Universal Electronics(UEIC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Unaudited consolidated financial statements and detailed notes for Universal Electronics Inc. for the specified periods Consolidated Balance Sheets Balance sheets reflect decreased assets and liabilities, slight equity reduction, and shifts in cash and receivables Key Balance Sheet Metrics (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total assets | $304,139 | $323,354 | $(19,215) | -5.94% | | Total liabilities | $151,380 | $170,249 | $(18,869) | -11.08% | | Total stockholders' equity | $152,759 | $153,105 | $(346) | -0.23% | | Cash and cash equivalents | $34,261 | $26,783 | $7,478 | 27.92% | | Accounts receivable, net | $97,440 | $114,182 | $(16,742) | -14.66% | | Lines of credit | $30,155 | $36,960 | $(6,805) | -18.41% | Consolidated Statements of Operations Operating income improved and net losses reduced for Q2 and H1 2025, driven by sales growth and cost control Consolidated Statements of Operations (Three Months Ended June 30, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | YoY Change | % YoY Change | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :----------- | | Net sales | $97,665 | $90,452 | $7,213 | 7.97% | | Gross profit | $29,196 | $25,952 | $3,244 | 12.50% | | Operating income (loss) | $1,008 | $(4,453) | $5,461 | 122.63% | | Net income (loss) | $(2,912) | $(8,193) | $5,281 | 64.46% | | Basic EPS | $(0.22) | $(0.63) | $0.41 | 65.08% | | Diluted EPS | $(0.22) | $(0.63) | $0.41 | 65.08% | Consolidated Statements of Operations (Six Months Ended June 30, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | % YoY Change | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :----------- | | Net sales | $189,991 | $182,352 | $7,639 | 4.19% | | Gross profit | $55,279 | $51,940 | $3,339 | 6.43% | | Operating income (loss) | $(2,746) | $(11,361) | $8,615 | 75.83% | | Net income (loss) | $(9,186) | $(16,842) | $7,656 | 45.46% | | Basic EPS | $(0.70) | $(1.30) | $0.60 | 46.15% | | Diluted EPS | $(0.70) | $(1.30) | $0.60 | 46.15% | Consolidated Statements of Comprehensive Income (Loss) Shifted to comprehensive income for Q2 2025 and significantly reduced loss for H1 2025, due to currency translation Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | YoY Change | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | Net income (loss) | $(2,912) | $(8,193) | $5,281 | | Change in foreign currency translation adjustment | $4,245 | $(2,902) | $7,147 | | Comprehensive income (loss) | $1,333 | $(11,095) | $12,428 | Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | Net income (loss) | $(9,186) | $(16,842) | $7,656 | | Change in foreign currency translation adjustment | $5,823 | $(4,493) | $10,316 | | Comprehensive income (loss) | $(3,363) | $(21,335) | $17,972 | Consolidated Statements of Stockholders' Equity Stockholders' equity saw minor fluctuations, with net losses partially offset by currency adjustments and stock compensation Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Balance at Dec 31, 2024 | Balance at Jun 30, 2025 | Change | | :-------------------- | :---------------------- | :---------------------- | :----- | | Total Stockholders' Equity | $153,105 | $152,759 | $(346) | | Net loss | | $(9,186) | | | Currency translation adjustment | | $5,823 | | | Shares issued for employee benefit plan and compensation | | $331 | | | Purchase of treasury shares | | $(748) | | | Employee and director stock-based compensation | | $3,433 | | Consolidated Statements of Cash Flows Operating cash flow significantly increased for H1 2025 due to improved net loss, inventory, and accounts receivable management Consolidated Statements of Cash Flows (Six Months Ended June 30, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by (used for) operating activities | $17,705 | $2,675 | $15,030 |\n| Net cash provided by (used for) investing activities | $(3,989) | $(5,004) | $1,015 |\n| Net cash provided by (used for) financing activities | $(7,748) | $(15,841) | $8,093 |\n| Net increase (decrease) in cash and cash equivalents | $7,478 | $(19,623) | $27,101 |\n| Cash and cash equivalents at end of period | $34,261 | $23,128 | $11,133 | - The increase in net cash from operating activities was driven by a lower net loss, improved inventory management (inventories decreased by $1.7 million in 2025 vs an increase of $0.9 million in 2024), and a decrease in accounts receivable and contract assets (cash inflows of $23.3 million in 2025 vs $13.1 million in 2024)[20] Notes to Consolidated Financial Statements Detailed disclosures on financial position, operations, and cash flows, including accounting policies, revenue, debt, and litigation Note 1 — Basis of Presentation Outlines the basis for preparing unaudited consolidated financial statements, highlighting estimates and new accounting pronouncements - The company is evaluating the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses), effective for annual periods beginning in 2027, and ASU 2023-09 (Improvements to Tax Disclosures), effective for annual periods beginning after December 15, 2024[28][29] Note 2 — Cash and Cash Equivalents Details geographic distribution of cash and cash equivalents, showing an overall increase with significant holdings in PRC and Europe Cash and Cash Equivalents by Geographic Region (in thousands) | Geographic Region (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :------------------------------- | :------------ | :---------------- | :----- | | North America | $1,926 | $1,986 | $(60) | | People's Republic of China ("PRC") | $13,413 | $10,117 | $3,296 | | Asia (excluding the PRC) | $4,107 | $2,343 | $1,764 | | Europe | $7,542 | $7,035 | $507 | | South America | $7,273 | $5,302 | $1,971 | | Total cash and cash equivalents | $34,261 | $26,783 | $7,478 | Note 3 — Revenue and Accounts Receivable, Net Net sales increased for Q2 and H1 2025, driven by connected home growth, while accounts receivable decreased Net Sales by Channel (Three Months Ended June 30, in thousands) | Net Sales by Channel (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | YoY Change | % YoY Change | | :---------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------- | | Connected home | $34,099 | $23,291 | $10,808 | 46.40% | | Home entertainment | $63,566 | $67,161 | $(3,595) | -5.35% | | Total net sales | $97,665 | $90,452 | $7,213 | 7.97% | Net Sales by Channel (Six Months Ended June 30, in thousands) | Net Sales by Channel (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | % YoY Change | | :---------------------------------- | :----------------------------- | :----------------------------- | :--------- | :----------- | | Connected home | $65,828 | $47,462 | $18,366 | 38.70% | | Home entertainment | $124,163 | $134,890 | $(10,727) | -7.95% | | Total net sales | $189,991 | $182,352 | $7,639 | 4.19% | Accounts Receivable, Net (in thousands) | Accounts Receivable, Net (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :------------------------------------ | :------------ | :---------------- | :----- | | Trade receivables, gross | $82,918 | $93,773 | $(10,855) | | Allowance for credit losses | $(1,468) | $(1,863) | $395 | | Allowance for sales returns | $(285) | $(383) | $98 | | Other accounts receivable | $16,275 | $22,655 | $(6,380) | | Total Accounts receivable, net | $97,440 | $114,182 | $(16,742) | - Daikin Industries Ltd and Comcast Communications were significant customers, accounting for 18.7% and 12.2% of net sales, respectively, for the three months ended June 30, 2025. Daikin also represented 11.3% of accounts receivable, net, at June 30, 2025[42] Note 4 — Inventories Total inventories slightly increased due to work in process and finished goods, offsetting minor raw materials decreases Inventory Breakdown (in thousands) | Inventory (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :----------------------- | :------------ | :---------------- | :----- | | Raw materials | $19,949 | $21,245 | $(1,296) | | Components | $10,646 | $10,820 | $(174) | | Work in process | $3,913 | $1,896 | $2,017 | | Finished goods | $45,663 | $45,394 | $269 | | Total Inventories | $80,171 | $79,355 | $816 | Note 5 — Long-lived Tangible Assets Total long-lived tangible assets decreased, with PRC holding the largest portion, reflecting fewer PP&E purchases Long-lived Tangible Assets by Geographic Area (in thousands) | Geographic Area (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :----------------------------- | :------------ | :---------------- | :----- | | United States | $8,444 | $9,683 | $(1,239) | | PRC | $20,477 | $22,139 | $(1,662) | | Vietnam | $8,340 | $8,520 | $(180) | | Mexico | $4,501 | $5,164 | $(663) | | All other countries | $3,301 | $3,023 | $278 | | Total long-lived tangible assets | $45,063 | $48,529 | $(3,466) | - Depreciation expense decreased for both the three and six months ended June 30, 2025, compared to the prior year, reflecting fewer PP&E purchases in recent years[47] Note 6 — Intangible Assets, Net Net intangible assets decreased due to amortization, with patents remaining the largest component Intangible Assets, Net (in thousands) | Intangible Asset (in thousands) | June 30, 2025 Net | December 31, 2024 Net | Change | | :------------------------------ | :---------------- | :-------------------- | :----- | | Capitalized software development costs | $1,211 | $1,425 | $(214) | | Customer relationships | $1,452 | $1,814 | $(362) | | Developed and core technology | $295 | $342 | $(47) | | Patents | $20,018 | $20,419 | $(401) | | Trademarks and trade names | $22 | $38 | $(16) | | Total intangible assets, net | $22,998 | $24,038 | $(1,040) | Amortization Expense (in thousands) | Amortization Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $100 | $140 | $341 | $281 | | Selling, general and administrative expenses | $1,098 | $1,080 | $2,198 | $2,176 | | Total amortization expense | $1,198 | $1,220 | $2,539 | $2,457 | Note 7 — Leases Operating lease right-of-use assets and liabilities decreased, as did operating lease expenses for Q2 and H1 2025 Lease Balances (in thousands) | Lease Balances (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :---------------------------- | :------------ | :---------------- | :----- | | Operating lease right-of-use assets | $13,292 | $14,322 | $(1,030) | | Total lease liabilities | $11,871 | $12,785 | $(914) | Operating Lease Expense (in thousands) | Operating Lease Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total operating lease expense | $1,463 | $1,692 | $2,939 | $3,551 | - The weighted average remaining lease liability term increased slightly to 4.7 years at June 30, 2025, from 4.6 years at December 31, 2024, while the weighted average discount rate increased to 6.02% from 5.45%[52] Note 8 — Lines of Credit Maintains two revolving lines of credit, U.S. and China, both amended in 2025, with compliance to all covenants Credit Line Details | Credit Line Details | U.S. Credit Line (June 30, 2025) | China Credit Line (June 30, 2025) | | :------------------ | :------------------------------- | :-------------------------------- | | Maximum Availability | $53.6 million (subject to AR Ratio) | RMB 80.0 million ($11.2 million) | | Outstanding Balance | $19.0 million | RMB 80.0 million ($11.2 million) | | Remaining Availability | $34.6 million | $0 | | Interest Rate | 7.29% (SOFR + 3.00% margin) | 3.07% (one-year rate from National Interbank Funding Center - 0.1% margin) | | Expiration | April 30, 2026 | July 16, 2026 | - The China Credit Line's maximum availability increased to RMB 130.0 million (approximately $18.1 million) as of July 30, 2025[62] - Total interest expense on borrowings under the U.S. Credit Line decreased for both the three and six months ended June 30, 2025, due to a lower average loan balance and lower interest rates[60][140][148] Note 9 — Income Taxes Recorded income tax expense despite pre-tax losses, due to jurisdictional mix and valuation allowance, assessing new legislation Income Tax Expense (in thousands) | Income Tax Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $1,811 | $2,808 | $4,030 | $3,547 | | Income (loss) before provision for income taxes | $(1,101) | $(5,385) | $(5,156) | $(13,295) | - The company has a valuation allowance on its U.S. federal and state deferred tax assets due to a three-year cumulative operating loss for U.S. operations[70] - H.R. 1, the One Big Beautiful Bill Act, was enacted on July 4, 2025, with provisions effective from 2025 through 2027, and the company is currently assessing its impact on consolidated financial statements[73] Note 10 — Accrued Compensation Total accrued compensation decreased due to reductions in bonus, commission, and salary, partially offset by social insurance Accrued Compensation Breakdown (in thousands) | Accrued Compensation (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :---------------------------------- | :------------ | :---------------- | :----- | | Accrued bonus | $965 | $2,386 | $(1,421) | | Accrued commission | $410 | $1,545 | $(1,135) | | Accrued salary/wages | $3,921 | $4,676 | $(755) | | Accrued social insurance | $6,911 | $6,718 | $193 | | Accrued vacation/holiday | $3,128 | $3,036 | $92 | | Other accrued compensation | $2,431 | $2,566 | $(135) | | Total accrued compensation | $17,766 | $20,927 | $(3,161) | - Accrued severance expenses related to Mexico manufacturing footprint optimization efforts decreased from $0.8 million at December 31, 2024, to $0.2 million at June 30, 2025[75] Note 11 — Other Accrued Liabilities Total other accrued liabilities decreased, primarily due to payment of a legal judgment, partially offset by contract liabilities Other Accrued Liabilities (in thousands) | Other Accrued Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------------- | :------------ | :---------------- | :----- | | Contract liabilities | $3,350 | $2,521 | $829 | | Duties | $1,211 | $543 | $668 | | Legal judgment | $0 | $4,162 | $(4,162) | | Operating lease obligations | $3,419 | $3,553 | $(134) | | Sales and value added taxes | $3,211 | $2,684 | $527 | | Total other accrued liabilities | $18,480 | $21,008 | $(2,528) | - The $4.2 million legal judgment related to the Tongshun lawsuit was paid in the second quarter of 2025, resulting in its removal from accrued liabilities[76][93] Note 12 — Commitments and Contingencies Details purchase commitments, product warranties, restructuring activities, and various litigation matters, including patent disputes Purchase Commitments Non-cancellable purchase commitments for inventory and PP&E slightly decreased, all expected within twelve months Purchase Commitments (in thousands) | Purchase Commitments (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :---------------------------------- | :------------ | :---------------- | :----- | | Inventory purchase commitments | $9,263 | $9,292 | $(29) | | PP&E purchase commitments | $593 | $927 | $(334) | | Total purchase commitments | $9,856 | $10,219 | $(363) | Product Warranties Liability for product warranty claims remained low, with a slight increase from December 31, 2024, to June 30, 2025 Product Warranty Claims (in thousands) | Product Warranty Claims (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $35 | $522 | | Additions (reductions) to costs and expenses | $6 | $0 | | Balance at end of period | $41 | $522 | Restructuring Activities Asia factory restructuring completed, Mexico factory downsizing continued, with a full shutdown planned by end of 2025 - Asia factory restructuring was completed in Q4 2024, incurring no further expenses in H1 2025. Total charges since September 2023 were $4.6 million[81] - Mexico factory downsizing continued, with no severance or other exit costs in H1 2025, compared to $1.4 million severance and $1.0 million other exit costs in H1 2024. Total charges since January 2024 were $3.0 million[82] - The Board approved a plan in late July 2025 to shut down the Mexico manufacturing facility by the end of 2025, with material shutdown-related expenses expected to be recorded throughout the remainder of the year[84] Litigation Involved in patent disputes with Roku, a trade action, and an employment lawsuit, with a $4.2 million judgment paid - In the Roku litigation, the Federal Circuit affirmed UEI's win in the ITC action on January 19, 2024, and the Supreme Court denied Roku's cert petition on January 13, 2025. The stay on CDCA cases was lifted on July 29, 2025, consolidating cases and allowing UEI to proceed with 25 claims[86][87] - Roku's retaliatory ITC action against UEI failed, with the ALJ finding one patent invalid and the full ITC affirming no violation of the Tariff Act. The Federal Circuit affirmed the PTAB decision invalidating Roku's patent on June 17, 2025[88][90] - The Tongshun Company lawsuit resulted in a judgment of approximately $4.2 million against the company, which was affirmed on appeal and paid in Q2 2025[93] - An arbitration hearing with IT Convergence, Inc regarding alleged misappropriation of confidential information and theft of trade secrets is scheduled for early August 2025, with a decision expected in early September 2025[94] Note 13 — Treasury Stock Repurchased 101,000 shares for $0.7 million for tax withholding, with further repurchases authorized until August 2025 Treasury Stock Repurchases (in thousands) | Treasury Stock Repurchases (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Total shares repurchased | 101 | 195 | | Total cost of shares repurchased | $748 | $1,841 | - As of May 6, 2025, the Board authorized repurchases of up to $4.0 million or 778,362 shares under the Share Repurchase Program until August 6, 2025[99][183] Note 14 — Stock-Based Compensation Total stock-based compensation expense slightly increased, with $4.5 million unrecognized expense to be recognized over 2.1 years Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total employee and director stock-based compensation expense | $1,649 | $1,460 | $3,433 | $3,364 | | Income tax benefit | $185 | $220 | $432 | $507 | - Unrecognized pre-tax stock-based compensation expense at June 30, 2025: $3.7 million for restricted stock (weighted-average life of 2.1 years) and $0.8 million for performance stock (weighted-average period of 2.1 years)[104][107] Note 15 — Other Income (Expense), Net Shifted to significant net expense due to increased foreign currency losses and Blue Chip Swap securities transactions Other Income (Expense), Net (in thousands) | Other Income (Expense), Net (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net gain (loss) on foreign currency exchange contracts | $(397) | $(195) | $(618) | $(215) | | Net gain (loss) on foreign currency exchange transactions | $(1,342) | $(159) | $(924) | $(243) | | Other income (expense) | $(12) | $265 | $(157) | $289 | | Total Other income (expense), net | $(1,751) | $(89) | $(1,699) | $(169) | - Losses related to Blue Chip Swap (BCS) security transactions were $0.1 million for the three months and $0.2 million for the six months ended June 30, 2025, incurred to collect accounts receivable from an Argentine customer[109][111] Note 16 — Earnings (Loss) Per Share Basic and diluted EPS improved due to reduced net losses, with anti-dilutive awards excluded from calculations Earnings (Loss) Per Share | EPS (per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $(0.22) | $(0.63) | $(0.70) | $(1.30) | | Diluted EPS | $(0.22) | $(0.63) | $(0.70) | $(1.30) | - 691 thousand stock options, 498 thousand restricted stock awards, and 372 thousand performance stock awards were excluded from diluted EPS for the three months ended June 30, 2025, as their inclusion would have been anti-dilutive[112] Note 17 — Derivatives Held foreign currency exchange contracts, resulting in net pre-tax losses for Q2 and H1 2025 due to currency fluctuations Derivative Balances (in thousands) | Derivative (in thousands) | June 30, 2025 Total Balance | December 31, 2024 Total Balance | | :------------------------ | :-------------------------- | :------------------------------ | | Foreign currency exchange contracts | $(79) | $(249) | Derivative Net Pre-Tax Loss (in thousands) | Net Pre-Tax Loss (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Foreign currency exchange contracts | $(400) | $(200) | $(600) | $(200) | Note 18 — Reportable Segment Operates as a single consolidated business segment, with the Office of CEO reviewing financial information on a consolidated basis - The company operates as a single consolidated segment, with financial performance monitored against internal budgets and forecasts[117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition and operations, highlighting performance drivers, strategic objectives, and liquidity Cautionary Statement Report contains forward-looking statements subject to risks including supply chain, demand, tariffs, and economic conditions - Forward-looking statements are subject to risks including supply chain issues, demand and recovery trends, customer order delays, Mexico manufacturing facility shutdown timing, cash availability, effects of global events (political unrest, war, infectious diseases), economic environments (interest rates, recession), international trade policies (tariffs), liquidity requirements, capital expenditures, and tax law changes[120] Overview Designs and manufactures climate control, smart home, and home entertainment products, with strategic objectives for 2025 - The company's core business involves climate control solutions, smart home and security products, home entertainment products, software and cloud services, and intellectual property licensing[122][123][124][127] Key Financial Results (Three Months Ended June 30, in millions) | Key Financial Results (Three Months Ended June 30) | 2025 (in millions) | 2024 (in millions) | Change | | :------------------------------------------------- | :----------------- | :----------------- | :----- | | Net sales | $97.7 | $90.5 | +8.0% | | Gross margin percentage | 29.9% | 28.7% | +1.2 pp | | Operating expenses (as % of net sales) | 28.9% | 33.6% | -4.7 pp | | Operating income (loss) | $1.0 | $(4.5) | +$5.5 | | Income tax expense | $1.8 | $2.8 | -$1.0 | - Strategic business objectives for 2025 include: building long-term revenue pipelines, commercially deploying UEI TIDE products, expanding QuickSet Cloud software penetration, expanding AI-powered cloud services, positioning UEI in smart thermostat control, launching new direct-to-consumer product categories, expanding technology offerings in new standards (WiFi6, Thread, Matter, Z-Wave Long Range), seeking acquisitions/strategic partners, and optimizing global manufacturing footprint[127] Macroeconomic Conditions Expects negative impacts from tariffs and reduced consumer spending, potentially affecting sales, costs, and gross margins - Adverse macroeconomic conditions, including new tariffs on goods from Vietnam, Taiwan, PRC, and Mexico, and reduced consumer spending on durable goods, are expected to negatively impact the company's sales, costs, gross margins, and overall financial results[128] Manufacturing Footprint Board approved shutting down Mexico manufacturing facility by end of 2025 due to Vietnam productivity and decreased demand - The Board approved a plan in late July 2025 to shut down the Mexico manufacturing facility by the end of 2025, anticipating material shutdown-related expenses throughout the remainder of the year[129] - The decision to shut down the Mexico facility is based on strong productivity at the Vietnam factory and decreased demand in the home entertainment channel[129] Critical Accounting Policies and Estimates Financial statements rely on estimates for revenue, inventory, and income taxes, with no significant changes identified in H1 2025 - Key estimates and judgments include revenue recognition, allowance for credit losses, inventory valuation, impairment of long-lived assets and intangible assets, business combinations, income taxes and related valuation allowances, and stock-based compensation expense[25][130] - No significant changes to critical accounting policies and estimates were identified during the six months ended June 30, 2025[131] Recent Accounting Pronouncements Refers to Note 1 for discussion of new accounting pronouncements, including ASU 2024-03 and ASU 2023-09, being evaluated - Refer to Note 1 for details on recently adopted and not yet effective accounting pronouncements, including ASU 2024-03 (Disaggregation of Income Statement Expenses) and ASU 2023-09 (Improvements to Tax Disclosures)[28][29][132] Results of Operations Improved financial performance for Q2 and H1 2025, with increased sales, expanded gross margins, and narrowed operating losses Three Months Ended June 30, 2025 versus Three Months Ended June 30, 2024 Net sales increased by 8.0%, driven by connected home, with improved gross margin and positive operating income Key Financial Results (Three Months Ended June 30, in thousands) | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :--- | :--- | :----- | :------- | | Net sales | $97,665 | $90,452 | $7,213 | 8.0% | | Connected home sales | $34,099 | $23,291 | $10,808 | 46.4% | | Home entertainment sales | $63,566 | $67,161 | $(3,595) | -5.4% | | Gross profit | $29,196 | $25,952 | $3,244 | 12.5% | | Gross profit % | 29.9% | 28.7% | +1.2 pp | | | Operating income (loss) | $1,008 | $(4,453) | $5,461 | 122.6% | | R&D expenses | $6,959 | $7,520 | $(561) | -7.5% | | SG&A expenses | $21,229 | $21,330 | $(101) | -0.5% | | Factory restructuring charges | $0 | $1,555 | $(1,555) | -100.0% | | Other income (expense), net | $(1,751) | $(89) | $(1,662) | 1867.4% | - Gross margin percentage improved by 100 basis points due to a stronger U.S. Dollar against functional currencies in Vietnam and Mexico, and an additional 20 basis points from operational efficiencies in Vietnam, partially offset by unfavorable sales mix[137] - Other expense, net, increased significantly to $1.8 million from $0.1 million, primarily due to increased foreign currency losses from a weakening U.S. Dollar[141] Six Months Ended June 30, 2025 versus Six Months Ended June 30, 2024 Net sales increased by 4.2%, driven by connected home, with improved gross margin and significantly narrowed operating loss Key Financial Results (Six Months Ended June 30, in thousands) | Metric (in thousands) | 2025 | 2024 | Change | % Change | | :-------------------- | :--- | :--- | :----- | :------- | | Net sales | $189,991 | $182,352 | $7,639 | 4.2% | | Connected home sales | $65,828 | $47,462 | $18,366 | 38.7% | | Home entertainment sales | $124,163 | $134,890 | $(10,727) | -7.9% | | Gross profit | $55,279 | $51,940 | $3,339 | 6.4% | | Gross profit % | 29.1% | 28.5% | +0.6 pp | | | Operating income (loss) | $(2,746) | $(11,361) | $8,615 | 75.8% | | R&D expenses | $14,190 | $15,341 | $(1,151) | -7.5% | | SG&A expenses | $43,835 | $45,341 | $(1,506) | -3.3% | | Factory restructuring charges | $0 | $2,619 | $(2,619) | -100.0% | | Other income (expense), net | $(1,699) | $(169) | $(1,530) | 905.3% | - Gross margin rate improved by 90 basis points due to a stronger U.S. Dollar against functional currencies, partially offset by a 30 basis point reduction from unfavorable sales mix and operational efficiencies[145] - SG&A expenses decreased due to continued cost control efforts, including headcount reductions and lower professional services costs[147] Liquidity and Capital Resources Liquidity supported by cash from operations and credit lines, with increased cash and improved operating cash flows - The company's primary sources of liquidity are cash from operations and revolving lines of credit, which are expected to be sufficient for at least the next twelve months[151] Liquidity Metrics (in thousands) | Liquidity Metrics (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :------------------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $34,261 | $26,783 | $7,478 | | Available borrowing resources | $34,600 | $32,300 | $2,300 | | Working capital | $87,061 | $84,203 | $2,858 | Cash Flow Activities (Six Months Ended June 30, in thousands) | Cash Flow Activities (Six Months Ended June 30, in thousands) | 2025 | 2024 | Increase (Decrease) | | :------------------------------------------------------------ | :--- | :--- | :------------------ | | Cash provided by (used for) operating activities | $17,705 | $2,675 | $15,030 | | Cash provided by (used for) investing activities | $(3,989) | $(5,004) | $1,015 | | Cash provided by (used for) financing activities | $(7,748) | $(15,841) | $8,093 | - Net cash provided by operating activities increased significantly due to improved net loss, better inventory management, and a decrease in accounts receivable (Days Sales Outstanding improved to 75 days at June 30, 2025, from 91 days at June 30, 2024)[162] Material Cash Commitments (in thousands) | Material Cash Commitments (in thousands) | Total | Less than 1 year | 1 - 3 years | 4 - 5 years | After 5 years | | :--------------------------------------- | :---- | :--------------- | :---------- | :---------- | :------------ | | Credit Lines | $30,155 | $30,155 | $0 | $0 | $0 | | Inventory purchases | $9,263 | $9,263 | $0 | $0 | $0 | | Operating lease obligations | $14,403 | $4,335 | $6,166 | $1,735 | $2,167 | | Property, plant, and equipment purchases | $593 | $593 | $0 | $0 | $0 | | Software license | $6,582 | $1,020 | $2,355 | $2,566 | $641 | | Total material cash commitments | $60,996 | $45,366 | $8,521 | $4,301 | $2,808 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Exposed to market risks from interest rate and foreign currency fluctuations, with potential impacts on net income Interest Rate Risk Exposed to interest rate risk on variable-rate credit lines; a 100 basis point increase impacts net income by $0.2 million annually - A 100 basis point increase in interest rates would have an approximately $0.2 million annual impact on net income based on outstanding Credit Lines balance at June 30, 2025[169] Foreign Currency Exchange Rate Risk Faces foreign currency risk, primarily from Chinese Yuan Renminbi; a 10% fluctuation could impact Q3 2025 net income by $3.5 million - The most significant foreign currency exposure is to the Chinese Yuan Renminbi, as it is the functional currency of the PRC-based factory where most products originate[172] - The company is generally a net payor of CNY, MXN, VND, INR, HKD, JPY, and KRW, benefiting from a stronger U.S. Dollar. For EUR, GBP, and BRL, it is generally a net receiver, benefiting from a weaker U.S. Dollar[172] - A 10% fluctuation in exchange rates for key currencies (CNY, EUR, GBP, MXN, INR, HKD, BRL, JPY, KRW, VND) relative to the U.S. Dollar could fluctuate net income in Q3 2025 by approximately $3.5 million[175] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control - The company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[177] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[178] PART II. OTHER INFORMATION Item 1. Legal Proceedings Incorporates by reference the detailed discussion of litigation matters from Note 12 to the Consolidated Financial Statements - The discussion of legal proceedings is incorporated by reference from Note 12 to the Consolidated Financial Statements[179] Item 1A. Risk Factors Directs readers to review risk factors in the 2024 Form 10-K and subsequent reports, as they may affect actual results - Readers should carefully consider the risk factors discussed in 'Part I, Item 1A: Risk Factors' of the 2024 Form 10-K and subsequent periodic reports, as they may cause actual results to differ materially from forward-looking statements[180] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Repurchased 60,139 shares for tax withholding, with further repurchases authorized under the Share Repurchase Program Treasury Stock Repurchases (Three Months Ended June 30) | Period | Total Number of Shares Purchased | Weighted Average Price Paid per Share | | :----- | :------------------------------- | :------------------------------------ | | April 1, 2025 - April 30, 2025 | 17,929 | $4.71 | | May 1, 2025 - May 31, 2025 | 24,588 | $6.51 | | June 1, 2025 - June 30, 2025 | 17,622 | $6.80 | | Total | 60,139 | $6.06 | - The repurchased shares were primarily tendered by employees to satisfy tax withholding obligations for restricted share vesting[183] - As of May 6, 2025, the Board authorized management to continue repurchasing up to the lesser of $4.0 million worth of common stock or 778,362 shares under the Share Repurchase Program until August 6, 2025[183] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[182] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including various agreements, certifications, and Inline XBRL documents - Exhibits include cooperation agreements, credit agreements, certifications from the CEO and CFO (Rule 13a-14(a) and Section 1350), and Inline XBRL documents[186] Signatures Report signed by Bryan M. Hackworth, Chief Financial Officer, on behalf of Universal Electronics Inc. on August 7, 2025 - The report was signed by Bryan M. Hackworth, Chief Financial Officer, on August 7, 2025[189]