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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 September 30, 2023

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)

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 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 class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, par value $0.01 per share			UEIC			The 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 filer

☐

Accelerated filer

☒

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 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: 12,952,143 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on November 3, 2023.

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UNIVERSAL ELECTRONICS INC.

INDEX

 

			Page Number
PART I. FINANCIAL INFORMATION			3
Item 1. Consolidated Financial Statements (Unaudited)			3
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Comprehensive Income (Loss) Statements			5
Consolidated Statements of Stockholders' Equity			6
Consolidated Statements of Cash Flows			8
Notes to Consolidated Financial Statements			9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION			36
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			36
Item 5. Other Information			36
Item 6. Exhibits			37
Signatures			38

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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)

			September 30, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	60,079					$	66,740
Accounts receivable, net			112,521						112,346
Contract assets			8,133						7,996
Inventories			93,462						140,181
Prepaid expenses and other current assets			5,809						6,647
Income tax receivable			2,387						4,130
Total current assets			282,391						338,040
Property, plant and equipment, net			46,613						62,791
Goodwill			—						49,085
Intangible assets, net			25,529						24,470
Operating lease right-of-use assets			17,777						21,599
Deferred income taxes			4,472						6,242
Other assets			1,558						1,936
Total assets			$	378,340					$	504,163
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable			$	54,776					$	71,373
Line of credit			75,000						88,000
Accrued compensation			21,707						20,904
Accrued sales discounts, rebates and royalties			5,060						6,477
Accrued income taxes			4,261						5,585
Other accrued liabilities			21,714						24,134
Total current liabilities			182,518						216,473
Long-term liabilities:
Operating lease obligations			11,553						15,027
Deferred income taxes			1,280						2,724
Income tax payable			723						723
Other long-term liabilities			739						810
Total liabilities			196,813						235,757
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; 25,301,246 and 24,999,951 shares issued on September 30, 2023 and December 31, 2022, respectively			253						250
Paid-in capital			334,683						326,839
Treasury stock, at cost, 12,356,603 and 12,295,305 shares on September 30, 2023 and December 31, 2022, respectively			(369,082)						(368,194)
Accumulated other comprehensive income (loss)			(23,889)						(21,187)
Retained earnings			239,562						330,698
Total stockholders' equity			181,527						268,406
Total liabilities and stockholders' equity			$	378,340					$	504,163

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited) 

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net sales			$	107,095					$	148,482					$	322,863					$	419,993
Cost of sales			86,683						104,040						253,141						299,912
Gross profit			20,412						44,442						69,722						120,081
Research and development expenses			7,658						8,017						24,502						24,460
Factory restructuring charges			3,690						—						3,690						—
Selling, general and administrative expenses			23,097						24,928						75,144						79,188
Goodwill impairment			—						—						49,075						—
Operating income (loss)			(14,033)						11,497						(82,689)						16,433
Interest income (expense), net			(1,216)						(668)						(3,288)						(1,147)
Other income (expense), net			(851)						(54)						(1,767)						(388)
Income (loss) before provision for income taxes			(16,100)						10,775						(87,744)						14,898
Provision for income taxes			3,262						3,541						3,392						7,586
Net income (loss)			$	(19,362)					$	7,234					$	(91,136)					$	7,312
Earnings (loss) per share:
Basic			$	(1.50)					$	0.57					$	(7.10)					$	0.58
Diluted			$	(1.50)					$	0.57					$	(7.10)					$	0.57
Shares used in computing earnings (loss) per share:
Basic			12,911						12,656						12,839						12,709
Diluted			12,911						12,696						12,839						12,797

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS

(In thousands)

(Unaudited) 

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net income (loss)			$	(19,362)					$	7,234					$	(91,136)					$	7,312
Other comprehensive income (loss):
Change in foreign currency translation adjustment			(1,501)						(7,367)						(2,702)						(12,831)
Comprehensive income (loss)			$	(20,863)					$	(133)					$	(93,838)					$	(5,519)

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

The following summarizes the changes in total equity for the three and nine months ended September 30, 2023:

			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, 2022			25,000						$	250					(12,295)						$	(368,194)					$	326,839					$	(21,187)					$	330,698					$	268,406
Net loss																																							(61,363)						(61,363)
Currency translation adjustment																																	1,916												1,916
Shares issued for employee benefit plan and compensation			189						2																		350																		352
Purchase of treasury shares															(53)						(812)																								(812)
Shares issued to directors			8																								—																		—
Employee and director stock-based compensation																											2,540																		2,540
Balance at March 31, 2023			25,197						252						(12,348)						(369,006)						329,729						(19,271)						269,335						211,039
Net loss																																							(10,411)						(10,411)
Currency translation adjustment																																	(3,117)												(3,117)
Shares issued for employee benefit plan and compensation			50						1																		372																		373
Purchase of treasury shares															(5)						(43)																								(43)
Shares issued to directors			7																								—																		—
Employee and director stock-based compensation																											2,158																		2,158
Balance at June 30, 2023			25,254						253						(12,353)						(369,049)						332,259						(22,388)						258,924						199,999
Net loss																																							(19,362)						(19,362)
Currency translation adjustment																																	(1,501)												(1,501)
Shares issued for employee benefit plan and compensation			40																								289																		289
Purchase of treasury shares															(3)						(33)																								(33)
Shares issued to directors			7																								—																		—
Employee and director stock-based compensation																											2,135																		2,135
Balance at September 30, 2023			25,301						$	253					(12,356)						$	(369,082)					$	334,683					$	(23,889)					$	239,562					$	181,527

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

The following summarizes the changes in total equity for the three and nine months ended September 30, 2022:

			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, 2021			24,679						$	247					(11,861)						$	(355,159)					$	314,094					$	(13,524)					$	330,291					$	275,949
Net loss																																							(2,910)						(2,910)
Currency translation adjustment																																	1,849												1,849
Shares issued for employee benefit plan and compensation			145						1																		323																		324
Purchase of treasury shares															(225)						(7,354)																								(7,354)
Shares issued to directors			7						—																		—																		—
Employee and director stock-based compensation																											2,499																		2,499
Balance at March 31, 2022			24,831						248						(12,086)						(362,513)						316,916						(11,675)						327,381						270,357
Net income																																							2,988						2,988
Currency translation adjustment																																	(7,313)												(7,313)
Shares issued for employee benefit plan and compensation			23						1																		301																		302
Purchase of treasury shares															(130)						(3,857)																								(3,857)
Shares issued to directors			8						—																		—																		—
Employee and director stock-based compensation																											2,637																		2,637
Balance at June 30, 2022			24,862						249						(12,216)						(366,370)						319,854						(18,988)						330,369						265,114
Net Income																																							7,234						7,234
Currency translation adjustment																																	(7,367)												(7,367)
Shares issued for employee benefit plan and compensation			24						—																		326																		326
Purchase of treasury shares															(3)						(86)																								(86)
Shares issued to directors			7						—																		—																		—
Employee and director stock-based compensation																											2,439																		2,439
Balance at September 30, 2022			24,893						$	249					(12,219)						$	(366,456)					$	322,619					$	(26,355)					$	337,603					$	267,660

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

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UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

			Nine Months Ended September 30,
			2023						2022
Cash flows from operating activities:
Net income (loss)			$	(91,136)					$	7,312
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization			17,549						18,079
Provision for credit losses			69						(204)
Deferred income taxes			259						2,063
Shares issued for employee benefit plan			1,014						952
Employee and director stock-based compensation			6,833						7,575
Impairment of goodwill			49,075						—
Impairment of long-lived assets			7,794						—
Changes in operating assets and liabilities:
Accounts receivable and contract assets			(488)						(11,901)
Inventories			44,991						(8,477)
Prepaid expenses and other assets			4,981						1,734
Accounts payable and accrued liabilities			(21,289)						(17,201)
Accrued income taxes			424						171
Net cash provided by (used for) operating activities			20,076						103
Cash flows from investing activities:
Purchase of term deposit			—						(7,487)
Redemption of term deposit			—						7,609
Acquisition of net assets of Qterics, Inc.			—						(939)
Acquisitions of property, plant and equipment			(6,840)						(10,117)
Acquisitions of intangible assets			(4,643)						(4,719)
Net cash provided by (used for) investing activities			(11,483)						(15,653)
Cash flows from financing activities:
Borrowings under line of credit			35,000						83,000
Repayments on line of credit			(48,000)						(51,000)
Treasury stock purchased			(888)						(11,297)
Net cash provided by (used for) financing activities			(13,888)						20,703
Effect of foreign currency exchange rates on cash and cash equivalents			(1,366)						(4,285)
Net increase (decrease) in cash and cash equivalents			(6,661)						868
Cash and cash equivalents at beginning of period			66,740						60,813
Cash and cash equivalents at end of period			$	60,079					$	61,681
Supplemental cash flow information:
Income taxes paid			$	5,327					$	5,034
Interest paid			$	5,431					$	1,204

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

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(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, except for the impairment and restructuring charges, as described in notes 5, 6 and 12 to the consolidated financial statements. 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 and nine months ended September 30, 2023 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, 2022.

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 and stock-based compensation expense. Actual results may differ from these assumptions and estimates, and they may be adjusted as more information becomes available. Any adjustment may be material.

Summary of Significant Accounting Policies

See Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a summary of our significant accounting policies.

Recently Adopted Accounting Pronouncements

None.

Recent Accounting Updates Not Yet Effective

None.

Note 2 — Cash, Cash Equivalents and Term Deposit

Cash and cash equivalents were held in the following geographic regions:

(In thousands)			September 30, 2023						December 31, 2022
North America			$	10,603					$	6,825
People's Republic of China ("PRC")			3,556						15,633
Asia (excluding the PRC)			17,613						18,850
Europe			15,710						13,042
South America			12,597						12,390
Total cash and cash equivalents			$	60,079					$	66,740

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

On January 25, 2022, we entered into an $8.6 million, one-year term deposit cash account with Banco Santander (Brasil) S.A., denominated in Brazilian Real. The term deposit earned interest at a variable annual rate based upon the Brazilian CDI overnight interbank rate. As of December 31, 2022, all of this term deposit was redeemed.

Note 3 — Revenue and Accounts Receivable, Net

Revenue Details    

The pattern of revenue recognition was as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Goods and services transferred at a point in time			$	83,855					$	127,672					$	249,908					$	355,113
Goods and services transferred over time			23,240						20,810						72,955						64,880
Net sales			$	107,095					$	148,482					$	322,863					$	419,993

Our net sales to external customers by geographic area were as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
United States			$	31,737					$	46,732					$	97,892					$	130,196
Asia (excluding PRC)			20,107						32,614						66,508						100,000
Europe			22,529						27,358						68,598						76,382
People's Republic of China			19,049						26,696						49,082						68,604
Latin America			8,227						7,602						24,408						20,996
Other			5,446						7,480						16,375						23,815
Total net sales			$	107,095					$	148,482					$	322,863					$	419,993

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 September 30,
			2023												2022
			$ (thousands)						% of Net Sales						$ (thousands)						% of Net Sales
Comcast Corporation			(1)						(1)						$	23,615					15.9		%
Daikin Industries Ltd.			$	15,194					14.2		%				$	21,381					14.4		%
Sony Corporation			$	11,825					11.0		%				(1)						(1)

(1)    Net sales associated with this customer did not total more than 10% of our net sales for the indicated period.

			Nine Months Ended September 30,
			2023												2022
			$ (thousands)						% of Net Sales						$ (thousands)						% of Net Sales
Comcast Corporation			$	34,436					10.7		%				$	62,222					14.8		%
Daikin Industries Ltd.			$	48,401					15.0		%				$	59,397					14.1		%

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

Accounts Receivable, Net

Accounts receivable, net were as follows:

(In thousands)			September 30, 2023						December 31, 2022
Trade receivables, gross			$	107,625					$	108,030
Allowance for credit losses			(819)						(957)
Allowance for sales returns			(487)						(618)
Trade receivables, net			106,319						106,455
Other (1)			6,202						5,891
Accounts receivable, net			$	112,521					$	112,346

(1)Other accounts receivable is primarily comprised of value added tax and supplier rebate receivables.

Allowance for Credit Losses

Changes in the allowance for credit losses were as follows:

(In thousands)			Nine Months Ended September 30,
			2023						2022
Balance at beginning of period			$	957					$	1,285
Additions (reductions) to costs and expenses			69						(204)
Write-offs/Foreign exchange effects			(207)						(135)
Balance at end of period			$	819					$	946

Trade receivables associated with these significant customers that totaled more than 10% of our accounts receivable, net were as follows:

			September 30, 2023												December 31, 2022
			$ (thousands)						% of Accounts Receivable, Net						$ (thousands)						% of Accounts Receivable, Net
Comcast Corporation			(1)						(1)						$	15,367					13.7		%
Sony Corporation			$	12,371					11.0		%				(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 Supplier

Inventories were as follows:

(In thousands)			September 30, 2023						December 31, 2022
Raw materials			$	38,364					$	58,759
Components			13,119						25,226
Work in process			1,725						2,616
Finished goods			40,254						53,580
Inventories			$	93,462					$	140,181

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

Significant Supplier

There were no purchases from suppliers that totaled more than 10% of our total inventory purchases for the three months ended September 30, 2023 and 2022.

Purchases from the following supplier totaled more than 10% of our total inventory purchases:

			Nine Months Ended September 30,
			2023												2022
			$ (thousands)						% of Total Inventory Purchases						$ (thousands)						% of Total Inventory Purchases
Qorvo International Pte Ltd.			(1)						(1)						$	23,185					10.3		%

(1) Purchases associated with this supplier did not total more than 10% of our total inventory purchases for the indicated period.

There were no trade payable balances from suppliers that totaled more than 10% of our total accounts payable at September 30, 2023 and December 31, 2022.

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)			September 30, 2023						December 31, 2022
United States			$	14,504					$	16,427
People's Republic of China			28,268						42,893
Mexico			9,494						14,402
Vietnam			7,902						6,923
All other countries			4,222						3,745
Total long-lived tangible assets			$	64,390					$	84,390

Property, plant, and equipment are shown net of accumulated depreciation of $170.0 million and $170.5 million at September 30, 2023 and December 31, 2022, respectively.

Depreciation expense was $4.6 million and $4.9 million for the three months ended September 30, 2023 and 2022, respectively. Depreciation expense was $13.9 million and $15.1 million for the nine months ended September 30, 2023 and 2022, respectively.

During the three months ended September 30, 2023, as part of our manufacturing footprint optimization efforts, we made the decision to close our southwestern China factory and manufacturing operations were stopped in September 2023. We are also working to downsize our factory in Mexico due to decreased demand in our U.S. market. As a result of these decisions, we recorded impairment charges of $7.7 million during the three and nine months ended September 30, 2023, of which $7.6 million and $0.1 million is recorded in cost of sales and selling, general and administrative expenses, respectively, in our consolidated statements of operations.

Note 6 — Goodwill and Intangible Assets, Net

Goodwill

During the nine months ended September 30, 2023, a decline in our financial performance, overall negative trend in the video service provider channel and an uncertain economic environment, contributed to a significant decline in our market capitalization. We considered this to be an impairment trigger. We, therefore, performed a quantitative valuation analysis under an income approach to estimate our reporting unit's fair value. The income approach used projections of estimated operating

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

results and cash flows that were discounted using a discount rate based on the weighted-average cost of capital. The main assumptions supporting the cash flow projections include, but are not limited to, revenue growth, margins, discount rate, and terminal growth rate. The financial projections reflect our best estimate of economic and market conditions over the projected period, including forecasted revenue growth, margins, capital expenditures, depreciation and amortization. In addition to our valuation analysis under an income approach, we also considered the implied control premium compared to our market capitalization.

We determined that the implied control premium over our market capitalization to be substantial; therefore, we recorded an impairment charge of $49.1 million during the nine months ended September 30, 2023.

Changes in the carrying amount of goodwill were as follows:

(In thousands)
Balance at December 31, 2022			$	49,085
Goodwill impairment			(49,075)
Foreign exchange effects			(10)
Balance at September 30, 2023			$	—

Intangible Assets, Net

The components of intangible assets, net were as follows:

			September 30, 2023																		December 31, 2022
(In thousands)			Gross (1)						Accumulated Amortization (1)						Net						Gross (1)						Accumulated Amortization (1)						Net
Capitalized software development costs			$	2,078					$	(281)					$	1,797					$	1,647					$	(44)					$	1,603
Customer relationships			6,340						(3,622)						2,718						6,340						(3,080)						3,260
Developed and core technology			4,520						(3,966)						554						4,520						(3,693)						827
Distribution rights			304						(299)						5						308						(281)						27
Patents			32,509						(12,165)						20,344						29,388						(10,790)						18,598
Trademarks and trade names			450						(339)						111						450						(295)						155
Total intangible assets, net			$	46,201					$	(20,672)					$	25,529					$	42,653					$	(18,183)					$	24,470

(1)This table excludes the gross value of fully amortized intangible assets totaling $44.3 million and $43.7 million at September 30, 2023 and December 31, 2022, respectively.

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Cost of sales			$	146					$	13					$	302					$	37
Selling, general and administrative expenses			1,119						1,018						3,282						2,928
Total amortization expense			$	1,265					$	1,031					$	3,584					$	2,965

 

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

Estimated future annual amortization expense related to our intangible assets at September 30, 2023, was as follows:

(In thousands)
2023 (remaining 3 months)			$	1,256
2024			5,103
2025			4,392
2026			3,583
2027			3,035
Thereafter			8,160
Total			$	25,529

Note 7 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At September 30, 2023, our operating leases had remaining lease terms of up to 37 years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:

(In thousands)			September 30, 2023						December 31, 2022
Assets:
Operating lease right-of-use assets			$	17,777					$	21,599
Liabilities:
Other accrued liabilities			$	4,770					$	5,509
Long-term operating lease obligations			11,553						15,027
Total lease liabilities			$	16,323					$	20,536

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Cost of sales			$	738					$	741					$	2,242					$	2,138
Selling, general and administrative expenses			1,030						1,128						3,215						3,315
Total operating lease expense			$	1,768					$	1,869					$	5,457					$	5,453
Operating cash outflows from operating leases			$	2,301					$	1,858					5,878						5,318
Operating lease right-of-use assets obtained in exchange for lease obligations			$	242					$	1,604					$	2,202					$	4,535

We entered into lease amendments for our southwestern China and Mexico factories during the three months ended September 30, 2023 as a part of our manufacturing footprint optimization efforts. As a result of these modifications, our operating lease right-of-use assets decreased by $1.2 million and our total lease liabilities decreased by $1.3 million.

The weighted average remaining lease liability term and the weighted average discount rate were as follows:

			September 30, 2023						December 31, 2022
Weighted average lease liability term (in years)			4.9						5.1
Weighted average discount rate			4.53		%				3.82		%

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

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 September 30, 2023. The reconciliation excludes short-term leases that are not recorded on the balance sheet.

(In thousands)			September 30, 2023
2023 (remaining 3 months)			$	1,230
2024			5,144
2025			3,908
2026			2,918
2027			2,158
Thereafter			3,084
Total lease payments			18,442
Less: imputed interest			(2,119)
Total lease liabilities			$	16,323

At September 30, 2023, we did not have any operating leases that had not yet commenced.

Note 8 — Line of Credit

On May 3, 2023, we executed an amendment to our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank"), which provides for a $125.0 million revolving line of credit ("Credit Line"). Among other things, the amendment to the Second Amended Credit Agreement extended the maturity of the revolving line of credit to April 30, 2024. 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 none at September 30, 2023 and December 31, 2022.

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 the Secured Overnight Financing Rate ("SOFR") plus an applicable margin (varying from 2.00% to 2.75%), 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 0.75%). 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 September 30, 2023 and December 31, 2022 were 8.05% and 5.62%, respectively. 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. From May 3, 2023 to March 31, 2024 (unless we elect to terminate earlier), our fixed charge coverage ratio and cash flow leverage ratio-based covenants are temporarily replaced with EBITDA-based covenants. Additionally, from May 3, 2023 to March 31, 2024 (unless we elect to terminate the temporary covenant provision earlier), the applicable margins are fixed at 2.75% and 0.75% for SOFR and base rate borrowing, respectively. At September 30, 2023, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At September 30, 2023 and December 31, 2022, we had $75.0 million and $88.0 million outstanding under the Credit Line, respectively. Our total interest expense on borrowings was $1.6 million and $1.0 million during the three months ended September 30, 2023 and 2022, respectively. Our total interest expense on borrowings was $4.5 million and $1.9 million during the nine months ended September 30, 2023 and 2022, respectively.

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UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

Note 9 — Income Taxes

We recorded income tax expense of $3.3 million and $3.5 million for the three months ended September 30, 2023 and 2022, respectively. We recorded income tax expense of $3.4 million and $7.6 million for the nine months ended September 30, 2023 and 2022, respectively. The difference in income tax expense recorded for the nine months ended September 30, 2023 and 2022 is 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 September 30, 2023 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, 2022, 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 the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2022, 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 nine months ended September 30, 2023, there was no change to our U.S. valuation allowance position. Additionally, during the nine months ended September 30, 2023, we have recorded a full valuation allowance of $1.4 million against the deferred tax assets related to our southwestern China factory due to the commencement of its shutdown.

At September 30, 2023, we had gross unrecognized tax benefits of $3.8 million, including interest and penalties, which, if not for the valuation allowance recorded against the state Research and Experimentation income tax credit, $3.3 million 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 September 30, 2023 and December 31, 2022 and are included in the unrecognized tax benefits.

Note 10 — Accrued Compensation

The components of accrued compensation were as follows:

(In thousands)			September 30, 2023						December 31, 2022
Accrued bonus			$	3,042					$	3,348
Accrued commission			355						609
Accrued salary/wages (1)			4,014						4,433
Accrued social insurance (2)			8,442						7,037
Accrued vacation/holiday			3,396						3,300
Other accrued compensation			2,458						2,177
Total accrued compensation			$	21,707					$	20,904

 

(1)At September 30, 2023, accrued severance expenses of $1.7 million related to manufacturing footprint optimization efforts are included in this amount. See Note 12 for further information related to our restructuring activities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

(2)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 September 30, 2023 and December 31, 2022.

Note 11 — Other Accrued Liabilities

The components of other accrued liabilities were as follows:

(In thousands)			September 30, 2023						December 31, 2022
Contract liabilities			$	2,065					$	1,134
Duties			1,131						470
Expense associated with fulfilled performance obligations			1,344						1,120
Freight and handling fees			2,411						2,497
Interest			517						1,413
Operating lease obligations			4,770						5,509
Product warranty claims costs			522						522
Professional fees			1,569						2,293
Sales and value added taxes			2,908						3,750
Other			4,477						5,426
Total other accrued liabilities			$	21,714					$	24,134

Note 12 — Commitments and Contingencies

Product Warranties

Changes in the liability for product warranty claims costs were as follows:

(In thousands)			Nine Months Ended September 30,
			2023						2022
Balance at beginning of period			$	522					$	1,095
Accruals for warranties issued during the period			—						249
Settlements (in cash or in kind) during the period			—						(552)
Foreign currency translation gain (loss)			—						(3)
Balance at end of period			$	522					$	789

Restructuring Activities

In September 2023, we began implementing our plan to restructure and optimize our manufacturing footprint while reducing our concentration risk in the PRC. In conjunction with this plan, as of September 30, 2023, we have stopped all production activities and commenced the shutdown of our southwestern China factory. As a result, we incurred severance and equipment moving costs of $3.4 million and $0.3 million, respectively, during the three and nine months ended September 30, 2023, which are included within factory restructuring charges on our consolidated statements of operations. We expect the completion date of this factory restructuring to be in the first quarter of 2024 with total estimated restructuring charges of $3.7 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

The restructuring liabilities are included in accrued compensation and other accrued liabilities on our consolidated balance sheets. Restructuring activities for the nine months ended September 30, 2023 are as follows:

			Restructuring Costs
(In thousands)			Total						Severance Expense						Other Exit Expense
Balance at December 31, 2022			$	—					$	—					$	—
Restructuring charges			3,690						3,415						275
Cash payments			(1,827)						(1,691)						(136)
Other adjustments			—						—						—
Balance at September 30, 2023			$	1,863					$	1,724					$	139
Total costs incurred inception to date			$	3,690					$	3,415					$	275
Total expected expense to be incurred as of September 30, 2023			$	—					$	—					$	—

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 "PTAB") with respect to Roku's requests for Inter Partes Review ("IPR") (see discussion below). This lawsuit continues to be stayed until such time as the IPR's 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 dismissed TCL, Hisense and Funai from this investigation as they either removed or limited the amount of our technology from their televisions as compared to our patent claims that we asserted at the time. 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 (the "Tariff Act"). 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 (the "LEO") and Cease and Desist Order (the "CDO") against Roku, which became effective on January 9, 2022, and later this month, Roku filed its appeal of the ITC ruling with the Federal Circuit Court of Appeals. Oral argument for this appeal occurred on September 5, 2023 and we expect a decision in the fourth quarter of 2023. Meanwhile, Roku continues to be subject to the LEO and CDO.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

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 fourteen times, and granted Roku's request twelve times. Roku has since filed two IPRs on two of our patents not yet asserted against it, and we are awaiting the PTAB's institution decision with respect to those new IPR requests. Of the twelve 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 appealed all but one PTAB decision that resulted in an invalidation of our patent claims and we will continue to do so.

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, the '511 patent and the '875 patent. On May 10, 2021, the ITC announced its decision to initiate the requested investigation. Immediately prior to trial Roku stipulated to summary determination as to its complaint against us and two of our customers with respect to one of the two patents at issue. This stipulation resulted in the complaint against us and two of our customers with respect to that patent not going to trial. The trial was thus shortened and ended on January 24, 2022. On June 24, 2022, the ALJ, pursuant to Roku's stipulation, found the '511 patent invalid as indefinite. Thereafter, on June 28, 2022, the ALJ issued her ID fully exonerating us and our customers finding the '875 patent invalid and that Roku failed to prove it established the requisite domestic industry and thus no violation of the Tariff Act. In advance of the full Commission's review, Roku and we filed petitions to appeal certain portions of the ID. In addition, the PTAB granted our request for an IPR with respect to the '875 patent. On October 28, 2022, the full ITC issued its final determination affirming the ID, ruling there was no violation of the Tariff Act and terminated the investigation. In December 2022, Roku filed an appeal, which remains pending. In addition, Roku, along with the ITC, filed a joint motion to dismiss the '511 patent as moot as it recently expired. We are opposing this motion. Further, on October 23, 2023, the PTBA issued its Final Written Decision invalidating all of the claims Roku alleges we infringe. As a companion to its ITC request, Roku also filed a lawsuit against us in Federal District Court in the Central District of California alleging that we are infringing the same two patents they alleged being infringed in the ITC investigation explained above. This District Court case has been stayed pending the ITC case, and will likely continue to be stayed pending the conclusion of Roku's appeal of the ITC case.

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, Ecolink, RCS and we 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. Ecolink, RCS and we 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.

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SEPTEMBER 30, 2023

(Unaudited)

Ecolink, RCS and we 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 Ecolink, RCS and us; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against Ecolink, RCS and us; and award Ecolink, RCS and us 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 initially set a deadline of June 30, 2022, for the USTR to complete this process, which was extended to August 1, 2022.

On August 1, 2022, the USTR provided the Court with that further explanation and also purported to respond to the significant comments received during the original notice-and-comment process. On September 14, 2022, the lead plaintiff filed its comments to the USTR's August 1, 2022 filing, asserting that the USTR did not adequately respond to the Court's remand order and requested the Court to vacate the List 3 and List 4A tariffs and issue refunds immediately. On March 17, 2023, the CIT sustained the List 3 and List 4 tariffs, concluding that USTR’s rationale in support of the tariffs was not impermissibly post hoc. The court also concluded that USTR adequately explained its reliance on presidential direction and adequately responded to significant comments regarding the harm to the U.S. economy, efficacy of the tariffs, and alternatives to the tariffs. Lead plaintiffs have appealed this decision and on July 17, 2023, the lead plaintiffs filed its opening brief to this appeal.

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 October 26, 2023, our Board approved a new share repurchase program with an effective date of November 7, 2023 (the "October 2023 Program"). Pursuant to the October 2023 Program, we are authorized to repurchase up to 1,000,000 shares of our common stock. Per the terms of the October 2023 Program, we may 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 could be effected through Rule 10b5-1 plans.

We also repurchase shares of our issued and outstanding common stock to satisfy the cost of stock option exercises and/or income tax withholding obligations relating to the stock-based compensation of our employees and directors.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

Repurchased shares of our common stock were as follows:

			Nine Months Ended September 30,
(In thousands)			2023						2022
Open market shares repurchased			—						300
Stock-based compensation related shares repurchased			61						58
Total shares repurchased			61						358
Cost of open market shares repurchased			$	—					$	9,438
Cost of stock-based compensation related shares repurchased			888						1,859
Total cost of shares repurchased			$	888					$	11,297

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 September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Cost of sales			$	32					$	38					$	94					$	117
Research and development expenses			283						326						817						1,004
Selling, general and administrative expenses:
Employees			1,726						1,842						5,398						5,421
Outside directors			94						233						524						1,033
Total employee and director stock-based compensation expense			$	2,135					$	2,439					$	6,833					$	7,575
Income tax benefit			$	326					$	397					$	1,073					$	1,265

Stock Options

Stock option activity was as follows:    

			Number of Options (in thousands)						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022			782						$	44.16
Granted			236						24.77
Exercised			—						—												$	—
Forfeited/canceled/expired			(93)						51.39
Outstanding at September 30, 2023 (1)			925						$	38.49					3.98						$	—
Vested and expected to vest at September 30, 2023 (1)			925						$	38.49					3.98						$	—
Exercisable at September 30, 2023 (1)			604						$	44.06					2.80						$	—

(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 2023 and the exercise price, multiplied by the number of in-the-money options)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

that would have been received by the option holders had they all exercised their options on September 30, 2023. This amount will change based on the fair market value of our stock.

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 September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Weighted average fair value of grants			$	—					$	12.38					$	10.83					$	14.51
Risk-free interest rate			—		%				2.82		%				3.86		%				1.93		%
Expected volatility			—		%				48.92		%				45.89		%				49.35		%
Expected life in years			0.00						5.19						4.70						4.73

As of September 30, 2023, we expect to recognize $3.2 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of 1.9 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, 2022			376						$	36.82
Granted			340						14.15
Vested			(196)						36.86
Forfeited			(4)						38.19
Non-vested at September 30, 2023			516						$	21.83

As of September 30, 2023, we expect to recognize $8.2 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of 1.8 years.

Note 15 — Performance-Based Common Stock Warrants

On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation at a price of $54.55 per share. On January 1, 2023, all 275,000 of the vested and outstanding warrants expired unexercised.

Note 16 — Other Income (Expense)

Other income (expense), net consisted of the following: 

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands)			2023						2022						2023						2022
Net gain (loss) on foreign currency exchange contracts (1)			$	19					$	(550)					$	(2,788)					$	518
Net gain (loss) on foreign currency exchange transactions			(1,085)						476						545						(534)
Other income (expense)			215						20						476						(372)
Other income (expense), net			$	(851)					$	(54)					$	(1,767)					$	(388)

(1)This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 18 for further details).

22

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Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Unaudited)

Note 17 — Earnings (Loss) Per Share

Earnings (loss) per share was calculated as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
(In thousands, except per-share amounts)			2023						2022						2023						2022
BASIC
Net income (loss)			$	(19,362)					$	7,234					$	(91,136)					$	7,312
Weighted-average common shares outstanding			12,911						12,656						12,839						12,709
Basic earnings (loss) per share			$	(1.50)					$	0.57					$	(7.10)					$	0.58</