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Universal Electronics Reports Second Quarter 2016 Financial Results

SANTA ANA, Calif.--(BUSINESS WIRE)--Aug. 4, 2016-- Universal Electronics Inc. (UEI), (NASDAQ: UEIC) reported financial results for the three and six months ended June 30, 2016.

Paul Arling, UEI's Chairman and CEO, stated, “Our second quarter results reflect strong year-over-year growth in Adjusted Pro Forma sales and earnings. We are at various stages of new product introductions within our core subscription broadcast market as additional customers continue to adopt the higher end platforms. The emergence of the smart home, which reflects the convergence of home entertainment and home security devices and technologies, is also an exciting development for UEI. We have a significant opportunity to leverage our customer base, our world’s largest device code database and our expertise in wireless control and sensing technology to capture a significant share of this emerging market.”

Financial Results for the Three Months Ended June 30: 2016 Compared to 2015

  • GAAP net sales were $171.0 million, compared to $147.6 million; Adjusted Pro Forma net sales were $172.2 million, compared to $147.6 million.
  • GAAP gross margins were 25.4%, compared to 27.3%; Adjusted Pro Forma gross margins were 26.1%, compared to 27.5%.
  • GAAP operating income was $8.0 million, compared to $10.4 million; Adjusted Pro Forma operating income was $14.7 million, compared to $13.5 million.
  • GAAP net income was $6.6 million, or $0.45 per diluted share, compared to $8.4 million or $0.52 per diluted share; Adjusted Pro Forma net income was $11.3 million, or $0.77 per diluted share, compared to $10.7 million, or $0.67 per diluted share.
  • At June 30, 2016, cash and cash equivalents were $49.4 million.

Financial Results for the Six Months Ended June 30: 2016 Compared to 2015

  • GAAP net sales were $321.6 million, compared to $280.3 million; Adjusted Pro Forma net sales were $323.7 million, compared to $280.3 million.
  • GAAP gross margins were 25.2%, compared to 27.7%; Adjusted Pro Forma gross margins were 25.9%, compared to 27.9%.
  • GAAP operating income was $11.0 million, compared to $16.5 million; Adjusted Pro Forma operating income was $24.0 million, compared to $22.6 million.
  • GAAP net income was $9.3 million, or $0.63 per diluted share, compared to $13.6 million or $0.84 per diluted share; Adjusted Pro Forma net income was $18.5 million, or $1.26 per diluted share, compared to $18.2 million, or $1.13 per diluted share.

Financial Outlook

For the third quarter of 2016, the company expects GAAP net sales to range between $168 million and $176 million, compared to $160.5 million in the third quarter of 2015. GAAP earnings per diluted share for the third quarter of 2016 are expected to range from $0.61 to $0.71, compared to GAAP earnings per diluted share of $0.41 in the third quarter of 2015.

For the third quarter of 2016, the company expects Adjusted Pro Forma net sales to range between $169 million and $177 million, compared to $160.5 million in the third quarter of 2015. Adjusted Pro Forma earnings per diluted share are expected to range from $0.87 to $0.97, compared to Adjusted Pro Forma earnings per diluted share of $0.78 in the third quarter of 2015. The third quarter Adjusted Pro Forma earnings per diluted share estimate excludes $0.26 per share related to stock-based compensation, amortization of acquired intangibles and changes in contingent consideration relating to the acquisition of Ecolink Intelligent Technology, Inc.

Conference Call Information

UEI’s management team will hold a conference call today, Thursday, August 4, 2016 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its second quarter 2016 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 49078120. 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 49078120.

Use of Non-GAAP Financial Metrics

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, UEI provides Adjusted Pro Forma information as additional information for its operating results. References to Adjusted Pro Forma 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 Pro Forma net sales is defined as net sales excluding the impact of stock-based compensation for performance-based warrants. Adjusted Pro Forma gross profit is defined as gross profit excluding stock-based compensation expense and cost of goods sold and depreciation expense related to the increase in inventories and fixed assets from cost to fair market value resulting from acquisitions. Adjusted Pro Forma operating expenses are defined as operating expenses excluding amortization of intangibles acquired, stock-based compensation expense, employee related restructuring costs, litigation settlement costs, and changes in contingent consideration related to the acquisition of the net assets of Ecolink Intelligent Technology, Inc. Adjusted Pro Forma net income is defined as net income excluding the aforementioned items and the related tax effects. Adjusted Pro Forma diluted earnings per share attributable to Universal Electronics Inc. is calculated using Adjusted Pro Forma 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. 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 changes in market conditions; the convergence of smart home devices and technologies as anticipated by management, the pace of the economy; competitive conditions in the industries we serve, including the smart home and residential and commercial security industries; and relationships with our customers. 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 August 4, 2016. 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)

   

June 30, 2016

December 31, 2015

ASSETS
Current assets:
Cash and cash equivalents $ 49,445 $ 52,966
Restricted cash 4,623 4,623
Accounts receivable, net 132,125 121,801
Inventories, net 119,141 122,366
Prepaid expenses and other current assets 6,553 6,217
Income tax receivable 296 55
Deferred income taxes 7,248   7,296  
Total current assets 319,431 315,324
Property, plant, and equipment, net 98,130 90,015
Goodwill 43,131 43,116
Intangible assets, net 30,800 32,926
Deferred income taxes 10,030 8,474
Other assets 5,170   5,365  
Total assets $ 506,692   $ 495,220  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 99,030 $ 93,843
Line of credit 42,987 50,000
Accrued compensation 33,881 37,452
Accrued sales discounts, rebates and royalties 8,271 7,618
Accrued income taxes 1,702 4,745
Other accrued expenses 22,937   21,466  
Total current liabilities 208,808 215,124
Long-term liabilities:
Long-term contingent consideration 11,000 11,751
Deferred income taxes 9,643 7,891
Income tax payable 629 629
Other long-term liabilities 1,847   1,917  
Total liabilities 231,927 237,312
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; 23,331,278 and 23,176,277 shares issued on June 30, 2016 and December 31, 2015, respectively 233 232
Paid-in capital 239,375 228,269
Treasury stock, at cost, 8,861,097 and 8,824,768 shares on June 30, 2016 and December 31, 2015, respectively (212,277 ) (210,333 )
Accumulated other comprehensive income (loss) (17,117 ) (15,799 )
Retained earnings 264,551   255,240  
Universal Electronics Inc. stockholders' equity 274,765 257,609
Noncontrolling interest   299  
Total stockholders’ equity 274,765   257,908  
Total liabilities and stockholders’ equity $ 506,692   $ 495,220  
 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

   
Three Months Ended June 30, Six Months Ended June 30,
2016   2015 2016   2015
Net sales $ 170,986 $ 147,551 $ 321,644 $ 280,256
Cost of sales 127,530   107,271   240,541   202,567
Gross profit 43,456 40,280 81,103 77,689
Research and development expenses 5,151 4,096 10,337 8,530
Selling, general and administrative expenses 30,336   25,784   59,756   52,656
Operating income 7,969 10,400 11,010 16,503
Interest income (expense), net (258 ) 104 (525 ) 214
Other income (expense), net 671   56   1,391   286
Income before provision for income taxes 8,382 10,560 11,876 17,003
Provision for income taxes 1,784   2,185     2,535     3,439
Net income 6,598 8,375 9,341 13,564
Net income (loss) attributable to noncontrolling interest 8       30    
Net income attributable to Universal Electronics Inc. $ 6,590   $ 8,375     $ 9,311     $ 13,564
 
Earnings per share attributable to Universal Electronics Inc.:
Basic $ 0.46   $ 0.53     $ 0.65     $ 0.86
Diluted $ 0.45   $ 0.52     $ 0.63     $ 0.84
Shares used in computing earnings per share:
Basic 14,440   15,732   14,406   15,819
Diluted 14,735   16,029   14,686   16,136
 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
Six Months Ended June 30,
2016   2015
Cash provided by operating activities:
Net income $ 9,341 $ 13,564
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,032 9,412
Provision for doubtful accounts 116 138
Provision for inventory write-downs 1,705 1,617
Deferred income taxes 165 (655 )
Tax benefit from exercise of stock options and vested restricted stock 992 689
Excess tax benefit from stock-based compensation (1,047 ) (713 )
Shares issued for employee benefit plan 551 593
Employee and director stock-based compensation 4,970 3,983
Performance-based warrant stock-based compensation 2,058
Changes in operating assets and liabilities:
Accounts receivable (9,599 ) (8,741 )
Inventories 982 (14,994 )
Prepaid expenses and other assets (243 ) (378 )
Accounts payable and accrued expenses 4,488 1,395
Accrued income taxes (3,260 ) 32  
Net cash provided by operating activities 23,251 5,942
Cash used for investing activities:
Acquisition of property, plant, and equipment (17,989 ) (15,655 )
Acquisition of intangible assets (993 ) (1,252 )
Deconsolidation of Encore Controls LLC 48    
Net cash used for investing activities (18,934 ) (16,907 )
Cash provided by (used for) financing activities:
Borrowings under line of credit 57,987 19,500
Repayments on line of credit (65,000 ) (7,500 )
Proceeds from stock options exercised 2,536 1,648
Treasury stock purchased (1,944 ) (34,297 )
Excess tax benefit from stock-based compensation 1,047     713  
Net cash provided by (used for) financing activities (5,374 ) (19,936 )
Effect of exchange rate changes on cash (2,464 ) 542  
Net increase (decrease) in cash and cash equivalents (3,521 ) (30,359 )
Cash and cash equivalents at beginning of year 52,966   112,521  
Cash and cash equivalents at end of period $ 49,445   $ 82,162  
 
Supplemental cash flow information:
Income taxes paid $ 4,647 $ 2,979
Interest paid $ 609 $
 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED PRO FORMA FINANCIAL RESULTS

(In thousands, except per share amounts)

(Unaudited)

   
Three Months Ended June 30, Six Months Ended June 30,
2016   2015 2016   2015
Net sales:
Net sales - GAAP $ 170,986 $ 147,551 $ 321,644 $ 280,256
Stock-based compensation for performance-based warrants 1,193     2,059    
Adjusted Pro Forma net sales $ 172,179   $ 147,551   $ 323,703   $ 280,256  
 
Cost of sales:
Cost of sales - GAAP $ 127,530 $ 107,271 $ 240,541 $ 202,567
Depreciation of acquired fixed assets (1) (258 ) (240 ) (517 ) (482 )
Fair value adjustments to acquired inventories (2) (43 ) (115 )
Stock-based compensation expense (15 ) (10 ) (29 ) (19 )
Adjusted Pro Forma cost of sales   127,214     107,021     239,880     202,066  
Adjusted Pro Forma gross profit $ 44,965   $ 40,530   $ 83,823   $ 78,190  
 
Adjusted Pro Forma gross margin 26.1 % 27.5 % 25.9 % 27.9 %
 
Operating expenses:
Operating expenses - GAAP $ 35,487 $ 29,880 $ 70,093 $ 61,186
Amortization of acquired intangible assets (1,233 ) (744 ) (2,462 ) (1,488 )
Stock-based compensation expense (2,463 ) (2,014 ) (4,941 ) (3,964 )
Employee related restructuring costs (228 ) (73 ) (1,661 ) (126 )
Litigation settlement costs (1,988 ) (2,000 )
Change in contingent consideration 718     751    
Adjusted Pro Forma operating expenses $ 30,293   $ 27,049   $ 59,780   $ 55,608  
 
Operating income:
Operating income - GAAP $ 7,969 $ 10,400 $ 11,010 $ 16,503
Stock-based compensation for performance-based warrants 1,193 2,059
Depreciation of acquired fixed assets (1) 258 240 517 482
Fair value adjustments to acquired inventories (2) 43 115
Amortization of acquired intangible assets 1,233 744 2,462 1,488
Stock-based compensation expense 2,478 2,024 4,970 3,983
Employee related restructuring costs 228 73 1,661 126
Litigation settlement costs 1,988 2,000
Change in contingent consideration (718 )   (751 )  
Adjusted Pro Forma operating income $ 14,672   $ 13,481   $ 24,043   $ 22,582  
 
Adjusted Pro Forma operating income as a percentage of net sales 8.5 % 9.1 % 7.4 % 8.1 %
 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED PRO FORMA FINANCIAL RESULTS

(In thousands, except per share amounts)

(Unaudited)

   
Three Months Ended June 30, Six Months Ended June 30,
2016   2015 2016   2015
Net income attributable to Universal Electronics Inc.:
Net income attributable to Universal Electronics Inc. - GAAP $ 6,590 $ 8,375 $ 9,311 $ 13,564
Stock-based compensation for performance-based warrants 1,193 2,059
Depreciation of acquired fixed assets (1) 258 240 517 482
Fair value adjustments to acquired inventories (2) 43 115
Amortization of acquired intangible assets 1,233 744 2,462 1,488
Stock-based compensation expense 2,478 2,024 4,970 3,983
Employee related restructuring costs 228 73 1,661 126
Litigation settlement costs 1,988 2,000
Change in contingent consideration (718 ) (751 )
Income tax provision on pro forma adjustments (2,014 ) (743 ) (3,789 ) (1,483 )
Pro forma adjustments attributable to noncontrolling interest (1 )       (11 )    
Adjusted Pro Forma net income attributable to Universal Electronics Inc. $ 11,278     $ 10,713     $ 18,544     $ 18,160  
 
Diluted earnings per share attributable to Universal Electronics Inc.:

Diluted earnings per share attributable to Universal Electronics Inc. - GAAP

$ 0.45 $ 0.52 $ 0.63 $ 0.84
Total pro forma adjustments $ 0.32 $ 0.15 $ 0.63 $ 0.28
Adjusted Pro Forma diluted earnings per share attributable to Universal Electronics Inc. $ 0.77 $ 0.67 $ 1.26 $ 1.13
 

(1)Depreciation related to the mark-up from cost to fair value of fixed assets acquired in business combinations.

(2)Effect of fair value adjustments to inventories acquired as a part of the Ecolink Intelligent Technology, Inc. business combination and sold through during the period.

Source: Universal Electronics Inc.

UEI
Paul Arling, 714-918-9500
or
IR Agency
Becky Herrick, 415-433-3777