ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS:
The following management’s discussion and analysis of the financial condition and results of operations of CyberOptics Corporation and its wholly-owned subsidiaries ("we", "us" and "our") contains a number of estimates and predictions that are forward looking statements rather than statements based on historical fact. Among other matters, we discuss (i) a possible world-wide recession or depression resulting from the economic consequences of the Covid-19 pandemic; (ii) the potential effect on our revenue and operating results of the Covid-19 crisis on our customers and suppliers, the markets for our products and the global supply chain; (iii) market conditions in the global SMT and semiconductor capital equipment industries; (iv) the timing of orders and shipments of our products, particularly our 3D MRS SQ3000™ and SQ3000™+ Multi-Function systems for automated optical inspection ("AOI") and MX systems for memory module inspection; (v) increasing price competition and price pressure on our product sales, particularly our inspection and metrology systems; (vi) the level of orders from our original equipment manufacturer ("OEM") customers; (vii) the availability of parts required to meet customer orders; (viii) the effect of world events on our sales, the majority of which are from foreign customers; (ix) rapid changes in technology in the electronics and semiconductor markets; (x) product introductions and pricing by our competitors; (xi) the success of our 3D technology initiatives; (xii) the market acceptance of our 3D MRS SQ3000™ and SQ3000+ Multi-Function systems and products for semiconductor inspection and metrology; (xiii) the impact of lower margin MX3000™ memory module inspection systems on our consolidated gross margin in any future period; (xiv) risks related to cancellation or renegotiation of orders we have received; (xv) the level of anticipated revenues, gross margins, and expenses; (xvi) the timing of initial revenue and projected improvements in gross margins from sales of new products that have been recently introduced, that we have under development or that we anticipate introducing in the future; and (xvii) our assessment of trends in the surface mount technology ("SMT") and semiconductor capital equipment markets; Although we have made these statements based on our experience and expectations regarding future events, there may be events or factors that we have not anticipated. Therefore, the accuracy of our forward-looking statements and estimates are subject to a number of risks, including those risks identified in our Annual Report on Form 10-K for the year ended December 31, 2021.
RESULTS OF OPERATIONS
General
We are a leading global developer and manufacturer of high precision 3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, which is a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the SMT and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression™ (MRS™) technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to significantly expand our markets. Another key element in our strategy is the continued development and introduction of new sensor applications for our WaferSense® family of products.
We believe that conditions in the SMT and semiconductor capital equipment markets are favorable, and we believe this market strength will continue in 2022. Over the longer-term (i.e. the next several years), we expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology. We believe that our 3D MRS sensor and system products and our WaferSense family of products have the potential to expand our presence in the markets for SMT and semiconductor capital equipment.
Manufacturing yield challenges, as electronics and semiconductors become more complex, are driving the need for more precise inspection and metrology. We believe 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. We believe our 3D MRS technology platform is well suited for many applications in these markets, particularly with respect to complex circuit boards and semiconductor wafer and advanced packaging inspection and metrology applications. We are taking advantage of current market trends by deploying our 3D MRS sensor technology in the following products:
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Our SQ3000™ and SQ3000+™ Multi-Function systems for Automated Optical Inspection (AOI), Solder Paste Inspection (SPI) and coordinate measurement (CMM) applications, which are designed to expand our presence in markets requiring high precision inspection and metrology. In these markets, identifying defects has become highly challenging and critical due to smaller semiconductor and electronics packaging and increasing component density on circuit boards. The SQ3000+ Multi-Function system with its higher resolution MRS sensor that inhibits reflection-based distortions caused by shiny components and surfaces is capable of measuring feature sizes down to 50 microns and is specifically designed for high-end inspection and metrology applications including advanced packaging, mini-LED and advanced SMT for high-end electronics. We believe our 3D MRS sensor technology is uniquely suited for many of these applications because of its ability to offer microscopic image quality and superior measurement performance at production line speeds.
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Our next generation ultra-high resolution three micron pixel 3D NanoResolution MRS™ sensor, which is capable of measuring feature sizes down to 25 microns accurately and at high speeds, and is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. We have adapted the software used in our SQ3000 Multi-Function systems to work with wafer handling equipment to facilitate sales of our 3D NanoResolution MRS sensor to OEM's and system integrators.
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Our next generation MX3000™ AOI system for 3D inspection of memory modules following the singulation step of the manufacturing process. We recognized our first revenue from the sale of the MX3000 in the first quarter of 2020. Two of the world's three largest memory manufacturers and their subcontractors have now purchased our MX3000 system. Additional orders for memory module inspection are expected in future periods, and we believe the potential market opportunity for our MX3000 system and 3D MRS sensors for memory module inspection is significant. |
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Our WX3000™ metrology and inspection system for semiconductor wafer and advanced packing applications, which incorporates our next generation ultra-high resolution 3D NanoResolution MRS sensor, performs 100% 3D and 2D inspection and metrology simultaneously at high speeds and delivers through-put of more than 25 wafers per hour. The WX3000 is suitable for many high volume semiconductor wafer and advanced packaging inspection and metrology applications for feature sizes down to 25-microns. We recently received our first purchase order for the WX3000 and anticipate that sales of sensors and systems for semiconductor wafer and advanced packaging inspection and metrology will provide us with long-term growth opportunities.
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Revenue from our MRS-based products, including 3D AOI systems and high precision 3D MRS sensors, increased by $3.5 million or 42% to $11.8 million in the first quarter of 2022, from $8.3 million in the first quarter of 2021. Over the long term, we anticipate continued increases in sales of products based on our MRS technology in the SMT and semiconductor capital equipment markets. In particular, we believe inspection and metrology for mini LED, memory modules and semiconductor wafer and advanced packaging applications represent significant long-term growth opportunities. We anticipate increasing sales of MRS-based products by selling them to new OEM customers and system integrators, and by expanding direct sales of inspection and metrology system products to end-user customers.
We have continued to invest in our WaferSense family of products, because fabricators of semiconductors and other customers view these products as valuable tools for improving yields and productivity. We have recently introduced several new WaferSense products to further increase our revenue growth, and additional WaferSense applications are currently under development, including Automatic Teaching Sensors (ATS) in both wafer and reticle formats and products for wafer edge detection. Over the long-term, strong future sales growth is anticipated for our WaferSense family of products.
Our order backlog was $47.4 million at March 31, 2022, compared to $47.3 million at December 31, 2021 and $32.4 million at March 31, 2021. We are forecasting sales of $25.0 million to $28.0 million for the second quarter of 2022 ending June 30, compared to $25.2 million for the second quarter of 2021. We believe that conditions in the SMT and semiconductor capital equipment markets are favorable, and we believe this market strength will continue in 2022. However, an increase in the severity of the current Covid-19 pandemic, an escalation in the Ukraine conflict, and a resulting economic recession or depression, could cause a slow-down in demand for SMT and semiconductor capital equipment. Over the long term, we believe anticipated sales growth of our products based on 3D MRS technology and WaferSense sensors should increase revenues and net income. We believe that we have the resources required to attain our growth objectives, given our available cash and marketable securities balances totaling $38.2 million at March 31, 2022.
Impact from Covid-19
Effect of Covid-19 Outbreak on Business Operations
Covid-19 was first identified in December 2019, and in March 2020, the World Health Organization categorized Covid-19 as a pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees to varying degrees, and the ultimate impacts of Covid-19, including the potential impact of known and future variants, on our business, results of operations, liquidity and prospects are not fully known at this time. Overall, the Covid-19 outbreak has had a relatively minimal impact on our business to date. Our revenues increased by 37% to $24.2 million in the first quarter of 2022, from $17.7 million in the first quarter of 2021. We are forecasting sales of $25.0 million to $28.0 million for the second quarter of 2022 ending June 30, compared to $25.2 million in the second quarter of 2021. Our forecast for the second quarter of 2022 could change if the Covid-19 pandemic worsens, or if unforeseen events related to the pandemic occur. The most significant impacts on our business from the Covid-19 pandemic include the following:
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Our key factories are located in Minnesota and Singapore. Both of these locations have been subject to government mandated shelter-in-place orders. Because our operations have been deemed essential, we were able to keep our factories up and running while the shelter-in-place mandates were in effect. If the pandemic worsens, it is possible that our operations may not be deemed essential under future government mandated shelter-in-place orders, and we may be required to shut-down factory operations. We have periodically implemented split-shifts for our factory operations to minimize the number of employees in our facilities at any given time. These measures have not affected our production capacity. A significant Covid-19 outbreak for an extended period of time in either of our key factories would most likely have a negative effect on our revenue and operating results. To date, the Covid-19 pandemic has not had a significant impact on our factory operations, but that could change in the future if the pandemic worsens and is more than temporary. |
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Sales of some products, mainly our SQ3000 Multi-Function systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that is considered more than a formality. Most of our customer’s factories have remained open during the Covid-19 pandemic because they are deemed to be essential under government shelter-in-place mandates. However, global travel restrictions and quarantine measures have hindered our ability to obtain some customer acceptances for certain of our products at various times during the Covid-19 pandemic. Continuing or new global travel restrictions and quarantine measures could hinder our ability to obtain customer acceptances in a timely manner in the future, and therefore impact the timing of revenue recognition. In addition, government mandated shelter-in-place orders or quarantine measures could cause customers to delay purchases of our products, negatively impacting our revenue and profitability.
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Certain operating expenses were reduced in 2021 due to the Covid-19 pandemic. Travel, trade show expenses and other costs were reduced due to changes in employee travel patterns and trade show cancellations. Travel, trade show expenses and other costs have started to increase in those parts of the world where the Covid-19 pandemic is easing, and remain constrained in other geographies where the pandemic is strengthening.
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The Covid-19 pandemic has caused disruptions in the global supply chain, including shortages of raw materials, parts and labor, and shipping and logistics issues, including delays in ocean freight and port congestion. Key supply chain disruptions impacting our business have been resolved to date. On-hand inventories have been sufficient to enable us to mitigate any supply disruptions with minimal impact on our sales or ability to service customers. However, it has become increasingly difficult to obtain adequate supplies of certain key components and labor for product assembly. Port congestion and tight bookings for global sea freight have caused delays in product deliveries. Increases in the cost of components, labor and freight could negatively impact our profitability in the future if we are unable to recover these costs by charging more for the products we sell. The inability to obtain adequate supply of components or labor could result in the inability to meet customer demands and deliver one or more of our products for a period of several months or longer, negatively impacting our revenue and profitability. Supply chain disruptions are expected to continue for the foreseeable future and may increase if the pandemic worsens or continues for an extended period of time.
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Although we cannot estimate the continuing impact of the Covid-19 outbreak at this time, it may have an adverse effect on our results of future operations, financial position and liquidity in 2022 and beyond. We believe that we have the resources required to meet any unforeseen difficulties resulting from the Covid-19 pandemic. We will continue to closely monitor the Covid-19 pandemic and its impact on our business in the coming months.
Revenues
Our revenues increased by 37% to $24.2 million in the three months ended March 31, 2022, from $17.7 million in the three months ended March 31, 2021. The following table sets forth revenues by product line for the three months ended March 31, 2022 and 2021:
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Three Months Ended March 31, |
(In thousands)
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2022 |
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2021 |
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% Change
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High Precision 3D and 2D Sensors
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$
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8,061
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$
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6,357
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27
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%
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Inspection and Metrology Systems
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9,428
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6,339
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49
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%
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Semiconductor Sensors
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6,757
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5,036
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34
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%
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Total
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$
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24,246
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$
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17,732
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37
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%
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Revenues from sales of high precision 3D and 2D sensors increased by $1.7 million or 27% to $8.1 million in the three months ended March 31, 2022. The increases were due to higher sales of both 3D MRS sensors and legacy 2D sensors resulting from favorable conditions in the global semiconductor and SMT capital equipment markets. Sales of high precision 3D MRS sensors increased by $650,000 or 15% to $4.9 million in the three months ended March 31, 2022, from $4.2 million in the three months ended March 31, 2021.
Sales of high precision 3D and 2D sensors are dependent on the success of our OEM customers and system integrators selling products that incorporate our sensors. We believe sales of our 3D MRS sensors, including our next generation ultra-high resolution three micron pixel 3D NanoResolution MRS sensor, will represent an increasing percentage of our total high precision 3D and 2D sensor sales in the future. Sales of high precision 3D and 2D sensors, including 3D MRS sensors, are prone to significant quarterly fluctuations due to variations in market demand and customer inventory levels. Revenues from sales of high precision 3D and 2D sensors are forecasted to post solid growth on a year-over-year basis in the second quarter of 2022.
Revenues from sales of inspection and metrology systems increased by $3.1 million or 49% to $9.4 million in the three months ended March 31, 2022. The increases were due to higher sales of SQ3000™ Multi-Function systems and memory module inspection systems resulting from favorable conditions in the global semiconductor and SMT capital equipment markets, and increasing sales from more complex applications such as inspection and metrology for mini-LED and memory modules. Sales of SQ3000™ Multi-Function systems increased by $1.8 million or 45% to $5.9 million in the three months ended March 31, 2022, from $4.1 million in the three months ended March 31, 2021. Sales of memory module inspection systems totaled $1.0 million in the three months ended March 31, 2022. There were no sales of memory module inspection systems in the three months ended March 31, 2021. Reflecting normal sales fluctuations of capital equipment, sales of inspection and metrology systems are forecasted to be relatively flat on a year-over-year basis in the second quarter of 2022.
In addition to favorable market conditions, the increase in sales of SQ3000 Multi-Function systems was due to the competitive advantages offered by our 3D MRS sensor technology and many companies transitioning from 2D to 3D AOI systems to meet the increasingly demanding product inspection and metrology requirements in the SMT and semiconductor markets. The market transition away from 2D AOI systems is expected to result in an industry-wide compound annual rate of growth in global sales of 3D AOI systems of almost 20% through 2025. Given these market dynamics and because of the competitive advantages of our 3D MRS sensor technology, we anticipate sales of SQ3000 Multi-Function systems will represent an increasing percentage of our total inspection and metrology system sales in the future.
We believe memory manufacturers have determined that post singulation automated optical inspection of memory modules is an important step in their manufacturing process to improve yields and product quality. We recognized our first revenue from the sale of the 3D MX3000™ memory module inspection system in the first quarter of 2020, and two of the world’s three largest memory manufacturers and their subcontractors have now purchased the MX3000 system. At March 31, 2022 our backlog of orders for memory module inspection totaled $5.9 million, and we expect to recognize these orders as revenue over the balance of 2022. Additional orders for memory module inspection are expected in future periods, and we believe the potential market opportunity for our MX3000 system and 3D MRS sensors for memory module inspection is significant.
Revenues from sales of semiconductor sensors, principally our WaferSense line of products, increased by $1.7 million or 34% to $6.8 million in the three months ended March 31, 2022. The revenue increase was due to construction of new semiconductor fabs, favorable market conditions for semiconductor capital equipment spending, and growing acceptance of our WaferSense products as important productivity enhancement tools by semiconductor manufacturers and capital equipment suppliers. Over the long term, we anticipate that the benefits from growing market awareness of our WaferSense products, improved account penetration at major semiconductor manufacturers and capital equipment suppliers and new product introductions will lead to additional WaferSense product sales. Revenues from sales of semiconductor sensors are forecasted to post strong double-digit growth on a year-over-year basis in the second quarter of 2022.
Export revenues totaled $20.5 million or 85% of our revenues in the three months ended March 31, 2022, compared to $14.5 million or 82% of our revenues in the three months ended March 31, 2021. Export revenues as a percentage of total revenues increased in the three months ended March 31, 2022 due to higher sales of SQ3000™ Multi-Function systems and MX3000™ memory module inspection systems. A higher proportion of these products are generally sold outside the United States as compared to our other products.
Cost of Revenues and Gross Margin
Cost of revenues increased by $3.3 million or 35% to $12.7 million in the three months ended March 31, 2022. Total gross margin as a percentage of revenues was 48% in the three months ended March 31, 2022, compared to 47% in the three months ended March 31, 2021. The increase in cost of revenues in the three months ended March 31, 2022 was mainly due to higher revenues, which increased on a year-over-year basis by 37%. Gross margin percentage in the three months ended March 31, 2022 was up approximately 50 basis points when compared to the three months ended March 31, 2021, mainly due to a slightly better sales mix and gross margins on inspection and metrology system sales.
Our total gross margin as a percentage of revenues in the second quarter of 2022 is expected to be down slightly from the level in the first quarter of 2022, mainly due to revenue mix. Sales of inspection and metrology systems, which typically generate a lower gross margin percentage than our other products, are expected to represent a proportionately larger percentage of our total revenue in the second quarter of 2022, when compared to the first quarter of 2022.
Our markets are highly price competitive, particularly in the electronics assembly and SMT markets. As a result, we have experienced continual pressure on our gross margins. We compensate for the pressure to reduce the price of our products by introducing new products with more features and improved performance and through manufacturing cost reduction programs. Sales of many products that we have recently introduced or are about to introduce, including our SQ3000+ Multi-Function system, WX3000 system for semiconductor wafer and advanced packaging inspection and metrology, next generation 3D MRS sensors and semiconductor sensors (consisting primarily of our WaferSense line of products) have, or are expected to have, more favorable gross margins than many of our existing products. Our next generation 3D MRS sensor and system products are being designed for more complex and demanding inspection and metrology applications in the SMT and semiconductor markets. Sales prices and gross profit margins for these applications tend to be higher than margins for products sold in the general purpose SMT market. However, the gross margin percentage for our 3D MX3000 system for inspection of memory modules is lower than our current total gross margin percentage due to the significant costs for material handling and automation required for this product. Our total gross margin percentage would most likely be negatively impacted in the future if sales of our 3D MX3000 become a larger share of our total revenue mix.
The Covid-19 pandemic has caused disruptions in the global supply chain, including shortages of raw materials, parts and labor, and shipping and logistics issues, including delays in ocean freight and port congestion. Increases in the cost of components, labor and freight could negatively impact our gross margins in the future if we are unable to recover these costs by charging more for the products we sell. Supply chain disruptions are expected to continue for the foreseeable future and may increase if the Covid-19 pandemic worsens or continues for an extended period of time.
Operating Expenses
R&D expenses were $2.9 million or 12% of revenues in the three months ended March 31, 2022, compared to $2.8 million or 16% of revenues in the three months ended March 31, 2021. The increase in R&D expenses in the three months ended March 31, 2022 was mainly due to higher compensation costs for new and existing R&D employees, and consulting services for ongoing R&D projects. Current R&D expenditures are primarily focused on development of 3D MRS sensor and system products, including enhancements to existing products and development of next generation products, and continued R&D work on new and next generation WaferSense products.
Selling, general and administrative ("S,G&A") expenses were $4.7 million or 19% of revenues in the three months ended March 31, 2022, compared to $3.9 million or 22% of revenues in the three months ended March 31, 2021. The increase in S,G&A expenses in the three months ended March 31, 2022 was due to higher compensation costs for new and existing S,G&A employees, higher third party channel commissions resulting from the 37% year-over-year increase in our revenues, and higher spending for trade shows.
Total operating expenses in the second quarter of 2022 are forecasted to increase by a few percentage points when compared to the level in the first quarter of 2022.
Interest Income and Other
Interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions, primarily intercompany financing transactions associated with our international subsidiaries. We recognized gains from foreign currency transactions of $54,000 in the three months ended March 31, 2022, compared to losses from foreign currency transactions of $57,000 in the three months ended March 31, 2021.
Income Taxes
We recorded income tax expense of $458,000 in the three months ended March 31, 2022, compared to income tax expense of $311,000 in the three months ended March 31, 2021. Income tax expense in the three months ended March 31, 2022 reflected an effective tax rate of 11%, compared to an effective tax rate of 18% in the three months ended March 31, 2021. The reduction in the effective income tax rate in the three months ended March 31, 2022, when compared to the three months ended March 31, 2021, was mainly due to enhanced benefits from Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI), resulting from a change in U.S. income tax law requiring capitalization and subsequent amortization of U.S. based R&D expenditures over five years and foreign based R&D expenditures over 15 years. This change increased the income which is eligible for the FDII and GILTI benefits. The change in the treatment of R&D expenditures for income tax purposes is expected to have a favorable impact on our effective tax rate in 2022, but will most likely increase the amount of cash we expend for income taxes in the short term, particularly in 2023 and later years. On a recurring basis, our effective income tax rate is favorably impacted by the U.S. federal R&D tax credit, foreign tax credit, FDII and GILTI.
Liquidity and Capital Resources
Our cash and cash equivalents decreased by $3.5 million in the three months ended March 31, 2022. Cash provided by operating activities of $766,000, proceeds of $3.2 million from maturities of marketable securities and proceeds of $183,000 from stock option exercises, were more than offset by purchases of marketable securities totaling $7.1 million and purchases of fixed assets and capitalized patent costs totaling $520,000. Our cash and cash equivalents fluctuate in part because of sales and maturities of marketable securities and investment of cash balances in marketable securities, and from other sources of cash. Accordingly, we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity than cash balances alone. Combined balances of cash and marketable securities decreased by approximately $100,000 to $38.2 million as of March 31, 2022, from $38.3 million as of December 31, 2021.
Operating activities provided $766,000 of cash in the three months ended March 31, 2022. The amount of cash provided by operations was favorably impacted by our net income of $3.6 million. Net income was affected by non-cash items totaling $1.1 million for depreciation and amortization, non-cash operating lease expense, provision for doubtful accounts, deferred taxes, non-cash gains from foreign currency transactions, share-based compensation costs and an unrealized loss on our available-for-sale equity security. Changes in operating assets and liabilities providing cash included an increase in accounts payable of $2.1 million and an increase in advance customer payments of $486,000. Changes in operating assets and liabilities using cash included an increase in accounts receivable of $2.5 million, an increase in inventories of $2.6 million, an increase in prepaid expenses and other assets of $363,000, a decrease in accrued expenses of $798,000 and a decrease in operating lease liabilities of $203,000. Increases in accounts payable and inventories at March 31, 2022 were due to planned purchases of raw materials to meet anticipated customer demand. Advance customer payments were up due to an increase in deposits for equipment prior to transfer of control. Accounts receivable increased due to higher sales in the first quarter of 2022 when compared to the fourth quarter of 2021. The increase in prepaid expenses and other assets was due to higher balances of refundable goods and services tax. The decrease in accrued expenses was mainly due to payment of 2021 bonus accruals in the first quarter of 2022. The decrease in operating lease liabilities was due to monthly rental payments for facility leases.
Investing activities used $4.4 million of cash in the three months ended March 31, 2022. Changes in the level of investment in marketable securities, resulting from purchases and maturities of those securities, used $3.9 million of cash in the three months ended March 31, 2022. We used $520,000 of cash in the three months ended March 31, 2022 for the purchase of fixed assets and capitalized patent costs.
Financing activities provided $182,000 of cash in the three months ended March 31, 2022 from the exercise of employee stock options.
At March 31, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. These entities are established by some companies for the purpose of establishing off-balance sheet arrangements or for other contractually narrow or limited purposes.
We believe that on-hand cash, cash equivalents and marketable securities, coupled with anticipated future cash flow from operations, will be adequate to fund our cash flow needs for the foreseeable future.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles for interim financial statements. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including estimates related to revenue recognition, bad debts, warranty obligations, inventory valuation, intangible assets, and income taxes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. See our Annual Report on Form 10-K for the year December 31, 2021 for additional discussion regarding critical accounting policies and estimates, and the judgements we believe have the most effect on our reported financial position and results of operations.