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What changed in UNIVERSAL ELECTRONICS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of UNIVERSAL ELECTRONICS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+351 added−300 removedSource: 10-K (2025-03-11) vs 10-K (2024-03-14)

Top changes in UNIVERSAL ELECTRONICS INC's 2024 10-K

351 paragraphs added · 300 removed · 225 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

85 edited+66 added−17 removed45 unchanged
Biggest changeIn addition, UEI is committed to complying with applicable laws and regulations of the countries in which we operate and supporting ethical labor practices that do not infringe on human rights. We follow RBA guidelines for the supplier risk assessment process, requiring relevant suppliers of raw materials and components to complete the RBA self-assessment questionnaire ("SAQ").
Biggest changeIn April 2024, we signed our Commitment Letter to the Science Based Targets Initiative ("SBTi"), showcasing our dedication to establishing an approved science based target for reducing greenhouse gas emissions. We are committed to complying with applicable labor laws and regulations of the countries in which we operate and supporting ethical labor practices that do not infringe on human rights.
As used herein, the terms "we", "us" and "our" refer to UEI and its subsidiaries unless the context indicates to the contrary. Additional information regarding UEI may be obtained at www.uei.com.
As used herein, the terms "we", "us" and "our" refer to UEI and its subsidiaries unless the context indicates the contrary. Additional information regarding UEI may be obtained at www.uei.com.
The smart thermostat line includes all the necessary connectivity technologies to address the evolving smart home, including seamless connection to the cloud over Wi-Fi plus local device connectivity via Bluetooth Smart, Zigbee and Infrared, including support for Matter, the industry's latest smart home connectivity standard.
The smart thermostat line includes all the necessary connectivity technologies to address the evolving smart home, including seamless connection to the cloud over Wi-Fi plus local device connectivity via Bluetooth Smart, Zigbee and Infrared, and includes support for Matter, the industry's latest smart home connectivity standard.
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.
Integrated into the latest version of QuickSet, UEI Virtual Agent provides automated steps for onboarding, feature discovery and troubleshooting 4 Table of Contents capabilities and is available both as a web-based application and a TV app for integration into existing infrastructures.
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.
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 and Poway, 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.
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.
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, the PRC, Brazil, India, Japan, Korea, Singapore and Mexico.
As a member of the RBA, we have adopted the RBA Code of Conduct, which establishes standards to ensure that working conditions are safe, that employees are treated with respect and dignity and that business operations are environmentally responsible and conducted ethically. The RBA Code of Conduct has been reflected in our employee policies and procedures.
As a regular member of the RBA, we have adopted the RBA Code of Conduct, which establishes standards to ensure that working conditions are safe, that employees are treated with respect and dignity and that business operations are environmentally responsible and conducted ethically. The RBA Code of Conduct has been reflected in our employee policies and procedures.
We are a member of the Responsible Business Alliance ("RBA"), an industry coalition dedicated to driving sustainable value for workers in global supply chains, among other things.
We are a regular member of the Responsible Business Alliance ("RBA"), an industry coalition dedicated to driving sustainable value for workers in global supply chains, among other things.
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.
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 Over the Top ("OTT") streaming platforms. Additionally, some of our current customers have successfully introduced media streaming services and expanded their footprint to new end-users.
Additionally, we sell our wireless control devices and AV accessories under the One For All®, Ecolink TM and private label brand names to retailers in key markets, such as in the United States, United Kingdom, Germany, France, Spain, and Italy. We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries.
Additionally, we sell our wireless control devices and AV accessories under the One For All ® , Ecolink ® and private label brand names to retailers in key markets, such as in the United States, United Kingdom, Germany, France and Spain. We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries.
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.
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 2024 Annual Meeting of Stockholders, Mr.
Arling was re-elected as our Chairman to serve until the 2024 Annual Meeting of Stockholders. From 1993 through May 1996, he served in various capacities at LESCO, Inc. (a manufacturer and distributor of professional turf care products).
Arling was re-elected as our Chairman to serve until the 2025 Annual Meeting of Stockholders. From 1993 through May 1996, he served in various capacities at LESCO, Inc., a manufacturer and distributor of professional turf care products.
Distribution methods for our control solutions vary depending on the sales channel. We distribute remote control devices, ICs, home security sensors, connected thermostats and AV accessories directly to video and security service providers and OEMs, both domestically and internationally.
Distribution methods for our control solutions vary depending on the sales channel. We distribute remote control devices, connected thermostats, integrated circuits ("ICs"), home security sensors and AV accessories directly to video and security service providers and OEMs, both domestically and internationally.
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.
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 cable 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 plc, Bharti Airtel Limited and DIRECTV represent the majority of global service providers; in climate control, Daikin Industries Ltd., Trane Technologies and Carrier Global Corporation 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.
UEI Virtual Agent, an innovative self-service support solution, simplifies device onboarding by allowing customers to seamlessly hand-off the set-up process from a large screen (SmartTV) to a smaller one (mobile phone).
UEI Virtual Agent is, an innovative self-service support solution, that simplifies device onboarding by allowing customers to seamlessly hand-off the set-up process from a large screen (SmartTV) to a smaller one (mobile phone).
Our Global Human Rights Policy is aligned with internationally recognized human rights principles defined by the Universal Declaration of Human Rights and the United Nations Guiding Principles on Business and Human Rights. We also provide training to relevant employees to help identify and report any signs of forced labor or other unlawful labor practices.
Our Global Human Rights Policy is aligned with internationally recognized human rights principles defined by the Universal Declaration of Human Rights and the United Nations Guiding Principles on Business and Human Rights. We provide training to all employees to help identify and report any signs of forced labor or other unlawful labor practices.
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.
During 2024, 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 products.
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.
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.
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.
In addition, to reduce energy consumption even further, we have introduced 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.
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.
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 both in the U.S. and abroad.
Additionally, these brands, along with our OEM customers in consumer electronics are expanding their customer footprints through distribution of their OS platforms that include UEI's QuickSet technologies, allowing us to grow our global technology footprint and grow our licensing revenue in those channels.
Additionally, these brands, along with our OEM customers in consumer electronics, such as LG with their WebOS, are expanding their customer footprints through distribution of their OS platforms that include our QuickSet technologies, allowing us to grow our global technology footprint and grow our licensing revenue in those channels.
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 smart TV OEMs, successfully upgrade to streaming service aggregators.
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 distribute connected thermostats and home security sensors to pro-security installers and hospitality system integrators in the United States and Europe through a network of national and regional distributors and dealers.
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.
During the years ended December 31, 2024, 2023 and 2022, 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 10 Table of Contents did not materially affect our earnings, financial condition or competitive position.
Since the fourth quarter of 2021, these third-party agencies have been required to adhere to our Supplier Code of Conduct, which among other things, prohibits the use of forced labor and sets forth requirements on fair dealing, legal compliance, business integrity, labor practices, health and safety and environmental management.
These third-party agencies have been required to adhere to both the relevant RBA Code of Conduct requirements and our own Supplier Code of Conduct, which among other things, prohibits the use of forced labor and sets forth requirements on fair dealing, legal compliance, business integrity, labor practices, health and safety and environmental management.
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 February 2023, he was promoted to his current position. 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.
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.
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. 11 Table of Contents Human Capital As of December 31, 2024, we employed 3,838 members of staff across our worldwide facilities.
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.
Ammari 59 Senior Vice President, Corporate Planning and Strategy Richard K. Carnifax 38 Senior Vice President, Global Operations David Chong 63 Executive Vice President, Global Sales Richard A. Firehammer, Jr. 67 Senior Vice President, General Counsel, Head of Global Compliance, and Corporate Secretary Paul D. Arling is our Chairman and Chief Executive Officer.
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.
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. We are committed to investigating all communications received on the UEI Ethics Line.
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.
Sales We design, develop, manufacture, ship and support home entertainment control products, technology and software solutions, climate control solutions, wireless sensor and smart home control products and audio-video ("AV") accessories, that are used by the world's leading brands in the home entertainment, climate control, consumer electronics, security, home automation and home appliance markets.
While we follow the practice of obtaining patent, copyright and trademark registrations on new developments whenever advisable, in certain cases we have elected common law trade secret protection in lieu of obtaining such other protection.
While we follow the practice of obtaining patent, copyright and trademark registrations on new developments whenever advisable, in certain cases we have elected common law trade secret protection in lieu of obtaining such other protection. Manufacturing and Supply We are vertically integrated across design, development, and manufacturing.
Inclusion We are an Equal Opportunity Employer and are committed to providing a workplace free of discrimination, harassment and retaliation for all employees and we value equality, opportunity and respect. Our Code of Conduct covers topics related to inclusion and anti-discrimination.
Inclusion, Ethics Line and Code of Conduct We are an Equal Opportunity Employer and are committed to providing a workplace free of discrimination, harassment and retaliation for all employees and we value equality, opportunity and respect.
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.
Of this staff, 2,928 are associated with our manufacturing and supply chain organizations in the PRC, Vietnam, Mexico and Brazil. Beyond the manufacturing and supply chain organizations, 542 of staff work in engineering and R&D, 105 in sales, marketing, consumer service and support and 263 in executive and administrative functions.
Licensees of QuickSet and/or QuickSet Cloud include service providers such as Comcast Corporation, Charter Communications, TiVo, DIRECTV and DISH Network Corporation; smart TV manufacturers such as Sony Group Corporation, LG Electronics and Samsung Electronics Co.; leading game console manufacturer Sony on its PlayStation 5 remote control; and has grown to include HVAC and emerging home automation customers.
Licensees of QuickSet and/or QuickSet Cloud products and support services, include service providers such as Comcast Corporation, Charter Communications, TiVo, DIRECTV and DISH Network Corporation; smart TV manufacturers such as Sony Group Corporation, LG Electronics and Samsung Electronics Co.; leading game console manufacturers Sony and Microsoft on their respective gaming consoles; and has grown to include HVAC and emerging home automation customers.
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.
They include native support of Matter across the QuickSet Widget family with Virtual Agent-assisted easy onboarding. This enables products powered by the QuickSet Widget including the UEI TIDE family of smart thermostats to be Cloud-ready and Matter-capable.
As a member of RBA, we also adhere to the standards of the RBA Code of Conduct to ensure working conditions are safe throughout our supply chain. Seasonality Historically, our business has been influenced by the retail sales cycle, with increased sales in the second half of the year. We expect this pattern to be repeated during 2024.
This commitment is outlined in our global health and safety policy. As a member of RBA, we also adhere to the standards of the RBA Code of Conduct to ensure working conditions are safe throughout our supply chain. Seasonality Historically, our business has been influenced by the retail sales cycle, with increased sales in the second half of the year.
In the international retail and private label markets for wireless controls we compete primarily with a variety of accessory trading and branding companies like Jasco and Hama, as well as various manufacturers of wireless controls in Asia. Our primary competitors in the OEM market are the OEMs themselves and various wireless control manufacturers in Asia.
In the international retail and private label markets for wireless controls we compete primarily with a variety of accessory trading and branding companies like Jasco and Hama, as well as various manufacturers of AV accessories 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 connected smart home market, we compete with the OEMs themselves as well as wireless manufacturers in North America, such as Nice, and several original design manufacturers in Asia, as well as technology system providers such as Tuya.
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.
We believe that we will 6 Table of Contents 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.
The advanced TV interfaces on Smart TVs and related streaming devices offer platforms for personalized advertising and smart home services which is expected to ensure demand for our wireless and wired control products, microcontrollers and software technology. Our principal competitors in the home entertainment market are Remote Solutions, Home Control International, SMK, Ohsung, Tech4Home and Ruwido.
The advanced TV interfaces on smart TVs and related streaming devices offer platforms for personalized advertising and smart home services which is expected to ensure demand for our wireless and wired control products, microcontrollers and software technology.
From November 1992 to September 1993, he was associated with the Chicago, Illinois law firm, Shefsky & Froelich, Ltd. From 1987 to 1992, he was with the law firm Vedder, Price, Kaufman & Kammholz in Chicago, Illinois. He received his Bachelor of Science in Accounting from Indiana University and a Juris Doctor degree from Whittier College School of Law. Mr.
From 1987 to 1992, he was with the law firm Vedder, Price, Kaufman & Kammholz in Chicago, Illinois. He received his Bachelor of Science in Accounting from Indiana University and a Juris Doctor degree from Whittier College School of Law. Mr. Firehammer is also a certified public accountant (inactive).
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.
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.
With QuickSet and QuickSet Cloud, consumers can switch easily between activities and reliably view their chosen device or content with a single touch. A QuickSet and QuickSet Cloud user experience can be delivered via a tactile remote, touchscreen interface, on-screen graphical user interface or voice-enabled system.
With QuickSet and QuickSet Cloud, OEM customers can deliver seamless user experiences allowing consumers to switch easily between entertainment and smart home activities and reliably access and view content with a single touch. A QuickSet and QuickSet Cloud user experience can be delivered via a tactile remote, touchscreen interface, on-screen graphical user interface or voice-enabled system.
Ltd., established in the People's Republic of China ("PRC"); • Gemstar Technology (Yangzhou) Co.
Ltd., established in the PRC; • Gemstar Technology (Yangzhou) Co.
Information About Our Executive Officers The following table sets forth certain information concerning our executive officers on March 14, 2024: Name Age Position Paul D. Arling 61 Chairman of the Board and Chief Executive Officer Bryan M. Hackworth 54 Senior Vice President and Chief Financial Officer Ramzi S.
We expect this pattern to be repeated during 2025. Information About Our Executive Officers The following table sets forth certain information concerning our executive officers on March 11, 2025: Name Age Position Paul D. Arling 62 Chairman of the Board and Chief Executive Officer Bryan M. Hackworth 55 Senior Vice President and Chief Financial Officer Ramzi S.
For the years ended December 31, 2022 and 2021, our sales to Comcast Corporation accounted for 14.0% and 16.3% of our net sales, respectively.
For the years ended December 31, 2024, 2023 and 2022, our sales to Daikin Industries Ltd. accounted for 13.3%, 14.0% and 14.4% of our net sales, respectively. For the year ended December 31, 2022, our sales to Comcast Corporation accounted for 14.0% of our net sales.
We encourage any employee who believes they are the subject of discrimination, harassment or retaliation to express concerns without fear of retribution or retaliation to their immediate supervisors, any senior-level managers, or through the UEI Ethics Line. 10 Table of Contents Labor unions represent approximately 20.0% of our 4,177 employees as of December 31, 2023.
We encourage any employee who believes they are the subject of discrimination, harassment or retaliation to express concerns without fear of retribution or retaliation to their immediate supervisors, any senior-level managers, or through the UEI Ethics Line.
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.
Each year our device and content discovery control libraries and HVAC engine continue to grow across the smart home landscape, supporting common and emerging smart home and HVAC control protocols, including IR, HDMI-CEC, Bluetooth and its variants, Zigbee (Rf4CE), Z-Wave, Thread, Matter and IP networks.
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.
We released a host of unique QuickSet Cloud features such as QuickSet homeSense for occupancy and presence detection, video and audio content and app history, and support for Thread, as well as 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.
Additionally, the names of many of our products are registered, or are being registered, as trademarks in the United States Patent and Trademark Office and in most of the other countries in which such products are sold.
We have also obtained copyright registration and claim copyright protection for certain proprietary software and libraries of our device control libraries. Additionally, the names of many of our products are registered, or are being registered, as trademarks in the United States Patent and Trademark Office and in most of the other countries in which such products are sold.
Our Board of Directors (the "Board"), specifically the Corporate Governance, Sustainability and Nominating Committee, is responsible for risk oversight, which includes relevant environmental-related risks such as climate change.
We believe that technology will be fundamental to finding solutions to achieve compliance with and manage those requirements. Our Board of Directors (the "Board"), specifically the Corporate Governance, Sustainability and Nominating Committee, is responsible for risk oversight, which includes relevant environmental-related risks such as climate change.
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.
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 requires no battery replacement over the useful life of the product. Our ultra-low power remotes are now shipping with Liberty Global's latest video service platform offering.
We are committed to reducing or eliminating health and safety risks through our health and safety programs, including effective control measures, emergency response plans and training programs. This commitment is outlined in our Global Health and Safety Policy.
Safety, Health and Wellness The health and safety of our employees, contractors, visitors and the communities in which we operate is paramount. We are committed to reducing or eliminating health and safety risks through our health and safety programs, including effective control measures, emergency response plans and training programs.
Our manufacturing facilities in Mexico and in Yangzhou, PRC are also certified to the TL 9000 Standard, which is the telecom industry's unique extension to ISO 9001:2015. Our manufacturing facilities are certified to the ISO 14001:2015 International Standard for environmental management systems.
Our manufacturing facilities are certified to the ISO 9001:2015 International Standard for quality management. Testing and quality control are applied to components, parts, sub-assemblies and systems obtained from third-party suppliers. Our manufacturing facility in Yangzhou, PRC is certified to the TL 9000 Standard, which is the telecom industry's unique extension to ISO 9001:2015.
He was our Vice President from May 1997 until August 1998, and served as counsel to us from September 1998 until February 1999, at which time he was promoted to Senior Vice President. In January 2022, in addition to his duties as General Counsel and Secretary, he took on the added responsibilities as Head of Global Compliance.
He became our Corporate Secretary in February 1994. He was our Vice President from May 1997 until August 1998, and served as counsel to us from September 1998 until February 1999, at which time he was promoted to Senior Vice President.
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.
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.
Talent management is critical to our ability to execute our long-term growth strategy, and we utilize both internal human resource personnel and external recruiting firms to identify and attract such talent. Through our history of technological innovation, we appreciate the importance of retention, growth and development of our employees.
We recognize that our success is based on the collective talents and dedication of those we employ. Talent management is critical to our ability to execute our long-term growth strategy, and we utilize both internal human resource personnel and external recruiting firms to identify and attract such talent.
Ammari worked at Mitsubishi Consumer Electronics of America for four years as Business Planning Manager where he was responsible for introducing the first flat-screen plasma display panel television for the North America market. He received his Bachelor of Science, Engineering degree in 1989 and, subsequently, a Master of Business Administration from University of California, Irvine in 1993.
Ammari worked at Mitsubishi Consumer Electronics of America for four years as 13 Table of Contents Business Planning Manager where he was responsible for introducing the first flat-screen plasma display panel television for the North America market.
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.
We have also standardized the qualification, contract and monitoring standards for all third-party agencies. 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.
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.
Products and Technology Our flagship product, QuickSet ® ("QuickSet") is a software solution that is primarily delivered as a cloud-based service, but is also embedded in many entertainment and smart home platforms worldwide, to enable universal device and content discovery system setup, device interoperability and system control.
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.
All of our manufacturing facilities are certified to the ISO 14001:2015 International Standard for environmental management systems. In addition, our manufacturing facilities in Vietnam, Mexico and Yangzhou, PRC have also achieved ISO 45001 International Standard for safety and health management systems. 9 Table of Contents We are focused on reducing the environmental impact of our operations.
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.
Mr. Carnifax holds a Bachelor of Arts in Political Science and a Master of Arts in International Relations/Business from the University of Akron. 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 served as Senior Vice President at Philips Consumer Electronics Division and as the Chief Marketing Officer of the business group Philips Display (Philips TV and computer monitor business). At Philips Display, he led the re-engineering of the Product Creation, Marketing and Sales Organization to compete successfully in the LCD TV space.
Chong joined us in January 2009 as Senior Vice President of Global OEM Sales. Prior to joining us, Mr. Chong served as Senior Vice President at Philips Consumer Electronics Division and as the Chief Marketing Officer of the business group Philips Display (Philips TV and computer monitor business).
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.
UEI Virtual Agent, when bundled with our newest set of UEI NetReady services for remote diagnostics and customer support, further enhance the support experience for products already deployed in the home.
We regularly collect feedback from employees to better understand and improve their experiences and identify opportunities to continually strengthen our culture. Due to the nature of our activities, we tend to heavily invest in engineering capital, employing highly skilled and specialized engineers and technicians in the areas of electronics, RF design, software, cloud, mechanical, industrial design, manufacturing and quality disciplines.
Due to the nature of our activities, we tend to heavily invest in engineering capital, employing highly skilled and specialized engineers and technicians in the areas of electronics, RF design, software, cloud, mechanical, industrial design, manufacturing and quality disciplines. Our staff is located around the globe at different office and development locations.
UEI TIDE, a white label smart thermostat platform designed for HVAC OEMs as well as hospitality-branded applications, offers native cloud connectivity, features our latest device management and lifecycle support services which simplify setup and control and allows interoperability with a variety of smart home devices and ecosystems.
In addition, the UEI TIDE family products offer native cloud connectivity and feature our latest device management and lifecycle support services which simplify setup and control and allows interoperability with a variety of smart home devices and ecosystems.
Some of these unionized workers are employed in Monterrey, Mexico, and are represented under contract with the Sindicato Industrial de Trabajadores de Nuevo León adherido a la Federación Nacional de Sindicatos Independientes. Unionized workers, employed in Manaus, Brazil, are represented under contract with the Sindicato dos Trabalhadores nas Industrias Metalugicas, Mecanicas e de Materiais Eletricos de Manaus.
Labor unions represent approximately 12.0% of our 3,838 employees as of December 31, 2024. Some of these unionized workers are employed in Monterrey, Mexico, and are represented under contract with the Sindicato Industrial de Trabajadores de Nuevo León adherido a la Federación Nacional de Sindicatos Independientes.
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.
These measures, if fully implemented, will increase costs for certain goods imported into the United States. 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.
Prior to this, he also served as Vice President and General Manager of the Audio Video Business in Asia, Vice President and Global Business Line Manager for Audio and various senior management positions at Philips' CE Division. Mr. Chong started at Philips Research Lab in 1984 as a research scientist working in the area of VLSI design methodologies.
At Philips Display, he led the re-engineering of the Product Creation, Marketing and Sales Organization to compete successfully in the LCD TV space. Prior to this, he also served as Vice President and General Manager of the Audio Video Business in Asia, Vice President and Global Business Line Manager for Audio and various senior management positions at Philips' CE Division.
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.
We have strategically developed a global manufacturing footprint to enhance efficiency and mitigate risks associated with international trade policies to better serve our global customer base. Even though we operate one factory 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.
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.
He received his Bachelor of Science, Engineering degree in 1989 and, subsequently, a Master of Business Administration from University of California, Irvine in 1993. 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.
Our libraries are continuously updated using knowledge captured directly from the original device or from the manufacturers' written specifications to ensure the accuracy and integrity of the libraries. We hold and apply for patents in the United States and abroad related to our discovery, setup and control technologies across residential safety and security, climate control and smart home automation applications.
We hold and apply for patents in the United States and abroad related to our discovery, setup and control technologies across climate control, residential safety and security and smart home automation applications. Our patents have remaining lives ranging from less than one to 18 years.
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.
Our manufacturing capabilities include high-quality surface mount technology, zero-gap, plastic injection, acoustic design, painting, keypad, robot soldering, and laser etching. We currently operate manufacturing and assembly factories in the PRC, Vietnam, Mexico and Brazil, which allows us to produce in the regional markets. We also use selected third-party manufacturers and suppliers in Asia and India.
The latest release of QuickSet has expanded functionality for entertainment and whole home audio use cases to provide deeper device and content history across an ever-increasing landscape of devices and services in the home. This privacy-first approach in capturing user preferences across devices helps increase engagement through enhanced personalized recommendations for a better end-user experience.
QuickSet's expanded functionality includes entertainment and whole home audio use cases to provide deeper device and content history across an ever-increasing landscape of devices and services in the home.
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.
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. 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.
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.
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 for our OFA branded products.
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.
Because of the nature of R&D activities, there can be no assurance that any of our R&D projects will be successfully completed or ultimately achieve commercial success. Intellectual Property and Technology A key factor in creating products and software for home entertainment and smart home device control is our proprietary device knowledge libraries.
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.
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.
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.
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.
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.
Our mission is to create a user centric, smart home experience through innovative control products that provide the simplest way to interact with technology in the home. We aim to provide universal and interoperable control solutions that automatically set up and deliver consistent and intuitive control of connected devices, content and services.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeBank 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.
Biggest changeTo 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.
Dependence upon New Product Introduction Our ability to remain competitive in the video services, consumer electronics, security, home automation, climate control and home appliance markets will depend considerably upon our ability to successfully identify new product opportunities, as well as develop and introduce these products and enhancements on a timely and cost effective basis.
Dependence upon New Product Introduction Our ability to remain competitive in the video services, consumer electronics, climate control, security, home automation and home appliance markets will depend considerably upon our ability to successfully identify new product opportunities, as well as develop and introduce these products and enhancements on a timely and cost effective basis.
The sales of our products and technology may not occur or grow in the manner we expect, and thus we may not recoup costs incurred in the R&D as quickly as we expect, if at all.
The sales of our products and technology may not occur or grow in the manner we expect, and thus we may not recoup costs incurred in R&D as quickly as we expect, if at all.
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.
We presently operate factories in the PRC, Vietnam, Mexico and Brazil, engineering centers in India, Japan and Korea and rely on third-party manufacturers located in Asia.
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.
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 ("U.S. 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.
These factors include, but are not limited to, supply chain disruptions, labor shortages, wage pressures, geo-political matters and conflicts, rising inflation and potential economic slowdown or recession, as well as increases in costs including fuel and energy costs, foreign currency exchange rate fluctuations, and other matters that influence consumer spending and preferences.
These factors include, but are not limited to, supply chain disruptions, labor shortages, wage pressures, geo-political matters and conflicts, rising inflation and potential economic slowdown or recession, as well as increases in costs including fuel and energy costs, foreign currency exchange rate fluctuations, tariffs, and other matters that influence consumer spending and preferences.
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.
As cybersecurity threats may 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.
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.
Moreover, we rely heavily on computer systems and software 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 and software are important to production planning, finance, company operations and customer service, among other business-critical processes.
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.
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.
We manufacture a substantial amount of our products in the PRC and are presently subject to these additional tariffs and will remain so until the tariff lists are altered.
We manufacture a substantial amount of our products in the PRC and Mexico and are presently subject to these additional tariffs and will remain so until the tariff lists are altered.
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.
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, failures or disruptions, acts of vandalism or misconduct, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.
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.
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, Mexico and Canada, and the ramifications of those and other events) impact our 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.
Overall, 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.
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.
While we require these suppliers and agencies to adhere to our Supplier Code of Conduct and the RBA 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.
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.
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.
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.
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 factory are obtained from third-party employment agencies.
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.
In addition to the other risks identified herein, doing business in the PRC carries a number of risks including the following: 20 Table of Contents 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.
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.
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.
Most of the components used in our products are available from multiple sources. However, we purchase integrated circuits ("ICs") used in products, from a small number of key suppliers. To reduce our dependence on our IC suppliers we continually seek additional sources.
Most of the components used in our products are available from multiple sources. However, we purchase ICs used in products, from a small number of key suppliers. To reduce our dependence on our IC suppliers we continually seek additional sources.
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.
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 or experience business interruptions.
There can be no assurance that we will continue to have adequate staffing or that our development efforts will ultimately be successful. Moreover, certain of our technologies have not been fully tested in commercial use, and it is possible that they may not perform as expected.
There can be no assurance that we will continue to have adequate staffing or that our development efforts will ultimately be successful. Moreover, certain of our technologies have not been fully tested in 16 Table of Contents commercial use, and it is possible that they may not perform as expected.
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.
While we generally have a broad and varied customer base, during the years ended December 31, 2024, 2023 and 2022, Daikin Industries Ltd. accounted for sales totaling more than 10% of our net sales. During the year ended December 31, 2022, Comcast Corporation also accounted for sales totaling more than 10% of our net sales.
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.
Because of technological changes in the 23 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.
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.
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.
GAAP") regarding future events and the financial performance of the Company, including those involving: • the benefits the Company expects as a result of the development and success of products and technologies, including new products and technologies; • the benefits expected by conducting business in Asian and Latin American markets, without which, we may not be able to recover the costs we incur to enter into such markets; • new contracts with new and existing customers and new market penetrations; • the expected continued adoption of the Company's technologies in gaming consoles, mobile devices, and other home entertainment and control devices; • the expected continued growth in digital TVs, DVRs, PVRs and overall growth in the Company's industry; • the impact competitors and OTT providers may have on our business; and • the effects we may experience due to current global and regional economic conditions.
GAAP") regarding future events and the financial performance of the Company, including those involving: • the benefits the Company expects as a result of the development and success of products and technologies, including new products and technologies; • the benefits expected by conducting business in Asian and Latin American markets, without which, we may not be able to recover the costs we incur to enter into such markets; • new contracts with new and existing customers and new market penetrations; • the expected continued adoption of the Company's technologies in home entertainment, specifically universal AV control of connected entertainment devices; • the expected continued growth in digital TVs, DVRs, PVRs and overall growth in the Company's industry; • the impact competitors and OTT providers may have on our business; and • the effects we may experience due to current global and regional economic conditions.
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.
Risks Related to Doing Business in the PRC Presently, we manufacture many of our products in our factory in the PRC. Additionally, many of our contract manufacturers are located in the PRC.
In recent years, some raw material and energy prices have increased, particularly silicon and plastic packaging. The cost of raw materials and energy has in the past experienced, and likely will in the future continue to experience, periods of volatility.
In recent years, some raw material and energy prices have increased, particularly silicon and plastic packaging. 28 Table of Contents The cost of raw materials and energy has in the past experienced, and likely will in the future continue to experience, periods of volatility.
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.
As with the effects we previously experienced from the COVID-19 pandemic, any one or more of these events, including the actions 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.
Further, changes in the laws of foreign jurisdictions in which we operate may adversely affect the ability of some of our foreign subsidiaries to repatriate funds to us. We may also fund a portion of our seasonal working capital needs and obtain funding for other general corporate purposes through short-term borrowings backed by our revolving credit facility.
Further, changes in the laws of foreign jurisdictions in which we operate may adversely affect the ability of some of our foreign subsidiaries to repatriate funds to us. 26 Table of Contents We may also fund a portion of our seasonal working capital needs and obtain funding for other general corporate purposes through short-term borrowings backed by our revolving credit facilities.
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.
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.
The Prominence and Evolution on Disclosures related to ESG Matters May Expose Us to Certain Performance and Reputational Risks We have established certain ESG goals and reporting of ESG data.
The Prominence and Evolution on Disclosures related to Environmental, Social and Governance ("ESG") Matters May Expose Us to Certain Performance and Reputational Risks We have established certain goals related to ESG matters and the reporting of ESG data.
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.
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.
In addition, these risks could cause results to differ materially from those we express in forward-looking statements contained in this report or in other Company communications, including those we file from time to time with the SEC.
In addition, these risks could cause results to differ materially from those we express in forward-looking statements contained in this report or in other Company communications, including those we file from time to 14 Table of Contents time with the SEC.
Technology Changes in Control and Sensing We currently derive substantial revenue from the sale of remote controls, sensors and home automation products based on IR and RF and other technologies. Other control technologies exist or may be developed that may compete with our technology. In addition, we develop and maintain our own database of IR and RF codes.
Technology Changes in Control and Sensing We currently derive substantial revenue from the sale of remote controls, thermostats, sensors and home automation products based on IR and RF and other technologies. Other control technologies exist or may be developed that may compete with our technology.
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.
While we do not authorize 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 one of our former facilities, 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.
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.
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.
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.
Despite our efforts to prevent disruptions to our computer systems and software, these systems and software may be affected by damage, disruption, attack, or interruption from, among other causes, power outages, system failures, computer viruses, the development of harmful malware or ransomware, denial-of-service attacks and other intrusions, including cybersecurity incidents and other disruptions or failures.
In the event we do not successfully integrate such future acquisitions into our existing operations so as to realize the expected return on our investment, our results of operations, cash flow or financial condition could be adversely affected.
In the event we do not successfully integrate such future acquisitions into our existing operations so as to realize the expected return on our investment, our results of operations, cash flow or financial condition could be adversely affected. Furthermore, we may sell or divest certain non-core businesses or assets as a part of our business strategy.
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.
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.
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.
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 and disruptions and failures related to such systems.
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.
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. 15 Table of Contents 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 (including state law) and international regulations, could result in additional costs and changes to our business practices.
There are other IR and RF libraries offered by companies that we compete with in the marketplace. In addition, if competing control and sensing technology and products gain acceptance and start to be integrated into home electronics devices and home security and automation products, demand for our products may decrease, resulting in decreased operating results, financial condition and cash flows.
In addition, if competing control and sensing technology and products gain acceptance and start to be integrated into home electronics devices and home security and automation products, demand for our products may decrease, resulting in decreased operating results, financial condition and cash flows.
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.
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.
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.
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.
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.
We continually review our service and support group and are marketing our expertise in this area to other potential retail customers. 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.
General Risks Economic Downturns and Other Global, National, and Regional Conditions May Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition Because we conduct our business on a global platform, our business is sensitive to global and regional business and economic conditions.
In addition, our Board of Directors may, without stockholder approval, implement other anti-takeover defenses, such as a stockholder's rights plan. 27 Table of Contents General Risks Economic Downturns and Other Global, National, and Regional Conditions May Adversely Affect Our Results of Operations, Cash Flow, Liquidity or Financial Condition Because we conduct our business on a global platform, our business is sensitive to global and regional business and economic conditions.
Risks Relating to Regulation and Legal Certain Regulatory and Financial Risks Related to Climate Change Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions.
Risks Relating to Regulation and Legal Matters Certain Regulatory and Financial Risks Related to Climate Change Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject.
Ultimately, the impacts of climate change, whether involving physical risks or transition risks are expected to be widespread and unpredictable and may materially adversely affect our business and financial results. Significant Developments From Potential Changes in U.S. Trade Policies Could Have a Material Adverse Effect On Us The U.S. government implemented additional tariffs on certain goods imported from the PRC.
Ultimately, the impacts of climate change, whether involving physical risks or transition risks are expected to be widespread and unpredictable and may materially adversely affect our business and financial results. 21 Table of Contents Significant Developments From Potential Changes in U.S.
Certain of our products have more features than others and therefore require more end-user technical support, which may increase our support costs and have an adverse effect on our business, operating results, financial condition and cash flows. We continually review our service and support group and are marketing our expertise in this area to other potential retail customers.
Certain of our products have more features than others and therefore require more end-user technical support, which may increase our support costs and have an adverse effect on our business, operating results, financial condition and cash 17 Table of Contents flows.
Computer hardware and storage equipment that is integral to efficient operations, such as email, telephone and other functionality, is concentrated in certain physical locations in the various continents in which we operate.
Cybersecurity threat actors also may attempt to exploit vulnerabilities through software that is commonly used by companies in cloud-based services and bundled software. Computer hardware and storage equipment that is integral to efficient operations, such as email, telephone and other functionality, is concentrated in certain physical locations in the various continents in which we operate.
Difficulty in Ordering Integrated Circuits and Increases in Commodities and Freight Costs Have Adversely Affected and Will Continue to Adversely Affect Our Business We have experienced difficulty in ordering ICs in the recent past and this difficulty could continue in the future.
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. 18 Table of Contents Difficulty in Ordering Integrated Circuits and Increases in Commodities and Freight Costs Have Adversely Affected and Will Continue to Adversely Affect Our Business We have experienced difficulty in ordering ICs in the recent past and this difficulty could continue in the future.
Additionally, we conduct business in countries that have policies which restrict outbound U.S. Dollar transactions. During 2023, we experienced these conditions in Argentina and expect these restrictions to continue.
Additionally, we conduct business in countries, including Argentina, that have policies which restrict outbound U.S. Dollar transactions.
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.
Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
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.
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. 22 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.
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.
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.
As a result, we believe period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as an indication of future performance. Due to all of the foregoing factors, it is possible that in some future quarters our operating results will be below the expectations of public market analysts and investors.
As a result, we believe period-to-period comparisons of our results of operations are 25 Table of Contents not necessarily meaningful and should not be relied upon as an indication of future performance.
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.
Strategic Business Transactions We have historically made strategic acquisitions of businesses in industries adjacent to our core business and will likely acquire additional businesses or engage in strategic partnerships in the future as part of our long-term growth strategy.
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.
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.
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.
The inaccuracy of any of these projections and/or market data may adversely affect our operating results and financial condition.
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.
Disruptions Caused by Labor Disputes or Organized Labor Activities Could Materially Harm our Business and Reputation Currently, approximately 500 of our Brazil and Mexico employees are represented by labor unions. Additionally, approximately 600 of our Vietnam employees are covered by a collective bargaining agreement.
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. 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.
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. Conflict in the Middle East may produce continued or increased disruptions to international shipping and fluctuating freight costs.
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.
Remote work and remote access to our systems has increased, which also increases the risk of cybersecurity incidents and disruptions and failures on our systems surface. In addition, there has been a global increase in cybersecurity threat volume, frequency, and sophistication driven by the global enablement of remote workforces.
Some customers may elect to engage a second source to manufacture the same product, and there is no guarantee that these customers will maintain the volume that was initially allocated to us throughout the product life cycle. The home security and automation industry is highly fragmented and subject to significant competition and pricing pressures.
Some customers may elect to engage a second source to manufacture the same product, and there is no guarantee that these customers will maintain the volume that was initially allocated to us throughout the product life cycle. 19 Table of Contents Smart control solutions in the HVAC market tend to have long development lead-times, ranging from 12-24 months depending on product complexity.
Additionally, disruptions in financial markets could reduce our access to debt capital markets, negatively affecting our ability to implement our business strategy.
Additionally, disruptions in financial markets could reduce our access to debt capital markets, negatively affecting our ability to implement our business strategy. On February 1, 2025, substantial tariffs on Canada, the PRC and Mexico were announced. There exists substantial uncertainty as to whether these tariffs will be fully implemented or sustained.
If customers become increasingly price sensitive, new competition may arise from manufacturers who decide to go into direct competition with us or from current competitors who perform their own manufacturing.
As customers become increasingly price sensitive, we have experienced new competition arising from manufacturers who decided to go into direct competition with us by performing their own manufacturing. If this development continues, 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.
If this happens the price of our common stock may be materially adversely affected.
Due to all of the foregoing factors, it is possible that in some future quarters our operating results will be below the expectations of public market analysts and investors. If this happens the price of our common stock may be materially adversely affected.
Removed
You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.
Added
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.
Removed
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.
Added
We are monitoring these actions, which could have an adverse impact on our business strategy, operating results and financial condition. There can be no assurances that these tariffs will not be implemented or increased in the future, with the previously mentioned countries or additional countries with which we do business.
Removed
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.
Added
The degree to which these changes in U.S. trade policy affect our operating results will be influenced by the specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools and strategies to address these issues.
Removed
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.
Added
In addition, retaliatory tariffs imposed by other countries or other potential government actions, could result in further adverse impacts on our business strategy, operating results and financial condition.
Removed
Additionally, approximately 400 of our Vietnam employees are covered by a collective bargaining agreement.
Added
Geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, may further heighten the risk of cybersecurity incidents and disruptions of our services and software on which we rely.
Removed
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.
Added
As part of our QuickSet Cloud feature delivery, our cloud data captures device information and data elements that are used to enhance product performance and create a more personalized consumer experience. These features, and any device specific data are delivered for use by our customers and not sold to third parties.
Removed
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.
Added
While QuickSet Cloud services a subset of the data used by QuickSet, the majority of the data is captured, analyzed and stored on the device, and in the home, and is not stored outside of the home. This includes the more personal and private data classes such as content usage and user occupancy and presence.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

7 edited+2 added−3 removed4 unchanged
Biggest changeThe Audit Committee, as appropriate, briefs the broader Board of Directors on cybersecurity matters. Management is also responsible for upholding our cybersecurity processes. Our Vice President of IT Infrastructure is responsible for cybersecurity oversight and for developing strategies to mitigate cyber risks, monitoring policy compliance and educating staff on security practices.
Biggest changeOur Vice President, Cybersecurity reports directly to our Senior Vice President and CFO and is primarily responsible for cybersecurity oversight and for developing strategies to mitigate risks from cybersecurity threats, monitoring policy compliance and educating staff on security practices.
To date, management has not identified risks from cybersecurity incidents, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
To date, management has not identified risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
Our third-party cyber risk assessment program is designed to oversee certain third parties and have those third parties adhere to cybersecurity standards.
Our third-party cybersecurity risk assessment program is designed to oversee certain third parties and have those third parties adhere to cybersecurity standards.
While we work to maintain our cybersecurity processes, there can be no assurance that such actions will be sufficient to prevent cybersecurity incidents or mitigate all potential risks to such systems, networks, and data or those of our third-party providers.
While we work to maintain our cybersecurity processes, there can be no 29 Table of Contents assurance that such actions will be sufficient to prevent cybersecurity incidents or mitigate all potential risks or threats to such systems, networks, and data or those of our third-party providers.
We conduct cybersecurity training with our employees as appropriate based on their roles within the Company. 26 Table of Contents Governance Our Board of Directors plays a role in guiding and overseeing our cybersecurity strategies. Our Audit Committee maintains responsibility for cybersecurity oversight by setting policies, reviewing risk management strategies and reviewing compliance with legal and regulatory requirements.
We conduct cybersecurity training with our employees as appropriate based on their roles within the Company. Governance Our Board of Directors plays a role in guiding and overseeing our cybersecurity strategies and has tasked our Audit Committee with the responsibility for cybersecurity oversight by setting policies, reviewing risk management strategies and reviewing compliance with legal and regulatory requirements.
ITEM 1C. CYBERSECURITY We have developed cybersecurity risk management processes to identify, manage, and prevent risks related to cybersecurity. Our Information Technology ("IT") team manages our cybersecurity program and the security measures and processes we have in place. Risk Management and Strategy Global cybersecurity threats and incidents can pose risks to UEI, impacting data security, operational efficiency, and financial stability.
ITEM 1C. CYBERSECURITY We have developed cybersecurity risk management processes to identify, manage, and prevent risks related to cybersecurity. Our Information Technology ("IT") team manages our cybersecurity program and the security measures and processes we have in place. Risk Management and Strategy Cybersecurity is managed as part of our enterprise risk management program.
Our Cybersecurity Management team, led by our Vice President of IT Infrastructure, reports to the Audit Committee of the Board of Directors on cybersecurity matters, including incident reports, compliance status and updates on cybersecurity initiatives.
In carrying out his duties, our Vice President, Cybersecurity provides periodic reports to the Director of our Internal Audit Department, who, in turn, briefs the Audit Committee of the Board of Directors on the contents of such reports, including incident reports, compliance status and updates on cybersecurity initiatives.
Removed
Our business requires collection, processing, and retention of large volumes of Company and sensitive and confidential third party data, including personally identifiable information 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.
Added
The Audit Committee, as appropriate, briefs the Board of Directors on cybersecurity matters. Management is also responsible for upholding our cybersecurity processes. To this end, we have established a global cybersecurity management team, led by our Vice President, Cybersecurity.
Removed
Cybersecurity incidents risk disclosure of sensitive information and disruption of our operations. Financial consequences include recovery costs, fines, and potential legal repercussions. Such incidents could result in losses, severely damage our reputation or expose us to the risks of litigation and liability. Cybersecurity is managed as part of the Company's enterprise risk management program.
Added
Our Vice President, Cybersecurity has extensive experience assessing and managing risks from cybersecurity threats, including more than 20 years of experience in information technology and information security positions; serving in information technology leadership positions at the Company for more than 7 years; and has other significant experience in the areas of risk management, information technology and information security, including the following industry certifications: MCSE, MCDBA and CISSP.
Removed
The Audit Committee aims to meet at least once each fiscal quarter to specifically address cybersecurity matters, but convenes as necessary to fulfill its cybersecurity oversight responsibilities.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed3 unchanged
Biggest changeWe 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.
Biggest changeWe 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 Hong Kong, PRC Asian headquarters 6,550 Leased, expires July 31, 2028 Enschede, Netherlands European headquarters and call center 19,440 Leased, expires February 28, 2029 Bangalore, India Engineering, research and development 21,326 Leased, expires June 30, 2025 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, 2028 Poway, California Engineering, research and development 7,891 Leased, expires December 31, 2025 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 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 61,296 Leased, expires April 15, 2029 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 Guangzhou, PRC Service center 26,850 Leased, expires April 14, 2026 (1) Private ownership of land in mainland PRC is not allowed.
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.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−1 removed3 unchanged
Biggest changeThe 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).
Biggest changeThe 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. 31 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. 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Universal Electronics Inc. $ 100 $ 100 $ 78 $ 40 $ 18 $ 21 S&P Small Cap 600 $ 100 $ 110 $ 137 $ 113 $ 129 $ 138 NASDAQ Composite Index $ 100 $ 144 $ 174 $ 117 $ 167 $ 215 Peer Group Index (1) $ 100 $ 170 $ 156 $ 117 $ 160 $ 142 (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).
(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.
(2) On October 26, 2023, our Board approved a share repurchase program with an effective date of November 7, 2023. Pursuant to the program, we are authorized to repurchase up to 1,000,000 shares of our common stock.
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.
The comparison assumes that $100 was invested on December 31, 2019 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.
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.
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 7, 2025 numbered 156. 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 (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.
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, 2024 - October 31, 2024 — $ — — 778,362 November 1, 2024 - November 30, 2024 5,991 10.08 — 778,362 December 1, 2024- December 31, 2024 55 10.83 — 778,362 Total 6,046 $ 10.08 — (1) Of the repurchases in November and December, 5,991 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.
The information presented above is as of December 31, 2018 through December 31, 2023.
The information presented above is as of December 31, 2019 through December 31, 2024.
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.
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, 2024.
Removed
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
We may utilize various methods to effect the repurchases under the 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.

Item 7. Management's Discussion & Analysis

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

45 edited+28 added−47 removed22 unchanged
Biggest changeWe 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.
Biggest changeWe 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.
We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays for at least the next twelve months and for the foreseeable future thereafter; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving line of credit or take on additional debt until we are able to transfer cash among our various entities.
We believe our current cash balances, anticipated cash flow to be generated from operations and available borrowing resources will be sufficient to cover expected cash outlays for at least the next twelve months and for the foreseeable future thereafter; however, because our cash is located in various jurisdictions throughout the world, we may at times need to increase borrowing from our revolving lines of credit or take on additional debt until we are able to transfer cash among our various entities.
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 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.
On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation, impairment of long-lived assets, intangible assets and goodwill and income taxes. Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available.
On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation, impairment of long-lived assets, intangible assets and goodwill and income taxes. Actual 34 Table of Contents results may differ from these judgments and estimates, and they may be adjusted as more information becomes available.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We generally discuss 2024 and 2023 items and year-to-year comparisons between 2024 and 2023 in the section that follows.
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.
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.
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.
Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 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, 2023, filed with the SEC on March 14, 2024.
Our income tax expense includes amounts intended to satisfy income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S. GAAP. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates.
Our income tax expense includes amounts intended to satisfy income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes 35 Table of Contents prescribed by U.S. GAAP. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates.
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.
Year Ended December 31, 2024 2023 Net sales 100.0 % 100.0 % Cost of sales 71.1 76.8 Gross profit 28.9 23.2 Research and development expenses 7.5 7.4 Selling, general and administrative expenses 23.3 23.4 Factory restructuring charges 0.9 1.0 Legal judgment 1.1 — Goodwill impairment — 11.7 Operating income (loss) (3.9) (20.3) Interest income (expense), net (0.8) (1.0) Other income (expense), net 0.0 (0.6) Income (loss) before provision for income taxes (4.7) (21.9) Provision for income taxes 1.4 1.4 Net income (loss) (6.1) % (23.3) % Year Ended December 31, 2024 ("2024") Compared to Year Ended December 31, 2023 ("2023") Net sales.
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 effective tax rate in 2024 and 2023, (29.2)% and (6.5)%, 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.
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.
Changes in accounts payable and accrued liabilities resulted in cash outflows of $21.4 million during the year ended December 31, 2023 due primarily to a decrease in inventory purchases as a result of lower demand.
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.
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 typically been sufficient to support our business operations, capital expenditures and discretionary share repurchases. When needed, we have utilized our revolving lines of credit to fund operations, share repurchases and acquisitions.
Net loss was $98.2 million for the year ended December 31, 2023, which includes the impairment of goodwill of $49.1 million and long-lived assets of $8.0 million, compared to net income of $0.4 million for the year ended December 31, 2022.
Net loss was $24.2 million for the year ended December 31, 2024 compared to $98.2 million for the year ended December 31, 2023, which includes the impairments of goodwill of $49.1 million and long-lived assets of $8.0 million.
The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to federal and state income taxes and foreign withholding taxes. Additionally, repatriation of some foreign balances is restricted by local laws.
The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to federal and state income taxes and foreign withholding taxes.
Overview 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.
Overview We design, develop, manufacture, ship and support home entertainment control products, technology and software solutions, climate control solutions, wireless sensors and smart home control products and audio-video ("AV") accessories, that are used by the world's leading brands in the home entertainment, climate control, consumer electronics, security, home automation and home appliance markets.
Goodwill impairment. During the year ended December 31, 2023, we recorded a non-cash goodwill impairment charge of $49.1 million due to our market capitalization being significantly less than the carrying value of our equity. Interest income (expense), net.
During the year ended December 31, 2023, we recorded a non-cash goodwill impairment charge of $49.1 million due to our market capitalization being significantly less than the carrying value of our equity. Interest income (expense), net. Net interest expense decreased to $3.4 million in 2024 from $4.3 million in 2023, primarily as a result of a lower average loan balance.
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 receivables and contract assets resulted in cash outflows of $12.2 million during the 38 Table of Contents year ended December 31, 2024 compared to cash inflows of $5.0 million during the year ended December 31, 2023, largely as a result of an increase in and timing of sales in the fourth quarter of 2024 compared to the fourth quarter of 2023 offset partially by a decrease in days sales outstanding.
We anticipate that we will continue to utilize both cash flows from operations and our revolving line of credit to support ongoing business operations, capital expenditures, expenses associated with our long-term factory planning strategy, future discretionary share repurchases and potential future acquisitions.
We anticipate that we will continue to utilize both cash flows from operations and our revolving lines of credit to support ongoing business operations, capital expenditures, discretionary share repurchases and potential acquisitions.
We continually monitor our inventory status to control inventory levels and write down any excess or obsolete inventories on hand. If actual market conditions become less favorable than those projected by management, additional inventory write-downs may be required, which may have a material impact on our financial statements.
If actual market conditions become less favorable than those projected by management, additional inventory write-downs may be required, which may have a material impact on our financial statements.
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.
December 31, 2024 2023 Cash and cash equivalents $ 26,783 $ 42,751 Available borrowing resources 32,300 70,000 Cash and cash equivalents – At December 31, 2024, we had $2.0 million, $10.1 million, $2.3 million, $7.1 million and $5.3 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.
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.
Net cash used for investing activities during 2024 was $8.4 million, of which $4.5 million and $3.9 million was used for capital expenditures and the development of patents, respectively. 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.
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.
Additionally, repatriation of some foreign balances is restricted by local laws. 37 Table of Contents 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 revolving line of credit ("U.S. Credit Line") that expires on April 30, 2026. The U.S.
Income Taxes We calculate our current and deferred tax provisions based on estimates and assumptions that may differ from the actual results reflected in our income tax returns filed during the subsequent year. We record adjustments based on filed returns when we have identified and finalized them, which is generally in the third and fourth quarters of the subsequent year.
We record adjustments based on filed returns when we have identified and finalized them, which is generally in the third and fourth quarters of the subsequent year.
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.
Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures and the development of patents. We estimate that we will incur between $9.0 million and $11.0 million during 2025. Net cash used for financing activities was $19.8 million during 2024 compared to $34.8 million during 2023.
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.
Custom products are those products for which we are unable to redirect the asset to another customer in the foreseeable future without significant rework. 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.
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.
The primary financing activities in 2024 and 2023 were borrowings and repayments on our Credit Lines and repurchases of shares of our common stock. Net repayments on our Credit Lines were $17.8 million in 2024 and $33.0 million in 2023.
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.
During 2024, we purchased 206,598 shares of our common stock at a cost of $2.0 million compared to 164,540 shares at a cost of $1.8 million during 2023.
Changes in such accruals may be required if actual discounts and rebates differ from our estimates. Inventories Our finished good, component part, and raw material inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.
Inventories Our finished good, component part, and raw material inventories are valued at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. We write down our inventory for the estimated difference between cost and estimated net realizable value based upon our best estimates of future demand and market conditions.
Inventories decreased by $51.5 million during the year ended December 31, 2023 compared to an increase of $9.9 million during the year ended December 31, 2022. This significant decrease in inventories is primarily the result of less demand for our video service products. In addition, lead times for components and raw materials have normalized, enabling more efficient production planning.
Inventories decreased by $6.2 million during the year ended December 31, 2024 compared to a decrease of $51.5 million during the year ended December 31, 2023. The significant decrease in inventories during the year ended December 31, 2023 is primarily the result of cord cutting, as there was less demand for our video service products.
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.
Uses of Cash Our cash flows were as follows: (In thousands) Year Ended December 31, 2024 Increase (Decrease) Year Ended December 31, 2023 Cash provided by (used for) operating activities $ 14,822 $ (10,368) $ 25,190 Cash provided by (used for) investing activities (8,428) 5,449 (13,877) Cash provided by (used for) financing activities (19,764) 15,015 (34,779) Effect of foreign currency exchange rate changes on cash and cash equivalents (2,598) (2,075) (523) Net increase (decrease) in cash and cash equivalents $ (15,968) $ 8,021 $ (23,989) December 31, 2024 Increase (Decrease) December 31, 2023 Cash and cash equivalents $ 26,783 $ (15,968) $ 42,751 Working capital 84,203 (13,500) 97,703 Net cash provided by operating activities was $14.8 million during 2024 compared to $25.2 million during 2023.
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.
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 Lines $ 36,960 $ 10,960 $ 26,000 $ — $ — Inventory purchases 9,292 9,292 — — — Operating lease obligations 15,242 4,642 6,819 1,951 1,830 Property, plant, and equipment purchases 927 927 — — — Software license 7,282 1,183 2,251 2,566 1,282 Total material cash commitments $ 69,703 $ 27,004 $ 35,070 $ 4,517 $ 3,112 We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing on our Credit Lines.
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.
As a result of these decisions, we recorded severance and other restructuring expenses of $3.6 million and $4.0 million during the years ended December 31, 2024 and December 31, 2023, respectively. Additionally, we recorded impairment charges of $7.7 million during the year ended December 31, 2023.
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, including new tariffs imposed or to be imposed on goods manufactured in the PRC, Mexico and Canada, and reduced consumer spending on durable goods.
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.
Each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $0.9 million. Income Taxes We calculate our current and deferred tax provisions based on estimates and assumptions that may differ from the actual results reflected in our income tax returns filed during the subsequent year.
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.
At February 18, 2025, the U.S. Credit Line total availability was $60.5 million based upon the AR Ratio. The U.S. 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 U.S.
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.
Other income (expense), net. Other income, net was $0.1 million in 2024, compared to other expense, net of $2.6 million in 2023. The improvement was primarily due to a reduction in net foreign currency losses. Provision for income taxes. Income tax expense was $5.4 million in 2024 compared to $6.0 million in 2023.
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.
Amounts available for borrowing under the China Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at December 31, 2024. At December 31, 2024, we had an outstanding balance of RMB 80.0 million (approximately $11.0 million) on our China Credit Line and no remaining availability. See "ITEM 8.
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.
Net sales for 2024 were $394.9 million, a decrease of 6.1% compared to $420.5 million in 2023. We have experienced lower customer demand in both our home entertainment and climate control channels.
R&D expenses decreased 3.6% to $31.3 million in 2023 from $32.5 million in 2022. The decrease in R&D expenses is primarily due to reduced external product development expenses. Factory restructuring charges. During the year ended December 31, 2023, we recorded $4.0 million in expense, which included severance and other expenses related to the closure of our southern China factory.
During the year ended December 31, 2023, we recorded $4.0 million in expense, including severance and other closure related activities pertaining to our southern PRC factory, and moving costs associated with the transfer of equipment from our Mexico factory to our new facility in Vietnam. Legal judgment.
We write down our inventory for the estimated difference between cost and estimated net realizable value based upon our best estimates of future demand and market conditions. We carry inventory in amounts necessary to satisfy our customers' inventory requirements on a timely basis.
We carry inventory in amounts necessary to satisfy our customers' inventory requirements on a timely basis. We continually monitor our inventory status to control inventory levels and write down any excess or obsolete inventories on hand.
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.
SG&A expenses decreased 6.8% to $91.8 million in 2024 from $98.5 million in 2023, due to a decrease in compensation expenses associated with a reduction in headcount and a decrease in outside legal expenses related to a specific legal matter. 36 Table of Contents Factory restructuring charges.
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.
As part of this evaluation, we (1) opened a new factory in Vietnam which commenced operations in June 2023, (2) stopped production activities of our southwestern PRC factory in the third quarter 2023 and completed its shutdown in the first quarter 2024, (3) stopped production activities and shutdown operations of our smaller eastern PRC factory during the fourth quarter 2024, and (4) downsized and streamlined our Mexico operations throughout 2024.
Our inventory turns increased to 2.8 turns at December 31, 2023 compared to 2.2 turns at December 31, 2022.
In addition, lead times for components and raw materials have normalized, enabling more efficient production planning. Our inventory turns increased to 3.0 turns at December 31, 2024 compared to 2.8 turns at December 31, 2023.
Gross profit as a percent of sales decreased to 23.2% in 2023 compared to 28.1% in 2022. Gross profit as a percentage of sales was adversely impacted by excess capacity which resulted in manufacturing inefficiencies.
Gross profit as a percent of sales increased to 28.9% in 2024 compared to 23.2% in 2023. The execution of our factory footprint optimization plan has resulted in a significant reduction of excess manufacturing capacity, yielding a gross margin rate improvement of approximately 370 basis points.
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.
Revenue recognition Revenue is recognized when control of a good or service is transferred to a customer. Our performance obligations are satisfied over time or at a point in time, depending on the nature of the product.
Removed
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.
Added
Our product and technology offerings include: • Home Entertainment Products: Our industry-leading portfolio includes RF-capable, voice-enabled universal remote control products; low-power RF and energy-harvesting microcontrollers, as well as embedded and Cloud software for AV and Smart Home device and content discovery and control. These solutions are sold primarily to video service providers and consumer electronics OEMs.
Removed
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.
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We also distribute a broad portfolio of replacement remote controls, powerful free-to-air antennae and television and soundbar wall mounts direct to retailers worldwide under the One For All brand. • Climate Control Solutions: Our innovative climate control solutions include wall-mounted and handheld thermostat controllers and connected accessories for smart energy management systems.
Removed
Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired Consumer Electronics Control ("CEC") and wireless IP control protocols commonly found on many of the latest HDMI and internet connected devices.
Added
These products are primarily sold to original equipment manufacturer (“OEM”) customers, as well as hotels, hospitality and system integrators.
Removed
Our proprietary software automatically detects, identifies and enables the appropriate control commands for many home entertainment and automation devices in the home. Our libraries are continuously updated with device control codes used in newly introduced AV and Internet of Things ("IoT") devices.
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Our UEI TIDE Family of Climate Control solutions feature advanced technologies such as Wi-Fi, BLE, Zigbee and Matter, along with sensors for temperature, humidity, proximity, occupancy and carbon dioxide sensing. • Smart Home and Security Products: We offer proprietary and standards-based RF sensors designed for residential security, safety and home automation applications.
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These control codes are captured directly from original control devices or from the manufacturer's written specifications to ensure the accuracy and integrity of the library. We operate as one business segment.
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Our integrated circuits, on which our software and universal control database is embedded, are sold primarily to OEMs, video service providers, smart home dealers and private label customers. • Software and Cloud Services: Our software, firmware and technology solutions 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.
Removed
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.
Added
These solutions support control and delivery of home entertainment application services and content, smart home services and device or system information. New features include private, on-premise user presence and occupancy detection to enhance user experiences with their connected devices. • Intellectual Property and Licensing: We license our intellectual property primarily to OEMs and video service providers.
Removed
While we have been able to increase sales prices on certain products, there may be a delay in our ability to increase prices and we may not be able to fully offset the impact of increased material costs which would negatively impact our gross profit.
Added
Our cloud-enabled software provides reliable firmware update provisioning and digital rights management validation services to major consumer electronics brands. We offer regular control library database and software updates to our licensing customers to ensure their systems are compatible with the latest devices entering the home. We operate as one business segment.
Removed
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.
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To recap our results for 2024: • Net sales decreased 6.1% to $394.9 million in 2024 from $420.5 million in 2023. • Our gross profit percentage increased to 28.9% in 2024 from 23.2% in 2023. • Operating expenses, as a percent of sales, decreased to 32.7% in 2024 from 43.5% in 2023. • Operating loss was $15.3 million in 2024 compared to $85.3 million in 2023, and our operating loss percentage was 3.9% in 2024, compared to 20.3% in 2023. • Income tax expense was $5.4 million in 2024 compared to $6.0 million in 2023. 33 Table of Contents Our strategic business objectives for 2025 include the following: • Build long-term (3-5 year) revenue pipeline by engaging with industry leading brands and securing new and continuing product design wins with top 10 major HVAC OEMs; • Commercially deploy the UEI TIDE family of products in multiple dwelling unit and utility channels and leverage initial deployments to validate, and promote, turnkey solution to address industry need; • Create a footprint in broadband gateway platforms with expanded QuickSet Cloud software offerings; • Expand QuickSet Cloud software penetration in the TV OS market through development and commercial deployment of QuickSet features such as content personalization, privacy-first presence detection and monitoring; • Expand AI-powered cloud services, and on-device AI developments to generate opportunities for recurring revenue streams in software licensing; • Position UEI as the development partner of choice in smart digital thermostat control through innovation and next generation products; • Launch new product categories in direct-to-consumer channel and build a growth revenue business with sustainable gross margins; • Expand our technology offerings and development capabilities in new standards such as WiFi6, Thread, Matter and Z-Wave Long Range; • Seek potential acquisitions or strategic partners that complement and strengthen our existing commercial footprint, add new capabilities, and offer strong synergies; and • Manage our long-term global manufacturing footprint by optimizing internal investments and seeking external manufacturing partnerships where appropriate.
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While we expect this to continue, demand fluctuations and output may affect us in the future based on feedback from our supplier base.
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We have also been adversely impacted by inflationary pressures, including increased component and logistics costs and increases in wages and costs of borrowing funds.
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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.
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To help offset these negative impacts, we have implemented cost saving measures including rightsizing our manufacturing footprint and reducing operational and administrative headcount; however, such measures may not fully offset the impact of lower sales demand and cost increases, which would negatively impact our gross margins and overall financial results.
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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.
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Management will continue to seek ways to lessen the impact these pressures may have on our margins and overall financial results by executing on our plan to reduce our manufacturing overhead and to locate alternative and less expensive sources of component parts and materials.
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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.
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Revenue is recognized over time when performance creates an asset with no alternative use to us (custom products) and we have an enforceable right to payment for performance completed to date, including a reasonable margin, through a contractual commitment from the customer.
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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.
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Our home entertainment channel continues to be adversely affected by cord cutting, while our climate control channel is experiencing a decrease in demand in Europe, which we believe is a result of recent reductions in governmental subsidies for heat pump technology. Gross profit. Gross profit in 2024 was $114.0 million compared to $97.6 million in 2023.
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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.
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During the year ended December 31, 2023, we took a charge of $7.7 million for the impairment of fixed assets related to the execution of our factory footprint optimization plan, which negatively impacted the gross profit rate for that period by 180 basis points.
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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%.
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In addition, a stronger U.S. dollar in 2024 compared to 2023 resulted in a 70 basis point improvement in our gross margin rate. Partially offsetting these improvements was an unfavorable product mix, which resulted in a 50 basis point decline in our gross margin rate. Research and development ("R&D") expenses.
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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.
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R&D expenses decreased 5.0% to $29.7 million in 2024 from $31.3 million in 2023. The decrease in R&D expenses is primarily due to reduced third-party product development costs and a reduction in headcount. Selling, general and administrative ("SG&A") expenses.
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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.
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During the year ended December 31, 2024, we recorded $3.6 million in expense, including severance and moving costs associated with the downsizing of our factory in Mexico and the closures of our southern and eastern PRC factories.
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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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations. We have established policies, procedures and internal processes governing our management of these risks and the use of financial instruments to mitigate our risk exposure.
Biggest changeWe have established policies, procedures and internal processes governing our management of these risks and the use of financial instruments to mitigate our risk exposure. 39 Table of Contents Interest Rate Risk We are exposed to interest rate risk related to our debt.
The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro, British Pound, Mexican Peso, Indian Rupee, Hong Kong Dollar, Brazilian Real, Japanese Yen, Korean Won and Vietnamese Dong.
The most significant foreign currencies to our operations are the Chinese Yuan Renminbi, Euro, British Pound, Mexican Peso, Vietnamese Dong, Indian Rupee, Hong Kong Dollar, Brazilian Real, Japanese Yen and Korean Won.
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.
Foreign Currency Exchange Rate Risk At December 31, 2024, 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.
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.
Based on our overall foreign currency rate exposure at December 31, 2024, we believe that movements in foreign currency rates may have a material effect on our financial position and results of operations.
We are generally a net payor of the Mexican Peso, Indian Rupee, Hong Kong Dollar, Japanese Yen, Korean Won and Vietnamese Dong and therefore benefit from a stronger U.S. Dollar and are adversely affected by a weaker U.S. Dollar relative to the foreign currency.
We are generally a net payor of the Chinese Yuan Renminbi, Mexican Peso, Vietnamese Dong, Indian Rupee, Hong Kong Dollar, Japanese Yen and Korean Won and therefore benefit from a stronger U.S. Dollar and are adversely affected by a weaker U.S. Dollar relative to the foreign currency.
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
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, 2024, net income in the first quarter of 2025 would fluctuate by approximately $4.6 million. 40 Table of Contents
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.
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. Dollar may adversely affect certain expense figures taken alone.
Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our China-based factories where the majority of our products are manufactured. If the Chinese Yuan Renminbi were to strengthen against the U.S. Dollar, our manufacturing costs would increase.
Our most significant foreign currency exposure is to the Chinese Yuan Renminbi as this is the functional currency of our PRC-based factory where the majority of our products originate. If the Chinese Yuan Renminbi were to strengthen against the U.S. Dollar, our manufacturing costs would increase.
We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds will be extended to us under comparable terms or at all.
We cannot make any assurances that we will not need to borrow additional amounts in the future or that funds from the existing Credit Lines will continue to be available to us or that other funds will be extended to us under comparable terms or at all.
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.
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.
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.
A 100 basis point increase in interest rates would have an approximate $0.3 million annual impact on net income based on our outstanding Credit Lines balance at December 31, 2024.
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.
Credit Line based on the Secured Overnight Financing Rate ("SOFR") plus an applicable margin as defined in the Second Amended Credit Agreement.
Interest Rate Risk We are exposed to interest rate risk related to our debt. From time to time, we borrow amounts on our Credit Line for working capital and other liquidity needs.
From time to time, we borrow amounts on our Credit Lines for working capital and other liquidity needs. Under the Second Amended Credit Agreement with U.S. Bank, we may elect to pay interest on outstanding borrowings on our U.S.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including interest rate and foreign currency exchange rate fluctuations.
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Under our Line of Credit Agreement with the Bank of China, we may elect to pay interest on outstanding borrowings on our China Credit Line based on the one-year rate from the National Interbank Funding Center, less a 0.1% margin. Accordingly, changes in interest rates would impact our results of operations in future periods.

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