Desktop Metal(DM) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, and 2022 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $714,186 | $754,347 | | Total Current Assets | $316,163 | $336,416 | | Cash and cash equivalents | $101,252 | $76,291 | | Short-term investments | $48,554 | $108,243 | | Total Liabilities | $228,616 | $226,845 | | Total Current Liabilities | $83,462 | $83,387 | | Total Stockholders' Equity | $485,570 | $527,502 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $41,316 | $43,706 | | Total cost of sales | $42,680 | $45,034 | | Gross profit (loss) | $(1,364) | $(1,328) | | Total operating expenses | $50,953 | $68,151 | | Loss from operations | $(52,317) | $(69,479) | | Net loss | $(52,642) | $(69,944) | | Net loss per share—basic and diluted | $(0.16) | $(0.22) | | Weighted average shares outstanding, basic and diluted | 319,095,656 | 312,016,627 | Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(52,642) | $(69,944) | | Unrealized gain (loss) on available-for-sale marketable securities, net | $189 | $12 | | Foreign currency translation adjustment | $1,549 | $(11,047) | | Total comprehensive (loss) income, net of taxes of $0 | $(50,904) | $(80,979) | Condensed Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Balance—January 1 | $527,502 | $1,248,350 | | Exercise of Common Stock options | $597 | $900 | | Repurchase of shares for employee tax withholdings | $(99) | $(158) | | Stock-based compensation expense | $8,474 | $9,912 | | Net loss | $(52,642) | $(69,944) | | Other comprehensive income (loss) | $1,738 | $(11,035) | | Balance—March 31 | $485,570 | $1,178,025 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,346) | $(56,274) | | Net cash provided by investing activities | $61,427 | $94,534 | | Net cash provided by financing activities | $248 | $699 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | $217 | $(349) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $24,546 | $38,610 | | Cash, cash equivalents, and restricted cash at end of period | $106,459 | $106,868 | Notes to Condensed Consolidated Financial Statements 1. Organization, Nature of Business, and Risk and Uncertainties Details the company's focus on 3D printing solutions and confirms sufficient capital for the next twelve months - Desktop Metal, Inc. was founded in 2015 and focuses on accelerating manufacturing transformation with 3D printing solutions[16] - The company's long-term success depends on successfully marketing products, generating revenue, managing costs, meeting obligations, and obtaining additional capital[19] - Management believes existing cash and short-term investments as of March 31, 2023, will fund operations and capital expenditures for at least the next twelve months[19] 2. Summary of Significant Accounting Policies Financial statements are prepared under US GAAP, with no significant policy changes in Q1 2023 except for assets held for sale - Financial statements are prepared in conformity with US GAAP and SEC regulations, consolidating the Company and its wholly-owned subsidiaries[20][21] - No changes to significant accounting policies occurred during the first three months of fiscal year 2023, except for the policy on assets held for sale[22] - Assets held for sale are classified when specific criteria are met and are recorded at the lower of their carrying value or fair value less costs to sell[23] 3. Revenue Recognition Deferred revenue increased to $18.6 million, with $14.6 million of performance obligations expected to be fulfilled within 12 months Deferred Revenue (in millions) | Date | Balance | | :--- | :--- | | March 31, 2023 | $18.6 | | December 31, 2022 | $17.4 | - During the three months ended March 31, 2023, the Company recognized $3.4 million of existing deferred revenue from 2022[24] - As of March 31, 2023, $14.6 million of remaining performance obligations are expected to be fulfilled over the next 12 months, and customer deposits totaled $12.3 million[26] 4. Cash Equivalents and Short-Term Investments Cash equivalents and short-term investments decreased to $91.8 million, with a $0.4 million unrealized loss on equity securities Cash Equivalents and Short-Term Investments (in thousands) | Category | March 31, 2023 Fair Value | December 31, 2022 Fair Value | | :--- | :--- | :--- | | Money market funds | $43,944 | $51,274 | | Commercial paper | $4,994 | $39,781 | | Corporate bonds | $18,140 | $28,814 | | U.S. Treasury securities | $9,900 | $19,818 | | Government bonds | $14,834 | $14,744 | | Asset-backed securities | — | $3,998 | | Total | $91,812 | $158,429 | - The Company recorded an unrealized loss of $0.4 million on equity securities due to changes in fair value during the three months ended March 31, 2023[28] 5. Fair Value Measurements Total assets measured at fair value were $94.5 million, while Level 3 contingent consideration liability decreased to $1.8 million Fair Value Hierarchy of Financial Assets (in thousands) | Category | March 31, 2023 Total | December 31, 2022 Total | | :--- | :--- | :--- | | Level 1 Assets | $44,630 | $52,362 | | Level 2 Assets | $47,868 | $107,145 | | Level 3 Assets | $2,000 | $2,000 | | Total Assets | $94,498 | $161,517 | | Level 3 Liabilities (Contingent consideration) | $1,754 | $2,587 | | Total Liabilities | $1,754 | $2,587 | - During the three months ended March 31, 2023, the Company paid $0.8 million of contingent consideration[35] - No transfers between fair value measure levels occurred during the three months ended March 31, 2023 and 2022[36] 6. Accounts Receivable Total accounts receivable decreased to $35.6 million, while the allowance for doubtful accounts increased to $1.8 million Accounts Receivable (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Trade receivables | $37,422 | $40,121 | | Allowance for doubtful accounts | $(1,819) | $(1,640) | | Total accounts receivable | $35,603 | $38,481 | Allowance for Doubtful Accounts Activity (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Balance at beginning of period | $1,640 | $665 | | Provision for uncollectible accounts, net of recoveries | $179 | $1,393 | | Uncollectible accounts written off | — | $(418) | | Balance at end of period | $1,819 | $1,640 | 7. Inventory Total inventory increased to $98.2 million, driven by a rise in raw materials and work in process Inventory Components (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Raw materials | $46,763 | $41,971 | | Work in process | $13,531 | $11,936 | | Finished goods | $37,927 | $37,829 | | Total inventory | $98,221 | $91,736 | 8. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased to $21.1 million, mainly due to higher prepaid operating expenses Prepaid Expenses and Other Current Assets (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Prepaid operating expenses | $9,060 | $5,705 | | Prepaid dues and subscriptions | $2,886 | $2,674 | | Prepaid insurance | $2,773 | $798 | | Prepaid taxes | $1,818 | $395 | | Total prepaid expenses and other current assets | $21,067 | $16,325 | 9. Assets Held for Sale Assets held for sale increased to $6.9 million following a plan to sell a facility in North Huntington, Pennsylvania - The Company approved plans to sell facilities in Troy, Michigan, and North Huntington, Pennsylvania, classifying them as assets held for sale[41] Assets Held for Sale (in thousands) | Date | Carrying Value | | :--- | :--- | | March 31, 2023 | $6,871 | | December 31, 2022 | $830 | - Subsequent to March 31, 2023, the Troy, Michigan facility was sold for $1.7 million[43] 10. Property and Equipment Net property and equipment decreased to $45.3 million, with a depreciation expense of $3.0 million for Q1 2023 Property and Equipment, Net (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Equipment | $45,312 | $48,632 | | Land and buildings | $9,414 | $15,893 | | Total property and equipment, net | $45,262 | $56,271 | Depreciation Expense (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2023 | $3,000 | | Three months ended March 31, 2022 | $3,100 | 11. Goodwill & Intangible Assets Goodwill increased slightly to $113.6 million, while net intangible assets decreased to $210.1 million Goodwill Activity (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Balance, beginning of year | $112,955 | $639,301 | | Foreign currency translation adjustment | $616 | $(26,940) | | Goodwill impairment | — | $(498,800) | | Balance, end of period | $113,571 | $112,955 | - No goodwill impairment was recorded for the three months ended March 31, 2023 and 2022[45] Intangible Assets, Net (in thousands) | Category | March 31, 2023 Net | December 31, 2022 Net | | :--- | :--- | :--- | | Acquired technology | $152,494 | $159,448 | | Trade name | $9,675 | $10,085 | | Customer relationships | $47,929 | $50,252 | | Capitalized software | $18 | $45 | | Total intangible assets | $210,117 | $219,830 | Amortization Expense (in thousands) | Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Acquired technology | $7,480 | $6,433 | | Trade name | $415 | $422 | | Customer relationships | $2,520 | $2,902 | | Capitalized software | $27 | $27 | | Total amortization expense | $10,442 | $9,784 | 12. Other Noncurrent Assets Other noncurrent assets increased to $28.5 million, primarily due to a rise in right-of-use assets Other Noncurrent Assets (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Right of use asset | $22,515 | $22,147 | | Other investments | $2,000 | $2,000 | | Long-term deposits | $491 | $573 | | Other | $3,455 | $3,043 | | Total other noncurrent assets | $28,461 | $27,763 | 13. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities increased to $28.0 million, driven by higher interest and compensation accruals Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Compensation and benefits related | $8,396 | $8,058 | | Warranty reserve | $4,385 | $4,301 | | Current portion of contingent consideration | $1,754 | $2,587 | | 2027 Notes Interest | $3,267 | $901 | | Total accrued expenses and other current liabilities | $28,026 | $26,723 | Warranty Reserve Activity (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Balance at beginning of period | $4,301 | $4,048 | | Additions to warranty reserve | $252 | $4,484 | | Claims fulfilled | $(172) | $(4,231) | | Balance at end of period | $4,385 | $4,301 | 14. Debt The company has $115.0 million in Convertible Senior Notes due 2027 with a net carrying value of $112.0 million - In May 2022, the Company issued $115.0 million principal amount of 6.0% Convertible Senior Notes due 2027[54] 2027 Convertible Notes Carrying Value (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Principal | $115,000 | $115,000 | | Net carrying value | $112,017 | $111,834 | Interest Expense for 2027 Notes (in thousands) | Metric | Three Months Ended March 31, 2023 | | :--- | :--- | | Coupon interest | $1,725 | | Amortization of debt discount | $144 | | Amortization of transaction costs | $39 | | Total interest expense | $1,908 | - As of March 31, 2023, $0.5 million of bank loans (acquired with A.I.D.R.O.) remain outstanding, with $0.3 million classified as current[61] 15. Other Noncurrent Liabilities Other noncurrent liabilities increased to $3.2 million from $1.4 million, primarily due to a rise in 'Other' liabilities Other Noncurrent Liabilities (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Taxes payable | $1,034 | $1,034 | | Other | $2,133 | $325 | | Total other noncurrent liabilities | $3,167 | $1,359 | 16. Leases The company reported $22.5 million in right-of-use assets and $23.8 million in lease liabilities as of March 31, 2023 Lease-Related Balances (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Right of use asset | $22,515 | $22,147 | | Lease liability | $23,800 | $23,600 | Total Lease Cost (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2023 | $1,613 | | Three months ended March 31, 2022 | $1,610 | Future Minimum Lease Payments (in thousands) | Year | Operating Leases | Finance Leases | | :--- | :--- | :--- | | 2023 | $5,285 | $62 | | 2024 | $5,505 | $78 | | 2025 | $4,721 | $77 | | 2026 | $3,796 | $77 | | 2027 | $3,505 | $77 | | 2028 and after | $2,966 | $317 | | Total lease payments | $25,778 | $688 | 17. Commitments and Contingencies The company is involved in various legal proceedings and has purchase commitments totaling $69.2 million - The Company is defending against several class action lawsuits alleging violations of federal securities laws and breach of fiduciary duties related to the ExOne Merger and disclosures about EnvisionTEC[68][70][71][72] - Outstanding purchase orders with contract manufacturers amount to $47.2 million as of March 31, 2023[75] - The Company has an additional purchase commitment of $22.0 million through 2027 for equipment to be leased to customers for digital dentistry solutions[75] - Total outstanding financial guarantees and letters of credit issued under a credit facility were $4.0 million at March 31, 2023, requiring $4.0 million in cash collateral[78] 18. Income Taxes The company recorded an income tax benefit of $0.6 million in Q1 2023, maintaining a valuation allowance for most deferred tax assets Income Tax Benefit (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2023 | $557 | | Three months ended March 31, 2022 | $1,256 | - The Company maintains a valuation allowance for most deferred tax assets due to historical net losses, except for Japan and Belgium[80] - As of March 31, 2023, the Company has accrued $1.0 million for uncertain tax positions related to the EnvisionTEC acquisition[81] 19. Stockholders' Equity The company's authorized capital includes 500 million shares of Class A Common Stock and 50 million shares of Preferred Stock - Authorized shares include 500,000,000 shares of Class A Common Stock and 50,000,000 shares of Preferred Stock[82] - No Preferred Stock shares were issued and outstanding at March 31, 2023, and December 31, 2022[5] 20. Stock Based Compensation Total stock-based compensation expense was $9.3 million for Q1 2023, with $67.6 million in unrecognized costs for outstanding RSUs Total Stock-Based Compensation Expense (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2023 | $9,313 | | Three months ended March 31, 2022 | $9,912 | Stock Options Activity (shares in thousands) | Metric | Outstanding at Jan 1, 2023 | Outstanding at Mar 31, 2023 | | :--- | :--- | :--- | | Number of Shares | 8,423 | 7,771 | | Weighted-Average Exercise Price per Share | $1.83 | $1.86 | | Weighted-Average Remaining Contractual Term (in years) | 6.02 | 5.70 | | Aggregate Intrinsic Value (in thousands) | $922,092 | $4,720 | Restricted Stock Units (RSUs) Activity (shares in thousands) | Metric | Balance of unvested shares as of Jan 1, 2023 | Balance of unvested shares as of Mar 31, 2023 | | :--- | :--- | :--- | | Shares Subject to Vesting | 22,145 | 22,876 | | Weighted-Average Grant Date Fair Value | $4.15 | $3.71 | | Unrecognized compensation costs | N/A | $67,600 | 21. Related Party Transactions The company has lease agreements with related parties and recognized $0.4 million in revenue from an affiliated entity in Q1 2023 - As of March 31, 2023, the Company recorded $4.7 million of right-of-use assets and lease liabilities related to lease agreements with related parties[105] - During the three months ended March 31, 2023, the Company recognized $0.4 million of revenue from sales to Lightforce Orthodontics, an affiliated company[106] 22. Segment Information The company operates as a single segment, with revenue decreasing 12% in the Americas but increasing in EMEA and APAC Revenue by Geographic Region (in thousands) | Region | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Americas | $27,041 | $30,735 | (12)% | | EMEA | $10,259 | $9,793 | 5% | | APAC | $4,016 | $3,178 | 26% | | Total Revenue | $41,316 | $43,706 | (5)% | Revenue by Type (in thousands) | Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Products | $36,697 | $39,476 | (7)% | | Services | $4,619 | $4,230 | 9% | | Total Revenue | $41,316 | $43,706 | (5)% | Long-Lived Assets by Geographic Region (in thousands) | Region | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Americas | $46,339 | $56,145 | | EMEA | $16,270 | $16,399 | | APAC | $6,441 | $5,874 | | Total long-lived assets | $69,050 | $78,418 | 23. Net Loss Per Share Basic and diluted net loss per share improved to $(0.16) for Q1 2023 from $(0.22) in Q1 2022 Net Loss Per Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(52,642) | $(69,944) | | Weighted-average shares | 319,096 | 312,017 | | Net loss per share—Basic and Diluted | $(0.16) | $(0.22) | - Potential dilutive securities (stock options, unvested restricted stock units, unvested restricted stock awards, and convertible senior notes) were excluded from diluted net loss per share calculation because their effect would be anti-dilutive[111] 24. Restructuring Charges The company recorded $3.6 million in restructuring charges in Q1 2023 as part of an expanded cost optimization initiative - In January 2023, the Company committed to expanding its strategic integration and cost optimization initiative, anticipating $19.6 million to $26.0 million in additional restructuring costs[113] Restructuring Charges Activity (in thousands) | Metric | Three Months Ended March 31, 2023 | | :--- | :--- | | Accrued expenses, beginning of period | $1,096 | | Restructuring charges | $3,618 | | Cash payments | $(1,164) | | Inventory write-off | $(300) | | Accrued expenses, end of period | $3,250 | Restructuring Charges by Expense Category (in thousands) | Category | Three Months Ended March 31, 2023 | | :--- | :--- | | Cost of sales | $717 | | Research and development | $2,633 | | Sales and marketing | $126 | | General and administrative | $142 | | Total restructuring charges | $3,618 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides an overview of the business, recent financial performance, strategic initiatives, and macroeconomic impacts Business Overview - Desktop Metal pioneers Additive Manufacturing 2.0, focusing on volume production of end-use parts with a comprehensive portfolio of hardware, software, materials, and services[120] - The company's growth strategy is driven by significant investment in R&D, resulting in over 950 patents or pending applications, to make additive manufacturing easy, economic, and scalable[121] - Solutions offer breakthrough print speeds, competitive part costs, accessible workflows, turnkey solutions, and support for an extensive library of qualified materials, generating recurring revenue[122] Operating Results Key Financial Highlights (Three Months Ended March 31, 2023, in millions) | Metric | Amount | | :--- | :--- | | Revenues | $41.3 | | Net losses | $52.6 | | Cash used in operating activities | $37.3 | | Cash, cash equivalents, and short-term investments (period-end) | $149.9 | | Current liabilities (period-end) | $83.5 | Recent Developments - The Strategic Integration and Cost Optimization Initiative, expanded in January 2023, includes workforce reductions (additional 15%), facilities consolidation, and aims for $100 million in annualized cost savings in 2023[128][129] - Total pre-tax restructuring charges for committed activities are expected to be $19.6 million to $26.0 million[129] - The COVID-19 pandemic has disrupted global supply chains and may accelerate the adoption of additive manufacturing for greater flexibility and reduced reliance on overseas manufacturing[131][133] Key Factors Affecting Operating Results - Performance depends on the adoption rate of additive manufacturing solutions, with fluctuations expected as businesses shift from conventional processes[135] - Financial performance is influenced by product mix, pricing strategies, and the ability to introduce cost-effective solutions amidst price competition[136] - Continued investment in R&D and innovation is crucial for long-term revenue growth, though it may impact near-term profitability[137] - Macroeconomic conditions, including inflation and rising interest rates, are causing customers to delay purchase decisions and tighten budgets, impacting revenue growth[140] Results of Operations Revenue Comparison (Three Months Ended March 31, in thousands) | Metric | 2023 Revenue | 2022 Revenue | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Products Revenue | $36,697 | $39,476 | $(2,779) | (7)% | | Services Revenue | $4,619 | $4,230 | $389 | 9% | | Total Revenue | $41,316 | $43,706 | $(2,390) | (5)% | - Total revenue decreased by 5% due to reduced product unit shipments, primarily driven by macroeconomic conditions, partially offset by a 9% increase in services revenue[142] Gross Profit (Loss) Comparison (Three Months Ended March 31, in thousands) | Metric | 2023 Gross Profit | 2022 Gross Profit | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Products | $(2,194) | $(2,426) | $232 | (10)% | | Services | $830 | $1,098 | $(268) | (24)% | | Total | $(1,364) | $(1,328) | $(36) | 3% | - Gross loss increased slightly by $0.1 million, driven by a less favorable product mix and higher transportation/freight costs, despite savings from headcount reductions[149][151] Operating Expenses Comparison (Three Months Ended March 31, in thousands) | Expense Category | 2023 Amount | 2022 Amount | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $23,144 | $24,605 | $(1,461) | (6)% | | Sales and marketing | $9,607 | $19,689 | $(10,082) | (51)% | | General and administrative | $18,202 | $23,857 | $(5,655) | (24)% | | Total operating expenses | $50,953 | $68,151 | $(17,198) | (25)% | - Operating expenses decreased significantly by 25%, primarily due to workforce reductions and reduced marketing spend as part of the Initiative, and lower accounting/legal fees[152][153][154][156] Non-GAAP Financial Information - Non-GAAP financial measures (gross margin, operating loss, net loss, EBITDA, Adjusted EBITDA) are used to evaluate operational performance by excluding non-cash and non-recurring items like stock-based compensation, amortization of acquired intangibles, restructuring expenses, and acquisition-related charges[161][162][163][164][165][166][167] Non-GAAP Reconciliation (Three Months Ended March 31, in thousands) | Metric | 2023 GAAP | 2023 Non-GAAP | 2022 GAAP | 2022 Non-GAAP | | :--- | :--- | :--- | :--- | :--- | | Gross margin | $(1,364) | $7,439 | $(1,328) | $7,468 | | Operating loss | $(52,317) | $(27,538) | $(69,479) | $(44,616) | | Net loss | $(52,642) | $(27,684) | $(69,944) | $(43,381) | | Operating expenses | $50,953 | $34,977 | $68,151 | $52,084 | | EBITDA | $(38,955) | N/A | $(58,349) | N/A | | Adjusted EBITDA | N/A | $(24,439) | N/A | $(41,570) | Liquidity and Capital Resources - The Company has an accumulated deficit of $1,361.6 million as of March 31, 2023, and expects to continue incurring net losses and negative cash flows in the near term[178] Liquidity Position (as of March 31, 2023, in millions) | Metric | Amount | | :--- | :--- | | Cash, cash equivalents, and short-term investments | $149.9 | | Current liabilities | $83.5 | - Existing capital resources are believed to be sufficient for the next 12 months, but additional capital may be needed through equity or debt financings[184] - The Strategic Integration and Cost Optimization Initiative is expected to incur $19.6 million to $26.0 million in costs, aiming to preserve capital and reduce operating expenses[185][186] Cash Flows Summary of Cash Flows (Three Months Ended March 31, in thousands) | Activity | 2023 Amount | 2022 Amount | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,346) | $(56,274) | | Net cash provided by investing activities | $61,427 | $94,534 | | Net cash provided by financing activities | $248 | $699 | | Net change in cash, cash equivalents, and restricted cash | $24,546 | $38,610 | - Net cash used in operating activities decreased to $37.3 million in Q1 2023 from $56.3 million in Q1 2022, primarily due to lower net losses and improved working capital management[188][189] - Net cash provided by investing activities was $61.4 million in Q1 2023, mainly from marketable securities sales and maturities, partially offset by purchases[190] Critical Accounting Policies and Significant Estimates - There were no material changes to critical accounting policies and estimates during the first three months of 2023[193] Off-Balance Sheet Arrangements - The company's German subsidiary, ExOne GmbH, has $4.0 million in outstanding short-term financial guarantees and letters of credit through a credit facility[194] - The Company does not utilize any other off-balance sheet arrangements or special purpose entities for liquidity or financing[195] Recent Accounting Pronouncements - Information regarding recent accounting pronouncements is included in Note 2. Summary of Significant Accounting Policies[196] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate and foreign currency fluctuations, which are currently not material - The Company is exposed to market risks from fluctuations in interest rates and foreign currency translation[197] - As of March 31, 2023, the fair value of cash, cash equivalents, and short-term investments was $149.9 million, with a 10% change in interest rates having an immaterial impact[198] - Foreign currency risk is not currently material, and the Company does not use foreign currency forward contracts to manage exchange rate risk[199] Item 4. Controls and Procedures Disclosure controls were deemed not effective due to material weaknesses, though financial statements are fairly presented - Management concluded that disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting[201] - Despite material weaknesses, financial statements in this 10-Q are concluded to present fairly the company's financial position, results of operations, and cash flows[202] - Remediation efforts for identified material weaknesses are ongoing, with no material changes to internal control over financial reporting during the three months ended March 31, 2023[203] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is defending various legal claims, including class action lawsuits, which are not expected to have a material adverse impact - The Company is subject to various legal claims and lawsuits, including class action complaints related to the ExOne Merger and alleged misleading statements about EnvisionTEC[206][211][212][213] - Management believes the outcome of current legal proceedings will not have a material adverse impact on the condensed consolidated financial statements and intends to defend vigorously[206][215] - Several putative class action complaints against ExOne and its former Board of Directors have been dismissed[207] Item 1A. Risk Factors Outlines numerous risks affecting the business, including product development, financial stability, and macroeconomic uncertainties Summary of Risk Factors - Key risks include significant delays in product design and launch, potential failure to commercialize products, and the possibility that restructuring activities may not achieve intended results[216] - Difficulties in integrating acquired companies and realizing expected benefits, along with a history of losses and potential future unprofitability, pose significant financial risks[216] - Future sales or the perception of future sales of Class A common stock could cause a decline in market price[216] Risks Related to Our Business and Industry - Significant delays in the design, production, and launch of additive manufacturing solutions, or failure to commercialize products on planned timelines, could damage the brand and financial results[219][222] - The COVID-19 pandemic has disrupted and may continue to disrupt business activities, supply chains, and customer payments, potentially increasing costs and reducing revenue[224][225] - Restructuring activities and cost savings measures may not achieve anticipated results, potentially leading to litigation risks, negative employee morale, and adverse effects on revenue and operating results[226][228][229] - Changes in product mix, failure to meet customer price expectations, or slower-than-expected market adoption of additive manufacturing could negatively impact demand, gross margins, and financial performance[230][231][232] - The company's success depends on attracting and retaining key management and employees, and failure to do so could delay strategy implementation and adversely affect operations[241][242][245] - Global operations expose the company to risks such as currency exchange rate volatility, difficulties in managing foreign operations, and compliance with complex international laws and trade restrictions[249][250][251][253] - Reliance on information technology systems and the implementation of a new ERP system pose risks of disruption, data breaches, and delays in financial reporting[261][263][266][269] Risks Related to Acquisitions - Difficulties or delays in integrating acquired companies, such as EnvisionTEC and ExOne, could lead to loss of key employees, operational disruptions, and failure to realize anticipated business opportunities and synergies[283][284] - Future acquisitions may divert management's attention, incur significant costs, dilute existing shareholders, and introduce unknown liabilities or integration challenges[287][289][290] Risks Related to Our Financial Position and Need for Additional Capital - The company has a history of net losses and an accumulated deficit, expecting continued operating losses and negative cash flow in the near term due to significant investments[291][178] - Limited operating history and rapid growth make future prospects difficult to evaluate, increasing investment risk and uncertainty in forecasting operating results[293] - Failure to meet publicly announced guidance or market expectations could cause the stock price to decline, as predicting future revenues and budgeting expenses is inherently uncertain[294][295] - Operating results and financial condition are subject to significant period-to-period fluctuations due to market acceptance, competition, product mix, sales cycles, and macroeconomic factors[296][297] - Additional capital may be required to support business growth, which might not be available on acceptable terms, potentially leading to dilution or restrictive debt covenants[301] Risks Related to Third Parties - The company could face product liability, warranty, and other claims for allegedly defective products, especially given their use in potentially hazardous applications[303][304] - Reliance on a global network of resellers for sales, installation, and support services means poor performance or termination of contracts could adversely affect sales and reputation[306] - Dependence on a limited number of third-party contract manufacturers and suppliers for production and materials creates risks of delays, disruptions, quality control problems, and increased costs[309][311][315] - Facilities and those of third-party partners are vulnerable to disruption from natural disasters, climate-related events, strikes, and other uncontrollable events, potentially delaying production and sales[316] Risks Related to Our Class A Common Stock - Issuance of additional shares or convertible securities could dilute existing ownership and adversely affect the stock price[319][320] - Future sales, or the perception of future sales, of Class A common stock by the company or existing stockholders could cause the market price to decline[321] - Directors, executive officers, and affiliated stockholders own a significant percentage of Class A common stock, allowing them to exert substantial control over shareholder approval matters[322][324] - Anti-takeover provisions in governing documents and Delaware law could make an acquisition more difficult, limit attempts to replace management, and affect the stock price[325][326][327] Risks Related to Our Indebtedness - Indebtedness, including $115.0 million in 6.0% Convertible Senior Notes due 2027, could limit cash flow for operations, increase vulnerability to economic conditions, and impair the ability to satisfy obligations[333][336] - The company may be unable to raise funds to repurchase the 2027 Notes following a fundamental change or pay cash upon conversion, potentially leading to default[335][338] - Provisions in the indenture governing the 2027 Notes could delay or prevent an otherwise beneficial takeover by increasing acquisition costs or discouraging third parties[339] Risks Related to Compliance Matters - Failure to comply with anti-corruption laws (e.g., U.S. FCPA, U.K. Bribery Act) and various trade restrictions (e.g., sanctions, export controls) could result in substantial fines, sanctions, and reputational damage[340][341] - The company is subject to environmental, health, and safety laws and regulations, which could lead to compliance costs, potential liability for non-compliance, and substantial monetary damages[342][343][344] - Increasing attention to ESG initiatives could raise costs, harm reputation, or adversely impact business due to stakeholder expectations and potential negative investor sentiment[346] - Compliance with privacy, data use, and data security regulations (e.g., GDPR, CCPA) is expensive and time-consuming, with potential for increased costs, regulatory enforcement, and reputational harm if not met[347][349][350] - Medical device and solution products are subject to extensive regulations, and failure to obtain or maintain approvals/clearances could impact financial projections and lead to penalties[351] Risks Related to Intellectual Property - Third-party lawsuits alleging infringement of patents, trade secrets, or other intellectual property rights could result in significant adverse effects on financial condition, substantial costs, and disruption to business operations[352][353] - Inability to adequately protect or enforce intellectual property rights could allow competitors to use proprietary information, particularly for consumables, reducing revenue and profitability[354][357][358][359] - The company's additive manufacturing software contains third-party open-source components, and non-compliance with licenses could restrict product sales or require costly re-engineering[362][364] General Risk Factors - The Class A common stock price may be volatile and decline regardless of operating performance due to market factors, industry conditions, and company-specific events[365][366][367] - Failure of securities analysts to publish research or issuing unfavorable commentary could negatively impact the stock price and trading volume[369] - Obligations as a public company involve significant expenses, resources, and management attention, potentially diverting from business operations and impacting financial condition[370][371][372] - Material weaknesses in internal control over financial reporting, identified as of December 31, 2022, could impair the ability to produce timely and accurate financial statements, leading to adverse regulatory consequences and loss of investor confidence[375][376][378][379][381][382] - Goodwill has been subject to impairment ($498.8 million in 2022) and may be impaired in the future, which could materially adversely affect financial condition and results of operations[383] - The company does not intend to pay dividends on its Class A common stock for the foreseeable future, retaining funds for business development and growth[385] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 61,718 shares in Q1 2023 for employee tax withholding obligations - All unregistered sales of equity securities during the three months ended March 31, 2023, were previously included in a Current Report on Form 8-K[387] Issuer Purchases of Equity Securities (Three Months Ended March 31, 2023) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | February 1, 2023 through February 28, 2023 | 21,480 | $1.78 | | March 1, 2023 through March 31, 2023 | 40,238 | $1.50 | | Total | 61,718 | N/A | - All repurchased shares were withheld from employees to satisfy minimum tax withholding obligations related to Class A common stock issuance[388] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities occurred during the period[389] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[390] Item 5. Other Information No other information is reported under this item - No other information is reported under this item[391] Item 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q Exhibit Index - The Exhibit Index details certifications (CEO, CFO), Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation), and the Cover Page Interactive Data File[395] Signatures The report is duly signed by the CEO and CFO as of May 10, 2023 - The report is signed by Ric Fulop, Chief Executive Officer, and Jason Cole, Chief Financial Officer, on May 10, 2023[400]