NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of 3D Systems Corporation and all majority-owned subsidiaries and entities in which a controlling interest is maintained (“3D Systems” or the “Company” or “we” or “us”). All significant intercompany transactions and balances have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reports. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). Our annual reporting period is the calendar year.
In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the quarter ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates and assumptions
As we continue to closely monitor the COVID-19 pandemic, our top priority remains the health and safety of our employees and their families and communities. Our Crisis Response Steering Committee regularly reviews and adapts our protocols based on evolving research and guidance related to the virus. While essential operations continue, we continue to restrict travel and meetings, publish pertinent information, and adapt to a world where many in our workforce are remote and those coming on-site are following new safety measures. We have a multi-phase plan to return to working on-site and remain committed to protecting our employees, delivering for our customers and supporting our communities.
Our operations in North America and South America (collectively referred to as “Americas”), Europe and the Middle East (collectively referred to as “EMEA”) and the Asia Pacific region (“APAC”) expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic. While the COVID-19 pandemic continued to impact our reported results for the quarter ended March 31, 2021, we are unable to predict the longer-term impact that the pandemic may have on our business, results of operations, financial position or cash flows. The extent to which our operations may be impacted by the dynamic nature of the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including the severity or resurgence of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions, further supply chain disruptions, including the ongoing semiconductor chip shortages, and the continued disruptions to, and volatility in, the financial markets remain unknown.
As of January 1, 2021, we determined the Company has two reportable segments, Healthcare and Industrial; whereas, the Company previously only reported its consolidated results in one segment. This change in segment reporting as of January 1, 2021 was the result of changes to how the chief operating decision maker ("CODM") assesses the financial performance of the Company and in the decision-making process driving future operating performance. As a result of this re-segmentation, the Company performed a quantitative analysis for potential impairment of our goodwill immediately following the re-segmentation. Based on available information and analysis as of January 1, 2021, we determined the fair value of the Healthcare and Industrial reporting units exceeded their carrying values.
Fair value was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. The valuation methodology and underlying financial information included in the Company's determination of fair value required significant judgments by management. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate for a control premium.
All dollar amounts presented in the accompanying footnotes are presented in thousands, except for per share information.
During the first quarter ended March 31, 2021 we became aware that certain amounts previously presented within our statements of operations as products cost of sales related to services cost of sales. We note that the total cost of sales line item was not affected. We further note that this error did not affect our gross profit, loss from operations, net income (loss), consolidated balance sheets or statements of cash flow. We evaluated the materiality of this presentation-only error and concluded it was not material to any previously reported quarter or year-end financial statement. The following schedule depicts the effect on our previously reported statements of operations.
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, 2020
|
|
Quarter Ended June 30, 2020
|
(in thousands)
|
As reported
|
|
Change
|
|
Revised
|
|
As reported
|
|
Change
|
|
Revised
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
$
|
49,826
|
|
|
$
|
(1,373)
|
|
|
$
|
48,453
|
|
|
$
|
53,204
|
|
|
$
|
(1,920)
|
|
|
$
|
51,284
|
|
Services
|
28,677
|
|
|
1,373
|
|
|
30,050
|
|
|
24,406
|
|
|
1,920
|
|
|
26,326
|
|
Total cost of sales
|
$
|
78,503
|
|
|
$
|
—
|
|
|
$
|
78,503
|
|
|
$
|
77,610
|
|
|
$
|
—
|
|
|
$
|
77,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, 2020
|
|
Quarter Ended December 31, 2020
|
(in thousands)
|
As reported
|
|
Change
|
|
Revised
|
|
As reported
|
|
Change
|
|
Revised
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
$
|
50,038
|
|
|
$
|
(1,826)
|
|
|
$
|
48,212
|
|
|
$
|
74,613
|
|
|
$
|
(2,146)
|
|
|
$
|
72,467
|
|
Services
|
27,510
|
|
|
1,826
|
|
|
29,336
|
|
|
25,592
|
|
|
2,146
|
|
|
27,738
|
|
Total cost of sales
|
$
|
77,548
|
|
|
$
|
—
|
|
|
$
|
77,548
|
|
|
$
|
100,205
|
|
|
$
|
—
|
|
|
$
|
100,205
|
|
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification 740, Income Taxes. It also clarifies certain aspects of the existing guidance to promote more consistent application. This standard is effective for calendar-year public business entities in 2021 and interim periods within that year, and early adoption is permitted. The Company adopted this guidance during the first quarter of 2021. The implementation did not have a material effect on our financial position or results of operations.
No other new accounting pronouncements, issued or effective during 2021, have had or are expected to have a significant impact on our consolidated financial statements.
(2) Dispositions
On January 1, 2021, the Company completed the sale of 100% of the issued and outstanding equity interests of Cimatron Ltd. ("Cimatron"), the subsidiary that operated the Company’s Cimatron integrated CAD/CAM software for tooling business and its GibbsCAM CNC programming software business, for approximately $64,173, after certain adjustments and excluding $9,476 of cash amounts transferred to the purchaser. We recorded a gain on the sale of $32,928 included within Interest and other income (expense), net on the accompanying condensed consolidated statements of operations for the three months ended March 31, 2021. Additionally, at the time of the sale, we recognized a gain of $6,481 for accumulated foreign currency translation gain previously included in Accumulated other comprehensive loss ("AOCL"), which is included within Interest and other income (expense), net. This disposed of business would have been included within the Industrial segment.
(3) Revenue
We account for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers.”
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
At March 31, 2021, we had $106,797 of outstanding performance obligations, comprised of deferred revenue, customer order backlog and customer deposits. We expect to recognize approximately 94% of our remaining performance obligations as revenue within the next twelve months, an additional 3% by the end of 2022 and the remaining balance thereafter.
Revenue Recognition
Revenue is recognized when control of the promised products or services is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Many of our contracts with customers include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative stand-alone selling price (“SSP”). Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. The amount of consideration received and revenue recognized may vary based on changes in marketing incentive programs offered to our customers. Our marketing incentive programs take many forms, including volume discounts, trade-in allowances, rebates and other discounts.
A majority of our revenue is recognized at the point in time when products are shipped or services are delivered to customers. Please see below for further discussion.
Hardware and Materials
Revenue from hardware and material sales is recognized when control has transferred to the customer, which typically occurs when the goods have been shipped to the customer, risk of loss has transferred to the customer and we have a present right to payment. In limited circumstances, when printer or other hardware sales include substantive customer acceptance provisions, revenue is recognized either when customer acceptance has been obtained, customer acceptance provisions have lapsed, or we have objective evidence that the criteria specified in the customer acceptance provisions have been satisfied.
Printers and certain other products include a warranty under which we provide maintenance for periods up to one year. For these initial product warranties, estimated costs are accrued at the time of the sale of the product. These cost estimates are established using historical information on the nature, frequency and average cost of claims for each type of printer or other product as well as assumptions about future activity and events. Revisions to expense accruals are made as necessary based on changes in these historical and future factors.
Software
We also market and sell software tools that enable our customers to capture and customize content using our printers, design optimization and simulation software, and reverse engineering and inspection software. Software does not require significant modification or customization and the license provides the customer with a right to use the software as it exists when made available. Revenue from these software licenses is recognized either upon delivery of the product or of a key code which allows the customer to download the software. Customers may purchase post-sale support. Generally, the first year is included but subsequent years are optional. This optional support is considered a separate obligation from the software and is deferred at the time of sale and subsequently recognized ratably over future periods.
Collaboration and Licensing Agreements
We enter into collaboration and licensing agreements with third parties. The nature of the activities to be performed and the consideration exchanged under the agreements varies on a contract-by-contract basis. We evaluate these agreements to determine whether they meet the definition of a customer relationship for which revenue is recorded. These contracts may contain multiple performance obligations and may contain fees for licensing, research and development services, contingent milestone payments upon the achievement of developmental contractual criteria and/or royalty fees based on the licensees’ product revenue. We determine the revenue to be recognized for these agreements based on an evaluation of the distinct performance obligations, the identification and evaluation of material rights, the estimation of variable consideration and the determination of the pattern on transfer of control for each distinct performance obligation. The Company recognized $1,807 and $930 in revenue related to collaboration arrangements with customers for the quarters ended March 31, 2021 and 2020, respectively.
Services
We offer training, installation and non-contract maintenance services for our products. Additionally, we offer maintenance contracts customers can purchase at their option. For maintenance contracts, revenue is deferred at the time of sale based on the stand-alone selling prices of these services and costs are expensed as incurred. Deferred revenue is recognized ratably over the term of the maintenance period on a straight-line basis. Revenue from training, installation and non-contract maintenance services is recognized at the time of performance of the service.
On-demand manufacturing and healthcare service sales are included within services revenue and revenue is recognized upon shipment or delivery of the parts or performance of the service, based on the terms of the arrangement.
Terms of Sale
Shipping and handling activities are treated as fulfillment costs rather than as an additional promised service. We accrue the costs of shipping and handling when the related revenue is recognized. Our incurred costs associated with shipping and handling are included in product cost of sales.
Credit is extended, and creditworthiness is determined, based on an evaluation of each customer’s financial condition. New customers are generally required to complete a credit application and provide references and bank information to facilitate an analysis of creditworthiness. Customers with a favorable profile may receive credit terms that differ from our general credit terms. Creditworthiness is considered, among other things, in evaluating our relationship with customers with past due balances.
Our terms of sale generally provide payment terms that are customary in the countries where we transact business. To reduce credit risk in connection with certain sales, we may, depending upon the circumstances, require significant deposits or payment in full prior to shipment. For maintenance services, we either bill customers on a time-and-materials basis or sell maintenance contracts that provide for payment in advance on either an annual or other periodic basis.
Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, we allocate revenues to each performance obligation based on its relative SSP.
Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, we estimate SSP using historical transaction data. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, we determine the SSP using information that may include market conditions and other observable inputs.
In some circumstances, we have more than one SSP for individual products and services due to the stratification of those products and services by customers, geographic region or other factors. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.
The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSP reflects the most current information or trends.
The nature of our marketing incentives may lead to consideration that is variable. Judgment is exercised at contract inception to determine the most likely outcome of the contract and resulting transaction price. Ongoing assessments are performed to determine if updates are needed to the original estimates.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer deposits and deferred revenues (contract liabilities) on the condensed consolidated balance sheets. Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized at the time of invoicing, or unbilled receivables when revenue is recognized prior to invoicing. For most of our contracts, customers are invoiced when products are shipped or when services are performed resulting in billed accounts receivables for the remainder of the owed contract price. Unbilled receivables generally result from items being shipped where the customer has not been charged, but for which revenue had been recognized. In our on-demand manufacturing business, customers may be required to pay in full before work begins on their orders, resulting in customer deposits. We typically bill in advance for installation, training and maintenance contracts as well as extended warranties, resulting in deferred revenue. Changes in contract asset and liability balances were not materially impacted by any other factors for the period ended March 31, 2021.
For the quarter ended March 31, 2021, we recognized revenue of $14,473 related to our contract liabilities at December 31, 2020. For the quarter ended March 31, 2020, we recognized revenue of $12,659 related to our contract liabilities at December 31, 2019.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within selling, general and administrative expenses.
(4) Segment Information
Effective January 1, 2021, we changed our segment reporting under ASC 280 Segment Reporting. For periods prior to January 1, 2021, we operated under one operating segment, consistent with the information that was presented to our CODM. Effective January 1, 2021, we have identified two operating segments, Healthcare and Industrial.
This change in reportable segments was necessitated as a result of changes to our enterprise wide financial reporting system that were launched January 1, 2021 at the request of our CODM. These changes resulted in revisions to the financial information provided to the CODM on a recurring basis in his evaluation of financial performance of the Company and in the decision-making process driving future operating performance. The CODM does not review disaggregated assets on a segment basis; therefore, such information is not presented. In addition, the changes made to our enterprise wide financial reporting system were prospective and prevent historical financial information for the Healthcare and Industrial segments to be available other than for revenue which has been disclosed below. We have evaluated potential alternatives to generate comparative prior period financial information for the Healthcare and Industrial segments, and believe that the practicality exception as proscribed in ASC 280 Segment Reporting is applicable due to the high degree of difficulty involved and the significant expense associated with overhauling the structure of legacy financial systems
The following table sets forth our net sales and operating results by segment:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2021
|
|
2020
|
|
2021
|
|
|
(in thousands)
|
Net Sales (a)
|
|
Operating Profit
|
Operations by segment:
|
|
|
|
|
|
|
|
Healthcare
|
$
|
72,521
|
|
|
$
|
52,293
|
|
|
$
|
23,109
|
|
|
|
Industrial
|
73,595
|
|
|
83,342
|
|
|
8,190
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
146,116
|
|
|
$
|
135,635
|
|
|
31,299
|
|
|
|
General corporate expense, net (b)
|
|
|
|
|
(33,258)
|
|
|
|
Operating loss, as reported
|
|
|
|
|
(1,959)
|
|
|
|
Interest and other income, net
|
|
|
|
|
38,853
|
|
|
|
Income before income taxes
|
|
|
|
|
$
|
36,894
|
|
|
|
a.Approximately 43.8% and 54.0% of sales for the three months ended March 31, 2021 and 2020, respectively, were located outside of the U.S.
b.General corporate expense, net includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.
(5) Leases
We have various lease agreements for our facilities, equipment and vehicles with remaining lease terms ranging from one to fifteen years. We determine if an arrangement contains a lease at inception. Some leases include the options to purchase, terminate or extend for one or more years; these options are included in the right-of-use (“ROU”) asset and liability lease term when it is reasonably certain an option will be exercised. Our leases do not contain any material residual value guarantees or material restrictive covenants.
Most of our leases do not provide an implicit rate; therefore, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of the future lease payments.
Certain of our leases include variable costs. Variable costs include non-lease components that were incurred based upon actual terms rather than contractually fixed amounts. In addition, variable costs are incurred for lease payments that are indexed to a change in rate or index. Because the ROU asset recorded on the balance sheet was determined based upon factors considered at the commencement date, subsequent changes in the rate or index that were not contemplated in the ROU asset balances recorded on the balance sheet result in variable expenses being incurred when paid during the lease term.
On February 25, 2021, the Company entered into an agreement to amend its lease for its corporate office and extended the term. As part of this amendment, the Company entered into a lease agreement for a new building, containing approximately 80,000 to 100,000 rentable square feet, to be constructed adjacent to our corporate office. The initial lease terms for both the existing building and the expansion site extend through August 2036.
Components of lease cost (income) were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
|
|
|
Operating lease cost
|
|
$
|
2,695
|
|
|
$
|
2,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost - amortization expense
|
|
207
|
|
|
204
|
|
|
|
|
|
Finance lease cost - interest expense
|
|
124
|
|
|
161
|
|
|
|
|
|
Short-term lease cost
|
|
54
|
|
|
27
|
|
|
|
|
|
Variable lease cost
|
|
280
|
|
|
914
|
|
|
|
|
|
Sublease income
|
|
(156)
|
|
|
(152)
|
|
|
|
|
|
Total
|
|
$
|
3,204
|
|
|
$
|
4,049
|
|
|
|
|
|
Balance sheet classifications at March 31, 2021 and December 31, 2020 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
(in thousands)
|
|
Right of use assets
|
|
Current right of use liabilities
|
|
Long-term right of use liabilities
|
|
Right of use assets
|
|
Current right of use liabilities
|
|
Long-term right of use liabilities
|
Operating Leases
|
|
$
|
46,315
|
|
|
$
|
8,608
|
|
|
$
|
46,465
|
|
|
$
|
40,586
|
|
|
$
|
8,562
|
|
|
$
|
38,296
|
|
Finance Leases
|
|
4,433
|
|
|
630
|
|
|
4,634
|
|
|
8,034
|
|
|
972
|
|
|
10,173
|
|
Total
|
|
$
|
50,748
|
|
|
$
|
9,238
|
|
|
$
|
51,099
|
|
|
$
|
48,620
|
|
|
$
|
9,534
|
|
|
$
|
48,469
|
|
Our future minimum lease payments as of March 31, 2021 under operating lease and finance leases, with initial or remaining lease terms in excess of one year, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
(in thousands)
|
|
Operating Leases
|
|
Finance Leases
|
Years ending March 31:
|
|
|
|
|
2022
|
|
$
|
11,450
|
|
|
$
|
871
|
|
2023
|
|
9,521
|
|
|
859
|
|
2024
|
|
8,265
|
|
|
848
|
|
2025
|
|
6,791
|
|
|
774
|
|
2026
|
|
5,544
|
|
|
689
|
|
Thereafter
|
|
28,824
|
|
|
2,273
|
|
Total lease payments
|
|
70,395
|
|
|
6,314
|
|
Less: imputed interest
|
|
(15,322)
|
|
|
(1,050)
|
|
Present value of lease liabilities
|
|
$
|
55,073
|
|
|
$
|
5,264
|
|
Supplemental cash flow information related to our leases for the periods ending March 31, 2021 and March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2021
|
|
March 31, 2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash outflow from operating leases
|
|
$
|
2,560
|
|
|
$
|
3,157
|
|
Operating cash outflow from finance leases
|
|
$
|
97
|
|
|
$
|
139
|
|
Financing cash outflow (inflow) from finance leases
|
|
$
|
196
|
|
|
$
|
(296)
|
|
Weighted-average remaining lease terms and discount rate for our leases for the period ending March 31, 2021, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
Operating
|
|
Financing
|
Weighted-average remaining lease term
|
|
8.9 years
|
|
8.0 years
|
Weighted-average discount rate
|
|
5.71
|
%
|
|
4.68
|
%
|
(6) Inventories
Components of inventories at March 31, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
Raw materials
|
$
|
25,214
|
|
|
$
|
23,762
|
|
Work in process
|
7,743
|
|
|
5,912
|
|
Finished goods and parts
|
77,420
|
|
|
86,993
|
|
Inventories
|
$
|
110,377
|
|
|
$
|
116,667
|
|
We record a reserve to the carrying value of our inventory to reflect the rapid technological change in our industry that impacts the market for our products. The inventory reserve was $20,818 and $20,125 as of March 31, 2021 and December 31, 2020, respectively.
At March 31, 2021, our obligation to repurchase inventory, included in Accrued and other liabilities on our condensed consolidated balance sheets, was $1,959, relating to the sale of inventory to an assembly manufacturer and we had a commitment of $3,480 with the assembling manufacturer to purchase certain materials and supplies they acquired from third parties. At March 31, 2021, inventory held at assemblers was $5,130.
(7) Intangible Assets
Intangible assets, net, other than goodwill, at March 31, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
(in thousands)
|
Gross (a)
|
|
Accumulated Amortization
|
|
Net
|
|
Gross (a)
|
|
Accumulated Amortization
|
|
Net
|
|
Weighted Average Useful Life Remaining (in years)
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
67,861
|
|
|
$
|
(55,676)
|
|
|
$
|
12,185
|
|
|
$
|
71,123
|
|
|
$
|
(56,682)
|
|
|
$
|
14,441
|
|
|
2.1
|
Acquired technology
|
41,330
|
|
|
(40,149)
|
|
|
1,181
|
|
|
42,472
|
|
|
(41,201)
|
|
|
1,271
|
|
|
5.3
|
Trade names
|
16,898
|
|
|
(16,196)
|
|
|
702
|
|
|
17,477
|
|
|
(16,506)
|
|
|
971
|
|
|
0.9
|
Patent costs
|
19,787
|
|
|
(11,074)
|
|
|
8,713
|
|
|
19,828
|
|
|
(10,999)
|
|
|
8,829
|
|
|
3.7
|
Trade secrets
|
19,679
|
|
|
(18,065)
|
|
|
1,614
|
|
|
20,188
|
|
|
(18,216)
|
|
|
1,972
|
|
|
1.2
|
Acquired patents
|
16,250
|
|
|
(15,752)
|
|
|
498
|
|
|
16,317
|
|
|
(15,723)
|
|
|
594
|
|
|
2.3
|
Other
|
19,151
|
|
|
(19,148)
|
|
|
3
|
|
|
19,793
|
|
|
(19,788)
|
|
|
5
|
|
|
0.0
|
Total intangible assets
|
$
|
200,956
|
|
|
$
|
(176,060)
|
|
|
$
|
24,896
|
|
|
$
|
207,198
|
|
|
$
|
(179,115)
|
|
|
$
|
28,083
|
|
|
2.6
|
a.Change in gross carrying amounts consists primarily of charges for license and patent costs and foreign currency translation.
Amortization expense related to intangible assets was $2,427 and $4,402 for the three months ended March 31, 2021 and 2020, respectively.
(8) Accrued and Other Liabilities
Accrued liabilities at March 31, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
Compensation and benefits
|
$
|
22,309
|
|
|
$
|
24,629
|
|
Vendor accruals
|
13,038
|
|
|
18,762
|
|
Accrued taxes
|
15,572
|
|
|
14,952
|
|
Accrued other
|
4,750
|
|
|
6,138
|
|
Product warranty liability
|
2,515
|
|
|
2,348
|
|
|
|
|
|
Accrued professional fees
|
1,527
|
|
|
1,773
|
|
Royalties payable
|
1,519
|
|
|
1,210
|
|
|
|
|
|
Total
|
$
|
61,230
|
|
|
$
|
69,812
|
|
Other liabilities at March 31, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2021
|
|
December 31, 2020
|
Long-term employee indemnity
|
$
|
11,662
|
|
|
$
|
12,228
|
|
Long-term tax liability
|
5,527
|
|
|
15,532
|
|
Defined benefit pension obligation
|
9,749
|
|
|
10,228
|
|
Long-term deferred revenue
|
5,945
|
|
|
6,163
|
|
Other long-term liabilities
|
1,669
|
|
|
7,096
|
|
Total
|
$
|
34,552
|
|
|
$
|
51,247
|
|
(9) Borrowings
Credit Facility
We have a 5-year $100,000 senior secured revolving credit facility (the “Senior Credit Facility”) to support working capital and general corporate purposes. The Senior Credit Facility also had a 5-year $100,000 senior secured term loan facility (the “Term Facility”) that, as discussed below, has been fully repaid and terminated. The Senior Credit Facility is guaranteed by certain of our subsidiaries. The guarantors guarantee, among other things, all our obligations and each other guarantor's obligations under the Senior Credit Facility. From time to time, we may be required to cause additional domestic subsidiaries to become guarantors under the Senior Credit Facility. The Senior Credit Facility is scheduled to mature on February 26, 2024, at which time all amounts outstanding thereunder will be due and payable. However, the maturity date of the Senior Credit Facility may be extended at our election with the consent of the lenders subject to the terms set forth in the Senior Credit Facility. The Senior Credit Facility contains customary covenants, some of which require us to maintain certain financial ratios that determine the amounts available and terms of borrowings and events of default. We were in compliance with all covenants at March 31, 2021.
The payment of dividends on our common stock is restricted under provisions of the Senior Credit Facility, which limits the amount of cash dividends that we may pay in any one fiscal year to $30,000. We currently do not pay, and have not paid, any dividends on our common stock, and we currently intend to retain any future earnings for use in our business.
Borrowings under the Senior Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment. Subject to certain terms and conditions contained in the Senior Credit Facility, we have the right to request up to four increases to the amount of the revolving facility in an aggregate amount not to exceed an additional $100,000. As of March 31, 2021, there was $7,000 of outstanding letters of credit and $92,000 of available borrowings under the revolving facility.
We had a balance of $21,392 outstanding on the Term Facility at December 31, 2020. On January 1, 2021, the Company completed the sale of Cimatron, the subsidiary that operated the Company’s Cimatron integrated CAD/CAM software for tooling business and its GibbsCAM CNC programming software business. A portion of the proceeds from the sale were used to repay the outstanding balance on the Term Facility. The Term Facility is now fully repaid and terminated. Concurrent with the repayment of the Term Facility, we terminated the interest rate swap, resulting in a marked-to-market payment of $712. See Note 10 for additional information.
(10) Hedging Activities and Financial Instruments
Interest Rate Swap Contract
On July 8, 2019, we entered into a $50,000 interest rate swap contract, designated as a cash flow hedge, to minimize the risk associated with the variability of cash flows in interest payments from variable-rate debt due to fluctuations in the one-month USD-LIBOR, subject to a 0% floor, through February 26, 2024. Changes in the interest rate swap were expected to offset the changes in cash flows attributable to fluctuations of the one-month USD-LIBOR for the interest payments associated with our variable-rate debt.
On January 4, 2021, in connection with the repayment of the Term Facility, we terminated the interest rate swap agreement, which required a marked-to-market termination payment of $712 paid in January 2021. Amounts previously recognized in AOCL of $721 were released and reclassified into Interest and other income (expense), net on the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2021.
The notional amount and fair value of the derivative on our balance sheet at December 31, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance Sheet location
|
|
Notional amount
|
|
Fair value
|
December 31, 2020
|
|
|
|
|
|
Interest rate swap contract
|
Other liabilities
|
|
$
|
15,000
|
|
|
$
|
(700)
|
|
Except as noted above, amounts released from AOCL and reclassified into Interest and other income (expense), net did not have a material impact on our condensed consolidated statements of operations and comprehensive income (loss) for the quarters ended March 31, 2021 and 2020.
Foreign Currency Contracts
We conduct business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, we are subject to the risk that fluctuations in foreign exchange rates between the dates that those transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, we endeavor to match assets and liabilities in the same currency on our balance sheet and those of our subsidiaries in order to reduce these risks. When appropriate, we enter into foreign currency contracts to hedge exposures arising from those transactions. We have elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, all gains and losses (realized or unrealized) are recognized in Interest and other expense, net in the condensed consolidated statements of operations and comprehensive income (loss). Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid expenses and other current assets or in accrued liabilities on the condensed consolidated balance sheets.
We had $82,856 and $101,781 in notional foreign exchange contracts outstanding as of March 31, 2021 and December 31, 2020, respectively. The fair values of these contracts were not material.
We translate foreign currency balance sheets from each international businesses’ functional currency (generally the respective local currency) to U.S. dollars at end-of-period exchange rates, and statements of earnings at average exchange rates for each period. The resulting foreign currency translation adjustments are a component of other comprehensive income (loss). We do not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations' results into U.S. dollars.
(11) Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the applicable period. Diluted net income (loss) per share incorporates the additional shares issuable upon assumed exercise of stock options and the release of restricted stock and restricted stock units, except in such case when their inclusion would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
(in thousands, except per share amounts)
|
2021
|
|
2020
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
45,228
|
|
|
$
|
(18,924)
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
121,705
|
|
|
114,590
|
|
|
|
|
|
Dilutive securities
|
3,365
|
|
|
—
|
|
|
|
|
|
Weighted average shares - diluted
|
125,070
|
|
|
114,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic
|
$
|
0.37
|
|
|
$
|
(0.17)
|
|
|
|
|
|
Net income (loss) per share - diluted
|
$
|
0.36
|
|
|
$
|
(0.17)
|
|
|
|
|
|
For the three months ended March 31, 2020, the effect of dilutive securities, including non-vested stock options and restricted stock awards/units, was excluded from the denominator for the calculation of diluted net loss per share because we recognized a net loss for the period and their inclusion would be anti-dilutive. Dilutive securities excluded for the three months ended March 31, 2020 were 6,135.
On August 5, 2020, we entered into an Equity Distribution Agreement for an At-The-Market equity offering program (“ATM Program”) under which we could have issued and sold, from time to time, shares of our common stock. On January 6, 2021, following the closing of the sale of Cimatron and the receipt of the related purchase price proceeds, the Company terminated the ATM Program.
(12) Fair Value Measurements
Fair value is the exchange price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value measurements use market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. Valuation techniques maximize the use of observable inputs and minimize use of unobservable inputs.
Cash equivalents, Israeli severance funds and derivatives are valued utilizing the market approach to measure fair value for financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 31, 2021
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
|
|
Total
|
Description
|
|
|
|
|
|
|
|
Cash equivalents (a)
|
$
|
42,609
|
|
|
$
|
—
|
|
|
|
|
$
|
42,609
|
|
Israeli severance funds (b)
|
$
|
—
|
|
|
$
|
6,353
|
|
|
|
|
$
|
6,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2020
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
|
|
Total
|
Description
|
|
|
|
|
|
|
|
Cash equivalents (a)
|
$
|
199
|
|
|
$
|
—
|
|
|
|
|
$
|
199
|
|
Israeli severance funds (b)
|
$
|
—
|
|
|
$
|
6,422
|
|
|
|
|
$
|
6,422
|
|
Derivative financial instruments (c)
|
$
|
—
|
|
|
$
|
(700)
|
|
|
|
|
$
|
(700)
|
|
a.Cash equivalents include funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in the condensed consolidated balance sheet.
b.We partially fund a liability for our Israeli severance requirement through monthly deposits into fund accounts, the value of these contributions is recorded to non-current assets on the condensed consolidated balance sheet.
c.Derivative instruments are reported based on published market prices for similar assets or are estimated based on published market prices for similar assets or are estimated based on observable inputs such as interest rates, yield curves, credit risks, spot and future commodity prices and spot and future exchange rates. See Note 10 for additional information on our derivative financial instruments.
We did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the three months ended March 31, 2021.
(13) Income Taxes
We maintain the exception under ASC 740-270-30-36(b), "Accounting for Income Taxes", for jurisdictions that do not have reliable estimates of ordinary income due to the volatility in the industry. Based on the continued global financial uncertainty due to the COVID-19 pandemic and volatility in the industry, we have continued to use a year-to-date methodology in determining the quarterly effective tax rate for the quarter ended March 31, 2021.
For the quarter ended March 31, 2021, the Company's effective tax benefit rate was (22.6)%. For the quarter ended March 31, 2020, the Company's effective tax benefit rate was (8.9)%. The difference between the statutory tax benefit rate and the effective tax rate for the quarter ended March 31, 2021 is primarily driven by the reduction of a liability for uncertain tax positions, which includes the release noted in the paragraph below, and the presence of a full valuation allowance in various jurisdictions. The difference between the statutory tax rate and the effective tax benefit rate for the quarter ended March 31, 2020 is primarily driven by the valuation allowances in various jurisdictions, the foreign rate differential between the U.S. tax rate and foreign tax rates, and the change in U.S. tax law allowing the carryback of certain U.S. net operating losses (“NOLs”) as explained in the paragraph below.
In response to the global pandemic resulting from COVID-19, the U.S. government enacted tax legislation on March 27, 2020 under the Coronavirus Aid Relief, and Economic Security Act ("CARES Act"). This legislation allowed us to carryback NOLs generated in the 2018 and 2019 tax years up to five years. A tax receivable was recorded during the first quarter of 2020 for the anticipated carryback in the amount of $8.9 million, along with associated uncertain tax positions of $5.7 million. During the fourth quarter of 2020, additional uncertain tax positions of $3.2 million were recorded to fully reserve the $8.9 million related to the carryback. During the first quarter of 2021, the Company received two favorable private letter rulings triggering release of the uncertain tax positions for $8.9 million. As of the close of the quarter ended March 31, 2021, approximately $2.5 million of the $8.9 million refund has been received by the Company. The Company expects to receive the remaining refund during the second quarter of 2021.
(14) Commitments and Contingencies
We have an inventory purchase commitment with an assembling manufacturer, see Note 6.
Litigation
Export Controls and Government Contracts Compliance Matter
In October 2017, we received an administrative subpoena from the Bureau of Industry and Security of the Department of Commerce (“BIS”) requesting the production of records in connection with possible violations of U.S. export control laws, including with regard to our Quickparts.com, Inc. subsidiary. In addition, while collecting information responsive to the above-referenced subpoena, our internal investigation identified potential violations of the International Traffic in Arms Regulations (“ITAR”) administered by the Directorate of Defense Trade Controls of the Department of State (“DDTC”) and potential violations of the Export Administration Regulations administered by the BIS.
On June 8, 2018 and thereafter, we submitted voluntary disclosures to BIS and DDTC identifying numerous potentially unauthorized exports of technical data. As part of our ongoing review of trade compliance risks and our cooperation with the government, on November 20, 2019, we submitted to the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) an initial notice of voluntary disclosure regarding potential violations of economic sanctions related to Iran. We continued to investigate this issue and filed a final disclosure with OFAC on May 20, 2020. We have and will continue to implement compliance enhancements to our export controls, trade sanctions, and government contracting compliance program to address the issues identified through our ongoing internal investigation and will cooperate with DDTC and BIS, as well as the U.S. Departments of Justice, Defense, Homeland Security and Treasury in their ongoing reviews of these matters. In connection with these ongoing reviews, in August 2020, the Company received two federal grand jury subpoenas issued by the U.S. District Court for the Northern District of Texas. The Company responded to these two subpoenas and will continue to fully cooperate with the U.S. Department of Justice in the related investigation.
In addition, on July 19, 2019, we received a notice of immediate suspension of federal contracting from the United States Air Force, pending the outcome of an ongoing investigation. The suspension applied to 3D Systems, its subsidiaries and affiliates, and was related to the potential export controls violations involving our On-Demand manufacturing business described above. Under the suspension, we were generally prohibited from receiving new federal government contracts or subcontracts from any executive branch agency as described in the provisions of 48 C.F.R Subpart 9.4 of the Federal Acquisition Regulation. The suspension allowed us to continue to perform current federal contracts, and also to receive awards of new subcontracts for items under $35 and for items considered commercially available off-the-shelf items. The Air Force lifted the suspension on September 6, 2019 following the execution of a two-year Administrative Agreement with us. We are now eligible to obtain and perform U.S. government contracts and subcontracts without restrictions. Under the Administrative Agreement, we will be monitored and evaluated by independent monitors who will report to the Air Force on our compliance with the terms of the Company’s Ethics & Compliance Program, including its overall culture, government contracting compliance program, and export controls compliance program.
Although we cannot predict the ultimate resolution of these matters, we have incurred and expect to continue to incur significant legal costs and other expenses in connection with responding to the U.S. government agencies.
Shareholder Suits
The Company and certain of its current and former executive officers have been named as defendants in two putative stockholder class action lawsuits pending in the United States District Court for the Eastern District of New York.
The first action is styled Troy Kehoe v. 3D Systems Corporation, et al., No. 1:21-cv-01920-NGG-LB (E.D.N.Y.). The complaint, which was filed on April 9, 2021, alleges that defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and SEC Rule 10b-5 promulgated thereunder by making false and misleading statements and omissions, and that the current and former executive officers named as defendants are control persons under Section 20(a) of the Exchange Act. The complaint was filed on behalf of stockholders who purchased shares of the Company’s common stock between May 6, 2020 and March 1, 2021, and seeks monetary damages on behalf of the purported class.
The second action is styled Kumar v. 3D Systems Corporation, et al., No. 1:21-cv-02383-ENV-LB (E.D.N.Y.). The complaint, which was filed on April 29, 2021, alleges that defendants violated the Exchange Act and SEC Rule 10b-5 promulgated thereunder by making false and misleading statements and omissions, and that the current and former executive officers named as defendants are control persons under Section 20(a) of the Exchange Act. The complaint was filed on behalf of stockholders who purchased shares of the Company’s common stock between May 7, 2020 and March 1, 2021, and seeks monetary damages on behalf of the purported class.
The Company believes the claims alleged in the putative securities class actions are without merit and the Company intends to defend itself and its current and former officers vigorously.
Other
We are involved in various other legal matters incidental to our business. Although we cannot predict the results of the litigation with certainty, we believe that the disposition of all these various other legal matters will not have a material adverse effect, individually or in the aggregate, on our consolidated results of operations, consolidated cash flows or consolidated financial position.
(15) Restructuring and Exit Activity Costs
On August 5, 2020, we announced, in connection with the new strategic focus and organizational realignment, a restructuring plan intended to align our operating costs with current revenue levels and better position the Company for future sustainable and profitable growth. The restructuring plan included a reduction of nearly 20% of our workforce, with the majority of the workforce reduction completed by December 31, 2020. We expect that the restructuring plan, in conjunction with other cost reduction measures, will reduce our annualized costs by approximately $80,000 by the end of December 31, 2021, with additional savings of approximately $20,000 dependent on potential divestitures. Cost reduction efforts include reducing the number of facilities and examining every aspect of our manufacturing and operating costs. We incurred cash charges for severance, facility closing and other costs, primarily in the second half of 2020 and expect to incur additional charges in 2021 as we finalize all the actions to be taken. Total severance charges expected to be incurred are $5,700 lower than as reported at year end due to revised estimates. Non-cash charges related to these actions are expected to be $6,400 and are included in facility closing costs. We are also evaluating the divestiture of parts of the business that do not align with this strategic focus. See Note 2.
In connection with the restructuring plan, we recorded pre-tax costs during the three months ended March 31, 2021, included within Selling, general and administrative in the condensed consolidated income statement, and expect to incur total costs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Total Costs Expected to be Incurred
|
|
Costs Incurred during 2020
|
|
Costs Incurred during the three months ended March 31, 2021
|
|
Total Costs Incurred
|
Severance, termination benefits and other employee costs
|
$
|
15,600
|
|
|
$
|
12,914
|
|
|
$
|
731
|
|
|
$
|
13,645
|
|
Facility closing costs
|
9,800
|
|
|
6,470
|
|
|
365
|
|
|
6,835
|
|
Other costs
|
2,300
|
|
|
668
|
|
|
(68)
|
|
|
600
|
|
Total
|
$
|
27,700
|
|
|
$
|
20,052
|
|
|
$
|
1,028
|
|
|
$
|
21,080
|
|
The liabilities at March 31, 2021 related to these costs were principally recorded in accrued expenses in the condensed consolidated balance sheets and were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Liability at December 31, 2020
|
|
Costs Incurred during 2021
|
|
Costs Paid During 2021
|
|
Non-cash adjustments
|
|
Liability at March 31, 2021
|
Severance, termination benefits and other employee costs
|
$
|
7,173
|
|
|
$
|
731
|
|
|
$
|
(5,895)
|
|
|
$
|
—
|
|
|
$
|
2,009
|
|
Facility closing costs
|
—
|
|
|
365
|
|
|
(365)
|
|
|
—
|
|
|
—
|
|
Other costs
|
—
|
|
|
(68)
|
|
|
(58)
|
|
|
126
|
|
|
—
|
|
Total
|
$
|
7,173
|
|
|
$
|
1,028
|
|
|
$
|
(6,318)
|
|
|
$
|
126
|
|
|
$
|
2,009
|
|
(16) Subsequent Events
We have evaluated subsequent events through the date these financial statements were issued and determined there were no events, other than as described in Note 14, that required disclosure or recognition in these financial statements.
On May 6, 2021, we purchased Allevi, Inc. to expand regenerative medicine initiatives into medical and pharmaceutical research and development laboratories. Additionally, on May 6, 2021, we announced the acquisition of a German software firm, Additive Works GmbH to expand simulation capabilities for rapid optimization of industrial-scale 3D printing processes, expected to close during the second quarter of 2021.