Universal Electronics Reports Fourth Quarter and Year-End 2018 Financial Results

February 21, 2019

SCOTTSDALE, AZ – Universal Electronics Inc. (UEI), (NASDAQ: UEIC), the worldwide leader in sensing and control technologies for the smart home, reported financial results for the three and twelve months ended December 31, 2018.

Paul Arling, UEI’s chairman and CEO, stated, “The connected home has arrived. In 2018, we achieved our goal of generating over $130 million in home automation net sales and gained traction in our advanced, intuitive 2-way home entertainment systems. Our corporate and manufacturing initiatives started in the second half of 2018 to address macro challenges and free resources for strategic investments, all of which will position UEI well for 2019 and beyond. While we have acted quickly to respond to the punitive tariffs implemented by our government during 2018 by broadening our sources of supply to locations outside China, this transition delayed shipments and net sales fell short of our expectations in the fourth quarter. But, with our solid gross margins and increased operational efficiency, we met our fourth quarter bottom line guidance. Meanwhile, we continue to make progress to improve supply and expect to continue seeing positive results in the coming months. In addition, we are excited about the rising demand for our advanced products in both home entertainment and home automation.

“AV control is expanding into other applications like home automation. To capture market, in collaboration with Microsoft, we unveiled Nevo® Butler, an end-to-end voice-enabled smart home hub that unifies entertainment control and home automation experience. Offering a white-label digital assistant providing interoperability across fragmented ecosystem, Nevo Butler enables service providers and consumer electronics brands to bring voice-enabled services to their customers while remaining in control of the consumer relationship. We believe our efforts to enhance our competitive position, enter new markets, attract new customers, and continually improve account service will result in consistent and profitable growth.”

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

  • GAAP net sales were $170.3 million, compared to $181.2 million; Adjusted Non-GAAP net sales were $169.7 million, compared to $180.7 million.
  • GAAP gross margins were 22.0%, compared to 20.9%; Adjusted Non-GAAP gross margins were 27.2%, compared to 23.6%.
  • GAAP operating income was $2.6 million, compared to an operating loss of $0.5 million; Adjusted Non-GAAP operating income was $13.7 million, compared to $10.4 million.
  • GAAP net loss was $11.1 million, or $0.80 per diluted share, compared to a GAAP net loss of $16.9 million or $1.19 per diluted share; Adjusted Non-GAAP net income was $9.7 million, or $0.70 per diluted share, compared to $8.7 million, or $0.60 per diluted share.
  • At December 31, 2018, cash and cash equivalents were $53.2 million.

Financial Results for the Twelve Months Ended December 31: 2018 Compared to 2017

  • GAAP net sales were $680.2 million, compared to $695.8 million; Adjusted Non-GAAP net sales were $679.9 million, compared to $696.5 million.
  • GAAP net income was $11.9 million, or $0.85 per diluted share, compared to a GAAP net loss of $10.3 million or $0.72 per diluted share; Adjusted Non-GAAP net income was $33.6 million, or $2.39 per diluted share, compared to $41.1 million, or $2.81 per diluted share.

Bryan Hackworth, UEI’s CFO, stated: “To keep pace with the growing demand for our products and services, our investment in innovation and efforts to mitigate the effect from additional punitive US tariffs, we are enacting strategic initiatives aimed at streamlining our business, creating organizational efficiencies, controlling our costs, and optimizing our operating footprint. By expanding our existing facility in Mexico and adding capabilities in the Philippines, we are actively upgrading our manufacturing footprint outside China. Although the transition to advanced control technology is taking longer than expected, new and existing customers are including significantly more UEI technology in their next generation orders, commanding a higher price per unit. We are confident that this, together with our continued focus on growth through technology, innovation, and best in class product quality and delivery, will result in continued growth and profitability.”

Financial Outlook

For the first quarter of 2019, the company expects GAAP net sales to range between $179 million and $187 million, compared to $164.7 million in the first quarter of 2018. GAAP earnings per diluted share for the first quarter of 2019 is expected to range from $0.10 to $0.20, compared to GAAP net loss per diluted share of $0.04 in the first quarter of 2018.

For the first quarter of 2019, the company expects Adjusted Non-GAAP net sales to range between $179 million and $187 million, compared to $170.6 million in the first quarter of 2018. Adjusted Non-GAAP earnings per diluted share are expected to range from $0.70 to $0.80, compared to Adjusted Non-GAAP earnings per diluted share of $0.62 in the first quarter of 2018. The first quarter Adjusted Non-GAAP earnings per diluted share estimate excludes $0.60 per share related to, among other things, stock-based compensation, amortization of acquired intangibles, changes in contingent consideration relating to acquisitions, effects of foreign currency fluctuations, unabsorbed manufacturing overhead resulting from factory underutilization, tariffs, restructuring costs and the related tax impact of these adjustments.  For a more detailed explanation of Non-GAAP measures, please see the Use of Non-GAAP Financial Metrics discussion and the Reconciliation of Adjusted Non-GAAP Financial Results, each located elsewhere in this press release.

Conference Call Information

UEI’s management team will hold a conference call today, Thursday, February 21, 2019 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its fourth quarter and full year 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 5754839.  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 5754839.

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.

Certain elements of UEI’s results of operations are presented 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. Management believes 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.

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”), the revenue impact of increased U.S. tariffs on products manufactured in China and imported into the U.S. 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, the effect of fair value adjustments to inventories acquired in business combinations that sold through during the period, amortization of intangibles acquired, excess manufacturing overhead and factory transition costs, the impact of the adoption of ASC 606, the impact of increased U.S. tariffs on products manufactured in China and imported into the U.S. and costs of implementing countermeasures to mitigate this impact, 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, costs incurred related to implementing countermeasures to mitigate the impact of increased U.S. tariffs on products manufactured in China and imported into the U.S., transaction costs related to the sale of our Guangzhou factory, 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, the net gain recognized on the sale of the company’s Guangzhou factory, and the related tax effects of all adjustments, as well as income tax expense representing the impact of the U.S. Tax Cuts and Jobs Act, the effect of certain net deferred tax asset adjustments and other nonrecurring income tax items.  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 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 our ability to anticipate the needs and wants of our customers and timely develop and deliver products and technologies that will meet those needs and wants, including our advanced control products, which include the continued adoption of our recently announced Nevo Butler, nevo.ai digital assistant, voice remote control, and intuitive 2-way home entertainment technologies by existing and new customers; the continued incorporation of our QuickSet technologies, including the Quickset Cloud, into customers’ products as expected by management; the continued acceptance and growth of our connected home products and technologies, including security and control, temperature controllers and automation, and other sensing technologies identified in this call; the timing of new product rollout orders from our customers as anticipated by management; the continued trend of the industry toward providing consumers with more advanced technologies; the ability to successfully identify and enter existing and new adjacent markets for our products and technologies; the ability to attract and obtain new customers for our products and technologies; management’s ability to manage its business to achieve its net sales, margins, and earnings as guided, including management’s ability to improve operating costs and efficiencies at acceptable levels through cost containment efforts including moving our administrative, operations, and manufacturing facilities to lower cost jurisdictions, and effects that changes in laws, regulations and policies may have on our business including the impact of trade regulations pertaining to importation of our products and tariffs imposed upon them. 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 21, 2019. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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