Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and our results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 5, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part II, Item 1A - “Risk Factors” and elsewhere in this report. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.
Overview
We design, develop and market analog and mixed-signal integrated circuits (ICs) and other electronic components and circuitry used in high-voltage power conversion. Our products are used in power converters that convert electricity from a high-voltage source to the type of power required for a specified downstream use. In most cases, this conversion entails, among other functions, converting alternating current (AC) to direct current (DC) or vice versa, reducing or increasing the voltage, and regulating the output voltage and/or current according to the customer’s specifications.
A large percentage of our products are ICs used in AC-DC power supplies, which convert the high-voltage AC from a wall outlet to the low-voltage DC required by most electronic devices. Power supplies incorporating our products are used with all manner of electronic products including mobile phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and security devices. We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.
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 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 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. Therefore, the growth of our business depends largely on increasing our penetration of the markets that we serve and on further expanding our addressable market. Our growth strategy includes the following elements:
● 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 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
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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. For example, our EcoSmart™ technology drastically reduces the amount of energy consumed by electronic products when they are not in use, helping our customers comply with regulations that seek to curb this so-called “standby” energy consumption. Also, our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC transmission systems, solar and wind energy systems and electric transportation applications.
● Increase the size of our addressable market. Prior to 2010 our addressable market consisted of AC-DC applications with up to about 50 watts of output, a served available market (SAM) opportunity of approximately $1.5 billion. Since that time we have expanded our SAM to more than $4 billion through a variety of means. These include the introduction of products that enable us to address higher-power AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products, and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in 2012. 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, 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.
Also contributing to our SAM expansion has been the emergence of new applications within the power ranges that our products can address. For example, applications such as “smart” utility meters, battery-powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional AC wall outlets) can incorporate our products. The increased use of electronic intelligence and connectivity in consumer appliances has also enhanced our SAM. Finally, we have enhanced our SAM through the development of new technologies that increase the value (and therefore the average selling prices) of our products. 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 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.
Our quarterly operating results are difficult to predict and subject to significant fluctuations. We plan our production and inventory levels based on internal forecasts of projected customer demand, which are highly unpredictable and can fluctuate substantially. Customers typically may cancel or reschedule orders on short notice without significant penalty and, conversely, often place orders with very short lead times to delivery. Also, external factors such as global economic conditions and supply-chain dynamics can cause our operating results to be volatile. In particular, the severe economic disruption caused by the global novel coronavirus pandemic (COVID-19) may affect the supply of and demand for our products and make our results more difficult to forecast. Furthermore, because our industry is intensely price-sensitive, our gross margin (gross profit divided by net revenues) is subject to change based on the relative pricing of solutions that compete with ours. Variations in product mix, end-market mix and customer mix can also cause our gross margin to fluctuate. Because we purchase a large percentage of our silicon wafers from foundries located in Japan, our gross margin is influenced by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen. Changes in the prices of raw materials used in our products, such as copper and gold, can also affect our gross margin. Although our wafer-fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our production costs are fixed in nature. As a result, our unit costs and gross margin are impacted by the volume of units we produce.
Recent Results
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
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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
The COVID-19 pandemic has disrupted everyday life and markets worldwide, and governments around the world have imposed restrictions aimed at controlling the spread of the virus, including shelter-in-place orders, travel restrictions, business shutdowns and border closures. Beginning March 16, 2020 our San Jose headquarters location was subject to a shelter-in-place order, under which most of our employees were required to work from home; other locations around the world have also been subject to such restrictions. We will begin a phased reopening of our San Jose headquarters when these restrictions are lifted. 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, 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 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
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.
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Our critical accounting policies are as follows:
● revenue recognition; and
● income taxes.
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. There have been no material changes to our critical accounting policies and estimates disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , in each case in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 5, 2021.
Results of Operations
The following table sets forth certain operating data as a percentage of net revenues for the periods indicated.
Three Months Ended
March 31,
2021
2020
Net revenues
100.0
%
100.0
%
Cost of revenues
51.4
48.5
Gross profit
48.6
51.5
Operating expenses:
Research and development
11.5
17.4
Sales and marketing
8.1
12.3
General and administrative
5.8
8.0
Total operating expenses
25.4
37.7
Income from operations
23.2
13.8
Other income
0.3
1.6
Income before income taxes
23.5
15.4
Provision for income taxes
0.6
0.9
Net income
22.9
%
14.5
%
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 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. 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 revenue mix by end market for the three months ended March 31, 2021 and 2020 was as follows:
Three Months Ended
March 31,
End Market
2021
2020
Communications
38
%
22
%
Computer
8
%
4
%
Consumer
29
%
41
%
Industrial
25
%
33
%
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 85% and 75% of our net revenues in the three months ended March 31, 2021
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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 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 our net revenues for the respective periods:
Three Months Ended
March 31,
Customer
2021
2020
Avnet
31
%
11
%
Honestar Technologies Co., Ltd.
18
%
*
Powertech Distribution Ltd.
*
11
%
*
Total customer revenue was less than 10% of net revenues.
No other customers accounted for 10% or more of our net revenues in these periods.
Gross profit. Gross profit is net revenues less cost of revenues. Our cost of revenues consists primarily of costs associated with the purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product testing performed in our own facilities, amortization of acquired intangible assets, and overhead associated with the management of our supply chain. Gross margin is gross profit divided by net revenues. The table below compares gross profit and gross margin for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
(dollars in millions)
2021
2020
Net revenues
$
173.7
$
109.7
Gross profit
$
84.4
$
56.5
Gross margin
48.6
%
51.5
%
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. Research and development (“R&D”) expenses consist primarily of employee-related expenses, including stock-based compensation, and expensed material and facility costs associated with the development of new technologies and new products. 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 months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
(dollars in millions)
2021
2020
Net revenues
$
173.7
$
109.7
R&D expenses
$
20.0
$
19.2
Percentage of net revenues
11.5
%
17.4
%
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
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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
March 31,
(dollars in millions)
2021
2020
Net revenues
$
173.7
$
109.7
Sales and marketing expenses
$
14.1
$
13.5
Percentage of net revenues
8.1
%
12.3
%
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 months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
(dollars in millions)
2021
2020
Net revenues
$
173.7
$
109.7
G&A expenses
$
10.1
$
8.8
Percentage of net revenues
5.8
%
8.0
%
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 months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
(dollars in millions)
2021
2020
Net revenues
$
173.7
$
109.7
Other income
$
0.6
$
1.8
Percentage of net revenues
0.3
%
1.6
%
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 months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
(dollars in millions)
2021
2020
Income before income taxes
$
40.8
$
16.9
Provision for income taxes
$
1.0
$
1.0
Effective tax rate
2.4
%
5.8
%
Income-tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to us and our subsidiaries, adjusted for certain discrete items which are fully recognized in the period in which they occur. Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.
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
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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. tax on foreign income, known as global intangible low-taxed income. The primary jurisdiction from which our foreign earnings are derived is the Cayman Islands, which is a non-taxing jurisdiction. Income earned in other foreign jurisdictions was not material. We have not been granted any incentivized tax rates and do not operate under any tax holidays in any jurisdiction.
Liquidity and Capital Resources
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, 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 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
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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.
Dividends
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. 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.
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.
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 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. Current 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 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 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.
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Recent Accounting Pronouncements
Information with respect to this item may be found in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
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