Universal Electronics Inc. (UEIC) Earnings Call Transcript & Summary

We're excited to bring you this event today, and we hope that it represents Universal Electronics. My name is Ramzi Ammari. I'm the Senior Vice President of Corporate Planning and Strategy at Universal Electronics. First off, on behalf of the leadership team who are with me in this room, we thank you for attending. And as I said, we have a packed program today, and it will represent most of the questions that have come up in prior discussions with you. Usually, we have these events at the Consumer Electronics Show in Las Vegas. I think in the past, I've hosted many of you who've come to the show. Usually, there's a brief meeting with Paul and Bryan, and then I usually go around, take you and show you a little bit about the products and technology that we're introducing at CES. Unfortunately, this year, CES has gone virtual. And UEI, actually, in the last -- beginning of January, we actually hosted our own Universal Tech Summit. And during that Tech Summit, we actually hosted about 65 companies, virtually. We had about 200 participants from those companies. And we also showed them various technologies and products that we are announcing and introducing. All of this was done virtually. We had customers representing 20 countries from around the globe and across various channels and verticals that we're involved in. And the aim today is really to take a lot of that content that we showed you -- that we would have shown you at CES and bring that to you as part of this Investor Day presentation. All right. Before I do that, our General Counsel, Rick has asked me to read this brief statement. I won't read what's on the screen, but I will say the following. During this event, 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. You can find the full disclosure of the risks related to these statements on our website and in our SEC filings at www.sec.gov. All right. Next slide, I got to hit a couple of logistics here. And again, you're looking at a dashboard on your screen. There's a couple of tabs windows that are open. So our producer here, Brandon will actually be basically posting information up on that screen. So you'll see the left screen will be the video. On the right, there is a presentation screen. In the bottom, there's a chat. And what we suggest is if you have any technical issues during the event, go ahead and type in your questions there and the team will answer those questions. Down at the bottom is probably the most important one for you is the question-and-answer section. Unfortunately, there's no mics for you guys to be able to answer questions. So what we're going to do is have you fill out your questions, send that to me, I'll review those questions and I can basically provide those questions for the panel to answer. Again, I would encourage you to send in your questions throughout the presentation. We'll go through the agenda in a second. But essentially, at any time, you can send those questions in, and at the appropriate time, we'll go ahead and bring those questions up and answer them. The bio's on the bottom right-hand corner, again, feel free to scroll through that. And then -- and with that I think, covers all of the items on the dashboard and logistics. One other item we've won't be taking a break during the session. So again, we're going to go through about 2.5 hours and get through the presentation as effectively as we can. All right. Regarding the agenda here, we kind of created this agenda to address some of the key questions that we've heard. Briefly, we're really trying to -- most of you guys are familiar with the company. So we're not really going to go through the detail and how many employees we have, where are the locations, all the information that you probably could get out of some of the public filings that we have out there. Instead, we really want to focus on a couple of key things. I think the first one really is Paul is going to go through a quick introduction and really explain who we are and where we're going. And I heard that he has 3 new slides that aren't in his traditional investor deck presentation. So we look forward to seeing those. Following that will be Menno's presentation on the markets and the channels that we play in. And really, his role is going to be the answer what we're doing and how are we attacking the key market growth drivers? And how are we going after the growth opportunities in our various verticals? The third segment is our product and technology team, and really, they're going to answer the question, how are we going to know about creating the products and technologies and getting the market share growth and penetration in those markets. So really, that is probably the unique part of this presentation. You're going to see live demos. You're going to see video presentations as well as the slide presentation, all being presented from various locations today. Myself and the leadership team here to my right are all based in the Scottsdale corporate boardroom. But we also have our VP of Technology. He's based up in the tech center in San Mateo. So he's also broadcasting live from his location. And we also have a third location, which is just down the hallway. And basically, we've got our live corporate demo room, and that's where Victor Berrios will be broadcasting from. And then the last presentation you're going to see is a financial overview from Bryan, and really, he's going to cover the -- how are we doing? What are the metrics that underline our growth? And how have we performed and give us kind of the score card of how UEI is performing in the market. As I said, please send in your questions and get those in, and we'll answer those as they come up. And with that, I want to turn it over now to Paul to give kind of his introduction. And again, I don't think I need to introduce him. You see his bio there up on the screen. And with that, I'll turn it over to Paul, our Chairman and CEO of Universal Electronics.

Good morning, everybody, and thanks for joining us today. I'll start with a little bit of the -- of course, the definition of what we are. We're the global leader in wireless universal control solutions for home entertainment and smart home devices. So essentially, what we do is we develop -- design, develop, manufacturer, ship and support over a 100 million innovative products each year for the leading companies in the world in the markets we serve and consumer electronics, Samsung, LG, Sony, subscription broadcast, the leading names in the world, Comcast, AT&T, Dish, Liberty, Sky, the list is quite long, so I won't go through it. And then in the other markets we serve. So we serve the leading companies in the markets we serve. Essentially, our mission is to create smarter living. We create products and technologies that help everyday people discover and interact with the devices and services in their home in new ways. You can see this picture of this woman here. She's obviously talking to her television in essence or to her remote control, easing the transition to a future where more and more entertainment options are available to consumers. It all starts with the home entertainment or AV experience. Importantly, the average American spends almost 5 hours per day watching TV. We've reported this for a while to investors. Many of you may not watch that average. But remember, what that means is if you're under the 5 hours a day, that means someone else is over 5 hours a day. So this is the most common application in any home and the most challenging thing to control because of its prominence. Anybody who also doubts this, go this weekend to an open house somewhere. What you're going to see in the modern design of a home is it usually an open floor plan concept with a kitchen, and then it opens to a room. Sometimes it's called a great room, sometimes a family room. But what is in that room? Usually a television. So life in the home usually centers around this activity, watching that TV. But many other applications are beginning to come out that either connect to that experience or separate from it to control your home, and we'll get into those as the presentation moves forward. Entertainment control has changed -- dramatically changed in the past 4 years. More content requires better search, leading to greater demand for voice. The old days of bringing up a guide, a grid-based guide and hitting page down or up and down doesn't work anymore. When you have millions of options, you're thumb would get sore. You need to be able to get to things more quickly. The example I like to use with this today, today the NCAA will be played. I dare you to tell me which channel all of games are on. If you pick up a voice remote, you simply say NCAA basketball and the games that are available to you today through your service will be displayed on the screen. You navigate the game you want to watch and click and you're there. Or you could just name the game, name your favorite team, and they'll come on the screen. So with so many options available to consumers, voice is becoming the best way for them to search. Internet connectivity and 2 way communication creates smart control opportunity. It's helped us in a variety of ways over the last 5 to 8 years to create new products that do things they've never been able to do before. And we'll get into that as this presentation continues. A little bit of new data for you. This just is a representation over time of how our sales have shifted and then some of the growth opportunity in the advanced remote market. Back in 2016, we were probably only about 1/4 of the sales we're in advanced products and the other 3/4 we were in traditional products. Today, it's more than half. So our mix has been shifting over time to these advanced products because of their popularity. And on the right here, you'll see the number of advanced subs. It's growing substantially. Last year was estimated that it was just under $90 million. And it's growing over the next 5 years to more than double that to [ $190 million ]. So this market shift is in play. It's happening now. If you go back a few years, I don't have that on this chart, that number would have been essentially 0. If you go back 10 years, that number was 0. So it's grown from 0 to [ 88 ], and it's expected to double again over the next 5 years. So the market is shifting to these hybrid platforms, IP delivered, SVOD, AVOD services, along with linear TV in one easy-to-use interface, 2-way and voice driven. In addition, consumer electronics has shifted to technology sales. This is just a representation of our sales back in 2016, where about 20% of our sales were of chips or licenses. And the remainder was traditional products, traditional remote controls, and that shifted now to more than 1/3 of our sales are now, again, technology sales, which we define as chips and licenses. So the market here is shifting. The value-add is really in those chips and licenses and our mix is shifting as a result. TVs are becoming smarter and smarter, and they're being powered by UEI's technology, including QuickSet, which Arsham will explain in detail in a little bit. Also, connected home has grown significantly. If you go back just those 4 years ago, our sales were just above 10% in connected home. And again, this is defined as all of the non-home entertainment portions of our company, mainly today, HVAC, safety and security, but other home applications. It was just over 10%. Now it's grown to more than 20%. So as a part of our mix, this has grown substantially. We think there is continued growth in this area, which, again, Menno will talk about in a few minutes. So essentially, our vision is to create a connected home to be the most knowledgeable company on the planet about the entertainment, smart devices and services that people have in their home. So whether it'd be their home entertainment system or other systems that are connected, maybe even connected to the AV system, we are making products and control mechanisms for all of them. And we're -- we have a lot of diverse scalable sales channels for definition sake, home entertainment here is defined as video service providers traditionally cable satellite company's MVPDs as some refer to them. Consumer electronics firms and retail. We have a strong business in selling AV accessories to the retail channel. And then connected home is security and automation, climate control, home appliances and hospitality, which Menno will now dive into in some more detail.

Okay. Great. Thank you very much, Paul. It's a good introduction to the business. And I think it's -- again, it sort of highlights the fact that we are at a core home entertainment company. And over the last 3, 4 years, as you've seen in the slide data there, we've really grown our footprint in the smart home, and that kind of gives you an illustration of how we're blending the connected home part of our business with our core business, which is the home entertainment piece. So with that, I want to turn it over to Menno Koopmans to give you an overview of the markets, as we said. He's going to really describe the markets, the channels that we're in and how we're going after that channel. Brief introduction to Menno. Menno joined in 2005. He actually joined us in our international headquarters in Enschede. And he joined as a product manager. And I remember when he first came on board, he has been a very talented individual, grew through the ranks of the company. He actually ran our retail business initially, then he ran the subscription broadcast business before being promoted to essentially the DM of our European operations. And then when we restructured the company probably 2, 3 years ago, we went from a regional-based organization to a functional organization. And with that, we basically brought Menno here to the U.S. to head up our global sales and marketing teams. Menno's background includes stints at Sony, Philips and Mars in sales, marketing and product roles. And with that, I'll turn it over to Menno Koopmans, our SVP of Global Sales and Marketing. Here you go, Menno?

Thank you so much. Thank you, Ramzi. Nice introduction. Thank you, everybody, again for joining. My role today is giving you a little bit of more insight of why we're doing all the great stuff that you're later on will be seeing. So all the product part is the core of our program today, but I want to provide you the context of why are we doing it? And why do we think this is going to play in our favor? And why do we think this is playing in in favor of where the market is going? So a little update on what is the market dynamics and in specific, what are we doing in those individual channels that serve those markets. Looking at the market, we're going to zoom in on 2 areas; home entertainment and in particular there, what is changing and what is changing in the video and television side of it. There is a tremendous amount of change, more change in the last 5 years than in the 20 years before and likely even more change in the near future. Second part is about the smart home trends that we see. People have been talking about smart home for over a decade and maybe longer than that, but it starts becoming a reality more and more so in every day's lives. So I'll give you a little bit of an insight on that. After that, I'll do the channel plans. Again, as Paul already mentioned, the average American household is spending over 5 hours. A good amount of media junkies here that are really watching a lot of video content. The way they watch video content has changed. In fact, a few years ago, everybody was thinking that with smartphones and tablets coming into the living room, the amount of time people will spend in front of TV will go down. In reality, actually, it went up more and more because of more choice and because of more technology push towards the households. I'll give you a little bit of an insight in a few slides from that. Second part of it, this is not just an American phenomenon. For sure, America leads the way. America clearly have shown that with all these new video offerings, people again spend more time and even more than 5 hours a day. That happened the same thing in other regions. Europe, just over 4 hours, some of the other regions slightly behind that, but all of them are actually showing the same trend of watching more hours a day of television. Zooming into that is how are they watching these television sets. And there, we see a big change happening. Decade ago, streaming started to come from PCs into originally game consoles and streaming sticks and eventually also into other devices like smart TVs. Today, this is 2020 data shows that about almost 20% or 18% of the people are watching video exclusively via streaming. But there's also another part of the market that watches TV still exclusively via these traditional offerings of Pay TV offers. Biggest part is actually there in the middle where people blend both sides of the equation. So they see basically live TV at a certain part of the day, watching your live video content or sorry, the live television shows, the live sports events. And at the same time, watch streaming at night with Netflix. So this blending is happening. It's blending more and more so. We also see that as streaming matures, there's more and more offering coming into the market. It also means that what we traditionally saw in subscription broadcast in channel where operators service is consolidated for television channels. This is happening nowadays similar to VOD apps and the streaming apps. So more and more content, more exclusive content on different apps. So people start to combine it. We do expect that this trend will continue. Absolutely, we see some cord cutting happening. At the same time, we also see that, that has picked up on the smart TV side. So in either side of the equation, people need controlling devices to be able to get access to their video content to get access to their favorite TV shows. And that's why they need a remote control where our underlying demand is coming from. As said as well, it has changed dramatically. The way people look for content after all these explosions of channels and now VOD content and programs. The way people search has dramatically changed. 5-odd years ago, we were one of the very first ones to bring at least voice to the mass market in 2015. That has exploded ever since. It really was the killer app for enabling smarter search on television. That has grown across the different industries, both in the traditional broadcast industry. Comcast really is an example, but also in the streaming sticks as well as in the television side of it. And secondly, I think that's another underlying important element of it is that the way of searching on different devices have become more and more important. As previously, people were just watching TV. Now they're watching video content from different type of devices. So switching between different devices, experiencing these different devices, controlling these different devices has become extremely important. So for that, our technology, QuickSet has played an instrumental role by automatically discovering different device types, automatically matching inputs to the right type of channel so the search becomes even easier. What did it do to us? Well, twofold. One is clearly it held a big impact on our ASPs. So we see a big difference between traditional remotes versus advanced remotes, the latter being almost twice as valuable. We've seen that that has changed a little bit over the last years, but clearly, it still is a big land slide as there's more technology goes in those devices. And therefore, ASPs are higher. Secondly, it will allow us to sell more control technology. So the control technology itself became more important, whereas previously was providing IR control code information. Now it's a host of different protocols to be able to match those different devices with each other. So those 2 things have been helping us to drive growth. Specifically looking at our addressable market, and I'll focus on 2 areas. This is the consumer side of it. So as you could see, the overall Pay TV subscriber market has shrunk a little. So when we look at the market, we kind of -- globally, there's about 1 billion of subscribers in television services. We zoom in on what we would call the more developed markets in Europe, Americas, Japan, Korea, some Latin America and Eastern Europe. So excluding China, India and some Southeast Asian markets, we see this market is roughly 400 million subscribers. That subscriber base is slightly shrinking as these different technologies come in. But within that, that change is dramatic where people are upgrading to advanced television platforms. And these are platforms where people can watch live TV on, but also get their streaming services on and also get their other content on. So it actually is, on the one hand, enabling smart streaming subscribers as well. On the right side of the picture, you see what actually happens on the subscriptions overall with streaming, and that market is an x fold. Part of that market is what you will see in the advanced Pay TV subscribers. They also have OTT subscribers in there. And that market is enabled via as I said, these advanced Pay TV subs, but also smart streamer sticks, gaming consoles and smart TVs and that actually drives up that demand as well. Then if you look at device types, so not subscribers but device types, we have the advanced set-top box market. On the left side is that same picture is a slide before, explain you subscribers. So that's not necessarily at unit remote controls, but its subscribers. We typically will say, a household or one subscriber accounts for an annual demand for 0.7 remote controls in U.S., a little bit less in Europe, but there's a good amount of demand for subscribers and remote related to that. On the right hand, you see unit shipments, global unit shipments on smart speaker -- smart streamers as media players. Everybody knows Roku or Amazon as well as smart TVs. And you can see clearly that smart TV size of the market is growing. So out of the overall 225 million TVs being shipped every year, which is not necessarily growing a lot, the smart TVs are growing significantly inside of that, and that makes our products more relevant. Then where do we focus on? We just not only focus on our customers, our brands that the hardware providers that enable those smart TVs and smart set-top boxes and smart streamers, but we also focus a lot on the underlying operating systems. The advanced TV platforms that are enabling smart streaming, more and more operating systems are trying to dominate this game. There is growth in those areas. Those are growing not only because it's a great better user experience, it's also a better way to monetize your hardware. So we see next streaming addressable advertising and other services being pushed via these advanced television platforms. And in that space, there is a focus on our side on the top players. So we have, of course, the likes of Tizen Samsung, webOS and others today. That's the growing part of the market, the major brands that are actually enabling those smart devices. If you look at where we focus, 2 things. One is we see convergence happening across the categories. So streaming originated in the middle category of smart streamers. Specifically back in the day that Roku doing stuff. That actually moved into other categories like game devices. But now over the last years, we see the likes of Google and others exploring it across the channels. So they have their Chromecast stick but they also have their Android TV boxes that allow operators, there's about over 140 operators around the world that have already adopted an Android system, where they provide advanced video services over. We have enabled smart TVs across different brands with their operating systems. So we see these operating systems converging over the different device types and ultimately harmonizing the control experience. We also see that inside of different verticals, there's not just proprietary systems anymore. The systems are more and more licensed. I think again, Roku started the way with bringing their smart TV or smart stick, a streaming stick media player technology into the smart TVs. Lots of others have followed and done successfully Amazon, Google, on the one hand. Recently, we might have seen the announcement of webOS, LG's TVs, Smart TV platform. They've done the exact same thing. They leveraged their control technology -- sorry, their TV platform towards other hardware manufacturers. We've been part of that. And as you can see on the right hand, we've been part of many of those TV platforms. Some of them, we sell the control technology. Some of them, we sell a control device. Some of them, we do the whole thing. We do both control technology as well as the manufacturing of the devices. And this is across the different channels, across the different systems, even operators are playing a role in this. Comcast with RDK has already moved from being a television-centric subscription-centric TV service into the smart TV sticks with their Flex offering. And this happens across the globe, and we expect this trend to continue and the power and the importance of those brands and these platforms to grow further. That's it on the home entertainment side. You can ask some questions later on in this. The second big trend we want to tap in today is the smart home. Is this finally becoming a reality? Well, almost 70% of the U.S. households already have one or more devices at their home right now. And this week even parts associates announced that at least 50% of the U.S. households have an Alexa device or a Google device, Google assistant device in their home. So it starts becoming a bigger part of the reality. Comparing that to consumer electronics, so connected consumer electronics in the house versus connected smart home products in the house, consumer electronics was their what way earlier, it is still a big part of the market, that's where our traditional market comes from. But smart home starts growing pretty dramatically as well. So on average, this year is about 3 devices in the home, 3 different types of devices. What are those type of devices? There are many of those different devices. It's particularly a fragmented market where different types of device categories are becoming Internet connected. We have, on the one hand, connect -- contact centers, security centers, smart thermostats, smart door locks, door bells and other areas, smart lines. So all those things are being offered to the market. It's still a very fragmented market. 2 big challenges. One is how do these things interoperate with each other? And then secondly is, how do I get this stuff to work and continue to work. So these are 2 big challenges that these customers are actually typically faced with. And we're trying to provide solutions to that. Later on, Arsham will tell you a little bit more about those. If you look at how big is that, what's that opportunity size looking for us, we're still at the very early stage in that. Just looking at our core focus categories, the contact and the motion sensors with our wireless control technologies as well as the smart thermostats, it's a $4 billion market opportunity. We're only tapping in with a very small part of it so far. This is a global market. Of course, we're zooming in on particular verticals, and I'll tell you a little bit about those verticals in a minute. Second part is that if you look at those verticals, where is the growth coming from in kind of smart home systems? Growth comes from pro security providers, enabling smart automation in homes, brands like Vivint are doing this pretty successfully. We also see the telco and the cable space actually providing solutions in this market and showing a reasonable amount of growth. And then the retail DIY part. Having said so, our retail part of the market is where we enable other OEM brands. We don't really have the ambition in smart homes as far yet to go direct to consumer with all of our products, but at least we're enabling the big brands like we do a lot on our consumer electronics in the same way. Now zooming in on the channels, one of the verticals that we actually active in and how do we play in those different verticals? Before I explain that, it's important to understand what it is that we're offering. Without giving anything away of what Arsham is going to focus on, we typically look at our offerings in 2 sides of it. We have, on the one hand, home control products, home entertainment specific voice remote is a clear differentiating product with us, will use also traditional remotes or other control entertainment control hubs, and we have connected home products where thermostats, sensors and some smart home gateways are part of it. And these are finished goods. These are enabled by our control technology. Control technologies in the right size. They are feeding our own products. But we also sell them directly, as Paul earlier showed. There are 2 main categories, software and services. QuickSet is clearly a big, big part of it, which is our knowledge graph of different devices, over 1 million different devices, unique devices, we've mapped in those and we actually allow customers to clearly and easily control those different devices. That's QuickSet and there's Nevo.ai, which is our digital agent that allows you to interact with a knowledge base. And with that, different services can come to the market. And on the right side, is the wireless connectivity is with our skill, we designed our own connectivity set specific to our application, and therefore, have them really really tailormade, optimize for low power, optimize for voice, optimize for the applications we serve it. It's important to understand that this is our focus before I tap into the different channels. Looking at the channels, Paul already mentioned, the home entertainment centric channels, video service providers, consumer electronics and retail, retail is the after sales market, where we find stuff in Best Buy. I'm not talking too much about that today, but it's still a significant part of our market. And then the underlying markets to connected home markets from home automation and security, climate control, home appliances, and that's a very wide category and hospitality solutions. Sales has changed to a good extent. We have the ambition to grow both sides of the markets. But within that, we see more growth happening on the connected home as we're relatively small in that place, and we see more opportunities to expand and accelerate that. This is what we achieved over the last few years, and we hope to continue those trends. Zooming in on our first channel video service providers, what are we actually aiming for? So these are cable satellite IPTV operators, Internet TV operators like Verizon, for example, OTT service providers. So it's everybody that provides video services, not just broadcast, it's also video service providers like OTT players. Within that, we have a rough estimate of 70% share in the U.S. market, 50% share in European markets and different shares in other markets, and we're serving over 100 leading video service providers across the board. Comcast, Sling, you name -- that you see all the names here. That's has been a good part of our business, where we still see growth opportunity. Let me tap into that. How do we expect to grow on those markets? Well, first and foremost, we still see a big opportunity in growing our share in voice control. Our customers, not all of them have merged already or converted already to voice-enabled systems, names that are out in the public that have not announced anything yet, is DIRECTV, or Charter, they are, of course, all evaluating options as well. We still see opportunity to grow our share within those accounts, upgrading them as well as our customers have not upgraded their customer base yet all to voice. So even Comcast or others that have launched these voice-enabled platforms over 5 years ago, they still haven't reached the full 100% penetration and will continue to grow. This isn't just in the Americas, this is also in the rest of the world. You see the first big wave happening in Europe right now, where we see most of the big names there, have enabled voice have embraced voice and actually helped us to grow that business there. So these are the 2 areas there. In streaming, we still see streaming as an option inside of the video service providers also to provide growth. I'll step into that in the next slide. And then the last one is smart home, where we see operators enabling smart home solutions and services at some smaller scale as they do on video service or broadband, but at least they're enabling smart home services, where we have products in there like a Nevo Butler, probably that I'll show you a little bit more about in a minute, which is a smart home gateway that allows you to control both audio/video as well as smart home devices. Any of the technology that goes inside of the Nevo Butler can also be sold as a separate technology as part of a QuickSet offering or other offerings that help us to grow for footprint in this market. Our job is there to make our customers' life easy to interact with all these different services and devices out there. A few examples of recent NPIs that we have been shipping and that will continue to drive further growth. One is, for example, Xfinity Flex. I mentioned this specifically because it's actually -- it's an operator, but it's targeting a completely different customer base. It's actually targeting the broadband customers. So this is not replacing any traditional video customers, this is actually tapping into other consumer demand and enabling broadband customers with product offerings like this across all the syndication partners. Then the second part is growing our business in Android TV. Android TV is an OTT over-the-top or even hybrid streaming service platform that you can combine live TV and streaming services. We've actually enabled over 20 of different operators. Some of the very big names. AT&T is one, Vodafone is one, many of the smaller ones. Typically, Android TV, we see enabling mid-sized, small-sized operators with turnkey or relative turnkey video smart advanced TV services. So previously, people had to spend a lot of money to come up with a smart TV service or smart advanced TV service. With Android TV and the other platforms out there, this becomes easier. Other part is expanding in our TiVo business. So TiVo clearly has embraced also the streaming services. And some of our customer base, traditional cable operators have embraced this, both in the U.S., in Latin America as well as in Europe, and that continues to be a good part of it. And then the last one that I've mentioned specifically is we've announced Apple TV last quarter. We made available that we have a program where we serve Apple TV remotes for MVPDs. We have actually shipped our first customer. It's not announced, so I can't give you details on what that customer is, but we do see many more to follow without even going into detail there. Hopefully, in the next months out, we can announce one by one more customers stepping into this platform. What I can say about is, we see 2 type of customer demands. One is for people that serve this as an additional product next to their other services. And we see typically the smaller midsize operator, I'd also say, we embrace this completely as our one and only TV services, advanced TV service offering. So it serves different purposes in the market. Very well received so far, but hopefully, soon to be announcing more on that. Last thing is about Nevo Butler, which is a product that you will be seeing right now. And just to give you a little context, there is a [indiscernible] voice over or sound over here. To provide you a little context so this is the application, as we could see this happening in the entertainment space. Of course, it has a lot more functionality that also allows you to go into other channels. This is [ targeting ] and how it can enable the entertainment providers. [Presentation]

So very exciting product. We are announcing this already earlier to you. We're expecting to ship the first bigger operator with a product like this later on this year. More details will follow as soon as these products will come to the market. It really enables the best out of control from both entertainment as well as smart home and leveraging our voice capabilities and our control capabilities into one exciting new platform. Second channel, I wanted to dive into a little bit more was the consumer electronics channel. Here, we're serving predominantly television, but also audio/video and -- audio and other audio/video equipment manufacturers. We globally have a share of around 25% in the television control market. #1 in Korea, #1 in Japan with all the OEMs there, and we focus on both the TV and advanced operating systems, enabling a lot of different device operators and categories. Looking at our focus there, it's expanding inside of the smart TV opportunity that I already explained about. Within the smart TV, it's getting in the premium side of it, our business with voice remote controls and in the mainstream side, our control technology inside of the different TV platforms. Focusing a lot on the bigger guys that are determining the name of the game. You've seen our announcement on webOS and partnering with them across the different channels. We've done a great amount of business with a different TV leading systems there. It's getting them better entertainment control experiences is giving them better access to different protocols that could have not otherwise have access to. It's also giving them better access to new use cases, home control being one of them. That's the part of the smart TVs. And then we also have a part where we're enabling smart TV speakers, particularly with unique capabilities where we're good at, controlling legacy devices. There's still millions of TVs that are only controllable over legacy ways like infrared or even air conditioning systems or vents in rooms. So enabling smart speakers with that is one of our areas of focus. These are a few examples that we've been shipping. So we're expanding in the voice control space. It's selective on the [ prune ] side of accounts where we can upgrade and help them to a better experience, expanding on entertainment control. Example here is with Samsung TV, where we've allowed them to discover all these different devices across categories that can connect to the TV. So you don't have to program anything, it just automatically works. And it's independent of product also. It can choose with the intelligence in our device knowledge graph about what is the most preferred and most accessible control mechanism of a particular device type. And then the third category is the home control. This is the LG example, where we show you a little bit more about, is enabling home control in their smart home dashboard. So it's using all the best of entertainment now mixing it up with the best of home control and allowing you to automate your living room experience from your TV and your TV to voice remote. And then the last part is enabling the smart speaker, example of Galaxy Mini, where we enable them with control capabilities of television's audio/video entertainment devices as well as our air conditioning and smart vents. These are a few examples in this space, and these are not exhaustive examples, there's more. And then on the connected home part of our channels, I've combined them together. These are typically 4 individual channels. The biggest and first -- the most important part is our climate control HVAC OEM part of our market, where we serve big brands, very Asia dominated, but also moving more and more into the international space companies like Daikin. We have Pro in DIY security solutions and providers that we serve, examples like Vivint home automation OEM, individual use cases. Example, all the automation [ for the windows and blends of under doublets ]. And then in the hospitality and hotel industry and system integrators, brands like Marriott, where you want to have room control and room -- and security solutions. Climate control, that channel, looking at that what we have controllers. And we see that traditionally, we've been strong in the handheld. We've been moving more into wall mount controllers and displays and connectivity devices. So these things become smarter, and become integrated with your smartphones and now you can control them from the couch, you can control them from away, but it also allows you to have a much different experience. We serve both the commercial markets as well as the residential markets with it. Our strongest base is in APAC, but we're leveraging this now to overseas together with customers as well as directly targeting new customers. Second big chunk is the smart thermostats. That's a category that leverages all the best of UEI's control technology into a new interface, where we've been working on over the last year. You see a little bit more details on this. This enables us to get deeper into the U.S. market. It's both for residential control as well as for hospitality control, hospitality, thermostats or climate control. And then the last piece is actually the control technology that sits inside of the middle one. So connected -- so they're connected widgets that we are building and that are enabling our own devices that can also enable other devices where we directly sell it into a target device. These are the 3 core categories of growth that we see in the climate control space. And then in the other category, security, automation and hospitality. Security, big chunk still is on our sensors, wireless sensors that we've been providing to names like Comcast, Ring, Vivint, et cetera, et cetera, both DIY as well as Pro. Also allowed us to leverage our other home automation products. The security operators have clearly shown also to be successful in building home automation services. So us selling smart thermostats into some security operators have helped us to accelerate further growth, and we anticipate to do this further. Second category is home automation OEM. Again, I mentioned the example of Hunter Douglas, where we're enabling their control of windows and blinds and making those smart. And not only are we enabling those OEMs, but we're also working and partnering with them in our program called Workfit QuickSet, which basically allows us not just to serve them with solutions, but also make their products being interoperable with all the other devices out there that people could get access to via GTV or an access to via other interfaces. And then the last category is hospitality, where we -- smaller category, but where we clearly see a lot of leverage in our categories that we're doing. Recent examples of antimicrobial remote controls that we're shipping are hands-free voice-enabled solutions for room control. So I don't have to touch my thermoset or my light switch or my entertainment controller in the room anymore. I can do it over voice. Same as home automation, and room automation is a big trend there. Those things are all being -- leveraging our -- UEI's capabilities across the different channels. Looking at that, that's basically also -- our ambition is to make sure we leverage our position inside of the living room that we're building and investing and maintaining and improving our current and new customer relationships, that we're bringing them differentiated technologies to take the best of UEI. And the best of UEI is being able to connect everything that sits in the living room together. And that's our ambition, and that's our drive for the next few years to come. We're looking at -- across all the different channels. So we see growth potential in all different stages. Media service providers, clearly, as already mentioned, voice is a big part of smart [indiscernible] across the different channels. And then on the bottom part, that's where we see a lot of growth happening also in share expansion and [ NHB ] expansion. That kind of sums up my explanation of how do we see the products that we are building flowing into the different markets, flowing into the different channels and leveraging our customer relationships and, therefore, hopefully, bringing on success. That's it from my side. Give you the controller back.

Great presentation. Thank you, Menno. I wanted to just maybe -- a couple of takeaways, I wanted to highlight. We have still a couple of minutes before we go into the Q&A. But one of the things I wanted to point out is really -- one of the slides that really struck me is this sort of 70% of the market today is watching both linear and over-the-top content. And I think that's what we see as the biggest growth opportunity within the industry is, as streaming comes more and more into the mainframe, what you're going to start seeing is that really is going to be the biggest growth segment. It's not just the streaming, it's how do I combine both services into one system that the consumer can enjoy and really making that experience easy, so you can find the content that you want, and you can enjoy it on one platform. The other slide that I think really hit home for me is the Slide 27. This is sort of looking at all of the different players in this space. And when you look at that list, you really see traditional cable operators like Comcast in that fray. You also see telcos. You also see old, the top players, the Roku, the Amazons. And then you also see the TV brands like Samsung, LG. And when you look at it, really, what's happening in our industry is that pie is growing. That overall home entertainment experience is growing. There's a lot of players introducing platforms and introducing devices that require a control interface. And the control interface that we provide can be a handheld device, but it's also, as you know well, it's the technology that goes inside the devices that makes that experience better. So I think those are key takeaways for us. The third one I want to highlight in -- that's correct. And as Paul pointed out, we are working with all of these players. The third thing I wanted to highlight is really the role of UEI as an innovator. And I think we talked about it, it's been a couple of years now, but we did -- we were the first introduce the voice remote control technology. We won an Emmy Award for that product, alongside Comcast, and some of our partners. But again, that speaks a little bit to the role that UEI plays in terms of delivering an innovative solution to the marketplace. And we will continue to do that. The other area I want to touch on is the connected home part of it, and I think Menno did a great job of kind of giving you a lot of detail about our industry. But one of the things I wanted to highlight as well is maybe 3 takeaways from that is our role really is to enable our OEMs. You won't necessarily see our products as consumer products that the consumer can go out and purchase. What you will see us doing is enabling systems like HVAC, and you see [indiscernible] train. Fundamentally, there's a market out there for small connected thermostats. There's no doubt, companies like Nest and Ecolink have delivered products like that. But the reality is the way that the technology has become pervasive is it becomes part of the OEM solution. So it's not an off-the-market upgrade that the consumer goes to, it's something that the OEMs themselves are delivering. And that's the core to our strategy is going after the OEMS, enabling them with the technology they need to be able to put a smart thermostat or small sensor in the hands of the consumer through that purchase experience without having to go to retail and build it after they've already got the installation. The other thing I think Menno highlighted really is the channels that we're focused on, whether it's hospitality or security. What you'll see is a lot of our product offerings are starting to filter into those channels. If you look at hospitality, traditionally, we were selling remote controls for probably 70%, 80% of the hotel rooms out there through our partnerships. What we're also seeing now is smart thermostats going in. We're starting to see sensors being deployed in ways that enables and makes that whole experience easier. Butler is a great product with that kind of an application. So hospitality. Security is another one. Security now is really combining both DIY and pro security. If you look at all of the major security brands -- pro security brands, they're now starting to offer a DIY solution. So you'll see within that, that they're also offering smart home applications. Smart thermostats. They're offering sensors, they're offering smart sensors into their applications. So again, I think that really captures the approach that we're taking in terms of going after the market.

All right. With that, we do have some questions, and I will go ahead and read those out. So Paul, maybe this is for you. It says, how are you thinking about the adoption of the Apple TV system among the customers that you serve? Where do you see that being adopted? And how should we think about the growth of that platform?

Yes. The platforms like Apple TV, obviously, we can't give specifics about any individual implementation. But essentially, the operators, or MVPDs, across the world are looking to build these hybrid systems, where the user can enjoy -- again, a practical example again tonight, the basketball games. One can watch basketball, and then move over to Netflix, Prime, Hulu, YouTube, whatever their favorite service is, and binge-watch their new favorite show. This is what the consumer wants. The MVPDs are very aware of this. Apple provides one potential solution to that, and a great one, where they can provision the live TV channels through an app and then provide also when you go home, Apple TV channel, again, Netflix, Prime, et cetera. In addition, there are Android platforms that do that, that we power. You can build a custom one, which is probably typically going to be for the larger operators in the world, simply because of scale. They'll have the ability to fund a large engineering project to build such a hybrid system. So Apple, Google, Tivo all fit in with that sort of hybrid system and the method by which the world's operators will build them. And there's hundreds of millions of subscribers out there that, as time moves on, will eagerly await such a platform to be able to get to live and/or linear, as people like to call it, and their over-the-top or SVOD, AVOD services in one easy-to-use platform. Apple provides a great platform for that. So we're going to see numerous people very interested -- or we do see numerous people very interested in that platform.

Thanks, Paul. Let me just -- maybe I'll turn this one to Menno. The question is, are there other ways for us to align with Apple? I know you're worked with these accounts and you've looked through them. And I don't know how much you can share, but are there other things that we can do with Apple or other opportunities for us to be able to deepen our relationship with Apple?

I think today, we're relatively early in our partnership with them. This is the first product we're bringing to market. We do have an expectation [ boding us ] that this will be huge and successful. I think it's early days right now to speculate on alternatives that could go and happen after this. Of course, there's more opportunity for us, for UEI, to provide control technology in general, but I can't elaborate on specifics of it, and give examples, as of yet. I do and we will give you updates later in the year about how our rollout of this initial first program is happening and if that will lead to alternative projects with them.

Right. This is another question for you, Menno. And I think it's along the same lines. And the question is, can you speak more about the adoption of our products and technology on Android TV. Who's adopting and what [ platform ] are we in?

Good question. As I think Paul already elaborated on it, Android TV is a platform that basically enables all of the midsized, small-sized players and some of the larger players that haven't really built their own system yet, but -- and don't have either the capability or the scale or the appetite to start building it. We've seen big players adopting it. AT&T was one that has adopted it with their AT&T Now product. We've seen bigger brands in Europe doing this. Vodafone is an example that has adopted it and rolled it out. It's difficult to say if that's going to be a single dominant platform. It clearly is a way for them to enable the masses of the markets, whereas previously, the initial stages of adopting smart TVs and advanced TV platforms have come from proprietary systems. Android is growing. I think over 160 operators have deployed it, but not all of them with success. Some of them have been successful. Some of them have been less successful. I think we're still in the early days of advanced TV, and Android TV clearly is a big player in that. But so could Apple, so could RDK, which is the home-grown system that Comcast is deploying across the industry, and a competitive player in. So there's not one single advance TV platform that will dominate it, but I think there's a few of them will have a play and proactive on this, which all allow low cost, easy and quick and faster turnaround advanced TV platforms. So hopefully, that answers the question. It's early in the days of advanced TV, and therefore, also early in the days of Android TV.

Okay, great. Let's go on the next subject, and Paul, there's a question about revenue split between subscription broadcast and consumer electronics. So just basically, can you provide a little color to that situation?

I'll let Bryan take that question.

Yes. We typically don't -- we don't break out sales publicly. As Paul mentioned earlier, within non-AV, that has increased to nearly 30% of our total sales. But from the perspective of breaking out subscription broadcasting versus OEM versus retail, we just simply don't. We don't see that right now.

Okay. It's fair to say, though, one of the sales into our senior platform [indiscernible] sales. So we're more embedded in the device and software [indiscernible] versus more the SBR market traditionally, a lot of remote controls.

That's correct. I think it's one of the reasons why -- this may not even be that relevant for that reason because, sometimes, you'll have a consumer company that will buy a remote control, but they may switch to buy a chip or they may go to a licensed arrangement. So I think if you were to present that information publicly, they may look at it, where you -- if they were to convert, say, for example, from a chip to a full remote and you see sales increase, people will look at and say, your sales increasing because of consumer electronics, or the inverse could happen. But really, from a profitability standpoint, there's not a lot of difference because you can only mark a plastic so much. So I think sometimes when -- if that information were provided, it could be a little bit misleading.

Okay. I think we have one more questions before we go to -- the question is, are there large contracts that you can go after, hospitality and smart rooms, et cetera? Just wondering what the outlook is there and how meaningful that could be for our business? So maybe, Menno, you could take a shot and respond to that question. Dominantly, in hospitality, I think, the question is.

Yes. Well, we look at the application of thermostat or climate control, it clearly also serves the hospitality market. Hospitality, overall, worldwide is about 17 million hospital -- hotel rooms around the world. So it always will be at relatively smaller scale than the residential market by far in a distance. It's typically also more fragmented. But what we see there is that the ASPs are significantly higher. Gross margins are higher. So a contract from a margin opportunity point of view, they are absolutely larger than what we've experienced before in the past. They're definitely not the same as what we would see in a pure OEM relationship, where we would serve the same smart thermostat to companies like Daikin or other major OEMs. But then again, they can come with a lot more opportunities. Our job in the hospitality market is to start increasing the ASPs and shipping, let's say, a hypothetical $10 voice mode to a way more advanced smart thermostat and sensors, and getting the ASP per room up. That's where we see the opportunity coming in, in hospitality.

Yes. I think it's important on hospitality to remember, you've got a couple of different factors at play. Right now, the hospitality industry has gone through a very difficult period, so -- but to get back to normal, they're going to need to move in a direction where they can make people feel safe. So we've developed a lot of applications and a lot of products that would allow that. And longer term, it's important to note that a hotel is your home away from home. And as consumers become more used to great experiences with their home entertainment products and their home control products, when they travel, they're probably going to become -- they're going to expect a better experience in their home away-from-home in that hotel room. So I think that longer term, the things we're doing in the home directly apply to what's happening in the hospitality industry.

All right. I think we're ready to -- I think that's the questions that we're going to cover in this segment. Please continue to send in your questions. We will actually have another session after the product and technology presentation. And we'll go through a similar Q&A with the team.

We're right on the mark in terms of time. And with that, I want to introduce a couple of individuals who are going to go through the product and technology presentation. The first one is Arsham Hatambeiki. He is our SVP Product and Technology. Arsham joined in 2004. He really is a very talented individual that can blend both the technology and business and product acumen at UEI. He's really -- he started out as a system architect, advanced to run our technology group. And we've created an R&D group right around the time when we were starting to get into RF. While most of the industry was still in infrared, we were already looking at RF, and Arsham was instrumental in bringing Bluetooth, WiFi and Zigbee, G Wave technology to our company. Since then, obviously, those technologies have become dominant in the industry. And today, Arsham is actually leading the product and technology team. Now alongside Arsham is Victor Berrios. Victor is probably the guy who spend the least time at UEI that probably has the most experience in this industry. He's been 20 years in wireless communication. He was the VP of Technology at the Zigbee Alliance, and that role really helps us because he has phenomenal contacts in the industry. He knows the industry inside out, and he's been a tremendous asset to our business. So just a reminder, again, Arsham is based on our tech center in San Mateo, and Victor is based here in Scottsdale. They're both broadcasting live, so we're relying on Brandon to make sure that the demos go off without a hitch. And with that, I'll turn it over to Arsham and Victor.

Thank you for that, Ramzi. So I'm very delighted to actually have a great team from product side, engineering side really building what we consider to be the future of the home, and again, relying heavily on Victor to really deliver the bright future that we actually see our technology can enable for all the brands that work in entertainment or the smart home side. Now with that, it is always helpful to start by describing what our mentality is in describing the product. So I'll have a few slides, I promise. And it will be mostly live demonstrations as well as videos to show the experience of the products. But I will try to set the stage so that you see kind of the genius hidden within the products as we try to usually hide the technology behind. The primary goal on everything that we do is helpful by design as the main mentality. So from day 1, our design, from software, connectivity, finished products it's how helpful will this product be in the long run. Not a blip in the history, but something that will actually be adopted and scaled across many echo systems. Now our product, as Menno mentioned, they're grouped into two categories. Finished products and home entertainment, or connected home segment, or ingredient products that actually are integrated into other OEM products, such as your TV, set-top box, HVAC and so on and so forth. So we know a lot of the ingredients that we developed for our own use can actually make every device in the home smarter. So we make them available in different forms to be integrated. In the Home Entertainment segment, a range of control solutions, different UI/UX capabilities as well as accessories around entertainment experience. In the Connected Home segment, a complete range of sensors, hubs, thermostat and kits to put together a complete turnkey experiences. And in software and services, really starting with QuickSet as the core of what we think will make or break the home of the future, which is interoperability between all devices in the home so that they all make each other smarter and they can all work reliably. That's kind of the cornerstone in our software, and layering on top of that a white-label digital assistant, a new way of interacting with devices in the home. And extending the capabilities based on our device knowledge graph is now a complete turnkey Tier 0 technical support for the connected home. And we'll get into that a little bit more on why that is critical. On connectivity side, it's not purely about connecting devices. It's about meaningful connection between devices that actually exposes new capabilities. And we do that in the form of silicon and module that can be integrated inside a range of appliances in the home. And we'll get into the details of that a little bit later on. Now if you think about our -- the way that we develop any product, when we develop new chips or new software, we're our own first customer as well. We layer on top every element that we develop. So at first, it might seem orthogonal routes of development, but when you kind of step back and you look, these are every layer of ingredient that's needed to actually make a great product for the home. And you can either take it in a turnkey connected home product and products that we have expertise building or you can actually cherry-pick the silicon and software capabilities or the assistant capabilities or technical support capabilities and integrate it into a different product that maybe your company has built in. At the end of the day, we see that home as one home. We don't see it as a entertainment versus smart home. I mean, in reality, entertainment devices are the mainstream adopted compute systems in the home. So if you think about a smart home, smart home really can start from smart entertainment systems. So our goal is really to blend the experiences across. Now starting to look at the software set of things. Our QuickSet Cloud, which we originally unveiled end of 2016, if I'm not mistaken, 5 in the morning end of December, something along those lines. It has been growing year-on-year exponentially. And we really categorize the areas that we're focusing going into 3 main pillars: better entertainment experience. That's the starting point for sure; and better smart home experience, how you blend in the smart home experience into your entertainment experience and vice versa; and better support experience. So every product that you build, you think about support as a key promise that the product should actually deliver, not as an afterthought. And we'll talk about why that's also critical in building a lasting brand position in the market. Now as I mentioned, QuickSet Cloud, only introduced around end of 2016, and it's already north of $100 billion yearly transactions. It's been adopted by many of the leading brands in the world, and we expect this trend to actually continue. With that, I'd like to show you a quick video that shows our upcoming version. [Presentation]

Well, I think the video really delivered the message on the 3 main pillars that we think can complete a great experience in the home. Now for a few years now on the smart TV side, for example, our software has been used to simplify and blend in content from different devices into a single dashboard. So really, when you're sitting in front of your smart TV, you're not really thinking about where is this content versus that content is coming from. You simply have a dashboard with shortcuts, and it takes you to the right device, the right channel at the right time, and you can enjoy the content. So we've been already enabling that for a number of years in the smart TV side. Now this year, we do have a great example of one of our customers that's using our software to blend in the smart home experience in a meaningful way with the biggest screen at the home. And I'd like to hand it off to Victor now to walk you through the experience.

Thank you, Arsham, and welcome, everybody, to [ our classroom ] demo room. So I get the opportunity to give you an example of the kind of enablement that we have done to our customers as Arsham has said. So let's get you a close up here into our LG television here, where we have the dashboard. So Arsham has said, we have been helping our customers provide integration along the entertainment experience and being able to discover all the things that are around the entertainment stack, HDMI, being able to get access to that content as needed without having to worry where it's coming from. But with the core capabilities of QuickSet 5, we've been able to bring in those connected home devices. We see our customer now [indiscernible], right, to include in that experience here with regards to the connected home devices and being right there from my home IoT dashboard, utilizing my TV remote control to be able to act and be able to control light, for example, where it's just not on and off, but being able to match the brightness, the color, the capabilities of those lights. But also very important and very valuable to the end user is that the dashboard itself, the cover said, "Hey, since the last time you were here in the dashboard, I have discovered additional connected devices in your home that we can integrate into this dashboard for your control as well." So going there right there, we found that it says, hey, we have 2 smart home devices here. Here's what we have discovered that we can control and integrate for you. So we have a connector smart plug, and I said you have a Philips Hue system. Would you like this to be connected directly? So essentially, all we have to say is, yes, I want to connect absolutely everything. I want to connect everything through my smart home dashboard. We see that the connection to the smart plug completed. And here, it's also tell me, oh, for Philips Hue, we need an extra step here to authenticate, make sure that we are connecting to the right device. So again, it just guides me. It simply says, "Oh, here, if you could just go push that button on the Philips Hue controller device, click next here, we'll have you all completely authenticated." So even on devices where we need to complete additional authentication steps, QuickSet helps us guide the customer through all of that to the point that -- now we have those devices that were discovered and made available to connect. We now have them connected, right? And we'll be able to see them now in our home dashboard. So before we had our connected bot that I control before, but now we also have our connected smart plug that we have connected to a fan here that we can actuate as well and turn on the fan. But we also have the heat lights now that we see that we can [indiscernible] as well and turn on and turn off. And we can come here. We can see this particular -- the brightness is not set to the highest. So again, always utilizing our remote control. We can come in here and set the brightness to a higher level, and we see that -- now we can see that light. And we also have an additional light here in the kitchen that we can do it. So all the capabilities there both from the entertainment and the smart home blending those 2 experiences. Through QuickSet, it's allowing our customers to provide a comprehensive smart home dashboard and to build on [Audio Gap] post points before with the basketball tournament going on this weekend, now you can be sitting -- we can help identify the game that you want to watch. And they also help you set the mood by whether you want a pretty lit room to watch the games or you prefer to have everything off and just concentrate on the content on the sporting event in your TV there. So again, everything from [indiscernible] from the discovery from the integration into the dashboard and as required authentication directly from one place also all everything enabled through QuickSet. And to learn on additional capabilities of QuickSet, I would like to bring back on Arsham.

Thank you, Victor. That was great. I can't emphasize how excited I am about seeing this continue to grow. And I know there are great things in the work right now. When you think about the experience that this will have -- and this is a global device. This is a device that's going everywhere. And this is a device, a great TV, a great display, perfect for view and content. But now, it's also going to be your first introduction to the smart home experience. And that can have a meaningful change on the pace of adoption of such experiences, I think, in the long run. Now with that, switching back to a couple of slides to set the stage for our next topic is a key differentiator of what QuickSet really does. QuickSet is about discovering and interacting with. And we quickly found out its interoperability to be the Achilles' Heel of smart home as it stands right now. You have a lot of great innovation happening in wall gardens, but the interoperability across systems, which is really what's going to make the home smarter -- not just one device, but the home smarter is still problematic. If you think about the research -- research shows that beyond brand recognition, the #1 criteria in making purchase decisions is still interoperability. And interoperability is not a static decision. Interoperability is not at the time of shipment of the device. Interoperability is an ongoing challenge for any connected product. So once you ship the product, you cannot ship and forget it anymore. This might have been what was possible 5 years ago or 10 years ago. Nowadays, building a great product also requires ongoing support and maintaining and updating and enhancing interoperability, but everything else that will be introduced in the home, even after the time ship your products. And that's exactly what UEI is really great at as a service. So we look at QuickSet really as the fabric that can help brands deliver on their own strength in an interoperable way with other devices that exist in the home in an ongoing fashion. And that's really going to help, both from a focus perspective for many companies that have really key strengths and the most efficient cooling systems, the most beautiful displays on the wall. And so every company really fine-tunes what their key strength is. And ours is interoperability, which is an ingredient that is needed across connected devices that will end up in the home. Now interoperability, we can talk about all the dynamics of the market, but really like to focus on -- zoom in on one key element, which is the onboarding experience. The onboarding experience is typically seen as the most problematic. And our team has done a great job looking at ways to improve the experience, provide continuity across devices. And with that, I'd like to show you a video. [Presentation]

Thank you for that. So as you saw, interoperability for us is a key ingredient that you'll see does show up in almost every product that we build for the home. Now I'd like to go into the next topic on virtual agents. So virtual agent is a zero-support service built for connected devices in the home across different device categories. So imagine a device that can be helpful on its own, the why. So if you look at any market research, you'll see there is still continued frustration around initial onboarding setup connectivity, ongoing interoperability maintenance between different gadgets that you have in the home and feature and service discovery on connected devices that you have. So the problem is real and the problem is not going away. Now support services, if done efficiently and effectively, it can actually meaningfully change the experience of connected products. Connected products is really a long-term relationship between a brand and an end user. So a Tier 0 support service is really the connection point between the brand and the user on an ongoing fashion. Now what we have built throughout the years to be able to deliver on the core features of QuickSet is this extensive device knowledge graph that actually has a range of attributes, capability and interoperability metrics, features, feature enhancements. And it's a professionally maintained device knowledge graph that continues growing. And as Menno mentioned, over 1 million devices in there and growing. So if you take the knowledge we have about devices, you mix in our expanded capabilities around AI and machine learning, now you find that together, you have a framework for digital transformation of the user relationship through an automated support agent, a helpful support agent that can be integrated on any device, help you reduce ongoing operational costs for supporting and maintaining your devices, and has knowledge of different devices in the home. So it's not only about supporting your own device, it's about supporting your device interaction with other devices in the home, which is really outside the boundaries of any single brand's expertise. That's exactly what we're great at. We're universal. So with that, I'd like to show you a video. [Presentation]

So I think showing is believing. The services is capable of showing up on a range of devices, but I think it would be expected, considering our main market for this to also show up on the biggest screen in the home. With that, I'd like to hand it off to Victor to walk you through.

All right. So thank you very much, Arsham. So we're back to our demo room, and let's give you a close up. As Arsham was mentioning, virtual agent on the biggest screen on the room. So basically, what we're showing you here is a dedicated Android app, that is running on Android TV device here. We're able to go into the virtual agent, who will then to provide me support for the remote that I'm utilizing in my set-top here, which is Universal Electronics [indiscernible] remote. So in the case we have support for a couple of families of remote, so again, utilizing this, I am able to show the type of remote that I have. And again, to the 3 pillars of virtual agent, right, being able to do onboarding help, feature discovery and troubleshooting, I am presented here with a variety of actions here in terms of how to use, discover the device features. So I'm able to see that the device has a backlight, universal control, it's a rechargeable battery. It do have an embedded Google Assistant. And all the features that I'm able to see, and we will also able to go in and say, well, show important keys, what are the the things that should be able to know how to utilize in my remote here and be able to get the content for that particular operation directly here. Of course, on the third tenet of the virtual agent, I'm able to also get troubleshooting assist to see what is it that I'm having issues with. So in this case, let's just select. And I mean audio issues. Okay, so there's sound or it's not working. I'm able to select and dig down to the particular solutions, there are things that I'm able to try and then being able to indicate whether that may or not. As the video that we showcased as well, we are showcasing this on the biggest screen of the house, but this category is portable to different devices. If I was supporting and I, for some reason, needed to leave the room and wanted to continue to learn about this particular device, I'm able to send this support session over to my phone. So it's going over to my -- the camera on my mobile device. I'm able to scan that QR code that appeared, and you see that immediately what I get here on my phone is the exact experience that I was seeing on the television, and I am able to continue the session directly on my mobile device. And as you see as well as I direct, and for additional systems on my mobile device, the TV screen also updates. And similarly, if I select something on the television, you see that the content also is delivered on my mobile device. Because ultimately, what we have in here is watch experience, and we are able to deliver that to multiple screens to help the convenience of the consumer. In this case, I am getting assistance on a remote control. So chances are, I will be looking at the television for most of the time. But you can imagine that as we extend this capability to other smart home devices out of house, we can start on the big screen, but we may need to move to another location in the home, try something to complete the setup process. And this allows us basically the support session from television to mobile phone and with us when we go to the specific location where the device is located at. So very convenient, again, in the merging of the payment and smart home experience into the home. So with that, let's go to Arsham to learn a little bit more about our Nevo Butler.

Thank you, Victor. It always gets me, when I see the 2 screens moving in-sync, that is super cool. So with that, let's -- let me set the stage on Nevo Butler. Nevo Butler was mentioned both in Ramzi's comments as well as Menno's comments. So a couple of slides to walk you through the basic thought process. Now Nevo Butler, as far as when we start building it, is the best of our software and hardware put together, far-field voice interface, a complete smart home hub and a universal remote control built into one with the full capabilities of QuickSet 5.0. Before we introduced QuickSet 5.0 to the market, so we actually first started using the software ourselves. Now it's available to everybody else as well. So together, it's kind of the combination of everything that the UEI is doing across interoperability, smart home control, entertainment control and voice interfaces, user interaction, cross screen continuity, everything is built into it. But the original essence of where the product started is based on a need and a gap in the market, which is very real. And I'd like to walk you through the thought process. So consumer demand on voice control, when you look at voice assistance when it comes to an entertainment system, is very simple. They like to be able to walk into a room, simply start a TV viewing experience, not having to look for anything and tune to their favorite content. Very simple. So turn the TV on and go to your favorite sports channel or news channel or whatever you're into. Now this use case on assistance is still not adopted. That's primarily due to lack of interoperability. That's primarily due to lack of interoperability with mainstream devices installed in households today. That's not going to change for a long time. Now how that can be changed is through building in native interoperability, which is exactly what we did. If you look at UEI, we delivered voice at scale using our remote control innovation. So we were the first and we delivered them at scale. Now remote chat. Now we are already integrated inside of our field hybrid set-top boxes from our speaker devices to enable the same type of functionality they just mentioned. So we've already shipped in volume in countries such as Korea. And we have next looked at how about if you have an assistance in your home, then we thought of an accessory that can make your existing assistance at home smarter. So if your assistant cannot type directly to your entertainment system, we can connect the 2 ecosystems together. And if you do not already have an assistant, or if you are an operator looking to deliver your own branded experience, we can deliver that with a stand-alone device with far-field voice built in, complete AV system interoperability and smartphone functionality to be future-proof. So that was kind of the thought process. And with that, I'd like to give you -- show you a quick refresher video. [Presentation]

So with that, I'd like to have Victor walk you through a couple of interesting scenarios.

Okay. Thank you, again, on. So in our setup here, obviously, we have Nevo Butler, and we want to show you a couple of the capabilities of the Butler itself and how it also makes your entertainment living room, including third-party assistant, more convenient for the users. Okay, Nevo, watch TV. [Presentation]

So what you see there is basically the -- utilizing the vocal voice recognition capabilities of the Nevo Butler. That was a voice and that actually was interpreted and executed completely locally into the Nevo Butler without us having to go to the cloud. That is part of the capabilities we have built into the Nevo Butler to, again, make the user experience better. And that particular command enacted the One Touch View capability of the QuickSet platform. So as you noticed, with just a simple command, indicating that I wanted to watch TV, the Butler turned on the television, switched to the proper input from [ writing ] my content, and then turned on my set-top box. So I can still -- so I can begin watching the content that's being delivered, all with one command and Nevo Butler, and the QuickSet platform took care of everything else. But obviously, we know that in [ home ], I mean all the statistics we have seen today, the Butler will perhaps not be the only smart assistant that we will find in a [indiscernible]. So with that in mind, what we have done is made all the capabilities of Nevo Butler, as enabled QuickSet platform, available to those other assistants so that we don't have to ask the user to talk to multiple assistants if they don't want to. So they can continue to talk to assistant of choice, but still be able to benefit from all the capabilities that Butler and the QuickSet platform brings. Alexa, tune to Cartoon Network. [Presentation]

So as you saw there, even though I was talking to a different assistant, the command execution actually redirected to the Nevo Butler, which, again, through the QuickSet capabilities and interoperability among the devices here in my configuration, we're able then to execute the command to the user. So being able to interoperate with those other assistants brings a specific value to the products and services that we're putting together, really giving flexibility to our service provider [ customers ] to tailor how they want that experience to go to the end users. And also importantly, it's the multimodality of the Nevo Butlers. Obviously, it has an embedded far-field voice interface that we interact with that, but we could also comp with the mobile interface as well and be able to just interact with it directly from it to also get activities executed as well to be able to turn off televisions and things like that. So we can leverage that multi-modality to be able, obviously, to turn things off and shut down our system as well. And to give you an example of additional capability of the Nevo Butler, particularly when it is integrated as part of a monitor or DIY security system. Here's a video that we'd like you to watch. [Presentation]

Great. Thank you for that, Victor. So as you saw, Nevo Butler is a platform that we built to be able to target a range of different scenarios from an operator pain point on delivering a branded far-field voice experience on top of their existing installed base of video subscribers, maintaining relationship with our users. We already enabled that in a near-field voice implementation. Now we're trying to basically unbound the voice expertise that they built into their set-top boxes, their environment, to make it available across the home. And on the other side, the same device can also be the start of a new home automation experience, room automation experience in hospitality and so much. So we'll talk more about the platform capabilities in both software and hardware. I'm sure as the year goes by, and we have some more to share with you. Now with that, I'd like to go into the next topic, QuickSet Widget, which we recently introduced. Now before we talk about the specifics behind QuickSet Widget, it's useful to understand our relationship with the industry. We are as universal, you see the smart home as a collection of brands with different expertise that together can actually make the home smarter. No one company can go at it alone. And because of that, we actually see our work with alliances critical in delivering the enabling technologies that drives our innovation. So as a simple example. If you think about voice control as an innovation that took us a number of years actually finally execute at scale because many pieces need to fall into place. To be able to deliver on voice control, we needed to work through alliances and standardizing some of the RF technologies and bringing that to the market at scale and then innovate on top to deliver new user experiences using voice and the expanding QuickSet voice [indiscernible], QuickSet compatibility. Effectively, we looked at these connectivity technologies as the foundation that's needed for the expertise that we're reporting. And we're going to continue doing the same thing. You'll see a range of examples from connectivity alliances to voice interoperability initiative, which is really focused on a multi-assistant future, and RDK, which is more on the operating system accelerator side. So you're involved in a range of different alliances that we think will define the future of not just entertainment in the home, but the home as a whole. With that, I'd like to start diving deeper into QuickSet Widget. QuickSet Widget is the first time that we're making QuickSet available to resource-constrained devices. What does that mean? Until now, all the interoperability capabilities that we had could only be introduced in devices with a minimal level of compute and storage. So think about your set-top box, your TV, your PC or mobile phone, those are the categories of devices that we could only introduce QuickSet. But quickly, we found that, that all the interoperability and expertise that we built and we're introducing these devices is also very applicable to the range of appliances that actually you got in your home, from your thermostat to your HVAC device to your window shade controllers and so on and so forth. So any connected the was showing up in the home can benefit from the interoperability expertise that we built. So how do we deliver that? Deliver that in a turnkey connectivity module that delivers connectivity to the cloud and local devices as well as interoperability services and technical support services. So no easy task, but we were able to actually start this effort, and we already previewed and announced at our tech summit earlier this year. So the primary feature, it still goes back to what we believe is the need of the home, which is interoperability built into this very small, low power module is the full power of QuickSet and QuickSet Cloud. And virtual agents already built in so that any connected device has all the benefits of ongoing technical support, powered by AI with knowledge, full device graph knowledge that we have at our disposal already built into the small device. And this will also be the foundation for much of the innovation that's going to be needed by each brand and each segment. Through interoperability, you can now all of a sudden enable a lot of interesting use cases around whole home air management, climate control, energy management, security and so on and so forth. Now the digital relationship that we believe connected devices represent is already built in. So any device integrating this piece of hardware will automatically become a vehicle for digital transformation of the user relationship. And I think that's really critical. With that, I'd like to show you a video. [Presentation]

Thank you, Brandon. I know it's not easy going back and forth. So with that, I'd like to sort of set the stage for a preview that Victor is going to walk you through around Project Connected Home over IP. It's a big name, but we can come up with a shorter name. But it is a promising addition to the range of connectivity protocol/standards, term used loosely, in the home. And as promised, it will be a great addition to the range of connectivities that QuickSet already integrates in a seamless manner for the home. And with that, I'd like to hand it off to Victor to walk you through a scenario.

All right. Thank you very much, Arsham. And as he mentioned, with the Project Connected Home over IP, we're very excited to be part of this project and support it through our membership and leadership in The ZigBee Alliance. And what we have done is just give you a preview of how we see Project CHIP and that particular technology providing additional value on top of what we provide today through QuickSet and all the interoperability as a set capabilities that we have been showcasing here today. So what we have done is on our Nevo Butler, we have taken some of the development efforts that we have been assisting The ZigBee Alliance and essentially put a chip technology into the Nevo Butler as well, that I can communicate and create a small Connected Home over IP network between this [indiscernible] and the Nevo Butler. But the Nevo Butler then exposes all the other devices that are already connected in the local network that have been identified, connected and authenticated to QuickSet and exposes that now to the chip devices in the network. So it's really -- it's just add on another layer of connectivity that QuickSet and QuickSet-powered devices can see. So we have shown you before how through the television behind me, right, we can connect and control to the lights. And basically now through the chip tool here in my tablet, I'm able to access the same lights again, just connecting through the Nevo Butler. And as I do my on off and total connection, the Nevo Butler executes the command that it receives from the chip network, translates that, connects to the devices and executes as well. So it's exciting to be able to already foresee the kind of additional capabilities that we'll be able to add to all of our QuickSet-powered devices. So Arsham, to you to talk about our next category of products.

Thank you, Victor. All right. And by the way, we're not brothers, we just go to the same hairstylist. So I'd like to dive into our climate control product category. But before I do that, it's helpful to maybe look at our Connected Home products as a well. And a couple of quick slides. So we have a range of products, software and hardware, sensors, hubs, thermostats, connected, connectivity across the board. So great. But the primary thought behind every product that we're building inside this segment is helping brands deliver managed services. And that's the key differentiator. Everything is built with the idea that this is an ongoing service, delivered by a brand that you trust in your home, a brand that has a reason to be there already. And we think that's critical, and we think that's going to materially change the trajectory of the market even when you look at segments like smart thermostats. So a thermostat is really the second display in the home beyond the TV. So you think about your home, TV is really the main display that's there. And thermostat would probably be the second one. That's part of the home built into the home. We're already on the main largest screen, and we are already on the second screen. And we actually built a finished product. So we're going to innovate both in hardware, sensing and software capabilities. And we see the thermostat as a display, as a capable display connected to all the devices as well as our back end system, really as a portal into your home. It's a dashboard to control your climate for comfort, your energy and start bringing in automation, interoperability capabilities with these systems that should really be talking to each other. I don't know why they wouldn't. You think about cooling and heating a home. Cooling your home probably can benefit from interaction with the shades in the home. You drop the shades, and then you turn on the AC. It only makes sense, except how would any average normal user do that today. They have to buy thermostats, they have to buy a hub. They have to put on their nerdy hats and start coding to make this automation happen between these devices. We don't think that's the home that is waiting for us maybe 10 years down the line. So every device should be intelligent enough to communicate with devices of interest in the home and then automate scenes and scenarios. And this is going to be the foundation that every brand is going to need to innovate. And we think as soon as these category of devices are delivered to your home as part of the original heating and cooling system that's installed, or when you refresh or you update your HVAC, if it comes and bundles with a great interface like this, then that's going to be the time that's calling them smart thermostat is probably incorrect anymore. They're just going to be thermostats. They're going to be expected. So the need for an aftermarket retail device is going to start diminishing when this is just expected on the baseline, which is the same thing that really we saw on the entertainment side as well. As your entertainment devices became smarter, the market for aftermarket, retail, advanced universal remotes, started shrinking because your devices were getting smart and smarter by UEI, building the intelligence and the devices at the time of shipment. So we're trying to replicate the same here. So to start, simplicity. A device that stops talking about AI and machine learning and predictive and all that stuff and simply states to the user your trajectory and what you're doing and where standing. From there, we make the device and the interware, and the interware through embedded sensors inside device. So we built in a range of really novel sensors inside the device so that they know when you enter the room, they know how you enter the room, they know the air condition in the room. They can also interact with other devices in the room to bring additional ambient awareness, which is very unique. And finally, managed services built into the device from the get-go, from technical support to remote monitoring and opportunity to integrate it with your own energy management, the cost optimization, peak shape algorithms and local utilities and so on and so forth. But all built around the idea that these devices should be delivered as part of a managed service so that they can truly benefit from the concept of the smart grids, all the way to proficiently monitored properties and so on. So before I bore you too much on this, I'd like to hand it off to Victor to talk about this great product.

Thank you very much, Arsham. So we have some animations of the products. So let's just go ahead and show it to you here live. It is a product that also utilizes our own technology. This is a QuickSet Widget-based device. So we have built this connected thermostat around the QuickSet Widget. That's how we get its connectivity, the ability to discover devices and to not only have the ambient awareness through its own sensors, but to be able to communicate and get information from other sensors in the room. Through our user interface, we leverage the rotary dial, right, to be able to just easily set our temperature, which tells you where you start, where you're heading to, gives you an idea of how long it's going to take you to get there. Very helpful, very simple. And by clicking on it, right, we can go in and manage all the activities that you would expect a thermostat to do. So if we want the heat, if we want the cool, the color scheme gives you an idea of the activities and the mode the sensor is actually operating on so we can manage those. And as Arsham was mentioning because it has the QuickSet built in and the ability to work with other things and itself in the room itself, we're able to work through scenes, right? And this is where we're able to then control the shades as well and it activates other devices too within the activity. And again, with Nevo being built in and as I -- we showed you earlier with the virtual agent, having the ability to do the virtual agent built in or being able, again, through a mobile device, be able to navigate the features by remote control and tells me exactly what it does, being able to ask the how to, right? How do I change the temperature? Basically tells me, hey, just move that rotary encoder, and you are able then to select the temperature up and down or be able to activate the menu to change the mode and set the temperature, right, all the way to troubleshooting to be able to say, hey, add a display here on the message. I don't quite understand what it is. This is what it is and get the definition of it. So this is an example of, again, extending the virtual agent experience not just for the entertainment devices, but also for your Connected Home devices as well. Similarly, with our capability to connect to the device and take the experience to the second screen is not limited to the support through the virtual agent. As you can imagine, we've talked about our activity into the hospitality market. If you have lights like this and you want to deliver a low-touch experience for your guests, right, as I get into my room, I should get a QR code that says, hey, if you want to control this device, why don't you scan this QR code, which takes me to an app that basically is a representation of the entire UI interface on the device itself. So that now it's taken that user interface, the convenience, the helpfulness of it right in mobile device without an application to download, without having to log into more profile or anything like that. It's a direct connection now to my phone to the device itself so that I can control it remotely. So again, it is a thermostat. And as Arsham has alluded, it's also a window then into the rest of your home. Through QuickSet, we can control all the interoperability with other devices and really start delivering on the promises of smart devices in the home. That brings us to the end of our product showcase for today. Let's turn it back over to Ramzi and see if we got any questions for Arsham or myself.

Okay. A lot of content there, very impressive there. So really appreciate that. Again, we're at the time we're allotted. I just want to highlight a couple of things. Number one is -- and Paul and others in the room will remember. I mean 10 years ago, we were talking about IR remotes and RF and the transition. We're explaining acronyms like IR and RF. And today, we're talking about a completely set of new set of technologies and capabilities and cloud connected and artificial intelligence. I think having witnessed all of this new technology that we've basically seen and embraced and really hopefully capitalized on, I really congratulate the product team for the work that they've done there. A couple of other highlights. I think Arsham showed the building blocks. I think it's really important for our audience to understand that while we do create products, and we do also create the building blocks that feed those products and the market that we service, in some instances, we'll take turnkey solutions. In other instances, they're already looking at an elemental technology that they take and implement into their systems. So again, being able to deliver the entire value chain, but also being able to highlight that in a full product, turnkey product. The other one is the LG dashboard. That is probably the best example of UEI's vision of blending entertainment and smart home IoT. Again, you see it on the big screen, and you see that interaction between entertainment content and smart home. The last comment I'll make is about the products that we showed. I mean we showed butler and virtual agent and [indiscernible]. And those products have a ton of features on them. And I think credit to you guys for trying to put all of that in 1 hour of presentation. But fundamentally, you see very full-featured products. Realistically, our customers don't take the full-featured solutions, right? What they will take initially is components of that. But what we try and give them is the full experience of what's possible on the platform. And the expectation is they'll take a platform and then over time add additional features and services. But what we're giving them is really the division of what's possible on those platforms. So again, kudos to the product team for doing a great job of presenting all of that information in the short amount of time. So with that, I want to turn it over to some questions. And we do have some questions here that I'll fire at the team. And if you could just keep the responses as efficient as we can, so we can move it along.

So Arsham, this is a question for you. Is QuickSet a recurring revenue or perpetual license onetime revenue event?

So QuickSet -- can you hear me? Okay. I hope you can hear me now. So QuickSet is -- has a couple of elements, and it has -- is a collection of services now. It's not a monolithic service anymore. It certainly has elements that are recurring, ongoing service. And there are different conversations on the commercial side on different ways of monetizing these services, ongoing capabilities, which obviously we cannot get into. It has certainly an opportunity to be recurring and under certain conditions, it can also have lifetime pricing models associated with it as well.

Okay. Thanks, Arsham. A question here, maybe Menno can answer this, is how many LG TV mobile support that QuickSet enables the dashboard.

Well, QuickSet is a whole host of product features that are inside of LG TV. So if you look at the particular IoT piece versus the full entertainment piece, it is across a multiple number of models right now. It's early days with the IoT dashboard. So there's still a lot of growth potential coming in there. If you look at the QuickSet total solution is almost in half of the TV models available right now. Sorry for [ messing up ]. Hope it answers.

Okay. A question maybe for Paul here. Going back to the chart with advanced set-top box market size -- I think we shared with the audience the size today and the growth trajectory. How large is that on an annual basis? And then how much dollar content does UEI have in set-top box?

Yes. The size of the market is, as reported, it's estimated to be about $90 million with growth potential over the next 5 years to double that. I think it was slightly less than $90 million growing to over $190 million over the next 5 years. So the market is expanding -- has been expanding over the last 5 years and is projected to continue to expand. In terms of the size of the market, no professional outside service gives a good estimate of that. We found pieces of it like the number of advanced subs. But I would say that, obviously, as Menno reported earlier, what's happening is the traditional products which are much simpler in nature, some of them as simple as infrared-only, have moved to products that are both aesthetically more pleasing to consumer, double injection molding cases, motion-activated backlighting in the product, which helps you when you watch television in dark lighting conditions, voice enablement, all of these elements obviously add to the price of the product. So we've seen as much as a doubling or more of the ASPs on those products. Some of these products can cost in excess of $10, sometimes higher, $10, $11, $12 versus the historic products, simpler products. So the size of market is growing as a result of both growth in advanced subs, but also the ASPs that come with those advanced sub products.

Okay, great. I think we had a question that came through the chat. It sounds like you are analyzing yourself with the [ mobile ] devices, and you're putting place with those as difference in volumes in the interoperability. And I think you just addressed that question.

Yes. The cannibalization in some ways, I don't like to think of it as cannibalization. It's a terrible word, but it's actually an enhancement. Because when an operator goes from a traditional product to an advanced product, again, they're more sophisticated architectures, and the ASP is much higher as a result of the difficulty of those products and our specialty in making those very difficult to make products.

[indiscernible] can I add to this? Just another important element. As these new advanced systems roll out, what we actually see is not cannibalization, it's enhancing each other because one revokes and respond from the other. We're bringing these advanced services -- these advanced products. It actually [indiscernible] other people to respond to come up with competing products that are also offering advanced service. And instead of seeing a cannibalization, you've seen an acceleration in that space.

Okay, great. Paul, staying with you. I have a question here, and I think you're going to love this one. Just, possibly, keep it short. What intellectual property is in place to protect QuickSet position?

Wow. Yes.

Make it short.

We didn't have a lawyer on the panel to come in and explain this. But yes, over the many years that UEI has been innovating, we've patented hundreds of patents. The QuickSet family, I don't know how big it is now. It's clearly dozens, multiple dozens of intellectual property or patents that we've surrounded these ideas with. Because, again, we innovated on these ideas, in some cases, well more than a decade ago. The market is moving in this direction, and the IP on this is important. We are the originator on many of these ideas. Many of the products that you've seen today and that we've described in the past, we were the originators of these ideas. So it's dozens. There are hundreds of patents, which I can't get into unless we have another 4 hours and I bring the lawyers in. But clearly, on QuickSet, it's multiple dozens of patents surrounding those technologies.

Good. So we have -- I think we're going to cover 2 more questions, but I want to ask those of Arsham. So the first one, Arsham, is are there any communication protocols that the company's capabilities are lacking?

Okay.

Did you hear my question?

Can you hear me? I heard. So there are no fundamental connectivities in the home that company is unable to execute. It is a question of whether the market is ready for it. So we typically take technology introductions into stages. We are typically working on technologies well before. You hear about them publicly from us. We do see long-range connectivity as one that would be showing up in the home and meaningful numbers in the coming years. And it shouldn't be surprising as universal electronics to also integrate that capability. Anything else that is happening within the home, I think we've done a great job to master. And we've layered every connectivity on top of the last and really completed all that covers the home now. And next natural evolution would be to bring beyond that.

Okay. Great. I thought the short answer would have been just, no, there are no protocols that we don't support. I appreciate your response. So last question for you. What are the opportunities to put more IP into set-top boxes by adding our home control capabilities in the MSO world?

That's great. So I mean, realistically, from our perspective, we don't look at smart TVs versus smart set-top boxes. Smart entertainment systems are smart entertainment systems that take over the largest screen in the home. And we see that as a place that people spend majority of their awake time when they're at home. They're probably sleeping the other time that they're at home. So we see that as a device that is attached in the home. So it's only natural to bring in more of the home services for the mainstream markets to be able to -- again, to break out the smartphone penetration from that 30-some-odd percent that is kind of capped the real penetration. So we see a lot of opportunities there. We're already seeing millions of homes on -- for example, LG dashboard is in millions of homes already, introduced only last year and growing already this year. So we see that the depth and width of the penetration is continuing to grow. So a lot of opportunities, both in the operators like smart set-top box markets as well as the smart TV markets. So a lot of room still to grow. The market is still [ early ].

Okay. Great. So I think that concludes the question-and-answer session at this point.

What I'd like to do is kind of introduce our last speaker. And let me do that. This gentleman is no stranger to most of you. You guys are probably -- most of you know him pretty well, our Chief Financial Officer, Bryan Hackworth, and I think you have the microphone live.

No.

Oh, just click it. There you go.

All right.

So how are we doing, Bryan?

I think we're doing just fine. Well, from a financial perspective, the challenge for the last few years was to find a way to fund all of these incremental R&D projects that we've taken you through today. Who's clicking on the slide?

You should be able to click.

Oh. It's nice. There we go. Yes. So the main challenge was to find a way to pay for all these incremental R&D projects. So we had to really figure out how to become more efficient and how can we use overhead more efficiently such that we reduce SG&A and use that savings to fund these projects. So what we ended up doing is really a two-pronged approach. One, we ended up moving from higher cost jurisdictions to lower cost jurisdictions. So we moved from California to Arizona. And we did a similar move in Asia, where we moved 2/3 of the employees we displaced from Hong Kong to Mainland China. So that would -- and then through that transition, you're actually able to -- it's an easier way to lower headcount, so we did that as well. The second step was we actually streamline -- take away payroll, we streamlined operating expenses. So it freed up cash. And you'll see here over -- there we go. You see here, we basically reallocated SG&A to R&D. So over a 5-year period, with 2016 being the base to 2020, we actually lowered SG&A by 5% over that period -- over that time period. Now during the same time period, we increased R&D, and we funded all these projects that we've been showing you today. Now a lot of products have been developed. These platforms can be sold in various form factors that could be sold in a full hardware solution. They can be sold in a chip with the technology embedded on the chip or it could be sold through a licensing arrangement. And from a gross margin rate perspective, it's actually from highest to lowest, it's actually reverse order where licensing is naturally going to be the highest at 100%. Second will be chips. And then third would be a full form factor with hardware. Now the great thing that's happened, and the guys have taken you through this already, just to reiterate is that this technology can be sold not just subscription broadcasting, but to different channels. So we now sell to some of the largest OEMs in the world, and we're also selling technology into the home automation space, mainly in security and energy control. Now a common question would be, are these investments paying off? I think the answer is a resounding, yes. I mean what you see here is during the last few years, we -- again, we licensed to 3 of the largest TV OEMs in the world. Our royalties have doubled from 2019 to 2020, and chip sales have increased by 40%. So the the company's profile has changed dramatically over the last couple of years. And gross margin, we exceeded 30% -- nearly 31% in 2020 for the first time since 2010. And from an operating margin perspective, we exceeded 10% for the first time since 2001. Now increased profitability is naturally going to lend to a better cash flow. We got a little -- we also had an improvement in working capital as well. But the main driver of this cash flow improvement was a more beneficial profile and just being more profitable. So during this time period, last 2 years, we were able to strengthen the balance sheet. And we took the cash flow, and we reduced our debt from the peak of $138 million in 2017, down to $20 million at year-end. We also had at year-end $37 million net cash position. And it gave us also the flexibility to really capitalize on what we believe to be a low share price in 2020, where each quarter, we meet with our Board, and we do an internal valuation of our company, we'll naturally compare the intrinsic value to be to the -- to market value. And if there's a gap, we're going to buy. And that's what we did in 2020. So we had cash available. We went out in the market. We bought nearly $18 million of our shares for a price just under $40. Now this is the -- we're not a one-hit wonder slide. You see here over the last 18 years, there's an upward slope in both sales and in earnings. We've been doing this for a long time. And with -- we like how we're currently situated, and we see no reason why this trend will not continue. So we are very optimistic, and that's why we're buying our shares back in the open market. That's why in the last conference call, we said that our Board authorized an additional 300,000 shares to be purchased contingent on price. But we like how we're situated. And I'll open this up for questions.

Okay. Thanks, Bryan. I want to be mindful of the time. We do have time for a couple of questions. There's one question that says, what will the company do with all the cash that will be generated over the next 5 years? What would be the criteria for acquisitions, dividends, et cetera? And I think you answered a little bit about the...

Yes, I answered the first one. What we do is we -- each quarter, we do an internal valuation. And we determine what the intrinsic value of the company is and compare it to the market rates. That's one option. But the key is to use cash wisely and you want to invest it in what will give you the largest return. So we'll look at acquisitions to figure out if there's anything out there. We'll look at share buyback, and we'll look at internal investments. And that's what we've done in the last few years. These incremental R&D projects aren't free. So we had to fund them. And what our goal was, was to, at a minimum, defray the cost of those incremental projects such that it wasn't -- and we couldn't fund a dollar for a dollar, but we got about $0.50 on the dollar. And as you could see from the gross margin and operating margin slides, there's no question that these investments are paying off.

Okay. Great. I don't see any more questions from the audience. So with that, before I turn it over to Paul for closing remarks, I want to thank the production team, Brandon, Susana, Aaron, you guys did a fantastic job of putting this all together. So very much appreciated. Hopefully, the audience was able to follow along with only the channel that was presented. I know we had a glitch with one of the videos and some people weren't able to watch it. We can make that video available for you guys to see. It was an introduction to Nevo Butler. So we'll do that. But with that, I would like to turn it over to Paul. And thank you, again.

Okay. Thanks, everybody, for your support over the last number of years. For some of you, it's many. For some of you, you're relatively new, but thanks for the support over this period of time. I want to thank the employees of UEI, generally. You've seen a lot of interesting things today that the sales team has been working hard on, the product team, the technology team. But it's also important to point out that over the last number of years, the entire group here, the operations team, customer service, they've just done a great job dealing with, in some cases, difficult situations like the tariff a couple of years ago, that we overcame, I think, extremely well. And with the pandemic last year, we were dealt another difficult headwind, and we're -- we fought through it to have our biggest year in EPS ever. Because of the many things that this team has done to both create innovative products and solutions, ultimately sell them and then deliver them in a way that's better than really anybody in our industry. So thank you to the team, the entire team here at UEI for executing in the way they have. We drop the mic now, except it's on a stand. So I'll leave it at that. Thank you very much.