UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________

FORM 10-Q

_______________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-21044

_______________________________________

UNIVERSAL ELECTRONICS INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

33-0204817

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254-2494

(Address of principal executive offices and zip code)

(480) 530-3000

(Registrant's telephone number, including area code)

_____________________


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	UEIC	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: ~~13,749,676~~13,764,520 shares of Common Stock, par value $0.01 per share, of the registrant were outstanding on ~~November 3, 2020.~~May 4, 2021.

UNIVERSAL ELECTRONICS INC.

INDEX

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements (Unaudited)

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share-related data)

(Unaudited)


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	67,146	$	74,302	Cash and cash equivalents	$	55,363	$	57,153
Accounts receivable, net	Accounts receivable, net	128,094		139,198		Accounts receivable, net	139,708		129,433
Contract assets	Contract assets	11,530		12,579		Contract assets	7,612		9,685
Inventories	Inventories	115,750		145,135		Inventories	117,892		120,430
Prepaid expenses and other current assets	Prepaid expenses and other current assets	5,768		6,733		Prepaid expenses and other current assets	7,984		6,828
Income tax receivable	Income tax receivable	1,536		805		Income tax receivable	3,570		3,314
Total current assets	Total current assets	329,824		378,752		Total current assets	332,129		326,843
Property, plant and equipment, net	Property, plant and equipment, net	84,549		90,732		Property, plant and equipment, net	84,869		87,285
Goodwill	Goodwill	48,526		48,447		Goodwill	48,527		48,614
Intangible assets, net	Intangible assets, net	19,617		19,830		Intangible assets, net	19,973		19,710
Operating lease right-of-use assets	Operating lease right-of-use assets	18,678		19,826		Operating lease right-of-use assets	17,702		19,522
Deferred income taxes	Deferred income taxes	4,581		4,409		Deferred income taxes	4,899		5,564
Other assets	Other assets	2,842		2,163		Other assets	2,687		2,752
Total assets	Total assets	$	508,617	$	564,159	Total assets	$	510,786	$	510,290
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	67,546	$	102,588	Accounts payable	$	79,922	$	83,229
Line of credit	Line of credit	50,000		68,000		Line of credit	40,000		20,000
Accrued compensation	Accrued compensation	22,890		43,668		Accrued compensation	22,802		28,931
Accrued sales discounts, rebates and royalties	Accrued sales discounts, rebates and royalties	10,183		9,766		Accrued sales discounts, rebates and royalties	8,108		10,758
Accrued income taxes	Accrued income taxes	9,910		6,989		Accrued income taxes	597		3,535
Other accrued liabilities	Other accrued liabilities	33,616		35,445		Other accrued liabilities	33,725		33,057
Total current liabilities	Total current liabilities	194,145		266,456		Total current liabilities	185,154		179,510
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Operating lease obligations	Operating lease obligations	13,284		15,639		Operating lease obligations	11,292		13,681
Contingent consideration	Contingent consideration	250		4,349		Contingent consideration	87		292
Deferred income taxes	Deferred income taxes	2,327		1,703		Deferred income taxes	2,248		1,913
Income tax payable	Income tax payable	1,368		1,600		Income tax payable	1,054		1,054
Other long-term liabilities	Other long-term liabilities	688		13		Other long-term liabilities	332		539
Total liabilities	Total liabilities	212,062		289,760		Total liabilities	200,167		196,989
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; NaN issued or outstanding	Preferred stock, $0.01 par value, 5,000,000 shares authorized; NaN issued or outstanding	0		0		Preferred stock, $0.01 par value, 5,000,000 shares authorized; NaN issued or outstanding	0		0
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,292,657 and 24,118,088 shares issued on September 30, 2020 and December 31, 2019, respectively		243		241
Common stock, $0.01 par value, 50,000,000 shares authorized; 24,581,162 and 24,391,595 shares issued on March 31, 2021 and December 31, 2020, respectively						Common stock, $0.01 par value, 50,000,000 shares authorized; 24,581,162 and 24,391,595 shares issued on March 31, 2021 and December 31, 2020, respectively	246		244
Paid-in capital	Paid-in capital	296,674		288,338		Paid-in capital	306,226		302,084
Treasury stock, at cost, 10,437,363 and 10,174,199 shares on September 30, 2020 and December 31, 2019, respectively		(287,639)		(277,817)
Treasury stock, at cost, 10,808,525 and 10,618,002 shares on March 31, 2021 and December 31, 2020, respectively						Treasury stock, at cost, 10,808,525 and 10,618,002 shares on March 31, 2021 and December 31, 2020, respectively	(306,446)		(295,495)
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(25,555)		(22,781)		Accumulated other comprehensive income (loss)	(21,390)		(18,522)
Retained earnings	Retained earnings	312,832		286,418		Retained earnings	331,983		324,990
Total stockholders' equity	Total stockholders' equity	296,555		274,399		Total stockholders' equity	310,619		313,301
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	508,617	$	564,159	Total liabilities and stockholders' equity	$	510,786	$	510,290

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net sales	Net sales	$	153,505	$	200,724	$	458,416	$	578,783	Net sales	$	150,542	$	151,778
Cost of sales	Cost of sales	109,349		154,245		333,244		458,437		Cost of sales	104,143		108,837
Gross profit	Gross profit	44,156		46,479		125,172		120,346		Gross profit	46,399		42,941
Research and development expenses	Research and development expenses	7,696		7,930		22,979		21,884		Research and development expenses	7,942		7,898
Selling, general and administrative expenses	Selling, general and administrative expenses	26,214		32,422		77,441		94,598		Selling, general and administrative expenses	29,846		26,997
Operating income	Operating income	10,246		6,127		24,752		3,864		Operating income	8,611		8,046
Interest income (expense), net	Interest income (expense), net	(268)		(784)		(1,272)		(3,088)		Interest income (expense), net	(108)		(632)
Accrued social insurance adjustment		0		0		9,464		0
Other income (expense), net	Other income (expense), net	(1,646)		(148)		(1,263)		(426)		Other income (expense), net	23		(348)
Income before provision for income taxes	Income before provision for income taxes	8,332		5,195		31,681		350		Income before provision for income taxes	8,526		7,066
Provision for income taxes	Provision for income taxes	2,164		2,526		5,267		3,747		Provision for income taxes	1,533		1,220
Net income (loss)		$	6,168	$	2,669	$	26,414	$	(3,397)
Net income										Net income	$	6,993	$	5,846

Earnings (loss) per share:
Earnings per share:										Earnings per share:
Basic	Basic	$	0.44	$	0.19	$	1.90	$	(0.25)	Basic	$	0.51	$	0.42
Diluted	Diluted	$	0.43	$	0.19	$	1.86	$	(0.25)	Diluted	$	0.49	$	0.41
Shares used in computing earnings (loss) per share:
Shares used in computing earnings per share:										Shares used in computing earnings per share:
Basic	Basic	13,928		13,894		13,935		13,861		Basic	13,803		13,960
Diluted	Diluted	14,205		14,170		14,189		13,861		Diluted	14,199		14,211

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED COMPREHENSIVE INCOME (LOSS) STATEMENTS

(In thousands)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net income (loss)		$	6,168	$	2,669	$	26,414	$	(3,397)
Net income										Net income	$	6,993	$	5,846
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Change in foreign currency translation adjustment	Change in foreign currency translation adjustment	5,005		(5,457)		(2,774)		(5,557)		Change in foreign currency translation adjustment	(2,868)		(7,009)
Comprehensive income (loss)	Comprehensive income (loss)	$	11,173	$	(2,788)	$	23,640	$	(8,954)	Comprehensive income (loss)	$	4,125	$	(1,163)

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

(Unaudited)

The following summarizes the changes in total equity for the three ~~and nine~~ months ended ~~September 30, 2020:~~March 31, 2021:

Common Stock
Issued Common Stock
in Treasury Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Totals
Shares Amount Shares Amount
Balance at December 31, 2019 24,118 $ 241 (10,174) $ (277,817) $ 288,338 $ (22,781) $ 286,418 $ 274,399
Net income (loss) 5,846 5,846
Currency translation adjustment (7,009) (7,009)
Shares issued for employee benefit plan and compensation 129 1 526 527
Purchase of treasury shares (169) (6,291) (6,291)
Shares issued to directors 9 1 (1) 0
Employee and director stock-based compensation 2,303 2,303
Performance-based common stock warrants 184 184
Balance at March 31, 2020 24,256 243 (10,343) (284,108) 291,350 (29,790) 292,264 269,959
Net income (loss) 14,400 14,400
Currency translation adjustment (770) (770)
Shares issued for employee benefit plan and compensation 13 0 212 212
Purchase of treasury shares (3) (114) (114)
Employee and director stock-based compensation 2,291 2,291
Performance-based common stock warrants 154 154
Balance at June 30, 2020 24,269 243 (10,346) (284,222) 294,007 (30,560) 306,664 286,132
Net income (loss) 6,168 6,168
Currency translation adjustment 5,005 5,005
Shares issued for employee benefit plan and compensation 15 0 220 220
Purchase of treasury shares (91) (3,417) (3,417)
Shares issued to directors 9 0 0 0
Employee and director stock-based compensation 2,260 2,260
Performance-based common stock warrants 187 187
Balance at September 30, 2020 24,293 $ 243 (10,437) $ (287,639) $ 296,674 $ (25,555) $ 312,832 $ 296,555

~~The accompanying notes are an integral part of these consolidated financial statements.~~


	Common Stock Issued			Common Stock in Treasury			Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Totals
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	24,392	$	244	(10,618)	$	(295,495)	$	302,084	$	(18,522)	$	324,990	$	313,301
Net income											6,993		6,993
Currency translation adjustment									(2,868)				(2,868)
Shares issued for employee benefit plan and compensation	160	2					408						410
Purchase of treasury shares				(191)	(10,951)								(10,951)
Stock options exercised	22	—					991						991
Shares issued to directors	7	—					—						0
Employee and director stock-based compensation							2,600						2,600
Performance-based common stock warrants							143						143
Balance at March 31, 2021	24,581	$	246	(10,809)	$	(306,446)	$	306,226	$	(21,390)	$	331,983	$	310,619

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~(In thousands)~~

~~(Unaudited)~~

The following summarizes the changes in total equity for the three ~~and nine~~ months ended ~~September 30, 2019:~~March 31, 2020:


		Common Stock Issued			Common Stock in Treasury			Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Totals				Common Stock Issued						Common Stock in Treasury			Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Totals
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount
Balance at December 31, 2018		23,933	$	239	(10,116)	$	(275,889)			$	276,103						$	(20,281)			$	282,788		$	262,960
Net income (loss)															(1,005)				(1,005)
Balance at December 31, 2019																						Balance at December 31, 2019	24,118			$	241		(10,174)	$	(277,817)		$	288,338		$	(22,781)		$	286,418		$	274,399
Net income																						Net income																5,846			5,846
Currency translation adjustment	Currency translation adjustment											1,733							1,733			Currency translation adjustment													(7,009)						(7,009)
Shares issued for employee benefit plan and compensation	Shares issued for employee benefit plan and compensation	78	1					346											347			Shares issued for employee benefit plan and compensation	129			1						526									527
Purchase of treasury shares	Purchase of treasury shares				(43)	(1,215)													(1,215)			Purchase of treasury shares							(169)	(6,291)											(6,291)
Shares issued to directors	Shares issued to directors	8	0					—											0			Shares issued to directors	9			1						(1)									0
Employee and director stock-based compensation	Employee and director stock-based compensation							1,918											1,918			Employee and director stock-based compensation										2,303									2,303
Performance-based common stock warrants	Performance-based common stock warrants							434											434			Performance-based common stock warrants										184									184
Balance at March 31, 2019		24,019	240		(10,159)	(277,104)		278,801				(18,548)			281,783				265,172
Net income (loss)															(5,061)				(5,061)
Currency translation adjustment												(1,833)							(1,833)
Shares issued for employee benefit plan and compensation		17	—					273											273
Purchase of treasury shares					(5)	(189)													(189)
Shares issued to directors		7	0					0											0
Employee and director stock-based compensation								2,273											2,273
Performance-based common stock warrants								236											236
Balance at June 30, 2019		24,043	240		(10,164)	(277,293)		281,583				(20,381)			276,722				260,871
Net income (loss)															2,669				2,669
Currency translation adjustment												(5,457)							(5,457)
Shares issued for employee benefit plan and compensation		29	1					255											256
Purchase of treasury shares					(7)	(337)													(337)
Stock options exercised		20						411											411
Shares issued to directors		7	0					0											0
Employee and director stock-based compensation								2,527											2,527
Performance-based common stock warrants								711											711
Balance at September 30, 2019		24,099	$	241	(10,171)	$	(277,630)	$	285,487			$	(25,838)		$	279,391			$	261,651
Balance at March 31, 2020																						Balance at March 31, 2020	24,256			$	243		(10,343)	$	(284,108)	$	291,350		$	(29,790)		$	292,264		$	269,959

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

UNIVERSAL ELECTRONICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
Cash provided by (used for) operating activities:
Net income (loss)		$	26,414	$	(3,397)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Cash flows from operating activities:						Cash flows from operating activities:
Net income						Net income	$	6,993	$	5,846
Adjustments to reconcile net income to net cash used for operating activities:						Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization	Depreciation and amortization	22,857		23,734		Depreciation and amortization	6,319		7,498
Provision for bad debts		271		275
Provision for credit losses						Provision for credit losses	2		237
Deferred income taxes	Deferred income taxes	503		2,273		Deferred income taxes	894		835
Shares issued for employee benefit plan	Shares issued for employee benefit plan	959		876		Shares issued for employee benefit plan	410		527
Employee and director stock-based compensation	Employee and director stock-based compensation	6,854		6,718		Employee and director stock-based compensation	2,600		2,303
Performance-based common stock warrants	Performance-based common stock warrants	525		1,381		Performance-based common stock warrants	143		184
Impairment of long-term assets		57		0
Accrued social insurance adjustment		(9,464)		0

Loss on sale of Ohio call center	Loss on sale of Ohio call center	712		0		Loss on sale of Ohio call center	0		712
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable and contract assets	Accounts receivable and contract assets	11,556		(11,117)		Accounts receivable and contract assets	(10,126)		2,060
Inventories	Inventories	30,466		4,403		Inventories	1,338		1,609
Prepaid expenses and other assets	Prepaid expenses and other assets	601		5,507		Prepaid expenses and other assets	384		118
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(50,507)		11,686		Accounts payable and accrued liabilities	(12,546)		(28,969)
Accrued income taxes	Accrued income taxes	2,023		(2,418)		Accrued income taxes	(3,140)		(1,307)
Net cash provided by (used for) operating activities		43,827		39,921
Cash provided by (used for) investing activities:
Net cash used for operating activities						Net cash used for operating activities	(6,729)		(8,347)
Cash flows from investing activities:						Cash flows from investing activities:
Acquisitions of property, plant and equipment	Acquisitions of property, plant and equipment	(10,864)		(15,854)		Acquisitions of property, plant and equipment	(3,698)		(1,986)
Acquisitions of intangible assets	Acquisitions of intangible assets	(5,254)		(1,505)		Acquisitions of intangible assets	(1,106)		(1,270)
Payment on sale of Ohio call center	Payment on sale of Ohio call center	(500)		0		Payment on sale of Ohio call center	0		(500)
Net cash provided by (used for) investing activities		(16,618)		(17,359)
Cash provided by (used for) financing activities:
Net cash used for investing activities						Net cash used for investing activities	(4,804)		(3,756)
Cash flows from financing activities:						Cash flows from financing activities:
Borrowings under line of credit	Borrowings under line of credit	70,000		57,500		Borrowings under line of credit	30,000		25,000
Repayments on line of credit	Repayments on line of credit	(88,000)		(71,000)		Repayments on line of credit	(10,000)		(15,000)
Proceeds from stock options exercised	Proceeds from stock options exercised	0		411		Proceeds from stock options exercised	991		0
Treasury stock purchased	Treasury stock purchased	(9,822)		(1,741)		Treasury stock purchased	(10,951)		(6,291)
Contingent consideration payments in connection with business combinations	Contingent consideration payments in connection with business combinations	(3,091)		(4,251)		Contingent consideration payments in connection with business combinations	0		(3,091)
Net cash provided by (used for) financing activities		(30,913)		(19,081)
Effect of exchange rate changes on cash and cash equivalents		(3,452)		(1,959)
Net increase (decrease) in cash and cash equivalents		(7,156)		1,522
Net cash provided by financing activities						Net cash provided by financing activities	10,040		618
Effect of foreign currency exchange rates on cash and cash equivalents						Effect of foreign currency exchange rates on cash and cash equivalents	(297)		(3,890)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(1,790)		(15,375)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	74,302		53,207		Cash and cash equivalents at beginning of period	57,153		74,302
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	67,146	$	54,729	Cash and cash equivalents at end of period	$	55,363	$	58,927

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Income taxes paid	Income taxes paid	$	3,242	$	5,608	Income taxes paid	$	3,473	$	1,384
Interest paid	Interest paid	$	1,404	$	3,479	Interest paid	$	104	$	637

The accompanying notes are an integral part of these consolidated financial statements.

T a b l e o f C o n t e n t sTable of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Note 1 — Basis of Presentation

In the opinion of management, the accompanying consolidated financial statements of Universal Electronics Inc. and its subsidiaries contain all the adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring ~~nature and certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.~~nature. Information and footnote disclosures normally included in financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). As used herein, the terms "Company," "we," "us," and "our" refer to Universal Electronics Inc. and its subsidiaries, unless the context indicates to the contrary.

Our results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and the "Financial Statements and Supplementary Data" included in Items 1A, 7, 7A, and 8, respectively, of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Estimates ~~Judgments~~ and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates ~~judgments~~ and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition; allowance for ~~bad debts;~~credit losses; inventory valuation; ~~our review for~~ impairment of long-lived assets, intangible assets and goodwill; ~~leases;~~ business combinations; income ~~taxes;~~taxes and related valuation allowances; stock-based compensation expense and performance-based common stock warrants.

The ~~recent~~ coronavirus ("COVID-19") pandemic and the mitigation efforts by governments to attempt to control its spread have created uncertainties and disruptions in the economic and financial markets. While we are not currently aware of events or circumstances that would require an update to our estimates, judgments or adjustments to the carrying values of our assets or liabilities, these estimates may change as developments occur and we obtain additional information. These future developments are highly uncertain and the outcomes are unpredictable. Actual results may differ from those estimates, and such differences may be material to the financial statements.

~~See~~

Summary of Significant Accounting policies

With the exception of the following policy, our significant accounting policies are unchanged from those disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020.

Revenue Recognition

We license our symbolic intellectual property which includes our patented technologies and database of control codes. Revenue is recognized for these licensing arrangements on an over-time basis. We record license revenue for per-unit based licenses when our customers manufacture or ship a ~~summary of~~product incorporating our ~~significant accounting policies.~~

~~Recently Adopted Accounting Pronouncements~~

~~In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", which updates existing guidance for measuring~~intellectual property and ~~recording credit losses on financial assets measured at amortized cost by replacing the incurred loss impairment model~~we have a present right to payment. We record per-unit-based licenses with ~~an expected loss impairment model. Accordingly, financial assets are presented at amortized costs net of an allowance for expected credit losses~~minimum guarantees ratably over the ~~lifetime~~license period to which the minimum guarantee relates and any per-unit sales in excess of the ~~assets.~~minimum guarantee in the period in which the sale occurs. We ~~adopted this new guidance~~record licenses with fixed consideration ratably over the license period. Tiered royalties are recorded on January 1, 2020 using the modified retrospective method. The adoption did not require an implementation adjustment and did not materially impact our consolidated statement of financial position, results of operations and cash flows. See Note 3 for further discussion on our allowance for bad debts.

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, if the carrying amount of a ~~reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited~~straight-line basis according to the ~~total amount of goodwill allocated to~~forecasted per-unit fees taking into account the ~~reporting unit. Our adoption on January 1, 2020 did not have a material impact on our consolidated statement of financial position, results of operations and cash flows.~~pricing tiers.

In November 2019, the FASB issued ASU 2019-08, "Improvements - Share-based Consideration Payable to a Customer", which clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense is recorded as a reduction in the transaction price on the basis of the grant-date fair value. The grant-date fair value is calculated using the provisions defined under Accounting Standards Codification "Stock Compensation". The transition provisions require that equity-classified awards be measured at the adoption date fair value if the

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Recently Adopted Accounting Pronouncements

measurement date has not been established prior to the adoption date. This guidance impacts the measurement date of our performance-based common stock warrants. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and accordingly, we measured the fair value of the award as of our adoption date on January 1, 2020. We adopted this guidance using the modified retrospective method. Our adoption did not result in a cumulative adjustment in our consolidated statement of financial position. See Note 15 for further discussion on the performance-based common stock warrants.

~~Recent Accounting Updates Not Yet Effective~~

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", which, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under ~~existing~~previous guidance, an entity ~~recognizes~~recognized the effects of the enacted tax law change on the effective income tax rate in the period that ~~includes~~included the effective date of the tax law. ~~The guidance is effective for interim and annual periods beginning after December 15, 2020, with early~~Our adoption ~~permitted. We are currently evaluating the~~on January 1, 2021 did not have a material impact ~~of this guidance~~ on our consolidated statement of financial position, results of operations and cash flows.

Recent Accounting Updates Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and in January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform". This guidance is intended to provide temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The amendments in these ASUs are elective and are effective upon issuance for all entities through December 31, 2022. These amendments are not expected to have a material impact on our consolidated statement of financial position, results of operations and cash flows.

Note 2 — Cash and Cash Equivalents

Cash and cash equivalents were held in the following geographic regions:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
North America	North America	$	14,693	$	16,751	North America	$	5,618	$	9,812
People's Republic of China ("PRC")	People's Republic of China ("PRC")	15,054		13,700		People's Republic of China ("PRC")	13,941		14,244
Asia (excluding the PRC)	Asia (excluding the PRC)	12,291		21,691		Asia (excluding the PRC)	12,451		13,518
Europe	Europe	16,802		9,081		Europe	15,319		10,926
South America	South America	8,306		13,079		South America	8,034		8,653
Total cash and cash equivalents	Total cash and cash equivalents	$	67,146	$	74,302	Total cash and cash equivalents	$	55,363	$	57,153

Note 3 — Revenue and Accounts Receivable, Net

Revenue Details

The pattern of revenue recognition was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
Goods and services transferred at a point in time	Goods and services transferred at a point in time	$	127,657	$	152,453	$	365,902	$	429,461	Goods and services transferred at a point in time	$	122,888	$	117,058
Goods and services transferred over time	Goods and services transferred over time	25,848		48,271		92,514		149,322		Goods and services transferred over time	27,654		34,720
Net sales	Net sales	$	153,505	$	200,724	$	458,416	$	578,783	Net sales	$	150,542	$	151,778

109

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Our net sales to external customers by geographic area were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
United States	United States	$	64,367	$	107,546	$	203,981	$	313,029	United States	$	50,292	$	74,381
Asia (excluding PRC)	Asia (excluding PRC)	27,923		29,613		86,043		79,157		Asia (excluding PRC)	34,216		27,825
Europe	Europe	26,119		23,388		72,625		69,510		Europe	27,527		20,502
People's Republic of China	People's Republic of China	25,625		23,704		63,653		66,465		People's Republic of China	24,340		17,517
Latin America	Latin America	4,546		8,281		12,652		26,187		Latin America	6,144		4,640
Other	Other	4,925		8,192		19,462		24,435		Other	8,023		6,913
Total net sales	Total net sales	$	153,505	$	200,724	$	458,416	$	578,783	Total net sales	$	150,542	$	151,778

Specific identification of the customer billing location was the basis used for attributing revenues from external customers to geographic areas.

Net sales to the following customers totaled more than 10% of our net sales:

Three Months Ended September 30,
2020 2019
$ (thousands) % of Net Sales $ (thousands) % of Net Sales
Comcast Corporation $ 32,533 21.2 % $ 30,419 15.2 %
Sony Corporation $ 15,927 10.4 % 0 (1) 0 (1)
Ring L.L.C. 0 (1) 0 (1) $ 21,050 10.5 %


	Three Months Ended March 31,
	2021				2020
	$ (thousands)		% of Net Sales		$ (thousands)			% of Net Sales
Comcast Corporation	$	27,201	18.1	%	$	32,935		21.7	%
Daikin Industries Ltd.	$	17,437	11.6	%	0		(1)	0		(1)

Nine Months Ended September 30,
2020 2019
$ (thousands) % of Net Sales $ (thousands) % of Net Sales
Comcast Corporation $ 95,014 20.7 % $ 91,058 15.7 %

(1)~~Net sales to~~Sales associated with this customer did not total more than 10% of our ~~total~~ net sales infor the indicated period.

Accounts Receivable, Net

Accounts receivable, net were as follows:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
Trade receivables, gross	Trade receivables, gross	$	122,882	$	130,888	Trade receivables, gross	$	134,003	$	122,828
Allowance for bad debts		(1,797)		(1,492)
Allowance for credit losses						Allowance for credit losses	(1,358)		(1,412)
Allowance for sales returns	Allowance for sales returns	(618)		(623)		Allowance for sales returns	(408)		(761)
Net trade receivables		120,467		128,773
Trade receivables, net						Trade receivables, net	132,237		120,655
Other	Other	7,627		10,425		Other	7,471		8,778
Accounts receivable, net	Accounts receivable, net	$	128,094	$	139,198	Accounts receivable, net	$	139,708	$	129,433

Allowance for Credit Losses

Changes in the allowance for credit losses were as follows:


(In thousands)	Three Months Ended March 31,
	2021		2020
Balance at beginning of period	$	1,412	$	1,492
Additions to costs and expenses	2		237

Write-offs/Foreign exchange effects	(56)		(48)
Balance at end of period	$	1,358	$	1,681

1110

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

~~Allowance for Bad Debts~~

~~Changes in the allowance for bad debts were as follows:~~

(In thousands) Nine Months Ended September 30,
2020 2019
Balance at beginning of period $ 1,492 $ 1,121
Additions to costs and expenses 271 275
Write-offs/Foreign exchange effects 34 (104)
Balance at end of period $ 1,797 $ 1,292

Trade receivables associated with ~~these~~this significant ~~customers~~customer that totaled more than 10% of our accounts receivable, net were as follows:

September 30, 2020 December 31, 2019
$ (thousands) % of Accounts Receivable, Net $ (thousands) % of Accounts Receivable, Net
Comcast Corporation $ 25,390 19.8 % 0 (1) 0 (1)
DISH Network Corporation 0 (1) 0 (1) $ 14,677 10.5 %


	March 31, 2021				December 31, 2020
	$ (thousands)		% of Accounts Receivable, Net		$ (thousands)		% of Accounts Receivable, Net
Comcast Corporation	$	25,022	17.9	%	$	19,782	15.3	%

~~(1)Trade receivables associated with this customer did not total more than 10% of our accounts receivable, net at the dates set forth.~~

Note 4 — Inventories and Significant ~~Suppliers~~Supplier

Inventories were as follows:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
Raw materials	Raw materials	$	36,784	$	56,352	Raw materials	$	43,748	$	44,273
Components	Components	17,215		24,599		Components	20,494		16,954
Work in process	Work in process	4,075		1,526		Work in process	4,983		6,211
Finished goods	Finished goods	57,676		62,658		Finished goods	48,667		52,992
Inventories	Inventories	$	115,750	$	145,135	Inventories	$	117,892	$	120,430

Significant ~~Suppliers~~Supplier

We purchase integrated circuits, components and finished goods from multiple sources. Purchases from the following supplier totaled more than 10% of our total inventory purchases:

Three Months Ended September 30,
2020 2019
$ (thousands) % of Total Inventory Purchases $ (thousands) % of Total Inventory Purchases
Qorvo International Pte Ltd. $ 8,472 13.0 % 0 (1) 0 (1)


	Three Months Ended March 31,
	2021				2020
	$ (thousands)		% of Total Inventory Purchases		$ (thousands)		% of Total Inventory Purchases
Qorvo International Pte Ltd.	$	9,773	12.8	%	$	11,177	14.0	%

Nine Months Ended September 30,
2020 2019
$ (thousands) % of Total Inventory Purchases $ (thousands) % of Total Inventory Purchases
Qorvo International Pte Ltd. $ 29,679 13.4 % 0 (1) 0 (1)

~~(1)Purchases associated with this~~No supplier ~~did not total~~totaled 10% or more ~~than 10%~~ of our ~~total inventory purchases for the indicated period~~accounts payable balance at March 31, 2021 and December 31, 2020.

Note 5 — Long-lived Tangible Assets

Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:


(In thousands)	March 31, 2021		December 31, 2020
United States	$	14,337	$	15,411
People's Republic of China	62,191		64,197
Mexico	22,248		22,410
All other countries	3,795		4,789
Total long-lived tangible assets	$	102,571	$	106,807

Property, plant, and equipment are shown net of accumulated depreciation of $157.3 million and $154.2 million at March 31, 2021 and December 31, 2020, respectively.

1211

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Note 6 — Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:


(In thousands)
Balance at December 31, 2020	$	48,614
Foreign exchange effects	(87)
Balance at March 31, 2021	$	48,527

Intangible Assets, Net

The ~~supplier that totaled more than 10%~~components of ~~our accounts payable,~~intangible assets, net were as follows:


	March 31, 2021						December 31, 2020
(In thousands)	Gross (1)		Accumulated Amortization (1)		Net		Gross (1)		Accumulated Amortization (1)		Net
Capitalized software development costs	$	703	$	(4)	$	699	$	477	$	0	$	477
Customer relationships	8,100		(4,506)		3,594		8,100		(4,329)		3,771
Developed and core technology	4,080		(3,117)		963		4,080		(3,044)		1,036
Distribution rights	336		(256)		80		352		(261)		91
Patents	22,287		(7,931)		14,356		21,601		(7,574)		14,027
Trademarks and trade names	800		(519)		281		800		(492)		308
Total intangible assets, net	$	36,306	$	(16,333)	$	19,973	$	35,410	$	(15,700)	$	19,710

(1)This table excludes the gross value of fully amortized intangible assets totaling $42.8 million and $42.7 million at March 31, 2021 and December 31, 2020, respectively.

Amortization expense is recorded in selling, general and administrative expenses, except amortization expense related to capitalized software development costs, which is recorded in cost of sales. Amortization expense by statement of operations caption was as follows:

September 30, 2020 December 31, 2019
$ (thousands) % of Accounts Payable $ (thousands) % of Accounts Payable
Zhejiang Zhen You Electronics Co. Ltd. 0 (1) 0 (1) $ 11,394 11.1 %


(In thousands)	Three Months Ended March 31,
	2021		2020
Cost of sales	$	4	$	0
Selling, general and administrative expenses	834		1,800
Total amortization expense	$	838	$	1,800

~~(1)Accounts payable associated with this supplier did not total more than 10% of~~

Estimated future annual amortization expense related to our ~~accounts payable~~intangible assets at ~~the dates set forth.~~March 31, 2021, was as follows:


(In thousands)
2021 (remaining 9 months)	$	2,514
2022	3,586
2023	3,424
2024	2,508
2025	2,239
Thereafter	5,702
Total	$	19,973

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(Unaudited)

Note 57 — Leases

We have entered into various operating lease agreements for automobiles, offices and manufacturing facilities throughout the world. At ~~September 30, 2020,~~March 31, 2021, our operating leases had remaining lease terms of up to 40 ~~years.~~years, including any reasonably probable extensions.

Lease balances within our consolidated balance sheet were as follows:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
Assets:	Assets:					Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	18,678	$	19,826	Operating lease right-of-use assets	$	17,702	$	19,522
Liabilities:	Liabilities:					Liabilities:
Other accrued liabilities	Other accrued liabilities	$	5,802	$	4,903	Other accrued liabilities	$	5,838	$	6,094
Long-term operating lease obligations	Long-term operating lease obligations	13,284		15,639		Long-term operating lease obligations	11,292		13,681
Total lease liabilities	Total lease liabilities	$	19,086	$	20,542	Total lease liabilities	$	17,130	$	19,775

Operating lease expense, including variable and short-term lease costs which were insignificant to the total, operating lease cash flows and supplemental cash flow information were as follows:


(In thousands)	(In thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				(In thousands)	Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Cost of sales	Cost of sales	$	513	$	574	$	1,285	$	1,627	Cost of sales	$	670	$	390
Selling, general and administrative expenses	Selling, general and administrative expenses	976		1,036		2,994		3,324		Selling, general and administrative expenses	1,036		998
Total operating lease expense	Total operating lease expense	$	1,489	$	1,610	$	4,279	$	4,951	Total operating lease expense	$	1,706	$	1,388
Operating cash outflows from operating leases	Operating cash outflows from operating leases	$	1,617	$	1,537	$	4,685	$	5,197	Operating cash outflows from operating leases	$	1,798	$	1,525
Operating lease right-of-use assets obtained in exchange for lease obligations	Operating lease right-of-use assets obtained in exchange for lease obligations	$	1,935	$	1,131	$	2,121	$	2,655	Operating lease right-of-use assets obtained in exchange for lease obligations	$	294	$	186
Non-cash release of operating lease obligations (1)										Non-cash release of operating lease obligations (1)	$	654	$	0

(1)During the three months ended March 31, 2021, we were released from our guarantee of the lease obligation related to our Ohio call center which was sold in February 2020.

The weighted average remaining lease liability term and the weighted average discount rate were as follows:

September 30, 2020 December 31, 2019
Weighted average lease liability term (in years) 3.8 4.3
Weighted average discount rate 4.18 % 4.50 %

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~


	March 31, 2021		December 31, 2020
Weighted average lease liability term (in years)	3.6		3.7
Weighted average discount rate	3.72	%	3.84	%

The following table reconciles the undiscounted cash flows for each of the first five years and thereafter to the operating lease liabilities recognized in our consolidated balance sheet at ~~September 30, 2020.~~March 31, 2021. The reconciliation excludes short-term leases that are not recorded on the balance sheet.


(In thousands)	(In thousands)	September 30, 2020		(In thousands)	March 31, 2021
2020 (remaining 3 months)		$	1,462
2021		6,671
2021 (remaining 9 months)				2021 (remaining 9 months)	$	4,786
2022	2022	5,671		2022	5,702
2023	2023	2,835		2023	3,321
2024	2024	1,765		2024	2,010
2025				2025	1,552
Thereafter	Thereafter	2,281		Thereafter	964
Total lease payments	Total lease payments	20,685		Total lease payments	18,335
Less: imputed interest	Less: imputed interest	(1,599)		Less: imputed interest	(1,205)
Total lease liabilities	Total lease liabilities	$	19,086	Total lease liabilities	$	17,130

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(Unaudited)

At ~~September 30, 2020,~~March 31, 2021, we had 1 operating lease with a ~~five-year~~four-year term that had not yet commenced. The total initial lease liability, which is immaterial to the balance sheet, is not reflected within the above maturity schedule.

~~Note 6 — Goodwill and Intangible Assets, Net~~

~~Goodwill~~

~~Changes in the carrying amount of goodwill were as follows:~~


~~(In thousands)~~
~~Balance at December 31, 2019~~	$	~~48,447~~
~~Foreign exchange effects~~	79
~~Balance at September 30, 2020~~	$	~~48,526~~

~~Intangible Assets, Net~~

~~The components of intangible assets, net were as follows:~~

September 30, 2020 December 31, 2019
(In thousands)
Gross (1)
Accumulated
Amortization (1)
Net
Gross (1)
Accumulated
Amortization (1)
Net
Distribution rights $ 336 $ (241) $ 95 $ 322 $ (210) $ 112
Patents 20,962 (7,294) 13,668 16,587 (6,491) 10,096
Trademarks and trade names 2,786 (2,435) 351 2,785 (2,205) 580
Developed and core technology 4,080 (2,971) 1,109 12,480 (10,016) 2,464
Capitalized software development costs 254 0 254 0 0 0
Customer relationships 31,233 (27,093) 4,140 32,534 (25,956) 6,578
Total intangible assets, net $ 59,651 $ (40,034) $ 19,617 $ 64,708 $ (44,878) $ 19,830

~~(1)This table excludes the gross value of fully amortized intangible assets totaling $17.6 million and $7.4 million at September 30, 2020 and December 31, 2019, respectively.~~

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~

Amortization expense, which was recognized in selling, general and administrative expenses, was $1.8 million and $1.8 million during the three months ended September 30, 2020 and 2019, respectively. Amortization expense, which was recognized in selling, general and administrative expenses, was $5.5 million and $5.4 million during the nine months ended September 30, 2020 and 2019, respectively.

~~Estimated future annual amortization expense related to our intangible assets at September 30, 2020, was as follows:~~

(In thousands)
2020 (remaining 3 months) $ 1,037
2021 3,391
2022 3,263
2023 2,999
2024 2,418
Thereafter 6,509
Total $ 19,617

Note 78 — Line of Credit

Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a $125.0 million revolving line of credit ("Credit Line") that expires on November 1, ~~2021.~~2022. The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7 million at ~~September 30,~~March 31, 2021 and December 31, 2020.

All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary which controls our manufacturing factories in the PRC.

Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement. The interest ~~rate~~rates in effect at ~~September 30,~~March 31, 2021 and December 31, 2020 ~~was~~were 1.37% and 1.39%., respectively. There are 0 commitment fees or unused line fees under the Second Amended Credit Agreement.

On December 31, 2021, the process of cessation of LIBOR as a reference rate will begin. LIBOR may continue to be used for new and existing borrowings on the Credit Line through December 31, 2021. After that date, new borrowings will no longer use LIBOR as a reference rate. Instead, these borrowings will be subject to an interest rate based on either the Secured Overnight Financing Rate ("SOFR"), which is deemed a replacement benchmark for LIBOR under the Second Amended Credit Agreement, or an alternate index to be agreed upon. Between December 31, 2021 and June 30, 2023, any legacy borrowings may continue to use LIBOR as the basis for interest rates. After June 30, 2023, however, all borrowings will be based on SOFR or the alternate index.

The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default. At ~~September 30, 2020,~~March 31, 2021, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At ~~September 30,~~March 31, 2021 and December 31, 2020, we had ~~$50.0~~$40.0 million and $20.0 million outstanding under the Credit ~~Line. Our total interest expense on borrowings was $0.3 million and $0.9 million during the three months ended September 30, 2020 and 2019,~~Line, respectively. Our total interest expense on borrowings was ~~$1.4~~$0.1 million and ~~$3.4~~$0.7 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Note 89 — Income Taxes

We utilize our estimated annual effective tax rate to determine our provision for income taxes for interim periods. The income tax provision is computed by taking the estimated annual effective rate and multiplying it by the year-to-date pre-tax book income.

We recorded income tax expense of ~~$2.2~~$1.5 million and ~~$2.5~~$1.2 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. We recorded income tax expense of $5.3 million and $3.7 million for the nine months ended September 30, 2020 and 2019,~~ respectively. The income tax expense for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 increased primarily due to an

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~

increase in global pre-tax income and the mix of pre-tax income among jurisdictions, including losses not benefited as a result of a valuation allowance.

At December 31, ~~2019,~~2020, we assessed the realizability of our deferred tax assets by considering whether it is "more likely than not" some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, ~~2019,~~2020, we had a three-year

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(Unaudited)

cumulative operating loss for our U.S. operations and accordingly, have provided a full valuation allowance on our U.S. federal and state deferred tax assets. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, there was no change to our valuation allowance position.

At ~~September 30, 2020,~~March 31, 2021, we had gross unrecognized tax benefits of $3.1 million, including interest and penalties, of which, ~~approximately $3.1 million of this amount,~~ if not for the state Research and Experimentation income tax credit valuation allowance, would affect the annual effective tax rate if these tax benefits are realized. Further, we are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next twelve months. ~~However, based~~Based on federal, state and foreign statute expirations in various jurisdictions, we do not anticipate a decrease in unrecognized tax benefits ~~of approximately $0.2 million~~ within the next twelve ~~months based on federal, state, and foreign statute expirations in various jurisdictions.~~months. We have classified uncertain tax positions as non-current income tax liabilities unless they are expected to be paid within one year.

We have elected to classify interest and penalties as a component of tax expense. Accrued interest and penalties ~~of $0.2 million~~are immaterial at ~~September 30, 2020~~March 31, 2021 and ~~$0.2 million at~~ December 31, ~~2019~~2020 and are included in the unrecognized tax benefits.

On March 18, 2020 and March 27, 2020, the Families First Coronavirus Response ("FFCR") Act and the Coronavirus Aid, Relief and Economic Security ("CARES") Act, respectively, were enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. We are currently evaluating the impact of this legislation on our consolidated financial position, results of operations, and cash flows. Future regulatory guidance under the FFCR and CARES Acts (as well as under the Tax Cuts and Jobs Act) remains forthcoming and such guidance may ultimately increase or decrease their impact on our business and financial condition. It is also possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, some of which may impact us.

In April 2020, recent interpretations of a German law relating to withholding taxes on intellectual property rights emerged. We are currently evaluating this law and any related impact to our financial position and results of operations.

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~

Note 910 — Accrued Compensation

In June 2018, we sold our Guangzhou entity via a stock deal and the terms of the agreement included a two-year indemnification period. In June 2020, the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our Guangzhou entity. Accordingly, we reversed the accrued social insurance by the amount associated with the Guangzhou entity, which was approximately $9.5 million.

The components of accrued compensation were as follows:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
Accrued social insurance (1)		$	7,150	$	16,588
Accrued salary/wages		6,606		7,465
Accrued vacation/holiday		3,046		2,766
Accrued bonus	Accrued bonus	3,750		13,965		Accrued bonus	$	2,343	$	7,602
Accrued commission	Accrued commission	954		1,283		Accrued commission	529		1,779
Accrued salary/wages						Accrued salary/wages	7,079		7,107
Accrued social insurance (1)						Accrued social insurance (1)	7,340		7,375
Accrued vacation/holiday						Accrued vacation/holiday	3,695		3,307
Other accrued compensation	Other accrued compensation	1,384		1,601		Other accrued compensation	1,816		1,761
Total accrued compensation	Total accrued compensation	$	22,890	$	43,668	Total accrued compensation	$	22,802	$	28,931

(1)PRC employers are required by law to remit the applicable social insurance payments to their local government. Social insurance is comprised of various components such as pension, medical insurance, job industry insurance, unemployment insurance, and a housing assistance fund, and is administered in a manner similar to social security in the United States. This amount represents our estimate of the amounts due to the PRC government for social insurance ~~at September 30, 2020~~on March 31, 2021 and December 31, ~~2019.~~2020.

Note 1011 — Other Accrued Liabilities

The components of other accrued liabilities were as follows:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	March 31, 2021		December 31, 2020
Contract liabilities		$	2,207	$	1,840
Duties	Duties	4,607		3,731		Duties	$	4,743	$	4,469
Expense associated with fulfilled performance obligations						Expense associated with fulfilled performance obligations	1,344		1,372
Freight and handling fees	Freight and handling fees	2,503		3,769		Freight and handling fees	2,418		2,218
Operating lease obligations	Operating lease obligations	5,802		4,903		Operating lease obligations	5,838		6,094
Product warranty claims costs	Product warranty claims costs	1,797		1,514		Product warranty claims costs	1,575		1,721
Professional fees	Professional fees	4,301		2,833		Professional fees	5,769		3,794
Sales and value added taxes	Sales and value added taxes	4,217		3,926		Sales and value added taxes	4,879		5,118
Short-term contingent consideration	Short-term contingent consideration	1,780		5,428		Short-term contingent consideration	0		1,758
Other(1)	Other(1)	6,402		7,501		Other(1)	7,159		6,513
Total other accrued liabilities	Total other accrued liabilities	$	33,616	$	35,445	Total other accrued liabilities	$	33,725	$	33,057

(1)Includes $0.5 million and $0.3 million of contract liabilities at March 31, 2021 and December 31, 2020, respectively.

1715

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Note 1112 — Commitments and Contingencies

Product Warranties

Changes in the liability for product warranty claims costs were as follows:


(In thousands)	(In thousands)	Nine Months Ended September 30,				(In thousands)	Three Months Ended March 31,
		2020		2019			2021		2020
Balance at beginning of period	Balance at beginning of period	$	1,514	$	276	Balance at beginning of period	$	1,721	$	1,514
Accruals for warranties issued during the period	Accruals for warranties issued during the period	578		695		Accruals for warranties issued during the period	46		0
Settlements (in cash or in kind) during the period/Foreign exchange effects		(295)		0
Settlements (in cash or in kind) during the period						Settlements (in cash or in kind) during the period	(149)		0
Foreign currency translation gain (loss)						Foreign currency translation gain (loss)	(43)		(16)
Balance at end of period	Balance at end of period	$	1,797	$	971	Balance at end of period	$	1,575	$	1,498

Litigation

Roku Matters

2018 Lawsuit

On September 5, 2018, we filed a lawsuit against Roku, Inc. ("Roku") in the United States District Court, Central District of California, alleging that Roku is willfully infringing 9 of our patents that are in 4 patent families related to remote control set-up and touchscreen remotes. On December 5, 2018, we amended our complaint to add additional details supporting our infringement and willfulness allegations. We have alleged that this complaint relates to multiple Roku streaming players and components ~~therefore~~therefor and certain universal control devices, including but not limited to the Roku App, Roku TV, Roku Express, Roku Streaming Stick, Roku Ultra, Roku Premiere, Roku 4, Roku 3, Roku 2, Roku Enhanced Remote and any other Roku product that provides for the remote control of an external device such as a TV, audiovisual receiver, sound bar or Roku TV Wireless Speakers. In October 2019, the Court stayed this lawsuit pending action by the Patent Trial and Appeals Board (the "PTAB") with respect to Roku's Inter Partes Review requests (see discussion below).

International Trade Commission Investigation of Roku, TCL, Hisense and Funai

On April 16, 2020, we filed a complaint with the International Trade Commission (the "ITC") against Roku, TCL Electronics Holding Limited and related entities (collectively, "TCL"), Hisense Co., Ltd. and related entities (collectively, "Hisense"), and Funai Electric Company, Ltd. and related entities (collectively, "Funai") claiming that certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars infringe certain of our patents. We asked the ITC to issue a permanent limited exclusion order prohibiting the importation of these infringing products into the United States and a cease and desist order to stop these parties from continuing their infringing activities. On May 18, 2020, the ITC announced that it instituted its investigation as requested by us. ~~We are~~The trial ended on April 23, 2021. The parties will each submit post-trial briefing in May and the ~~discovery phase of this investigation which~~initial determination from the Administrative Law Judge is ~~set to end~~expected in early ~~November 2020.~~

~~Inter Partes Reviews~~

In September and October 2019, Roku filed Inter Partes Review ("IPR") requests with the PTAB on the 9 patents at issue in the 2018 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request with respect to 3 of the 9 patents and granted Roku's request with respect to 6 of the 9 patents. As for those IPRs for which the PTAB granted Roku's request for review, we will vigorously defend our patents. In May and June 2020, Roku filed 4 IPR requests against 3 patents asserted in the ITC investigation. UEI has responded to these requests and we are awaiting the PTAB decision in early to midJuly 2021.

~~Federal District Court Actions against each of Roku, TCL, Hisense, and Funai related~~

2020 Lawsuit

As a companion case to ~~the~~our ITC ~~Matter~~

Oncomplaint, on April 9, 2020, we filed separate actions against each of Roku, TCL, Hisense, and Funai in the United States District Court, Central District of California, alleging that Roku is willfully infringing 5 of our patents and TCL, Hisense, and Funai are willfully infringing 6 of our patents by incorporating our patented technology into certain of their televisions, set-top boxes, remote control devices, human interface devices, streaming devices, and sound bars. These matters ~~have~~had been stayed pending the results of the ITC investigation mentioned above.

Inter Partes Reviews

Throughout these litigation matters against Roku and the others identified above, Roku has filed multiple Inter Partes Review ("IPR") requests with the PTAB on all patents at issue in the 2018 Lawsuit, the ITC Action, and the 2020 Lawsuit (see discussion above). To date, the PTAB has denied Roku's request 7 times, granted Roku's request 4 times and we are awaiting the PTAB's institution decision with respect to the remaining 9 IPR requests. Of the 4 IPR requests granted by the PTAB, the results were mixed, with the PTAB validating many of our patent claims and invalidating others. We will appeal any PTAB decision that resulted in an invalidation of our patent claims.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

International Trade Commission Investigation Request Made by Roku against UEI and certain UEI Customers

On April 8, 2021, Roku made a request to the ITC to initiate an investigation against us and certain of our customers claiming that certain of our and those customers’ remote control devices and televisions infringe 2 of Roku’s recently acquired patents. The ITC has not yet decided to initiate the requested investigation, but if it does we will vigorously defend against them. As a companion to its ITC request, Roku also filed a lawsuit against us in Federal District court in the Central District of California alleging that we are infringing the same patents they alleged being infringed in the ITC request explained above. We will vigorously defend these allegations as well.

Court of International Trade Action against the United States of America, et. al.

On October 9, 2020, ~~Universal Electronics Inc. ("UEI")~~we and our subsidiaries, Ecolink Intelligent Technology, Inc. ("Ecolink") and RCS Technology, LLC ("RCS"), filed an amended complaint (20-cv-00670) in the Court of International Trade (the "CIT") against the United States of America; the Office of the United States Trade Representative; Robert E. Lighthizer, U.S. Trade Representative; U.S. Customs & Border Protection; and Mark A. Morgan, U.S. Customs & Border Protection Acting Commissioner, challenging both the substantive and procedural processes followed by the United States Trade Representative ("USTR") when instituting Section 301 Tariffs on imports from China under Lists 3 and 4A.

Pursuant to this complaint, ~~UEI,~~we, Ecolink and RCS are alleging that USTR's institution of Lists 3 and 4A tariffs violated the Trade Act of 1974 (the "Trade Act") on the grounds that the USTR failed to make a determination or finding that there was an unfair trade practice that required a remedy and moreover, that Lists 3 and 4A tariffs were instituted beyond the 12-month time limit provided for in the governing statute. ~~UEI,~~We, Ecolink and RCS also allege that the manner in which the Lists 3 and 4A tariff actions were implemented violated the Administrative Procedures Act (the "APA") by failing to provide adequate opportunity for comments, failed to consider relevant factors when making its decision and failed to connect the record facts to the choices it made by not explaining how the comments received by USTR came to shape the final implementation of Lists 3 and 4A.

~~UEI,~~

We, Ecolink and RCS are asking the CIT to declare that ~~Defendants'~~the defendants' actions resulting in the tariffs on products covered by Lists 3 and 4A are unauthorized by and contrary to the Trade Act and ~~was~~were arbitrarily and unlawfully promulgated in violation of the APA; to vacate the Lists 3 and 4A tariffs; to order a refund (with interest) of any Lists 3 and 4A duties paid by ~~UEI,~~us, Ecolink and RCS; to permanently enjoin the U.S. government from applying Lists 3 and 4A duties against ~~UEI,~~us, Ecolink and RCS; and award ~~UEI,~~us, Ecolink and RCS ~~their~~our costs and reasonable ~~attorney~~attorney's fees.

The ~~Government has~~defendants have requested an automatic stay of all pending cases challenging the ~~List~~Lists 3 and ~~List~~ 4A tariffs except for one or more "test cases." It proposed the first-filed case—the case filed by HMTX—as the test case. The government also asked the court to appoint a "steering committee" consisting of several lead counsel for the plaintiffs to direct the litigation. The government proposed a bifurcated briefing schedule, under which the parties would first brief the government's upcoming motion to dismiss before briefing the merits of plaintiffs' claims. We will agree to a stay in our case. HMTX has filed a response agreeing to the stay and to being the test case but opposed the ~~Government's~~defendants' proposed briefing schedule.

On February 10, 2021, the CIT's three-judge panel issued an order establishing a master case for filings that relate to some or all of the Section 301 cases. The order also established a deadline of March 12, 2021 for the government to file a "master answer" to all the complaints.

On March 31, 2021, the CIT issued an order stating that it would proceed with the HMTX case as the sample case and staying all other Section 301 cases. The CIT directed the HMTX plaintiffs and the government to file a proposed briefing schedule and joint status report on the issue of refunds. After the parties did so, the CIT adopted a briefing schedule that requires briefing to be completed by November 15, 2021. The CIT also scheduled a status conference for April 26, 2021 to discuss the issue of availability of refunds. In advance of that status conference, the HMTX plaintiffs filed a motion seeking a preliminary injunction seeking to enjoin the further liquidation of entries pending the outcome of the case. It is our hope that this issue will be resolved at the status conference with the court ruling to either (1) declare that such refunds will be available if plaintiffs prevail or (2) enjoin the further liquidation of entries pending the outcome of the case.

There are no other material pending legal proceedings to which we or any of our subsidiaries is a party or of which our respective property is the subject. However, as is typical in our industry and to the nature and kind of business in which we are engaged, from time to time, various claims, charges and litigation are asserted or commenced by third parties against us or by us against third parties arising from or related to product liability, infringement of patent or other intellectual property rights,

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(Unaudited)

breach of warranty, contractual relations, or employee relations. The amounts claimed may be substantial, but may not bear any reasonable relationship to the merits of the claims or the extent of any real risk of court awards assessed against us or in our favor. However, no assurances can be made as to the outcome of any of these matters, nor can we estimate the range of potential losses to us. In our opinion, final judgments, if any, which might be rendered against us in potential or pending litigation would not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Moreover, we believe that our products do not infringe any third parties' patents or other intellectual property rights.

We maintain directors' and officers' liability insurance which insures our individual directors and officers against certain claims, as well as attorney's fees and related expenses incurred in connection with the defense of such claims.

Note 1213 — Treasury Stock

From time to time, our Board of Directors authorizes management to repurchase shares of our issued and outstanding common stock. ~~On September 15, 2020,~~On February 11, 2021, our Board of Directors authorized a share repurchase program (the "September 2020 Program"), which replaced in its entirety the previous repurchase program. Pursuant to the September 2020 Program, we may repurchase up to 300,000 shares of our common stock. At September 30, 2020, we had 213,075 shares of common stock authorized for repurchase remaining under the September 2020 Program. Subsequent to September 30, 2020, we repurchased an additional 113,075 shares under the September 2020 Program at a cost of $4.4 million. On October 28, 2020, our Board terminated the September 2020 Program and replaced it withapproved a new share repurchase program with an effective date of ~~November 10, 2020~~February 23, 2021 (the ~~"November 2020~~"February 2021 Program"). Pursuant to the ~~November 2020~~February 2021 Program, we may, from time to time until ~~February 18,~~May 6, 2021, repurchase up to ~~500,000~~300,000 shares of our common stock. On April 28, 2021, our Board approved a new share repurchase program with an effective date of May 11, 2021 (the "May 2021 Program"). Pursuant to the May 2021 Program, we may, from time to time until August 5, 2021, repurchase up to 300,000 shares of our common stock. We may ~~repurchase~~utilize various methods to effect the repurchases, which may include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of ~~common stock in privately negotiated and/or open-market transactions, including pursuant to plans complying with~~which may be effected through Rule 10b5-1 ~~promulgated under the Securities Exchange Act~~plans. The timing and amount of ~~1934.~~

~~Table of Contents~~future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~

Repurchased shares of our common stock were as follows:


		Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Shares repurchased	Shares repurchased	263		55		Shares repurchased	191		169
Cost of shares repurchased	Cost of shares repurchased	$	9,822	$	1,741	Cost of shares repurchased	$	10,951	$	6,291

Repurchased shares are recorded as shares held in treasury at cost. We hold these shares for future use as management and the Board of Directors deem appropriate.

~~Note 13 — Long-lived Tangible Assets~~

~~Long-lived tangible assets by geographic area, which include property, plant, and equipment, net and operating lease right-of-use assets, were as follows:~~

(In thousands) September 30, 2020 December 31, 2019
United States $ 16,327 $ 19,938
People's Republic of China 61,320 67,625
Mexico 20,624 16,644
All other countries 4,956 6,351
Total long-lived tangible assets $ 103,227 $ 110,558

Note 14 — Stock-Based Compensation

Stock-based compensation expense for each employee and director is presented in the same statement of operations caption as their cash compensation. Stock-based compensation expense by statement of operations caption and the related income tax benefit were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
Cost of sales	Cost of sales	$	36	$	37	$	146	$	102	Cost of sales	$	37	$	74
Research and development expenses	Research and development expenses	287		315		811		809		Research and development expenses	313		236
Selling, general and administrative expenses:	Selling, general and administrative expenses:									Selling, general and administrative expenses:
Employees	Employees	1,555		1,866		4,695		5,005		Employees	1,868		1,583
Outside directors	Outside directors	382		309		1,202		802		Outside directors	382		410
Total employee and director stock-based compensation expense	Total employee and director stock-based compensation expense	$	2,260	$	2,527	$	6,854	$	6,718	Total employee and director stock-based compensation expense	$	2,600	$	2,303

Income tax benefit	Income tax benefit	$	494	$	509	$	1,500	$	1,385	Income tax benefit	$	466	$	506

2018

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Stock Options

Stock option activity was as follows:

Number of Options
(in thousands) Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term
(in years) Aggregate Intrinsic Value
(in thousands)
Outstanding at December 31, 2019 745 $ 41.73
Granted 109 46.17
Exercised 0 0 $ 0
Forfeited/canceled/expired 0 0
Outstanding at September 30, 2020 (1)
854 $ 42.29 3.63 $ 3,853
Vested and expected to vest at September 30, 2020 (1)
854 $ 42.29 3.63 $ 3,853
Exercisable at September 30, 2020 (1)
634 $ 43.04 2.75 $ 3,048


	Number of Options (in thousands)	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2020	774	$	43.01
Granted	80	59.43
Exercised	(22)	44.39			$	253
Forfeited/canceled/expired	0	0
Outstanding at March 31, 2021 (1)	832	$	44.56	3.78	$	10,513
Vested and expected to vest at March 31, 2021 (1)	832	$	44.56	3.78	$	10,513
Exercisable at March 31, 2021 (1)	616	$	43.68	2.94	$	8,444

(1)The aggregate intrinsic value represents the total pre-tax value (the difference between our closing stock price on the last trading day of the ~~third~~first quarter of ~~2020~~2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they all exercised their options on ~~September 30, 2020.~~March 31, 2021. This amount will change based on the fair market value of our stock.

The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of stock option grants were the following:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2020			2019			2020			2019				2021			2020
Weighted average fair value of grants	Weighted average fair value of grants	$	0		$	0		$	17.70		$	10.28		Weighted average fair value of grants	$	23.97		$	17.70
Risk-free interest rate	Risk-free interest rate	0		%	0		%	1.44		%	2.49		%	Risk-free interest rate	0.41		%	1.44		%
Expected volatility	Expected volatility	0		%	0		%	43.95		%	41.64		%	Expected volatility	48.49		%	43.95		%
Expected life in years	Expected life in years	0.00			0.00			4.59			4.54			Expected life in years	4.62			4.59

As of ~~September 30, 2020,~~March 31, 2021, we expect to recognize ~~$2.7~~$3.7 million of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options over a remaining weighted-average life of ~~1.9~~2.2 years.

Restricted Stock

Non-vested restricted stock award activity was as follows:


		Shares (in thousands)	Weighted-Average Grant Date Fair Value			Shares (in thousands)		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2019		310	$	34.99
Non-vested at December 31, 2020					Non-vested at December 31, 2020	$	374	$	34.53
Granted	Granted	235	36.83		Granted	113		59.67
Vested	Vested	(150)	38.09		Vested	(160)		34.90
Forfeited	Forfeited	(6)	44.31		Forfeited	(1)		31.83
Non-vested at September 30, 2020		389	$	34.75
Non-vested at March 31, 2021					Non-vested at March 31, 2021	$	326	$	43.13

As of ~~September 30, 2020,~~March 31, 2021, we expect to recognize ~~$10.2~~$13.0 million of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards over a weighted-average life of ~~1.9~~2.2 years.

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Note 15 — Performance-Based Common Stock Warrants

On March 9, 2016, we issued common stock purchase warrants to Comcast Corporation ("Comcast") to purchase up to 725,000 shares of our common stock at a price of $54.55 per share. The right to exercise the warrants is subject to vesting over 3 successive two-year periods (with the first two-year period commencing on January 1, 2016) based on the level of purchases of goods and services from us by Comcast and its affiliates, as defined in the warrants. The table below presents the purchase levels and potential number of warrants to vest in each period based upon achieving the purchase levels.


	Potential Warrants To Vest
Aggregate Level of Purchases by Comcast and Affiliates	January 1, 2016 - December 31, 2017	January 1, 2018 - December 31, 2019	January 1, 2020 - December 31, 2021
$260 million	100,000	100,000	75,000
$300 million	75,000	75,000	75,000
$340 million	75,000	75,000	75,000
Maximum Potential Warrants Earned by Comcast	250,000	250,000	225,000

If total aggregate purchases by Comcast and its affiliates are below $260 million in any of the two-year periods above, no warrants will vest related to that two-year period. If total aggregate purchases of goods and services by Comcast and its affiliates exceed $340 million during either the first or second two-year period, the amount of any such excess would count toward aggregate purchases in the following two-year period. This threshold was not met in either the first or second two-year period. For the two-year period ended December 31, 2017, Comcast earned and vested in 175,000 out of the maximum potential 250,000 warrants. For the two-year period ended December 31, 2019, Comcast earned and vested in 100,000 out of the maximum potential 250,000 warrants. At ~~September 30, 2020,~~March 31, 2021, 275,000 vested warrants were outstanding. To fully vest in the rights to purchase all of the remaining unearned 225,000 underlying shares, Comcast and its affiliates must purchase an aggregate of $340 million in goods and services from us during the period January 1, 2020 through December 31, 2021.

All warrants that vest will expire on January 1, 2023. The warrants provide for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to customary anti-dilution provisions. Additionally, in connection with the common stock purchase warrants, we have also entered into a registration rights agreement with Comcast under which Comcast may from time to time request that we register the shares of common stock underlying vested warrants with the SEC.

As the warrants contain performance criteria under which Comcast must achieve specified aggregate purchase levels for the warrants to vest, as detailed above, the measurement date for the warrants for the first two-year successive periods was the date on which the warrants vested.

The FASB issued guidance in November 2019 that clarifies the accounting for share-based payments issued as sales incentives to customers. The guidance requires that stock-based compensation expense be recorded as a reduction in the transaction price on the basis of the grant-date fair value. The transition provisions require that equity-classified awards be measured at the adoption date fair value if the measurement date has not been established prior to the adoption date. The measurement periods for the first two successive two-year periods of our outstanding performance-based common stock warrants were completed prior to adoption and were not impacted by this updated guidance. The measurement period for the final two-year period began on January 1, 2020, and, accordingly, we measured the fair value of the award as of our adoption date on January 1, 2020 using the Black-Scholes option pricing model. Through ~~September 30, 2020,~~March 31, 2021, 0ne of the warrants had vested for the two-year period beginning January 1, 2020.

The assumptions we utilized in the Black-Scholes option pricing model and the resulting grant-date fair value of the warrants as of January 1, 2020 were the following:


Fair value	$	17.19
Price of Universal Electronics Inc. common stock	$	52.21
Risk-free interest rate	1.62		%
Expected volatility	48.86		%
Expected life in years	3.00

2220

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2020~~MARCH 31, 2021

(Unaudited)

Prior to the adoption of the new guidance on January 1, 2020, we adjusted the estimated weighted average fair value of the warrants each period. The assumptions we utilized in the Black-Scholes option pricing model and the resulting weighted average fair value of the warrants were the following:

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Fair value $ 16.78 $ 16.78
Price of Universal Electronics Inc. common stock $ 51.09 $ 51.09
Risk-free interest rate 1.56 % 1.56 %
Expected volatility 47.82 % 47.82 %
Expected life in years 3.25 3.25

The impact to net sales recorded in connection with the warrants and the related income tax benefit were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
Reduction to net sales	Reduction to net sales	$	187	$	711	$	525	$	1,381	Reduction to net sales	$	143	$	184
Income tax benefit	Income tax benefit	$	47	$	177	$	131	$	345	Income tax benefit	$	36	$	46

We estimate the number of warrants that will vest based on projected future purchases that will be made by Comcast and its affiliates. These estimates may increase or decrease based on actual future purchases. The aggregate estimated fair value of the warrants is recognized as a reduction to revenue over the related two-year vesting period. At ~~September 30, 2020,~~March 31, 2021, the aggregate unrecognized estimated fair value of warrants we estimate will vest was ~~$0.8~~$0.5 million.

Note 16 — Other Income (Expense), Net

Other income (expense), net consisted of the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
Net gain (loss) on foreign currency exchange contracts (1)	Net gain (loss) on foreign currency exchange contracts (1)	$	(72)	$	368	$	(523)	$	(8)	Net gain (loss) on foreign currency exchange contracts (1)	$	1,161	$	252
Net gain (loss) on foreign currency exchange transactions	Net gain (loss) on foreign currency exchange transactions	(1,525)		(689)		(865)		(662)		Net gain (loss) on foreign currency exchange transactions	(1,270)		(548)
Other income		(49)		173		125		244
Other (expense), net		$	(1,646)	$	(148)	$	(1,263)	$	(426)
Other income (expense)										Other income (expense)	132		(52)
Other income (expense), net										Other income (expense), net	$	23	$	(348)

(1)This represents the gains (losses) incurred on foreign currency hedging derivatives (see Note 18 for further details).

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~

Note 17 — Earnings ~~(Loss)~~ Per Share

Earnings ~~(loss)~~ per share was calculated as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands, except per-share amounts)	(In thousands, except per-share amounts)	2020		2019		2020		2019		(In thousands, except per-share amounts)	2021		2020
BASIC	BASIC									BASIC
Net income (loss)		$	6,168	$	2,669	$	26,414	$	(3,397)
Net income										Net income	$	6,993	$	5,846
Weighted-average common shares outstanding	Weighted-average common shares outstanding	13,928		13,894		13,935		13,861		Weighted-average common shares outstanding	13,803		13,960
Basic earnings (loss) per share		$	0.44	$	0.19	$	1.90	$	(0.25)
Basic earnings per share										Basic earnings per share	$	0.51	$	0.42

DILUTED	DILUTED									DILUTED
Net income (loss)		$	6,168	$	2,669	$	26,414	$	(3,397)
Net income										Net income	$	6,993	$	5,846
Weighted-average common shares outstanding for basic	Weighted-average common shares outstanding for basic	13,928		13,894		13,935		13,861		Weighted-average common shares outstanding for basic	13,803		13,960
Dilutive effect of stock options, restricted stock and common stock warrants	Dilutive effect of stock options, restricted stock and common stock warrants	277		276		254		0		Dilutive effect of stock options, restricted stock and common stock warrants	396		251
Weighted-average common shares outstanding on a diluted basis	Weighted-average common shares outstanding on a diluted basis	14,205		14,170		14,189		13,861		Weighted-average common shares outstanding on a diluted basis	14,199		14,211
Diluted earnings (loss) per share		$	0.43	$	0.19	$	1.86	$	(0.25)
Diluted earnings per share										Diluted earnings per share	$	0.49	$	0.41

The following number of stock options, shares of restricted stock and common stock warrants were excluded from the computation of diluted earnings per common share as their inclusion would have been anti-dilutive:


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended March 31,
(In thousands)	(In thousands)	2020	2019	2020	2019	(In thousands)	2021	2020
Stock options	Stock options	511	382	494	436	Stock options	230	402
Restricted stock awards	Restricted stock awards	0	9	18	89	Restricted stock awards	50	51
Performance-based warrants		275	175	275	175
Common stock warrants						Common stock warrants	0	275

Table of Contents

UNIVERSAL ELECTRONICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

(Unaudited)

Note 18 — Derivatives

The following table sets forth the total net fair value of derivatives:


		September 30, 2020									December 31, 2019											March 31, 2021											December 31, 2020
		Fair Value Measurement Using						Total Balance			Fair Value Measurement Using							Total Balance				Fair Value Measurement Using									Total Balance		Fair Value Measurement Using						Total Balance
(In thousands)	(In thousands)	Level 1		Level 2		Level 3			Level 1			Level 2		Level 3		(In thousands)			Level 1				Level 2			Level 3			Level 1				Level 2		Level 3
Foreign currency exchange contracts	Foreign currency exchange contracts	$	0	$	153	$	0		$	153		$	0	$	(172)	$	0			$	(172)	Foreign currency exchange contracts		$	0		$	(56)		$		0	$	(56)	$	0	$	113	$	0	$	113

We held foreign currency exchange contracts, which resulted in a net pre-tax ~~loss~~gain of ~~$0.1~~$1.2 million and a net pre-tax gain of ~~$0.4~~$0.3 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~For the nine months ended September 30, 2020 and 2019, we had a net pre-tax loss of $0.5 million and $8.0 thousand, respectively (see Note 16).~~

~~Table of Contents~~

~~UNIVERSAL ELECTRONICS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2020~~

~~(Unaudited)~~

Details of foreign currency exchange contracts held were as follows:

Date Held Currency Position Held Notional Value
(in millions) Forward Rate
Unrealized Gain/(Loss) Recorded at Balance Sheet
Date
(in thousands)(1)
Settlement Date
September 30, 2020 USD/Chinese Yuan Renminbi CNY $ 37.0 6.8297 $ 210 October 30, 2020
September 30, 2020 USD/Euro USD $ 26.0 1.1685 $ (87) October 30, 2020
September 30, 2020 USD/Brazilian Real USD $ 1.5 5.5368 $ 24 October 30, 2020
September 30, 2020 USD/Mexican Peso USD $ 2.6 22.1285 $ 6 October 30, 2020
December 31, 2019 USD/Chinese Yuan Renminbi USD $ 35.0 6.9867 $ 100 January 23, 2020
December 31, 2019 USD/Brazilian Real USD $ 0.5 4.0560 $ (6) January 24, 2020
December 31, 2019 USD/Euro USD $ 28.0 1.1133 $ (253) January 24, 2020
December 31, 2019 USD/Brazilian Real USD $ 0.7 4.0870 $ (13) January 24, 2020


Date Held	Currency	Position Held	Notional Value (in millions)		Forward Rate	Unrealized Gain/(Loss) Recorded at Balance Sheet Date (in thousands)(1)		Settlement Date
March 31, 2021	USD/Chinese Yuan Renminbi	CNY	$	51.0	6.5537	$	(189)	April 30, 2021
March 31, 2021	USD/Euro	USD	$	34.0	1.1777	$	133	April 30, 2021
December 31, 2020	USD/Chinese Yuan Renminbi	CNY	$	55.0	6.5370	$	239	January 29, 2021
December 31, 2020	USD/Brazilian Real	USD	$	0.9	5.1714	$	4	January 29, 2021
December 31, 2020	USD/Euro	USD	$	28.0	1.2177	$	(106)	January 29, 2021
December 31, 2020	USD/Mexican Peso	USD	$	1.9	20.1915	$	(24)	January 29, 2021

(1)Unrealized gains on foreign currency exchange contracts are recorded in prepaid expenses and other current assets. Unrealized losses on foreign currency exchange contracts are recorded in other accrued liabilities.

2522

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this report.

Overview

We design, develop, manufacture, ship and ~~ship~~support control and sensor technology solutions and a broad line of ~~pre-programmed and~~ universal control ~~products,~~systems, audio-video ("AV") accessories, and intelligent wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, ~~subscription broadcast,~~security, home ~~entertainment,~~ automation, ~~security, hospitality and~~ climate control, and home appliance markets. Our product and technology offerings include:

•easy-to-use, ~~pre-programmed~~voice-enabled, automatically-programmed universal ~~infrared ("IR") and~~remote controls with two-way radio frequency ("RF") as well as infrared ("IR") remote controls, that are sold primarily to ~~subscription broadcast~~video service providers (cable, satellite, ~~and~~ Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers, and private label customers;

•integrated circuits ("ICs"), on which our software and universal device control database is embedded, sold primarily to OEMs, ~~subscription broadcast~~video service providers, and private label customers;

•software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, ~~smartphones, tablets,~~smart speakers, game controllers and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver ~~digital~~home entertainment, smart home services and device or system information;

•cloud-services that support our embedded software and hardware solutions (directly or indirectly) enabling real-time device identification and system control with billions of transactions per year in device and data management;

•intellectual property ~~which~~that we license primarily to OEMs, software development companies, private label customers, and ~~subscription broadcast~~video service providers;

•proprietary and standards-based RF sensors designed for residential security, safety and home automation applications;

•wall-mount and handheld thermostat controllers and connected accessories for intelligent energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators; and

•AV accessories sold, directly and indirectly, to ~~consumers.~~consumers including universal remote controls, television wall mounts and stands and digital television antennas.

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge graph. Since our beginning in 1986, we have compiled an extensive device control knowledge library that includes over ~~12,000~~12,500 brands comprising over ~~920,000~~940,000 device models across AV and smart home platforms, supported by many common smart home protocols, including IR, HDMI-CEC, Zigbee ~~and~~(Rf4CE) Z-Wave, IP as well as Home Network orand Cloud Control.

This device knowledge graph is backed by our unique device fingerprinting technology, which includes nearly ~~6.9~~9.9 million unique device fingerprints across both AV and ~~smart home~~Smart Home devices.

Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired Consumer Electronics Control ("CEC") and wireless ~~Internet Protocol ("IP")~~IP control protocols commonly found on many of the latest HDMI and internet connected devices. Our proprietary software automatically detects, identifies and enables the appropriate control commands for ~~any given~~many home entertainment and automation ~~and air conditioning device~~devices in the home. Our libraries are continuously updated with device control codes used in newly introduced AV and Internet of Things ~~("IoT")~~ devices. These control codes are captured directly from original ~~remote~~ control devices or from the manufacturer's written specifications to ensure the accuracy and integrity of the library. Our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than similarly priced products of our competitors.

We hold a number of patents in the United States and abroad related to our products and technology, and have ~~developed a comprehensive patent portfolio of~~filed domestic and foreign applications for other patents that are pending. At March 31, 2021, we had over ~~580~~600 issued and pending U.S. patents related to remote control, home security, safety and automation as well as hundreds of foreign counterpart patents and applications in various territories around the world.

Table of Contents

We operate as one business segment. We have 2two domestic subsidiaries and 2526 international subsidiaries located in Argentina, Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (the "PRC") (7), Singapore, Spain and the United Kingdom.

To recap our results for the three months ended ~~September 30, 2020:~~March 31, 2021:

•Net sales decreased ~~23.5%~~0.8% to ~~$153.5~~$150.5 million for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~$200.7~~$151.8 million for the three months ended ~~September 30, 2019.~~March 31, 2020.

•Our gross margin percentage increased to ~~28.8%~~30.8% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~23.2%~~28.3% for the three months ended ~~September 30, 2019.~~March 31, 2020.

•Operating expenses, as a percentage of net sales, increased to ~~22.1%~~25.1% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~20.2%~~23.0% for the three months ended ~~September 30, 2019.~~March 31, 2020.

~~Table of Contents~~

•Our operating income increased to ~~$10.2~~$8.6 million for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~$6.1~~$8.0 million for the three months ended ~~September 30, 2019.~~March 31, 2020. Our operating income percentage increased to ~~6.7%~~5.7% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~3.0%~~5.3% for the three months ended ~~September 30, 2019.~~March 31, 2020.

•Income tax expense ~~decreased~~increased to ~~$2.2~~$1.5 million for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~$2.5~~$1.2 million for the three months ended ~~September 30, 2019.~~March 31, 2020.

Our strategic business objectives for ~~2020~~2021 include the following:

•continue to develop and market ~~the~~ advanced remote control products and technologies ~~that~~ our customer base is adopting;

•continue to broaden our home control and home automation product offerings;

•continue to expand our software and service offerings to deliver a complete managed service platform;

•further ~~penetrate~~penetration of international subscription ~~broadcast~~broadcasting markets;

•acquire new customers in historically strong regions;

•increase our share with existing customers; and

•continue to seek acquisitions or strategic partners that complement and strengthen our existing business.

We intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.

COVID-19 Pandemic Impact

The global spread of COVID-19 has been and continues to be a complex and rapidly-evolving situation, with governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, at various times and to varying degrees, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, limitations on the size of gatherings, closures of or occupancy or other operating limitations on work facilities, schools, public buildings and businesses, cancellation of events, including sporting events, conferences and meetings, and quarantines and lock-downs. The COVID-19 pandemic ~~has caused,~~ and ~~is expected to~~its consequences have and will continue to ~~cause, a~~impact our business, operations, and financial results. The extent to which the COVID-19 pandemic impacts our business, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the COVID-19 pandemic (including the location and extent of resurgences of the virus and the availability of effective treatments or vaccines); the negative impact the COVID-19 pandemic has on global ~~slowdown of~~and regional economies and economic activity, ~~(including~~including the ~~decrease in demand for goods~~duration and ~~services),~~magnitude of its impact on unemployment rates and ~~significant volatility in and disruption to financial markets.~~consumer discretionary spending. Because the severity, magnitude and duration of the COVID-19 pandemic are uncertain, rapidly changing, and difficult to predict, the pandemic's impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain. As the COVID-19 ~~has spread to other jurisdictions and has been declared a global~~ pandemic continues, the full extent of this outbreak and the related governmental, business and travel restrictions in order to contain the COVID-19 pandemic are continuing to evolve globally. ~~In response, we have created a~~Our COVID-19 ~~taskforce,~~task force, which includes a cross-functional group of ~~senior level~~senior-level executives, continues to manage and respond to the ~~everchanging~~ever-changing health and safety requirements across the globe and communicate our ~~response to the pandemic~~responses and recommended course of action to our global factory and office leaders.

~~Local government mandates required us, in the first quarter~~

Table of ~~2020,~~Contents

In addition, we continue to keep our China factories closed for a period of approximately two weeks beyond the end of the Chinese Lunar New Year. Our Mexico factory was closed for more than one week due to local health ordinance requirements during the second quarter of 2020. As a part of our response to this pandemic, our COVID-19 taskforce has developed and we have implemented additionalmaintain safety measures for all ~~factory~~our employees across the globe, including implementing work-from-home arrangements, restricting travel except where essential and approved in advance, frequent office and factory sanitation, temperature scans upon entry, hand sanitizer stations located throughout ~~the~~our facilities ~~mandatory~~and offices, mask wearing, social distancing measures in gathering places and restricting ~~all~~ visitor access. All factories are up to or near labor capacity as of the issuance of this report.

~~We have also taken measures~~

Further, we continue to ~~safeguard the health~~monitor and well-being of our employees in our office locations throughout the world including implementing work from home arrangements and a moratorium on all travel, except where essential and approved in advance. We have implemented enhanced safety measures upon the reopening of our office locations including more frequent office sanitation, temperature scans upon arrival, mandatory mask wearing, additional hand sanitizer locations, social distancing measures throughout locations and restricted visitor access. The reopening of our offices continues to follow suggested guidelines by the Centers for Disease Control and Prevention, the World Health Organization, and local governmental orders and recommendations. The continued safety and welfare of our employees will remain at the forefront of all decision-making.

We anticipate that these actions and the global health crisis caused by the COVID-19 pandemic will continue to negatively impact business activity across the globe, including our business. We expect our sales demand to be negatively impacted ~~for~~into, at least, the ~~remainder~~first half of ~~2020~~2021 given the global reach and economic impact of the COVID-19 pandemic and the various quarantine and social distancing measures put in place to contain the spread of ~~COVID-19.~~the COVID-19 pandemic. We have also seen some disruptions in our supply chain that, if continued, may cause us difficulty in fulfilling customer orders. A closure of one of our factories for a sustained period of time would, in the short run, impact our ability to meet customer demand and would negatively impact our results.

We will continue to actively monitor the situation and may take further actions altering our business operations as necessary or as required by federal, state, or local authorities. The potential effects of any such alterations or modifications may have a material adverse impact on our business during 2021. Even after the COVID-19 pandemic subsides or effective treatments or vaccines become available, our business, markets, growth prospects and business model could be materially impacted or altered.

Global Integrated Circuit Shortage Impact

During the first quarter of 2021, we began experiencing difficulty in ordering integrated circuits ("ICs") for future use and that difficulty is continuing. The global shortage of ICs is affecting a multitude of industries and we expect it to continue to affect our business for the remainder of ~~2020~~ 2021. While we are identifying other sources of ICs and taking other production and inventory control steps in order to mitigate the effects caused by this shortage, we cannot guarantee that we will find alternative sources to meet our short and longer-term IC needs and/or ~~future periods.~~without experiencing increases in the prices we pay for these components. If we are not able to find these alternative sources of ICs or are not able to purchase sufficient quantities of ICs from our current and alternative suppliers, we may not be able to produce sufficient quantities of products to meet our customers’ demands. This, in turn, may affect our ability to meet our quarterly revenue targets for the remainder of 2021. Further, we may incur additional freight costs to meet the delivery demands of our customers. In addition, many of our products are paired with certain of our customers’ products, like set-top boxes or televisions. If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease.

~~Table of Contents~~

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States of America~~U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ~~on-going~~ongoing basis, we evaluate our estimates and judgments, including those related to revenue ~~recognition; allowance for bad debts;~~recognition, inventory ~~valuation; our review for~~valuation, impairment of long-lived assets, intangible assets and ~~goodwill; leases; business combinations;~~goodwill and income ~~taxes; stock-based compensation expense and performance-based common stock warrants.~~taxes. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available. Any adjustment may be significant and may have a material impact on our consolidated financial ~~position or results of operations.~~statements.

An accounting ~~policy~~estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably may have been used, or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements. We do not believe that there have been any significant changes during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to the items that we disclosed as our critical accounting policies and estimates in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2019.~~2020.

Table of Contents

Recent Accounting Pronouncements

See Note 1 contained in the "Notes to Consolidated Financial Statements" for a discussion of recent accounting pronouncements.

Results of Operations

The following table sets forth our reported results of operations expressed as a percentage of net sales for the periods indicated.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%
Cost of sales	Cost of sales	71.2		76.8		72.7		79.2		Cost of sales	69.2		71.7
Gross profit	Gross profit	28.8		23.2		27.3		20.8		Gross profit	30.8		28.3
Research and development expenses	Research and development expenses	5.0		4.0		5.0		3.8		Research and development expenses	5.3		5.2
Selling, general and administrative expenses	Selling, general and administrative expenses	17.1		16.2		16.9		16.3		Selling, general and administrative expenses	19.8		17.8
Operating income	Operating income	6.7		3.0		5.4		0.7		Operating income	5.7		5.3
Interest income (expense), net	Interest income (expense), net	(0.2)		(0.4)		(0.3)		(0.5)		Interest income (expense), net	(0.1)		(0.4)
Accrued social insurance adjustment		—		—		2.1		—

Other income (expense), net	Other income (expense), net	(1.1)		0.0		(0.3)		(0.1)		Other income (expense), net	0.0		(0.2)
Income (loss) before provision for income taxes		5.4		2.6		6.9		0.1
Income before provision for income taxes										Income before provision for income taxes	5.6		4.7
Provision for income taxes	Provision for income taxes	1.4		1.3		1.1		0.6		Provision for income taxes	1.0		0.8
Net income (loss)		4.0	%	1.3	%	5.8	%	(0.5)	%
Net income										Net income	4.6	%	3.9	%

Three Months Ended ~~September 30, 2020~~March 31, 2021 versus Three Months Ended ~~September 30, 2019~~March 31, 2020

Net sales. Net sales for the three months ended ~~September 30, 2020~~March 31, 2021 were ~~$153.5~~$150.5 million, a slight decrease ~~of 23.5%~~ compared to ~~$200.7~~$151.8 million for the three months ended ~~September 30, 2019. The decrease~~March 31, 2020. Beginning in net sales occurred primarily with our traditional home entertainment and security customers. The COVID-19 pandemic had an adverse effect on demand, which ultimately resulted in a decrease in net sales. We expectthe first quarter of 2020, the COVID-19 pandemic began to ~~continue to negatively impact~~adversely affect our ~~net~~ sales, primarily in the ~~fourth quarter.~~subscription broadcast channel. Through the first quarter of 2021, the ill effects caused by the pandemic on the subscription broadcast channel still remain.

Gross profit. Gross profit for the three months ended ~~September 30, 2020~~March 31, 2021 was ~~$44.2~~$46.4 million compared to ~~$46.5~~$42.9 million for the three months ended ~~September 30, 2019.~~March 31, 2020. Gross profit as a percentage of sales increased to ~~28.8%~~30.8% for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~23.2%~~28.3% for the three months ended ~~September 30, 2019.~~March 31, 2020. Gross profit as a percentage of sales was favorably impacted by a ~~reduction in U.S. tariff expense, improved operational efficiencies in our Mexico-based manufacturing facility~~mix shift toward higher margin revenue streams such as ~~it was no longer in~~royalties, as a ~~start-up phase, and an increase in royalty revenue as certain~~few of the largest consumer electronic companies in the world are embedding our technology in their devices. The ~~potential impact~~gross margin increase due to mix shift was partially offset by the weakening of the ~~COVID-19 pandemic on our gross profit as a percentage of net sales in future periods is unknown to us at this time; however,~~U.S. Dollar versus the ~~temporary closure of any of our factories may result in~~Chinese Yuan Renminbi and Mexican Peso.

~~Table of Contents~~

~~excess manufacturing costs, additional tariffs if we were to import goods from China into North America and additional expenses to meet the demand of our customers.~~

Research and development ("R&D") expenses. R&D expenses remained ~~relatively~~ consistent at ~~$7.7~~$7.9 million for both the three months ended ~~September 30, 2020 compared to $7.9 million for~~March 31, 2021 and the three months ended ~~September 30, 2019.~~March 31, 2020.

Selling, general and administrative ("SG&A") expenses. SG&A expenses ~~decreased~~increased to ~~$26.2~~$29.8 million for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~$32.4~~$27.0 million for the three months ended ~~September 30, 2019,~~March 31, 2020, primarily due to an increase in outside legal expenses related to a reduction in incentive compensation expense and a decrease in contingent consideration recorded in connection with our acquisition of the net assets of Ecolink Intelligent Technology, Inc. ("Ecolink"). We also reduced certain discretionary expenses as a result of the COVID-19 pandemic and expect this to continue through the remainder of the year.specific legal matter.

Interest income (expense), net. ~~Net interest~~Interest expense, net decreased to ~~$0.3~~$0.1 million for the three months ended ~~September 30, 2020~~March 31, 2021 from ~~$0.8~~$0.6 million for the three months ended ~~September 30, 2019~~March 31, 2020 as a result of a lower average quarterly loan balance and a lower interest rate.

Other income (expense), net. ~~Net~~Other income, net was $23 thousand for the three months ended March 31, 2021, as a result of net foreign currency gains, compared to other expense, ~~was $1.6~~net of $0.3 million for the three months ended ~~September 30,~~March 31, 2020, as a result of net foreign currency ~~losses, compared to expense of $0.1 million for the three months ended September 30, 2019, as a result of net foreign currency~~ losses.

Provision for income taxes. Income tax expense was ~~$2.2~~$1.5 million for the three months ended ~~September 30,~~March 31, 2021, representing an effective tax rate of 18.0% compared to an income tax expense of $1.2 million for the three months ended March 31, 2020, representing an effective tax rate of ~~26.0% compared to an income tax expense of $2.5 million for the three months ended September 30, 2019, representing an effective tax rate of 48.6%~~17.3%. ~~The decrease in the effective tax rate is due primarily to the U.S. incurring a larger pre-tax loss in 2019 which was not benefited because of the recording of a full valuation allowance.~~

~~Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019~~

~~Net sales.~~ Net sales for the nine months ended September 30, 2020 were $458.4 million, a decrease of 20.8% compared to $578.8 million for the nine months ended September 30, 2019. The decrease in net sales occurred primarily with our traditional home entertainment and security customers as we experienced supply, production and demand disruptions caused by the COVID-19 pandemic. Our China-based manufacturing facilities were delayed in re-opening after the Lunar New Year holiday, certain of our key suppliers were ordered to close by local authorities, and certain customers reduced order quantities. We expect the COVID-19 pandemic to negatively impact our net sales in the fourth quarter.

~~Gross profit.~~ Gross profit for the nine months ended September 30, 2020 was $125.2 million compared to $120.3 million for the nine months ended September 30, 2019. Gross profit as a percent of sales increased to 27.3% for the nine months ended September 30, 2020 from 20.8% for the nine months ended September 30, 2019. Gross profit as a percent of sales was favorably impacted by a reduction in U.S. tariff expense, improved operational efficiencies in our Mexico-based manufacturing facility as it was no longer in a start-up phase, an increase in royalty revenue as certain consumer electronic companies are embedding our technology in their devices, and the strengthening of the U.S. Dollar versus the Chinese Yuan Renminbi and the Mexican Peso. Partially offsetting these favorable items are costs associated with the COVID-19 pandemic. Our China-based manufacturing facilities were delayed in re-opening after the Lunar New Year holiday and our Mexico-based manufacturing facility experienced a more than one-week closure during the second quarter of 2020. The potential impact of the COVID-19 pandemic on our gross profit as a percentage of net sales in future periods is unknown to us at this time; however, the temporary closure of any of our factories may result in excess manufacturing costs, additional tariffs if we were to import goods from China into North America and additional expenses to meet the demand of our customers.

~~Research and development expenses.~~ R&D expenses increased 5.0% to $23.0 million for the nine months ended September 30, 2020 from $21.9 million for the nine months ended September 30, 2019 primarily due to our continued investment in the development of new products that enhance the user experience in home entertainment and home automation.

~~Selling, general and administrative expenses.~~ SG&A expenses decreased to $77.4 million for the nine months ended September 30, 2020 from $94.6 million for the nine months ended September 30, 2019, primarily due to a reduction in incentive compensation expense, a decrease in contingent consideration recorded in connection with our acquisition of the net assets of Ecolink and a decrease in freight costs. We also reduced certain discretionary expenses as a result of the COVID-19 pandemic and expect this to continue for the remainder of the year.

~~Interest income (expense), net.~~ Net interest expense decreased to $1.3 million for the nine months ended September 30, 2020 from $3.1 million for the nine months ended September 30, 2019 as a result of a lower average loan balance and a lower interest rate.

2926

Table of Contents

~~Accrued social insurance adjustment.~~ During the nine months ended September 30, 2019, we reversed approximately $9.5 million of accrued social insurance. In June 2018, we sold our Guangzhou entity via a stock deal and the terms of the agreement included a two-year indemnification period. In June 2020, the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our Guangzhou entity. Accordingly, we reversed the accrued social insurance amount associated with the Guangzhou entity, which was approximately $9.5 million.

~~Other income (expense), net.~~ Net other expense was $1.3 million for the nine months ended September 30, 2020, as a result of net foreign currency losses, compared to expense of $0.4 million for the nine months ended September 30, 2019, as a result of net foreign currency losses.

~~Provision for income taxes.~~ Income tax expense was $5.3 million for the nine months ended September 30, 2020, representing an effective tax rate of 16.6%. During this period, we received two incentive tax refunds in China totaling approximately $1.1 million. In addition, we reversed a tax reserve of approximately $1.3 million that was no longer required. Income tax expense was $3.7 million for the nine months ended September 30, 2019 on pre-tax income of $0.4 million. This period includes significant losses not benefited in the U.S. as a result of a full valuation allowance and the net effect (expense) of a remeasurement of deferred taxes at our Yangzhou entity in China resulting from a lower tax rate that was achieved via the High Technology Exemption ("HTE") approval.

Liquidity and Capital Resources

Sources and Uses of Cash

(In thousands) Nine Months Ended September 30, 2020 Increase
(Decrease) Nine Months Ended September 30, 2019
Cash provided by (used for) operating activities $ 43,827 $ 3,906 $ 39,921
Cash provided by (used for) investing activities (16,618) 741 (17,359)
Cash provided by (used for) financing activities (30,913) (11,832) (19,081)
Effect of exchange rate changes on cash and cash equivalents (3,452) (1,493) (1,959)
Net increase (decrease) in cash and cash equivalents $ (7,156) $ (8,678) $ 1,522


(In thousands)	Three Months Ended March 31, 2021		Increase (Decrease)		Three Months Ended March 31, 2020
Cash used for operating activities	$	(6,729)	$	1,618	$	(8,347)
Cash used for investing activities	(4,804)		(1,048)		(3,756)
Cash provided by financing activities	10,040		9,422		618
Effect of foreign currency exchange rates on cash and cash equivalents	(297)		3,593		(3,890)
Net decrease in cash and cash equivalents	$	(1,790)	$	13,585	$	(15,375)


(In thousands)	(In thousands)	September 30, 2020		Increase (Decrease)		December 31, 2019		(In thousands)	March 31, 2021		Increase (Decrease)		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	67,146	$	(7,156)	$	74,302	Cash and cash equivalents	$	55,363	$	(1,790)	$	57,153
Working capital	Working capital	135,679		23,383		112,296		Working capital	146,975		(358)		147,333

Net cash ~~provided by~~used for operating activities was ~~$43.8~~$6.7 million during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$39.9~~$8.3 million during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. Net income was ~~$26.4~~$7.0 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to a net ~~loss~~income of ~~$3.4~~$5.8 million for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. Accounts payable and accrued liabilities resulted in net cash outflows of ~~$50.5~~$12.5 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 compared to $29.0 million during the three months ended March 31, 2020, largely as a result of the timing of payments and a decrease in accrued compensation and contingent consideration payments. Inventory turnover was 3.5 at March 31, 2021, as compared to 3.2 at March 31, 2020. Changes in accounts receivable and contract assets reduced cash flows by $10.1 million during the three months ended March 31, 2021 compared to cash inflows of ~~$11.7~~$2.1 million during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020 largely as a result of ~~a significant decrease in inventories as well as payments relating to accrued compensation and contingent consideration. Inventories decreased by $30.5 million~~the timing of sales during the nine months ended September 30, 2020 compared to a decrease of $4.4 million during the nine months ended September 30, 2019 as a result of lower sales volume in 2020. Inventory turns were 3.4 turns at September 30, 2020 compared to 3.5 turns at September 30, 2019. Accounts receivable and contract assets decreased by $11.6 million during the nine months ended September 30, 2020 compared to an increase of $11.1 million during the nine months ended September 30, 2019 largely as a result of a decrease in net sales.quarter. Days sales outstanding were 79 days at March 31, 2021 compared to 75 days at ~~September 30, 2020 compared to 67 days at September 30, 2019.~~March 31, 2020.

Net cash used for investing activities during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$16.6~~$4.8 million, of which ~~$10.9~~$3.7 million and ~~$5.3~~$1.1 million was used for capital expenditures and the development of patents, respectively. Net cash used for investing activities during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$17.4~~$3.8 million of which ~~$15.9~~$2.0 million and ~~$1.5~~$1.3 million was used for capital expenditures and the development of patents, respectively.

Net cash ~~used for~~provided by financing activities was ~~$30.9~~$10.0 million during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$19.1~~$0.6 million during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The increase in cash ~~used for~~provided by financing activities was driven primarily by borrowing and repayment activity on our line of credit. During the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, we had net ~~repayments~~borrowings of ~~$18.0~~$20.0 million compared to net ~~repayments~~borrowings of ~~$13.5~~$10.0 million during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

~~Table of Contents~~

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we repurchased ~~263,164~~190,523 shares of our common stock at a cost of ~~$9.8~~$11.0 million compared to our repurchase of ~~54,503~~169,167 shares at a cost of ~~$1.7~~$6.3 million during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. We hold these shares as treasury stock and they are available for reissue. Presently, we have no plans to ~~distribute~~utilize these shares, although we may change these plans if necessary to fulfill our on-going business objectives. See Note 1213 contained in "Notes to Consolidated Financial Statements" for further information regarding our share repurchase programs.

Table of Contents

Contractual Obligations

The following table summarizes our contractual obligations and the effect these obligations are expected to have on our liquidity and cash flow in future periods.


		Payments Due by Period											Payments Due by Period
(In thousands)	(In thousands)	Total		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years		(In thousands)	Total		Less than 1 year		1 - 3 years		4 - 5 years		After 5 years
Operating lease obligations	Operating lease obligations	$	21,371	$	6,933	$	9,813	$	3,458	$	1,167	Operating lease obligations	$	19,051	$	6,863	$	8,181	$	3,249	$	758
Purchase obligations (1)	Purchase obligations (1)	2,767		2,767		—		—		—		Purchase obligations (1)	6,211		2,691		210		578		2,732
Contingent consideration (2)	Contingent consideration (2)	2,032		1,782		250		—		—		Contingent consideration (2)	87		—		87		—		—
Total contractual obligations	Total contractual obligations	$	26,170	$	11,482	$	10,063	$	3,458	$	1,167	Total contractual obligations	$	25,349	$	9,554	$	8,478	$	3,827	$	3,490

(1)Purchase obligations primarily consist of contractual payments to purchase property, plant and ~~equipment.~~equipment and payments for a fixed-fee software license.

(2)Contingent consideration consists of contingent payments related to our purchases of the net assets of ~~Ecolink and~~ RCS Control Systems, Inc. ("RCS").

Liquidity

Historically, we have utilized cash provided from operations as our primary source of liquidity, as internally generated cash flows have been sufficient to support our business operations, capital expenditures and discretionary share repurchases. More recently, we have utilized our revolving line of credit to fund an increased level of share repurchases and our acquisitions of the net assets of Ecolink and RCS. We anticipate that we will continue to utilize both cash flows from operations and our revolving line of credit to support ongoing business operations, capital expenditures and future discretionary share repurchases. We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays during the next twelve months; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our various entities.

Our liquidity is subject to various risks including the risks discussed under "Item 3. Quantitative and Qualitative Disclosures about Market Risk."

(In thousands) September 30, 2020 December 31, 2019
Cash and cash equivalents $ 67,146 $ 74,302
Available borrowing resources 72,300 54,300


(In thousands)	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	55,363	$	57,153
Available borrowing resources	82,300		102,300

Our cash balances are held in numerous locations throughout the world. The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to state income and foreign withholding taxes. Additionally, repatriation of some foreign balances is restricted by local laws. We have provided for the state income tax and the foreign withholding tax liabilities on these amounts for financial statement purposes.

On ~~September 30, 2020,~~March 31, 2021, we had ~~$14.7~~$5.6 million, ~~$15.0~~$14.0 million, ~~$12.3~~$12.5 million, ~~$16.8~~$15.3 million and ~~$8.3~~$8.0 million of cash and cash equivalents in ~~North America,~~the United States, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. On December 31, ~~2019,~~2020, we had ~~$16.8~~$9.8 million, ~~$13.7~~$14.3 million, ~~$21.7~~$13.5 million, ~~$9.1~~$10.9 million, and ~~$13.0~~$8.7 million of cash and cash equivalents in ~~North America,~~the United States, the PRC, Asia (excluding the PRC), Europe and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

~~Table of Contents~~

All obligations under the Credit Line are secured by substantially all of our U.S. personal property and tangible and intangible assets as well as 65% of our ownership interest in Enson Assets Limited, our wholly-owned subsidiary that controls our manufacturing factories in the PRC.

Table of Contents

Under the Second Amended Credit Agreement, we may elect to pay interest on the Credit Line based on LIBOR plus an applicable margin (varying from 1.25% to 1.75%) or base rate (based on the prime rate of U.S. Bank or as otherwise specified in the Second Amended Credit Agreement) plus an applicable margin (varying from 0.00% to 0.50%). The applicable margins are calculated quarterly and vary based on our cash flow leverage ratio as set forth in the Second Amended Credit Agreement. The interest ~~rate~~rates in effect at ~~September 30,~~March 31, 2021 and December 31, 2020 ~~was~~were 1.37% and 1.39%., respectively. There are no commitment fees or unused line fees under the Second Amended Credit Agreement.

The Second Amended Credit Agreement includes financial covenants requiring a minimum fixed charge coverage ratio and a maximum cash flow leverage ratio. In addition, the Second Amended Credit Agreement contains other customary affirmative and negative covenants and events of default. As of ~~September 30, 2020,~~March 31, 2021, we were in compliance with the covenants and conditions of the Second Amended Credit Agreement.

At ~~September 30, 2020,~~March 31, 2021, we had an outstanding balance of ~~$50.0~~$40.0 million on our Credit Line and ~~$72.3~~$82.3 million of availability.

Off-Balance Sheet Arrangements

We do not participate in any material off-balance sheet arrangements.

Factors That May Affect Financial Condition and Future Results

Forward-Looking Statements

We caution that the following important factors, among others (including but not limited to factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as those discussed in our ~~2019~~2020 Annual Report on Form 10-K, or in our other reports filed from time to time with the Securities and Exchange ~~Commission)~~Commission ("SEC")), may affect our actual results and may contribute to or cause our actual consolidated results to differ materially from those expressed in any of our forward-looking statements. The factors included here are not exhaustive. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results.

While we believe that the forward-looking statements made in this report are based on reasonable assumptions, the actual outcome of such statements is subject to a number of risks and uncertainties, including the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and liquidity; the impact to our quarterly revenue, margins and operating profits due to our inability to continue to obtain adequate quantities of component parts, including integrated circuits; the significant percentage of our revenue attributable to a limited number of customers; the failure of our markets to continue growing and expanding in the manner we anticipated; the loss of market share due to competition; the delay by or failure of our customers to order products from us due to delays by them of their new product rollouts, their decision to purchase their products from an alternative or second source supplier, their efforts to refocus their operations to broadband and over-the-top ("OTT") versus traditional linear video, their failure to grow as we anticipated, their internal inventory control measures, ~~including to mitigate effects due to increases in tariffs,~~ or their loss of market share; the effects of natural or other events beyond our control, including the effects political unrest, war or terrorist activities may have on us or the economy; the economic environment's effect on us or our customers; the effects of doing business internationally, including the effects that changes in laws, regulations and policies may have on our business including the impact of new or additional tariffs and surcharges; the growth of, acceptance of and the demand for our products and technologies in various markets and geographical regions, including cable, satellite, consumer electronics, retail, and digital media and interactive technology; our inability to add profitable complementary products which are accepted by the marketplace; our inability to attract and retain a quality workforce at adequate levels in all regions of the world, and particularly

Table of Contents

those jurisdictions where we are moving our operations; our inability to continue to maintain our operating costs at acceptable levels through our cost containment efforts including moving our operations and manufacturing facilities to lower cost jurisdictions; an unfavorable ruling in any or all of the litigation matters to which we are party; our inability to continue selling our products or licensing our technologies at higher or profitable margins; our inability to obtain orders or maintain our order volume with new and existing customers; our inability to develop new and innovative technologies and products that are accepted by our customers; ~~our inability to successfully, timely and profitably restructure and/or relocate our manufacturing facilities and activities;~~ the possible dilutive effect our stock incentive programs may have on our earnings per share and stock price; the continued ability to identify and execute on opportunities that maximize stockholder value, including the effects repurchasing the Company's shares have on the Company's stock value; ~~our inability to continue to obtain adequate quantities~~

~~Table of Contents~~

~~of component parts or secure adequate factory production capacity on a timely basis;~~ and other factors listed from time to time in our press releases and filings with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We have established policies, procedures and internal processes governing our management of these risks and the use of financial instruments to mitigate our risk exposure.

Interest Rate Risk

We are exposed to interest rate risk related to our debt. From time to time we borrow amounts on our Credit Line for working capital and other liquidity needs. Under our Second Amended Credit Agreement, we may elect to pay interest on outstanding borrowings on our Credit Line based on LIBOR or a base rate (based on the prime rate of U.S. Bank) plus an applicable margin as defined in the Second Amended Credit Agreement. Accordingly, changes in interest rates would impact our results of operations in future periods. A 100 basis point increase in interest rates would have an approximately ~~$0.4~~$0.3 million annual impact on net income based on our outstanding Credit Line balance at ~~September 30, 2020.~~March 31, 2021.

We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended to us under comparable terms or at all. If funding is not available to us at a time when we need to borrow, we would have to use our cash reserves, including potentially repatriating cash from foreign jurisdictions, which may have a material adverse effect on our operating results, financial position and cash flows.

Foreign Currency Exchange Rate Risk

At ~~September 30, 2020,~~March 31, 2021, we had wholly-owned subsidiaries in Argentina, Brazil, the British Virgin Islands, Cayman Islands, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, the Netherlands, the PRC, Singapore, Spain and the United Kingdom. We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases, operating expenses, assets and liabilities denominated in currencies other than the U.S. Dollar. The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro, British Pound, Mexican Peso, ~~British Pound, Euro, Argentinian Peso,~~Indian Rupee, Brazilian Real, ~~Indian Rupee,~~ Japanese Yen, and ~~Philippine~~Argentinian Peso. Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen against the U.S. Dollar, our manufacturing costs would increase. We are generally a net payor of the Euro, Mexican Peso, ~~Euro,~~ Indian Rupee and Japanese Yen ~~and Philippine Peso~~ and therefore benefit from a stronger U.S. Dollar and are adversely affected by a weaker U.S. Dollar relative to the foreign currency. For the British Pound, Brazilian Real and Argentinian Peso, ~~and Brazilian Real,~~ we are generally a net receiver of the foreign currency and therefore benefit from a weaker U.S. Dollar and are adversely affected by a stronger U.S. Dollar relative to the foreign currency. Even where we are a net receiver, a weaker U.S. Dollar may adversely affect certain expense figures taken alone.

From time to time, we enter into foreign currency exchange agreements to manage the foreign currency exchange rate risks inherent in our forecasted income and cash flows denominated in foreign currencies. The terms of these foreign currency exchange agreements normally last less than nine months. We recognize the gains and losses on these foreign currency contracts in the same period as the re-measurement losses and gains of the related foreign currency-denominated exposures.

It is difficult to estimate the impact of fluctuations on income, as it depends on the opening and closing rates, the average net balance sheet positions held in a foreign currency and the amount of income generated in local currency. We routinely forecast what these balance sheet positions and income generated in local currency may be and we take steps to minimize exposure as we deem appropriate. Alternatively, we may choose not to hedge the foreign currency risk associated with our foreign currency exposures, primarily if such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or the currency is difficult or too expensive to hedge. We do not enter into any derivative transactions for speculative purposes.

Table of Contents

The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an approximate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currency with all other variables held constant. The analysis includes all of our foreign currency contracts offset by the underlying exposures. Based on our overall foreign currency rate exposure at ~~September 30, 2020,~~March 31, 2021, we believe that movements in foreign currency rates may have a material effect on our financial position and results of operations. We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro, British Pound, Mexican Peso, ~~British Pound, Euro, Argentinian Peso,~~Indian Rupee, Brazilian Real, ~~Indian Rupee,~~ Japanese Yen, and ~~Philippine~~Argentinian Peso relative to the U.S. Dollar fluctuate 10% from ~~September 30, 2020,~~March 31, 2021, net income in the ~~fourth~~second quarter of ~~2020~~2021 would fluctuate by approximately ~~$6.6~~$9.0 million.

~~Table of Contents~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Rule 13a-15(d) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") defines "disclosure controls and procedures" to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this ~~report,~~Quarterly Report on Form 10-Q, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to lawsuits arising out of the conduct of our business. The discussion of our litigation matters contained in "Notes to Consolidated Financial Statements - Note ~~11"~~12" is incorporated herein by reference.

ITEM 1A. RISK FACTORS

During the first quarter of 2021, we began experiencing difficulty in ordering integrated circuits ("ICs") for future use and that difficulty is continuing. The global shortage of ICs is affecting a multitude of industries and we expect it to continue to affect our business for the remainder of 2021. While we are identifying other sources of ICs and taking other production and inventory control steps in order to mitigate the effects caused by this shortage, we cannot guarantee that we will find alternative sources to meet our short and longer-term IC needs and/or without experiencing increases in the prices we pay for these components. If we are not able to find these alternative sources of ICs or are not able to purchase sufficient quantities of ICs from our current and alternative suppliers, we may not be able to produce sufficient quantities of products to meet our customers’ demands. This, in turn, may affect our ability to meet our quarterly revenue targets for the remainder of 2021. Further, we may incur additional freight costs to meet the delivery demands of our customers. In addition, many of our products are paired with certain of our customers’ products, like set-top boxes and televisions. If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease.

Table of Contents

In addition, the reader should carefully consider, in connection with the other information in this report, the risk factors discussed in "Part I, Item 1A: Risk Factors" of the Company's ~~2019~~2020 Annual Report on Form ~~10-K incorporated herein by reference, as well as the risk factors set forth below.~~10-K. These factors may cause our actual results to differ materially from those stated in forward-looking statements contained in this document and elsewhere.

The COVID-19 pandemic has adversely affected and is expected to continue to pose risks to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide. COVID-19 has caused disruption and volatility in the global capital markets and has authored an economic slowdown. The COVID-19 pandemic and its associated economic uncertainty negatively impacted our sales volumes in the first nine months of 2020 in most geographic locations and across a variety of customers. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The measures we have taken to follow the COVID-19 guidelines from the Centers for Disease Control and Prevention ("CDC") and the various local governments where our facilities and operations are located concerning the health and safety of our personnel, have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts. The duration of these measures is unknown, may be extended and additional measures may be imposed.

We further expect that the ultimate significance of the impact of the COVID-19 pandemic on our business will vary, but will generally depend on the extent of measures taken affecting day-to-day life and the length of time that such measures remain in place to respond to the COVID-19 pandemic. At this point, it is impossible to predict such extent and duration and the degree to which supply and demand for our products and services will be affected. This uncertainty makes it challenging for management to estimate with precision the future performance of our business.

~~Table of Contents~~

~~The potential effects of the COVID-19 pandemic and other similar outbreaks include, but are not limited to, the following:~~

•Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which may adversely affect our results of operations by reducing our sales, margins and/or net income as a result of a slowdown in customer orders or order cancellations. In addition, volatility in the financial markets may increase the cost of capital and/or limit its availability.

•~~Economic uncertainty as a result of the COVID-19 pandemic is expected to make it difficult for us and our customers and suppliers to accurately forecast and plan future business activities.~~

•The potential to weaken the financial position of some of our customers. If circumstances surrounding our customers' financial capabilities were to deteriorate, write-downs or write-offs may negatively affect our operating results and, if large, may have a material adverse effect on our business, financial condition, results of operations and cash flows.

•As a result of governmental orders, we may experience disruptions in our manufacturing operations and in our supply chain in connection with the sourcing of materials from geographic areas that continue to be impacted by the COVID-19 pandemic and by efforts to contain its spread.

To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also heighten many of the other risks described in this section and in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth, for the three months ended ~~September 30, 2020,~~March 31, 2021, our total stock repurchases, average price paid per share and the maximum number of shares that may yet be purchased on the open market under our plans or programs:

Period
Total Number of Shares Purchased (1)
Weighted
Average
Price Paid
per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 1, 2020 - July 31, 2020 625 $ 46.29 — 175,127
August 1, 2020 - August 31, 2020 3,317 45.30 — 175,127
September 1, 2020 - September 30, 2020 86,948 37.23 86,925 213,075
Total 90,890 $ 37.59 86,925 213,075


Period	Total Number of Shares Purchased (1)	Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1, 2021 - January 31, 2021	1,203	$	53.78	—	500,000
February 1, 2021 - February 28, 2021	84,675	58.28		49,529	250,471
March 1, 2021 - March 31, 2021	104,645	56.87		85,852	164,619
Total	190,523	$	57.48	135,381	164,619

(1)Of the repurchases in ~~July, August,~~January, February, and ~~September, 625, 3,317~~March, 1,203, 35,146 and 2318,793 shares, respectively, represent common shares of the Company that were owned and tendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted shares.

(2)~~On September 17, 2020, we announced that~~On February 11, 2021, our Board of Directors authorized a share repurchase program (the "September 2020 Program"), which replaced in its entirety the previous repurchase program in place prior to September 15, 2020. Pursuant to the September 2020 Program, we may repurchase up to 300,000 shares of our common stock. At September 30, 2020, we had 213,075 shares of common stock authorized for repurchase remaining under the September 2020 Program. Subsequent to September 30, 2020, we repurchased an additional 113,075 shares under the September 2020 Program at a cost of $4.4 million. On October 28, 2020, our Board terminated the September 2020 Program and replaced it withapproved a new share repurchase program with an effective date of ~~November 10, 2020~~February 23, 2021 (the ~~"November 2020~~"February 2021 Program"). Pursuant to the ~~November 2020~~February 2021 Program, we may, from time to time until ~~February 18,~~May 6, 2021, repurchase up to ~~500,000~~300,000 shares of our common stock. On April 28, 2021, our Board approved a new share repurchase program with an effective date of May 11, 2021 (the "May 2021 Program"). Pursuant to the May 2021 Program, we may, from time to time until August 5, 2021, repurchase up to 300,000 shares of our common stock. We may repurchase shares of common stock in privately negotiated and/or open-market transactions, including pursuant to plans complying with Rule 10b5-1 promulgated under the Exchange Act.

3532

Table of Contents

ITEM 6. EXHIBITS

EXHIBIT INDEX


31.1						Rule 13a-14(a) Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc.

31.2						Rule 13a-14(a) Certifications of Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc.

32						Section 1350 Certifications of Paul D. Arling, Chief Executive Officer (principal executive officer) of Universal Electronics Inc., and Bryan M. Hackworth, Chief Financial Officer (principal financial officer and principal accounting officer) of Universal Electronics Inc., pursuant to 18 U.S.C. Section 1350

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

3633

Table of Contents

SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:

~~November 5, 2020~~May 6, 2021

UNIVERSAL ELECTRONICS INC.

By:

/s/ Bryan M. Hackworth

Bryan M. Hackworth

Chief Financial Officer (principal financial officer

and principal accounting officer)

3734


			Page Number
PART I. FINANCIAL INFORMATION			3
Item 1. Consolidated Financial Statements (Unaudited)			3
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Comprehensive Income (Loss) Statements			5
Consolidated Statements of Stockholders' Equity			6
Consolidated Statements of Cash Flows			87
Notes to Consolidated Financial Statements			98
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			2623
Item 3. Quantitative and Qualitative Disclosures About Market Risk			3330
Item 4. Controls and Procedures			3431
PART II. OTHER INFORMATION			3431
Item 1. Legal Proceedings			3431
Item 1A. Risk Factors			3431
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			3532
Item 6. Exhibits			3633
Signatures			3734


(In thousands)
2020 (remaining 3 months)	$	1,037
2021	3,391
2022	3,263
2023	2,999
2024	2,418
Thereafter	6,509
Total	$	19,617


	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Fair value	$	16.78		$	16.78
Price of Universal Electronics Inc. common stock	$	51.09		$	51.09
Risk-free interest rate	1.56		%	1.56		%
Expected volatility	47.82		%	47.82		%
Expected life in years	3.25			3.25


(In thousands)	Nine Months Ended September 30, 2020		Increase (Decrease)		Nine Months Ended September 30, 2019
Cash provided by (used for) operating activities	$	43,827	$	3,906	$	39,921
Cash provided by (used for) investing activities	(16,618)		741		(17,359)
Cash provided by (used for) financing activities	(30,913)		(11,832)		(19,081)
Effect of exchange rate changes on cash and cash equivalents	(3,452)		(1,493)		(1,959)
Net increase (decrease) in cash and cash equivalents	$	(7,156)	$	(8,678)	$	1,522