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. As ofSeptember 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 or long-lived asset balances. Based on available information and analysis as ofSeptember 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$48.3 million . We determined the fair value of theAmericas and APAC reporting units exceeded their carrying values and the carrying value of our long-lived assets is recoverable for all reporting units. See Note 1 for additional discussion.
COVID-19 Pandemic Response
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. 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.
23
--------------------------------------------------------------------------------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 completed his initial assessment of the Company and 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. We expect the restructuring effort, when complete and in conjunction with other cost reduction measures, to reduce annualized costs by approximately$100 million by the end of 2021. This should enable us 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 our manufacturing and operating costs. We estimate to incur total cash charges in the range of$25 to$30 million for severance, facility closings and other costs in accomplishing these efforts. We have already incurred restructuring charges in the third quarter of 2020 and expect to incur much of the remaining charges prior to the end of 2020, though we may incur additional charges in 2021 as we finalize all the actions to be taken. We are also evaluating the divestiture of parts of the business that do not align with this strategic focus. See Note 15 and Note 16 for additional discussion. To provide additional financial flexibility while executing our restructuring plan, onAugust 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$150.0 million , depending upon market conditions and our liquidity requirements, throughTruist Securities, Inc. ("Truist Securities ") andHSBC Securities (USA) Inc. ("HSBC," and together withTruist Securities , the "Sales Agents"). For the quarter endedSeptember 30, 2020 , we sold 4,616 shares of our common stock under our ATM Program for net proceeds of$25.0 million , net of$0.5 million in fees, commissions and other costs. As ofSeptember 30, 2020 , we have$124.5 million in availability remaining under the ATM Program. Based on projected cash flows, the results of our cost savings initiatives, availability under our Revolving Facility, and potential divestitures (see Note 16), we do not anticipate issuing shares under the ATM Program during the fourth quarter of 2020. We believe our balance sheet is well positioned and had cash on hand of$75.3 million and total debt of$21.7 million atSeptember 30, 2020 . We had a$100 million unused revolving credit facility with approximately$30.6 million of availability atSeptember 30, 2020 , based on the terms of the agreement. Additionally, our ATM Program may be used as a source of additional liquidity, if needed. In the second and third quarters 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 also implemented a restructuring plan, which included workforce reductions and facility closings. 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 our reported results for the quarter and nine months endedSeptember 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. Additional information regarding COVID-19 risk appears in Part II, Item 1A, "Risk Factors" of the Form 10-Q for the quarters endedMarch 31, 2020 andJune 30, 2020 .
Summary of Third Quarter 2020 Financial Results
Total consolidated revenue for the third quarter of 2020 decreased 13.0% compared to the same period last year. The lower demand was across all products and services and due primarily to the COVID-19 pandemic, as many customers were on a significantly reduced level of activity. Total consolidated revenue for the third quarter of 2020 increased 20.6% compared to the second quarter of 2020 as customer activity levels increased. Revenue from Healthcare increased 6.1% to$59.8 million , compared to the same period last year, driven by stronger sales to the dental market. Industrial sales decreased 23.8% to$75.3 million , compared to the same period last year; decreases were in all products and services across all geographies. 24 -------------------------------------------------------------------------------- Gross profit for the quarter endedSeptember 30, 2020 decreased by 12.9%, or$8.7 million , to$58.6 million , compared to$67.3 million for the quarter endedSeptember 30, 2019 . Gross profit margin for the quarters endedSeptember 30, 2020 andSeptember 30, 2019 was 43.4% and 43.3%, respectively. The decrease in gross profit was primarily due to lower sales volumes resulting from COVID-19, as many of our customers were on a significantly reduced level of activity. Operating expenses for the quarter endedSeptember 30, 2020 increased by 59.4%, or$47.0 million , to$126.2 million , compared to$79.2 million for the quarter endedSeptember 30, 2019 . Excluding our goodwill impairment charge, operating expenses for the quarter endedSeptember 30, 2020 decreased by 1.6%, or$1.3 million , to$77.9 million , compared to$79.2 million for the quarter endedSeptember 30, 2019 . Selling, general and administrative expenses for the quarter endedSeptember 30, 2020 increased by 1.4%, or$0.8 million , to$59.1 million , compared to$58.3 million for the quarter endedSeptember 30, 2019 . Research and development expenses for the quarter endedSeptember 30, 2020 decreased by 9.9%, or$2.1 million , to$18.9 million , compared to$20.9 million for the quarter endedSeptember 30, 2019 . For the quarter endedSeptember 30, 2020 , we recorded a non-cash goodwill impairment charge of$48.3 million . See Note 1 for additional discussion. No similar charge was recorded in the prior year. Excluding the goodwill impairment charge, our lower operating expenses reflect 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 restructuring activities, including personnel and marketing activities, originating in 2019; partially offset by costs associated with restructuring efforts including employee severance and facility closings and related impairment charges. Our operating loss for the quarter endedSeptember 30, 2020 was$67.6 million , compared to an operating loss of$11.9 million for the quarter endedSeptember 30, 2019 . The higher loss was predominantly due to the non-cash goodwill impairment charge of$48.3 million recorded in the current quarter. See Note 1 for additional discussion. For the nine months endedSeptember 30, 2020 , we used$32.6 million of cash from operations, primarily driven by the increase in inventories. For the nine months endedSeptember 30, 2019 , we generated$10.1 million of cash from operations. In total, our unrestricted cash balance atSeptember 30, 2020 andDecember 31, 2019 , was$75.3 million and$133.7 million , respectively. The lower cash balance primarily resulted from$32.6 million for operations,$26.5 million for repayments of debt,$12.5 million for payments to purchase noncontrolling interests and$11.0 million for capital expenditures, offset by net proceeds of$25.0 million from third quarter common stock issuances under our ATM Program. Results of Operations Revenue Current year revenue has been greatly impacted by COVID-19, most severely toward the end of the first quarter and into the second quarter, as many of our customers were shutdown or on a significantly reduced level of activity. The third quarter has experienced some return in activity, though levels remain lower than that of prior year. Excluding impacts due to the pandemic, due to the relatively high price of certain 3D printers and a corresponding lengthy selling cycle as well as relatively low unit volume of the higher priced printers in any particular period, a shift in the timing and concentration of orders and shipments from one period to another can affect reported revenue in any given period. In addition to changes in sales volumes, there are two other primary drivers of changes in revenue from one period to another: (1) the combined effect of changes in product mix and average selling prices and (2) the impact of fluctuations in foreign currencies. As used in this Management's Discussion and Analysis, the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume. We earn revenue from the sale of products and services. The products category includes 3D printers and corresponding materials, healthcare simulators and digitizers, software licenses, 3D scanners and haptic devices. The majority of materials used in our 3D printers are proprietary. The services category includes maintenance contracts and services on 3D printers and simulators, software maintenance, on demand solutions and healthcare services. 25 --------------------------------------------------------------------------------
The following tables set forth the change in revenue for the quarters and nine
months ended
Table 1 (Dollars in thousands) Products Services Total Revenue - third quarter 2019$ 94,506 60.9 %$ 60,766 39.1 %$ 155,272 100.0 % Change in revenue: Volume (19,342) (20.5) % (3,903) (6.4) % (23,245) (15.0) % Price/Mix 540 0.6 % 1 - % 541 0.3 % Foreign currency translation 1,563 1.7 % 1,016 1.7 % 2,579 1.7 % Net change (17,239) (18.2) % (2,886)
(4.7) % (20,125) (13.0) %
Revenue - third quarter 2020
Consolidated revenue decreased 13.0%, predominantly due to lower products volume, driven by decreased sales of printers and lower on demand volume, partially offset by the favorable impact of foreign currency. The lower demand was due to COVID-19, as many of our customers were on a significantly reduced level of activity. For the quarters endedSeptember 30, 2020 and 2019, revenue from printers contributed$21.7 million and$30.4 million , respectively. Software revenue included in the products category contributed$10.2 million and$13.3 million for the quarters endedSeptember 30, 2020 and 2019, respectively. Materials revenue included in the products category contributed$39.0 million and$41.4 million for the quarters endedSeptember 30, 2020 and 2019, respectively. Revenue from services decreased 4.7%, or$2.9 million , as compared to the third quarter of 2019. The decrease was primarily comprised of a 19.0%, or$4.4 million , decline in our on demand manufacturing services, partially offset by an increase in services on printers and simulators, software maintenance and healthcare services.
For the quarters ended
Table 2 (Dollars in thousands) Products Services Total Revenue - nine months 2019$ 280,611 60.4 %$ 183,913 39.6 %$ 464,524 100.0 % Change in revenue: Volume (64,437) (23.0) % (19,295) (10.5) % (83,732) (18.0) % Price/Mix 836 0.3 % 1 - % 837 0.2 % Foreign currency translation 562 0.2 % (279) (0.2) % 283 0.1 % Net change (63,039) (22.5) % (19,573)
(10.6) % (82,612) (17.8) %
Revenue - nine months 2020
Consolidated revenue decreased 17.8%, predominantly due to lower products volume, driven by decreased sales of printers and corresponding materials and 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 nine months endedSeptember 30, 2020 and 2019, revenue from printers contributed$58.1 million and$90.3 million , respectively. Software revenue included in the products category contributed$31.0 million and$39.2 million for the nine months endedSeptember 30, 2020 and 2019, respectively. Materials revenue included in the products category contributed$109.0 million and$124.0 million for the nine months endedSeptember 30, 2020 and 2019, respectively. Revenue from services decreased 10.6%, or$19.6 million , as compared to the nine months ended 2019. The decrease was primarily comprised of a 21.2%, or$14.8 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. 26 --------------------------------------------------------------------------------
Gross profit and gross profit margins
The following tables set forth gross profit and gross profit margins for the
quarters and nine months ended
Table 3
Quarter Ended September 30,
2020 2019 Change in Gross Profit Change in Gross Profit Margin
Gross Profit Gross Profit(Dollars in thousands) Gross Profit Margin Gross Profit Margin $ % Percentage Points % Products$ 28,257 36.6 %$ 36,462 38.6 %$ (8,205) (22.5) % (2.0) (5.2) % Services 30,370 52.5 % 30,819 50.7 % (449) (1.5) % 1.8 3.6 % Total$ 58,627 43.4 %$ 67,281 43.3 %$ (8,654) (12.9) % 0.1 0.2 % The decrease in total consolidated gross profit is predominantly due to the lower sales volume as previously discussed. Products gross profit decreased primarily due to the under absorption of supply chain overhead, resulting from lower production. Table 4 Nine Months Ended September 30, 2020 2019 Change in Gross Profit Change in Gross Profit Margin Gross Profit Gross Profit
(Dollars in thousands) Gross Profit Margin Gross Profit Margin $ % Percentage Points % Products$ 67,177 30.9 %$ 113,802 40.6 %$ (46,625) (41.0) % (9.7) (23.9) % Services 83,749 51.0 % 92,483 50.3 % (8,734) (9.4) % 0.7 1.4 % Total$ 150,926 39.5 %$ 206,285 44.4 %$ (55,359) (26.8) % (4.9) (11.0) % 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 42.4%. 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 35.9%. See Note 4 for additional discussion. Operating expenses
The following tables set forth the components of operating expenses for the
quarters and nine months ended
Table 5
Quarter Ended September 30,
2020 2019 Change
(Dollars in thousands) Amount % Revenue Amount % Revenue $ %
Selling, general and administrative
expenses $ 59,065 43.7 % $ 58,275 37.5 % $ 790 1.4 %
Research and development expenses 18,866 14.0 % 20,940 13.5 % (2,074) (9.9) %
Impairment of goodwill 48,300 35.7 % - - % 48,300 100.0 %
Total operating expenses $ 126,231 93.4 % $ 79,215 51.0 % $ 47,016 59.4 %
Selling, general and administrative expenses increased slightly due to
restructuring efforts, predominantly employee severance and facility closings,
and related impairment charges. See Note 15 for additional discussion regarding
restructuring charges. See Note 3 for additional discussion regarding facility
closings and related impairment charges. These costs were partially offset by
27
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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 restructuring activities, including personnel and marketing activities,
originating in 2019.
Research and development expenses decreased due to current year savings achieved
from cost restructuring activities, including personnel reductions, originating
in 2019, as well as lower overall program spend.
For the quarter ended September 30, 2020 , we recorded a non-cash goodwill
impairment charge of $48.3 million , related to the EMEA reporting unit, that was
ultimately due to the negative impact of the business environment as a result of
the COVID-19 pandemic. See Note 1 for additional discussion.
Table 6
Nine
Months Ended
2020 2019 Change
(Dollars in thousands) Amount % Revenue Amount % Revenue $ %
Selling, general and administrative expenses$ 167,213 43.8 %$ 195,036 42.0 %$ (27,823) (14.3) % Research and development expenses 55,107 14.4 % 63,654 13.7 % (8,547) (13.4) % Impairment of goodwill 48,300 12.6 % - - % 48,300 100.0 % Total operating expenses$ 270,620 70.9 %$ 258,690 55.7 %$ 11,930 4.6 % 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 restructuring activities, including personnel and marketing activities, originating in 2019; reduced litigation and legal fees incurred in the current year; and the run-out of certain intangible amortization. These savings were partially offset by restructuring efforts, predominantly employee severance and facility closings, and related impairment charges. See Note 15 for additional discussion regarding restructuring charges. See Note 3 for additional discussion regarding facility closings and related impairment charges. Research and development expenses decreased due to an employee furlough program in the second quarter of 2020, current year savings achieved from cost restructuring activities, including personnel, originating in 2019, as well as lower overall program spend; partially offset by an increase in materials spend. For the nine months endedSeptember 30, 2020 , we recorded a non-cash goodwill impairment charge of$48.3 million , related to the EMEA reporting unit, that was ultimately due to the negative impact of the business environment as a result of the COVID-19 pandemic. See Note 1 for additional discussion.
Loss from operations
The following table sets forth loss from operations for the quarters and nine
months ended
Table 7
Quarter Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2020 2019 2020 2019
Loss from operations: $ (67,604) See "Revenue," "Gross profit and gross profit margins" and "Operating expenses" above.
28
--------------------------------------------------------------------------------Interest and other (expense) income, net
The following table sets forth the components of interest and other (expense)
income, net, for the quarters and nine months ended
Table 8
Quarter Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2020 2019 2020 2019
Interest and other (expense) income, net
Foreign exchange (loss) gain $ (601) $ (1,095) $ (1,584) $ (2,204)
Interest expense, net (611) (953) (3,699) (2,393)
Other (expense) income, net (1,207) (770) (2,315) (2,177)
Total interest and other (expense) income,
net $ (2,419) $ (2,818) $ (7,598) $ (6,774)
Total interest and other (expense) income, net, for the quarter ended September
30, 2020 as compared to the quarter ended September 30, 2019 remained relatively
flat.
Total interest and other (expense) income, net, for the nine months ended
September 30, 2020 as compared to the nine months ended September 30, 2019
resulted in a higher loss as amounts previously recognized in Accumulated Other
Comprehensive Loss ("AOCL") were released in the second quarter of 2020 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. For the nine
months ended September 30, 2020 and 2019, losses on equity investments were
recorded in both periods to "Other (expense) income, net".
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 nine months endedSeptember 30, 2020 and 2019. Table 9 Quarter Ended September 30, (Dollars in thousands) 2020 2019 Change Loss from operations$ (67,604) $ (11,934) $ (55,670) Other non-operating items: Interest and other (expense) income, net (2,419) (2,818) 399 Provision for income taxes (2,866) (2,010) (856) Net loss (72,889) (16,762) (56,127) Less: net income attributable to noncontrolling interests - 81 (81)
Net loss attributable to
Weighted average shares, basic and diluted 118,527
114,053
Net loss per share - basic and diluted$ (0.61) $ (0.15) 29
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Table 10
Nine Months Ended September 30,
(Dollars in thousands) 2020 2019 Change
Loss from operations $ (119,694) $ (52,405) $ (67,289)
Other non-operating items:
Interest and other (expense) income, net (7,598) (6,774) (824)
Provision for income taxes (2,472) (5,793) 3,321
Net loss (129,764) (64,972) (64,792)
Less: net income attributable to noncontrolling
interests - 195 (195)
Net loss attributable to
Weighted average shares, basic and diluted 116,216
113,587
Net loss per share - basic and diluted$ (1.12)
The increase in net loss for the quarter and nine months endedSeptember 30, 2020 , as compared to the quarter and nine months endedSeptember 30, 2019 , was primarily driven by an increase in loss from operations, which was impacted by a goodwill impairment charge of$48.3 million , restructuring charges of$11.9 million , and an end-of-life inventory charge of$10.9 million . See Note 1 for additional discussion regarding the goodwill impairment charge. See Note 4 for additional discussion regarding the end-of-life inventory charge. See Note 15 for additional discussion regarding the restructuring charges.
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. AtSeptember 30, 2020 , we had cash on hand of$75.3 million and total debt of$21.7 million . We also had a$100 million unused revolving credit facility with approximately$30.6 million of availability, based on the terms of the agreement. Additionally, our ATM Program may be used as a source of additional liquidity, if needed. Cash on hand decreased$58.4 million sinceDecember 31, 2019 . The uses of cash included$32.6 million for operations,$26.5 million for repayments of debt,$12.5 million for payments to purchase noncontrolling interests and$11.0 million for capital expenditures. The primary use of cash in operations related to our net loss as well was our inability to slow down our inventory levels fast enough earlier in the year, specifically for committed lead times with our contract manufacturers and suppliers due to COVID-19. Cash provided included net proceeds of$25.0 million from third quarter common stock issuances under our ATM Program. 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 ofSeptember 30, 2020 , we had$10.0 million of outstanding letters of credit and$30.6 million of available borrowings under the Revolving Facility. For additional information on the Senior Credit Facility, see Note 7 for further discussion. We also launched an ATM Program to provide us with additional financial flexibility to complete our reorganization and to work through these uncertain times caused by the pandemic. Our ATM Program allows us from time to time to issue up to a total of$150 million of shares of our common stock to the public, at our 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. AtSeptember 30, 2020 , we had approximately$124.5 million of availability remaining under the ATM Program; however, based on projected cash flows, the results of our cost savings initiatives, availability under the Revolving Facility, and potential divestitures (see Note 16), we do not anticipate issuing shares under the ATM Program during the fourth quarter of 2020. 30 -------------------------------------------------------------------------------- Cash held outside theU.S. atSeptember 30, 2020 was$53.8 million , or 71.5% 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 nine months ended
Working capital used cash of$22.0 million for the nine months endedSeptember 30, 2020 and provided cash of$13.4 million for the nine months endedSeptember 30, 2019 . In the nine months endedSeptember 30, 2020 , drivers of working capital related to cash outflows were an increase in inventory and prepaid expenses and a decrease in accounts payable, partially offset by a decrease in accounts receivable and an increase in other accrued liabilities and deferred revenue. In the nine months endedSeptember 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 accrued and other current liabilities.
Cash flow from investing activities
For the nine months endedSeptember 30, 2020 and 2019, the primary outflows of cash relate to the purchases of noncontrolling interests and capital expenditures. Purchases of noncontrolling interests were$10.0 million , related to Robtec, and$2.5 million , related to Easyway, for the nine months endedSeptember 30, 2020 and 2019, respectively. See Note 14 for additional discussion. Capital expenditures were$11.0 million and$18.3 million for the nine months endedSeptember 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$3.8 million for the nine months endedSeptember 30, 2020 , while cash provided by financing activities was$29.8 million for the nine months endedSeptember 30, 2019 . The primary outflow of cash for the nine months endedSeptember 30, 2020 relates to repayment of the Term Facility and settlements of stock-based compensation, partially offset by net proceeds from issuances of common stock under our ATM Program and proceeds from an inventory financing agreement. The primary inflow of cash for the nine months endedSeptember 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.
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: 31 -------------------------------------------------------------------------------- Our EMEA and APAC reporting units carry approximately$142.6 million and$37.0 million of goodwill, respectively, as ofSeptember 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$58.8 million ,$6.2 million , and$53.3 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 exceed their carrying values and the carrying value of our long-lived assets were recoverable. As ofSeptember 30, 2020 , we experienced a triggering event due to a drop in our stock price, which 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 or long-lived asset balances. Based on available information and analysis as ofSeptember 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$48.3 million . We determined the fair value of theAmericas and APAC reporting units exceeded their carrying values and the carrying value of our long-lived assets is recoverable for all reporting units. 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; •our ability to achieve the savings targeted in our recently announced restructuring program; •our decisions regarding additional equity sales under the ATM Program; •our ability to successfully raise additional funds from the ATM Program, if any, 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. ; 32
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•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; •our ability to complete the proposed sale of theCimatron and GibbsCAM businesses in a timely manner (or at all); 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 quarters endedMarch 31, 2020 andJune 30, 2020 . 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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