[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) The Q1 2022 financial statements report a net loss of $26.8 million, a significant downturn from prior-year net income, driven by a 9.0% revenue decrease to $133.0 million and negative operating cash flow [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2022, total assets slightly decreased to $1.51 billion, marked by a significant shift from cash ($789.7 million to $389.3 million) to $356.3 million in short-term investments, while total liabilities decreased to $679.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $389,270 | $789,657 | | Short-term investments | $356,340 | $— | | Total current assets | $987,728 | $1,031,737 | | Goodwill | $340,695 | $345,588 | | **Total assets** | **$1,506,563** | **$1,549,099** | | **Liabilities & Equity** | | | | Total current liabilities | $150,238 | $178,012 | | Long-term debt, net | $447,534 | $446,859 | | **Total liabilities** | **$679,687** | **$706,718** | | **Total stockholders' equity** | **$826,876** | **$842,381** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2022 saw a net loss of $26.8 million ($0.21 per diluted share) compared to $45.2 million net income in Q1 2021, driven by a 9.0% revenue decrease to $133.0 million and a 16.4% increase in operating expenses to $77.0 million, resulting in an operating loss of $23.2 million Q1 2022 vs. Q1 2021 Statement of Operations (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total revenue | $133,001 | $146,116 | | Gross profit | $53,795 | $64,240 | | Loss from operations | $(23,232) | $(1,959) | | Net (loss) income | $(26,799) | $45,228 | | Diluted net (loss) income per share | $(0.21) | $0.36 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2022 operating activities used $15.1 million cash, a reversal from Q1 2021's $28.5 million inflow, while investing activities used $373.2 million for short-term investments, leading to a net cash decrease of $400.4 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(15,125) | $28,453 | | Net cash (used in) provided by investing activities | $(373,209) | $50,563 | | Net cash used in financing activities | $(12,518) | $(28,337) | | **Net (decrease) increase in cash** | **$(400,388)** | **$48,245** | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide context for financial statements, detailing accounting policies, segment reporting changes to Healthcare and Industrial, impacts of acquisitions and dispositions, revenue recognition, segment performance, $460 million convertible notes, and significant legal contingencies - The company's business is being negatively impacted by inflationary pressures, supply chain constraints, and economic disruption from the COVID-19 pandemic and the conflict in Ukraine[24](index=24&type=chunk) - Effective January 1, 2021, the company realigned its reporting structure into two segments: Healthcare and Industrial[28](index=28&type=chunk) - In Q1 2021, the company completed the sale of Cimatron for approximately **$64.2 million**, recording a gain of **$32.0 million**[37](index=37&type=chunk) - As of March 31, 2022, the company had **$154.3 million** in outstanding performance obligations, with **88%** expected to be recognized as revenue within the next twelve months[52](index=52&type=chunk) Segment Performance - Q1 2022 vs Q1 2021 (in thousands) | Segment | Revenue (2022) | Revenue (2021) | Segment Operating Income (2022) | Segment Operating Income (2021) | | :--- | :--- | :--- | :--- | :--- | | Healthcare | $64,345 | $72,521 | $7,703 | $19,793 | | Industrial | $68,656 | $73,595 | $6,286 | $12,622 | | **Total** | **$133,001** | **$146,116** | **$13,989** | **$32,415** | - In November 2021, the company issued **$460 million** in 0% Convertible Senior Notes due 2026, with net proceeds of **$446.5 million**[91](index=91&type=chunk) - The company is subject to an ongoing government investigation into possible violations of U.S. export control laws and is also defending against a shareholder class action lawsuit and related derivative suits[113](index=113&type=chunk)[117](index=117&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the company's strategic focus on Healthcare and Industrial verticals, noting the completion of its divestiture program, which led to a 9.0% YoY revenue decline in Q1 2022, while gross margin contracted to 40.4% and operating expenses rose 16.4%, maintaining a strong liquidity position with $389.6 million cash and $356.3 million short-term investments [Business Overview and Strategy](index=31&type=section&id=Business%20Overview%20and%20Strategy) The company's four-phased strategy, initiated in May 2020, focuses on reorganizing into Healthcare and Industrial verticals, restructuring, divesting non-core assets, and investing for growth, with the divestiture phase now complete and recent acquisitions of Oqton and Volumetric driving strategic growth - The company's strategic plan involves four phases: reorganize, restructure, divest non-core assets, and invest for future growth[137](index=137&type=chunk) - Divestitures of non-core assets, including Cimatron, Simbionix, and the On Demand Manufacturing (ODM) business, are now complete[140](index=140&type=chunk) - Recent acquisitions to drive growth include Oqton (cloud-based Manufacturing Operating System) and Volumetric (bioprinting and regenerative medicine)[142](index=142&type=chunk)[143](index=143&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Q1 2022 revenue decreased 9.0% to $133.0 million due to divestitures, partially offset by volume increases, while gross profit margin declined to 40.4% and operating expenses rose, resulting in a $23.2 million operating loss Revenue Change Analysis - Q1 2022 vs Q1 2021 (in thousands) | Driver | Products Change | Services Change | Total Change | | :--- | :--- | :--- | :--- | | Volume | $22,241 | $(2,118) | $20,123 | | Divestitures | $(8,300) | $(16,903) | $(25,203) | | Price/Mix | $(4,280) | $— | $(4,280) | | Foreign currency | $(2,758) | $(997) | $(3,755) | | **Net change** | **$6,903** | **$(20,018)** | **$(13,115)** | Gross Profit Margin Analysis - Q1 2022 vs Q1 2021 | Category | Gross Profit Margin 2022 | Gross Profit Margin 2021 | Change (Percentage Points) | | :--- | :--- | :--- | :--- | | Products | 41.8% | 43.0% | (1.2) | | Services | 36.1% | 45.7% | (9.6) | | **Total** | **40.4%** | **44.0%** | **(3.6)** | - Operating expenses increased by **$10.8 million** (16.4%) YoY, primarily due to spending to support future growth, expenses from acquired companies (including **$4.0 million** of Volumetric contingent consideration), and higher bad debt expense[149](index=149&type=chunk)[165](index=165&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong Q1 2022 liquidity with **$389.6 million** cash and **$356.3 million** short-term investments, despite operating cash flow being a **$15.1 million** use, with material cash requirements including **$460 million** convertible notes and lease obligations Cash Flow Summary - Q1 2022 vs Q1 2021 (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Operating Activities | $(15,125) | $28,453 | | Investing Activities | $(373,209) | $50,563 | | Financing Activities | $(12,518) | $(28,337) | - As of March 31, 2022, the company had **$389.6 million** in cash and cash equivalents and **$356.3 million** in short-term investments[179](index=179&type=chunk) - Material cash requirements include the **$460 million** convertible notes due 2026, purchase commitments, and **$67.0 million** in operating and financing lease obligations[181](index=181&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company reports no material changes to its market risk disclosures compared to the Annual Report on Form 10-K for the year ended December 31, 2021 - There were no material changes or developments during the first three months of 2022 that would materially alter the market risk assessment performed as of December 31, 2021[192](index=192&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were ineffective as of March 31, 2022, due to material weaknesses in internal control over financial reporting related to non-standard contracts, financial closing, and income tax provision, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to material weaknesses in internal control over financial reporting[193](index=193&type=chunk) - The material weaknesses relate to controls in three main areas: - Certain non-standard contracts and contract terms - Review of internally prepared reports used in the financial closing process - Calculation of the provision for income taxes, especially for material non-routine transactions[194](index=194&type=chunk) - A remediation plan is in progress, which includes hiring additional staff, redesigning controls, implementing or enhancing software, and establishing a formal controls governance committee[196](index=196&type=chunk)[197](index=197&type=chunk)[199](index=199&type=chunk) [PART II — OTHER INFORMATION](index=42&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings.) This section refers to Note 14 of the financial statements for detailed information on the company's legal matters, including an ongoing government investigation into export controls and shareholder lawsuits - Information regarding legal proceedings is incorporated by reference from Note 14 – Commitments and Contingencies to the Financial Statements[189](index=189&type=chunk) [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors.) The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There are no material changes to the risk factors previously disclosed in the 2021 Form 10-K[190](index=190&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company reported no unregistered equity sales but repurchased **514,276** shares at a weighted average price of **$16.91** per share, primarily for employee tax withholding related to restricted stock vesting - No unregistered securities were issued during the quarter[190](index=190&type=chunk) Issuer Purchases of Equity Securities - Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 71,754 | $20.46 | | Feb 2022 | 64,635 | $19.36 | | Mar 2022 | 377,887 | $15.81 | | **Total** | **514,276** | **$16.91** | - The shares purchased were surrendered by employees to cover tax withholding obligations from the vesting of restricted stock[191](index=191&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, convertible notes indenture, and CEO/CFO certifications required by Sarbanes-Oxley Act - The report includes a list of filed exhibits, such as corporate governance documents, the indenture for the 0% Convertible Notes due 2026, and officer certifications required under Sarbanes-Oxley Sections 302 and 906[203](index=203&type=chunk)

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