UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

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

__________________________

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 class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	DDD	New York Stock Exchange

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, 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. (Check one):

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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. ☐

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

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 July 31, 2020: 121,135,104

1

3D SYSTEMS CORPORATION

Form 10-Q

For the Quarter and Six Months Ended June 30, 2020

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	31
Item 4. Controls and Procedures.	31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.	32
Item 1A. Risk Factors.	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	33
Item 6. Exhibits.	35

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)	June 30, 2020 (unaudited)		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	63,922	$	133,665
Accounts receivable, net of reserves — $9,408 and $8,762	97,708		109,408
Inventories	125,077		111,106
Prepaid expenses and other current assets	38,737		18,991
Total current assets	325,444		373,170
Property and equipment, net	85,727		92,940
Intangible assets, net	40,269		48,338
Goodwill	221,446		223,176
Right of use assets	48,043		36,890
Deferred income tax asset	5,327		5,408
Other assets, net	24,955		27,390
Total assets	$	751,211	$	807,312
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	1,465	$	2,506
Current right of use liabilities	9,760		9,569
Accounts payable	52,172		49,851
Accrued and other liabilities	63,003		63,095
Customer deposits	4,749		5,712
Deferred revenue	39,499		32,231
Total current liabilities	170,648		162,964
Long-term debt, net of deferred financing costs	20,063		45,215
Long-term right of use liabilities	46,339		35,402
Deferred income tax liability	3,275		4,027
Other liabilities	47,458		45,808
Total liabilities	287,783		293,416
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.001 par value, authorized 220,000 shares; issued 124,252 and 121,266	124		120
Additional paid-in capital	1,377,468		1,371,564
Treasury stock, at cost — 4,543 shares and 3,670 shares	(22,590)		(18,769)
Accumulated deficit	(850,584)		(793,709)
Accumulated other comprehensive loss	(40,990)		(37,047)
Total 3D Systems Corporation stockholders' equity	463,428		522,159
Noncontrolling interests	—		(8,263)
Total stockholders’ equity	463,428		513,896
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	751,211	$	807,312

See accompanying notes to condensed consolidated financial statements.

3

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Revenue:
Products	$	61,496	$	93,758	$	140,305	$	186,105
Services	50,564		63,514		106,460		123,147
Total revenue	112,060		157,272		246,765		309,252
Cost of sales:
Products	52,489		53,005		101,385		108,765
Services	24,404		30,968		53,081		61,483
Total cost of sales	76,893		83,973		154,466		170,248
Gross profit	35,167		73,299		92,299		139,004
Operating expenses:
Selling, general and administrative	52,042		71,654		108,148		136,761
Research and development	16,997		20,811		36,241		42,714
Total operating expenses	69,039		92,465		144,389		179,475
Loss from operations	(33,872)		(19,166)		(52,090)		(40,471)
Interest and other (expense) income, net	(2,615)		(2,755)		(5,179)		(3,957)
Loss before income taxes	(36,487)		(21,921)		(57,269)		(44,428)
(Provision) benefit for income taxes	(1,464)		(1,938)		394		(3,782)
Net loss	(37,951)		(23,859)		(56,875)		(48,210)
Less: net income attributable to noncontrolling interests	—		70		—		114
Net loss attributable to 3D Systems Corporation	$	(37,951)	$	(23,929)	$	(56,875)	$	(48,324)
Net loss per share available to 3D Systems Corporation common stockholders - basic and diluted	$	(0.33)	$	(0.21)	$	(0.49)	$	(0.43)

See accompanying notes to condensed consolidated financial statements.

4

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net loss	$	(37,951)	$	(23,859)	$	(56,875)	$	(48,210)
Other comprehensive income (loss), net of taxes:
Pension adjustments	13		24		177		116
Derivative financial instruments	1,235		—		(424)		—
Foreign currency translation	7,037		1,999		(3,135)		1,247
Total other comprehensive income (loss), net of taxes	8,285		2,023		(3,382)		1,363
Total comprehensive loss, net of taxes	(29,666)		(21,836)		(60,257)		(46,847)
Comprehensive income attributable to noncontrolling interests	—		44		—		68
Comprehensive loss attributable to 3D Systems Corporation	$	(29,666)	$	(21,880)	$	(60,257)	$	(46,915)

See accompanying notes to condensed consolidated financial statements.

5

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2020		2019
Cash flows from operating activities:
Net loss	$	(56,875)	$	(48,210)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	23,059		26,574
Stock-based compensation	13,606		13,592
Provision for inventory obsolescence and revaluation	10,894		—
Loss on hedge accounting de-designation	1,235		—
Provision for bad debts	1,198		1,169
Loss on the disposition of property, equipment and other assets	(134)		1,103
Provision for deferred income taxes	(671)		(852)
Impairment of assets	1,100		1,728
Changes in operating accounts:
Accounts receivable	12,639		11,213
Inventories	(24,544)		(3,124)
Prepaid expenses and other current assets	(19,976)		(1,494)
Accounts payable	2,470		(7,560)
Deferred revenue and customer deposits	6,678		9,300
Accrued and other current liabilities	3,637		(2,333)
All other operating activities	4,666		2,445
Net cash (used in) provided by operating activities	(21,018)		3,551
Cash flows from investing activities:
Purchases of property and equipment	(7,162)		(14,353)
Proceeds from sale of assets	552		—
Purchase of noncontrolling interest	(12,500)		(2,500)
Other investing activities	(474)		105
Net cash used in investing activities	(19,584)		(16,748)
Cash flows from financing activities:
Proceeds from borrowings	—		100,000
Repayment of borrowings/long-term debt	(26,254)		(45,000)
Proceeds from inventory financing agreements	2,509		—
Payments related to net-share settlement of stock-based compensation	(3,821)		—
Other financing activities	296		(1,898)
Net cash (used in) provided by financing activities	(27,270)		53,102
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,856)		517
Net (decrease) increase in cash, cash equivalents and restricted cash	(69,728)		40,422
Cash, cash equivalents and restricted cash at the beginning of the period (a)	134,617		110,919
Cash, cash equivalents and restricted cash at the end of the period (a)	$	64,889	$	151,341

Supplemental cash flow information
Cash interest payments	$	1,519	$	1,975
Cash income tax payments, net	$	2,617	$	6,739
Transfer of equipment from inventory to property and equipment, net (b)	$	575	$	2,034

Noncash financing activity
Purchase of noncontrolling interest (c)	$	—	$	(11,000)

(a)The amounts for cash and cash equivalents shown above include restricted cash of $967 and $944 as of June 30, 2020 and 2019, respectively, and $952 and $921 as of December 31, 2019, and 2018, respectively, which were included in Other assets, net, in the condensed consolidated balance sheets.

(b)Inventory is transferred from inventory to property and equipment at cost when we require additional machines for training or demonstration or for placement into on demand manufacturing services locations.

(c)Purchase of noncontrolling interest to be paid in installments over a four-year period recorded to Accrued and other liabilities and Other liabilities on the condensed consolidated balance sheets.

See accompanying notes to condensed consolidated financial statements.

6

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

	Quarters Ended June 30, 2020 and 2019
	Common Stock
(in thousands, except par value)	Par Value $0.001		Additional Paid In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total 3D Systems Corporation Stockholders' Equity		Equity Attributable to Noncontrolling Interests		Total Stockholders' Equity
March 31, 2020	$	121	$	1,370,174	$	(19,718)	$	(812,633)	$	(49,275)	$	488,669	$	—	$	488,669
Issuance (repurchase) of stock	3		—		(2,872)		—		—		(2,869)		—		(2,869)
Stock-based compensation expense	—		7,294		—		—		—		7,294		—		7,294
Net income (loss)	—		—		—		(37,951)		—		(37,951)		—		(37,951)
Pension adjustment	—		—		—		—		13		13		—		13
De-designation of derivative instrument	—		—		—		—		1,235		1,235		—		1,235
Foreign currency translation adjustment	—		—		—		—		7,037		7,037		—		7,037
June 30, 2020	$	124	$	1,377,468	$	(22,590)	$	(850,584)	$	(40,990)	$	463,428	$	—	$	463,428
March 31, 2019	$	118	$	1,354,683	$	(16,056)	$	(747,096)	$	(39,362)	$	552,287	$	(8,430)	$	543,857
Issuance (repurchase) of stock	2		—		(463)		—		—		(461)		—		(461)
Stock-based compensation expense	—		6,886		—		—		—		6,886		—		6,886
Net income (loss)	—		—		—		(23,929)		—		(23,929)		70		(23,859)
Pension adjustment	—		—		—		—		24		24		—		24
Foreign currency translation adjustment	—		—		—		—		2,025		2,025		(26)		1,999
June 30, 2019	$	120	$	1,361,569	$	(16,519)	$	(771,025)	$	(37,313)	$	536,832	$	(8,386)	$	528,446

See accompanying notes to condensed consolidated financial statements.

7

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

(Unaudited)

	Six Months Ended June 30, 2020 and 2019
	Common Stock
(in thousands, except par value)	Par Value $0.001		Additional Paid In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total 3D Systems Corporation Stockholders' Equity		Equity Attributable to Noncontrolling Interests		Total Stockholders' Equity
December 31, 2019	$	120	$	1,371,564	$	(18,769)	$	(793,709)	$	(37,047)	$	522,159	$	(8,263)	$	513,896
Issuance (repurchase) of stock	4		—		(3,821)		—		—		(3,817)		—		(3,817)
Acquisition of non-controlling interest	—		(7,702)		—		—		(561)		(8,263)		8,263		—
Stock-based compensation expense	—		13,606		—		—		—		13,606		—		13,606
Net income (loss)	—		—		—		(56,875)		—		(56,875)		—		(56,875)
Pension adjustment	—		—		—		—		177		177		—		177
Derivative financial instrument loss	—		—		—		—		(1,659)		(1,659)		—		(1,659)
De-designation of derivative instrument	—		—		—		—		1,235		1,235		—		1,235
Foreign currency translation adjustment	—		—		—		—		(3,135)		(3,135)		—		(3,135)
June 30, 2020	$	124	$	1,377,468	$	(22,590)	$	(850,584)	$	(40,990)	$	463,428	$	—	$	463,428
December 31, 2018	$	117	$	1,355,503	$	(15,572)	$	(722,701)	$	(38,978)	$	578,369	$	(2,382)	$	575,987
Issuance (repurchase) of stock	3		—		(947)		—		—		(944)		—		(944)
Acquisition of non-controlling interest	—		(7,526)		—		—		256		(7,270)		(6,072)		(13,342)
Stock-based compensation expense	—		13,592		—		—		—		13,592		—		13,592
Net income (loss)	—		—		—		(48,324)		—		(48,324)		114		(48,210)
Pension adjustment	—		—		—		—		116		116		—		116
Foreign currency translation adjustment	—		—		—		—		1,293		1,293		(46)		1,247
June 30, 2019	$	120	$	1,361,569	$	(16,519)	$	(771,025)	$	(37,313)	$	536,832	$	(8,386)	$	528,446

See accompanying notes to condensed consolidated financial statements.

8

3D SYSTEMS CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of 3D Systems Corporation and all majority-owned subsidiaries and entities in which a controlling interest is maintained (“3D Systems” or the “Company” or “we” or “us”). All significant intercompany transactions and balances have been eliminated in consolidation. A non-controlling interest in a subsidiary is considered an ownership interest in a majority-owned subsidiary that is not attributable to the parent. We include noncontrolling interests as a component of total equity in the condensed consolidated balance sheets and the net income attributable to noncontrolling interests are presented as an adjustment from net loss used to arrive at net loss attributable to 3D Systems Corporation in the condensed consolidated statements of operations and comprehensive loss. As of March 31, 2020, there were no longer any non-controlling interests held by us.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim reports. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”). Our annual reporting period is the calendar year.

In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the quarter ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from those estimates and assumptions.

Our operations in Americas, EMEA and APAC expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic. While the COVID-19 pandemic has impacted the Company’s reported results for the second quarter, we are unable to predict the longer-term impact that the pandemic may have on our business, results of operations, financial position or cash flows. The extent to which our operations may be impacted by the dynamic nature of the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the financial markets remain unknown. Additional information regarding COVID-19 risks appears in Part II, Item 1A, “Risk Factors” of the Form 10-Q for the quarter ended March 31, 2020.

All dollar amounts presented in the accompanying footnotes are presented in thousands, except for per share information.

Recently Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), as revised in July 2018, which provides guidance regarding the measurement of credit losses for financial assets and certain other instruments that are not accounted for at fair value through net income, including trade and other receivables, debt securities, net investment in sales type and direct financing leases, and off-balance sheet credit exposures. The new guidance requires companies to replace the current incurred loss impairment methodology with a methodology that measures all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted this guidance during the first quarter of 2020. The implementation did not have a material effect on our financial position or results of operations.

9

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The Company adopted this guidance during the first quarter of 2020. The implementation did not have a material effect on our financial position or results of operations.

Accounting Standards Issued But Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification 740, Income Taxes. It also clarifies certain aspects of the existing guidance to promote more consistent application. This standard is effective for calendar-year public business entities in 2021 and interim periods within that year, and early adoption is permitted. We are currently not early adopting and are in the process of evaluating the impact the new standard will have on our consolidated financial statements.

No other new accounting pronouncements, issued or effective during 2020, have had or are expected to have a significant impact on our consolidated financial statements.

(2) Revenue

We account for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers.”

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

At June 30, 2020, we had $88,744 of outstanding performance obligations, comprised of deferred revenue, customer order backlog and customer deposits. We expect to recognize approximately 92 percent of our remaining performance obligations as revenue within the next twelve months, an additional 4 percent by the end of 2021 and the balance thereafter.

Revenue Recognition

Revenue is recognized when control of the promised products or services is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Many of our contracts with customers include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative stand-alone selling price (“SSP”). Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. The amount of consideration received and revenue recognized may vary based on changes in marketing incentive programs offered to our customers. Our marketing incentive programs take many forms, including volume discounts, trade-in allowances, rebates and other discounts.

A majority of our revenue is recognized at the point in time when products are shipped or services are delivered to customers. Please see below for further discussion.

Hardware and Materials

Revenue from hardware and material sales is recognized when control has transferred to the customer, which typically occurs when the goods have been shipped to the customer, risk of loss has transferred to the customer and we have a present right to payment. In limited circumstances, when printer or other hardware sales include substantive customer acceptance provisions, revenue is recognized either when customer acceptance has been obtained, customer acceptance provisions have lapsed, or we have objective evidence that the criteria specified in the customer acceptance provisions have been satisfied.

10

Printers and certain other products include a warranty under which we provide maintenance for periods up to one year. For these initial product warranties, estimated costs are accrued at the time of the sale of the product. These cost estimates are established using historical information on the nature, frequency and average cost of claims for each type of printer or other product as well as assumptions about future activity and events. Revisions to expense accruals are made as necessary based on changes in these historical and future factors.

Software

We also market and sell software tools that enable our customers to capture and customize content using our printers, design optimization and simulation software, and reverse engineering and inspection software. Software does not require significant modification or customization and the license provides the customer with a right to use the software as it exists when made available. Revenue from these software licenses is recognized either upon delivery of the product or of a key code which allows the customer to download the software. Customers may purchase post-sale support. Generally, the first year is included but subsequent years are optional. This optional support is considered a separate obligation from the software and is deferred at the time of sale and subsequently recognized ratably over future periods.

Services

We offer training, installation and non-contract maintenance services for our products. Additionally, we offer maintenance contracts customers can purchase at their option. For maintenance contracts, revenue is deferred at the time of sale based on the stand-alone selling prices of these services and costs are expensed as incurred. Deferred revenue is recognized ratably over the term of the maintenance period on a straight-line basis. Revenue from training, installation and non-contract maintenance services is recognized at the time of performance of the service.

On demand manufacturing and healthcare service sales are included within services revenue and revenue is recognized upon shipment or delivery of the parts or performance of the service, based on the terms of the arrangement.

Terms of sale

Shipping and handling activities are treated as fulfillment costs rather than as an additional promised service. We accrue the costs of shipping and handling when the related revenue is recognized. Our incurred costs associated with shipping and handling are included in product cost of sales.

Credit is extended, and creditworthiness is determined, based on an evaluation of each customer’s financial condition. New customers are generally required to complete a credit application and provide references and bank information to facilitate an analysis of creditworthiness. Customers with a favorable profile may receive credit terms that differ from our general credit terms. Creditworthiness is considered, among other things, in evaluating our relationship with customers with past due balances.

Our terms of sale generally provide payment terms that are customary in the countries where we transact business. To reduce credit risk in connection with certain sales, we may, depending upon the circumstances, require significant deposits or payment in full prior to shipment. For maintenance services, we either bill customers on a time-and-materials basis or sell maintenance contracts that provide for payment in advance on either an annual or other periodic basis.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, we allocate revenues to each performance obligation based on its relative SSP.

Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, we estimate SSP using historical transaction data. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, we determine the SSP using information that may include market conditions and other observable inputs.

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

11

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

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

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer deposits and deferred revenues (contract liabilities) on the condensed consolidated balance sheets. Timing of revenue recognition may differ from the timing of invoicing to customers. We record a receivable when revenue is recognized at the time of invoicing, or unbilled receivables when revenue is recognized prior to invoicing. For most of our contracts, customers are invoiced when products are shipped or when services are performed resulting in billed accounts receivables for the remainder of the owed contract price. Unbilled receivables generally result from items being shipped where the customer has not been charged, but for which revenue had been recognized. In our on demand manufacturing business, customers may be required to pay in full before work begins on their orders, resulting in customer deposits. We typically bill in advance for installation, training and maintenance contracts as well as extended warranties, resulting in deferred revenue. Changes in contract asset and liability balances were not materially impacted by any other factors for the period ended June 30, 2020.

Through June 30, 2020, we recognized revenue of $21,103 related to our contract liabilities at December 31, 2019.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within selling, general and administrative expenses.

(3) Leases

We have various lease agreements for our facilities, equipment and vehicles with remaining lease terms ranging from one to sixteen years. We determine if an arrangement contains a lease at inception. Some leases include the options to purchase, terminate or extend for one or more years; these options are included in the right-of-use (“ROU”) asset and liability lease term when it is reasonably certain an option will be exercised. Our leases do not contain any material residual value guarantees or material restrictive covenants.

Most of our leases do not provide an implicit rate, therefore we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of the future lease payments.

Certain of our leases include variable costs. Variable costs include non-lease components that were incurred based upon actual terms rather than contractually fixed amounts. In addition, variable costs are incurred for lease payments that are indexed to a change in rate or index. Because the ROU asset recorded on the balance sheet was determined based upon factors considered at the commencement date, subsequent changes in the rate or index that were not contemplated in the ROU asset balances recorded on the balance sheet result in variable expenses being incurred when paid during the lease term.

Components of lease cost (income) were as follows:

	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Operating lease cost	$	2,999	$	3,675	$	6,007	$	7,464
Finance lease cost - amortization expense	220		212		435		418
Finance lease cost - interest expense	164		115		327		230
Short-term lease cost	26		26		53		50
Variable lease cost	195		94		245		35
Sublease income	(152)		—		(304)		—
Total	$	3,452	$	4,122	$	6,763	$	8,197

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Balance sheet classifications at June 30, 2020 and December 31, 2019 are summarized below:

	2020						2019
(in thousands)	Right of use assets		Current right of use liabilities		Long-term right of use liabilities		Right of use assets		Current right of use liabilities		Long-term right of use liabilities
Operating Leases	$	40,268	$	8,858	$	36,373	$	28,571	$	9,231	$	24,835
Finance Leases	7,775		902		9,966		8,319		338		10,567
Total	$	48,043	$	9,760	$	46,339	$	36,890	$	9,569	$	35,402

Our future minimum lease payments as of June 30, 2020 under operating lease and finance leases, with initial or remaining lease terms in excess of one year, were as follows:

	June 30, 2020
(in thousands)	Operating Leases		Finance Leases
Years ending June 30:
2021	$	11,104	$	1,639
2022	8,969		1,536
2023	7,500		1,533
2024	6,609		1,491
2025	4,775		1,375
Thereafter	17,399		7,066
Total lease payments	56,356		14,640
Less: imputed interest	(11,125)		(3,772)
Present value of lease liabilities	$	45,231	$	10,868

Supplemental cash flow information related to our operating leases for the periods ending June 30, 2020 and June 30, 2019 were as follows: