NATIONAL INSTRUMENTS CORPORATION National Instruments Corporation and its subsidiaries (referred to as the "Company," "we," "us," "our," "National Instruments" or "NI") has made forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to risks and uncertainties. Any statements contained herein regarding our future financial performance, operations, plans, investments, expected effects of investments, or other matters (including, without limitation, statements to the effect that we "believe," "expect," "plan," "intend to," "may," "could," "can," "will," "project," "predict," "anticipate," "continue," "strive to," "endeavor to," "seek to," "are committed to," "remaining committed to," "are encouraged by," "remain cautious," "remain optimistic," "estimate", "focus on"; statements of "goals," "commitments," "strategy" or "visions"; or other variations thereof or comparable terminology or the negative thereof) should be considered forward-looking statements. All forward-looking statements are based on current expectations and projections of future events. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are not guarantees of performance and actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors, including those set forth under the heading "Risk Factors" below and in "Part 1, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 (the "2021 Form 10-K"). Actual results could differ materially from those stated or implied by our forward-looking statements, due to risks and uncertainties associated with our business or under different assumptions or conditions. You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following discussion should be read in conjunction with the 2021 Form 10-K filed with theU.S. Securities and Exchange Commission (the "SEC") and the condensed consolidated financial statements and accompanying notes included in Part 1, Item 1 of this Form 10-Q.
Overview and Current Business Outlook
For more than 40 years, we have enabled engineers and scientists around the world to accelerate productivity, innovation and discovery. Our software-centric platform provides an advanced approach through integration of software and modular hardware to create automated test and automated measurement systems. We believe our long-term track record of innovation and our differentiated platform help support the success of our customers, employees, suppliers, community and stockholders. We have been profitable in every year since 1990. We sell to a large number of customers in a wide variety of industries.
The key strategies that we focus on in running our business are the following:
•Expanding our available market opportunity
We strive to increase our available market by identifying new opportunities in existing customers, attracting and serving new customers, and expanding our business to market adjacencies. Our large network of existing customers provides a broad base from which to expand.
•Maintaining a high level of customer satisfaction
To maintain a high level of customer satisfaction we strive to offer innovative, modular and integrated products through a global sales and support network. We strive to maintain a high degree of backward compatibility across different platforms to preserve the customer's investment in our products. In this time of intense global competition, we believe it is crucial that we continue to offer products with high quality and reliability, and that our products provide cost-effective solutions for our customers.
•Leveraging external and internal technology
Our product strategy is to provide superior products by leveraging generally available technology, supporting open architectures on multiple platforms and by leveraging our core technologies across multiple products.
We sell into test and measurement and industrial/embedded applications in a broad range of industries and are subject to the economic and industry forces that drive those markets. Examples of these types of customers include semiconductor and electronics, transportation, and aerospace, defense and government.
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--------------------------------------------------------------------------------•Leveraging a worldwide sales, distribution and manufacturing network
We distribute and sell our software and hardware products primarily through a direct sales organization. We also use independent distributors, original equipment manufacturers, value added resellers, system integrators and consultants to market and sell our products. We have sales offices in theU.S. and sales offices and distributors in key international markets. Sales outside of theAmericas accounted for approximately 59% and 62% of our net sales during the three months endedMarch 31, 2022 and 2021, respectively. The vast majority of our foreign sales are denominated in the customers' local currency, which exposes us to the effects of changes in foreign currency exchange rates. We expect that a significant portion of our total revenues will continue to be derived from international sales. (See Note 2 - Revenue and Note 12 - Segment and geographic information of Notes to Consolidated Financial Statements for details concerning the geographic breakdown of our net sales and long-lived assets, respectively).
We manufacture substantially all of our product volume at our facilities in
Debrecen,
•Delivering high quality, reliable products
We believe that our long-term growth and success depend on delivering high quality software and hardware products on a timely basis. Accordingly, we focus significant efforts on research and development. We focus our research and development efforts on enhancing existing products and developing new products that incorporate appropriate features and functionality to be competitive with respect to technology, price and performance. Our success also depends on our ability to obtain and maintain patents and other proprietary rights related to technologies used in our products. We have engaged in litigation when necessary, and will likely engage in future litigation to protect our intellectual property rights. Our operating results fluctuate from period to period due to changes in global economic conditions and a number of other factors such as the impact of the COVID-19 pandemic. As a result, we believe our historical results of operations should not be relied upon as indications of future performance. There can be no assurance that our net sales will grow, or not decline, or that we will remain profitable in future periods. Backlog Backlog is a measure of firm orders that are received but have not yet shipped to customers. Our measure of backlog excludes amounts related to shipments where the customer has specified delivery in a future period. Our backlog was approximately$210 million and$154 million atMarch 31, 2022 andDecember 31, 2021 , respectively, primarily driven by strong order growth during the year and longer lead times for certain components. We expect the majority of backlog to be recognized as revenue within 12 months. While backlog on any particular date can be an indicator of short-term revenue performance, it is not necessarily a reliable indicator of medium or long-term revenue performance.
Current business outlook
We are continuing to experience strong demand from our customers across the
geographic regions and end markets that we serve, with the value of total orders
during the first quarter of 2022 increasing by approximately 27% compared to the
same period in 2021. Although the strength and duration of the recent trends
will vary by region and offering, we remain optimistic about opportunities for
additional order growth expected in 2022. We expect our customers will continue
to make investments in emerging technologies related to 5G/mmWave, vehicle
electrification, advanced driver assistance systems ("ADAS") and new space
innovation.
We continue to experience component shortages for some of our products as well
as higher costs to obtain a consistent supply of certain components due to
global supply chain constraints. The duration of these supply chain challenges
remains uncertain. Additionally, strong demand and a strategic shift to longer
lead times to fulfill orders for certain offerings has continued to shift the
timing of revenue recognition into future periods and increased backlog. We have
also recently experienced further delays in the fulfillment of orders in China
due to additional COVID-19 lockdown protocols. During the remainder of 2022, we
also expect operating costs to increase due to wage inflation and increased
travel. While we expect to continue to experience some challenges related to
these supply chain constraints as the global supply chain continues to adjust to
the significant increases in demand, we are optimistic about our ability to
maintain competitive lead times while continuing to maintain higher backlog
levels as part of our strategic focus on application-specific system offerings.
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Revenue from software and related services as a percentage of total revenue
during the first quarter of 2022 remained consistent with 2021, at approximately
20% of our total revenue. During the first quarter of 2022 we also undertook
actions to accelerate our transition to a predominantly subscription-based
licensing model for the majority of our software offerings. While we expect our
subscription base, recurring revenue and cash flow to increase over time as a
result of this licensing model transition, we expect some initial headwinds to
our net sales and operating profitability during the transition period. However,
we expect recent additions and enhancements to our software portfolio will
continue to differentiate our products and fuel demand across our end markets.
We currently estimate the impact of our subscription licensing transition will
decrease total revenue by 2% during 2022.
As part of our efforts to streamline the process of doing business with NI, we
have increased our focus on customer account tiers when assessing trends in our
order growth. Specifically, we have grouped our customers into tiers based on
their historical spending patterns and potential for future order growth. Our
"Focus" account tiers are comprised of approximately 2,500 accounts we have
identified as having a high potential to maintain or expand our business through
system-level offerings. The Focus tier currently represents approximately 70% of
our total order value. Our "Broad-based" account tier is comprised of the
remainder of our customer base of approximately 30,000 accounts. The Broad-based
tier currently represents approximately 30% of our total order value. During the
three months ended March 31, 2022 , orders from our Focus accounts and
Broad-based accounts increased by 28% and 25%, respectively, compared to the
same period in 2021.
We also continue to focus on scale and efficiency when engaging with our
Broad-based customers. Our focus to streamline the process of doing business
with NI means effectively scaling our operations while also improving the
experience for the large number of smaller accounts. We are making additional
investments in ni.com for a better digital experience and expect to continue to
expand customer reach through our distributor channel during 2022 and beyond. We
are also simplifying our product offerings for the Broad-based customers to make
our products easier-to-use. We believe these actions will allow our direct sales
force to accelerate our revenue growth through proactive engagements with
accounts where we can deliver enterprise-level value. During the three months
ended March 31, 2022 , indirect sales through our distributor channels increased
to represent about 13% of our total sales, compared to 5% in the same period of
2021. As of March 31, 2022 , our distributors were not carrying significant
amounts of our products in inventory and were not eligible for any variable
adjustments related to their previous purchases. For the three months ended
March 31, 2022 no single distributor or end customer accounted for more than 2%
of our total net sales.
Acquisitions and divestitures
Refer to Note 1 - Basis of presentation and Note 17 - Acquisitions of Notes to
Consolidated Financial Statements for additional information on our acquisitions
and divestitures during the periods presented.
Critical Accounting Estimates
In preparing our consolidated financial statements, we make assumptions,
judgments and estimates that can have a significant impact on our net sales,
operating income and net income, as well as on the value of certain assets and
liabilities on our condensed consolidated balance sheets. We base our
assumptions, judgments and estimates on historical experience and various other
factors that we believe to be reasonable under the circumstances. At least
quarterly, we evaluate our assumptions, judgments and estimates, and make
changes as deemed necessary.
These estimates may change as new events occur and additional information is
obtained. Actual results could differ materially from these estimates under
different assumptions or conditions. For further information about our critical
accounting estimates, see the discussion in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," under the heading
"Critical Accounting Estimates" in our 2021 Form 10-K. There have been no
material changes to our critical accounting policies and estimates since the
2021 Form 10-K.
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--------------------------------------------------------------------------------Results of Operations
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items reflected in our Consolidated Statements of
Income:
Three Months Ended March 31,
(Unaudited)
2022 2021
Net sales:
Americas 41.3 % 37.8 %
EMEA 26.1 25.5
APAC 32.6 36.7
Total net sales 100.0 100.0
Cost of sales 30.9 28.5
Gross profit 69.1 71.5
Operating expenses:
Sales and marketing 31.2 34.8
Research and development 21.3 23.9
General and administrative 8.6 10.0
Total operating expenses 61.1 68.7
Operating income 7.9 2.8
Other (expense) income: - (1.5)
Income before income taxes 7.9 1.3
(Benefit) Provision for income taxes 1.4 -
Net income 6.6 % 1.3 %
Figures may not sum due to rounding.
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Results of Operations for the three months ended
Net Sales . The following table sets forth our net sales for the three months endedMarch 31, 2022 and 2021 along with the changes between the corresponding periods. Three Months Ended March 31, (Unaudited) Change (In millions) 2022 2021 Dollars Percentage Product sales$ 343.7 $ 295.1 48.6 16% Software maintenance sales 41.6 40.1 1.5 4% Total net sales$ 385.3 $ 335.2 50.1 15%
Figures may not sum due to rounding.
Net sales for the three months ended
•The increase in product sales was primarily attributable to strong demand for our system-level offerings, particularly our ADG and transportation solutions (See Note 2 - Revenue for additional information on revenue by industry grouping). Geographically, we saw strong growth in theAmericas region, which was partially driven by revenue from acquisitions completed within the last 12 months, which increased our total revenue by approximately 3% compared to same period in 2021. The impact of recent pricing changes also increased our total revenue by approximately 4% compared to the same period in 2021.
•The increase in software maintenance sales was primarily related to additional billings from annual renewals of software maintenance programs, including enterprise-wide subscription licensing agreements.
The following table sets forth our net sales by geographic region for the three
months ended
Three Months Ended
(Unaudited)
Change
(In millions) 2022 2021 Dollars Percentage
Americas $ 159.2 $ 126.7 32.5 26%
Percentage of total net sales 41.3 % 37.8 %
EMEA$ 100.4 $ 85.5 14.8 17% Percentage of total net sales 26.1 %
25.5 %
APAC$ 125.7 $ 122.9 2.7 2% Percentage of total net sales 32.6 %
36.7 %
Figures may not sum due to rounding.
We expect sales outside of theAmericas to continue to represent a significant portion of our net sales. We intend to continue to expand our international operations by increasing our presence in existing markets, adding a presence in certain new geographical markets and continuing to increase the use of distributors to sell our products in some countries. 36 -------------------------------------------------------------------------------- Almost all of the sales made by our direct sales offices in theAmericas (excluding theU.S. ), EMEA, and APAC are denominated in local currencies, and accordingly, theU.S. dollar equivalent of these sales is affected by changes in foreign currency exchange rates. In order to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency fluctuations between periods, we compare the percentage change in our results from period to period using constant currency disclosure. To calculate the change in constant currency, current and comparative prior period results for entities reporting in currencies other thanU.S. Dollars are converted intoU.S. Dollars at constant exchange rates (i.e., the average rates in effect during the three months endedMarch 31, 2021 ). The following table presents this information, along with the impact of changes in foreign currency exchange rates on sales denominated in local currencies, for the three months endedMarch 31, 2022 . Three Months Impact of changes in foreign currency Three Months Ended March 31, Change exchange rates on net sales Ended March 31, 2021 in Constant Dollars 2022 GAAP GAAP (In millions) Net Sales Dollars Percentage Dollars Percentage Net Sales Americas$ 126.7 32.7 25.8% (0.3) (0.2)%$ 159.2 EMEA$ 85.5 18.4 21.5% (3.5) (4.1)%$ 100.4 APAC$ 122.9 4.1 3.3% (1.4) (1.1)%$ 125.7 Total net sales$ 335.2 55.2 16.5% (5.1) (1.5)%$ 385.3
Figures may not sum due to rounding.
We use a foreign currency cash flow hedging program to help protect against changes inU.S. dollar equivalent value caused by fluctuations in foreign currency exchange rates of forecasted foreign currency cash flows resulting from international sales. We hedge portions of our forecasted net sales denominated in foreign currencies with average rate forward contracts. During the three months endedMarch 31, 2022 and 2021, these hedges had the effect of increasing our net sales by$1.7 million and decreasing our net sales by$2.0 million , respectively. (See Note 5 - Derivative instruments and hedging activities of Notes to Consolidated Financial Statements for further discussion regarding our cash flow hedging program and its related impact on our net sales for 2022 and 2021). Gross Profit. Our gross profit as a percentage of sales is impacted by many factors as described in the table below. We continue to focus on cost control and cost reduction measures throughout our manufacturing cycle. The following table sets forth our gross profit and gross profit as a percentage of net sales for the three months endedMarch 31, 2022 and 2021 along with the percentage changes in gross profit for the corresponding periods. Three Months Ended March 31, (Unaudited) (In millions) 2022 2021 Gross Profit$266.0 $239.8 % change compared with prior period 11.0% Gross Profit as a percentage of net sales 69.1% 71.5% 37
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The decrease in gross profit as a percentage of net sales was primarily related
to the following:
Three Months Ended
(Unaudited)
March 31, 2021 71.5 %
Impact of increases in component costs (4.0) %
Impact of increases in our selling price 1.0 %
Impact of increases in outbound freight and other logistics costs
(1.0) %
Impact of changes related to recently acquired/divested businesses
(0.2) %
Impact of amortization of acquired intangibles and other purchase accounting adjustments
0.3 %
Impact of decrease in amortization of previously capitalized software
development costs 1.5 %
March 31, 2022 69.1 %
Operating Expenses. The following table sets forth our operating expenses for
the three months ended March 31, 2022 and 2021 along with the percentage changes
between the corresponding periods and the line item as a percentage of total net
sales.
Three Months Ended March 31,
(Unaudited)
(In thousands) 2022 2021 Change
Sales and marketing $ 120,157 $ 116,783 3%
Percentage of total net sales 31% 35%
Research and development $ 82,161 $ 80,086 3%
Percentage of total net sales 21% 24%
General and administrative $ 33,179 $ 33,358 (1)%
Percentage of total net sales 9% 10%
Total operating expenses $ 235,497 $ 230,227 2%
Percentage of total net sales 61% 69%
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The year over year increase in our total operating expenses of
•a$7 million increase in personnel costs, primarily attributable to an increase in commissions, salaries, benefits and other personnel expenses as well as an increase in additional stock-based compensation expense (due to comparatively higher stock prices on the grant date of unvested RSU awards and an increase in the number of RSU awards granted), partially offset by a decrease in our variable compensation programs; •a$5 million increase attributable to higher acquisition-related operating costs and amortization of acquisition-related intangibles, primarily related to our recently acquired NHR business, partially offset by lower transaction and integration costs; •a$(1) million decrease in travel and other outside services due to less spend on marketing and advertising offset by an increase in travel during the period due to the loosening of COVID-19 restrictions; and •a$(6) million decrease related to accruals for restructuring-related severance activity. Sales and Marketing The primary drivers of the increase in sales and marketing expenses for the three months endedMarch 31, 2022 were additional costs associated with salaries and commissions, an increase in the amortization of acquired intangibles, and an increase in stock based compensation which were partially offset by lower severance-related costs, variable compensation programs and lower marketing and advertising expenses, compared to the same period in 2021.
Research and Development
The primary drivers of the increase in research and development expenses for the three months endedMarch 31, 2022 were additional costs for salaries, benefits, outside services, and stock-based compensation, which were partially offset by a decrease in accruals associated with our variable compensation programs, compared to the same period in 2021.
General and administrative
The primary drivers of the decrease in general and administrative expenses for the three months endedMarch 31, 2022 were a decrease in acquisition expenses and severance costs partially offset by an increase in salary and benefits, outside service costs and stock-based compensation. Operating Income. For the three months endedMarch 31, 2022 and 2021, operating income was$31 million and$10 million , respectively, an increase of 220%. As a percentage of net sales, operating income was 7.9% and 2.8% for the three months endedMarch 31, 2022 and 2021, respectively. The increase in operating income in absolute dollars for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 , is primarily attributable to the increases in revenue partially offset by the increases in cost of sales and operating expenses described above.
Other (Expense) Income.
•Interest Income. For the three months endedMarch 31, 2022 and 2021, interest income was less than$0.1 million and$0.2 million , respectively. During the three months endedMarch 31, 2022 , theFederal Reserve raised the federal funds rate target by 25 basis points to a range of 0.25 to 0.50% and signaled the possibility of additional increases in 2022. •Interest Expense. For the three months endedMarch 31, 2022 and 2021, interest expense was approximately$1.3 million , and$0.7 million , respectively. These interest charges are due to interest on outstanding borrowings, commitment fees and amortization of deferred costs related to our Credit Agreement. Refer to Note 13 - Debt of Notes to Consolidated Financial Statements for additional information regarding the terms of our Credit Agreement and related borrowings. •Gain/Loss From Equity-Method Investments. For the three months endedMarch 31, 2022 and 2021, gain from equity-method investments was approximately$0.6 million and loss from equity-method investments was approximately$4.2 million , respectively. The increase was primarily attributable to an impairment loss of$3.5 million recorded in the three months endedMarch 31, 2021 . 39 -------------------------------------------------------------------------------- •Net Foreign Exchange Gain/(Loss). For the three months endedMarch 31, 2022 and 2021, net foreign exchange loss was$(1.2) million and$(0.6) million , respectively. Gains and losses on foreign currency are primarily due to the impact of re-measuring foreign currency monetary assets and liabilities into the functional currency of the corresponding entity. The amount of the gain or loss on foreign currency is driven by the volume of foreign currency transactions and the foreign currency exchange rates for the period. See "Results of Operations -Net Sales " above for additional discussion on the impact of foreign exchange rates on our net sales of operations for the three months endedMarch 31, 2022 . •Other Income. For the three months endedMarch 31, 2022 and 2021, other income also increased by$1.3 million , primarily related to proceeds received from resolution of claims related to a previous acquisition after the measurement period was finalized. Provision for Income Taxes. For the three months endedMarch 31, 2022 and 2021, our provision for income taxes reflected an effective tax rate of 17% and (1)%, respectively. The factors that caused our effective tax rate to change year over year are detailed in the table below: Three Months EndedMarch 31 , (Unaudited) Effective tax rate atMarch 31, 2021 (1) % Foreign-derived intangible income deduction (5) Global intangible low-taxed income inclusion ("GILTI") (2) Enhanced deduction for certain research and development expenses (1) Change in unrecognized tax benefits 1 Research and development tax credits 2 Foreign taxes greater (less) than federal statutory rate 2 Employee share-based compensation and other discrete items 21 Effective tax rate atMarch 31, 2022 17 % 40
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Other operational metrics
We believe that the following additional unaudited operational metrics assist
investors in assessing our operational performance relative to others in our
industry and to our historical results. The following tables provide details
with respect to the amount of GAAP charges related to certain items that were
recorded in the line items indicated below (in thousands).
Three Months Ended March 31,
(In thousands) (Unaudited)
2022 2021
Stock-based compensation
Cost of sales $ 1,222 $ 1,113
Sales and marketing 7,089 5,696
Research and development 6,088 5,714
General and administrative 5,729 4,666
Provision for income taxes (2,655) (3,324)
Total $ 17,473 $ 13,865
Three Months Ended March 31,
(In thousands) (Unaudited)
2022 2021
Amortization of acquisition-related intangibles and fair value
adjustments
Net sales $ 371 $ 813
Cost of sales 3,803 4,272
Sales and marketing 6,139 2,171
Research and development (320) -
Other (expense) income 516 394
Provision for income taxes (1,355) (975)
Total $ 9,154 $ 6,675
Three Months Ended March 31,
(In thousands) (Unaudited)
2022 2021Acquisition-related transaction and integration costs, restructuring charges, and other Cost of sales
$ 785 $ 75 Sales and marketing 307 4,648 Research and development 614 488 General and administrative 1,771 5,666 Other (expense) income (1,866) 3,725 Provision for income taxes (658) (2,883) Total$ 953 $ 11,719 Three Months Ended March 31, (Unaudited) (In thousands) 2022 2021 Capitalization and amortization of internally developed software costs Cost of sales$ 2,033 $ 6,874 Research and development (187) (226) Provision for income taxes (407) (1,396) Total$ 1,439 $ 5,252 41
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Liquidity and Capital Resources
Overview
AtMarch 31, 2022 , we had$143 million in cash and cash equivalents. Our cash and cash equivalent balances are held in numerous financial institutions throughout the world, including substantial amounts held outside of theU.S. The following table presents the geographic distribution of our cash and cash equivalents as ofMarch 31, 2022 (in millions): (in millions) Domestic International
Total
Cash and cash equivalents $29.8 $113.0
21% 79%
Total cash and cash equivalents
21% 79%
Figures may not sum due to rounding.
The following table presents our working capital, cash and cash equivalents and
short-term investments:
March 31, 2022 December 31, Increase/
(In thousands) (unaudited) 2021 (Decrease)
Working capital $ 483,534 $ 486,335 $ (2,801)
Cash and cash equivalents (1) 142,883 211,106 (68,223)
Short-term investments (1) - - -
Total cash, cash equivalents and
short-term investments $ 142,883 $
211,106
(1) Included in working capital
Our principal sources of liquidity include existing cash, cash equivalents, cash generated from the sale and maturity of marketable securities, balances and available borrowings under our Credit Facility, cash flows generated from our operations, and cash generated from purchases of common stock through our employee stock purchase plan. The primary drivers of the net increase in working capital betweenDecember 31, 2021 andMarch 31, 2022 were: •Cash and cash equivalents decreased by$68 million . Additional analysis of the changes in our cash flows for the three months endedMarch 31, 2022 is discussed below; •Accounts receivable decreased by$28 million . Days sales outstanding increased to 59 days atMarch 31, 2022 , compared to 58 days atDecember 31, 2021 . The decrease in accounts receivable is primarily related to quarterly fluctuations in our net sales. •Inventory increased by$19 million . Inventory turns were 1.6 atMarch 31, 2022 compared to 1.5 atDecember 31, 2021 . The increase in inventory was primarily attributable to additional purchases of raw materials to support forecasted demand and timing differences related to delayed fulfillment of certain orders related to supply chain constraints. •Prepaid expenses and other current assets increased by$20 million primarily due to related timing of prepaid insurance, other prepaid renewals, changes in the fair value of our foreign currency forward contracts, changes in sales and VAT taxes and prepayment of freight costs. •Accrued compensation decreased by$60 million attributable to annual payments under our variable compensation programs related to 2021 attainment, partially offset by accruals related to expected payouts under our 2022 variable compensation programs.
•Deferred revenue, current decreased by
42
--------------------------------------------------------------------------------Analysis of Cash Flow
The following table summarizes our cash flow results for the three months endedMarch 31, 2022 and 2021. Three Months EndedMarch 31 , (In thousands) (unaudited) 2022 2021
Cash (used by) provided by operating activities $ (3,848)
$ 29,841 Cash (used by) provided by investing activities (29,153) 6,393 Cash used in financing activities (34,187) (28,218) Effect of exchange rate changes on cash (1,035) (1,536) Net change in cash and cash equivalents (68,223) 6,480 Cash and cash equivalents at beginning of period 211,106 260,232 Cash and cash equivalents at end of period $ 142,883$ 266,712 Operating Activities Cash provided by operating activities is comprised of net income adjusted for certain items and changes in working capital. Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for income taxes, variable pay, restructuring activities, and other items impact reported cash flows. Cash provided by operating activities for the three months endedMarch 31, 2022 decreased by$34 million compared to the same period in 2021. This decrease was primarily due to a$50 million decrease in cash provided by changes in operating assets and liabilities during the year, further described below, partially offset by a$16 million increase in net income excluding the effect of non-cash items including stock-based compensation, depreciation and amortization, gain on sale of business/assets, loss from equity-method investments and deferred tax benefits. •The aggregate of changes in accounts receivable, inventory and accounts payable provided net cash of$1 million during the three months endedMarch 31, 2022 compared to net cash provided of$21 million in the comparable period in 2021. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory and accounts payable depends upon the cash conversion cycle, which represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers and can be significantly impacted by the timing of shipments and purchases, as well as collections and payments in a period. •The changes in accrued compensation used cash of$58 million during the three months endedMarch 31, 2022 compared to net cash used of$26 million during the three months endedMarch 31, 2021 . The year over year change is primarily related to an increase in payments under our variable pay programs due to 2021 attainment partially offset by lower severance payments. •The aggregate of changes in prepaid assets, deferred revenue and other assets and liabilities used net operating cash of$10 million during the three months endedMarch 31, 2022 compared to net cash used of$11 million in the comparable period in 2021. The year over year change is primarily related to timing and amount of payments for prepaid goods and services, federal income taxes, payroll taxes, and other indirect taxes. 43 --------------------------------------------------------------------------------
Investing Activities
Cash used by investing activities for the three months ended
•$28 million decrease in cash inflows related to the net sale of short-term investments. We did not buy or sell short-term investments during the period. •$6 million increase in cash outflows related to acquisitions and equity-method investments •$2 million increase in cash outflows related to capital expenditures for long-lived assets.
Financing Activities
Cash used in financing activities increased by$6 million for the three months endedMarch 31, 2022 compared to the same period in 2021. This was primarily related to an increase of$31 million in cash outflows related to repurchases of our common stock during 2021, partially offset by$25 million in additional borrowings on our revolving credit agreement. (See Note 11 - Authorized shares of common and preferred stock and stock-based compensation plans of Notes to Consolidated Financial Statements for additional discussion about our equity compensation plans and share repurchase program). Contractual Cash Obligations. Information related to our contractual obligations as ofDecember 31, 2021 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations," in Part II-Item 7 of the Form 10-K. AtMarch 31, 2022 , there were no material changes outside the ordinary course of business to our contractual obligations from those reported in our 2021 Form 10-K. See Note 8 - Leases of Notes to Consolidated Financial Statements for additional information regarding our non-cancellable operating lease obligations as ofMarch 31, 2021 . Credit Agreement. OnJune 18, 2021 , we entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement") withWells Fargo Bank, National Association , as the administrative agent, swingline lender and issuing lender (the "Administrative Agent"),Wells Fargo Securities, LLC , as sole lead arranger and bookrunner, and the lenders party thereto. As ofMarch 31, 2022 , we had$174 million in available borrowing capacity under the Credit Agreement. Proceeds of additional borrowings made under the Credit Agreement may be used for working capital and other general corporate purposes. We may prepay the loans under the Credit Agreement in whole or in part at any time without premium or penalty. Certain of our future material domestic subsidiaries are required to guaranty our obligations under the Credit Agreement. (See Note 13 - Debt of Notes to Consolidated Financial Statements for additional details on our Credit Agreement). Off-Balance Sheet Arrangements. We do not have any off-balance sheet debt. AtMarch 31, 2022 , we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships. Prospective Capital Needs. We believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, cash generated from the purchase of common stock through our employee stock purchase plan and available borrowing under our Credit Agreement will be sufficient to cover our working capital needs, capital expenditures, investment requirements, commitments, payment of dividends to our stockholders and repurchases of our common stock for at least the next 12 months. We may also seek to pursue additional financing or to raise additional funds by seeking an additional increase in our secured revolving line of credit and/or term loan commitments under the Credit Agreement or selling equity or debt to the public or in private transactions from time to time. If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or on acceptable terms, if at all. If we raise additional funds by issuing additional equity or convertible debt securities, the ownership percentages of our existing stockholders would be reduced. In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to those of our common stock. 44 -------------------------------------------------------------------------------- Although we believe that we have sufficient capital to fund our operating activities for at least the next 12 months, our future capital requirements may vary materially from those now planned. We anticipate that the amount of capital we will need in the future will depend on many factors, including: •payment of dividends to our stockholders; •required levels of research and development and other operating costs; •our business, product, capital expenditure and research and development plans, and product and technology roadmaps; •acquisitions of other businesses, assets, products or technologies; •repurchase of our common stock; •the overall levels of sales of our products and gross profit margins; •the levels of inventory and accounts receivable that we maintain; •general economic and political uncertainty and specific conditions in the markets we address, including any volatility in the industrial economy in the various geographic regions in which we do business; •the inability of certain of our customers who depend on credit to have access to their traditional sources of credit to finance the purchase of products from us, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us; •capital improvements for facilities; •our relationships with suppliers and customers; and •the amount of proceeds received as a result of our employee stock purchase plan. 45 --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
See Note 1 - Basis of presentation in Notes to Consolidated Financial Statements.
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