Universal Electronics Reports Third Quarter 2012 Financial Results

Universal Electronics Inc. (UEI), (NASDAQ: UEIC) reported financial results for the three and nine months ended September 30, 2012.

“Contributing to our solid 2012 third quarter was our strong performance in subscription broadcasting and continued success in international markets,” stated Paul Arling, UEI's Chairman and CEO. “While consumer-centric regions such as the U.S., Western Europe and Japan remain challenged due to weaker than expected TV sales, we are leveraging our global capabilities to expand our presence into promising new regions such as Latin America, Eastern Europe and parts of Asia where we see market opportunities.”

“During the quarter, we began providing our embedded app technology to multiple leading smart phone manufacturers. We are constantly developing the innovative technologies that facilitate simple control within the ever-changing home entertainment environment. It is the consistent execution of this strategy that has brought us success over the last 25 years, and what we believe will drive our success in the years to come.”

Financial Results for the Three Months Ended September 30: 2012 Compared to 2011
  • Net sales were $124.9 million, compared to $123.5 million.
    • Business Category revenue was $111.9 million, compared to $111.3 million.The Business Category contributed 89.6% of total net sales, compared to 90.1%.
    • Consumer Category revenue was $13.0 million, compared to $12.2 million.The Consumer Category contributed 10.4% of total net sales, compared to 9.9%.
  • Adjusted pro forma gross margins were 29.4%, compared to 27.9%.
  • Adjusted pro forma operating expenses were $25.5 million, compared to $24.0 million.
  • Adjusted pro forma operating income was $11.2 million, compared to $10.5 million.
  • Adjusted pro forma net income was $8.1 million, or $0.54 per diluted share, compared to $8.0 million, or $0.53 per diluted share.
  • At September 30, 2012, cash and cash equivalents was $41.2 million.

Financial Results for the Nine Months Ended September 30: 2012 Compared to 2011
  • Net sales were $345.3 million, compared to $351.0 million.
  • Adjusted pro forma gross margins were 28.5%, compared to 27.8%.
  • Adjusted pro forma operating expenses were $75.9 million, compared to $74.0 million.
  • Adjusted pro forma operating income was $22.7 million, compared to $23.5 million.
  • Adjusted pro forma net income was $17.1 million, or $1.13 per diluted share, compared to $17.7 million, or $1.15 per diluted share.

Financial Outlook

Bryan Hackworth, UEI’s CFO, stated: “While we continue to experience strong sales growth in subscription broadcasting both domestically and internationally, as well as in our Consumer Category, the consumer electronics channel has remained challenging. Several large Japanese consumer electronics customers have recently reduced their 2012 outlook for the second time this year, which adversely affects our sales in this channel.”

For the fourth quarter of 2012, the company expects net sales to range between $113.0 million and $119.0 million, compared to $117.6 million in the fourth quarter of 2011. Adjusted pro forma earnings per diluted share for the fourth quarter of 2012 are expected to range from $0.37 to $0.47, compared to adjusted pro forma earnings per diluted share of $0.40 in the fourth quarter of 2011.

For the full 2012 year, the company expects net sales to range between $458.0 million and $464.0 million, compared to $468.6 million in 2011. Adjusted pro forma earnings per diluted share for 2012 are expected to range from $1.50 to $1.60, compared to adjusted pro forma earnings per diluted share of $1.55 in 2011.

Conference Call Information

UEI’s management team will hold a conference call today, Thursday, November 8, 2012 at 4:30 p.m. ET / 1:30 p.m. PT, to discuss its third quarter 2012 earnings results, review recent activity and answer questions. To access the call in the U.S. please dial 877-655-6895 and for international calls dial 706-758-0299 approximately 10 minutes prior to the start of the conference. The conference ID is 40161724. 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 40161724.

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 charges related to the write-up of inventory and depreciation related to the acquisition. Non-GAAP operating expenses is defined as cash operating expenses excluding acquisition costs, amortization of intangibles, other employee related restructuring costs as well as costs associated with moving our corporate headquarters from Cypress, CA to Santa Ana, CA. Non-GAAP net income is net income from operations excluding the aforementioned items. A reconciliation of Non-GAAP financial results to GAAP results is included at the end of this press release.

About Universal Electronics Inc.

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, please 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 Company’s ability to retain and gain market share; the Company’s ability to attract new customers and retain and expand our relationships with its existing customers; acceptance by consumers of the Company’s innovative tablet and smartphone embedded applications; the continued global general economic conditions; the benefits the Company expects via the growth of new markets in certain geographic areas including Latin America, Asia-Pacific region, and Eastern Europe; and other factors described in the Company's filings with the U.S. Securities and Exchange Commission. The actual results that 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, 2012 December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 41,216 $ 29,372
Accounts receivable, net 92,392 82,184
Inventories, net 72,115 90,904
Prepaid expenses and other current assets 3,286 3,045
Deferred income taxes   6,561     6,558  
 
Total current assets 215,570 212,063
Property, plant, and equipment, net 76,890 80,449
Goodwill 30,833 30,820
Intangible assets, net 30,534 32,814
Other assets 5,373 5,350
Deferred income taxes   8,073     7,992  
 
Total assets $ 367,273   $ 369,488  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 48,688 $ 55,430
Line of credit 2,000 2,000
Notes payable 4,800 14,400
Accrued sales discounts, rebates and royalties 6,443 6,544
Accrued income taxes 4,267 5,707
Accrued compensation 31,343 29,204
Deferred income taxes 52 50
Other accrued expenses   8,214     13,967  
 
Total current liabilities 105,807 127,302
Long-term liabilities:
Deferred income taxes 11,336 11,056
Income tax payable 1,136 1,136
Other long-term liabilities   1,652     5  
 
Total liabilities   119,931     139,499  
 
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; 21,368,580 and 21,142,915 shares issued on September 30, 2012 and December 31, 2011, respectively 214 211
Paid-in capital 178,602 173,701
Accumulated other comprehensive (loss) income (57 ) 938
Retained earnings   167,651     154,016  
 
346,410 328,866
Less cost of common stock in treasury, 6,360,302 and 6,353,035 shares on September 30, 2012 and December 31, 2011, respectively   (99,068 )   (98,877 )
 
Total stockholders’ equity   247,342     229,989  
 
Total liabilities and stockholders’ equity $ 367,273   $ 369,488  
 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

(Unaudited)
       

    Three Months Ended     September 30,

    Nine months Ended     September 30,
  2012     2011     2012     2011  
Net sales $ 124,871 $ 123,527 $ 345,307 $ 350,985
Cost of sales   88,433     89,349     247,572     254,284  
 
Gross profit 36,438 34,178 97,735 96,701
 
Research and development expenses 3,521 2,861 10,408 9,275
Selling, general and administrative expenses   23,383     21,852     69,015     67,116  
 
Operating income 9,534 9,465 18,312 20,310
Interest income (expense), net (24 ) (56 ) (112 ) (210 )
Other income (expense), net   (65 )   (353 )   (515 )   (771 )
 
Income before provision for income taxes 9,445 9,056 17,685 19,329
Provision for income taxes   (2,595 )   (1,972 )   (4,050 )   (4,297 )
 
Net income $ 6,850   $ 7,084   $ 13,635   $ 15,032  
 
Earnings per share:
Basic $ 0.46   $ 0.48   $ 0.91   $ 1.00  
 
Diluted $ 0.45   $ 0.47   $ 0.90   $ 0.98  
 
Shares used in computing earnings per share:
Basic   14,984     14,887     14,931     14,963  
 
Diluted   15,099     15,147     15,087     15,312  
 

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
   

    Nine months Ended     September 30,
  2012  

 
  2011  
Cash provided by operating activities:
Net income $ 13,635 $ 15,032
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,948 12,907
Provision for doubtful accounts 72 241
Provision for inventory write-downs 2,148 3,610
Deferred income taxes 146 26
Tax benefit from exercise of stock options and vested restricted stock (160 ) 399
Excess tax benefit from stock-based compensation (49 ) (422 )
Shares issued for employee benefit plan 620 592
Stock-based compensation 3,447 3,280
Changes in operating assets and liabilities:
Accounts receivable (10,876 ) (2,772 )
Inventories 15,758 (22,172 )
Prepaid expenses and other assets (282 ) 674
Accounts payable and accrued expenses (8,335 ) 2,456
Accrued income taxes   (1,428 )   (2,049 )
 
Net cash provided by operating activities   27,644     11,802  
 
Cash used for investing activities:
Acquisition of property, plant, and equipment (6,525 ) (10,140 )
Acquisition of intangible assets   (802 )   (814 )
 
Net cash used for investing activities   (7,327 )   (10,954 )
 
Cash used for financing activities:
Issuance of debt 12,000
Payment of debt (21,600 ) (16,600 )
Proceeds from stock options exercised 1,425 1,381
Treasury stock purchased (619 ) (9,512 )
Excess tax benefit from stock-based compensation   49     422  
 
Net cash used for financing activities   (8,745 )   (24,309 )
 
Effect of exchange rate changes on cash   272     1,212  
 
Net increase (decrease) in cash and cash equivalents 11,844 (22,249 )
Cash and cash equivalents at beginning of period   29,372     54,249  
 
Cash and cash equivalents at end of period $ 41,216   $ 32,000  

Supplemental Cash Flow Information — There were income tax payments of $6.5 million and $6.9 million during the nine months ended September 30, 2012 and 2011, respectively. There were interest payments of $0.2 million and $0.3 million during the nine months ended September 30, 2012 and 2011, respectively.
 

UNIVERSAL ELECTRONICS INC.

RECONCILIATION OF ADJUSTED PRO FORMA FINANCIAL RESULTS

(In thousands, except share-related data)

(Unaudited)
   

 

Three Months Ended September 30, 2012

Three Months Ended September 30, 2011
    Adjusted     Adjusted

GAAP

Adjustments

Pro Forma

GAAP

Adjustments

Pro Forma
 
Net sales $ 124,871 $ $ 124,871 $ 123,527 $ $ 123,527
Cost of sales (1)   88,433     (277 )   88,156     89,349     (277 )   89,072  
Gross profit 36,438 277 36,715 34,178 277 34,455
 
Research and development expenses 3,521 __ 3,521 2,861 2,861
Selling, general and administrative expenses (2)   23,383     (1,376 )   22,007     21,852     (743 )   21,109  
 
Operating income 9,534 1,653 11,187 9,465 1,020 10,485
Interest income (expense), net (24 ) __ (24 ) (56 ) (56 )
Other income (expense) , net   (65 )       (65 )   (353 )       (353 )
 
Income before provision for income taxes 9,445 1,653 11,098 9,056 1,020 10,076
Provision for income taxes (4)   (2,595 )   (392 )   (2,987 )   (1,972 )   (144 )   (2,116 )
Net income $ 6,850   $ 1,261   $ 8,111   $ 7,084   $ 876   $ 7,960  
 
Earnings per share diluted $ 0.45   $ 0.08   $ 0.54   $ 0.47   $ 0.06   $ 0.53  
 

Nine Months Ended September 30, 2012

Nine Months Ended September 30, 2011
Adjusted Adjusted

GAAP

Adjustments

Pro Forma

GAAP

Adjustments

Pro Forma
 
Net sales $ 345,307 $ $ 345,307 $ 350,985 $ $ 350,985
Cost of sales (1)   247,572     (831 )   246,741     254,284     (831 )   253,453  
Gross profit 97,735 831 98,566 96,701 831 97,532
 
Research and development expenses 10,408 10,408 9,275 9,275
Selling, general and administrative expenses (3)   69,015     (3,573 )   65,442     67,116     (2,402 )   64,714  
 
Operating income 18,312 4,404 22,716 20,310 3,233 23,543
Interest income (expense), net (112 ) (112 ) (210 ) (210 )
Other income (expense), net   (515 )       (515 )   (771 )       (771 )
 
Income before provision for income taxes 17,685 4,404 22,089 19,329 3,233 22,562
Provision for income taxes (4)   (4,050 )   (934 )   (4,984 )   (4,297 )   (585 )   (4,882 )
Net income $ 13,635   $ 3,470   $ 17,105   $ 15,032   $ 2,648   $ 17,680  
 
Earnings per share diluted $ 0.90   $ 0.23   $ 1.13   $ 0.98   $ 0.17   $ 1.15  

(1) To reflect depreciation expense for the corresponding periods relating to the mark-up in fixed assets from cost to fair value as part of the Enson Assets Limited acquisition.

(2) To reflect $0.7 million of amortization expense for the three months ended September 30, 2012 and September 30, 2011, relating to intangible assets acquired as part of acquisitions. In the third quarter of 2012, there were approximately $0.2 million of additional costs incurred relating primarily to other employee restructuring costs. Also, in the third quarter of 2012, we moved our corporate headquarters from Cypress, CA to Santa Ana, CA and as a result, incurred approximately $0.4 million of costs associated specifically with the move.

(3) To reflect $2.2 million of amortization expense for the nine months ended September 30, 2012 and September 30, 2011, relating to intangible assets acquired as part of acquisitions. For the nine months ended 2011, there were additional costs incurred relating to other employee restructuring costs, primarily severance. For the nine months ended 2012, there were approximately $0.8 million of other 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.

(4) To reflect the tax effect of the adjustments.

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