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Universal Electronics Reports First Quarter 2018 Financial Results

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Universal Electronics Inc. (UEI), (NASDAQ:UEIC) reported financial
results for the three months ended March 31, 2018.

Paul Arling, UEI's chairman and CEO, stated, "The audio-video industry
is transforming again; this time next-generation platforms are adopting
advanced, intuitive 2-way home entertainment systems enabling one-touch
view and connected voice. Our customers are working feverishly to bring
automatic speech recognition (ASR) and voice navigation capabilities to
their users. Some are in the design stages; some are testing; and some
have already launched award-winning voice-enabled devices and system
control solutions using UEI's technology. Similar to prior technology
sea changes – such as the historical shifts from analog to digital, from
non-DVR to DVR and from standard definition to high definition – we
expect this transition to span more than a few years. During this
transition, we will continue to innovate, create more industry leading
technology and improve our operations, all of which will contribute to
shareholder value."

Financial Results for the Three Months Ended
March 31: 2018 Compared to 2017

  • GAAP net sales were $164.7 million, compared to $161.4 million;
    Adjusted Non-GAAP net sales were $170.6 million, compared to $162.3
    million.
  • GAAP gross margins were 22.6%, compared to 25.4%; Adjusted Non-GAAP
    gross margins were 25.6%, compared to 26.7%.
  • GAAP operating income was $0.9 million, compared to an operating loss
    of $0.4 million; Adjusted Non-GAAP operating income was $11.3 million,
    compared to $11.8 million.
  • GAAP net loss was $0.6 million, or $0.04 per diluted share, compared
    to GAAP net income of $0.1 million or $0.01 per diluted share;
    Adjusted Non-GAAP net income was $8.8 million, or $0.62 per diluted
    share, compared to $9.2 million, or $0.62 per diluted share.
  • At March 31, 2018, cash and cash equivalents were $40.2 million.

"During the first quarter of 2018, as expected, our revenue grew
year-over-year and our gross margin percentage increased sequentially as
a result of process improvements made at our China factories. We also
signed several more PayTV and TV OEM advanced device projects that will
drive growth," stated UEI's CFO Bryan Hackworth. "Although certain
customers are currently reducing orders to rebalance inventory levels,
preserve capital and/or manage their platform transitions, our long-term
outlook is still strong based on a growing list of customer engagements."

Financial Outlook

For the second quarter of 2018, the company expects GAAP net sales to
range between $158 million and $166 million, compared to $177.6 million
in the second quarter of 2017. GAAP loss per diluted share for the
second quarter of 2018 is expected to range from $0.18 to $0.28,
compared to GAAP earnings per diluted share of $0.32 in the second
quarter of 2017.

For the second quarter of 2018, the company expects Adjusted Non-GAAP
net sales to range between $158 million and $166 million, compared to
$177.9 million in the second quarter of 2017. Adjusted Non-GAAP earnings
per diluted share are expected to range from $0.35 to $0.45, compared to
Adjusted Non-GAAP earnings per diluted share of $0.78 in the second
quarter of 2017. The second quarter Adjusted Non-GAAP earnings per
diluted share estimate excludes $0.63 per share related to stock-based
compensation, amortization of acquired intangibles, changes in
contingent consideration relating to acquisitions, effects of foreign
currency fluctuations and the related tax impact of these adjustments.

Conference Call Information

UEI's management team will hold a conference call today, Thursday, May
3, 2018 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its first quarter
2018 earnings results, review recent activity and answer questions. To
access the call in the U.S. please dial 877-843-0414, and for
international calls dial 315-625-3071 approximately 10 minutes prior to
the start of the conference. The conference ID is 6098323. The
conference call will also be broadcast live at www.uei.com
where it will be available for replay for one year. In addition, a
replay will be available via telephone for two business days beginning
two hours after the call. To listen to the replay, in the U.S. please
dial 855-859-2056, and internationally dial 404-537-3406. The access
code is 6098323.

Use of Non-GAAP Financial Metrics

In addition to reporting financial results in accordance with generally
accepted accounting principles, or GAAP, UEI provides Adjusted Non-GAAP
information as additional information for its operating
results. References to Adjusted Non-GAAP information are to non-GAAP
financial measures. These measures are not required by, in accordance
with, or an alternative for, GAAP and may be different from non-GAAP
financial measures used by other companies. UEI's management uses these
measures for reviewing the financial results of UEI, for budget planning
purposes, and for making operational and financial decisions and
believes that providing these non-GAAP financial measures to investors,
as a supplement to GAAP financial measures, helps investors evaluate
UEI's core operating and financial performance and business trends
consistent with how management evaluates such performance and trends.
Additionally, management believes these measures facilitate comparisons
with the core operating and financial results and business trends of
competitors and other companies.

We present certain elements of our results of operations excluding the
impact of foreign currency exchange rate fluctuations (constant
currency). To present this information, current period results for
entities reporting in currencies other than the U.S. Dollar are
translated into U.S. dollars at the average exchange rates in effect
during the corresponding period of the prior fiscal year, rather than
the average exchange rate in effect during the current fiscal year.
Therefore, the foreign currency impact is equal to current year results
in local currencies multiplied by the change in the average foreign
currency exchange rate between the current fiscal period and the
corresponding period of the prior fiscal year. We believe that
presenting constant currency results of operations provides useful
information to investors because they provide transparency to underlying
performance by excluding the effect that foreign currency exchange rate
fluctuations have on period-to-period comparability given volatility in
foreign currency exchange markets.

Adjusted Non-GAAP net sales is defined as net sales excluding the impact
of stock-based compensation for performance-based warrants, the impact
of the adoption of Accounting Standards Codification 606, "Revenue from
Contracts with Customers" ("ASC 606") and the impact of foreign currency
exchange rate fluctuations. Adjusted Non-GAAP gross profit is defined as
gross profit excluding stock-based compensation expense, depreciation
expense related to the increase in fixed assets from cost to fair market
value resulting from acquisitions, amortization of intangibles acquired,
excess manufacturing costs, the impact of the adoption of ASC 606 and
the impact of foreign currency exchange rate fluctuations. Adjusted
Non-GAAP operating expenses are defined as operating expenses excluding
amortization of intangibles acquired, stock-based compensation expense,
employee related restructuring costs, changes in contingent
consideration related to acquisitions, the impact of the adoption of ASC
606 and the impact of foreign currency exchange rate fluctuations.
Adjusted Non-GAAP net income is defined as net income excluding the
aforementioned items, foreign currency gains and losses, and the related
tax effects of all adjustments. Adjusted Non-GAAP diluted earnings per
share is calculated using Adjusted Non-GAAP net income. A reconciliation
of these financial measures to the most directly comparable GAAP
financial measures is included at the end of this press release.

About Universal Electronics

Universal Electronics Inc. is the worldwide leader in universal control
and sensing technologies for the smart home. For more information,
please visit www.uei.com/about.

Note on Forward-looking Statements

This press release and accompanying schedules contain "forward-looking
statements" within the meaning of federal securities laws, including net
sales, profit margin and earnings trends, estimates and assumptions; our
expectations about new product introductions; and similar statements
concerning anticipated future events and expectations that are not
historical facts. We caution you that these statements are not
guarantees of future performance and are subject to numerous risks and
uncertainties, including those we identify below and other risk factors
that we identify in our most recently filed Annual Report on Form
10-K. Risks that could affect forward-looking statements in this press
release include the continued adoption by our customers of our advanced
intuitive 2-way home entertainment systems and technologies as
anticipated by management, including our one-touch view and voice
control technologies; our ability to successfully improve our
manufacturing operations and maintain and/or improve our margins and
cost effective operations. Any of these factors could cause actual
results to differ materially from the expectations we express or imply
in this press release. We make these forward-looking statements as of
May 3, 2018. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise.

– Tables Follow –

   

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

(Unaudited)

 
March 31, 2018 December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 40,229 $ 62,438
Restricted cash 5,080 4,901
Accounts receivable, net 160,055 151,578
Contract assets 22,269
Inventories, net 139,408 162,589
Prepaid expenses and other current assets 12,229 11,687
Assets held for sale 12,685 12,517
Income tax receivable 3,828   1,587  
Total current assets 395,783 407,297
Property, plant, and equipment, net 117,004 110,962
Goodwill 48,620 48,651
Intangible assets, net 27,776 29,041
Deferred income taxes 7,119 7,913
Other assets 4,535   4,566  
Total assets $ 600,837   $ 608,430  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 105,470 $ 119,165
Line of credit 141,000 138,000
Accrued compensation 33,323 34,499
Accrued sales discounts, rebates and royalties 7,581 8,882
Accrued income taxes 2,865 3,670
Other accrued liabilities 29,111   28,719  
Total current liabilities 319,350 332,935
Long-term liabilities:
Long-term contingent consideration 9,360 13,400
Deferred income taxes 4,485 4,423
Income tax payable 2,520 2,520
Other long-term liabilities 1,595   1,603  
Total liabilities 337,310 354,881
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none
issued or outstanding
Common stock, $0.01 par value, 50,000,000 shares authorized;
23,830,353 and 23,760,434 shares issued on March 31, 2018 and
December 31, 2017, respectively
238 238
Paid-in capital 268,645 265,195
Treasury stock, at cost, 9,716,412 and 9,702,874 shares on March 31,
2018 and December 31, 2017, respectively
(262,680 ) (262,065 )
Accumulated other comprehensive income (loss) (12,953 ) (16,599 )
Retained earnings 270,277   266,780  
Total stockholders' equity 263,527   253,549  
Total liabilities and stockholders' equity $ 600,837   $ 608,430  
 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended March 31,
2018   2017
Net sales $ 164,698 $ 161,406
Cost of sales 127,496   120,372  
Gross profit 37,202 41,034
Research and development expenses 6,051 5,498
Factory transition restructuring charges 5,250
Selling, general and administrative expenses 30,247   30,651  
Operating income (loss) 904 (365 )
Interest income (expense), net (1,070 ) (393 )
Other income (expense), net (587 ) 583  
Income (loss) before provision for income taxes (753 ) (175 )
Provision for income taxes (benefit) (166 ) (294 )
Net income (loss) $ (587 ) $ 119  
 
Earnings (loss) per share:
Basic $ (0.04 ) $ 0.01  
Diluted $ (0.04 ) $ 0.01  
Shares used in computing earnings (loss) per share:
Basic 14,087   14,449  
Diluted 14,087   14,717  
 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
Three Months Ended March 31,
2018   2017
Cash provided by (used for) operating activities:
Net income (loss) $ (587 ) $ 119
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 8,243 7,645
Provision for doubtful accounts 4 23
Provision for inventory write-downs 756 659
Deferred income taxes 913 (496 )
Shares issued for employee benefit plan 335 346
Employee and director stock-based compensation 2,204 2,623
Performance-based common stock warrants 471 932
Changes in operating assets and liabilities:
Accounts receivable and contract assets (266 ) (3,689 )
Inventories 1,372 (1,564 )
Prepaid expenses and other assets (454 ) (905 )
Accounts payable and accrued liabilities (21,160 ) (16,182 )
Accrued income taxes (3,774 ) (2,064 )
Net cash provided by (used for) operating activities (11,943 ) (12,553 )
Cash used for investing activities:
Acquisitions of property, plant, and equipment (9,314 ) (6,460 )
Acquisitions of intangible assets (571 ) (410 )
Net cash used for investing activities (9,885 ) (6,870 )
Cash provided by (used for) financing activities:
Borrowings under line of credit 13,000 53,000
Repayments on line of credit (10,000 ) (14,987 )
Proceeds from stock options exercised 439 237
Treasury stock purchased (615 ) (11,389 )
Contingent consideration payments in connection with business
combinations
(3,858 )  
Net cash provided by (used for) financing activities (1,034 ) 26,861
Effect of exchange rate changes on cash, cash equivalents, and
restricted cash
832   25  
Net increase (decrease) in cash, cash equivalents, and restricted
cash
(22,030 ) 7,463
Cash, cash equivalents, and restricted cash at beginning of year 67,339   59,834  
Cash, cash equivalents, and restricted cash at end of period $ 45,309   $ 67,297  
 
Supplemental cash flow information:
Income taxes paid $ 2,893 $ 2,925
Interest paid 376 414
 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED NON-GAAP FINANCIAL RESULTS

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended March 31,
2018   2017
Net sales:
Net sales - GAAP $ 164,698 $ 161,406
Stock-based compensation for performance-based warrants 471 932
Adoption of ASC 606 (1) 7,490
Constant currency adjustment (2) (2,108 )  
Adjusted Non-GAAP net sales $ 170,551   $ 162,338  
 
Cost of sales:
Cost of sales - GAAP 127,496 120,372
Adjustments to acquired tangible assets (3) (158 ) (258 )
Stock-based compensation expense (17 ) (15 )
Excess manufacturing overhead (4) (1,553 ) (1,181 )
Amortization of acquired intangible assets (37 )
Adoption of ASC 606 (1) 6,760
Constant currency adjustment (2) (5,523 )  
Adjusted Non-GAAP cost of sales 126,968   118,918  
Adjusted Non-GAAP gross profit $ 43,583   $ 43,420  
 
Gross margin:
Gross margin - GAAP 22.6 % 25.4 %
Stock-based compensation for performance-based warrants 0.2 % 0.4 %
Adjustments to acquired tangible assets (3) 0.1 % 0.2 %
Stock-based compensation expense 0.0 % 0.0 %
Excess manufacturing overhead (4) 0.9 % 0.7 %
Amortization of acquired intangible assets 0.0 % %
Adoption of ASC 606 (1) (0.6 )% %
Constant currency adjustment (2) 2.4 % %
Adjusted Non-GAAP gross margin 25.6 % 26.7 %
 
Operating expenses:
Operating expenses - GAAP $ 36,298 $ 41,399
Amortization of acquired intangible assets (1,399 ) (1,268 )
Stock-based compensation expense (2,188 ) (2,608 )
Employee related restructuring costs (112 ) (5,359 )
Change in contingent consideration 751 (500 )
Adoption of ASC 606 (1) 163
Constant currency adjustment (2) (1,237 )  
Adjusted Non-GAAP operating expenses $ 32,276   $ 31,664  
 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED NON-GAAP FINANCIAL RESULTS

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended March 31,
2018   2017
Operating income (loss):
Operating income (loss) - GAAP $ 904 $ (365 )
Stock-based compensation for performance-based warrants 471 932
Adjustments to acquired tangible assets (3) 158 258
Excess manufacturing overhead (4) 1,553 1,181
Amortization of acquired intangible assets 1,436 1,268
Stock-based compensation expense 2,205 2,623
Employee related restructuring costs 112 5,359
Change in contingent consideration (751 ) 500
Adoption of ASC 606 (1) 567
Constant currency adjustment (2) 4,652      
Adjusted Non-GAAP operating income $ 11,307     $ 11,756  
 
Adjusted Non-GAAP operating income as a percentage of net sales 6.6 % 7.2 %
 
Net income (loss):
Net income (loss) - GAAP $ (587 ) $ 119
Stock-based compensation for performance-based warrants 471 932
Adjustments to acquired tangible assets (3) 158 258
Excess manufacturing overhead (4) 1,553 1,181
Amortization of acquired intangible assets 1,436 1,268
Stock-based compensation expense 2,205 2,623
Employee related restructuring costs 112 5,359
Change in contingent consideration (751 ) 500
Adoption of ASC 606 (1) 567
Constant currency adjustment (2) 4,652
Foreign currency (gain) loss 605 (564 )
Income tax provision on adjustments (1,649 ) (2,500 )
Adjusted Non-GAAP net income $ 8,772   $ 9,176  
 
Diluted shares used in computing earnings (loss) per share:
GAAP 14,087 14,717
Adjusted Non-GAAP 14,233 14,717
 
Diluted earnings (loss) per share:
Diluted earnings (loss) per share - GAAP $ (0.04 ) $ 0.01
Total adjustments $ 0.66 $ 0.61
Adjusted Non-GAAP diluted earnings per share $ 0.62 $ 0.62
(1) Reflects the impact of adopting ASC 606, "Revenue from Contracts
with Customers", which was adopted on a modified retrospective basis
effective January 1, 2018.
(2) Adjustment to remove the translation impact of fluctuations in
foreign currency exchange rates in material jurisdictions on sales,
cost of sales and operating expenses whereby the average exchange
rates used in current periods are adjusted to be consistent with the
average exchange rates in effect during the comparative prior period.
(3) Consists of depreciation related to the mark-up from cost to fair
value of fixed assets acquired in business combinations.
(4)

Excess manufacturing costs incurred resulting from factory
underutilization. For the three months ended March 31, 2018, we
truncated production at our China factories in the month of March
as a result of our ERP transition to an Oracle platform which went
live in early April 2018. For the three months ended March 31,
2017, excess manufacturing overhead was incurred resulting from
the transition of manufacturing activities from our Guangzhou
factory to our other China factories.

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