Universal Electronics' (UEIC) CEO Paul Arling on Q4 2015 Results - Earnings Call Transcript

| About: Universal Electronics (UEIC)

Universal Electronics Inc. (NASDAQ:UEIC)

Q4 2015 Results Earnings Conference Call

February 18, 2016, 04:30 PM ET

Executives

Becky Herrick - IR

Paul Arling - Chairman and CEO

Bryan Hackworth - SVP and CFO

Analysts

Les Sulewski - Sidoti & Company

Mike Olson - Piper Jaffray

Steven Frankel - Dougherty

Ian Corydon - B. Riley & Company

George Prince - RBC

Josh Goldberg - G2 Investment Partners

Operator

Good day ladies and gentlemen and welcome to the Universal Electronics Fourth Quarter and Full Year 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Becky Herrick, of LHA. You may begin.

Becky Herrick

Thank you, operator. And thank you all for joining us for the Universal Electronics fourth quarter and yearend 2015 conference call. By now, you should have received a copy of the press release. If you've not, please contact LHA at 415-433-3777.

This call is being broadcast live over the Internet. A webcast replay will be available for one year at www.uei.com. In addition, any updated material nonpublic information that might be discussed during this call will be provided on the company’s website, where it will be retained for at least one year. You may also access that information by listening to the webcast replay. After reading a short Safe Harbor statement, I will turn the call over to management.

During the course of this conference call, management may make projections or other forward-looking statements regarding future events and the future financial performance of the company including: the company's ability to maintain and build its relationships with key customers, the company's ability to anticipate the needs and wants of its customers, and timely develop and deliver products that will meet those needs and wants, the significant percentage of our revenues attributable to a limited number of customers, the timing of new product rollout orders from the company’s customers as anticipated by management; the continued trend of the home entertainment industry in providing consumers with more advanced technologies; the successful integration of the Ecolink assets and business lines; the timely development, delivery and market acceptance of products and technologies such as two ARF, voice control, QuickSet Cloud, QuickSet 3.7, home security, home automation, wireless sensors and other technologies identified in this call.

Management's ability to manage its business to achieve its revenue and earnings as guided; the continued ability to identify and execute on opportunities that maximize stockholder value, including the effects repurchasing the company’s shares have on the company’s stock value; and other factors described in the company's filings with the U.S. Securities and Exchange Commission.

The actual results the company achieves may differ materially from any forward-looking statement due to such risks and uncertainties. Management wishes to caution you that these statements are just projections and actual results or events may differ materially and the company undertakes no obligation to revise or update these statements to reflect events or circumstances that may arise after today’s call.

For further detail on risks, management refers you to the press release mentioned at the onset of this call and the documents the company files from time-to-time with the SEC, including the Annual Report on Form 10-K for the year-ended December 31, 2014, and the periodic and quarterly reports filed since then. These documents along with the risks identified earlier contain and identify various factors that could cause actual results to differ materially from those contained in management’s projections or forward-looking statements.

In management’s financial remarks it will reference adjusted pro forma metrics. Management provides adjusted pro forma metrics because it eases them in making financial, operating and planning decisions and in evaluating the company's performance. The company believes these measures will assist investors in assessing the company’s underlying performance for the periods being reported.

A full description and reconciliation of these adjusted pro forma measures versus GAAP is included in the company's press release issued after the close of market today.

On the call today are Chairman and Chief Executive Officer, Paul Arling, who will deliver an overview; and Chief Financial Officer, Bryan Hackworth, who will summarize the financials, Paul will then return to provide closing remarks.

It’s now my pleasure to introduce Paul Arling. Please go ahead, Paul.

Paul Arling

Thank you, Becky and thank you all for joining us today.

For the fourth quarter of 2015, we reported record net sales of $162.1 million, reflecting a 17% growth over the same quarter last year. We also reported a quarterly record EPS at $0.91 per share, reflecting a 30% growth over the same quarter last year.

One of the main contributors to these record results was our strong subscription broadcasting business, which benefitted from the industry's transition to advance remote control technologies. We expect this trend to continue over the next few years as our customers will allow new platforms featuring UEI's advanced AV control software and hardware. These new platforms are changing the landscape of home entertainment.

The technologies embedded in these new platforms, cloud connectivity, two-way radio frequency and voice to name a few are enabling users to enjoy their home entertainment more easily than ever before.

They also allow a feature of home connectivity that promises valuable service offerings in the area of safety and security, home control or more broadly the internet of things. We expect to further benefit from this trend as these new platforms mature, expand in the new service offerings and grow worldwide.

In addition to promising demand trends, we're constantly enhancing our technology. At CES in January, we unveiled our latest innovations QuickSet Cloud and QuickSet 3.7. QuickSet Cloud delivers all the features of the flagship QuickSet solution as a cloud service, which effectively makes all the QuickSet features and benefits available to all connected devices in the home, including AV, mobile and resource constrained IOT devices.

With the release of QuickSet 3.7, we've added a predictive logic algorhythm that further expands the automatic capabilities of QuickSet to uniquely identify consumer's video service provider and optimize consumer's access to their programming content.

These enhancements to QuickSet take what was already by far the most advanced AV configuration and new software in the world and elevated it to a new level. It gives users the ability to access UEI's library of controlled protocol in real time and further enhances the ease of setup and everyday use. These features will be introduced by leading names in home entertainment, such as Samsun and Sony this spring.

Also at CES, we introduced UEI's exciting new portfolio of Intelligent Sensing Solutions via our August 2015 acquisition of Ecolink Intelligent Technology. This new suite of solutions addresses common home security, monitoring and control challenges. In fact we have several new home safety and security product introductions planned throughout 2016.

Combined with UEI's platform of innovative home entertainment control solutions, these products and services enable us to offer customers a more complete smart home solution. The Ecolink acquisition enables us to deepen our relationships with existing customers and also add new ones as the smart home connects devices and technologies in a way never seen before.

Our embedded software solutions and market leading position and control devices and technologies assures us of an exciting future as the home experience will evolve and become more complex, but much more useful and powerful at the same time. This is right where UEI excels as the evolution will require innovative concepts and solutions to make home control simpler, more accessible and more enjoyable for consumers.

I would now like to have Bryan Hackworth our CFO, take you through the financial results.

Bryan Hackworth

Thank you, Paul. As a reminder our results for the fourth quarter and full year 2015 as well as the same period in 2014 will reference adjusted fourth quarter metrics.

Fourth quarter 2015 net sales were $162.1 million compared to $138.4 million for the fourth quarter of 2014. Business category net sales were $145.4 million compared to $120.7 million in the prior year. This represents an increase of over 20%, which was driven primarily by certain customer’s transition to higher remotes that include features such as two-way RF technology and voice control.

Customer category net sales were $16.7 million compared to $17.7 million. Because of the stronger U.S. dollar versus the Euro and British Pound consumer sales were adversely affected by $1.3 million.

Gross profit was $46.6 million or 28.8% of sales compared to gross margin of 30.3% in the fourth quarter of 2014. The decrease in our gross margin rate is due primarily to a higher percentage of our sales being made to large customers who received favorable pricing because of higher volumes.

We've also experienced a decrease in royalty revenue as there were a number of new product introductions in the prior year, one with a significant brand name.

Co-operating expenses were $31.4 million compared to $29.1 million in the fourth quarter of 2014. Breaking down our operating expenses, R&D expense was $5.4 million compared to $4.3 million in the fourth quarter of 2014.

SG&A expenses were $26 million compared to $24.8 million. Operating income was $15.2 million compared to $12.8 million in the fourth quarter of 2014 representing an increase of approximately 19%.

The effective tax rate was 13% compared to 15.6%. Net income for the fourth quarter of 2015 was $13.4 million or $0.91 per diluted share compared to $11.3 million or $0.70 per diluted share in the fourth quarter of 2014.

For the full year 2015 compared to 2014, net sales were $602.8 million compared to $562.3 million. Gross margin was 27.9% compared to 29.8%. Total operating expenses were $112.9 million compared to $115.3 million. Operating income was $55 million compared to $52.5 million. Net income was $43.3 million or $2.39 per diluted share compared to $41.1 million or $2.55 per diluted share in the prior year period.

Next I will review our cash flow and balance sheet at December 31, 2015. We ended the quarter with cash and cash equivalents of $53 million compared to $112.5 million at December 31, 2014. During the fourth quarter, we repurchased approximately 223,000 shares for $10.7 million representing an average price of approximately $48 per share.

Depending upon market conditions, we expect to continue to buyback our shares over the next few months as the promising trends in our industry and our growing market position support our positive long-term outlook.

DSOs were approximately 68 days at December 31, 2015, compared to 64 days a year prior. Net inventory turns were approximately 3.9 turns at December 31, 2015, compared to 4.1 turns a year prior.

Now turning to our guidance, in the first quarter of 2016 we expect revenue between $153 million and $161 million compared to last year’s first quarter revenue of $132.7 million. EPS for the first quarter is expected to range from $0.46 to $0.54 per diluted share, compared to $0.46 recorded for the first quarter of 2015.

Although we're not providing specific guidance for the full year 2016, I would like to mention we expect our earnings growth to improve as the year progresses.

In terms of comps, the first quarter is the most challenging because royalty income was still significant in the first quarter of 2015. However, as Paul mentioned, we have a number of new customers that are transitioning to advanced platforms throughout 2016 both in the U.S. as well in Europe.

In addition, we have secured new customers in the home security market that will begin shipping in the second quarter and ramped throughout 2016. Based on the aforementioned positive trends in our industry, we're reaffirming our long-term financial outlook. We expect average annual sales growth of 5% to 10% and average earnings growth of 10% to 20%.

I would now like to turn the call back to Paul.

Paul Arling

Thanks Bryan. We're excited to be in the midst of a dynamic evolution in the industry. The internet of things has enabled an unaccountable number of devices to connect, integrate and share information, where there is an inflation point where home security solutions converge with home entertainment devices.

UEI is ideally positioned to benefit from this convergence as we've established relationships with the world’s leading names in home entertainment worldwide.

As I have said before, we're changing what a remote control is and what a remote control is capable of doing. Our products and technologies are changing the way that consumers interact with their home entertainment sources and we're making set up in everyday use easier than they have ever been before.

We've extended this same approach of superior product differentiation into the growing market for safety and security products within the home. We've a very long track record of developing the control solutions that anticipate these future trends and we have the financial results to prove it.

Our team has done a brilliant job of establishing us as the leader in control and sensing technologies within the home over many years yet we feel that we're just getting started. I’m more confident than ever we have a bright future ahead of us. Stay tuned.

I’d now like to open it up for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions].The first question is from Les Sulewski of Sidoti & Company. Your line is open.

Les Sulewski

Good evening. Thank you. Yeah, hi guys, so wanted to reach out about percentage of shipments from the third quarter versus what occurred in the fourth? I just want to get an idea of what remains to be shipped or delayed if anything?

Paul Arling

Yeah, [this is the stuff] that remains to be shipped. We had a little bit of delay in Q3, but Q4 it all shipped. So there is no more additional [ROI].

Les Sulewski

Got it. Okay. And then at what point does the gross margin pressure from overweight shipments to one customer start to ease?

Bryan Hackworth

Yes I think it will start -- you can see these throughout 2016. As I mentioned on the call Q1, the comps are a bit more difficulty. So we had it [sit in our overall season] Q1 of last year and as the year progresses, I would see the gross margin improving a bit because as Paul mentioned before, we’re starting off with a large customer that transitioned for the low end remotes the high end remotes.

So they get favorable pricing and then as new customers adopt that aren’t as big, the pricing will be a little different and it should put some upward pressure on the gross margin rate.

Les Sulewski

Okay. I guess to follow-up on that, what are you seeing as far as the adoption rates from new customers?

Paul Arling

The adoption rate, well we’re in discussions with a number of new customers. We talked about how we had a large customer that came on in Q2 of 2015. Q4 we mentioned that we had three additional customers come on Board and then throughout 2016, additional customers will -- well we're in various stages with a number of new customers that come on in different stages.

And those who have put out their advanced platforms already are -- they've -- some of them have told us and I am using their words, they're ecstatic about the results they’ve gotten from the new implementation of their products.

So they’re very excited about the new features it brings, the ease of use that is being brought by the new platform as well as other things. So customers that have implemented these advanced platforms already are very excited about the effect they have.

Les Sulewski

Okay. And then I guess when we were going through 2016, what would you say would be a roll out or kind of a conversion rate of the legacy remotes versus the new technology?

Paul Arling

Well we can’t really give a rate on that. Obviously the rate of change will be embedded in our guidance as far as the sales results from it. All we can say is that there is again just like last quarter there is a couple of dozen customers. We've converted some.

So they went from being in the mid stage to being in the development stage. We have some that are moving from development into introduction and this will be a process that takes place as I said during the prepared remarks over the next couple of years.

But I will say that the operators, today mainly in the U.S. but also in Europe, you can almost name -- it's easier to name the ones that aren’t working on this or talking about it than the ones who are. So they're all moving towards this idea of cloud connected two-way advanced platform boxes, making their user interface much simpler and much easier to use to watch their TV content.

Les Sulewski

That's helpful. Also regarding your just issued guidance for first quarter and then your long-term guidance, the flat to 10% on the topline given that just released guidance, do you think it will come up to maybe on the kind of higher end of that range for the full year?

Bryan Hackworth

Yes, the long-term guidance we give that we talked about before is usually its long-term with three to five years out. So we don't give guidance on any given year. We give it on quarter-to-quarter and for the first quarter, we're looking at 15% to 21% sales growth. So I don't -- specifically I give guidance for the full year.

Les Sulewski

Okay. Got it. I guess just one more for me, I'll jump in the queue, can you give a little bit of a breakdown on the R&D and SG&A expenses in the fourth quarter and how can we look at that moving forward? Thanks.

Bryan Hackworth

Yes, we've got Ecolink on Board now. So Q4 is a little higher than last years. So we've got a -- next year we'll have a full year of Ecolink. You'll get normal pay raises that kick in and we had a higher -- little more engineers in terms of the RF technology and some of the more to handle the advanced features that we're deploying in our products now.

But we don't give specific guidance on OpEx, but those three categories what I just mentioned should increase a little bit, but nothing too significant.

Les Sulewski

Okay. Thank you.

Operator

Thank you. The next question is from Mike Olson of Piper Jaffray. Your line is open.

Mike Olson

Hey. Good afternoon. You mentioned more rollouts of advanced remotes. Are those with other major service providers or in some other capacity like in the CE space or otherwise and I guess you haven't officially announced any, but as you do get other service providers deploying advanced remotes, will that be something that you can announce at some point or will it be more of we can now try to see it playing out in the field to know what's happening?

Paul Arling

Yes, we'll announce them as we can. Certainly on these calls, it's a little easier doing press releases can sometimes be difficult or time consuming meaning they can take longer than you might expect, but we obviously will update on calls and as we can as time goes forward.

As far as which channels will we be assigning these new implementations into, the majority of the projects now are in subscription broadcasting, but as I mentioned on the call QuickSet implementations are moving forward, either upgrades from prior QuickSet implementations or new QuickSet implementations with major names in the consumer electronics market.

So we're making progress on both fronts as far as advanced platforms, advanced functionality are concerned.

Mike Olson

Okay. So just to be specific, if you can answer these, are there service providers outside of Comcast that are kind of putting advanced remotes live into the marketplace right now or not yet?

Paul Arling

Yes.

Mike Olson

Okay. Perfect. And then in 2015 you had some issues with kind of you had some of the previous questions, but finishes with customers drawing down inventory for the legacy gen remotes ahead of deployment of some of the more advanced offerings.

Is there a risk that this could create any unforeseen volatility in 2016?

Paul Arling

It's possible, although again as you move into the medium size customers, the effect of those inventory issues lessen. In other words, the larger the customer and the larger the inventory backup they have or safety stock as they might call it, the larger the effect.

As you move into the medium sized companies, the effect of those inventory imbalances lessen, particularly as you have larger customers moving into the new platform, the sales growth from it more than offsets the sales shrinkage from any inventory imbalance you may have for the medium sized customer.

So longwinded way of saying the problem will still exist, or the problem can still cause a risk, but it's only the major ones that have the biggest effect.

Mike Olson

Okay. That makes sense and then one last thing, you mentioned Bryan, you mentioned share repurchases, what’s the current buyback authorization?

Bryan Hackworth

400,000 shares.

Mike Olson

Okay. All right. Thanks a lot.

Bryan Hackworth

Thank you.

Operator

Thank you. The next question is from Steven Frankel of Dougherty. Your line is now open.

Steven Frankel

Good afternoon, Paul. Let’s start with that advanced technology pipeline, how many designs are in there and how many of those would you expect to ship in 2016?

Paul Arling

Steve, I don’t have an exact count. Again as we said last quarter, there is a few dozen. I think it’s about 20 almost a couple dozen projects, but again they’re at various stages somewhere at the bid stage, somewhere at the acceptance stage, development stage and then commercial introduction.

All I can tell you right now is that obviously many of those projects have moved closer to the last stage, which is commercial introduction. So, some of these projects can take as much as year and so we’re working on many of them that we're planning to introduce in the coming quarters of this year.

In addition we have the safety and security products, which we also have projects we're working on with major customers in the industry for introduction in the coming quarters.

Steven Frankel

Okay. And any commentary around the SEC decision today to open the set top box market and how that might impact your business?

Paul Arling

Well, it’s kind of early for us to comment on it because we don’t know exactly how they're going to do that, but I guess taking a step back obviously consumers want ease of use, they want devices where they can plug demand and they can set themselves up.

Consumers that have gotten the new platforms really love them. That’s why our customers are ecstatic over the results of them. So, I think obviously everyone involved including our governmental agencies.

They certainly want to do it in their best interest of the customer -- of the consumer and the consumers really like the TV viewing experience from these new platforms.

So regardless of how this thing ends up, it may change the way in which we sell, but it won’t change the fact that people still sit 10 to 12 feet on average from their television and they’re going to want a product that will ease their ability to control various sources they have. So we don’t really see this as changing anything, but we'll have to see exactly how this thing shapes out.

Steven Frankel

Okay. And a couple of questions for Bryan, don’t want him to feel left out, what was Comcast in the quarter and were there any other 10% customers?

Bryan Hackworth

Yes, there were two 10% customers, Steve. Comcast was up 25% and DIRECTV was 10.7%.

Steven Frankel

Okay. And CapEx in 2015 looked above trend line. I know some of that had to do with these new advanced remotes, what should we anticipate for CapEx in 2016?

Bryan Hackworth

Yes, I would say low to mid-20s because we’re actually implementing a new ERP system as well this year. So it’s going to raise it from the 2014 levels, but it will be less than 2015.

Steven Frankel

Okay. All right. I will hop back in the queue, thank you.

Operator

Thank you. The next question is from Ian Corydon of B. Riley & Company. Your line is open.

Ian Corydon

Thank you. Bryan, what's the tax rate for the first quarter that's embedded in the earnings guidance?

Bryan Hackworth

I would view as low 20s, usually around 22% will be fine.

Ian Corydon

Okay. And apologies if this has been asked, but as gross margin rises through the year, should we assume that sales growth slows a bit from the mid-teens to low 20% year-over-year growth in the first quarter?

Bryan Hackworth

Yes it is, but we don’t give guidance by quarter. We give by quarter but I am not going to give four quarters out. All I will say is that for the long-term guidance we think we give 5% to 10%. Q1, we think it will be more than that, but we will give additional guidance as the year progresses.

Ian Corydon

Okay. And will sales of home security products be materials to overall results this year and then maybe you could just talk about the gross margin you expect to get on those products versus your current legacy business gross margin?

Bryan Hackworth

Yes the sales of safety and security products this year will grow significantly, but remember when we bought Ecolink we did this -- their sales were less than $10 million.

So the growth rate on it will be substantially more than our company growth rate, that’s our expectation for this year. But it could grow by 3S to 4S, three, four times and it will still be relatively small, but a significant growth rate. In terms of the gross margins typically this product carries a higher gross margin than our average.

Ian Corydon

Got it. Thank you very much.

Operator

Thank you. The next question is from George Prince of RBC. Your line is open.

George Prince

Hey Paul. Hi Bryan, can you give us some more feedback, some more details into Comcast experience with your new remotes and any other customers that why do they like it or not like it? What features are important and can you also tie that into how you're working with the set top boxes?

Paul Arling

Sure. While I won’t speak specifically about any individual customer, we would rather let them talk about this publically to the extent they wish to, but I’ll give you generalized comments that we've had on some of these platforms that consumers the research they’ve done, they love this product.

If anybody out there has experienced one of the new platforms with voice search etcetera and its really when you get to the content you want to watch, you simply press a button and say what you want to watch and it will come up right on the screen and you select it and off you go. So there is no more waiting through 35 pages of guide. It’s a real simple process.

Also when you put in the search term, what they're finding is that they're getting a lot more interest in DOV selections that because there may be things that operators have, but you may not know they have because they're too difficult to find in the old interface.

But when you say I want to watch an action movie, one might come up and you will say, wow, I didn’t know that was out there. You click on it and buy it and they're finding that they can sometimes pay for the remote in couple of months, the additional of expense of this new remote that everybody loves in a couple months because of that.

So they’re getting a lot more customer engagement with the platform. The interface is way better both onscreen and the one in your hand. Voice is a real enhancement. So they’re just real ecstatic about the way it’s all worked technically and from a customer perspective, customer acceptance perspective.

I think Comcast has stated publicly that they are aggressively rolling this out. They are very happy with the program.

George Prince

Do they provide any -- you mentioned a payback a couple of months. Are they giving you any kind of numbers on the value of the remote churn numbers or?

Paul Arling

No again I would let them publicly talk about that. We wouldn’t comment on that. But they're really pleased both technically from a customer acceptance perspective and financially that the investment they feel that they've put in, in Comcast has done a lot of great work on this along with us but also obviously they’ve spent a lot on their own on this and they're real pleased with the return on investment they’re getting.

George Prince

Can you talk about how this all ties into the set top box?

Paul Arling

I will, sure. Obviously the remote always works directly with the set top box and also with software to that end. So it's very well integrated with the onscreen interface if that's what you mean George.

George Prince

Well are you getting adoption? Are you putting chips in? Is it just software? Are you getting paid for it? How does it all come together?

Paul Arling

Well again it depends on the customer. Typically what we do is give a -- it's a price that we sell the remote for and we provide all the remote control technology in the solution for a price.

So sometimes that will include software that gets embedded. Sometimes and it always includes in the subscription broadcasting case, includes the remote. There are times where we would just sell chips typically on the consumer electronics side, we may not sell the hardware. We may just sell the chip and/or the software that would be embedded in the television.

So it varies by customer. But subscription broadcasting, the typical model is to sell the entire control -- remote control technology and hardware. So the remote itself and the software that goes along with it.

George Prince

Okay. All right, thanks. Good luck.

Operator

Thank you. [Operator Instructions] The next question is from Josh Goldberg of G2 and Partners. Your line is open.

Josh Goldberg

Hey guys, couple of quick ones. It seems like Ecolink obviously has a bright future in '16, but it possibly could have been dilutive for you in the December quarter with the increase in the OpEx as it was. Is that fair to say?

Paul Arling

No, I think we mentioned that before Ecolink is mildly accretive, breakeven to mildly accretive, but there are not dilutive.

Josh Goldberg

How much of the increase in OpEx was Ecolink related? Your OpEx went up by about $5.5 million?

Paul Arling

Yes, we don't disclose that specifically for Ecolink. We may break it out in 2016 we'll have to say, but we've to wait and see, but right now we're not breaking it out.

Josh Goldberg

Okay. So it was mildly accretive. There is obviously some other expenses there because if you're doing $10 million a year and even it was backend loaded and high margin, it was obviously some additional expenses. Were any of those one time or those were recurring as well?

Paul Arling

For Q4, OpEx wasn’t that high for Q4. It was slightly higher than last year, but part of it, majority of it was Ecolink. And then little bit of payroll versus the prior year, but the OpEx wasn’t that much higher than the prior year.

Josh Goldberg

About $2.5 million yes.

Paul Arling

We're actually -- that was R&D spending on these next generation platforms.

Josh Goldberg

Okay. Can you roughly say how much of the net income was royalty based in Q1 last year? Would you say it was more than 10% of your net income?

Paul Arling

We don't -- I don't believe we disclose the actual royalty income. So I am not going to disclose it right now.

Josh Goldberg

Okay. But you said it was material enough that it's going to cause us tough compare in Q1 this year.

Paul Arling

The Q1 is a difficult time.

Josh Goldberg

Okay. Can you talk a little bit about the gross margin? Obviously that was a very good number in the fourth quarter and it sounds like based on both Ecolink and some of the new customers that you have in store, we might see maybe not 2020 year, but an increasing gross margin in 2016?

Why was the gross margin so strong in the fourth quarter and does the currency at all help you in '16 if the euro stays where it is? Thanks.

Paul Arling

Yes, well Q4 does have consumer if it's the largest quarter of the year and the consumer category yields a higher gross margin than the business category. So that helps in Q4.

And then you're right. The currency does have -- there is two facts of it. From a sales perspective, the strength in the dollar versus the euro and the very strong actually hurts us, but then from a cogs perspective, the strength in the U.S. dollar versus the Chinese renminbi actually helps us. So that should help us in 2016.

Josh Goldberg

So do you have a -- so just so I understand you have three different things that might really help you in '16 on the gross margin line you have, the new products and Ecolink what you said have higher margin new customers outside of your biggest customers that are moving forward with this high end remotes that have higher margin and the currency will help you with margin on a gross margin side. Is that fair to say?

Paul Arling

That's fair to say and there is a lot more to gross margin than just the three facets. There are a lot of positives and there are also negatives. You got inflation in China and things of that nature. So you got positives and negatives, but we just mentioned is true. Those are three positives that will affect our gross margins positively.

Josh Goldberg

Okay. Last one for me, sorry to take so much time, but you bought back 1.8 million shares this year just remarkable almost over 12% of the company, obviously you're feeling really good about the company and the prospects, can you just talk a little bit about what gives you this level of confidence?

Obviously it sounds like you've won some pretty big designs, but to buy that kind of stock is definitely not very common right now in the bulk markets by that kind of stock back.

Paul Arling

We do have detailed -- we do detailed analytics every quarter Josh to determine.

Josh Goldberg

No question about that.

Paul Arling

Based on our view of both the near term and the longer term forecast, what we believe our future looks like then we compare that obviously to the market the trading of our stock and when a distance between those two things grows, we more aggressively buy the stock and when it shrinks, we less aggressively buy the stock.

So I guess you could say that what's happened over the last 12 months in particular is that the distance between those two numbers grew a little bit and we see that as an opportunity to successfully use the company's capital to one of the best investments we can do besides some of the CapEx we've done to get a good return as to take advantage of that, that separation between the intrinsic value that we see and the market value that we trade at.

Josh Goldberg

Got you. Okay. Great. Thanks so much.

Paul Arling

It's quarter-to-quarter thing and as the price changes, our view on that may change, but during the last 12 months we have somewhat aggressively compared the prior years, bought our own stock.

Josh Goldberg

Got you. Great. Thanks so much.

Operator

Thank you. [Operator Instructions] And at this time, I would like to turn the call back over to Paul Arling for closing remarks.

Paul Arling

Okay. Everybody, thank you for joining us today and for your continued interest in UEI. I do want to announce that on March 8, we'll be participating in the Piper Jaffray Interactive Entertainment and Technology Conference in New York City. We hope to see some or all of you there.

Thank you very much and good bye.

Operator

Thank you. Ladies and gentlemen this concludes today's conference. You may now disconnect. Good day.

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