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Universal Electronics Reports Fourth Quarter and Year-End 2017 Financial Results

February 22, 2018

SANTA ANA, CA – Universal Electronics Inc. (UEI), (NASDAQ: UEIC) reported financial results for the three and twelve months ended December 31, 2017.

Paul Arling, UEI’s chairman and CEO, stated, “2018 began with a strong showing at CES, where we demonstrated devices with the latest voice navigation technology as well as Netflix and TiVo buttons. We also revealed our microphone, data compression, radio, fit and finish, and automatic speech recognition (ASR) capabilities in the new voice remote control for DISH. These and many more ongoing technological advances keep UEI at the forefront of control. Our fourth quarter revenue grew 13% reflecting strong performance from our home security products, European subscription broadcasting and OEM relationships in the Asia Pacific region. We expect this trend toward advanced, intuitive 2-way home entertainment systems to continue as additional customers launch their version of advanced platforms with us throughout 2018.”

Financial Results for the Three Months Ended December 31: 2017 Compared to 2016

  • GAAP net sales were $181.2 million, compared to $160.5 million; Adjusted Non-GAAP net sales were $180.7 million, compared to $160.1 million.
  • GAAP gross margins were 20.9%, compared to 25.7%; Adjusted Non-GAAP gross margins were 23.6%, compared to 26.9%.
  • GAAP operating loss was $0.5 million, compared to income of $6.3 million; Adjusted Non-GAAP operating income was $10.4 million, compared to $13.9 million.
  • GAAP net loss was $16.9 million, or $1.19 per diluted share, compared to GAAP net income of $3.2 million or $0.22 per diluted share; Adjusted Non-GAAP net income was $8.7 million, or $0.60 per diluted share, compared to $11.0 million, or $0.74 per diluted share.
  • At December 31, 2017, cash and cash equivalents were $62.4 million.

Financial Results for the Twelve Months Ended December 31: 2017 Compared to 2016

  • GAAP net sales were $695.8 million, compared to $651.4 million; Adjusted Non-GAAP net sales were $696.5 million, compared to $654.1 million.
  • GAAP gross margins were 23.8%, compared to 25.2%; Adjusted Non-GAAP gross margins were 25.6%, compared to 26.2%.
  • GAAP operating income was $10.7 million, compared to $25.4 million; Adjusted Non-GAAP operating income was $53.4 million, compared to $53.5 million.
  • GAAP net loss was $10.3 million, or $0.72 per diluted share, compared to GAAP net income of $20.4 million or $1.38 per diluted share; Adjusted Non-GAAP net income was $41.1 million, or $2.81 per diluted share, compared to $42.5 million, or $2.88 per diluted share.

Bryan Hackworth, UEI’s CFO, stated: “Overall, we are pleased with our top line results, as net sales grew 13 percent, driven by the worldwide adoption of our higher-end platforms as well as the continued growth in home security.  Improving our gross margin is a top priority, and to accomplish this goal we have implemented several measures including product rationalization and improvements in factory production. We expect our gross margin rate to expand sequentially, which is embedded in our first quarter guidance, and to continue to improve throughout the remainder of 2018.”

Financial Outlook

For the first quarter of 2018, the company expects GAAP net sales to range between $169 million and $177 million, compared to $161.4 million in the first quarter of 2017. GAAP earnings per diluted share for the first quarter of 2018 is expected to range from $0.13 to $0.23, compared to GAAP earnings per diluted share of $0.01 in the first quarter of 2017.

For the first quarter of 2018, the company expects Adjusted Non-GAAP net sales to range between $169 million and $177 million, compared to $162.3 million in the first quarter of 2017. Adjusted Non-GAAP earnings per diluted share are expected to range from $0.60 to $0.70, compared to Adjusted Non-GAAP earnings per diluted share of $0.62 in the first quarter of 2017. The first quarter Adjusted Non-GAAP earnings per diluted share estimate excludes $0.47 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, February 22, 2018 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its fourth quarter 2017 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 5088724. 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 5088724.

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.

Adjusted Non-GAAP net sales is defined as net sales excluding the impact of stock-based compensation for performance-based warrants. Adjusted Non-GAAP gross profit is defined as gross profit excluding stock-based compensation expense, cost of goods sold and depreciation expense related to the increase in inventories and fixed assets from cost to fair market value resulting from acquisitions, amortization of intangibles acquired, excess manufacturing costs resulting from the closure of our Guangzhou factory, and factory transition costs. Adjusted Non-GAAP operating expenses are defined as operating expenses excluding amortization of intangibles acquired, stock-based compensation expense, employee related restructuring costs, litigation settlement costs, transaction costs related to the sale of our Guangzhou factory, and changes in contingent consideration related to acquisitions as well as other acquisition related costs and nonrecurring items. 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, as well as income tax expense representing the estimated tax impact of the U.S. Tax Cuts and Jobs Act, the income tax effects of nondeductible projected losses to be incurred as a result of the shutdown of the company’s Guangzhou factory, the effect of net deferred tax asset adjustments related to tax incentives at one of our other China factories, and other nonrecurring income tax items. Adjusted Non-GAAP diluted earnings per share attributable to Universal Electronics Inc. is calculated using Adjusted Non-GAAP net income attributable to Universal Electronics Inc. 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 recent annual report on Form 10-K and the periodic reports filed thereafter. Risks that could affect forward-looking statements in this press release include the continued adoption of our advanced control technologies by our customers as anticipated by management, including our voice control technologies; the continued and timely launching by our customers of our advanced, intuitive 2-way home entertainment systems and technologies as expected by management; the continued growth of our customers in certain geographic locations as expected by management; our ability to successfully and profitably transition 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 February 22, 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)

    December 31, 2017   December 31, 2016
ASSETS        
Current assets:        
Cash and cash equivalents   $ 62,438     $ 50,611  
Restricted cash   4,901     4,623  
Accounts receivable, net   151,578     124,592  
Inventories, net   162,589     129,879  
Prepaid expenses and other current assets   11,687     7,439  
Assets held for sale   12,517      
Income tax receivable   1,587     1,054  
Deferred income taxes       5,960  
Total current assets   407,297     324,158  
Property, plant, and equipment, net   110,962     105,351  
Goodwill   48,651     43,052  
Intangible assets, net   29,041     28,549  
Deferred income taxes   7,913     10,430  
Long-term restricted cash       4,600  
Other assets   4,566     4,896  
Total assets   $ 608,430     $ 521,036  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 119,165     $ 97,157  
Line of credit   138,000     49,987  
Accrued compensation   34,499     35,580  
Accrued sales discounts, rebates and royalties   8,882     8,358  
Accrued income taxes   3,670     375  
Other accrued liabilities   28,719     24,410  
Total current liabilities   332,935     215,867  
Long-term liabilities:        
Long-term contingent consideration   13,400     10,500  
Deferred income taxes   4,423     7,060  
Income tax payable   2,520     791  
Other long-term liabilities   1,603     6,308  
Total liabilities   354,881     240,526  
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; 23,760,434 and 23,575,340 shares issued on December 31, 2017 and 2016, respectively   238     236  
Paid-in capital   265,195     250,481  
Treasury stock, at cost, 9,702,874 and 9,022,587 shares on December 31, 2017 and 2016, respectively   (262,065 )   (222,980 )
Accumulated other comprehensive income (loss)   (16,599 )   (22,821 )
Retained earnings   266,780     275,594  
Total stockholders’ equity   253,549     280,510  
Total liabilities and stockholders’ equity   $ 608,430     $ 521,036  

 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2017   2016   2017   2016
Net sales   $ 181,152     $ 160,542     $ 695,790     $ 651,371  
Cost of sales   143,300     119,306     530,083     487,247  
Gross profit   37,852     41,236     165,707     164,124  
Research and development expenses   5,557     4,558     21,416     19,850  
Factory transition restructuring charges       2,895     6,145     4,493  
Selling, general and administrative expenses   32,775     27,517     127,476     114,384  
Operating income (loss)   (480 )   6,266     10,670     25,397  
Interest income (expense), net   (858 )   (296 )   (2,534 )   (1,049 )
Other income (expense), net   (850 )   (886 )   (848 )   840  
Income (loss) before provision for income taxes   (2,188 )   5,084     7,288     25,188  
Provision for income taxes   14,666     1,848     17,611     4,804  
Net income (loss)   (16,854 )   3,236     (10,323 )   20,384  
Net income attributable to noncontrolling interest               30  
Net income (loss) attributable to Universal Electronics Inc.   $ (16,854 )   $ 3,236     $ (10,323 )   $ 20,354  
                 
Earnings (loss) per share attributable to Universal Electronics Inc.:            
Basic   $ (1.19 )   $ 0.22     $ (0.72 )   $ 1.41  
Diluted   $ (1.19 )   $ 0.22     $ (0.72 )   $ 1.38  
Shares used in computing earnings (loss) per share:                
Basic   14,172     14,535     14,351     14,465  
Diluted   14,172     14,833     14,351     14,764  

 

 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

    Year Ended December 31,
    2017   2016
Cash provided by operating activities:        
Net income   $ (10,323 )   $ 20,384  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   31,312     26,967  
Provision for doubtful accounts   166     183  
Provision for inventory write-downs   4,119     3,806  
Deferred income taxes   7,597     (1,637 )
Tax benefit from exercise of stock options and vested restricted stock       2,007  
Excess tax benefit from stock-based compensation       (1,970 )
Shares issued for employee benefit plan   648     913  
Employee and director stock-based compensation   11,943     10,324  
Performance-based common stock warrants   683     2,728  
Impairment of China factory equipment   4,100      
Changes in operating assets and liabilities:        
Restricted cash   4,623      
Accounts receivable   (22,192 )   (3,882 )
Inventories   (29,916 )   (14,800 )
Prepaid expenses and other assets   (4,477 )   (772 )
Accounts payable and accrued expenses   10,970     10,451  
Accrued income taxes   4,535     (5,159 )
Net cash provided by operating activities   13,788     49,543  
Cash used for investing activities:        
Acquisition of property, plant, and equipment   (40,384 )   (40,651 )
Acquisition of net assets of Residential Control Systems, Inc.   (8,894 )    
Acquisition of intangible assets   (1,949 )   (1,912 )
Increase in restricted cash       (4,797 )
Deposit received toward sale of Guangzhou factory       4,797  
Deconsolidation of Encore Controls LLC       48  
Net cash used for investing activities   (51,227 )   (42,515 )
Cash provided by (used for) financing activities:        
Borrowings under line of credit   157,000     147,974  
Repayments on line of credit   (68,987 )   (147,987 )
Proceeds from stock options exercised   1,442     6,244  
Treasury stock purchased   (39,085 )   (12,647 )
Excess tax benefit from stock-based compensation       1,970  
Net cash provided by (used for) financing activities   50,370     (4,446 )
Effect of exchange rate changes on cash   (1,104 )   (4,937 )
Net increase (decrease) in cash and cash equivalents   11,827     (2,355 )
Cash and cash equivalents at beginning of year   50,611     52,966  
Cash and cash equivalents at end of period   $ 62,438     $ 50,611  
         
Supplemental cash flow information:        
Income taxes paid   $ 8,280     $ 9,891  
Interest paid   $ 2,751     $ 1,208  

 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED NON-GAAP FINANCIAL RESULTS

(In thousands, except per share amounts)

(Unaudited)

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2017   2016   2017   2016
Net sales:                
Net sales – GAAP   $ 181,152     $ 160,542     $ 695,790     $ 651,371  
Stock-based compensation for performance-based warrants   (439 )   (491 )   683     2,728  
Adjusted Non-GAAP net sales   $ 180,713     $ 160,051     $ 696,473     $ 654,099  
                 
Cost of sales:                
Cost of sales – GAAP   $ 143,300     $ 119,306     $ 530,083     $ 487,247  
Adjustments to acquired tangible assets (1)   (162 )   (265 )   (1,185 )   (1,157 )
Stock-based compensation expense   (18 )   (14 )   (71 )   (57 )
Factory transition costs (2)   (5,074 )       (5,074 )    
Excess manufacturing overhead (3)       (1,951 )   (5,468 )   (3,213 )
Amortization of acquired intangible assets   (38 )       (113 )    
Adjusted Non-GAAP cost of sales   138,008     117,076     518,172     482,820  
Adjusted Non-GAAP gross profit   $ 42,705     $ 42,975     $ 178,301     $ 171,279  
                 
Gross margin:                
Gross margin – GAAP   20.9 %   25.7 %   23.8 %   25.2 %
Stock-based compensation for performance-based warrants   (0.2 )%   (0.2 )%   0.1 %   0.3 %
Adjustments to acquired tangible assets (1)   0.1 %   0.2 %   0.2 %   0.2 %
Stock-based compensation expense   0.0 %   0.0 %   0.0 %   0.0 %
Factory transition costs (2)   2.8 %   %   0.7 %   %
Excess manufacturing overhead (3)   %   1.2 %   0.8 %   0.5 %
Amortization of acquired intangible assets   0.0 %   %   0.0 %   %
Adjusted Non-GAAP gross margin   23.6 %   26.9 %   25.6 %   26.2 %
                 
Operating expenses:                
Operating expenses – GAAP   $ 38,332     $ 34,970     $ 155,037     $ 138,727  
Amortization of acquired intangible assets   (1,401 )   (1,268 )   (5,472 )   (4,977 )
Stock-based compensation expense   (2,449 )   (2,672 )   (11,872 )   (10,267 )
Employee related restructuring costs       (3,052 )   (7,008 )   (4,977 )
Litigation settlement costs               (2,000 )
Change in contingent consideration   200     1,100     (3,000 )   1,251  
Transaction costs related to sale of Guangzhou factory   (1,912 )       (1,912 )    
Other   (483 )       (849 )    
Adjusted Non-GAAP operating expenses   $ 32,287     $ 29,078     $ 124,924     $ 117,757  

 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED NON-GAAP FINANCIAL RESULTS

(In thousands, except per share amounts)

(Unaudited)

    Three Months Ended December 31,   Twelve Months Ended December 31,
    2017   2016   2017   2016
Operating income (loss):                
Operating income (loss) – GAAP   $ (480 )     $ 6,266       $ 10,670       $ 25,397  
Stock-based compensation for performance-based warrants   (439 )   (491 )   683     2,728  
Adjustments to acquired tangible assets (1)   162     265     1,185     1,157  
Factory transition costs (2)   5,074         5,074      
Excess manufacturing overhead (3)       1,951     5,468     3,213  
Amortization of acquired intangible assets   1,439     1,268     5,585     4,977  
Stock-based compensation expense   2,467     2,686     11,943     10,324  
Employee related restructuring costs       3,052     7,008     4,977  
Litigation settlement costs               2,000  
Change in contingent consideration   (200 )   (1,100 )   3,000     (1,251 )
Transaction costs related to sale of Guangzhou factory   1,912         1,912      
Other   483         849      
Adjusted Non-GAAP operating income   $ 10,418     $ 13,897     $ 53,377     $ 53,522  
                 
Adjusted Non-GAAP operating income as a percentage of net sales   5.8 %   8.7 %   7.7 %   8.2 %
                 
Net income (loss) attributable to Universal Electronics Inc.:                
Net income (loss) attributable to Universal Electronics Inc. – GAAP   $ (16,854 )   $ 3,236     $ (10,323 )   $ 20,354  
Stock-based compensation for performance-based warrants   (439 )   (491 )   683     2,728  
Adjustments to acquired tangible assets (1)   162     265     1,185     1,157  
Factory transition costs (2)   5,074         5,074      
Excess manufacturing overhead (3)       1,951     5,468     3,213  
Amortization of acquired intangible assets   1,439     1,268     5,585     4,977  
Stock-based compensation expense   2,467     2,686     11,943     10,324  
Employee related restructuring costs       3,052     7,008     4,977  
Litigation settlement costs               2,000  
Change in contingent consideration   (200 )   (1,100 )   3,000     (1,251 )
Transaction costs related to sale of Guangzhou factory   1,912         1,912      
Foreign currency (gain) loss   1,089     901     1,429     (660 )
Other   483         849     (11 )
Income tax provision on adjustments   (2,532 )   (1,656 )     (9,705 )     (6,888 )
Other income tax adjustments (4)   16,057     886       16,975       1,577  
Adjusted Non-GAAP net income attributable to Universal Electronics Inc.   $ 8,658     $ 10,998     $ 41,083     $ 42,497  
                 
Diluted shares used in computing earnings (loss) per share:                
GAAP   14,172     14,833     14,351     14,764  
Adjusted Non-GAAP   14,395     14,833     14,615     14,764  
                 
Diluted earnings (loss) per share attributable to Universal Electronics Inc.:                
Diluted earnings (loss) per share attributable to

Universal Electronics Inc. – GAAP

  $ (1.19 )   $ 0.22     $ (0.72 )   $ 1.38  
Total adjustments   $ 1.79     $ 0.52     $ 3.53     $ 1.50  
Adjusted Non-GAAP diluted earnings per share attributable to
Universal Electronics Inc.
  $ 0.60     $ 0.74     $ 2.81     $ 2.88  

 

 

  • Consists of depreciation related to the mark-up from cost to fair value of fixed assets acquired in business combinations as well as the effect of fair value adjustments to inventories acquired in business combinations that sold through during the period.
  • Includes $3.9 million of factory equipment impairment charges and $0.2 million in inventory write-offs incurred during the three months ended December 31, 2017 as a result of the transition of manufacturing activities from our now closed Guangzhou factory to our other factories. Also includes $0.9 million of air freight incurred due to manufacturing delays caused by this factory transition.
  • Excess manufacturing costs incurred resulting from the transition of manufacturing activities from our Guangzhou factory to our other China factories.
  • The three and twelve months ended December 31, 2017 include $16.6 million of income tax expense representing the estimated tax impact of the U.S. Tax Cuts and Jobs Act that was enacted in December 2017. Additionally, the three months ended December 31, 2017 includes $0.5 million of net other income tax benefits, and the twelve months ended December 31, 2017 includes $0.4 million of net other income tax expense. The three and twelve months ended December 31, 2016 include a $0.9 million deferred tax valuation allowance adjustment related to the pending sale of our Guangzhou factory. The twelve months ended December 31, 2016 also includes a $0.7 million deferred tax adjustment resulting from a lower statutory tax rate due to tax incentives at one of our China factories.

 

Contacts:

Paul Arling (UEI) 714.918.9500

Becky Herrick (IR Agency) 415.433.3777

 

 

 

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