3D Systems(DDD) - 2022 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides comprehensive financial information, including statements, notes, and management's discussion and analysis Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements of 3D Systems Corporation, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items for the periods ended September 30, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, at specific reporting dates Condensed Consolidated Balance Sheets (In thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------------- | :------------------ | | ASSETS | | | | Cash and cash equivalents | $341,297 | $789,657 | | Short-term investments | $268,097 | — | | Accounts receivable, net | $100,310 | $106,540 | | Inventories | $125,962 | $92,887 | | Total current assets | $865,265 | $1,031,737 | | Total assets | $1,431,370 | $1,549,099 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $152,373 | $178,012 | | Long-term debt, net | $448,852 | $446,859 | | Total liabilities | $695,460 | $706,718 | | Total stockholders' equity | $734,256 | $842,381 | | Total liabilities, redeemable non-controlling interest and stockholders' equity | $1,431,370 | $1,549,099 | - Total assets decreased from $1,549.1 million at December 31, 2021, to $1,431.4 million at September 30, 2022, a reduction of $117.7 million[9] - Cash and cash equivalents significantly decreased from $789.7 million to $341.3 million, while short-term investments increased from $0 to $268.1 million[9] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $132,253 | $156,096 | $405,299 | $464,769 | | Total cost of sales | $79,583 | $91,781 | $245,696 | $267,209 | | Gross profit | $52,670 | $64,315 | $159,603 | $197,560 | | Total operating expenses | $86,375 | $81,523 | $248,578 | $226,787 | | Loss from operations | $(33,705) | $(17,208) | $(88,975) | $(29,227) | | Net (loss) income attributable to 3D Systems Corporation | $(37,398) | $292,656 | $(97,158) | $328,252 | | Net (loss) income per common share: Basic | $(0.30) | $2.39 | $(0.77) | $2.69 | | Net (loss) income per common share: Diluted | $(0.30) | $2.34 | $(0.77) | $2.63 | - For the three months ended September 30, 2022, total revenue decreased by 15.3% YoY, and the company reported a net loss of $37.4 million, a significant decline from a net income of $292.7 million in the prior year period[12] - For the nine months ended September 30, 2022, total revenue decreased by 12.8% YoY, and the company reported a net loss of $97.2 million, compared to a net income of $328.3 million in the prior year period[12] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents net income or loss alongside other comprehensive income or loss components for the reporting periods Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) income | $(37,545) | $292,656 | $(97,342) | $328,252 | | Total other comprehensive (loss) income, net of taxes | $(19,609) | $(12,721) | $(43,098) | $(27,534) | | Total comprehensive (loss) income, net of taxes | $(57,154) | $279,935 | $(140,440) | $300,718 | | Total comprehensive (loss) income attributable to 3D Systems Corporation | $(57,301) | $279,935 | $(140,624) | $300,718 | - Total comprehensive loss attributable to 3D Systems Corporation for the three months ended September 30, 2022, was $(57.3 million), a significant decrease from comprehensive income of $279.9 million in the prior year[14] - Foreign currency translation adjustments contributed significantly to other comprehensive loss, with $(22.1 million) for the three months and $(41.9 million) for the nine months ended September 30, 2022[14] Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------------------------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(52,449) | $62,652 | | Net cash (used in) provided by investing activities | $(374,116) | $399,641 | | Net cash used in financing activities | $(12,981) | $(36,202) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(447,457) | $418,354 | | Cash, cash equivalents and restricted cash at the end of the period | $342,513 | $503,065 | - The company experienced a significant shift from cash provided by operating activities ($62.7 million) in 9M 2021 to cash used in operating activities ($(52.4 million)) in 9M 2022[16] - Investing activities shifted from providing $399.6 million in 9M 2021 (due to divestitures) to using $(374.1 million) in 9M 2022, primarily due to purchases of short-term investments and acquisitions[16] Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in the company's equity components, including capital and accumulated deficit, over time Condensed Consolidated Statements of Stockholders' Equity (in thousands) | (in thousands) | September 30, 2022 | September 30, 2021 | | :------------------------------------------------------------------------------------------------ | :------------------- | :------------------- | | Total Stockholders' Equity | $734,256 | $749,150 | | Accumulated Deficit | $(718,409) | $(615,051) | | Additional Paid-In Capital | $1,533,339 | $1,410,576 | | Common Shares Outstanding | 130,419 | 126,796 | - Total stockholders' equity decreased from $842.4 million at December 31, 2021, to $734.3 million at September 30, 2022, primarily due to net loss and accumulated other comprehensive loss[22] - The accumulated deficit increased significantly from $(621.3 million) at December 31, 2021, to $(718.4 million) at September 30, 2022, reflecting the net losses incurred[22] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and financial statement items (1) Basis of Presentation This note describes the preparation of financial statements, accounting principles, and segment reporting structure - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim reports, and should be read with the 2021 Form 10-K[26] - The COVID-19 pandemic, inflation, weak economic conditions, and the Russia-Ukraine conflict continue to adversely impact production and distribution costs, supply chains, and global economy, making longer-term impacts uncertain[28][30] - Effective January 1, 2021, the Company changed its reportable segments to Healthcare and Industrial, reflecting how the chief operating decision maker assesses financial performance[31] (2) Divestitures and Acquisitions This note details the company's strategic divestitures of non-core businesses and acquisitions of new entities - In 2021, the Company completed divestitures of non-core businesses: On Demand Manufacturing (ODM) for $82 million, Simbionix for $305 million, and Cimatron for $64.173 million, generating significant gains[42][43][44] - In April 2022, 3D Systems acquired 93.75% of Kumovis GmbH for $37.726 million cash, integrating PEEK material technology into its Healthcare segment[45] - Also in April 2022, the Company acquired 100% of Titan Additive LLC for $39.040 million cash, expanding its Industrial segment with pellet-based extrusion platforms[52] - In March 2022, 3D Systems invested $10 million for a 26.6% ownership in Enhatch Inc., developer of the Intelligent Surgery Ecosystem, but recorded a $2.77 million impairment charge on this investment due to lower-than-projected revenues and regulatory delays[58][61] - Other acquisitions include Oqton (November 2021, $187.775 million) for cloud-based MOS platform, Volumetric Biotechnologies (December 2021, $40.173 million plus potential earnouts) for bioprinting and regenerative medicine, Allevi (May 2021) and Additive Works (June 2021)[62][68][74] (3) Revenue This note explains the company's revenue recognition policies and outstanding performance obligations - Revenue is recognized when control of products or services is transferred to customers, allocated based on relative stand-alone selling price (SSP) for multiple performance obligations[77][87] - As of September 30, 2022, outstanding performance obligations totaled $107.0 million, with approximately 90.6% of deferred revenue expected to be recognized within the next twelve months[76] - The Company recognized $28.850 million in revenue during the nine months ended September 30, 2022, related to contract liabilities at December 31, 2021[91] (4) Segment Information This note provides financial performance data for the company's Healthcare and Industrial reportable segments - Effective January 1, 2021, the Company operates under two reportable segments: Healthcare and Industrial, reflecting a reorganization to align with solution-oriented approaches and deep industry knowledge[92][94] Segment Information (in thousands) - Q3 2022 vs Q3 2021 | (in thousands) | Healthcare (Q3 2022) | Industrial (Q3 2022) | Consolidated (Q3 2022) | Healthcare (Q3 2021) | Industrial (Q3 2021) | Consolidated (Q3 2021) | | :----------------------- | :------------------- | :------------------- | :--------------------- | :------------------- | :------------------- | :--------------------- | | Revenue | $64,203 | $68,050 | $132,253 | $76,365 | $79,731 | $156,096 | | Gross profit | $24,656 | $28,014 | $52,670 | $31,630 | $32,685 | $64,315 | | Segment operating income | $6,505 | $6,572 | $13,077 | $9,054 | $13,198 | $22,252 | Segment Information (in thousands) - 9M 2022 vs 9M 2021 | (in thousands) | Healthcare (9M 2022) | Industrial (9M 2022) | Consolidated (9M 2022) | Healthcare (9M 2021) | Industrial (9M 2021) | Consolidated (9M 2021) | | :----------------------- | :------------------- | :------------------- | :--------------------- | :------------------- | :------------------- | :--------------------- | | Revenue | $200,295 | $205,004 | $405,299 | $231,712 | $233,057 | $464,769 | | Gross profit | $75,986 | $83,617 | $159,603 | $104,112 | $93,448 | $197,560 | | Segment operating income | $23,078 | $15,321 | $38,399 | $51,100 | $35,678 | $86,778 | (5) Leases This note outlines the company's lease agreements, right-of-use assets, and lease liabilities - The Company has various lease agreements for facilities, equipment, and vehicles with terms ranging from one to sixteen years[97] Lease Information (in thousands) | (in thousands) | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------- | :------------------ | | Right-of-use assets | $41,810 | $46,356 | | Current lease liabilities | $8,205 | $8,344 | | Long-term lease liabilities | $42,011 | $47,420 | | Operating cash outflow for operating leases (9M) | $7,677 | $6,938 | | Financing cash outflow for finance leases (9M) | $486 | $484 | - New lease agreements for corporate office expansion and a new building in Littleton, CO, with estimated base rent payments of $19.236 million and $14.233 million respectively, have not yet commenced[100] (6) Inventories This note details the composition of inventories and significant changes, including in-sourcing decisions Inventories (in thousands) | (in thousands) | September 30, 2022 | December 31, 2021 | | :------------------- | :------------------- | :------------------ | | Raw materials | $40,786 | $23,530 | | Work in process | $6,650 | $5,173 | | Finished goods and parts | $78,526 | $64,184 | | Inventories | $125,962 | $92,887 | | Inventory reserve | $16,153 | $16,509 | - Total inventories increased from $92.9 million at December 31, 2021, to $126.0 million at September 30, 2022, driven by increases across all components[103] - In the second quarter of 2022, the Company decided to in-source assembly and production, terminating a manufacturing services arrangement, which included a $1.670 million exit fee and a commitment to purchase $23.913 million of inventory[104] (7) Goodwill and Intangible Assets This note presents the carrying values and changes in goodwill and other intangible assets from acquisitions Goodwill and Intangible Assets (in thousands) | (in thousands) | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------- | :------------------ | | Net Goodwill | $357,545 | $345,588 | | Total intangible assets, net | $82,538 | $45,835 | | Acquired technology, net | $45,528 | $12,088 | | Trade names, net | $19,271 | $10,010 | - Goodwill increased from $345.6 million at December 31, 2021, to $357.5 million at September 30, 2022, primarily due to acquisitions[106] - Net intangible assets significantly increased from $45.8 million at December 31, 2021, to $82.5 million at September 30, 2022, largely driven by acquired technology and trade names from recent acquisitions[107] - Amortization expense for intangible assets increased to $10.273 million for the nine months ended September 30, 2022, from $7.619 million in the prior year period[107] (8) Accrued and Other Liabilities This note details the composition and changes in current accrued liabilities and other long-term liabilities Accrued and Other Liabilities (in thousands) | (in thousands) | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------- | :------------------ | | Current Accrued Liabilities | | | | Compensation and benefits | $19,454 | $39,846 | | Accrued taxes | $7,853 | $19,836 | | Legal contingencies | $11,355 | — | | Total current accrued liabilities | $56,016 | $76,994 | | Other Long-Term Liabilities | | | | Accrued earnout liability | $13,265 | $1,327 | | Legal contingencies (long-term) | $6,751 | — | | Total other long-term liabilities | $43,647 | $32,254 | - Current accrued liabilities decreased from $77.0 million at December 31, 2021, to $56.0 million at September 30, 2022, primarily due to lower compensation and benefits and accrued taxes[109] - Long-term liabilities increased from $32.3 million to $43.6 million, notably due to a significant rise in accrued earnout liability and the recognition of long-term legal contingencies[110] (9) Borrowings This note describes the company's outstanding convertible senior notes and their key terms - On November 16, 2021, the Company issued $460.0 million in 0% Convertible Senior Notes due November 15, 2026, with net proceeds of $446.519 million[112] - The Notes have an initial conversion rate of 27.8364 shares per $1 principal amount (approx. $35.92 per share) and are convertible under specific conditions[112] - The fair value of the Notes was $319.291 million at September 30, 2022, and the Company was in compliance with all covenants[112] (10) Hedging Activities and Financial Instruments This note outlines the company's use of derivative financial instruments and hedging strategies - The Company terminated its $50.0 million interest rate swap contract on January 4, 2021, resulting in a $721 thousand expense for the nine months ended September 30, 2021[116] - As of September 30, 2022, there were no derivatives designated as hedging instruments on the balance sheet[117] - The Company had $0 in notional foreign exchange contracts outstanding as of September 30, 2022, down from $43.0 million at December 31, 2021, with all gains and losses recognized in Interest and other income (expense), net[119] (11) Net Income (Loss) Per Share This note provides the calculation of basic and diluted net income or loss per common share Net Income (Loss) Per Share (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net (loss) income attributable to 3D Systems Corporation | $(37,398) | $292,656 | $(97,158) | $328,252 | | Net (loss) income per common share: Basic | $(0.30) | $2.39 | $(0.77) | $2.69 | | Net (loss) income per common share: Diluted | $(0.30) | $2.34 | $(0.77) | $2.63 | | Weighted average shares outstanding: Basic | 127,991 | 122,663 | 127,478 | 122,178 | | Weighted average shares outstanding: Diluted | 127,991 | 125,289 | 127,478 | 124,839 | - Net loss per common share (basic and diluted) was $(0.30) for the three months and $(0.77) for the nine months ended September 30, 2022, compared to net income per share in the prior year periods[121] - The dilutive impact of share awards and convertible notes were deemed anti-dilutive for the three and nine months ended September 30, 2022, due to the net loss and the average share price not exceeding the conversion price of $35.92[121][123] (12) Fair Value Measurements This note explains the categorization and valuation methods for financial instruments measured at fair value - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable and significant inputs)[125] Fair Value Measurements (in thousands) | (in thousands) | Fair Value Level | Fair Value (Sep 30, 2022) | | :--------------------------- | :--------------- | :------------------------ | | Money market funds | Level 1 | $157,186 | | Certificates of deposit | Level 2 | $990 | | Commercial paper | Level 2 | $5,987 | | Short-term bond mutual funds | Level 2 | $99,842 | | Corporate bonds | Level 2 | $161,278 | | Total | | $425,283 | - The Enhatch warrants, valued at $200 thousand as of September 30, 2022, are classified as Level 3 fair value measurements, determined using a Monte Carlo simulation[129] (13) Income Taxes This note details the company's effective tax rates and factors influencing income tax expense or benefit - The Company's effective tax rate was (0.9)% for the three months and (3.1)% for the nine months ended September 30, 2022, primarily due to a full valuation allowance in various jurisdictions[134] - For the three and nine months ended September 30, 2021, the effective tax rates were 2.0% and (0.9)%, respectively, influenced by liability reduction for uncertain tax positions and foreign rate differentials[134] (14) Commitments and Contingencies This note describes ongoing legal matters, regulatory compliance issues, and other significant commitments - The Company is involved in ongoing legal matters, including an export controls and government contracts compliance matter with BIS, DDTC, OFAC, and DOJ, for which it accrued $18.1 million in anticipation of penalties as of September 30, 2022[136][137][139][144] - Shareholder class action and derivative lawsuits are pending, alleging violations of the Securities Exchange Act and breach of fiduciary duty; the Company believes these claims are without merit and intends to defend itself vigorously[140][141][142] - The SEC is conducting a formal investigation related to the allegations in the Securities Class Action, and the Company is cooperating[140] (15) Restructuring and Exit Activity Costs This note details costs associated with restructuring initiatives and manufacturing services agreement termination - In June 2022, the Company initiated the termination of a manufacturing services agreement to in-source printer assembly, incurring a $1.670 million exit fee and committing to purchase $23.913 million of inventory[145] - The Company completed its initial restructuring efforts in Q2 2021, which included workforce reductions and facility closures, as part of a strategic plan to align operating costs with revenue[146] Restructuring and Exit Activity Costs (in thousands) | (in thousands) | Costs Incurred During 2020 | Costs Incurred During 9M Ended Sep 30, 2021 | Total Costs Incurred Through Sep 30, 2021 | | :--------------------------------------------------- | :------------------------- | :------------------------------------------ | :---------------------------------------- | | Severance, termination benefits and other employee costs | $12,914 | $660 | $13,574 | | Facility closing costs | $6,470 | $640 | $7,110 | | Other costs | $668 | $(179) | $489 | | Total | $20,052 | $1,121 | $21,173 | (16) Stock-Based Compensation This note outlines the company's stock-based compensation plans and related expenses Stock-Based Compensation Expense (in thousands) | (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $11,447 | $13,417 | $31,508 | $43,992 | - Stock-based compensation expense decreased to $11.447 million for the three months and $31.508 million for the nine months ended September 30, 2022, compared to prior year periods[151] - Unrecognized stock-based compensation expense was $57.360 million at September 30, 2022, expected to be recognized over a weighted average period of 2.8 years[153] (17) Redeemable Non-controlling Interest This note explains the accounting for the redeemable non-controlling interest arising from the Kumovis acquisition - A redeemable non-controlling interest (RNCI) of $1.559 million was recorded in connection with the Kumovis acquisition on April 1, 2022, representing minority shareholders' interest governed by a put/call option agreement[40][155] Redeemable Non-controlling Interest (in thousands) | (in thousands) | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------------------------------------------------------ | :----------------------------- | | Balance at January 1, 2022 | $— | | Fair value at the date of acquisition | $1,559 | | Net loss | $(184) | | Redemption value in excess of carrying value | $462 | | Translation adjustments | $(183) | | Balance at September 30, 2022 | $1,654 | - The RNCI is recorded at the greater of its redemption value or carrying value, with adjustments through additional paid-in capital or reduction of net income attributable to shareholders[155] (18) Accumulated Other Comprehensive Loss This note details the components and changes in accumulated other comprehensive loss, including currency adjustments Accumulated Other Comprehensive Loss (in thousands) | (in thousands) | Balance at Dec 31, 2021 | Other comprehensive income (loss) (9M 2022) | Amounts reclassified (9M 2022) | Balance at Sep 30, 2022 | | :------------------------------------------------------------------------------------------------ | :---------------------- | :------------------------------------------ | :----------------------------- | :---------------------- | | Foreign currency translation adjustment | $(35,497) | $(41,867) | — | $(77,364) | | Defined benefit pension plan | $(2,242) | $422 | — | $(1,820) | | Unrealized loss on short-term investments | — | $(4,055) | $2,402 | $(1,653) | | Total | $(37,706) | $(45,500) | $2,402 | $(80,804) | - Accumulated other comprehensive loss increased significantly from $(37.7 million) at December 31, 2021, to $(80.8 million) at September 30, 2022[161] - The primary driver of the increase in accumulated other comprehensive loss was foreign currency translation adjustments, which contributed $(41.867 million) to the loss during the nine months ended September 30, 2022[161] (19) Subsequent Events This note discloses significant events that occurred after the reporting period, such as the dp polar acquisition - On August 8, 2022, the Company announced an agreement to acquire dp polar GmbH for €30.0 million (€20.0 million cash, remainder in common stock), which closed on October 4, 2022[167] - dp polar specializes in high-speed mass production additive manufacturing systems with a patented continuous printing process[167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the Company's financial condition and results of operations, highlighting key business strategies, recent divestitures and acquisitions, the impact of the global economic environment, and detailed financial performance analysis for the three and nine months ended September 30, 2022, compared to the prior year Business Overview This section describes the company's core business, products, and services across its key industry verticals - 3D Systems Corporation provides comprehensive 3D printing and digital manufacturing solutions, including printers, materials, software, and digital design tools[170] - The Company serves two key industry verticals: Healthcare (dental, medical devices, personalized health services, regenerative medicine) and Industrial (aerospace, defense, transportation, general manufacturing)[170] Overview and Strategy This section outlines the company's strategic vision, phased plan, and ongoing efforts for efficiency and growth - The Company's strategic vision, led by CEO Dr. Jeffrey Graves, aims to be a leader in additive manufacturing solutions for high-reliability products in growing markets[171] - The four-phased strategic plan includes reorganizing into Healthcare and Industrial verticals, restructuring for efficiencies, divesting non-core assets, and investing for future growth[171] - Initial restructuring efforts were completed in Q2 2021, but cost management continues, including in-sourcing printer assembly and production in July 2022 to improve delivery and reduce costs[173] Divestitures This section details the company's completed divestitures of non-core assets and related financial impacts - The Company completed its planned divestitures of non-core assets in 2021, generating $421.5 million in net proceeds[175] - Divested businesses included Cimatron Ltd. (January 2021), Simbionix surgical simulators (August 2021), and On Demand Manufacturing (September 2021)[175] - In Q2 2022, the Company terminated a manufacturing services arrangement, incurring a $1.7 million exit fee and committing to purchase $23.9 million of inventory and $0.4 million of fixed assets[173] Acquisitions This section describes recent strategic acquisitions and investments aimed at expanding technology and market reach - In April 2022, 3D Systems acquired 93.75% of Kumovis GmbH for $37.7 million, integrating PEEK material technology into its Healthcare segment[176] - Also in April 2022, the Company acquired 100% of Titan Additive LLC for $39.0 million, expanding its Industrial segment with pellet-based extrusion platforms[177] - In March 2022, 3D Systems invested $10.0 million for a 26.6% ownership in Enhatch Inc., but recorded a $2.8 million impairment charge due to lower-than-projected revenues and regulatory delays[179][180] - Other key investments include Volumetric Biotechnologies (December 2021, $40.2 million plus earnouts) for bioprinting and regenerative medicine, and Oqton (November 2021, $187.8 million) for a cloud-based Manufacturing Operating System[182][183] COVID-19 Pandemic and Current Economic Environment This section discusses the ongoing impacts of global health crises and economic conditions on the company's operations - The COVID-19 pandemic, inflation, weak economic conditions, and the Russia-Ukraine conflict continue to disrupt global supply chains and increase production and distribution costs[185] - These factors have led to strained transportation capacity, labor shortages, and manufacturing backlogs, negatively impacting the global economy and the Company's business[185] - The Company is unable to predict the longer-term impact of these uncertain global health, economic, and geopolitical conditions on its business, results of operations, financial position, or cash flows[188] Background This section provides context on revenue generation, key drivers of change, and segment reporting - Revenue is generated from product sales (3D printers, materials, software) and services (maintenance, software subscriptions, healthcare services) across Healthcare and Industrial segments[189] - Revenue changes are primarily driven by divestitures, product mix and average selling prices, and fluctuations in foreign currencies, in addition to sales volumes[190] Three months ended September 30, 2022 compared to the three months ended September 30, 2021 This section analyzes the company's financial performance for the third quarter of 2022 compared to the prior year Segments income statement (Q3 2022 vs Q3 2021) This section compares segment-level revenue, gross profit, and operating income for the third quarters Segments income statement (in thousands) - Q3 2022 vs Q3 2021 | (in thousands) | Healthcare (Q3 2022) | Industrial (Q3 2022) | Consolidated (Q3 2022) | Healthcare (Q3 2021) | Industrial (Q3 2021) | Consolidated (Q3 2021) | | :----------------------- | :------------------- | :------------------- | :--------------------- | :------------------- | :------------------- | :--------------------- | | Revenue | $64,203 | $68,050 | $132,253 | $76,365 | $79,731 | $156,096 | | Gross profit | $24,656 | $28,014 | $52,670 | $31,630 | $32,685 | $64,315 | | Segment operating income | $6,505 | $6,572 | $13,077 | $9,054 | $13,198 | $22,252 | - Healthcare revenue decreased by $12.2 million (15.9%) YoY, primarily due to divestitures, negative foreign exchange impacts, and lower dental market sales volumes[203] - Industrial revenue decreased by $11.7 million (14.7%) YoY, mainly due to divestitures and negative foreign exchange, partially offset by higher sales volumes[204] Revenue (Q3 2022 vs Q3 2021) This section analyzes the drivers of consolidated revenue changes for the third quarter, including divestitures and foreign exchange Revenue (Dollars in thousands) - Q3 2022 vs Q3 2021 | (Dollars in thousands) | Products (Q3 2021) | Services (Q3 2021) | Total (Q3 2021) | | :------------------------------------ | :----------------- | :----------------- | :-------------- | | Revenue — third quarter 2021 | $108,884 | $47,212 | $156,096 | | Change in revenue: Volume | $(2,955) | $4,749 | $1,794 | | Change in revenue: Divestitures | $(5,354) | $(14,049) | $(19,403) | | Change in revenue: Price/Mix | $1,942 | — | $1,942 | | Change in revenue: Foreign currency translation | $(6,180) | $(1,996) | $(8,176) | | Net change | $(12,547) | $(11,296) | $(23,843) | | Revenue — third quarter 2022 | $96,337 | $35,916 | $132,253 | - Total consolidated revenue decreased by $23.8 million (15.3%) YoY, primarily driven by $19.4 million from divestitures and an $8.2 million negative impact from foreign exchange[193][210] - Products revenue decreased by $12.5 million (11.5%) and services revenue decreased by $11.3 million (23.9%) YoY[210] Gross profit and gross profit margins (Q3 2022 vs Q3 2021) This section compares gross profit and margins for products and services for the third quarter Gross profit and gross profit margins (Dollars in thousands) - Q3 2022 vs Q3 2021 | (Dollars in thousands) | Gross Profit (Q3 2022) | Gross Profit Margin (Q3 2022) | Gross Profit (Q3 2021) | Gross Profit Margin (Q3 2021) | Change in Gross Profit ($) | Change in Gross Profit (%) | Change in Gross Profit Margin (Percentage Points) | | :--------------------------- | :--------------------- | :---------------------------- | :--------------------- | :---------------------------- | :------------------------- | :------------------------- | :------------------------------------------------ | | Products | $38,295 | 39.8% | $44,632 | 41.0% | $(6,337) | (14.2)% | (1.2) | | Services | $14,375 | 40.0% | $19,683 | 41.7% | $(5,308) | (27.0)% | (1.7) | | Total | $52,670 | 39.8% | $64,315 | 41.2% | $(11,645) | (18.1)% | (1.4) | - Total gross profit decreased by $11.6 million (18.1%) YoY, with the gross profit margin declining from 41.2% to 39.8%[194][212] - The decrease in gross profit and margin was primarily due to $9.4 million from divestitures, cost inflation, supply chain pressures, and higher freight costs[194][212] Operating expenses (Q3 2022 vs Q3 2021) This section analyzes changes in selling, general, administrative, and research and development expenses for the third quarter Operating expenses (Dollars in thousands) - Q3 2022 vs Q3 2021 | (Dollars in thousands) | Amount (Q3 2022) | % Revenue (Q3 2022) | Amount (Q3 2021) | % Revenue (Q3 2021) | Change ($) | Change (%) | | :--------------------------------------- | :--------------- | :------------------ | :--------------- | :------------------ | :--------- | :--------- | | Selling, general and administrative expenses | $65,579 | 49.6% | $65,737 | 42.1% | $(158) | (0.2)% | | Research and development expenses | $20,796 | 15.7% | $15,786 | 10.1% | $5,010 | 31.7% | | Total operating expenses | $86,375 | 65.3% | $81,523 | 52.2% | $4,852 | 6.0% | - Total operating expenses increased by $4.9 million (6.0%) YoY to $86.4 million[195][214] - R&D expenses increased by $5.0 million (31.7%) due to acquisitions ($4.6 million) and growth initiatives, partly offset by the absence of divested businesses[195][215] - SG&A expenses remained flat, with lower incentive compensation ($13.4 million) and divestiture-related decreases ($3.3 million) offset by increases in legal contingencies ($9.0 million) and acquisition-related expenses ($4.4 million)[195][215] Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 This section analyzes the company's financial performance for the nine months ended September 30, 2022, compared to the prior year Segments income statement (9M 2022 vs 9M 2021) This section compares segment-level revenue, gross profit, and operating income for the nine-month periods Segments income statement (in thousands) - 9M 2022 vs 9M 2021 | (in thousands) | Healthcare (9M 2022) | Industrial (9M 2022) | Consolidated (9M 2022) | Healthcare (9M 2021) | Industrial (9M 2021) | Consolidated (9M 2021) | | :----------------------- | :------------------- | :------------------- | :--------------------- | :------------------- | :------------------- | :--------------------- | | Revenue | $200,295 | $205,004 | $405,299 | $231,712 | $233,057 | $464,769 | | Gross profit | $75,986 | $83,617 | $159,603 | $104,112 | $93,448 | $197,560 | | Segment operating income | $23,078 | $15,321 | $38,399 | $51,100 | $35,678 | $86,778 | - Healthcare revenue decreased by $31.4 million (13.6%) YoY, primarily due to divestitures ($26.6 million), negative foreign exchange, and lower dental market sales[217] - Industrial revenue decreased by $28.1 million (12.0%) YoY, mainly due to divestitures and negative foreign exchange, partially offset by higher sales volumes[219] Revenue (9M 2022 vs 9M 2021) This section analyzes the drivers of consolidated revenue changes for the nine-month period, including divestitures and foreign exchange Revenue (Dollars in thousands) - 9M 2022 vs 9M 2021 | (Dollars in thousands) | Products (9M 2021) | Services (9M 2021) | Total (9M 2021) | | :------------------------------------ | :----------------- | :----------------- | :-------------- | | Revenue — nine months 2021 | $311,170 | $153,599 | $464,769 | | Change in revenue: Volume | $25,282 | $4,338 | $29,620 | | Change in revenue: Divestitures | $(22,965) | $(48,707) | $(71,672) | | Change in revenue: Price/Mix | $113 | — | $113 | | Change in revenue: Foreign currency translation | $(12,938) | $(4,593) | $(17,531) | | Net change | $(10,508) | $(48,962) | $(59,470) | | Revenue — nine months 2022 | $300,662 | $104,637 | $405,299 | - Total consolidated revenue decreased by $59.5 million (12.8%) YoY, primarily due to $71.7 million from divestitures and a $17.5 million negative impact from foreign exchange, partly offset by a $29.6 million increase from higher sales volumes[197][223] - Products revenue decreased by $10.5 million (3.4%) and services revenue decreased by $49.0 million (31.9%) YoY[223] Gross profit and gross profit margins (9M 2022 vs 9M 2021) This section compares gross profit and margins for products and services for the nine-month periods Gross profit and gross profit margins (Dollars in thousands) - 9M 2022 vs 9M 2021 | (Dollars in thousands) | Gross Profit (9M 2022) | Gross Profit Margin (9M 2022) | Gross Profit (9M 2021) | Gross Profit Margin (9M 2021) | Change in Gross Profit ($) | Change in Gross Profit (%) | Change in Gross Profit Margin (Percentage Points) | | :--------------------------- | :--------------------- | :---------------------------- | :--------------------- | :---------------------------- | :------------------------- | :------------------------- | :------------------------------------------------ | | Products | $118,817 | 39.5% | $130,919 | 42.1% | $(12,102) | (9.2)% | (2.6) | | Services | $40,786 | 39.0% | $66,641 | 43.4% | $(25,855) | (38.8)% | (4.4) | | Total | $159,603 | 39.4% | $197,560 | 42.5% | $(37,957) | (19.2)% | (3.1) | - Total gross profit decreased by $38.0 million (19.2%) YoY, with the gross profit margin declining from 42.5% to 39.4%[198][226] - The decrease was primarily due to $33.5 million from divestitures, cost inflation, supply chain pressures, and higher freight costs[198][226] Operating expenses (9M 2022 vs 9M 2021) This section analyzes changes in selling, general, administrative, and research and development expenses for the nine-month periods Operating expenses (Dollars in thousands) - 9M 2022 vs 9M 2021 | (Dollars in thousands) | Amount (9M 2022) | % Revenue (9M 2022) | Amount (9M 2021) | % Revenue (9M 2021) | Change ($) | Change (%) | | :--------------------------------------- | :--------------- | :------------------ | :--------------- | :------------------ | :--------- | :--------- | | Selling, general and administrative expenses | $185,398 | 45.7% | $176,800 | 38.0% | $8,598 | 4.9% | | Research and development expenses | $63,180 | 15.6% | $49,987 | 10.8% | $13,193 | 26.4% | | Total operating expenses | $248,578 | 61.3% | $226,787 | 48.8% | $21,791 | 9.6% | - Total operating expenses increased by $21.8 million (9.6%) YoY to $248.6 million[199][228] - SG&A expenses increased by $8.6 million (4.9%), driven by legal contingencies ($19.2 million), acquired companies ($11.1 million), and Volumetric contingent consideration ($12.0 million), partly offset by lower incentive compensation ($28.6 million) and absence of divested businesses ($12.0 million)[199][228] - R&D expenses increased by $13.2 million (26.4%) due to acquisitions ($14.0 million) and growth initiatives, partly offset by the absence of divested businesses ($5.3 million)[199][229] Loss from operations (Consolidated) This section analyzes the consolidated operating loss and its drivers for the three and nine-month periods Loss from operations (Dollars in thousands) | (Dollars in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Loss from operations | $(33,705) | $(17,208) | $(16,497) | 95.9% | | (Dollars in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | Change (%) | | Loss from operations | $(88,975) | $(29,227) | $(59,748) | 204.4% | - Operating loss for the three months ended September 30, 2022, increased by $16.5 million (95.9%) to $(33.7 million) YoY[196][232] - Operating loss for the nine months ended September 30, 2022, increased by $59.7 million (204.4%) to $(89.0 million) YoY, driven by lower revenue, lower gross profit, and higher operating expenses[201][232] Interest and other income (expense), net This section details changes in interest and other income or expense, including foreign exchange and divestiture gains Interest and other income (expense), net (Dollars in thousands) | (Dollars in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | | :--------------------------------------- | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Foreign exchange (loss) gain, net | $(764) | $222 | $(986) | $(4,193) | $2,279 | $(6,472) | | Interest income (expense), net | $2,029 | $19 | $2,010 | $4,019 | $(1,230) | $5,249 | | Other income (expense), net | $(4,767) | $315,618 | $(320,385) | $(5,282) | $353,347 | $(358,629) | | Total interest and other income (expense), net | $(3,502) | $315,859 | $(319,361) | $(5,456) | $354,396 | $(359,852) | - Total interest and other income (expense), net, significantly decreased from $315.9 million income in Q3 2021 to a $(3.5 million) expense in Q3 2022, and from $354.4 million income in 9M 2021 to a $(5.5 million) expense in 9M 2022[236] - The decrease was primarily due to the absence of large gains on divestitures (ODM, Simbionix, Cimatron) recognized in 2021, and a $2.8 million impairment loss on the Enhatch investment in Q3 2022[237] Net income (loss) This section analyzes the company's net income or loss and earnings per share for the reporting periods Net income (loss) (Dollars in thousands, except per share amounts) | (Dollars in thousands, except per share amounts) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | | :----------------------------------------------- | :------------------------------ | :------------------------------ | :--------- | | Net (loss) income attributable to 3D Systems Corporation | $(37,398) | $292,656 | $(330,054) | | Net (loss) income per share - basic and diluted | $(0.30) | $2.39 | $(2.69) | | (Dollars in thousands, except per share amounts) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | | Net (loss) income attributable to 3D Systems Corporation | $(97,158) | $328,252 | $(425,410) | | Net (loss) income per share - basic and diluted | $(0.77) | $2.69 | $(3.46) | - Net loss attributable to 3D Systems Corporation was $(37.4 million) for Q3 2022 and $(97.2 million) for 9M 2022, a significant decline from net income of $292.7 million and $328.3 million in the comparable 2021 periods, respectively[238][240] - The shift to net loss was driven by lower revenue, reduced gross profit, increased operating expenses, and a substantial decrease in interest and other income (expense), net, primarily due to the absence of large divestiture gains from 2021[238][240] Liquidity and Capital Resources This section discusses the company's cash position, capital structure, and ability to meet financial obligations Cash Flow This section analyzes cash flows from operating, investing, and financing activities for the nine-month periods Cash Flow (in thousands) | (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Dollar Change | | :--------------------------------------- | :----------------------------- | :----------------------------- | :------------ | | Cash flow (used in)/provided by operating activities | $(52,449) | $62,652 | $(115,101) | | Cash flow (used in)/provided by investing activities | $(374,116) | $399,641 | $(773,757) | | Cash flow (used in) financing activities | $(12,981) | $(36,202) | $23,221 | - Cash flow from operating activities shifted from a $62.7 million inflow in 9M 2021 to a $52.4 million outflow in 9M 2022, primarily due to higher net losses and unfavorable working capital changes[244] - Cash flow from investing activities shifted from a $399.6 million inflow in 9M 2021 (divestitures) to a $374.1 million outflow in 9M 2022, mainly due to net investments in short-term investments ($272.4 million) and acquisitions ($84.7 million)[245] - Cash used in financing activities decreased from $36.2 million in 9M 2021 to $13.0 million in 9M 2022, with primary outflows for equity award tax settlements and non-controlling interest acquisitions[246] Cash and Cash Equivalents and Short-Term Investments This section details the company's cash, cash equivalents, and short-term investment balances and changes - Total cash, cash equivalents, and short-term investments decreased from $789.7 million at December 31, 2021, to $609.4 million at September 30, 2022[247] - The decrease was primarily due to payments for acquisitions ($84.7 million), net cash used in operations ($52.4 million), capital expenditures ($17.1 million), and equity award settlements ($10.2 million)[247] - Cash held outside the U.S. was $80.0 million (23.5% of total cash and cash equivalents) at September 30, 2022[247] Material Cash Requirements This section outlines significant future cash obligations, including convertible notes and lease liabilities - The Company has $460.0 million in outstanding 0% convertible notes due November 2026[248] - Operating and financing lease obligations totaled $50.2 million at September 30, 2022, with $2.9 million expected in payments over the remainder of 2022[249] - An additional $33.5 million in lease obligations for uncommenced leases (facilities under construction) exists at September 30, 2022[249] Other Contractual Commitments This section describes additional contractual obligations, such as joint venture investments and indemnifications - The Company is committed to an initial investment of approximately $6.5 million for a joint venture in Saudi Arabia, with additional future investments contingent on milestone achievements[250] - The Company indemnifies customers or suppliers against intellectual property infringement claims and indemnifies directors and officers, with directors' and officers' insurance coverage in place[250][251] Recent Accounting Pronouncements This section discusses the impact of recently adopted accounting standards on the company's financial statements - The Company early adopted ASU 2021-08, 'Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,' in Q1 2022, which did not impact its financial results[41][252] Critical Accounting Policies and Significant Estimates This section highlights key accounting policies and estimates that require significant management judgment - No material changes to critical accounting policies and estimates were reported since the 2021 Form 10-K, other than the implementation of policies for Short-Term Investments and Redeemable Non-Controlling Interest[253] Forward-Looking Statements This section provides cautionary statements regarding forward-looking information and associated risks and uncertainties - The report contains forward-looking statements subject to known and unknown risks and uncertainties that may cause actual results to differ materially from expectations[255] - Key factors include impacts of COVID-19, macroeconomic events (Russia-Ukraine war, recession, inflation, foreign exchange volatility), ability to deliver products, integrate acquisitions, manage goodwill, protect IP, and remediate internal control weaknesses[256] - Readers are cautioned not to place undue reliance on these statements, and the Company undertakes no obligation to update them except as required by law[258] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section states that there were no material changes or developments in market risks during the first nine months of 2022 that would significantly alter the market risk assessment performed as of December 31, 2021 - No material changes to market risk assessment were identified during the first nine months of 2022 compared to December 31, 2021[259] Item 4. Controls and Procedures. This section details the evaluation of the Company's disclosure controls and procedures, concluding they were not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting. It also outlines the ongoing remediation plan to address these weaknesses Evaluation of disclosure controls and procedures This section assesses the effectiveness of the company's disclosure controls and procedures, identifying material weaknesses - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting[260] - Material weaknesses relate to controls over non-standard contracts, review of internally prepared financial reports, and calculation of income tax provision, including non-routine transactions[261] - These deficiencies were partly due to employee training gaps and untimely review of infrequent transactions[262] Remediation Plan This section outlines the company's ongoing actions to address identified material weaknesses in internal controls - The Company is executing additional remediation actions, including hiring staff with relevant expertise, redesigning ineffective controls, implementing/enhancing software for financial close and reporting, and establishing a formal controls governance committee[263][265] - Specific actions for the tax material weakness include retaining a consulting firm for tax accounting solutions, redesigning tax process controls, engaging a third party for tax calculation review, and recruiting experienced tax accounting personnel[265] - Previous remediation actions in 2021 and 2022 included hiring accounting personnel, enhancing the monthly close process, training staff, modifying software for contract terms, and designing/testing new controls[266] Changes in Internal Control over Financial Reporting This section reports on any material changes in internal control over financial reporting during the quarter - The Company is actively implementing changes to remediate identified material weaknesses, with material aspects of the remediation plan ongoing[268] - No other material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022, except for the ongoing remediation efforts[268] PART II — OTHER INFORMATION This section provides additional non-financial information, including legal proceedings, risk factors, and equity security details Item 1. Legal Proceedings. This section incorporates by reference the detailed information on legal proceedings, including export controls and government contracts compliance matters, and shareholder lawsuits, as discussed in Note 14 – Commitments and Contingencies to the Financial Statements - Information on legal proceedings, including export controls, government contracts compliance, and shareholder suits, is incorporated from Note 14 of the financial statements[269] Item 1A. Risk Factors. This section states that there are no material changes to the risk factors previously disclosed in the Company's 2021 Form 10-K and the Form 10-Q for the quarter ended June 30, 2022 - No material changes to previously disclosed risk factors were reported in this filing[271] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This section reports that there were no recent issuances of unregistered equity securities and details the Company's purchases of equity securities related to tax withholding obligations for restricted stock awards Recent Issuances of Unregistered Securities This section confirms no recent unregistered equity security issuances - No recent issuances of unregistered equity securities were reported[271] Issuer Purchases of Equity Securities This section details the company's purchases of its own equity securities, primarily for tax withholding Issuer Purchases of Equity Securities | Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | | :-------------------------------- | :------------------------------------------ | :------------------------------------- | | July 1, 2022 - July 31, 2022 | 1,434 | $9.76 | | August 1, 2022 - August 31, 2022 | 8,408 | $11.06 | | September 1, 2022 - September 30, 2022 | — | — | | Total | 9,842 | $10.19 | - The Company purchased 9,842 shares of common stock during the quarter ended September 30, 2022, at an average price of $10.19 per share[272] - These purchases reflect shares surrendered to the Company for payment of tax withholding obligations related to the vesting of restricted stock[272] Item 6. Exhibits. This section lists all supporting documents and certifications filed with the Form 10-Q - The exhibits include Certificate of Incorporation, Amended and Restated By-Laws, Indenture for 0% Convertible Senior Notes due 2026, and various certifications (302 and 906)[274] - XBRL (eXtensible Business Reporting Language) documents are also included for interactive data filing[274]