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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________ 
FORM 10-Q
_______________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 0-21044
_______________________________________ 
UNIVERSAL ELECTRONICS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware33-0204817
(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 and zip code)
(480) 530-3000
(Registrant's telephone number, including area code)
_____________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareUEICThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 Exchange Act).Yes No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 12,630,136 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on May 3, 2022.



UNIVERSAL ELECTRONICS INC.
INDEX
 
Page
Number




Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements (Unaudited)
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share-related data)
(Unaudited)
March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$53,628 $60,813 
Term deposit8,589  
Accounts receivable, net132,628 129,215 
Contract assets7,521 5,012 
Inventories139,400 134,469 
Prepaid expenses and other current assets7,738 7,289 
Income tax receivable1,349 348 
Total current assets350,853 337,146 
Property, plant and equipment, net71,437 74,647 
Goodwill49,152 48,463 
Intangible assets, net22,475 20,169 
Operating lease right-of-use assets21,245 19,847 
Deferred income taxes7,714 7,729 
Other assets2,248 2,347 
Total assets$525,124 $510,348 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$82,550 $92,707 
Line of credit85,000 56,000 
Accrued compensation22,255 24,217 
Accrued sales discounts, rebates and royalties6,517 9,286 
Accrued income taxes5,104 3,737 
Other accrued liabilities34,186 30,840 
Total current liabilities235,612 216,787 
Long-term liabilities:
Operating lease obligations14,787 14,266 
Deferred income taxes2,543 2,394 
Income tax payable939 939 
Other long-term liabilities886 13 
Total liabilities254,767 234,399 
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; 24,831,434 and 24,678,942 shares issued on March 31, 2022 and December 31, 2021, respectively
248 247 
Paid-in capital316,916 314,094 
Treasury stock, at cost, 12,085,836 and 11,861,198 shares on March 31, 2022 and December 31, 2021, respectively
(362,513)(355,159)
Accumulated other comprehensive income (loss)(11,675)(13,524)
Retained earnings327,381 330,291 
Total stockholders' equity270,357 275,949 
Total liabilities and stockholders' equity$525,124 $510,348 

The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) 
Three Months Ended March 31,
 20222021
Net sales$132,410 $150,542 
Cost of sales96,142 104,143 
Gross profit36,268 46,399 
Research and development expenses7,806 7,942 
Selling, general and administrative expenses29,023 29,846 
Operating income (loss)(561)8,611 
Interest income (expense), net(296)(108)
Other income (expense), net360 23 
Income (loss) before provision for income taxes(497)8,526 
Provision for income taxes2,413 1,533 
Net income (loss)$(2,910)$6,993 
Earnings (loss) per share:
Basic$(0.23)$0.51 
Diluted$(0.23)$0.49 
Shares used in computing earnings (loss) per share:
Basic12,81213,803 
Diluted12,81214,199
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS
(In thousands)
(Unaudited) 
Three Months Ended March 31,
 20222021
Net income (loss)$(2,910)$6,993 
Other comprehensive income (loss):
Change in foreign currency translation adjustment1,849 (2,868)
Comprehensive income (loss)$(1,061)$4,125 
The accompanying notes are an integral part of these consolidated financial statements.
5

Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
The following summarizes the changes in total equity for the three months ended March 31, 2022:
 Common Stock
Issued
Common Stock
in Treasury
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Totals
 SharesAmountSharesAmount
Balance at December 31, 202124,679 $247 (11,861)$(355,159)$314,094 $(13,524)$330,291 $275,949 
Net income (loss)(2,910)(2,910)
Currency translation adjustment1,849 1,849 
Shares issued for employee benefit plan and compensation145 1 323 324 
Purchase of treasury shares(225)(7,354)(7,354)
Shares issued to directors7    
Employee and director stock-based compensation2,499 2,499 
Balance at March 31, 202224,831 248 (12,086)(362,513)316,916 (11,675)327,381 270,357 

The following summarizes the changes in total equity for the three months ended March 31, 2021:
Common Stock
Issued
Common Stock
in Treasury
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Totals
SharesAmountSharesAmount
Balance at December 31, 202024,392 $244 (10,618)$(295,495)$302,084 $(18,522)$324,990 $313,301 
Net income6,993 6,993 
Currency translation adjustment(2,868)(2,868)
Shares issued for employee benefit plan and compensation160 2 408 410 
Purchase of treasury shares(191)(10,951)(10,951)
Stock options exercised22  991 991 
Shares issued to directors7    
Employee and director stock-based compensation2,600 2,600 
Performance-based common stock warrants143 143 
Balance at March 31, 202124,581 246 (10,809)(306,446)306,226 (21,390)331,983 310,619 
The accompanying notes are an integral part of these consolidated financial statements.

6

Table of Contents
UNIVERSAL ELECTRONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 Three Months Ended March 31,
 20222021
Cash flows from operating activities:
Net income (loss)$(2,910)$6,993 
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization6,045 6,319 
Provision for credit losses(204)2 
Deferred income taxes269 894 
Shares issued for employee benefit plan324 410 
Employee and director stock-based compensation2,499 2,600 
Performance-based common stock warrants 143 
Changes in operating assets and liabilities:
Accounts receivable and contract assets(5,087)(10,126)
Inventories(4,599)1,338 
Prepaid expenses and other assets(1,464)384 
Accounts payable and accrued liabilities(13,174)(12,546)
Accrued income taxes332 (3,140)
Net cash provided by (used for) operating activities(17,969)(6,729)
Cash flows from investing activities:
Term deposit(7,487) 
Acquisition of net assets of Qterics, Inc.(939) 
Acquisitions of property, plant and equipment(1,785)(3,698)
Acquisitions of intangible assets(1,410)(1,106)
Net cash used for investing activities(11,621)(4,804)
Cash flows from financing activities:
Borrowings under line of credit42,000 30,000 
Repayments on line of credit(13,000)(10,000)
Proceeds from stock options exercised 991 
Treasury stock purchased(7,354)(10,951)
Net cash provided by (used for) financing activities21,646 10,040 
Effect of foreign currency exchange rates on cash and cash equivalents759 (297)
Net increase (decrease) in cash and cash equivalents(7,185)(1,790)
Cash and cash equivalents at beginning of period60,813 57,153 
Cash and cash equivalents at end of period$53,628 $55,363 
Supplemental cash flow information:
Income taxes paid$1,375 $3,473 
Interest paid$302 $104 
The accompanying notes are an integral part of these consolidated financial statements.
7

Table of Contents
UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Note 1 — 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. 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 ("SEC"). 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 months ended March 31, 2022 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, 2021.

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates 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; allowance for credit losses; inventory valuation; impairment of long-lived assets, intangible assets and goodwill; business combinations; income taxes and related valuation allowances; stock-based compensation expense and performance-based common stock warrants.

The coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have created uncertainties and disruptions in the economic and financial markets. While we are not currently aware of events or circumstances that would require an update to our estimates, judgments or adjustments to the carrying values of our assets or liabilities, these estimates may change as developments occur and we obtain additional information. These future developments are highly uncertain and the outcomes are unpredictable. Actual results may differ from those estimates, and such differences may be material to the financial statements.

Summary of Significant Accounting Policies

With the exception of the following policy, our significant accounting policies are unchanged from those disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Revenue Recognition

Revenue is recognized when control of a good or service is transferred to a customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service. Revenues are primarily generated from manufacturing, shipping and supporting control and sensor technology solutions and a broad line of pre-programmed and universal control products, AV accessories, and intelligent wireless security and smart home products that are used in the video services, consumer electronics, security, home automation, climate control, and home appliance market, which are sold through multiple channels, and licensing intellectual property that is embedded in these products or licensed to others for use in their products. We also generate revenues from a cloud-based software solution enabling software updates, digital rights management provisioning and remote technical support to consumer electronics customers.

We recognize service revenues related to our cloud-based software solution on an over-time basis, as our customers simultaneously receive and consume the benefits provided by our performance. Revenues are recognized over the period during which the performance obligations are satisfied, and control of the service is transferred to the customers.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Cash, Cash Equivalents, and Term Deposit

Cash and cash equivalents include cash accounts and all investments purchased with initial maturities of three months or less. Our term deposit has an initial maturity of one year. Domestically, we generally maintain balances in excess of federally insured limits. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash, cash equivalents and term deposit with financial institutions we believe are high quality. These financial institutions are located in many different geographic regions. As part of our cash and risk management processes, we perform periodic evaluations of the relative credit standing of our financial institutions. We have not sustained credit losses from instruments held at financial institutions

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". This guidance requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, "Revenue from Contracts with Customers". At the acquisition date, the acquirer applies the revenue recognition model as if it had originated the acquired contracts. Our adoption of this guidance on January 1, 2022 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Recent Accounting Updates Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting", and in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform". This guidance is intended to provide temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in these ASUs are elective and are effective upon issuance for all entities through December 31, 2022. These amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Note 2 — Cash, Cash Equivalents and Term Deposit

Cash and cash equivalents were held in the following geographic regions:
(In thousands)March 31, 2022December 31, 2021
North America$4,869 $6,430 
People's Republic of China ("PRC")17,65716,000
Asia (excluding the PRC)10,36111,798
Europe18,02117,604
South America2,7208,981
Total cash and cash equivalents
$53,628 $60,813 

On January 25, 2022, we entered into a one-year term deposit cash account with Banco Santander (Brasil) S.A., denominated in Brazilian Real. The term deposit earns interest at a variable annual rate based upon the Brazilian CDI overnight interbank rate. At March 31, 2022, the balance of the term deposit was $8.6 million. The term deposit is accounted for at fair value on a recurring basis using level one inputs.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Note 3 — Revenue and Accounts Receivable, Net

Revenue Details

The pattern of revenue recognition was as follows:
Three Months Ended March 31,
(In thousands)20222021
Goods and services transferred at a point in time$109,086 $122,888 
Goods and services transferred over time23,32427,654
Net sales$132,410 $150,542 

Our net sales to external customers by geographic area were as follows:
Three Months Ended March 31,
(In thousands)20222021
United States$43,827 $50,292 
Asia (excluding PRC)33,06434,216 
Europe22,66027,527
People's Republic of China19,29224,340
Latin America6,4886,144
Other7,0798,023
Total net sales$132,410 $150,542 

Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.

Net sales to the following customers totaled more than 10% of our net sales:
 Three Months Ended March 31,
20222021
 $ (thousands)% of Net Sales$ (thousands)% of Net Sales
Comcast Corporation$19,884 15.0 %$27,201 18.1 %
Daikin Industries Ltd. $17,141 12.9 %$17,437 11.6 %

Accounts Receivable, Net

Accounts receivable, net were as follows:
(In thousands)March 31, 2022December 31, 2021
Trade receivables, gross$126,807 $122,508 
Allowance for credit losses(1,063)(1,285)
Allowance for sales returns(531)(592)
Trade receivables, net125,213 120,631 
Other (1)
7,415 8,584 
Accounts receivable, net$132,628 $129,215 
(1)Other accounts receivable is primarily comprised of value added tax and supplier rebate receivables.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Allowance for Credit Losses

Changes in the allowance for credit losses were as follows:
(In thousands)Three Months Ended March 31,
20222021
Balance at beginning of period$1,285 $1,412 
Additions (reductions) to costs and expenses(204)2 
Write-offs/Foreign exchange effects(18)(56)
Balance at end of period$1,063 $1,358 

Trade receivables associated with this significant customer that totaled more than 10% of our accounts receivable, net were as follows:
March 31, 2022December 31, 2021
$ (thousands)% of Accounts Receivable, Net$ (thousands)% of Accounts Receivable, Net
Comcast Corporation$20,035 15.1 %$ 
(1)
 %
(1)

(1) Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net for the indicated period.

Note 4 — Inventories and Significant Suppliers

Inventories were as follows:
(In thousands)March 31, 2022December 31, 2021
Raw materials$58,093 $52,617 
Components27,285 25,289 
Work in process4,999 7,102 
Finished goods49,023 49,461 
Inventories$139,400 $134,469 

Significant Suppliers

Purchases from the following supplier totaled more than 10% of our total inventory purchases:
Three Months Ended March 31,
20222021
$ (thousands)% of Total Inventory Purchases$ (thousands)% of Total Inventory Purchases
Qorvo International Pte Ltd.$7,552 10.4 %$9,773 12.8 %
Purchases from the following supplier totaled more than 10% of our total accounts payable:
March 31, 2022December 31, 2021
$ (thousands)% of Total Accounts Payable$ (thousands)% of Total Accounts Payable
Zhejiang Zhen You Electronics Co. Ltd.
$9,845 11.9 %$9,862 10.6 %

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Note 5 — Long-lived Tangible Assets

Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:
(In thousands)March 31, 2022December 31, 2021
United States$17,661 $16,804 
People's Republic of China52,267 52,851 
Mexico19,489 20,509 
All other countries3,265 4,330 
Total long-lived tangible assets$92,682 $94,494 

Property, plant, and equipment are shown net of accumulated depreciation of $170.5 million and $165.9 million at March 31, 2022 and December 31, 2021, respectively.

Depreciation expense was $5.1 million and $5.5 million for the three months ended March 31, 2022 and 2021, respectively.

Note 6 — Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:
(In thousands) 
Balance at December 31, 2021
$48,463 
Goodwill acquired during the period (1)
713 
Foreign exchange effects(24)
Balance at March 31, 2022
$49,152 

(1) During the first quarter of 2022, we recognized $0.7 million of goodwill related to the Qterics, Inc. ("Qterics") acquisition. Refer to Note 19 for further information about this acquisition.

Intangible Assets, Net

The components of intangible assets, net were as follows:
 March 31, 2022December 31, 2021
(In thousands)
Gross (1)
Accumulated
Amortization (1)
Net
Gross (1)
Accumulated
Amortization (1)
Net
Capitalized software development costs$1,172 $(40)$1,132 $1,066 $(27)$1,039 
Customer relationships6,340 (2,537)3,803 5,000 (2,375)2,625 
Developed and core technology4,520 (3,420)1,100 4,080 (3,335)745 
Distribution rights320 (271)49 325 (269)56 
Patents25,600 (9,431)16,169 24,518 (9,015)15,503 
Trademarks and trade names850 (628)222 800 (599)201 
Total intangible assets, net$38,802 $(16,327)$22,475 $35,789 $(15,620)$20,169 

(1)This table excludes the gross value of fully amortized intangible assets totaling $43.4 million and $43.2 million at March 31, 2022 and December 31, 2021, respectively.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows:
(In thousands)Three Months Ended March 31,
20222021
Cost of sales$12 $4 
Selling, general and administrative expenses921 834 
Total amortization expense$933 $838 
 
Estimated future annual amortization expense related to our intangible assets at March 31, 2022, was as follows:
(In thousands)
2022 (remaining 9 months)$3,035 
20234,085 
20243,484 
20252,953 
20262,741 
Thereafter6,177 
Total$22,475 

Note 7 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At March 31, 2022, our operating leases had remaining lease terms of up to 39 years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:
(In thousands)March 31, 2022December 31, 2021
Assets:
Operating lease right-of-use assets$21,245 $19,847 
Liabilities:
Other accrued liabilities$5,659 $4,769 
Long-term operating lease obligations14,787 14,266 
Total lease liabilities$20,446 $19,035 

Operating lease expense, including variable and short-term lease costs, which were insignificant to the total operating lease cash flows and supplemental cash flow information were as follows:
(In thousands)Three Months Ended March 31,
20222021
Cost of sales$635 $670 
Selling, general and administrative expenses1,108 1,036 
Total operating lease expense$1,743 $1,706 
Operating cash outflows from operating leases$1,679 $1,798 
Operating lease right-of-use assets obtained in exchange for lease obligations$2,959 $294 
Non-cash release of operating lease obligations (1)
$ $654 
(1)During the three months ended March 31, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)

The weighted average remaining lease liability term and the weighted average discount rate were as follows:
March 31, 2022December 31, 2021
Weighted average lease liability term (in years)4.14.3
Weighted average discount rate3.04 %3.17 %

The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at March 31, 2022. The reconciliation excludes short-term leases that are not recorded on the balance sheet.
(In thousands)March 31, 2022
2022 (remaining 9 months)$4,639 
20235,731 
20244,283 
20253,465 
20262,180 
Thereafter1,469 
Total lease payments21,767 
Less: imputed interest(1,321)
Total lease liabilities$20,446 

At March 31, 2022, we had no operating leases that had not yet commenced.

On April 7, 2022, we entered into a lease agreement for 125,000 square feet of factory space in Vietnam, with a term commencing on April 7, 2022 and continuing through December 1, 2034. The total initial lease liability associated with this lease is $4.5 million, which is not reflected within the maturity schedule above.

Note 8 — 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, 2023. 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 March 31, 2022 and December 31, 2021.

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 a guaranty of the Credit Line by our wholly-owned subsidiary, Universal Electronics BV.

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 rates in effect at March 31, 2022 and December 31, 2021 were 1.70% and 1.35%, respectively. There are no commitment fees or unused line fees under the Second Amended Credit Agreement.

On December 31, 2021, the process of cessation of LIBOR as a reference rate began. Between December 31, 2021 and June 30, 2023, any borrowings under our existing Second Amended Credit Agreement may continue to use LIBOR as the basis for interest rates. If the Second Amended Credit Agreement is amended or replaced during this period, any borrowings will no longer use LIBOR as a reference rate and instead will be subject to an interest rate based on either the Secured Overnight Financing Rate ("SOFR"), which is deemed a replacement benchmark for LIBOR under the Second Amended Credit Agreement, or an alternate index to be agreed upon. After June 30, 2023, all borrowings will be based on SOFR or the alternate index.
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)

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. At March 31, 2022, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At March 31, 2022 and December 31, 2021, we had $85.0 million and $56.0 million outstanding under the Credit Line, respectively. Our total interest expense on borrowings was $0.3 million and $0.1 million during the three months ended March 31, 2022 and 2021, respectively.

Note 9 — Income Taxes

We recorded income tax expense of $2.4 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively. The income tax expense recorded for the three months ended March 31, 2022 increased primarily due to the mix of pre‐tax income among jurisdictions, including losses not benefited as a result of a valuation allowance.

The difference between the Company’s effective tax rate and the 21.0% U.S. federal statutory rate for the three months ended March 31, 2022 primarily related to the mix of pre-tax income and loss among jurisdictions and permanent tax items including a tax on global intangible low-taxed income. The permanent tax item related to global intangible low-taxed income also reflects recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.

At December 31, 2021, we assessed the realizability of the Company's deferred tax assets by considering whether it is more likely than not some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2021, we had a three-year cumulative operating loss for our U.S. operations and accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax assets. During the three months ended March 31, 2022, there was no change to our valuation allowance position.

At March 31, 2022, we had gross unrecognized tax benefits of $3.1 million, including interest and penalties, which, if not for the valuation allowance recorded against the state Research and Experimentation income tax credit, would affect the annual effective tax rate if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next twelve months. Based on federal, state and foreign statute expirations in various jurisdictions, we do not anticipate a decrease in unrecognized tax benefits within the next twelve months. We have classified uncertain tax positions as non-current income tax liabilities unless they are expected to be paid within one year.

We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties are immaterial at March 31, 2022 and December 31, 2021 and are included in the unrecognized tax benefits.

Note 10 — Accrued Compensation

The components of accrued compensation were as follows:
(In thousands)March 31, 2022December 31, 2021
Accrued bonus$1,734 $3,460 
Accrued commission270 1,140 
Accrued salary/wages6,303 6,234 
Accrued social insurance (1)
7,605 7,562 
Accrued vacation/holiday3,571 3,343 
Other accrued compensation2,772 2,478 
Total accrued compensation$22,255 $24,217 
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
 
(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 injury 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 March 31, 2022 and December 31, 2021.

Note 11 — Other Accrued Liabilities

The components of other accrued liabilities were as follows:
(In thousands)March 31, 2022December 31, 2021
Duties$4,183 $4,128 
Expense associated with fulfilled performance obligations1,435 991 
Freight and handling fees2,674 3,317 
Operating lease obligations5,659 4,769 
Product warranty claims costs985 1,095 
Professional fees5,806 4,685 
Sales and value added taxes4,737 5,463 
Other (1)
8,707 6,392 
Total other accrued liabilities$34,186 $30,840 

(1)Includes $2.0 million and $0.4 million of contract liabilities at March 31, 2022 and December 31, 2021, respectively.

Note 12 — Commitments and Contingencies

Product Warranties

Changes in the liability for product warranty claims costs were as follows:
(In thousands)Three Months Ended March 31,
20222021
Balance at beginning of period$1,095 $1,721 
Accruals for warranties issued during the period221 46 
Settlements (in cash or in kind) during the period(331)(149)
Foreign currency translation gain (loss) (43)
Balance at end of period$985 $1,575 

Litigation

Roku Matters

2018 Lawsuit

On September 5, 2018, we filed a lawsuit against Roku, Inc. ("Roku") in the United States District Court, Central District of California, 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 therefor 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. In October 2019, the Court stayed this lawsuit pending action by the Patent Trial and Appeals Board (the
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
"PTAB") with respect to Roku's Inter Partes Review ("IPR") requests (see discussion below). This lawsuit continues to be stayed until such time as the IPR requests and all appeals with respect to them have concluded.

International Trade Commission Investigation of Roku, TCL, Hisense and Funai

On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and related entities (collectively, "TCL"), Hisense Co., Ltd. and related entities (collectively, "Hisense"), and Funai Electric Company, Ltd. and related entities (collectively, "Funai") claiming that certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars infringe certain of our patents. We asked the ITC to issue a permanent limited exclusion order prohibiting the importation of these infringing products into the United States and a cease and desist order to stop these parties from continuing their infringing activities. On May 18, 2020, the ITC announced that it instituted its investigation as requested by us. Prior to the trial, which ended on April 23, 2021, we released TCL, Hisense and Funai from this investigation as they removed our technology from their televisions. On July 9, 2021, the Administrative Law Judge (the "ALJ") issued his Initial Determination (the "ID") finding that Roku is infringing our patents and as a result is in violation of §337 of the Tariff Act of 1930, as amended. On July 23, 2021, Roku and we filed petitions to appeal certain portions of the ID. On November 10, 2021, the full ITC issued its final determination affirming the ID and issuing a Limited Exclusion Order and Cease and Desist Order against Roku which became effective on January 9, 2022.

2020 Lawsuit

As a companion case to our ITC complaint, on April 9, 2020, we filed separate actions against each of Roku, TCL, Hisense, and Funai in the United States District Court, Central District of California, alleging that Roku is willfully infringing five of our patents and TCL, Hisense, and Funai are willfully infringing six of our patents by incorporating our patented technology into certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices and sound bars. These matters have been and continue to be stayed pending the final results of the open IPR matters mentioned below.

Inter Partes Reviews

Throughout these litigation matters against Roku and the others identified above, Roku has filed multiple IPR requests with the PTAB on all patents at issue in the 2018 Lawsuit, the ITC Action, and the 2020 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request eleven times, granted Roku's request seven times and we are awaiting the PTAB's institution decision with respect to the remaining two IPR requests. Of the seven IPR requests granted by the PTAB, the results were mixed, with the PTAB upholding the validity of many of our patent claims and invalidating others. We have and will appeal any PTAB decision that resulted in an invalidation of our patent claims.

International Trade Commission Investigation Request Made by Roku against UEI and certain UEI Customers

On April 8, 2021, Roku made a request to the ITC to initiate an investigation against us and certain of our customers claiming that certain of our and those customers' remote control devices and televisions infringe two of Roku's recently acquired patents. On May 10, 2021, the ITC announced its decision to initiate the requested investigation. Immediately prior to trial Roku withdrew its complaint against us and two of our customers with respect to one of the two patents at issue. This released the complaint against us and two of our customers with respect to that patent. The trial was thus shortened and ended on January 24, 2022. We anticipate that the ALJ will issue her ID on or about June 28, 2022 and the full commission review is set for October 28, 2022. As a companion to its ITC request, Roku also filed a lawsuit against us and certain of our customers in Federal District Court in the Central District of California alleging that we are infringing the same patents they alleged being infringed in the ITC investigation explained above. This District Court case has been and will continue to be stayed pending the conclusion of the ITC investigation.

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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Court of International Trade Action against the United States of America, et. al.

On October 9, 2020, we and our subsidiaries, Ecolink Intelligent Technology, Inc. ("Ecolink") and RCS Technology, LLC ("RCS"), filed an amended complaint (20-cv-00670) in the Court of International Trade (the "CIT") against the United States of America; the Office of the United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; and Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner, challenging both the substantive and procedural processes followed by the United States Trade Representative ("USTR") when instituting Section 301 Tariffs on imports from China under Lists 3 and 4A.

Pursuant to this complaint, we, Ecolink and RCS are alleging that USTR's institution of Lists 3 and 4A tariffs violated the Trade Act of 1974 (the "Trade Act") on the grounds that the USTR failed to make a determination or finding that there was an unfair trade practice that required a remedy and moreover, that Lists 3 and 4A tariffs were instituted beyond the 12-month time limit provided for in the governing statute. We, Ecolink and RCS also allege that the manner in which the Lists 3 and 4A tariff actions were implemented violated the Administrative Procedures Act (the "APA") by failing to provide adequate opportunity for comments, failed to consider relevant factors when making its decision and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of Lists 3 and 4A.

We, Ecolink and RCS are asking the CIT to declare that the defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and were arbitrarily and unlawfully promulgated in violation of the APA; to vacate the Lists 3 and 4A tariffs; to order a refund (with interest) of any Lists 3 and 4A duties paid by us, Ecolink and RCS; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against us, Ecolink and RCS; and award us, Ecolink and RCS our costs and reasonable attorney's fees.

In July 2021, the CIT issued a preliminary injunction suspending liquidation of all unliquidated entries subject to Lists 3 and 4A duties and has asked the parties to develop a process to keep track of the entries to efficiently and effectively deal with liquidation process and duties to be paid or refunded when finally adjudicated. On February 5, 2022, the CIT heard oral arguments on dispositive motions filed on behalf of plaintiffs and defendants. On April 1, 2022, the CIT issued its opinion on these dispositive motions, ruling that the USTR had the legal authority to promulgate List 3 and List 4A under Section 307(a)(1)(B) of the Trade Act, but that the USTR violated the APA when it promulgated List 3 and List 4A concluding that the USTR failed to adequately explain its decision as required under the APA. The Court ordered that List 3 and List 4A be remanded to the USTR for reconsideration or further explanation regarding its rationale for imposing the tariffs. The Court declined to vacate List 3 and List 4A, which means that they are still in place while on remand. The Court’s preliminary injunction regarding liquidation of entries also remains in effect. The Court set a deadline of June 30, 2022, for the USTR to complete this process.

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.

Note 13 — Treasury Stock

From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock. On February 10, 2022, our Board approved a new share repurchase program with an effective date of February 22, 2022 (the "February 2022 Program"). Pursuant to the February 2022 Program, we were authorized to repurchase up to 300,000 shares of our common stock until the Program's expiration on May 5, 2022. Per the terms of the February 2022 Program, we may
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UNIVERSAL ELECTRONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
utilize various methods to effect the repurchases, including open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some or all of which may be effected through Rule 10b5-1 plans. As of May 2, 2022, we repurchased the full 300,000 shares under the February 2022 Program. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.
Repurchased shares of our common stock were as follows:
Three Months Ended March 31,
(In thousands)20222021
Shares repurchased225 191 
Cost of shares repurchased$7,354 $10,951 

Repurchased shares are recorded as shares held in treasury at cost. We hold these shares for future use as management and the Board of Directors deem appropriate.

Note 14 — Stock-Based Compensation

Stock-based compensation expense for each employee and director is presented in the same statement of operations caption as their cash compensation. Stock-based compensation expense by statement of operations caption and the related income tax benefit were as follows:
Three Months Ended March 31,
(In thousands)20222021
Cost of sales$39 $37 
Research and development expenses333 313 
Selling, general and administrative expenses:
Employees
1,727 1,868 
Outside directors
400 382 
Total employee and director stock-based compensation expense$2,499 $2,600 
Income tax benefit$428 $466 

Stock Options

Stock option activity was as follows:    
Number of Options
(in thousands)
Weighted-Average Exercise PriceWeighted-Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value
(in thousands)
Outstanding at December 31, 2021
800 $45.55 
Granted120 34.56 
Exercised  $ 
Forfeited/canceled/expired(74)65.54 
Outstanding at March 31, 2022 (1)
846 $42.25 3.73$1,587 
Vested and expected to vest at March 31, 2022 (1)
846 $42.25 3.73$1,587 
Exercisable at March 31, 2022 (1)
630 $41.92 2.84$1,587 
(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 first quarter of 2022 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 March 31, 2022. This amount will change based on the fair market value of our stock.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)

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:
 Three Months Ended March 31,
 20222021
Weighted average fair value of grants$14.87 $23.97 
Risk-free interest rate1.78 %0.41 %
Expected volatility49.42 %48.49 %
Expected life in years4.654.62

As of March 31, 2022, we expect to recognize $3.5 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 2.2 years.

Restricted Stock

Non-vested restricted stock award activity was as follows:
Shares
(in thousands)
Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2021
$310 $44.41 
Granted228