Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:  

	•	the above-average industry growth of product and market areas that we have targeted,

	•	our plan to increase our revenue through the introduction of new products within our existing product families as well as in new product categories and families,

	•	our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings,

	•	the effect that liquidity of our investments has on our capital resources,

	•	the continuing application of our products in the computing and storage, automotive, industrial, communications and consumer markets,

	•	estimates of our future liquidity requirements,

	•	the cyclical nature of the semiconductor industry,

	•	the effects of the COVID-19 pandemic on the global economy, the semiconductor industry and our business,

	•	protection of our proprietary technology,

	•	business outlook for the remainder of 2021 and beyond,

	•	the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth,

	•	the percentage of our total revenue from various end markets,

	•	our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations,

	•	the impact of various tax laws and regulations on our income tax provision, financial position and cash flows,

	•	our plan to repatriate cash from our subsidiary in Bermuda,

	•	our intention and ability to pay future cash dividends and dividend equivalents, and

	•	the factors that differentiate us from our competitors.

In some cases, words such as “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” the negative of these terms or other variations of such terms and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business and our industry, including our expectations regarding the potential impacts of the COVID-19 pandemic on our business. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Quarterly Report on Form 10-Q and, in particular, in the section entitled “Item 1A. Risk Factors.” Except as required by law, we disclaim any duty to, and undertake no obligation to, update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Readers should carefully review future reports and documents that we file from time to time with the SEC, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. 

Overview

We are a global company that provides high-performance, semiconductor-based power electronics solutions. Incorporated in 1997, our core strengths include deep system-level and applications knowledge, strong analog design expertise and innovative proprietary process technologies. These combined strengths enable us to deliver highly integrated monolithic products that offer energy-efficient, cost-effective, easy-to-use solutions for systems found in computing and storage, automotive, industrial, communications and consumer applications. Our mission is to reduce total energy consumption in our customers’ systems with green, practical and compact solutions. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy-efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within our existing product families, as well as in new innovative product categories.

We operate in the cyclical semiconductor industry where there is seasonal demand for certain products. We are not immune from current and future industry downturns, but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term.

We work with third parties to manufacture and assemble our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.

Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that orders in the semiconductor industry can typically be cancelled or rescheduled without significant penalty to the customer, make the forecasting of our orders and revenue difficult.

We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from direct or indirect sales to customers in Asia was 90% and 93% for the three months ended September 30, 2021 and 2020, respectively, and 90% and 91% for the nine months ended September 30, 2021 and 2020, respectively. We derive a majority of our revenue from the sales of our DC to DC converter products which serve the computing and storage, automotive, industrial, communications and consumer markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.

Impact of COVID-19 on Our Business

Our primary focus is to continue to execute our business plan and mitigate the effect of the COVID-19 pandemic on our financial position and operations, while actively taking all necessary precautions to ensure the safety of our employees, our suppliers and our customers. The pandemic did not materially and adversely impact our overall operating results or business operations during the three and nine months ended September 30, 2021. Some of the key developments and initiatives we implemented since the outbreak of the COVID-19 pandemic in March 2020 include, but are not limited to, the following:

●	Employees:

Our top priority during the pandemic is protecting the health and safety of our employees. As governments continue to institute new guidelines on commercial operations, we continue to monitor new developments and work to ensure our compliance while also maintaining business continuity for essential operations. In the U.S. and certain international locations, we continue to implement work-from-home arrangements in accordance with local regulations. To date, we believe these arrangements have contributed to the health and safety of our employees and allowed us to successfully maintain business operations and customer relations.

●	Facilities and Supply Chain:

	Our manufacturing facilities in China, Taiwan and South Korea are fully operational and have experienced minimal disruptions, as we continue to follow the proper guidance issued by governmental authorities. In addition, we have not experienced any major supply chain disruptions as a result of the pandemic.

●	Customers:

Overall, we did not experience an adverse impact on customer demand during the first nine months of 2021 as a result of the pandemic. Our revenue increased in all of our end markets compared to the same period in 2020. Furthermore, there were no significant delays in payments by our customers. However, we cannot provide assurance that we will not experience a material and adverse impact on customer demand for the remainder of 2021 as a result of the pandemic.

●	Liquidity and Capital Resources:

	Our cash and investment balances remain strong and we continue to generate positive operating cash flows. We believe we have sufficient liquidity to satisfy our cash needs as we manage through the current uncertain environment. However, we will continue to monitor, evaluate and take action, as necessary, to preserve adequate liquidity to support our business for the remainder of 2021.

We are actively working with our stakeholders, including customers, suppliers and employees, to address the impact of the pandemic. We will continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. However, we cannot reasonably estimate the duration and severity of the pandemic or its ultimate impact on the global economy, the semiconductor industry and our business. A prolonged economic slowdown as a result of the pandemic could materially and adversely impact our business, results of operations and financial condition for the remainder of 2021 and beyond.

Cybersecurity Risk Management

We are committed to protecting our information technology (“IT”) assets, including computers, systems, corporate networks and sensitive data, from unauthorized access or attack. We have established an internal global IT policy handbook as well as IT security management control procedures designed to cover the following key areas:

●	Create information security awareness and define responsibilities among our employees and business partners;
●	Implement controls to identify IT risks and monitor the use of our systems and information resources;
●	Establish key policies and processes to adequately and timely respond to security threats;
●	Maintain disaster recovery and business continuity plans; and
●	Ensure compliance with applicable laws and regulations regarding the management of information security.

We require all new employees to attend an IT security training orientation. In addition, on an as-needed basis, our IT team provides trainings and updates to employees related to our policies and procedures.

Our IT Steering Committee, which consists of our senior management and IT team, meets on a regular basis to review initiatives and projects to improve IT security, as well as resources and budgets for our cybersecurity compliance and education efforts. We plan to complete the ISO 27001 certification, a globally recognized information security standard, by the end of 2021.

Our Audit Committee of the Board of Directors, which consists of three independent members, is responsible for the oversight of our cybersecurity risk program. On a regular basis, the Audit Committee reviews reports and updates from our Chief Financial Officer and IT senior management about major risk exposures, their potential impact on our business operations, and management’s strategies to assess, monitor and mitigate those risks. The Audit Committee also provides updates of their oversight and findings to the Board of Directors.  

We believe we have adequate resources and sufficient policies, procedures and oversight in place to identify and manage our IT security risks to our business operations. To date, we have not experienced any material information security breaches or incurred significant operating expenses related to information security breaches.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in accordance with GAAP, we are required to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying disclosures. Estimates and judgments used in the preparation of our condensed consolidated financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, including demand for our products, economic conditions and other current and future events, such as the impact of the COVID-19 pandemic. As of the date of issuance of these condensed consolidated financial statements, we are not aware of any specific event or circumstance that would require our management to update the significant estimates and assumptions used in the preparation of the condensed consolidated financial statements, as compared to those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020. As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from these estimates and assumptions, and any such differences may be material to our condensed consolidated financial statements. 

Results of Operations

The table below sets forth the data on the Condensed Consolidated Statements of Operations as a percentage of revenue:

		Three Months Ended September 30,																Nine Months Ended September 30,
		2021								2020								2021								2020
		(in thousands, except percentages)
Revenue		$	323,522				100.0	%		$	259,422				100.0	%		$	871,294				100.0	%		$	611,409				100.0	%
Cost of revenue			137,211				42.4				116,382				44.9				379,709				43.6				274,329				44.9
Gross profit			186,311				57.6				143,040				55.1				491,585				56.4				337,080				55.1
Operating expenses:
Research and development			49,468				15.3				37,717				14.5				136,113				15.6				95,346				15.6
Selling, general and administrative			56,291				17.4				43,503				16.8				164,982				18.9				116,550				19.1
Litigation expense			3,421				1.0				1,841				0.7				6,645				0.8				6,264				1.0
Total operating expenses			109,180				33.7				83,061				32.0				307,740				35.3				218,160				35.7
Income from operations			77,131				23.9				59,979				23.1				183,845				21.1				118,920				19.4
Other income, net			793				0.2				2,494				1.0				6,411				0.7				5,980				1.0
Income before income taxes			77,924				24.1				62,473				24.1				190,256				21.8				124,900				20.4
Income tax expense			9,154				2.8				6,907				2.7				20,904				2.4				3,412				0.5
Net income		$	68,770				21.3	%		$	55,566				21.4	%		$	169,352				19.4	%		$	121,488				19.9	%

Revenue

The following table summarizes our revenue by end market:

		Three Months Ended September 30,																				Nine Months Ended September 30,
End Market		2021				% of Revenue				2020				% of Revenue				Change				2021				% of Revenue				2020				% of Revenue				Change
		(in thousands, except percentages)
Computing and storage		$	98,601				30.5	%		$	75,301				29.0	%			30.9	%		$	253,819				29.1	%		$	191,345				31.3	%			32.6	%
Automotive			54,416				16.8				28,512				11.0				90.9	%			147,982				17.0				69,603				11.4				112.6	%
Industrial			52,185				16.1				30,658				11.8				70.2	%			135,296				15.5				82,487				13.5				64.0	%
Communications			44,687				13.8				54,705				21.1				(18.3)	%			118,215				13.6				112,670				18.4				4.9	%
Consumer			73,633				22.8				70,246				27.1				4.8	%			215,982				24.8				155,304				25.4				39.1	%
Total		$	323,522				100.0	%		$	259,422				100.0	%			24.7	%		$	871,294				100.0	%		$	611,409				100.0	%			42.5	%

Revenue for the three months ended September 30, 2021 was $323.5 million, an increase of $64.1 million, or 24.7%, from $259.4 million for the three months ended September 30, 2020. Overall unit shipments increased by 22% and average sales prices increased by approximately 2% compared to the same period in 2020. The increase in average sales prices was primarily driven by favorable changes in product mix with more sales coming from products with higher unit prices. 

For the three months ended September 30, 2021, revenue from the computing and storage market increased $23.3 million, or 30.9%, from the same period in 2020. This increase was primarily driven by strength in the high-performance notebook and storage markets. Revenue from the automotive market increased $25.9 million, or 90.9%, from the same period in 2020. This increase was primarily driven by sales growth for infotainment, lighting and advanced driver assistance system applications. Revenue from the industrial market increased $21.5 million, or 70.2%, from the same period in 2020. This increase was primarily driven by higher sales in power source and security products. Revenue from the communications market decreased $10.0 million, or 18.3%, from the same period in 2020. The decrease was primarily due to higher networking product sales during the three months ended September 30, 2020, as certain China-based customers requested shipments previously scheduled for future dates be fulfilled in the quarter. Revenue from the consumer market increased $3.4 million, or 4.8%, from the same period in 2020. This increase was primarily driven by increased sales for appliances, which was partially offset by decreased sales for gaming and mobile devices.

Revenue for the nine months ended September 30, 2021 was $871.3 million, an increase of $259.9 million, or 42.5%, from $611.4 million for the nine months ended September 30, 2020. Overall unit shipments increased by 28% and average sales prices increased by approximately 11% compared to the same period in 2020. The increase in average sales prices was primarily driven by favorable changes in product mix with more sales coming from products with higher unit prices.

For the nine months ended September 30, 2021, revenue from the computing and storage market increased $62.5 million, or 32.6%, from the same period in 2020. This increase was primarily driven by strength in the high-performance notebook and storage markets. Revenue from the automotive market increased $78.4 million, or 112.6%, from the same period in 2020. This increase was primarily driven by sales growth for infotainment, lighting and advanced driver assistance system applications. In addition, the automotive market was negatively impacted by the COVID-19 pandemic during the second quarter of 2020, which resulted in temporary production shutdowns by certain OEMs. Revenue from the industrial market increased $52.8 million, or 64.0%, from the same period in 2020. This increase was primarily driven by higher sales in power source and security products. Revenue from the communications market increased $5.5 million, or 4.9%, from the same period in 2020. This increase was primarily driven by increased wireless product sales. Revenue from the consumer market increased $60.7 million, or 39.1%, from the same period in 2020. This increase was primarily driven by increased sales for appliances, gaming and mobile devices.

Cost of Revenue and Gross Margin

Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses.  

		Three Months Ended September 30,												Nine Months Ended September 30,
		2021				2020				Change				2021				2020				Change
		(in thousands, except percentages)
Cost of revenue		$	137,211			$	116,382				17.9	%		$	379,709			$	274,329				38.4	%
As a percentage of revenue			42.4	%			44.9	%							43.6	%			44.9	%
Gross profit		$	186,311			$	143,040				30.3	%		$	491,585			$	337,080				45.8	%
Gross margin			57.6	%			55.1	%							56.4	%			55.1	%

Cost of revenue was $137.2 million, or 42.4% of revenue, for the three months ended September 30, 2021, and $116.4 million, or 44.9% of revenue, for the three months ended September 30, 2020. The $20.8 million increase in cost of revenue was primarily due to a 22% increase in overall unit shipments, which was partially offset by the impact of a 2% decrease in the average direct cost of units shipped. The increase in cost of revenue was also driven by an increase in warranty expenses, which was partially offset by a one-time benefit of $4.0 million from a litigation settlement.

Gross margin was 57.6% for the three months ended September 30, 2021, compared with 55.1% for the three months ended September 30, 2020. The increase in gross margin was mainly driven by increased sales of products with higher margins, lower manufacturing overhead costs and a one-time benefit of $4.0 million from a litigation settlement as a percentage of revenue, which was partially offset by an increase in warranty expenses as a percentage of revenue.

Cost of revenue was $379.7 million, or 43.6% of revenue, for the nine months ended September 30, 2021, and $274.3 million, or 44.9% of revenue, for the nine months ended September 30, 2020. The $105.4 million increase in cost of revenue was primarily due to a 28% increase in overall unit shipments and an 8% increase in the average direct cost of units shipped. The increase in cost of revenue was also driven by an increase in manufacturing overhead costs, warranty expenses and inventory write-downs, which was partially offset by a one-time benefit of $4.0 million from a litigation settlement.

Gross margin was 56.4% for the nine months ended September 30, 2021, compared with 55.1% for the nine months ended September 30, 2020. The increase in gross margin was mainly driven by a favorable product mix, lower manufacturing overhead costs and a one-time benefit of $4.0 million from a litigation settlement as a percentage of revenue, which was partially offset by higher warranty expenses as a percentage of revenue.

Research and Development (“R&D”)

R&D expenses primarily consist of salary and benefit expenses, bonuses, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facility costs.

		Three Months Ended September 30,												Nine Months Ended September 30,
		2021				2020				Change				2021				2020				Change
		(in thousands, except percentages)
R&D expenses		$	49,468			$	37,717				31.2	%		$	136,113			$	95,346				42.8	%
As a percentage of revenue			15.3	%			14.5	%							15.6	%			15.6	%

R&D expenses were $49.5 million, or 15.3% of revenue, for the three months ended September 30, 2021, and $37.7 million, or 14.5% of revenue, for the three months ended September 30, 2020. The $11.8 million increase in R&D expenses was primarily due to an increase of $5.7 million in cash compensation expenses, which include salary, benefits and bonuses, an increase of $1.9 million in new product development expenses, and an increase of $1.3 million in stock-based compensation expenses, which were mainly associated with performance-based equity awards. Our R&D headcount was 1,059 employees as of September 30, 2021, compared with 920 employees as of September 30, 2020.

R&D expenses were $136.1 million, or 15.6% of revenue, for the nine months ended September 30, 2021, and $95.3 million, or 15.6% of revenue, for the nine months ended September 30, 2020. The $40.8 million increase in R&D expenses was primarily due to an increase of $16.6 million in cash compensation expenses, which include salary, benefits and bonuses, an increase of $7.6 million in new product development expenses, and an increase of $4.9 million in stock-based compensation expenses, which were mainly associated with performance-based equity awards.

Selling, General and Administrative (“SG&A”)

SG&A expenses primarily include salary and benefit expenses, bonuses, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, sales commissions, travel expenses, facilities costs, and professional service fees. 

		Three Months Ended September 30,												Nine Months Ended September 30,
		2021				2020				Change				2021				2020				Change
		(in thousands, except percentages)
SG&A expenses		$	56,291			$	43,503				29.4	%		$	164,982			$	116,550				41.6	%
As a percentage of revenue			17.4	%			16.8	%							18.9	%			19.1	%

SG&A expenses were $56.3 million, or 17.4% of revenue, for the three months ended September 30, 2021, and $43.5 million, or 16.8% of revenue, for the three months ended September 30, 2020. The $12.8 million increase in SG&A expenses was primarily due to an increase of $7.1 million in stock-based compensation expenses, which were mainly associated with performance-based equity awards, and an increase of $6.3 million in cash compensation expenses, which include salary, benefits and bonuses. The increase was partially offset by an increase of $1.2 million in income related to changes in the value of the deferred compensation plan liabilities. Our SG&A headcount was 649 employees as of September 30, 2021, compared with 552 employees as of September 30, 2020. 

SG&A expenses were $165.0 million, or 18.9% of revenue, for the nine months ended September 30, 2021, and $116.6 million, or 19.1% of revenue, for the nine months ended September 30, 2020. The $48.4 million increase in SG&A expenses was primarily due to an increase of $24.1 million in stock-based compensation expenses, which were mainly associated with performance-based equity awards, and an increase of $17.9 million in cash compensation expenses, which include salary, benefits and bonuses.

Litigation Expense

Litigation expense was $3.4 million for the three months ended September 30, 2021, compared with $1.8 million for the three months ended September 30, 2020. The increase was due to an increase in litigation activity related to ongoing patent infringement and other matters.

Litigation expense was $6.6 million for the nine months ended September 30, 2021, compared with $6.3 million for the nine months ended September 30, 2020. The increase was due to an increase in litigation activity related to ongoing patent infringement and other matters.

Other Income, Net

Other income, net, was $0.8 million for the three months ended September 30, 2021, compared with other income, net, of $2.5 million for the three months ended September 30, 2020. The decrease was primarily due to an increase of $2.0 million in expenses related to changes in the value of the deferred compensation plan investments, which was partially offset by an increase of $0.7 million in interest income primarily as a result of higher investment balances and higher yield on certain investments.

Other income, net, was $6.4 million for the nine months ended September 30, 2021, compared with other income, net, of $6.0 million for the nine months ended September 30, 2020. The increase was primarily due to an increase of $1.2 million in income related to changes in the value of the deferred compensation plan investments and an increase of $1.0 million in interest income primarily as a result of higher investment balances and higher yield on certain investments, which was partially offset by an increase of $1.2 million in amortization of the premium on available-for-sale securities.

Income Tax Expense

The income tax provision or benefit for interim periods is generally determined using an estimate of our annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if our estimated tax rate changes, a cumulative adjustment is made.

The income tax expense for the three months ended September 30, 2021 was $9.2 million, or 11.7% of pre-tax income. The income tax expense for the nine months ended September 30, 2021 was $20.9 million, or 11.0% of pre-tax income. The effective tax rates differed from the federal statutory rate primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, the impact of federal tax credits from research and development activities, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.

The income tax expense for the three months ended September 30, 2020 was $6.9 million, or 11.1% of pre-tax income. The income tax expense for the nine months ended September 30, 2020 was $3.4 million, or 2.7% of pre-tax income. The effective tax rates differed from the federal statutory rate primarily due to excess tax benefits from stock-based compensation, and foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax

Liquidity and Capital Resources

		September 30,				December 31,
		2021				2020
		(in thousands, except percentages)
Cash and cash equivalents		$	226,091			$	334,944
Short-term investments			515,947				260,169
Total cash, cash equivalents and short-term investments		$	742,038			$	595,113
Percentage of total assets			49.6	%			49.2	%
Total current assets		$	1,064,494			$	841,998
Total current liabilities			(227,663	)			(146,969	)
Working capital		$	836,831			$	695,029

As of September 30, 2021, we had cash and cash equivalents of $226.1 million and short-term investments of $515.9 million, compared with cash and cash equivalents of $334.9 million and short-term investments of $260.2 million as of December 31, 2020. As of September 30, 2021, $137.7 million of cash and cash equivalents and $293.2 million of short-term investments were held by our international subsidiaries. For the nine months ended September 30, 2021, we repatriated $70 million of cash from our Bermuda subsidiary to the U.S. We may repatriate additional cash from our Bermuda subsidiary to fund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, inventories and other current assets, reduced by accounts payable, accrued compensation and related benefits, and other accrued liabilities. As of September 30, 2021, we had working capital of $836.8 million, compared with working capital of $695.0 million as of December 31, 2020. The $141.8 million increase in working capital was due to a $222.5 million increase in current assets, which was partially offset by an $80.7 million increase in current liabilities. The increase in current assets was primarily due to an increase in short-term investments, accounts receivable and inventories, which was partially offset by a decrease in cash and cash equivalents. The increase in current liabilities was due to an increase in accounts payable, accrued compensation and related benefits and other accrued liabilities.

Summary of Cash Flows

The following table summarizes our cash flow activities:

		Nine Months Ended September 30,
		2021				2020
		(in thousands)
Net cash provided by operating activities		$	291,804			$	188,155
Net cash used in investing activities			(339,138	)			(133,437	)
Net cash used in financing activities			(62,957	)			(49,638	)
Effect of change in exchange rates			1,431				1,432
Net increase (decrease) in cash, cash equivalents and restricted cash		$	(108,860	)		$	6,512

For the nine months ended September 30, 2021, net cash provided by operating activities was $291.8 million, primarily due to our net income adjusted for certain non-cash items, including depreciation and amortization and stock-based compensation, and a net increase of $8.2 million from the changes in our operating assets and liabilities. The increase in accounts receivable was driven by increased sales and timing of shipments during the three months ended September 30, 2021. The increase in inventories was primarily driven by an increase in wafer and die inventories to meet current demand and future growth. The increase in accounts payable was primarily driven by increased inventory purchases to meet future demand. The increase in other accrued liabilities was primarily due to an increase in warranty expenses and deferred compensation liabilities. For the nine months ended September 30, 2020, net cash provided by operating activities was $188.2 million, primarily due to our net income adjusted for certain non-cash items, including depreciation and amortization and stock-based compensation, and a net decrease of $13.7 million from the changes in our operating assets and liabilities. The increase in accounts receivable was driven by increased sales during the three months ended September 30, 2020. The increase in inventories was primarily driven by an increase in wafer and die inventories to meet current demand and future growth. The increase in accounts payable was primarily driven by increased inventory purchases to meet future demand.

For the nine months ended September 30, 2021, net cash used in investing activities was $339.1 million, primarily due to net purchases of short-term investments of $260.0 million and purchases of property and equipment of $76.8 million. For the nine months ended September 30, 2020, net cash used in investing activities was $133.4 million, primarily due to purchases of property and equipment of $44.2 million and net purchases of short-term investments of $88.4 million.

For the nine months ended September 30, 2021, net cash used in financing activities was $63.0 million, primarily reflecting $80.7 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold RSUs, which was partially offset by $19.8 million of cash proceeds from the vesting of RSUs and the issuance of shares through our ESPP. For the nine months ended September 30, 2020, net cash used in financing activities was $49.6 million, primarily reflecting $65.5 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold RSUs, which was partially offset by $20.3 million of cash proceeds from the vesting of RSUs and the issuance of shares through our ESPP.

We anticipate that cash used for future dividends and dividend equivalent payments, as well as payments for the one-time deemed repatriation transition tax and other expenditures, will come from our domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from our Bermuda subsidiary. Earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Although consequences of any economic uncertainty could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we currently believe that cash generated from operations, together with the liquidity provided by existing cash balances and short-term investments, will be sufficient to satisfy our liquidity requirements for the next 12 months. 

In the future, in order to strengthen our financial position, respond to adverse developments, changes in our circumstance or unforeseen events or conditions, or fund our growth, we may need to discontinue paying dividends and dividend equivalents, and may need to raise additional funds by any one or a combination of the following: issuing equity securities, issuing debt or convertible debt securities, incurring indebtedness secured by our assets, or selling certain product lines and/or portions of our business. Accordingly, we cannot ensure that we will continue to pay dividends and dividend equivalents in the future, and there can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.

From time to time, we have engaged in discussions with third parties concerning capital investments and potential acquisitions of product lines, technologies, businesses and companies, and we continue to consider potential investments and acquisition candidates. Any such transactions could involve the issuance of a significant number of new equity securities, assumptions of debt, and/or payment of cash consideration. We may also be required to raise additional funds to complete any such investments or acquisitions, through either the issuance of equity and debt securities or incurring indebtedness secured by our assets. If we raise additional funds or acquire businesses or technologies through the issuance of equity securities or convertible debt securities, our existing stockholders may experience significant dilution. 

Contractual Obligations

Our outstanding purchase commitments represent our obligations with our suppliers and other parties that require the future purchases of goods or services, which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction or purchases of property and equipment, and license arrangements. As of September 30, 2021, the outstanding balance under our purchase commitments was $197.8 million.

Under the U.S. Tax Cuts and Jobs Act enacted in December 2017 (the “2017 Tax Act”), we have a transition tax liability which represents a one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings. As permitted by the 2017 Tax Act, we elected to pay the tax liability in installments on an interest-free basis through 2025. As of September 30, 2021, the outstanding liability was $16.8 million.

Our other long-term obligations include long-term liabilities reflected on our Condensed Consolidated Balance Sheets, which primarily consist of the deferred compensation plan liabilities and accrued dividend equivalents. As of September 30, 2021, the outstanding long-term obligations were $64.5 million.

Other contractual obligations have not changed significantly from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

As of September 30, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.