UNIVERSAL ELECTRONICS INC [UEIC] Filings

10-Q 1 ueic-20220331.htm 10-Q ueic-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________

FORM 10-Q

_______________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-21044

_______________________________________

UNIVERSAL ELECTRONICS INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

33-0204817

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254-2494

(Address of principal executive offices and zip code)

(480) 530-3000

(Registrant's telephone number, including area code)

_____________________


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	UEIC	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 12,630,136 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on May 3, 2022.

UNIVERSAL ELECTRONICS INC.

INDEX


			Page Number
PART I. FINANCIAL INFORMATION			3
Item 1. Consolidated Financial Statements (Unaudited)			3
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Comprehensive Income (Loss) Statements			5
Consolidated Statements of Stockholders' Equity			6
Consolidated Statements of Cash Flows			7
Notes to Consolidated Financial Statements			8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
PART II. OTHER INFORMATION			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 6. Exhibits			35
Signatures			36

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (Unaudited)

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

(Unaudited)


	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	53,628	$	60,813
Term deposit	8,589		—
Accounts receivable, net	132,628		129,215
Contract assets	7,521		5,012
Inventories	139,400		134,469
Prepaid expenses and other current assets	7,738		7,289
Income tax receivable	1,349		348
Total current assets	350,853		337,146
Property, plant and equipment, net	71,437		74,647
Goodwill	49,152		48,463
Intangible assets, net	22,475		20,169
Operating lease right-of-use assets	21,245		19,847
Deferred income taxes	7,714		7,729
Other assets	2,248		2,347
Total assets	$	525,124	$	510,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	82,550	$	92,707
Line of credit	85,000		56,000
Accrued compensation	22,255		24,217
Accrued sales discounts, rebates and royalties	6,517		9,286
Accrued income taxes	5,104		3,737
Other accrued liabilities	34,186		30,840
Total current liabilities	235,612		216,787
Long-term liabilities:
Operating lease obligations	14,787		14,266

Deferred income taxes	2,543		2,394
Income tax payable	939		939
Other long-term liabilities	886		13
Total liabilities	254,767		234,399
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; 24,831,434 and 24,678,942 shares issued on March 31, 2022 and December 31, 2021, respectively	248		247
Paid-in capital	316,916		314,094
Treasury stock, at cost, 12,085,836 and 11,861,198 shares on March 31, 2022 and December 31, 2021, respectively	(362,513)		(355,159)
Accumulated other comprehensive income (loss)	(11,675)		(13,524)
Retained earnings	327,381		330,291
Total stockholders' equity	270,357		275,949
Total liabilities and stockholders' equity	$	525,124	$	510,348

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Net sales	$	132,410	$	150,542
Cost of sales	96,142		104,143
Gross profit	36,268		46,399
Research and development expenses	7,806		7,942
Selling, general and administrative expenses	29,023		29,846
Operating income (loss)	(561)		8,611
Interest income (expense), net	(296)		(108)


Other income (expense), net	360		23
Income (loss) before provision for income taxes	(497)		8,526
Provision for income taxes	2,413		1,533
Net income (loss)	$	(2,910)	$	6,993

Earnings (loss) per share:
Basic	$	(0.23)	$	0.51
Diluted	$	(0.23)	$	0.49
Shares used in computing earnings (loss) per share:
Basic	12,812		13,803
Diluted	12,812		14,199

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Net income (loss)	$	(2,910)	$	6,993
Other comprehensive income (loss):
Change in foreign currency translation adjustment	1,849		(2,868)

Comprehensive income (loss)	$	(1,061)	$	4,125

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

The following summarizes the changes in total equity for the three months ended March 31, 2022:


	Common Stock Issued			Common Stock in Treasury			Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Totals
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	24,679	$	247	(11,861)	$	(355,159)	$	314,094	$	(13,524)	$	330,291	$	275,949
Net income (loss)											(2,910)		(2,910)
Currency translation adjustment									1,849				1,849
Shares issued for employee benefit plan and compensation	145	1					323						324
Purchase of treasury shares				(225)	(7,354)								(7,354)

Shares issued to directors	7	—					—						—
Employee and director stock-based compensation							2,499						2,499

Balance at March 31, 2022	24,831	248		(12,086)	(362,513)		316,916		(11,675)		327,381		270,357

The following summarizes the changes in total equity for the three months ended March 31, 2021:


	Common Stock Issued			Common Stock in Treasury			Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Totals
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	24,392	$	244	(10,618)	$	(295,495)	$	302,084	$	(18,522)	$	324,990	$	313,301
Net income											6,993		6,993
Currency translation adjustment									(2,868)				(2,868)
Shares issued for employee benefit plan and compensation	160	2					408						410
Purchase of treasury shares				(191)	(10,951)								(10,951)
Stock options exercised	22	—					991						991
Shares issued to directors	7	—					—						—
Employee and director stock-based compensation							2,600						2,600
Performance-based common stock warrants							143						143
Balance at March 31, 2021	24,581	246		(10,809)	(306,446)		306,226		(21,390)		331,983		310,619

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(2,910)	$	6,993
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	6,045		6,319
Provision for credit losses	(204)		2
Deferred income taxes	269		894
Shares issued for employee benefit plan	324		410
Employee and director stock-based compensation	2,499		2,600
Performance-based common stock warrants	—		143




Changes in operating assets and liabilities:
Accounts receivable and contract assets	(5,087)		(10,126)
Inventories	(4,599)		1,338
Prepaid expenses and other assets	(1,464)		384
Accounts payable and accrued liabilities	(13,174)		(12,546)
Accrued income taxes	332		(3,140)
Net cash provided by (used for) operating activities	(17,969)		(6,729)
Cash flows from investing activities:
Term deposit	(7,487)		—
Acquisition of net assets of Qterics, Inc.	(939)		—
Acquisitions of property, plant and equipment	(1,785)		(3,698)
Acquisitions of intangible assets	(1,410)		(1,106)
Net cash used for investing activities	(11,621)		(4,804)
Cash flows from financing activities:
Borrowings under line of credit	42,000		30,000
Repayments on line of credit	(13,000)		(10,000)
Proceeds from stock options exercised	—		991
Treasury stock purchased	(7,354)		(10,951)

Net cash provided by (used for) financing activities	21,646		10,040
Effect of foreign currency exchange rates on cash and cash equivalents	759		(297)
Net increase (decrease) in cash and cash equivalents	(7,185)		(1,790)
Cash and cash equivalents at beginning of period	60,813		57,153
Cash and cash equivalents at end of period	$	53,628	$	55,363

Supplemental cash flow information:
Income taxes paid	$	1,375	$	3,473
Interest paid	$	302	$	104

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Note 1 — Basis of Presentation

In the opinion of management, the accompanying consolidated financial statements of Universal Electronics Inc. and its subsidiaries contain all the adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. Information and footnote disclosures normally included in financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). As used herein, the terms "Company," "we," "us," and "our" refer to Universal Electronics Inc. and its subsidiaries, unless the context indicates to the contrary.

Our results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Financial Statements and Supplementary Data" included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, 2021.

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition; allowance for credit losses; inventory valuation; impairment of long-lived assets, intangible assets and goodwill; business combinations; income taxes and related valuation allowances; stock-based compensation expense and performance-based common stock warrants.

The coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have created uncertainties and disruptions in the economic and financial markets. While we are not currently aware of events or circumstances that would require an update to our estimates, judgments or adjustments to the carrying values of our assets or liabilities, these estimates may change as developments occur and we obtain additional information. These future developments are highly uncertain and the outcomes are unpredictable. Actual results may differ from those estimates, and such differences may be material to the financial statements.

Summary of Significant Accounting Policies

With the exception of the following policy, our significant accounting policies are unchanged from those disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Revenue Recognition

Revenue is recognized when control of a good or service is transferred to a customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service. Revenues are primarily generated from manufacturing, shipping and supporting control and sensor technology solutions and a broad line of pre-programmed and universal control products, AV accessories, and intelligent wireless security and smart home products that are used in the video services, consumer electronics, security, home automation, climate control, and home appliance market, which are sold through multiple channels, and licensing intellectual property that is embedded in these products or licensed to others for use in their products. We also generate revenues from a cloud-based software solution enabling software updates, digital rights management provisioning and remote technical support to consumer electronics customers.

We recognize service revenues related to our cloud-based software solution on an over-time basis, as our customers simultaneously receive and consume the benefits provided by our performance. Revenues are recognized over the period during which the performance obligations are satisfied, and control of the service is transferred to the customers.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Cash, Cash Equivalents, and Term Deposit

Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months or less. Our term deposit has an initial maturity of one year. Domestically, we generally maintain balances in excess of federally insured limits. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash, cash equivalents and term deposit with financial institutions we believe are high quality. These financial institutions are located in many different geographic regions. As part of our cash and risk management processes, we perform periodic evaluations of the relative credit standing of our financial institutions. We have not sustained credit losses from instruments held at financial institutions

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". This guidance requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers". At the acquisition date, the acquirer applies the revenue recognition model as if it had originated the acquired contracts. Our adoption of this guidance on January 1, 2022 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Recent Accounting Updates Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting", and in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform". This guidance is intended to provide temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in these ASUs are elective and are effective upon issuance for all entities through December 31, 2022. These amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Note 2 — Cash, Cash Equivalents and Term Deposit

Cash and cash equivalents were held in the following geographic regions:


(In thousands)	March 31, 2022		December 31, 2021
North America	$	4,869	$	6,430
People's Republic of China ("PRC")	17,657		16,000
Asia (excluding the PRC)	10,361		11,798
Europe	18,021		17,604
South America	2,720		8,981
Total cash and cash equivalents	$	53,628	$	60,813

On January 25, 2022, we entered into a one-year term deposit cash account with Banco Santander (Brasil) S.A., denominated in Brazilian Real. The term deposit earns interest at a variable annual rate based upon the Brazilian CDI overnight interbank rate. At March 31, 2022, the balance of the term deposit was $8.6 million. The term deposit is accounted for at fair value on a recurring basis using level one inputs.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Note 3 — Revenue and Accounts Receivable, Net

Revenue Details

The pattern of revenue recognition was as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
Goods and services transferred at a point in time	$	109,086	$	122,888
Goods and services transferred over time	23,324		27,654
Net sales	$	132,410	$	150,542

Our net sales to external customers by geographic area were as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
United States	$	43,827	$	50,292
Asia (excluding PRC)	33,064		34,216
Europe	22,660		27,527
People's Republic of China	19,292		24,340
Latin America	6,488		6,144
Other	7,079		8,023
Total net sales	$	132,410	$	150,542

Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.

Net sales to the following customers totaled more than 10% of our net sales:


	Three Months Ended March 31,
	2022				2021
	$ (thousands)		% of Net Sales		$ (thousands)		% of Net Sales
Comcast Corporation	$	19,884	15.0	%	$	27,201	18.1	%
Daikin Industries Ltd.	$	17,141	12.9	%	$	17,437	11.6	%

Accounts Receivable, Net

Accounts receivable, net were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Trade receivables, gross	$	126,807	$	122,508
Allowance for credit losses	(1,063)		(1,285)
Allowance for sales returns	(531)		(592)
Trade receivables, net	125,213		120,631
Other (1)	7,415		8,584
Accounts receivable, net	$	132,628	$	129,215

(1)Other accounts receivable is primarily comprised of value added tax and supplier rebate receivables.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Allowance for Credit Losses

Changes in the allowance for credit losses were as follows:


(In thousands)	Three Months Ended March 31,
	2022		2021
Balance at beginning of period	$	1,285	$	1,412
Additions (reductions) to costs and expenses	(204)		2

Write-offs/Foreign exchange effects	(18)		(56)
Balance at end of period	$	1,063	$	1,358

Trade receivables associated with this significant customer that totaled more than 10% of our accounts receivable, net were as follows:


	March 31, 2022				December 31, 2021
	$ (thousands)		% of Accounts Receivable, Net		$ (thousands)			% of Accounts Receivable, Net
Comcast Corporation	$	20,035	15.1	%	$	—	(1)	—	%	(1)

(1) Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net for the indicated period.

Note 4 — Inventories and Significant Suppliers

Inventories were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Raw materials	$	58,093	$	52,617
Components	27,285		25,289
Work in process	4,999		7,102
Finished goods	49,023		49,461
Inventories	$	139,400	$	134,469

Significant Suppliers

Purchases from the following supplier totaled more than 10% of our total inventory purchases:


	Three Months Ended March 31,
	2022				2021
	$ (thousands)		% of Total Inventory Purchases		$ (thousands)		% of Total Inventory Purchases
Qorvo International Pte Ltd.	$	7,552	10.4	%	$	9,773	12.8	%

Purchases from the following supplier totaled more than 10% of our total accounts payable:



	March 31, 2022				December 31, 2021
	$ (thousands)		% of Total Accounts Payable		$ (thousands)		% of Total Accounts Payable
Zhejiang Zhen You Electronics Co. Ltd.	$	9,845	11.9	%	$	9,862	10.6	%

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Note 5 — Long-lived Tangible Assets

Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:


(In thousands)	March 31, 2022		December 31, 2021
United States	$	17,661	$	16,804
People's Republic of China	52,267		52,851
Mexico	19,489		20,509
All other countries	3,265		4,330
Total long-lived tangible assets	$	92,682	$	94,494

Property, plant, and equipment are shown net of accumulated depreciation of $170.5 million and $165.9 million at March 31, 2022 and December 31, 2021, respectively.

Depreciation expense was $5.1 million and $5.5 million for the three months ended March 31, 2022 and 2021, respectively.

Note 6 — Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:


(In thousands)
Balance at December 31, 2021	$	48,463
Goodwill acquired during the period (1)	713
Foreign exchange effects	(24)
Balance at March 31, 2022	$	49,152

(1) During the first quarter of 2022, we recognized $0.7 million of goodwill related to the Qterics, Inc. ("Qterics") acquisition. Refer to Note 19 for further information about this acquisition.

Intangible Assets, Net

The components of intangible assets, net were as follows:


	March 31, 2022						December 31, 2021
(In thousands)	Gross (1)		Accumulated Amortization (1)		Net		Gross (1)		Accumulated Amortization (1)		Net
Capitalized software development costs	$	1,172	$	(40)	$	1,132	$	1,066	$	(27)	$	1,039
Customer relationships	6,340		(2,537)		3,803		5,000		(2,375)		2,625
Developed and core technology	4,520		(3,420)		1,100		4,080		(3,335)		745
Distribution rights	320		(271)		49		325		(269)		56
Patents	25,600		(9,431)		16,169		24,518		(9,015)		15,503
Trademarks and trade names	850		(628)		222		800		(599)		201
Total intangible assets, net	$	38,802	$	(16,327)	$	22,475	$	35,789	$	(15,620)	$	20,169

(1)This table excludes the gross value of fully amortized intangible assets totaling $43.4 million and $43.2 million at March 31, 2022 and December 31, 2021, respectively.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows:


(In thousands)	Three Months Ended March 31,
	2022		2021
Cost of sales	$	12	$	4
Selling, general and administrative expenses	921		834
Total amortization expense	$	933	$	838

Estimated future annual amortization expense related to our intangible assets at March 31, 2022, was as follows:


(In thousands)
2022 (remaining 9 months)	$	3,035
2023	4,085
2024	3,484
2025	2,953
2026	2,741
Thereafter	6,177
Total	$	22,475

Note 7 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At March 31, 2022, our operating leases had remaining lease terms of up to 39 years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Assets:
Operating lease right-of-use assets	$	21,245	$	19,847
Liabilities:
Other accrued liabilities	$	5,659	$	4,769
Long-term operating lease obligations	14,787		14,266
Total lease liabilities	$	20,446	$	19,035

Operating lease expense, including variable and short-term lease costs, which were insignificant to the total operating lease cash flows and supplemental cash flow information were as follows:


(In thousands)	Three Months Ended March 31,
	2022		2021
Cost of sales	$	635	$	670
Selling, general and administrative expenses	1,108		1,036
Total operating lease expense	$	1,743	$	1,706
Operating cash outflows from operating leases	$	1,679	$	1,798
Operating lease right-of-use assets obtained in exchange for lease obligations	$	2,959	$	294
Non-cash release of operating lease obligations (1)	$	—	$	654

(1)During the three months ended March 31, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

The weighted average remaining lease liability term and the weighted average discount rate were as follows:


	March 31, 2022		December 31, 2021
Weighted average lease liability term (in years)	4.1		4.3
Weighted average discount rate	3.04	%	3.17	%

The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at March 31, 2022. The reconciliation excludes short-term leases that are not recorded on the balance sheet.


(In thousands)	March 31, 2022
2022 (remaining 9 months)	$	4,639
2023	5,731
2024	4,283
2025	3,465
2026	2,180
Thereafter	1,469
Total lease payments	21,767
Less: imputed interest	(1,321)
Total lease liabilities	$	20,446

At March 31, 2022, we had no operating leases that had not yet commenced.

On April 7, 2022, we entered into a lease agreement for 125,000 square feet of factory space in Vietnam, with a term commencing on April 7, 2022 and continuing through December 1, 2034. The total initial lease liability associated with this lease is $4.5 million, which is not reflected within the maturity schedule above.

Note 8 — Line of Credit

Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Line") that expires on November 1, 2023. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7 million at March 31, 2022 and December 31, 2021.

All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets, as well as a guaranty of the Credit Line by our wholly-owned subsidiary, Universal Electronics BV.

Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement. The interest rates in effect at March 31, 2022 and December 31, 2021 were 1.70% and 1.35%, respectively. There are no commitment fees or unused line fees under the Second Amended Credit Agreement.

On December 31, 2021, the process of cessation of LIBOR as a reference rate began. Between December 31, 2021 and June 30, 2023, any borrowings under our existing Second Amended Credit Agreement may continue to use LIBOR as the basis for interest rates. If the Second Amended Credit Agreement is amended or replaced during this period, any borrowings will no longer use LIBOR as a reference rate and instead will be subject to an interest rate based on either the Secured Overnight Financing Rate ("SOFR"), which is deemed a replacement benchmark for LIBOR under the Second Amended Credit Agreement, or an alternate index to be agreed upon. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default. At March 31, 2022, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At March 31, 2022 and December 31, 2021, we had $85.0 million and $56.0 million outstanding under the Credit Line, respectively. Our total interest expense on borrowings was $0.3 million and $0.1 million during the three months ended March 31, 2022 and 2021, respectively.

Note 9 — Income Taxes

We recorded income tax expense of $2.4 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively. The income tax expense recorded for the three months ended March 31, 2022 increased primarily due to the mix of pre‐tax income among jurisdictions, including losses not benefited as a result of a valuation allowance.

The difference between the Company’s effective tax rate and the 21.0% U.S. federal statutory rate for the three months ended March 31, 2022 primarily related to the mix of pre-tax income and loss among jurisdictions and permanent tax items including a tax on global intangible low-taxed income. The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.

At December 31, 2021, we assessed the realizability of the Company's deferred tax assets by considering whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2021, we had a three-year cumulative operating loss for our U.S. operations and accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax assets. During the three months ended March 31, 2022, there was no change to our valuation allowance position.

At March 31, 2022, we had gross unrecognized tax benefits of $3.1 million, including interest and penalties, which, if not for the valuation allowance recorded against the state Research and Experimentation income tax credit, would affect the annual effective tax rate if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next twelve months. Based on federal, state and foreign statute expirations in various jurisdictions, we do not anticipate a decrease in unrecognized tax benefits within the next twelve months. We have classified uncertain tax positions as non-current income tax liabilities unless they are expected to be paid within one year.

We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties are immaterial at March 31, 2022 and December 31, 2021 and are included in the unrecognized tax benefits.

Note 10 — Accrued Compensation

The components of accrued compensation were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Accrued bonus	$	1,734	$	3,460
Accrued commission	270		1,140
Accrued salary/wages	6,303		6,234
Accrued social insurance (1)	7,605		7,562
Accrued vacation/holiday	3,571		3,343
Other accrued compensation	2,772		2,478
Total accrued compensation	$	22,255	$	24,217

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

(1)PRC employers are required by law to remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job injury insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance on March 31, 2022 and December 31, 2021.

Note 11 — Other Accrued Liabilities

The components of other accrued liabilities were as follows:


(In thousands)	March 31, 2022		December 31, 2021
Duties	$	4,183	$	4,128
Expense associated with fulfilled performance obligations	1,435		991
Freight and handling fees	2,674		3,317
Operating lease obligations	5,659		4,769
Product warranty claims costs	985		1,095
Professional fees	5,806		4,685
Sales and value added taxes	4,737		5,463

Other (1)	8,707		6,392
Total other accrued liabilities	$	34,186	$	30,840

(1)Includes $2.0 million and $0.4 million of contract liabilities at March 31, 2022 and December 31, 2021, respectively.

Note 12 — Commitments and Contingencies

Product Warranties

Changes in the liability for product warranty claims costs were as follows:


(In thousands)	Three Months Ended March 31,
	2022		2021
Balance at beginning of period	$	1,095	$	1,721
Accruals for warranties issued during the period	221		46
Settlements (in cash or in kind) during the period	(331)		(149)
Foreign currency translation gain (loss)	—		(43)
Balance at end of period	$	985	$	1,575

Litigation

Roku Matters

2018 Lawsuit

On September 5, 2018, we filed a lawsuit against Roku, Inc. ("Roku") in the United States District Court, Central District of California, alleging that Roku is willfully infringing nine of our patents that are in four patent families related to remote control set-up and touchscreen remotes. On December 5, 2018, we amended our complaint to add additional details supporting our infringement and willfulness allegations. We have alleged that this complaint relates to multiple Roku streaming players and components therefor and certain universal control devices, including but not limited to the Roku App, Roku TV, Roku Express, Roku Streaming Stick, Roku Ultra, Roku Premiere, Roku 4, Roku 3, Roku 2, Roku Enhanced Remote and any other Roku product that provides for the remote control of an external device such as a TV, audiovisual receiver, sound bar or Roku TV Wireless Speakers. In October 2019, the Court stayed this lawsuit pending action by the Patent Trial and Appeals Board (the

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

"PTAB") with respect to Roku's Inter Partes Review ("IPR") requests (see discussion below). This lawsuit continues to be stayed until such time as the IPR requests and all appeals with respect to them have concluded.

International Trade Commission Investigation of Roku, TCL, Hisense and Funai

On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and related entities (collectively, "TCL"), Hisense Co., Ltd. and related entities (collectively, "Hisense"), and Funai Electric Company, Ltd. and related entities (collectively, "Funai") claiming that certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars infringe certain of our patents. We asked the ITC to issue a permanent limited exclusion order prohibiting the importation of these infringing products into the United States and a cease and desist order to stop these parties from continuing their infringing activities. On May 18, 2020, the ITC announced that it instituted its investigation as requested by us. Prior to the trial, which ended on April 23, 2021, we released TCL, Hisense and Funai from this investigation as they removed our technology from their televisions. On July 9, 2021, the Administrative Law Judge (the "ALJ") issued his Initial Determination (the "ID") finding that Roku is infringing our patents and as a result is in violation of §337 of the Tariff Act of 1930, as amended. On July 23, 2021, Roku and we filed petitions to appeal certain portions of the ID. On November 10, 2021, the full ITC issued its final determination affirming the ID and issuing a Limited Exclusion Order and Cease and Desist Order against Roku which became effective on January 9, 2022.

2020 Lawsuit

As a companion case to our ITC complaint, on April 9, 2020, we filed separate actions against each of Roku, TCL, Hisense, and Funai in the United States District Court, Central District of California, alleging that Roku is willfully infringing five of our patents and TCL, Hisense, and Funai are willfully infringing six of our patents by incorporating our patented technology into certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices and sound bars. These matters have been and continue to be stayed pending the final results of the open IPR matters mentioned below.

Inter Partes Reviews

Throughout these litigation matters against Roku and the others identified above, Roku has filed multiple IPR requests with the PTAB on all patents at issue in the 2018 Lawsuit, the ITC Action, and the 2020 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request eleven times, granted Roku's request seven times and we are awaiting the PTAB's institution decision with respect to the remaining two IPR requests. Of the seven IPR requests granted by the PTAB, the results were mixed, with the PTAB upholding the validity of many of our patent claims and invalidating others. We have and will appeal any PTAB decision that resulted in an invalidation of our patent claims.

International Trade Commission Investigation Request Made by Roku against UEI and certain UEI Customers

On April 8, 2021, Roku made a request to the ITC to initiate an investigation against us and certain of our customers claiming that certain of our and those customers' remote control devices and televisions infringe two of Roku's recently acquired patents. On May 10, 2021, the ITC announced its decision to initiate the requested investigation. Immediately prior to trial Roku withdrew its complaint against us and two of our customers with respect to one of the two patents at issue. This released the complaint against us and two of our customers with respect to that patent. The trial was thus shortened and ended on January 24, 2022. We anticipate that the ALJ will issue her ID on or about June 28, 2022 and the full commission review is set for October 28, 2022. As a companion to its ITC request, Roku also filed a lawsuit against us and certain of our customers in Federal District Court in the Central District of California alleging that we are infringing the same patents they alleged being infringed in the ITC investigation explained above. This District Court case has been and will continue to be stayed pending the conclusion of the ITC investigation.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

Court of International Trade Action against the United States of America, et. al.

On October 9, 2020, we and our subsidiaries, Ecolink Intelligent Technology, Inc. ("Ecolink") and RCS Technology, LLC ("RCS"), filed an amended complaint (20-cv-00670) in the Court of International Trade (the "CIT") against the United States of America; the Office of the United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; and Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner, challenging both the substantive and procedural processes followed by the United States Trade Representative ("USTR") when instituting Section 301 Tariffs on imports from China under Lists 3 and 4A.

Pursuant to this complaint, we, Ecolink and RCS are alleging that USTR's institution of Lists 3 and 4A tariffs violated the Trade Act of 1974 (the "Trade Act") on the grounds that the USTR failed to make a determination or finding that there was an unfair trade practice that required a remedy and moreover, that Lists 3 and 4A tariffs were instituted beyond the 12-month time limit provided for in the governing statute. We, Ecolink and RCS also allege that the manner in which the Lists 3 and 4A tariff actions were implemented violated the Administrative Procedures Act (the "APA") by failing to provide adequate opportunity for comments, failed to consider relevant factors when making its decision and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of Lists 3 and 4A.

We, Ecolink and RCS are asking the CIT to declare that the defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and were arbitrarily and unlawfully promulgated in violation of the APA; to vacate the Lists 3 and 4A tariffs; to order a refund (with interest) of any Lists 3 and 4A duties paid by us, Ecolink and RCS; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against us, Ecolink and RCS; and award us, Ecolink and RCS our costs and reasonable attorney's fees.

In July 2021, the CIT issued a preliminary injunction suspending liquidation of all unliquidated entries subject to Lists 3 and 4A duties and has asked the parties to develop a process to keep track of the entries to efficiently and effectively deal with liquidation process and duties to be paid or refunded when finally adjudicated. On February 5, 2022, the CIT heard oral arguments on dispositive motions filed on behalf of plaintiffs and defendants. On April 1, 2022, the CIT issued its opinion on these dispositive motions, ruling that the USTR had the legal authority to promulgate List 3 and List 4A under Section 307(a)(1)(B) of the Trade Act, but that the USTR violated the APA when it promulgated List 3 and List 4A concluding that the USTR failed to adequately explain its decision as required under the APA. The Court ordered that List 3 and List 4A be remanded to the USTR for reconsideration or further explanation regarding its rationale for imposing the tariffs. The Court declined to vacate List 3 and List 4A, which means that they are still in place while on remand. The Court’s preliminary injunction regarding liquidation of entries also remains in effect. The Court set a deadline of June 30, 2022, for the USTR to complete this process.

There are no other material pending legal proceedings to which we or any of our subsidiaries is a party or of which our respective property is the subject. However, as is typical in our industry and to the nature and kind of business in which we are engaged, from time to time, various claims, charges and litigation are asserted or commenced by third parties against us or by us against third parties arising from or related to product liability, infringement of patent or other intellectual property rights, breach of warranty, contractual relations, or employee relations. The amounts claimed may be substantial, but may not bear any reasonable relationship to the merits of the claims or the extent of any real risk of court awards assessed against us or in our favor. However, no assurances can be made as to the outcome of any of these matters, nor can we estimate the range of potential losses to us. In our opinion, final judgments, if any, which might be rendered against us in potential or pending litigation would not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Moreover, we believe that our products do not infringe any third parties' patents or other intellectual property rights.

We maintain directors' and officers' liability insurance which insures our individual directors and officers against certain claims, as well as attorney's fees and related expenses incurred in connection with the defense of such claims.

Note 13 — Treasury Stock

From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock. On February 10, 2022, our Board approved a new share repurchase program with an effective date of February 22, 2022 (the "February 2022 Program"). Pursuant to the February 2022 Program, we were authorized to repurchase up to 300,000 shares of our common stock until the Program's expiration on May 5, 2022. Per the terms of the February 2022 Program, we may

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

utilize various methods to effect the repurchases, including open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some or all of which may be effected through Rule 10b5-1 plans. As of May 2, 2022, we repurchased the full 300,000 shares under the February 2022 Program. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.

Repurchased shares of our common stock were as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
Shares repurchased	225		191
Cost of shares repurchased	$	7,354	$	10,951

Repurchased shares are recorded as shares held in treasury at cost. We hold these shares for future use as management and the Board of Directors deem appropriate.

Note 14 — Stock-Based Compensation

Stock-based compensation expense for each employee and director is presented in the same statement of operations caption as their cash compensation. Stock-based compensation expense by statement of operations caption and the related income tax benefit were as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
Cost of sales	$	39	$	37
Research and development expenses	333		313
Selling, general and administrative expenses:
Employees	1,727		1,868
Outside directors	400		382
Total employee and director stock-based compensation expense	$	2,499	$	2,600
Income tax benefit	$	428	$	466

Stock Options

Stock option activity was as follows:


	Number of Options (in thousands)	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021	800	$	45.55
Granted	120	34.56
Exercised	—	—			$	—
Forfeited/canceled/expired	(74)	65.54
Outstanding at March 31, 2022 (1)	846	$	42.25	3.73	$	1,587
Vested and expected to vest at March 31, 2022 (1)	846	$	42.25	3.73	$	1,587
Exercisable at March 31, 2022 (1)	630	$	41.92	2.84	$	1,587

(1)The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the first quarter of 2022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on March 31, 2022. This amount will change based on the fair market value of our stock.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(Unaudited)

The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock option grants were the following:


	Three Months Ended March 31,
	2022			2021
Weighted average fair value of grants	$	14.87		$	23.97
Risk-free interest rate	1.78		%	0.41		%
Expected volatility	49.42		%	48.49		%
Expected life in years	4.65			4.62

As of March 31, 2022, we expect to recognize $3.5 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 2.2 years.

Restricted Stock

Non-vested restricted stock award activity was as follows:


	Shares (in thousands)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2021	$	310	$	44.41
Granted	228		31.85
Vested	(142)		39.30
Forfeited	(3)		47.96
Non-vested at March 31, 2022	$	393	$	38.96

As of March 31, 2022, we expect to recognize $14.0 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 2.2 years.

Note 15 — Performance-Based Common Stock Warrants

On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") at a price of $54.55 per share. At March 31, 2022, 275,000 of these warrants were vested and outstanding. All vested warrants will expire on January 1, 2023. The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from time to time request that we register the shares of common stock underlying vested warrants with the SEC.

The impact to net sales recorded in connection with the warrants and the related income tax benefit were as follows:


	Three Months Ended March 31,
(In thousands)	2022	2021
Reduction to net sales	$