ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) | (Zip Code) |
Large accelerated filer | ¨ | Accelerated filer | ý |
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 Act). Yes ¨ No ý |
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbols | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | UEIC | The NASDAQ Stock Market LLC |
Page Number | |
September 30, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 54,729 | $ | 53,207 | |||
Accounts receivable, net | 157,138 | 144,689 | |||||
Contract assets | 21,721 | 25,572 | |||||
Inventories, net | 137,522 | 144,350 | |||||
Prepaid expenses and other current assets | 6,061 | 11,638 | |||||
Income tax receivable | 3,392 | 997 | |||||
Total current assets | 380,563 | 380,453 | |||||
Property, plant and equipment, net | 91,067 | 95,840 | |||||
Goodwill | 48,404 | 48,485 | |||||
Intangible assets, net | 20,487 | 24,370 | |||||
Operating lease right-of-use assets | 19,890 | — | |||||
Deferred income taxes | 2,719 | 1,833 | |||||
Other assets | 2,357 | 4,615 | |||||
Total assets | $ | 565,487 | $ | 555,596 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 103,842 | $ | 107,282 | |||
Line of credit | 88,000 | 101,500 | |||||
Accrued compensation | 40,343 | 33,965 | |||||
Accrued sales discounts, rebates and royalties | 9,265 | 9,574 | |||||
Accrued income taxes | 3,560 | 3,524 | |||||
Other accrued liabilities | 32,659 | 24,011 | |||||
Total current liabilities | 277,669 | 279,856 | |||||
Long-term liabilities: | |||||||
Operating lease obligations | 15,580 | — | |||||
Contingent consideration | 4,732 | 8,435 | |||||
Deferred income taxes | 4,195 | 930 | |||||
Income tax payable | 1,647 | 1,647 | |||||
Other long-term liabilities | 13 | 1,768 | |||||
Total liabilities | 303,836 | 292,636 | |||||
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; 24,099,047 and 23,932,703 shares issued on September 30, 2019 and December 31, 2018, respectively | 241 | 239 | |||||
Paid-in capital | 285,487 | 276,103 | |||||
Treasury stock, at cost, 10,170,862 and 10,116,459 shares on September 30, 2019 and December 31, 2018, respectively | (277,630 | ) | (275,889 | ) | |||
Accumulated other comprehensive income (loss) | (25,838 | ) | (20,281 | ) | |||
Retained earnings | 279,391 | 282,788 | |||||
Total stockholders' equity | 261,651 | 262,960 | |||||
Total liabilities and stockholders' equity | $ | 565,487 | $ | 555,596 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net sales | $ | 200,724 | $ | 182,717 | $ | 578,783 | $ | 509,938 | |||||||
Cost of sales | 154,245 | 142,401 | 458,437 | 405,661 | |||||||||||
Gross profit | 46,479 | 40,316 | 120,346 | 104,277 | |||||||||||
Research and development expenses | 7,930 | 5,593 | 21,884 | 17,703 | |||||||||||
Selling, general and administrative expenses | 32,422 | 29,994 | 94,598 | 90,811 | |||||||||||
Operating income (loss) | 6,127 | 4,729 | 3,864 | (4,237 | ) | ||||||||||
Interest income (expense), net | (784 | ) | (1,177 | ) | (3,088 | ) | (3,526 | ) | |||||||
Gain on sale of Guangzhou factory | — | — | — | 36,978 | |||||||||||
Other income (expense), net | (148 | ) | (2,282 | ) | (426 | ) | (3,951 | ) | |||||||
Income (loss) before provision for income taxes | 5,195 | 1,270 | 350 | 25,264 | |||||||||||
Provision for income taxes | 2,526 | 311 | 3,747 | 2,233 | |||||||||||
Net income (loss) | $ | 2,669 | $ | 959 | $ | (3,397 | ) | $ | 23,031 | ||||||
Earnings (loss) per share: | |||||||||||||||
Basic | $ | 0.19 | $ | 0.07 | $ | (0.25 | ) | $ | 1.65 | ||||||
Diluted | $ | 0.19 | $ | 0.07 | $ | (0.25 | ) | $ | 1.63 | ||||||
Shares used in computing earnings (loss) per share: | |||||||||||||||
Basic | 13,894 | 13,836 | 13,861 | 13,997 | |||||||||||
Diluted | 14,170 | 13,959 | 13,861 | 14,116 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income (loss) | $ | 2,669 | $ | 959 | $ | (3,397 | ) | $ | 23,031 | ||||||
Other comprehensive income (loss): | |||||||||||||||
Change in foreign currency translation adjustment | (5,457 | ) | (3,778 | ) | (5,557 | ) | (5,190 | ) | |||||||
Comprehensive income (loss) | $ | (2,788 | ) | $ | (2,819 | ) | $ | (8,954 | ) | $ | 17,841 |
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, 2018 | 23,933 | $ | 239 | (10,116 | ) | $ | (275,889 | ) | $ | 276,103 | $ | (20,281 | ) | $ | 282,788 | $ | 262,960 | ||||||||||||
Net income (loss) | (1,005 | ) | (1,005 | ) | |||||||||||||||||||||||||
Currency translation adjustment | 1,733 | 1,733 | |||||||||||||||||||||||||||
Shares issued for employee benefit plan and compensation | 78 | 1 | 346 | 347 | |||||||||||||||||||||||||
Purchase of treasury shares | (43 | ) | (1,215 | ) | (1,215 | ) | |||||||||||||||||||||||
Shares issued to directors | 8 | — | — | — | |||||||||||||||||||||||||
Employee and director stock-based compensation | 1,918 | 1,918 | |||||||||||||||||||||||||||
Performance - based common stock warrants | 434 | 434 | |||||||||||||||||||||||||||
Balance at March 31, 2019 | 24,019 | 240 | (10,159 | ) | (277,104 | ) | 278,801 | (18,548 | ) | 281,783 | 265,172 | ||||||||||||||||||
Net income (loss) | (5,061 | ) | (5,061 | ) | |||||||||||||||||||||||||
Currency translation adjustment | (1,833 | ) | (1,833 | ) | |||||||||||||||||||||||||
Shares issued for employee benefit plan and compensation | 17 | — | 273 | 273 | |||||||||||||||||||||||||
Purchase of treasury shares | (5 | ) | (189 | ) | (189 | ) | |||||||||||||||||||||||
Shares issued to directors | 7 | — | — | — | |||||||||||||||||||||||||
Employee and director stock-based compensation | 2,273 | 2,273 | |||||||||||||||||||||||||||
Performance-based common stock warrants | 236 | 236 | |||||||||||||||||||||||||||
Balance at June 30, 2019 | 24,043 | 240 | (10,164 | ) | (277,293 | ) | 281,583 | (20,381 | ) | 276,722 | 260,871 | ||||||||||||||||||
Net income (loss) | 2,669 | 2,669 | |||||||||||||||||||||||||||
Currency translation adjustment | (5,457 | ) | (5,457 | ) | |||||||||||||||||||||||||
Shares issued for employee benefit plan and compensation | 29 | 1 | 255 | 256 | |||||||||||||||||||||||||
Purchase of treasury shares | (7 | ) | (337 | ) | (337 | ) | |||||||||||||||||||||||
Stock options exercised | 20 | 411 | 411 | ||||||||||||||||||||||||||
Shares issued to directors | 7 | — | — | — | |||||||||||||||||||||||||
Employee and director stock-based compensation | 2,527 | 2,527 | |||||||||||||||||||||||||||
Performance-based common stock warrants | 711 | 711 | |||||||||||||||||||||||||||
Balance at September 30, 2019 | 24,099 | $ | 241 | (10,171 | ) | $ | (277,630 | ) | $ | 285,487 | $ | (25,838 | ) | $ | 279,391 | $ | 261,651 |
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, 2017 | 23,760 | $ | 238 | (9,703 | ) | $ | (262,065 | ) | $ | 265,195 | $ | (16,599 | ) | $ | 266,780 | $ | 253,549 | ||||||||||||
Impact to retained earnings from adoption of ASU 2014-09 | 4,084 | 4,084 | |||||||||||||||||||||||||||
Balance at January 1, 2018 | 23,760 | 238 | (9,703 | ) | (262,065 | ) | 265,195 | (16,599 | ) | 270,864 | 257,633 | ||||||||||||||||||
Net income (loss) | (587 | ) | (587 | ) | |||||||||||||||||||||||||
Currency translation adjustment | 3,646 | 3,646 | |||||||||||||||||||||||||||
Shares issued for employee benefit plan and compensation | 42 | — | 336 | 336 | |||||||||||||||||||||||||
Purchase of treasury shares | (13 | ) | (615 | ) | (615 | ) | |||||||||||||||||||||||
Stock options exercised | 20 | — | 439 | 439 | |||||||||||||||||||||||||
Shares issued to directors | 8 | — | — | — | |||||||||||||||||||||||||
Employee and director stock-based compensation | 2,204 | 2,204 | |||||||||||||||||||||||||||
Performance - based common stock warrants | 471 | 471 | |||||||||||||||||||||||||||
Balance at March 31, 2018 | 23,830 | 238 | (9,716 | ) | (262,680 | ) | 268,645 | (12,953 | ) | 270,277 | 263,527 | ||||||||||||||||||
Net income (loss) | 22,659 | 22,659 | |||||||||||||||||||||||||||
Currency translation adjustment | (5,058 | ) | (5,058 | ) | |||||||||||||||||||||||||
Shares issued for employee benefit plan and compensation | 14 | 1 | 253 | 254 | |||||||||||||||||||||||||
Purchase of treasury shares | (212 | ) | (6,499 | ) | (6,499 | ) | |||||||||||||||||||||||
Stock options exercised | 10 | — | 265 | 265 | |||||||||||||||||||||||||
Shares issued to directors | 8 | — | — | — | |||||||||||||||||||||||||
Employee and director stock-based compensation | 2,465 | 2,465 | |||||||||||||||||||||||||||
Performance-based common stock warrants | (128 | ) | (128 | ) | |||||||||||||||||||||||||
Balance at June 30, 2018 | 23,862 | 239 | (9,928 | ) | (269,179 | ) | 271,500 | (18,011 | ) | 292,936 | 277,485 | ||||||||||||||||||
Net income (loss) | 959 | 959 | |||||||||||||||||||||||||||
Currency translation adjustment | (3,778 | ) | (3,778 | ) | |||||||||||||||||||||||||
Shares issued for employee benefit plan and compensation | 18 | — | 290 | 290 | |||||||||||||||||||||||||
Purchase of treasury shares | (148 | ) | (5,450 | ) | (5,450 | ) | |||||||||||||||||||||||
Stock options exercised | 5 | — | 160 | 160 | |||||||||||||||||||||||||
Shares issued to directors | 7 | — | — | — | |||||||||||||||||||||||||
Employee and director stock-based compensation | 2,139 | 2,139 | |||||||||||||||||||||||||||
Performance-based common stock warrants | 404 | 404 | |||||||||||||||||||||||||||
Balance at September 30, 2018 | 23,892 | $ | 239 | (10,076 | ) | $ | (274,629 | ) | $ | 274,493 | $ | (21,789 | ) | $ | 293,895 | $ | 272,209 |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
Cash provided by (used for) operating activities: | |||||||
Net income (loss) | $ | (3,397 | ) | $ | 23,031 | ||
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | |||||||
Depreciation and amortization | 23,734 | 25,264 | |||||
Provision for doubtful accounts | 275 | 2 | |||||
Provision for inventory write-downs | 11,222 | 6,450 | |||||
Gain on sale of Guangzhou factory | — | (36,978 | ) | ||||
Deferred income taxes | 2,273 | (1,370 | ) | ||||
Shares issued for employee benefit plan | 876 | 880 | |||||
Employee and director stock-based compensation | 6,718 | 6,808 | |||||
Performance-based common stock warrants | 1,381 | 747 | |||||
Impairment of China factory equipment | — | 2,886 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable and contract assets | (11,117 | ) | (1,289 | ) | |||
Inventories | (6,819 | ) | (9,535 | ) | |||
Prepaid expenses and other assets | 5,507 | (4,194 | ) | ||||
Accounts payable and accrued liabilities | 11,686 | (13,142 | ) | ||||
Accrued income taxes | (2,418 | ) | (4,134 | ) | |||
Net cash provided by (used for) operating activities | 39,921 | (4,574 | ) | ||||
Cash provided by (used for) investing activities: | |||||||
Proceeds from sale of Guangzhou factory | — | 51,291 | |||||
Acquisitions of property, plant and equipment | (15,854 | ) | (16,838 | ) | |||
Refund of deposit received toward sale of Guangzhou factory | — | (5,053 | ) | ||||
Acquisitions of intangible assets | (1,505 | ) | (1,911 | ) | |||
Net cash provided by (used for) investing activities | (17,359 | ) | 27,489 | ||||
Cash provided by (used for) financing activities: | |||||||
Borrowings under line of credit | 57,500 | 48,000 | |||||
Repayments on line of credit | (71,000 | ) | (82,500 | ) | |||
Proceeds from stock options exercised | 411 | 864 | |||||
Treasury stock purchased | (1,741 | ) | (12,564 | ) | |||
Contingent consideration payments in connection with business combinations | (4,251 | ) | (3,858 | ) | |||
Net cash provided by (used for) financing activities | (19,081 | ) | (50,058 | ) | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1,959 | ) | 1,799 | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 1,522 | (25,344 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of year | 53,207 | 67,339 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 54,729 | $ | 41,995 | |||
Supplemental cash flow information: | |||||||
Income taxes paid | $ | 5,608 | $ | 5,453 | |||
Interest paid | $ | 3,479 | $ | 3,722 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
United States | $ | 7,226 | $ | 1,156 | |||
People's Republic of China ("PRC") | 12,813 | 20,885 | |||||
Asia (excluding the PRC) | 11,113 | 2,398 | |||||
Europe | 12,156 | 19,907 | |||||
South America | 11,421 | 8,861 | |||||
Total cash and cash equivalents | $ | 54,729 | $ | 53,207 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Trade receivables, gross | $ | 151,220 | $ | 133,774 | |||
Allowance for doubtful accounts | (1,292 | ) | (1,121 | ) | |||
Allowance for sales returns | (497 | ) | (731 | ) | |||
Net trade receivables | 149,431 | 131,922 | |||||
Other | 7,707 | 12,767 | |||||
Accounts receivable, net | $ | 157,138 | $ | 144,689 |
(In thousands) | Nine Months Ended September 30, | ||||||
2019 | 2018 | ||||||
Balance at beginning of period | $ | 1,121 | $ | 1,064 | |||
Additions to costs and expenses | 275 | 2 | |||||
(Write-offs)/Foreign exchange effects | (104 | ) | (74 | ) | |||
Balance at end of period | $ | 1,292 | $ | 992 |
Three Months Ended September 30, | ||||||||||||||
2019 | 2018 | |||||||||||||
$ (thousands) | % of Net Sales | $ (thousands) | % of Net Sales | |||||||||||
Comcast Corporation | $ | 30,419 | 15.2 | % | $ | 32,336 | 17.7 | % | ||||||
Ring L.L.C. | $ | 21,050 | 10.5 | % | — | (1) | — | (1) |
Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | |||||||||||||
$ (thousands) | % of Net Sales | $ (thousands) | % of Net Sales | |||||||||||
Comcast Corporation | $ | 91,058 | 15.7 | % | $ | 99,853 | 19.6 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Goods and services transferred at a point in time | $ | 108,065 | $ | 97,952 | $ | 309,841 | $ | 275,552 | |||||||
Goods and services transferred over time | 92,659 | 84,765 | 268,942 | 234,386 | |||||||||||
Net sales | $ | 200,724 | $ | 182,717 | $ | 578,783 | $ | 509,938 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Raw materials | $ | 59,412 | $ | 68,834 | |||
Components | 21,557 | 25,071 | |||||
Work in process | 5,757 | 5,577 | |||||
Finished goods | 60,306 | 50,006 | |||||
Reserve for excess and obsolete inventory | (9,510 | ) | (5,138 | ) | |||
Inventories, net | $ | 137,522 | $ | 144,350 |
(In thousands) | Nine Months Ended September 30, | ||||||
2019 | 2018 | ||||||
Balance at beginning of period | $ | 5,138 | $ | 4,288 | |||
Additions charged to costs and expenses (1) | 7,430 | 5,353 | |||||
Sell through (2) | (1,220 | ) | (1,240 | ) | |||
(Write-offs)/Foreign exchange effects | (1,838 | ) | (1,118 | ) | |||
Balance at end of period | $ | 9,510 | $ | 7,283 |
(1) | The additions charged to costs and expenses do not include inventory directly written-off that was scrapped during production totaling $3.8 million and $1.1 million for the nine months ended September 30, 2019 and 2018, respectively. These amounts are production waste and manufacturing inefficiencies and are not included in management's reserve for excess and obsolete inventory. |
(2) | These amounts represent the reduction in reserves associated with inventory items that were sold during the period. |
(In thousands) | September 30, 2019 | ||
Assets: | |||
Operating lease right-of-use assets | $ | 19,890 | |
Liabilities: | |||
Other accrued liabilities | $ | 4,501 | |
Long-term operating lease obligations | 15,580 | ||
Total lease liabilities | $ | 20,081 |
(In thousands) | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||
Cost of sales | $ | 574 | $ | 1,627 | ||
Selling, general and administrative expenses | 1,036 | 3,324 | ||||
Total operating lease expense | $ | 1,610 | $ | 4,951 | ||
Operating cash outflows from operating leases | $ | 1,537 | $ | 5,197 | ||
Operating lease right-of-use assets obtained in exchange for lease obligations | $ | 1,131 | $ | 2,655 |
September 30, 2019 | ||
Weighted average lease liability term (in years) | 4.60 | |
Weighted average discount rate | 4.62 | % |
(In thousands) | September 30, 2019 | ||
2019 (remaining 3 months) | $ | 1,190 | |
2020 | 5,482 | ||
2021 | 5,493 | ||
2022 | 4,523 | ||
2023 | 2,306 | ||
Thereafter | 3,366 | ||
Total lease payments | 22,360 | ||
Less: imputed interest | (2,279 | ) | |
Total lease liabilities | $ | 20,081 |
(In thousands) | |||
Balance at December 31, 2018 | $ | 48,485 | |
Foreign exchange effects | (81 | ) | |
Balance at September 30, 2019 | $ | 48,404 |
September 30, 2019 | December 31, 2018 | ||||||||||||||||||||||
(In thousands) | Gross (1) | Accumulated Amortization (1) | Net | Gross (1) | Accumulated Amortization (1) | Net | |||||||||||||||||
Distribution rights | $ | 314 | $ | (198 | ) | $ | 116 | $ | 329 | $ | (188 | ) | $ | 141 | |||||||||
Patents | 15,606 | (6,253 | ) | 9,353 | 14,560 | (5,704 | ) | 8,856 | |||||||||||||||
Trademarks and trade names | 2,786 | (2,129 | ) | 657 | 2,786 | (1,900 | ) | 886 | |||||||||||||||
Developed and core technology | 12,560 | (9,597 | ) | 2,963 | 12,560 | (8,087 | ) | 4,473 | |||||||||||||||
Capitalized software development costs | — | — | — | 155 | — | 155 | |||||||||||||||||
Customer relationships | 32,683 | (25,285 | ) | 7,398 | 32,534 | (22,675 | ) | 9,859 | |||||||||||||||
Total intangible assets, net | $ | 63,949 | $ | (43,462 | ) | $ | 20,487 | $ | 62,924 | $ | (38,554 | ) | $ | 24,370 |
(1) | This table excludes the gross value of fully amortized intangible assets totaling $7.3 million and $7.1 million at September 30, 2019 and December 31, 2018, respectively. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Cost of sales | $ | — | $ | 18 | $ | — | $ | 91 | |||||||
Selling, general and administrative expenses | 1,798 | 1,770 | 5,382 | 5,275 | |||||||||||
Total amortization expense | $ | 1,798 | $ | 1,788 | $ | 5,382 | $ | 5,366 |
(In thousands) | |||
2019 (remaining 3 months) | $ | 1,791 | |
2020 | 6,045 | ||
2021 | 2,555 | ||
2022 | 2,443 | ||
2023 | 2,298 | ||
Thereafter | 5,355 | ||
Total | $ | 20,487 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Accrued social insurance (1) | $ | 16,462 | $ | 16,735 | |||
Accrued salary/wages | 7,751 | 8,783 | |||||
Accrued vacation/holiday | 2,713 | 2,954 | |||||
Accrued bonus (2) | 10,823 | 2,361 | |||||
Accrued commission | 1,027 | 1,432 | |||||
Other accrued compensation | 1,567 | 1,700 | |||||
Total accrued compensation | $ | 40,343 | $ | 33,965 |
(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 industry 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 September 30, 2019 and December 31, 2018. |
(2) | Accrued bonus includes an accrual for an extra month of salary ("13th month salary") to be paid to employees in certain geographies where it is the customary business practice. This 13th month salary is paid to these employees if they remain employed with us through December 31st. The total accrued for the 13th month salary was $0.7 million and $0.4 million at September 30, 2019 and December 31, 2018, respectively. |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Duties | $ | 4,426 | $ | 4,865 | |||
Freight and handling fees | 4,852 | 3,217 | |||||
Operating lease obligations | 4,501 | — | |||||
Professional fees | 1,962 | 1,930 | |||||
Sales taxes and VAT | 1,500 | 1,050 | |||||
Short-term contingent consideration | 5,411 | 4,190 | |||||
Tooling (1) | 1,581 | 1,770 | |||||
Other | 8,426 | 6,989 | |||||
Total other accrued liabilities | $ | 32,659 | $ | 24,011 |
(1) | The tooling accrual balance relates to unearned revenue for tooling that will be sold to customers. Revenue recognized for the sale of tooling during the three and nine months ended September 30, 2019 and 2018 was insignificant in relation to our net sales. |
(In thousands) | Nine Months Ended September 30, | ||||||
2019 | 2018 | ||||||
Balance at beginning of period | $ | 276 | $ | 339 | |||
Accruals for warranties issued during the period | 695 | 787 | |||||
Settlements (in cash or in kind) during the period | — | (850 | ) | ||||
Balance at end of period | $ | 971 | $ | 276 |
Nine Months Ended September 30, | |||||||
(In thousands) | 2019 | 2018 | |||||
Shares repurchased | 55 | 373 | |||||
Cost of shares repurchased | $ | 1,741 | $ | 12,564 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
United States | $ | 107,546 | $ | 84,756 | $ | 313,029 | $ | 243,801 | |||||||
Asia (excluding PRC) | 29,613 | 36,888 | 79,157 | 91,755 | |||||||||||
Europe | 23,388 | 18,785 | 69,510 | 58,245 | |||||||||||
People's Republic of China | 23,704 | 28,108 | 66,465 | 68,852 | |||||||||||
Latin America | 8,281 | 6,411 | 26,187 | 23,077 | |||||||||||
Other | 8,192 | 7,769 | 24,435 | 24,208 | |||||||||||
Total net sales | $ | 200,724 | $ | 182,717 | $ | 578,783 | $ | 509,938 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
United States | $ | 13,385 | $ | 14,504 | |||
People's Republic of China | 64,347 | 79,382 | |||||
All other countries | 15,692 | 6,569 | |||||
Total long-lived tangible assets | $ | 93,424 | $ | 100,455 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Cost of sales | $ | 37 | $ | 21 | $ | 102 | $ | 61 | |||||||
Research and development expenses | 315 | 200 | 809 | 556 | |||||||||||
Selling, general and administrative expenses: | |||||||||||||||
Employees | 1,866 | 1,671 | 5,005 | 4,936 | |||||||||||
Outside directors | 309 | 247 | 802 | 1,255 | |||||||||||
Total employee and director stock-based compensation expense | $ | 2,527 | $ | 2,139 | $ | 6,718 | $ | 6,808 | |||||||
Income tax benefit | $ | 509 | $ | 441 | $ | 1,385 | $ | 1,423 |
Number of Options (in 000's) | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in 000's) | |||||||||
Outstanding at December 31, 2018 | 597 | $ | 44.27 | |||||||||
Granted | 150 | 27.07 | ||||||||||
Exercised | (20 | ) | 20.55 | $ | 494 | |||||||
Forfeited/canceled/expired | — | — | ||||||||||
Outstanding at September 30, 2019 (1) | 727 | $ | 41.36 | 4.06 | $ | 9,149 | ||||||
Vested and expected to vest at September 30, 2019(1) | 727 | $ | 41.36 | 4.06 | $ | 9,149 | ||||||
Exercisable at September 30, 2019(1) | 501 | $ | 44.56 | 3.19 | $ | 5,201 |
(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 third quarter of 2019 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 September 30, 2019. This amount will change based on the fair market value of our stock. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||
Weighted average fair value of grants | $ | — | $ | — | $ | 10.28 | $ | 14.26 | ||||||
Risk-free interest rate | — | % | — | % | 2.49 | % | 2.51 | % | ||||||
Expected volatility | — | % | — | % | 41.64 | % | 33.09 | % | ||||||
Expected life in years | 0.00 | 0.00 | 4.54 | 4.53 |
Shares (in 000's) | Weighted-Average Grant Date Fair Value | |||||
Non-vested at December 31, 2018 | 204 | $ | 49.23 | |||
Granted | 263 | 30.26 | ||||
Vested | (124 | ) | 47.43 | |||
Forfeited | (19 | ) | 36.29 | |||
Non-vested at September 30, 2019 | 324 | $ | 35.23 |
Incremental Warrants That Will Vest | ||||||||
Aggregate Level of Purchases by Comcast and Affiliates | January 1, 2016 - December 31, 2017 | January 1, 2018 - December 31, 2019 | January 1, 2020 - December 31, 2021 | |||||
$260 million | 100,000 | 100,000 | 75,000 | |||||
$300 million | 75,000 | 75,000 | 75,000 | |||||
$340 million | 75,000 | 75,000 | 75,000 | |||||
Maximum Potential Warrants Earned by Comcast | 250,000 | 250,000 | 225,000 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2019 | 2018 | 2019 | 2018 | ||||
Fair value | $16.78 | $10.06 | $16.78 | $10.06 | |||
Price of Universal Electronics Inc. common stock | $51.09 | $38.95 | $51.09 | $38.95 | |||
Risk-free interest rate | 1.56% | 2.92% | 1.56% | 2.92% | |||
Expected volatility | 47.82% | 41.00% | 47.82% | 41.00% | |||
Expected life in years | 3.25 | 4.25 | 3.25 | 4.25 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reduction to net sales | $ | 711 | $ | 404 | $ | 1,381 | $ | 747 | |||||||
Income tax benefit | 177 | 100 | 345 | 186 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net gain (loss) on foreign currency exchange contracts (1) | $ | 368 | $ | 69 | $ | (8 | ) | $ | 603 | ||||||
Net gain (loss) on foreign currency exchange transactions | (689 | ) | (2,377 | ) | (662 | ) | (4,617 | ) | |||||||
Other income | 173 | 26 | 244 | 63 | |||||||||||
Other (expense), net | $ | (148 | ) | $ | (2,282 | ) | $ | (426 | ) | $ | (3,951 | ) |
(1) | This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 18 for further details). |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per-share amounts) | 2019 | 2018 | 2019 | 2018 | |||||||||||
BASIC | |||||||||||||||
Net income (loss) | $ | 2,669 | $ | 959 | $ | (3,397 | ) | $ | 23,031 | ||||||
Weighted-average common shares outstanding | 13,894 | 13,836 | 13,861 | 13,997 | |||||||||||
Basic earnings (loss) per share | $ | 0.19 | $ | 0.07 | $ | (0.25 | ) | $ | 1.65 | ||||||
DILUTED | |||||||||||||||
Net income (loss) | $ | 2,669 | $ | 959 | $ | (3,397 | ) | $ | 23,031 | ||||||
Weighted-average common shares outstanding for basic | 13,894 | 13,836 | 13,861 | 13,997 | |||||||||||
Dilutive effect of stock options, restricted stock and common stock warrants | 276 | 123 | — | 119 | |||||||||||
Weighted-average common shares outstanding on a diluted basis | 14,170 | 13,959 | 13,861 | 14,116 | |||||||||||
Diluted earnings (loss) per share | $ | 0.19 | $ | 0.07 | $ | (0.25 | ) | $ | 1.63 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||
Stock options | 382 | 382 | 436 | 365 | |||||||
Restricted stock awards | 9 | 59 | 89 | 134 | |||||||
Performance-based warrants | 175 | 175 | 175 | 175 |
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||
Fair Value Measurement Using | Total Balance | Fair Value Measurement Using | Total Balance | |||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
Foreign currency exchange contracts | $ | — | $ | 57 | $ | — | $ | 57 | $ | — | $ | (249 | ) | $ | — | $ | (249 | ) |
Date Held | Currency | Position Held | Notional Value (in millions) | Forward Rate | Unrealized Gain/(Loss) Recorded at Balance Sheet Date (in thousands)(1) | Settlement Date | |||||||||||
September 30, 2019 | USD/Chinese Yuan Renminbi | USD | $ | 33.0 | 7.1253 | $ | (71 | ) | October 8, 2019 | ||||||||
September 30, 2019 | USD/Brazilian Real | USD | $ | 1.0 | 4.1565 | $ | (3 | ) | October 25, 2019 | ||||||||
September 30, 2019 | USD/Euro | USD | $ | 29.0 | 1.0971 | $ | 131 | October 25, 2019 | |||||||||
December 31, 2018 | USD/Euro | USD | $ | 20.0 | 1.1421 | $ | (97 | ) | January 25, 2019 | ||||||||
December 31, 2018 | USD/Chinese Yuan Renminbi | USD | $ | 27.0 | 6.8969 | $ | (116 | ) | January 25, 2019 | ||||||||
December 31, 2018 | USD/Chinese Yuan Renminbi | USD | $ | 5.0 | 6.9245 | $ | (41 | ) | January 25, 2019 | ||||||||
December 31, 2018 | USD/Brazilian Real | USD | $ | 1.0 | 3.8651 | $ | 5 | January 25, 2019 |
(1) | Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued liabilities. |
• | Net sales increased 9.9% to $200.7 million for the three months ended September 30, 2019 from $182.7 million for the three months ended September 30, 2018. |
• | Our gross margin percentage increased from 22.1% for the three months ended September 30, 2018 to 23.2% for the three months ended September 30, 2019. |
• | Operating expenses, as a percent of net sales, increased from 19.5% for the three months ended September 30, 2018 to 20.2% for the three months ended September 30, 2019. |
• | Our operating income increased from $4.7 million for the three months ended September 30, 2018 to $6.1 million for the three months ended September 30, 2019. Our operating income percentage increased from 2.6% for the three months ended September 30, 2018 to 3.0% for the three months ended September 30, 2019. |
• | Income tax expense increased from $0.3 million for the three months ended September 30, 2018 to $2.5 million for the three months ended September 30, 2019. |
• | continue to develop and market the advanced remote control products and technologies that our customer base is adopting; |
• | continue to broaden our home control and automation product offerings; |
• | further penetrate international subscription broadcasting markets; |
• | acquire new customers in historically strong regions; |
• | increase our share with existing customers; and |
• | continue to seek acquisitions or strategic partners that complement and strengthen our existing business. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of sales | 76.8 | 77.9 | 79.2 | 79.6 | |||||||
Gross profit | 23.2 | 22.1 | 20.8 | 20.4 | |||||||
Research and development expenses | 4.0 | 3.1 | 3.8 | 3.5 | |||||||
Selling, general and administrative expenses | 16.2 | 16.4 | 16.3 | 17.7 | |||||||
Operating income (loss) | 3.0 | 2.6 | 0.7 | (0.8 | ) | ||||||
Interest income (expense), net | (0.4 | ) | (0.6 | ) | (0.5 | ) | (0.7 | ) | |||
Gain on sale of Guangzhou factory | — | — | — | 7.3 | |||||||
Other income (expense), net | 0.0 | (1.3 | ) | (0.1 | ) | (0.8 | ) | ||||
Income (loss) before provision for income taxes | 2.6 | 0.7 | 0.1 | 5.0 | |||||||
Provision for income taxes | 1.3 | 0.2 | 0.6 | 0.5 | |||||||
Net income (loss) | 1.3 | % | 0.5 | % | (0.5 | )% | 4.5 | % |
(In thousands) | Nine Months Ended September 30, 2019 | Increase (Decrease) | Nine Months Ended September 30, 2018 | ||||||||
Cash provided by (used for) operating activities | $ | 39,921 | $ | 44,495 | $ | (4,574 | ) | ||||
Cash provided by (used for) investing activities | (17,359 | ) | (44,848 | ) | 27,489 | ||||||
Cash provided by (used for) financing activities | (19,081 | ) | 30,977 | (50,058 | ) | ||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1,959 | ) | (3,758 | ) | 1,799 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 1,522 | $ | 26,866 | $ | (25,344 | ) |
September 30, 2019 | Increase (Decrease) | December 31, 2018 | |||||||||
Cash and cash equivalents | $ | 54,729 | $ | 1,522 | $ | 53,207 | |||||
Working capital | 102,894 | 2,297 | 100,597 |
Payments Due by Period | |||||||||||||||||||
(In thousands) | Total | Less than 1 year | 1 - 3 years | 4 - 5 years | After 5 years | ||||||||||||||
Operating lease obligations | $ | 26,344 | $ | 6,220 | $ | 12,420 | $ | 4,991 | $ | 2,713 | |||||||||
Purchase obligations (1) | 5,162 | 5,162 | — | — | — | ||||||||||||||
Contingent consideration (2) | 10,143 | 5,411 | 4,564 | 168 | — | ||||||||||||||
Total contractual obligations | $ | 41,649 | $ | 16,793 | $ | 16,984 | $ | 5,159 | $ | 2,713 |
(1) | Purchase obligations primarily consist of contractual payments to purchase property, plant and equipment. |
(2) | Contingent consideration consists of contingent payments related to our purchases of the net assets of Ecolink and RCS Control Systems, Inc. |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 54,729 | $ | 53,207 | |||
Available borrowing resources | 34,300 | 28,500 |
Period | Total Number of Shares Purchased (1) | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Total Dollar Value of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) | |||||||||||||
July 1, 2019 - July 31, 2019 | — | $ | — | — | $ | — | $ | 3,934,261 | ||||||||||
August 1, 2019 - August 31, 2019 | 4,747 | 43.52 | — | — | 3,934,261 | |||||||||||||
September 1, 2019 - September 30, 2019 | 2,556 | 51.09 | — | — | 3,934,261 | |||||||||||||
Total | 7,303 | $ | 46.17 | — | $ | — |
(1) | Of the repurchases in August and September, 4,747 and 2,556 shares, respectively, represent common shares of the Company that were owned and tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted shares. |
(2) | Amounts in this column reflect the weighted average price paid for shares purchased under our share repurchase authorizations, inclusive of commissions paid to brokers. |
(3) | On October 30, 2018, our board of directors approved a repurchase plan authorizing the repurchase of up to $5.0 million of our common stock. Under these authorizations, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. As of September 30, 2019, we had $3.9 million of authorized repurchases remaining under the Board's authorizations. |
31.1 | ||
31.2 | ||
32 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
Dated: | November 8, 2019 | UNIVERSAL ELECTRONICS INC. | |||
By: | /s/ Bryan M. Hackworth | ||||
Bryan M. Hackworth | |||||
Chief Financial Officer (principal financial officer | |||||
and principal accounting officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Universal Electronics Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
/s/ Paul D. Arling |
Paul D. Arling |
Chairman and Chief Executive Officer (principal executive officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Universal Electronics Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
/s/ Bryan M. Hackworth |
Bryan M. Hackworth |
Chief Financial Officer (principal financial officer and principal accounting officer) |
Dated: | November 8, 2019 | By: | /s/ Paul D. Arling | ||
Paul D. Arling | |||||
Chief Executive Officer | |||||
(principal executive officer) | |||||
By: | /s/ Bryan M. Hackworth | ||||
Bryan M. Hackworth | |||||
Chief Financial Officer | |||||
(principal financial officer and principal accounting officer) |
Other Income (Expense), Net (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Other Income and Expenses [Abstract] | ||||
Net gain (loss) on foreign currency exchange contracts | $ 368 | $ 69 | $ (8) | $ 603 |
Net gain (loss) on foreign currency exchange transactions | (689) | (2,377) | (662) | (4,617) |
Other income | 173 | 26 | 244 | 63 |
Other (expense), net | $ (148) | $ (2,282) | $ (426) | $ (3,951) |
Earnings (Loss) Per Share - Securities Excluded from the Computation of Diluted Earnings (Loss) Per Common Share (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Stock options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Securities excluded in computation of diluted earning per share (in shares) | 382 | 382 | 436 | 365 |
Restricted stock awards | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Securities excluded in computation of diluted earning per share (in shares) | 9 | 59 | 89 | 134 |
Performance-based warrants | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Securities excluded in computation of diluted earning per share (in shares) | 175 | 175 | 175 | 175 |
Goodwill and Intangible Assets, Net - Changes in the Carrying Amount of Goodwill (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2019
USD ($)
| |
Goodwill [Roll Forward] | |
Balance | $ 48,485 |
Foreign exchange effects | (81) |
Balance | $ 48,404 |
Leases - Lease Balances within the Consolidated Balance Sheet (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Assets: | ||
Operating lease right-of-use assets | $ 19,890 | |
Liabilities: | ||
Other accrued liabilities | 4,501 | $ 0 |
Long-term operating lease obligations | 15,580 | |
Total lease liabilities | $ 20,081 |
Other Accrued Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Other Accrued Liabilities | The components of accrued compensation were as follows:
The components of other accrued liabilities were as follows:
|
Stock-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based Compensation Expense and Related Income Tax Benefit | Stock-based compensation expense by statement of operations caption and the related income tax benefit were as follows:
|
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Stock Option Activity | Stock option activity was as follows:
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Assumptions Used in Valuation and Weighted Average Fair Value of Stock Option Grants | 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:
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Non-Vested Restricted Stock Award Activity | Non-vested restricted stock award activity was as follows:
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Line of Credit |
9 Months Ended |
---|---|
Sep. 30, 2019 | |
Debt Disclosure [Abstract] | |
Line of Credit | 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, 2020. 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 September 30, 2019. 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 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary which controls our manufacturing factories in the PRC. 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 rate in effect at September 30, 2019 was 3.55%. There are no commitment fees or unused line fees under the Second Amended Credit Agreement. 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. As of September 30, 2019, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement. At September 30, 2019, we had $88.0 million outstanding under the Credit Line. Our total interest expense on borrowings was $0.9 million and $1.2 million during the three months ended September 30, 2019 and 2018, respectively. Our total interest expense on borrowings was $3.4 million and $3.7 million during the nine months ended September 30, 2019 and 2018, respectively. |
Accounts Receivable, Net and Revenue Concentrations |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable, Net and Revenue Concentrations | Accounts Receivable, Net and Revenue Concentrations Accounts receivable, net were as follows:
Allowance for Doubtful Accounts Changes in the allowance for doubtful accounts were as follows:
Significant Customers Net sales to the following customers totaled more than 10% of our net sales:
(1) Net sales to this customer did not total more than 10% of our total net sales in the prior period. There were no customers with an accounts receivable balance in excess of 10% of the total accounts receivable balance as of September 30, 2019. Revenue Recognition Pattern The pattern of revenue recognition was as follows:
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Product Warranties Changes in the liability for product warranty claim costs were as follows:
Restructuring Activities and Sale of Guangzhou Factory In the first quarter of 2016, we implemented a plan to transition manufacturing activities from our southern-most China factory, located in the city of Guangzhou in the Guangdong province, to our other China factories. All operations ceased in our Guangzhou factory in the third quarter of 2017 and the transition to the other China factories was completed by the end of 2017. On September 26, 2016, we entered into an agreement to sell our Guangzhou manufacturing facility for RMB 320 million. In accordance with the terms of the agreement, the buyer deposited 10% of the purchase price into an escrow account upon the execution of the agreement. In April 2018, we and the buyer mutually agreed to terminate the sale. The mutually agreed termination took effect immediately with no incremental penalty or costs to either party. In connection with this termination, the deposit was returned to the buyer. On April 23, 2018, we entered into a new agreement to sell our Guangzhou manufacturing facility to a second buyer for RMB 339 million (approximately $51.4 million based on exchange rates in effect at the time of closing). On April 26, 2018, the second buyer paid to us a deposit of RMB 34 million (approximately $5.1 million based on exchange rates in effect at the time of closing), which under the terms of the agreement was nonrefundable. Upon receipt by the Governmental Agency of the second buyer’s application of approval of transfer, the second buyer was to pay to us RMB 237 million (approximately $35.8 million based on exchange rates in effect at the time of closing). Additionally, within two days after the second payment was made to us, the second buyer was to deposit the remaining consideration of RMB 68 million (approximately $10.3 million based on exchange rates in effect at the time of closing) into escrow, which was to be released to us upon the closing of the sale. Per the terms of the agreement, the sale was to be completed no later than June 30, 2018. On June 26, 2018, all conditions to closing were satisfied and the sale was completed, resulting in a pretax gain of $37.0 million ($32.1 million, net of income taxes). Litigation On or about June 10, 2015, FM Marketing GmbH ("FMH") and Ruwido Austria GmbH ("Ruwido") filed a Summons in Summary Proceedings in Belgium court against one of our subsidiaries, Universal Electronics BV ("UEBV"), and one of its customers, Telenet N.V. ("Telenet"), claiming that one of the products UEBV supplied to Telenet violates two design patents and one utility patent owned by FMH and/or Ruwido. By this summons, FMH and Ruwido sought to enjoin Telenet and UEBV from continued distribution and use of the product at issue. After the September 29, 2015 hearing, the court issued its ruling in our and Telenet’s favor, rejecting FMH and Ruwido’s request entirely. On October 22, 2015, Ruwido filed its notice of appeal to this ruling. The parties have fully briefed and argued before the appellate court and we are awaiting the appellate court’s ruling. In addition, on or about February 9, 2016, Ruwido filed a writ of summons for proceeding on the merits with respect to the asserted patents. UEBV and Telenet have replied, denying all of Ruwido's allegations, and in June 2017, a hearing was held before the trial court. During this hearing, Ruwido sought to have a second product which we are currently selling to Telenet included in this case. In September 2017, the Court ruled in our favor that our current product cannot be made part of this case. The Court also refused to rule on whether the original product (which we are no longer selling) infringes the Ruwido patent, instead deciding to wait until the European Patent Office (the "EPO") has ruled on our Opposition (see below). Finally, the Court ruled that our original product (which we are no longer selling) infringes certain of Ruwido’s design rights but stayed any decision of compensation and/or damages until all aspects of the case have been decided. We have filed an appeal as to the Court’s ruling of infringement. On September 16, 2019, the appellate court ruled in our favor concluding that our original product did not infringe Ruwido’s design rights. Now that the EPO has issued its ruling (see below), we expect the trial on Ruwido’s remaining infringement and unfair competition claims to occur in the summer of 2020. Subsequent to the Court's ruling that a second product could not be added to the first case on the merits, Ruwido filed a separate case on the merits with respect to this second product, claiming that it too infringes the same patent at issue in the first suit. We have denied these claims. According to the Court’s trial schedule, briefs from both parties were due during the second half of 2018 and early 2019 with a trial date set for January 2019. This trial date has since been postponed pending a request to submit additional pleadings which the Court is expected to rule upon during the fourth quarter of 2019. Presently, the oral hearing on the merits with respect to this is set for February 10, 2020. In September 2015, UEBV filed an Opposition with the EPO seeking to invalidate the one utility patent asserted against UEBV and Telenet by Ruwido. The hearing on this opposition was held in July 2017. During this hearing the panel requested additional information. We have assembled this additional information and the final hearing was scheduled for January 29, 2019. The EPO held this hearing on January 29 and 30, 2019 and revoked Ruwido's patent as originally filed. The EPO, however, maintained the patent in an amended form with a much narrower claim. On August 23, 2019, the EPO issued its written opinion. The parties had until November 1, 2019 to file its notice of appeal. We and Ruwido have each filed notices of appeal and we are to file the detailed grounds for the appeal by the end of December. On September 5, 2017, Ruwido and FMH filed a patent infringement case on the merits against UEBV and Telenet in the Netherlands alleging the same claims of infringement as in the Belgium Courts (see above). We have denied these claims and filed a counterclaim seeking to invalidate the Ruwido patent. A November 30, 2018 hearing date was set by the Court but it deferred its decision until the decision from the EPO has become final. Subsequently, the parties requested they each be allowed to submit additional pleadings. The Court is expected to rule on this request during the fourth quarter of 2019. At about the same time, the Court is expected to set a trial date. On September 5, 2018, we filed a lawsuit against Roku, Inc. (“Roku”) in the United States District Court, Central District of California (Universal Electronics Inc. v. Roku, Inc.) 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 therefore 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. Roku has answered our complaint with a general denial. In September and October, 2019, Roku filed Inter Party Review (“IPR”) requests with the Patent Trial and Appeals Board (the “PTAB”) on the nine patents at issue in this case, seeking to invalidate our patents. We have three months from those dates to file our responses with the PTAB, which we will do. The PTAB, in turn has three months after we file our responses to decide whether to institute the requested IPRs. We will vigorously defend against the IPRs. As a further result of Roku filing the IPRs, the Court has stayed the underlying patent lawsuit pending the resolution of IPRs. 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. |
Basis of Presentation and Significant Accounting Policies (Policies) |
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Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
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 and certain reclassifications have been made to prior year amounts in order to conform to the current year presentation. 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. 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. |
Estimates, Judgments and Assumptions | The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments 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, allowances for doubtful accounts, inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business combinations, income taxes, stock-based compensation expense and performance-based common stock warrants. Actual results may differ from these estimates and assumptions, and they may be adjusted as more information becomes available. |
Revenue Recognition | Our performance obligations primarily arise from manufacturing and delivering universal control, sensing and automation products and AV accessories, which are sold through multiple channels, and intellectual property that is embedded in these products or licensed to others. Our contracts have an anticipated duration of less than a year. These performance obligations are satisfied at a point in time or over time, as described below. Payment terms are typically on open credit terms consistent with industry practice and do not have significant financing components. Some contracts contain early payment discounts, which are recognized as a reduction to revenue if the customer typically meets the early payment conditions, and are insignificant to net sales. Consideration may be variable based on indeterminate volumes. Effective January 1, 2018, revenue is recognized over time when the customer simultaneously receives and consumes the benefits provided by our performance, our performance creates or enhances an asset that the customer controls, or when our performance creates an asset with no alternative use to us (custom products) and we have an enforceable right to payment for performance completed to date through a contractual commitment from the customer. An asset does not have an alternative use if we are unable to redirect the asset to another customer in the foreseeable future without significant rework. The method for measuring progress towards satisfying a performance obligation for a custom product is based on the costs incurred to date (cost-to-cost method). We believe that the costs associated with production are most closely aligned with the revenue associated with those products. Revenue recognized over time, for which we have not yet invoiced the customer, is included in contract assets in our consolidated balance sheets. Generally, we invoice the customer within 90 days of revenue recognition. We recognize revenue at a point in time if the criteria for recognizing revenue over time are not met, the title of the goods has transferred, and we have a present right to payment. We typically recognize revenue for the sale of tooling at a point in time, which is generally upon completion of the tooling and, if applicable, acceptance by the customer. A provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded. These estimates are based on historical sales returns and allowances, analysis of credit memo data and other known factors. Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net revenue in the period in which we make such a determination. We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers. Accruals for discounts and rebates are recorded as a reduction to sales in the same period as the related revenue. Changes in such accruals may be required if future rebates and incentives differ from our estimates. We license our intellectual property including our patented technologies, trademarks, and database of control codes. When license fees are paid on a per-unit basis, we record license revenue when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment. When a fixed up-front license fee is received in exchange for the delivery of a particular database of infrared codes or the contract contains a minimum guarantee provision, we record revenue when delivery of the intellectual property has occurred. Tiered royalties are recorded on a straight-line basis according to the forecasted per-unit fees taking into account the pricing tiers. Contract assets represent revenue which has been recognized based on our accounting policies but for which the customer has not yet been invoiced and thus an account receivable has not yet been recorded. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Sales allowances are recognized as reductions of gross accounts receivable to arrive at accounts receivable, net if the sales allowances are distributed in customer account credits. See Note 3 for further information concerning our sales allowances. We present all non-income government-assessed taxes (sales, use and value added taxes) collected from our customers and remitted to governmental agencies on a net basis (excluded from revenue) in our financial statements. The government-assessed taxes are recorded in our consolidated balance sheets until they are remitted to the government agency. |
Leases | We determine if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets, other accrued liabilities and long-term operating lease obligations on our consolidated balance sheets. We presently do not have any finance leases. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of lease payments. Operating lease ROU assets also factor in any lease payments made, initial direct costs and lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Some of our leases include options to extend with a range of three to five years with up to two extensions at the then current market rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. If applicable, we combine lease and non-lease components, which primarily relate to ancillary expenses associated with real estate leases such as common area maintenance charges and management fees. |
Recently Adopted Accounting Pronouncements and Recent Accounting Updates Note Yet Effective | Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 (with amendments issued in 2018), which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance also requires lessees to recognize a ROU asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018. We adopted ASU 2016-02 on January 1, 2019 using the modified retrospective optional transition method. Thus, the standard was applied starting January 1, 2019 and prior periods were not restated. We applied the package of practical expedients permitted under the transition guidance. As a result, we did not reassess the identification, classification and initial direct costs of leases commencing before the effective date. We also applied the practical expedient to not separate lease and non-lease components to all new leases as well as leases commencing before the effective date. Upon adoption, ASU 2016-02 resulted in the recognition of lease ROU assets, accrued liabilities and long-term liabilities related to operating leases of $20.7 million, $3.3 million and $17.0 million, respectively. In addition, assets and liabilities totaling $2.5 million and $2.3 million, respectively, were reclassified into the opening ROU asset balance. The adoption of ASU 2016-02 did not result in any cumulative-effect adjustment to the opening balance of retained earnings and did not have any impact on our results of operations, cash flows or debt covenants. See Note 5 for additional information. Other Accounting Pronouncements In June 2018, the FASB issued ASU 2018-07, "Improvements to Non-employee Share-Based Payment Accounting." This guidance expands the scope of Topic 718, "Compensation - Stock Compensation" to include share-based payment transactions for acquiring goods and services from non-employees, but excludes awards granted in conjunction with selling goods or services to a customer as part of a contract accounted for under ASC 606, "Revenue from Contracts with Customers." The adoption of ASU 2018-07 did not have a material impact on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which amends ASC 350-40, "Intangibles - Goodwill and Other - Internal-Use Software." The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and requires the capitalized implementation costs to be expensed over the term of the hosting arrangement. The accounting for the service element of a hosting arrangement that is a service contract is not affected. ASU 2018-15 is effective for fiscal periods beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-15, effective January 1, 2019, did not have a material impact on our consolidated financial statements. Recent Accounting Updates Not Yet Effective In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This guidance updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal periods beginning after December 31, 2019. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements. |
Performance-Based Common Stock Warrants |
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Performance-Based Common Stock Warrants | Performance-Based Common Stock Warrants On March 9, 2016, we issued common stock purchase warrants to Comcast to purchase up to 725,000 shares of our common stock at a price of $54.55 per share. The right to exercise the warrants is subject to vesting over three successive two-year periods (with the first two-year period commencing on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as defined in the warrants. The table below presents the purchase levels and number of warrants that will vest in each period based upon achieving these purchase levels.
If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any such excess will count toward aggregate purchases in the following two-year period. At September 30, 2019, 175,000 vested warrants were outstanding. To fully vest in the rights to purchase all of the remaining unearned 475,000 underlying shares, Comcast and its affiliates must purchase an aggregate of $680 million in goods and services from us during the period January 1, 2018 through December 31, 2021. Any and all warrants that vest 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. Because the warrants contain performance criteria under which Comcast must achieve specified aggregate purchase levels for the warrants to vest, as detailed above, the measurement date for the warrants is the date on which the warrants vest. Through September 30, 2019, none of the warrants had vested for the two-year period beginning January 1, 2018. The assumptions we utilized in the Black Scholes option pricing model and the resulting weighted average fair value of the warrants were the following:
The impact to net sales recorded in connection with the warrants and the related income tax benefit were as follows:
We estimate the number of warrants that will vest based on projected future purchases that will be made by Comcast and its affiliates. These estimates may increase or decrease based on actual future purchases. The aggregate unrecognized estimated fair value of unvested warrants at September 30, 2019 was $6.4 million. |
Document and Entity Information - shares |
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Document and Entity Information [Abstract] | ||
Entity Registrant Name | UNIVERSAL ELECTRONICS INC | |
Entity Central Index Key | 0000101984 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2019 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q3 | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 13,928,185 |
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS - USD ($) $ in Thousands |
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Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income (loss) | $ 2,669 | $ 959 | $ (3,397) | $ 23,031 |
Other comprehensive income (loss): | ||||
Change in foreign currency translation adjustment | (5,457) | (3,778) | (5,557) | (5,190) |
Comprehensive income (loss) | $ (2,788) | $ (2,819) | $ (8,954) | $ 17,841 |
Cash and Cash Equivalents |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and Cash Equivalents Cash and cash equivalents were held in the following geographic regions:
|
Commitments and Contingencies - Changes in the Liability for Product Warranty Claim Costs (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Schedule of Changes in Reserve for Product Warranty Claim Costs | ||
Balance at beginning of period | $ 276 | $ 339 |
Accruals for warranties issued during the period | 695 | 787 |
Settlements (in cash or in kind) during the period | 0 | (850) |
Balance at end of period | $ 971 | $ 276 |
Cash and Cash Equivalents (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Cash and Cash Equivalents [Line Items] | ||
Cash and cash equivalents | $ 54,729 | $ 53,207 |
United States | ||
Cash and Cash Equivalents [Line Items] | ||
Cash and cash equivalents | 7,226 | 1,156 |
People's Republic of China (PRC) | ||
Cash and Cash Equivalents [Line Items] | ||
Cash and cash equivalents | 12,813 | 20,885 |
Asia (excluding the PRC) | ||
Cash and Cash Equivalents [Line Items] | ||
Cash and cash equivalents | 11,113 | 2,398 |
Europe | ||
Cash and Cash Equivalents [Line Items] | ||
Cash and cash equivalents | 12,156 | 19,907 |
South America | ||
Cash and Cash Equivalents [Line Items] | ||
Cash and cash equivalents | $ 11,421 | $ 8,861 |
Accounts Receivable, Net and Revenue Concentrations - Pattern of Revenue Recognition (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Disaggregation of Revenue [Line Items] | ||||
Revenues, net | $ 200,724 | $ 182,717 | $ 578,783 | $ 509,938 |
Goods and services transferred at a point in time | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues, net | 108,065 | 97,952 | 309,841 | 275,552 |
Goods and services transferred over time | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues, net | $ 92,659 | $ 84,765 | $ 268,942 | $ 234,386 |
Cash and Cash Equivalents (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents by Geographic Region | Cash and cash equivalents were held in the following geographic regions:
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Other Income (Expense), Net |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income (Expense), Net | Other Income (Expense), Net Other income (expense), net consisted of the following:
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Basis of Presentation and Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies 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 and certain reclassifications have been made to prior year amounts in order to conform to the current year presentation. 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. 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 and nine months ended September 30, 2019 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, 2018. Estimates, Judgments and Assumptions The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments 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, allowances for doubtful accounts, inventory valuation, our review for impairment of long-lived assets, intangible assets and goodwill, business combinations, income taxes, stock-based compensation expense and performance-based common stock warrants. Actual results may differ from these estimates and assumptions, and they may be adjusted as more information becomes available. Summary of Significant Accounting Policies Revenue Recognition We adopted Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers," and all related amendments as of January 1, 2018. Our performance obligations primarily arise from manufacturing and delivering universal control, sensing and automation products and AV accessories, which are sold through multiple channels, and intellectual property that is embedded in these products or licensed to others. Our contracts have an anticipated duration of less than a year. These performance obligations are satisfied at a point in time or over time, as described below. Payment terms are typically on open credit terms consistent with industry practice and do not have significant financing components. Some contracts contain early payment discounts, which are recognized as a reduction to revenue if the customer typically meets the early payment conditions, and are insignificant to net sales. Consideration may be variable based on indeterminate volumes. Effective January 1, 2018, revenue is recognized over time when the customer simultaneously receives and consumes the benefits provided by our performance, our performance creates or enhances an asset that the customer controls, or when our performance creates an asset with no alternative use to us (custom products) and we have an enforceable right to payment for performance completed to date through a contractual commitment from the customer. An asset does not have an alternative use if we are unable to redirect the asset to another customer in the foreseeable future without significant rework. The method for measuring progress towards satisfying a performance obligation for a custom product is based on the costs incurred to date (cost-to-cost method). We believe that the costs associated with production are most closely aligned with the revenue associated with those products. Revenue recognized over time, for which we have not yet invoiced the customer, is included in contract assets in our consolidated balance sheets. Generally, we invoice the customer within 90 days of revenue recognition. We recognize revenue at a point in time if the criteria for recognizing revenue over time are not met, the title of the goods has transferred, and we have a present right to payment. We typically recognize revenue for the sale of tooling at a point in time, which is generally upon completion of the tooling and, if applicable, acceptance by the customer. A provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded. These estimates are based on historical sales returns and allowances, analysis of credit memo data and other known factors. Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net revenue in the period in which we make such a determination. We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers. Accruals for discounts and rebates are recorded as a reduction to sales in the same period as the related revenue. Changes in such accruals may be required if future rebates and incentives differ from our estimates. We license our intellectual property including our patented technologies, trademarks, and database of control codes. When license fees are paid on a per-unit basis, we record license revenue when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment. When a fixed up-front license fee is received in exchange for the delivery of a particular database of infrared codes or the contract contains a minimum guarantee provision, we record revenue when delivery of the intellectual property has occurred. Tiered royalties are recorded on a straight-line basis according to the forecasted per-unit fees taking into account the pricing tiers. Contract assets represent revenue which has been recognized based on our accounting policies but for which the customer has not yet been invoiced and thus an account receivable has not yet been recorded. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Sales allowances are recognized as reductions of gross accounts receivable to arrive at accounts receivable, net if the sales allowances are distributed in customer account credits. See Note 3 for further information concerning our sales allowances. We present all non-income government-assessed taxes (sales, use and value added taxes) collected from our customers and remitted to governmental agencies on a net basis (excluded from revenue) in our financial statements. The government-assessed taxes are recorded in our consolidated balance sheets until they are remitted to the government agency. Leases We adopted ASU 2016-02, "Leases," and all related amendments as of January 1, 2019. We determine if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets, other accrued liabilities and long-term operating lease obligations on our consolidated balance sheets. We presently do not have any finance leases. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of lease payments. Operating lease ROU assets also factor in any lease payments made, initial direct costs and lease incentives received. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Some of our leases include options to extend with a range of three to five years with up to two extensions at the then current market rate. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. If applicable, we combine lease and non-lease components, which primarily relate to ancillary expenses associated with real estate leases such as common area maintenance charges and management fees. There have been no other significant changes in our accounting policies during the three and nine months ended September 30, 2019 compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018. Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02 (with amendments issued in 2018), which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance also requires lessees to recognize a ROU asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018. We adopted ASU 2016-02 on January 1, 2019 using the modified retrospective optional transition method. Thus, the standard was applied starting January 1, 2019 and prior periods were not restated. We applied the package of practical expedients permitted under the transition guidance. As a result, we did not reassess the identification, classification and initial direct costs of leases commencing before the effective date. We also applied the practical expedient to not separate lease and non-lease components to all new leases as well as leases commencing before the effective date. Upon adoption, ASU 2016-02 resulted in the recognition of lease ROU assets, accrued liabilities and long-term liabilities related to operating leases of $20.7 million, $3.3 million and $17.0 million, respectively. In addition, assets and liabilities totaling $2.5 million and $2.3 million, respectively, were reclassified into the opening ROU asset balance. The adoption of ASU 2016-02 did not result in any cumulative-effect adjustment to the opening balance of retained earnings and did not have any impact on our results of operations, cash flows or debt covenants. See Note 5 for additional information. Other Accounting Pronouncements In June 2018, the FASB issued ASU 2018-07, "Improvements to Non-employee Share-Based Payment Accounting." This guidance expands the scope of Topic 718, "Compensation - Stock Compensation" to include share-based payment transactions for acquiring goods and services from non-employees, but excludes awards granted in conjunction with selling goods or services to a customer as part of a contract accounted for under ASC 606, "Revenue from Contracts with Customers." The adoption of ASU 2018-07 did not have a material impact on our consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which amends ASC 350-40, "Intangibles - Goodwill and Other - Internal-Use Software." The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and requires the capitalized implementation costs to be expensed over the term of the hosting arrangement. The accounting for the service element of a hosting arrangement that is a service contract is not affected. ASU 2018-15 is effective for fiscal periods beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-15, effective January 1, 2019, did not have a material impact on our consolidated financial statements. Recent Accounting Updates Not Yet Effective In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This guidance updates existing guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This guidance simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal periods beginning after December 31, 2019. Early adoption is permitted. We do not expect the adoption of ASU 2017-04 to have a material impact on our consolidated financial statements. |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Income Statement [Abstract] | ||||
Net sales | $ 200,724 | $ 182,717 | $ 578,783 | $ 509,938 |
Cost of sales | 154,245 | 142,401 | 458,437 | 405,661 |
Gross profit | 46,479 | 40,316 | 120,346 | 104,277 |
Research and development expenses | 7,930 | 5,593 | 21,884 | 17,703 |
Selling, general and administrative expenses | 32,422 | 29,994 | 94,598 | 90,811 |
Operating income (loss) | 6,127 | 4,729 | 3,864 | (4,237) |
Interest income (expense), net | (784) | (1,177) | (3,088) | (3,526) |
Gain on sale of Guangzhou factory | 0 | 0 | 0 | 36,978 |
Other income (expense), net | (148) | (2,282) | (426) | (3,951) |
Income (loss) before provision for income taxes | 5,195 | 1,270 | 350 | 25,264 |
Provision for income taxes | 2,526 | 311 | 3,747 | 2,233 |
Net income (loss) | $ 2,669 | $ 959 | $ (3,397) | $ 23,031 |
Earnings (loss) per share: | ||||
Basic (in dollars per share) | $ 0.19 | $ 0.07 | $ (0.25) | $ 1.65 |
Diluted (in dollars per share) | $ 0.19 | $ 0.07 | $ (0.25) | $ 1.63 |
Shares used in computing earnings (loss) per share: | ||||
Basic (in shares) | 13,894 | 13,836 | 13,861 | 13,997 |
Diluted (in shares) | 14,170 | 13,959 | 13,861 | 14,116 |
Foreign Operations - Long-Lived Tangible Assets by Geographic Area (Details) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Long-lived Assets from External Customers and Long-Lived Assets [Line Items] | ||
Long-lived tangible assets | $ 93,424 | $ 100,455 |
United States | ||
Long-lived Assets from External Customers and Long-Lived Assets [Line Items] | ||
Long-lived tangible assets | 13,385 | 14,504 |
People's Republic of China (PRC) | ||
Long-lived Assets from External Customers and Long-Lived Assets [Line Items] | ||
Long-lived tangible assets | 64,347 | 79,382 |
All other countries | ||
Long-lived Assets from External Customers and Long-Lived Assets [Line Items] | ||
Long-lived tangible assets | $ 15,692 | $ 6,569 |
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