KVH INDUSTRIES INC \DE\ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The statements included in this quarterly report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding our future financial results, operating results, business strategies, projected costs, products and services, competitive positions and plans, customer preferences, consumer trends, anticipated product development, and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the section entitled “Risk Factors” in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2022 as updated in Item 1A of Part II of this quarterly report on Form 10-Q. These and many other factors could affect our future financial and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by us or on our behalf. For example, our expectations regarding certain items as a percentage of sales assume that we will achieve our anticipated sales goals. The following discussion and analysis should be read in conjunction with our consolidated interim financial statements and related notes appearing elsewhere in this report. Overview We design, develop, manufacture and market mobile connectivity products and services for the marine and land mobile markets. We generate a majority of our revenue from the sale of satellite internet airtime services. We offer both satellite-only and hybrid products that enable marine customers to receive data, Voice over Internet Protocol (VoIP), and value-added services via satellite, cellular, and shore-based Wi-Fi networks onboard commercial, leisure and military/government vessels. Our service sales also include the distribution of entertainment, including news, sports, music, and movies, to commercial customers in the maritime, hotel, and retail markets, along with supplemental value-added cybersecurity, email, and crew internet services. We generate a majority of our revenues from various international locations. Impairment Charge During the nine months ended September 30, 2023, aggregate impairment charges of $6.0 million were taken against goodwill and long-lived assets for the Mobile Broadband reporting unit and the KVH Media Group reporting unit. The $6.0 million impairment charges were driven by the significant decline in our stock price that followed the August 9, 2023 announcement of our financial results for the second quarter of 2023. Under applicable accounting rules, this circumstance required us to evaluate our goodwill and long-lived assets for impairment. Given the sustained decline in the market value of our outstanding equity and the uncertain impact of ongoing competition, we concluded that this impairment charge was appropriate as of September 30, 2023. Please see Note 12 of our accompanying financial statements for further information. Supply Chain During the nine months ended September 30, 2023, we continued to experience delays in the availability and delivery of certain raw material components. We also experienced increased raw material costs, which we expect to continue throughout 2023. We are continuing to monitor global developments, including the impact of inflation, and are prepared to implement actions that we determine to be necessary to sustain our business. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these interim financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure at the date of our interim financial statements. Our significant accounting policies are summarized in Note 1 to the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2022. 25 Critical accounting estimates are those estimates made that involve a significant level of estimation uncertainty and have had or are reasonably likely to have an impact on our statement of operations. We believe that our accounting estimates for goodwill, intangible assets, and other long-lived assets are the only estimates critical to an understanding and evaluation of our financial results for the nine months ended September 30, 2023, as discussed below. Goodwill, Intangible Assets and other Long-Lived Assets In accordance with ASC Update No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment (ASC 350), we perform a goodwill impairment test at least annually, or more frequently if certain events occur, or circumstances change, that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount (frequently referred to as impairment indicators or triggering events). A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. Intangible assets with finite lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with finite lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted cash flows expected to be generated by the asset or asset group. Asset groups are determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value. In the third quarter of 2023, we observed a sustained stock price decline resulting in a significant shortfall in market capitalization when compared to the aggregate carrying value of our net assets. These circumstances led us to conclude that quantitative goodwill impairment assessments of the Mobile Broadband (MBB) and KVH Media Group (Media) reporting units were required. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding future plans, as well as industry and economic conditions. These assumptions and estimates include estimated future cash flows, income tax rates, discount rates, growth rates, and other market factors. In performing the quantitative assessment, we estimated the fair value of its reporting units using the income approach, also known as the discounted cash flow ("DCF") method, which utilizes the present value of cash flows to estimate fair value. The DCF method involves estimating the discounted cash flows of a reporting unit by forecasting cash flows each year, calculating a terminal value, and discounting all of the cash flows to present value at an appropriate discount rate (in consideration of the time value of money, the risk inherent in the cash flow stream, and in the context of current rates of return for equity and debt capital). The final determination of fair value was based on a probability-weighted approach comparing management’s forecasts with a market expectation forecast. As of September 30, 2023, the determined fair values of the MBB and Media reporting units were lower than their carrying values. After recognition of a long-lived asset impairment charge (as discussed below), we recognized goodwill impairment charges equal to the total amount of goodwill attributed to the MBB and Media reporting units, which were approximately $4.4 million and $0.9 million, respectively. We also determined that the sustained decrease in stock price and shortfall in market capitalization indicated that the carrying amounts of our asset groups (MBB and Media) may not be recoverable. We therefore performed impairment tests on the long-lived assets in each asset group, including definite-lived intangible assets using an undiscounted cash flow analysis over the estimated remaining useful life of the primary asset, to determine whether the carrying amounts of each asset group are recoverable. As of September 30, 2023, our analysis indicated that the carrying amount of the MBB asset group is recoverable, and therefore no fair value estimate was required. The Media asset group failed the undiscounted cash flow recoverability test and therefore we estimated the fair value of the asset group to determine whether any asset impairment was present. Our estimation of the fair value of the long-lived assets included the use of discounted cash flow and cost analyses, reflecting estimates of future revenues, cost factors, cash flows, discount rates, and obsolescence. Based on these analyses, we concluded that the fair values of certain assets were lower than their carrying amounts. As of September 30, 2023, we recognized long-lived asset impairment charges totaling $0.4 million and $0.3 million for the KVH Media Group’s internally developed software assets and acquired subscriber relationships, respectively, reducing the carrying amounts to zero. Please see Note 12 of our accompanying financial statements for further discussion. 26 Results of Operations The following table provides, for the periods indicated, certain financial data relating to our continuing operations expressed as a percentage of net sales: Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Sales: Product 12.4 % 18.8 % 14.3 % 19.3 % Service 87.6 81.2 85.7 80.7 Net sales 100.0 100.0 100.0 100.0 Cost and expenses: Costs of product sales 14.1 19.2 16.4 16.9 Costs of service sales 48.4 43.7 47.2 44.2 Research and development 7.1 7.8 7.3 8.1 Sales, marketing and support 14.5 16.2 15.5 17.8 General and administrative 13.0 15.8 13.0 19.0 Goodwill impairment charge 15.9 — 5.3 — Intangible asset impairment charge 2.0 — 0.6 — Total costs and expenses 115.0 102.7 105.3 106.0 Loss from operations (15.0) (2.7) (5.3) (6.0) Interest income 3.0 1.1 2.6 0.8 Interest expense — — — — Other (expense) income, net (0.4) 1.6 (0.6) 1.5 Loss from continuing operations before income tax expense (12.4) — (3.3) (3.7) Income tax expense from continuing operations 0.3 0.2 0.2 0.6 Net loss from continuing operations (12.7) % (0.2) % (3.5) % (4.3) % 27 Three months ended September 30, 2023 and 2022 Net Sales Our net sales for the three months ended September 30, 2023 and 2022 were as follows: Change For the three months ended September 30, 2023 vs. 2022 2023 2022 $ % (dollars in thousands) Product $ 4,152 $ 6,625 $ (2,473) (37) % Service 29,397 28,544 853 3 % Net sales $ 33,549 $ 35,169 $ (1,620) (5) % Net sales decreased by $1.6 million, or 5%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Product sales decreased by $2.5 million, or 37%, to $4.2 million for the three months ended September 30, 2023 from $6.6 million for the three months ended September 30, 2022. The decrease in product sales was primarily due to a $1.9 million decrease in TracVision product sales and a $1.1 million decrease in VSAT Broadband product sales, partially offset by a $0.6 million increase in Starlink product sales. The decline in product sales was primarily due to a decrease in unit sales volume, particularly in our global leisure segment. Competition from low-cost alternatives to VSAT, which include streaming capabilities, has had a significant impact on sales of both TracVision and VSAT Broadband products in the leisure segment. In addition, alternative solutions offered by recent low-earth-orbit (LEO) entrants have heightened competition in both the global leisure segment and commercial markets. Service sales increased by $0.9 million, or 3%, to $29.4 million for the three months ended September 30, 2023 from $28.5 million for the three months ended September 30, 2022. The increase was primarily due to a $0.7 million increase in our VSAT airtime sales. Costs of Sales Costs of sales consists of costs of product sales and costs of service sales. Costs of sales decreased by $1.2 million, or 5%, in the three months ended September 30, 2023 to $21.0 million from $22.1 million in the three months ended September 30, 2022. The decrease in costs of sales was driven by a $2.0 million decrease in costs of product sales, partially offset by a $0.9 million increase in costs of service sales. As a percentage of net sales, costs of sales were 62% and 63% for the three months ended September 30, 2023 and 2022, respectively. Our costs of product sales consist primarily of materials, manufacturing overhead, and direct labor used to produce our products. For the three months ended September 30, 2023, costs of product sales decreased by $2.0 million, or 30%, to $4.7 million from $6.7 million in the three months ended September 30, 2022, primarily due to a $1.5 million decrease in TracVision cost of product sales and a $0.9 million decrease in VSAT Broadband cost of product sales, partially offset by a $0.5 million increase in Starlink product sales. As a percentage of product sales, costs of product sales were 114% and 102% for the three months ended September 30, 2023 and 2022, respectively. Cost of product sales increased as a percentage of product sales primarily due to a $0.3 million increase in the excess and obsolescence reserve and $0.2 million of higher unit component costs. Our costs of service sales consist primarily of satellite service capacity, depreciation, service network overhead expense associated with our VSAT Broadband network infrastructure, direct network service labor, product installation costs, media materials and distribution costs, and service repair materials. For the three months ended September 30, 2023, costs of service sales increased by $0.9 million, or 6%, to $16.2 million from $15.4 million for the three months ended September 30, 2022, primarily due to a $0.9 million increase in VSAT airtime costs of service sales. The increase in airtime cost of sales is primarily related to capacity increases necessary to support growth in our airtime subscriber base. As a percentage of service sales, costs of service sales were 55% and 54% for the three months ended September 30, 2023 and 2022, respectively. 28 Operating Expenses Research and development expense consists of direct labor, materials, external consultants, and related overhead costs that support our internally funded product development and product sustaining engineering activities. Research and development expense for the three months ended September 30, 2023 decreased by $0.3 million, or 13%, to $2.4 million from $2.7 million for the three months ended September 30, 2022. The decrease primarily resulted from a $0.3 million decrease in salaries, benefits and taxes. As a percentage of net sales, research and development expense was 7% and 8% for the three months ended September 30, 2023 and 2022, respectively. Sales, marketing, and support expense consists primarily of salaries and related expenses for sales and marketing personnel, commissions for both in-house and third-party representatives, costs related to the co-development of certain content, other sales and marketing support costs such as advertising, literature and promotional materials, product service personnel and support costs, warranty-related costs and bad debt expense. Sales, marketing and support expense also includes the operating expenses of our sales office subsidiaries in Denmark, Singapore, Brazil, and Japan. Sales, marketing and support expense for the three months ended September 30, 2023 decreased by $0.9 million, or 15%, to $4.9 million from $5.7 million for the three months ended September 30, 2022. The decrease primarily resulted from a $0.5 million decrease in salaries, benefits and taxes, and a $0.3 million decrease in bad debt expense. As a percentage of net sales, sales, marketing and support expense was 14% and 16% for the three months ended September 30, 2023 and 2022, respectively. General and administrative expense consists of costs attributable to management, finance and accounting, information technology, human resources, certain outside professional services, and other administrative costs. General and administrative expense for the three months ended September 30, 2023 decreased by $1.2 million, or 21%, to $4.4 million from $5.6 million, for the three months ended September 30, 2022. The decrease primarily resulted from a $1.1 million decrease in salaries, benefits, and taxes, which was driven by the reduction in our workforce in March 2022 of approximately 10%, partially offset by a $0.3 million increase in legal and professional fees. As a percentage of net sales, general and administrative expense was 13% and 16% for the three months ended September 30, 2023 and 2022, respectively. Interest and Other (Expense) Income, Net Interest income represents interest earned on our cash and cash equivalents, as well as from investments and our sale-type lease receivables. Interest income increased $0.6 million for the three months ended September 30, 2023 to $1.0 million from $0.4 million for the three months ended September 30, 2022. Of the current period interest income of $1.0 million, $0.8 million is attributable to interest earned on cash and cash equivalents, while the remaining $0.2 million was attributable to interest from lease receivables. Interest expense remained flat period-over-period at less than $0.1 million for both of the three months ended September 30, 2023 and 2022. Other (expense) income, net changed to other expense, net of $0.1 million for the three months ended September 30, 2023 from other income, net of $0.6 million for the three months ended September 30, 2022 primarily due to the decrease in foreign exchange gains from our UK operations. Income Tax Expense Income tax expense for each of the three months ended September 30, 2023 and 2022 was $0.1 million and related to taxes on income earned in foreign jurisdictions. 29 Nine months ended September 30, 2023 and 2022 Net Sales Our net sales for the nine months ended September 30, 2023 and 2022 were as follows: Change For the nine months ended September 30, 2023 vs. 2022 2023 2022 $ % (dollars in thousands) Product $ 14,526 $ 19,808 $ (5,282) (27) % Service 86,883 83,065 3,818 5 % Net sales $ 101,409 $ 102,873 $ (1,464) (1) % Net sales decreased by $1.5 million, or 1%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Product sales decreased by $5.3 million, or 27%, to $14.5 million for the nine months ended September 30, 2023 from $19.8 million for the nine months ended September 30, 2022. The decrease in product sales was primarily due to a $3.9 million decrease in TracVision product sales and a $2.4 million decrease in VSAT Broadband product sales, partially offset by a $0.9 million increase in Starlink product sales. The decline in product sales was primarily due to a decrease in unit sales volume, particularly in our global leisure segment. Competition from low-cost alternatives to VSAT, which include streaming capabilities, has had a significant impact on sales of both TracVision and VSAT Broadband products in the leisure segment. In addition, alternative solutions offered by recent LEO entrants have heightened competition in both the global leisure segment and commercial markets. Service sales increased by $3.8 million, or 5%, to $86.9 million for the nine months ended September 30, 2023 from $83.1 million for the nine months ended September 30, 2022. The increase was primarily due to a $4.9 million increase in our VSAT service sales driven by an increase in subscribers, partially offset by a $0.9 million decrease in our content services sales, primarily driven by the sale of a subsidiary in April 2022. Costs of Sales Costs of sales increased by $1.6 million, or 3%, in the nine months ended September 30, 2023 to $64.4 million from $62.9 million in the nine months ended September 30, 2022. The increase in costs of sales was driven by a $2.3 million increase in costs of service sales, partially offset by a $0.8 million decrease in costs of product sales. As a percentage of net sales, costs of sales were 64% and 61% for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, costs of product sales decreased by $0.8 million, or 4%, to $16.6 million from $17.4 million in the nine months ended September 30, 2022, primarily due to a $2.9 million decrease in TracVision cost of product sales and a $1.6 million decrease in VSAT Broadband cost of product sales, partially offset by a $2.4 million increase in various manufacturing and other unabsorbed expenses, a $0.9 million increase in Starlink cost of product sales and a $0.5 million increase in accessories cost of product sales. The manufacturing and other unabsorbed costs included a $0.7 million write-down of inventory, a $0.6 million increase in the excess and obsolescence reserve, as well as lower unit volume resulting in less absorption of overhead. As a percentage of product sales, costs of product sales were 114% and 88% for the nine months ended September 30, 2023 and 2022, respectively. Cost of product sales increased as a percentage of product sales primarily due to the write-down of inventory, the increase in the excess and obsolescence reserve and $0.7 million of higher unit component costs. For the nine months ended September 30, 2023, costs of service sales increased by $2.3 million, or 5%, to $47.8 million from $45.5 million for the nine months ended September 30, 2022, primarily due to a $2.7 million increase in VSAT airtime costs of service sales. The increase in airtime cost of sales is primarily related to capacity increases to support growth in our airtime subscriber base. This was partially offset by a $0.3 million decrease in content services cost of service sales, primarily driven by the sale of a subsidiary in April 2022. As a percentage of service sales, costs of service sales were 55% for both the nine months ended September 30, 2023 and 2022. 30 Operating Expenses Research and development expense for the nine months ended September 30, 2023 decreased by $1.0 million, or 12%, to $7.4 million from $8.4 million for the nine months ended September 30, 2022. The decrease in research and development expense resulted primarily from a $0.6 million decrease in salaries, benefits and taxes driven by the reduction in our workforce in March 2022 and a $0.3 million decrease in expensed materials. As a percentage of net sales, research and development expense was 7% and 8% for the nine months ended September 30, 2023 and 2022, respectively. Sales, marketing and support expense for the nine months ended September 30, 2023 decreased by $2.6 million, or 14%, to $15.7 million from $18.4 million for the nine months ended September 30, 2022. The decrease in sales, marketing and support expense resulted primarily from a $2.3 million decrease in salaries, benefits and taxes driven by the reduction in our workforce in March 2022, a $0.6 million decrease in bad debt expense, a $0.4 million decrease in warranty expense and a $0.3 million decrease in external commission expense, partially offset by a $0.7 million increase in facilities expenses. As a percentage of net sales, sales, marketing and support expense was 15% and 18% for the nine months ended September 30, 2023 and 2022, respectively. General and administrative expense for the nine months ended September 30, 2023 decreased by $6.4 million, or 33%, to $13.1 million from $19.5 million for the nine months ended September 30, 2022. The decrease in general and administrative expense resulted primarily from a $4.3 million decrease in salaries, benefits and taxes driven by the reduction in our workforce in March 2022, as well as a reduction in expenses related to the separation and retirement of our former President and Chief Executive Officer in March 2022. In addition, we were reimbursed by EMCORE for $0.7 million of expenses incurred under the Transition Service Agreement relating to the sale of the inertial navigation business in 2022. There was also a $0.6 million decrease in recruiting expenses, which was driven by professional fees incurred during the nine months ended September 30, 2022 associated with the search for a new Chief Executive Officer and replacements for two departed members of our board of directors. Lastly, there was a $0.4 million decrease in facilities expenses and a $0.3 million decrease in bank fees, partially offset by a $0.3 million increase in professional fees. As a percentage of net sales, general and administrative expense was 13% and 19% for the nine months ended September 30, 2023 and 2022, respectively. Interest and Other (Expense) Income, Net Interest income increased by $1.9 million to $2.7 million for the nine months ended September 30, 2023 from $0.8 million for the nine months ended September 30, 2022. Of the current period interest income of $2.7 million, $2.2 million is attributable to interest earned on cash and cash equivalents, and the remaining $0.5 million was attributable to interest from lease receivables. Interest expense remained flat period-over-period at less than $0.1 million for both the nine months ended September 30, 2023 and 2022. Other (expense) income, net changed to other expense, net of $0.6 million for the nine months ended September 30, 2023 from other income, net of $1.6 million for the nine months ended September 30, 2022 primarily due to the sale of KVH Media Group Entertainment Limited during the nine months ended September 30, 2022 and an increase in foreign exchange losses from our UK operations. Income Tax Expense Income tax expense for the nine months ended September 30, 2023 and 2022 was $0.2 million and $0.6 million, respectively, and related to taxes on income earned in foreign jurisdictions. 31 Discontinued Operations On August 9, 2022, we sold our inertial navigation business for net proceeds of $54.9 million, less specified deductions. We determined that the sale met the requirements for reporting as discontinued operations in accordance with ASC 205-20. Accordingly, we have classified the results of the inertial navigation business as discontinued operations for all prior periods presented. Please see Notes 1 and 16 of our accompanying financial statements for further discussion. Results for discontinued operations are as follows: Three months ended September 30, Nine months ended September 30, 2022 2022 (dollars in thousands) Sales from discontinued operations $ 1,494 $ 16,721 Net income from discontinued operations, net of tax $ 29,741 $ 28,061 Liquidity and Capital Resources Our primary liquidity needs have been to fund general business requirements, including working capital requirements and capital expenditures. In recent years, we have funded our operations primarily from the sale of two businesses in 2022, the sale of a business in 2019, a PPP loan that was subsequently forgiven, cash flows from operations and proceeds received from exercises of stock options and the issuance of stock. On August 9, 2022, we sold our inertial navigation business to EMCORE Corporation for net proceeds of $54.9 million, less specified deductions. As of September 30, 2023, we had $69.2 million in cash, cash equivalents, and marketable securities, of which $3.6 million in cash and cash equivalents was held in local currencies by our foreign subsidiaries. Our foreign subsidiaries held no marketable securities as of September 30, 2023. As of September 30, 2023, we had $103.8 million in working capital. Based upon our current working capital position, current operating plans and expected business conditions, we expect to have sufficient funds, through at least twelve months from the date that this report is filed with the SEC, to fund our short-term and long-term working capital requirements, including capital expenditures and contractual obligations. Our funding plans for our working capital needs and other commitments may be adversely impacted if our underlying assumptions regarding our anticipated revenues and expenses are not realized. If our operating results fail to meet our expectations, we could be required to seek additional funding through public or private financings or other arrangements. In that event, adequate funds may not be available when needed or may be available only on terms which could have a negative impact on our business and results of operations. In addition, if we raise funds by issuing equity securities, our stockholders may experience dilution. Net cash used in operations was $2.7 million for the nine months ended September 30, 2023 compared to net cash used in operations of $1.5 million for the nine months ended September 30, 2022. The $1.2 million increase in net cash used in operations was primarily the result of a $26.8 million decrease in net income, a $17.4 million increase in cash outflows related to accounts payable, a $0.5 million increase in cash outflows related to contract liabilities and long-term contract liabilities and a $0.5 million decrease in cash inflows relating to accounts receivable. Partially offsetting these items were a change of $35.8 million related to non-cash items, driven by the $30.9 million gain on sale of the inertial navigation business in 2022 and the $6.0 million impairment of goodwill and long-lived assets, a $6.0 million decrease in cash outflows relating to inventories and a $2.1 million decrease in cash outflows relating to accrued compensation, product warranty and other expenses. Net cash used in investing activities was $9.2 million for the nine months ended September 30, 2023 compared to net cash provided by investing activities of $4.3 million for the nine months ended September 30, 2022. The $13.5 million increase in net cash used in investing activities was primarily the result of a $55.0 million decrease in proceeds from the sale of the inertial navigation business and a decrease of $2.4 million in proceeds from the sale of KVH Media Group Entertainment Limited, partially offset by a $40.0 million increase in net investment in marketable securities and a $3.8 million decrease in capital expenditures. Net cash provided by financing activities was $2.3 million for the nine months ended September 30, 2023 compared to net cash provided by financing activities of $0.6 million for the nine months ended September 30, 2022. The $1.7 million increase in net cash provided by financing activities is primarily attributable to a $1.8 million increase in cash inflows relating 32 to proceeds from the exercise of stock options and purchases under our employee stock purchase plan and a $0.2 million decrease in cash outflows related to the payment of finance leases, partially offset by a $0.2 million increase in cash outflows related to the repurchase of common stock to satisfy specific tax withholding obligations arising from accelerated vesting of executive stock grants.