SCOTTSDALE, AZ – August 6, 2020 – Universal Electronics Inc. (UEI), (NASDAQ: UEIC) reported financial results for the three and six months ended June 30, 2020.
“Over the past three decades, our innovation and product development have made UEI into a market leader with a strong financial foundation,” said Paul Arling, UEI’s chairman and CEO. “However, as expected in the current environment, customers have been cautious with their near-term orders, primarily with our traditional home entertainment and security customers. Due to the pandemic, the ability or willingness to install hardware in consumers’ homes, whether it is to establish new service or to upgrade premise equipment, has been significantly disrupted. Regardless, our long-term growth opportunities remain unchanged. Overall, consumption of video entertainment is sky rocketing, and consumers want simplified access to content. Our customers understand these market demands, and they are actively working on the development of a single platform to manage and deliver content from both traditional linear TV and streaming apps on one all-encompassing voice-enabled platform. UEI is partnering with multiple providers in developing this type of next-generation platform, which we expect will be announced and begin shipping in the next few quarters.
“Further, UEI’s Nevo Butler®, a smart home hub with a built-in voice assistant, unifies entertainment and home automation with a secure and managed hardware platform, enabling the limitless control options in the smart home. We offer a complete white label platform solution as well as software ingredients that can be integrated in other products to enable similar capabilities. The market is recognizing our technology lead, and we have secured our first customer for Nevo Butler, a leading telecommunications service provider, as well as several other active engagements in the professional security and hospitality markets.”
Financial Results for the Three Months Ended June 30: 2020 Compared to 2019
- GAAP net sales were $153.1 million, compared to $193.9 million; Adjusted Non-GAAP net sales were $153.3 million, compared to $193.4 million.
- GAAP gross margins were 24.9%, compared to 17.5%; Adjusted Non-GAAP gross margins were 28.5%, compared to 25.2%.
- GAAP operating income was $6.5 million, compared to an operating loss of $3.9 million; Adjusted Non-GAAP operating income was $14.5 million, compared to $15.8 million.
- GAAP net income was $14.4 million, or $1.02 per diluted share, compared to a net loss of $5.1 million or $0.37 per share; Adjusted Non-GAAP net income was $12.6 million, or $0.89 per diluted share, compared to $11.7 million, or $0.83 per diluted share.
- At June 30, 2020, cash and cash equivalents were $58.8 million.
Financial Results for the Six Months Ended June 30: 2020 Compared to 2019
- GAAP net sales were $304.9 million, compared to $378.1 million; Adjusted Non-GAAP net sales were $305.2 million, compared to $376.1 million.
- GAAP gross margins were 26.6%, compared to 19.5%; Adjusted Non-GAAP gross margins were 29.7%, compared to 25.5%.
- GAAP operating income was $14.5 million, compared to an operating loss of $2.3 million; Adjusted Non-GAAP operating income was $29.4 million, compared to $30.4 million.
- GAAP net income was $20.2 million, or $1.43 per diluted share, compared to a net loss of $6.1 million or $0.44 per share; Adjusted Non-GAAP net income was $24.1 million, or $1.70 per diluted share, compared to $23.0 million, or $1.65 per diluted share.
Bryan Hackworth, UEI’s CFO, stated, “Our corporate restructuring efforts have enabled us to reallocate a portion of the savings from SG&A to additional R&D spend including investments in technologies that can be embedded in a number of devices, sold in various form factors, and distributed through multiple channels, resulting in higher margins and greater profitability. In fact, for the third quarter we expect our operating margins to exceed 10%. Additionally, we reiterate our long-term growth targets of revenue between 5% to 10% and bottom line between 10% and 20%.”
For the third quarter of 2020, the company expects GAAP net sales to range between $150 million and $160 million, compared to $200.7 million in the third quarter of 2019. GAAP earnings per diluted share for the third quarter of 2020 are expected to range from $0.53 to $0.63, compared to a GAAP earnings per diluted share of $0.19 in the third quarter of 2019.
For the third quarter of 2020, the company expects Adjusted Non-GAAP net sales to range between $150 million and $160 million, compared to $200.9 million in the third quarter of 2019. Adjusted Non-GAAP earnings per diluted share are expected to range from $0.87 to $0.97, compared to Adjusted Non-GAAP earnings per diluted share of $1.01 in the third quarter of 2019. The third quarter 2020 Adjusted Non-GAAP earnings per diluted share estimate excludes $0.34 per share related to, among other things, excess manufacturing overhead costs, stock-based compensation, amortization of acquired intangibles, changes in contingent consideration relating to acquisitions, foreign currency gains and losses 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, August 6, 2020 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its second quarter 2020 earnings results, review recent activity and answer questions. To gain immediate access to the call, bypass the operator and avoid the queue, you may preregister by clicking here. Upon registering, you will be emailed a dial-in number, direct passcode and unique PIN. Those who prefer to call-in directly, may do so approximately 20 minutes prior to the start time by dialing 888-869-1189, and for international calls dial 706-643-5902. The conference ID is 8005799. The conference call will also be broadcast live on the investor section of the UEI website 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 8005799.
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, help 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 revenue impact of the additional Section 301 U.S. tariffs on products manufactured in China and imported into the U.S. and the impact of stock-based compensation for performance-based warrants. Adjusted Non-GAAP gross profit is defined as gross profit excluding the impact of the additional Section 301 U.S. tariffs on products manufactured in China and imported into the U.S. and costs of implementing countermeasures to mitigate this impact, excess manufacturing overhead costs including those related to the COVID-19 pandemic, factory transition costs, the loss on the sale of our Ohio call center, stock-based compensation expense, depreciation expense related to the increase in fixed assets from cost to fair market value resulting from acquisitions and employee related restructuring costs. Adjusted Non-GAAP operating expenses are defined as operating expenses excluding costs incurred related to implementing countermeasures to mitigate the impact of the additional Section 301 U.S. tariffs on products manufactured in China and imported into the U.S., stock-based compensation expense, amortization of intangibles acquired, changes in contingent consideration related to acquisitions and employee related restructuring and other costs. Adjusted Non-GAAP net income is defined as net income excluding the aforementioned items, the reversal of a social insurance accrual related to our Guangzhou entity, which was sold in 2018, foreign currency gains and losses, the related tax effects of all adjustments as well as the effect of a reversal of a reserve of an uncertain tax position related to our Guangzhou entity, which was sold in 2018, and certain net deferred tax 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
Founded in 1986, Universal Electronics Inc. (NASDAQ: UEIC) is the global leader in universal control and sensing technologies for the smart home. The company designs, develops, manufactures and ships over 500 innovative products that are used by the world’s leading brands in the consumer electronics, subscription broadcast, security, home automation, hospitality and climate control markets. For more information, please visit www.uei.com.
Paul Arling, Chairman & CEO, UEI, 480.530.3000
Press: Shoshana Leon, Corporate Communications, UEI, [email protected], 480.521.3354
IR: Kirsten Chapman, LHA Investor Relations, [email protected], 415.433.3777
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 other reports we have filed with the Securities Exchange Commission (the “SEC”). Risks that could affect forward-looking statements in this press release include: our ability to continue to efficiently operate our factories at full or near full capacity amid the economic and physical restraints we face due to the COVID-19 pandemic; the increased importance and acceptance of and demand for our voice-enabled advanced control products and technologies, including our Nevo Butler® technologies and platform; our ability to anticipate the needs and wants of our customers, and timely develop and deliver products and technologies that will be accepted by our customers; the continued commitment of our customers to their product development strategies that translate into greater demand for our technologies and products as anticipated by management; the continuation of the ordering pattern of our customers as anticipated by management; management’s ability to manage its business to achieve its growth, net sales, margins, and earnings as guided and as anticipated; the effects that natural disasters and public health crises, including the COVID-19 pandemic, have on our business and management’s ability to anticipate and mitigate those effects, including the duration, severity and scope of the COVID-19 pandemic and the actions and restrictions that may be imposed on us and our operations by federal, state, local and international public health and governmental authorities to contain and combat the outbreak and spread of COVID-19, which may exacerbate one or more of the aforementioned and/or other risks, uncertainties and other factors more fully described in our reports filed with the SEC; 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 the tariffs imposed upon them. Since it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, the above list should not be considered a complete list. Further, 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 August 6, 2020 and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
- The three and six months ended June 30, 2020 include costs directly attributable to the additional Section 301 U.S. tariffs implemented in 2018 on goods manufactured in China and imported into the U.S. The three and six months ended June 30, 2019 include incremental revenues and costs directly attributable to the additional Section 301 U.S. tariffs implemented in 2018 on goods manufactured in China and imported into the U.S. as well as costs incurred for the movement of factory equipment and other costs of countermeasures undertaken by the company to modify its manufacturing operations and supply chain.
- The six months ended June 30, 2020 include excess manufacturing overhead costs incurred as we temporarily shut-down our China and Mexico-based factories as a result of the COVID-19 pandemic. Additional excess manufacturing overhead costs have been incurred for the three and six months ended June 30, 2020 and 2019 due to the expansion of our manufacturing facility in Mexico where products destined for the U.S. market are now manufactured. These products destined for the U.S. market were previously manufactured in China. In addition, the three and six months ended June 30, 2019 include direct manufacturing inefficiencies incurred in Mexico as we were still in a start-up phase through the second quarter of 2019.
- Consists of the loss recorded on the sale of our Ohio call center in February 2020.
- Consists of depreciation related to the mark-up from cost to fair value of fixed assets acquired in business combinations.
- Consists of the reversal of a social insurance accrual related to our Guangzhou entity, which was sold in 2018. The indemnification agreement related to the sale of our Guangzhou entity expired in the second quarter of 2020.
- The three and six months ended June 30, 2020 include the reversal of a reserve of an uncertain tax position related to our Guangzhou entity, which was sold in 2018. The indemnification agreement related to the sale of our Guangzhou entity expired in the second quarter of 2020. The six months ended June 30, 2019 includes the revaluation of net deferred tax assets at one of our China factories resulting from tax incentives that lowered the statutory rate.