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UNIVERSAL ELECTRONICS INC

UNIVERSAL ELECTRONICS INCUEICEarnings & Financial Report

Nasdaq · Consumer Discretionary · Household Audio & Video Equipment

Universal Electronics Inc. (UEI) is an American smart home technology provider and manufacturer of universal remote controls, IoT devices such as voice-enabled smart home hubs, smart thermostats, home sensors; as well as a white label digital assistant platform optimized for smart home applications, and other software and cloud services for device discovery, fingerprinting and interoperability. The company designs, develops, manufactures and ships products both under the "One For All" brand a...

What changed in UNIVERSAL ELECTRONICS INC's 10-K — 2022 vs 2023

Top changes in UNIVERSAL ELECTRONICS INC's 2023 10-K

293 paragraphs added · 299 removed · 218 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

83 edited+23 added−20 removed41 unchanged
Ltd., established in Hong Kong; • Universal Electronics B.V., established in the Netherlands; • Universal Electronics Italia S.R.L., established in Italy; • Universal Electronics Trading Co., Ltd., established in the PRC; • Universal Electronics Yangzhou Co. Ltd., established in the PRC; • Universal Electronics do Brasil Ltda., established in Brazil; and • Yangzhou Universal Trading Co.
Ltd., established in Hong Kong; • Universal Electronics B.V., established in the Netherlands; • Universal Electronics Italia S.R.L., established in Italy; • Universal Electronics Yangzhou Co. Ltd., established in the PRC; • Universal Electronics do Brasil Ltda., established in Brazil; and • Yangzhou Universal Trading Co. Ltd., established in the PRC.
Our R&D locations are as follows: • advanced engineering, architecture and cloud teams are located in Santa Ana, California, and Scottsdale, Arizona; • cloud architecture, software and service teams are located in Santa Ana and San Mateo, California; • sensor engineering and R&D teams are located in Carlsbad, California; • connected thermostat engineering and R&D teams are located in Poway, California; • hardware engineering teams are located in Panyu and Suzhou in the PRC; • software, firmware and device database teams are located in Bangalore, India; and • a software services team focused on support software solutions is located in Plymouth, Minnesota.
Our R&D locations are as follows: • advanced engineering, architecture and cloud teams are located in Santa Ana, California, and Scottsdale, Arizona; • cloud architecture, software and service teams are located in Santa Ana and San Mateo, California; • sensor engineering and R&D teams are located in Carlsbad, California; • connected thermostat engineering and R&D teams are located in Santa Ana and Poway, California; • hardware engineering teams are located in Panyu and Suzhou in the PRC; • software, firmware and device database teams are located in Bangalore, India; and • a software services team focused on support software solutions is located in Plymouth, Minnesota.
Today our portfolio includes universal control products compatible with Apple's tvOS and Google's AndroidTV platforms designed for the Multichannel Video Programming Distributor ("MVPD") market allowing subscribers access to subscription-based channels through hybrid and OTT streaming platforms. Additionally, some of our current customers have successfully introduced media streaming services and expanded their footprint to new end-users.
Today our portfolio includes universal control products compatible with Apple's tvOS and Google's AndroidTV platforms designed for the Multichannel Video Programming Distributor market allowing subscribers access to subscription-based channels through hybrid and OTT streaming platforms. Additionally, some of our current customers have successfully introduced media streaming services and expanded their footprint to new end-users.
Sales We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, climate control, security, safety, home automation and home appliance markets.
Sales We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, security, home automation, climate control and home appliance markets.
Manufacturing and Supply We currently operate vertically integrated manufacturing and assembly factories in the PRC, Mexico and Brazil, which allows us to produce in the regional markets and to scale our production to meet growing demand. We also use selected third-party manufacturers and suppliers in Asia.
Manufacturing and Supply We currently operate vertically integrated manufacturing and assembly factories in the PRC, Vietnam, Mexico and Brazil, which allows us to produce in the regional markets and to scale our production to meet growing demand. We also use selected third-party manufacturers and suppliers in Asia.
We ship integrated circuits, on which our software and control code libraries are embedded and that connect to our cloud services, directly to manufacturers for inclusion in their products. In addition, we license our software and technology to manufacturers.
We ship integrated circuits, on which our software and control libraries are embedded and that connect to our cloud services, directly to manufacturers for inclusion in their products. In addition, we license our software and technology to manufacturers.
Firehammer, Jr., Esq. is our Senior Vice President, General Counsel, Head of Global Compliance, and Secretary. He joined us in October 1993 as General Counsel. He became our Secretary in February 1994.
Firehammer, Jr., Esq. is our Senior Vice President, General Counsel, Head of Global Compliance, and Corporate Secretary. He joined us in October 1993 as General Counsel. He became our Corporate Secretary in February 1994.
We have a dedicated "Green Team," based in the PRC and comprised of engineers and environmental regulation experts, that analyze our products, processes, and raw materials to help ensure that we comply with environmental and government regulations worldwide, as well as the applicable "Green" requirements imposed by our customers. Additionally, we have in-house testing capability to help ensure product compliance.
We have a dedicated "Green Team" comprised of engineers and environmental regulation experts, that analyze our products, processes, and raw materials to help ensure that we comply with environmental and government regulations worldwide, as well as the applicable "Green" requirements imposed by our customers. Additionally, we have in-house testing capability to help ensure product compliance.
Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired CEC and wireless 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 many home entertainment and automation devices in the home.
Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired CEC and wireless 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 infrastructure for many home entertainment and automation devices in the home.
During the years ended December 31, 2022, 2021 and 2020, the costs incurred in complying with federal, state, local and foreign statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect our earnings, financial condition or competitive position.
During the years ended December 31, 2023, 2022 and 2021, the costs incurred in complying with federal, state, local and foreign statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect our earnings, financial condition or competitive position.
We also face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the material composition of our products. We may also face significant costs and liabilities in connection with product take-back legislation.
We also face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the material composition of our products. We may also face significant costs and liabilities in connection with product take-back and "right to repair" legislation.
Our largest integrated circuit supplier, Qorvo International Pte Ltd., provided 11.5%, 11.8% and 14.2% of our total inventory purchases in 2022, 2021 and 2020, respectively. Our manufacturing process consists of plastic injection molding, keypad molding, coating or painting, surface mount technology, assembly, software installation, functional testing, packaging, and quality control.
Our largest integrated circuit supplier, Qorvo International Pte Ltd., provided 11.5% and 11.8% of our total inventory purchases in 2022 and 2021, respectively. Our manufacturing process consists of plastic injection molding, keypad molding, coating or painting, surface mount technology, assembly, software installation, functional testing, packaging, and quality control.
This has resulted in a change in mix in our customer base, especially in the U.S., where our traditional customers in cable and satellite have been complimented with new customers in the digital media streaming domain.
This has resulted in a change in mix in our customer base, especially in the U.S., where our traditional customers in cable and satellite have been complemented with new customers in the digital media streaming domain.
Our product and technology offerings include: • easy-to-use, voice-enabled, automatically-programmed universal remote controls with two-way radio frequency ("RF") as well as infrared ("IR"), sold primarily to video service providers (cable, satellite, 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, video service providers, and private label customers; • wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators; • proprietary and standards-based RF sensors designed for residential security, safety and home automation applications; • AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas; • software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver 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; • intellectual property that we license primarily to OEMs and video service providers; and • embedded and cloud-enabled software for reliable firmware update and digital rights management validation services to major consumer electronics brands.
Our product and technology offerings include: • easy-to-use, voice-enabled, automatically-programmed universal, two-way radio frequency ("RF") as well as infrared ("IR") remote controls, sold primarily to video service providers (cable, satellite, Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers and private label customers; • wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels, hospitality and system integrators; • proprietary and standards-based RF sensors designed for residential security, safety and home automation applications; • integrated circuits ("ICs"), on which our software and universal device control database is embedded, sold primarily to OEMs, video service providers and private label customers; • software, firmware and technology solutions that can enable devices such as Smart TVs, hybrid set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interoperate within home networks to enable control and delivery of 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; • intellectual property that we license primarily to OEMs and video service providers; • embedded and cloud-enabled software for reliable firmware update provisioning and digital rights management validation services to major consumer electronics brands; and • AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas.
He also served as Managing Director for Asia at InVue Security Product before joining us. Mr. Chong had his senior education in The United Kingdom, holding a Bachelor of Science in Electrical and Electronics Engineering with High Honors from University of Nottingham. 11 Table of Contents Richard A.
He also served as Managing Director for Asia at InVue Security Product before joining us. Mr. Chong had his senior education in The United Kingdom, holding a Bachelor of Science in Electrical and Electronics Engineering with High Honors from University of Nottingham. Richard A.
We provide and maintain a work environment that is designed to attract, develop and retain top talent through offering our employees an engaging work experience that contributes to their career development. We recognize that our success is based on the collective talents and dedication of those we employ.
Employee Recruitment, Retention, and Development We provide and maintain a work environment that is designed to attract, develop and retain top talent through offering our employees an engaging work experience that contributes to their career development. We recognize that our success is based on the collective talents and dedication of those we employ.
The platform has continuously expanded with new capabilities including enhanced communication protocols, such as Matter, IP, Zigbee 3.0, Zigbee RF4CE, Consumer Electronics Control ("CEC") and infrared.
The platform is continuously expanded with new capabilities including enhanced communication protocols, such as Matter, IP, Zigbee 3.0, Zigbee RF4CE, Consumer Electronics Control ("CEC") and infrared.
We released software updates to our embedded QuickSet application, and continued development initiatives around existing and emerging technologies, such as Rf4CE, Bluetooth, Bluetooth Smart WiFi and Matter, a unifying, IP-based connectivity protocol built on proven technologies designed to connect smart home devices reliably and securely across disparate IoT ecosystems.
We released software updates to our embedded QuickSet application, and continued development initiatives around existing and emerging technologies, such as Zigbee 3.0, Bluetooth Smart, WiFi and Matter, a unifying, IP-based connectivity protocol built on proven technologies designed to connect smart home devices reliably and securely across disparate IoT ecosystems.
The energy-harvesting version of the remotes feature our "Battery-4-Life" technology that relies on collecting energy from the environment's ambient light and radio frequencies to deliver a remote-control solution that is designed to require no battery replacement over the useful life of the product.
The energy-harvesting version features our "Battery-4-Life" technology that relies on collecting energy from the environment's ambient light and radio frequencies to deliver a control solution that is designed to require no battery replacement over the useful life of the product.
With our commitment to create environmentally-sustainable solutions that do not compromise but enhance product performance, we introduced the UEI Eterna line of voice-enabled control solutions which are designed with our new generation of Extreme Low-Power System-on-Chip and energy harvesting technologies to deliver increased processing capability while using significantly less power compared to prior generations.
With our commitment to create environmentally-sustainable solutions that do not compromise but enhance product performance, we offer UEI Eterna, a line of voice-enabled control solutions designed with our new generation of Extreme Low-Power System-on-Chip and energy harvesting technologies to deliver increased processing capability while using significantly less power compared to prior generations.
In this market, we compete with offshore-based, original design and built-to-print hardware manufacturers, such as Leedarson. In the connected smart home market, we compete with the OEMs themselves as well as wireless manufacturers in North America, such as Nice, and other original design manufacturers in Asia.
In this market, we compete with offshore-based, original design and built-to-print hardware manufacturers, such as Leedarson. In the connected smart home market, we compete with the OEMs themselves as well as wireless manufacturers in North America, such as Nice, and other original design manufacturers in Asia, as well as technology system providers such as Tuya.
In the HVAC controller and thermostat market, we compete with regional specialists and global companies such as Honeywell, Johnson Controls, Emerson, Schneider Electric, as well as Far East based OEM manufacturers such as Computime. We compete in our markets on the basis of product quality, enhanced features, intellectual property, local design and development expertise, local development support and end-user support.
In the HVAC controller and thermostat market, we compete with regional specialists and global companies such as Honeywell and Venstar, as well as Far East based OEM manufacturers such as Computime. We compete in our markets on the basis of product quality, enhanced features, intellectual property, local design and development expertise, local development support and end-user support.
During 2022, our advanced engineering efforts focused on further developing our existing products, services and technologies.
During 2023, our advanced engineering efforts focused on further developing our existing products, services and technologies.
Ltd., established in the PRC; 5 Table of Contents • Guangzhou Universal Electronics Service Co., Ltd., established in the PRC; • One For All France S.A.S., established in France; • One For All GmbH, established in Germany; • One For All Iberia S.L., established in Spain; • One For All UK Ltd., established in the United Kingdom; • Qinzhou Universal Trading Co.
Ltd., established in the PRC; • Guangzhou Universal Electronics Service Co., Ltd., established in the PRC; • One For All France S.A.S., established in France; • One For All GmbH, established in Germany; • One For All Iberia S.L., established in Spain; • One For All UK Ltd., established in the United Kingdom; • Qinzhou Universal Trading Co.
Our sales channel strategy is to partner with customers who are leaders in their respective industries: in consumer electronics, we count Samsung Electronics Co., Sony Group Corporation and LG Electronics as long-term accounts that represent a significant share of their industry; in video services, Comcast Corporation, Liberty Global and Vodafone Group rank amongst the largest video service providers in their respective markets; in climate control, Daikin Industries Ltd., is the market share leader in the global HVAC industry; and in security, safety and home automation, Vivint Smart Home, Somfy SA, Ring LLC and Hunter Douglas NV are channel leaders in their respective connected home markets.
Our sales channel strategy is to partner with customers who are leaders in their respective industries: in consumer electronics, we count Samsung Electronics Co., Sony Group Corporation and LG Electronics as long-term accounts that represent a significant share of their industry; in video services, Comcast Corporation, Liberty Global and Vodafone Group rank amongst the largest video service providers in their respective markets; in Satellite services, Dish Network Corporation, Sky, Airtel and DirecTV represent the majority of global service providers; in climate control, Daikin Industries Ltd., Trane and Carrier are customers that represent top market share leaders in the global HVAC industry; and in security, safety and home automation, Vivint Smart Home, Somfy SA, Ring LLC and Hunter Douglas NV are channel leaders in their respective connected home markets.
Further, our Supplier Code of Conduct sets forth our global expectations that we have in the areas of fair dealing, legal compliance, business integrity, labor practices, health and safety, and environmental management.
Our Supplier Code of Conduct sets forth our global expectations in the areas of fair dealing, legal compliance, business integrity, labor practices, health and safety and environmental management.
Government regulations are subject to change; therefore, we are unable to predict the impact of complying with potential future requirements or whether doing so will materially affect our operations, financial situation, or business. 9 Table of Contents Human Capital As of December 31, 2022, we employed 4,658 members of staff across our worldwide facilities.
Government regulations are subject to change; therefore, we are unable to predict the impact of complying with potential future requirements or whether doing so will materially affect our operations, financial situation or business. Human Capital As of December 31, 2023, we employed 4,177 members of staff across our worldwide facilities.
To further manage our integrated system on a chip supplier dependence, we include microcontroller technology which incorporates non-volatile, reprogrammable flash memory in most of our products. Flash memory-based microcontrollers have shorter lead times than microcontrollers using other memory technologies and may be reprogrammed.
We continually seek additional sources to reduce our dependence on our integrated circuit suppliers. To further manage our integrated system on a chip supplier dependence, we include microcontroller technology which incorporates non-volatile, reprogrammable flash memory in most of our products. Flash memory-based microcontrollers have shorter lead times than microcontrollers using other memory technologies and may be reprogrammed.
Each year our device control library continues to grow across AV and smart home platforms, supporting many common smart home protocols, including IR, HDMI-CEC, Bluetooth and its variants, Zigbee (Rf4CE), Z-Wave, Thread, Matter and IP networks. We have developed a broad portfolio of patented technologies and the industry's leading database of device setup and control software.
Each year our device discovery and control libraries continue to grow across the smart home landscape, supporting many common smart home protocols, including IR, HDMI-CEC, Bluetooth and its variants, Zigbee (Rf4CE), Z-Wave, Thread, Matter and IP networks. We have developed a broad portfolio of patented technologies and the industry's leading database of device discovery, setup and control software.
We believe that we will need to continue to introduce new and innovative products and software solutions to remain competitive and to recruit and retain competent personnel to successfully accomplish our future objectives. Our 26 domestic and international subsidiaries are the following: • C.G.
We believe that we will need to continue to introduce new and innovative products and software solutions to remain competitive and to recruit and retain competent personnel to successfully accomplish our future objectives. 5 Table of Contents Our 25 domestic and international subsidiaries are the following: • C.G.
The European Union's Waste Electrical and Electronic Equipment ("WEEE") Directive makes producers of electrical goods financially responsible for specified collection, recycling, treatment, and disposal of past and future covered products.
For example, the European Union's Waste Electrical and Electronic Equipment ("WEEE") Directive makes producers of electrical goods financially responsible for specified collection, recycling, treatment, and disposal of past and future covered products. Our European subsidiaries are WEEE compliant.
In particular, we require our suppliers to respect basic human rights and to not engage in any involuntary or forced labor and to fully comply with all laws and regulations pertaining to the appropriate and dignified treatment of all workers.
Among other things, we require our suppliers to respect human rights and to not engage in any form of involuntary or forced labor and to fully comply with all laws and regulations pertaining to the appropriate and dignified treatment of all workers.
QuickSet and QuickSet Cloud utilize data transmitted over HDMI, low power RF (such as Bluetooth or Zigbee), and Internet Protocol ("IP") networks to automatically detect various attributes of connected devices and download the appropriate control codes and functions to enable user access and control without the need for the user to enter any specific device information.
QuickSet and QuickSet Cloud utilize data transmitted over HDMI, low power RF (such as Bluetooth or Zigbee), and Internet Protocol ("IP") networks to automatically detect various attributes of connected devices and enables user access and control of smart, connected devices as well as legacy devices, without the need for the user to enter any specific device information.
Carnifax was the Chief Operating Officer at Cast Nylons, a privately held manufacturer and distributor of cast nylon stock shapes and custom cast parts and was Vice President, Operations at Cast Nylons from November 2017 until March 2019.
Prior to joining us, from March 2019 until May 2020, Mr. Carnifax was the Chief Operating Officer at Cast Nylons, a privately held manufacturer and distributor of cast nylon stock shapes and custom cast parts, and was Vice President, Operations at Cast Nylons from November 2017 until March 2019.
In the markets for video services we include cable, satellite, IPTV and OTT service providers. In recent years, we have seen a significant change in our markets with the rise of the direct-to-consumer streaming video apps that are enabled on smart TVs and streaming devices as well as advanced set-top boxes.
Markets and Competition In recent years, we have seen a significant change in our markets with the rise of the direct-to-consumer streaming video apps that are enabled on smart TVs and streaming devices as well as advanced set-top boxes.
Of this staff, 3,383 are associated with our manufacturing and supply chain organizations in the PRC, Mexico and Brazil. Beyond the manufacturing and supply chain organizations, 844 of staff work in engineering and R&D, 130 in sales, marketing, consumer service and support and 301 in executive and administrative functions.
Of this staff, 3,127 are associated with our manufacturing and supply chain organizations in the PRC, Mexico, Vietnam and Brazil. Beyond the manufacturing and supply chain organizations, 649 of staff work in engineering and R&D, 117 in sales, marketing, consumer service and support and 284 in executive and administrative functions.
Additional information regarding UEI may be obtained at www.uei.com. Our website address is not intended to function as a hyperlink and the information available at our website address is not incorporated by reference into this Annual Report on Form 10-K.
Our website address is not intended to function as a hyperlink and the information available at our website address is not incorporated by reference into this Annual Report on Form 10-K.
However, due to the heightened awareness of corporate environmental, social and governance ("ESG") matters and evolving laws and regulations or enforcement policies, increases in compliance costs may have a material adverse effect upon our capital expenditures, earnings or financial condition.
However, due to the heightened awareness of corporate environmental, social and governance ("ESG") matters and evolving laws and regulations or enforcement policies, increases in compliance costs may have a material adverse effect upon our capital expenditures, earnings or financial condition. We are committed to reducing and eliminating substances of concern from our products and manufacturing process.
Our European subsidiaries are WEEE compliant. 8 Table of Contents We believe that we have materially complied with all currently existing international and domestic federal, state and local statutes and regulations regarding environmental standards and occupational safety and health matters to which we are subject.
We believe that we have materially complied with all currently existing international and domestic federal, state and local statutes and regulations regarding environmental standards and occupational safety and health matters to which we are subject.
David Chong is our Executive Vice President, Asia. He is responsible for managing sales in our Asian markets. He was previously responsible for the general management of our Asia region. Mr. Chong joined us in January 2009 as Senior Vice President of Global OEM Sales. Prior to joining us, Mr.
David Chong is our Executive Vice President, Global Sales. He was previously responsible for the general management and sales of our Asia region and was promoted to his current position in October 2023. Mr. Chong joined us in January 2009 as Senior Vice President of Global OEM Sales. Prior to joining us, Mr.
With QuickSet integration, UEI Virtual Agent provides automated steps for onboarding, feature discovery and troubleshooting capabilities and is available both as a web-based application and a TV app for integration into existing infrastructures.
Integrated into the latest 4 Table of Contents version of QuickSet, UEI Virtual Agent provides automated steps for onboarding, feature discovery and troubleshooting capabilities and is available both as a web-based application and a TV app for integration into existing infrastructures.
We are committed to reducing and eliminating substances of concern from our products and manufacturing process. Our products distributed in the European Union are compliant with the RoHS (Restriction of Hazardous Substances Directive 2011/65/EU and 2015/863/EU) and REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) directives.
Our products distributed in the European Union are compliant with the RoHS (Restriction of Hazardous Substances Directive 2011/65/EU and 2015/863/EU) and REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) directives.
Next to these specialized centers of excellence, we employ engineering, sales and marketing and support staff in many of our regional offices in the United States, The Netherlands, Hong Kong, PRC, Brazil, India, Japan, Korea and Mexico. We are committed to an inclusive culture that values equality, opportunity, and respect.
Next to these specialized centers of excellence, we employ engineering, sales and marketing and support staff in many of our regional offices in the United States, The Netherlands, Hong Kong, PRC, Brazil, India, Japan, Korea, Singapore and Mexico.
We continue to enhance the capabilities of our service platform (UEI Virtual Agent) for easier device onboarding, identification and troubleshooting across our portfolio of control products. As a contributor to the Matter specification, we were an active participant in several working groups and Plugfest events to help bring the full interoperability potential of the Matter standard to market in 2022.
We integrated the capabilities of our service platform (UEI Virtual Agent) on our Tide and Eterna product platforms for easier device onboarding, identification and troubleshooting. As a contributor to the Matter specification, we continue to be an active participant in several working groups and Plugfest events to help bring the full interoperability potential of the Matter standard to market.
UEI Virtual Agent, when bundled with our newest set of UEI NetReady services for remote diagnostics and customer support, will further enhance the support experience for products already deployed in the home. For the years ended December 31, 2022, 2021 and 2020, our sales to Comcast Corporation accounted for 14.5%, 16.3% and 20.1% of our net sales, respectively.
UEI Virtual Agent, when bundled with our newest set of UEI NetReady services for remote diagnostics and customer support, will further enhance the support experience for products already deployed in the home. For the years ended December 31, 2023, 2022 and 2021, our sales to Daikin Industries Ltd. accounted for 14.0%, 14.4% and 11.8% of our net sales, respectively.
These chips offer more computing power while consuming substantially less battery power. In addition, to reduce energy consumption even further, we are actively working on solutions powered by low-light solar cells for the entertainment remote control and IoT markets. We also offer a product refurbishment program to our customers where we reclaim, refurbish and recycle pre-owned remote controls.
In addition, to reduce energy consumption even further, we are actively working on solutions powered by low-light solar cells for the entertainment remote control and IoT markets. We also offer a product refurbishment program to our customers where we reclaim, refurbish and recycle pre-owned remote controls. Under this program, major components in pre-owned remote control units are reused or recycled.
Government Regulation and Environmental Matters Many of our products are subject to various federal, state, local and international laws governing chemical substances in products, including laws regulating the manufacturing and distribution of chemical substances and laws restricting the presence of certain substances in electronics products.
We are committed to investigating all communications received on the UEI Ethics Line. 8 Table of Contents Government Regulation and Environmental Matters Many of our products are subject to various federal, state, local and international laws governing chemical substances in products, including laws regulating the manufacturing and distribution of chemical substances and laws restricting the presence of certain substances in electronics products.
QuickSet® ("QuickSet") is a software application that may be embedded in any entertainment or smart home device, set-top box, or other host device, or delivered as a cloud-based service, through Quickset Cloud, to enable universal device setup and control.
Our flagship solution, QuickSet® ("QuickSet") is a software application that can be embedded in any entertainment or smart home platform, or can be delivered as a cloud-based service, through QuickSet Cloud, to enable universal device setup, interoperability and control.
In addition to observance of quality standards from our suppliers, we maintain and request our suppliers to adhere to our Global Supplier Code of Conduct and Fair Competition Policy ("Supplier Code of Conduct"), which is available on our website and is an essential part of our supply chain management.
In addition to observance of quality standards by our suppliers, we require suppliers to adhere to our Global Supplier Code of Conduct and Fair Competition Policy ("Supplier Code of Conduct"), which is available on our website.
ITEM 1. BUSINESS Universal Electronics Inc. ("UEI") was incorporated under the laws of Delaware in 1986 and began operations in 1987. The principal executive offices are located at 15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254. As used herein, the terms "we", "us" and "our" refer to UEI and its subsidiaries unless the context indicates to the contrary.
ITEM 1. BUSINESS Universal Electronics Inc. ("UEI" or the "Company") was incorporated under the laws of Delaware in 1986 and began operations in 1987. The principal executive offices are located at 15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254.
He was appointed President and Chief Operating Officer in September 1998, was promoted to Chief Executive Officer in October 2000 and appointed as Chairman in July 2001. At the 2022 Annual Meeting of Stockholders, Mr. Arling was re-elected as our Chairman to serve until the 2023 Annual Meeting of Stockholders.
He joined us in May 1996 as Chief Financial Officer and was named to our Board of Directors in August 1996. He was appointed President and Chief Operating Officer in September 1998, was promoted to Chief Executive Officer in October 2000 and appointed as Chairman in July 2001. At the 2023 Annual Meeting of Stockholders, Mr.
Under this program, major components in pre-owned remote control units are reused or recycled; for example, the printed circuit board assemblies ("PCBA") are cleaned, tested and reused, or plastics are reground to be reused. We have also employed new master carton packing methods to increase shipping efficiency and reduce cardboard usage.
For example, the printed circuit board assemblies ("PCBA") are cleaned, tested and reused, or plastics are reground to be reused. We have also employed new master carton packing methods to increase shipping efficiency and reduce cardboard usage. Some of our manufacturing facilities are switching to the use of recycled solder.
We are evaluating the use of renewable energy and our teams continue to examine practices and processes throughout our facilities to identify opportunities for greater efficiency. Each of our manufacturing facilities has standing policies and targets for the monitoring and management of waste generation and energy consumption, and is focused on reducing electricity consumption, water usage and greenhouse gas emissions.
Each of our manufacturing facilities has standing policies and targets for the monitoring and management of waste generation and energy consumption and is focused on reducing electricity consumption, water usage and greenhouse gas emissions.
Hackworth spent six years at Deloitte & Touche LLP as an auditor, specializing in the manufacturing and retail industries. Mr. Hackworth is a certified public accountant (inactive) in the state of California and holds a Bachelor of Arts in Economics from University of California, Irvine. Ramzi S. Ammari is our Senior Vice President, Corporate Planning and Strategy.
Hackworth is a certified public accountant (inactive) in the state of California and holds a Bachelor of Arts in Economics from University of California, Irvine. 11 Table of Contents Ramzi S. Ammari is our Senior Vice President, Corporate Planning and Strategy.
This will enable products powered by the QuickSet Widget including the UEI TIDE family of Smart Thermostats to be Matter-capable.
It is expanding to include native support of Matter across the QuickSet Widget family with Virtual Agent-assisted easy onboarding. This will enable products powered by the QuickSet Widget including the UEI TIDE family of Smart Thermostats to be Matter-capable.
We hold and apply for patents in the United States and abroad related to our remote control, home security, safety, climate control, and automation technologies. Our patents have remaining lives ranging from one to 18 years. We have also obtained copyright registration and claim copyright protection for certain proprietary software and libraries of our device control codes.
Our patents have remaining lives ranging from less than one to 18 years. We have also obtained copyright registration and claim copyright protection for certain proprietary software and libraries of our device control libraries.
Hackworth joined us in June 2004 as Corporate Controller and subsequently assumed the role of Chief Accounting Officer in May 2005. Before joining us in 2004, he spent five years at Mars, Inc., a privately held international manufacturer and distributor of consumer products and served in several financial and strategic roles. Prior to joining Mars, Inc., Mr.
Before joining us in 2004, he spent five years at Mars, Inc., a privately held international manufacturer and distributor of consumer products and served in several financial and strategic roles. Prior to joining Mars, Inc., Mr. Hackworth spent six years at Deloitte & Touche LLP as an auditor, specializing in the manufacturing and retail industries. Mr.
QuickSet and QuickSet Cloud are integral components of major TV and TV operator systems and are the primary solutions for easy discovery, setup and control of entertainment and smart home devices. Today, QuickSet smart home services are the technology behind the Home Dashboard of LG TVs and provide a complete and simplified system control experience for households.
QuickSet and QuickSet Cloud are integral components of our products and services and are used by our customers as the primary solution for easy discovery, control and interaction between entertainment and smart home devices. Today, QuickSet smart home services are the technology behind LG TV's Home Dashboard, providing a complete and simplified system control experience for households worldwide.
Leveraging our scale and expertise in low-power RF microcontrollers, we continue to pursue further penetration of our traditional OEM consumer electronics markets as well as newer product categories in the smart home and IoT markets such as HVAC, lighting, window coverings and bathroom controllers.
Leveraging our scale and expertise in low-power RF microcontrollers, we continue to pursue further penetration of our traditional OEM consumer electronics markets as well as newer product categories in the smart home and IoT markets including smart lighting, smart and motorized shades, as well as smart toilets and faucets, which rely on smart connectivity and control technologies to reduce water use and improve user experience.
Tivo Stream, Comcast's Flex, Sky Glass and DISH Sling are examples of current customer offerings of these types of services. At the same time, we have seen our markets in Home Entertainment OEM, and especially our SmartTV OEMs, successfully upgrade to streaming service aggregators.
At the same time, we have seen our markets in Home Entertainment OEM, and especially our SmartTV OEMs, successfully upgrade to streaming service aggregators.
Where possible, we utilize standard parts and components, which are available from multiple sources. 7 Table of Contents We are a large consumer of integrated circuits, including low-power, RF chips and modules that are used throughout our product portfolios. We continually seek additional sources to reduce our dependence on our integrated circuit suppliers.
During 2023, we utilized multiple third-party manufacturers and maintained duplicate tooling for certain of our products. Where possible, we utilize standard parts and components, which are available from multiple sources. We are a large consumer of integrated circuits, including low-power, RF chips and modules that are used throughout our product portfolios.
He joined us in May 2020 as Vice President, Global Supply Chain and in July 2022, he was promoted to Vice President, Operations. In February 2023, he was promoted to his current position, Senior Vice President, Global Operations. Prior to joining us, from March 2019 until May 2020, Mr.
Firehammer is also a certified public accountant (inactive). Richard K. Carnifax is our Senior Vice President, Global Operations. He joined us in May 2020 as Vice President, Global Supply Chain and in July 2022, he was promoted to Vice President, Operations. In February 2023, he was promoted to his current position, Senior Vice President, Global Operations.
At our manufacturing facilities, we are also committed to protecting our workers from exposure to hazardous substances under an established health and safety management system: As an example, we have replaced VOC emitting inks and paints with reduced-VOC paints at our PRC facilities.
We place great importance on the compliance with local health and safety laws and regulations. At our manufacturing facilities, we are also committed to protecting our workers from exposure to hazardous substances under an established health and safety management system.
Our operations, supply chain and products are expected to become increasingly subject to federal, state, local and foreign laws, regulations and international treaties relating to climate change, such as climate disclosure, carbon pricing or product energy efficiency requirements.
These limits, regulations, and tariffs, especially those pertaining to or affecting relations between the United States and the PRC, might significantly disrupt our business, affecting our capacity to manufacture, source components and sell goods. 9 Table of Contents Climate Change Our operations, supply chain and products are expected to become increasingly subject to federal, state, local and foreign laws, regulations, and international treaties relating to climate change, such as climate disclosure, carbon pricing or product energy efficiency requirements.
Some of our manufacturing facilities are switching to the use of recycled solder. To further reduce collateral waste, we have introduced an initiative to reduce and/or remove single use plastics ("SUP") from our supply chain and manufacturing process for certain customer programs.
To further reduce collateral waste, we have introduced an initiative to reduce and/or remove single use plastics ("SUP") from our supply chain and manufacturing process for certain customer programs. In the nations where we have operations or otherwise conduct business, we are also subject to tariffs, import/export controls, and other trade-related laws and limitations.
From 1993 through May 1996, he served in various capacities at LESCO, Inc. (a manufacturer and distributor of professional turf care products). Prior to LESCO, he worked for Imperial Wallcoverings (a manufacturer and distributor of wall covering products) as Director of Planning and The Michael Allen Company (a strategic management consulting company) where he was employed as a management consultant.
Prior to LESCO, he worked for Imperial Wallcoverings (a manufacturer and distributor of wall covering products) as Director of Planning and The Michael Allen Company (a strategic management consulting company) where he was employed as a management consultant. Mr. Arling received his Bachelor of Science and Master of Business Administration from The Wharton School of the University of Pennsylvania.
We strive to extend the useful life of our products and reduce our products' impact on the environment. We have invested in R&D to improve the energy efficiency of our battery-operated products: For example, we deploy a low energy IR-engine in some of our products, which can extend battery life regardless of the protocols utilized by the product.
For example, we deploy a low energy IR-engine in some of our products, which can extend battery life regardless of the protocols utilized by the product. We have introduced our control platform and related technologies that address the growing demand for sustainable products that reduce energy use and eliminate waste.
We also distribute home security sensors and connected thermostats to pro-security installers and hospitality system integrators in the United States and Europe through a network of national and regional distributors and dealers. 3 Table of Contents Additionally, we sell our wireless control devices and AV accessories under the One For All®, Ecolink and private label brand names to retailers through our international subsidiaries and direct to retailers in key markets, such as in the United States, United Kingdom, Germany, France, Spain, and Italy.
We also distribute home security sensors and connected thermostats to pro-security 3 Table of Contents installers and hospitality system integrators in the United States and Europe through a network of national and regional distributors and dealers.
We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries. Our goal is to provide universal control solutions that require minimal or no user set-up and deliver consistent and intuitive one-touch control of all connected content sources and devices.
Our goal is to provide universal and interoperable control solutions that automatically set up and deliver consistent and intuitive one-touch control of all connected content sources and devices.
Even though we operate three factories in the PRC, manufacturing and assembly plants in Mexico and Brazil, respectively, and plan to open a manufacturing facility in Vietnam in 2023, we continue to evaluate additional third-party manufacturers and sources of supply. During 2022, we utilized multiple third-party manufacturers and maintained duplicate tooling for certain of our products.
We will continue to evaluate our global factory footprint to identify ways to operate more efficiently. 7 Table of Contents Even though we operate two factories in the PRC, one factory in Vietnam and manufacturing and assembly plants in Mexico and Brazil, respectively, we continue to evaluate additional third-party manufacturers and sources of supply.
Arling 60 Chairman of the Board and Chief Executive Officer Bryan M. Hackworth 53 Senior Vice President and Chief Financial Officer Ramzi S. Ammari 57 Senior Vice President, Corporate Planning and Strategy David Chong 61 Executive Vice President, Asia Richard A. Firehammer, Jr. 65 Senior Vice President, General Counsel, Head of Global Compliance, and Secretary Menno V.
Ammari 58 Senior Vice President, Corporate Planning and Strategy David Chong 62 Executive Vice President, Global Sales Richard A. Firehammer, Jr. 66 Senior Vice President, General Counsel, Head of Global Compliance, and Corporate Secretary Richard K. Carnifax 37 Senior Vice President, Global Operations Paul D. Arling is our Chairman and Chief Executive Officer.
We have introduced our control platform and related technologies that address the growing demand for sustainable products that reduce energy use and eliminate waste. With this platform, we partnered with technology leaders and invested in bringing ultra-low power connectivity chips with built-in energy harvesting and photovoltaic cells to the market.
With this platform, we partnered with technology leaders and invested in bringing ultra-low power connectivity chips with built-in energy harvesting and photovoltaic cells to the market. These chips offer more computing power while consuming substantially less battery power.
We have a confidential ethics hotline to enable our employees to report any suspected violations of applicable laws or policies. Labor unions represent approximately 29.0% of our 4,658 employees as of December 31, 2022.
We have a third-party confidential ethics hotline ("the UEI Ethics Line") to enable our employees or other stakeholders to anonymously report any suspected violations of applicable laws, policies or human rights violations.
Because of the nature of research and development ("R&D") activities, there can be no assurance that any of our R&D projects will be successfully completed or ultimately achieve commercial success. 6 Table of Contents Intellectual Property and Technology A key factor in creating products and software for control of entertainment and smart home devices is our proprietary device knowledge.
Intellectual Property and Technology A key factor in creating products and software for control of entertainment and smart home devices is our proprietary device knowledge.
Mr. Arling received his Bachelor of Science and Master of Business Administration from The Wharton School of the University of Pennsylvania. Bryan M. Hackworth is our Senior Vice President and Chief Financial Officer. He was promoted to Chief Financial Officer in August 2006. Mr.
Bryan M. Hackworth is our Senior Vice President and Chief Financial Officer. He was promoted to Chief Financial Officer in August 2006. Mr. Hackworth joined us in June 2004 as Corporate Controller and subsequently assumed the role of Chief Accounting Officer in May 2005.
In general, our technical staff are involved in various industry organizations and bodies, which are in the process of setting standards for IR and RF communication and networking in the home. Our participation ensures comprehensive understanding of the technical specifications being developed that can affect the deployment and proliferation of future standards and technologies in the home.
At CES 2024, we announced several new Matter-supported products and technology platforms. 6 Table of Contents In general, our technical staff are involved in various industry organizations and bodies, which are in the process of setting standards for IR and RF communication and networking in the home.
UEI’s QuickSet Widgets provide fully managed Internet of Things ("IoT") capability to non-connected electronic devices for fast time-to-market and enable digital transformation of end-user interaction. It is expanding to include native support of Matter across the QuickSet Widget family with Virtual Agent-assisted easy onboarding.
QuickSet’s content history capabilities also extended to new categories of content usage in the home such as whole home audio as well as audio/video casting. UEI’s QuickSet Widgets provide fully managed Internet of Things ("IoT") capability to non-connected electronic devices for fast time-to-market and enable digital transformation of end-user interaction.
Resources Engineering During 2022, our engineering efforts focused on the following: • broadening our product portfolio; • launching new embedded software solutions designed to simplify set-up and control features; • modifying existing products and technologies to improve features, lower costs and to ensure minimal supply chain disruption; • maintaining existing products and relocating certain manufacturing to lower cost jurisdictions; • developing sustainable products that reduce energy use and eliminate waste; • formulating measures to protect our proprietary technology and general know-how; • improving our control solutions software; • updating our library of device codes to include codes for new features and devices introduced worldwide; • creating innovative products that address consumer challenges in home entertainment control and security sensing; and • optimizing, scaling and improving our cloud platform to deliver additional features and managed services to a large installed base of customer and end users.
Resources Engineering During 2023, our engineering efforts focused on the following: • broadening our product and technology portfolio; • enhancing the features and capabilities of our existing technology platforms; • integrating our core technology platforms and modifying the applications in our existing products to improve functionality and enhance customer value; • ensuring continuous and efficient supply chain by relocating certain manufacturing to lower cost jurisdictions; • developing sustainable products that reduce energy use and eliminate waste; • formulating measures to protect our proprietary technology and general know-how; • updating our interoperability device and services libraries worldwide to ensure broader smart home category support; • identifying, testing and sourcing non-critical off-the-shelf products from vendors worldwide that complement our product portfolio for certain market verticals; • launching new products that integrate emerging wireless technology protocols, such as Matter and Thread; and • improving our cloud platform to create value-add features that can scale across a large installed base of customers and end users.
Our business units are subject to various laws and regulations relating to their relationships with their employees. These laws and regulations are specific to the location of each business unit. We believe that our relationships with employees and their representative organizations are good.
Additionally, workers at our Vietnam facility are covered by a collective bargaining agreement. These workers represent approximately 10.0% of our 4,177 employees as of December 31, 2023. Our business units are subject to various laws and regulations relating to their relationships with their employees. These laws and regulations are specific to the location of each business unit.
In addition, our manufacturing facilities in Yangzhou, PRC have also achieved ISO 45001 International Standard for safety and health management systems.
In addition, our manufacturing facilities in Yangzhou, PRC have also achieved ISO 45001 International Standard for safety and health management systems. We are focused on reducing the environmental impact of our operations. We are evaluating the use of renewable energy and our teams continue to examine practices and processes throughout our facilities to identify opportunities for greater energy efficiency.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Risks Relating to Our Stock The Price of Our Common Stock is Volatile and May Decline Regardless of Our Operating Performance Historically, we have had large fluctuations in the price of our common stock, and such fluctuations may continue, including a significant decline in our stock price.
Risks Relating to Our Stock The Price of Our Common Stock is Volatile and May Decline Regardless of Our Operating Performance Historically, we have had large fluctuations in the price of our common stock including a significant decline in our stock price, and such fluctuations may continue.
We continue to mitigate these risks in a number of ways, including through additional investment, engagement of third-party experts and consultants, improving the security of our facilities and systems (including through upgrades to our security and information technology systems), providing training for all employees (with more enhanced or frequent training based on role or responsibility), assessing the continued appropriateness of relevant insurance coverage and strengthening our controls and procedures to monitor, mitigate and respond appropriately to these threats.
We continue to try to mitigate these risks in a number of ways, including through additional investment, engagement of third-party experts and consultants, improving the security of our facilities and systems (including through upgrades to our security and information technology systems), providing training for all employees (with more enhanced or frequent training based on role or responsibility), assessing the continued appropriateness of relevant insurance coverage and strengthening our controls and procedures to monitor, mitigate and respond appropriately to these threats.
Also, we are continuing to experience increases in commodities and freight costs which have and may continue to adversely affect our margins. At the same time, in order to secure components for our products or services, we have and may continue to make advance payments to suppliers and/or enter into non-cancelable commitments with suppliers.
Also, we are continuing to experience increases in freight costs which have and may continue to adversely affect our margins. At the same time, in order to secure components for our products or services, we have and may continue to make advance payments to suppliers and/or enter into non-cancelable commitments with suppliers.
In addition, the new rules may reduce the number of suppliers who provide components and products containing conflict-free minerals and thus may increase the cost of the components used in manufacturing our products and the costs of our products to us. Any increased costs and expenses may have a material adverse impact on our financial condition and results of operations.
In addition, the rules may reduce the number of suppliers who provide components and products containing conflict-free minerals and thus may increase the cost of the components used in manufacturing our products and the costs of our products to us. Any increased costs and expenses may have a material adverse impact on our financial condition and results of operations.
While we require these agencies to adhere to our Supplier Code of Conduct, which among other things prohibits forced labor in any manner and requires them to treat all employees with respect and dignity, use of these third-party agencies has come under worldwide scrutiny.
While we require these suppliers and agencies to adhere to our Supplier Code of Conduct, which among other things prohibits forced labor in any manner and requires them to treat all employees with respect and dignity, use of third-party agencies has come under worldwide scrutiny.
As cybersecurity threats evolve in sophistication and become more prevalent worldwide, we continue to increase our sensitivity and attention to these threats, seek additional investments and resources to address these threats and enhance the security of our facilities and systems and strengthen our controls and procedures to monitor, protect against and mitigate these threats.
As cybersecurity threats evolve in sophistication and become more prevalent worldwide, we continue to aim to increase our sensitivity and attention to these threats, seek additional investments and resources to address these threats and enhance the security of our facilities and systems and strengthen our controls and procedures to monitor, protect against and mitigate these threats.
These challenges include: (1) compliance with complex and changing laws, regulations and policies of governments that may impact our operations, such as foreign ownership restrictions, import and export controls, tariffs, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil unrest, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (7) currency exchange rate fluctuations.
These challenges include: (1) compliance with complex and changing laws, regulations and policies of governments that may impact our operations, such as foreign ownership restrictions, import and export controls, tariffs, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights 19 Table of Contents under local laws; (6) rapid changes in government policy, political or civil unrest, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (7) currency exchange rate fluctuations.
As a result of these tariffs and other governmental action, we moved production of many of our products destined for the U.S. to Mexico and a third-party manufacturing partner outside of the PRC.
As a result of these tariffs and other governmental action, we moved production of many of our products destined for the U.S. to Mexico, Vietnam and a third-party manufacturing partner outside of the PRC.
The domestic and international regulatory environment related to information security, data collection and privacy is increasingly rigorous and complex, with new and constantly changing requirements applicable to our business.
The domestic and international legal and regulatory environment related to information security, data collection and privacy is increasingly rigorous and complex, with new and constantly changing requirements applicable to our business.
For example, it could: • require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; • increase our vulnerability to adverse economic or industry conditions; • limit our ability to obtain additional financing in the future to enable us to react to changes in our business; or • place us at a competitive disadvantage compared to businesses in our industry that have less debt.
For example, it could: • require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; • increase our vulnerability to adverse economic or industry conditions; 23 Table of Contents • limit our ability to obtain additional financing in the future to enable us to react to changes in our business; or • place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Although raw materials and energy supplies (including oil and natural gas) are generally available from various sources in sufficient quantities, unexpected shortages and increases in the cost of raw materials and energy, or any deterioration in our 26 Table of Contents relationships with or the financial viability of our suppliers, may have an adverse effect on our earnings or cash flow in the event we are unable to offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the prices of our products.
Although raw materials and energy supplies (including oil and natural gas) are generally available from various sources in sufficient quantities, unexpected shortages and increases in the cost of raw materials and energy, or any deterioration in our relationships with or the financial viability of our suppliers, may have an adverse effect on our earnings or cash flow in the event we are unable to offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the prices of our products.
Moreover, we rely heavily on computer systems to manage and operate our business, record and process transactions, and manage, support and communicate with our employees, customers, suppliers and other vendors. Computer systems are important to production planning, finance, company operations and customer service, among other business-critical processes.
Moreover, we rely heavily on computer systems to manage and operate our business, record and process transactions, and manage, support and communicate with our employees, customers, suppliers, vendors, and other third parties. Computer systems are important to production planning, finance, company operations and customer service, among other business-critical processes.
Actual events or results may be unfavorable to management's projections, which may have a material adverse effect on our projected operating results, financial condition and cash flows. Additionally, we have long-lived and intangible assets, including goodwill, recorded on our consolidated balance sheet.
Actual events or results may be unfavorable to management's projections, which may have a material adverse effect on our projected operating results, financial condition and cash flows. Additionally, we have long-lived and intangible assets recorded on our consolidated balance sheet.
We believe that the loss of any one or more of these third-party manufacturers would not have a long-term material adverse effect on our business, results of operations and cash flows, because numerous other manufacturers are 15 Table of Contents available to fulfill our requirements; however, the loss of any of our major third-party manufacturers may adversely affect our business, operating results, financial condition and cash flows until alternative manufacturing arrangements are secured.
We believe that the loss of any one or more of these third-party manufacturers would not have a long-term material adverse effect on our business, results of operations and cash flows, because numerous other manufacturers are available to fulfill our requirements; however, the loss of any of our major third-party manufacturers may adversely affect our business, operating results, financial condition and cash flows until alternative manufacturing arrangements are secured.
These investigations, examinations and other proceedings may subject us to significant liability and require us to pay significant settlements, fines and penalties, which may have a material adverse effect on our results of operations, cash flows or financial condition. Patents, Trademarks, and Copyrights We have numerous patents, trade secrets, trademarks, trade names, and know-how that are valuable to our business.
These investigations, examinations and other proceedings may subject us to significant liability and require us to pay significant settlements, fines and penalties, which may have a material adverse effect on our results of operations, cash flows or financial condition. 20 Table of Contents Patents, Trademarks, and Copyrights We have numerous patents, trade secrets, trademarks, trade names, and know-how that are valuable to our business.
Adverse changes in global, national, regional economies, governmental policies (including in areas such as trade, travel, immigration, healthcare, and related issues), and geopolitical conditions (such as the Russian invasion of Ukraine, tension across the Taiwan Strait and tension between the United States and the PRC, and the ramifications of those and other events) impact our activities.
Adverse changes in global, national, regional economies, governmental policies (including in areas such as trade, travel, immigration, healthcare, and related issues), and geopolitical conditions (such as the Russian invasion of Ukraine, conflict in the Middle East, tension across the Taiwan Strait and tension between the United States and the PRC, and the ramifications of those and other events) impact our activities.
Risks Relating to Operations Cybersecurity Issues: Security Breaches, Failure to Maintain the Integrity of and Protect Internal or Customer Data May Result in Faulty Business Decisions, Operational Inefficiencies, Damage to our Reputation and/or Subject Us to Costs, Fines, or Lawsuits Our business requires collection, processing, and retention of large volumes of internal and sensitive and confidential customer data, including personally identifiable information of our customers in various information systems that we maintain and in those maintained by third parties with whom we contract, including in areas such as customer product servicing, human resources outsourcing, website hosting, and various forms of electronic communications.
Risks Relating to Operations Cybersecurity Issues: Cybersecurity Incidents, Failure to Maintain the Integrity of and Protect Internal or Customer Data May Result in Faulty Business Decisions, Operational Inefficiencies, Damage to our Reputation and/or Subject Us to Costs, Fines, or Lawsuits Our business requires collection, processing, and retention of large volumes of data, including personally identifiable information of our customers in various information systems that we maintain and in those maintained by third parties with whom we contract, including in areas such as customer product servicing, human resources outsourcing, website hosting, and various forms of electronic communications.
Dependence upon Key Suppliers We continue to operate in a supply-constrained environment, and we are heavily dependent on third-party suppliers and their ability to deliver sufficient quantities of key components and products at reasonable prices and in time for us to meet schedules 16 Table of Contents for the delivery of our products and services.
Dependence upon Key Suppliers We continue to operate in a supply-constrained environment, and we are heavily dependent on third-party suppliers and their ability to deliver sufficient quantities of key components and products at reasonable prices and in time for us to meet schedules for the delivery of our products and services.
Our Technology Development Activities May Experience Delays We may experience technical, financial, resource or other difficulties or delays related to the further development of our technologies. Delays may have adverse financial effects and may allow competitors to gain an advantage over us in the 14 Table of Contents marketplace or in the standards setting arena.
Our Technology Development Activities May Experience Delays We may experience technical, financial, resource or other difficulties or delays related to the further development of our technologies. Delays may have adverse financial effects and may allow competitors to gain an advantage over us in the marketplace or in the standards setting arena.
Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer, employee, supplier or Company information, whether caused by us, an unknown third party, or the retailers, dealers, licensees or other third-party suppliers and vendors with which we do business, could result in losses, severely damage our reputation, expose us to the risks of litigation and liability, disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.
Any cybersecurity incidents involving the misappropriation, loss or other unauthorized disclosure of customer, employee, supplier or Company information, whether caused by us, an unknown third party, or the retailers, dealers, licensees or other third-party suppliers and vendors with which we do business, could result in losses, severely damage our reputation, expose us to the risks of litigation and liability, disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.
Because there is no way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to each of the following: 12 Table of Contents Risks Relating to Economic Conditions and Global Events General economic factors beyond our control could adversely affect our business and results of operations.
Because there is no way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to each of the following: Risks Relating to Economic Conditions and Global Events General political and economic factors beyond our control could adversely affect our business and results of operations.
Our strategy is based on our own projections and on analyst, industry observer and expert projections, which are forward-looking in nature and are inherently subject to risks and uncertainties.
Market Projections and Data are Forward-looking in Nature Our strategy is based on our own projections and on analyst, industry observer and expert projections, which are forward-looking in nature and are inherently subject to risks and uncertainties.
Because of technological changes in the 21 Table of Contents wireless and home control industry, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of our products and business methods may unknowingly infringe upon the patents of others.
Because of technological changes in the wireless and home control industry, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of our products and business methods may unknowingly infringe upon the patents of others.
While we have identified other sources of ICs and are taking other production and inventory control steps in order to mitigate the effects caused by this shortage, we cannot guarantee that the alternative sources will meet our short- and longer-term IC needs and/or without experiencing increases in the prices we pay for these components.
While we have identified other sources of ICs and are taking other production and inventory control steps in order to mitigate the effects caused by these types of shortages, we cannot guarantee that the alternative sources will meet our short- and longer-term IC needs and/or without experiencing increases in the prices we pay for these components.
We carry cyber insurance, and while we have not incurred any material losses due to any failure of or disruptions to our systems, or from any breaches of or attacks, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or that any insurer will not deny coverage as to any future claim.
We carry cyber insurance, and while we have not incurred any material losses due to any failure of or disruptions to our systems, or from any cybersecurity incidents, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or that any insurer will not deny coverage as to any future claim.
As a result, the SEC enacted annual disclosure and reporting requirements for public companies to conduct due diligence to determine the source of any conflict minerals used in our products and to make annual disclosures in filings with the SEC.
As a result, the SEC enacted annual disclosure and reporting requirements for public 21 Table of Contents companies to conduct due diligence to determine the source of any conflict minerals used in our products and to make annual disclosures in filings with the SEC.
Risks Related to Doing Business in the PRC Presently, we manufacture a majority of our products in our factories in the PRC. Additionally, many of our contract manufacturers are located in the PRC.
Risks Related to Doing Business in the PRC Presently, we manufacture many of our products in our factories in the PRC. Additionally, many of our contract manufacturers are located in the PRC.
We and third parties who provide services to us also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data, including proprietary information, is critical to us. If that data is inaccurate or 13 Table of Contents incomplete, we may make faulty decisions.
We and third parties who provide services to us also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data, including proprietary information, is critical to us. If that data is inaccurate or incomplete or inaccessible, we may make faulty decisions.
These tariffs, and other governmental action relating to international trade agreements or policies, may adversely impact 19 Table of Contents demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, as a result, adversely impact our business.
These tariffs, and other governmental action relating to international trade agreements or policies, may adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, as a result, adversely impact our business.
We rely on software applications, enterprise cloud storage systems and cloud computing services provided by third-party vendors, and our business may be adversely affected by service disruptions in or security breaches to such systems. Remote work and remote access to our systems has increased, which also increases the risk of cybersecurity attacks on our systems surface.
We rely on software applications, enterprise cloud storage systems and cloud computing services provided by third-party vendors, and our business may be adversely affected by service disruptions in or cybersecurity incidents related to such systems. Remote work and remote access to our systems has increased, which also increases the risk of cybersecurity incidents on our systems surface.
In addition, there has been a global increase in cyberattack volume, frequency, and sophistication driven by the global enablement of remote workforces. Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, may further heighten the risk of cybersecurity attacks.
In addition, there has been a global increase in cybersecurity threat volume, frequency, and sophistication driven by the global enablement of remote workforces. Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, may further heighten the risk of cybersecurity incidents.
In addition, there can be no assurance that products developed by others will not render our products non-competitive or obsolete or that we will be able to obtain or maintain the rights to use proprietary technologies developed by others which are incorporated in our products.
In addition, there can be no assurance that products developed by others will not render our products non-competitive or obsolete or that we will be able to obtain or 14 Table of Contents maintain the rights to use proprietary technologies developed by others which are incorporated in our products.
Significant judgment is required in evaluating and estimating our tax expense and liabilities. In the ordinary course of our business, there are many transactions and calculations which make the ultimate tax determination uncertain. We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional tax liabilities against us.
Significant judgment is required in evaluating and estimating our tax expense and liabilities. In the ordinary course of our business, there are many transactions and calculations which make the ultimate tax determination uncertain. We become subject to tax controversies in various jurisdictions at various times, and these jurisdictions may assess additional tax liabilities against us.
Additionally, we, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to our and these companies' operating performance.
Additionally, we, the technology industry and the stock market as a whole have experienced extreme stock price and volume fluctuations that have 24 Table of Contents affected stock prices in ways that may have been unrelated to our and these companies' operating performance.
Despite the security measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third-party suppliers and vendors with which we do business, may be vulnerable to security breaches, cyberattacks, acts of vandalism or misconduct, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.
Despite the security measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third-party suppliers and vendors with which we do business, may be vulnerable to cybersecurity threats, attacks or incidents, acts of vandalism or misconduct, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.
Compliance with these requirements, including the European Union's General Data Protection Regulation ("GDPR"), China's newly enacted Personal Information Protection Law ("PIPL") and other domestic and international regulations, could result in additional costs and changes to our business practices.
Compliance with these requirements, including the European 13 Table of Contents Union's General Data Protection Regulation ("GDPR"), China's newly enacted Personal Information Protection Law ("PIPL") and other domestic (including state law) and international regulations, could result in additional costs and changes to our business practices.
As with the effects we have already experienced from the COVID-19 pandemic, any one or more of these events, including the actions taken by Russia against Ukraine, could disrupt sales volumes, raw material and fuel supplies and increase our costs, reduce our ability to manufacture and supply our products, and/or increase our operating costs, all of which could adversely affect our earnings or cash flows and profits.
As with the effects we have already experienced from the COVID-19 pandemic, any one or more of these events, including the actions 25 Table of Contents taken in the ongoing conflicts in the Middle East and by Russia against Ukraine, could disrupt sales volumes, raw material and fuel supplies and increase our costs, reduce our ability to manufacture and supply our products, and/or increase our operating costs, all of which could adversely affect our earnings or cash flows and profits.
Despite our efforts to prevent disruptions to our computer systems, these systems may be affected by damage or interruption from, among other causes, power outages, system failures, computer viruses and other intrusions, including cyberattacks.
Despite our efforts to prevent disruptions to our computer systems, these systems may be affected by damage, disruption, attack, or interruption from, among other causes, power outages, system failures, computer viruses and other intrusions, including cybersecurity incidents.
Future events and changing market conditions may impact our assumptions and may result in changes in our estimates of future sales and cash flows that may result in us incurring substantial impairment charges, which would adversely affect our results of operations or financial condition. Market Projections and Data are Forward-looking in Nature.
Future events and changing market conditions may impact our assumptions and may result in changes in our estimates of future sales and cash flows that may result in us incurring substantial impairment charges, which would adversely affect our results of operations or financial condition.
Our ability to operate in the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, labor and social insurance, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. The PRC Laws and Regulations Governing Our Current Business Operations are Sometimes Vague and Uncertain.
Our ability to operate in the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, labor and social insurance, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters.
We typically cannot recover the increased cost of air freight from our customers. Additionally, tariffs and other export fees may be incurred to ship products from foreign manufacturers to the customer. These increases in costs and tariffs may have a material adverse effect on our product margins. We also have an exposure to oil prices in two forms.
We typically cannot recover the increased cost of air freight from our customers. Additionally, tariffs and other 16 Table of Contents export fees may be incurred to ship products from foreign manufacturers to the customer. These increases in costs and tariffs may have a material adverse effect on our product margins.
Dollar could lead to higher manufacturing costs for our products. Availability of Adequate Workforce Levels Presently, a portion of workers at our PRC factories are obtained from third-party employment agencies.
Dollar. Any significant appreciation of the Chinese Yuan Renminbi against the U.S. Dollar could lead to higher manufacturing costs for our products. Availability of Adequate Workforce Levels Presently, a portion of workers at our PRC factories are obtained from third-party employment agencies.
If this happens the price of our common stock may be materially adversely affected. 23 Table of Contents Fluctuations in Foreign Currency Exchange Rates or Interest Rates May Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition Because of our international operations, we are exposed to risk associated with interest rates and value changes in foreign currencies, which may adversely affect our business.
Fluctuations in Foreign Currency Exchange Rates or Interest Rates May Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition Because of our international operations, we are exposed to risk associated with interest rates and value changes in foreign currencies, which may adversely affect our business.
In addition, under the Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank"), we may elect to pay interest on the revolving line of credit ("Credit Line") based on LIBOR or a base rate as specified in the Second Amended Credit Agreement.
In addition, under the Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank"), we may elect to pay interest on the revolving line of credit ("Credit Line") based on the Secured Overnight Financing Rate ("SOFR") plus an applicable margin or a base rate (based on the prime rate of U.S.
Payments to us by our subsidiaries will also be contingent upon our subsidiaries' earnings and business considerations. Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of that subsidiary's creditors, including trade creditors.
Our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of that subsidiary's creditors, including trade creditors.
We presently operate factories in the PRC, Brazil and Mexico, engineering centers in India, Korea and Japan and rely on third-party manufacturers located in Asia. In addition, we expect to commence manufacturing operations in Vietnam in the first half of 2023.
We presently operate factories in the PRC, Vietnam, Mexico and Brazil, engineering centers in India, Korea and Japan and rely on third-party manufacturers located in Asia.
If the relevant authorities find that we are in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation: levying fines; revoking our business and other licenses; requiring that we restructure our ownership or operations; and requiring that we discontinue any portion or all of our business.
If the relevant authorities find that we are in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation: levying fines; revoking our business and other licenses; requiring that we restructure our ownership or operations; and requiring that we discontinue any portion or all of our business. 18 Table of Contents The PRC's Legal and Judicial System May Not Adequately Protect Our Business and Operations and the Rights of Foreign Investors The PRC legal and judicial system may negatively impact foreign investors, with inconsistent enforcement of existing laws.
The validity of their and our assumptions, the timing and scope of the markets within which we compete, economic conditions, customer buying patterns, the timeliness of equipment development, pricing of products, and availability of capital for infrastructure improvements may affect these predictions. In addition, market data upon which we rely is based on third-party reports that may be inaccurate.
The validity of their and our assumptions, the timing and scope of the markets within which we compete, economic conditions, customer buying patterns, the timeliness of equipment development, pricing of products, and availability of capital for infrastructure improvements may affect these predictions.
While we do not source product from the XUAR and have increased actions to ensure our entire supply chain is free of any products made with forced labor, there is nonetheless a risk, particularly in light of prior media allegations about Gemstar, that our business, results of operations and financial condition could be adversely affected by the UFLPA, the UHRPA and related regulatory requirements and enforcement activity.
While we do not authorize 15 Table of Contents the sourcing of any product from the XUAR and have increased actions to ensure our entire supply chain is free of any products made with forced labor, there is nonetheless a risk, particularly in light of prior media allegations and government inquiries focusing on our subsidiary Gemstar and Uyghur individuals previously working at its facilities in non-XUAR locations in China, that our business, results of operations and financial condition could be adversely affected by the UFLPA, related regulatory requirements and enforcement activity, or related customer concerns.
Our competition is fragmented across our products, and, accordingly, we do not compete with any one company across all product lines. We compete with a variety of entities, some of which have greater financial resources. Other competitors are smaller and may be able to offer more specialized products.
We compete with a variety of entities, some of which have greater financial resources. Other competitors are smaller and may be able to offer more specialized products.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
The PRC Laws and Regulations Governing Our Current Business Operations are Sometimes Vague and Uncertain There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers.
The loss of, deterioration of our relationship with, or limits in allocation by, a single-source supplier, could adversely affect our business and financial performance. Difficulty in Ordering Integrated Circuits and Increases in Commodities and Freight Costs Have Adversely Affected and Will Continue to Adversely Affect Our Business.
The loss of, deterioration of our relationship with, or limits in allocation by, a single-source supplier, could adversely affect our business and financial performance.
We can give no assurance that we will enter into new or renewal leases, or that, if entered into, the new lease terms will be similar to the existing terms or that the terms of any such new or renewal leases will not have a significant and material adverse effect on our operating results, financial condition and cash flows. 17 Table of Contents Competition Competition within the industries we serve is based primarily on product availability, price, speed of delivery, ability to tailor specific solutions to customer needs, quality, and depth of product lines.
We can give no assurance that we will enter into new or renewal leases, or that, if entered into, the new lease terms will be similar to the existing terms or that the terms of any such new or renewal leases will not have a significant and material adverse effect on our operating results, financial condition and cash flows.
In addition, we utilize third-party manufacturers located in Asia to manufacture a portion of our products.
Manufacturing Risks We operate factories in the PRC, Vietnam, Mexico and Brazil. In addition, we utilize third-party manufacturers located in Asia to manufacture a portion of our products.
Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our Ability to Generate Cash Depends on Many Factors Beyond Our Control Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical tax accruals. 20 Table of Contents Failure by Our International Operations to Comply With Anti-Corruption Laws or Trade Sanctions Could Increase Our Costs, Reduce Our Profits, Limit Our Growth, Harm Our Reputation, or Subject Us to Broader Liability We are subject to restrictions imposed by the U.S.
Failure by Our International Operations to Comply With Anti-Corruption Laws or Trade Sanctions Could Increase Our Costs, Reduce Our Profits, Limit Our Growth, Harm Our Reputation, or Subject Us to Broader Liability We are subject to restrictions imposed by the U.S.
Under Chinese monetary policy, the Chinese Yuan Renminbi is permitted to fluctuate within a managed band against a basket of certain foreign currencies and has resulted in increased volatility in the exchange rate of the Chinese Yuan Renminbi against the U.S. Dollar. Any significant appreciation of the Chinese Yuan Renminbi against the U.S.
In addition to the other risks identified herein, doing business in the PRC carries a number of risks including the following: The Fluctuation of the Chinese Yuan Renminbi May Adversely Impact Our Manufacturing Costs Under Chinese monetary policy, the Chinese Yuan Renminbi is permitted to fluctuate within a managed band against a basket of certain foreign currencies and has resulted in increased volatility in the exchange rate of the Chinese Yuan Renminbi against the U.S.
We also supply our products, accessory products, and technologies to our wholly owned, non-U.S. subsidiaries and to independent foreign distributors, who in turn distribute our products worldwide. While we generally have a broad and varied customer base, during the years ended December 31, 2022, 2021 and 2020, Comcast Corporation accounted for sales totaling more than 10% of our net sales.
While we generally have a broad and varied customer base, during the years ended December 31, 2023, 2022 and 2021, Daikin Industries Ltd. accounted for sales totaling more than 10% of our net sales. During the years ended December 31, 2022 and 2021, Comcast Corporation also accounted for sales totaling more than 10% of our net sales.
The UFLPA creates a rebuttable presumption that all goods produced or manufactured, even partially, in XUAR, were made with forced labor and, therefore, would not be allowed entry at U.S. ports. Importers will be required to present clear and convincing evidence that goods from the XUAR are not made with forced labor. Under the law, U.S.
In the United States, among other relevant restrictions, the Uyghur Forced Labor Prevention Act (the "UFLPA") creates a rebuttable presumption that all goods produced or manufactured, even partially, in the PRC’s Xinjiang Uyghur Autonomous Region ("XUAR") were made with forced labor and, therefore, would not be allowed entry at U.S. ports.
If any of the banks in these credit and financing facilities are unable to perform on their commitments, our cash flow, liquidity or financial condition may be adversely impacted. 24 Table of Contents Although we currently have available credit facilities to fund our current operating needs, we cannot be certain that we will be able to replace our existing credit facilities or refinance our existing or future debt when necessary.
If any of the banks in these credit and financing facilities are unable to perform on their commitments, our cash flow, liquidity or financial condition may be adversely impacted.
The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise.
The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise. 12 Table of Contents Risks and Uncertainties We are subject to various risks that could materially and adversely affect our business, results of operations, cash flows, liquidity, or financial condition which make an investment in our securities risky.
During the years ended December 31, 2022 and 2021, Daikin Industries Ltd. also accounted for sales totaling more than 10% of our net sales. In addition to these customers, we have some customers that, individually or through their subsidiaries or affiliated partners, purchase a large amount of products from us.
In addition to these customers, we have some customers that, individually or through their subsidiaries or affiliated partners, purchase a large amount of products from us.
Strategic Business Transactions We have historically made strategic acquisitions of businesses in industries adjacent to our core business and will likely acquire additional businesses in the future as part of our long-term growth strategy.
If such a trend develops, we may experience downward pressure on our pricing or lose sales, which may have a material adverse effect on our operating results, financial condition and cash flows. 17 Table of Contents Strategic Business Transactions We have historically made strategic acquisitions of businesses in industries adjacent to our core business and will likely acquire additional businesses in the future as part of our long-term growth strategy.
The first is in the prices of oil-based materials in our products, which are primarily the plastics and other components that we include in our finished products. The second is in the cost of delivery and freight, which would be passed on by the carriers that we use in the form of higher rates.
We also have an exposure to oil prices in two forms. The first is in the prices of oil-based materials in our products, which are primarily the plastics and other components that we include in our finished products.
If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation or our attractiveness as an investment, business partner, service provider or employer could be negatively impacted. 22 Table of Contents Risks Relating to Finance Growth Projections Management has made projections required for the preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.
If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation or our attractiveness as an investment, business partner, service provider or employer could be negatively impacted.
The inaccuracy of any of these projections and/or market data may adversely affect our operating results and financial condition.
In 22 Table of Contents addition, market data upon which we rely is based on third-party reports that may be inaccurate. The inaccuracy of any of these projections and/or market data may adversely affect our operating results and financial condition.
Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due on our debt or to provide us with funds to meet our cash flow needs. In addition, any payment of dividends, loans or advances by our subsidiaries may be subject to statutory or contractual restrictions.
Except for Universal Electronics BV, which has guaranteed the performance under our Credit Line, our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due on our debt or to provide us with funds to meet our cash flow needs.
If we fail to meet expectations related to future growth, profitability, share repurchases or other market expectations, our stock price may decline significantly, which could have a material adverse impact on investor confidence. 25 Table of Contents Our Governing Corporate Documents Contain, and Our Board of Directors May Implement, Antitakeover Provisions that May Deter Takeover Attempts Our governing corporate documents, among other things, require super-majority votes in connection with certain mergers and similar transactions.
If we fail to meet expectations related to future growth, profitability, share repurchases or other market expectations, our stock price may decline significantly, which could have a material adverse impact on investor confidence.
In addition, our Board of Directors may, without stockholder approval, implement other anti-takeover defenses, such as a stockholder's rights plan.
Our Governing Corporate Documents Contain, and Our Board of Directors May Implement, Antitakeover Provisions that May Deter Takeover Attempts Our governing corporate documents, among other things, require super-majority votes in connection with certain mergers and similar transactions. In addition, our Board of Directors may, without stockholder approval, implement other anti-takeover defenses, such as a stockholder's rights plan.
Additionally, disruptions in financial markets could reduce our access to debt capital markets, negatively affecting our ability to implement our business strategy. Risks Relating to the COVID-19 Pandemic The COVID-19 pandemic and its consequences, including related measures to curtail its spread, have and will continue to impact our business, operations, and financial results.
Additionally, disruptions in financial markets could reduce our access to debt capital markets, negatively affecting our ability to implement our business strategy.
Additionally, the invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization ("NATO") and Russia. Such invasion, ongoing military conflict, resulting sanctions and related countermeasures by NATO states, the United States and other countries could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, and supply chain interruptions.
These conflicts and the resulting sanctions and related countermeasures could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, and supply chain interruptions. Additionally, they have the potential to spread to or exacerbate tensions in other countries or regions, leading to new and unanticipated disruptions.
Rising oil prices may have an adverse effect on cost of sales and operating expenses, and Russia's invasion of Ukraine may continue to create uncertainty in oil prices. Disruptions Caused by Labor Disputes or Organized Labor Activities Could Materially Harm our Business and Reputation Currently, approximately 1,400 of our Brazil and Mexico employees are represented by labor unions.
Conflict in the Middle East may produce continued or increased disruptions to international shipping and fluctuating freight costs. Disruptions Caused by Labor Disputes or Organized Labor Activities Could Materially Harm our Business and Reputation Currently, approximately 800 of our Brazil and Mexico employees are represented by labor unions.
While we do not believe we or any of our affiliates have used forced labor, and Gemstar has terminated its relationship with the third-party labor agency, ended its arrangement with these workers in question, and paid all outstanding wages and severance directly and individually to each of these workers, we cannot guarantee that the relevant U.S. authorities will not decide that forced labor exists or existed in the manufacturing of our products or in our supply chain and, pursuant to Section 307, prohibit or otherwise penalize U.S. imports of certain of our products, which would have an adverse effect on our business, results of operations and financial condition.
Gemstar has terminated its relationship with the third-party labor agency that engaged these workers, ended its arrangement with the workers in question, and paid all outstanding wages and severance directly and individually to each of these workers; further, we believe that we have addressed all outstanding questions from government authorities concerning this matter.
To the extent these interest rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results and cash flows. Our Ability to Generate Cash Depends on Many Factors Beyond Our Control. Our historical financial results have been, and we anticipate that our future financial results will be, subject to fluctuations.
Bank or as otherwise specified in the Second Amended Credit Agreement), plus an applicable margin. To the extent these interest rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results and cash flows.
Use of Third-Party Employment Agencies We utilize the services of third-party employment or labor agencies to provide us with staff to support our production activities.
Nonetheless, our reliance on international supply chains involves a risk of adverse effects to our business, including from government restrictions and enforcement efforts. Among other things, we utilize third-party suppliers as well as third-party employment or labor agencies to provide us with staff to support our production activities.
Removed
Risks and Uncertainties We are subject to various risks that could materially and adversely affect our business, results of operations, cash flows, liquidity, or financial condition which make an investment in our securities risky.
Added
Among other events, the invasion of Ukraine by Russia has escalated tensions among the United States, the North Atlantic Treaty Organization ("NATO") and Russia. Conflict in the Middle East has led to disruption of international shipping lanes, causing shipping delays and fluctuating freight costs.
Removed
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, particularly in light of new variants, and the availability of effective treatments or vaccines); and the negative impact the COVID-19 pandemic has on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending.
Added
We also supply our products, accessory products, and technologies to our wholly owned, non-U.S. subsidiaries and to independent foreign distributors, who in turn distribute our products worldwide.
Removed
Because the severity, magnitude and duration of the COVID-19 pandemic, including any new variants, 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.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed2 unchanged
Upon expiration of our facilities leases, we believe we will obtain lease agreements under similar terms; however, there can be no assurance that we will receive similar terms or that any offer to renew will be accepted. We currently believe that our manufacturing, engineering, and research and development facilities are suitable and adequate for our continued needs.
Upon expiration of our facilities leases, we believe we will obtain lease agreements under similar terms; however, there can be no assurance that we will receive similar terms or that any offer to renew will be accepted. 27 Table of Contents We currently believe that our manufacturing, engineering, and research and development facilities are suitable and adequate for our continued needs.
We will continue to assess the suitability and adequacy of these facilities to meet both our current needs, as well as our expected future requirements. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 8" for additional information regarding our obligations under leases. 27 Table of Contents
We will continue to assess the suitability and adequacy of these facilities to meet both our current needs, as well as our expected future requirements. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 8" for additional information regarding our obligations under leases.
We utilize the following facilities: Location Purpose or Use Square Feet Status Scottsdale, Arizona Corporate headquarters, engineering, research and development 25,106 Leased, expires February 27, 2027 Carlsbad, California Engineering, research and development 30,758 Leased, expires December 31, 2027 Plymouth, Minnesota Engineering, research and development 5,275 Leased, expires March 31, 2025 Poway, California Engineering, research and development 7,891 Leased, expires December 31, 2024 Santa Ana, California Engineering, research and development 18,420 Leased, expires November 30, 2027 Bangalore, India Engineering, research and development 21,326 Leased, expires August 31, 2023 Suzhou, PRC Engineering 5,705 Leased, expires December 31, 2023 Hong Kong, PRC Asian headquarters 6,550 Leased, expires July 31, 2025 Enschede, Netherlands European headquarters and call center 19,407 Leased, expires February 28, 2024 Guangzhou, PRC Service center 26,850 Leased, expires April 14, 2023 Hai Duong, Vietnam Manufacturing facility 124,776 Leased, expires December 1, 2034 Manaus, Brazil Manufacturing facility 56,120 Leased, expires August 19, 2025 Monterrey, Mexico Manufacturing facility 101,571 Leased, expires September 30, 2023 Monterrey, Mexico Storage facility 145,185 Leased, expires July 29, 2025 Qinzhou, PRC Manufacturing facility 20,452 Leased, expires May 31, 2023 Qinzhou, PRC Manufacturing facility 398,269 Leased, expires October 31, 2025 Qinzhou, PRC Manufacturing facility 248,448 Leased, expires October 31, 2025 Yangzhou, PRC (1) Manufacturing facility 1,204,697 Land leased, expires July 31, 2055 Yangzhou, PRC Manufacturing facility 77,888 Leased, expires October 31, 2025 (1) Private ownership of land in mainland PRC is not allowed.
We utilize the following facilities: Location Purpose or Use Square Feet Status Scottsdale, Arizona Corporate headquarters, engineering, research and development 25,106 Leased, expires February 27, 2027 Bangalore, India Engineering, research and development 21,326 Leased, expires July 31, 2024 Carlsbad, California Engineering, research and development 30,758 Leased, expires December 31, 2027 Plymouth, Minnesota Engineering, research and development 5,275 Leased, expires March 31, 2025 Poway, California Engineering, research and development 7,891 Leased, expires December 31, 2024 Santa Ana, California Engineering, research and development 18,420 Leased, expires November 30, 2027 Suzhou, PRC Engineering, research and development 5,705 Leased, expires December 31, 2025 Hong Kong, PRC Asian headquarters 6,550 Leased, expires July 31, 2025 Enschede, Netherlands European headquarters and call center 19,407 Leased, expires February 28, 2029 Guangzhou, PRC Service center 26,850 Leased, expires April 14, 2026 Hai Duong, Vietnam Manufacturing facility 124,776 Leased, expires December 1, 2034 Manaus, Brazil Manufacturing facility 56,120 Leased, expires August 19, 2025 Monterrey, Mexico Manufacturing facility 101,571 Leased, expires April 30, 2024 Monterrey, Mexico Manufacturing facility 61,296 Leased, expires April 15, 2029 Monterrey, Mexico Storage facility 145,185 Leased, expires July 29, 2025 Yangzhou, PRC (1) Manufacturing facility 1,247,688 Land leased, expires July 31, 2055 Yangzhou, PRC Manufacturing facility 77,888 Leased, expires October 31, 2025 (1) Private ownership of land in mainland PRC is not allowed.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+3 added−2 removed3 unchanged
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the NASDAQ Global Select Market under the symbol UEIC. Our stockholders of record on March 3, 2023 numbered 166. We have never paid cash dividends on our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the NASDAQ Global Select Market under the symbol UEIC. Our stockholders of record on March 11, 2024 numbered 159. We have never paid cash dividends on our common stock.
Purchases of Equity Securities The following table sets forth, for the fourth quarter, 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 October 1, 2022 - October 31, 2022 — $ — — — November 1, 2022 - November 30, 2022 3,057 21.90 — — December 1, 2022- December 31, 2022 73,015 22.90 — — Total 76,072 $ 22.86 — (1) Of the repurchases in November and December, 3,057 and 73,015 shares, respectively, represent common shares of the Company that were owned and tendered by employees to satisfy option cost and tax withholding obligations in connection with stock option exercises and the vesting of restricted shares.
Purchases of Equity Securities The following table sets forth, for the fourth quarter, 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) October 1, 2023 - October 31, 2023 — $ — — — November 1, 2023 - November 30, 2023 103,187 8.63 100,000 900,000 December 1, 2023- December 31, 2023 55 9.58 — 900,000 Total 103,242 $ 8.63 100,000 900,000 (1) Of the repurchases in November and December, 3,187 and 55 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.
We amended our peer group during 2022 to more accurately reflect the current overall business of the Company. The comparison assumes that $100 was invested on December 31, 2017 in each of our common stock, S&P Small Cap 600, the NASDAQ Composite Index, and the Peer Group Indices and that all dividends were reinvested.
The comparison assumes that $100 was invested on December 31, 2018 in each of our common stock, S&P Small Cap 600, the NASDAQ Composite Index, and the Peer Group Index and that all dividends were reinvested.
Performance Chart The following graph and table compares the cumulative total stockholder return with respect to our common stock versus the cumulative total return of the Standard & Poor's Small Cap 600 (the "S&P Small Cap 600"), the NASDAQ Composite Index, and the Peer Group Indices for the five-year period ended December 31, 2022.
We may utilize various methods to effect the repurchases under the October 2023 Program, including open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some or all of which could be effected through Rule 10b5-1 plans 28 Table of Contents Performance Chart The following graph and table compares the cumulative total stockholder return with respect to our common stock versus the cumulative total return of the Standard & Poor's Small Cap 600 (the "S&P Small Cap 600"), the NASDAQ Composite Index, and the Peer Group Index for the five-year period ended December 31, 2023.
The graph and table depicts year-end values based on actual market value increases and decreases relative to the initial investment of $100, based on information provided for each calendar year by the NASDAQ Stock Market, the New York Stock Exchange, the Hong Kong Stock Exchange and the Korea Exchange. 28 Table of Contents The comparisons in the graph and table below are based on historical data and are not intended to forecast the possible future performance of our common stock. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Universal Electronics Inc. $ 100 $ 54 $ 111 $ 111 $ 86 $ 44 S&P Small Cap 600 $ 100 $ 90 $ 109 $ 120 $ 150 $ 124 NASDAQ Composite Index $ 100 $ 96 $ 130 $ 187 $ 227 $ 152 Peer Group - Legacy Index (1) $ 100 $ 96 $ 117 $ 195 $ 181 $ 134 Peer Group - Updated Index (2)(3) $ 100 $ 82 $ 120 $ 173 $ 171 $ 112 (1) Companies in the legacy Peer Group Index are as follows: Dolby Laboratories, Inc.; Logitech International S.A.; VOXX International Corp.; and Xperi Corporation (formerly TiVo Corporation).
The comparisons in the graph and table below are based on historical data and are not intended to forecast the possible future performance of our common stock. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Universal Electronics Inc. $ 100 $ 207 $ 208 $ 161 $ 82 $ 37 S&P Small Cap 600 $ 100 $ 121 $ 132 $ 166 $ 137 $ 156 NASDAQ Composite Index $ 100 $ 135 $ 194 $ 236 $ 158 $ 226 Peer Group Index (1) $ 100 $ 121 $ 200 $ 186 $ 139 $ 186 (1) Companies in the Peer Group Index are as follows: Dolby Laboratories, Inc.; Logitech International S.A.; VOXX International Corp.; and Xperi Corporation (formerly TiVo Corporation).
Removed
(2) Companies in the updated Peer Group Index are as follows: Arlo Technologies, Inc.; Charter Communications, Inc.; Comcast Corporation; CommScope Holding Company, Inc.; Computime Group Limited; Dish Network Corporation; Home Control International Limited; LG Display Co., Ltd.; Liberty Global PLC; Logitech International S.A.; Samsung Electronics Co. Ltd.; Sony Group Corporation; and Turtle Beach Corporation.
Added
(2) On October 26, 2023, our Board approved a new share repurchase program with an effective date of November 7, 2023 (the "October 2023 Program"). Pursuant to the October 2023 Program, we are authorized to repurchase up to 1,000,000 shares of our common stock.
Removed
(3) Cumulative stockholder return data for Arlo Technologies, Inc. and Home Control Limited was not included in the updated Peer Group Index calculations, as these companies were not public until after the December 31, 2017 base period. The information presented above is as of December 31, 2017 through December 31, 2022.
Added
The graph and table depicts year-end values based on actual market value increases and decreases relative to the initial investment of $100, based on information provided for each calendar year by the NASDAQ Stock Market and the New York Stock Exchange.
Added
The information presented above is as of December 31, 2018 through December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

45 edited+29 added−27 removed40 unchanged
The amounts ultimately paid upon resolution of audits may be materially different from the amounts previously included in our income tax expense and, therefore, may have a material impact on our financial statements. Results of Operations The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated.
The amounts ultimately paid upon resolution of audits may be materially different from the amounts previously included in our income tax expense and, therefore, may have a material impact on our financial statements. 34 Table of Contents Results of Operations The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated.
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 none at December 31, 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 none at December 31, 2023.
Timing of Revenue Recognition – When determining the classification of over time verses point in time revenue recognition, there is significant judgment exercised by management in identifying and evaluating whether new contracts and/or products meet the criteria for over time or point in time revenue recognition.
Timing of Revenue Recognition – When determining the classification of over time versus point in time revenue recognition, there is significant judgment exercised by management in identifying and evaluating whether new contracts and/or products meet the criteria for over time or point in time revenue recognition.
Our product and technology offerings include: • easy-to-use, voice-enabled, automatically-programmed universal remote controls with two-way radio frequency ("RF") as well as infrared ("IR") remote controls, sold primarily to video service providers (cable, satellite, 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, video service providers, and private label customers; • software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver 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; • intellectual property that we license primarily to OEMs and video service providers; • proprietary and standards-based RF sensors designed for residential security, safety and home automation applications; • embedded and cloud-enabled software for reliable firmware update and digital rights management validation services to major consumer electronics brands; • wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators; and • AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas.
Our product and technology offerings include: • easy-to-use, voice-enabled, automatically-programmed universal, two-way radio frequency ("RF") as well as infrared ("IR") remote controls, sold primarily to video service providers (cable, satellite, Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers, and private label customers; • wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels, hospitality and system integrators; • proprietary and standards-based RF sensors designed for residential security, safety and home automation applications; • integrated circuits ("ICs"), on which our software and universal device control database is embedded, sold primarily to OEMs, video service providers, and private label customers; • software, firmware and technology solutions that can enable devices such as Smart TVs, hybrid set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interoperate within home networks to enable control and delivery of 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; • intellectual property that we license primarily to OEMs and video service providers; • embedded and cloud-enabled software for reliable firmware update provisioning and digital rights management validation services to major consumer electronics brands; and • AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We generally discuss 2022 and 2021 items and year-to-year comparisons between 2022 and 2021 in the section that follows.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We generally discuss 2023 and 2022 items and year-to-year comparisons between 2023 and 2022 in the section that follows.
Significant judgments include the evaluation of legal terms and rights within each jurisdiction that we operate, specifically as it relates to our entitlement to gross margin at termination, and the evaluation of whether it is possible, contractually or economically, to repurpose or redirect products.
Significant judgments include the evaluation of 32 Table of Contents legal terms and rights within each jurisdiction that we operate, specifically as it relates to our entitlement to gross margin at termination, and the evaluation of whether it is possible, contractually or economically, to repurpose or redirect products.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 4, 2022.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 8, 2023.
Future cash flows used for financing activities are affected by our financing needs which are largely dependent on the level of cash provided by or used in operations and the level of cash used in investing activities. Additionally, potential future repurchases of shares of our common stock will impact our cash flows used for financing activities.
Future cash flows used for financing activities are affected by our financing needs which are largely dependent on the level of cash provided by or used in operations and the level of cash used in investing activities. Additionally, potential future repurchases of shares of our common stock will impact our cash flows used for financing activities. See "ITEM 8.
A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge. Each year our device control library continues to grow across AV and smart home platforms, supporting many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control.
A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge. Each year our device discovery and control libraries continue to grow across AV and smart home platforms, supporting many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control.
We are subject to income taxes in the United States and foreign countries, and we are subject to routine corporate income tax audits in many of these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities are likely 34 Table of Contents to challenge certain positions, which may not be fully sustained.
We are subject to income taxes in the United States and foreign countries, and we are subject to routine corporate income tax audits in many of these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities could challenge certain positions which may not be fully sustained.
Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service.
Revenue recognition Revenue is recognized when control of a good or service is transferred to a customer. Control is considered to be transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of that good or service.
We have one domestic subsidiary and 25 international subsidiaries located in Brazil, British Virgin Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (the "PRC") (7), Singapore, Spain, United Kingdom and Vietnam. 30 Table of Contents To recap our results for 2022: • Net sales decreased 9.8% to $542.8 million in 2022 from $601.6 million in 2021. • Our gross profit percentage decreased to 28.1% in 2022 from 28.8% in 2021. • Operating expenses, as a percent of sales, increased to 25.4% in 2022 from 24.9% in 2021. • Operating income decreased to $14.5 million in 2022 from $23.3 million in 2021, and our operating margin percentage decreased to 2.7% in 2022, compared to 3.9% in 2021. • Our effective tax rate increased to 96.4% in 2022 from 67.0% in 2021.
We have one domestic subsidiary and 24 international subsidiaries located in Brazil, British Virgin Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (the "PRC") (6), Singapore, Spain, United Kingdom and Vietnam. 30 Table of Contents To recap our results for 2023: • Net sales decreased 22.5% to $420.5 million in 2023 from $542.8 million in 2022. • Our gross profit percentage decreased to 23.2% in 2023 from 28.1% in 2022. • Operating expenses, as a percent of sales, increased to 43.5% in 2023 from 25.4% in 2022. • Operating loss was $85.3 million in 2023 compared to operating income of $14.5 million in 2022, and our operating loss percentage was 20.3% in 2023, compared to an operating income percentage of 2.7% in 2022. • Income tax expense was $6.0 million in 2023 compared to $11.0 million in 2022.
Management believes the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. In addition to the accounting policies mentioned below, see "ITEM 8.
Management believes the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. In addition to the accounting policies mentioned below, see "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for other significant accounting policies.
Liquidity and Capital Resources Sources of Cash 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.
Liquidity and Capital Resources Sources of Cash 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. In addition, we have utilized our revolving line of credit to fund share repurchases and past acquisitions.
At December 31, 2022, we had an outstanding balance of $88.0 million on our Credit Line and $37.0 million of availability. See "ITEM 8.
At December 31, 2023, we had an outstanding balance of $55.0 million on our Credit Line and $70.0 million of availability. See "ITEM 8.
Year Ended December 31, 2022 2021 Net sales 100.0 % 100.0 % Cost of sales 71.9 71.2 Gross profit 28.1 28.8 Research and development expenses 6.0 5.1 Selling, general and administrative expenses 19.4 19.8 Operating income 2.7 3.9 Interest income (expense), net (0.4) (0.1) Loss on sale of Argentina subsidiary 0.0 (1.0) Other income (expense), net (0.2) (0.1) Income before provision for income taxes 2.1 2.7 Provision for income taxes 2.0 1.8 Net income 0.1 % 0.9 % Year Ended December 31, 2022 ("2022") Compared to Year Ended December 31, 2021 ("2021") Net sales.
Year Ended December 31, 2023 2022 Net sales 100.0 % 100.0 % Cost of sales 76.8 71.9 Gross profit 23.2 28.1 Research and development expenses 7.4 6.0 Factory restructuring charges 1.0 — Selling, general and administrative expenses 23.4 19.4 Goodwill impairment 11.7 — Operating income (loss) (20.3) 2.7 Interest income (expense), net (1.0) (0.4) Other income (expense), net (0.6) (0.2) Income (loss) before provision for income taxes (21.9) 2.1 Provision for income taxes 1.4 2.0 Net income (loss) (23.3) % 0.1 % Year Ended December 31, 2023 ("2023") Compared to Year Ended December 31, 2022 ("2022") Net sales.
A downward revision of these assumptions could cause the fair value of the reporting unit to fall below its respective carrying values and a noncash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements.
A downward revision of these assumptions could cause the total undiscounted cash flows of the long-lived asset group to fall below its respective carrying values and a non-cash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements.
We perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors.
We perform our annual impairment test, and any required interim tests, using the optional qualitative assessment, weighing the relative impact of factors that are specific to our single reporting unit including our market capitalization compared to the carrying value of our stockholders' equity, as well as industry and macroeconomic factors.
December 31, 2022 2021 Cash and cash equivalents $ 66,740 $ 60,813 Available borrowing resources 37,000 66,300 Cash and cash equivalents – At December 31, 2022, we had $6.8 million, $15.6 million, $18.9 million, $13.0 million and $12.4 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.
December 31, 2023 2022 Cash and cash equivalents $ 42,751 $ 66,740 Available borrowing resources 70,000 37,000 Cash and cash equivalents – At December 31, 2023, we had $8.5 million, $11.1 million, $2.4 million, $8.2 million and $12.6 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.
Based on the qualitative assessment performed, considering the aggregation of the relevant factors, we concluded that it is not more likely than not that the fair value of our single reporting unit is less than the carrying value. Therefore, performing a quantitative impairment test was unnecessary.
Based on the qualitative assessment performed, we consider the aggregation of the relevant factors, and conclude whether it is more likely than not that the fair value of our single reporting unit is less than the carrying value.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 9" for further information regarding our Credit Line. 36 Table of Contents Uses of Cash Our cash flows were as follows: (In thousands) Year Ended December 31, 2022 Increase (Decrease) Year Ended December 31, 2021 Cash provided by (used for) operating activities $ 10,926 $ (29,357) $ 40,283 Cash provided by (used for) investing activities (21,208) (4,167) (17,041) Cash provided by (used for) financing activities 20,501 42,527 (22,026) Effect of foreign currency exchange rate changes on cash and cash equivalents (4,292) (6,736) 2,444 Net increase (decrease) in cash and cash equivalents $ 5,927 $ 2,267 $ 3,660 December 31, 2022 Increase (Decrease) December 31, 2021 Cash and cash equivalents $ 66,740 $ 5,927 $ 60,813 Working capital 121,567 1,208 120,359 Net cash provided by operating activities was $10.9 million during 2022 compared to $40.3 million during 2021.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 9" for further information regarding our Credit Line. 36 Table of Contents Uses of Cash Our cash flows were as follows: (In thousands) Year Ended December 31, 2023 Increase (Decrease) Year Ended December 31, 2022 Cash provided by (used for) operating activities $ 25,190 $ 14,264 $ 10,926 Cash provided by (used for) investing activities (13,877) 7,331 (21,208) Cash provided by (used for) financing activities (34,779) (55,280) 20,501 Effect of foreign currency exchange rate changes on cash and cash equivalents (523) 3,769 (4,292) Net increase (decrease) in cash and cash equivalents $ (23,989) $ (29,916) $ 5,927 December 31, 2023 Increase (Decrease) December 31, 2022 Cash and cash equivalents $ 42,751 $ (23,989) $ 66,740 Working capital 97,703 (23,864) 121,567 Net cash provided by operating activities was $25.2 million during 2023 compared to $10.9 million during 2022.
Our effective tax rate was elevated in both 2022 and 2021 at 96.4% and 67.0%, respectively, as a result of our mix of pre-tax income/loss by jurisdiction, as well as losses incurred in the U.S. which are not benefited due to a valuation allowance.
Our effective tax rate in 2023 and 2022, (6.5)% and 96.4%, respectively, differs from the U.S. statutory rate of 21% primarily as a result of our jurisdictional mix of pre-tax income/loss, as well as losses incurred in the U.S. which are not benefited due to a valuation allowance.
Our inventory turns decreased to 2.2 turns at December 31, 2022 compared to 2.9 turns at December 31, 2021.
Our inventory turns increased to 2.8 turns at December 31, 2023 compared to 2.2 turns at December 31, 2022.
Certain future events and circumstances, including adverse changes in general business and economic conditions in the United States and worldwide and changes in consumer behavior could result in changes to our assumptions and judgments used in the goodwill impairment tests.
As a result, we recorded impairment charges of $7.7 million during the three months ended September 30, 2023. In addition, certain future events and circumstances, including adverse changes in general business and economic conditions in the United States and worldwide and changes in consumer behavior could result in changes to our assumptions and judgments used in the impairment tests.
Available Borrowing Resources – 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, 2023. We expect to renew our credit agreement with U.S. Bank, for an additional two years, prior to its expiration.
Available Borrowing Resources – 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 April 30, 2024.
While we are taking production and inventory control steps to mitigate the effects caused by these shortages including advanced purchasing of long-lead time components, we cannot guarantee that these steps will allow us to meet our short-term IC and other component parts needs.
We continue to take production and inventory control steps as required to mitigate the effects caused by any shortages including advanced purchasing of long-lead time components, as necessary; however, we cannot guarantee that these steps will allow us to meet some customer short-term requirements.
Other expense, net was $1.0 million in 2022, compared to other expense, net of $0.6 million in 2021, both as a result of net foreign currency losses offset partially by miscellaneous non-operating gains. Income tax expense. Income tax expense was $11.0 million in 2022 compared to $10.8 million in 2021.
Other expense, net was $2.6 million in 2023, compared to other expense, net of $1.0 million in 2022, both as a result of additional net foreign currency losses offset partially by fixed asset sales. 35 Table of Contents Income tax expense. Income tax expense was $6.0 million in 2023 compared to $11.0 million in 2022.
Our cost of labor, materials and borrowing may continue to increase which would negatively impact our business and financial results. In addition, we expect recessionary fears in the global economy will ultimately negatively impact our sales demand.
Our cost of labor, materials and borrowing may continue to increase, which would negatively impact our financial results. In addition, we expect recessionary pressures in the global economy will ultimately negatively impact our sales demand. We continued to see supply chain improvements across most long-lead time components, including ICs, during 2023.
If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease. 31 Table of Contents Macroeconomic Conditions We have been negatively impacted and we expect to continue to be negatively impacted by adverse macroeconomic conditions, in particular reduced consumer spending. Inflation has increased our component and logistics costs.
Macroeconomic Conditions We have been negatively impacted and we expect to continue to be negatively impacted by adverse macroeconomic conditions, in particular reduced consumer spending. Inflation has increased our component and logistics costs.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 14" for further information regarding our share repurchase programs. 37 Table of Contents Material Cash Commitments – The following table summarizes our material cash commitments and the effect these commitments are expected to have on our cash flows in future periods: Payments Due by Period (In thousands) Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years Credit line (1) $ 88,000 $ 88,000 $ — $ — $ — Inventory purchases 13,708 13,708 — — — Operating lease obligations 23,798 6,841 9,542 4,555 2,860 Property, plant, and equipment purchases 1,742 1,742 — — — Software license 3,468 53 578 946 1,891 Total material cash commitments $ 130,716 $ 110,344 $ 10,120 $ 5,501 $ 4,751 (1) We expect to renew our credit agreement with U.S.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 14" for further information regarding our share repurchase programs. 37 Table of Contents Material Cash Commitments – The following table summarizes our material cash commitments and the effect these commitments are expected to have on our cash flows in future periods: Payments Due by Period (In thousands) Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years Credit Line $ 55,000 $ 55,000 $ — $ — $ — Inventory purchases 7,498 7,498 — — — Operating lease obligations 20,560 6,054 8,017 3,957 2,532 Property, plant, and equipment purchases 1,709 1,709 — — — Software license 5,462 555 1,320 1,741 1,846 Total material cash commitments $ 90,229 $ 70,816 $ 9,337 $ 5,698 $ 4,378 We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing on our Credit Line.
The primary financing activities in 2022 and 2021 were borrowings and repayments on our line of credit and repurchases of shares of our common stock. Net borrowings on our line of credit were $32.0 million in 2022 and $36.0 million in 2021.
Net cash used for financing activities was $34.8 million during 2023 compared to net cash provided by financing activities of $20.5 million during 2022. The primary financing activities in 2023 and 2022 were borrowings and repayments on our line of credit and repurchases of shares of our common stock.
As such, these supply constraints continue to cause difficulty and delays in our ability to fulfill customer orders and have at times resulted in increased logistics costs. In addition, many of our products are paired with certain of our customers' products, like set-top boxes or televisions.
As such, these supply constraints may continue to cause difficulty and delays in our ability to fulfill customer orders and may at times result in increased logistics costs.
Changes in accrued income taxes resulted in cash outflows of $2.1 million during the year ended December 31, 2022 compared to cash inflows of $2.9 million during the year ended December 31, 2021.
Changes in accrued income taxes resulted in cash outflows of $3.5 million during the year ended December 31, 2023 compared to $2.1 million during the year ended December 31, 2022. Net cash used for investing activities during 2023 was $13.9 million, of which $8.1 million and $5.8 million was used for capital expenditures and the development of patents, respectively.
Factors considered important which may trigger an impairment review, if significant, include the following: • underperformance relative to historical or projected future operating results; • changes in the manner of use of the assets; • changes in the strategy of our overall business; • negative industry or economic trends; • a decline in our stock price for a sustained period; and • a variance between our market capitalization relative to net book value.
Factors considered important which may trigger an impairment review may include the following, but are not limited to: (1) significant underperformance relative to historical or projected future operating results; (2) significant changes in the manner or use of the assets, their physical condition or strategy for the overall business; (3) significant negative industry or economic trends; (4) a current expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of it previously estimated useful life; or (5) a significant decline in our stock price for a sustained period.
Our strategic business objectives for 2023 include the following: • increase new product development efforts in high-growth HVAC OEM channel to grow our market penetration with existing customers and acquire new customers with the goal of achieving market share leadership in climate control channel within 2 years; • broaden our home control and home automation product solutions with the aim of acquiring new customers that represent market share leaders in their respective channels and regions; • expand our software and service platform, QuickSet, to deliver a complete smart entertainment and smart home managed service platform; • invest in creating sustainable technology solutions that offer product differentiation across our global product portfolio; • explore and expand product offerings in our core subscription broadcasting channel beyond traditional entertainment remote controls; • seek acquisitions or strategic partners that complement and strengthen our existing business; and • expedite our long-term factory planning strategy to optimize our manufacturing footprint and reduce our manufacturing concentration in the PRC.
Our strategic business objectives for 2024 include the following: • deliver new standard products, as well as custom variants, currently on our project development backlog, specifically in the climate control channel; • broaden our home control and home automation product offerings with the aim of acquiring new customers that represent market share leaders in their respective channels and regions; • expand our software and service platform, QuickSet, to deliver new features that enhance the personalization and engagement of users on smart entertainment and smart home platforms; • execute go-to-market strategies that help position our sustainable technology in our major verticals; • seek acquisitions or strategic partners that complement and strengthen our existing business; and • expedite our long-term factory planning strategy to optimize our manufacturing footprint and reduce our manufacturing concentration in the PRC.
Net interest expense increased to $2.2 million in 2022 from $0.6 million in 2021 as a result of a higher average loan balance and a higher average interest rate. 35 Table of Contents Loss on sale of Argentina subsidiary.
Net interest expense increased to $4.3 million in 2023 from $2.2 million in 2022 as a result of a higher interest rate, partially offset by a lower average loan balance and increased interest income. Other income (expense), net.
During 2022, we purchased 434,107 shares of our common stock at a cost of $13.0 million compared to 1,243,196 shares at a cost of $59.7 million during 2021.
Net repayments on our line of credit were $33.0 million in 2023 and net borrowings were $32.0 million in 2022. During 2023, we purchased 164,540 shares of our common stock at a cost of $1.8 million compared to 434,107 shares at a cost of $13.0 million during 2022.
Each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $1.5 million. 33 Table of Contents Valuation of Long-Lived Assets and Intangible Assets We assess long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.
Actual future results may differ from those estimates. 33 Table of Contents Long-Lived and Intangible Assets Impairment We assess the impairment of long-lived and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Net income was $0.4 million in 2022 compared to $5.3 million in 2021. Accounts receivables decreased by $12.8 million during the year ended December 31, 2022 compared to a decrease of $2.0 million during the year ended December 31, 2021 largely due to a reduction in sales during 2022.
Changes in accounts receivables and contract assets resulted in cash inflows of $5.0 million during the year ended December 31, 2023 compared to $12.8 million during the year ended December 31, 2022, largely as a result of a reduction in sales during 2023 offset by an increase in days sales outstanding.
Changes in accounts payable and accrued liabilities resulted in cash outflows of $28.7 million during the year ended December 31, 2022 compared to cash inflows of $0.9 million during the year ended December 31, 2021, largely as a result of lower sales volume resulting in fewer purchases of raw materials and components, excluding, in certain situations, components in short supply.
Changes in accounts payable and accrued liabilities resulted in cash outflows of $21.4 million and $28.7 million during the years ended December 31, 2023 and December 31, 2022, respectively, due primarily to a decrease in inventory purchases as a result of lower demand.
Bank, for an additional two years, prior to its expiration. We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing resources, including our Credit Line. Recent Accounting Pronouncements See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for a discussion of recent accounting pronouncements.
Recent Accounting Pronouncements See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for a discussion of recent accounting pronouncements.
We estimate that we will incur between $12.0 million and $15.0 million in 2023 which includes amounts associated with our factory in Vietnam which we anticipate commencing operations in the first half of 2023. Net cash provided by financing activities was $20.5 million during 2022 compared to net cash used for financing activities of $22.0 million during 2021.
Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures. We estimate that we will incur between $9.0 million and $11.0 million in 2024, which includes amounts associated with our factory in Vietnam, which commenced operations during the second quarter of 2023.
Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.
We will continue to evaluate our global factory footprint to identify ways to operate more efficiently and decisions may result in charges that could have a material effect on the consolidated the financial statements. Critical Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.
Net sales for 2022 were $542.8 million, a decrease of 9.8% compared to $601.6 million in 2021. Sales in our subscription broadcast channel were lower than in the prior year due primarily to lower customer demand and component shortages.
Net sales for 2023 were $420.5 million, a decrease of 22.5% compared to $542.8 million in 2022. Lower customer demand in our home entertainment channel, consisting of video service providers and consumer electronics companies, was the primary reason for the decline in sales. Gross profit. Gross profit in 2023 was $97.6 million compared to $152.3 million in 2022.
SG&A expenses decreased 11.4% to $105.3 million in 2022 from $118.8 million in 2021, primarily due to a decrease in outside legal expenses related to a specific legal matter. Interest income (expense), net.
In addition, we incurred expenses to move equipment from our Mexico factory to our Vietnam factory. Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased 6.5% to $98.5 million in 2023 from $105.3 million in 2022, due to a decrease in outside legal expenses related to a specific legal matter, as well as cost savings initiatives executed in 2023.
Removed
COVID-19 Pandemic and Supply Chain Impact The COVID-19 pandemic, including related measures to curtail its spread, continues to be a complex and evolving situation and has and will continue to impact our business, operations, and financial results.
Added
While we expect this to continue, demand fluctuations and output may affect us in the future based on feedback from our supplier base.
Removed
We anticipate that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact business activity across the globe, including our business.
Added
Goodwill and Long-Lived Assets Impairment Trigger Goodwill During the three months ended March 31, 2023, a decline in our financial performance, the overall negative trend in the video service provider channel and an uncertain economic environment contributed to a significant decline in our market capitalization. We considered this to be an impairment trigger.
Removed
We expect our sales demand to be negatively impacted into, at least, the first half of 2023 given the global reach and economic impact of the COVID-19 pandemic and the various governmentally imposed lockdowns, quarantine and social distancing measures put in place to contain the spread of the COVID-19 pandemic.
Added
We, therefore, performed a quantitative valuation analysis indicating a significant implied control premium over our market capitalization. As a result of the substantial implied control premium, we recorded an impairment charge of $49.1 million during the three months ended March 31, 2023.
Removed
A future suspension of our manufacturing operations would impact our ability to meet customer demand and could have a significant adverse effect on our financial conditions and results of operations. COVID-19 also continues to impact the global supply chain causing disruptions to service providers, logistics and the flow and availability of supplies and products.
Added
Long-Lived Assets During the three months ended March 31, 2023, market conditions deteriorated and our stock price declined significantly, which we considered to be a trigger of potential impairment for our long-lived asset group.
Removed
Our manufacturing sites, as well as our suppliers and outsourcing partners, and our supply chain have been adversely and may continue to be adversely impacted as a result of restrictions and logistics and operational challenges related to COVID-19. These disruptions have resulted and may continue to result in supply shortages and delays impacting sales worldwide.
Added
As such, we performed a recoverability test using non-discounted forecasted cash flows, which resulted in total cash flows in excess of the carrying value of the asset group by approximately 11% to 57%.
Removed
We may experience further disruptions to our manufacturing operations, supply chain and/or distribution channels in the future, and these disruptions may be prolonged. We have also been negatively impacted by supply chain difficulties including obtaining ICs and other long-lead time components and we expect this to continue into 2023.
Added
This test indicated no recoverability issues. 31 Table of Contents During the three months ended September 30, 2023, as part of our manufacturing footprint optimization efforts, we identified certain long-lived assets that were unused due to the closure of our southwestern China factory and unused at our Mexico factory, due to decreased demand in our U.S. market.
Removed
Qinzhou, China Facility In October 2021, Reuters published an article indicating that individuals from China's Uyghur minority, originally resident in the PRC region of Xinjiang, were working in a facility in Qinzhou, Guangxi operated by our Chinese subsidiary, Gemstar Technology (Qinzhou) Co. Ltd. ("Gemstar").
Added
Manufacturing Footprint We have been evaluating our global manufacturing footprint based upon our long-term factory planning strategy to (1) de-risk our reliance on a PRC-based supply chain and (2) reduce our manufacturing capacity due to decreased demand and a change in mix of our products.
Removed
The article alleged that the presence of these workers in Guangxi was indicative of "a transfer program described by some rights groups as forced labor." We have reviewed and confirmed that Gemstar compensated these individuals for their work at the same rates as workers of other ethnicities who had comparable skills and roles, and at a level that was above the local minimum wage.
Added
As part of this evaluation, we opened a new factory in Vietnam, which commenced manufacturing operations in June 2023 after incurring startup costs in the first half of 2023.
Removed
Although our review did not identify any instances in which individuals were obliged or in any other way forced to work at the Qinzhou facility or were paid less than their promised wage, Gemstar, which engaged these workers through a third-party labor agency, terminated its relationship with that agency, ended its arrangement with these workers, and paid all outstanding wages and severance directly and individually to each of the workers in question.
Added
With our Vietnam factory now open and meeting short-term operational targets, with the expectation of continued improvement, we stopped manufacturing activities in our southwestern China factory in September 2023 and have substantially completed its shutdown.
Removed
Nonetheless, the perception that we or an entity affiliated with us might have had associations with a program described by some as involving forced labor could result in reputational damage as well as lost revenue. To date, as a result of this perception, one customer has put further business with us on hold.
Added
We are also working to downsize our factory in Mexico due to decreased demand in our U.S. market and our Vietnam facility's ability to supply our North American customers. As a result of these decisions, we have recorded impairment charges of $7.7 million and severance and other restructuring expenses of $4.0 million during the year ended December 31, 2023.
Removed
Should additional customers cease doing business with us, the loss of revenue could become material, which would have an adverse effect on our business, results of operations and financial condition.
Added
We continue to evaluate our Mexico facility as part of our long-term factory planning strategy. We are currently planning to downsize and streamline the Mexico operations by moving to a smaller, more efficient facility.
Removed
We take all allegations regarding working conditions seriously, and took a cooperative approach to responding to the Committee's letter, cooperated fully with the Committee's inquiry and provided the Committee with timely and complete responses to all of its questions.
Added
We expect to commence operations in this downsized facility in the second quarter of 2024, which may result in a material amount of severance and moving costs.
Removed
Manufacturing Footprint We expect to commence manufacturing operations in a new factory in Vietnam in the first half of 2023, which may result in manufacturing inefficiencies. We are currently evaluating our manufacturing footprint with the expectation that once the Vietnam factory is operating efficiently, we will reduce our manufacturing capacity, most likely, by shutting down an existing facility.
Added
Each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $1.0 million.
Removed
If this were to occur, we would record an impairment charge and severance expense in amounts that are not presently calculable, however could be material. We are analyzing various scenarios, each contingent on the success of the new Vietnam factory, and have yet to conclude on a specific plan.
Added
If we conclude that it is more likely than not that the fair value of our single reporting unit is less than the carrying value, or if we decide not to elect the optional qualitative assessment, we perform a quantitative impairment test, using cash flow projections, discounted by our weighted-average cost of capital.
Removed
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — Notes to Consolidated Financial Statements — Note 2" for other significant accounting policies. 32 Table of Contents Revenue recognition Revenue is recognized when control of a good or service is transferred to a customer.
Added
In addition to any quantitative impairment analysis, we also consider the implied control premium compared to our market capitalization. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions.
Removed
If the carrying value of the asset is larger than its projected undiscounted future cash flows, the asset is impaired. The impairment is measured as the difference between the net book value of the asset and the asset's estimated fair value. Fair value is estimated utilizing the asset's projected discounted future cash flows.
Added
These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. In addition, we make certain judgments and assumptions in determining our reporting unit. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.
Removed
In assessing fair value, we must make assumptions regarding estimated future cash flows, the discount rate and other factors. If the actual performance of the assets becomes less favorable than those projected by management, adjustments to the carrying values of these assets may have a material effect on the consolidated financial statements.
Added
We conduct an impairment review when we determine that the carrying value of a long-lived or intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment.
Removed
Sales in our retail channel were also lower than the prior year due to macroeconomic headwinds and the loss of a customer in North America. Gross profit. Gross profit in 2022 was $152.3 million compared to $173.0 million in 2021. Gross profit as a percent of sales decreased to 28.1% in 2022 compared to 28.8% in 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed13 unchanged
Foreign Currency Exchange Rate Risk At December 31, 2022, we had wholly-owned subsidiaries in Brazil, the British Virgin Islands, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, the Netherlands, the PRC, Singapore, Spain, United Kingdom and Vietnam.
Foreign Currency Exchange Rate Risk At December 31, 2023, we had wholly-owned subsidiaries in Brazil, the British Virgin Islands, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, the Netherlands, the PRC, Singapore, Spain, United Kingdom and Vietnam.
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.
Dollar may adversely affect certain expense figures taken alone. 38 Table of Contents 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.
Based on our overall foreign currency rate exposure at December 31, 2022, we believe that movements in foreign currency rates may have a material effect on our financial position and results of operations.
Based on our overall foreign currency rate exposure at December 31, 2023, 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, Indian Rupee, Hong Kong Dollar, Brazilian Real, Japanese Yen, Korean Won and Vietnamese Dong relative to the U.S. Dollar fluctuate 10% from December 31, 2022, net income in the first quarter of 2023 would fluctuate by approximately $7.4 million. 39 Table of Contents
We estimate that if the exchange rates for the Chinese Yuan Renminbi, Euro, British Pound, Mexican Peso, Indian Rupee, Hong Kong Dollar, Brazilian Real, Japanese Yen, Korean Won and Vietnamese Dong relative to the U.S. Dollar fluctuate 10% from December 31, 2023, net income in the first quarter of 2024 would fluctuate by approximately $4.9 million. 39 Table of Contents
For the Euro, British Pound and Brazilian Real, we are generally a net receiver of the foreign currency 38 Table of Contents 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.
For the Euro, British Pound 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.
Under the 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.
Under the Second Amended Credit Agreement, we may elect to pay interest on outstanding borrowings on our Credit Line based on the Secured Overnight Financing Rate ("SOFR") 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.
A 100 basis point increase in interest rates would have an approximately $0.7 million annual impact on net income based on our outstanding Credit Line balance at December 31, 2022.
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 approximate $0.4 million annual impact on net income based on our outstanding Credit Line balance at December 31, 2023.

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