UNIVERSAL ELECTRONICS INC

Previous wording

All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the "SEC"). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise. We make forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC. Forward-looking statements include supply chain issues; other future demand and recovery trends and expectations; the delay by or failure of our customers to order products from us; continued availability of cash through borrowing under our revolving lines of credit; the effects of natural or other events beyond our control, including the effects of political unrest, war, terrorist activities, other hostilities, or the outbreak of infectious diseases may have on us or the economy; the economic environments, including increases in interest rates and recessionary effects on us or our customers; the effects of doing business internationally, including expanded use of tariffs, pertaining to the importation of our products, particularly in light of the recent U.S. presidential administrative actions and the responsive retaliatory actions of foreign governments; our expectations regarding our ability to meet our liquidity requirements; our capital expenditures and other investment spending expectations; and other statements that are preceded by, followed by, or include the words "believes," "expects," "anticipates," "intends," "plans," "estimates," "foresees," or similar expressions; and similar statements concerning anticipated future events and expectations that are not historical facts.

Current wording

All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the "SEC"). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise. We make forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC. Forward-looking statements include supply chain issues; other future demand and recovery trends and expectations; the delay by or failure of our customers to order products from us; plans to shut down our Mexico manufacturing facility, including the timing thereof; continued availability of cash through borrowing under our revolving lines of credit; the effects of natural or other events beyond our control, including the effects of political unrest, war, terrorist activities, other hostilities, or the outbreak of infectious diseases may have on us or the economy; the economic environments, including increases in interest rates and recessionary effects on us or our customers; the effects of doing business internationally, including expanded use of tariffs, pertaining to the importation of our products, particularly in light of the recent U.S. presidential administrative actions and the responsive retaliatory actions of foreign governments; our expectations regarding our ability to meet our liquidity requirements; our capital expenditures and other investment spending expectations; our expectations with respect to the impact of changes in tax laws; and other statements that are preceded by, followed by, or include the words "believes," "expects," "anticipates," "intends," "plans," "estimates," "foresees," or similar expressions; and similar statements concerning anticipated future events and expectations that are not historical facts.

Previous wording

•Operating expenses, as a percentage of net sales, decreased to 32.3% for the three months ended March 31, 2025 from 35.8% for the three months ended March 31, 2024.

Current wording

•Operating expenses, as a percentage of net sales, decreased to 28.9% for the three months ended June 30, 2025 from 33.6% for the three months ended June 30, 2024.

Previous wording

•Our operating loss was $3.8 million for the three months ended March 31, 2025 compared to $6.9 million for the three months ended March 31, 2024. Our operating loss percentage was 4.1% for the three months ended March 31, 2025 compared to 7.5% for the three months ended March 31, 2024.

Current wording

•Our operating income was $1.0 million for the three months ended June 30, 2025 compared to operating loss of $4.5 million for the three months ended June 30, 2024. Our operating income percentage was 1.0% for the three months ended June 30, 2025 compared to our operating loss percentage of 4.9% for the three months ended June 30, 2024.

Previous wording

An accounting estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the three months ended March 31, 2025 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our 2024 Form 10-K.

Current wording

An accounting estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the six months ended June 30, 2025 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our 2024 Form 10-K.

Previous wording

Net sales. Net sales for the three months ended March 31, 2025 were $92.3 million compared to $91.9 million for the three months ended March 31, 2024. Net sales by channel were as follows:

Current wording

Net sales. Net sales for the three months ended June 30, 2025 were $97.7 million compared to $90.5 million for the three months ended June 30, 2024. Net sales by channel were as follows:

Previous wording

Net sales in connected home were $31.7 million for the three months ended March 31, 2025 compared to $24.2 million for the three months ended March 31, 2024. This growth is driven primarily by shipments to large climate control and home automation customers relating to projects won over the past couple of years.

Current wording

Net sales in connected home were $34.1 million for the three months ended June 30, 2025 compared to $23.3 million for the three months ended June 30, 2024. This growth is driven primarily by shipments to large climate control and home automation customers relating to projects won over the past couple of years.

Previous wording

Net sales in home entertainment were $60.6 million for the three months ended March 31, 2025 compared to $67.7 million for the three months ended March 31, 2024. The sales decrease in the home entertainment channel is due primarily to lower demand for subscription broadcasting products. While we are seeing signs of stabilization with the majority of our customers in North America and EMEA, we are experiencing lower demand for our basic remotes in Latin America.

Current wording

Net sales in home entertainment were $63.6 million for the three months ended June 30, 2025 compared to $67.2 million for the three months ended June 30, 2024. The sales decrease in the home entertainment channel is due to lower demand for subscription broadcasting products in Latin America, specifically basic remote controls with low price points. In addition, certain customers in the consumer electronics industry experienced lower demand for televisions, resulting in a decrease in remote control sales in this market.

Previous wording

Gross profit. Gross profit for the three months ended March 31, 2025 was $26.1 million compared to $26.0 million for the three months ended March 31, 2024. Gross profit as a percentage of sales was consistent at 28.3% for the three months ended March 31, 2025 and March 31, 2024. A stronger U.S. dollar resulted in a 70 basis point improvement, offset by an unfavorable product mix.

Current wording

Gross profit. Gross profit for the three months ended June 30, 2025 was $29.2 million compared to $26.0 million for the three months ended June 30, 2024. Gross profit as a percentage of sales increased to 29.9% for the three months ended June 30, 2025 from 28.7% for the three months ended June 30, 2024. A stronger U.S. Dollar versus the functional currencies at our manufacturing facilities in Vietnam and Mexico coupled by a weaker U.S. Dollar compared to the Euro and British Pound resulted in a 100 basis point improvement to our gross margin rate. Operational efficiencies, primarily in our Vietnam facility, offset partially by unfavorable sales mix, yielded an additional 20 basis points of rate improvement.

Previous wording

Research and development ("R&D") expenses. R&D expenses decreased to $7.2 million for the three months ended March 31, 2025 from $7.8 million for the three months ended March 31, 2024 due primarily to reduced third-party product development costs and a reduction in headcount.

Current wording

Research and development ("R&D") expenses. R&D expenses decreased to $7.0 million for the three months ended June 30, 2025 from $7.5 million for the three months ended June 30, 2024 due to headcount reductions.

Previous wording

Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased to $22.6 million for the three months ended March 31, 2025 from $24.0 million for the three months ended March 31, 2024, due primarily to a decrease in professional services costs of $0.6 million, a stronger U.S. dollar resulting in $0.5 million of savings, and a decrease of $0.3 million in payroll and benefits due to a reduction in headcount.

Current wording

Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased slightly to $21.2 million for the three months ended June 30, 2025 from $21.3 million for the three months ended June 30, 2024.

Previous wording

Interest income (expense), net. Interest expense, net decreased to $0.4 million for the three months ended March 31, 2025 from $0.9 million for the three months ended March 31, 2024, as a result of a lower average loan balance and lower interest rates.

Current wording

Interest income (expense), net. Interest expense, net decreased to $0.4 million for the three months ended June 30, 2025 from $0.8 million for the three months ended June 30, 2024, as a result of a lower average loan balance and lower interest rates.

Previous wording

Other income (expense), net. Other income, net was $0.1 million for the three months ended March 31, 2025 compared to other expense, net $0.1 million for the three months ended March 31, 2024. The improvement was primarily due to a reduction in net foreign currency losses.

Current wording

Other income (expense), net. Other expense, net was $1.8 million for the three months ended June 30, 2025 compared to $0.1 million for the three months ended June 30, 2024. This was due to an increase in foreign currency losses resulting from the significant weakening of the U.S. Dollar in the second quarter of 2025.

Previous wording

Provision for income taxes. Income tax expense was $2.2 million for the three months ended March 31, 2025, relative to a pre-tax loss of $4.1 million, compared to income tax expense of $0.7 million for the three months ended March 31, 2024, relative to a pre-tax loss of $7.9 million. Consistent with 2024, we expect the U.S. to be in a pre-tax loss position without benefit for the full year 2025, resulting in an elevated effective tax rate.

Current wording

Provision for income taxes. Income tax expense was $1.8 million for the three months ended June 30, 2025, relative to a pre-tax loss of $1.1 million, compared to income tax expense of $2.8 million for the three months ended June 30, 2024, relative to a pre-tax loss of $5.4 million. Consistent with 2024, we expect the U.S. to be in a pre-tax loss position without benefit for the full year 2025, resulting in an elevated effective tax rate.

Previous wording

Factory restructuring charges. During the three months ended March 31, 2024, we recorded $1.1 million in expense, which included severance and moving costs associated with the closure of our southern China factory and the streamlining of our factory in Mexico.

Current wording

Factory restructuring charges. During the six months ended June 30, 2024, we recorded $2.6 million in expense, which included severance and moving costs associated with the closure of our southern China factory and the streamlining of our factory in Mexico.

Previous wording

We anticipate that we will continue to utilize both cash flows from operations and our revolving lines of credit to support ongoing business operations, capital expenditures, discretionary share repurchases and potential acquisitions. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays for at least the next twelve months and for the foreseeable future thereafter; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving lines of credit or take on additional debt until we are able to transfer cash among our various entities.

Current wording

Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have typically been sufficient to support our business operations, capital expenditures and discretionary share repurchases. When needed, we have utilized our revolving lines of credit to fund operations, share repurchases and acquisitions. We anticipate that we will continue to utilize both cash flows from operations and our revolving lines of credit to support ongoing business operations, capital expenditures, discretionary share repurchases and potential acquisitions. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays for at least the next twelve months and for the foreseeable future thereafter; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving lines of credit or take on additional debt until we are able to transfer cash among our various entities.

Previous wording

Cash and cash equivalents– On March 31, 2025, we had $2.7 million, $7.5 million, $3.6 million, $7.1 million and $6.5 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

Current wording

Cash and cash equivalents– On June 30, 2025, we had $1.9 million, $13.4 million, $4.1 million, $7.6 million and $7.3 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

Previous wording

Available Borrowing Resources – Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a revolving line of credit ("U.S. Credit Line") that expires on April 30, 2026. We expect to renew the U.S. Credit Line prior to its expiration; however, no assurance can be given that future financing will be available or, if available, that we will be offered terms satisfactory to us. The U.S. Credit Line has a maximum availability up to $75.0 million, subject to meeting certain financial conditions, including an accounts receivable coverage ratio ("AR Ratio"). This AR Ratio is calculated monthly and adjusts the current U.S. Credit Line total availability. At March 31, 2025, the U.S. Credit Line total availability was $56.1 million based upon the AR Ratio. At April 14, 2025, the U.S. Credit Line total availability was $59.1 million based upon the AR Ratio.

Current wording

The U.S. Credit Line has a maximum availability up to $75.0 million, subject to meeting certain financial conditions, including an accounts receivable coverage ratio ("AR Ratio"). This AR Ratio is calculated monthly and adjusts the current U.S. Credit Line total availability. At June 30, 2025, the U.S. Credit Line total availability was $53.6 million based upon the AR Ratio. At July 15, 2025, the U.S. Credit Line total availability was $57.1 million based upon the AR Ratio.

Previous wording

The U.S. 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 U.S. Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at March 31, 2025. At March 31, 2025, we had an outstanding balance of $20.0 million on our U.S. Credit Line and $36.1 million of availability.

Current wording

The U.S. 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 U.S. Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at June 30, 2025. At June 30, 2025, we had an outstanding balance of $19.0 million on our U.S. Credit Line and $34.6 million of availability.

Previous wording

Our subsidiary, Gemstar Technology (Yangzhou) Co. Ltd. ("GTY"), has a Line of Credit Agreement ("Line of Credit Agreement") with the Bank of China, which provides for a revolving line of credit ("China Credit Line" and, together with the U.S. Credit Line, "Credit Lines") through July 24, 2025. We expect to renew the Line of Credit Agreement with the Bank of China prior to its expiration; however, no assurance can be given that future financing will be available or, if available, that we will be offered terms satisfactory to us. The China Credit Line has a maximum availability up to RMB 80.0 million (approximately $11.0 million), subject to meeting certain financial conditions.

Current wording

Our subsidiary, Gemstar Technology (Yangzhou) Co. Ltd. ("GTY"), has a Line of Credit Agreement ("Line of Credit Agreement") with the Bank of China, which provides for a revolving line of credit ("China Credit Line" and, together with the U.S. Credit Line, "Credit Lines"). As a continuation of the agreement, on July 30, 2025, we executed an amendment to the Line of Credit Agreement, which extends the term of the China Credit Line to July 16, 2026. We expect to renew our China Credit

Previous wording

The China Credit Line may be used for working capital purposes. Amounts available for borrowing under the China Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at March 31, 2025. At March 31, 2025, we had an outstanding balance of RMB 80.0 million (approximately $11.0 million) on our China Credit Line and no remaining availability.

Current wording

The China Credit Line may be used for working capital purposes. Amounts available for borrowing under the China Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at June 30, 2025. At June 30, 2025, we had an outstanding balance of RMB 80.0 million (approximately $11.2 million) on our China Credit Line and no remaining availability.

Previous wording

Net cash provided by operating activities was $9.0 million during the three months ended March 31, 2025 compared to net cash used for operating activities of $2.8 million during the three months ended March 31, 2024. Net loss was $6.3 million for the three months ended March 31, 2025 compared to net loss of $8.6 million for the three months ended March 31, 2024. Depreciation and amortization was $4.1 million for the three months ended March 31, 2025 compared to $4.7 million for the three months ended March 31, 2024, due to decreased purchases of property, plant and equipment over recent years. Inventories decreased by $3.0 million during the three months ended March 31, 2025 compared to a decrease of $4.1 million during the three months ended March 31, 2024. The decrease in inventories is primarily the result of improved inventory management. Our inventory turns increased to 3.2 turns at March 31, 2025 from 3.1 turns at March 31, 2024. A decrease in accounts receivable and contract assets caused mainly by lower demand in our home entertainment channel resulted in cash inflows of $10.5 million and $11.0 million during the three months ended March 31, 2025 and March 31, 2024, respectively. Days sales outstanding were 83 days at March 31, 2025 compared to 93 days at March 31, 2024. A decrease in accounts payable and accrued liabilities caused mainly by a decrease in inventory purchases and timing of payments throughout the quarter resulted in cash outflows of $5.3 million and $12.5 million during the three months ended March 31, 2025 and March 31, 2024, respectively.

Current wording

Net cash provided by operating activities was $17.7 million during the six months ended June 30, 2025 compared to net cash provided by operating activities of $2.7 million during the six months ended June 30, 2024. Net loss was $9.2 million for the six months ended June 30, 2025 compared to net loss of $16.8 million for the six months ended June 30, 2024. Depreciation and amortization was $7.6 million for the six months ended June 30, 2025 compared to $9.1 million for the six months ended June 30, 2024, resulting from fewer purchases of property, plant and equipment over recent years, commensurate with production volume declines. Inventories decreased by $1.7 million during the six months ended June 30, 2025 compared to an increase of $0.9 million during the six months ended June 30, 2024. The decrease in inventories is primarily the result of improved inventory management. A decrease in accounts receivable and contract assets caused mainly by a decrease in sales outstanding resulted in cash inflows of $23.3 million and $13.1 million during the six months ended June 30, 2025 and June 30, 2024, respectively. Days sales outstanding were 75 days at June 30, 2025 compared to 91 days at June 30, 2024. A decrease in accounts payable and accrued liabilities caused mainly by a decrease in inventory purchases and timing of payments throughout the quarter resulted in cash outflows of $15.4 million and $5.5 million during the six months ended June 30, 2025 and June 30, 2024, respectively. A decrease in prepaid expenses and other assets caused mainly by the release of the deposit associated with our litigation with Tongshun Company resulted in cash inflows of $3.7 million during the six months ended June 30, 2025 compared to cash outflows of $1.6 million during the six months ended June 30, 2024.

Previous wording

Net cash used for investing activities during the three months ended March 31, 2025 was $1.9 million, of which $1.3 million, $1.0 million and $0.7 million was used for the purchase of Blue Chip Swap securities, capital expenditures and the development of patents, respectively. Offsetting these amounts was $1.1 million received upon the sale of Blue Chip Swap securities. Net cash used for investing activities during the three months ended March 31, 2024 was $2.4 million, of which $1.4 million and $1.0 million was used for capital expenditures and the development of patents, respectively.

Current wording

Net cash used for investing activities during the six months ended June 30, 2025 was $4.0 million, of which $2.5 million, $2.3 million and $1.5 million was used for the purchase of Blue Chip Swap securities, capital expenditures and the development of patents, respectively. Offsetting these amounts was $2.3 million received upon the sale of Blue Chip Swap securities. Net cash used for investing activities during the six months ended June 30, 2024 was $5.0 million, of which $2.7 million and $2.3 million was used for capital expenditures and the development of patents, respectively.

Previous wording

Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures and the development of patents, respectively. We estimate that we will incur between $7.0 million and $9.0 million during the remainder of 2025.

Current wording

Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures and the development of patents, respectively. We estimate that we will incur between $5.0 million and $7.0 million during the remainder of 2025.

Previous wording

Net cash used for financing activities was $6.4 million during the three months ended March 31, 2025 compared to $10.2 million during the three months ended March 31, 2024. The primary financing activities during the three months ended March 31, 2025 and 2024 were borrowings and repayments on our Credit Lines and repurchases of shares of our common stock. Net repayments on our Credit Lines were $6.0 million during the three months ended March 31, 2025 compared to $9.0 million during the three months ended March 31, 2024. During the three months ended March 31, 2025, we repurchased 40,710 shares of our common stock at a cost of $0.4 million compared to our repurchase of 140,136 shares at a cost of $1.2 million during the three months ended March 31, 2024.

Current wording

Net cash used for financing activities was $7.7 million during the six months ended June 30, 2025 compared to $15.8 million during the six months ended June 30, 2024. The primary financing activities during the six months ended June 30, 2025 and 2024 were borrowings and repayments on our Credit Lines and repurchases of shares of our common stock. Net repayments on our Credit Lines were $7.0 million during the six months ended June 30, 2025 compared to $14.0 million during the six months ended June 30, 2024. During the six months ended June 30, 2025, we repurchased 101,000 shares of our common stock at a cost of $0.7 million compared to our repurchase of 195,000 shares at a cost of $1.8 million during the six months ended June 30, 2024.