What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-08 compared with 2022-03-04 · 85 added, 93 removed, 182 unchanged (49% of the section changed)

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The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this document.

We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, and intelligent wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, security, home automation, climate control, and home appliance markets.

We design, develop, manufacture, ship and support control and sensor technology solutions and a broad line of universal control systems, audio-video ("AV") accessories, wireless security and smart home products that are used by the world's leading brands in the video services, consumer electronics, security, home automation, climate control, and home appliance markets.

Our product and technology offerings include:

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• software, firmware and technology solutions that can enable devices such as TVs, set-top boxes, audio systems, smart speakers, game consoles and other consumer electronic and smart home devices to wirelessly connect and interact with home networks and interactive services to control and deliver home entertainment, smart home services and device or system information;

• cloud-services that support our embedded software and hardware solutions (directly or indirectly) enabling real-time device identification and system control with billions of transactions per year in device and data management;

• cloud-services that support our embedded software and hardware solutions (directly or indirectly) enabling real-time device identification and system control;

• intellectual property that we license primarily to OEMs and video service providers;

• proprietary and standards-based RF sensors designed for residential security, safety and home automation applications;

• wall-mount and handheld thermostat controllers and connected accessories for intelligent energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators;

• embedded and cloud-enabled software for reliable firmware update and digital rights management validation services to major consumer electronics brands;

• wall-mount and handheld thermostat controllers and connected accessories for smart energy management systems, primarily to OEM customers, as well as hotels and hospitality system integrators;

• AV accessories sold, directly and indirectly, to consumers including universal remote controls, television wall mounts and stands and digital television antennas.

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge graph.

Since our beginning in 1986, we have compiled an extensive device control knowledge library that includes nearly 13,000 brands comprising over 989,000 device models across AV and smart home platforms, supported by many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control.

This device knowledge graph is backed by our unique device fingerprinting technology which includes over 24.4 million unique device fingerprints across both AV and Smart Home devices.

A key factor in creating products and software for control of entertainment devices is our proprietary device knowledge.

Each year our device control library continues to grow across AV and smart home platforms, supporting many common smart home protocols, including IR, HDMI-CEC, Zigbee (Rf4CE), Z-Wave, IP, as well as Home Network and Cloud Control.

Our technology also includes other remote controlled home entertainment devices and home automation control modules, as well as wired Consumer Electronics Control ("CEC") and wireless IP control protocols commonly found on many of the latest HDMI and internet connected devices.

Our proprietary software automatically detects, identifies and enables the appropriate control commands for many home entertainment and automation devices in the home.

Our libraries are continuously updated with device control codes used in newly introduced AV and IoT devices.

Our libraries are continuously updated with device control codes used in newly introduced AV and Internet of Things ("IoT") devices.

These control codes are captured directly from original control devices or from the manufacturer's written specifications to ensure the accuracy and integrity of the library.

Our proprietary software and know-how permit us to offer a device control code database that is more robust and efficient than similarly priced products of our competitors.

We operate as one business segment.

We have two domestic subsidiaries and 25 international subsidiaries located in Brazil, British Virgin Islands, Cayman Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, the People's Republic of China (7), Singapore, Spain and the United Kingdom.

We have one domestic subsidiary and 25 international subsidiaries located in Brazil, British Virgin Islands, France, Germany, Hong Kong (3), India, Italy, Japan, Korea, Mexico (2), the Netherlands, People's Republic of China (the "PRC") (7), Singapore, Spain, United Kingdom and Vietnam.

To recap our results for 2022:

• Net sales decreased 9.8% to $542.8 million in 2022 from $601.6 million in 2021.

• Our gross profit percentage increased to 28.8% in 2021 from 28.7% in 2020.

• Our gross profit percentage decreased to 28.1% in 2022 from 28.8% in 2021.

• Operating expenses, as a percent of sales, increased to 25.4% in 2022 from 24.9% in 2021.

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Our strategic business objectives for 2023 include the following:

• continue to develop and market advanced remote control products and technologies our customer base is adopting;

• continue to broaden our home control and home automation product offerings;

• continue to expand our software and service offerings to deliver a complete managed service platform;

• continue to invest in creating technology differentiation across our global product portfolio;

• further penetration of international subscription broadcasting markets;

• acquire new customers in historically strong regions;

• increase our share with existing customers;

• continue to seek acquisitions or strategic partners that complement and strengthen our existing business;

• continue our long-term factory planning strategy of reducing our concentration risk in the People's Republic of China.

• increase new product development efforts in high-growth HVAC OEM channel to grow our market penetration with existing customers and acquire new customers with the goal of achieving market share leadership in climate control channel within 2 years;

• broaden our home control and home automation product solutions with the aim of acquiring new customers that represent market share leaders in their respective channels and regions;

• expand our software and service platform, QuickSet, to deliver a complete smart entertainment and smart home managed service platform;

• invest in creating sustainable technology solutions that offer product differentiation across our global product portfolio;

• explore and expand product offerings in our core subscription broadcasting channel beyond traditional entertainment remote controls;

• seek acquisitions or strategic partners that complement and strengthen our existing business;

• expedite our long-term factory planning strategy to optimize our manufacturing footprint and reduce our manufacturing concentration in the PRC.

We intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements.

COVID-19 Pandemic Impact

The global spread of COVID-19 has been and continues to be a complex and rapidly-evolving situation, with governments, public institutions and other organizations imposing or recommending, and businesses and individuals implementing, at various times and to varying degrees, restrictions on various activities or other actions to combat its spread, such as restrictions and bans on travel or transportation, limitations on the size of gatherings, closures of or occupancy or other operating limitations on ports, work facilities, schools, public buildings and businesses, cancellation of events, including sporting events, conferences and meetings, and quarantines and lock-downs.

The COVID-19 pandemic and its consequences have and will continue to impact our business, operations, and financial results.

The extent to which the COVID-19 pandemic impacts our business, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors that we may not be able to accurately predict or assess, including the duration and scope of the COVID-19 pandemic (including the location and extent of resurgences of the virus, particularly in light of new variants, and the availability of effective treatments or vaccines);

and the negative impact the COVID-19 pandemic has on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending.

Because the severity, magnitude and duration of the COVID-19 pandemic are uncertain, rapidly changing, and difficult to predict, the pandemic's impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain.

As the COVID-19 pandemic continues, the full extent of this outbreak and the related governmental, business and travel restrictions in order to contain the COVID-19 pandemic are continuing to evolve globally.

Our COVID-19 task force, which includes a cross-functional group of senior-level executives, continues to manage and respond to the ever-changing health and safety requirements across the globe and communicate our responses and recommended course of action to our global factory and office leaders.

In addition, we continue to maintain safety measures for all our employees across the globe as pandemic conditions require, including implementing work-from-home arrangements, restricting travel except where essential and approved in advance, frequent office and factory sanitation, temperature scans upon entry, hand sanitizer stations located throughout our facilities and offices, mask wearing, social distancing measures in gathering places and restricting visitor access.

All factories are up to or near labor capacity as of the issuance of this report.

Further, we continue to monitor and follow suggested guidelines by the Centers for Disease Control and Prevention, the World Health Organization, and local governmental orders and recommendations.

The continued safety and welfare of our employees will remain at the forefront of all decision-making.

We anticipate that these actions and the global health crisis caused by the COVID-19 pandemic will continue to negatively impact business activity across the globe, including our business.

We expect our sales demand to be negatively impacted into, at least, the first half of 2022 given the global reach and economic impact of the COVID-19 pandemic and the various quarantine and social distancing measures put in place to contain the spread of the COVID-19 pandemic.

A closure of one of our factories for a sustained period of time would, in the short run, impact our ability to meet customer demand and would negatively impact our results.

We have also seen disruptions in our supply chain, due to difficulty in obtaining ICs and substantial delays in the transportation and the onloading and offloading of our product due to significant congestion at ports throughout the world.

This, in turn, causes significant congestion in other downstream transportation, such as via trucks and rail.

As such, these congestions have caused and continue to cause difficulty and delays in our ability to fulfill customer orders and have resulted in increased logistics costs.

We will continue to actively monitor these situations and may take further actions altering our business operations as necessary or as required by federal, state, or local authorities.

The potential effects of any such alterations or modifications may have a material adverse impact on our business during 2022.

Even after the COVID-19 pandemic subsides or effective treatments or vaccines become available, our business, markets, growth prospects and business model could be materially impacted or altered.

Global Integrated Circuit Shortage Impact

We continue experiencing difficulty in ordering ICs for future use and that difficulty is expected to continue through at least mid to late 2022.

The global shortage of ICs is affecting a multitude of industries and we expect it to continue to affect our business.

While we are identifying other sources of ICs and taking other production and inventory control steps in order to mitigate the effects caused by this shortage, we cannot guarantee that we will find alternative sources to meet our short- and longer-term IC needs and/or without experiencing increases in the prices we pay for these components.

If we are not able to find alternative sources of ICs or are not able to purchase sufficient quantities of ICs from our current and alternative suppliers, we may not be able to produce sufficient quantities of products to meet our customers' demands.

This, in turn, may affect our ability to meet our quarterly revenue targets.

Further, we may incur additional freight costs to meet the delivery demands of our customers.

COVID-19 Pandemic and Supply Chain Impact

The COVID-19 pandemic, including related measures to curtail its spread, continues to be a complex and evolving situation and has and will continue to impact our business, operations, and financial results.

We anticipate that the global health crisis caused by the COVID-19 pandemic will continue to negatively impact business activity across the globe, including our business.

We expect our sales demand to be negatively impacted into, at least, the first half of 2023 given the global reach and economic impact of the COVID-19 pandemic and the various governmentally imposed lockdowns, quarantine and social distancing measures put in place to contain the spread of the COVID-19 pandemic.

A future suspension of our manufacturing operations would impact our ability to meet customer demand and could have a significant adverse effect on our financial conditions and results of operations.

COVID-19 also continues to impact the global supply chain causing disruptions to service providers, logistics and the flow and availability of supplies and products.

Our manufacturing sites, as well as our suppliers and outsourcing partners, and our supply chain have been adversely and may continue to be adversely impacted as a result of restrictions and logistics and operational challenges related to COVID-19.

These disruptions have resulted and may continue to result in supply shortages and delays impacting sales worldwide.

We may experience further disruptions to our manufacturing operations, supply chain and/or distribution channels in the future, and these disruptions may be prolonged.

We have also been negatively impacted by supply chain difficulties including obtaining ICs and other long-lead time components and we expect this to continue into 2023.

While we are taking production and inventory control steps to mitigate the effects caused by these shortages including advanced purchasing of long-lead time components, we cannot guarantee that these steps will allow us to meet our short-term IC and other component parts needs.

As such, these supply constraints continue to cause difficulty and delays in our ability to fulfill customer orders and have at times resulted in increased logistics costs.

In addition, many of our products are paired with certain of our customers' products, like set-top boxes or televisions.

If those customers are not able to obtain sufficient quantities of ICs for their products, their demand for our products may decrease.

Macroeconomic Conditions

We have been negatively impacted and we expect to continue to be negatively impacted by adverse macroeconomic conditions, in particular reduced consumer spending.

Inflation has increased our component and logistics costs.

While we have been able to increase sales prices on certain products, there may be a delay in our ability to increase prices and we may not be able to fully offset the impact of increased material costs which would negatively impact our gross profit.

Our cost of labor, materials and borrowing may continue to increase which would negatively impact our business and financial results.

In addition, we expect recessionary fears in the global economy will ultimately negatively impact our sales demand.

Qinzhou, China Facility

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We take all allegations regarding working conditions seriously, and took a cooperative approach to responding to the Committee's letter, cooperated fully with the Committee's inquiry and provided the Committee with timely and complete responses to all of its questions.

Manufacturing Footprint

We expect to commence manufacturing operations in a new factory in Vietnam in the first half of 2023, which may result in manufacturing inefficiencies.

We are currently evaluating our manufacturing footprint with the expectation that once the Vietnam factory is operating efficiently, we will reduce our manufacturing capacity, most likely, by shutting down an existing facility.

If this were to occur, we would record an impairment charge and severance expense in amounts that are not presently calculable, however could be material.

We are analyzing various scenarios, each contingent on the success of the new Vietnam factory, and have yet to conclude on a specific plan.

Critical Accounting Estimates

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On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory valuation, impairment of long-lived assets, intangible assets and goodwill and income taxes.

results may differ from these judgments and estimates, and they may be adjusted as more information becomes available.

Actual results may differ from these judgments and estimates, and they may be adjusted as more information becomes available.

Any adjustment may be significant and may have a material impact on our consolidated financial statements.

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Revenues are generated from manufacturing and delivering universal control, sensing and automation products and AV accessories, which are sold through multiple channels, and licensing intellectual property that is embedded in these products or licensed to others for use in their products.

We also generate revenues from a cloud-based software solution enabling software updates, digital rights management provisioning and remote technical support to consumer electronics customers.

Timing of Revenue Recognition – When determining the classification of over time verses point in time revenue recognition, there is significant judgment exercised by management in identifying and evaluating whether new contracts and/or products meet the criteria for over time or point in time revenue recognition.

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In assessing fair value, we must make assumptions regarding estimated future cash flows, the discount rate and other factors.

If the actual performance of the assets becomes less favorable than those projected by management, adjustments to the carrying values of the these assets may have a material effect on the consolidated financial statements.

If the actual performance of the assets becomes less favorable than those projected by management, adjustments to the carrying values of these assets may have a material effect on the consolidated financial statements.

We evaluate the carrying value of goodwill on December 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Such circumstances may include, but are not limited to:

(1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition or (3) an adverse action or assessment by a regulator.

(1) a significant adverse change in legal factors or in business climate, (2) a decline in macroeconomic conditions, (3) a significant decline in our financial performance or (4) a significant decline in the price of our common stock for a sustained period of time.

We perform our annual impairment test using a qualitative assessment weighing the relative impact of factors that are specific to our single reporting unit as well as industry and macroeconomic factors.

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We are subject to income taxes in the United States and foreign countries, and we are subject to routine corporate income tax audits in many of these jurisdictions.

We believe that our tax return positions are fully supported, but tax authorities are likely to challenge certain positions, which may not be fully sustained.

Our income tax expense includes amounts intended to satisfy

income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S.

We believe that our tax return positions are fully supported, but tax authorities are likely

to challenge certain positions, which may not be fully sustained.

Our income tax expense includes amounts intended to satisfy income tax assessments that result from these challenges in accordance with the accounting for uncertainty in income taxes prescribed by U.S.

Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires management judgments and estimates.

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Loss on sale of Argentina subsidiary 0.0 (1.0)

Accrued social insurance adjustment — 1.5

Other income (expense), net (0.2) (0.1)

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Net sales for 2022 were $542.8 million, a decrease of 9.8% compared to $601.6 million in 2021.

Sales in our subscription broadcast channel, primarily in North America, were lower than in the prior year.

Partially offsetting this decrease is growth in our HVAC channel, particularly in the APAC region, as consumers are demanding higher-end solutions.

Our customers in the HVAC channel began incorporating our technology in their high-end products and are now including these advanced solutions in a variety of models.

In addition, royalty revenue has increased as a few of the largest TV OEMs in the world are embedding our technology in their devices.

Sales in our subscription broadcast channel were lower than in the prior year due primarily to lower customer demand and component shortages.

Sales in our retail channel were also lower than the prior year due to macroeconomic headwinds and the loss of a customer in North America.

Gross profit.

Gross profit in 2022 was $152.3 million compared to $173.0 million in 2021.

Gross profit as a percent of sales remained relatively consistent at 28.8% in 2021 compared to 28.7% in 2020.

Gross profit as a percent of sales was favorably impacted by a mix shift towards higher margin revenue streams such as royalties, as a few of the largest consumer electronic companies in the world are embedding our technology in their devices.

The gross margin increase due to mix shift was partially offset by the weakening of the U.S.

Dollar versus the Chinese Yuan Renminbi and Mexican Peso and by higher material and freight costs.

In addition, impairment expenses relating to the underutilization of property, plant and equipment in our PRC-based factories were incurred in 2021 as a result of our long-term factory planning strategy to reduce our concentration risk in that region.

Gross profit as a percent of sales decreased to 28.1% in 2022 compared to 28.8% in 2021.

Gross profit as a percent of sales was unfavorably impacted by inflationary pressures associated with raw materials and components, freight costs and wages.

Partially offsetting these unfavorable impacts were sales price increases on certain products, which were implemented throughout the first two quarters of 2022.

Research and development ("R&D") expenses.

R&D expenses decreased 1.7% to $30.9 million in 2021 from $31.5 million in 2020 primarily due to a decrease in incentive compensation.

R&D expenses increased 5.0% to $32.5 million in 2022 from $30.9 million in 2021.

The increase in R&D expenses is due to an increase in product development activities as we continue to expand our portfolio of products and focus on growth channels including HVAC, home security and home automation.

Selling, general and administrative ("SG&A") expenses.

SG&A expenses increased 10.5% to $118.8 million in 2021 from $107.5 million in 2020, primarily due to an increase in outside legal expenses related to specific legal matters.

SG&A expenses decreased 11.4% to $105.3 million in 2022 from $118.8 million in 2021, primarily due to a decrease in outside legal expenses related to a specific legal matter.

Interest income (expense), net.

Net interest expense decreased to $0.6 million in 2021 from $1.4 million in 2020 as a result of a lower average loan balance and a lower average interest rate.

Net interest expense increased to $2.2 million in 2022 from $0.6 million in 2021 as a result of a higher average loan balance and a higher average interest rate.

Loss on sale of Argentina subsidiary.

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Dollar resulting in a loss in equity value in our Argentina subsidiary and ultimately sales proceeds that were significantly less than the invested capital.

Accrued social insurance adjustment.

In 2020, we reversed approximately $9.5 million of accrued social insurance.

In June 2018, we sold our Guangzhou entity via a stock deal and the terms of the agreement included a two-year indemnification period.

In June 2020, the indemnification period expired and we determined we were no longer legally liable for any liabilities associated with our Guangzhou entity.

Accordingly, we reversed the accrued social insurance amount associated with the Guangzhou entity which was approximately $9.5 million.

Other income (expense), net.

Other expense, net was $0.6 million in 2021, as a result of net foreign currency losses offset partially by miscellaneous non-operating gains, compared to other expense, net of $1.4 million in 2020, as a result of net foreign currency losses offset partially by miscellaneous non-operating gains.

Other expense, net was $1.0 million in 2022, compared to other expense, net of $0.6 million in 2021, both as a result of net foreign currency losses offset partially by miscellaneous non-operating gains.

Income tax expense.

Income tax expense was $11.0 million in 2022 compared to $10.8 million in 2021.

Our effective tax rate was 67.0% in 2021 compared to 12.1% in 2020.

Our effective tax rate was higher than normal in 2021 as a result of the mix of pre-tax income among jurisdictions, including losses not benefited as a result of a valuation allowance and the nondeductible losses on the sale and liquidation of our Argentina and Cayman subsidiaries, respectively.

Our effective tax rate was lower than normal in 2020 as a result of the application of preferential foreign tax rates as well as foreign income not subject to tax in its respective local jurisdictions, partially offset by the U.S.

tax loss not being benefited due to the valuation allowance.

Our effective tax rate was elevated in both 2022 and 2021 at 96.4% and 67.0%, respectively, as a result of our mix of pre-tax income/loss by jurisdiction, as well as losses incurred in the U.S.

which are not benefited due to a valuation allowance.

Liquidity and Capital Resources

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Available borrowing resources 37,000 66,300

Cash and cash equivalents – On December 31, 2021, we had $6.4 million, $16.0 million, $11.8 million, $17.6 million and $9.0 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.

Cash and cash equivalents – At December 31, 2022, we had $6.8 million, $15.6 million, $18.9 million, $13.0 million and $12.4 million of cash and cash equivalents in North America, the PRC, Asia (excluding the PRC), Europe, and South America, respectively.

We attempt to mitigate our exposure to liquidity, credit and other relevant risks by placing our cash and cash equivalents with financial institutions we believe are high quality.

Our cash balances are held in numerous locations throughout the world.

The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to state income taxes and foreign withholding taxes.

The majority of our cash is held outside of the United States and may be repatriated to the United States but, under current law, may be subject to federal and state income taxes and foreign withholding taxes.

Additionally, repatriation of some foreign balances is restricted by local laws.

We have provided for the state income tax and the foreign withholding tax liabilities on these amounts for financial statement purposes.

Available Borrowing Resources – Our Second Amended and Restated Credit Agreement ("Second Amended Credit Agreement") with U.S.

Bank National Association provides for a $125.0 million revolving line of credit ("Credit Line") that expires on November 1, 2023.

Bank National Association ("U.S.

Bank") provides for a $125.0 million revolving line of credit ("Credit Line") that expires on November 1, 2023.

We expect to renew our credit agreement with U.S.

Bank, for an additional two years, prior to its expiration.

The Credit Line may be used for working capital and other general corporate purposes including acquisitions, share repurchases and capital expenditures.

Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were $2.7 million at December 31, 2021.

Amounts available for borrowing under the Credit Line are reduced by the balance of any outstanding letters of credit, of which there were none at December 31, 2022.

At December 31, 2022, we had an outstanding balance of $88.0 million on our Credit Line and $37.0 million of availability.

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(Decrease) Year Ended December 31, 2021

Cash provided by operating activities $ 40,283 $ (33,109) $ 73,392

Cash provided by (used for) operating activities $ 10,926 $ (29,357) $ 40,283

Cash provided by (used for) investing activities (21,208) (4,167) (17,041)

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Net income was $0.4 million in 2022 compared to $5.3 million in 2021.

Accounts payable and accrued liabilities resulted in net cash inflows of $0.9 million in 2021 compared to net cash outflows of $33.5 million in 2020, largely as a result of a significant increase in inventories and a decrease in payments related to accrued compensation in 2021.

Inventories increased by $15.0 million during the year ended December 31, 2021 due to efforts to mitigate supply chain issues relating to component shortages and logistics delays compared to a decrease of $28.3 million during the year ended December 31, 2020 resulting from lower sales volume in 2020 compared to 2019.

Accounts receivables decreased by $12.8 million during the year ended December 31, 2022 compared to a decrease of $2.0 million during the year ended December 31, 2021 largely due to a reduction in sales during 2022.

Inventories increased by $9.9 million during the year ended December 31, 2022 compared to an increase of $15.0 million during the year ended December 31, 2021.

We still remain in a unique environment where certain components, prominently ICs, are in short supply.

Although this issue is abating, the lead times associated with certain component vendors remain elevated;

consequently, when an opportunity arises to procure more than what is needed at a given period of time, we are proceeding with the purchase.

Furthermore, certain customers ordered fewer units than originally forecasted, causing our finished goods inventory to be temporarily elevated.

Our inventory turns decreased to 2.2 turns at December 31, 2022 compared to 2.9 turns at December 31, 2021.

Accrued income taxes increased by $2.9 million during the year ended December 31, 2021 compared to a decrease of $6.5 million during the year ended December 31, 2020, largely as a result of decreased tax payments and increases in tax expenses during 2021.

Future cash flows from operations are expected to be affected by the impacts of the COVID-19 pandemic, specifically relating to logistical issues.

For the first half of 2022, we expect component shortages will continue to have an adverse effect on cash flows with some relief beginning to occur in the second half of the year.

In addition, we expect to commence manufacturing operations in a new factory in Vietnam in the third quarter of 2022 which, in the short run, may result in manufacturing inefficiencies.

Net cash used for investing activities during 2021 was $17.0 million, of which $12.6 million and $4.4 million was used for capital expenditures and development of patents, respectively.

Changes in accounts payable and accrued liabilities resulted in cash outflows of $28.7 million during the year ended December 31, 2022 compared to cash inflows of $0.9 million during the year ended December 31, 2021, largely as a result of lower sales volume resulting in fewer purchases of raw materials and components, excluding, in certain situations, components in short supply.

Changes in accrued income taxes resulted in cash outflows of $2.1 million during the year ended December 31, 2022 compared to cash inflows of $2.9 million during the year ended December 31, 2021.

Net cash used for investing activities during 2022 was $21.2 million, of which $7.5 million, $0.9 million, $14.0 million and $6.6 million was used for the purchase of our term deposit investment, acquisition of Qterics Inc., capital expenditures, and the development of patents, respectively.

Offsetting these amounts was $7.8 million received upon the redemption of our term deposit investment.

Net cash used for investing activities during 2021 was $17.0 million, of which $12.6 million and $4.4 million was used for capital expenditures and development of patents, respectively.

Future cash flows used for investing activities are largely dependent on the timing and amount of capital expenditures.

We estimate that we will incur between $15.0 million and $18.0 million in 2022 which includes amounts associated with our factory in Vietnam which we anticipate to commence operations in the third quarter of 2022.

Net cash used for financing activities was $22.0 million during 2021 compared to $66.0 million during 2020.

We estimate that we will incur between $12.0 million and $15.0 million in 2023 which includes amounts associated with our factory in Vietnam which we anticipate commencing operations in the first half of 2023.

Net cash provided by financing activities was $20.5 million during 2022 compared to net cash used for financing activities of $22.0 million during 2021.

The primary financing activities in 2022 and 2021 were borrowings and repayments on our line of credit and repurchases of shares of our common stock.

Net borrowings on our line of credit were $36.0 million in 2021 and net repayments were $48.0 million in 2020.

Net borrowings on our line of credit were $32.0 million in 2022 and $36.0 million in 2021.

During 2022, we purchased 434,107 shares of our common stock at a cost of $13.0 million compared to 1,243,196 shares at a cost of $59.7 million during 2021.

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Additionally, potential future repurchases of shares of our common stock will impact our cash flows used for financing activities.

Given the recent decrease in the price of our common stock, we may opportunistically purchase shares of our common stock.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Notes to Consolidated Financial Statements - Note 14" for further information regarding our share repurchase programs.

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(In thousands) Total Less than

Credit line (1)

$ 88,000 $ 88,000 $ — $ — $ —

Inventory purchases 13,708 13,708 — — —

Operating lease obligations 23,798 6,841 9,542 4,555 2,860

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1,742 1,742 — — —

Inventory purchases 18,530 18,530 — — —

Software license 3,468 53 578 946 1,891

Total material cash commitments $ 130,716 $ 110,344 $ 10,120 $ 5,501 $ 4,751

(1) We expect to renew our credit agreement with U.S.

Bank, for an additional two years, prior to its expiration.

We anticipate meeting our material cash commitments with our cash generated from operations and available borrowing resources, including our Credit Line.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis