UNIVERSAL ELECTRONICS INC 10-K

ITEM 1. BUSINESS Universal Electronics Inc. ("UEI") was incorporated under the laws of Delaware in 1986 and began operations in 1987. The principal executive offices are located at 15147 N. Scottsdale Road, Suite H300, Scottsdale, Arizona 85254. As used herein, the terms "we", "us" and "our" refer to UEI and its subsidiaries unless the context indicates to the contrary. Additional information regarding UEI may be obtained at www.uei.com. Our website address is not intended to function as a hyperlink and the information available at our website address is not incorporated by reference into this Annual Report on Form 10-K. We make our periodic and current reports, together with amendments to these reports, available on our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website at www.sec.gov that contains the reports, proxy and other information that we file electronically with the SEC. Our business is comprised of one reportable segment. Sales We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, climate control, security, safety, home automation and home appliance markets. Our product and technology offerings include: • easy-to-use, voice-enabled, automatically-programmed universal remote controls with two-way radio frequency ("RF") as well as infrared ("IR"), sold primarily to video service providers (cable, satellite, Internet Protocol television ("IPTV") and Over the Top ("OTT") services), original equipment manufacturers ("OEMs"), retailers, and private label customers; • integrated circuits ("ICs"), on which our software and universal device control database is embedded, sold primarily to OEMs, video service providers, and private label customers; • wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators; • proprietary and standards-based RF sensors designed for residential security, safety and home automation applications; • AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas; • software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver home entertainment, smart home services and device or system information; • cloud-services that support our embedded software and hardware solutions (directly or indirectly) enabling real-time device identification and system control; • intellectual property that we license primarily to OEMs and video service providers; and • embedded and cloud-enabled software for reliable firmware update and digital rights management validation services to major consumer electronics brands. Our sales channel strategy is to partner with customers who are leaders in their respective industries: in consumer electronics, we count Samsung Electronics Co., Sony Group Corporation and LG Electronics as long-term accounts that represent a significant share of their industry; in video services, Comcast Corporation, Liberty Global and Vodafone Group rank amongst the largest video service providers in their respective markets; in climate control, Daikin Industries Ltd., is the market share leader in the global HVAC industry; and in security, safety and home automation, Vivint Smart Home, Somfy SA, Ring LLC and Hunter Douglas NV are channel leaders in their respective connected home markets. 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. We also distribute home security sensors and connected thermostats to pro-security installers and hospitality system integrators in the United States and Europe through a network of national and regional distributors and dealers. 3 Table of Contents Additionally, we sell our wireless control devices and AV accessories under the One For All®, Ecolink and private label brand names to retailers through our international subsidiaries and direct to retailers in key markets, such as in the United States, United Kingdom, Germany, France, Spain, and Italy. We utilize third-party distributors for the retail channel in countries where we do not have subsidiaries. Our goal is to provide universal control solutions that require minimal or no user set-up and deliver consistent and intuitive one-touch control of all connected content sources and devices. QuickSet® ("QuickSet") is a software application that may be embedded in any entertainment or smart home device, set-top box, or other host device, or delivered as a cloud-based service, through Quickset Cloud, to enable universal device setup and control. QuickSet and QuickSet Cloud utilize data transmitted over HDMI, low power RF (such as Bluetooth or Zigbee), and Internet Protocol ("IP") networks to automatically detect various attributes of connected devices and download the appropriate control codes and functions to enable user access and control without the need for the user to enter any specific device information. 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. QuickSet and QuickSet Cloud are integral components of major TV and TV operator systems and are the primary solutions for easy discovery, setup and control of entertainment and smart home devices. Today, QuickSet smart home services are the technology behind the Home Dashboard of LG TVs and provide a complete and simplified system control experience for households. The platform has continuously expanded with new capabilities including enhanced communication protocols, such as Matter, IP, Zigbee 3.0, Zigbee RF4CE, Consumer Electronics Control ("CEC") and infrared. 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. UEI’s QuickSet Widgets provide fully managed Internet of Things ("IoT") capability to non-connected electronic devices for fast time-to-market and enable digital transformation of end-user interaction. It is expanding to include native support of Matter across the QuickSet Widget family with Virtual Agent-assisted easy onboarding. This will enable products powered by the QuickSet Widget including the UEI TIDE family of Smart Thermostats to be Matter-capable. 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. 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. With our commitment to create environmentally-sustainable solutions that do not compromise but enhance product performance, we introduced the UEI Eterna line of voice-enabled control solutions which are designed with our new generation of Extreme Low-Power System-on-Chip and energy harvesting technologies to deliver increased processing capability while using significantly less power compared to prior generations. The energy-harvesting version of the remotes feature our "Battery-4-Life" technology that relies on collecting energy from the environment's ambient light and radio frequencies to deliver a remote-control solution that is designed to require no battery replacement over the useful life of the product. 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). With QuickSet integration, UEI Virtual Agent provides automated steps for onboarding, feature discovery and troubleshooting capabilities and is available both as a web-based application and a TV app for integration into existing infrastructures. UEI Virtual Agent, when bundled with our newest set of UEI NetReady services for remote diagnostics and customer support, will further enhance the support experience for products already deployed in the home. For the years ended December 31, 2022, 2021 and 2020, our sales to Comcast Corporation accounted for 14.5%, 16.3% and 20.1% of our net sales, respectively. For the years ended December 31, 2022 and 2021, our sales to Daikin Industries Ltd. accounted for 14.4% and 11.8% of our net sales, respectively. 4 Table of Contents Markets and Competition We continue to place significant emphasis on expanding our sales and marketing efforts to video service providers and home entertainment OEMs in Asia, Latin America and Europe. In the markets for video services we include cable, satellite, IPTV and OTT service providers. In recent years, we have seen a significant change in our markets with the rise of the direct-to-consumer streaming video apps that are enabled on smart TVs and streaming devices as well as advanced set-top boxes. This has resulted in a change in mix in our customer base, especially in the U.S., where our traditional customers in cable and satellite have been complimented with new customers in the digital media streaming domain. Today our portfolio includes universal control products compatible with Apple's tvOS and Google's AndroidTV platforms designed for the Multichannel Video Programming Distributor ("MVPD") market allowing subscribers access to subscription-based channels through hybrid and OTT streaming platforms. Additionally, some of our current customers have successfully introduced media streaming services and expanded their footprint to new end-users. Tivo Stream, Comcast's Flex, Sky Glass and DISH Sling are examples of current customer offerings of these types of services. At the same time, we have seen our markets in Home Entertainment OEM, and especially our SmartTV OEMs, successfully upgrade to streaming service aggregators. 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. 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. Leveraging our scale and expertise in low-power RF microcontrollers, we continue to pursue further penetration of our traditional OEM consumer electronics markets as well as newer product categories in the smart home and IoT markets such as HVAC, lighting, window coverings and bathroom controllers. Customers in these markets integrate our connectivity and cloud-based solutions, services and technology into their products to enhance their consumer lifestyle ecosystems. Growth in these markets has been driven by the increasing demand for more energy efficient homes, consumer convenience and the increasing proliferation of connected devices. In home security, safety and automation, we offer universal sub-gigahertz products that are compatible with the top security panel manufacturers, such as Honeywell, GE, Tyco/DSC and 2GIG. In the Do-It-Yourself ("DIY") residential security channel, we offer sensor-based products using industry standard Z-Wave ® and ZigBee ® protocols. In this market, we compete with offshore-based, original design and built-to-print hardware manufacturers, such as Leedarson. In the connected smart home market, we compete with the OEMs themselves as well as wireless manufacturers in North America, such as Nice, and other original design manufacturers in Asia. In the HVAC controller and thermostat market, we compete with regional specialists and global companies such as Honeywell, Johnson Controls, Emerson, Schneider Electric, as well as Far East based OEM manufacturers such as Computime. We compete in our markets on the basis of product quality, enhanced features, intellectual property, local design and development expertise, local development support and end-user support. We believe that we will need to continue to introduce new and innovative products and software solutions to remain competitive and to recruit and retain competent personnel to successfully accomplish our future objectives. Our 26 domestic and international subsidiaries are the following: • C.G. Development Ltd., established in Hong Kong; • CG Mexico Distribution Co., S. de R.L. de C.V., established in Mexico; • CG Mexico Remote Controls, S. de R.L. de C.V., established in Mexico; • Ecolink Intelligent Technology, Inc.; established under the laws of Delaware; • Enson Assets Ltd., established in the British Virgin Islands; • Gemstar Polyfirst Ltd., established in Hong Kong; • Gemstar Technology (Qinzhou) Co. Ltd., established in the People's Republic of China ("PRC"); • Gemstar Technology (Yangzhou) Co. Ltd., established in the PRC; 5 Table of Contents • Guangzhou Universal Electronics Service Co., Ltd., established in the PRC; • One For All France S.A.S., established in France; • One For All GmbH, established in Germany; • One For All Iberia S.L., established in Spain; • One For All UK Ltd., established in the United Kingdom; • Qinzhou Universal Trading Co. Ltd., established in the PRC; • UE Japan Ltd., established in Japan; • UE Korea Ltd., established in South Korea; • UE Singapore Pte. Ltd., established in Singapore; • UE Vietnam Company Limited, established in Vietnam; • UEI Electronics Pte. Ltd., established in India; • UEI Hong Kong Pte. Ltd., established in Hong Kong; • Universal Electronics B.V., established in the Netherlands; • Universal Electronics Italia S.R.L., established in Italy; • Universal Electronics Trading Co., Ltd., established in the PRC; • Universal Electronics Yangzhou Co. Ltd., established in the PRC; • Universal Electronics do Brasil Ltda., established in Brazil; and • Yangzhou Universal Trading Co. Ltd., established in the PRC. Resources Engineering During 2022, our engineering efforts focused on the following: • broadening our product portfolio; • launching new embedded software solutions designed to simplify set-up and control features; • modifying existing products and technologies to improve features, lower costs and to ensure minimal supply chain disruption; • maintaining existing products and relocating certain manufacturing to lower cost jurisdictions; • developing sustainable products that reduce energy use and eliminate waste; • formulating measures to protect our proprietary technology and general know-how; • improving our control solutions software; • updating our library of device codes to include codes for new features and devices introduced worldwide; • creating innovative products that address consumer challenges in home entertainment control and security sensing; and • optimizing, scaling and improving our cloud platform to deliver additional features and managed services to a large installed base of customer and end users. During 2022, our advanced engineering efforts focused on further developing our existing products, services and technologies. We released software updates to our embedded QuickSet application, and continued development initiatives around existing and emerging technologies, such as Rf4CE, Bluetooth, Bluetooth Smart WiFi and Matter, a unifying, IP-based connectivity protocol built on proven technologies designed to connect smart home devices reliably and securely across disparate IoT ecosystems. We continue to enhance the capabilities of our service platform (UEI Virtual Agent) for easier device onboarding, identification and troubleshooting across our portfolio of control products. As a contributor to the Matter specification, we were an active participant in several working groups and Plugfest events to help bring the full interoperability potential of the Matter standard to market in 2022. Our knowledge of what Matter can (and cannot) deliver has culminated in our introduction of four Matter-certified and capable solutions including QuickSet, QuickSet Widget, Nevo ® Butler and UEI TIDE Dial, which were introduced in January 2023 at the International Consumer Electronics Show. 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. Because of the nature of research and development ("R&D") activities, there can be no assurance that any of our R&D projects will be successfully completed or ultimately achieve commercial success. 6 Table of Contents Intellectual Property and Technology A key factor in creating products and software for control of entertainment and smart home devices is our proprietary device knowledge. Each year our device control library continues to grow across AV and smart home platforms, supporting many common smart home protocols, including IR, HDMI-CEC, Bluetooth and its variants, Zigbee (Rf4CE), Z-Wave, Thread, Matter and IP networks. We have developed a broad portfolio of patented technologies and the industry's leading database of device setup and control software. We ship integrated circuits, on which our software and control code libraries are embedded and that connect to our cloud services, directly to manufacturers for inclusion in their products. In addition, we license our software and technology to manufacturers. Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired CEC and wireless IP control protocols commonly found on many of the latest HDMI and internet connected devices. Our proprietary software automatically detects, identifies and enables the appropriate control commands for many home entertainment and automation devices in the home. Our libraries are continuously updated with device control codes used in newly introduced AV and IoT devices. These control codes are captured directly from original control devices or from the manufacturers' written specifications to ensure the accuracy and integrity of the library. Smart devices are becoming a more prevalent part of the home entertainment experience, and we offer several solutions to enable entertainment device control via smart phones, tablets, smart TVs, smart speakers or digital assistants. In our smart device control solutions, we offer the elements needed for device control ranging from IR and RF controller chips to IP-device control libraries to graphical and voice user interfaces, as well as artificial intelligence systems that deliver context aware device interactions. We hold and apply for patents in the United States and abroad related to our remote control, home security, safety, climate control, and automation technologies. Our patents have remaining lives ranging from one to 18 years. We have also obtained copyright registration and claim copyright protection for certain proprietary software and libraries of our device control codes. 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. These registrations are valid for terms ranging up to 20 years and may be renewed as long as the trademarks continue to be used and are deemed by management to be important to our operations. 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 currently operate vertically integrated manufacturing and assembly factories in the PRC, Mexico and Brazil, which allows us to produce in the regional markets and to scale our production to meet growing demand. We also use selected third-party manufacturers and suppliers in Asia. Our long-term factory planning strategy is to de-risk our reliance on a PRC-based supply chain by (1) reducing our manufacturing concentration in the PRC, (2) pursuing lower cost jurisdictions for manufacturing to help ensure market competitive products and (3) offering customers a flexible and globally diverse manufacturing footprint to provide a reliable and cost-efficient supply chain. To this end, in 2022, we leased factory space in Vietnam and expect to commence manufacturing operations in 2023, pending approval of local government permits and licenses. Construction is complete on the facility, with equipment installed. We are beginning to hire key members of the staff to train in anticipation of commencing manufacturing operations, and while the opening of this factory may result in manufacturing inefficiencies, we are evaluating our manufacturing footprint with the expectation that once the Vietnam factory is operating efficiently, we will reduce our manufacturing capacity, most likely, by shutting down an existing facility. We are analyzing various scenarios, each contingent on the success of the new Vietnam factory, and have yet to conclude on a specific plan. Even though we operate three factories in the PRC, manufacturing and assembly plants in Mexico and Brazil, respectively, and plan to open a manufacturing facility in Vietnam in 2023, we continue to evaluate additional third-party manufacturers and sources of supply. During 2022, we utilized multiple third-party manufacturers and maintained duplicate tooling for certain of our products. Where possible, we utilize standard parts and components, which are available from multiple sources. 7 Table of Contents We are a large consumer of integrated circuits, including low-power, RF chips and modules that are used throughout our product portfolios. We continually seek additional sources to reduce our dependence on our integrated circuit suppliers. To further manage our integrated system on a chip supplier dependence, we include microcontroller technology which incorporates non-volatile, reprogrammable flash memory in most of our products. Flash memory-based microcontrollers have shorter lead times than microcontrollers using other memory technologies and may be reprogrammed. This allows us flexibility to use a given component on many different products, has the added benefit of potentially reducing excess and obsolete inventory exposure and allows us to update our product functionality in the field. This diversification lessens our dependence on any one supplier and allows us to negotiate more favorable terms. Our largest integrated circuit supplier, Qorvo International Pte Ltd., provided 11.5%, 11.8% and 14.2% of our total inventory purchases in 2022, 2021 and 2020, respectively. Our manufacturing process consists of plastic injection molding, keypad molding, coating or painting, surface mount technology, assembly, software installation, functional testing, packaging, and quality control. We conduct operations utilizing a formal, documented quality management system to ensure that our products and services satisfy customer needs and expectations. 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 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. In addition, our manufacturing facilities in Yangzhou, PRC have also achieved ISO 45001 International Standard for safety and health management systems. Our facilities located in Yangzhou, PRC and Monterrey, Mexico have successfully completed the Validated Audit Process ("VAP") with the Responsible Business Alliance ("RBA"), the world's largest industry coalition dedicated to responsible business conduct in global supply chains, with both factories achieving Silver Status from the RBA. 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 efficiency. Each of our manufacturing facilities has standing policies and targets for the monitoring and management of waste generation and energy consumption, and is focused on reducing electricity consumption, water usage and greenhouse gas emissions. We are in our second year of membership with the RBA. We joined as an "affiliate" member in 2021 and were elevated to "regular" membership in 2022. We embrace and support the vision, mission, and goals of the RBA. This is outlined further in our website: https://www.uei.com/corporate-responsibilities. Through the RBA program, we have access to a range of RBA training and assessment tools to support continual improvement in our social, environmental and ethical responsibilities of our supply chains. We follow the RBA guidelines for supplier risk assessments process by requiring our suppliers of raw materials and components to complete the full RBA self-assessment questionnaire ("SAQ") and to conduct an on-site VAP audit for 50% of any identified high-risk major suppliers. In addition to observance of quality standards from our suppliers, we maintain and request our suppliers to adhere to our Global Supplier Code of Conduct and Fair Competition Policy ("Supplier Code of Conduct"), which is available on our website and is an essential part of our supply chain management. Further, our Supplier Code of Conduct sets forth our global expectations that we have in the areas of fair dealing, legal compliance, business integrity, labor practices, health and safety, and environmental management. In particular, we require our suppliers to respect basic human rights and to not engage in any involuntary or forced labor and to fully comply with all laws and regulations pertaining to the appropriate and dignified treatment of all workers. In addition, we adhere to, and require suppliers to adhere to the RBA Code of Conduct, which among other things prohibits the use of forced labor in any manner. To better enforce a zero-tolerance of forced labor, we provide training to our employees to identify signs of forced labor and other unlawful labor practices and how to report it directly to management or use our global ethics "whistleblower" line. Government Regulation and Environmental Matters Many of our products are subject to various federal, state, local and international laws governing chemical substances in products, including laws regulating the manufacturing and distribution of chemical substances and laws restricting the presence of certain substances in electronics products. We may incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party damages, or personal injury claims, if we were to violate or become liable under environmental laws or if our products become non-compliant with environmental laws. We also face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the material composition of our products. We may also face significant costs and liabilities in connection with product take-back legislation. The European Union's Waste Electrical and Electronic Equipment ("WEEE") Directive makes producers of electrical goods financially responsible for specified collection, recycling, treatment, and disposal of past and future covered products. Our European subsidiaries are WEEE compliant. 8 Table of Contents We believe that we have materially complied with all currently existing international and domestic federal, state and local statutes and regulations regarding environmental standards and occupational safety and health matters to which we are subject. During the years ended December 31, 2022, 2021 and 2020, the costs incurred in complying with federal, state, local and foreign statutes and regulations pertaining to environmental standards and occupational safety and health laws and regulations did not materially affect our earnings, financial condition or competitive position. In addition, during the same period, the costs incurred in complying with other applicable government regulations likewise did not materially affect our earnings, financial condition or competitive position. However, due to the heightened awareness of corporate environmental, social and governance ("ESG") matters and evolving laws and regulations or enforcement policies, increases in compliance costs may have a material adverse effect upon our capital expenditures, earnings or financial condition. 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. We strive to continually improve the energy and carbon efficiency of our operations, supply chain and product portfolio and deliver more cost-effective and lower carbon technology solutions to our customers. We believe that technology will be fundamental to finding solutions to achieve compliance with and manage those requirements. We are committed to reducing and eliminating substances of concern from our products and manufacturing process. Our products distributed in the European Union are compliant with the RoHS (Restriction of Hazardous Substances Directive 2011/65/EU and 2015/863/EU) and REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) directives. In other regions, we also need to comply with our customers' specific requirements relating to the non-use of certain hazardous substances in the products, which are typically equally or more stringent than the RoHS directive. We have a dedicated "Green Team," based in the PRC and comprised of engineers and environmental regulation experts, that analyze our products, processes, and raw materials to help ensure that we comply with environmental and government regulations worldwide, as well as the applicable "Green" requirements imposed by our customers. Additionally, we have in-house testing capability to help ensure product compliance. In response to and to comply with certain National Standards published by the Chinese government, our Green Team has been working proactively for the identification and reduction of volatile organic compounds ("VOCs") within our supply chain. We place great importance on the compliance with local health and safety laws and regulations. At our manufacturing facilities, we are also committed to protecting our workers from exposure to hazardous substances under an established health and safety management system: As an example, we have replaced VOC emitting inks and paints with reduced-VOC paints at our PRC facilities. We strive to extend the useful life of our products and reduce our products' impact on the environment. We have invested in R&D to improve the energy efficiency of our battery-operated products: For example, we deploy a low energy IR-engine in some of our products, which can extend battery life regardless of the protocols utilized by the product. We have introduced our control platform and related technologies that address the growing demand for sustainable products that reduce energy use and eliminate waste. With this platform, we partnered with technology leaders and invested in bringing ultra-low power connectivity chips with built-in energy harvesting and photovoltaic cells to the market. These chips offer more computing power while consuming substantially less battery power. In addition, to reduce energy consumption even further, we are actively working on solutions powered by low-light solar cells for the entertainment remote control and IoT markets. We also offer a product refurbishment program to our customers where we reclaim, refurbish and recycle pre-owned remote controls. Under this program, major components in pre-owned remote control units are reused or recycled; for example, the printed circuit board assemblies ("PCBA") are cleaned, tested and reused, or plastics are reground to be reused. We have also employed new master carton packing methods to increase shipping efficiency and reduce cardboard usage. Some of our manufacturing facilities are switching to the use of recycled solder. To further reduce collateral waste, we have introduced an initiative to reduce and/or remove single use plastics ("SUP") from our supply chain and manufacturing process for certain customer programs. In the nations where we have operations or otherwise conduct business, we are also subject to tariffs, import/export controls, and other trade-related laws and limitations. 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. Government regulations are subject to change; therefore, we are unable to predict the impact of complying with potential future requirements or whether doing so will materially affect our operations, financial situation, or business. 9 Table of Contents Human Capital As of December 31, 2022, we employed 4,658 members of staff across our worldwide facilities. Of this staff, 3,383 are associated with our manufacturing and supply chain organizations in the PRC, Mexico and Brazil. Beyond the manufacturing and supply chain organizations, 844 of staff work in engineering and R&D, 130 in sales, marketing, consumer service and support and 301 in executive and administrative functions. Additionally, in the PRC, as is standard practice, we work with third-party agencies who have recruited and provided us with workers to support our production activities. 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. 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. 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 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. Our staff is located around the globe at different office and development locations. Our R&D locations are as follows: • advanced engineering, architecture and cloud teams are located in Santa Ana, California, and Scottsdale, Arizona; • cloud architecture, software and service teams are located in Santa Ana and San Mateo, California; • sensor engineering and R&D teams are located in Carlsbad, California; • connected thermostat engineering and R&D teams are located in Poway, California; • hardware engineering teams are located in Panyu and Suzhou in the PRC; • software, firmware and device database teams are located in Bangalore, India; and • a software services team focused on support software solutions is located in Plymouth, Minnesota. Next to these specialized centers of excellence, we employ engineering, sales and marketing and support staff in many of our regional offices in the United States, The Netherlands, Hong Kong, PRC, Brazil, India, Japan, Korea and Mexico. We are committed to an inclusive culture that values equality, opportunity, and respect. We have an employee Code of Conduct and a Supplier Code of Conduct that our employees and suppliers, respectively, must adhere to, both of which cover diversity, inclusion, anti-discrimination and corporate social responsibility. The respect for human rights is a core tenet both within our organization and when working with our suppliers, and our employees are encouraged to notify the Company if they notice or suspect any violation of our employee Code of Conduct, Supplier Code of Conduct or the law. We have a confidential ethics hotline to enable our employees to report any suspected violations of applicable laws or policies. Labor unions represent approximately 29.0% of our 4,658 employees as of December 31, 2022. 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. 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. 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 2023. 10 Table of Contents Information About Our Executive Officers The following table sets forth certain information concerning our executive officers on March 8, 2023: Name Age Position Paul D. Arling 60 Chairman of the Board and Chief Executive Officer Bryan M. Hackworth 53 Senior Vice President and Chief Financial Officer Ramzi S. Ammari 57 Senior Vice President, Corporate Planning and Strategy David Chong 61 Executive Vice President, Asia Richard A. Firehammer, Jr. 65 Senior Vice President, General Counsel, Head of Global Compliance, and Secretary Menno V. Koopmans 47 Senior Vice President, Global Sales Richard K. Carnifax 36 Senior Vice President, Global Operations Paul D. Arling is our Chairman and Chief Executive Officer. 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 2022 Annual Meeting of Stockholders, Mr. Arling was re-elected as our Chairman to serve until the 2023 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). Prior to LESCO, he worked for Imperial Wallcoverings (a manufacturer and distributor of wall covering products) as Director of Planning and The Michael Allen Company (a strategic management consulting company) where he was employed as a management consultant. Mr. Arling received his Bachelor of Science and Master of Business Administration from The Wharton School of the University of Pennsylvania. Bryan M. Hackworth is our Senior Vice President and Chief Financial Officer. He was promoted to Chief Financial Officer in August 2006. Mr. Hackworth joined us in June 2004 as Corporate Controller and subsequently assumed the role of Chief Accounting Officer in May 2005. Before joining us in 2004, he spent five years at Mars, Inc., a privately held international manufacturer and distributor of consumer products and served in several financial and strategic roles. Prior to joining Mars, Inc., Mr. Hackworth spent six years at Deloitte & Touche LLP as an auditor, specializing in the manufacturing and retail industries. Mr. 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. He joined us in June 1997 as a Project Manager and has held various positions of increasing responsibility within our organization until being named to his current position in October 2013. He has global responsibility for the Company's technology innovation roadmap; driving new product initiatives; directing and implementing strategic partnerships, joint ventures and acquisitions; and recommending new avenues for business creation. Prior to joining us, Mr. 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. David Chong is our Executive Vice President, Asia. He is responsible for managing sales in our Asian markets. He was previously responsible for the general management of our Asia region. Mr. Chong joined us in January 2009 as Senior Vice President of Global OEM Sales. Prior to joining us, Mr. 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. 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. He also served as Managing Director for Asia at InVue Security Product before joining us. Mr. Chong had his senior education in The United Kingdom, holding a Bachelor of Science in Electrical and Electronics Engineering with High Honors from University of Nottingham. 11 Table of Contents Richard A. Firehammer, Jr., Esq. is our Senior Vice President, General Counsel, Head of Global Compliance, and Secretary. He joined us in October 1993 as General Counsel. He became our Secretary in February 1994. 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. 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. Firehammer is also a certified public accountant (inactive). Menno V. Koopmans is our Senior Vice President, Global Sales. He served as Managing Director, EMEA from 2018 to August 2019 when he was promoted to his current position. From 2014 to the end of 2017, he was our Senior Vice President for subscription broadcasting business in Europe and India where he led the customer transition into smart remote controls. From 2005 until 2013, he was the head of our worldwide consumer business and our One For All ® brand. Prior to joining us, Mr. Koopmans worked at Mars, Sony Europe and Royal Philips Electronics in different product, marketing and sales management roles in both fast-moving consumer goods and durable consumer goods categories. Mr. Koopmans received his Master in Science of Business Administration from Erasmus University in Rotterdam, The Netherlands. 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. 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. From November 2015 until September 2017, he held various operational roles at Air Enterprises, a privately held manufacturer of specialty air handling equipment. Prior to joining Air Enterprises, Mr. Carnifax spent four years scheduling and planning materials for Howden, a provider of high-quality air and gas handling products and services to the power, oil and gas, mining and petrochemical industries. Mr. Carnifax holds a Bachelor of Arts in Political Science and a Master of Arts in International Relations/Business from the University of Akron.