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 has been prepared as an aid to understanding our financial condition and results of operations. It 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, 2021 , filed with the SEC on February 7, 2022 . 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, 2021 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 the 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
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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.
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™ 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 connectivity, LED lighting and other power-consuming electronic features in consumer appliances has also enhanced our SAM.
Finally, we have expanded 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 our products, enabling a higher level of energy efficiency than ICs with silicon transistors. Since then, we have introduced a variety of new products utilizing GaN technology and we expect to address a wider range of applications with GaN-based products in the years ahead.
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, such as the current growing inflation, higher interest rates and potential recession 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.
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Recent Results
Our net revenues were $160.2 million and $176.8 million for the three months ended September 30, 2022 and 2021, respectively, and $526.4 million and $530.6 million for the nine months ended September 30, 2022 and 2021, respectively. We believe that demand for our products has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending in response to inflation, a shift in consumer spending toward travel and services, the conflict in Ukraine, the weaker housing market, particularly in China, and restrictions on economic activity in China aimed at controlling the spread of COVID-19. The decrease in revenues for the three-month period was driven by the communications, consumer and computer end markets, reflecting weaker demand for cellphones, computers and appliances; the decreases in these markets were partially offset by increased sales into the industrial end-market reflecting growth across a broad range of industrial applications such as wind-power systems, electronic utility meters, battery-operated tools and broad-based industrial applications. The decrease in revenues for the nine-month period was driven by lower sales into the communications end-market reflecting weaker demand from customers serving the cellphone market; the decrease in the communications end-market was partially offset by increased sales in the other markets, primarily the industrial end-market, reflecting growth across a broad range of industrial applications such as wind-power systems and broad-based industrial applications.
Our top ten customers, including distributors that resell to original equipment manufacturers, or OEMs, and merchant power supply manufacturers, accounted for 72% and 75% of net revenues in the three and nine months ended September 30, 2022, respectively, and 76% and 79% in the corresponding periods of 2021, respectively. International sales accounted for 95% and 96% of our net revenues in the three and nine months ended September 30, 2022, respectively, and 97% and 98% in the corresponding periods of 2021, respectively.
Our gross margin was 57.4% and 51.9% in the three months ended September 30, 2022 and 2021, respectively, and 56.9% and 50.4% in the nine months ended September 30, 2022 and 2021, respectively. Our gross margin increased primarily due to favorable end-market mix, with a greater percentage of revenues coming from higher-margin end markets, as well as manufacturing efficiencies.
Total operating expenses were $43.7 million and $46.1 million in the three months ended September 30, 2022 and 2021, respectively, and $140.0 million and $136.7 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease in operating expenses for the three months ended September 30, 2022 was due primarily to lower stock-based compensation expense partially offset by higher salary and related expenses driven by increased headcount and product development expenses. The increase in operating expenses for the nine months ended September 30, 2022 was due primarily to our litigation settlement with Opticurrent LLC, higher salary and related expenses driven by increased headcount, and product development expenses, partially offset by lower stock-based compensation expense and receipt of a distribution from the bankruptcy liquidation of SemiSouth Laboratories, Inc., of which we were a creditor as a result of investments made in SemiSouth in 2011.
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. A large percentage of our employees continued to work remotely throughout 2021 and into 2022. However, following the relaxation of local regulations and taking into account the high vaccination rate among our employees, our San Jose headquarters reopened on April 4, 2022 with employees returning to the office. Our employee health and well-being are top priorities; we continue to monitor the situation and will adjust working conditions again should the need arise.
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 our supply of wafers from our foundry partners has not been interrupted, government-mandated closures in China, Malaysia, Sri Lanka and the Philippines have caused temporary shutdowns at our assembly and test sub-contractors at various times. These disruptions have not materially affected our results due to a variety of mitigation measures including higher-than-normal inventories of wafers and finished goods in the early stages of the pandemic, safety stocks of certain key inputs and multiple sources for components for most of our products. Although there are signs of improvement in the US and many areas around the world, the potential for disruptions caused by ongoing mitigation efforts remains a risk for our supply chain and the results
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of our business; for instance, we believe that recent lockdowns in China have had a negative impact on demand for our products.
While the continuing pandemic brings a greater-than-normal level of uncertainty with respect to the supply of and demand for our products, 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 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, 2021.
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.
Our critical accounting policies are as follows:
● revenue recognition.
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, 2021, filed with the SEC on February 7, 2022.
Results of Operations
The following table sets forth certain operating data as a percentage of net revenues for the periods indicated.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Net revenues
100.0
%
100.0
%
100.0
%
100.0
%
Cost of revenues
42.6
48.1
43.1
49.6
Gross profit
57.4
51.9
56.9
50.4
Operating expenses:
Research and development
14.5
12.0
13.4
11.9
Sales and marketing
9.2
8.8
8.9
8.5
General and administrative
3.6
5.3
4.1
5.4
Other operating expenses
—
—
0.2
—
Total operating expenses
27.3
26.1
26.6
25.8
Income from operations
30.1
25.8
30.3
24.6
Other income
0.6
0.1
0.4
0.2
Income before income taxes
30.7
25.9
30.7
24.8
Provision for income taxes
2.1
2.1
2.6
1.5
Net income
28.6
%
23.8
%
28.1
%
23.3
%
Comparison of the three and nine months ended September 30, 2022 and 2021
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, 2022 were $160.2 million and $526.4 million, respectively, and $176.8 million and $530.6 million for the corresponding periods of 2021, respectively. We believe that demand for our products has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending in response to inflation, a shift in consumer spending toward travel and
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services, the conflict in Ukraine, the weaker housing market, particularly in China, and restrictions on economic activity in China aimed at controlling the spread of COVID-19. The decrease in revenues for the three-month period was driven by the communications, consumer and computer end markets, reflecting weaker demand for cellphones, computers and appliances; the decreases in these markets were partially offset by increased sales into the industrial end-market reflecting growth across a broad range of industrial applications such as wind-power systems, electronic utility meters, battery-operated tools and broad-based industrial applications. The decrease in revenues for the nine-month period was driven by lower sales into the communications end-market reflecting weaker demand from customers serving the cellphone market; the decrease in the communications end-market was partially offset by increased sales in the other markets, primarily the industrial end-market, reflecting growth across a broad range of industrial applications such as wind-power systems and broad-based industrial applications.
Our revenue mix by end market for the three and nine months ended September 30, 2022 and 2021 was as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
End Market
2022
2021
2022
2021
Communications
16
%
25
%
20
%
33
%
Computer
11
%
11
%
10
%
9
%
Consumer
32
%
34
%
35
%
31
%
Industrial
41
%
30
%
35
%
27
%
International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $151.8 million and $503.5 million in the three and nine months ended September 30, 2022, respectively, and $171.7 million and $517.7 million, in the corresponding periods of 2021, 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 68% and 75% of our net revenues in the three and nine months ended September 30, 2022, respectively, and 80% and 83% in the corresponding periods of 2021, 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 65% and 71% in the three and nine months ended September 30, 2022, respectively, and 72% and 75% in the corresponding periods of 2021, respectively. 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
Nine Months Ended
September 30,
September 30,
Customer
2022
2021
2022
2021
Avnet
28
%
27
%
30
%
29
%
Honestar Technologies Co., Ltd.
*
15
%
12
%
17
%
Salcomp Group
12
%
*
*
*
*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 and nine months ended September 30, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2022
2021
2022
2021
Net revenues
$
160.2
$
176.8
$
526.4
$
530.6
Gross profit
$
92.0
$
91.7
$
299.6
$
267.5
Gross margin
57.4
%
51.9
%
56.9
%
50.4
%
Our gross margin increased primarily due to favorable end-market mix, with a greater percentage of revenues coming from higher-margin end markets, as well as manufacturing efficiencies.
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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 and nine months ended September 30, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2022
2021
2022
2021
R&D expenses
$
23.2
$
21.1
$
70.4
$
62.9
Headcount (at period end)
305
296
305
296
R&D expenses increased for the three and nine months ended September 30, 2022, as compared to the corresponding periods of 2021, primarily due to higher salary and related expenses driven by increased headcount and increased product development expenses. These increases were partially offset by reduced 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, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2022
2021
2022
2021
Sales and marketing expenses
$
14.7
$
15.6
$
47.1
$
45.0
Headcount (at period end)
321
267
321
267
S&M expenses decreased in the three months ended September 30, 2022, due to reduced stock-based compensation expense related to performance-based awards, lower commissions and lower amortization of acquired intangibles as certain intangible assets are now fully amortized; these factors were partially offset by higher salary expense stemming from higher headcount, as well as increased travel and tradeshow related expenses. S&M expenses increased in the nine months ended September 30, 2022, as compared to the corresponding period of 2021, due to higher salary and related expenses stemming from higher headcount and increased travel and tradeshow related expenses partially offset by reduced stock-based compensation expense related to performance-based awards, lower commissions and lower amortization of acquired intangibles.
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, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2022
2021
2022
2021
G&A expenses
$
5.8
$
9.4
$
21.4
$
28.8
Headcount (at period end)
73
70
73
70
G&A expenses decreased for the three and nine months ended September 30, 2022 as compared to the corresponding periods of 2021, due to lower stock-based compensation expense related to performance-based awards, partially offset by higher expenses for professional and legal services.
Other operating expenses, net. Other operating expenses, net were $1.1 million in the nine months ended September 30, 2022 . This amount consisted of a $2.9 million expense stemming from the settlement of our litigation with Opticurrent LLC (refer to Note 12, Legal Proceedings and Contingencies , in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q), partially offset by receipt of a $1.7 million distribution related to SemiSouth Laboratories, Inc.’s bankruptcy liquidation of which we were a creditor as a result of investments made in SemiSouth in 2011.
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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, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2022
2021
2022
2021
Other income
$
1.0
$
0.2
$
2.2
$
1.0
Other income increased for the three and nine months ended September 30, 2022 as compared to the corresponding periods of 2021, primarily due to higher interest income and gains on foreign currency exchange.
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, 2022 and 2021:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(dollars in millions)
2022
2021
2022
2021
Provision for income taxes
$
3.4
$
3.8
$
13.7
$
8.0
Effective tax rate
6.9
%
8.2
%
8.5
%
6.1
%
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 and nine months ended September 30, 2022 were 6.9% and 8.5%, respectively, and 8.2% and 6.1% for the corresponding periods of 2021, 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 and the impact of federal research tax credits. Additionally, in the three months ended September 30, 2022 and 2021, our effective tax rate was favorably impacted by the recognition of excess tax benefits related to share-based payments. In the nine months ended September 30, 2022 and 2021, our effective tax rate was favorably impacted by discrete items associated with the release of unrecognized tax benefits and recognition of excess tax benefits related to share-based payments. 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 September 30, 2022, we had $363.2 million in cash, cash equivalents and short-term marketable securities, a decrease of $167.1 million from $530.4 million as of December 31, 2021. As of September 30, 2022, we had working capital, defined as current assets less current liabilities, of $453.2 million, a decrease of approximately $161.3 million from $614.5 million as of December 31, 2021.
We have a Credit Agreement with Wells Fargo Bank, National Association (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. The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same. 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 June 7, 2026; 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 September 30, 2022.
Cash From Operating Activities
Operating activities generated $191.2 million of cash in the nine months ended September 30, 2022. Net income for this period was $148.0 million; we also incurred depreciation, non-cash stock-based compensation expense,
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amortization of premiums on marketable securities and amortization of intangibles of $26.1 million, $15.7 million, $2.6 million and $1.9 million, respectively. Sources of cash also included a $24.6 million decrease in accounts receivable due to decreased customer shipments and $8.4 million decrease in prepaid expenses and other assets. These sources of cash were partially offset by a $20.8 million increase in inventories due to softening demand during the year, a $5.9 million decrease in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $3.9 million decrease in taxes payable and accrued liabilities.
Operating activities generated $183.7 million of cash in the nine months ended September 30, 2021. Net income for this period was $123.7 million; we also incurred non-cash stock-based compensation expense, depreciation, amortization of intangibles and loss on disposal of property and equipment of $27.3 million, $23.4 million, $2.7 million and $2.2 million, respectively. Sources of cash also included an $11.1 million decrease in inventory reflecting strong demand for the period and a $6.6 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 a $6.2 million decrease in taxes payable and accrued liabilities, a $5.0 million increase in prepaid expenses and other assets, primarily due to prepaid income taxes, and a $3.0 million increase in accounts receivable due to increased customer shipments.
Cash From Investing Activities
Our investing activities in the nine months ended September 30, 2022 generated $101.5 million of cash, primarily consisting of $133.8 million from sales and maturities of marketable securities, net of purchases, and by proceeds of $1.2 million from the sale of an office building, partially offset by $33.4 million for purchases of property and equipment, primarily production-related machinery and equipment.
Our investing activities in the nine months ended September 30, 2021 resulted in a $128.1 million net use of cash, primarily consisting of $97.9 million for the purchase of marketable securities, net of sales and maturities, and $30.3 million for purchases of property and equipment, primarily production-related machinery and equipment as well as construction of a new office building in Switzerland.
Cash From Financing Activities
Our financing activities in the nine months ended September 30, 2022 resulted in a $317.4 million net use of cash, consisting of $292.3 million for the repurchase of our common stock and $31.2 million for the payment of dividends to stockholders, partially offset by $6.2 million from the issuance of shares through our employee stock purchase plan.
Our financing activities in the nine months ended September 30, 2021 resulted in a $52.0 million net use of cash, consisting of $36.2 million for the repurchase of our common stock and $23.6 million for the payment of dividends to stockholders, partially offset by $7.7 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.
Dividends
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. In October 2021, our board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $0.15 per share (in lieu of the $0.13 per share announced in January 2021) to be paid to stockholders of record at the end of the fourth quarter in 2021 and at the end of each quarter in 2022.
In January 2022, our board of directors raised the quarterly cash dividend by an additional $0.03 per share with the declaration of four cash dividends of $0.18 per share (in lieu of the $0.15 per share announced in October 2021) to be paid to stockholders of record at the end of each quarter in 2022. A dividend payout of $10.7 million, $10.3 million and $10.3 million occurred on March 31, 2022, June 30, 2022 and September 30, 2022, respectively. 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
As of December 31, 2021 , we had $67.3 million remaining under our stock-repurchase program . In January, February and April 2022, our board of directors authorized the use of an additional $100 million, $50 million and $75 million, respectively, for the repurchase of our common stock, with repurchases to be executed according to pre-
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defined price/volume guidelines. In the nine months ended September 30, 2022 , we repurchased 3.5 million shares of our common stock for $292.3 million, leaving no funds authorized as of September 30, 2022. In October 2022, our board of directors authorized the use of an additional $100 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 our board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors; the program has no expiration date.
Contractual Commitments
As of September 30, 2022 we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $22.9 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, 2022, 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, 2021.
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 September 30, 2022, 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.
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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