What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-11 compared with 2024-03-14 · 117 added, 148 removed, 126 unchanged (68% of the section changed)

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

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.

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.

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;

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

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge.

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.

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.

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.

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.

• 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.

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.

These products are primarily sold to original equipment manufacturer (“OEM”) customers, as well as hotels, hospitality and system integrators.

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.

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.

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.

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.

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• Net sales decreased 6.1% to $394.9 million in 2024 from $420.5 million in 2023.

• 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.

• 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.

Our strategic business objectives for 2025 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;

• expedite our long-term factory planning strategy to optimize our manufacturing footprint and reduce our manufacturing concentration in the PRC.

• 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;

• Manage our long-term global manufacturing footprint by optimizing internal investments and seeking external manufacturing partnerships where appropriate.

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

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.

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.

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.

While we expect this to continue, demand fluctuations and output may affect us in the future based on feedback from our supplier base.

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.

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.

Goodwill and Long-Lived Assets Impairment Trigger

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.

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.

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.

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%.

This test indicated no recoverability issues.

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.

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.

A downward revision of these assumptions could cause the total undiscounted cash flows of the long-lived asset group to fall below its respective carrying values and a non-cash impairment charge would be required.

Such a charge may have a material effect on the consolidated financial statements.

We 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.

We have also been adversely impacted by inflationary pressures, including increased component and logistics costs and increases in wages and costs of borrowing funds.

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.

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.

Manufacturing Footprint

We have been evaluating our global manufacturing footprint based upon our long-term factory planning strategy to (1) de-risk our reliance on a PRC-based supply chain and (2) reduce our manufacturing capacity due to decreased demand and a change in mix of our products.

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.

With our Vietnam factory now open and meeting short-term operational targets, with the expectation of continued improvement, we stopped manufacturing activities in our southwestern China factory in September 2023 and have substantially completed its shutdown.

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.

We continue to evaluate our Mexico facility as part of our long-term factory planning strategy.

We are currently planning to downsize and streamline the Mexico operations by moving to a smaller, more efficient facility.

We expect to commence operations in this downsized facility in the second quarter of 2024, which may result in a material amount of severance and moving costs.

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.

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.

We will continue to evaluate our global factory footprint to identify ways to operate more efficiently and decisions may result in charges that could have a material effect on the consolidated the financial statements.

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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.

results may differ from these judgments and estimates, and they may be adjusted as more information becomes available.

Any adjustment may be significant and may have a material impact on our consolidated financial statements.

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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.

Revenues are generated from manufacturing and delivering universal control, sensing and automation products and AV accessories, which are sold through multiple channels, and licensing intellectual property that is embedded in these products or licensed to others for use in their products.

We also generate revenues from a cloud-based software solution enabling software updates, digital rights management provisioning and remote technical support to consumer electronics customers.

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.

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.

Royalty Revenue – We license our symbolic intellectual property which includes our patented technologies and database of control codes.

Royalty revenue is recognized for these licensing arrangements on an over time basis.

We record license revenue for per-unit based licenses when our customers manufacture or ship a product incorporating our intellectual property and we have a present right to payment.

The number of shipped units is estimated based on historical royalty revenue and other known factors.

If actual shipped units differ from our estimates we will record a reduction or increase to net sales in the period the actuals are reported by the licensee, typically in the following quarter.

Sales Returns and Allowances – A provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded.

These estimates are based on historical sales returns and allowances, analysis of credit memo data and other known factors.

Actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates.

If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net sales in the period in which we make such a determination.

Sales Discounts and Rebates – A provision is recorded for estimated sales discounts and rebates and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded.

We accrue for discounts and rebates based on historical experience and our expectations regarding future sales to our customers.

Changes in such accruals may be required if actual discounts and rebates differ from our estimates.

Our performance obligations are satisfied over time or at a point in time, depending on the nature of the product.

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.

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.

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.

Our finished good, component part, and raw material inventories are valued at the lower of cost or net realizable value.

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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.

We evaluate the carrying value of goodwill on December 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Such circumstances may include, but are not limited to:

(1) a significant adverse change in legal factors or in business climate, (2) a decline in macroeconomic conditions, (3) a significant decline in our financial performance or (4) a significant decline in the price of our common stock for a sustained period of time.

We perform our annual impairment test, and any required interim tests, using the optional qualitative assessment, weighing the relative impact of factors that are specific to our single reporting unit including our market capitalization compared to the carrying value of our stockholders' equity, as well as industry and macroeconomic factors.

Based on the qualitative assessment performed, we consider the aggregation of the relevant factors, and conclude whether it is more likely than not that the fair value of our single reporting unit is less than the carrying value.

If we conclude that it is more likely than not that the fair value of our single reporting unit is less than the carrying value, or if we decide not to elect the optional qualitative assessment, we perform a quantitative impairment test, using cash flow projections, discounted by our weighted-average cost of capital.

In addition to any quantitative impairment analysis, we also consider the implied control premium compared to our market capitalization.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions.

These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates.

In addition, we make certain judgments and assumptions in determining our reporting unit.

We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.

Actual future results may differ from those estimates.

Long-Lived and Intangible Assets Impairment

We assess the impairment of long-lived and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors considered important which may trigger an impairment review may include the following, but are not limited to:

(1) significant underperformance relative to historical or projected future operating results;

(2) significant changes in the manner or use of the assets, their physical condition or strategy for the overall business;

(3) significant negative industry or economic trends;

(4) a current expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of it previously estimated useful life;

or (5) a significant decline in our stock price for a sustained period.

We conduct an impairment review when we determine that the carrying value of a long-lived or intangible asset may not be recoverable based upon the existence of one or more of the above indicators of impairment.

The asset is impaired if its carrying value exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

In assessing recoverability, we make assumptions regarding estimated future cash flows and other factors.

Determining the recoverability of long-lived or intangible assets is judgmental in nature and involves the use of significant estimates and assumptions.

These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and the future market value of our asset group.

In addition, we make certain judgments and assumptions in determining our asset group.

We base our recoverability estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.

Actual future results may differ from those estimates.

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.

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We believe that our tax return positions are fully supported, but tax authorities could challenge certain positions which may not be fully sustained.

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.

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.

Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates.

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Research and development expenses 7.5 7.4

Factory restructuring charges 1.0 —

Selling, general and administrative expenses 23.3 23.4

Factory restructuring charges 0.9 1.0

Legal judgment 1.1 —

Goodwill impairment — 11.7

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Net sales for 2024 were $394.9 million, a decrease of 6.1% compared to $420.5 million in 2023.

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.

We have experienced lower customer demand in both our home entertainment and climate control channels.

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.

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.

In an effort to optimize our factory footprint and reduce capacity to be commensurate with current demand, we impaired machinery and equipment and leasehold improvements associated with the closure of our southwestern China factory, which ceased manufacturing operations in September 2023.

We also incurred impairment charges relating to machinery and equipment at our Mexico factory.

In addition, we incurred start-up costs in the first half of 2023 associated with our Vietnam facility.

Overall, operations in our new Vietnam factory have exceeded our expectations and we expect continued improvement in production efficiencies as it scales.

Partially offsetting these items was a stronger U.S.

dollar versus the Chinese Yuan Renminbi.

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.

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.

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.

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 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.

In addition, we incurred expenses to move equipment from our Mexico factory to our Vietnam factory.

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.

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.

Factory restructuring charges.

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.

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.

During the year ended December 31, 2024, we recorded $4.2 million in expense, relating to an adverse judgment against one of our subsidiaries located in the PRC.

We have appealed this ruling and expect a decision on our appeal in early to mid-April 2025.

Goodwill impairment.

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Interest income (expense), net.

Net interest expense increased to $4.3 million in 2023 from $2.2 million in 2022 as a result of a higher interest rate, partially offset by a lower average loan balance and increased interest income.

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.

Other income (expense), net.

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.

Income tax expense.

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.

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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.

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.

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.

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 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.

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.

Our liquidity is subject to various risks including the market risks identified in "ITEM 7A.

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Bank National Association ("U.S.

Bank") provides for a $125.0 million revolving line of credit ("Credit Line") that expires on April 30, 2024.

On March 13, 2024, we executed an amendment to our Second Amended Credit Agreement, which adjusts the Credit Line to a two-tiered limit of $85.0 million up to $100.0 million (subject to meeting certain financial conditions) and extends the term to April 30, 2025.

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 December 31, 2023, we had an outstanding balance of $55.0 million on our Credit Line and $70.0 million of availability.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 9" for further information regarding our Credit Line.

Bank") provides for a revolving line of credit ("U.S.

Credit Line") that expires on April 30, 2026.

Credit Line has a maximum availability up to $75.0 million, subject to meeting certain financial conditions, including an accounts receivable coverage ratio ("AR Ratio").

This AR Ratio is calculated monthly and adjusts the current U.S.

Credit Line total availability.

At December 31, 2024, the U.S.

Credit Line total availability was $58.3 million based upon the AR Ratio.

At February 18, 2025, the U.S.

Credit Line total availability was $60.5 million based upon the AR Ratio.

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.

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 $26.0 million on our U.S.

Credit Line and $32.3 million of availability.

Our subsidiary, Gemstar Technology (Yangzhou) Co.

("GTY"), has a Line of Credit Agreement ("Line of Credit Agreement") with the Bank of China, which provides for a revolving line of credit ("China Credit Line" and, together with the U.S.

Credit Line, "Credit Lines") through July 24, 2025.

We expect to renew the Line of Credit Agreement with the Bank of China prior to its expiration;

however, no assurance can be given that future financing will be available or, if available, that we will be offered terms satisfactory to us.

The China Credit Line has a maximum availability up to RMB 80.0 million (approximately $11.0 million), subject to meeting certain financial conditions.

The China Credit Line may be used for working capital purposes.

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.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 9" for further information regarding our Credit Lines.

Our cash flows were as follows:

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Net cash provided by operating activities was $14.8 million during 2024 compared to $25.2 million during 2023.

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.

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.

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.

Depreciation and amortization was $18.1 million for the year ended December 31, 2024 compared to $22.9 million during the year ended December 31, 2023, due to decreased purchases of property, plant and equipment over recent years.

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.

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.

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

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.

Days sales outstanding were 81 days at December 31, 2024 compared to 94 days at December 31, 2023.

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 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.

Changes in accounts payable and accrued liabilities resulted in cash inflows of $15.7 million during the year ended December 31, 2024 due primarily to the timing of payments in the fourth quarter.

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.

Changes in accrued income taxes resulted in cash inflows of $1.3 million during the year ended December 31, 2024 compared to cash outflows of $3.5 million during the year ended December 31, 2023.

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 2022 was $21.2 million, of which $7.5 million, $0.9 million, $14.0 million and $6.6 million was used for the purchase of our term deposit investment, acquisition of Qterics Inc., capital expenditures, and the development of patents, respectively.

Offsetting these amounts was $7.8 million received upon the redemption of our term deposit investment.

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.

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.

Net repayments on our line of credit were $33.0 million in 2023 and net borrowings were $32.0 million in 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.

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.

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.

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.

5 unchanged sentences

(In thousands) Total Less than

Credit Line $ 55,000 $ 55,000 $ — $ — $ —

Credit Lines $ 36,960 $ 10,960 $ 26,000 $ — $ —

Inventory purchases 9,292 9,292 — — —

4 unchanged sentences

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 Line.

We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing on our Credit Lines.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis