Universal Electronics Reports Fourth Quarter and Year-End 2013 Financial Results

February 20, 2014

-Reported 16% year-over-year revenue growth for the fourth quarter 2013 and 14% for the full year 2013-

-Grew operating income 17% year-over-year in the fourth quarter 2013 and 22% for the full year 2013-

Universal Electronics Inc. (UEI), (NASDAQ: UEIC) reported financial results for the three and twelve months ended December 31, 2013.

Paul Arling, UEI's Chairman and CEO, stated: “Our fourth quarter results again reflect the strong performance across our business. In 2012, we began demonstrating the many applications for our technology in new product categories. At that time, many of the world’s largest mobile, smart TV, tablet and game console manufacturers began embedding UEI’s advanced technologies into their devices. We are gaining traction in this fast-growing market, further defining UEI as the leading solution for connecting and controlling the expanding array of devices in the home entertainment environment. For example, Microsoft has selected UEI’s embedded app technology for its Xbox One game console to support its interaction with and control of other devices in the audio/video stack. This is yet another example of how we have broadened our presence in the smart devices channel.

“Our performance in 2013 continues our track record of growth, which is reflected by an over 15% compound annual growth rate in sales and earnings over the last decade. Our strategy of providing the innovative products and technologies that proactively address our customers' and consumers' evolving needs has ensured our leadership position within our industry. We remain committed to this strategy and believe it will continue to serve us well in the months and years ahead.”

Adjusted Pro Forma Financial Results for the Three Months Ended December 31: 2013 Compared to 2012

•   Net sales were $136.1 million, compared to $117.8 million.

•   Business Category revenue was $117.2 million, compared to $102.8 million. The Business Category contributed 86.1% of total net sales, compared to 87.3%.

•   Consumer Category revenue was $18.9 million, compared to $15.0 million. The Consumer Category contributed 13.9% of total net sales, compared to 12.7%.

•   Gross margins were 30.0%, compared to 30.5%.

•   Operating expenses were $30.5 million, compared to $27.1 million.

•   Operating income was $10.4 million, compared to $8.9 million.

•   Net income was $7.8 million, or $0.49 per diluted share, compared to $6.3 million, or $0.42 per diluted share.

•   At December 31, 2013, cash and cash equivalents was $76.2 million.

Adjusted Pro Forma Financial Results for the Twelve Months Ended December 31: 2013 Compared to 2012

•   Net sales were $529.4 million, compared to $463.1 million.

•   Gross margins were 28.8%, compared to 29.1%.

•   Operating expenses were $114.1 million, compared to $102.9 million.

•   Operating income was $38.5 million, compared to $31.6 million.

•   Net income was $28.7 million, or $1.84 per diluted share, compared to $23.4 million, or $1.55 per diluted share.

Financial Outlook

Beginning in the first quarter of 2014, the company is updating its definition of adjusted pro forma metrics to exclude stock-based compensation expense in addition to acquisition related and other expenses it has historically excluded. As such, the adjusted pro forma metrics presented in the company’s financial reports will be reflective of this change going forward.

For the first quarter of 2014, the company expects net sales to range between $120.0 million and $126.0 million, compared to $114.7 million in the first quarter of 2013. Adjusted pro forma earnings per diluted share for the first quarter of 2014 are expected to range from $0.33 to $0.41, compared to adjusted pro forma earnings per diluted share of $0.32 in the first quarter of 2013, which has been adjusted to reflect the exclusion of stock-based compensation expense.

Conference Call Information

UEI’s management team will hold a conference call today, Thursday, February 20, 2014 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its fourth quarter and year-end 2013 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 68772843. 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 68772843.

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 for 2012 and 2013 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 for 2012 and 2013 are defined as operating expenses excluding amortization of intangibles acquired, employee related restructuring costs, certain costs incurred for years preceding the acquisition of Enson Assets Limited, and costs associated with moving our corporate headquarters from Cypress, CA to Santa Ana, CA. Non-GAAP net income for 2012 and 2013 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, the write down of certain deferred tax assets resulting from tax law changes and tax refunds related to acquisitions for years preceding the acquisition date. A reconciliation of non-GAAP financial results to GAAP results is included at the end of this press release. Beginning in 2014, Non-GAAP gross margins, Non-GAAP operating expenses and Non-GAAP net income and earnings per share will also exclude stock-based compensation expense.

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® 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; the continued innovation of products and advanced technologies that will attract new customers in existing and new markets; the continued expansion of the company's technologies into smart devices (such as smartphones, tablets, smart TVs, IPTV devices, game consoles and over-the-top-services), including the benefits anticipated by management due to Microsoft selecting the company to embed its technology into the Xbox One console; 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.

– Tables Follow –

UNIVERSAL  ELECTRONICS INC.
  CONSOLIDATED BALANCE SHEETS
  (In  thousands, except share-related data)

December 31,
      2013

December 31,
      2012

ASSETS

Current assets:

Cash and cash equivalents

$

76,174

$

44,593

Accounts receivable, net

95,408

91,048

Inventories, net

96,309

84,381

Prepaid expenses and other    current assets

4,395

3,661

Income tax receivable

13

270

Deferred income taxes

6,167

5,210

Total current assets

278,466

229,163

Property, plant, and    equipment, net

75,570

77,706

Goodwill

31,000

30,890

Intangible assets, net

26,963

29,835

Other assets

5,279

5,361

Deferred income taxes

6,455

6,369

Total assets

$

423,733

$

379,324

LIABILITIES AND    STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

58,498

$

59,831

Line of credit

Accrued compensation

38,317

33,398

Accrued sales discounts,    rebates and royalties

8,539

8,093

Accrued income taxes

3,032

3,668

Deferred income taxes

303

41

Other accrued expenses

11,229

10,644

Total current liabilities

119,918

115,675

Long-term liabilities:

Deferred income taxes

9,887

10,687

Income tax payable

606

525

Other long-term liabilities

2,052

1,787

Total liabilities

132,463

128,674

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; 22,344,121 and 21,491,398 shares issued    on December 31, 2013 and 2012, respectively

223

215

Paid-in capital

199,513

180,607

Accumulated other    comprehensive income (loss)

2,982

1,052

Retained earnings

193,532

170,569

396,250

352,443

Less cost of common stock    in treasury, 6,639,497 and 6,516,382 shares on December 31, 2013 and 2012,    respectively

(104,980

)

(101,793

)

Total stockholders’ equity

291,270

250,650

Total liabilities and stockholders’ equity

$

423,733

$

379,324

UNIVERSAL ELECTRONICS INC.
  CONSOLIDATED INCOME STATEMENTS
  (In  thousands, except per share amounts)

           

Three Months Ended
      December 31,

Twelve Months Ended
      December 31,

2013

2012

2013

2012

Net sales

$

136,134

$

117,783

$

529,354

$

463,090

Cost of sales

95,506

82,081

377,892

329,653

Gross profit

40,628

35,702

151,462

133,437

Research and development    expenses

3,984

3,744

16,447

14,152

Selling, general and    administrative expenses

28,832

24,068

102,861

93,083

Operating income

7,812

7,890

32,154

26,202

Interest income (expense),    net

(9

)

(39

)

51

(151

)

Other income (expense), net

(272

)

(898

)

(3,169

)

(1,413

)

Income before provision for    income taxes

7,531

6,953

29,036

24,638

Provision for income taxes

1,978

4,035

6,073

8,085

Net income

$

5,553

$

2,918

$

22,963

$

16,553

Earnings per share:

Basic

$

0.36

$

0.19

$

1.51

$

1.11

Diluted

$

0.35

$

0.19

$

1.47

$

1.10

Shares used in computing    earnings per share:

Basic

15,602

15,016

15,248

14,952

Diluted

16,011

15,180

15,601

15,110

 

UNIVERSAL ELECTRONICS INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  (In  thousands)

                                                                                                                                                                                                                           

Year Ended
      December 31,

2013

2012

Cash provided by (used for) operating activities:

Net income

$

22,963

$

16,553

Adjustments to reconcile net income to net cash provided by    (used for) operating activities:

Depreciation and amortization

18,363

17,613

Provision for doubtful accounts

190

73

Provision for inventory write-downs

3,680

2,994

Deferred income taxes

(1,617

)

2,536

Tax benefit from exercise of stock options and vested restricted    stock

874

(83

)

Excess tax benefit from stock-based compensation

(1,274

)

(111

)

Shares issued for employee benefit plan

747

749

Stock-based compensation

5,342

4,575

Changes in operating assets and liabilities:

Accounts receivable

(4,509

)

(8,998

)

Inventories

(15,353

)

2,987

Prepaid expenses and other assets

(633

)

(588

)

Accounts payable and accrued expenses

2,285

8,186

Accrued income and other taxes

(364

)

(2,943

)

Net cash provided by (used for) operating activities

30,694

43,543

Cash used for investing activities:

Acquisition of property, plant, and equipment

(10,355

)

(10,463

)

Acquisition of intangible assets

(1,319

)

(1,140

)

Net cash used for investing activities

(11,674

)

(11,603

)

Cash provided by (used for) financing activities:

Issuance of debt

19,500

30,800

Payment of debt

(19,500

)

(47,200

)

Debt issuance costs

(42

)

Proceeds from stock options exercised

12,371

2,204

Treasury stock purchased

(3,607

)

(3,451

)

Excess tax benefit from stock-based compensation

1,274

111

Net cash provided by (used for) financing activities

10,038

(17,578

)

Effect of exchange rate changes on cash

2,523

859

Net increase (decrease) in cash and cash equivalents

31,581

15,221

Cash and cash equivalents at beginning of year

44,593

29,372

Cash and cash equivalents at end of period

$

76,174

$

44,593

Supplemental Cash Flow Information:

Income taxes paid

$

6,068

     
  1. To  reflect depreciation expense of $0.3 million for each of the three months ended  December 31, 2013 and 2012, related to the mark-up in fixed assets from cost to  fair value as a result of acquisitions.
  2.  
  3. To  reflect amortization expense of $0.7 million for each of the three months ended  December 31, 2013 and 2012, related to intangible assets acquired as part of  acquisitions. In the three months ended December 31, 2013, there were $1.6  million of additional costs incurred related to employee restructuring,  primarily severance.
  4.  
  5. To  reflect the tax effect of the pre-tax income adjustments.  In addition, the three months ended December  31, 2013 includes an adjustment of $0.2 million related to the write-off of  acquisition-related deferred tax assets resulting from a tax law change in  China.  The three months ended December  31, 2012 also includes adjustments of $2.2 million related to a valuation  allowance recorded against the California R&D credit deferred tax asset,  $0.6 million related to the write-off of acquisition-related deferred tax  assets resulting from a tax law change in China and a $0.3 million tax refund  relating to years preceding the acquisition of Enson Assets Limited.
  6.  
  7. To reflect depreciation expense of $1.1 million  for the twelve months ended December 31, 2013 and 2012, related to the mark-up  in fixed assets from cost to fair value as a result of acquisitions.
  8.  
  9. To  reflect amortization expense of $3.0 million for each of the twelve months  ended December 31, 2013 and 2012, related to intangible assets acquired as part  of acquisitions. Also, for the twelve months ended December 31, 2013, there  were $2.0 million of additional costs incurred related to employee  restructuring, primarily severance, as well as $0.3 million incurred relating  to the settlement of a software audit for infringements that occurred prior to  the acquisition of Enson Assets Limited. For the twelve months ended December  31, 2012, there were $0.8 million of employee restructuring costs incurred,  primarily severance, as well as $0.5 million incurred relating to moving our  corporate headquarters from Cypress, CA to Santa Ana, CA.
  10.  
  11. To  reflect the tax effect of the pre-tax income adjustments.  In addition, the twelve months ended December  31, 2013 includes adjustments of $0.4 million related to additional tax  reserves recorded as a result of a tax audit of pre-acquisition periods of an acquired  entity and $0.2 million related to the write-off of acquisition-related  deferred tax assets resulting from a tax law change in China.  The twelve months ended December 31, 2012  also includes adjustments of $2.2 million related to a valuation allowance  recorded against the California R&D credit deferred tax asset, $0.6 million  related to the write-off of acquisition-related deferred tax assets resulting  from a tax law change in China and a $0.3 million tax refund relating to years  preceding the acquisition of Enson Assets Limited.

Press Contact

Benny Canady
UEI Corporate Marketing and Public Relations
714-918-9500

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