PCTEL, INC. The following information should be read in conjunction with the unaudited interim condensed consolidated financial statements ofPCTEL, Inc. ("PCTEL ," the "Company," "we," "our," and "us") and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and in conjunction with the consolidated financial statements for the year endedDecember 31, 2020 contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "2020 Form 10-K"). Except for historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, including statements regarding our anticipated revenues, profits, costs and expenses, revenue mix and the impact on our business from the COVID-19 pandemic and ensuing supply chain disruptions. These forward-looking statements include, among others, those statements including the words "may," "will," "plans," "seeks," "expects," "anticipates," "intends," "believes" and words of similar meaning. Such statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. No undue reliance should be placed on these forward-looking statements. Our actual results could differ materially from those projected in these forward-looking statements. Specifically, the statements, among others, about our expectations regarding the impact of the COVID-19 pandemic; our future financial performance; growth of our antennas and Industrial IoT (as defined below) device business and our test & measurement business; the impact of the acquisition of Smarteq on the Company's ability to offer additional products, expand in the European market, and generate revenue; the impact of our transition plan for manufacturing inside and outsideChina ; the impact of the uncertainty regarding the renewal of our lease of ourTianjin, China manufacturing premises; the anticipated demand for certain products including those related to public safety, Industrial IoT, 5G and intelligent transportation; the impact of tariffs on certain imports fromChina ; and the anticipated growth of public and private wireless systems are forward-looking statements. These statements are based on management's current expectations and actual results may differ materially from those projected as a result of certain risks and uncertainties, including, without limitation, the disruptions to our workforce, operations, supply chain and customer demand caused by the COVID-19 pandemic and impact of the pandemic on our results of operations, financial condition and stock price; the impact of data densification and IoT on capacity and coverage demand; the impact of 5G; customer demand and growth generally in our defined market segments, including demand from customers inEurope , the Company's ability to integrate Smarteq, expand its European presence and benefit from additional antenna and Industrial IoT product offerings; the ability to expand into new market segments and to access government and military customers; the impact of the uncertainty regarding renewal of our lease of ourTianjin, China manufacturing premises; the impact of tariffs on certain imports fromChina ; and our ability to grow our business and create, protect and implement new technologies and solutions, as well as the risk factors set forth in Item 1A of our 2020 Form 10-K and in our subsequent reports and filings with theSEC . These forward-looking statements are made only as of the date hereof. Except as may be required by law, we do not undertake, and expressly disclaim, any obligation to update or revise any forward-looking statements whether because of new information, future events or otherwise. COVID-19 Update The ongoing COVID-19 pandemic and increased business uncertainty had an adverse impact on our financial results during 2020 through global shutdowns and supply chain and operational disruptions and many of these challenges have persisted. We took a variety of actions during 2020 to help mitigate the financial impact, including executing temporary cost savings measures, reducing our capital spending, and proactively managing our working capital. In 2021, we have proactively managed our supply chain to minimize the impact of global shortages of key components for our products, including resins, adhesives, plastics and electronics, redesigned certain products to alleviate the need for end-of-life components, and maintained higher inventories to address long-lead times due to freight congestion and delays. Based on improved revenues in the third quarter 2021 for antennas and Industrial IoT, demand for our products is recovering. However, the global recovery in demand has had impacts on our business, including increased material cost inflation, logistics costs increases and component part shortages. Currently, our expectation is that the impacts of material cost inflation and logistics constraints will continue through the balance of 2021, but we are mitigating the impact of the cost increases through price increases on certain products. Our foremost focus continues to be the health and safety of our employees. We continue to maintain our enhanced health and safety protocols at our facilities and are encouraging our employees to obtain vaccination. We will continue to closely monitor the risks posed by COVID-19 and the guidance from relevant authorities. We will adjust our practices accordingly, as we have throughout the pandemic. Business OverviewPCTEL is a leading global provider of wireless technology, including purpose-built Industrial Internet of Things ("Industrial IoT") devices, antenna systems, and test & measurement solutions. We solve complex wireless challenges to help organizations stay connected, transform, and grow. We have a strong brand presence and expertise in radio frequency ("RF"), digital and mechanical engineering. We have two businesses (antennas/Industrial IoT devices and test & measurement products) that address three market segments:Enterprise Wireless , Intelligent Transportation, and Industrial IoT. Our antennas and Industrial IoT devices include antennas deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in network equipment and devices for Industrial IoT. Our test & measurement products improve the performance of wireless networks globally. Mobile 32 -------------------------------------------------------------------------------- operators, neutral hosts, and network equipment manufacturers rely on our products to analyze, design, and optimize next generation wireless networks. We seek out product applications that command a premium for product design and performance, and we avoid commodity markets. Our strength is solving complex wireless challenges for our customers through our products and solutions. To this end, we are constantly innovating and improving our IoT, antenna and wireless testing products and capabilities to capture the opportunities of the rapidly evolving wireless industry. We focus on engineering, research, and development to maintain and expand our competitiveness.
Antennas and Industrial IoT devices
PCTEL designs and manufactures precision antennas and Industrial IoT devices, and we offer in-house wireless product development for our customers, including design, testing, radio integration, and manufacturing capabilities. Revenue growth in these markets is driven by the increased use and complexity of wireless communications. Our antenna portfolio includes Wi-Fi, Bluetooth, Land Mobile Radio ("LMR"), Tetra, Global Navigation Satellite System ("GNSS"), Cellular, Industrial, Scientific, Medical ("ISM"), Long Range ("LoRa"), and combination antenna solutions. Our Industrial IoT device portfolio includes access points, radio modules, and wireless communication sensors. Consistent with our mission to solve complex network engineering problems and to compete effectively in the antenna and Industrial IoT device market,PCTEL maintains expertise in the following areas: radio frequency engineering, wireless network engineering, mechanical engineering, mobile antenna design, manufacturing, and product quality and testing. Test & Measurement ProductsPCTEL provides RF test & measurement products that improve the performance of wireless networks globally, with a focus on LTE, public safety, and 5G technologies. Revenue growth in this market is driven by the implementation and roll out of new wireless technology standards (i.e., 3G to 4G, 4G to 5G) and new market applications for public safety and government. Our portfolio includes scanning receivers, scanning receiver software, public safety solutions, interference location systems, and mmwave transmitters. Our scanning receivers are software defined radios used to 1) confirm adequate RF coverage during deployment, 2) identify interfering signals which decrease capacity, 3) troubleshoot system performance issues as networks expand, and 4) benchmark competing networks because our scanning receivers can scan all technologies across all frequencies during one test. Scanning receivers are necessary for initial network deployment and throughout the entire life cycle of the mobile network. Most of our 4G scanners can be upgraded to 5G via firmware. During the third quarter 2021, we introduced the Gflex 5G scanning receiver which opens new opportunities in the government signal intelligent market. Consistent with our mission to solve complex network engineering problems and to compete effectively in the RF test & measurement market,PCTEL maintains expertise in the following areas: radio frequency engineering, digital signal processing ("DSP") engineering, wireless network engineering, mechanical engineering, manufacturing, and product quality and testing. Third Quarter Overview Revenues for the three months endedSeptember 30, 2021 were$22.4 million , an increase of 18.4% compared to$18.9 million for the same period in 2020. By product line, revenues decreased by$0.9 million (13.1%) to$5.9 million for test & measurement products and increased by$4.4 million (35.4%) to$16.7 million for antennas and Industrial IoT devices during the three months endedSeptember 30, 2021 . The increase in revenues for antennas and Industrial IoT devices was due to both the acquisition of Smarteq and higher organic revenues. Gross profits of$10.3 million for the quarter increased by$0.7 million compared to the same period in 2020, primarily due to the revenue increases for antennas and Industrial IoT devices. Operating expense of$9.6 million was$1.1 million higher than in the third quarter 2020. The increase results from inclusion of Smarteq's operating expenses and employee-related costs, including salaries and incentive compensation expenses. Operating expenses for the third quarter 2020 were lower due, in part, to measures the Company took at the beginning of the COVID-19 pandemic to control costs, including temporary reductions in salaries, travel, and other discretionary spending. The net impact of these changes resulted in income before tax of$0.7 million in the third quarter 2021 compared to income before tax of$1.1 million for the third quarter of 2020. Revenues for the nine months endedSeptember 30, 2021 were$61.8 million , an increase of 9.8%, compared to$56.3 million for the same period in 2020. By product line, revenues decreased by$0.5 million (2.5%) to$18.5 million for test & measurement products and increased by$6.3 million (16.6%) to$44.0 million for antennas and Industrial IoT devices. The decrease in revenues for test & measurement products was due to lower revenues for products with 5G technologies offset by revenue growth in products for public safety applications. The increase in revenues for antennas and Industrial IoT devices was due to both the acquisition of Smarteq and organic growth. Gross profits of$28.5 million increased by$1.2 million compared to the same period in the prior year due to the higher revenues in antennas and Industrial IoT devices product line. Operating expenses of$28.7 million were$2.7 million higher than the same period in the prior year. The increase resulted from inclusion of Smarteq's operating expenses, intangible amortization expenses related to the Smarteq acquisition, and employee-related costs, including salaries and incentive compensation expenses. Operating expenses for the third quarter 2020 were lower due, in part, to measures the Company took at the beginning of the COVID- 33 -------------------------------------------------------------------------------- 19 pandemic to control costs, including temporary reductions in salaries, travel, and other discretionary spending. The net impact of these changes resulted in a decrease in income before tax of$1.7 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. Net loss before tax was$0.2 million for the nine months endedSeptember 30, 2021 and net income was$1.6 million for the nine months endedSeptember 30, 2020 .
Our cash and investments decreased by
Smarteq Acquisition OnApril 30, 2021 , we acquired all the outstanding stock ofSmarteq Wireless Aktiebolag, a Swedish company based in Kista,Sweden , that designs antennas for specialized Industrial IoT and vehicular applications ("Smarteq"), pursuant to a Share Sale and Purchase Agreement betweenPCTEL and Allgon Aktiebolag, a Swedish company and holder of the outstanding stock of Smarteq (the "Agreement"). Smarteq owns all the outstanding stock of SAS Smarteq France, which engages in sales of Smarteq products.PCTEL paid cash consideration ofSEK 56.8 million ($6.8 million ) at the close of the transaction, all of which was provided fromPCTEL's existing cash. We believe the acquisition of Smarteq will provide a strong European presence, expertise, and channel partners to accelerate our growth inEurope , as well as a complementary portfolio of products for our Industrial IoT and intelligent transportation customers worldwide. The results for Smarteq are combined with the Company's antenna and Industrial IoT device product line. Revenues by Product Line Three Months Ended September 30, 2021 2020 $ Change % Change Antennas & Industrial IoT Devices$ 16,686 $ 12,326 $ 4,360 35.4 % Test & Measurement Products 5,921$ 6,810 (889 ) -13.1 % Corporate (196 )$ (213 ) 17 not meaningful Total$ 22,411 $ 18,923 $ 3,488 18.4 % Nine Months Ended September 30, 2021 2020 $ Change % Change Antennas & Industrial IoT Devices$ 43,971 $ 37,696 $ 6,275 16.6 % Test & Measurement Products 18,540 19,011 (471 ) -2.5 % Corporate (712 ) (436 ) (276 ) not meaningful Total$ 61,799 $ 56,271 $ 5,528 9.8 % Revenues increased 18.4% for the three months endedSeptember 30, 2021 compared to the same period in 2020 due to higher revenues for antennas and Industrial IoT devices. Revenues for the test & measurement product line decreased by 13.1% for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 due to lower revenues for products with technologies other than 5G technologies. For the three months endedSeptember 30, 2021 , revenues for the antennas and Industrial IoT devices product line increased by 35.4% compared to the same period in 2020 as a result of revenues from the contribution of Smarteq and from higher organic revenues generated by antennas for public safety, enterprise wireless, and GPS applications. Revenues increased 9.8% for the nine months endedSeptember 30, 2021 compared to the same period in 2020 due to higher revenues for antennas and Industrial IoT devices. For the nine months endedSeptember 30, 2021 , revenues increased for antennas and Industrial IoT devices by 16.6% compared to the same period in 2020 as a result of revenues from the contribution of Smarteq and from higher organic revenues generated by antennas for public safety, fleet applications, and GPS applications. Revenues for the test & measurement product line decreased 2.5% for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 due to lower revenues for test & measurement products with technologies other than 5G technologies. Gross Profit by Product Line 34
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Three Months Ended September 30,
2021 % of Revenues 2020 % of Revenues
Antennas & Industrial IoT Devices $ 5,655 33.9 % $ 4,336 35.2 %
Test & Measurement Products 4,635 78.3 % $ 5,203 76.4 %
Corporate (36 ) not meaningful 36 not meaningful
Total $ 10,254 45.8 % $ 9,575 50.6 %
Nine Months Ended September 30,
2021 % of Revenues 2020 % of Revenues
Antennas & Industrial IoT Devices $ 14,578 33.2 % $ 13,228 35.1 %
Test & Measurement Products $ 14,057 75.8 % $ 14,109 74.2 %
Corporate $ (102 ) not meaningful $ (26 ) not meaningful
Total $ 28,533 46.2 % $ 27,311 48.5 %
The gross profit percentage decreased by 4.8% for the three months ended
September 30, 2021 compared to the same period in 2020 due to a higher mix of
antennas and Industrial IoT devices and a lower gross margin percentage for
antennas and Industrial IoT devices. The gross profit percentage for the
antennas and Industrial IoT devices decreased by 1.3% for the three months ended
September 30, 2021 compared to the same period in 2020 primarily due to higher
freight costs and expense recognized related to the fair value step up of the
inventory acquired from the Smarteq acquisition. The gross profit percentage for
test & measurement products increased by 1.9% for the three months ended
September 30, 2021 compared to the same period in 2020.
The gross profit percentage decreased by 2.3% for the nine months ended
September 30, 2021 compared to the same period in 2020 due to a higher mix of
antennas and Industrial IoT devices and due a lower gross margin percentage for
antennas and Industrial IoT devices. The gross profit percentage for antennas
and Industrial IoT devices decreased by 1.9% for the nine months ended September
30, 2021 compared to the same period in 2020 primarily due to higher freight
costs and the expense recognized related to the fair value step of the inventory
for Smarteq. The gross profit percentage for test & measurement products
increased by 1.6% for the nine months ended September 30, 2021 compared to the
same period in 2020 due to lower production costs and because there was no
intangible amortization expense in cost of sales for test & measurement products
in the nine months ended September 30, 2021 compared to $0.1 million in the
comparable period in 2020.
Consolidated Operating Expenses
Three Months Ended Three Months Ended
September 30, September 30, % of Revenues
2021 Change 2020 2021 2020
Research and development $ 3,338 $ 122 $ 3,216 14.9 % 17.0 %
Sales and marketing 3,347 707 2,640 14.9 % 14.0 %
General and administrative 2,817 258 2,559 12.6 % 13.5 %
Amortization of intangible assets 80 80 0 0.4 % 0.0 %
Restructuring benefits (expenses) (1 ) (26 ) 25 0.0 % 0.1 %
Total $ 9,581 $ 1,141 $ 8,440 42.8 % 44.6 %
Nine Months Ended Nine Months Ended
September 30, September 30, % of Revenues
2021 Change 2020 2021 2020
Research and development $ 9,754 $ 439 $ 9,315 15.8 % 16.6 %
Sales and marketing 9,497 1,318 8,179 15.4 % 14.5 %
General and administrative 9,228 922 8,306 14.9 % 14.8 %
Amortization of intangible assets 135 103 32 0.2 % 0.1 %
Restructuring expenses 59 (65 ) 124 0.1 % 0.2 %
Total $ 28,673 $ 2,717 $ 25,956 46.4 % 46.2 %
35
-------------------------------------------------------------------------------- Research and development expenses were higher by$0.1 million and$0.4 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to the same period in 2020 primarily due to inclusion of research and development expenses related to Smarteq.
Sales and marketing expenses include costs associated with the sales and marketing employees, product line management, and trade show expenses.
Sales and marketing expenses increased$0.7 million for the three months endedSeptember 30, 2021 compared to the same period in 2020 due to inclusion of sales and marketing expenses for Smarteq of$0.3 million , higher incentive compensation of$0.3 million , and marketing expenses of$0.1 million . Sales and marketing expenses increased$1.3 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020 as expenses associated with the acquisition of Smarteq were$0.4 million in addition to higher incentive compensation expense of$0.5 million , employee related costs of$0.3 million , and marketing expenses of$0.1 million .
General and administrative expenses include costs associated with general management, finance, human resources, IT, legal, public company costs, and other operating expenses to the extent not otherwise allocated to business segments.
General and administrative expenses increased by$0.3 million and$0.9 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to the same period in 2020 primarily due to inclusion of general and administrative expenses for Smarteq and non-recurring professional fees associated with the business acquisitions. Amortization of intangible assets within operating expenses was$80 for the three months endedSeptember 30, 2021 and$135 for the nine months endedSeptember 30, 2021 . This relates to amortization for the intangible assets for the Smarteq acquisition. The amortization of intangible assets of$32 that was recorded during the nine months endedSeptember 30, 2020 related to intangible assets that became fully amortized during the first quarter 2020. Restructuring expenses relate to the transition of manufacturing operations from ourTianjin, China facility to contract manufacturers. Restructuring expenses of$59 for the nine months endedSeptember 30, 2021 consisted of employee severance and payroll related costs associated with the termination of five employees inTianjin . We will reduce additional headcount inTianjin and incur additional restructuring charges for severance and non-cash costs during the fourth quarter 2021 primarily for employee terminations but also for other non-cash related expenses. We expect the transition to be substantially completed by the end ofDecember 2021 . Restructuring income of$0.1 million for the nine months endedSeptember 30, 2020 consisted of employee severance and payroll related costs associated with the termination of ten employees inTianjin .
Other Income, Net
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Interest income $ 6 $ 76 $ 37 $ 353
Foreign exchange losses (10 ) (158 ) (54 ) (139 )
Other, net 0 (2 ) 7 2
Total $ (4 ) $ (84 ) $ (10 ) $ 216
Percentage of revenues (0.0 )% (0.4 )% (0.0 )% 0.4 %
Other income, net consists of interest income, foreign exchange losses, and
interest expense. Interest income from investment securities decreased by $70
and $316 during the three and nine months ended September 30, 2021 ,
respectively, compared to the prior year, primarily due to lower average
interest rates. Foreign exchange losses during the three and nine months ended
September 30, 2021 and 2020 were primarily related to changes in the exchange
rate between the Chinese Yuan and Swedish Krona relative to the U.S. dollar.
Expense for Income Taxes
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Expense for income taxes $ 5 $ 9 $ 17 $ 25
Effective tax rate 0.7 % 0.9 % (11.3 )% 1.6 %
36
-------------------------------------------------------------------------------- We recorded income tax expense of$17 and$25 for the nine months endedSeptember 30, 2021 and 2020, respectively. The expense recorded for the nine months endedSeptember 30, 2021 and 2020 differed from the Federal statutory rate of 21% primarily because we have a full valuation allowance on our deferred tax assets. The full valuation allowance is due to the uncertainty regarding the utilization of the deferred tax assets. On a regular basis, we evaluate the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment. We considered multiple factors in our evaluation of the need for a valuation allowance. The full valuation allowance against our deferred tax assets was$15.3 million atSeptember 30, 2021 and$12.9 million atDecember 31, 2020 . The deferred tax assets consist of domestic deferred tax assets of$12.2 million and foreign deferred tax assets of$3.1 million . As part of the Smarteq acquisition, we recorded$2.3 million of net deferred tax assets. While the Company expects book and tax profits in 2021 and future periods, Smarteq has recorded a three-year cumulative tax loss as ofDecember 31, 2020 . Based on this objective evidence and uncertainty associated with the COVID-19 pandemic, the Company recorded a full valuation allowance on the opening balance sheet for Smarteq. We recorded pretax book income during 2020 and believe our financial outlook remains positive. However, the COVID-19 pandemic has created a high level of uncertainty. Due to this uncertainty, as well as difficulties with forecasting financial results historically, we maintained a full valuation allowance on our deferred tax assets atSeptember 30, 2021 . The analysis that we prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance. See Note 13 to the condensed consolidated financial statements for more information related to income taxes.
Net Income (Loss)
We recorded net income of$0.7 million for the three months endedSeptember 30, 2021 compared to net income of$1.0 million for the same period in 2020, as higher operating expenses offset higher gross profits. Operating expenses were higher by$1.1 million as we spent more in all functional areas and intangible amortization expense for the intangible assets acquired from Smarteq. We recorded a net loss of$0.2 million for the nine months endedSeptember 30, 2021 compared to net income of$1.5 million for the same period in 2020, as the impact of higher operating expenses and lower other income and expense offset the higher gross profits from higher revenues. The increase in gross profit was a result of an increase in gross profit for both test & measurement products and antennas and Industrial IoT devices. Operating expenses were higher by$2.7 million as we spent more in all functional areas, and we recorded intangible amortization expense for the intangible assets acquired from Smarteq and we higher restructuring expenses. Other income and expense was lower by$0.2 million because primarily because of lower interest income due to lower interest rates.
Liquidity and Capital Resources
Nine Months Ended September 30,
2021 2020
Net cash flow provided by (used in):
Operating activities $ 6,371 $ 10,619
Investing activities $ 4,259 $ (7,655 )
Financing activities $ (6,631 ) $ (5,742 )
Net increase (decrease) in cash and cash equivalents $ 3,999 $ (2,778 )
September 30, December 31,
2021 2020Cash and cash equivalents at the end of period $ 9,772 $
5,761
Short-term investments at the end of period
30,582
Long-term investments at the end of period $ 0 $
4,640
Working capital at the end of period$ 47,679 $ 52,867 Overview Our primary source of liquidity is cash provided by operations, with short-term swings in liquidity supported by a significant balance of cash and short-term investments. The balance has fluctuated with cash from operations, acquisitions and divestitures, payment of dividends, and the repurchase of our common shares. 37
-------------------------------------------------------------------------------- Within operating activities, we are historically a net generator of operating funds from our income statement activities. During the nine months endedSeptember 30, 2021 , our balance sheet provided operating funds. In periods of expansion, we expect to use cash from our balance sheet. Within investing activities, capital spending historically ranges between 2.0% and 4.0% of our revenues and the primary use of capital is for manufacturing, engineering, and product development. We historically have made significant transfers between investments and cash as we rotate our large cash balances and short-term investment balances between money market funds, which are accounted for as cash equivalents, and other investment vehicles. We have a history of supplementing our organic revenue with acquisitions of product lines or companies, resulting in significant uses of our cash and short-term investment balances from time to time. We used$6.3 million , net of cash acquired for the purchase of Smarteq inApril 2021 . We expect the historical trend for capital spending and the variability caused by moving money between cash and investments and periodic merger and acquisition activity to continue in the future. Within financing activities, we have historically generated funds from the exercise of stock options and proceeds from the issuance of common stock through our Employee Stock Purchase Plan ("ESPP"). We have historically used funds to issue dividends and we periodically repurchase shares of our common stock through share repurchase programs. We used$3.8 million for the repurchase of shares during the full year 2020 and$3.2 million for the repurchase of shares during the nine months endedSeptember 30, 2021 . Share repurchases were funded with cash on hand. The 2020 Repurchase Plan ended inSeptember 2021 with the completion of$5.0 million of share repurchases. AtSeptember 30, 2021 , our cash, cash equivalents, and investments were approximately$32.5 million , and we had working capital of$47.7 million . As the COVID-19 pandemic continues to evolve, we are proactively managing our costs and our working capital in order to protect our financial position and maintain our workforce. Management believes our cash and investments provide adequate liquidity and working capital to support our operations given our historic ability to generate free cash flow (cash flow from operations less capital spending) and our low level of debt for the next twelve months from the date of this Quarterly Report on Form 10-Q.
Operating Activities:
Operating activities generated$6.4 million of cash during the nine months endedSeptember 30, 2021 . We generated$4.3 million of cash from our statement of operations and$2.1 million from the balance sheet. The balance sheet was a net source of cash as accounts receivable collections offset the impact of higher inventories. Accounts receivable decreased by$2.2 million primarily due to lower days sales outstanding on outstanding invoices. Inventories increased by approximately$1.7 million in order to maintain customer service levels while the Company manages supply chain delays and component shortages for both product lines. Operating activities generated$10.6 million of cash during the nine months endedSeptember 30, 2020 . We generated$5.7 million of cash from our statement of operations activities and$4.9 million from the balance sheet. The balance sheet was a net source of cash as reductions in accounts receivable and inventories were partially offset by the reduction in accounts payable. Accounts receivable decreased by$3.6 million primarily because revenues declined by$4.0 million for the three months endedSeptember 30, 2020 compared to the three months endedDecember 31, 2019 . The reduction in accounts payable primarily relates to the reduction in inventories. Investing Activities: Our investing activities provided$4.3 million of cash during the nine months endedSeptember 30, 2021 . InApril 2021 , the Company used$6.3 million for the purchase of Smarteq, net of cash acquired. During the nine months endedSeptember 30, 2021 , redemptions and maturities of our investments provided$33.7 million in funds and we rotated$21.1 million of cash into new investments. We used$2.0 million for capital expenditures during the nine months endedSeptember 30, 2021 . Our investing activities used$7.7 million of cash during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2020 , redemptions and maturities of our investments provided$35.8 million in funds and we rotated$40.0 million of cash into new investments. We used$3.4 million for capital expenditures during the nine months endedSeptember 30, 2020 , primarily related to our new leased facility inClarksburg, Maryland . We used cash of$1.4 million for leasehold improvements and other facility related equipment for the facility which opened inJanuary 2020 . During the nine months endedSeptember 30, 2020 we received$1.0 million in tenant allowances for theClarksburg facility. The tenant allowance is reflected in operating activities.
Financing Activities:
We used$6.6 million in cash for financing activities during the nine months endedSeptember 30, 2021 . We used$3.0 million for quarterly cash dividends,$3.2 million for share repurchases, and$0.8 million for payroll taxes related to stock-based compensation in this period. The tax payments related to restricted stock awards. Proceeds from the issuance of common stock for our ESPP provided$0.4 million for the nine months endedSeptember 30, 2021 . 38 -------------------------------------------------------------------------------- We used$5.7 million in cash for financing activities during the nine months endedSeptember 30, 2020 . We used$3.1 million for quarterly cash dividends, and$2.0 million for share repurchases in the first quarter. We used$1.1 million for payroll taxes related to restricted stock awards and shares issued under the short-term incentive plan. OnApril 16, 2020 , we received a$3.5 million paycheck protection program ("PPP") loan from theSmall Business Administration . Based upon subsequent guidance regarding PPP loan eligibility, we returned the funds onApril 30, 2020 .
Off-Balance Sheet Arrangements
None.
Contractual Obligations and Commercial Commitments
We had purchase obligations of$19.6 million and$10.9 million atSeptember 30, 2021 andDecember 31, 2020 , respectively, for the purchase of inventory as well as for other goods and services in the ordinary course of business. Balances for purchases currently recognized as liabilities on the balance sheet are excluded.
We had a liability of
Critical Accounting Policies and Estimates
We use certain critical accounting policies as described in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies and Estimates" of the 2020 Form
10-K. There have been no material changes in any of our critical accounting
policies since
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