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Universal Electronics Reports Third Quarter 2014 Financial Results

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Universal Electronics Inc. (UEI), (NASDAQ:UEIC) reported financial results for the three and nine months ended September 30, 2014.

Paul Arling, UEI’s Chairman and CEO, stated: “Our third quarter 2014 performance reflects our ability to capture share in the markets we serve. We continue to gain traction within the smart device channel as some of the world’s largest companies around the globe select our advanced device control technology and software. Our QuickSet(R) and Control PlusTM solutions are becoming the standard for powering the simple and almost effortless setup and programming of a control device. By introducing next generation solutions such as these, leveraging our core technologies and world-renowned device code database and maintaining our commitment to customer-focused innovation, we are working to ensure our success in the global control technology market for years to come.”

Adjusted Pro Forma Financial Results for the Three Months Ended September 30: 2014 Compared to 2013

  • Net sales were $147.8 million, compared to $142.4 million.
    • Business Category revenue was $135.2 million, compared to $129.7 million. The Business Category contributed 91.5% of total net sales, compared to 91.1%.
    • Consumer Category revenue was $12.6 million, compared to $12.7 million. The Consumer Category contributed 8.5% of total net sales, compared to 8.9%.
  • Gross margins were 30.7%, compared to 28.6%.
  • Operating expenses were $28.9 million, compared to $27.6 million.
  • Operating income was $16.4 million, compared to $13.2 million.
  • Net income was $12.9 million, or $0.80 per diluted share, compared to $10.7 million, or $0.68 per diluted share.
  • At September 30, 2014, cash and cash equivalents was $99.0 million.

Adjusted Pro Forma Financial Results for the Nine Months Ended September 30: 2014 Compared to 2013

  • Net sales were $423.9 million, compared to $393.2 million.
  • Gross margins were 29.7%, compared to 28.4%.
  • Operating expenses were $86.3 million, compared to $79.6 million.
  • Operating income was $39.7 million, compared to $32.0 million.
  • Net income was $29.8 million, or $1.85 per diluted share, compared to $23.6 million, or $1.53 per diluted share.

Financial Outlook

For the fourth quarter of 2014, the company expects net sales to range between $134.0 million and $142.0 million, compared to $136.1 million in the fourth quarter of 2013. Adjusted pro forma earnings per diluted share for the fourth quarter of 2014 are expected to range from $0.59 to $0.69, compared to adjusted pro forma earnings per diluted share of $0.55 in the fourth quarter of 2013, which has been adjusted to reflect the exclusion of stock-based compensation expense.

Bryan Hackworth, UEI’s CFO, stated: “Over the past couple of years, we have stated the long-term profile of our business is one with approximately 5% to 10% average annual revenue growth and with approximately 10% to 15% average annual earnings growth. However, given our success in embedding our technology in multiple smart devices via pure licensing arrangements and/or embedded chip sales, our gross and operating margins have expanded. As a result, our profile has changed and we believe we can continue to grow our top line by an average of 5% to 10%, but we expect our earnings will grow by an average of 10% to 20% annually.”

Conference Call Information

UEI’s management team will hold a conference call today, Thursday, November 6, 2014 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its third quarter 2014 earnings results, review recent activity and answer questions. To access the call in the U.S. please dial 877-843-0414 and for international calls dial 315-625-3071 approximately 10 minutes prior to the start of the conference. The conference ID is 22183829. The conference call will also be broadcast live over the Internet and available for replay for one year at www.uei.com. In addition, a replay of the call will be available via telephone for two business days, beginning two hours after the call. To listen to the replay, in the U.S., please dial 855-859-2056 and internationally, 404-537-3406. Enter access code 22183829.

Use of Non-GAAP Financial Metrics

Non-GAAP gross margins, Non-GAAP operating expenses, and Non-GAAP net income and earnings per share are supplemental measures of the company’s performance that are not required by, and are not presented in accordance with GAAP. The Non-GAAP information does not substitute for any performance measure derived in accordance with GAAP. Non-GAAP gross profit is defined as gross profit excluding depreciation expense related to the increase in fixed assets from cost to fair market value resulting from acquisitions. Non-GAAP operating expenses are defined as operating expenses excluding amortization of intangibles acquired, employee related restructuring costs, stock-based compensation expense and certain costs incurred for years preceding the acquisition of Enson Assets Limited. Non-GAAP net income is defined as net income from operations excluding the aforementioned items and the related tax effects as well as additional reserves recorded resulting from a tax audit in Hong Kong for years preceding our acquisition of Enson Assets Limited. A reconciliation of Non-GAAP financial results to GAAP results is included at the end of this press release.

About Universal Electronics

Founded in 1986, Universal Electronics Inc. (UEI) is the global leader in wireless control technology for the connected home. UEI designs, develops, and delivers innovative solutions that enable consumers to control entertainment devices, digital media, and home systems. The company’s broad portfolio of patented technologies and database of infrared control software have been adopted by many Fortune 500 companies in the consumer electronics, subscription broadcast, and computing industries. UEI sells and licenses wireless control products through distributors and retailers under the One For All(R) brand name. For additional information, visit our website at www.uei.com.

Safe Harbor Statement

This press release contains forward-looking statements that are made pursuant to the Safe-Harbor provisions of the Private Securities Litigation Reform Act of 1995. Words and expressions reflecting something other than historical fact are intended to identify forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, including the benefits anticipated by the company due to the continued strength across its entire business and expansion of its share of the markets it serves, including its core business and smart device channel (such as phones, tablets, TVs, IPTV devices, game consoles, and wearables); the continued innovation of next-generation solutions that are accepted by its customers and end users; the continuation of benefits the company has experienced and anticipate due to the licensing of the company’s technologies and patents, such as the company’s QuickSet and Control Plus technologies; the benefits anticipated by management from leveraging the company’s core technologies and device code database; the continued adoption and selection of the company’s technologies and products by the world’s largest companies in the home entertainment industries; and the other factors described in the company’s filings with the U.S. Securities and Exchange Commission. The actual results the company achieves may differ materially from any forward-looking statement due to such risks and uncertainties. The company undertakes no obligations to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

(Unaudited)

September 30, 2014 December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 98,964 $ 76,174
Accounts receivable, net 105,920 95,408
Inventories, net 92,341 96,309
Prepaid expenses and other current assets 4,548 4,395
Income tax receivable 16 13
Deferred income taxes 6,158 6,167
Total current assets 307,947 278,466
Property, plant, and equipment, net 76,682 75,570
Goodwill 30,794 31,000
Intangible assets, net 25,164 26,963
Deferred income taxes 5,567 6,455
Other assets 5,442 5,279
Total assets $ 451,596 $ 423,733
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 69,885 $ 58,498
Line of credit
Accrued compensation 38,002 38,317
Accrued sales discounts, rebates and royalties 7,495 8,539
Accrued income taxes 1,922 3,032
Deferred income taxes 151 303
Other accrued expenses 12,466 11,229
Total current liabilities 129,921 119,918
Long-term liabilities:
Deferred income taxes 10,084 9,887
Income tax payable 606 606
Other long-term liabilities 1,971 2,052
Total liabilities 142,582 132,463
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; 22,788,604 and 22,344,121 shares issued on September 30, 2014 and December 31, 2013, respectively 228 223
Paid-in capital 213,373 199,513
Accumulated other comprehensive income (loss) (1,797 ) 2,982
Retained earnings 217,164 193,532
428,968 396,250
Less cost of common stock in treasury, 6,992,446 and 6,639,497 shares on September 30, 2014 and December 31, 2013, respectively (119,954 ) (104,980 )
Total stockholders’ equity 309,014 291,270
Total liabilities and stockholders’ equity $ 451,596 $ 423,733

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Net sales $ 147,780 $ 142,389 $ 423,940 $ 393,220
Cost of sales 102,665 101,940 298,721 282,386
Gross profit 45,115 40,449 125,219 110,834
Research and development expenses 4,210 4,182 12,606 12,463
Selling, general and administrative expenses 27,120 25,796 81,164 74,029
Operating income 13,785 10,471 31,449 24,342
Interest income (expense), net 66 47 (21 ) 60
Other income (expense), net (655 ) (717 ) (1,338 ) (2,897 )
Income before provision for income taxes 13,196 9,801 30,090 21,505
Provision for income taxes 2,325 1,178 6,458 4,095
Net income $ 10,871 $ 8,623 $ 23,632 $ 17,410
Earnings per share:
Basic $ 0.69 $ 0.56 $ 1.50 $ 1.15
Diluted $ 0.68 $ 0.55 $ 1.46 $ 1.13
Shares used in computing earnings per share:
Basic 15,723 15,324 15,764 15,129
Diluted 16,103 15,743 16,135 15,462

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,
2014 2013
Cash provided by operating activities:
Net income $ 23,632 $ 17,410
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 13,445 13,387
Provision for doubtful accounts 16 140
Provision for inventory write-downs 2,385 1,988
Deferred income taxes 777 127
Tax benefit from exercise of stock options and vested restricted stock 2,141 1,040
Excess tax benefit from stock-based compensation (2,124 ) (1,011 )
Shares issued for employee benefit plan 703 598
Stock-based compensation 4,831 3,950
Changes in operating assets and liabilities:
Accounts receivable (13,988 ) (12,734 )
Inventories (577 ) (20,701 )
Prepaid expenses and other assets (403 ) 352
Accounts payable and accrued expenses 13,647 (3,015 )
Accrued income taxes (1,138 ) (729 )
Net cash provided by operating activities 43,347 802
Cash used for investing activities:
Acquisition of property, plant, and equipment (12,480 ) (7,978 )
Acquisition of intangible assets (1,374 ) (978 )
Net cash used for investing activities (13,854 ) (8,956 )
Cash provided by (used for) financing activities:
Issuance of debt 19,500
Payment of debt (19,500 )
Proceeds from stock options exercised 6,400 8,487
Treasury stock purchased (15,184 ) (3,153 )
Excess tax benefit from stock-based compensation 2,124 1,011
Net cash provided by (used for) financing activities (6,660 ) 6,345
Effect of exchange rate changes on cash (43 ) 1,818
Net increase (decrease) in cash and cash equivalents 22,790 9
Cash and cash equivalents at beginning of year 76,174 44,593
Cash and cash equivalents at end of period $ 98,964 $ 44,602
Supplemental Cash Flow Information:
Income taxes paid $ 4,091 $ 3,319
Interest paid $ $ 44

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED PRO FORMA FINANCIAL RESULTS

(In thousands, except share-related data)

(Unaudited)

Three Months Ended
September 30, 2014

Three Months Ended
September 30, 2013

GAAP Adjustments Adjusted
Pro Forma
GAAP Adjustments Adjusted
Pro Forma
Net sales $ 147,780 $ $ 147,780 $ 142,389 $ $ 142,389
Cost of sales (1) 102,665 (236 ) 102,429 101,940 (277 ) 101,663
Gross profit 45,115 236 45,351 40,449 277 40,726
Research and development expenses (2) 4,210 (60 ) 4,150 4,182 (54 ) 4,128
Selling, general and administrative expenses (3) 27,120 (2,332 ) 24,788 25,796 (2,368 ) 23,428
Operating income 13,785 2,628 16,413 10,471 2,699 13,170
Interest income (expense), net 66 66 47 47
Other income (expense), net (655 ) (655 ) (717 ) (717 )
Income before provision for income taxes 13,196 2,628 15,824 9,801 2,699 12,500
Provision for income taxes (4) 2,325 649 2,974 1,178 631 1,809
Net income $ 10,871 $ 1,979 $ 12,850 $ 8,623 $ 2,068 $ 10,691
Earnings per share diluted $ 0.68 $ 0.12 $ 0.80 $ 0.55 $ 0.13 $ 0.68

Nine Months Ended
September 30, 2014

Nine Months Ended
September 30, 2013

GAAP Adjustments Adjusted
Pro Forma
GAAP Adjustments Adjusted
Pro Forma
Net sales $ 423,940 $ $ 423,940 $ 393,220 $ $ 393,220
Cost of sales (5) 298,721 (707 ) 298,014 282,386 (831 ) 281,555
Gross profit 125,219 707 125,926 110,834 831 111,665
Research and development expenses (6) 12,606 (261 ) 12,345 12,463 (166 ) 12,297
Selling, general and administrative expenses (7) 81,164 (7,234 ) 73,930 74,029 (6,704 ) 67,325
Operating income 31,449 8,202 39,651 24,342 7,701 32,043
Interest income (expense), net (21 ) (21 ) 60 60
Other income (expense), net (1,338 ) (1,338 ) (2,897 ) (2,897 )
Income before provision for income taxes 30,090 8,202 38,292 21,505 7,701 29,206
Provision for income taxes (8) 6,458 1,995 8,453 4,095 1,473 5,568
Net income $ 23,632 $ 6,207 $ 29,839 $ 17,410 $ 6,228 $ 23,638
Earnings per share diluted $ 1.46 $ 0.38 $ 1.85 $ 1.13 $ 0.40 $ 1.53
(1) To reflect depreciation expense of $0.2 million and $0.3 million for the three months ended September 30, 2014 and 2013, respectively, related to the mark-up in fixed assets from cost to fair value as a result of acquisitions.
(2) To reflect stock-based compensation expense for the three months ended September 30, 2014 and 2013.
(3) To reflect amortization expense of $0.7 million for each of the three months ended September 30, 2014 and 2013 related to intangible assets acquired as part of acquisitions. In addition, to reflect stock-based compensation expense of $1.5 million and $1.3 million for the three months ended September 30, 2014 and 2013, respectively. Also, to reflect other employee related restructuring costs of $0.1 million for the three months ended September 30, 2014. In the third quarter of 2013, there were $0.3 million of additional costs incurred relating to the settlement of a software audit for infringements that occurred prior to the acquisition of Enson Assets Limited.
(4) To reflect the tax effect of the adjustments.
(5) To reflect depreciation expense of $0.7 million and $0.8 million for the nine months ended September 30, 2014 and 2013, respectively, related to the mark-up in fixed assets from cost to fair value as a result of acquisitions.
(6) To reflect stock-based compensation expense for the nine months ended September 30, 2014 and 2013.
(7) To reflect amortization expense of $2.2 million for each of the nine months ended September 30, 2014 and 2013 related to intangible assets acquired as part of acquisitions. In addition, to reflect stock-based compensation expense of $4.6 million and $3.8 million for the nine months ended September 30, 2014 and 2013, respectively. Also, to reflect other employee related restructuring costs of $0.4 million for each of the nine months ended September 30, 2014 and 2013. For the nine months ended September 30, 2013, there were $0.3 million of additional costs incurred relating to the settlement of a software audit for infringements that occurred prior to the acquisition of Enson Assets Limited.
(8) To reflect the tax effect of the adjustments. In addition, the nine months ended September 30, 2013 also includes $0.4 million of additional tax reserves recorded resulting from a tax audit in Hong Kong for years preceding our acquisition of Enson Assets Limited.

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