Universal Electronics Inc. (UEI), (NASDAQ: UEIC), the worldwide leader
in sensing and control technologies for the smart home, reported
financial results for the three months ended March 31, 2019.
Paul Arling, UEI’s chairman and CEO, stated, “During the first quarter,
based on solid execution across the board, we exceeded our bottom line
expectations. Demand for the connected home remains strong, and entering
the second quarter, we have a wider array of customers than ever.
Leading companies across the world in telecom, consumer electronics, and
traditional cable and satellite are developing, testing, and shipping
advanced, 2-way, IP-connected home entertainment systems. Combined with
our ongoing success in home automation, we are well positioned to
deliver consistent and profitable growth.”
Financial Results for the Three Months Ended
March 31: 2019 Compared to 2018
-
GAAP net sales were $184.2 million, compared to $164.7 million;
Adjusted Non-GAAP net sales were $182.7 million, compared to $165.2
million. -
GAAP gross margins were 21.7%, compared to 22.6%; Adjusted Non-GAAP
gross margins were 25.8%, compared to 23.9%. -
GAAP operating income was $1.7 million, compared to $0.9 million;
Adjusted Non-GAAP operating income was $14.6 million, compared to $6.1
million. -
GAAP net loss was $1.0 million, or $0.07 per share, compared to a net
loss of $0.6 million or $0.04 per share; Adjusted Non-GAAP net income
was $11.3 million, or $0.82 per diluted share, compared to $4.1
million, or $0.29 per diluted share. - At March 31, 2019, cash and cash equivalents were $44.9 million.
Bryan Hackworth, UEI’s CFO, stated, “We are progressing as expected with
the transition of approximately 40 percent of production volume from
China to Mexico and the Philippines in an effort to offset the impact of
the increased tariffs. We remain on track for this transition to be
completed by this summer. Further, our 2019 strategic initiatives to
streamline the business are beginning to improve operating efficiencies
and are enabling us to invest in product innovation, technologies and
new markets.”
Financial Outlook
For the second quarter of 2019, the company expects GAAP net sales to
range between $180 million and $190 million, compared to $162.5 million
in the second quarter of 2018. GAAP earnings per diluted share for the
second quarter of 2019 are expected to range from $0.20 to $0.30,
compared to GAAP earnings per diluted share of $1.60 in the second
quarter of 2018. During the second quarter of 2018, UEI sold its
Guangzhou factory and recognized a gain of $37.0 million.
For the second quarter of 2019, the company expects Adjusted Non-GAAP
net sales to range between $178 million and $188 million, compared to
$162.4 million in the second quarter of 2018. Adjusted Non-GAAP earnings
per diluted share are expected to range from $0.70 to $0.80, compared to
Adjusted Non-GAAP earnings per diluted share of $0.15 in the second
quarter of 2018. The second quarter 2019 Adjusted Non-GAAP earnings per
diluted share estimate excludes $0.50 per share related to, among other
things, stock-based compensation, amortization of acquired intangibles,
changes in contingent consideration relating to acquisitions, foreign
currency gains and losses, excess manufacturing overhead and factory
transition costs, recently enacted U.S. tariffs on goods manufactured in
China, restructuring costs and the related tax impact of these
adjustments. For a more detailed explanation of Non-GAAP measures,
please see the Use of Non-GAAP Financial Metrics discussion and the
Reconciliation of Adjusted Non-GAAP Financial Results, each located
elsewhere in this press release.
Conference Call Information
UEI’s management team will hold a conference call today, Thursday, May
2, 2019 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its first quarter
2019 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 6581398. The
conference call will also be broadcast live at www.uei.com
where it will be available for replay for one year. In addition, a
replay 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 dial 404-537-3406. The access
code is 6581398.
Use of Non-GAAP Financial Metrics
In addition to reporting financial results in accordance with generally
accepted accounting principles, or GAAP, UEI provides Adjusted Non-GAAP
information as additional information for its operating
results. References to Adjusted Non-GAAP information are to non-GAAP
financial measures. These measures are not required by, in accordance
with, or an alternative for, GAAP and may be different from non-GAAP
financial measures used by other companies. UEI’s management uses these
measures for reviewing the financial results of UEI, for budget planning
purposes, and for making operational and financial decisions and
believes that providing these non-GAAP financial measures to investors,
as a supplement to GAAP financial measures, helps investors evaluate
UEI’s core operating and financial performance and business trends
consistent with how management evaluates such performance and
trends. Additionally, management believes these measures facilitate
comparisons with the core operating and financial results and business
trends of competitors and other companies.
Adjusted Non-GAAP net sales is defined as net sales excluding the
revenue impact of increased U.S. tariffs on products manufactured in
China and imported into the U.S. and the impact of stock-based
compensation for performance-based warrants. Adjusted Non-GAAP gross
profit is defined as gross profit excluding the impact of increased U.S.
tariffs on products manufactured in China and imported into the U.S. and
costs of implementing countermeasures to mitigate this impact, excess
manufacturing overhead and factory transition costs, stock-based
compensation expense, depreciation expense related to the increase in
fixed assets from cost to fair market value resulting from acquisitions
and amortization of intangibles acquired. Adjusted Non-GAAP operating
expenses are defined as operating expenses excluding costs incurred
related to implementing countermeasures to mitigate the impact of
increased U.S. tariffs on products manufactured in China and imported
into the U.S., stock-based compensation expense, amortization of
intangibles acquired, changes in contingent consideration related to
acquisitions and employee related restructuring and other costs.
Adjusted Non-GAAP net income is defined as net income excluding the
aforementioned items, foreign currency gains and losses, the related tax
effects of all adjustments and adjustments to certain deferred tax
assets resulting from tax incentives at one of our China factories.
Adjusted Non-GAAP diluted earnings per share is calculated using
Adjusted Non-GAAP net income. A reconciliation of these financial
measures to the most directly comparable GAAP financial measures is
included at the end of this press release.
About Universal Electronics
Universal Electronics Inc. (NASDAQ: UEIC) is the worldwide leader in
universal control and sensing technologies for the smart home. For more
information, please visit www.uei.com/about.
Note on Forward-looking Statements
This press release and accompanying schedules contain “forward-looking
statements” within the meaning of federal securities laws, including net
sales, profit margin and earnings trends, estimates and assumptions; our
expectations about new product introductions; and similar statements
concerning anticipated future events and expectations that are not
historical facts. We caution you that these statements are not
guarantees of future performance and are subject to numerous risks and
uncertainties, including those we identify below and other risk factors
that we identify in our most recent annual report on Form 10-K and the
periodic reports filed thereafter. Risks that could affect
forward-looking statements in this press release include our ability to
anticipate the needs and wants of our customers, new and existing, and
timely develop and deliver products and technologies that will meet
those needs and wants, including our advanced control products, our
intuitive 2-way home entertainment technologies, and our home automation
and sensing products and technologies; management’s ability to manage
its business to achieve its net sales, margins, and earnings as guided,
including management’s ability to improve operating costs and
efficiencies at acceptable levels through cost containment efforts
including moving our administrative, operations, and manufacturing
facilities to lower cost jurisdictions, and effects that changes in
laws, regulations and policies may have on our business including the
impact of trade regulations pertaining to importation of our products
and the tariffs imposed upon them. Any of these factors could cause
actual results to differ materially from the expectations we express or
imply in this press release. We make these forward-looking statements as
of May 2, 2019. We undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information,
future events or otherwise.
UNIVERSAL ELECTRONICS INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share-related data) (Unaudited) |
||||||||
March 31, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 44,895 | $ | 53,207 | ||||
Accounts receivable, net | 158,071 | 144,689 | ||||||
Contract assets | 26,001 | 25,572 | ||||||
Inventories, net | 149,966 | 144,350 | ||||||
Prepaid expenses and other current assets | 10,024 | 11,638 | ||||||
Income tax receivable | 2,255 | 997 | ||||||
Total current assets | 391,212 | 380,453 | ||||||
Property, plant and equipment, net | 94,036 | 95,840 | ||||||
Goodwill | 48,448 | 48,485 | ||||||
Intangible assets, net | 23,237 | 24,370 | ||||||
Operating lease right-of-use assets | 21,315 | — | ||||||
Deferred income taxes | 1,741 | 1,833 | ||||||
Other assets | 2,366 | 4,615 | ||||||
Total assets | $ | 582,355 | $ | 555,596 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 107,715 | $ | 107,282 | ||||
Line of credit | 106,500 | 101,500 | ||||||
Accrued compensation | 33,864 | 33,965 | ||||||
Accrued sales discounts, rebates and royalties | 7,813 | 9,574 | ||||||
Accrued income taxes | 1,881 | 3,524 | ||||||
Other accrued liabilities | 31,669 | 24,011 | ||||||
Total current liabilities | 289,442 | 279,856 | ||||||
Long-term liabilities: | ||||||||
Operating lease obligations | 17,520 | — | ||||||
Contingent consideration | 4,846 | 8,435 | ||||||
Deferred income taxes | 3,722 | 930 | ||||||
Income tax payable | 1,640 | 1,647 | ||||||
Other long-term liabilities | 13 | 1,768 | ||||||
Total liabilities | 317,183 | 292,636 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value, 5,000,000 shares authorized; none issued or outstanding |
— | — | ||||||
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,018,606 and 23,932,703 shares issued on March 31, 2019 and December 31, 2018, respectively |
240 | 239 | ||||||
Paid-in capital | 278,801 | 276,103 | ||||||
Treasury stock, at cost, 10,159,205 and 10,116,459 shares on March 31, 2019 and December 31, 2018, respectively |
(277,104 | ) | (275,889 | ) | ||||
Accumulated other comprehensive income (loss) | (18,548 | ) | (20,281 | ) | ||||
Retained earnings | 281,783 | 282,788 | ||||||
Total stockholders’ equity | 265,172 | 262,960 | ||||||
Total liabilities and stockholders’ equity | $ | 582,355 | $ | 555,596 | ||||
UNIVERSAL ELECTRONICS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) |
||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Net sales | $ | 184,163 | $ | 164,698 | ||||
Cost of sales | 144,289 | 127,496 | ||||||
Gross profit | 39,874 | 37,202 | ||||||
Research and development expenses | 6,791 | 6,051 | ||||||
Selling, general and administrative expenses | 31,420 | 30,247 | ||||||
Operating income | 1,663 | 904 | ||||||
Interest income (expense), net | (1,206 | ) | (1,070 | ) | ||||
Other income (expense), net | (466 | ) | (587 | ) | ||||
Income (loss) before provision for income taxes | (9 | ) | (753 | ) | ||||
Provision for income taxes (benefit) | 996 | (166 | ) | |||||
Net income (loss) | $ | (1,005 | ) | $ | (587 | ) | ||
Earnings (loss) per share: | ||||||||
Basic | $ | (0.07 | ) | $ | (0.04 | ) | ||
Diluted | $ | (0.07 | ) | $ | (0.04 | ) | ||
Shares used in computing earnings (loss) per share: | ||||||||
Basic | 13,827 | 14,087 | ||||||
Diluted | 13,827 | 14,087 | ||||||
UNIVERSAL ELECTRONICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) |
||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash provided by (used for) operating activities: | ||||||||
Net income (loss) | $ | (1,005 | ) | $ | (587 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
||||||||
Depreciation and amortization | 8,019 | 8,243 | ||||||
Provision for doubtful accounts | 3 | 4 | ||||||
Provision for inventory write-downs | 2,537 | 756 | ||||||
Deferred income taxes | 2,966 | 913 | ||||||
Shares issued for employee benefit plan | 347 | 336 | ||||||
Employee and director stock-based compensation | 1,918 | 2,204 | ||||||
Performance-based common stock warrants | 434 | 471 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable and contract assets | (14,056 | ) | (266 | ) | ||||
Inventories | (6,519 | ) | 1,372 | |||||
Prepaid expenses and other assets | 735 | (455 | ) | |||||
Accounts payable and accrued liabilities | 3,017 | (21,160 | ) | |||||
Accrued income taxes | (2,943 | ) | (3,774 | ) | ||||
Net cash provided by (used for) operating activities | (4,547 | ) | (11,943 | ) | ||||
Cash provided by (used for) investing activities: | ||||||||
Acquisitions of property, plant and equipment | (2,800 | ) | (9,314 | ) | ||||
Acquisitions of intangible assets | (653 | ) | (571 | ) | ||||
Net cash provided by (used for) investing activities | (3,453 | ) | (9,885 | ) | ||||
Cash provided by (used for) financing activities: | ||||||||
Borrowings under line of credit | 25,000 | 13,000 | ||||||
Repayments on line of credit | (20,000 | ) | (10,000 | ) | ||||
Proceeds from stock options exercised | — | 439 | ||||||
Treasury stock purchased | (1,215 | ) | (615 | ) | ||||
Contingent consideration payments in connection with business combinations |
(4,251 | ) | (3,858 | ) | ||||
Net cash provided by (used for) financing activities | (466 | ) | (1,034 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
154 | 832 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (8,312 | ) | (22,030 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of year | 53,207 | 67,339 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 44,895 | $ | 45,309 | ||||
Supplemental cash flow information: | ||||||||
Income taxes paid | $ | 1,942 | $ | 2,893 | ||||
Interest paid | 1,186 | 1,164 | ||||||
UNIVERSAL ELECTRONICS INC. RECONCILIATION OF ADJUSTED NON-GAAP FINANCIAL RESULTS (In thousands, except per share amounts) (Unaudited) |
||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Net sales: | ||||||||
Net sales – GAAP | $ | 184,163 | $ | 164,698 | ||||
U.S. tariffs on goods imported from China (1) | (1,916 | ) | — | |||||
Stock-based compensation for performance-based warrants | 434 | 471 | ||||||
Adjusted Non-GAAP net sales | $ | 182,681 | $ | 165,169 | ||||
Cost of sales: | ||||||||
Cost of sales – GAAP | $ | 144,289 | $ | 127,496 | ||||
U.S. tariffs on goods imported from China (1) | (5,410 | ) | — | |||||
Excess manufacturing overhead and factory transition costs (2) | (3,272 | ) | (1,553 | ) | ||||
Adjustments to acquired tangible assets (3) | (120 | ) | (158 | ) | ||||
Stock-based compensation expense | (28 | ) | (17 | ) | ||||
Amortization of acquired intangible assets | — |
|
(37 | ) | ||||
Adjusted Non-GAAP cost of sales | 135,459 | 125,731 | ||||||
Adjusted Non-GAAP gross profit | $ | 47,222 | $ | 39,438 | ||||
Gross margin: | ||||||||
Gross margin – GAAP | 21.7 | % | 22.6 | % | ||||
U.S. tariffs on goods imported from China (1) | 2.1 | % | — | % | ||||
Stock-based compensation for performance-based warrants | 0.2 | % | 0.3 | % | ||||
Excess manufacturing overhead and factory transition costs (2) | 1.7 | % | 0.9 | % | ||||
Adjustments to acquired tangible assets (3) | 0.1 | % | 0.1 | % | ||||
Stock-based compensation expense | 0.0 | % | 0.0 | % | ||||
Amortization of acquired intangible assets | — | % | 0.0 | % | ||||
Adjusted Non-GAAP gross margin | 25.8 | % | 23.9 | % | ||||
Operating expenses: | ||||||||
Operating expenses – GAAP | 38,211 | 36,298 | ||||||
U.S. tariffs on goods imported from China (1) | (724 | ) | — | |||||
Stock-based compensation expense | (1,890 | ) | (2,187 | ) | ||||
Amortization of acquired intangible assets | (1,401 | ) | (1,399 | ) | ||||
Change in contingent consideration | (1,062 | ) | 751 | |||||
Employee related restructuring and other costs | (515 | ) | (112 | ) | ||||
Adjusted Non-GAAP operating expenses | $ | 32,619 | $ | 33,351 | ||||
UNIVERSAL ELECTRONICS INC. RECONCILIATION OF ADJUSTED NON-GAAP FINANCIAL RESULTS (In thousands, except per share amounts) (Unaudited) |
||||||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Operating income: | ||||||||
Operating income – GAAP | $ | 1,663 | $ | 904 | ||||
U.S. tariffs on goods imported from China (1) | 4,218 | — | ||||||
Stock-based compensation for performance-based warrants | 434 | 471 | ||||||
Excess manufacturing overhead and factory transition costs (2) | 3,272 | 1,553 | ||||||
Adjustments to acquired tangible assets (3) | 120 | 158 | ||||||
Stock-based compensation expense | 1,918 | 2,204 | ||||||
Amortization of acquired intangible assets | 1,401 | 1,436 | ||||||
Change in contingent consideration | 1,062 | (751 | ) | |||||
Employee related restructuring and other costs | 515 | 112 | ||||||
Adjusted Non-GAAP operating income | $ | 14,603 | $ | 6,087 | ||||
Adjusted pro forma operating income as a percentage of net sales | 8.0 | % | 3.7 | % | ||||
Net income (loss): | ||||||||
Net income (loss) – GAAP | $ | (1,005 | ) | $ | (587 | ) | ||
U.S. tariffs on goods imported from China (1) | 4,218 | — | ||||||
Stock-based compensation for performance-based warrants | 434 | 471 | ||||||
Excess manufacturing overhead and factory transition costs (2) | 3,272 | 1,553 | ||||||
Adjustments to acquired tangible assets (3) | 120 | 158 | ||||||
Stock-based compensation expense | 1,918 | 2,204 | ||||||
Amortization of acquired intangible assets | 1,401 | 1,436 | ||||||
Change in contingent consideration | 1,062 | (751 | ) | |||||
Employee related restructuring and other costs | 515 | 112 | ||||||
Foreign currency (gain) loss | 403 | 605 | ||||||
Income tax provision on adjustments | (2,761 | ) | (1,061 | ) | ||||
Other income tax adjustments (4) | 1,772 | — | ||||||
Adjusted Non-GAAP net income | $ | 11,349 | $ | 4,140 | ||||
Diluted shares used in computing earnings (loss) per share: | ||||||||
GAAP | 13,827 | 14,087 | ||||||
Adjusted Non-GAAP | 13,920 | 14,233 | ||||||
Diluted earnings (loss) per share: | ||||||||
Diluted earnings (loss) per share – GAAP | $ | (0.07 | ) | $ | (0.04 | ) | ||
Total adjustments | $ | 0.89 | $ | 0.33 | ||||
Adjusted Non-GAAP diluted earnings per share | $ | 0.82 | $ | 0.29 | ||||
(1) |
Includes incremental revenues and costs directly attributable to the increased U.S. tariffs implemented in 2018 on goods manufactured in China and imported into the U.S. as well as costs incurred for the movement of factory equipment, duplicative labor efforts and other costs of countermeasures undertaken by the company to modify its manufacturing operations and supply chain in response to the increased U.S. tariffs on goods manufactured in China and imported into the U.S. |
|
(2) |
The three months ended March 31, 2019 include excess manufacturing overhead costs incurred as a result of expanding our manufacturing capacity in Mexico and transitioning certain of our manufacturing activities from China to Mexico. The three months ended March 31, 2018 include excess manufacturing costs incurred resulting from factory underutilization associated with ceasing manufacturing activities while transitioning our Asia operations onto our new global ERP system, which went live in Asia in April 2018. |
|
(3) |
Consists of depreciation related to the mark-up from cost to fair value of fixed assets acquired in business combinations. |
|
(4) |
The three months ended March 31, 2019 includes net deferred tax asset adjustments resulting from a lower statutory tax rate due to tax incentives at one of our China factories. |
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