Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our “Condensed Consolidated Financial Statements” in Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”) and our consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (the “2021 Form 10-K”).
Overview
We are a leading, global manufacturer of capital equipment, including thermal processing and wafer polishing, and related consumables used in fabricating semiconductor devices, such as silicon carbide (“SiC”) and silicon power devices, analog and discrete devices, electronic assemblies and light-emitting diodes (“LEDs”). We sell these products to semiconductor device and module manufacturers worldwide, particularly in Asia, North America and Europe.
We operate in two reportable segments, based primarily on the industry they serve: (i) Semiconductor and (ii) Material and Substrate. In our Semiconductor segment, we supply thermal processing equipment, including solder reflow ovens, horizontal diffusion furnaces and custom high-temp belt furnaces for use by semiconductor, electronics and electro/mechanical assembly manufacturers. Our semiconductor customers are primarily manufacturers of integrated circuits and optoelectronic sensors and discrete components used in analog, power and radio frequency. In our Material and Substrate segment, we produce substrate consumables, chemicals and machinery for lapping (fine abrading) and polishing of materials, such as silicon wafers for semiconductor products, sapphire wafers for LED applications, and compound substrates, like silicon carbide wafers, for power device applications.
The semiconductor industry is cyclical, but not seasonal, and historically has experienced fluctuations. Our revenue is impacted by these broad industry trends.
Strategy
We continue to focus on our plans to profitably grow our business and have developed a strategic growth plan and a capital allocation plan that we believe will support our growth objectives. Our power semiconductor strategic growth plan leverages our experience, products and capabilities in pursuit of growth, profitability and sustainability. Our core focus areas are:
•Emerging opportunities in the SiC industry – We believe we are well-positioned to take part in this significant growth area, specifically as it relates to silicon carbide wafer capacity expansion. We are working closely with our customers to understand their SiC growth plans, needs and opportunities. We are investing in our capacity, next generation product development, and in our people. During 2021, we completed the acquisition of Intersurface Dynamics, Inc. ("Intersurface Dynamics"), which added numerous coolants and chemical products to our existing consumable and machine product lines. We believe these investments will help fuel our growth in the emerging growth SiC industry.
•300mm Horizontal Thermal Reactor – We have a highly successful and proven 300mm horizontal diffusion solution used for power semiconductor device manufacturing applications. We have a strong foundation with the leading 300mm power chip manufacturer, and, from 2020 through the current quarter, we have received 23 system orders from top-tier customers. We believe we have a strong opportunity to continue expanding our customer base and grow revenue with our 300mm solution.
•As the largest revenue contributor to our organization, we expect our subsidiary, BTU International, Inc. (“BTU”), will continue to track semiconductor industry growth cycles for our advanced semi-packaging and surface-mount technology products, in addition to specialized custom belt furnaces used in automotive and other specialized industrial applications. We believe that our investments in product innovation will provide BTU with opportunities to grow further, especially in high growth applications of consumer and industrial electronics, Internet of Things, electric vehicles and 5G communications.
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We anticipate that the required investments to achieve our revenue growth targets will be in the range of $6.0 - $8.0 million in research and development and capital expenditures, which also includes investments in management information systems and capacity expansions at existing manufacturing facilities. Additionally, we may decide to divest some or all of our real estate holdings to streamline our balance sheet and provide additional working capital for our investments and research and development needs. In April 2022, we announced that we have entered into an agreement to sell the real property where our manufacturing facility in Billerica, Massachusetts is located, subject to normal closing provisions. In connection with this sale, we will enter into a two-year leaseback of the facility. This sale-leaseback transaction is expected to result in a net cash inflow of approximately $15 million to $16 million, after repayment of the existing mortgage and settlement of related sale expenses. During the two-year leaseback period, we will conduct a search for a new manufacturing facility more in line with the needs of our Semiconductor product lines. In the fourth quarter of 2021, we completed the move of our Shanghai facility to a new location. This new location increases our capacity and allows us to streamline our manufacturing processes, thus reducing our lead times. In addition, we are evaluating our management information systems and needs in order to allow for greater efficiencies and to ensure our infrastructure can support our future growth plans. We are and will continue to closely scrutinize these planned investments, in light of the COVID-19 challenges, and we may defer some of our projects. However, as a capital equipment manufacturer, we will continue to invest in our business to fuel our future growth.
In addition to investments in our organic growth, another key aspect of our capital allocation policy is our plan to grow through acquisitions. We have the expertise and track record to identify strong acquisition targets in the semi and SiC growth environments and to execute transactions and integrations to provide for value creating, profitable growth in both the short-term and long-term. On March 3, 2021, we acquired Intersurface Dynamics, a Connecticut-based manufacturer of substrate process chemicals used in various manufacturing processes, including semiconductors, silicon and compound semiconductor wafers, and optics. As of the date of the filing of this Quarterly Report, we do not have an agreement to acquire any acquisition target.
COVID-19 Update
On March 28, 2022, the Chinese government issued a mandatory shutdown in Shanghai, the location of one of our manufacturing facilities. We estimate approximately $1.2 million of revenue was shifted to a future quarter as a result of the four lost shipping days in March. On May 5, 2022, we received notice that we have been cleared by the Chinese government for reopening. There are several steps and submissions required before we will be permitted to reopen, and we will be limited in the number of workers that will be allowed in the facility upon such reopening. We estimate we could be reopened in mid-May with approximately 10-15% of our work force initially allowed to return. There can be no assurance that we will be allowed to reopen in May or, if we are allowed to reopen, we will be able to remain open on a consistent basis thereafter. We estimate it will take at least two quarters to make up the shipments missed during the third quarter of fiscal 2022 as we work through our production, supply chain and logistics backlog.
Cybersecurity Incident
On April 12, 2021, we detected a data incident in which attackers acquired data and disabled some of the technology systems used by one of our subsidiaries. Upon learning of the incident, we immediately engaged external counsel and retained a team of third-party forensic, incident response, and security professionals to investigate and determine the full scope of this incident. We also notified law enforcement officials and confirmed that the incident is covered by our insurance. We have completed the investigation of the data incident with assistance from our outside professionals, and indications were that the unauthorized third-party gained access to certain personal information relating to employees and their beneficiaries for some of our operations. There was no indication of any misuse of this information.
Despite this disruption, production continued in our facilities. Our previously disabled subsidiary network is now back up and running securely. Working alongside our security professionals, we were able to bring our subsidiary’s systems online with enhanced security controls. We have deployed an advanced next generation anti-virus and endpoint detection and response tool, as well as Managed Detection & Response services. We remain committed to protecting the security of the personal information entrusted to us and providing high-quality products and service to our customers.
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We recorded approximately $1.1 million of expense related to this incident, which is included in selling, general and administrative expenses, during the third quarter of fiscal 2021. The expense is primarily related to third-party service providers, including security professionals as well as legal and response teams. We may make additional investments in the future to further strengthen our cybersecurity. We filed an insurance claim during the fourth quarter of fiscal 2021 related to the incident. As of March 31, 2022, we have signed a final settlement agreement with our insurer resulting in total reimbursement of approximately $0.6 million, which included $0.4 million received during the quarter ended December 31, 2021 and $0.2 million received during the quarter ended March 31, 2022. No portion of the reimbursement remains outstanding as of March 31, 2022.
Segment Reporting Changes
Upon the acquisition of Intersurface Dynamics in the second quarter of 2021, we evaluated our organizational structure and concluded that we have two reportable segments following the acquisition. Our Material and Substrate segment includes our former SiC/LED segment in addition to Intersurface Dynamics from the date of acquisition.
Results of Operations
The following table sets forth certain operational data as a percentage of net revenue for the periods indicated:
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|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of sales |
|
|
57 |
% |
|
|
61 |
% |
|
|
59 |
% |
|
|
60 |
% |
Gross margin |
|
|
43 |
% |
|
|
39 |
% |
|
|
41 |
% |
|
|
40 |
% |
Selling, general and administrative |
|
|
27 |
% |
|
|
29 |
% |
|
|
28 |
% |
|
|
29 |
% |
Research, development and engineering |
|
|
7 |
% |
|
|
9 |
% |
|
|
6 |
% |
|
|
8 |
% |
Operating income |
|
|
9 |
% |
|
|
1 |
% |
|
|
7 |
% |
|
|
3 |
% |
Interest income and other, net |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Income before income taxes |
|
|
9 |
% |
|
|
1 |
% |
|
|
7 |
% |
|
|
3 |
% |
Income tax provision |
|
|
2 |
% |
|
|
2 |
% |
|
|
2 |
% |
|
|
2 |
% |
Net income (loss) |
|
|
7 |
% |
|
|
(1 |
)% |
|
|
5 |
% |
|
|
1 |
% |
Net Revenue
Net revenue consists of revenue recognized upon shipment or installation of equipment. Spare parts sales are recognized upon shipment and service revenue is recognized upon completion of the service activity, which is generally ratable over the term of the service contract. Since the majority of our revenue is generated from large system sales, revenue and operating income can be significantly impacted by the timing of system shipments and system acceptances.
Our net revenue by reportable segment was as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
|
|
|
|
Segment |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
Semiconductor |
|
$ |
24,607 |
|
|
$ |
17,119 |
|
|
$ |
7,488 |
|
|
|
44 |
% |
|
$ |
48,238 |
|
|
$ |
32,694 |
|
|
$ |
15,544 |
|
|
|
48 |
% |
Material and Substrate |
|
|
3,972 |
|
|
|
2,671 |
|
|
|
1,301 |
|
|
|
49 |
% |
|
|
7,670 |
|
|
|
5,071 |
|
|
|
2,599 |
|
|
|
51 |
% |
Total net revenue |
|
$ |
28,579 |
|
|
$ |
19,790 |
|
|
$ |
8,789 |
|
|
|
44 |
% |
|
$ |
55,908 |
|
|
$ |
37,765 |
|
|
$ |
18,143 |
|
|
|
48 |
% |
Total net revenue for the three months ended March 31, 2022 and 2021 was $28.6 million and $19.8 million, respectively, an increase of approximately $8.8 million or 44%. Our Semiconductor segment revenues are dependent on the expansion plans of our customers, and our results for the second quarter of fiscal 2022 reflect returning demand from our customers following the pandemic. Sales across all of our semi platforms have increased over the prior year as a result of this increasing demand. On March 28, 2022, the Chinese government issued a mandatory shutdown in Shanghai, the location of one of our manufacturing facilities. The facility remains closed through the date of this
20
filing. We estimate approximately $1.2 million of revenue was shifted to a future quarter as a result of the four lost shipping days in March. Material and Substrate revenue increased primarily due to increased shipments of consumables as well as the addition of Intersurface Dynamics in March 2021, which accounted for approximately 8% of the revenue increase between periods. We believe there remains significant potential in the SiC industry and long-term growth in power semiconductors.
Total net revenue for the six months ended March 31, 2022 and 2021 was $55.9 million and $37.8 million, respectively, an increase of approximately $18.1 million or 48%. Revenue from the Semiconductor segment increased $15.5 million compared to the prior year period. This change is primarily attributable to higher shipments across all our semi platforms during the 2022 period resulting from increased semiconductor demand. Revenue from our Material and Substrate segment increased $2.6 million due primarily to higher machine and consumables sales in the 2022 period.
Backlog and Orders
Our backlog as of March 31, 2022 and 2021 was as follows (dollars in thousands):
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|
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|
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|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
Segment |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
Semiconductor |
|
$ |
50,352 |
|
|
$ |
25,281 |
|
|
$ |
25,071 |
|
|
|
99 |
% |
Material and Substrate |
|
|
3,214 |
|
|
|
1,253 |
|
|
|
1,961 |
|
|
|
157 |
% |
Total backlog |
|
$ |
53,566 |
|
|
$ |
26,534 |
|
|
$ |
27,032 |
|
|
|
102 |
% |
New orders booked in the three and six months ended March 31, 2022 and 2021 were as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
|
|
|
|
Segment |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
% Change |
|
Semiconductor |
|
$ |
28,039 |
|
|
$ |
29,651 |
|
|
$ |
(1,612 |
) |
|
|
(5 |
)% |
|
$ |
55,848 |
|
|
$ |
45,134 |
|
|
$ |
10,714 |
|
|
|
24 |
% |
Material and Substrate |
|
|
5,656 |
|
|
|
2,875 |
|
|
|
2,781 |
|
|
|
97 |
% |
|
|
9,484 |
|
|
|
5,261 |
|
|
|
4,223 |
|
|
|
80 |
% |
Total new orders |
|
$ |
33,695 |
|
|
$ |
32,526 |
|
|
$ |
1,169 |
|
|
|
4 |
% |
|
$ |
65,332 |
|
|
$ |
50,395 |
|
|
$ |
14,937 |
|
|
|
30 |
% |
As of March 31, 2022, four Semiconductor segment customers individually accounted for 24%, 14%, 12%, and 11% of our backlog. No other customer accounted for more than 10% of our backlog as of March 31, 2022. The orders included in our backlog are generally credit approved customer purchase orders believed to be firm and are generally expected to ship within the next twelve months. Because our orders are typically subject to cancellation or delay by the customer, our backlog at any particular point in time is not necessarily representative of actual sales for future periods, nor is backlog any assurance that we will realize profit from completing these orders.
Gross Profit and Gross Margin
Gross profit is the difference between net revenue and cost of goods sold. Cost of goods sold consists of purchased material, labor and overhead to manufacture equipment and spare parts and the cost of service and support to customers for installation, warranty and paid service calls. Gross margin is gross profit as a percent of net revenue. Our gross profit and gross margin by business segment were as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
Segment |
|
2022 |
|
|
Gross Margin |
|
|
2021 |
|
|
Gross Margin |
|
|
Change |
|
|
2022 |
|
|
Gross Margin |
|
|
2021 |
|
|
Gross Margin |
|
|
Change |
|
Semiconductor |
|
$ |
10,278 |
|
|
|
42 |
% |
|
$ |
7,093 |
|
|
|
41 |
% |
|
$ |
3,185 |
|
|
$ |
19,806 |
|
|
|
41 |
% |
|
$ |
14,005 |
|
|
|
43 |
% |
|
$ |
5,801 |
|
Material and Substrate |
|
|
1,905 |
|
|
|
48 |
% |
|
|
635 |
|
|
|
24 |
% |
|
|
1,270 |
|
|
|
3,141 |
|
|
|
41 |
% |
|
|
1,235 |
|
|
|
24 |
% |
|
|
1,906 |
|
Total gross profit |
|
$ |
12,183 |
|
|
|
43 |
% |
|
$ |
7,728 |
|
|
|
39 |
% |
|
$ |
4,455 |
|
|
$ |
22,947 |
|
|
|
41 |
% |
|
$ |
15,240 |
|
|
|
40 |
% |
|
$ |
7,707 |
|
Gross profit for the three months ended March 31, 2022 and 2021 was $12.2 million (43% of net revenue) and $7.7 million (39% of net revenue), respectively, an increase of $4.5 million. Our gross margins can be affected by capacity utilization and the type and volume of machines and consumables sold each quarter. Gross margin on
21
products from our Semiconductor segment increased slightly compared to the three months ended March 31, 2021, as sales of higher-margin products were partially offset by increases in material and labor costs. We expect rising labor costs to continue, as the labor markets in which we operate remain competitive. Gross margin on products from our Material and Substrate segment increased compared to the three months ended March 31, 2021, due primarily to higher machine and consumables sales leading to improved utilization as well as the addition of Intersurface Dynamics in March 2021. We are experiencing increased material costs across all of our segments and expect this trend to continue through at least the end of fiscal 2022. In response to such increased costs, we continually review our pricing plans and supplier agreements, with the objective of passing these increased costs to our customers where possible; however, we continue to experience pricing pressure from our customers.
Gross profit for the six months ended March 31, 2022 and 2021 was $22.9 million (41% of net revenue) and $15.2 million (40% of net revenue), respectively, an increase of $7.7 million. Gross margin on products from our Semiconductor segment decreased slightly compared to the six months ended March 31, 2021, due primarily to increases in material and labor costs partially offset by improved utilization across our product lines. Gross margin on products from our Material and Substrate segment increased compared to the six months ended March 31, 2021, due primarily to improved capacity utilization resulting from higher machine and consumable sales slightly offset by increased material costs.
Selling, General and Administrative
Selling, general and administrative expenses (“SG&A”) consists of the cost of employees, consultants and contractors, facility costs, sales commissions, shipping costs, promotional marketing expenses, legal and accounting expenses and bad debt expense.
SG&A expenses for the three months ended March 31, 2022 and 2021 were $7.8 million and $5.7 million, respectively. SG&A increased compared to the prior year quarter due primarily to $0.6 million in higher commissions on higher sales, $0.6 million in employee-related expenses, $0.4 million in higher shipping expenses driven by higher revenues and increased shipping rates, and $0.2 million in added SG&A from our acquisition of Intersurface Dynamics in March 2021.
SG&A expenses for the six months ended March 31, 2022 and 2021 were $15.7 million and $10.9 million, respectively. SG&A increased compared to the prior year period due primarily to increases in freight of approximately $1.5 million, driven by higher revenues and increased shipping rates, $1.0 million in higher commissions on higher sales, $0.7 million of additional employee-related expenses, and $0.5 million of added SG&A from our acquisition of Intersurface Dynamics in March 2021.
Research, Development and Engineering
Research, development and engineering (“RD&E”) expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes as well as materials and supplies used in producing prototypes. RD&E expenses may vary from period to period depending on the engineering projects in process. Expenses related to engineers working on strategic projects or sustaining engineering projects are recorded in RD&E. However, from time to time we add functionality to our products or develop new products during engineering and manufacturing to fulfill specifications in a customer’s order, in which case the cost of development, along with other costs of the order, are charged to cost of goods sold. Occasionally, we receive reimbursements through governmental research and development grants which are netted against these expenses when certain conditions have been met.
RD&E expense, net of grants earned, for the three months ended March 31, 2022 and 2021 were $1.8 million and $1.9 million, respectively, and $3.4 million and $3.1 million in the six months ended March 31, 2022 and 2021. The increase during the six-month period is due to the timing of purchases related to specific strategic-development projects at our Semiconductor segment. Grants earned are immaterial in all periods presented.
22
Income Taxes
Our effective tax rate is generally higher than the statutory rate due to the geographic mix of profit among the foreign and domestic jurisdictions in which we operate. For the three months ended March 31, 2022 and 2021, we recorded income tax expense of $0.7 million and $0.5 million, respectively. For the six months ended March 31, 2022 and 2021, we recorded income tax expense of $0.8 million and $0.6 million, respectively. Tax expense for the six months ended March 31, 2021, includes a benefit of approximately $0.3 million related to the reversal of previously recorded uncertain tax positions. The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which we operate. However, losses in certain jurisdictions and discrete items are excluded from the determination of the estimated annual effective tax rate.
Generally accepted accounting principles of the United States ("GAAP") require that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates and the length of carryback and carryforward periods. According to those principles, it is difficult to conclude that a valuation allowance is not needed when the negative evidence includes cumulative losses in recent years. Based on the consideration of all available evidence, we have concluded that we will maintain a full valuation allowance for all net deferred tax assets related to the carryforwards of U.S. net operating losses and foreign tax credits. We will continue to monitor our cumulative income and loss positions in the U.S. and foreign jurisdictions to determine whether full valuation allowances on net deferred tax assets are appropriate. We expect to pay minimal U.S federal cash taxes for the foreseeable future as a result of our U.S. net operating losses that are carried forward.
Our future effective income tax rate depends on various factors, such as the amount of income (loss) in each tax jurisdiction, tax regulations governing each region, non-tax deductible expenses incurred as a percent of pre-tax income and the effectiveness of our tax planning strategies.
Liquidity and Capital Resources
The following table sets forth for the periods presented certain consolidated cash flow information (in thousands):
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|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
Net cash used in operating activities |
|
$ |
(361 |
) |
|
$ |
(265 |
) |
Net cash used in investing activities |
|
|
(125 |
) |
|
|
(5,515 |
) |
Net cash (used in) provided by financing activities |
|
|
(4,215 |
) |
|
|
741 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
286 |
|
|
|
368 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(4,415 |
) |
|
|
(4,671 |
) |
Cash and cash equivalents, beginning of period |
|
|
32,836 |
|
|
|
45,070 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
28,421 |
|
|
$ |
40,399 |
|
Cash and Cash Flow
The decrease in cash and cash equivalents from September 30, 2021 of $4.4 million was primarily due to cash used for repurchases of our common stock. We maintain a portion of our cash and cash equivalents in Renminbis, a Chinese currency, at our operations in China; therefore, changes in the exchange rates have an impact on our cash balances. Our working capital was $65.6 million as of March 31, 2022 and $65.8 million as of September 30, 2021. The slight decrease in working capital occurred primarily due to increases in inventory balances and related accounts payable in preparation to meet our shipment schedules for the next four quarters. We expect working capital to increase in the third quarter of 2022 following the closing of the sale-leaseback of our Billerica, Massachusetts facility, resulting in a net cash inflow of approximately $15 million to $16 million, after repayment of the existing mortgage and settlement of related sale expenses. Our ratio of current assets to current liabilities was 4.1:1 as of March 31, 2022, and 5.4:1 as of September 30, 2021.
23
During periods of weakening demand, we typically generate cash from operating activities. Conversely, we are more likely to use operating cash flows for working capital requirements during periods of higher growth. The success of our growth strategy is dependent upon the availability of additional capital resources on terms satisfactory to management. Our sources of capital in the past have included the sale of equity securities, which includes common stock sold in private transactions and public offerings, long-term debt and customer deposits. There can be no assurance that we can raise such additional capital resources when needed or on satisfactory terms. We believe that our principal sources of liquidity discussed above are sufficient to support operations for at least the next twelve months. We have never paid dividends on our common stock.
Cash Flows from Operating Activities
Cash used in our operating activities was approximately $0.4 million for the six months ended March 31, 2022, compared to $0.3 million for the six months ended March 31, 2021. During the six months ended March 31, 2022, we increased our inventory balances in preparation for upcoming shipments scheduled through the next four quarters. Additionally, our accounts receivable increased during this period as most of our shipments occurred late in the second quarter and our customers generally have payment terms of 60-90 days. During the six months ended March 31, 2021, net income adjusted for non-cash items of $1.5 million was offset by $1.8 million of cash used in operations as a result of changes in operating assets and liabilities.
Cash Flows from Investing Activities
For the six months ended March 31, 2022 and 2021, cash used in investing activities was $0.1 million and $5.5 million, respectively. The fiscal 2022 amount consists solely of capital expenditures. The amount for the first half of fiscal 2021 includes $5.1 million net cash paid for the acquisition of IDI in addition to $0.4 million of cash used for capital expenditures. We expect capital expenditures to increase throughout fiscal 2022 as we make targeted investments in our IT systems.
Cash Flows from Financing Activities
For the six months ended March 31, 2022, $4.2 million of cash used in financing activities was comprised of $4.1 million of cash used for the repurchase of common stock and payments on long-term debt of $0.2 million partially offset by $0.1 million of proceeds received from the exercise of stock options. For the six months ended March 31, 2021, $0.7 million of cash provided by financing activities was comprised of approximately $0.9 million of proceeds received from the exercise of stock options, partially offset by payments on long-term debt of $0.2 million.
Off-Balance Sheet Arrangements
As of March 31, 2022, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K promulgated by the SEC that have or are reasonably likely to have a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Contractual Obligations
Unrecorded purchase obligations were $21.0 million as of March 31, 2022, compared to $17.0 million as of September 30, 2021, an increase of $4.0 million. This increase is primarily attributable to investments made during the first half of fiscal 2022 for inventory required to fulfill increased orders for upcoming shipments as well as strategic inventory purchases of long-lead time items.
There were no other material changes to the contractual obligations included in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K.
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Critical Accounting Policies
"Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report discusses our condensed consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, income taxes, inventory valuation and inventory purchase commitments, and indefinite-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. The results of these estimates and judgments form the basis for making conclusions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
A critical accounting policy is one that is both important to the presentation of our financial position and results of operations, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These uncertainties are discussed in Part I, Item 1A of our 2021 Form 10-K. We believe our critical accounting policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements.
We believe the critical accounting policies discussed in the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in our 2021 Form 10-K represent the most significant judgments and estimates used in the preparation of our consolidated financial statements. There have been no significant changes in our critical accounting policies during the six months ended March 31, 2022.
Impact of Recently Issued Accounting Pronouncements
For discussion of the impact of recently issued accounting pronouncements, see “Part I, Item 1. Financial Information” under “Impact of Recently Issued Accounting Pronouncements.”