3D SYSTEMS CORPORATION
The following discussion and analysis should be read together with the unaudited
condensed consolidated financial statements and the notes thereto included in
Item 1 (the "Financial Statements") of this Quarterly Report on Form 10-Q ("Form
10-Q"). Also, we are subject to a number of risks and uncertainties that may
affect our future performance that are discussed in greater detail in the
sections entitled "Forward-Looking Statements" at the end of this Item 2 and
that are discussed or referred to in Item 1A of Part II of this Form 10-Q.
Business Overview
3D Systems Corporation ("3D Systems" or the "Company" or "we" or "us") is a holding company incorporated inDelaware in 1993 that markets our products and services through subsidiaries inNorth America andSouth America (collectively referred to as "Americas"),Europe and theMiddle East (collectively referred to as "EMEA") and theAsia Pacific region ("APAC"). We provide comprehensive additive manufacturing solutions for applications in growing markets that demand high reliability products. Our solutions support markets and applications where a premium is placed upon performance and reliability, with engineering and technology cultures that seek product innovation as a means of delivering value to their customers, and with processes that tend to be highly controlled. Through our two key market verticals of Healthcare and Industrials, we offer hardware, software, materials and services, combined with leadership in application knowledge to provide additive manufacturing solutions for specific, high-value applications in growing markets like healthcare, aerospace, automotive and defense. Our precision healthcare capabilities include simulation; Virtual Surgical Planning (VSP®) ("VSP"); and printing of medical and dental devices, models, and surgical guides and instruments. We have over 30 years of experience and expertise which have proven vital to our development of end-to-end digital workflow solutions that enable customers to optimize product designs, transform workflows, bring innovative products to market, and drive new business models. COVID-19 Pandemic Response As we closely monitor the COVID-19 pandemic, our top priority remains the health and safety of our employees and their families and communities. OurCrisis Response Steering Committee regularly reviews and adapts our protocols based on evolving research and guidance related to the virus. While essential operations continue, we have restricted travel and meetings, published pertinent information, and adapted to a world where many in our workforce are remote and those coming on-site are following new safety measures. We have a multi-phase plan to return to working on-site, and remain committed to protecting our employees, delivering for our customers and supporting our communities.
Our Employees
Since the start of the pandemic, employees who are necessary to our facilities' operations have continued to work on site. The additional safety measures and practices we put in place during the first quarter of 2020 to protect these employees, including maintaining physical distancing, utilizing enhanced cleaning protocols and usage of personal protective equipment, continue to be implemented subject to each location's return on-site processes. Our plan for returning the remainder of our workforce to work on-site involves multiple phases that gradually allow additional workers to return while practicing social distancing and other safety measures. This plan considers the varying needs of each location and site and depends on local government regulations, community case trends, and recommendations from public health organizations.
Our New Strategic Focus, Restructuring and Liquidity
While no company is immune to global economic challenges, our business portfolio is well-balanced across end markets and geographies and includes a high degree of businesses serving critical sectors such as healthcare, aerospace and durable goods. InMay 2020 , a new CEO and President, Dr.Jeffrey Graves , was hired.Dr. Graves has completed his initial assessment of the Company. OnAugust 5, 2020 , a new strategic focus (outlined in the Business Overview) and reorganization was announced and, to align our cost structure to the current level of revenues, a restructuring plan was also announced. The company expects the restructuring effort, in conjunction with other cost reduction measures, to reduce annualized costs by approximately$100 million by the end of next year. This should enable the company to be profitable at current revenue levels and be well positioned to leverage the sales growth as it returns. Other cost reduction efforts include reducing the number of facilities and examining every aspect of the company's manufacturing and operating costs. The company will incur a cash charge in the range of$25 to$30 million for severance, facility closing and other costs, primarily in the second half of this year. The company may incur additional charges in 2021 as it finalizes all the actions to be taken. The company is also evaluating the divestiture of parts of the business that do not align with this strategic focus. 22 -------------------------------------------------------------------------------- Furthermore, to provide additional financial flexibility, we have entered into an Equity Distribution Agreement for an At-The-Market ("ATM") equity offering, pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate gross sales price of up to a total of$150 million , depending upon market conditions and our liquidity requirements. We intend to use the net proceeds from this offering for general corporate purposes, which may include repaying amounts outstanding under our senior secured term loan facility and our senior secured revolving credit facility. Our balance sheet is well positioned and had$63.9 million of cash and cash equivalents atJune 30, 2020 , and a$100.0 million committed revolving credit facility, with$10.0 million of outstanding letters of credit and$24.1 million of available borrowings under the revolving facility. In the second quarter of 2020, we began reducing our cost structure by focusing on cost of sales and operating expenses to drive future profitability. We implemented an employee furlough program, executive and Board pay reductions, reduced our hiring and lowered travel expenses. We believe these actions and our current financial position will enable us to handle the near-term impacts of the current economic uncertainty as well as position us for future profitable growth.
Looking Forward
Our operations inAmericas , EMEA and APAC expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic. While the COVID-19 pandemic has impacted the Company's reported results for the second quarter, we are unable to predict the longer-term impact that the pandemic may have on our business, results of operations, financial position or cash flows. The extent to which our operations may be impacted by the dynamic nature of the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the financial markets remain unknown. Additional information regarding COVID-19 risks appears in Part II, Item 1A, "Risk Factors" of the Form 10-Q for the quarter endedMarch 31, 2020 .
Summary of Second Quarter 2020 Financial Results
Total consolidated revenue for the second quarter of 2020 decreased 28.7% compared to the same period last year and decreased 16.8% compared to the first quarter of 2020. The lower demand was across all products and services due primarily to the COVID-19 pandemic, as many customers were shutdown or on a significantly reduced level of activity. Revenue from Healthcare decreased 11.4% to$50.0 million , compared to the same period last year, driven by the decrease in the dental market. Industrial sales decreased 38.5% to$62.1 million , compared to the same period last year, as decreases were in all products and services across all geographies. Gross profit for the quarter endedJune 30, 2020 decreased by 52.0%, or$38.1 million , to$35.2 million , compared to$73.3 million for the quarter endedJune 30, 2019 . Gross profit margin for the quarters endedJune 30, 2020 andJune 30, 2019 was 31.4% and 46.6%, respectively. Margin deterioration was driven by an end-of-life inventory charge of$10.9 million as well as the under absorption of supply chain overhead, resulting from lower production. Excluding the inventory charge, total gross profit margin for the quarter would have been 41.1%. Operating expenses for the quarter endedJune 30, 2020 decreased by 25.3%, or$23.4 million , to$69.0 million , compared to$92.5 million for the quarter endedJune 30, 2019 . Selling, general and administrative expenses for the quarter endedJune 30, 2020 decreased by 27.4%, or$19.6 million , to$52.0 million , compared to$71.7 million for the quarter endedJune 30, 2019 . Research and development expenses for the quarter endedJune 30, 2020 decreased by 18.3%, or$3.8 million , to$17.0 million , compared to$20.8 million for the quarter endedJune 30, 2019 . Lower operating expenses reflect executive and Board pay reductions and an employee furlough program in the second quarter, reduced hiring and lower travel expenses as a result of the COVID-19 pandemic as well as savings achieved from cost structuring activities originating in 2019.
Our operating loss for the quarter ended
For the six months endedJune 30, 2020 , we used$21.0 million of cash from operations, primarily driven by the increase in inventories. For the six months endedJune 30, 2019 , we generated$3.6 million of cash from operations. In total, our unrestricted cash balance atJune 30, 2020 andDecember 31, 2019 , was$63.9 million and$133.7 million , respectively. The lower cash balance primarily resulted from$26.3 million in repayments of the Term Loan,$24.5 million from increased inventory levels,$10.0 million in payments to acquire the remaining capital and voting rights of the noncontrolling interest inBrazil and$7.2 million in capital expenditures. 23 --------------------------------------------------------------------------------
Results of Operations
Revenue
Revenue in the last part of the first quarter and in the second quarter was impacted by COVID-19, as many of our customers were shutdown or on a significantly reduced level of activity. Excluding impacts due to the pandemic, due to the relatively high price of certain 3D printers and a corresponding lengthy selling cycle as well as relatively low unit volume of the higher priced printers in any particular period, a shift in the timing and concentration of orders and shipments from one period to another can affect reported revenue in any given period. In addition to changes in sales volumes, there are two other primary drivers of changes in revenue from one period to another: (1) the combined effect of changes in product mix and average selling prices and (2) the impact of fluctuations in foreign currencies. As used in this Management's Discussion and Analysis, the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume. We earn revenue from the sale of products and services. The products category includes 3D printers and corresponding materials, healthcare simulators and digitizers, software licenses, 3D scanners and haptic devices. The majority of materials used in our 3D printers are proprietary. The services category includes maintenance contracts and services on 3D printers and simulators, software maintenance, on demand solutions and healthcare services.
The following tables set forth the change in revenue for the quarters and six
months ended
Table 1 (Dollars in thousands) Products Services Total Revenue - second quarter 2019$ 93,758 59.6 %$ 63,514 40.4 %$ 157,272 100.0 % Change in revenue: Volume (35,071) (37.4) % (12,227) (19.3) % (47,298) (30.1) % Price/Mix 3,293 3.5 % - - % 3,293 2.1 % Foreign currency translation (484) (0.5) % (723) (1.1) % (1,207) (0.8) % Net change (32,262) (34.4) % (12,950) (20.4) % (45,212) (28.7) % Revenue - second quarter 2020$ 61,496 54.9 %$ 50,564 45.1 %$ 112,060 100.0 % Consolidated revenue decreased 28.7%, predominantly due to lower products volume, driven by decreased sales of plastics printers and corresponding materials, as well as lower on demand volume, partially offset by favorable price mix. The lower demand was due to COVID-19, as many of our customers were shutdown or on a significantly reduced level of activity. For the quarters endedJune 30, 2020 and 2019, revenue from printers contributed$17.1 million and$30.0 million , respectively. Software revenue included in the products category contributed$10.0 million and$13.7 million for the quarters endedJune 30, 2020 and 2019, respectively. Materials revenue included in the products category contributed$28.7 million and$41.2 million for the quarters endedJune 30, 2020 and 2019, respectively. Revenue from services decreased 20.4%, or$13.0 million , as compared to the second quarter of 2019. The decrease was primarily comprised of a 31.3%, or$7.5 million , decline in our on demand manufacturing services. The remaining decrease resulted from maintenance contracts and services on printers and simulators, software maintenance and healthcare services.
For the quarters ended
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Table 2
(Dollars in thousands) Products Services Total
Revenue - six months 2019 $ 186,105 60.2 % $ 123,147 39.8 % $ 309,252 100.0 %
Change in revenue:
Volume (45,095) (24.2) % (15,392) (12.5) % (60,487) (19.6) %
Price/Mix 296 0.2 % - - % 296 0.1 %
Foreign currency translation (1,001) (0.5) % (1,295) (1.1) % (2,296) (0.7) %
Net change (45,800) (24.6) % (16,687) (13.6) % (62,487) (20.2) %
Revenue - six months 2020 $ 140,305 56.9 % $ 106,460 43.1 % $ 246,765 100.0 %
Consolidated revenue decreased 20.2%, predominantly due to lower products
volume, driven by decreased sales of plastics printers and corresponding
materials, as well as lower on demand volume. The lower demand was due to
COVID-19, as many of our customers were shutdown or on a significantly reduced
level of activity starting in the latter part of the first quarter. For the six
months ended June 30, 2020 and 2019, revenue from printers contributed $36.4
million and $59.9 million , respectively. Software revenue included in the
products category contributed $20.7 million and $25.9 million for the six months
ended June 30, 2020 and 2019, respectively. Materials revenue included in the
products category contributed $70.0 million and $82.7 million for the six months
ended June 30, 2020 and 2019, respectively.
Revenue from services decreased 13.6%, or
Gross profit and gross profit margins
The following tables set forth gross profit and gross profit margins for the
quarters and six months ended
Table 3
Quarter Ended June 30,
2020 2019 Change in Gross Profit Change in Gross Profit Margin
Gross Profit Gross Profit Percentage
(Dollars in thousands) Gross Profit Margin Gross Profit Margin $ % Points %
Products $ 9,007 14.6 % $ 40,753 43.5 % $ (31,746) (77.9) % (28.9) (66.4) %
Services 26,160 51.7 % 32,546 51.2 % (6,386) (19.6) % 0.5 1.0 %
Total $ 35,167 31.4 % $ 73,299 46.6 % $ (38,132) (52.0) % (15.2) (32.6) %
The decrease in total consolidated gross profit is predominantly due to the
lower sales volume as previously discussed, as well as an end-of-life inventory
charge of $10.9 million in the second quarter of 2020. Excluding the end-of-life
inventory charge, total gross profit margin would have been 41.1%. See Note 4
for additional discussion regarding the end-of-life inventory charge.
Products gross profit decreased primarily due to an end-of-life inventory charge
of $10.9 million as well as the under absorption of supply chain overhead,
resulting from lower production. These were partially offset by the favorable
impact of sales mix. Excluding the end-of-life inventory charge, products gross
profit margin would have been 32.4%. See Note 4 for additional discussion
regarding the end-of-life inventory charge.
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Table 4
Six Months Ended June 30,
2020 2019 Change in Gross Profit Change in Gross Profit Margin
Gross Profit Gross Profit Percentage
(Dollars in thousands) Gross Profit Margin Gross Profit Margin $ % Points %
Products $ 38,920 27.7 % $ 77,340 41.6 % $ (38,420) (49.7) % (13.9) (33.4) %
Services 53,379 50.1 % 61,664 50.1 % (8,285) (13.4) % - - %
Total $ 92,299 37.4 % $ 139,004 44.9 % $ (46,705) (33.6) % (7.5) (16.7) %
The decrease in total consolidated gross profit is predominantly due to the
lower sales volume as previously discussed, as well as an end-of-life inventory
charge of $10.9 million . Excluding the end-of-life inventory charge, total gross
profit margin would have been 41.8%. See Note 4 for additional discussion.
Products gross profit decreased primarily due to an end-of-life inventory charge
of $10.9 million as well as the under absorption of supply chain overhead,
resulting from lower production. Excluding the end-of-life inventory charge,
products gross profit margin would have been 35.5%. See Note 4 for additional
discussion.
Operating expenses
The following tables set forth the components of operating expenses for the
quarters and six months ended
Table 5
Quarter Ended June 30,
2020 2019 Change
(Dollars in thousands) Amount % Revenue Amount % Revenue $ %
Selling, general and administrative
expenses $ 52,042 46.4 % $ 71,654 45.6 % $ (19,612) (27.4) %
Research and development expenses 16,997 15.2 % 20,811 13.2 % (3,814) (18.3) %
Total operating expenses $ 69,039 61.6 % $ 92,465 58.8 % $ (23,426) (25.3) %
Selling, general and administrative expenses decreased due to an employee
furlough program in the current quarter, reduced hiring and lower travel
expenses incurred in the current year, resulting from the COVID-19 pandemic, as
well as savings achieved in the current year from cost structuring activities,
including personnel and marketing activities, originating in 2019.
Research and development expenses decreased due to an employee furlough program
in the second quarter of 2020, current year savings achieved from cost
structuring activities, including personnel reductions, originating in 2019, as
well as lower overall program spend.
Table 6
Six Months Ended June 30,
2020 2019 Change
(Dollars in thousands) Amount % Revenue Amount % Revenue $ %
Selling, general and administrative
expenses $ 108,148 43.8 % $ 136,761 44.2 % $ (28,613) (20.9) %
Research and development expenses 36,241 14.7 % 42,714 13.8 % (6,473) (15.2) %
Total operating expenses $ 144,389 58.5 % $ 179,475 58.0 % $ (35,086) (19.5) %
Selling, general and administrative expenses decreased due to an employee
furlough program in the second quarter of 2020, reduced hiring and lower travel
expenses incurred in the current year, resulting from the COVID-19 pandemic;
savings achieved in the current year from cost structuring activities, including
personnel and marketing activities, originating in 2019; and the run-out of
certain intangible amortization.
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Research and development expenses decreased due to an employee furlough program
in the second quarter of 2020, current year savings achieved from cost
structuring activities, including personnel, originating in 2019, as well as
lower overall program spend; partially offset by an increase in materials spend.
Loss from operations
The following table sets forth (loss) income from operations for the quarters
and six months ended
Table 7
Six Months Ended June
Quarter Ended June 30, 30,
(Dollars in thousands) 2020 2019 2020 2019
Loss from operations: $ (33,872) $
(19,166)
See "Revenue," "Gross profit and gross profit margins" and "Operating expenses" above.
Interest and other (expense) income, net
The following table sets forth the components of interest and other (expense)
income, net, for the quarters and six months ended
Table 8
Six Months Ended June
Quarter Ended June 30, 30,
(Dollars in thousands) 2020 2019 2020 2019
Interest and other (expense) income, net
Foreign exchange (loss) gain $ (871) $ (70) $ (983) $ (1,109)
Interest expense, net (2,050) (864) (3,088) (1,441)
Other (expense) income, net 306 (1,821) (1,108) (1,407)
Total interest and other (expense) income,
net $ (2,615) $ (2,755) $ (5,179) $ (3,957)
Total interest and other (expense) income, net, for the quarter ended June 30,
2020 as compared to the quarter ended June 30, 2019 remained relatively flat. In
the second quarter of 2020 amounts previously recognized in Accumulated Other
Comprehensive Loss ("AOCL") were released and reclassified to "Interest and
other expense, net," as a result of the reduction in the interest rate swap. See
Note 8 for additional discussion. In the second quarter of 2019, losses were
recorded on equity investments.
Total interest and other (expense) income, net, for the six months ended June
30, 2020 as compared to the six months ended June 30, 2019 resulted in a higher
loss due to amounts previously recognized in AOCL having been released and
reclassified into "Interest and other expense, net" as a result of the reduction
in the interest rate swap. Losses on equity investments were recorded in both
periods.
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--------------------------------------------------------------------------------Net loss attributable to 3D Systems
The following tables set forth the primary components of net loss attributable
to 3D Systems for the quarters and six months ended
Table 9
Quarter Ended June 30,
(Dollars in thousands) 2020 2019 Change
Loss from operations $ (33,872) $ (19,166) $ (14,706)
Other non-operating items:
Interest and other (expense) income, net (2,615) (2,755) 140
(Provision) benefit for income taxes (1,464) (1,938) 474
Net loss (37,951) (23,859) (14,092)
Less: net income attributable to noncontrolling
interests - 70 (70)
Net loss attributable to
Weighted average shares, basic and diluted 115,503
113,433
Net loss per share - basic and diluted$ (0.33) $ (0.21) Table 10 Six Months Ended June 30, (Dollars in thousands) 2020 2019 Change Loss from operations$ (52,090) $ (40,471) $ (11,619) Other non-operating items: Interest and other (expense) income, net (5,179) (3,957) (1,222) (Provision) benefit for income taxes 394 (3,782) 4,176 Net loss (56,875) (48,210) (8,665) Less: net income attributable to noncontrolling interests - 114 (114)
Net loss attributable to
Weighted average shares, basic and diluted 115,047
113,350
Net loss per share - basic and diluted$ (0.49)
The increase in net loss for the quarter and six months endedJune 30, 2020 , as compared to the quarter and six months endedJune 30, 2019 , was primarily driven by an increase in loss from operations and an end-of-life inventory charge of$10.9 million . See Note 4 for additional discussion.
See "Gross profit and gross profit margins" and "Operating expenses" above, and Note 12.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments, accounts payable turns and funding requirements. Our cash requirements primarily consist of funding working capital and capital expenditures. AtJune 30, 2020 , we had cash on hand of$63.9 million , total debt of$21.5 million and a$100 million unused revolving credit facility with approximately$24 million of availability based on the terms of the agreement. Cash on hand has decreased$69.7 million sinceDecember 31, 2019 . The uses of cash included$26.3 million for repayments of debt,$21.0 million for operations,$12.5 million for payments to purchase noncontrolling interests and$7.2 million for capital expenditures. Once the market started to turn down in the latter part of the first quarter due to COVID-19, we were unable to slow down our inventory levels fast enough due to committed lead times with our contract manufacturers and suppliers. 28 -------------------------------------------------------------------------------- Cash flow from operations, cash and cash equivalents, and other sources of liquidity such as bank credit facilities and issuing equity or debt securities, are expected to be available and sufficient to meet foreseeable cash requirements. We hold a 5-year$100.0 million senior secured term loan facility (the "Term Facility") and a 5-year$100.0 million senior secured revolving credit facility (the "Revolving Facility" and, together with the Term Facility, the "Senior Credit Facility") that are intended to support working capital and general corporate purposes. The Senior Credit Facility is scheduled to mature onFebruary 26, 2024 , at which time all amounts outstanding thereunder will be due and payable. As ofJune 30, 2020 , we had$10.0 million of outstanding letters of credit and$24.1 million of available borrowings under the Revolving Facility. For additional information on the Senior Credit Facility, see Note 7 to the condensed consolidated financial statements in this Form 10-Q. To provide the company with sufficient financial flexibility to complete this reorganization and to work through these uncertain times caused by the pandemic, the Board of Directors approved an ATM equity program that allows the company from time to time to issue up to a total of$150 million of shares of the company's common stock to the public, at the company's discretion. We intend to use the net proceeds from this offering for general corporate purposes, which may include repaying amounts outstanding under the Term Facility and the Revolving Facility. Cash held outside theU.S. atJune 30, 2020 was$48.9 million , or 76.4% of total cash and equivalents, compared to$75.7 million , or 56.5% of total cash and equivalents atDecember 31, 2019 . As our previously unremitted earnings have been subjected toU.S. federal income tax, we expect any repatriation of these earnings to theU.S. would not incur significant federal and state taxes. However, these dividends are subject to foreign withholding taxes that are estimated to result in the Company incurring tax costs in excess of the cost to obtain cash through other means. Cash equivalents are comprised of funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments. We strive to minimize our credit risk by investing primarily in investment grade, liquid instruments and limit exposure to any one issuer depending upon credit quality. See "Cash flow" discussion below.
Cash flow
Cash flow from operations
Cash used in operating activities for the six months endedJune 30, 2020 was$21.0 million , while cash provided by operating activities for the six months endedJune 30, 2019 was$3.6 million . Working capital used cash of$14.4 million for the six months endedJune 30, 2020 and provided cash of$8.4 million for the six months endedJune 30, 2019 . In the six months endedJune 30, 2020 , drivers of working capital related to cash outflows were an increase in inventory and prepaid expenses, partially offset by a decrease in accounts receivable and an increase in other accrued liabilities, deferred revenue and accounts payable. In the six months endedJune 30, 2019 , drivers of working capital related to cash inflows were a decrease in accounts receivable and an increase in deferred revenues related to software and system maintenance contracts, partially offset by a decrease in accounts payable and an increase in inventory.
Cash flow from investing activities
For the six months endedJune 30, 2020 and 2019, the primary outflows of cash relate to the purchases of noncontrolling interest and capital expenditures. Capital expenditures were$7.2 million and$14.4 million for the six months endedJune 30, 2020 and 2019, respectively. The lower expenditures in 2020 reflect the reduced spending due to the lower revenue volume because of the pandemic.
Cash flow from financing activities
Cash used in financing activities was$27.3 million for the six months endedJune 30, 2020 , while cash provided by financing activities was$53.1 million for the six months endedJune 30, 2019 . The primary outflow of cash for the six months endedJune 30, 2020 relates to repayment of the Term Facility and settlements of stock-based compensation, partially offset by proceeds from an inventory financing agreement. The primary inflow of cash for the six months endedJune 30, 2019 relates to borrowing on the Term Facility, partially offset by repayments of the prior credit facility and Term Facility.
Recent Accounting Pronouncements
Refer to Note 1 - Basis of Presentation of the Notes to Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion.
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--------------------------------------------------------------------------------Critical Accounting Policies and Significant Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. As of the date of this report, there have been no changes to our critical accounting policies and estimates described in the Annual Report on Form 10-K for the year endedDecember 31, 2019 ("2019 Form 10-K"), filed with theSecurities and Exchange Commission ("SEC") onFebruary 26, 2020 that have had a material impact on our condensed consolidated financial statements and related notes, other than the following: Our EMEA and APAC reporting units carry approximately$185.7 million and$35.8 million of goodwill, respectively, as ofJune 30, 2020 .Goodwill in theAmericas region was written off in 2015. The net carrying values of our long-lived assets in the EMEA, APAC, andAmericas regions are approximately$60.7 million ,$6.5 million , and$58.7 million , respectively. In our 2019 impairment testing, we determined the EMEA and APAC reporting units had fair values in excess of their carrying values. Our 2019 impairment testing also indicated no impairment of long-lived assets in theAmericas region as the undiscounted cash flows were in excess of the carrying value of long-lived assets. This headroom and recoverability were driven by our forecasts of future operating performance as well as external market indicators. As ofMarch 31, 2020 , we experienced a triggering event due to our operating performance, which had been negatively impacted by macroeconomic factors, the decrease and mix of sales, and the effect of the COVID-19 pandemic, and performed a quantitative analysis for potential impairment of our goodwill or long-lived asset balances. We also took action to counter these factors, including reducing our cost structure by focusing on cost of sales and operating expenses to drive future profitability. Based on available information and analysis as ofMarch 31, 2020 , we continued to believe the fair value of our reporting units exceeded their carrying values and the carrying value of our long-lived assets were recoverable. As expected, our operating performance throughJune 30, 2020 continued to be negatively impacted by the effect of the COVID-19 pandemic. While we believe our actions implemented atMarch 31, 2020 have had a positive impact, further action is required as we just announced a new strategic reorganization and a major restructuring program targeted to take$100 million of costs out of our cost base. Refer to discussion of the COVID-19 pandemic in this Management's Discussion and Analysis. As ofJune 30, 2020 , we considered the potential for a triggering event and concluded none was present. Based on currently available information and analysis as ofJune 30, 2020 , we continue to believe the fair value of our reporting units exceeds their carrying values and the carrying value of our long-lived assets is recoverable. In the event that these matters are not satisfactorily resolved, we could experience another triggering event or impairment of our goodwill or long-lived asset balances in future periods.
Forward-Looking Statements
Certain statements made in this Form 10-Q that are not statements of historical
or current facts are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
historical results or from any future results expressed or implied by such
forward-looking statements. In many cases, you can identify forward-looking
statements by terms such as "believes," "belief," "expects," "estimates,"
"intends," "anticipates," or "plans" or the negative of these terms or other
comparable terminology.
Forward-looking statements are based upon management's beliefs, assumptions and
current expectations concerning future events and trends, using information
currently available, and are necessarily subject to uncertainties, many of which
are outside our control. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, forward-looking statements are
not, and should not be relied upon as a guarantee of future performance or
results, nor will they necessarily prove to be accurate indications of the times
at or by which any such performance or results will be achieved. A number of
important factors could cause actual results to differ materially from those
indicated by the forward-looking statements. These factors include without
limitation:
•impact of production, supply, contractual and other disruptions, including
facility closures and furloughs, due to the spread of the COVID-19 pandemic;
•our ability to deliver products that meet changing technology and customer
needs;
•our ability to successfully execute the strategic reorganization without
significant disruption to our business;
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•our ability to achieve the savings targeted in our just announced restructuring program; •our ability to successfully raise the desired amount of funding from the ATM equity issuance and the possible impact on our stock price; •our ability to identify strategic acquisitions, to integrate such acquisitions into our business without disruption and to realize the anticipated benefits of such acquisitions; •impact of future write-off or write-downs of goodwill and intangible assets; •our ability to acquire and enforce intellectual property rights and defend such rights against third party claims; •our ability to protect our intellectual property rights and confidential information, including our digital content, from third-party infringers or unauthorized copying, use or disclosure; •failure of our information technology infrastructure or inability to protect against cyber-attack; •our ability to generate net cash flow from operations; •our ability to comply with the covenants in our borrowing agreements and maintain adequate borrowing capacity; •impact of natural disasters, public health issues (including the COVID-19 pandemic), and other catastrophic events; •impact of global economic, political and social conditions and financial markets on our business; •fluctuations in our gross profit margins, operating income or loss and/or net income or loss; •our ability to efficiently conduct business outside theU.S. ; •our dependence on our supply chain for components and sub-assemblies used in our 3D printers and other products and for raw materials used in our print materials; •our ability to manage the costs and effects of litigation, investigations or similar matters involving us or our subsidiaries; •product quality problems that result in decreased sales and operating margin, product returns, product liability, warranty or other claims; •our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs; •our exposure to product liability claims and other claims and legal proceedings; •disruption in our management information systems for inventory management, distribution, and other key functions; •compliance withU.S. and other anti-corruption laws, data privacy laws, trade controls, economic sanctions, and similar laws and regulations; •our ability to comply with the terms of the Administrative Agreement with theU.S. Air Force and to maintain our status as a responsible contractor under federal rules and regulations; •changes in, or interpretation of, tax rules and regulations; •compliance with, and related expenses and challenges concerning, conflict-free minerals regulations; and •the other factors discussed in the reports we file with or furnishes to theSEC from time to time, including the risks and important factors set forth in additional detail in Item 1A. "Risk Factors" in the 2019 Form 10-K and in Part II, Item 1A of the quarterly report on Form 10-Q for the quarter endedMarch 31, 2020 and this Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included herein are made only as of the date of this Form 10-Q and we undertake no obligation to publicly update or review any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise. All subsequent written or oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by the cautionary statements referenced above.
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