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 September 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.

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 per share, outstanding as of November 2, 2020: 124,141,935

1

3D SYSTEMS CORPORATION

Form 10-Q

For the Quarter and Nine Months Ended September 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.	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	33
Item 4. Controls and Procedures.	33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.	33
Item 1A. Risk Factors.	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	34
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)	September 30, 2020 (unaudited)		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	75,264	$	133,665
Accounts receivable, net of reserves — $8,243 and $8,762	98,755		109,408
Inventories	126,882		111,106
Prepaid expenses and other current assets	34,671		18,991
Total current assets	335,572		373,170
Property and equipment, net	81,433		92,940
Intangible assets, net	36,888		48,338
Goodwill	179,536		223,176
Right of use assets	44,366		36,890
Deferred income tax asset	6,502		5,408
Other assets, net	22,985		27,390
Total assets	$	707,282	$	807,312
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	1,758	$	2,506
Current right of use liabilities	9,431		9,569
Accounts payable	41,674		49,851
Accrued and other liabilities	66,749		63,095
Customer deposits	4,463		5,712
Deferred revenue	36,353		32,231
Total current liabilities	160,428		162,964
Long-term debt, net of deferred financing costs	19,804		45,215
Long-term right of use liabilities	44,521		35,402
Deferred income tax liability	5,121		4,027
Other liabilities	48,890		45,808
Total liabilities	278,764		293,416
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.001 par value, authorized 220,000 shares; issued 127,664 and 121,266	128		120
Additional paid-in capital	1,404,265		1,371,564
Treasury stock, at cost — 3,456 shares and 3,670 shares	(22,590)		(18,769)
Accumulated deficit	(923,473)		(793,709)
Accumulated other comprehensive loss	(29,812)		(37,047)
Total 3D Systems Corporation stockholders' equity	428,518		522,159
Noncontrolling interests	—		(8,263)
Total stockholders’ equity	428,518		513,896
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	707,282	$	807,312

See accompanying notes to condensed consolidated financial statements.

3

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Revenue:
Products	$	77,267	$	94,506	$	217,572	$	280,611
Services	57,880		60,766		164,340		183,913
Total revenue	135,147		155,272		381,912		464,524
Cost of sales:
Products	49,010		58,044		150,395		166,809
Services	27,510		29,947		80,591		91,430
Total cost of sales	76,520		87,991		230,986		258,239
Gross profit	58,627		67,281		150,926		206,285
Operating expenses:
Selling, general and administrative	59,065		58,275		167,213		195,036
Research and development	18,866		20,940		55,107		63,654
Impairment of goodwill	48,300		—		48,300		—
Total operating expenses	126,231		79,215		270,620		258,690
Loss from operations	(67,604)		(11,934)		(119,694)		(52,405)
Interest and other (expense) income, net	(2,419)		(2,818)		(7,598)		(6,774)
Loss before income taxes	(70,023)		(14,752)		(127,292)		(59,179)
Provision for income taxes	(2,866)		(2,010)		(2,472)		(5,793)
Net loss	(72,889)		(16,762)		(129,764)		(64,972)
Less: net income attributable to noncontrolling interests	—		81		—		195
Net loss attributable to 3D Systems Corporation	$	(72,889)	$	(16,843)	$	(129,764)	$	(65,167)
Net loss per share available to 3D Systems Corporation common stockholders - basic and diluted	$	(0.61)	$	(0.15)	$	(1.12)	$	(0.57)

See accompanying notes to condensed consolidated financial statements.

4

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net loss	$	(72,889)	$	(16,762)	$	(129,764)	$	(64,972)
Other comprehensive income (loss), net of taxes:
Pension adjustments	(47)		91		130		207
Derivative financial instruments	11		(798)		(413)		(798)
Foreign currency translation	11,214		(8,101)		8,079		(6,854)
Total other comprehensive income (loss), net of taxes	11,178		(8,808)		7,796		(7,445)
Total comprehensive loss, net of taxes	(61,711)		(25,570)		(121,968)		(72,417)
Comprehensive income attributable to noncontrolling interests	—		60		—		128
Comprehensive loss attributable to 3D Systems Corporation	$	(61,711)	$	(25,630)	$	(121,968)	$	(72,545)

See accompanying notes to condensed consolidated financial statements.

5

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
(in thousands)	2020		2019
Cash flows from operating activities:
Net loss	$	(129,764)	$	(64,972)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	34,830		39,305
Stock-based compensation	16,621		19,221
Provision for inventory obsolescence and revaluation	10,894		—
Loss on hedge accounting de-designation	1,235		—
Provision for bad debts	1,039		1,152
Loss on the disposition of property, equipment and other assets	434		1,620
Provision for deferred income taxes	—		(1,346)
Impairment of goodwill and assets	54,072		1,728
Changes in operating accounts:
Accounts receivable	12,668		12,290
Inventories	(23,987)		6,481
Prepaid expenses and other current assets	(15,376)		(3,122)
Accounts payable	(9,166)		(12,885)
Deferred revenue and customer deposits	2,714		4,491
Accrued and other current liabilities	6,309		1,199
All other operating activities	4,828		4,922
Net cash (used in) provided by operating activities	(32,649)		10,084
Cash flows from investing activities:
Purchases of property and equipment	(11,015)		(18,265)
Proceeds from sale of assets	552		1,620
Purchase of noncontrolling interest	(12,500)		(2,500)
Other investing activities	504		(1,744)
Net cash used in investing activities	(22,459)		(20,889)
Cash flows from financing activities:
Proceeds from revolving credit facilities	20,000		—
Payments on revolving credit facilities	(20,000)		—
Proceeds from borrowings/long-term debt	—		100,000
Repayment of borrowings/long-term debt	(26,547)		(66,013)
Proceeds from issuance of common stock	25,003		—
Proceeds from inventory financing agreements	2,509		—
Payments related to net-share settlement of stock-based compensation	(5,034)		(3,029)
Other financing activities	296		(1,125)
Net cash (used in) provided by financing activities	(3,773)		29,833
Effect of exchange rate changes on cash, cash equivalents and restricted cash	526		(1,400)
Net (decrease) increase in cash, cash equivalents and restricted cash	(58,355)		17,628
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)	$	76,262	$	128,547

Supplemental cash flow information
Cash interest payments	$	1,836	$	3,020
Cash income tax payments, net	$	2,861	$	8,984
Transfer of equipment from inventory to property and equipment, net (b)	$	671	$	2,861

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

(a)The amounts for cash and cash equivalents shown above include restricted cash of $998 and $931 as of September 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 September 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
June 30, 2020	$	124	$	1,377,468	$	(22,590)	$	(850,584)	$	(40,990)	$	463,428	$	—	$	463,428
Issuance (repurchase) of stock	4		23,785		—		—		—		23,789		—		23,789
Stock-based compensation expense	—		3,012		—		—		—		3,012		—		3,012
Net income (loss)	—		—		—		(72,889)		—		(72,889)		—		(72,889)
Pension adjustment	—		—		—		—		(47)		(47)		—		(47)
Derivative financial instrument gain	—		—		—		—		11		11		—		11
Foreign currency translation adjustment	—		—		—		—		11,214		11,214		—		11,214
September 30, 2020	$	128	$	1,404,265	$	(22,590)	$	(923,473)	$	(29,812)	$	428,518	$	—	$	428,518
June 30, 2019	$	120	$	1,361,569	$	(16,519)	$	(771,025)	$	(37,313)	$	536,832	$	(8,386)	$	528,446
Issuance (repurchase) of stock	—		—		(2,082)		—		—		(2,082)		—		(2,082)
Stock-based compensation expense	—		5,629		—		—		—		5,629		—		5,629
Net income (loss)	—		—		—		(16,843)		—		(16,843)		81		(16,762)
Pension adjustment	—		—		—		—		91		91		—		91
Derivative financial instrument loss	—		—		—		—		(798)		(798)		—		(798)
Foreign currency translation adjustment	—		—		—		—		(8,080)		(8,080)		(21)		(8,101)
September 30, 2019	$	120	$	1,367,198	$	(18,601)	$	(787,868)	$	(46,100)	$	514,749	$	(8,326)	$	506,423

See accompanying notes to condensed consolidated financial statements.

7

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

(Unaudited)

	Nine Months Ended September 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	8		23,782		(3,821)		—		—		19,969		—		19,969
Acquisition of non-controlling interest	—		(7,702)		—		—		(561)		(8,263)		8,263		—
Stock-based compensation expense	—		16,621		—		—		—		16,621		—		16,621
Net income (loss)	—		—		—		(129,764)		—		(129,764)		—		(129,764)
Pension adjustment	—		—		—		—		130		130		—		130
Derivative financial instrument loss	—		—		—		—		(1,648)		(1,648)		—		(1,648)
De-designation of derivative instrument	—		—		—		—		1,235		1,235		—		1,235
Foreign currency translation adjustment	—		—		—		—		8,079		8,079		—		8,079
September 30, 2020	$	128	$	1,404,265	$	(22,590)	$	(923,473)	$	(29,812)	$	428,518	$	—	$	428,518
December 31, 2018	$	117	$	1,355,503	$	(15,572)	$	(722,701)	$	(38,978)	$	578,369	$	(2,382)	$	575,987
Issuance (repurchase) of stock	3		—		(3,029)		—		—		(3,026)		—		(3,026)
Acquisition of non-controlling interest	—		(7,526)		—		—		256		(7,270)		(6,072)		(13,342)
Stock-based compensation expense	—		19,221		—		—		—		19,221		—		19,221
Net income (loss)	—		—		—		(65,167)		—		(65,167)		195		(64,972)
Pension adjustment	—		—		—		—		207		207		—		207
Derivative financial instrument loss	—		—		—		—		(798)		(798)		—		(798)
Foreign currency translation adjustment	—		—		—		—		(6,787)		(6,787)		(67)		(6,854)
September 30, 2019	$	120	$	1,367,198	$	(18,601)	$	(787,868)	$	(46,100)	$	514,749	$	(8,326)	$	506,423

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 and nine months ended September 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 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") 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 quarter and nine months ended September 30, 2020, 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.

As of September 30, 2020, we experienced a triggering event due to a drop in our stock price, which ultimately had been negatively impacted by the business environment as a result of the COVID-19 pandemic, and performed a quantitative analysis for potential impairment of our goodwill and long-lived asset balances. Based on available information and analysis as of September 30, 2020, we determined the carrying value of the EMEA reporting unit exceeded its fair value and recorded a non-cash goodwill impairment charge of $48,300. We determined the fair value of the Americas and APAC reporting units exceeded their carrying values and the carrying value of our long-lived assets is recoverable for all reporting units.

Fair value was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to its present value, and a market approach. The valuation methodology and underlying financial information included in the Company's determination of fair value required significant judgments by management. The principal assumptions used in the Company's discounted cash flow analysis consisted of (a) the long-term projections of future financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate for a control premium.

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

9

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board ("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.

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. We followed this guidance during our goodwill impairment analysis this quarter.

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 planning to early adopt 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 September 30, 2020, we had $104,758 of outstanding performance obligations, comprised of deferred revenue, customer order backlog and customer deposits. We expect to recognize approximately 94 percent of our remaining performance obligations as revenue within the next twelve months, an additional 2 percent by the end of 2021 and the remaining 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.

10

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.

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 based 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.

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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 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 September 30, 2020.

Through September 30, 2020, we recognized revenue of $27,041 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.

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Components of lease cost (income) were as follows:

	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Operating lease cost	$	3,014	$	3,646	$	9,020	$	11,110
Loss due to remeasurement	1,627		—		1,627		—
Finance lease cost - amortization expense	241		174		681		592
Finance lease cost - interest expense	167		114		495		344
Short-term lease cost	52		30		105		80
Variable lease cost	205		102		498		137
Sublease income	(155)		(33)		(459)		(33)
Total	$	5,151	$	4,033	$	11,967	$	12,230

Balance sheet classifications at September 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	$	36,391	$	8,463	$	34,398	$	28,571	$	9,231	$	24,835
Finance Leases	7,975		968		10,123		8,319		338		10,567
Total	$	44,366	$	9,431	$	44,521	$	36,890	$	9,569	$	35,402

On September 1, 2020, we closed two facilities in connection with our restructuring plan. These facilities occupied leased office space that terminates in 2024. In conjunction with these closings, we recorded impairment charges totaling $1,627 related to our ROU assets and impairment charges totaling $1,953 related to leasehold improvements.

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

	September 30, 2020
(in thousands)	Operating Leases		Finance Leases
Years ending September 30:
2021	$	10,640	$	1,671
2022	8,846		1,630
2023	7,162		1,622
2024	6,308		1,534
2025	4,552		1,427
Thereafter	15,511		6,881
Total lease payments	53,019		14,765
Less: imputed interest	(10,158)		(3,674)
Present value of lease liabilities	$	42,861	$	11,091

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

(in thousands)	September 30, 2020		September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	9,654	$	11,657
Operating cash outflow from finance leases	$	493	$	343
Financing cash outflow from finance leases	$	186	$	513

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Weighted-average remaining lease terms and discount rate for our operating leases for the period ending September 30, 2020, were as follows:

	September 30, 2020
	Operating		Financing
Weighted-average remaining lease term	6.1 years		9.8 years
Weighted-average discount rate	6.26	%	5.97	%

(4) Inventories

Components of inventories at September 30, 2020 and December 31, 2019 are summarized as follows:

(in thousands)	September 30, 2020		December 31, 2019
Raw materials	$	40,371	$	42,066
Work in process	8,584		5,496
Finished goods and parts	77,927		63,544
Inventories	$	126,882	$	111,106

We record a reserve to the carrying value of our inventory to reflect the rapid technological change in our industry that impacts the market for our products. The inventory reserve was $18,222 and $12,812 as of September 30, 2020 and December 31, 2019, respectively.

In June 2020, as part of our assessment of prospective sales and evaluation of inventory, we determined the end-of-life for certain product lines. The end-of-life determination for these products reflects management's plans to focus our resources that are better aligned with our new strategic focus, as further discussed in Note 15. As a result, for the nine months ended September 30, 2020, we recorded a charge of $10,894 to products costs of sales, primarily attributable to inventory, accessories and inventory commitments for these products. We have ceased production for these items.

(5) Intangible Assets

Intangible assets, net, other than goodwill, at September 30, 2020 and December 31, 2019 are summarized as follows:

	2020						2019
(in thousands)	Gross (a)		Accumulated Amortization		Net		Gross (a)		Accumulated Amortization		Net		Weighted Average Useful Life Remaining (in years)
Intangible assets with finite lives:
Customer relationships	$	106,098	$	(86,068)	$	20,030	$	103,661	$	(77,021)	$	26,640	4
Acquired technology	54,795		(53,329)		1,466		54,378		(51,875)		2,503		1
Trade names	23,754		(20,224)		3,530		23,907		(19,133)		4,774		4
Patent costs	19,112		(10,345)		8,767		11,760		(9,535)		2,225		15
Trade secrets	19,857		(17,535)		2,322		19,494		(15,714)		3,780		2
Acquired patents	16,266		(15,498)		768		16,215		(14,706)		1,509		7
Other	19,707		(19,702)		5		26,256		(19,349)		6,907		1
Total intangible assets	$	259,589	$	(222,701)	$	36,888	$	255,671	$	(207,333)	$	48,338	5

(a) Change in gross carrying amounts consists primarily of charges for license and patent costs and foreign currency translation.

Amortization expense related to intangible assets was $4,260 and $12,806 for the quarter and nine months ended September 30, 2020, respectively, compared to $5,287 and $16,525 for the quarter and nine months ended September 30, 2019, respectively.

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(6) Accrued and Other Liabilities

Accrued liabilities at September 30, 2020 and December 31, 2019 are summarized as follows:

(in thousands)	2020		2019
Compensation and benefits	$	27,148	$	21,139
Vendor accruals	11,466		9,734
Accrued taxes	14,927		9,840
Accrued other	7,146		4,223
Product warranty liability	2,142		2,908
Arbitration awards	—		2,256
Accrued professional fees	2,700		1,545
Royalties payable	1,220		1,450
Payable to owners of redeemable noncontrolling interests	—		10,000
Total	$	66,749	$	63,095

Other liabilities at September 30, 2020 and December 31, 2019 are summarized as follows:

(in thousands)	2020		2019
Long-term employee indemnity	$	13,846	$	14,408
Long-term tax liability	10,999		5,011
Defined benefit pension obligation	10,770		10,357
Long-term deferred revenue	5,986		7,370
Other long-term liabilities	7,289		8,662
Total	$	48,890	$	45,808

(7) Borrowings

Credit Facility

We hold a 5-year $100,000 senior secured term loan facility (the “Term Facility”) and a 5-year $100,000 senior secured revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facility”) to support working capital and general corporate purposes. The Senior Credit Facility is guaranteed by certain of our subsidiaries. The guarantors guarantee, among other things, all our obligations and each other guarantor's obligations under the Senior Credit Facility. From time to time, we may be required to cause additional domestic subsidiaries to become guarantors under the Senior Credit Facility. The Senior Credit Facility is scheduled to mature on February 26, 2024, at which time all amounts outstanding thereunder will be due and payable. However, the maturity date of the Revolving Facility may be extended at our election with the consent of the lenders subject to the terms set forth in the Senior Credit Facility. The Senior Credit Facility contains customary covenants, some of which require us to maintain certain financial ratios that determine the amounts available and terms of borrowings and events of default. We were in compliance with all covenants at September 30, 2020.

The payment of dividends on our common stock is restricted under provisions of the Senior Credit Facility, which limits the amount of cash dividends that we may pay in any one fiscal year to $30,000. We currently do not pay, and have not paid, any dividends on our common stock, and currently intend to retain any future earnings for use in our business.

Borrowings under the Senior Credit Facility are subject to interest at varying spreads above quoted market rates and a commitment fee is paid on the total unused commitment. At September 30, 2020, our floating interest rate was 1.9%. Subject to certain terms and conditions contained in the Revolving Facility, we have the right to request up to four increases to the amount of the Revolving Facility in an aggregate amount not to exceed $100,000. As of September 30, 2020, there was $10,000 of outstanding letters of credit and $30,601 of available borrowings under the Revolving Facility.

We had a balance of $21,685 outstanding on the Term Facility at September 30, 2020, with $1,758 in principal payments due in the next twelve months.

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As a result of the Term Facility, we have exposure to floating interest rates. To manage interest expense, we entered into a floating to fixed interest rate swap to reduce exposure to changes in floating interest rates on the Term Facility. The interest rate swap at September 30, 2020 had a notional value of $15,000 and will expire on February 26, 2024, concurrent with the Term Facility. The notional value will decline over the term of the interest rate swap as amortization payments reduce the principal amount of the Term Facility. As a result of the interest rate swap, the percentage of total principal debt (excluding capital leases) that is subject to floating interest rates is approximately 31%. Due to an amendment to the swap on June 30, 2020, the swap is no longer designated as a cash flow hedge for accounting treatment purposes. See Note 8 for additional information.

On October 9, 2020, we amended the Senior Credit Facility eliminating the $50,000 cap on the sale, transfer or lease of assets, in one or more transactions in any fiscal year, while the $200,000 cap during the life of the agreement remained intact. In addition we modified the terms of LIBOR replacement when that benchmark is no longer available.

(8) Hedging Activities and Financial Instruments

Interest Rate Swap Contract

On July 8, 2019, we entered into a $50,000 interest rate swap contract, designated as a cash flow hedge, to minimize the risk associated with the variability of cash flows in interest payments from variable-rate debt due to fluctuations in the one-month USD-LIBOR, subject to a 0% floor, through February 26, 2024. Changes in the interest rate swap are expected to offset the changes in cash flows attributable to fluctuations of the one-month USD-LIBOR for the interest payments associated with our variable-rate debt.

On June 30, 2020, we executed an amendment to the swap which reduced the notional amount to $15,000 and resulted in the de-designation as a cash flow hedge. The reduction required a mark-to-market settlement of $1,253 paid in July 2020. Amounts previously recognized in Accumulated Other Comprehensive Loss ("AOCL") of $1,235 were released and reclassified into “Interest and other expense, net” on the accompanying condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2020. Subsequent to June 2020, changes in the swap’s fair value are recognized currently in earnings and included in the line item “Interest and other expense, net” and the remaining $731 in AOCL as of September 30, 2020 will be amortized to “Interest and other expense, net” when those future cash flows are expected to occur.

The notional amount and fair value of the derivative on our balance sheet at September 30, 2020 and December 31, 2019 were as follows:

(in thousands)	Balance Sheet location	Notional amount		Fair value
September 30, 2020
Interest rate swap contract	Other liabilities	$	15,000	$	(774)
December 31, 2019
Interest rate swap contract	Other liabilities	$	40,000	$	(318)

Except as noted above, amounts released from AOCL and reclassified into “Interest and other expense, net” did not have a material impact on our condensed consolidated statements of operations and comprehensive loss for the quarters and nine months ended September 30, 2020 and 2019. The net amount of AOCL expected to be reclassified to losses in the next 12 months is approximately $59.

Foreign Currency Contracts

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. When appropriate, we enter into foreign currency contracts to hedge exposures arising from those transactions. We have elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, all gains and losses (realized or unrealized) are recognized in “Interest and other expense, net” in the condensed consolidated statements of operations and comprehensive loss. Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid expenses and other current assets or in accrued liabilities on the condensed consolidated balance sheets.

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We had $98,965 and $102,407 in notional foreign exchange contracts outstanding as of September 30, 2020 and December 31, 2019, respectively. The fair values of these contracts were not material.

We translate foreign currency balance sheets from each international businesses’ functional currency (generally the respective local currency) to U.S. dollars at end-of-period exchange rates, and statements of earnings at average exchange rates for each period. The resulting foreign currency translation adjustments are a component of other comprehensive income (loss). We do not hedge the fluctuation in reported revenue and earnings resulting from the translation of these international operations' results into U.S. dollars.

(9) Inventory Financing Agreements

On December 1, 2018 and January 17, 2020, we entered into a Manufacturing Services Agreement and Amendment One to Manufacturing Services Agreement (together, the "Agreement"), with an assembling manufacturer to produce products on behalf of 3D Systems Corporation. During the quarter ended March 31, 2020, as part of the Agreement, we sold $12,100 of inventory to the assembling manufacturer that we have an obligation to repurchase. At September 30, 2020, our obligation to repurchase inventory, included in "Accrued and other liabilities" on our condensed consolidated balance sheets, was $712, relating to the initial sale of inventory to the assembly manufacturer and adjusted for transactions. The inventory sold consisted of raw materials, packaging materials and consumables representing stock on hand related to certain product families for which the manufacturing has been outsourced to the assembling manufacturer. Although the assembling manufacturer holds legal title, we account for the inventory similar to a product financing arrangement; therefore, the inventories sold to the assembling manufacturer will continue to be included in "Inventories" on our condensed consolidated balance sheets until processed into finished goods and sold back to us. At September 30, 2020, inventory held at assemblers was $4,270.

Additionally, as part of the Agreement, we have a commitment to purchase certain materials and supplies that the assembling manufacturer purchased from third parties. At September 30, 2020, we had a commitment of $3,004 with the assembling manufacturer.

(10) Net Loss Per Share

We compute basic loss per share using net loss attributable to 3D Systems Corporation and the weighted average number of common shares outstanding during the applicable period. Diluted loss per share incorporates the additional shares issuable upon assumed exercise of stock options and the release of restricted stock and restricted stock units, except in such case when their inclusion would be anti-dilutive.

	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Numerator for basic and diluted net loss per share:
Net loss attributable to 3D Systems Corporation	$	(72,889)	$	(16,843)	$	(129,764)	$	(65,167)
Denominator for basic and diluted net loss per share:
Weighted average shares	118,527		114,053		116,216		113,587
Net loss per share - basic and diluted	$	(0.61)	$	(0.15)	$	(1.12)	$	(0.57)

On August 5, 2020, we entered into an Equity Distribution Agreement for an At-The-Market equity offering program (“ATM Program”) where we may issue and sell, from time to time, shares of our common stock. Our ATM Program allows for an aggregate gross sales price of up to a total of $150,000, depending upon market conditions and our liquidity requirements, through Truist Securities, Inc. and HSBC Securities (USA) Inc. For the three months ended September 30, 2020, we sold 4,616 shares of our common stock under our ATM Program for net proceeds of $24,965, net of $548 in fees, commissions and other costs. As of September 30, 2020, we had $124,487 in availability remaining under the ATM Program.

For the quarters and nine months ended September 30, 2020 and 2019, the effect of dilutive securities, including non-