What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-29 · 106 added, 145 removed, 141 unchanged (64% of the section changed)

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We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (IGBTs) and silicon-carbide (SiC) MOSFETs.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to one gigawatt) such as industrial motors, solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.

Our products bring a number of important benefits to the power-conversion market compared with less advanced alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-to-market.

Our products also improve the energy efficiency of power converters, helping our customers meet the increasingly stringent efficiency standards that have been adopted around the world for many electronic products, and improving the efficacy of renewable-energy systems, electric vehicles and other high-power applications.

Our products also reduce the energy consumption of power converters during normal use and in “standby” operation, when the end product is not in use.

In addition to the environmental benefits of reduced energy usage, our energy-saving technologies provide a number of benefits to our customers;

these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky heatsinks used to dissipate heat produced by wasted electricity.

While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been offset to a large degree by reductions in the average selling price of components in this market.

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● Increase our penetration of the markets we serve.

We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications of approximately ten kilowatts and higher, and motor-drive applications up to approximately 400 watts.

We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to gigawatts, and motor-drive applications up to approximately 400 watts.

Through our research and development efforts, we seek to introduce more advanced products for these markets offering higher levels of integration and performance compared to earlier products.

We also continue to expand our sales and application-engineering staff and our network of distributors, as well as our offerings of technical documentation and design-support tools and services to help customers use our products.

These tools and services include our PI Expert™ design software, which we offer free of charge, and our transformer-sample service.

and services include our PI Expert™ design software, which we offer free of charge, and our transformer-sample service.

Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and renewable energy in the power conversion market.

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In 2016 we introduced the SCALE-iDriver TM family of ICs, broadening the range of gate-driver applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs, addressing BLDC motors, as described above.

We have recently introduced a series of automotive-qualified versions of our products, including SCALE-iDriver ICs and LinkSwitch™ ICs, targeting the EV market;

We have recently introduced a series of automotive-qualified versions of our products, including SCALE-iDriver, InnoSwitch TM and LinkSwitch™ ICs, targeting the EV market;

we expect to introduce additional products targeting EVs in the future, and expect automotive applications to become a significant portion of our SAM over time.

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For example, our InnoSwitch™ ICs integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier product families integrated circuitry only on the primary, or high-voltage side.

In 2019 we introduced new members of our InnoSwitch™ family incorporating gallium-nitride (GaN) transistors, which enable a higher level of energy efficiency than ICs with traditional silicon transistors.

In 2019, we began incorporating proprietary gallium-nitride (GaN) transistors in some products, enabling a higher level of energy efficiency than ICs with traditional silicon transistors.

We intend to continue expanding our SAM in the years ahead through all of the means described above.

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Recent Results

Our net revenues were $121.1 million and $114.2 million in the three months ended September 30, 2020 and 2019, respectively, and $337.6 million and $306.2 million in the nine months ended September 30, 2020 and 2019, respectively.

The increase in revenues in the three-month period was primarily due to growth in the communications and computer end markets, reflecting increased adoption of higher-power chargers for mobile phones and tablets, as well as increased sales for desktop computers and monitors.

These increases were partially offset by lower sales in the industrial end market across a broad range of applications.

The increase in revenues in the nine-month period was due to growth across all end markets including the applications discussed above as well as a broad range of industrial and consumer-appliance applications.

Our top ten customers, including distributors that resell to original equipment manufacturers, or OEMs, and merchant power supply manufacturers, accounted for 65% and 56% of our net revenues in the three and nine months ended September 30, 2020, respectively, and 55% and 54% of net revenues in each of the respective corresponding periods of 2019.

In the three months ended September 30, 2020, two customers, distributors of our products, accounted for approximately 18% and 14% of our net revenues.

In the nine months ended September 30, 2020, one of the two customers accounted for approximately 14% of our net revenues.

In the three and nine months ended September 30, 2019, the same customer accounted for approximately 11% of our net revenues.

International sales accounted for 98% of our net revenues in each of the three and nine months ended September 30, 2020, and 97% of our net revenues in each of the three and nine months ended September 30, 2019.

Our gross margin was 49.2% and 50.9% in the three months ended September 30, 2020 and 2019, respectively, and 50.2% and 50.7% in the nine months ended September 30, 2020, and 2019, respectively.

The decrease in gross margin in the three- and nine-month periods of 2020 as compared to the same periods in 2019 was due to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets.

Total operating expenses were $44.8 million and $40.6 million in the three months ended September 30, 2020 and 2019, respectively, and $126.8 million and $121.8 million in the nine months ended September 30, 2020 and 2019, respectively.

The increase in the three- and nine-month periods was due primarily to higher stock-based compensation expense related to performance-based awards along with higher salary and related expenses from the expansion of our workforce.

These increases were partially offset by lower legal expenses following the conclusion of our litigation with ON Semiconductor and lower travel expenses due to COVID-19 pandemic related restrictions.

Our net revenues were $173.7 million and $109.7 million in the three months ended March 31, 2021 and 2020, respectively.

The increase in revenues reflects the strong demand conditions currently prevalent across the semiconductor industry.

While all of our end-market categories exhibited strong growth, revenues from the communications and computer end markets nearly tripled collectively as a result of growing d emand for advanced chargers for mobile phones and tablets

and our market-share gains in these applications.

Also contributing to the growth in the computer category was increased sales for desktop computers and monitors reflecting the ongoing work-from-home and learn-from-home trends precipitated by the pandemic .

Our top ten customers, including distributors that resell to original equipment manufacturers, or OEMs, and merchant power supply manufacturers, accounted for 79% of net revenues in the three months ended March 31, 2021, and 55% of net revenues in the corresponding period of 2020.

In the three months ended March 31, 2021, two customers, distributors of our products, accounted for 31% and 18% of our net revenues, respectively.

In the three months ended March 31, 2020, two customers, distributors of our products, each accounted for 11% of our net revenues.

International sales accounted for 98% of our net revenues in each of the three months ended March 31, 2021, and 2020.

Our gross margin was 48.6% and 51.5% in the three months ended March 31, 2021 and 2020, respectively.

The decrease in gross margin was due to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets.

Total operating expenses were $44.2 million and $41.4 million in the three months ended March 31, 2021 and 2020, respectively.

The increase in operating expenses was due primarily to higher salary and related expenses driven by increased headcount and annual merit increases, as well as higher stock-based compensation expense related to performance-based awards.

COVID-19 Pandemic

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We will begin a phased reopening of our San Jose headquarters when these restrictions are lifted.

Most of our employees in other locations around the world have returned to the office under a phased reopening plan.

Some of our employees in other locations around the world have returned to the office under a phased reopening plan.

We have implemented a variety of measures to protect the health and safety of our employees, including the provision of masks, gloves and sanitizers, social-distancing rules, and regular deep cleaning of our facilities.

While we have been able to conduct our day-to-day operations effectively in spite of the restrictions caused by the pandemic, the pandemic has caused disruptions in our supply chain.

While the supply of wafers from our foundry partners has not been interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines in the early stages of the pandemic caused temporary shutdowns at our assembly and test sub-contractors in those countries.

All of the affected sub-contractors have now resumed operations.

While these disruptions resulted in delayed shipments to some customers, our results were not materially affected due to a variety of mitigation measures including higher-than-normal inventories of wafers and finished goods, safety stocks of certain key inputs, and multiple sources for most of our products.

The economic downturn stemming from the pandemic has impacted demand for goods incorporating our products.

While the future trajectory of demand is highly uncertain, we have adjusted our near-term operating-expense and capital-spending plans, in anticipation of a continued period of reduced demand.

However, we believe our business is fundamentally sound with strong, long-term growth prospects and ample cash resources.

We have not reduced headcount and intend to continue investing in research and development and other functions necessary to support our future growth.

While we have been able to conduct our day-to-day operations effectively in spite of the restrictions caused by the pandemic, in early 2020, the pandemic caused some disruptions in our supply chain.

While our supply of wafers from our foundry partners was not interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines caused temporary shutdowns at our assembly and test sub-contractors in those countries;

all of the affected sub-contractors had resumed operations by the end of 2020.

While these disruptions resulted in delayed shipments to some customers early in 2020, our results were not materially affected due to a variety of mitigation measures including higher-than-normal inventories of wafers and finished goods, safety stocks of certain key inputs, and multiple sources for components for most of our products.

Despite the economic downturn stemming from the pandemic, demand for goods incorporating our products is strong.

While the future trajectory of demand is uncertain, we believe our business is fundamentally sound with strong, long-term growth prospects.

We have increased headcount and intend to continue investing in research and development and other functions necessary to support our future growth.

We also intend to continue our cash dividend and stock repurchase programs;

however, if the economy deteriorates more than we expect or our business outlook changes, our board of directors may choose to suspend or alter these programs at its discretion.

For additional discussion regarding COVID-19 business risks refer to Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

For additional discussion regarding COVID-19 business risks refer to Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Critical Accounting Policies and Estimates

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● revenue recognition;

• stock-based compensation;

• estimating write-downs for excess and obsolete inventory;

● income taxes.

• business combinations;

• goodwill and intangible assets.

Our critical accounting policies are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net revenues 100.0 % 100.0 % 100.0 % 100.0 %

Cost of revenues

Gross profit 49.2 50.9 50.2 50.7

Operating expenses:

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Income from operations

Other income 0.7 0.9 1.2 1.2

Income before income taxes

Provision for income taxes

Net income 12.2 % 15.0 % 12.9 % 11.5 %

Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

Comparison of the Three Months Ended March 31, 2021 and 2020

Net revenues.

Net revenues consist of revenues from product sales, which are calculated net of returns and allowances.

Net revenues for the three and nine months ended September 30, 2020 were $121.1 million and $337.6 million, respectively, and $114.2 million and $306.2 million, respectively, for the corresponding periods of 2019.

The increase in revenues in the three months ended September 30, 2020 as compared to same period in 2019 was primarily due to growth in the communications and computer end markets, reflecting increased adoption of higher-power chargers for mobile phones and tablets, as well as increased sales for desktop computers and monitors.

These increases were partially offset by lower sales in the industrial end market across a broad range of applications.

The increase in revenues in the nine months ended September 30, 2020 as compared to same period in 2019 was due to growth across all end markets including the applications discussed above as well as a broad range of industrial and consumer-appliance applications.

Our revenue mix by end market for the three and nine months ended September 30, 2020 and 2019 was as follows:

Net revenues for the three months ended March 31, 2021 and 2020 were $173.7 million and $109.7 million, respectively.

The increase in revenues reflects the strong demand conditions currently prevalent across the semiconductor industry.

Our revenue mix by end market for the three months ended March 31, 2021 and 2020 was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

End Market 2020 2019 2020 2019

Communications

Computer 9 % 5 % 6 % 5 %

Consumer 31 % 32 % 34 % 36 %

Industrial 28 % 34 % 32 % 35 %

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $118.7 million and $329.6 million in the three and nine months ended September 30, 2020, respectively, and $111.3 million and $298.1 million, respectively, in the corresponding periods of 2019.

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $169.6 million and $107.0 million in the three months ended March 31, 2021 and 2020, respectively.

Although power converters using our products are distributed to end markets worldwide, most are manufactured in Asia.

As a result, sales to this region represented 82% and 80% of our net revenues in the three and nine months ended September 30, 2020, respectively, and 77% in the corresponding periods of 2019.

As a result, sales to this region represented 85% and 75% of our net revenues in the three months ended March 31, 2021

and 2020 respectively.

We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenues in the future.

Sales to distributors accounted for 70% and 76% of net revenues in the three and nine months ended September 30, 2020, respectively and 68% and 73% in the corresponding periods of 2019.

Sales to distributors accounted for 77% and 76% of net revenues in the three months ended March 31, 2021 and 2020.

Direct sales to OEMs and power-supply manufacturers accounted for the remainder.

The following customers represented 10% or more of the Company’s net revenues for the respective periods:

The following customers represented 10% or more of our net revenues for the respective periods:

Three Months Ended

September 30, Nine Months Ended

September 30,

Customer 2020 2019 2020 2019

Avnet 18 % 11 % 14 % 11 %

Honestar Technologies Co., Ltd.

________________________

Powertech Distribution Ltd.

Total customer revenue was less than 10% of net revenues.

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Gross margin is gross profit divided by net revenues.

The table below compares gross profit and gross margin for the three and nine months ended September 30, 2020 and 2019:

The table below compares gross profit and gross margin for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions)

Net revenues $ 121.1 $ 114.2 $ 337.6 $ 306.2

Gross profit $ 59.6 $ 58.1 $ 169.6 $ 155.2

Gross margin 49.2 % 50.9 % 50.2 % 50.7 %

Gross margin decreased in the three and nine months ended September 30, 2020, compared with the corresponding periods in 2019, due primarily to an unfavorable change in end-market mix with a greater amount of revenues coming from lower-margin end markets.

The increase in gross profit was due to the increase in revenues.

The decrease in gross margin was due primarily to an unfavorable change in end-market mix with a greater percentage of revenues coming from lower-margin end markets.

Research and development expenses.

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We also record R&D expenses for prototype wafers related to new products until such products are released to production.

The table below compares R&D expenses for the three and nine months ended September 30, 2020 and 2019:

The table below compares R&D expenses for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions)

Net revenues $ 121.1 $ 114.2 $ 337.6 $ 306.2

R&D expenses $ 20.9 $ 18.0 $ 59.8 $ 55.2

R&D expenses as a % of net revenue 17.2 % 15.7 % 17.7 % 18.0 %

R&D expenses increased in the three and nine months ended September 30, 2020 as compared to the corresponding periods in 2019, due primarily to higher salary and related expenses driven by increased headcount, as well as higher stock-based compensation expense related to performance-based awards.

Percentage of net revenues

The increase in R&D expenses was due primarily to higher salary and related expenses driven by increased headcount and annual merit increases, as well as higher stock-based compensation expense related to performance-based awards.

Sales and marketing expenses.

Sales and marketing (“S&M”) expenses consist primarily of employee-related expenses, including stock-based compensation, commissions to sales representatives, amortization of intangible assets and facilities expenses, including expenses associated with our regional sales and support offices.

The table below compares S&M expenses for the three and nine months ended September 30, 2020 and 2019:

facilities expenses, including expenses associated with our regional sales and support offices.

The table below compares S&M expenses for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions)

Net revenues $ 121.1 $ 114.2 $ 337.6 $ 306.2

S&M expenses $ 13.7 $ 13.5 $ 40.2 $ 39.7

S&M expenses as a % of net revenue 11.3 % 11.8 % 11.9 % 13.0 %

S&M expenses increased in the three and nine months ended September 30, 2020, as compared to the corresponding periods in 2019, driven by higher salary and related expenses from the expansion of our sales force and higher stock-based compensation expense primarily related to performance-based awards.

These factors were partially offset by lower travel expenses and promotional activities resulting from restrictions associated with the COVID-19 pandemic, as well as lower amortization of intangibles.

Sales and marketing expenses

Percentage of net revenues

The increase in S&M expenses was due primarily by increased commission expense driven by increased sales, higher salary and related expenses stemming from annual merit increases, and higher stock-based compensation expense primarily related to performance-based awards.

These factors were partially offset by lower travel expenses resulting from restrictions associated with the COVID-19 pandemic that went into effect at the end of the first quarter of 2020.

General and administrative expenses.

General and administrative (“G&A”) expenses consist primarily of employee-related expenses, including stock-based compensation expenses, for administration, finance, human resources and general management, as well as consulting, professional services, legal and audit expenses.

The table below compares G&A expenses for the three and nine months ended September 30, 2020 and 2019:

The table below compares G&A expenses for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions)

Net revenues $ 121.1 $ 114.2 $ 337.6 $ 306.2

G&A expenses $ 10.3 $ 9.2 $ 26.9 $ 26.9

G&A expenses as a % of net revenue 8.5 % 8.1 % 8.0 % 8.8 %

G&A expenses increased in the three months ended September 30, 2020 as compared to the corresponding period in 2019 due to higher stock-based compensation expense related to performance-based awards, partially offset by lower patent-litigation expense following our settlement with ON Semiconductor in October 2019.

G&A expenses were flat in the nine months ended September 30, 2020 as compared to the corresponding period of 2019 as higher stock-based compensation expense was offset by lower patent-litigation expense.

Percentage of net revenues

The increase in G&A expenses was due primarily to higher stock-based compensation expense related to performance-based awards and higher salary and related expenses stemming from annual merit increases.

Other income .

Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other investments, and the impact of foreign exchange gains or losses.

The table below compares other income for the three and nine months ended September 30, 2020 and 2019:

The table below compares other income for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions)

Net revenues $ 121.1 $ 114.2 $ 337.6 $ 306.2

Other income $ 0.9 $ 1.1 $ 4.1 $ 3.5

Other income as a % of net revenue 0.7 % 0.9 % 1.2 % 1.2 %

Other income decreased in the three months ended September 30, 2020 as compared to the corresponding period in 2019 due primarily to lower interest income, reflecting lower yields earned on our cash and investments despite higher cash and investment balances.

Other income increased in the nine months ended September 30, 2020 as compared to the corresponding period in 2019 due primarily to an increase in interest income earned on higher cash and investment balances offset in part by lower yields.

Percentage of net revenues

Other income decreased due primarily to lower interest income, as lower yields on our cash and investments more than offset the impact of higher cash and investment balances .

Provision for income taxes .

Provision for income taxes represents federal, state and foreign taxes.

The table below compares income-tax expense for the three and nine months ended September 30, 2020 and 2019:

The table below compares income-tax expense for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

(dollars in millions)

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Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.

Our effective tax rates for the three and nine months ended September 30, 2020 were 5.1% and 6.4%, respectively, and 8.0% and 4.7%, respectively, for the corresponding periods of 2019.

The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of our world-wide earnings in lower-tax jurisdictions, the impact of federal research tax credits and the recognition of excess tax benefits related to share-based payments.

Our effective tax rates for the three months ended March 31, 2021 and 2020 were 2.4% and 5.8%, respectively.

The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic

distribution of our world-wide earnings in lower-tax jurisdictions, the impact of federal research tax credits and the recognition of excess tax benefits related to share-based payments.

Additionally, in the three months ended March 31, 2021, our effective tax rate was favorably impacted by a discrete item associated with the release of an unrecognized tax benefit.

These benefits were partially offset by U.S.

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Liquidity and Capital Resources

As of September 30, 2020, we had $443.9 million in cash, cash equivalents and short-term marketable securities, an increase of approximately $32.8 million from $411.1 million as of December 31, 2019.

As of September 30, 2020, we had

working capital, defined as current assets less current liabilities, of $526.7 million, an increase of approximately $35.8 million from $490.9 million as of December 31, 2019.

Operating activities generated cash of $79.3 million in the nine months ended September 30, 2020.

As of March 31, 2021, we had $491.3 million in cash, cash equivalents and short-term marketable securities, an increase of approximately $42.1 million from $449.2 million as of December 31, 2020.

As of March 31, 2021, we had working capital, defined as current assets less current liabilities, of $579.8 million, an increase of approximately $41.1 million from $538.7 million as of December 31, 2020.

We have a Credit Agreement with a bank (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit.

Our ability to borrow under the revolving line of credit is conditioned upon our compliance with specified covenants, including reporting and financial covenants, primarily a minimum liquidity measure and a debt to earnings ratio, with which we are currently in compliance.

The Credit Agreement terminates on April 30, 2022;

all advances under the revolving line of credit will become due on such date, or earlier in the event of a default.

No advances were outstanding under the agreement as of March 31, 2021.

Cash From Operating Activities

Operating activities generated cash of $58.1 million in the three months ended March 31, 2021.

Net income for this period was $39.8 million;

we also incurred non-cash stock-based compensation expense, depreciation, amortization and deferred income taxes of $22.0 million, $17.1 million, $3.3 million and $0.1 million, respectively.

Sources of cash also included a $6.4 million increase in accounts payable (excluding payables related to property and equipment) due primarily to the timing of payments, and a $6.1 million decrease in prepaid expenses and other assets, primarily driven by taxes refunded.

These sources of cash were partially offset by a $14.4 million increase in inventories in order to support the current and future demand environment, a $5.3 million increase in accounts receivable due to the increase and timing of customer shipments, and a $0.9 million decrease in taxes payable and accrued liabilities.

Operating activities generated cash of $42.3 million in the nine months ended September 30, 2019.

we also incurred non-cash stock-based compensation expense, depreciation, deferred income taxes, and amortization of $8.5 million, $7.5 million, $1.4 million and $1.0 million, respectively.

Sources of cash also included a $12.4 million decrease in inventory reflecting strong demand for the period and a $3.3 million increase in accounts payable (excluding payables related to property and equipment) due to the timing of payments.

These sources of cash were partially offset by $6.3 million decrease in taxes payable and accrued liabilities, a $6.3 million increase in accounts receivable due to increased customer shipments, and a $3.3 million increase in prepaid expense and other assets, primarily due to prepaid insurances and income taxes.

Operating activities generated cash of $26.4 million in the three months ended March 31, 2020.

Net income for this period was $15.9 million;

we also incurred non-cash stock-based compensation expense, depreciation, amortization and deferred income taxes of $6.7 million, $5.5 million, $1.1 million and $1.1 million, respectively.

Sources of cash also included a $1.1 million increase in taxes payable and accrued liabilities.

These sources of cash were partially offset by a $14.8 million increase in accounts receivable due to increased customer shipments, a $7.9 million increase in inventories reflecting the impact of a market slowdown during the first half of the year and anticipation of future demand, a $2.6 million decrease in accounts payable, excluding payables related to property and equipment, due primarily to the timing of payments, and a $3.0 million increase in prepaid expenses and other assets, primarily driven by prepaid legal fees, prepaid taxes and advances to suppliers.

Our investing activities used $14.5 million of cash in the nine months ended September 30, 2020, primarily consisting of $35.7 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of a new office building in Switzerland, partially offset by $20.9 million from sales and maturities of marketable securities (net of purchases of marketable securities).

Our investing activities in the nine months ended September 30, 2019, resulted in an $83.8 million net use of cash, primarily consisting of $69.1 million for purchases of marketable securities, net of sales and maturities, and $14.3 million for purchases of property and equipment, primarily production-related machinery and equipment.

Our financing activities in the nine months ended September 30, 2020, resulted in an $11.5 million net use of cash, consisting of $18.5 million for the payment of dividends to stockholders and $2.6 million for the repurchase of our common stock.

These uses of cash were offset in part by $9.7 million from the issuance of common stock, including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.

Our financing activities in the nine months ended September 30, 2019, resulted in a $12.5 million net use of cash, consisting of $14.9 million for the payment of dividends to stockholders and $7.3 million for the repurchase of our common stock.

Sources of cash also included an $8.8 million increase in accounts payable (excluding payables related to property and equipment) due primarily to the timing of payments and a $3.8 million decrease in accounts receivable due to the timing of cash receipts.

These sources of cash were partially offset by a $6.3 million increase in inventories in order to support future demand, a $6.3 million decrease in taxes payable and accrued liabilities, primarily due to the timing of payroll related liabilities and a $4.0 million increase in prepaid expenses and other assets, primarily driven by prepaid taxes, advances to suppliers and interest receivable on marketable securities.

Cash From Investing Activities

Our investing activities provided $30.5 million of cash in the three months ended March 31, 2021, primarily consisting of $41.5 million from sales and maturities of marketable securities, net of purchases, offset by $11.1 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of a new office building in Switzerland.

Our investing activities in the three months ended March 31, 2020, resulted in an $12.5 million net use of cash, primarily consisting of $11.6 million for purchases of property and equipment, primarily production-related machinery and equipment, and $0.9 million for purchases of marketable securities, net of sales and maturities.

Cash From Financing Activities

Our financing activities in the three months ended March 31, 2021, resulted in an $4.2 million net use of cash, consisting of $7.8 million for the payment of dividends to stockholders, partially offset by $3.7 million from the issuance of common stock, including the exercise of employee stock options and the issuance of shares through our employee stock

purchase plan.

Our financing activities in the three months ended March 31, 2020, resulted in a $2.1 million net use of cash, consisting of $5.6 million for the payment of dividends to stockholders and $2.0 million for the repurchase of our common stock.

These uses of cash were offset in part by $5.5 million from the issuance of common stock, including the exercise of employee stock options and the issuance of shares through our employee stock purchase plan.

On July 27, 2016, we entered into a Credit Agreement with a bank (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit.

We amended the Credit Agreement on April 30, 2018, to extend the termination date from July 26, 2019, to April 30, 2022, with all other terms remaining the same.

The Credit Agreement terminates on April 30, 2022;

all advances under the revolving line of credit will become due on such date, or earlier in the event of a default.

As of September 30, 2020, $7.4 million was reserved against the available credit in the form a standby letter of credit.

No advances were outstanding under the agreement as of September 30, 2020.

In January 2019, our board of directors declared four quarterly cash dividends of $0.085 per share to be paid to stockholders of record at the end of each quarter in 2019.

In October 2019, our board of directors raised the cash dividend per share with the declaration five cash dividends, consisting of (a) a dividend of $0.01 per share to be paid to stockholders of record at the end of the fourth quarter in 2019, that was in addition to the dividend of $0.085 per share to be paid to stockholders of record at the end of the fourth quarter in 2019 previously declared by the board in January 2019, and (b) a dividend of $0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.

In April 2020, our board of directors raised the cash dividend further with the declaration of three cash dividends of $0.105 per share (in lieu of the $0.095 per share previously announced) to be paid to stockholders of record at the end of each of the second, third and fourth quarters in 2020.

In October 2019, our board of directors declared four quarterly cash dividends of $0.095 per share to be paid to stockholders of record at the end of each quarter in 2020.

In April 2020, our board of directors raised the cash dividend with the declaration of three cash dividends of $0.105 per share (in lieu of the $0.095 per share previously announced) to be paid to stockholders of record at the end of each of the second, third and fourth quarters in 2020.

In July 2020, our board of directors raised the cash dividends further with the declaration of two cash dividends of $0.11 per share (in lieu of the $0.105 per share announced in April 2020) to be paid to stockholders of record at the end of each of the third and fourth quarter in 2020.

Dividend payouts of $5.6 million, $6.3 million, and $6.6 million occurred on March 31, 2020, June 30, 2020 and September 30, respectively.

In January 2021, our board of directors raised the quarterly cash dividend by an additional $0.02 per share with the declaration of four cash dividends of $0.13 per share to be paid to stockholders of record at the end of each quarter in 2021.

A dividends payout of $7.8 million occurred on March 31, 2021.

The declaration of any future cash dividend is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of our stockholders.

As of December 31, 2019, we had approximately $43.9 million remaining under our stock-repurchase program.

In the nine months ended September 30, 2020 we repurchased approximately 64,000 shares of our common stock for approximately $2.6 million.

As of September 30, 2020, we had approximately $41.3 million remaining in our repurchase program, which has no expiration date.

Stock Repurchases

We did not repurchase any of our common stock during the three months ended March 31, 2021.

As of March 31, 2021, we had approximately $41.3 million remaining under our stock-repurchase program, which has no expiration date.

In April 2021, our board of directors authorized the use of an additional $50.0 million for the repurchase of our common stock, with repurchases to be executed according to pre-defined price/volume guidelines.

Authorization of future repurchase programs is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors.

As of September 30, 2020, we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $20.8 million.

Contractual Commitments

As of March 31, 2021, we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $19.9 million.

A portion of the tax obligation is classified as long-term income taxes payable and a portion is recorded in deferred tax assets in our condensed consolidated balance sheet.

As of September 30, 2020, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

As of March 31, 2021, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2020.

Other Information

Our cash, cash equivalents and investment balances may change in future periods due to changes in our planned cash outlays, including changes in incremental costs such as direct and integration costs related to future acquisitions.

The Tax Act signed into law on December 22, 2017, subjects U.S.

companies to a one-time transition tax on total post-1986 earnings and profits of their foreign subsidiaries and generally allows companies to repatriate accumulated foreign earnings without incurring additional U.S.

federal taxes beginning after December 31, 2017.

Accordingly, as of September 30, 2020, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S.

tax laws generally allow companies to repatriate accumulated foreign earnings without incurring additional U.S.

federal taxes.

Accordingly, as of March 31, 2021, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S.

federal income taxes.

If our operating results deteriorate as a result of a decrease in customer demand, pricing pressure, or other factors, our ability to generate positive cash flow from operations may be jeopardized.

In particular, the economic disruption around the world caused by COVID-19 such as business shutdowns, stay-at-home directives, travel restrictions, border closures as well as factory closures, delays on deliveries, and disruptions to freight infrastructure could significantly disrupt our sales and marketing activities, manufacturing and product shipments and demand for our products which could have a material adverse impact on our cash flows.

In that case, we may be forced to use our cash, cash equivalents and short-term investments, use our credit agreement or seek additional financing from third parties to fund our operations.

If our operating results deteriorate in future periods, either as a result of a decrease in customer demand or pricing pressures from our customers or our competitors, or for other reasons, our ability to generate positive cash flow from operations may be jeopardized.

In that case, we may be forced to use our cash, cash equivalents and short-term investments, use our current financing or seek additional financing from third parties to fund our operations.

We believe that cash generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other cash requirements for at least the next 12 months.

Off-Balance-Sheet Arrangements

As of September 30, 2020, we did not have any off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of March 31, 2021, we did not have any off-balance-sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recent Accounting Pronouncements

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Item 2. Management’s Discussion and Analysis