UEIC 10-K & 10-Q changes, risk factors and insider trading

We make forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this reportAnnual Report on Form 10-K based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations, which follow under the headings "Business", "Liquidity and Capital Resources", and other statements throughout this report preceded by, followed by or that include the words "believes", "expects", "anticipates", "intends", "plans", "estimates" or similar expressions. Any number of risks and uncertainties could cause actual results to differ materially from those we express in our forward-looking statements, including the risks and uncertainties we describe below and other factors we describe from time to time in our periodic filings with the SEC. We therefore caution you not to rely unduly on any forward-looking statement. The forward-looking statements in this report speak only as of the date of this report,Annual Report on Form 10-K, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise.

Risks Relating to Economic Conditions and Global EventsFinance

Our business requires collection, processing, and retention of large volumes of data, including personally identifiable information of our customers in various information systems that we maintain and in those maintained by third parties with whom we contract, including in areas such as customer product servicing, human resources outsourcing, website hosting, and various forms of electronic communications. We and third parties who provide services to us also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data, including proprietary information, is critical to us. If that data is inaccurate or incomplete or inaccessible, we may make faulty decisions or experience business interruptions. Despite the security measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third-party suppliers and vendors with which we do business, may be vulnerable to cybersecurity threats, attacks or incidents, failures or disruptions, acts of vandalism or misconduct, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any cybersecurity incidents involving the misappropriation, loss or other unauthorized disclosure of customer, employee, supplier or Company information, whether caused by us, an unknown third party, or the retailers, dealers, licensees or other third-party suppliers and vendors with which we do business, could result in losses, severely damage our reputation, expose us to the risks of litigation and liability, disrupt our operations and have a material adverse effect on our business, results of operations and financial condition. As cybersecurity threats may evolve in sophistication and become more prevalent worldwide, we continue to aim to increase our sensitivity and attention to these threats, seek additional investments and resources to address these threats and enhance the security of our facilities and systems and strengthen our controls and procedures to monitor, protect against and mitigate these threats. The domestic and international legal and regulatory environment related to information security, data collection and privacy is increasingly rigorous and complex, with new and constantly changing requirements applicable to our business. Compliance with these requirements, including the European Union's General Data Protection Regulation ("GDPR"), China's newly enacted Personal Information Protection Law ("PIPL") and other domestic (including state law) and international regulations, could result in additional costs and changes to our business practices.

Moreover, we rely heavily on computer systems and software to manage and operate our business, record and process transactions, and manage, support and communicate with our employees, customers, suppliers, vendors, and other third parties. Computer systems and software are important to production planning, finance, company operations and customer service, among other business-critical processes. Despite our efforts to prevent disruptions to our computer systems and software, these systems and software may be affected by damage, disruption, attack, or interruption from, among other causes, power outages, system failures, computer viruses, the development of harmful malware or ransomware, denial-of-service attacks and other intrusions, including cybersecurity incidents and other disruptions or failures. Cybersecurity threat actors also may attempt to exploit vulnerabilities through software that is commonly used by companies in cloud-based services and bundled software. Computer hardware and storage equipment that is integral to efficient operations, such as email, telephone and other functionality, is concentrated in certain physical locations in the various continents in which we operate. We rely on software applications, enterprise cloud storage systems and cloud computing services provided by third-party vendors, and our business may be adversely affected by service disruptions in or cybersecurity incidents and disruptions and failures related to such systems. Remote work and remote access to our systems has increased, which also increases the risk of cybersecurity incidents and disruptions and failures on our systems surface. In addition, there has been a global increase in cybersecurity threat volume, frequency, and sophistication driven by the global enablement of remote workforces. Geopolitical tensions or conflicts, such as Russia’songoing invasionconflicts ofand uncertainties in Ukraine, Iran and Venezuela, may further heighten the risk of cybersecurity incidents and disruptions of our services and software on which we rely. We continue to try to mitigate these risks in a number of ways, including through additional investment, engagement of third-party experts and consultants, improving the security of our facilities and systems (including through upgrades to our security and information technology systems), providing training for all employees (with more enhanced or frequent training based on role or responsibility), assessing the continued appropriateness of relevant insurance coverage and strengthening our controls and procedures to monitor, mitigate and respond appropriately to these threats. We carry cyber insurance, and while we have not incurred any material losses due to any failure of or disruptions to our systems, or from any cybersecurity incidents, we cannot be certain that our coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or that any insurer will not deny coverage as to any future claim.

We may incorporate artificial intelligence ("AI") solutions into some of our platforms, offerings, services and features, and these applications may become more important in our operations over time. Our competitors, or other third parties, may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and affect our results or operations. Additionally, if our AI applications are based on data, algorithms, or other inputs that are flawed, or if they assist in producing content, analyses, or recommendations that are or are alleged to be deficient, inaccurate, or biased, our business, financial condition, and results of operations may be adversely affected. The use of AI applications has resulted in, and may in the future result in,in cybersecurity incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations. AI also presents emerging ethical issues, and if our use of AI becomes controversial, we may experience brandbrand, reputational, or competitive harm, or legal liability. The rapid evolution of AI, including the potential regulation of AI by government or other regulatory agencies, will require significant resources to develop, test, and maintain our platforms, offerings, services, and features in order to implement AI ethically and minimize any unintended, harmful impacts.

The economic strength and weakness of our worldwide customers affect our performance. We sell our products, accessory products, and proprietary technologies to video service providers, OEMs, retailers and private label customers. We also supply our products, accessory products, and technologies to our wholly owned, non-U.S. subsidiaries and to independent foreign distributors, who in turn distribute our products worldwide. While we generally have a broad and varied customer base, during the years ended December 31, 2024,2025, 20232024 and 2022,2023, Daikin Industries Ltd. accounted for sales totaling more than 10% of our net sales. During the year ended December 31, 2022, Comcast Corporation also accounted for sales totaling more than 10% of our net sales. In addition to these customers,addition, we have some customers that, individually or through their subsidiaries or affiliated partners, purchase a large amount of products from us. Although our broad distribution channels help to minimize the impact of the loss of any one customer, the loss of any of these large individual customers, or our inability to maintain order volume with these customers, may have an adverse effect on our sales, operating results, financial condition and cash flows.

We operate factories in the PRC, Vietnam, MexicoVietnam and Brazil. In addition, we utilize third-party manufacturers located in Asia and Mexico to manufacture a portion of our products. We believe that the loss of any one or more of these third-party manufacturers would not have a long-term material adverse effect on our business, results of operations and cash flows, because numerous other manufacturers are available to fulfill our requirements; however, the loss of any of our major third-party manufacturers may adversely affect our business, operating results, financial condition and cash flows until alternative manufacturing arrangements are secured.

In the United States, among other relevant restrictions, the Uyghur Forced Labor Prevention Act (the "UFLPA") creates a rebuttable presumption that all goods produced or manufactured, even partially, in the PRC’s Xinjiang Uyghur Autonomous Region ("XUAR") were made with forced labor and, therefore, would not be allowed entry at U.S. ports. Importers that source from the XUAR are required to present clear and convincing evidence that goods from the XUAR are not made with forced labor. While we do not authorize the sourcing of any product from the XUAR and have increased actionscompliance to ensure our entire supply chain is free of any products made with forced labor, there is nonetheless a risk, particularly in light of prior media allegations and government inquiries focusing on one of our former facilities, that our business, results of operations and financial condition could be adversely affected by the UFLPA, related regulatory requirements and enforcement activity, or related customer concerns. Overall, our reliance on international supply chains involves a risk of adverse effects to our business, including from government restrictions and enforcement efforts.

We continue to operate in a supply-constrained environment, and we are heavily dependent on third-party suppliers and their ability to deliver sufficient quantities of key components and products at reasonable prices and in time for us to meet schedules for the delivery of our products and services. Most of the components used in our products are available from multiple sources. However, we purchase ICs used in products, from a small number of key suppliers. To reduce our dependence on our IC suppliers we continually seek additional sources. We maintain inventories of our ICs, which may be used in part to mitigate, but not eliminate, delays resulting from supply interruptions. Further, we have identified alternative sources of supply for our ICs, component parts, and finished goods; however, there can be no assurance that we will be able to continue to obtain these inventory purchases on a timely basis or in the quantities we need. Any extended interruption, shortage or termination in the supply of any of the components used in our products, or a reduction in their quality or reliability, or a significant increase in prices of components, would have an adverse effect on our operating results, financial position and cash flows.

We have experienced difficulty in ordering ICs in the recent past and this difficulty could continue in the future. While we have identified other sources of ICs and are taking other production and inventory control steps in order to mitigate the effects caused by these types of shortages, we cannot guarantee that the alternative sources will meet our short- and longer-term IC needs and/or without experiencing increases in the prices we pay for these components. If we 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 and otherwise adversely affect our business. In addition, many of our products are paired with certain of our customers' products, like set-top boxes and televisions. If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease. Also, we are continuing to experience increases in freight costs which have adversely affected and may continue to adversely affect our margins. At the same time, in order to secure components for our products or services, we have made and may continue to make advance payments to suppliers and/or enter into non-cancelable commitments with suppliers. We have strategically purchased and may continue to strategically purchase ICs and other key components in advance of demand to take advantage of favorable pricing or to address concerns about future availability. If we fail to anticipate customer demand properly or if customer changes its demand significantly, a temporary "oversupply" could result in excess or obsolete components.

We ship products from our factories and foreign manufacturers via ocean and air transport. It is sometimes difficult to forecast swings in demand or delays in production and, as a result, products may be shipped via airair, which is more costly than ocean shipments. We typically cannot recover the increased cost of air freight from our customers. Additionally, tariffs and other export fees may be incurred to ship products from foreign manufacturers to the customer. These increases in costs and tariffs may have a material adverse effect on our product margins. We also have an exposure to oil prices in two forms. The first is in the prices of oil-based materials in our products, which are primarily the plastics and other components that we include in our finished products. The second is in the cost of delivery and freight, which would be passed on by the carriers that we use in the form of higher rates. Rising oil prices may have an adverse effect on cost of sales and operating expenses, and Russia'sinternational invasion of Ukraineconflicts may continue to create uncertainty in oil prices.prices Conflict in the Middle Eastand may produce continued or increased disruptions to international shipping and fluctuating freight costs.

Smart control solutions in the HVAC market tend to have long development lead-times, ranging from 12-24 months depending on product complexity. These development cycles include initial longer customer engagement upfront to define new product requirements as well as extensive testing and validation of thermostat control and performance against legacy and new HVAC equipment at the end.end of development. These long development lead-times translate into longer product life cycles, ranging from 5-8 years, as the product replacement cycle takes longer to define, develop and launch. Major HVAC OEMs typically select more than one supplier across their climate controller product categories: remote controls, wall-mount controllers and smart or connected thermostats. Suppliers are typically selected based on the breadth of their technology, development experience in the product category and their supply chain capabilities.

The home security and automation industry is highly fragmented and subject to significant competition and pricing pressures. In particular, the monitored security industry providers have highly recognized brands which may drive increased awareness of their security/automation offerings rather than ours, have access to greater capital and resources than us, and may spend significantly more on advertising, marketing and promotional activitiesactivities, which could have a material adverse effect on our ability to drive awareness and demand for our products and services. In addition, video service providers have expanded into the monitored security industry and are bundling their existing offerings with monitored security services. We also face competition from DIY companies that are increasingly providing products which enable customers to self-monitor and control their environments without third-party involvement. Further, DIY providers may also offer professional monitoring with the purchase of their systems and equipment or new IoT devices and services with automated features and capabilities that may be appealing to customers. Continued pricing pressure, improvements in technology and shifts in customer preferences towards self-monitoring or DIY could adversely impact our customer base and/or pricing structure and have a material adverse effect on our business, financial condition, results of operations and cash flows.

Even with having our own factories, we will continue to rely on third-party manufacturers to build a portion of our products. Price is always an issue in winning and retaining business. As customers become increasingly price sensitive, we have experienced new competition arising from manufacturers who decided to go into direct competition with us by performing their own manufacturing. If this development continues, we may experience downward pressure on our pricing or lose sales, which may have a material adverse effect on our operating results, financial condition and cash flows.

Presently, a portion of workers at our PRC factory are obtained from third-party employment agencies. As the labor laws, social insurance and wage levels continue to grow and the workers become more sophisticated,grow, our costs to employ these and other workers in the PRC may grow beyond that anticipated by management. Some of our key customers have demanded that we reduce the percentage of workers sourced from third-party employment agencies, which may also lead to increased costs in recruitment, retention and compliance. While we have already experienced increases in labor rates in the PRC, as the PRC market continues to open up and grow, we may experience an increase in competition for the same workers, resulting in either an inability to attract and retain an adequate number of qualified workers or an increase in our employment costs to obtain and retain these workers.

Our business operations may be adversely affected by the current and future political environment in the PRC. The government of the PRC has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy,economy through regulation and state ownership. Our ability to operate in the PRC may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, labor and social insurance, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Additionally, in light of recent geo-political tensions and competing territorial claims, the PRC's relationships with other countries or governments could grow more complex or openly adversarial, potentially leading to far-reaching market disruptions. Potential conflict across the Taiwan Strait or between the PRC and other countries or governments could cause a significant adverse effect to our business,business and could lead to a disruption in our ability to operate in or source from the PRC.

Growing concernsConcerns about climate change may result in the imposition of additional regulations or restrictions to which we may become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions. The outcome of new legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund energy efficiency activities, and fees or restrictions on certain activities. Compliance with these climate change initiatives may also result in additional costs to us. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our results of operations, financial position or cash flows. Ultimately, the impacts of climate change, whether involving physical risks or transition risksrisks, are expected to be widespread and unpredictable and may materially adversely affect our business and financial results.

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 may significantly disrupt our business, affecting our capacity to manufacture, source components and sell goods. The current U.S. governmentadministration implementedhas additionalintroduced policies imposing tariffs on goods manufactured abroad, including goods manufactured in the PRC, Vietnam, Taiwan and Mexico. Significant uncertainty continues to exist about the future of U.S. trade policy and the implementation of new tariffs, as well as any possible exemptions from the tariffs (such as through the USMCA). We are monitoring these actions, which could have an adverse impact on our business strategy, operating results and financial condition. The measures by the administration may increase costs for certain goods imported frominto the PRCUnited States, and Mexico. As of the date of this filing, the additional tariffs on Mexico have been paused. Therethere can be no assurance that these tariffs will not be implemented or increased in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which these changes in U.S. trade policy affect our operating results will be influenced by the specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools and strategies to address these issues. We manufacture a substantial amount of our products in the PRC and Mexico and are presently subject to these additional tariffs and will remain so until the tariff lists are altered. These tariffs, and other governmental action relating to international trade agreements or policies, may adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, as a result, adversely impact our business. These additional tariffs may cause us to increase prices to our customerscustomers, which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs, international trade agreements and policies on a short-term or long-term basis. We cannot predict future trade policy or the terms of any renegotiated trade agreements and their impacts on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition and results of operations.

Our international operations continue to grow, making up a significant part of our current business and future strategic plans. We presently operate factories in the PRC, Vietnam, MexicoVietnam and Brazil, engineering centers in India, Japan and Korea and rely on third-party manufacturers located in Asia.Asia and Mexico. We are increasingly exposed to the challenges and risks of doing business outside the United States, which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt our business. These challenges include: (1) compliance with complex and changing laws, regulations and policies of governments that may impact our operations, such as foreign ownership restrictions, import and export controls, tariffs, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as anti-corruption laws, competition laws, currency regulations, and laws affecting dealings with certain nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil unrest, acts of terrorism, or the threat of international boycotts or U.S. anti-boycott legislation; and (7) currency exchange rate fluctuations.

We are subject to a wide variety of complex domestic and foreign laws and regulations, and legal compliance risks, including securities laws, tax laws, employment and pension-related laws, competition laws, U.S. and foreign export and trading laws, laws governing improper business practices, and health, safety and environmental laws and regulations. These laws and regulations not only govern our current operations and products,products but could also impose liability on us for our past operations. From time to time, our Company, our operations and the industries in which we operate are being reviewed or investigated by regulators, which may lead to enforcement actions or the assertion of private litigation claims and damages. Our costs to respond to any investigation or to comply with these laws and regulations may increase as these requirements become more stringent in the future, and these increased costs may adversely affect our results of operations, cash flow or financial condition. Although we believe that we have adopted appropriate risk management and compliance programs to mitigate these risks, the global and diverse nature of our operations means that compliance risks will continue to exist. Investigations, examinations and other proceedings, the nature and outcome of which cannot be predicted, will likely arise from time to time. These investigations, examinations and other proceedings may subject us to significant liability and require us to pay significant settlements, fines and penalties, which may have a material adverse effect on our results of operations, cash flows or financial condition.

The Prominence and Evolution on Disclosures related to Environmental,Sustainability, SocialHuman Capital, and Governance ("ESG")and Other Corporate Responsibility Matters May Expose Us to Certain Performance and Reputational Risks

We have established certain goals related to ESGsustainability, human capital, and governance matters and the reporting of ESGsuch data. Our failure to adequately update, accomplish or accurately track and report on these goals on a timely basis, or at all, could adversely affect our reputation, financial performance and growth and expose us to increased scrutiny from the investment community, special interest groups and enforcement authorities. Standards for tracking and reporting ESGsuch matters continue to evolve. Methodologies for reporting ESGsuch data may be updated and previously reported ESG data may be adjusted to reflect improvement in availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting ESGthese matters relating to our operations and supply chain are evolving along with various standards for identifying, measuring, and reporting ESGsuch metrics, including ESG related disclosures that may be required by the SEC, European and other regulators, and such standards may change over time. One such method is our use of the EcoVadis sustainability rating system. Further, we may amend, abandon or replace our goals related to ESGsustainability, human capital, and governance matters due to a change in strategy, reduced relevance of such goals or changing market conditions and we may take certain actions that stakeholders or regulators view as contrary to such goals. Certain stakeholders may have different views on where our focus on ESGsuch matters should be placed, including different views of regulators in the various jurisdictions in which we operate. If our ESG practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation or our attractiveness as an investment, business partner, service provider or employer could be negatively impacted.

Historically, we have had large fluctuations in the price of our common stockstock, including a significant decline in our stock price, and such fluctuations may continue. The trading market for our common stock has historically been at low volumes and our market price is volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control, including the public's response to press releases or other public announcements by us or third parties, including our filings with the SEC and announcements relating to product and technology development, relationships with new and existing customers, litigation and other legal proceedings in which we are involved and intellectual property impacting us or our business; announcements concerning strategic transactions, such as spin-offs, joint ventures and acquisitions or divestitures; the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; changes in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; the inclusion or removal of our common stock from any indices; investor perceptions as to the likelihood of achievement of near-term goals; changes in market share of significant customers; changes in operating performance and stock market valuations of other technology or content providing companies generally; and market conditions or trends in our industry or the economy as a whole. Stockholders of other companies have instituted securities class action litigation against such companies after periods of price volatility in such companies'companies’ stock. If we were to become involved in such securities litigation, we may incur substantial costs and the attention of management may be diverted from our business.

Our Governing Corporate Documents Contain, and Our Board of Directors May Implement, Antitakeover Provisions that May Deter Takeover Attempts

Our governing corporate documents, among other things, require super-majority votes in connection with certain mergers and similar transactions. In addition, our Board of Directors may, without stockholder approval, implement other anti-takeover defenses, such as a stockholder's rights plan.

Because we conduct our business on a global platform, our business is sensitive to global and regional business and economic conditions. Adverse changes in global, national, regional economies, governmental policies (including in areas such as trade, travel, immigration, healthcare, and related issues), and geopolitical conditions (such as the Russian invasion of Ukraine, conflict in the Middle East, tension across the Taiwan Strait and tension between the United States and theforeign PRC, Mexico and Canada,countries, and the ramifications of those and other events) impact our activities. Additionally, we conduct business in countries, including Argentina, that have policies which restrict outbound U.S. Dollar transactions. Such conditions in the United States and worldwide may impact our business due to weak economic conditions, changes in energy prices and currency values, political instability, heightened travel security measures, advisories, or disruptions, and concerns over disease, violence, war, or terrorism may reduce the demand for some of our products and impair the ability of those with whom we do business to satisfy their obligations to us, each of which could adversely affect our results of operations, cash flow, liquidity or financial condition. Higher inflation rates, interest rates, tax rates and unemployment rates, higher labor and healthcare costs, recessions, changing governmental policies, laws and regulations, and other economic factors could also adversely affect demand for some of our products and our results of operations, cash flow, liquidity or financial condition and that of our customers, vendors and suppliers.

Our ability, including manufacturing or distribution capabilities, and that of our suppliers, business partners and contract manufacturers, to make, move and sell products is critical to our success. We purchase raw materials and energy for use in the manufacturing, distribution and sale of our products. So called "“Acts of God,"” such as hurricanes, earthquakes, tsunamis, floods, volcanic activity, wildfires, and other natural disasters, as well as man-made disasters and the spread of contagious diseases in locations where we lease and/or own properties and equipment or manage our business, and these circumstances could continue or worsen in the future to an extent and for durations that we are not able to predict. Actual or threatened war, terrorist activity, political unrest, civil or geopolitical strife, and other acts of violence could have a similar effect. As with the effects we previously experienced from the COVID-19 pandemic, any one or more of these events, including the actions taken in the ongoing conflictsinternational in the Middle East and by Russia against Ukraine,conflicts, could disrupt sales volumes, raw material and fuel supplies and increase our costs, reduce our ability to manufacture and supply our products, and/or increase our operating costs, all of which could adversely affect our earnings or cash flows and profits. There are also inherent climate-related risks wherever our business is conducted. Changes in market dynamics, stakeholder expectations, local, national and international climate change policies, and the frequency and intensity of extreme weather events on critical infrastructure globally, all have the potential to disrupt our business and operations. Such events could result in increases in our costs and expenses and harm our future revenue, cash flows and financial positions.

Although raw materials and energy supplies (including oil and natural gas) are generally available from various sources in sufficient quantities, unexpected shortages and increases in the cost of raw materials and energy, or any deterioration in our relationships with or the financial viability of our suppliers, may have an adverse effect on our earnings or cash flow in the event we are unable to offset higher costs in a timely manner by sufficiently decreasing our operating costs or raising the prices of our products. In recent years, some raw material and energy prices have increased, particularly silicon and plastic packaging. The cost of raw materials and energy has in the past experienced, and likely will in the future continue to experience, periods of volatility.

We generally discuss fiscal years 2025 and 2024 items and year-to-year comparisons between 2025 and 2024 in the section that follows. Discussions of fiscal year 2023 items and year-to-year comparisons between 2024 and 2023 in the section that follows. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report on Form 10-K may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 14, 2024.

We design, develop, manufacture, ship and support home entertainment control products, technology and software solutions, climate control solutions, wireless sensors and smart home control productsproducts, home entertainment control products, technology and software solutions 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 applianceappliance, home entertainment and consumer electronics markets. Our product and technology offerings include:

•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 withinon the home networks.network. 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 withand theirextend user engagement on 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. 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.

We operate as one business segment. We have one domestic subsidiary and 2422 international subsidiaries located in Brazil, British Virgin Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (the "PRC") (6), Singapore, Spain, United Kingdom and Vietnam.

•Our gross profit percentage increasedremained toconsistent at 28.9% in 20242025 from 23.2%and in 2023.2024.

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 Vietnam, Taiwan, the PRC, Mexico and Canada,Mexico, and reduced consumer spending on durable goods. WeEconomic havetensions and changes in international trade policies, including the recent widespread tariffs announced by the U.S. on its major trading partners, higher tariffs on imported goods, actions taken in response (such as retaliatory tariffs or other trade protectionist measures or the renegotiation of free trade agreements), could also beenfurther adverselyimpact impactedthe byglobal inflationarymarket 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 rightsizingfor our manufacturingproducts. footprintThe and reducing operational and administrative headcount; however, such measures may not fully offset thefull impact of these governmental actions on macroeconomic conditions and on our business is uncertain and difficult to predict and may result in lower sales demand and/or 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; byhowever, executingthese mitigation efforts may not be successful and these pressures may have a material adverse effect on our plan to reduce our manufacturing overhead and to locate alternative and less expensive sources of component parts and materials.business.

Research and development ("R&D") expenses. R&D expenses decreased 5.0%11.6% to $26.3 million in 2025 from $29.7 million in 2024 from $31.3 million in 2023.2024. The decrease in R&D expenses is primarily dueattributable to reductions in payroll and related personnel expenses of $2.6 million following headcount optimization actions, a reduction of discretionary travel spending of $0.3 million and also reduced third-party product development costs and a reduction in headcount.costs.

Factory restructuring charges. During the year ended December 31, 2024,2025, we recorded $3.6$1.2 million in expense, including severance and moving costs associated with the downsizingclosure of our factory in Mexico and the closures of our southern and eastern PRC factories.Mexico. During the year ended December 31, 2023,2024, we recorded $4.0$3.6 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.

Interest income (expense), net. Net interest expense decreased to $0.9 million in 2025 from $3.4 million in 2024 from $4.3 million in 2023,2024, primarily as a result of a lower average loan balance.balance and lower interest rates.

Other income (expense), net. Other income, net was $4.6 million in 2025, from $0.1 million in 2024, compared to other expense, net of $2.6 million in 2023.2024. The improvementdeterioration was primarily due to aan reductionincrease in net foreign currency losses.

Historically,While we incurred a loss from operations of $6.4 million in 2025 and $15.3 million in 2024, 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 lines of credit or take on additional debt until we are able to transfer cash among our various entities.

Available Borrowing Resources – Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S. Bank National Association ("U.S. Bank") provides for a revolving line of credit ("U.S. Credit Line") that expires on AprilSeptember 30, 2026.2027. The U.S. Credit Line has a maximum availability up to $75.0$60.0 million, subject to meeting certain financial conditions,conditions. includingAvailability anis based on Borrowing Base defined as 75% of accounts receivable coverageaged ratioless ("ARthan Ratio").90 Thisdays ARless Ratioreserves for doubtful accounts and returns. The Borrowing Base is calculated monthly and adjusts the current U.S. Credit Line total availability.monthly. 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$48.5 millionmillion. basedAt uponFebruary 24, 2026, the ARU.S. Ratio.Credit Line total availability was $47.1 million.

The U.S. Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures. Amounts available for borrowing under the U.S. Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none$0.5 million at December 31, 2024.2025. At December 31, 2024,2025, we had an outstanding balance of $26.0$5.5 million on our U.S. Credit Line and $32.3$42.5 million of availability.

FutureNet cash flows used for investing activities areduring largely2025 dependentwas on$6.8 themillion, timingof which $3.9 million and amount$3.0 ofmillion was used for capital expenditures and the development of patents.patents, Werespectively. estimateNet thatcash weused willfor incurinvesting betweenactivities $9.0during 2024 was $8.4 million, of which $4.5 million and $11.0$3.9 million duringwas 2025.used for capital expenditures and the development of patents, respectively.

To recap our results for the three months ended MarchJune 31,30, 2026:

•Net sales decreased 14.4%25.0% to $79.0$73.2 million for the three months ended MarchJune 31,30, 2026 from $92.3$97.7 million for the three months ended MarchJune 31,30, 2025.

•Our gross margin percentage decreasedincreased to 26.1%35.4% for the three months ended MarchJune 31,30, 2026 from 28.3%29.9% for the three months ended MarchJune 31,30, 2025.

•Operating expenses, as a percentage of net sales, decreased to 31.0%28.8% for the three months ended MarchJune 31,30, 2026 from 32.3%28.9% for the three months ended MarchJune 31,30, 2025.

•Our operating lossincome was $3.9$4.8 million for the three months ended MarchJune 31,30, 2026 compared to operating lossincome of $3.8$1.0 million for the three months ended MarchJune 31,30, 2025. Our operating lossincome percentage was 4.9%6.5% for the three months ended MarchJune 31,30, 2026 compared to our operating income percentage of 4.1%1.0% for the three months ended MarchJune 31,30, 2025.

•Income tax expense was $3.6$1.1 million for the three months ended MarchJune 31,30, 2026 compared to $2.2$1.8 million for the three months ended MarchJune 31,30, 2025.

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 threesix months ended MarchJune 31,30, 2026 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 the 2025 Form 10-K.

Three Months Ended MarchJune 31,30, 2026 versus Three Months Ended MarchJune 31,30, 2025

Net sales. Net sales for the three months ended MarchJune 31,30, 2026 were $79.0$73.2 million compared to $92.3$97.7 million for the three months ended MarchJune 31,30, 2025. Net sales by channel were as follows:

Net sales in connected home were $28.3$25.1 million for the three months ended MarchJune 31,30, 2026 compared to $31.7$34.1 million for the three months ended MarchJune 31,30, 2025. This decrease is driven primarily by reduced demand from our large climate control and home automationentertainment customers.

Research and development ("R&D") expenses. R&D expenses decreased to $5.5$4.3 million for the three months ended MarchJune 31,30, 2026 from $7.2$7.0 million for the three months ended MarchJune 31,30, 2025 attributable to reductions in payroll and related personnel expenses following headcount optimization actions.

Selling, general and administrative ("SG&A") expenses. SG&A expenses decreased to $19.0$16.8 million for the three months ended MarchJune 31,30, 2026 from $22.6$21.2 million for the three months ended MarchJune 31,30, 2025. The decrease reflects lower volume-driven expenses of $0.3$0.6 million, consistent with the decline in sales volume. In addition, ongoing cost-reduction initiatives, including organizational rightsizing, resulted in savings from headcount reductions. People-related expenses decreased by $2.9$3.6 million, complemented by an additional $1.0$0.8 million reduction in other discretionary spending including travel expense.expense and professional fees. These savings were largelypartially offset by $0.6 million increase of severancereserve costsfor associateduncollectible withaccounts ourreceivable globalduring reductionthe in force.period.

Interest income (expense), net. Interest expense, net decreased to $0.1$0.2 million for the three months ended MarchJune 31,30, 2026 from $0.4 million for the three months ended MarchJune 31,30, 2025, as a result of a lower average loan balance and lower interest rates.

Other income (expense), net. Other income, net was $0.2$1.8 million for the three months ended MarchJune 31,30, 2026 compared to other income, net of $0.1$1.8 million for the three months ended MarchJune 31,30, 2025. ThisThe increaseamount was primarily attributable to a lower foreign currency losses incurred in the firstsecond quarter of 2026.

Provision for income taxes. Income tax expense was $3.6$1.1 million for the three months ended MarchJune 31,30, 2026, relative to a pre-tax loss of $3.8$2.8 million, compared to income tax expense of $2.2$1.8 million for the three months ended MarchJune 31,30, 2025, relative to a pre-tax loss of $4.1$1.1 million. Consistent with 2025, we expect the U.S. to be in a pre-tax loss position without benefit for the full year 2026, resulting in an elevated effective tax rate.

Cash and cash equivalents – On MarchJune 31,30, 2026, we had $3.1$11.0 million, $7.8$8.9 million, $3.2$5.2 million, $10.0$4.3 million and $5.9$3.0 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively. We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

The U.S. Credit Line has a maximum availability of up to $60.0 million, subject to meeting certain financial conditions. Availability is based on "Borrowing Base", which is defined as 75% of accounts receivable aged less than 90 days less reserves for doubtful accounts and returns. The Borrowing Base is calculated monthly. At MarchJune 31,30, 2026, the U.S. Credit Line total availability was $47.9$43.3 million. At MayAugust 7,5, 2026, the U.S. Credit Line total availability was $41.1$38.9 million.

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 $1.9 million at MarchJune 31,30, 2026 and $0.5 million at December 31, 2025. At MarchJune 31,30, 2026 and December 31, 2025, we had $4.4$0.0 million and $5.5 million outstanding under the U.S. Credit Line, respectively. At MarchJune 31,30, 2026, our remaining availability under our U.S. Credit Line was $41.6$41.4 million.

Our subsidiary, Gemstar Technology (Yangzhou) Co. Ltd. ("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"). As a continuation of the agreement, on July 30, 2025, we executed an amendment to the Line of Credit Agreement, which extends the term of the China Credit Line to July 16, 2026. WeAs expecta continuation of the agreement, on July 15, 2026, we executed an amendment to renewthe ourLine of Credit Agreement, which extends the term of the China Credit Line prior to itsJuly expiration;9, however, no assurance can be given that future financing will be available or, if available, that we will be offered terms satisfactory to us.2027. The China Credit Line may be used for working capital purposes. .

At MarchJune 31,30, 2026, the China Credit Line had a maximum availability of up to RMB 130.0 million (approximately $18.8$19.1 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 MarchJune 31,30, 2026 and December 31, 2025. At MarchJune 31,30, 2026, we had an outstanding balance of RMB 130.080.0 million (approximately $18.8$11.8 million) on our China Credit Line and noRMB remaining50.0 availability.million (approximately $7.4 million) of availability under our China Credit Line.

Net cash used by operating activities was $0.8$5.5 million during the threesix months ended MarchJune 31,30, 2026 compared to $9.0$17.7 million provided by operating activities during the threesix months ended MarchJune 31,30, 2025. The decrease in operating cash flows primarily reflects changes in working capital, particularly in accounts receivable andreceivable, contract assetsassets, and inventory. Net loss was $7.3$5.7 million for the three months ended MarchJune 31,30, 2026, compared to net loss of $6.3$9.2 million in the prior-year period. Depreciation and amortization expense was $3.1$6.2 million during the threesix months ended MarchJune 31,30, 2026 compared to $4.1$7.6 million during the threesix months ended MarchJune 31,30, 2025, primarily due to lower capital expenditures in recent years, consistent with the decline in production volumes. Inventories decreased by $9.8$8.1 million during threesix months ended MarchJune 31,30, 2026, compared to a decrease of $3.0$1.7 million during the same period in 2025, reflecting improved inventory management practices. A decrease in accounts receivable and contract assets, mainly due to lower sales, resulted in cash inflows of $2.8$6.5 million in the three months ended MarchJune 31,30, 2026 and $10.5$23.3 million in the three months ended MarchJune 31,30, 2025. Days sales outstanding improvedwere to 7977 days at MarchJune 31,30, 2026, fromcompared 83to 75 days at MarchJune 31,30, 2025. A decrease in accounts payable and accrued liabilities, primarily driven by lower inventory purchases and timing of payments, resulted in cash outflows of $11.2$0.1 million during the threesix months ended MarchJune 31,30, 2026, compared to $5.3$15.4 million in the prior-year period.

Net cash used for investing activities during the threesix months ended MarchJune 31,30, 2026 was $1.2$2.3 million, of which $0.8$1.6 million and $0.4$0.7 million was used for capital expenditures and the development of patents, respectively. Net cash used for investing activities during the threesix months ended MarchJune 31,30, 2025 was $1.9$4.0 million, of which $1.0$2.3 million and $0.7$1.5 million was used for capital expenditures and the development of patents, respectively.

Net cash used for financing activities was $1.1$4.9 million during the threesix months ended MarchJune 31,30, 2026 compared to $6.4$7.7 million during the threesix months ended MarchJune 31,30, 2025. The primary financing activities during the threesix months ended MarchJune 31,30, 2026 and 2025 were borrowings and repayments on our Credit Lines and repurchases of shares of our common stock. Net repayments on our Credit Lines were $1.1$12.5 million during the threesix months ended MarchJune 31,30, 2026 compared to $6.0$7.0 million during the threesix months ended MarchJune 31,30, 2025. During the threesix months ended MarchJune 31,30, 2026, we did not repurchase any of our common stock at MarchJune 31,30, 2026 compared to our repurchase of 41,000101,000 shares at a cost of $0.4$0.7 million during the threesix months ended MarchJune 31,30, 2025.