $1.8 million, the same as last year. Other income was 169,000 compared to a 289,000 pre-tax loss in the third quarter of 2004. The loss last year included a write-down of an investment in a private company for $364,000. Income before taxes was 3.8 million, up from 3 million last year. Net income was 2.8 million or $0.20 per diluted share in line with guidance, compared to 1.9 million or $0.14 per diluted share in the third quarter of 2004.

The effective tax rate was approximately 27.7% compared to our guidance of 37%. The decrease in effective tax rate was due to R&D tax credits the Company was eligible for related to R&D activities. The eligibility of these credits came to our attention as a result of the tax study that was completed during the third quarter. For the first nine months of 2005 net sales were 132 million, up 24% from the 106.7 million for the same period of 2004.

GAAP net income for the nine months ended September 30, 2005 was 6.2 million or $0.44 per diluted share. This compares to 5.4 million or $0.39 per diluted share for the same period last year. Pro forma net income was 7.6 million and $0.54 per diluted share. As a reminder, pro forma excludes the effect of a onetime write-down of the amount due from a former distributor taken in the second quarter of 2005. A table reconciling the difference between GAAP and pro forma net income is included in our third quarter results press release which is available on our Web site.

Turning to our balance sheet review, we ended the quarter with cash and cash equivalents of 42.3 million, reflecting cash generation of 3.8 million during the quarter. DSOs were 72 days at September 30, 2005, up from 68 days at September 30, 2004. Net inventory turns were 5.0 turns at September 30, 2005, up from 3.7 turns at September 30, 2004.

And now for our guidance. For the fourth quarter of 2005, we expect revenue to range between 50 and 53 million. We expect business category sales to range from 31 to 34 million and consumer category sales to range from 17 to 20 million. For the quarter ending December 31, 2005, we anticipate margins will be approximately 38% of sales, plus or minus one point. Operating expenses are expected to be between 13.4 and 13.9 million. The tax rate is expected to be 34%. EPS is expected to range from $0.28 to $0.32 per diluted share, which would be a 7% to 22% increase when compared to $0.26 per diluted share in the fourth quarter of 2004.

For the full-year 2005, our total revenue is expected to range between 182 and 185 million, which is a 15% to 17% growth over 2004. Business category revenue is expected to range between 124 and 127 million, and consumer category revenue is expected to range between 56 and 59 million. Operating expenses is expected to be between 55.5 and 56 million. The full-year tax rate is expected to be 33%. GAAP EPS for the year is expected to range from $0.72 to $0.76 per diluted share. We expect pro forma EPS to be between $0.81 and $0.85 per diluted share, which would represent a 25 to 32% increase compared to $0.65 per diluted share in 2004.

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

Thanks, Paul. In the past three years we have almost doubled sales at UEI, and in the third quarter we've continued this strong growth story. Our record performance speaks to the Company's dedication to develop new innovative products, expand into new industries and build geographically in the industries we currently serve.

I'll start my remarks with an update on our core technology and then provide a review of our business and consumer categories, finishing with some highlights for the quarter and future products in the works. UEI's database of infrared code continues to grow at a rapid rate. We now have over 230,000 function codes, an increase of 21% over the previous year. The database has doubled in size over the last four years, reflecting the growing complexity of home devices and UEI's strength in infrared control.

UEI has not only been hard at work developing innovative technologies and solutions in infrared control, but also in digital media and home automation to expand the reach of wireless control technology and our markets. As a result of this innovative work, our portfolio patent has just about tripled in the past four years. During the quarter, we were issued four new patents, filed for five, bringing the total issued and pending patent count to 150. This innovation drives the growth of both our business and consumer categories, which I will now review.

During the third quarter the business category grew by 18% over last year due to strong demand in subscription broadcasting as well as our increasing success at winning new customers in consumer electronics. Three factors are driving sales in subscription broadcasting. First, we continue to win new customers in the industry on a global basis with recent customer wins in Canada, Latin America, Africa, the United States and Europe. And as the telecom industry jumps into subscription broadcasting with IPTV offerings, we're also winning new customers. In the third quarter we added Fastweb(ph) in Italy and Jazztone (ph) in Spain.

Second, the cable and satellite industry is clearly in the midst of a powerful upgrade cycle from digital set-top boxes to new boxes with DVR and High-Def capabilities. UEI was actually one of the first companies to ever build a DVR Remote, for Replay TV and Sony TiVo. So we're experts in this technology. As a result, we have been extremely successful in winning the bulk of new set top box deployments, including such industry giants as Comcast, Sky, and DirecTV.

Third, the progress we've made in engineering a better microcontroller chip and in lowering our chip costs and manufacturing costs has contributed to our success. Much like Intel, we have engineered more functions that were previously found at separate components on a remote circuit board, directly onto the chip. As a result, our microcontroller chip technology is unmatched in the market and is fiercely competitive when compared to the competition.

To net it out, we have the technology, market share and operational strength to continue to lead the market in new set top box rollout in North America and as its upgrade cycle starts to take hold in Europe. Another highlight of the quarter was our growing success in consumer electronics industry. Three years ago we targeted the Japanese and Asian CE markets for growth. The sales of high-def and flat panel TVs have driven demand for our universal functionality in higher end gear.

In fact, the Consumer Electronic Association estimates that plasma TV shipments alone will grow from 2 million units in 2005 to over 7 million units in 2009. And this demand, combined with our presence in Asia, is delivering results. Last quarter, we announced that Panasonic will use UEI chip in its products and products sold to other CE companies.

In addition, we have landed Pioneer, delivered Kameleon based product to Denin(ph) and won a number of contracts with Taiwanese and Chinese television manufacturers who will ship our full remote as standard product under a number of brand names. Finally, in the third quarter, we also won a major Japanese television brand that we plan to formally announce early next year.

Onto the consumer categories, which consists of products sold to directly to consumers largely through our one for all branded retail accessories and our CDA sales with Nevo(SL). In Europe, where we sell and distribute AV accessories directly to retailers, we continue to hold the number one market share position in remotes. However, our guidance for the fourth quarter of this year is relatively flat due in part to the extraordinary growth in sales and strength of the Euro last year. Additionally while most of the international retail markets are strong the British retail market has slowed and this has affected sales.

Those issues notwithstanding, we are confident about the growth prospects in the retail accessories market. As Paul mentioned, we hold just 2% of this market and we have a solid base from which to build. Most importantly, we are executing against building our retail product portfolio and distribution network. To that end, we had an outstanding IFA (ph) which is the Consumer Electronics Trade show for Europe.

IVO enables UEI to engage with our key retailers for promotion for the Christmas season and to preview new products. At the show, we launched three new sets of products including new remotes aimed at our major competitors in France, Spain and Italy. New digital antennas for Europe's free to air high-definition broadcasting, and a new look for our one for all Kameleons.

We also previewed our digital media remote which can control all your digital pictures music and videos on your PC, turning your existing PC into a Home Entertainment Center. We also previewed some of the work we've been doing in new radio frequency control of home systems like lighting heating and air conditioning. In North American retail our private-label business showed a great deal of strength on a year-to-year basis as a result of new products in that channel.

We are also reigniting one for all Kameleon sales with new packaging, reduced prices, and a doubling of our media effort to garner press and Christmas gift guide coverage. In fact, we expect to be in at least eight gift guides including Reader's Digest, Oprah Magazine, In Style and possibly even on Good Morning America. Media drives awareness for the product and that ultimately brings sales. One area where we saw this was the coverage we received in this October's Oprah Magazine.

Kameleon landed on Oprah's anticipation list, and with 2.6 million readers, sales have turned up. The highlight of our customer category this quarter was the commercial launch of Nevo(SL). We are very pleased to say that we completed our first full quarter of Nevo(SL) sales, and the results are nothing short of phenomenal. In a short period of time, we've built a distribution channel in 17 nations and we are hard at work training this channel on the product and expanding the channel into Asia, especially in Japan, which has showed a great deal of interest in the product.

At the CDA Custom Installer show this September, we literally had thousands of people in our booth and won Residential Systems' coveted Resi award for the best product of the year, adding to a total of seven awards for the product. The press has also fallen in love with the product. T3 Magazine, the preeminent British gadget magazine, told readers Nevo maybe the best thing for the home since television. And as I hope some of you have seen, Nevo(SL) is on the front cover of the November 7th BusinessWeek Magazine, out on newsstands this week.

In addition, Nevo has just landed on the front cover of Residential Systems, the key trade publication for the CDA market. Financially, Nevo(SL) is also off to a phenomenal start. The product contributed approximately 12% of UEI's net sales in the consumer category. For more information on Nevo, please check out mynevo.com. With that I will turn over the call to Paul for some closing remarks.

Thanks Rob. Obviously, we're proud of what we've accomplished here at UEI. Our investment in new products and new markets over the past three years and our commitment to helping consumers in simplifying an ever more complex home environment has produced what will certainly be unprecedented results within our company.

We will continue to build our leadership position in the core Universal remote marketplace, explore new expansions of our retail distribution platform and extend our technology further to help consumers access and control their home entertainment networks. I want to thank our worldwide team here at UEI for what we have accomplished in producing these results. I'd also like to thank customers, both long-term and new, for allowing us to help them succeed in making the home simpler and more enjoyable. Stay tuned for future developments.

I'd like to now open up the call to question-and-answer.

(Operator Instructions). Your first question comes from Michael Coady with B. Riley & Company.

Good afternoon, Paul and Rob.

Hi.

Hi.

Okay, where to start there -- a lot of news there. Could you talk about the contributions of Panasonic and Pioneer in the quarter if they did in fact contribute?

Yes. We're definitely selling Panasonic, and what was the other?

Pioneer.

Pioneer.

Pioneer, yes. We're definitely selling product at this time but as you know we don't individually breakout any customer or financials.

Right. Just curious to see that they were kind of up the speed in the quarter.

Yes. We're making definite progress with those guys.

Okay. Great.

But, again, it relates to the demand for flat panel televisions, and if you look at Panasonic and Pioneer, they're leaders in the category.

Right. Just wondering if you're kind of at full go with them or that's still in the ramp up process?

Well, the Panasonic partnership is actually a very sweeping partnership. As you know Panasonic is one of the world's leaders in consumer electronics, and they also have a trading company. And what they've done is basically adopted our chip technology for infrared control that they cannot -- not only use in their projects but also in other products from other customers. And with Pioneer, where it is -- we're selling directly to Pioneer for their products. So we're just getting started with Panasonic -- not quite in their own branded products, but we've done a number of projects for them for other customers.

Okay. Great. Nice to hear about Nevo. Congratulations getting nice traction there. When you look at the consumer being a little bit below expectations, could you talk about where that is? Is that the UK retail?

Yes. Fundamentally, the British Retail, High Street market has slowed down. I believe, British Industry just published metrics on that and I think they said that it was the slowest retail season in the last 12 years. So we have been affected in that. The good thing though is that we've definitely have held our market share, and with the rollout of high-definition free-to-air broadcasting and the launch of our new digital antennas at IFA, we hope to see -- perhaps a bit of -- a bit more strength in that market over time.

Okay.

But the other markets, Germany, France, Spain et cetera have been strong.

Great. Let me just ask one more. Could you give any more detail or color or any kind of information on the Delphi relationships as well as with which cell phone OEMs or just...?

Well, we can't yet mention names but we're with major names in the cell phone market, Michael as we speak, but not -- no names to report there yet. In terms of Delphi, the only thing we can say at this point because it's for future model year product is that we're working with them on multimedia application again that will link the PC, the digital media device, the PC to the automobile.

Okay. And the Japanese OEM that you plan to announce early next year. Will that be chips or full remotes?

We haven't disclosed that yet. So -- we can't disclose it for competitive reasons. So we've landed the customer, but they don't want to make a public announcement until they're shipping their televisions.

Got you. And just the last thing, the tax rate come down a bit, your expectations for '06, was R&D credit to be there still?

R&D for '06?

Tax rate for '06 your expectations?

No. We don't have an expectation on that yet. We haven't set the effective rate for '06 yet, Michael.

Okay. Great. Thanks guys.

Your next question comes from Murray Arenson with Ferris, Baker & Watts.

Hi. Good afternoon guys.

Hey, Murray.

A follow-up question on Nevo(SL), you mentioned it was 12% of sales this quarter?

In the consumer category.

Right. Okay. Which is good and I congratulate you too Where are you targeting, what do you expect to see over the coming quarters?

Well, as Paul chartered out, we're really targeting the network controller market, which if you look at the growth in networks or home networking, it's -- we're at about 25 million households in the US today, should grow to about 50 million households. And our estimate is if 5% of those households have some controller in that space -- so basically the higher income households -- if 5% have a network controller to control devices and digital media, it's a $1 billion market. Now the market's fairly nascent, so we're off to a great start but again it's going to develop over time. But that's the macro picture is, network controllers, which is a multi billion dollar market, we believe.

Okay. So - I'm sorry. Go ahead.

I was just -

So kind of given the stage of development there, what do you think, I mean, is that 12% number, did you hit the ground running and that's kind of a good starting point, or are we just now ramping up? And you should be a 25% or better in the future? I mean, how should I be thinking about that?

Well, if -- we haven't provided guidance on that, yet. I think real answer to that Murray, is we've got a lot of moving parts in there. The truth is as we put more promotions into the retail channel that number could actually remain flat or go down --

Okay.

-- depending on the growth in retail accessories. So we wouldn't want to venture a guess on exactly what the percentage would be, but we feel we have hit the ground running on the product and have had a great initial success with it.

Great. You also have good number in this quarter on expense side is really brought out. SG&A principally, you talked about lower compensation cost. Can you just give us better sense of what's going on there and what that should look like over the next 12 months or so?

Yes, well the comp expense was just lesser accruals for things like donations and incentive compensation. It wasn't that we had any sort of cut back -- orany sort of employee cut back. Those accruals were for incentive compensation.

Okay. So the number should still be kind of fluid going forward.

Right.

Okay.

Right. Last quarter you spend some time going over foreign exchange impact. This quarter you alluded to whatever impact it might happen in the fourth quarter. Can you either, one, quantify what impact it have this quarter and/or two, take a look at what that looks like? Help us quantify that better for the next quarter.

Well, I mean, I guess, what I can say about the FX impact on Q4 is that it's obviously baked into our numbers. I believe we used an exchange of about a $1.20 for Q4. So obviously, the results that we've -- that the guidance we've given for Q4 is along the lines of $1.20 per Euro exchange rate.

Okay.

In fact on the quarter I mean as far as foreign currency exchange contract is minimal.

Got you. Okay. Two last questions if I could quickly, one is did you buyback any stock there in the quarter, are you planning to? And two is an update on the CFO front

We did not buy any during the quarter but that what shouldn't be any indication of what we might do going forward. But there was none purchased during Q3. The CFO, we're in the midst of a search. We're getting closer but we have nothing to announce at this time.

All right. Thanks a lot

Your next question comes from Scott Ciccarelli with RBC Capital Markets.

Hey, guys. How are you?

Good.

Hey Scott.

A couple of questions. First is, are there other things impacting the gross margin? The mix was pretty similar to last year but gross margins were down 300 bps or so year-over-year. Are there other things going on there?

Well, one of the biggest is this mix within business and consumer, particularly business. We're doing quite a bit with a few customers there that carry lower than average margins. So when we outperform on those, it actually can bring down margin percentage.

Right. So it's not a function of between business and consumer, it's kind of intra-category, if you will.

Correct. Yes. Within the business category in particular.

Okay. Now, that business -- that mix -- is that also impacting receivables at all?

Slightly, yes.

Okay. So --

But certain of the customers there, you give slightly better terms to. There's no payment issue, but they will demand sometimes 15 to 30 days more payment terms.

Okay. So same issue there, then. Are you seeing any pricing pressure obviously, you're seeing it from some of your customer but are you seeing it on a competitive front at all?

No more than we've seen over the last three years.

I mean, how would you guys gauge the competitive environment at this point? I mean, you guys continue to gain more customers, add more patents, et cetera, some of the smaller companies that I -- typically classify your competitors seem to be in kind of a tougher situation financially. How would you guys assess the competitive environment right now?

Well, I mean, it's always been competitive, and technology over time always comes down in price. But it's seems like it's no more competitive than it has been in the past. In fact, I think some of the things we've done with chip technology and our overall operations to shorten lead time has -- and the relationships we've built over time have given us actually additional strength in the market, especially compared to some of the competitors who may be struggling financially.

Okay.

Scott, we, a couple of years ago as you may remember I mean, when times were tough for everybody, we set the goal of getting more and more customers, and becoming very competitive, taking on some of the customers we did not have. Under the belief that difficult economic times end and as things get better -- as you garnered more of the customers within the industry when the growth occurs you'll get the benefits of that.

Right.

And I think we've shown that to be a successful move for us over the last three years.

Okay. Thanks and then the last question has to do with Nevo(SL). I mean, you guys have obviously got that product out it sounds like -- early reception is very good to that. Is that in terms of moving into the automotive side and cell phone side, will the crux or the basis of that be kind of a Nevo-based type platform, or is it too early to tell?

Well, that's a pretty broad question, but it's really dependent -- how we focus our technology as the devices that it goes in. In the automotive space, it has a need for an embedded system. So different automotives did run different operating systems, much like PCs run an Apple OS or Windows OS. The auto is different so our digital media stack is designed to run on an embedded system. In the cell phone market you have to do a couple of things.

How do you think digital media from a phone to the PC and vice versa? And that operating system on the phone is different from the PC. In Nevo, we're running on a Windows CD based operating system, so that's again different but window based CE operating systems you can find in advanced phones. So unfortunately the answer to your question is really, yes or no. It could be very similar and it could be distinct. However functionality and the learning that we've done in the digital media space with HP starting with Nevo 1.0 into 2.0 and now with Nevo(SL) clearly gives us a usability leg up vis-à-vis the competition in the market place.

Okay. More than fair. Thanks a lot guys.

(Operator Instructions). Your next question comes from Michael Kern with Adams Harkness.

Hi, you guys.

Hi, Mike.

I was just wondering if you could give us a little more color on the interest level around SimpleDevices technology.

Well, it's high. Obviously, our - it's - well, quite frankly it's all UEI now. But however, our movement in the automotive industry and the cell phone projects that I was speaking of are a direct result of the efforts of the folks up there that they've been doing for the last couple of years. So the reception of that technology is rather positive.

Okay. And what are your expectations going forward for that?

Yes. We haven't provided any specific guidance for that particular part of the business. And we won't provide any guidance on the year 2006 until January, as is our custom. But we're -- we're extremely positive about the long-term prospects for this type of embedded technology on both the PCs and the devices, so that the devices will be better able to interoperate with each other using UEI technology to control, again, not only the devices but the interaction of the digital media between the devices, including the car, the cell phone, the Nevo(SL) networked controller and the devices themselves within the home.

Okay. Thank you very much.

(Operator Instructions). There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Okay, everybody, thank you for joining us today. We'll be on the road during the quarter visiting with some of you. Also, we will be participating in the Electronic House Expo or the EH, Expo November 9 through 11 in the Anaheim Convention Center. So we hope to see some of you there. And of course, we'll be at the International Consumer Electronics Show or CES in January, 2006, in the Las Vegas Convention Center. So we hope to see some of you there as well. Thank you very much.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.