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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________

FORM 10-K

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to____________

Commission File No. 001-34220
__________________________

ddd-20191231_g1.jpg

3D SYSTEMS CORPORATION
(Exact name of Registrant as specified in its Charter)
__________________________
Delaware
95-4431352
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

333 Three D Systems Circle
Rock Hill, South Carolina 29730
(Address of Principal Executive Offices and Zip Code)

(Registrant’s Telephone Number, Including Area Code): (803) 326-3900
_________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareDDDNew York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act.

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2019 was $998,362,110. For purposes of this computation, it has been assumed that the shares beneficially held by directors and executive officers of the registrant were “held by affiliates.” This assumption is not to be deemed an admission by these persons that they are affiliates of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Shares of Common Stock, par value $0.001, outstanding as of February 21, 2020: 118,514,324
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3D SYSTEMS CORPORATION
Annual Report on Form 10-K
For the Year Ended December 31, 2019

TABLE OF CONTENTS


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This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part II, Item 7 of this Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “believes,” “belief,” “expects,” “may,” “will,” “estimates,” “intends,” “anticipates,” or “plans” or the negative of these terms or other comparable terminology.  Forward-looking statements are based upon management’s beliefs, assumptions and current expectations concerning future events and trends, using information currently available, and are necessarily subject to uncertainties, many of which are outside our control. Although we believe that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are not, and should not be relied upon as a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. A number of important factors could cause actual results to differ materially from those expressed in or implied by the forward-looking statements.  Factors that could cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors.” All subsequent written and oral forward-looking statements attributable to the Company or to individuals acting on our behalf are expressly qualified in their entirety by this discussion. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

PART I
Item 1. Business

General

3D Systems Corporation (“3D Systems” or the “Company” or “we” or “us”) is a holding company incorporated in Delaware in 1993 that markets our products and services through subsidiaries in North America and South America (collectively referred to as “Americas”), Europe and the Middle East (collectively referred to as “EMEA”) and the Asia Pacific region (“APAC”). We provide comprehensive 3D printing and digital manufacturing solutions, including 3D printers for plastics and metals, materials, software, on demand manufacturing services and digital design tools. Our solutions support advanced applications in a wide range of industries and verticals, including healthcare, dental, aerospace, automotive and durable goods.

Customers can use our 3D solutions to design and manufacture complex and unique parts, eliminate expensive tooling, produce parts locally or in small batches and reduce lead times and time to market. A growing number of customers are shifting from prototyping applications to also using 3D printing for production. We believe this shift will be further driven by our continued advancement and innovation of 3D printing solutions that improve durability, reliability, repeatability and total cost of operations.

Our precision healthcare capabilities include simulation; Virtual Surgical Planning (VSP®)(“VSP”); and printing of medical and dental devices, models, and surgical guides and instruments. We have over 30 years of experience and expertise which have proven vital to our development of an ecosystem and end-to-end digital workflow solutions which enable customers to optimize product designs, transform workflows, bring innovative products to market and drive new business models.

Products

We offer a comprehensive range of 3D printers, materials, software, haptic design tools, 3D scanners and virtual surgical simulators.

3D Printers and Materials

Our 3D printers transform digital data input generated by 3D design software, Computer Aided Design (“CAD”) software or other 3D design tools, into printed parts using several unique print engines that employ proprietary, additive layer by layer building processes with a variety of materials. We offer a broad range of 3D printing technologies including Stereolithography (“SLA”), Selective Laser Sintering (“SLS”), Direct Metal Printing (“DMP”), MultiJet Printing (“MJP”) and ColorJet Printing (“CJP”), which are discussed in more detail below.

Our printers utilize a wide range of materials, the majority of which are proprietary materials that we develop, blend and market. Our comprehensive range of materials includes plastic, nylon, metal, composite, elastomeric, wax, polymeric dental materials and Class IV bio-compatible materials. We augment and complement our portfolio of engineered materials with materials that we purchase or develop with third parties under private label and distribution arrangements.

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We work closely with our customers to optimize the performance of our materials in their applications. Our expertise in materials science and formulation, combined with our processes, software and equipment, enables us to provide unique and highly specialized materials and help our customers select the material that best meets their needs with optimal cost and performance results.

As part of our solutions approach, our currently offered printers, with the exception of direct metal printers, have built-in intelligence to make them integrated, closed systems. For these integrated printers, we furnish materials specifically designed for use in those printers which are packaged in smart cartridges and utilize material delivery systems. These integrated materials are designed to enhance system functionality, productivity, reliability and materials shelf life, in addition to providing our customers with a built-in quality management system and a fully integrated workflow solution.

SLA Printers

Our SLA 3D printers cure liquid resin materials with light or a laser to produce durable plastic parts with surface smoothness, high resolution, edge definition and tolerances that rival the accuracy of machined or molded plastic parts. We offer SLA printers with a wide range of materials, sizes and price points, which are designed for prototyping, end-use part production, casting patterns, molds, tooling, fixtures and medical models.

Figure 4™, a light-based SLA platform, also sometimes referred to as digital light processing (“DLP”), is an ultra-fast additive manufacturing technology with a discrete module design. This design allows a range of products and configurations to meet customer needs from a stand-alone product to modular products to fully-automated solutions. Figure 4 is capable of manufacturing parts in hybrid materials (multi-mode polymerization) that offer toughness, durability, biocompatibility, high temperature deflection and elastomeric properties. Figure 4 is also the first additive manufacturing product which can achieve six sigma repeatability. These capabilities enable new end-use applications in healthcare, dental, durable goods, automotive, aerospace and other verticals.

For SLA printers, we offer a variety of liquid resin materials, primarily under the Accura® brand name. The resins are designed to mimic specific, engineered thermoplastics and provide a wide range of characteristics, including tough, durable, clear, castable, polypropylene-like, ABS-like, high-temperature resistant and Class IV bio-compatible materials. We also offer dental materials for light-based SLA 3D printers under our NextDent™ brand name.

SLS Printers

Our SLS 3D printers use a laser beam to melt and fuse powder-based nylon, engineered plastic and composite materials to produce very strong and durable parts. Customer uses of our SLS printers include functional test models and end-use parts, such as housings, machinery components, ducting, tooling, jigs and fixtures, medical devices and personalized surgery kits and guides. 

Our proprietary SLS materials include a range of flexible and rigid plastics, nylons and composite materials marketed under the DuraForm®, LaserForm® and CastForm™ brand names. These materials are available in a variety of lightweight, tough, versatile, high temperature, flexible and durable formulations.
 
DMP Printers

Our DMP solutions use a laser beam to sinter powders in a variety of metals to produce fully dense parts with outstanding purity, surface finish and resolution. We offer DMP solutions that can process a wide range of materials and powders, including materials with very fine granularity and proven manufacturing applications. We sell DMP systems in various sizes and configurations. Certain models are optimized for specific metals, including titanium, stainless steel and nickel super alloys. Our DMP printers are used in medical and dental implants, aerospace, automotive and hi-tech and industrial applications, such as conformal cooling, enhanced fluid flow and other complex, lightweight parts.

We offer metal powder materials for our DMP printers, including titanium, stainless steels, tool steels, super alloys, non-ferrous alloys, precious metals and aluminum.

5


MJP Printers

Our MJP 3D printers utilize jetting head technology to deliver precise, tough parts with exceptional resolution in plastic, wax, elastomeric and engineered materials that we sell under the VisiJet® brand name. Our MJP printers offer the capability to print in real wax as well as rigid and flexible plastics and multiple materials in one build, making them ideal for mechanical functional testing, rapid tooling, jigs and fixtures, casting and foundry patterns and medical models.

CJP Printers

Our CJP 3D printers produce parts using our VisiJet branded, powder-based ceramic-like materials. CJP printers build high-definition, full-color parts that can be sanded, drilled, infiltrated, painted and electroplated, which further expands the options available for finished part characteristics. CJP printers are ideal for producing models used in mechanical design, healthcare, architecture, education, entertainment and packaging applications.

Software and Related Products

We provide digital design tools, including software, scanners and haptic devices. We offer solutions for product design, mold and die design, 3D scan-to-print, reverse engineering, production machining, metrology and inspection. These products are designed to enable a seamless workflow for customers, and are marketed under our Geomagic®, Cimatron® and GibbsCAM® brand names. We also offer 3D Sprint and 3DXpert, proprietary software to prepare and optimize CAD data and manage the additive manufacturing processes. These software products provide automated support building and placement, build platform management and print queue management capabilities.

Other Products

We offer 3D virtual reality simulators and simulator modules for medical applications. These 3D simulators are sold under our Simbionix™ brand name and offer clinicians a realistic, hands-on experience to master critical skills, prepare for upcoming procedures and create patient specific simulations and operating room environments through augmented reality and virtual reality. We also provide digitizing scanners for medical and mechanical applications.

Services

Maintenance and Training Services

We provide a variety of customer services, local application support and field support on a worldwide basis for our products, including installation of new printers at customers’ sites, maintenance agreements, periodic hardware upgrades and software updates. We also provide services to assist our customers and partners in developing new applications for our technologies, to facilitate the use of our technology for specific applications, to train customers on the use of our printers and to maintain our printers at customers’ sites.

We provide these services, spare parts and field support either directly or through a network of reseller partners. We employ customer-support sales engineers to support our worldwide customer base, and we are continuing to strengthen and enhance our partner network and service offerings.

Our 3D printers are sold with a warranty period ranging from 90 days to one year. After the warranty period, we generally offer service contracts that enable our customers to continue service and maintenance coverage. These service contracts are offered with various levels of support and options, and are priced accordingly. Our service engineers provide regularly scheduled preventive maintenance visits to customer sites, we provide training to our partners to enable them to perform these services, and we are adding remote monitoring and maintenance capabilities through our 3DConnect software.

From time to time, we also offer upgrade kits for certain of our printers that enable our existing customers to take advantage of new or enhanced printer capabilities. In some cases, we have discontinued upgrade support and maintenance agreements for certain of our older legacy printers.

On Demand Solutions

We provide on demand manufacturing services through facilities worldwide in the Americas, EMEA and APAC. We provide a broad range of prototyping, production and finishing capabilities for precision plastic and metal parts and tooling with a wide range of additive and traditional manufacturing processes.

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In addition to the sales of parts to customers, we, and our partners, utilize our on demand services as a sales and lead generation tool. Third-party preferred service providers also use our on demand manufacturing service as their comprehensive order-fulfillment center, and customers can use our facilities as fulfillment centers in disaster recovery plans.

Software Services

In addition to our software license products described above, we offer software maintenance, which includes updates and support for our software products. Our software is sold with maintenance service that generally covers a period of one year. After this initial period, we offer single and multi-year maintenance contracts that enable our customers to continue coverage. These software service contracts typically include free software updates and various levels of technical support.

Healthcare Services

As part of our precision healthcare services, we provide surgical planning, modeling, prototyping and manufacturing services. We offer printing and finishing of medical and dental devices, anatomical models and surgical guides and tools, as well as modeling, design and planning services, including VSP™. We also provide service and maintenance for our surgical simulator products.

Global Operations

We operate in the Americas, EMEA and APAC regions, and market our products and services in those areas as well as to other parts of the world.

In maintaining operations outside the United States (the “U.S.”), we expose our business to risks inherent in such operations, including currency exchange rate fluctuations. Information on foreign exchange risk appears in Part I, Item 1A, “Risk Factors,” Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” and Part II, Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K.

Marketing and Customers

Our sales and marketing strategy focuses on an integrated approach that is directed at providing comprehensive solutions designed to meet customer needs. We use a full range of marketing and lead generation tools to promote our products and services on a worldwide basis. Our marketing department supports our global sales organization and distribution channels by providing marketing materials, targeted marketing campaigns, sales leads and demand generation activities.

We sell our solutions globally through a direct sales force, partner channel and in certain geographies, appointed distributors. Our go-to-market and sales organization includes regional general managers, channel managers, direct sales people and application engineers and other support staff throughout the Americas, EMEA and APAC, who are responsible for the sale of products and services and for the management of our network of channel partners.

Additionally, our application engineers provide pre-sales and post-sales support, assist customers with leveraging our latest solutions and production techniques and help identify new applications and sales opportunities. Our on demand manufacturing service also expands our customer relationships and enables lead generation for future sales.

Our customers include major companies as well as small and midsize businesses in a broad range of industries, including medical, dental, automotive, aerospace, durable goods, government, defense, technology, jewelry, electronics, education, consumer goods, energy and others. For the years ended December 31, 2019 and 2018, one customer accounted for approximately 11% and 13% of our consolidated revenue, respectively. We expect to maintain our relationship with this customer. No single customer accounted for more than 10% of our consolidated revenue for the year ended December 31, 2017.

Production and Supplies

We outsource our 3D printer assembly and refurbishment activities to selected design, engineering and manufacturing companies in the U.S., Belgium and Taiwan. We purchase finished printers from these suppliers pursuant to forecasts and customer orders that we supply to them. These suppliers also carry out quality control procedures on our printers prior to their shipment to customers. As part of these activities, these suppliers have responsibility for procuring the components and sub-assemblies either from us or third-party suppliers. While the outsourced suppliers of our printers have responsibility for the supply chain and inventory of components for the printers they assemble, the components, parts and sub-assemblies that are
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used in our printers are generally available from several potential suppliers. We produce our Simbionix branded 3D simulators in Airport City, Israel.

We produce materials at our facilities in Rock Hill, South Carolina, Marly, Switzerland and Soesterberg, Netherlands. We also have arrangements with third parties who blend certain materials according to our specifications that we sell under our own brand names, and we purchase certain materials from third parties for resale to our customers.

Our equipment assembly and materials blending activities, on demand manufacturing services and certain research and development activities are subject to compliance with applicable federal, state and local provisions regulating the storage, use and discharge of materials into the environment. We believe that we are in compliance, in all material respects, with such regulations as currently in effect, and we expect continued compliance with them will not have a material adverse effect on our capital expenditures, results of operations or consolidated financial position.

Research and Development

The 3D printing industry continues to experience rapid technological change and developments in hardware, software and materials. Consequently, we have ongoing research and development programs to develop new products and to enhance our portfolio of products and services, as well as to improve and expand the capabilities of our solutions. Our efforts are often augmented by development arrangements with research institutions, customers, suppliers, assembly and design firms, engineering companies, materials companies and other partners.

In addition to our internally developed technology platforms, we have acquired products and technologies developed by others by acquiring business entities that held ownership rights to such products and technologies. In other instances, we have licensed or purchased the intellectual property rights of technologies developed by third parties through agreements that may obligate us to pay a license fee or royalty, typically based upon a dollar amount per unit or a percentage of the revenue generated by such products.

Intellectual Property

We regard our technology platforms and materials as proprietary and seek to protect them through copyrights, patents, trademarks and trade secrets. At December 31, 2019 and 2018 we held 1,256 and 1,250 patents worldwide, respectively. At December 31, 2019 and 2018, we had 322 and 295 pending patent applications worldwide, respectively. The principal issued patents covering aspects of our various technologies will expire at varying times through the year 2027.

In addition, we are a party to various licenses that have had the effect of broadening the range of the patents, patent applications and other intellectual property available to us.

We have also entered into licensing or cross-licensing arrangements with various companies in the U.S. and other countries that enable those companies to utilize our technologies in their products or that enable us to use their technologies in our products. Under certain of these licenses, we are entitled to receive, or we are obligated to pay, royalties for the sale of licensed products in the U.S. or in other countries. The amount of such royalties was not material to our results of operations or financial position for the three-year period ended December 31, 2019.

We believe that, while our patents and licenses provide us with a competitive advantage, our success also depends on our marketing, business development, applications know-how and ongoing research and development efforts. Accordingly, we believe the expiration of any of the patents, patent applications or licenses discussed above would not be material to our business or financial position.

Competition

We compete with other suppliers of 3D printers, materials, software and healthcare solutions as well as with suppliers of conventional manufacturing solutions. We compete with these suppliers for customers as well as channel partners for certain of our products. We also compete with businesses and service bureaus that use such equipment to produce models, prototypes, molds and end-use parts.  Development of new technologies or techniques not encompassed by the patents that we own or license may result in additional future competition.

Our competitors operate both globally and regionally, and many of them have well-recognized brands and product lines. Additionally, certain of our competitors are well established and may have greater financial resources than us.

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We believe principal competitive factors include technology capabilities, materials, process and application know-how, total cost of operation of solution, product reliability and the ability to provide a full range of products and services to meet customer needs. We believe that our future success depends on our ability to provide high quality solutions, introduce new products and services to meet evolving customer needs and market opportunities, and extend our technologies to new applications. Accordingly, our ongoing research and development programs are intended to enable us to continue technology advancement and develop innovative new solutions for the marketplace.

Employees

At December 31, 2019, we had 2,472 full-time and part-time employees, compared to 2,620 at December 31, 2018. None of our U.S. employees are covered by collective bargaining agreements, however, some of our employees outside the U.S. are subject to local statutory employment and labor arrangements. We have not experienced any material work stoppages and believe that our relations with our employees are satisfactory.

Available Information

Our website address is www.3DSystems.com. The information contained on our website is neither a part of, nor incorporated by reference into, this Form 10-K or any other document that we file with or furnish to the Securities and Exchange Commission (“SEC”). We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and other documents that we file with the SEC, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

Many of our corporate governance materials, including our Code of Conduct, Code of Ethics for Senior Financial Executives and Directors, Corporate Governance Guidelines, current charters of each of the standing committees of the Board of Directors and our corporate charter documents and by-laws are available on our website. 

Information about our Executive Officers

The information appearing in the table below sets forth the position or positions held by each of our executive officers and his or her age as of February 26, 2020. All of our executive officers serve at the pleasure of the Board of Directors. There are no family relationships among any of our executive officers or directors.
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Name and Current PositionAge as of February 26, 2020
Vyomesh I. Joshi65  
President and Chief Executive Officer
Todd A. Booth48  
Executive Vice President and Chief Financial Officer
Charles W. Hull80  
Executive Vice President and Chief Technology Officer
Andrew M. Johnson45  
Executive Vice President, Chief Legal Officer and Secretary
Herbert Koeck59  
Executive Vice President, Global Go-To-Market
Radhika Krishnan49  
Executive Vice President, Software and Healthcare
Philip C. Schultz57  
Executive Vice President, Operations
Sadie Stern45  
Executive Vice President, People and Culture

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Vyomesh I. Joshi, President and Chief Executive Officer. Mr. Joshi was appointed the Company’s President and Chief Executive Officer in April 2016. Prior to joining the Company, Mr. Joshi worked at Hewlett-Packard Company (“HP”) from 1980 until his retirement in March 2012. From 2001 to 2012, he was Executive Vice President of HP’s Imaging and Printing Group, following two decades of research, engineering and management in HP’s imaging and printing systems. On February 5, 2020, Mr. Joshi notified the Board of Directors of his intention to retire as President and Chief Executive Officer of the Company, and resign as a member of the Company’s Board, effective as of the date that his successor assumes those roles. Following his retirement, Mr. Joshi will serve as a strategic advisor to the Company for a one-year period. In addition to his service on our Board of Directors, Mr. Joshi formerly served on the board of directors of Harris Corporation, Yahoo! Inc. and Wipro Ltd.

Todd Booth, Executive Vice President and Chief Financial Officer. Mr. Booth was appointed the Company’s Executive Vice President and Chief Financial Officer in September 2019. Prior to joining the Company, he had over 25 years of financial leadership experience, including serving as Chief Operating Officer and Chief Financial Officer of Teledyne Marine, a division of Teledyne Technologies Incorporated, from March 2016 through August 2019, and as Vice President and Chief Financial Officer and North American Treasurer of Vallourec USA, a division of Vallourec S.A., from February 2011 through March 2016.

Charles W. Hull, Executive Vice President, Chief Technology Officer. Mr. Hull is a founder of the Company and has served on our Board of Directors since 1993. He has served as Chief Technology Officer since 1997 and as Executive Vice President since 2000. Mr. Hull has also previously served in various other executive capacities at the Company since 1986, including Chief Executive Officer, Vice Chairman of the Board of Directors and President and Chief Operating Officer.

Andrew M. Johnson, Executive Vice President, Chief Legal Officer and Secretary. Mr. Johnson has served as Executive Vice President and Chief Legal Officer since November 2014. He served as Interim President and Chief Executive Officer, Chief Legal Officer and Secretary from October 2015 to April 2016 and as Vice President, General Counsel and Secretary from April 2012 to November 2014. Previously, he served as Assistant General Counsel and Assistant Secretary.

Herbert Koeck, Executive Vice President, Global Go-To-Market. Mr. Koeck has served as Executive Vice President, Global Go-To-Market since December 2018. He joined the Company in September 2016 as General Manager for 3D Systems Europe, Middle East, Africa and India. Mr. Koeck worked at HP from 1987 to 2016, where he served as Managing Director Hewlett-Packard Europe/Middle East and Africa and Senior Vice President for HP’s combined Printing and PC business in the same region from 2013 to 2016.

Radhika Krishnan, Executive Vice President, Software and Healthcare. Ms. Krishnan has served as Executive Vice President, Software and Healthcare since January 2020 after joining the Company in November 2018 as Senior Vice President, Software. From February 2016 to March 2018, she served as Vice President/General Manager, Cloud Infrastructure for Lenovo Datacenter Group, a division of Lenovo Group. Prior to that, Ms. Krishnan served as Vice President, Products, Solutions and Alliances of Nimble Storage from July 2011 until January 2016. Ms. Krishnan has served on the board of directors of Laxmi Therapeutic Devices, a privately held medical development company, since July 2018.

Philip C. Schultz, Executive Vice President, Operations. Mr. Schultz has served as Executive Vice President, Operations since December 2018. He served as Senior Vice President, On Demand Solutions from September 2016 to December 2018. From 2014 to 2016, Mr. Schultz served as the Business Administrator for a non-profit, Grace Lutheran Church and Christian School. Previously, he served as Senior Vice President and General Manager of FoxConn from 2009 to 2014. Prior to that, Mr. Schultz held multiple roles at HP during a 25-year career.

Sadie M. Stern, Executive Vice President, People and Culture. Ms. Stern has served as Executive Vice President, People and Culture since January 2020. She joined the Company in October 2017 as Senior Vice President, Chief Human Resources Officer. Prior to joining the Company, Ms. Stern served as Senior Director, Human Resources at QUALCOMM Inc. from January 2012 to October 2017 and served in a number of human resources positions of increasing responsibility at LG Electronics and The Walt Disney Company earlier in her career.

Item 1A. Risk Factors 

If any of the risks described below or if any other risks not currently known to us or that we currently deem not to be material actually occurs, our business, results of operations and financial condition could be materially adversely affected. In that event, the trading price of our common stock could decline.

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We face significant competition in many aspects of our business, which could cause our revenue and gross profit margins to decline. Competition could also cause us to reduce sales prices or to incur additional marketing or production costs, which could result in decreased revenue, increased costs and reduced margins.

We compete for customers with a wide variety of producers of equipment and software for models, prototypes, other three-dimensional objects and end-use parts as well as producers of materials and services for this equipment. Some of our existing and potential competitors are researching, designing, developing and marketing other types of competitive equipment and software, materials and services. Certain of these competitors may have financial, marketing, manufacturing, distribution and other resources substantially greater than ours.

We also expect that future competition may arise from the development of allied or related techniques for equipment and materials that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to develop certain products and from improvements to existing materials and equipment technologies.

Some of our patents have recently expired and others will expire in coming years. Upon expiration of those patents, our competitors may introduce products using the technology previously protected by the expired patents and those products may have lower prices than those of our products. To compete, we may need to reduce our prices for those products, which could adversely affect our revenues, margins and profitability. Additionally, the expiration of our patents could reduce barriers to entry into additive manufacturing, which could result in the reduction of our sales and earnings potential. If competitors using technology previously protected by our expired patents were to introduce products of inferior quality, our potential customers may view the technology negatively, which would have an adverse effect on our image and reputation and on our ability to compete with systems using other additive fabrication technologies.

We intend to follow a strategy of continuing product development to enhance our position to the extent practicable. We cannot assure you that we will be able to maintain our current position in the field or continue to compete successfully against current and future sources of competition. If we do not keep pace with technological change and introduce new products, we may lose revenue and demand for our products. We also incur significant costs associated with the investment in our product development activities in furtherance of our strategy that may not result in increased revenue or demand for our products and that could negatively affect our operating results.

We believe that our future success depends on our ability to deliver products and services that meet changing technology and customer needs.

Our business may be affected by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new standards and practices, any of which could render our existing products and proprietary technology obsolete. Accordingly, our ongoing research and development programs are intended to enable us to maintain technological leadership. We believe that to remain competitive we must continually enhance and improve the functionality and features of our products, services and technologies. However, there is a risk that we may not be able to:

Develop or obtain leading technologies useful in our business;

Enhance our existing products;

Develop new products, services and technologies that address the increasingly sophisticated and varied needs of prospective customers, particularly in the area of printer speeds and materials functionality;

Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis; or

Recruit or retain key technology employees.

If we are unable to meet changing technology and customer needs, our competitive position, revenue, results of operations and financial condition could be adversely affected.

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If we do not generate net cash flow from operations and if we are unable to raise additional capital, our financial condition could be adversely affected and we may not be able to execute our growth strategy.

We cannot assure you that we will generate cash from operations or other potential sources to fund future working capital needs and meet capital expenditure requirements.

If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring or incurring additional debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to obtain additional capital or refinance any indebtedness will depend on, among other things, the capital markets, our financial condition at such time and the terms and conditions of any such financing or indebtedness. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

The lack of additional capital resulting from any inability to generate cash flow from operations or to raise equity or debt financing could force us to substantially curtail or cease operations and would, therefore, have an adverse effect on our business and financial condition. Furthermore, we cannot assure you that any necessary funds, if available, would be available on attractive terms or that they would not have a significantly dilutive effect on our existing stockholders. If our financial condition were to worsen and we become unable to attract additional equity or debt financing or enter into other strategic transactions, we would not be able to execute our growth strategy and we could become insolvent or be forced to declare bankruptcy.

Our business could be adversely impacted in the event of a failure of our information technology infrastructure or adversely impacted by a successful cyber-attack.

We have experienced cyber security threats, threats to our information technology infrastructure and unauthorized attempts to gain access to our sensitive information. Prior cyber-attacks directed at us have not had a material impact on our business or financial results; however, this may not continue to be the case in the future. Cyber security assessment analyses undertaken by us have identified and prioritized steps to fortify our cyber security safeguards. We have and will continue to implement additional security measures and processes which enhance our ability to detect and respond to a cyber-attack. We have increased our cyber breach insurance and implemented company-wide cyber security awareness training. Despite the implementation of these new safeguards, there can be no assurance that we will adequately protect our information or that we will not experience any future successful attacks. The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries who target us because of the products and services we provide. If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures. Due to the evolving nature of these security threats, however, the impact of any future incident cannot be predicted.

We may need to expend significant additional resources to modify our cyber security protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications, and we may be subject to litigation and financial losses. These costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to our customers, our financial results or our reputation; or such events could result in the loss of competitive advantages derived from our research and development efforts or other intellectual property or early obsolescence of our products and services.

We are subject to U.S. and other anti-corruption laws, trade controls, economic sanctions and similar laws and regulations. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation. 

Doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners and investments.

In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the Foreign Corrupt Practices Act (“FCPA”) and United Kingdom Bribery Act (the “Bribery Act”), export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), the State Department's Directorate of Defense Trade Controls (“DDTC”) and the Bureau of Industry and Security (“BIS”) of the Department of Commerce. As a result of doing business in foreign countries and with foreign customers, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations.

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As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the provisions of the Bribery Act extend beyond bribery of foreign public officials and also apply to transactions with individuals that a government does not employ. Some of the international locations in which we operate lack a developed legal system and have higher than normal levels of corruption. Our continued expansion outside the U.S., including in Brazil, China, India and developing countries, and our development of new partnerships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future.

As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the U.S. and other countries having jurisdiction over our operations. In the U.S., these laws include the International Traffic in Arms Regulations (“ITAR”) administered by the DDTC, the Export Administration Regulations (“EAR”) administered by the BIS and trade sanctions against embargoed countries and destinations administered by OFAC. The EAR governs products, parts, technology and software which present military or weapons proliferation concerns, so-called “dual use” items, and ITAR governs military items listed on the United States Munitions List. Prior to shipping certain items, we must obtain an export license or verify that license exemptions are available. Any failures to comply with these laws and regulations could result in fines, adverse publicity and restrictions on our ability to export our products, and repeat failures could carry more significant penalties. 

Violations of anti-corruption and trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment and could harm our reputation, create negative shareholder sentiment and affect our share value. We have established policies and procedures designed to assist our compliance with applicable U.S. and international anti-corruption and trade control laws and regulations, including the FCPA, the Bribery Act and trade controls and sanctions programs administered by OFAC, the DDTC and BIS, and have trained our employees to comply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, agents or other associated persons will not take actions in violation of our policies and these laws and regulations. Additionally, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could have an adverse effect on our reputation, business, financial condition and results of operations. In addition, various state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies that do business with sanctioned countries, persons and entities, which could adversely affect our reputation, business, financial condition and results of operations.

The costs and effects of litigation, investigations or similar matters involving us or our subsidiaries, or adverse facts and developments related thereto, could materially affect our business, operating results and financial condition.

We may be involved from time to time in a variety of litigation, investigations, inquiries or similar matters arising out of our business, including those described in Note 22 to the consolidated financial statements in Item 8 of this Form 10-K. We cannot predict the outcome of these or any other legal matters.  In the future, we may need to record litigation contingencies with respect to these matters because our insurance may not cover all claims that may be asserted against us. Should the ultimate judgments or settlements in any litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our business, financial condition and results of operations.

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We disclosed potential violations of U.S. export controls laws to the U.S. federal government that resulted in multiple investigations. We have implemented compliance processes and procedures to identify and prevent potential future violations of export control laws, trade sanctions, and government contracting laws and regulations, and continue to review our government contracting compliance risks and potential violations. Based on the disclosures and investigations, the U.S. Air Force temporarily suspended us from certain new federal contracts and orders in July 2019 and lifted that suspension in September 2019 following the execution of an Administrative Agreement with the Company. Failure to comply with the terms of the Administrative Agreement or the commencement of a separate action by another governmental agency would result in decreased revenues and additional harm to our reputation and otherwise adversely affect our business, operating results and financial condition.

In October 2017, we received an administrative subpoena from BIS requesting the production of records in connection with possible violations of U.S. export control laws, including with regard to our Quickparts.com, Inc. subsidiary. In addition, while collecting information responsive to the above-referenced subpoena, our internal investigation identified potential violations of ITAR administered by DDTC and potential violations of the Export Administration Regulations administered by BIS.

On June 8, 2018 and thereafter, we submitted voluntary disclosures to BIS and DDTC identifying numerous potentially unauthorized exports of technical data. As part of our ongoing review of trade compliance risks and our cooperation with the government, on November 20, 2019, we submitted to the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) an initial notice of voluntary disclosure regarding potential violations of economic sanctions related to Iran. We are continuing to investigate this issue and will file a final disclosure with OFAC when our review is complete. We have and will continue to implement compliance enhancements to our export controls, trade sanctions, and government contracting compliance program to address the issues identified through our ongoing internal investigation and will cooperate with DDTC and BIS, as well as the U.S. Departments of Justice, Defense, Homeland Security and Treasury in their ongoing reviews of these matters.

In addition, on July 19, 2019, we received a notice of immediate suspension of federal contracting from the United States Air Force, pending the outcome of an ongoing investigation. The suspension applied to 3D Systems, its subsidiaries and affiliates, and was related to export controls violations involving 3D Systems’ On Demand manufacturing business described above. Under the suspension, we were generally prohibited from receiving new federal government contracts or subcontracts from any executive branch agency as described in the provisions of 48 C.F.R Subpart 9.4 of the Federal Acquisition Regulation. The suspension allowed us to continue to perform current federal contracts, and also to receive awards of new subcontracts for items under $35,000 and for items considered commercially available off-the-shelf items. The Air Force lifted the suspension on September 6, 2019 following the execution of a two-year Administrative Agreement with the Company. The Company is now eligible to obtain and perform U.S. government contracts and subcontracts without the suspension restrictions. Under the Administrative Agreement, the Company will be monitored and evaluated by independent monitors who will report to the Air Force on the Company’s compliance with the terms of the Company’s Ethics & Compliance Program, including our overall culture, government contracting compliance program, and export controls compliance program. The Company’s failure to comply fully with the terms of the Administrative Agreement or the commencement of separate actions by other agencies of the federal government could result in reinstatement of the suspension or debarment from future federal contracting, which would result in decreased revenues and additional harm to our reputation and otherwise adversely affect our business, operating results and financial condition,

Although we cannot predict the ultimate resolution of these matters, we have incurred and expect to continue to incur significant legal costs and other expenses in connection with responding to the U.S. government agencies.

Since 2018, we have implemented new compliance procedures to identify and prevent potential violations of export controls laws, trade sanctions, and government contracting laws and regulations and created a Compliance Committee of the Board of Directors to further enhance board oversight of compliance risks. As we continue to implement additional compliance enhancements, we may discover additional potential violations of export controls laws, trade sanctions, and/or government contracting laws in the future. If we identify any additional potential violations, we will submit voluntary disclosures to the relevant agencies and cooperate with such agencies on any related investigations. Independent monitors will observe and evaluate the Company’s continued compliance with its Ethics & Compliance Program during the term of the Administrative Agreement.

If the U.S. government finds that we have violated one or more export controls laws, trade sanctions, or government contracting laws, we could be subject to various civil or criminal penalties. By statute, these penalties can include but are not limited to fines, which by statute may be significant, denial of export privileges, and suspension or debarment from participation in U.S. government contracts. We may also be subject to contract claims based upon such violations. Any assessment of penalties or other liabilities incurred in connection with these matters could harm our reputation and customer relationships, create negative investor sentiment, and affect our share value. In connection with any resolution, we may also be required to undertake
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additional remedial compliance measures and program monitoring. We cannot at this time predict when the U.S. government agencies will conclude their investigations or determine an estimated cost, if any, or range of costs, for any penalties, fines or other liabilities to third parties that may be incurred in connection with these matters.

We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation or other proceedings.

In connection with the enforcement of our own intellectual property rights, the acquisition of third-party intellectual property rights or disputes related to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, and may in the future be, subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation may be costly and can be disruptive to our business operations by diverting attention and energies of management and key technical personnel, and by increasing our costs of doing business. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes, which could adversely affect our results of operations and financial condition.  

Third-party intellectual property claims asserted against us could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from assembling or licensing certain of our products, subject us to injunctions restricting our sale of products, cause severe disruptions to our operations or the marketplaces in which we compete or require us to satisfy indemnification commitments with our customers, including contractual provisions under various license arrangements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could seriously harm our business.

We may not be able to protect our intellectual property rights and confidential information, including our digital content, from third-party infringers or unauthorized copying, use or disclosure.

Although we defend our intellectual property rights and endeavor to combat unlicensed copying and use of our digital content and intellectual property rights through a variety of techniques, preventing unauthorized use or infringement of our rights (“piracy attacks”) is inherently difficult. If our intellectual property becomes subject to piracy attacks, our business may be harmed.

Additionally, we endeavor to protect the secrecy of our digital content, confidential information and trade secrets. If unauthorized disclosure of our trade secrets occurs, we could potentially lose trade secret protection. The loss of trade secret protection could make it easier for third parties to compete with our products by copying previously confidential features, which could adversely affect our business, results of operations, revenue and operating margins. We also seek to protect our confidential information and trade secrets through the use of non-disclosure agreements. However, there is a risk that our confidential information and trade secrets may be disclosed or published without our authorization, and in these situations it may be difficult and/or costly for us to enforce our rights. 

Our uneven sales cycle makes planning and inventory management difficult and future financial results less predictable.

Our quarterly sales often have reflected a pattern in which a disproportionate percentage of each quarter’s total sales occurs towards the end of the quarter, in particular for sales of hardware. This uneven sales pattern makes predicting net revenue, earnings, cash flow from operations and working capital for each financial period difficult, increases the risk of unanticipated variations in our quarterly results and financial condition and places pressure on our inventory management and logistics systems. If predicted demand is substantially greater than orders, there may be excess inventory. Alternatively, if orders substantially exceed predicted demand, we may not be able to fulfill all of the orders received in each quarter and such orders may be canceled. Depending on when they occur in a quarter, developments such as an information systems failure, component pricing movements, component shortages or global logistics disruptions could adversely impact our inventory levels and results of operations in a manner that is disproportionate to the number of days in the quarter affected.

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The variety of products that we sell could cause significant quarterly fluctuations in our gross profit margins, and those fluctuations in margins could cause fluctuations in operating income or loss and net income or loss.

We continuously work to expand and improve our products, materials and services offerings, geographic areas in which we operate and the distribution channels we use to reach various target product applications and customers. This variety of products, applications, channels and regions involves a range of gross profit margins that can cause substantial quarterly fluctuations in gross profit and gross profit margins depending upon the mix of product shipments from quarter to quarter. Additionally, the introduction of new products or services may further heighten quarterly fluctuations in gross profit and gross profit margins due to manufacturing ramp-up and start-up costs. We may experience significant quarterly fluctuations in gross profit margins or operating income or loss due to the impact of the mix of products, channels or geographic areas in which we sell our products from period to period.

We derive a significant portion of our revenue from business conducted outside the U.S. and are subject to the risks of doing business outside the U.S.

We face many risks inherent in conducting business activities outside the U.S. that, unless managed properly, may adversely affect our profitability, including our ability to collect amounts due from customers. While most of our operations outside the U.S. are conducted in highly developed countries, our operations could be adversely affected by, among others, the following:

Unexpected changes in laws, regulations and policies of non-U.S. governments relating to investments and operations, as well as U.S. laws affecting the activities of U.S. companies abroad;

Changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions, competition, corporate practices and data privacy concerns;

Political policies, political or civil unrest, terrorism or epidemics and other similar outbreaks;

Fluctuations in currency exchange rates;

Limited protection for the enforcement of contract and intellectual property rights in some countries;

Difficulties in staffing and managing foreign operations;

Operating in countries with a higher incidence of corruption and fraudulent business practices;

Effects of the implementation of the U.K.’s departure from the European Union, known as Brexit;

Potentially adverse changes in taxation;

The impact of public health epidemics on employees and the global economy, such as the coronavirus currently impacting China and elsewhere; and

Other factors, depending upon the specific country in which we conduct business.

These uncertainties may make it difficult for us and our customers to accurately plan future business activities and may lead our customers in certain countries to delay purchases of our products and services. More generally, these geopolitical, social and economic conditions could result in increased volatility in global financial markets and economies.

The consequences of terrorism or armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our market opportunities or our business. We are uninsured for losses and interruptions caused by terrorism, acts of war and similar events.

While the geographic areas outside the U.S. in which we operate are generally not considered to be highly inflationary, our foreign operations are sensitive to fluctuations in currency exchange rates arising from, among other things, certain intercompany transactions that are generally denominated, for example, in U.S. dollars rather than their respective functional currencies.

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Moreover, our operations are exposed to market risk from changes in interest rates and foreign currency exchange rates and commodity prices, which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments. However, our efforts to minimize our exposure to market risks from changes in interest rates, foreign currency exchange rates and commodity prices may prove to be insufficient or unsuccessful.

We depend on outsourcing partners for assembly of our 3D printers and our supply chain for spare parts and for raw materials used in our materials. If these relationships were to terminate or be disrupted, our business could be disrupted while we locate alternative suppliers and our expenses may increase.

We have outsourced selected design and manufacturing companies to assemble our printers. In carrying out these outsourcing activities, we face a number of risks, including, among others, the following:

The risk that the parties that we retain to perform assembly activities may not perform in a satisfactory manner;

The risk of disruption in the supply of printers or other products to our customers if such third parties either fail to perform in a satisfactory manner or are unable to supply us with the quantity of printers or other products that are needed to meet then current customer demand; and

The risk of insolvency of suppliers, as well as the risks that we face, as discussed below, in dealing with a limited number of suppliers.

We purchase components and sub-assemblies for our printers from third-party suppliers that we provide to our customers as spare parts. Additionally, we purchase raw materials that are used in our materials, as well as certain of those materials, from third-party suppliers.

While there are several potential suppliers of parts for our products, we currently choose to use only one or a limited number of suppliers for several of these items, including our lasers, materials and certain jetting components. Our reliance on a single or limited number of suppliers involves many risks, including, among others, the following:

Potential shortages of some key components;

Disruptions in the operations of these suppliers;

Product performance shortfalls; and

Reduced control over delivery schedules, assembly capabilities, quality and costs.

While we believe that we can obtain all the components necessary for our spare parts and materials from other manufacturers, we require any new supplier to become “qualified” pursuant to our internal procedures, which could involve evaluation processes of varying durations. Our spare parts and raw materials used in our materials production are subject to various lead times.  In addition, at any time, certain suppliers may decide to discontinue production of a part or raw material that we use. Any unanticipated change in the sources of our supplies, or unanticipated supply limitations, could increase production or related costs and consequently reduce margins.

If our forecasts exceed actual orders, we may hold large inventories of slow-moving or unusable parts, which could have an adverse effect on our cash flow, profitability and results of operations. Inversely, we may lose orders if our forecast is low and we are unable to meet demand.

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Our operations could suffer if we are unable to attract and retain key management or other key employees.

Our success depends upon the performance of our senior management and other key personnel. Our senior executive team is critical to the management of our business and operations, as well as to the development and execution of our strategy. In 2019, our former Chief Financial Officer retired and we incurred costs to identify, recruit, and hire our current CFO, including amounts payable to our former CFO under his Transition Agreement, CFO search costs and relocation costs. On February 5, 2020, Vyomesh Joshi, our President and Chief Executive Officer, announced his intention to retire in 2020. We anticipate incurring similar or higher costs to identify and ensure the services of a highly-qualified successor to Mr. Joshi. High demand exists for senior management and other key personnel (including scientific, technical and sales personnel) in the 3D printing industry, and there can be no assurance that we will be able to attract and retain such personnel. We experience intense competition for qualified personnel.

While we intend to continue to provide competitive compensation packages to attract and retain key personnel and engage in regular succession planning for these positions, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees for our research and development and manufacturing operations, we may be unable to develop and commercialize new products or new applications for existing products. Furthermore, possible shortages of key personnel, including engineers, in the regions surrounding our facilities could require us to pay more to hire and retain key personnel, thereby increasing our costs.

We rely on our management information systems for inventory management, distribution and other key functions. If our information systems fail to adequately perform these functions, or if we experience an interruption in their operation, our business and operating results could be adversely affected.

The efficient operation of our business is dependent on our management information systems. We rely on our management information systems to, among other things, effectively manage our accounting and financial functions, including maintaining our internal controls; to manage our manufacturing and supply chain processes; and to maintain our research and development data. The failure of our management information systems to perform properly could disrupt our business and product development, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, and product shortages, causing our business and operating results to suffer. Although we take steps to secure our management information systems, including our computer systems, intranet and Internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, natural or man-made disasters, cyber-attacks, computer viruses, power loss or other disruptive events. Our reputation and financial condition could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shut down; our confidential, proprietary information is stolen or disclosed; we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; we must dedicate significant resources to system repairs or increase cyber security protection; or we otherwise incur significant litigation or other costs.

Our products and services may experience quality problems from time to time that can result in decreased sales and operating margin, product returns, product liability, warranty or other claims that could result in significant expenses and harm to our reputation.

We sell complex hardware and software products, materials and services that can contain undetected design and manufacturing defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after the product has been installed and used by customers. Sophisticated software and applications, such as those sold by us, may contain “bugs” that can unexpectedly interfere with the software’s intended operation. Defects may also occur in components and products we purchase from third parties. There can be no assurance we will be able to detect and fix all defects in the hardware, software, materials and services we sell. Failure to do so could result in lost revenue, product returns, product liability, delayed market acceptance of those products and services, claims from distributors, end-users or others, increased end-user service and support costs, and significant warranty claims and other expenses to correct the defects, diversion of management time and attention and harm to our reputation.

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Regulation in the areas of privacy, data protection and information security could increase our costs and affect or limit our business opportunities and how we collect and/or use personal information.

As privacy, data protection and information security laws, including data localization laws, are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place. In recent years, there has been increasing regulatory enforcement and litigation activity in the areas of privacy, data protection and information security in the U.S. and in various countries in which we operate.

In addition, state and federal legislators and/or regulators in the U.S. and other countries in which we operate are increasingly adopting or revising privacy, data protection and information security laws that potentially could have significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of our current or planned business activities. New legislation or regulation could increase our costs of compliance and business operations and could reduce revenues from certain business initiatives. Moreover, the application of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost.

Compliance with current or future privacy, data protection and information security laws relating to consumer and/or employee data could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our profitability. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, decreases in the use or acceptance of our products and services and damage to our reputation and our brand.

Global economic, political and social conditions and financial markets may harm our ability to do business, adversely affect our sales, costs, results of operations and cash flow. 

We are subject to global economic, political and social conditions that may cause customers to delay or reduce technology purchases due to economic downturns, difficulties in the financial services sector and credit markets, geopolitical uncertainties, tariffs and other macroeconomic factors affecting spending behavior. We face risks that may arise from financial difficulties experienced by our suppliers, resellers or customers, including, among others, the following:

Customers or partners to whom we sell our products and services may face financial difficulties or may become insolvent, which could lead to our inability to obtain payment of accounts receivable that those customers may owe;

Customers and potential customers may experience deterioration of their businesses, which may result in the delay or cancellation of plans to purchase our products;

Key suppliers of raw materials, finished products or components used in the products that we sell may face financial difficulties or may become insolvent, which could lead to disruption in the supply of printers, materials or spare parts to our customers; and

The inability of customers, including resellers, suppliers and contract manufacturers, to obtain credit financing to finance purchases of our products and raw materials used to build those products.

Changes in, or interpretation of, tax rules and regulations may impact our effective tax rate and future profitability. 

We are a U.S. based, multinational company subject to taxation in multiple U.S. and foreign tax jurisdictions. Our future effective tax rates could be adversely affected by changes in statutory tax rates or interpretation of tax rules and regulations in jurisdictions in which we do business, changes in the amount of revenue or earnings in the countries with varying statutory tax rates, or by changes in the valuation of deferred tax assets and liabilities. The U.S. Tax Cuts and Jobs Act (“Tax Act”) is one such example of legislation that impacts our effective tax rate and tax posture. For additional details see Note 20 to the consolidated financial statements in Item 8 of this Form 10-K.

In addition, we are subject to audits and examinations of previously filed income tax returns by the Internal Revenue Service and other domestic and foreign tax authorities. We regularly assess the potential impact of such examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that we expect may result from the current examinations. We believe such estimates to be reasonable; however, there is no assurance that the final determination of any examination will not have an adverse effect on our operating results and financial position.

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We have made, and may make in the future, strategic acquisitions and divestitures that may involve significant risks and uncertainties.  We may not realize the anticipated benefits of past or future acquisitions and integration of these acquisitions may disrupt our business and divert management attention. Likewise, our potential future divestitures may be unsuccessful and negatively impact our business.

From time to time, we evaluate acquisition candidates that fit our business objectives. Acquisitions involve certain risks and uncertainties, including, among others, the following:

Difficulty in integrating newly acquired businesses and operations in an efficient and cost-effective manner, which may also impact our ability to realize the potential benefits associated with the acquisition;

The risk that significant unanticipated costs or other problems associated with integration may be encountered;

The challenges in achieving strategic objectives, cost savings and other anticipated benefits;

The risk that our marketplaces do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in the marketplaces that we serve;

The risk that we assume significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party;

The inability to maintain a relationship with key customers, vendors and other business partners of the acquired businesses;

The difficulty in maintaining controls, procedures and policies during the transition and integration;

The potential loss of key employees of the acquired businesses;

The risk of diverting management attention from our existing operations;

Difficulties in coordinating geographically disparate organizations and corporate cultures and integrating management personnel with different business backgrounds;

The potential failure of the due diligence process to identify significant problems, liabilities or other challenges of an acquired company or technology;

The risk that we incur significant costs associated with such acquisition activity that may negatively impact our operating results before the benefits of such acquisitions are realized, if at all;

The entry into marketplaces where we have no or limited direct prior experience and where competitors have stronger marketplace positions;

The exposure to litigation or other claims in connection with our assuming claims or litigation risks from terminated employees, customers, former shareholders or other third parties; and

The risk that historical financial information may not be representative or indicative of our results as a combined company.

Historically, we have grown organically and from acquisitions, and we intend to continue to grow. Our infrastructure will require, among other things, continued development of our financial and management controls and management information systems, management of our sales channel, continued capital expenditures, the ability to attract and retain qualified management personnel and the training of new personnel. We cannot be sure that our infrastructure, systems, procedures, business processes and managerial controls will be adequate to support the growth in our operations. Any delays in, or problems associated with, implementing, or transitioning to, new or enhanced systems, procedures, or controls to accommodate and support the requirements of our business and operations and to effectively and efficiently integrate acquired operations may adversely affect our ability to meet customer requirements, manage our product inventory, and record and report financial and management information on a timely and accurate basis. These potential negative effects could prevent us from realizing the benefits of an acquisition transaction or other growth opportunity.

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Likewise, we have in the past, and may in the future, divest certain business operations. Divestitures involve a number of risks, including the diversion of management's attention, significant costs and expenses, goodwill and other intangible asset impairment charges, the loss of customer relationships and cash flow, and the disruption of operations in the affected business. Failure to timely complete or consummate a divestiture may negatively affect valuation of the affected business or result in restructuring charges.

In the event an unsuccessful acquisition or divestiture, our competitive position, revenues, results of operations and financial condition could be adversely affected.

Changes in business conditions may cause goodwill and other intangible assets to become impaired.

Goodwill is subject to an impairment test on an annual basis and when circumstances indicate that an impairment is more likely than not. Such circumstances include a significant adverse change in the business climate or a decision to dispose of a business or product line. We face some uncertainty in our business environment due to a variety of challenges, including changes in customer demand. We may experience unforeseen circumstances that adversely affect the value of our goodwill or intangible assets and trigger an evaluation of the amount of the recorded goodwill and intangible assets. Future write-offs of goodwill or other intangible assets as a result of an impairment in the business could materially adversely affect our results of operations and financial condition.

We may be subject to product liability claims, which could result in material expense, diversion of management time and attention and damage to our business reputation

The sale and support of our products entails the risk of product liability claims. From time to time, we may become subject to product liability claims that could lead to significant expenses.  The risk may be heightened when we provide products into certain markets, such as healthcare, aerospace and automotive industries.

This risk of product liability claims may also be greater due to the use of certain hazardous chemicals used in the production of certain of our products, including irritants, harmful chemicals and chemicals dangerous to the environment. We may also be subject to claims that our products have been, or may be used to, create parts that are not in compliance with legal requirements or that infringe on the intellectual property rights of others.

We attempt to include provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products and other issues. However, the nature and extent of these limitations vary from customer to customer. Their effect is subject to a variety of legal limitations and it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future.

Any claim brought against us, regardless of its merit, could result in significant expense, diversion of management time and attention, damage to our business reputation and failure to retain existing customers or to attract new customers. Although we maintain product liability insurance, such insurance is subject to deductibles and there is no guarantee that such insurance will be available or adequate to protect against all such claims. Costs or payments made in connection with product liability claims could adversely affect our financial condition and results of operations.

Our business involves the use of hazardous materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business. 

Our business involves the blending, controlled storage, use and disposal of hazardous materials. We and our suppliers are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe the safety procedures we utilized for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, local, state, federal or foreign authorities may curtail the use of these materials and interrupt our business operations. If we are subject to any liability as a result of activities involving hazardous materials, our business and financial condition may be adversely affected and our reputation may be harmed.

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Our common stock price has been and may continue to be volatile.

The market price of our common stock has experienced, and may continue to experience, considerable volatility. Between January 1, 2018 and December 31, 2019, the trading price of our common stock has ranged from a low of $6.47 per share to a high of $21.78 per share. Numerous factors could have a significant effect on the price of our common stock, including those described or referred to in this “Risk Factors” section of this Form 10-K, as well as, among other things:

Our perceived value in the securities markets;

Overall trends in the stock market;

Announcements of changes in our forecasted operating results or the operating results of one or more of our competitors;

Compliance with the terms of our Administrative Agreement with the U.S. Air Force;

The impact of changes in our results of operations, our financial condition or our prospects;

Future sales of our common stock or other securities (including any shares issued in connection with earn-out obligations for any past or future acquisition);

Market conditions for providers of products and services such as ours;

Executive level management uncertainty or change;

Changes in recommendations or revenue or earnings estimates by securities analysts; and

Announcements of acquisitions by us or one of our competitors.

Item 1B.Unresolved Staff Comments

None.

Item 2. Properties

Our headquarters are located in Rock Hill, South Carolina. As of December 31, 2019, we owned minimal facilities and we leased approximately 1.1 million square feet in the U.S (689 thousand square feet), EMEA (314 thousand square feet) and APAC (60 thousand square feet).

Our headquarters also serve as a research and development site. Other major research and development locations include Cary, North Carolina; San Diego, California; Seoul, South Korea; Tel Aviv, Israel; Valencia, California and Wilsonville, Oregon. We believe our existing facilities and equipment are in good operating condition and are suitable for our business in the manner that it is currently conducted. We expect to continue to make investments in capital equipment as needed to meet anticipated demand for our products and evaluate our existing real estate portfolio for potential consolidation and efficiencies. See “Item 1. Business – Production and Supplies” and Note 5 and Note 21 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion of our facilities.

Item 3. Legal Proceedings

Information relating to legal proceedings is included in Note 22 to the consolidated financial statements in Item 8 of this Form 10-K, which is incorporated by reference into this Item 3.

Item 4. Mine Safety Disclosures

Not applicable.

PART II
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the trading symbol “DDD.”

As of February 21, 2020, our outstanding common stock was held by approximately 1,109 stockholders of record. This figure does not reflect the beneficial ownership of shares held in the nominee name.

Dividends

We do not currently pay, and have not paid, any dividends on our common stock, and we currently intend to retain any future earnings for use in our business. Any future determination as to the declaration of dividends on our common stock will be made at the discretion of the Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by the Board of Directors, including the applicable requirements of the Delaware General Corporation Law, which provides that dividends are payable only out of surplus or current net profits.

The payment of dividends on our common stock may be restricted by the provisions of credit agreements or other financing documents that we may enter into or the terms of securities that we may issue from time to time. Currently, no such agreements or documents limit our declaration of dividends or payments of dividends, other than our $200.0 million 5-year term and revolving senior secured credit facility, which limits the amount of cash dividends that we may pay in any one fiscal year to $30.0 million.

Issuance of Unregistered Securities and Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities in the open market during the year ended 2019, however, shares of common stock were surrendered to us for payment of tax withholding obligations in connection with the vesting of restricted stock awards pursuant to our 2015 Incentive Stock Plan. For information regarding the securities authorized for issuance under our equity compensation plans, see “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters–Equity Compensation Plans” in Item 12 of this Form 10-K. Also see Note 15 to the consolidated financial statements in Item 8 of this Form 10-K. We did not engage in any unregistered sales of equity securities in 2019.

Issuer purchases of equity securities
໿
Total number of shares (or units) purchased Average price paid per share (or unit)
October 1, 2019 - October 31, 20194,504   $8.63  
November 1, 2019 - November 30, 20198,307   9.13  
December 1, 2019 - December 31, 20196,027   8.83  
Total18,838  
a
$8.91  
b

a.Represents shares of common stock surrendered to us for payment of tax withholding obligations in connection with the vesting of restricted stock.
b.The average price paid reflects the average market value of shares withheld for tax purposes.

Stock Performance Graph 

The graph below shows, for the five years ended December 31, 2019, the cumulative total return on an investment of $100 assumed to have been made on December 31, 2014 in our common stock. For purposes of the graph, cumulative total return assumes the reinvestment of all dividends. The graph compares such return with those of comparable investments assumed to have been made on the same date in (a) the NYSE Composite Index, (b) the S&P 500 Information Technology Index, and (c) the S&P Small-Cap 600 Information Technology Index which are published market indices with which we are sometimes compared.

Although total return for the assumed investment assumes the reinvestment of all dividends on December 31 of the year in which such dividends were paid, we paid no cash dividends on our common stock during the periods presented.

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COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
ddd-20191231_g2.jpg

໿
໿
໿
໿
December 31, 2014December 31, 2015December 31, 2016December 31, 2017December 31, 2018December 31, 2019
3D Systems Corporation$100  $26  $40  $26  $31  $27  
NYSE Composite Index100  96  108  128  117  147  
S&P Small-Cap 600 Information Technology Index (a)
100  105  140  154  141  196  
S&P 500 Information Technology Index100  106  121  167  167  251  
a.We are changing the selection from the S&P 500 Information Technology Index to the S&P Small-Cap 600 Information Technology Index during the reporting period ending December 31, 2019 in order to show a more appropriate comparison to our industry.

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Item 6. Selected Financial Data 

The selected consolidated financial data set forth below for the five years ended December 31, 2019 have been derived from our historical consolidated financial statements. You should read this information together with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements and the notes thereto included in Item 8 of this Form 10-K.
Year ended December 31,
(in thousands, except per share amounts)20192018201720162015
Consolidated Statement of (Loss) Income Data:     
Consolidated Revenue:     
Products$215,519  $259,124  $222,750  $238,011  $271,078  
Materials169,058  170,091  168,846  156,839  150,740  
Services244,517  258,445  254,473  238,115  244,345  
Total629,094  687,660  646,069  632,965  666,163  
Gross profit 
278,041  324,394  304,839  309,751  291,809  
Impairment of goodwill and other intangible assets a
—  —  —  —  537,179  
(Loss) income from operations(57,104) (43,191) (53,973) (38,420) (641,924) 
Net (loss) income(69,632) (45,263) (65,323) (39,265) (663,925) 
Net (loss) income available to common stockholders(69,880) (45,505) (66,191) (38,419) (655,492) 
Net (loss) income available to common stockholders per share: 
Basic and diluted$(0.61) $(0.41) $(0.59) $(0.35) $(5.85) 
 
Consolidated Balance Sheet Data: 
Working capital$210,206  $233,414  $231,293  $302,545  $286,996  
Total assets807,312  825,832  896,764  849,153  891,959  
Current portion of long term debt2,506  —  —  —  —  
Current portion of capitalized lease obligations b
—  654  644  572  529  
Current right of use liabilities9,569  —  —  —  —  
Long-term debt, net of deferred financing costs45,215  25,000  —  —  —  
Long-term right of use liabilities35,402  —  —  —  —  
Long-term portion of capitalized lease obligations b
—  6,392  7,078  7,587  8,187  
Total stockholders' equity513,896  575,987  615,948  626,700  654,646  
 
Other Data: 
Depreciation and amortization$50,396  $59,293  $62,041  $60,535  $83,069  
Interest expense4,442  1,188  919  1,282  2,011  
Capital expenditures23,985  40,694  30,881  16,567  22,399  


a.During the year ended December 31, 2015, non-cash, non-tax deductible Goodwill impairment charges equal to $382,271 and $61,388 were recorded for the Americas and EMEA, respectively, resulting from the annual impairment testing. Additionally during the year ended December 31, 2015, a non-cash Intangible asset charge equal to $93,520 was recorded arising from our other intangible asset impairment testing.
b.Prior year balances are comprised of the current and long-term portion of capitalized lease obligations as accounted for in accordance with ASC 840 Topic “Leases” prior to the adoption of ASC 842.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with the selected consolidated financial data and our consolidated financial statements and notes thereto included in Item 8 of this Form 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements, as discussed more fully in this Form 10-K. See “Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A.

For discussion related to the results of operations and changes in financial condition for fiscal 2018 compared to fiscal 2017, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2018 Form 10-K, which was filed with the SEC on February 28, 2019.

Overview and Strategy

We combine customer collaboration and innovation with the expertise of our people to execute on a strategy of providing digital manufacturing solutions. These ongoing efforts resulted the creation of nearly 200 million production parts by our customers in 2019.

We architect solutions specific to customers’ needs through a combination of materials, hardware platforms, software and professional services – creating a path to integrating additive into traditional production environments. As a result, manufacturers achieve design freedom, increase agility, scale production and improve overall total cost of operation.

Digital Manufacturing Solutions for a Breadth of Industries

Our digital manufacturing solutions customers span a range of industries including Aerospace and Defense, Automotive, Dental, Durable Goods and Healthcare.
Aerospace and Defense: Aerospace and defense customers use our solutions to achieve manufacturing productivity improvements such as increased speed and reliability of quality assurance and validation processes, lowered fuel costs through lightweighting and parts consolidation, increased manufacturing productivity through innovative 3D printed casting patterns, 3D data recovery, injection-mold design and direct metal printing of airworthy parts.
Automotive: Our production solutions are used by automotive manufacturers to develop lighter weight parts to drive down manufacturing costs, design and produce innovative assemblies that reduce part counts, provide greater strength and efficiency and create realistic prototypes that reduce time from the product development process.
Dental: We offer a broad range of clinically validated digital dentistry technologies and materials that allow dental labs to access advanced digital workflows, driving speed, efficiency and precision of a range of indications delivered to patients.
Durable Goods: Manufacturers of durable goods use our solutions to increase factory automation and connectivity, create greater product personalization and achieve just-in-time manufacturing. Our products and services help reduce mass production, one-size-fits-all manufacturing, long lead time and large inventories for our durable goods customers.
Healthcare: We partner with surgeons, healthcare professionals and medical device manufacturers to offer a range of precision healthcare solutions, including 3D printed anatomical models, VSP and patient-specific surgical guides, instrumentation and implants.

Accelerating Additive Manufacturing Adoption

We partner with our customers in their progression in the use of additive manufacturing to help accelerate the adoption of additive manufacturing within their existing production environments. This process focuses on the customer’s desired application in order to design the solutions to achieve their needs and address challenges. Customers regularly engage with one of our Customer Innovation Centers (CIC), where a customized production workflow solution is designed to accelerate the development of advanced applications by providing customers with access to solutions, domain expertise and state-of-the-art technology. The process often includes our software as the core to the overall solution. Customers are able to scan and digitize solutions when digital files do not exist, and then prepare their CAD file for 3D printing. This preparation includes importing part data, orienting the part on the build plate, optimizing the geometry and creating supports to ensure the final part matches the design intent. The part is then created using our additive manufacturing hardware platforms. After printing, the part is post-processed and our software provides inspection capabilities.

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On Demand Solutions Provide Supply Chain Flexibility

Our On Demand solutions facilitate supply chain flexibility by leveraging the same production solutions available direct to customers. Our On Demand solutions can provide single part production, or hundreds of parts, within days. Customers have access to a global network of facilities and nearly four decades of experience in 3D printing and advanced manufacturing solutions.

Digital Factory Software

Our extensive software portfolio allows manufacturers to deliver physical products with digital precision and speed. We provide manufacturers with access to subtractive and additive technologies to create their products, streamlining manufacturing processes from digitization and design to manufacturing, inspection and production management.

Integrated Additive and Subtractive Production Solutions

Our additive manufacturing solutions can complement our customers’ traditional workflows to create a competitive advantage. Our strategic partnership with GF Machining Solutions is designed to help more manufacturers take advantage of additive technology. This partnership combines our innovation and expertise in additive manufacturing with GF Machining Solutions’ leadership in precision machining, enabling manufacturers to combine additive and subtractive technologies to more efficiently produce complex metal parts within tight tolerances, and reduce total cost of operation.

Recent Developments

Throughout 2019, we improved our offerings by introducing several next generation digital manufacturing solutions, materials that are opening new applications, software that is enabling a true digital approach to production, and advanced manufacturing services.

Figure 4® Platform

We introduced the Figure 4® Modular, providing customers with a digital manufacturing solution which can scale as their production needs expand, including up to 24 print engines. Each engine can run different materials and jobs simultaneously as part of a single, high-throughput line. Automation options that include job management and queuing, material delivery, and centralized post-processing, allow manufacturers to reduce demand on manufacturing resources and lower total cost of operation. Additionally, it is 3D Connect™-capable, allowing remote services via 3D Connect Service, which includes automatically notifying our service team when an alert condition occurs.

Alongside Figure 4® Modular, more than ten production-grade additive manufacturing materials were launched in 2019. These materials open new applications through unique and compelling properties that represent significant improvements in first-time print yield, heat deflection, UV stability, durability, flexibility and impact strength, while also enabling new biocompatible and injection molding workflows.

MJP Platform

During 2019 we strengthened our MJP printer platform by launching four new materials – VisiJet® Armor (a tough, ABS-like clear performance plastic), VisiJet ProFlex (a durable, polypropylene-like material with pliability), VisiJet M2S-HT90 (a high temperature resistant, biocompatible, transparent plastic) and VisiJet M2 ICAST (for casting applications).

Culinary Printing

In 2019, we commenced beta testing of the Brill 3D Culinary Studio. In partnership with Brill® a CSM Bakery Solutions Company® we provided the first products to customers identified as early adopters. General availability of this culinary printing solution is planned for 2020.

Software Enhancements

We enhanced our SLS Industrial Internet of Things (IIoT) capabilities through our proactive and preventive remote diagnostics for 3D production. This increases uptime, lowers operating costs and improves production efficiency within a customer’s production environment.

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We launched several updates to 3D Sprint®, our software platform for all plastics printers. These enhancements include new print modes for jewelry applications using our non-contact membrane technology, new SLA support generation enhancements, accuracy improvement modules, and dynamic scaling features. These updates also integrated new print modes for all our plastics materials to enable a seamless user experience.

3DConnect™, our common IIoT software platform for our printer products was updated for the new product introductions and for offering improvements to the current install base. We transitioned from Thingworx to the AWS platform for future scalability, integrated printer onboarding and platform maintenance – enabling improved customer service and actionable intelligence.

We launched new capabilities to our scan-based inspection solution with focus on probing workflows and a new Inspection Viewer using Geomagic® Control X. At SOLIDWORKS World 2019, we introduced an updated version of Geomagic for SOLIDWORKS to enhance the user’s scan-to-CAD reverse engineering experience. Additionally, a new offering for all SOLIDWORKS users was launched with our 3DXpert product offering with a focus on Design for Additive Manufacturing (DfAM) and new advanced lattice and finite element analysis capabilities.

Improved capabilities within turning and multi-tasking machining solutions were offered via our GibbsCAM® 13 release. Improvements were released to enhance infrastructure and user experience to support larger models and faster reverse engineering design workflows through Geomagic Design X 2019. Near the end of 2019, Cimatron® 15 was released with enhanced Numerically Controlled capabilities for 5X and 3+2X systems, conformal cooling within additive molding, plate machining automation and Mill-Turn capabilities to target new machines within our existing customer base.

DMP Platform

Our metals digital manufacturing solutions were strengthened by our partnership with GF Machining Solutions through agreements regarding production metal printers including the DMP Flex 350. We also agreed to leverage GF Machining Solutions’ sales and distribution in China. In December, the partnership announced its first co-branded product for additive manufacturing post-production, the AgieCharmilles CUT AM 500. This high-speed wire electrical discharge machining (EDM) system is capable of safely removing metal AM parts from build plates as large as 500x500x500mm. At Formnext 2019, we displayed a first-of-its-kind full metal AM production workflow from design to final part. It includes consulting through our Customer Innovation Centers, print preparation and analysis with 3DXpert® software, printing with our DMP Flex 350 and DMP Factory 500 metals printers, post-processing with GF Machining Solutions’ System 3R referencing and clamping system. Zero point clamping enables optimal positioning of the build plate, facilitating a quick transition from the 3D printer to post-processing steps. We expanded capabilities within 3DXpert® to include DMP Inspection, which uses in-situ build data to predict part quality in order to reduce downstream inspection costs.

Healthcare and Dental Portfolio

We achieved a milestone in 2019 of manufacturing more than one million medical devices using metal digital manufacturing solutions for our partners in the medical device industry. Through our ISO-13485 certified facilities in Littleton, Colorado and Leuven, Belgium, we support manufacturing of more than 85 FDA-compliant medical device families. Seven of the top ten medical device companies in the world within the spine industry use our healthcare solutions to launch products that improve standard of patient care worldwide. Large contract manufacturers have adopted our metal digital manufacturing solutions to service the medical device industry with implants and instruments. In 2019 we entered the “point of care” segment by forming key partnerships with major hospital chains. With our portfolio of 3D printers, 3DXpert® and D2P® software, VSP and Medical Device Design and Manufacturing Services, we enable personalized patient care within these hospitals. Further, within our dental vertical, we continued expansion of regulatory approvals for dental materials in additional key markets, most notably NextDent® Denture 3D+ material in the United States, Canada and Australia to enable 3D printing of dentures.

During 2019, we continued to make progress in our bio-printing collaboration with United Therapeutics on the development of 3D printing systems for solid-organ scaffolds, beginning with lung scaffolds. This ultra-high resolution research and development project involves 3D printing with human recombinant collagen.

2019 Summary

Total consolidated revenue for the year ended December 31, 2019 decreased by 8.5%, or $58.6 million, to $629.1 million, compared to $687.7 million for the year ended December 31, 2018. These results reflect a decrease in printers revenue due to the ordering patterns of a large enterprise customer and the exit of our entertainment business, as well as macroeconomic slowdown in manufacturing activity.

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Healthcare revenue includes sales of products, materials and services for healthcare-related applications, including simulation, training, planning, anatomical models, surgical guides and instruments and medical and dental devices. For the year ended December 31, 2019, healthcare revenue decreased by 3.5%, to $217.6 million, and made up 34.6% of total revenue, compared to $225.5 million, or 32.8% of total revenue, for the year ended December 31, 2018. The results reflect a decrease in products revenue, partially offset by increases in materials and services revenues.

For the year ended December 31, 2019, total software revenue from products and services decreased slightly by 2.7% to $98.5 million, and made up 15.7% of total revenue, compared to $101.2 million, or 14.7% of total revenue, for the year ended December 31, 2018.

Gross profit for the year ended December 31, 2019 decreased by 14.3%, or $46.4 million, to $278.0 million, compared to $324.4 million for the year ended December 31, 2018. Gross profit margin for the years ended December 31, 2019 and 2018 was 44.2% and 47.2%, respectively. Gross profit margin decreased primarily due to under absorption of supply chain overhead resulting from lower production and lower revenue, in addition to the impact of the mix of sales.

Operating expenses for the year ended December 31, 2019 decreased by 8.8%, or $32.4 million, to $335.1 million, compared to $367.6 million for the year ended December 31, 2018. Selling, general and administrative expenses for the year ended December 31, 2019 decreased by 6.6%, or $17.9 million, to $254.4 million, compared to $272.3 million for the year ended December 31, 2018. Research and development expenses for the year ended December 31, 2019 decreased by 15.2%, or $14.5 million, to $80.8 million, compared to $95.3 million for the year ended December 31, 2018. Selling, general and administrative expenses decreased primarily due to cost optimization efforts as well as lower amortization from previously acquired intangible assets. Research and development expenses decreased as we have completed projects related to new products and platforms brought to market in 2018, and prioritized investments in materials and software.

Our operating loss for the year ended December 31, 2019 was $57.1 million, compared to an operating loss of $43.2 million for the year ended December 31, 2018.

For the year ended December 31, 2019 and 2018, we generated $31.6 million and $4.8 million of cash from operations, respectively, as further discussed below. In total, our unrestricted cash balance at December 31, 2019 and December 31, 2018, was $133.7 million and $110.0 million, respectively. The higher cash balance was the result of net borrowings and cash provided by operating activities, partially offset by investments in our facilities and IT infrastructure. For information on our long-term borrowings, see “Liquidity and Capital Resources” under Item 7 and Note 12 to the consolidated financial statements in Item 8 of this Form 10-K.

Results of Operations for 2019 and 2018

Comparison of revenue

Due to the relatively high price of certain 3D printers and a corresponding lengthy selling cycle as well as relatively low unit volume of the higher priced printers in any particular period, a shift in the timing and concentration of orders and shipments from one period to another can affect reported revenue in any given period.

In addition to changes in sales volumes, there are two other primary drivers of changes in revenue from one period to another: (1) the combined effect of changes in product mix and average selling prices and (2) the impact of fluctuations in foreign currencies. As used in this Management’s Discussion and Analysis, the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume.

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Comparison of revenue by geographic region

The following table sets forth changes in revenue by geographic region for the years ended December 31, 2019 and 2018.

Table 1
(Dollars in thousands)AmericasEMEAAPACTotal
Revenue — 2018$340,765  49.6 %$237,462  34.5 %$109,433  15.9 %$687,660  100.0 %
Change in revenue:
Volume(44,011) (12.9)%22,392  9.4 %(33,900) (31.0)%(55,519) (8.1)%
Price/Mix20,011  5.9 %(9,320) (3.9)%(686) (0.6)%10,005  1.5 %
Foreign currency translation(940) (0.3)%(10,131) (4.3)%(1,981) (1.8)%(13,052) (1.9)%
Net change(24,940) (7.3)%2,941  1.2 %(36,567) (33.4)%(58,566) (8.5)%
Revenue — 2019$315,825  50.2 %$240,403  38.2 %$72,866  11.6 %$629,094  100.0 %

Consolidated revenue decreased 8.5%, predominantly due to lower sales volume in the Americas and APAC regions driven by ordering patterns of a large enterprise customer, on demand solutions and from the exit of our entertainment business, and the unfavorable impact of foreign currency and price/mix in the EMEA region. The decreases were partially offset by favorable price/mix in the Americas region and increased volumes in the EMEA region primarily driven by healthcare.

For the years ended December 31, 2019 and 2018, revenue from operations outside the U.S. was 51.3% and 51.6% of total revenue, respectively.

Comparison of revenue by class

We earn revenue from the sale of products, materials and services. The products category includes 3D printers, healthcare simulators and digitizers, software licenses, 3D scanners and haptic devices. The materials category includes a wide range of materials to be used with our 3D printers, the majority of which are proprietary, as well as conventional dental materials. The services category includes maintenance contracts and services on 3D printers and simulators, software maintenance, on demand solutions and healthcare services.

The following table sets forth the change in revenue by class for the years ended December 31, 2019 and 2018.

Table 2
(Dollars in thousands)ProductsMaterialsServicesTotal
Revenue — 2018$259,124  37.7 %$170,091  24.7 %$258,445  37.6 %$687,660  100.0 %
Change in revenue:
Volume(44,073) (17.0)%(2,852) (1.7)%(8,594) (3.3)%(55,519) (8.1)%
Price/Mix4,775  1.8 %5,230  3.1 %—  — %10,005  1.5 %
Foreign currency translation(4,307) (1.7)%(3,411) (2.0)%(5,334) (2.1)%(13,052) (1.9)%
Net change(43,605) (16.8)%(1,033) (0.6)%(13,928) (5.4)%(58,566) (8.5)%
Revenue — 2019$215,519  34.3 %$169,058  26.9 %$244,517  38.8 %$629,094  100.0 %

Consolidated revenue decreased 8.5%, predominantly driven by lower sales volume in the products class driven by ordering patterns of a large enterprise customer and the unfavorable impacts of foreign currency translation across all categories, partially offset by favorable price/mix.

Products revenue decreased due to lower volume of plastics printers, heavily impacted by the ordering patterns of a large enterprise customer as well as macroeconomic slowdown in manufacturing activity. For the years ended December 31, 2019 and 2018, revenue from printers contributed $123.9 million and $163.7 million, respectively. Software revenue included in the products category, including scanners and haptic devices, contributed $53.7 million and $56.6 million for the years ended December 31, 2019 and 2018, respectively.

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Materials revenue decreased slightly due to the unfavorable impact of foreign currency translation and a decrease in volume related to weaker demand for materials utilized in older printer models, partially offset by an increase in volume related to new materials and favorable price/mix.

Services revenue decreased due to lower sales volumes in on demand solutions and from the exit of our entertainment business, partially offset by higher sales volumes in healthcare, and unfavorable impact from foreign currency translation. For the years ended December 31, 2019 and 2018, revenue from on demand solutions contributed $92.6 million and $107.1 million, respectively. For the years ended December 31, 2019 and 2018, software services revenue contributed $44.8 million and $44.6 million, respectively.

Gross profit and gross profit margins

The following tables set forth gross profit and gross profit margins for the years ended December 31, 2019 and 2018.

Table 3
Year Ended December 31,
20192018Change in Gross ProfitChange in Gross Profit Margin
(Dollars in thousands)Gross ProfitGross Profit MarginGross ProfitGross Profit Margin$%Percentage Points%
Products$38,526  17.9 %$79,928  30.8 %$(41,402) (51.8)%(12.9) (41.9)%
Materials116,230  68.8 %119,494  70.3 %(3,264) (2.7)%(1.5) (2.1)%
Services123,285  50.4 %124,972  48.4 %(1,687) (1.3)%2.0  4.1 %
Total$278,041  44.2 %$324,394  47.2 %$(46,353) (14.3)%(3.0) (6.4)%

The decrease in total consolidated gross profit is due to the decrease in product sales, primarily driven by lower sales of printers.

Products gross profit margin decreased primarily due to under absorption of supply chain overhead resulting from lower production, in addition to the impact of the mix of sales. Materials gross profit margin decreased as a result of the mix of sales. Services gross profit margin improved from a favorable mix of sales towards higher gross profit margin service offerings and improvements in printer service margin.

Operating expenses

The following tables set forth the components of operating expenses for the years ended December 31, 2019 and 2018.

Table 4

Year Ended December 31,
20192018Change
(Dollars in thousands)Amount% RevenueAmount% Revenue$%
Selling, general and administrative expenses$254,355  40.4 %$272,287  39.6 %$(17,932) (6.6)%
Research and development expenses80,790  12.8 %95,298  13.9 %(14,508) (15.2)%
Total operating expenses$335,145  53.2 %$367,585  53.5 %$(32,440) (8.8)%

Selling, general and administrative expenses decreased primarily due to reduced personnel and facility expenses, related to cost optimization efforts as well as lower amortization from previously acquired intangible assets.

Research and development expenses decreased as we have completed projects, related to new products and platforms brought to market in 2018, and prioritized investments in materials and software.

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Loss from operations

The following table sets forth (loss) income from operations by geographic region for the years ended December 31, 2019, and 2018.

Table 5
Year Ended December 31,
(Dollars in thousands)20192018
(Loss) income from operations:
Americas$(80,042) $(69,081) 
EMEA14,623  5,283  
APAC8,315  20,607  
Total$(57,104) $(43,191) 

See “Comparison of revenue by geographic region,” “Gross profit and gross profit margins” and “Operating expenses” above.

Interest and other expense, net

The following table sets forth the components of interest and other (expense) income, net, for the years ended December 31, 2019 and 2018.

Table 6
Year Ended December 31,
(Dollars in thousands)20192018
Interest and other expense, net
Foreign exchange (loss) gain $(2,287) $3,011  
Interest expense, net(3,233) (399) 
Other (expense) income, net(2,476) (2,649) 
Total interest and other (expense) income, net$(7,996) $(37) 

The increase in total interest and other expense, net for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was primarily driven by unfavorable foreign currency impacts and higher interest expense, resulting from the Senior Credit Facility put in place in the first quarter of 2019. We recorded an adjustment to the fair value of certain cost method investments in both 2019 and 2018.

Benefit and provision for income taxes 

We recorded a $4.5 million and a $2.0 million provision for income taxes for the years ended December 31, 2019 and 2018, respectively.

In 2019, our provision reflected $0.3 million in U.S. tax benefit and $4.9 million in foreign jurisdictions tax expense. In 2018, our provision reflected $5.9 million in U.S. tax benefit and $7.9 million in foreign jurisdictions tax expense.

During 2019 and 2018, we concluded that it is more likely than not that our deferred tax assets will not be realized in certain jurisdictions, including the U.S. and certain foreign jurisdictions; therefore, we have a valuation allowance recorded against our deferred tax assets on our consolidated balance sheets totaling $109.6 million and $95.4 million as of December 31, 2019 and 2018, respectively.

For further discussion, see Note 2 and Note 20 to the consolidated financial statements in Item 8 of this Form 10-K.

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Net loss attributable to 3D Systems

The following tables set forth the primary components of net loss attributable to 3D Systems for the years ended December 31, 2019 and 2018.

Table 7
Year Ended December 31,
(Dollars in thousands)20192018Change
Loss from operations$(57,104) $(43,191) $(13,913) 
Other non-operating items:—  
Interest and other expense, net(7,996) (37) (7,959) 
Provision for income taxes(4,532) (2,035) (2,497) 
Net loss(69,632) (45,263) (24,369) 
Less: net income attributable to noncontrolling interests248  242   
Net loss attributable to 3D Systems Corporation$(69,880) $(45,505) $(24,375) 
Weighted average shares, basic and diluted113,811  112,327  
Loss per share, basic and diluted$(0.61) $(0.41) 

The increase in net loss for the year ended December 31, 2019, as compared to the year ended December 31, 2018, was primarily driven by an increase in loss from operations. See “Gross profit and gross profit margins” and “Operating expenses” above.

Liquidity and Capital Resources

Table 8
Change
(Dollars in thousands)December 31, 2019December 31, 2018$%
Cash and cash equivalents$133,665  $109,998  $23,667  21.5 %
Accounts receivable, net109,408  126,618  (17,210) (13.6)%
Inventories111,106  133,161  (22,055) (16.6)%
354,179  369,777  (15,598) 
Less:
Current portion of long term debt2,506  —  2,506  — %
Current right of use liabilities9,569  —  9,569  — %
Current portion of capitalized lease obligations a
—  654  (654) — %
Accounts payable49,851  66,722  (16,871) (25.3)%
Accrued and other liabilities63,095  59,265  3,830  6.5 %
125,021  126,641  (1,620) 
Operating working capital$229,158  $243,136  $(13,978) (5.7)%

a.Prior year balance comprised of the current portion of capitalized lease obligations as accounted for in accordance with ASC 840 Topic “Leases,” prior to the adoption of ASC 842.

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and accounts payable turns. Our cash requirements primarily consist of funding working capital and capital expenditures.

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Cash flow from operations, cash and cash equivalents, and other sources of liquidity such as bank credit facilities and issuing equity or debt securities, are expected to be available and sufficient to meet foreseeable cash requirements. During the first quarter of 2019, we entered a 5-year $100.0 million senior secured term loan facility (the “Term Facility”) and a 5-year $100.0 million senior secured revolving credit facility (the “Revolving Facility,” and, together with the Term Facility, the “Secured Credit Facility”), which replaced our prior $150.0 million 5-year revolving unsecured credit facility (the “Prior Credit Agreement”), which was terminated in connection with entry into the Senior Credit Facility. Borrowings under the Senior Credit Facility were used to refinance existing indebtedness of $25.0 million outstanding under the Prior Credit Agreement and will be used to support working capital and general corporate purposes. As of December 31, 2019, we have availability under the Revolving Facility of $34.3 million. For additional information on the Senior Credit Facility and the Prior Credit Agreement, see Note 12 to the consolidated financial statements in Item 8 of this Form 10-K.

Cash held outside the U.S. at December 31, 2019 was $75.7 million, or 56.6% of total cash and cash equivalents, compared to $73.3 million, or 66.7% of total cash and cash equivalents at December 31, 2018. As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant additional taxes related to such amounts. However, our estimates are provisional and subject to further analysis. Cash equivalents are comprised of funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short term nature of these instruments. We strive to minimize our credit risk by investing primarily in investment grade, liquid instruments and limit exposure to any one issuer depending upon credit quality. See “Cash flow” discussion below.

Days sales outstanding (DSO) was 67 at December 31, 2019, compared to 69 days for the year at December 31, 2018. Accounts receivable more than 90 days past due increased to 12.1% of gross receivables at December 31, 2019, from 8.9% at December 31, 2018. We review specific receivables periodically to determine the appropriate reserve for accounts receivable.

The majority of our inventory consists of finished goods, including products, materials and service parts. Inventory also consists of raw materials for certain printers and service products. Inventory balances may fluctuate during cycles of new product launch, commercialization and timing of ramp up of production and sales of products.

The changes that make up the other components of working capital not discussed above resulted from the ordinary course of business. Differences between the amounts of working capital item changes in the cash flow statement and the balance sheet changes for the corresponding items are primarily the result of foreign currency translation adjustments.

Cash flow

Cash flow from operations

Cash provided by operating activities for the years ended December 31, 2019 and 2018 was $31.6 million and $4.8 million, respectively. Excluding non-cash charges from depreciation and amortization of $50.4 million, stock-based compensation of $23.6 million and other expenses of $2.0 million, the net loss provided cash of $6.3 million and $44.1 million for the years ended December 31, 2019 and December 31, 2018, respectively. Non-cash charges generally consist of depreciation, amortization and stock-based compensation.

Improvements in working capital provided cash of $25.3 million for the year ended December 31, 2019 and working capital requirements used cash of $39.3 million for the year ended December 31, 2018. For the year ended December 31, 2019, drivers of working capital related to cash inflows were a decrease in accounts receivable, inventory and prepaid expenses and other current assets; partially offset by a decrease in accounts payable and accrued and other current liabilities.

Cash flow from investing activities

The primary outflow of cash for the years ended December 31, 2019 and 2018 relate to investments in our facilities including our customer innovation centers, healthcare and on-demand facilities as well as continued investments in our IT infrastructure. Fluctuations of cash used result from the timing of project starts and completions.

Acquisitions

We made no acquisitions during the years ended December 31, 2019 and 2018.

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Cash flow from financing activities

Cash provided by financing activities was $18.7 million and $14.3 million for the years ended December 31, 2019 and 2018, respectively. The primary inflow of cash for the year ended December 31, 2019 relates to borrowing on the Term Facility, partially offset by repayments under the Prior Credit Agreement and Term Facility, settlement of stock-based compensation and the purchase of non-controlling interest. The primary source of cash for the year ended December 31, 2018 was a $25.0 million draw on our revolving credit line pursuant to the Prior Credit Agreement in the fourth quarter, offset by outflows of cash related to the settlement of stock-based compensation and payments on earnout provisions.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements and do not utilize any “structured debt,” “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

Contractual Obligations and Commercial Commitments

The table below summarizes our contractual obligations as of December 31, 2019.

Table 9

Payments Due by Period
(Dollars in thousands)Less than 1 year1-3 years4-5 yearsAfter 5 yearsTotal
Long-term debt obligations$2,506  11,275  $34,451  $—  $48,232  
Operating lease obligations a
11,013  13,906  9,158  6,728  40,805  
Finance lease obligations a
965  2,948  2,889  8,242  15,044  
Purchase commitments b
53,562  —  —  —  53,562  
Total$68,046  $28,129  $46,498  $14,970  $157,643  

a.We lease certain facilities under non-cancelable operating and finance agreements. The leases are generally on a net-rent basis, under which we pay taxes, maintenance and insurance. For further discussion, see Note 5 to the consolidated financial statements in Item 8 of this Form 10-K.

b.Includes amounts committed under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of delivery. For further discussion, see Note 22 to the consolidated financial statements in Item 8 of this Form 10-K.

Other Contractual Commitments

Credit facilities

In October 2014, we entered into the Prior Credit Agreement. As of December 31, 2018, there was $25.0 million outstanding balance under the Prior Credit Agreement. The Prior Credit Agreement contained customary covenants, some of which required us to maintain certain financial ratios that determined the amounts available and terms of borrowings and events of default. The Prior Credit Agreement was terminated on February 27, 2019. See Note 12 to the consolidated financial statements in Item 8 of this Form 10-K.

On February 27, 2019, we entered into the Senior Credit Facility, which replaced the Prior Credit Agreement. Borrowings under the Senior Credit Facility were used to refinance the existing indebtedness under the Prior Credit Agreement and will be used to support working capital and for general corporate purposes. For further discussion of the Senior Credit Facility, see Note 12 to the consolidated financial statements in Item 8 of this Form 10-K.

We were in compliance with all covenants at both December 31, 2019 and December 31, 2018.

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Redeemable noncontrolling interests

Owners of noncontrolling interests in a certain subsidiary held the right to require us to acquire either a portion of or all of the remaining ownership interests held by them. The owners’ ability to exercise any such “put option” right was subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specified timing of the exercise date. The “put option” right was recorded as mezzanine equity on the consolidated balance sheet at December 31, 2018 at its estimated redemption amount.

On November 19, 2019, we and the noncontrolling interest owners entered into an agreement to amend and restate the subsidiary’s operating agreement, specifically amending the terms to the “put option” right and the exercise procedures thereof. On November 25, 2019, the noncontrolling interest owners exercised the “put option” right for all of the remaining ownership interests held by them. This amount has been adjusted to the current redemption price of $10.0 million and recorded in accrued and other liabilities on the consolidated balance sheet at December 31, 2019. We paid the full amount of the redemption on January 7, 2020, subsequent to year-end. See Note 2 and Note 18 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Indemnification

In the normal course of business we periodically enter into agreements to indemnify customers or suppliers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant. We are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

To the extent permitted under Delaware law, we indemnify our directors and officers for certain events or occurrences while the director or officer is, or was, serving at our request in such capacity, subject to limited exceptions. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have directors’ and officers’ insurance coverage that may enable us to recover future amounts paid, subject to a deductible and to the policy limits.

Financial Instruments

We conduct business in various countries using both the functional currencies of those countries and other currencies to effect cross border transactions. As a result, we are subject to the risk that fluctuations in foreign exchange rates between the dates that those transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, we endeavor to match assets and liabilities in the same currency on our balance sheet and those of our subsidiaries in order to reduce these risks. We also, when we consider it to be appropriate, enter into foreign currency contracts to hedge exposures arising from those transactions. We had $102.4 million and $75.3 million in notional foreign exchange contracts outstanding as of December 31, 2019 and 2018, respectively. The fair value of these contracts was not material. For our hedges of foreign exchange rates, we have elected to not prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, changes in fair value are recognized in interest and other expense, net in the consolidated statements of operations and comprehensive loss and, depending on the fair value at the end of the reporting period, derivatives are recorded either in prepaid and other current assets or in accrued liabilities in the consolidated balance sheets.

We use derivative financial instruments to manage our exposure to changes in interest rates on outstanding debt instruments. In doing so, we have elected to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, related gains and losses (realized or unrealized) related to derivative instruments are recognized in accumulated other comprehensive income (loss) and are reclassified into earnings when the underlying transaction is recognized in net earnings and, depending on the fair value at the end of the reporting period, derivatives are recorded either in prepaid and other current assets or in accrued liabilities in the consolidated balance sheets.

We do not hedge for trading or speculative purposes, and our foreign currency contracts are generally short-term in nature, typically maturing in 90 days or less.

See Note 13 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

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Critical Accounting Policies and Significant Estimates

We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses, gains and losses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.

Please see Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a summary of significant accounting policies and the effect on our financial statements.

Revenue recognition

Revenue is recognized when control of the promised products or services is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. A majority of our revenue is recognized at the point in time when products are shipped or services are delivered to customers.

We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Many of its contracts with customers include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, we estimate SSP using historical transaction data. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, we determine the SSP using information that may include market conditions and other observable inputs.

In some circumstances, we have more than one SSP for individual products and services due to the stratification of those products and services by customers, geographic region or other factors. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.

The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSP reflects the most current information or trends.

The nature of our marketing incentives may lead to consideration that is variable. Judgment is exercised at contract inception to determine the expected value of the contract and resulting transaction price. Ongoing assessments are performed to determine if updates are needed to the original estimates.

See Note 2 and Note 4 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Allowance for doubtful accounts 

In evaluating the collectability of our accounts receivable, we assess a number of factors, including specific customers’ abilities to meet their financial obligations to us, the length of time receivables are past due and historical collection experience. Based on these assessments, we may record a reserve for specific customers, as well as a general reserve and allowance for returns and discounts. If circumstances related to specific customers change, or economic conditions deteriorate such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

We evaluate specific accounts for which we believe a customer may have an inability to meet their financial obligations (for example, aging over 90 days past due or bankruptcy). In these cases, we use our judgment, based on available facts and circumstances, and record a specific reserve for that customer to reduce the receivable to an amount we expect to collect. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. 

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Income taxes 

We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Services (“IRS”) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.

Inventories    

Inventories are stated at the lower of cost or net realizable value, with cost being determined using the first-in, first-out method.

The inventory reserve is a critical estimate as there is rapid technological change in our industry impacting the market for our products and there is significant judgment in estimating the amount of spare parts to keep on hand to service previously sold printers for periods of up 10 or more years.

See Note 6 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Goodwill

We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived asset over its estimated fair value as determined by discounted projected cash flows.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually or when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. The test for goodwill impairment is a two-step process to first identify potential goodwill impairment for each reporting unit by comparing the fair value of each of our reporting units to its respective carrying value and then, if necessary, measure the amount of the impairment loss. The process requires a significant level of estimation and use of judgment by management, particularly the estimate of the fair value of our reporting units. Our reporting units are consistent with our operating segments described in Note 21 to the consolidated financial statements in Item 8 of this Form 10-K.

We estimate the fair value of our reporting units based primarily on the discounted projected cash flows of the underlying operations, which requires us to make assumptions about estimated cash flows, including profit margins, long-term forecasts, discount rates and terminal growth rates. We developed these assumptions based on the market and geographic risks unique to each reporting unit.

Our EMEA, APAC and Americas reporting units carry approximately $186.7 million, $36.5 million and zero of goodwill, respectively, as of December 31, 2019. Goodwill in the Americas region was written off in 2015. The net carrying values of our long-lived assets in the EMEA, APAC, and Americas regions are approximately $67.5 million, $7.8 million, and $65.9 million, respectively. In our 2019 impairment testing, we determined the EMEA and APAC reporting units had fair values in excess of their carrying values. Our 2019 impairment testing also indicated no impairment of long-lived assets in the Americas region as the undiscounted cash flows were in excess of the carrying value of long-lived assets. This headroom and recoverability were driven by our forecasts of future operating performance as well as external market indicators.

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Our operating performance through December 31, 2019 has been negatively impacted by macroeconomic factors, the decrease and mix of sales, and the ordering patterns of a large enterprise customer. We are taking actions to counter these factors, including reducing our cost structure by focusing on cost of sales and operating expenses to drive future profitability. In the event that these matters are not satisfactorily resolved, we could experience a triggering event or impairment of our goodwill or long-lived asset balances in future periods.

We conducted our annual impairment testing for the years ended December 31, 2019 and 2018 in the fourth quarters. There was no goodwill impairment for the years ended December 31, 2019 and 2018.

Contingencies 

We record an estimated loss from a contingency when information indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies requires us to use our judgment and the ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

See Note 22 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for recently issued accounting standards, including the expected dates of adoption and expected impact to the consolidated financial statements upon adoption.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks from fluctuations in interest rates, foreign currency exchange rates and commodity prices, which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, when we consider it to be appropriate, through the use of derivative financial instruments. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.

Interest rates

Our earnings exposure related to movements in interest rates is primarily derived from variable interest rate borrowings. At December 31, 2019, we had $48.2 million in variable-rate debt, of which $8.2 million was not subject to interest rate swap agreements. A hypothetical interest rate change of 10% would not have a material impact on annualized interest expense.

Foreign exchange rates

Because we conduct our operations in many areas of the world involving transactions denominated in a variety of currencies, our results of operations as expressed in U.S. dollars may be significantly affected by fluctuations in rates of exchange between currencies. These fluctuations could be significant. In 2019, approximately 51.3% of our net sales and a significant portion of our costs were denominated in currencies other than the dollar. We generally are unable to adjust our non-dollar local currency sales prices to reflect changes in exchange rates between the dollar and the relevant local currency. As a result, changes in exchange rates between the euro, Japanese yen, British pound, South Korean won or other currencies in which we receive sale proceeds and the dollar have a direct impact on our operating results. There is normally a time lag between our sales and collection of the related sales proceeds, exposing us to additional currency exchange rate risk.

When practicable, we endeavor to match assets and liabilities in the same currency on our U.S. balance sheet and those of our subsidiaries in order to reduce these risks. We also, when we consider it appropriate, enter into foreign currency contracts to hedge exposures arising from those transactions.

At December 31, 2019, a hypothetical change of 10% in foreign currency exchange rates would cause a change in revenue of approximately $28.5 million, assuming all other variables remained constant.

We enter into foreign currency forward contracts to reduce the effect of fluctuating foreign currencies. At December 31, 2019, we had notional forward exchange contracts outstanding of $102.4 million. We believe these foreign currency forward contracts and the offsetting underlying commitments, when taken together, do not create material market risk.

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Commodity prices

We are exposed to price volatility related to raw materials and energy products in conjunction with our printer assembly and print materials blending processes. Generally, we acquire such components at market prices and do not use financial instruments to hedge commodity prices. At December 31, 2019, a hypothetical 10% change in commodity prices for raw materials would cause a change to cost of sales of approximately $5.2 million.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements and the related notes, together with the Report of Independent Registered Public Accounting Firm thereon, are set forth below beginning on page F-1 and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e), as of December 31, 2019.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2019 that our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control framework and processes were designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
Provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and Directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changing conditions, effectiveness of internal control over financial reporting may vary over time.  Management assessed the effectiveness of our internal control over financial reporting and concluded that, as of December 31, 2019, such internal control was effective at the reasonable assurance level described above.  

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report included in Item 8 of this Form 10-K.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

Item 9B. Other Information

None.


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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required in response to this Item will be set forth in our Proxy Statement for our 2020 Annual Meeting of Stockholders (“Proxy Statement”) under the captions “Proposal One: Election of Directors,” “Corporate Governance Matters,” “Delinquent Section 16(a) Reports,” “Corporate Governance Matters—Code of Conduct and Code of Ethics,” “Co