UNIVERSAL ELECTRONICS INC.

(UEIC)
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UNIVERSAL ELECTRONICS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/06/2022 | 06:16am EDT

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

Overview


We design, develop, manufacture, ship and support control and sensor technology
solutions and a broad line of universal control systems, audio-video ("AV")
accessories, and intelligent wireless security and smart home products that are
used by the world's leading brands in the video services, consumer electronics,
security, home automation, climate control, 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") remote controls,
that are sold primarily to video service providers (cable, satellite, Internet
Protocol television ("IPTV") and Over the Top ("OTT") services), original
equipment manufacturers ("OEMs"), retailers, and private label customers;

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


•software, firmware and technology solutions that can enable devices such as
TVs, set-top boxes, audio systems, smart speakers, game controllers 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 software update and device provisioning
services, as well as real-time device identification and system control with
billions of transactions per year in device and data management;

•intellectual property that we license primarily to OEMs and video service providers;

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


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

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



A key factor in creating products and software for control of entertainment
devices is our proprietary device knowledge graph. Since our beginning in 1986,
we have compiled an extensive device control knowledge library that includes
over 13,000 brands comprising over 1,002,000 device models across AV and smart
home platforms, supported by many common smart home protocols, including IR,
HDMI-CEC, Zigbee (Rf4CE) Z-Wave, and IP, as well as Home Network and Cloud
Control.

This device knowledge graph is backed by our unique device fingerprinting technology, which includes nearly 27.6 million unique device fingerprints across both AV and Smart Home devices.


Our technology also includes other remote controlled home entertainment devices
and home automation control modules, as well as wired Consumer Electronics
Control ("CEC") and wireless 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 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. Our proprietary software and
know-how permit us to offer a device control code database that is more robust
and efficient than similarly priced products of our competitors.

We hold a number of patents in the United States and abroad related to our
products and technology, and have filed domestic and foreign applications for
other patents that are pending. At March 31, 2022, we had more than 650 issued
and pending U.S. patents related to remote control, home security, safety and
automation as well as hundreds of foreign counterpart patents and applications
in various territories around the world.

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We operate as one business segment. We have two domestic subsidiaries and 25
international subsidiaries located in Brazil, British Virgin Islands, Cayman
Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2),
the Netherlands, People's Republic of China (the "PRC") (7), Singapore, Spain
and the United Kingdom.

To recap our results for the three months ended March 31, 2022:

•Net sales decreased 12.0% to $132.4 million for the three months ended March 31, 2022 from $150.5 million for the three months ended March 31, 2021.

•Our gross margin percentage decreased to 27.4% for the three months ended March 31, 2022 from 30.8% for the three months ended March 31, 2021.

•Operating expenses, as a percentage of net sales, increased to 27.8% for the three months ended March 31, 2022 from 25.1% for the three months ended March 31, 2021.


•Our operating loss was $0.6 million for the three months ended March 31, 2022
compared to operating income of $8.6 million for the three months ended
March 31, 2021. Our operating income (loss) percentage decreased to (0.4)% for
the three months ended March 31, 2022 from 5.7% for the three months ended
March 31, 2021.

•Income tax expense increased to $2.4 million for the three months ended March 31, 2022 from $1.5 million for the three months ended March 31, 2021.

Our strategic business objectives for 2022 include the following:


•continue to develop and market advanced remote control products and
technologies our customer base is adopting;
•continue to broaden our home control and home automation product offerings;
•continue to expand our software and service offerings to deliver a complete
managed service platform;
•continue to invest in creating technology differentiation across our global
product portfolio;
•further penetration of international subscription broadcasting markets;
•acquire new customers in historically strong regions;
•increase our share with existing customers;
•continue to seek acquisitions or strategic partners that complement and
strengthen our existing business; and
•continue our long-term factory planning strategy of reducing our concentration
risk in the People's Republic of China.


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

COVID-19 Pandemic Impact


The global spread of COVID-19 has been and continues to be a complex and
rapidly-evolving situation, with governments, public institutions and other
organizations imposing or recommending, and businesses and individuals
implementing, at various times and to varying degrees, restrictions on various
activities or other actions to combat its spread, such as restrictions and bans
on travel or transportation, limitations on the size of gatherings, closures of
or occupancy or other operating limitations on ports, work facilities, schools,
public buildings and businesses, cancellation of events, including sporting
events, conferences and meetings, and quarantines and lockdowns. The COVID-19
pandemic and its consequences have and will continue to impact our business,
operations, and financial results. The extent to which the COVID-19 pandemic
impacts our business, operations, and financial results, including the duration
and magnitude of such effects, will depend on numerous evolving factors that we
may not be able to accurately predict or assess, including the duration and
scope of the COVID-19 pandemic (including the location and extent of resurgences
of the virus, particularly in light of new variants, and the availability of
effective treatments or vaccines); and the negative impact the COVID-19 pandemic
has on global and regional economies and economic activity, including the
duration and magnitude of its impact on unemployment rates, inflation and
consumer discretionary spending. Because the severity, magnitude and duration of
the COVID-19 pandemic are uncertain, rapidly changing, and difficult to predict,
the pandemic's impact on our operations and financial performance, as well as
its impact on our ability to successfully execute our business strategy and
initiatives, remains uncertain. As the COVID-19 pandemic continues, the full
extent of this outbreak and the related governmental, business and travel
restrictions in order to contain the COVID-19 pandemic are continuing to evolve
globally. Our COVID-19 task force, which includes a cross-functional group of
senior-level executives, continues to manage and respond to the ever-changing
health and safety requirements across the globe and communicate our responses
and recommended course of action to our global factory and office leaders.
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We continue to maintain safety measures for all our employees across the globe
as pandemic conditions require, including implementing work-from-home
arrangements, restricting travel except where essential and approved in advance,
frequent office and factory sanitation, temperature scans upon entry, hand
sanitizer stations located throughout our facilities and offices, mask wearing,
social distancing measures in gathering places and restricting visitor access.
Further, we continue to monitor and follow suggested guidelines by the Centers
for Disease Control and Prevention, the World Health Organization, and local
governmental orders and recommendations. The continued safety and welfare of our
employees will remain at the forefront of all decision-making.

Local lockdowns near our southern China factory during the last two weeks of the
first quarter of 2022 temporarily caused labor shortages that negatively
affected our ability to manufacture at full capacity and to meet customer
demand. As of the issuance of this report, our southern China factory and our
other factories are operating at or near labor capacity.

We anticipate that the global health crisis caused by the COVID-19 pandemic will
continue to negatively impact business activity across the globe, including our
business. We expect our sales demand to continue to be negatively impacted into,
at least, the first half of 2022 given the global reach and economic impact of
the COVID-19 pandemic and the various quarantine and social distancing measures
put in place to contain the spread of the COVID-19 pandemic. A closure of one of
our factories and/or a local lockdown that negatively affects our factory
staffing levels for a sustained period of time have impacted and may continue to
impact our ability to meet customer demand, in the short run, and would
negatively impact our results. We have also seen disruptions in our supply
chain, due to difficulty in obtaining ICs and substantial delays in the
transportation and the onloading and offloading of our product due to
significant congestion and shutdowns at ports throughout the world. This, in
turn, causes significant congestion in other downstream transportation, such as
via trucks and rail. As such, these congestions have caused and continue to
cause difficulty and delays in our ability to fulfill customer orders and have
resulted in increased logistics costs.

We will continue to actively monitor these situations and may take further
actions altering our business operations as necessary or as required by federal,
state, or local authorities. The potential effects of any such alterations or
modifications may have a material adverse impact on our business during 2022.
Even after the COVID-19 pandemic subsides or effective treatments or vaccines
become available, our business, markets, growth prospects and business model
could be materially impacted or altered.

Global Integrated Circuit Shortage Impact


We continue experiencing difficulty in ordering ICs for future use and that
difficulty is expected to continue through at least mid to late 2022. The global
shortage of ICs is affecting a multitude of industries and we expect it to
continue to affect our business. While we are identifying other sources of ICs
and taking other production and inventory control steps in order to mitigate the
effects caused by this shortage, we cannot guarantee that we will find
alternative sources to meet our short- and longer-term IC needs and/or without
experiencing increases in the prices we pay for these components. If we are not
able to find alternative sources of ICs or are not able to purchase sufficient
quantities of ICs from our current and alternative suppliers, we may not be able
to produce sufficient quantities of products to meet our customers' demands.
This, in turn, may affect our ability to meet our quarterly revenue targets.
Further, we may incur additional freight costs to meet the delivery demands of
our customers. In addition, many of our products are paired with certain of our
customers' products, like set-top boxes or televisions. If those customers are
not able to obtain sufficient quantities of ICs for their products, their demand
for our products may decrease.

Inflation Impact


Inflation has adversely affected our business and we expect this to continue
through the end of 2022. We have been and expect to continue to be negatively
impacted by increased component and logistics costs. While we have been able to
increase prices of our products to customers, we may not be able to fully offset
the impact of increased material costs which would negatively impact our gross
profit. In addition, our cost of labor, materials and borrowing may increase
which would negatively impact our business and financial results. Alternatively,
deflation may cause a deterioration of global and regional economic conditions
which could impact unemployment rates and consumer discretionary spending.
These, and other factors that may increase the risk of significant deflation,
could negatively impact our business and results of operations.

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Qinzhou, China Facility

In October 2021, Reuters published an article indicating that individuals from
China's Uyghur minority, originally resident in the PRC region of Xinjiang, were
working in a facility in Qinzhou, Guangxi operated by our Chinese subsidiary,
Gemstar Technology (Qinzhou) Co. Ltd. ("Gemstar"). The article alleged that the
presence of these workers in Guangxi was indicative of "a transfer program
described by some rights groups as forced labor." Shortly after publication of
the Reuters article, three U.S. Senators heading the U.S. Senate Foreign Affairs
Committee (the "Committee") jointly wrote to us seeking information regarding
these workers and the terms of their work at our Gemstar factory.

We have reviewed and confirmed that Gemstar compensated these individuals for
their work at the same rates as workers of other ethnicities who had comparable
skills and roles, and at a level that was above the local minimum wage. Although
our review did not identify any instances in which individuals were obliged or
in any other way forced to work at the Qinzhou facility or were paid less than
their promised wage, Gemstar, which engaged these workers through a third-party
labor agency, terminated its relationship with that agency, ended its
arrangement with these workers, and paid all outstanding wages and severance
directly and individually to each of the workers in question. Nonetheless, the
perception that we or an entity affiliated with us might have had associations
with a program described by some as involving forced labor could result in
reputational damage as well as lost revenue. To date, as a result of this
perception, one customer has put further business with us on hold. Should
additional customers cease doing business with us, the loss of revenue could
become material, which would have an adverse effect on our business, results of
operations and financial condition. We take all allegations regarding working
conditions seriously, and took a cooperative approach to responding to the
Committee's letter, cooperated fully with the Committee's inquiry and provided
the Committee with timely and complete responses to all of its questions.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with U.S. GAAP requires us
to make estimates and judgments that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. On an 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. Any adjustment may be
significant and may have a material impact on our consolidated financial
statements.

An accounting estimate is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, if different estimates reasonably may have
been used, or if changes in the estimate that are reasonably likely to occur may
materially impact the financial statements. We do not believe that there have
been any significant changes during the three months ended March 31, 2022 to the
items that we disclosed as our critical accounting policies and estimates in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in our Annual Report on Form 10-K for our fiscal year
ended December 31, 2021.

Recent Accounting Pronouncements

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

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Results of Operations

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

                                                                      Three Months Ended March 31,
                                                                     2022                       2021
Net sales                                                                100.0  %                   100.0  %
Cost of sales                                                             72.6                       69.2
Gross profit                                                              27.4                       30.8
Research and development expenses                                          5.9                        5.3
Selling, general and administrative expenses                              21.9                       19.8
Operating income (loss)                                                   (0.4)                       5.7
Interest income (expense), net                                            (0.2)                      (0.1)

Other income (expense), net                                                0.3                        0.0
Income (loss) before provision for income taxes                           (0.3)                       5.6
Provision for income taxes                                                 1.8                        1.0
Net income (loss)                                                         (2.1) %                     4.6  %



Three Months Ended March 31, 2022 versus Three Months Ended March 31, 2021
Net sales. Net sales for the three months ended March 31, 2022 were $132.4
million, a decrease compared to $150.5 million for the three months ended
March 31, 2021. Sales in our subscription broadcast channel were lower than the
prior year period due primarily to component shortages and lower customer
demand. Sales in our HVAC and consumer electronics channels were lower than the
prior year period, due to component shortages and COVID-19 related lockdowns in
China, which impacted our ability to both manufacture and deliver product. Sales
in our retail channel were lower than the prior year period due to the loss of a
customer in North America.

Gross profit. Gross profit for the three months ended March 31, 2022 was $36.3
million compared to $46.4 million for the three months ended March 31, 2021.
Gross profit as a percentage of sales decreased to 27.4% for the three months
ended March 31, 2022 from 30.8% for the three months ended March 31, 2021. Gross
profit as a percentage of sales was unfavorably impacted by higher material and
freight costs and the weakening of the U.S. Dollar versus the Chinese Yuan
Renminbi and Mexican Peso. Partially offsetting these unfavorable impacts were
price increases and a favorable mix shift toward higher margin revenue streams
such as royalties, as a few of the largest consumer electronic companies in the
world are embedding our technology in their devices.

Research and development ("R&D") expenses. R&D expenses remained consistent at
$7.8 million for the three months ended March 31, 2022 and $7.9 million in the
prior year period.

Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased
to $29.0 million for the three months ended March 31, 2022 from $29.8 million
for the three months ended March 31, 2021, primarily due to a decrease in
incentive compensation.

Interest income (expense), net. Interest expense, net increased to $0.3 million
for the three months ended March 31, 2022 from $0.1 million for the three months
ended March 31, 2021, as a result of a higher average loan balance and a higher
interest rate.

Other income (expense), net. Other income, net was $0.4 million for the three months ended March 31, 2022 and $23.0 thousand for the three months ended March 31, 2021, as a result of net foreign currency gains.


Provision for income taxes. Income tax expense was $2.4 million for the three
months ended March 31, 2022, relative to pre-tax loss of $0.5 million compared
to income tax expense of $1.5 million for the three months ended March 31, 2021,
representing an effective tax rate of 18.0%. We expect the U.S. to be in a
pre-tax loss position without benefit for the full year 2022. In addition,
recent legislative changes for research and experimentation costs and
creditability of certain foreign income taxes have resulted in a higher than
normal effective tax rate.

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Liquidity and Capital Resources

Sources of Cash


Historically, we have utilized cash provided from operations as our primary
source of liquidity, as internally generated cash flows have been sufficient to
support our business operations, capital expenditures and discretionary share
repurchases. In addition, we have utilized our revolving line of credit to fund
an increased level of share repurchases and 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. 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.

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

(In thousands)                   March 31, 2022       December 31, 2021
Cash and cash equivalents       $        53,628      $           60,813
Available borrowing resources            37,300                  66,300



Cash, cash equivalents and term deposit - On March 31, 2022, we had
$4.9 million, $17.7 million, $10.4 million, $18.0 million and $2.7 million of
cash and cash equivalents in North America, the PRC, Asia (excluding the PRC),
Europe, and South America, respectively. In addition, at March 31, 2022, we had
a one-year term deposit of $8.6 million, which will mature on January 25, 2023.
We attempt to mitigate our exposure to liquidity, credit and other relevant
risks by placing our cash, cash equivalents, and term deposits with financial
institutions we believe are high quality.

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

Available Borrowing Resources - Our Second Amended and Restated Credit Agreement
("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S.
Bank") provides for a $125.0 million revolving line of credit ("Credit Line")
that expires on November 1, 2023. The Credit Line may be used for working
capital and other general corporate purposes including acquisitions, share
repurchases and capital expenditures. Amounts available for borrowing under the
Credit Line are reduced by the balance of any outstanding letters of credit, of
which there were $2.7 million at March 31, 2022. At March 31, 2022, we had an
outstanding balance of $85.0 million on our Credit Line and $37.3 million of
availability.

See Note 8 contained in the "Notes to Consolidated Financial Statements" for further information regarding our Credit Line.

Uses of Cash

Our cash flows were as follows:

                                                  Three Months
                                                 Ended March 31,           Increase           Three Months Ended
(In thousands)                                        2022                (Decrease)            March 31, 2021
Cash used for operating activities              $      (17,969)         $    (11,240)         $        (6,729)
Cash used for investing activities                     (11,621)               (6,817)                  (4,804)
Cash provided by financing activities                   21,646                11,606                   10,040
Effect of foreign currency exchange rates on
cash and cash equivalents                                  759                 1,056                     (297)
Net increase (decrease) in cash and cash
equivalents                                     $       (7,185)         $     (5,395)         $        (1,790)



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                                                     Increase
                               March 31, 2022       (Decrease)       December 31, 2021
Cash and cash equivalents     $        53,628      $    (7,185)     $           60,813
Working capital                       115,241           (5,118)                120,359



Net cash used for operating activities was $18.0 million during the three months
ended March 31, 2022 compared to $6.7 million during the three months ended
March 31, 2021. Net loss was $2.9 million for the three months ended March 31,
2022 compared to net income of $7.0 million for the three months ended March 31,
2021. Changes in accounts receivable and contract assets resulted in cash
outflows of $5.1 million during the three months ended March 31, 2022 largely as
a result of a increase in days sales outstanding compared to the fourth quarter
2021 offset partially by a decrease in sales. Changes in accounts receivable and
contract assets resulted in cash outflows of $10.1 million during the three
months ended March 31, 2021 largely as a result of an increase in days sales
outstanding compared to the fourth quarter 2020. Days sales outstanding were 88
days at March 31, 2022 compared to 79 days at March 31, 2021. Inventories
increased by $4.6 million during the three months ended March 31, 2022 due to
efforts to mitigate supply chain issues relating to component shortages and
logistics delays compared to a decrease of $1.3 million during the three months
ended March 31, 2021. Our inventory turns decreased to 2.8 turns at March 31,
2022 compared to 3.5 turns at March 31, 2021.

Future cash flows from operations are expected to be affected by the impacts of
the COVID-19 pandemic, specifically relating to logistical issues. For the first
half of 2022, we expect component shortages will continue to have an adverse
effect on cash flows with some relief beginning to occur in the second half of
the year. In addition, we expect to commence manufacturing operations in a new
factory in Vietnam in the third quarter of 2022 which, in the short run, may
result in manufacturing inefficiencies.

Net cash used for investing activities during the three months ended March 31,
2022 was $11.6 million, of which $7.5 million, $0.9 million, $1.8 million and
$1.4 million was used for our term deposit investment, acquisition of Qterics
Inc., capital expenditures, and the development of patents, respectively. Net
cash used for investing activities during the three months ended March 31, 2021
was $4.8 million of which $3.7 million and $1.1 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. We estimate that we will incur between $15.0 million and $18.0 million in 2022, which includes amounts associated with our factory in Vietnam, which we anticipate to commence operations in the third quarter of 2022.


Net cash provided by financing activities was $21.6 million during the three
months ended March 31, 2022 compared to $10.0 million during the three months
ended March 31, 2021. The increase in cash provided by financing activities was
driven primarily by borrowing and repayment activity on our line of credit.
During the three months ended March 31, 2022, we had net borrowings of $29.0
million compared to net borrowings of $20.0 million during the three months
ended March 31, 2021.

During the three months ended March 31, 2022, we repurchased 224,638 shares of
our common stock at a cost of $7.4 million compared to our repurchase of 190,523
shares at a cost of $11.0 million during the three months ended March 31, 2021.

Future cash flows used for financing activities are affected by our financing
needs which are largely dependent on the level of cash provided by or used in
operations and the level of cash used in investing activities. Additionally,
potential future repurchases of shares of our common stock will impact our cash
flows used for financing activities. See Note 13 contained in "Notes to
Consolidated Financial Statements" for further information regarding our share
repurchase programs.

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Material Cash Commitments - The following table summarizes our material cash
commitments and the effect these commitments are expected to have on our cash
flows in future periods:

                                                                Payments Due by Period
                                                          Less than       1 - 3         4 - 5        After
(In thousands)                               Total         1 year         years         years       5 years
Operating lease obligations                $ 28,339      $   7,213      $ 10,504      $ 6,065      $ 4,557
Property, plant, and equipment purchases        3,167        3,167             -            -            -
Inventory purchases                            18,761       18,761             -            -            -
Software license                                3,519          105           341          788        2,285
Total material cash commitments            $ 53,786      $  29,246      $ 

10,845 $ 6,853 $ 6,842

We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing resources, including our Credit Line.

Factors That May Affect Financial Condition and Future Results

Forward-Looking Statements


We caution that the following important factors, among others (including but not
limited to factors discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as those discussed in
our 2021 Annual Report on Form 10-K, or in our other reports filed from time to
time with the Securities and Exchange Commission ("SEC")), may affect our actual
results and may contribute to or cause our actual consolidated results to differ
materially from those expressed in any of our forward-looking statements. The
factors included here are not exhaustive. Further, any forward-looking statement
speaks only as of the date on which such statement is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all such factors, nor can we assess
the impact of each such factor on the business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statement. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results.

While we believe that the forward-looking statements made in this report are
based on reasonable assumptions, the actual outcome of such statements is
subject to a number of risks and uncertainties, including the impact of the
COVID-19 pandemic on our business, results of operations, financial position and
liquidity; the impact to our quarterly revenue, margins and operating profits
due to our inability to continue to obtain adequate quantities of component
parts, including ICs; potential inability to timely deliver products to our
customers due to the substantial delays in the transportation and the onloading
and offloading of our product resulting from the significant congestion at ports
throughout the world and other downstream transportation, such as via trucks and
rail; the significant percentage of our revenue attributable to a limited number
of customers; the failure of our markets to continue growing and expanding in
the manner we anticipated; the loss of market share due to competition; the
delay by or failure of our customers to order products from us due to delays by
them of their new product rollouts, their decision to purchase their products
from an alternative or second source supplier, their efforts to refocus their
operations to broadband and OTT versus traditional linear video, their failure
to grow as we anticipated, their internal inventory control measures, or their
loss of market share; the effects of natural or other events beyond our control,
including the effects of political unrest, war (including the conflict between
Russia and Ukraine) or terrorist activities may have on us or the economy; the
economic environment's effect on us or our customers; the effects of doing
business internationally, including the effects that changes in laws,
regulations and policies may have on our business including the impact of new or
additional tariffs and surcharges; the growth of, acceptance of and the demand
for our products and technologies in various markets and geographical regions,
including cable, satellite, consumer electronics, retail, and digital media and
interactive technology; our inability to add profitable complementary products
which are accepted by the marketplace; our inability to attract and retain a
quality workforce at adequate levels in all regions of the world, and
particularly those jurisdictions where we are moving our operations; our
inability to continue to maintain our operating costs at acceptable levels
through our cost containment efforts including moving our operations and
manufacturing facilities to lower cost jurisdictions; an unfavorable ruling in
any or all of the litigation matters to which we are party; our inability to
continue selling our products or licensing our technologies at higher or
profitable margins; our inability to obtain orders or maintain our order volume
with new and existing customers; our inability to develop new and innovative
technologies and products that are accepted by our customers; the possible
dilutive effect our stock incentive programs may have on our earnings per share
and stock price; the continued ability to identify and execute on opportunities
that maximize stockholder value, including the effects repurchasing the
Company's shares have on the Company's
                                       31

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stock value; and other factors listed from time to time in our press releases
and filings with the Securities and Exchange Commission.

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