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, 2021

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 August 5, 2021: 125,235,532

1

3D SYSTEMS CORPORATION

Form 10-Q

For the Quarter Ended June 30, 2021

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.	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	33
Item 4. Controls and Procedures.	34
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.	34
Item 1A. Risk Factors.	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	35
Item 6. Exhibits.	36

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)	June 30, 2021 (unaudited)		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	131,844	$	75,010
Accounts receivable, net of reserves — $4,183 and $4,392	88,618		114,254
Inventories	102,961		116,667
Prepaid expenses and other current assets	33,251		33,145
Current assets held for sale	14,240		18,439
Total current assets	370,914		357,515
Property and equipment, net	59,183		75,356
Intangible assets, net	33,306		28,083
Goodwill	146,267		161,765
Right of use assets	47,490		48,620
Deferred income tax asset	5,146		6,247
Assets held for sale	28,916		31,684
Other assets	21,071		23,785
Total assets	$	712,293	$	733,055
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	2,051
Current right of use liabilities	8,256		9,534
Accounts payable	47,979		45,174
Accrued and other liabilities	62,568		69,812
Customer deposits	7,547		7,750
Deferred revenue	28,727		30,302
Current liabilities held for sale	3,813		11,107
Total current liabilities	158,890		175,730
Long-term debt, net of deferred financing costs	—		19,218
Long-term right of use liabilities	47,793		48,469
Deferred income tax liability	3,487		4,716
Liabilities held for sale	2,926		2,952
Other liabilities	32,658		51,247
Total liabilities	245,754		302,332
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.001 par value, authorized 220,000 shares; issued 126,796 and 127,626	127		128
Additional paid-in capital	1,407,900		1,404,964
Treasury stock, at cost — 1,623 shares and 3,494 shares	(10,492)		(22,590)
Accumulated deficit	(907,707)		(943,303)
Accumulated other comprehensive loss	(23,289)		(8,476)
Total stockholders’ equity	466,539		430,723
Total liabilities and stockholders’ equity	$	712,293	$	733,055

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)	2021		2020		2021		2020
Revenue:
Products	$	108,638	$	62,213	$	202,286	$	141,952
Services	53,919		50,564		106,387		106,460
Total revenue	162,557		112,777		308,673		248,412
Cost of sales:
Products	62,635		51,284		115,999		99,738
Services	30,917		26,326		59,429		56,375
Total cost of sales	93,552		77,610		175,428		156,113
Gross profit	69,005		35,167		133,245		92,299
Operating expenses:
Selling, general and administrative	61,463		52,042		111,063		108,148
Research and development	17,602		16,997		34,201		36,241
Total operating expenses	79,065		69,039		145,264		144,389
Loss from operations	(10,060)		(33,872)		(12,019)		(52,090)
Interest and other income (expense), net	(316)		(2,615)		38,537		(5,179)
Income (loss) before income taxes	(10,376)		(36,487)		26,518		(57,269)
Benefit (provision) for income taxes	744		(1,464)		9,078		394
Net income (loss)	$	(9,632)	$	(37,951)	$	35,596	$	(56,875)
Net income (loss) per common share:
Basic	$	(0.08)	$	(0.33)	$	0.29	$	(0.49)
Diluted	$	(0.08)	$	(0.33)	$	0.28	$	(0.49)
Weighted average shares outstanding:
Basic	122,147		115,503		121,931		115,047
Diluted	122,147		115,503		125,069		115,047

See accompanying notes to condensed consolidated financial statements.

4

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Net income (loss)	$	(9,632)	$	(37,951)	$	35,596	$	(56,875)
Other comprehensive income (loss), net of taxes:
Pension adjustments	28		13		209		177
Derivative financial instruments	—		1,235		721		(424)
Foreign currency translation	3,385		7,037		(22,224)		(3,135)
Foreign currency translation reclassification - sale of Cimatron	—		—		6,481		—
Total other comprehensive income (loss), net of taxes	3,413		8,285		(14,813)		(3,382)
Total comprehensive income (loss), net of taxes	$	(6,219)	$	(29,666)	$	20,783	$	(60,257)

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)	2021		2020
Cash flows from operating activities:
Net income (loss)	$	35,596	$	(56,875)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	17,890		23,059
Stock-based compensation	30,576		13,606
Unrealized gain on exchange rate	(2,100)		—
Provision for inventory obsolescence and revaluation	1,100		10,894
Loss on hedge accounting de-designation and termination	721		1,235
Provision for bad debts	800		1,198
Gain on the disposition of businesses, property, equipment and other assets	(37,240)		(134)
Provision for deferred income taxes and reserve adjustments	(9,014)		(671)
Impairment of goodwill and assets	—		1,100
Changes in operating accounts:
Accounts receivable	12,476		12,639
Inventories	9,132		(24,544)
Prepaid expenses and other current assets	(1,065)		(19,976)
Accounts payable	3,424		2,470
Deferred revenue and customer deposits	(531)		6,678
Accrued and other liabilities	(23,020)		3,637
All other operating activities	3,231		4,666
Net cash provided by (used in) operating activities	41,976		(21,018)
Cash flows from investing activities:
Purchases of property and equipment	(8,204)		(7,162)
Proceeds from sale of assets and businesses, net of cash	54,747		552
Business acquisitions, net of cash acquired	(10,912)		—
Purchase of noncontrolling interest	(4,000)		(12,500)
Other investing activities	(306)		(474)
Net cash provided by (used in) investing activities	31,325		(19,584)
Cash flows from financing activities:
Repayment of borrowings/long-term debt	(21,392)		(26,254)
Proceeds from inventory financing agreements	—		2,509
Payments related to net-share settlement of stock-based compensation	(6,629)		(3,821)
Other financing activities	(423)		296
Net cash used in financing activities	(28,444)		(27,270)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	2,902		(1,856)
Net increase (decrease) in cash, cash equivalents and restricted cash	47,759		(69,728)
Cash, cash equivalents and restricted cash at the beginning of the period (a)	84,711		134,617
Cash, cash equivalents and restricted cash at the end of the period (a)	$	132,470	$	64,889

Supplemental cash flow information
Lease assets obtained in exchange for new lease liabilities (excludes adoption)	$	6,026	$	16,238
Cash interest payments	$	1,058	$	1,519
Cash income tax payments, net	$	3,303	$	2,617
Transfer of equipment from inventory to property and equipment, net (b)	$	(76)	$	575
Stock issued for acquisition	$	3,500	$	—

a.The amounts for cash and cash equivalents shown above include restricted cash of $626 and $967 as of June 30, 2021 and 2020, respectively, and $540 and $952 as of December 31, 2020, and 2019, respectively, which were included in Other assets, net, and $9,161 as of December 31, 2020, which was included in Current assets held for sale 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.

See accompanying notes to condensed consolidated financial statements.

6

3D SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

	Quarters Ended June 30, 2021 and 2020
	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 Stockholders' Equity
March 31, 2021	$	126	$	1,397,276	$	(10,492)	$	(898,075)	$	(26,702)	$	462,133
Payments related to net-share settlement of stock-based compensation	1		(3,881)		—		—		—		(3,880)
Shares issued to acquire assets and businesses	—		3,500		—		—		—		3,500
Stock-based compensation expense	—		11,005		—		—		—		11,005
Net loss	—		—		—		(9,632)		—		(9,632)
Gain on pension plan - unrealized	—		—		—		—		28		28
Foreign currency translation adjustment	—		—		—		—		3,385		3,385
June 30, 2021	$	127	$	1,407,900	$	(10,492)	$	(907,707)	$	(23,289)	$	466,539
March 31, 2020	$	121	$	1,370,174	$	(19,718)	$	(812,633)	$	(49,275)	$	488,669
Repurchase of stock	3		—		(2,872)		—		—		(2,869)
Stock-based compensation expense	—		7,294		—		—		—		7,294
Net loss	—		—		—		(37,951)		—		(37,951)
Pension adjustment	—		—		—		—		13		13
Derivative financial instrument gain	—		—		—		—		1,235		1,235
Foreign currency translation adjustment	—		—		—		—		7,037		7,037
June 30, 2020	$	124	$	1,377,468	$	(22,590)	$	(850,584)	$	(40,990)	$	463,428

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, 2021 and 2020
	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, 2020	$	128	$	1,404,964	$	(22,590)	$	(943,303)	$	(8,476)	$	430,723	$	—	$	430,723
Repurchase of stock	1		(6,630)		—		—		—		(6,629)		—		(6,629)
Shares issued to acquire assets and businesses	—		3,500		—		—		—		3,500		—		3,500
Stock-based compensation expense	—		18,162		—		—		—		18,162		—		18,162
Net income	—		—		—		35,596		—		35,596		—		35,596
Pension Adjustment	—		—		—		—		181		181		—		181
Gain on pension plan - unrealized	—		—		—		—		28		28		—		28
Termination of derivative instrument	—		—		—		—		721		721		—		721
Retirement of treasury shares	(2)		(12,096)		12,098		—		—		—		—		—
Foreign currency translation adjustment	—		—		—		—		(15,743)		(15,743)		—		(15,743)
June 30, 2021	$	127	$	1,407,900	$	(10,492)	$	(907,707)	$	(23,289)	$	466,539	$	—	$	466,539
December 31, 2019	$	120	$	1,371,564	$	(18,769)	$	(793,709)	$	(37,047)	$	522,159	$	(8,263)	$	513,896
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 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

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.

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, 2020 (“2020 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 six months ended June 30, 2021 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.

As we continue to closely monitor the COVID-19 pandemic, our top priority remains the health and safety of our employees and their families and communities. Our Crisis Response Steering Committee regularly reviews and adapts our protocols based on evolving research and guidance related to the virus. While essential operations continue, we continue to restrict travel and meetings, publish pertinent information, and adapt to a world where many in our workforce are remote and those coming on-site are following new safety measures. In certain of our locations, where local conditions and regulation allow, our employees have begun to return to working on-site. We continue to watch conditions and regulations and remain committed to protecting our employees, delivering for our customers and supporting our communities.

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 continued to impact our reported results for the quarter ended June 30, 2021, 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 the severity or resurgence of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of uncertain global economic conditions, further supply chain disruptions, including the shortages of critical components, and the continued disruptions to, and volatility in, the financial markets remain unknown.

As of January 1, 2021, we determined the Company has two reportable segments, Healthcare and Industrial; whereas, the Company previously only reported its consolidated results in one segment. This change in segment reporting as of January 1, 2021 was the result of changes to how the chief operating decision maker ("CODM") assesses the financial performance of the Company and in the decision-making process driving future operating performance. As a result of this re-segmentation, the Company performed a quantitative analysis for potential impairment of our goodwill immediately following the re-segmentation. Based on available information and analysis as of January 1, 2021, we determined the fair value of the Healthcare and Industrial reporting units exceeded their carrying values.

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.

9

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

During the first quarter ended March 31, 2021 we became aware that certain amounts previously presented within our statements of operations as products cost of sales related to services cost of sales. We note that the total cost of sales line item was not affected. We further note that this error did not affect our gross profit, loss from operations, net income (loss), consolidated balance sheets or statements of cash flow. We evaluated the materiality of this presentation-only error and concluded it was not material to any previously reported quarter or year-end financial statement. The following schedule depicts the effect on our previously reported statements of operations.

	Quarter Ended June 30, 2020						Six Months Ended June 30, 2020
(in thousands)	As reported		Change		Revised		As reported		Change		Revised
Cost of sales:
Products	$	53,204	$	(1,920)	$	51,284	$	103,030	$	(3,292)	$	99,738
Services	24,406		1,920		26,326		53,083		3,292		56,375
Total cost of sales	$	77,610	$	—	$	77,610	$	156,113	$	—	$	156,113

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The Company adopted this guidance during the first quarter of 2021. The implementation did not have a material effect on our financial position or results of operations.

No other new accounting pronouncements, issued or effective during 2021, have had or are expected to have a significant impact on our consolidated financial statements.

(2) Dispositions and Acquisitions

Dispositions

On January 1, 2021, the Company completed the sale of 100% of the issued and outstanding equity interests of Cimatron Ltd. ("Cimatron"), the subsidiary that operated the Company’s Cimatron integrated CAD/CAM software for tooling business and its GibbsCAM CNC programming software business, for approximately $64,173, after certain adjustments and excluding $9,476 of cash amounts transferred to the purchaser. We recorded a gain on the sale of $32,928 included within Interest and other income (expense), net on the accompanying condensed consolidated statements of operations for the six months ended June 30, 2021. Additionally, at the time of the sale, we recognized a gain of $6,481 for accumulated foreign currency translation gain previously included in Accumulated other comprehensive loss ("AOCL"), which is included within Interest and other income (expense), net. We are finalizing closing adjustments with the purchaser. This disposed of business would have been included within the Industrial segment.

On June 1, 2021, the Company entered into an Asset Purchase Agreement with QP 3D Acquisition, Inc., an affiliate of Trilantic North America (the “Purchaser”), pursuant to which the Purchaser agreed to purchase from the Company (the “Transaction”), the Company’s On Demand Manufacturing business (“ODM”), for a purchase price of $82,000 subject to certain closing adjustments. Completion of the Transaction is expected to occur during the third quarter of 2021. At closing, the Company and the Purchaser will enter into a transition services agreement pursuant to which the Company and certain of its affiliates will provide certain information technology, corporate finance, tax, treasury, accounting, human resources and payroll, sales and marketing, operations, facilities and other customary services to support the Purchaser in the ongoing operation of ODM. The assets and liabilities of ODM were reclassified to held for sale on the consolidated balance sheet as of June 30, 2021.

10

The components of ODM's assets and liabilities recorded as held for sale on the consolidated balance sheet at June 30, 2021 were as follows:

(in thousands)	June 30, 2021
Assets
Accounts receivable, net of reserves of $463	$	11,529
Inventories	2,017
Prepaid expenses and other current assets	694
Total current assets held for sale	14,240
Property and equipment, net	10,740
Intangible assets, net	2,491
Goodwill	13,306
Right of use assets	2,234
Other assets	145
Total assets held for sale	$	43,156
Liabilities
Current right of use liabilities	$	1,023
Accounts payable	496
Accrued and other liabilities	1,549
Customer deposits	745
Total current liabilities held for sale	3,813
Long-term right of use liabilities	1,629
Other liabilities	1,297
Total liabilities held for sale	$	6,739

Acquisitions

On May 6, 2021, we purchased Allevi, Inc. to expand regenerative medicine initiatives into medical and pharmaceutical research and development laboratories. Additionally, on June 15, 2021, we closed the acquisition of a German software firm, Additive Works GmbH. Additive Works expands the simulation capabilities for rapid optimization of industrial-scale 3D printing processes. The purchase price for both acquisitions, individually and combined, and the expected impacts on the Company's financial position, results of operations and cash flows are not material. We are in the process of finalizing the purchase accounting for both acquisitions and expect to finalize the purchase accounting in 2021.

Acquisitions of Noncontrolling Interests

As of June 30, 2020, we owned 100% of the capital and voting rights of Robtec, a service bureau and distributor of 3D printing and scanning products in Brazil. Approximately 70% of the capital and voting rights of Robtec were acquired on November 25, 2014. On January 7, 2020, we made a payment equal to the redemption price of $10,000 and acquired the remaining 30% of the capital and voting rights.

As of December 31, 2018, the Company owned approximately 70% of the capital and voting rights of Easyway, a service bureau and distributor of 3D printing and scanning products in China. Approximately 65% of the capital and voting rights of Easyway were acquired on April 2, 2015, and an additional 5% of the capital and voting rights of Easyway were acquired on July 19, 2017 for $2,300. The remaining 30% of the capital and voting rights of Easyway were acquired on January 21, 2019 for $13,500 to be paid in installments over four years for which $4,000 and $2,500 were paid in the first half of 2021 and 2020, respectively.

11

(3) 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, 2021, we had $137,615 of outstanding performance obligations, comprised of deferred revenue, customer order backlog and customer deposits. We expect to recognize approximately 87% of our remaining performance obligations as revenue within the next twelve months, an additional 8% by the end of 2022 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.

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 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 of post-sales support is included as part of the initial software sale 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.

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Collaboration and Licensing Agreements

We enter into collaboration and licensing agreements with third parties. The nature of the activities to be performed and the consideration exchanged under the agreements varies on a contract-by-contract basis. We evaluate these agreements to determine whether they meet the definition of a customer relationship for which revenue is recorded. These contracts may contain multiple performance obligations and may contain fees for licensing, research and development services, contingent milestone payments upon the achievement of developmental contractual criteria and/or royalty fees based on the licensees’ product revenue. We determine the revenue to be recognized for these agreements based on an evaluation of the distinct performance obligations, the identification and evaluation of material rights, the estimation of variable consideration and the determination of the pattern on transfer of control for each distinct performance obligation. The Company recognized $2,040 and $717 in revenue related to collaboration arrangements with customers for the quarters ended June 30, 2021 and 2020, respectively. The Company recognized $3,847 and $1,647 in revenue related to collaboration arrangements with customers for the six months ended June 30, 2021 and 2020, respectively.

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, letters of credit 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.

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.

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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 six months ended June 30, 2021.

For the six months ended June 30, 2021, we recognized revenue of $24,740 related to our contract liabilities at December 31, 2020. For the six months ended 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.

(4) Segment Information

Effective January 1, 2021, we changed our segment reporting under ASC 280 Segment Reporting. For periods prior to January 1, 2021, we operated under one operating segment, consistent with the information that was presented to our Chief Operating Decision Maker (CODM). Effective January 1, 2021, we have identified two operating segments, Healthcare and Industrial.

This change in reportable segments was necessitated as a result of changes to our enterprise wide financial reporting to reflect the re-organization of the business into the Healthcare and Industrial verticals that were launched January 1, 2021 at the request of our CODM. These changes resulted in revisions to the financial information provided to the CODM on a recurring basis in his evaluation of financial performance of the Company and in the decision-making process driving future operating performance. The CODM does not review disaggregated assets on a segment basis; therefore, such information is not presented. In addition, the changes made to our enterprise wide financial reporting system were prospective and prevent historical financial information for the Healthcare and Industrial segments to be available other than for revenue which has been disclosed below. We have evaluated potential alternatives to generate comparative prior period financial information for the Healthcare and Industrial segments, and believe that the practicality exception as proscribed in ASC 280 Segment Reporting is applicable due to the high degree of difficulty involved and the significant expense associated with overhauling the structure of legacy financial systems.

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The following tables set forth our net sales and operating results by segment:

	Quarter Ended June 30,
	2021		2020		2021
(in thousands)	Net Sales (a)				Operating Profit
Operations by segment:
Healthcare	$	82,826	$	49,134	$	22,253
Industrial	79,731		63,643		9,858
Total	$	162,557	$	112,777	32,111
General corporate expense, net (b)					(42,171)
Operating loss, as reported					(10,060)
Interest and other expense, net					(316)
Loss before income taxes					$	(10,376)

	Six Months Ended June 30,
	2021		2020		2021
(in thousands)	Net Sales (a)				Operating Profit
Operations by segment:
Healthcare	$	155,347	$	101,426	$	42,046
Industrial	153,326		146,986		22,480
Total	$	308,673	$	248,412	64,526
General corporate expense, net (b)					(76,545)
Operating loss, as reported					(12,019)
Interest and other income, net					38,537
Income before income taxes					$	26,518

a.Approximately 43.9% and 50.7% for the quarters ended June 30, 2021 and 2020, respectively, and 43.8% and 52.3% of sales for the six months ended June 30, 2021 and 2020, respectively, were located outside of the U.S.

b.General corporate expense, net includes expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

(5) Leases

We have various lease agreements for our facilities, equipment and vehicles with remaining lease terms ranging from one to fifteen 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, incremental lease payments that are indexed to a change in rate or index are considered variable costs. Because the ROU asset and lease liability 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, result in variable expenses being incurred when actual payments differ from estimated payments.

On February 25, 2021, the Company entered into an agreement to amend its lease for its corporate office and extended the term. As part of this agreement, the Company sold land owned adjacent to our corporate office for $400 and entered into a lease with the buyer of the land for a new building, containing approximately 80,000 to 100,000 rentable square feet, to be constructed by the lessor. The initial lease terms for both the existing building and the expansion site extend through August 2037. The lease for the new building will not commence until construction is substantially complete.

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Components of lease cost (income) were as follows:

	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Operating lease cost	$	2,669	$	2,999	$	5,182	$	6,007
Finance lease cost - amortization expense	156		220		306		435
Finance lease cost - interest expense	62		164		125		327
Short-term lease cost	37		26		91		53
Variable lease cost	704		195		984		245
Sublease income	(156)		(152)		(313)		(304)
Total	$	3,472	$	3,452	$	6,375	$	6,763

Balance sheet classifications at June 30, 2021 and December 31, 2020 are summarized below:

	June 30, 2021						December 31, 2020
(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	$	43,037	$	7,576	$	43,217	$	40,586	$	8,562	$	38,296
Finance Leases	4,453		680		4,576		8,034		972		10,173
Total	$	47,490	$	8,256	$	47,793	$	48,620	$	9,534	$	48,469

Our future minimum lease payments as of June 30, 2021 under operating lease and finance leases, with initial or remaining lease terms in excess of one year, were as follows:

	June 30, 2021
(in thousands)	Operating Leases		Finance Leases
Years ending June 30:
2021	$	5,655	$	457
2022	9,215		906
2023	7,694		903
2024	6,690		828
2025	5,513		735
Thereafter	30,148		2,414
Total lease payments	64,915		6,243
Less: imputed interest	(14,122)		(987)
Present value of lease liabilities	$	50,793	$	5,256

Supplemental cash flow information related to our leases for the periods ending June 30, 2021 and June 30, 2020 were as follows:

(in thousands)	June 30, 2021		June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	5,521	$	6,533
Operating cash outflow from finance leases	$	125	$	280
Financing cash outflow (inflow) from finance leases	$	329	$	(76)

Weighted-average remaining lease terms and discount rate for our leases for the period ending June 30, 2021, were as follows:

	June 30, 2021
	Operating	Financing
Weighted-average remaining lease term (in years)	8.9	7.7
Weighted-average discount rate	5.63%	4.63%

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(6) Inventories

Components of inventories at June 30, 2021 and December 31, 2020 are summarized as follows:

(in thousands)	June 30, 2021		December 31, 2020
Raw materials	$	29,124	$	23,762
Work in process	8,018		5,912
Finished goods and parts	65,819		86,993
Inventories	$	102,961	$	116,667

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 $20,113 and $20,125 as of June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021, our obligation to repurchase inventory, included in accrued and other liabilities on our condensed consolidated balance sheets, was $308, relating to the sale of inventory to an assembly manufacturer and we had a commitment of $4,118 with the assembling manufacturer to purchase certain materials and supplies they acquired from third parties. At June 30, 2021, inventory held at assemblers was $3,115.

(7) Intangible Assets

Intangible assets, net, other than goodwill, at June 30, 2021 and December 31, 2020 are summarized as follows:

	June 30, 2021						December 31, 2020
(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	$	65,539	$	(54,771)	$	10,768	$	71,123	$	(56,682)	$	14,441	2.7
Acquired technology	42,018		(40,853)		1,165		42,472		(41,201)		1,271		5.8
Trade names	20,684		(16,599)		4,085		17,477		(16,506)		971		1.3
Patent costs	19,954		(11,415)		8,539		19,828		(10,999)		8,829		4.5
Trade secrets