Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of this Quarterly Report on Form 10-Q (“Quarterly Report”) contain forward-looking statements, within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements reflect current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “will,” “believe,” “could,” “should,” “would,” “may,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “project” or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A of this Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading “Risk Factors,” The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Each of the terms the “Company,” “Identiv,” “we,” “us” and “our” as used herein refers collectively to Identiv, Inc. and its wholly-owned subsidiaries, unless otherwise stated.
Overview
Identiv is a global provider of secure identification and physical security.
We are leveraging our Radio Frequency Identification (“RFID”) based physical device-management expertise as well as our physical access, video and analytics solutions to provide leading solutions as our customers, and our customers’ customers, embracing the Internet of Things (“IoT”). Customers in the technology and mobility, consumer, government, healthcare, education and other sectors rely on Identiv’s identification and access solutions. Identiv’s platform encompasses RFID and Near-Field Communication (“NFC”), cybersecurity, and the full spectrum of physical access, video, and audio security. We are bringing the benefits of the IoT to a wide range of physical, connected items.
Identiv’s mission is to digitally enable every physical thing and every physical place on the planet. Our full continuum of security solutions is delivered through our platform of RFID enabled devices, mobile, client/server, cloud, web, dedicated hardware and software defined architectures. In doing so, we believe that we will create smart physical security and a smarter physical world.
Segments
We have organized our operations into two reportable business segments, principally by solution families: Identity and Premises. Our Identity segment includes products and solutions enabling secure access to information serving the logical access and cyber-security market, and protecting connected objects and information using RFID embedded security. Our Premises segment includes our solutions to address the premises security market for government and enterprise, including access control, video surveillance, analytics, audio, access readers and identities.
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Factors Affecting Our Performance
Market Adoption
Our financial performance depends on the pace, scope and depth of end-user adoption of our RFID products in multiple industries. Such pace, scope and depth accelerated during 2020, causing large fluctuations in our operating results. During 2021, we believe RFID deployments occurred at a much faster pace of growth than historically. We believe significant improvement in chip capabilities at lower costs, combined with the incorporation of the full NFC Data Exchange Format (“NDEF”) protocol by Apple Inc. in its iPhone 12 and iOS 14, has accelerated the opportunities for product engineers to integrate RFID into their products to create new and more engaging customer experiences, product reliability and performance. As the market hit this pivot point, we expanded both our capacity and technical leadership. We track growth indicators including design wins, customer launches and technology launches. We have made investments in our technology, world class quality and automation, and we believe that our competitive advantages will continue to drive growth.
We believe the underlying, long-term trend is continued RFID adoption by multiple verticals. We also believe that expanding use cases fosters adoption across verticals and into other markets. In addition, we do not have any significant concentration of customers so we believe that our demand will continue to be resilient to the loss of any individual customer or application.
If RFID market adoption, and adoption of our products specifically, does not meet our expectations then our growth prospects and operating results will be adversely affected. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects may be adversely affected. In contrast, if our RFID sales exceed expectations, then our revenue and profitability may be positively affected.
Given the uncertainties of the specific timing of our new customer deployments, we cannot assure you that we have appropriate inventory and capacity levels or that we will not experience inventory shortfalls or overages in the future or acquire inventory at costs to maintain gross margins. We attempt to mitigate those risks by being deeply embedded in our customers’ design cycles, working with our chip partners on long lead time components, managing our limited capital equipment needs within a short cycle and future proofing our facilities to accommodate several scenarios for growth potential.
If end users with sizable projects change or delay them, we may experience significant fluctuation in revenue on a quarterly or annual basis, and we anticipate that uncertainty to continue to characterize our business for the foreseeable future.
Seasonality and Other Factors
In our business overall, we experience variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year. Sales of our physical access control solutions and related products to U.S. Government agencies are subject to annual government budget cycles and generally are highest in the third quarter of each year. Sales of our Identity readers, many of which are sold to government agencies worldwide, are impacted by project schedules of government agencies, as well as roll-out schedules for application deployments. Further, this business is typically subject to seasonality based on differing commercial and global government budget cycles. Lower sales are expected in the U.S. in the first half, and in particular, the first quarter of the year, with higher sales typically in the second half of each year. In the Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year. Accordingly, our net revenue levels in the first quarter each year often depend on the relative strength of project completions and sales mix between our U.S. customer base and our international customer base.
Purchasing of our Products and Services for U.S. Federal Government Security Programs
In addition to the general seasonality of demand, overall U.S. Federal Government expenditure patterns have a significant effect on demand for our products due to the significant portion of revenue that is typically sourced from U.S. Federal Government agencies. Drivers of growth included our technology strength and proven security solutions, work-from-home mandates, and continued strength in investments for security across a number of different agencies. We believe that the success and growth of our business will continue through the U.S. Federal Government focus on security and our successful procurement of government business. If there are changes in government purchasing policies or budgetary constraints, there could be implications for our growth prospects and operating results. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects and operating results may be adversely affected.
Impacts of Macroeconomic Conditions and Other Factors on our Business
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy, including industry-wide global supply chain challenges, such as manufacturing, transportation and logistics. We purchase certain products and key components from a limited number of sources that depend on the supply chain, including freight, to receive components,
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transport finished goods and deliver our products across the world. In view of the rapidly changing business environment, we have experienced delays and reductions in customer orders, shifting supply chain availability, component shortages, and other production- related challenges. We are currently unable to determine if there will be any continued disruption and the extent to which this may have future impact on our business . We continue to monitor the global supply chain challenges and its effect on our financial position, results of operations, and cash flows.
More recently, we have also been impacted by other a dverse macroeconomic conditions, including but not limited to, inflation, foreign currency fluctuations, and the slowdown of economic activity around the globe. These conditions have also impacted our suppliers, contract manufacturers, logistics providers, and distributors, causing increases in cost of materials and higher shipping and transportation rates, which then impacted the pricing of our products. Price increases may not successfully offset cost increases or may cause us to lose market share and, in turn, may adversely impact our financial position, results of operations, and cash flows .
Results of Operations
The following table includes net revenue and net profit information by business segment and reconciles gross profit to income (loss) before income tax benefit (provision) (in thousands).
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Identity:
Net revenue
$
19,150
$
18,745
2
%
$
50,647
$
47,199
7
%
Gross profit
4,319
5,211
(17
%)
11,459
12,133
(6
%)
Gross profit margin
23
%
28
%
23
%
26
%
Premises:
Net revenue
11,846
10,352
14
%
33,267
28,053
19
%
Gross profit
6,869
5,907
16
%
18,905
15,517
22
%
Gross profit margin
58
%
57
%
57
%
55
%
Total:
Net revenue
30,996
29,097
7
%
83,914
75,252
12
%
Gross profit
11,188
11,118
1
%
30,364
27,650
10
%
Gross profit margin
36
%
38
%
36
%
37
%
Operating expenses:
Research and development
2,625
2,088
26
%
7,633
6,556
16
%
Selling and marketing
5,326
4,471
19
%
15,709
12,682
24
%
General and administrative
2,639
2,400
10
%
7,623
7,120
7
%
Restructuring and severance
49
99
(51
%)
132
761
(83
%)
Total operating expenses:
10,639
9,058
17
%
31,097
27,119
15
%
Income (loss) from operations
549
2,060
(73
%)
(733
)
531
(238
%)
Non-operating income (expense):
Interest expense, net
(39
)
(62
)
(37
%)
(101
)
(451
)
(78
%)
Gain on forgiveness of Paycheck Protection Program note
—
—
100
%
—
2,946
(100
%)
Gain on investment
—
611
(100
%)
30
611
(95
%)
Foreign currency gains (losses), net
(3
)
(48
)
(94
%)
111
(2
)
n/m
Income (loss) before income tax benefit (provision)
$
507
$
2,561
(80
%)
$
(693
)
$
3,635
(119
%)
Geographic net revenue based on each customer’s ship-to location is as follows (in thousands):
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Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Americas
$
20,951
$
19,667
7
%
$
55,480
$
49,023
13
%
Europe and the Middle East
3,651
3,223
13
%
11,473
9,309
23
%
Asia-Pacific
6,394
6,207
3
%
16,961
16,920
0
%
Total
$
30,996
$
29,097
$
83,914
$
75,252
Percentage of net revenue:
Americas
68
%
68
%
66
%
65
%
Europe and the Middle East
11
%
11
%
14
%
12
%
Asia-Pacific
21
%
21
%
20
%
23
%
Total
100
%
100
%
100
%
100
%
Net Revenue
Net revenue for the three months ended September 30, 2022 was $31.0 million, an increase of 7% compared with $29.1 million for the comparable period of 2021 . Net revenue in the Americas was $21.0 million for the three months ended September 30, 2022, an increase of 7% compared to $19.7 million for the comparable period of 2021. Net revenue in Europe, the Middle East, and the Asia-Pacific was approximately $10.0 million for the three months ended September 30, 2022, an increase of 7% compared with the comparable period of 2021.
Net revenue for the nine months ended September 30, 2022 was $83.9 million, an increase of 12% compared with $75.3 million for the comparable period of 2021 . Net revenue in the Americas was $55.5 million for the nine months ended September 30, 2022, an increase of 13% compared to $49.0 million for the comparable period of 2021. Net revenue in Europe, the Middle East, and the Asia-Pacific was approximately $28.4 million for the nine months ended September 30, 2022, an increase of 8% compared with the comparable period of 2021.
Identity Segment
Net revenue in our Identity segment was $19.2 million for the three months ended September 30, 2022, an increase of 2% compared with $18.7 million for the comparable period of 2021. For the nine months ended September 30, 2022, net revenue in this segment was $50.6 million, an increase of 7% compared with $47.2 million for the comparable period of 2021. Net revenue in this segment for the three and nine months ended September 30, 2022 represented 62% and 60%, respectively, of our net revenue, compared to 64% and 63% in the comparable periods of the prior year.
Net revenue in this segment in the Americas for the three months ended September 30, 2022 were comparable to the three months ended September 31, 2021, while for the nine months ended September 30, 2022, net revenue increased 6% compared with the comparable period of 2021. The increase was primarily due to higher sales of RFID transponder products to consumer products contract manufacturers and higher sales of access cards , offset by lower sales of our legacy smart card readers resulting from critical component supply-chain constraints.
Net revenue in this segment in Europe, the Middle East, and the Asia-Pacific for the three and nine months ended September 30, 2022, increased 7% and 8%, respectively, compared with the comparable periods of 2021. These increases were primarily due to higher sales of RFID transponder products to existing customers in the medical device and library markets .
Premises Segment
Net revenue in our Premises segment was $11.8 million for the three months ended September 30, 2022, an increase of 14% compared with $10.4 million for the comparable period of 2021. For the nine months ended September 30, 2022, net revenue in this segment was $33.3 million, an increase of 19% compared with $28.1 million for the comparable period of 2021. Net revenue in our Premises segment for the three and nine months ended September 30, 2022 represented 38% and 40%, respectively, of our net revenue, compared to 36% and 37% in the comparable periods of the prior year.
Net revenue in this segment in the Americas for the three and nine months ended September 30, 2022 increased 15% and 20%, respectively, compared with the comparable periods of 2021 due to higher sales of Hirsch Velocity hardware, software, support services, and video product offerings across both federal government and commercial businesses.
Net revenue in this segment across Europe, the Middle East, and the Asia-Pacific for the three and nine months ended September 30, 2022 increased 4% and 9%, respectively, compared with the comparable periods of 2021. Net revenue in these regions is primarily project driven and can vary period to period.
27
As a general trend, U.S. Federal agencies continue to be subject to security improvement mandates under programs such as Homeland Security Presidential Directive-12 (“HSPD-12”) and reiterated in memoranda from the Office of Management and Budget (“OMB M-11-11”). We believe that our solutions for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates. To address sales opportunities in the United States in general and with our U.S. Government customers in particular, we focus on a strong U.S. sales organization and our sales presence in Washington D.C.
Gross Profit and Gross Margin
Gross profit for the three months ended September 30, 2022 was $11.2 million, or 36% of net revenue, compared with $11.1 million, or 38% of net revenue in the comparable period of 2021. Gross profit for the nine months ended September 30, 2022 was $30.4 million, or 36% of net revenue, compared with $27.7 million, or 37% of net revenue in the comparable period of 2021. Gross profit represents net revenue less direct cost of product sales, manufacturing overhead, other costs directly related to preparing the product for sale including freight, scrap, inventory adjustments and amortization, where applicable.
Identity Segment
In our Identity segment, gross profit in the three and nine months ended September 30, 2022 was $4.3 million and $11.5 million, respectively, compared with $5.2 million and $12.1 million, respectively, in the comparable periods of 2021. Gross profit margins in the Identity segment for the three and nine months ended September 30, 2022 decreased to 23% and 23%, respectively, from 28% and 26%, respectively, in the comparable periods of 2021. These decreases in gross profit margins were primarily attributable to continued investments in technology, manufacturing processes and equipment, and changes in product mix, with lower sales of higher margin legacy smart card readers and higher sales of lower margin RFID transponder products.
Premises Segment
In our Premises segment, gross profit in the three and nine months ended September 30, 2022 was $6.9 million and $18.9 million, respectively, compared with $5.9 million and $15.5 million, respectively, in the comparable periods of 2021. Gross profit margins in the three and nine months ended September 30, 2022 increased to 58% and 57%, respectively, from 57% and 55%, respectively, compared to the same periods in 2021. These increases were primarily due to product mix as well as the impact resulting from our continued focus on production and logistical efficiencies.
We expect there will be variation in our total gross profit from period to period, as our gross profit has been and will continue to be affected primarily by varying mix among our products. Within each product category, gross margins have tended to be consistent, but over time may be affected by a variety of factors, including, without limitation, competition, product pricing, the volume of sales in any given quarter, manufacturing volumes, product configuration and mix, the availability of new products, product enhancements, software and services, risk of inventory write-downs and the cost and availability of components.
Operating Expenses
Information about our operating expenses for the three and nine months ended September 30, 2022 and 2021 is set forth below (dollars in thousands).
Research and Development
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Research and development
$
2,625
$
2,088
26
%
$
7,633
$
6,556
16
%
as a % of net revenue
8
%
7
%
9
%
9
%
Research and development expenses consist primarily of employee compensation and fees for the development of hardware, software and firmware products. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.
Research and development expenses for the three and nine months ended September 30, 2022 increased compared to the comparable prior year periods primarily due to higher headcount and related costs as well as higher stock-based compensation costs associated with PSUs.
28
Selling and Marketing
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Selling and marketing
$
5,326
$
4,471
19
%
$
15,709
$
12,682
24
%
as a % of net revenue
17
%
15
%
19
%
17
%
Selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets, customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.
Selling and marketing expenses for the three months ended September 30, 2022 increased compared to the three months ended September 30, 2021 primarily due to higher headcount and related costs. Selling and marketing expenses for the nine months ended September 30, 2022 increased compared to the comparable period of 2021 primarily due to higher headcount and related costs, higher external contractor costs as well as higher travel related costs.
General and Administrative
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
General and administrative
$
2,639
$
2,400
10
%
$
7,623
$
7,120
7
%
as a % of net revenue
9
%
8
%
9
%
9
%
General and administrative expenses consist primarily of compensation expenses for employees performing administrative functions, and professional fees incurred for legal, auditing and other consulting services.
General and administrative expense for the three and nine months ended September 30, 2022 increased compared to the prior year periods primarily due t o higher headcount and related costs, partially offset by lower merchant card fees in 2022 compared to 2021.
Restructuring and Severance Charges
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Restructuring and severance
$
49
$
99
(51
%)
$
132
$
761
(83
%)
Restructuring expense for the three and nine months ended September 30, 2022, consisted of severance related costs of $49,000 and $283,000, respectively. In the first quarter of 2022, we entered into a settlement agreement associated with outstanding rental payments due the landlord on leased office space in San Francisco, California. As a result of the settlement, we recorded a net credit of $151,000 representing the difference between amounts accrued and the settlement amount.
Non-operating Income (Expense)
Information about our non-operating income (expense) for the three and nine months ended September 30, 2022 and 2021 is set forth below (dollars in thousands).
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Interest expense, net
$
(39
)
$
(62
)
(37
%)
$
(101
)
$
(451
)
(78
%)
Gain on forgiveness of Paycheck Protection Program note
$
—
$
—
—
$
—
$
2,946
(100
%)
Gain on investment
$
—
$
611
(100
%)
$
30
$
611
(95
%)
Foreign currency gains (losses), net
$
(3
)
$
(48
)
(94
%)
$
111
$
(2
)
n/m
29
Interest expense, net consists of interest on financial liabilities, amortization of debt issuance costs, and interest accretion expense for a liability on a contractual payment obligation arising from our acquisition of Hirsch Electronics Corporation. The decrease in interest expense for the three and nine months ended September 30, 2022 compared to the comparable period of 2021 was attributable to lower borrowings outstanding under our revolving loan facility with our lender (which was fully paid down in August 2021), and lower amounts outstanding under our contractual payment obligations (all amounts outstanding had been paid as of December 31, 2021).
Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S. Dollar, the Indian Rupee, the Canadian Dollar, and the Euro. Our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements.
Income Tax Benefit (Provision)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
% Change
2022
2021
% Change
Income tax benefit (provision)
$
12
$
(21
)
(157
%)
$
(38
)
$
(94
)
(60
%)
Effective tax rate
(2
%)
1
%
(5
%)
3
%
As of September 30, 2022, our deferred tax assets are fully offset by a valuation allowance. Accounting Standards Codification (“ASC”) 740, Income Taxes , provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against all of our net U.S. and foreign deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion or all of the valuation allowance is not required, it generally will be a benefit to the income tax provision in the period such determination is made.
We recorded an income tax benefit (provision) during the three and nine months ended September 30, 2022. The effective tax rates for the three and nine months ended September 30, 2022 and 2021 differ from the federal statutory rate of 21% primarily due to a change in valuation allowance, and the provision or benefit in certain foreign jurisdictions, which are subject to higher tax rates.
Liquidity and Capital Resources
As of September 30, 2022, our working capital, defined as current assets less current liabilities, was $50.7 million, a decrease of $1.2 million compared to $51.9 million as of December 31, 2021. As of September 30, 2022, our cash and cash equivalents balance was $21.2 million.
On February 8, 2017, we entered into a Loan and Security Agreement with East West Bank (“EWB”). Following subsequent amendments, on February 8, 2021, we amended and restated the Loan and Security Agreement in its entirety (the “Loan and Security Agreement”). The Loan and Security Agreement provided for a $20.0 million revolving loan facility subject to a borrowing base and a $4.0 million non-formula revolving loan facility that was not subject to a borrowing base. Advances under the revolving loan facility, as amended on April 30, 2021, bear interest at a per annum rate equal to the prime rate. The maturity date of the main revolving loan facility is February 8, 2023. The non-formula revolving loan facility terminated on February 7, 2022.
On April 14, 2022, we amended the Loan and Security Agreement, replacing the $20.0 million revolving loan facility subject to a borrowing base with a $20.0 million non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023. In addition, the interest rate was lowered from prime to prime minus 0.25% , and certain financial covenants were amended. As of September 30, 2022, there were no amounts outstanding and we were in compliance with all financial covenants under the Loan and Security Agreement.
As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant additional taxes related to such amounts. However, our estimates are provisional and subject to further analysis. Generally, most of our foreign subsidiaries have accumulated deficits and cash and cash equivalents that are held outside the United States are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the United States. We have access to the cash held outside the United States to fund domestic operations and obligations without any material income tax consequences. As of September 30, 2022, the amount of cash included at such subsidiaries was $4.4 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.
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W e have historically incurred operating losses and negative cash flows from operating activities, and we may continue to incur losses in the future. As of September 3 0 , 20 2 2 , we had a n a ccumulated deficit of $ 4 0 9 . 7 million . During the nine months ended September 3 0 , 20 2 2 , we had a net loss of $ 0. 7 million.
We believe our existing cash and cash equivalents, together with cash generated from operations and available credit under our Loan and Security Agreement will be sufficient to satisfy our working capital needs to fund operations for the next 12 months. We may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements. We may also choose to finance our business through public or private equity offerings, debt financings or other arrangements. However, there can be no assurance that additional capital will be available to us or that such capital will be available to us on acceptable terms. If we raise funds by issuing equity securities, dilution to stockholders could result. Debt or any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. The terms of debt securities issued or loans could impose significant restrictions on our operations. The incurrence of additional indebtedness or the issuance of certain debt or equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. Our Loan and Security Agreement imposes restrictions on our operations, increases our fixed payment obligations and has restrictive covenants. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we are not able to secure additional funding when needed, we may have to curtail or reduce the scope of our business or forgo potential business opportunities.
The following summarizes our cash flows for the nine months ended September 30, 2022 and 2021 (in thousands):
Nine Months Ended September 30,
2022
2021
Net cash provided by (used in) operating activities
$
(3,014
)
$
5
Net cash used in investing activities
(2,978
)
(1,312
)
Net cash provided by (used in) financing activities
(896
)
19,560
Effect of exchange rates on cash, cash equivalents, and restricted cash
(1,019
)
(444
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(7,907
)
17,809
Cash, cash equivalents, and restricted cash at beginning of period
29,807
11,409
Cash, cash equivalents, and restricted cash at end of period
$
21,900
$
29,218
Cash flows from operating activities
Cash used in operating activities for the nine months ended September 30, 2022 of $3.0 million, was primarily due to net loss of $0.7 million, a decrease in cash from net changes in operating assets and liabilities of $6.5 million, which included $5.2 million in strategic inventory purchases, partially offset by adjustments for certain non-cash items of $4.2 million, consisting primarily of depreciation, amortization and stock-based compensation.
Cash provided by operating activities for the nine months ended September 30, 2021 of less than $0.1 million was primarily due to net income of $3.5 million, and adjustments for certain non-cash items of $0.4 million, consisting primarily of depreciation, amortization, stock-based compensation, gain on forgiveness of the Paycheck Protection Program note and impairment of a right-of-use operating lease asset, offset by a decrease in cash from net changes in operating assets and liabilities of $3.9 million.
Cash flows from investing activities
Cash used in investing activities for the nine months ended September 30, 2022 was $3.0 million, which related to capital expenditures in our manufacturing facility in Singapore and our research and development facility in Germany.
Cash used in investing activities for the nine months ended September 30, 2021 was $1.3 million, which related to capital expenditures in our manufacturing facility in Singapore and our research and development facility in Germany, partially offset by $0.6 million related to proceeds received from an investment in connection with the acquisition of a private company that we had invested in, which had been fully impaired and had no carrying value.
Cash flows from financing activities
Cash used in financing activities during the nine months ended September 30, 2022 was $0.9 million, which related to net share settlements of restricted stock units. Cash provided by financing activities during the nine months ended September 30, 2021 was primarily due to net proceeds of $37.7 million received from the sale of common stock in our underwritten public offering, partially offset by net repayments under our revolving loan facility of $14.6 million, repayments of April 21 Funds promissory notes of $2.8 million and taxes paid related to net share settlements of restricted stock units of $0.9 million.
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Off-Balance Sheet Arrangements
We have not entered into off-balance sheet arrangements, or issued guarantees to third parties.
Climate Change
We believe that neither climate change, nor governmental regulations related to climate change, have had a material effect on our business, financial condition or results of operations.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These policies relate to revenue recognition, inventory, income taxes, goodwill, intangible and long-lived assets and stock-based compensation. We have other important accounting policies and practices; however, once adopted, these other policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy and not a judgment as to the policy itself. Management bases its estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Despite our intention to establish accurate estimates and assumptions, actual results may differ from these estimates under different assumptions or conditions.
During the three months ended September 30, 2022, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
See Note 2, S ignificant Accounting Policies and Recent Accounting Pronouncements, in the accompanying notes to our unaudited condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements, which is incorporated herein by reference.
10b5-1 Trading Plans
From time to time, our executive officers and directors have, and we expect they will in the future, enter into written trading plans pursuant to Rule 10b5-1 of the Securities and Exchange Act of 1934.
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