DOMINION ENERGY MIDSTREAM PARTNERS LP This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, trends, events, and our objectives for future operations, are forward-looking statements. The words "may," "will," "expect," "anticipate," "believe," "intend," "project," "could," "would," "estimate," "potential," "continue," "plan," "target," or the negative of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements included herein are based on current expectations of management. Actual results may differ from those expressed in forward-looking statements due to additional factors, including those set forth in Item 1A. "Risk Factors" elsewhere in this Quarterly Report on Form 10-Q. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Business Overview
Desktop Metal is pioneering a new generation of additive manufacturing technologies focused on Additive Manufacturing 2.0, the volume production of end use parts. We offer a comprehensive portfolio of integrated additive manufacturing solutions comprised of hardware, software, materials and services with support for metals, polymers, elastomers, ceramics, sands, composites, wood and biocompatible materials. Our solutions span use cases across the product life cycle, from product development to mass production and aftermarket operations, and they address an array of industries, including automotive, healthcare and dental, consumer products, heavy industry, aerospace, machine design and research and development. Our growth strategy begins with a commitment to research and development. Since our founding in 2015, we have invested significant resources in research and development towards building an extensive portfolio of proprietary and differentiated technologies with a focus on making additive manufacturing an easy-to-use, economic and scalable solution. These technologies represent the cornerstones of our future product introductions, are critical to enhancing our existing offerings, and are supported by over 650 patents or pending patent applications. Our additive manufacturing platforms, which leverage these technologies for the production of tools and end-use parts, enable businesses to address their specific goals through a range of solutions that span price points, throughput levels and operating environments. Our product platforms offer several key advantages over competitive additive manufacturing systems including breakthrough print speeds, competitive part costs, accessible workflows and software, turnkey solutions and support for an extensive library of qualified materials, the sale of which represent a recurring revenue stream from customers of our additive manufacturing solutions in addition to system consumables and other services, such as installation, training and technical support. As a result of these strengths, our solutions are lowering the barriers to adopting additive manufacturing and unlocking new applications where conventional manufacturing has customarily held cost and volume advantages. Across printers, parts and materials, we intend to continue investing to advance our current technology portfolio and develop new technologies that allow us to serve a broader customer base and reach new verticals, thereby expanding our addressable market and driving adoption of Additive Manufacturing 2.0. We leverage our core competencies in technology innovation and product development by marketing and selling our Additive Manufacturing 2.0 solutions through a leading global distribution network, managed and augmented by our own internal sales and marketing teams. This distribution network, which covers over 65 countries around the world, is composed of sales and distribution professionals with decades of experience in digital manufacturing technologies and works alongside our direct sales force to market and sell products across a range of industries and price points. Similarly, our internal manufacturing
and
supply chain teams to work
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collaboratively with our internal engineering department and third-party
contract manufacturers to scale up initial prototypes for commercialization and
volume commercial shipments. Together, our hybrid distribution and manufacturing
approaches allow us to produce, sell and service our products at-scale in global
markets and create substantial operating leverage as we execute our strategy.
Our proprietary technology solutions also serve as the foundation for product
parts offerings in which we which we directly manufacture parts for sale to our
customers with a focus on key applications and verticals in which additive
manufacturing can provide significant design, performance, cost and supply chain
advantages relative to conventional manufacturing. These offerings will enable
us to provide a more holistic suite of solutions for our customers and enable
the accelerated adoption of our Additive Manufacturing 2.0 solutions across
select high-value production applications, which we refer to as "killer apps",
including, but not limited to, medical and dental devices, fluid power systems,
and sustainable, end-use wood parts. We believe such offerings will not only
create a high-margin revenue stream, but will also facilitate lead generation
for our additive manufacturing systems at scale and enable high-performance and
specialized applications using new materials ahead of broader market
introduction.
Operating Results
For the three and six months endedJune 30, 2022 , we recognized revenues of$57.7 million and$101.4 million , respectively, and incurred net losses of$297.3 million and$367.2 million , respectively. As ofJune 30, 2022 , we used cash in operating activities of$111.0 million , and we ended the period with$255.8 million of cash, cash equivalents, and short-term investments. As ofJune 30, 2022 , we had$108.0 million in cash and cash equivalents,$147.8 million in short-term liquid investments, and current liabilities of$94.0
million. Recent Developments ExOne Acquisition
OnNovember 12, 2021 , we acquiredThe ExOne Company , orExOne , pursuant to an Agreement and Plan of Merger datedAugust 11, 2021 . The total purchase price was$613.0 million consisting of cash consideration of$201.4 million and 48,218,063 shares of our Class A Common Stock with a fair value of$411.6 million as of the close of business on the transaction date.
Convertible Debt Offering
OnMay 13, 2022 , we issued$100.0 million principal amount of our 6.0% Convertible Senior Notes due 2027 ("2027 Notes"). The 2027 Notes were issued pursuant to, and are governed by, an indenture, dated as ofMay 13, 2022 , between us andU.S. Bank Trust Company, National Association , as trustee. Pursuant to the purchase agreement between us and the initial purchasers of the 2027 Notes, we granted the initial purchasers an option to purchase up to an additional$15.0 million principal amount of 2027 Notes, which was exercised onMay 19, 2022 . Restructuring OnJune 10, 2022 , the Board of Directors approved a strategic integration and cost optimization initiative that includes a global workforce reduction of approximately 12%, facilities consolidation, and other operational savings measures (the "Initiative"). The purpose of the Initiative is to streamline our operational structure, reducing our operating expenses and managing our cash flows. We have commenced workforce reductions inthe United States and are reviewing workforce changes in other countries, the timing of which will vary according to local regulatory requirements. We are also conducting a facility rationalization assessment and assessing other operational savings measures. Lease termination costs associated with the Initiative have yet to be determined, pending completion of the facility rationalization assessment. Other costs related to operational savings measures associated with the Initiative have yet to be determined. As a result of the Initiative, we anticipate$20.0 million of cost savings to be realized in the second half of 2022 and at least$100.0 million of aggregate cost savings to be realized over the next 24 months. We anticipate that the Initiative will be substantially complete by the end of 2023. 50 Table of Contents COVID-19 InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic. It is not possible to accurately predict the full impact of the COVID-19 pandemic on our business, financial condition and results of operations due to the evolving nature of the COVID-19 pandemic and the extent of its impact across industries and geographies and numerous other uncertainties. For example, we face uncertainties about the duration and spread of the outbreak, additional actions that may be taken by governmental entities, and the impact it may have on the ability of us, our customers, our suppliers, our manufacturers and our other business partners to conduct business. Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary. Many organizations and individuals, including our company and employees, are taking additional steps to avoid or reduce infections, including limiting travel and staying home from work. These measures are disrupting normal business operations and have had significant negative impacts on businesses and financial markets worldwide. We continue to monitor our operations and government recommendations and have made modifications to our normal operations because of the COVID-19 pandemic, including requiring some non-engineering or operations-related team members to work remotely, utilizing heightened cleaning and sanitization procedures, implementing new health and safety protocols and reducing non-essential travel. The COVID-19 pandemic has caused us to experience several adverse impacts, including extended sales cycles to close new orders for our products, delays in shipping and installing orders due to closed facilities and travel limitations and delays in collecting accounts receivable. The rapid development and uncertainty of the impacts of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic on our business. However, the COVID-19 pandemic, and the measures taken to contain it, present material uncertainty and risk with respect to our performance and financial results. In particular, businesses across an array of vertical markets are temporarily reducing capital expenditure budgets globally as they seek to preserve liquidity to ensure the longevity of their own operations, which in turn may lead to reductions in purchases of our additive manufacturing solutions. Further, office closures may prevent organizations from reaching typical utilizations of our additive manufacturing solutions, resulting in reductions in purchases of consumable materials. Additionally, the COVID-19 pandemic may contribute to facility closures at our third-party contract manufacturers and key suppliers, causing delays and disruptions in product manufacturing, which could affect our ability to ship products purchased by our customers in a timely manner. Disruptions in the capital markets as a result of the COVID-19 pandemic may also adversely affect our business if these impacts continue for a prolonged period and we need additional liquidity. In the long-term, we believe that the COVID-19 pandemic and the subsequent disruptions in global supply chains and logistics networks will encourage organizations to reassess their supply chain structure and may accelerate their adoption of solutions such as additive manufacturing, which could allow for greater flexibility through decentralized production capabilities, on-demand inventory resiliency, reductions in supply chain complexity and a reduced reliance on overseas manufacturing.
Key Factors Affecting Operating Results
We believe that our performance and future success depend on many factors that present significant opportunities for us, but also pose risks and challenges, including those discussed below and in "Risk Factors" section of this Quarterly Report on Form 10-Q.
Adoption of our Additive Manufacturing Solutions
We believe the world is at an inflection point in the adoption of additive manufacturing solutions and that we are well-positioned to take advantage of this opportunity across an array of industries due to our proprietary technologies and global distribution capabilities. We expect that our results of operations, including revenue and gross margins, will fluctuate for the foreseeable future as businesses continue to shift away from conventional manufacturing processes towards additive manufacturing for end-use parts. Our turnkey and volume production solutions are designed to empower businesses to realize the full benefits of additive manufacturing at-scale, including geometric and design flexibility, mass customization and supply chain engineering, among others. The degree to which potential and current customers recognize these benefits and invest in our solutions will affect our financial results.
Pricing, Product Cost and Margins
We offer customers a range of additive manufacturing solutions spanning multiple
price points, materials, throughput levels, operating environments and
technologies to enable them to find the solution that achieves their specific
goals. Pricing for these
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products may vary by region due to market-specific supply and demand dynamics
and product lifecycles, and sales of certain products have, or are expected to
have, higher gross margins than others. As a result, our financial performance
depends, in part, on the mix of products we sell during a given period. In
addition, we are subject to price competition, and our ability to compete in key
markets will depend on the success of our investments in new technologies and
cost improvements as well as our ability to efficiently and reliability
introduce cost-effective additive manufacturing solutions for our customers.
We believe that we are a leader in mass production and turnkey additive manufacturing solutions, offering breakthrough technologies that enable high throughput and easeofuse through our broad product portfolio. Our performance is significantly dependent on the investment we make in our research and development efforts and on our ability to be at the forefront of the additive manufacturing industry. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance existing products and generate customer demand for our solutions. We believe that investment in our additive manufacturing solutions will contribute to longterm revenue growth, but it may adversely affect our nearterm profitability.
Commercial Launch of Products
We continually invest in the development of new products and enhancements to existing products to meet constantly evolving customer demands, and during the six months endedJune 30, 2022 , we launched a number of new products. Prior to commercialization of new products, we must complete final testing, procurement and manufacturing ramp up of these products in-house or at our third-party contract manufacturers, as applicable. Any delays in successful completion of these steps may impact our ability to generate revenue from these products.
Acquisitions and Transaction-Related Costs
Our growth relies heavily on the successful integration of acquired companies, including our ability to realize the anticipated business opportunities from combining operations in an efficient and effective manner. We expect that the results of our operations will fluctuate as we continue to integrate these businesses, and the technologies, products, and services that they offer. Additionally, our results of operations will be impacted by non-recurring transaction-related costs, including integration costs, severance costs and other costs associated with these acquisitions.
Results of Operations
Comparison of the three months ended
Revenue
The following table presents the revenue of each of our revenue streams, as well as the percentage of total revenue and change from the prior year.
For the Three Months Ended June 30,
2022 2021 Change in Revenues
(Dollars in thousands) Revenue % of Total Revenue % of Total $ %
Products Revenue $ 52,672 91 % $ 17,560 93 % $ 35,112 200 %
Services Revenue 5,002 9 % 1,417 7 % 3,585 253 %
Total Revenue $ 57,674 100 % $ 18,977 100 % $ 38,697 204 %
Total revenue for the three months ended June 30, 2022 and 2021 was
$57.7 million and $19.0 million , respectively, an increase of $38.7 million , or
204%. The increase in total revenue was attributable to an increase in revenue
from both products and services.
We sold more products during the three months ended June 30, 2022 , as compared
to the three months ended June 30, 2021 , leading to an approximately 200%
increase in product revenue. This was primarily the result of an increase in
unit shipments across a
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more varied product mix during the second quarter of 2022 and additional revenue in connection with acquisitions that occurred during 2021.
Services revenue increased approximately 253% during the three months endedJune 30, 2022 , as compared to the three months endedJune 30, 2021 , primarily due to an increase in support and installation revenue from increased shipments during the period and additional revenue in connection with acquisitions.
The following table presents revenue by geographic region, as well as the percentage of total revenue and change from the prior period.
For the Three Months Ended June 30,
2022 2021 Change in Revenues
(Dollars in thousands) Revenue % of Total Revenue % of Total $ %
Americas $ 40,152 70 % $ 11,401 60 % $ 28,751 252 %
EMEA (Europe , the Middle East
and Africa) 13,267 24 % 4,150 22 % 9,117 220 %
APAC (AsiaPacific) 4,255 7 % 3,426
18 % 829 24 %
Total Revenue $ 57,674 101 % $ 18,977 100 % $ 38,697 204 %
Total revenue increased during the three months ended June 30, 2022 , compared to
the three months ended June 30, 2021 , due to an increase in unit shipments in
all regions across a more varied product mix and additional revenue in
connection with acquisitions.
Cost of Sales
Total cost of sales during the three months endedJune 30, 2022 and 2021 was$49.3 million and$16.6 million , respectively, an increase of$32.7 million or 197%. The increase in total cost of sales was driven primarily by an increase in product cost of sales, which resulted from increased product sales. Additionally, cost of sales increased$3.5 million due to amortization from intangible assets acquired through acquisitions that are included in cost of sales. Gross Profit and Gross Margin
The following table presents gross profit by revenue stream, as well as change in gross profit dollars from the prior period.
For the Three
Months Ended
June 30, Change in Gross
2022 2021 Profit
(Dollars in thousands) Gross Profit $ %
Products $ 7,759 $ 2,070 $ 5,689 275 %
Services 638 302 336 111 %
Total $ 8,397 $ 2,372 $ 6,025 254 %
Total gross profit during the three months endedJune 30, 2022 and 2021 was$8.4 million and$2.4 million , respectively. The increase in gross profit of$6.0 million was driven by scaling revenue to improve absorption of fixed overhead costs and a more favorable product mix sold, including products acquired through acquisitions. 53 Table of Contents
The following table presents gross margin by revenue stream, as well as the change in gross margin from the prior period.
For the Three
Months Ended Change in Gross
June 30, Margin
2022 2021 Percentage
Gross Margin Points %Products 15 % 12 % 0.03 25 % Services 13 % 21 % (0.08) (38) % Total 15 % 12 % 0.03 25 % Total gross margin for the three months endedJune 30, 2022 and 2021 was 15% and 12%, respectively. The increase in total gross margin was primarily due to the increase in gross margin from our service revenue, which resulted from greater absorption of fixed costs in the three months endedJune 30, 2022 , as compared to the three months endedJune 30, 2021 .
Research and Development
Research and development expenses during the three months endedJune 30, 2022 and 2021 were$31.4 million and$15.7 million , respectively, an increase of$15.7 million , or 100%. The increase in research and development expenses was largely due to an increase in stock compensation expense of$10.9 million , primarily attributable to the amendment to the 2022 bonus program and the acceleration of RSUs for certain key employees in connection with the Initiative described above. The increase is also due in part to 2021 acquisitions, which added$3.9 million in research and development expenses. Additionally, we incurred$0.2 million of restructuring charges included in research and development expenses in connection with the Initiative described above.
Sales and Marketing
Sales and marketing expenses during the three months endedJune 30, 2022 and 2021 were$20.4 million and$10.9 million , respectively, an increase of$9.5 million , or 87%. The increase in sales and marketing expenses was primarily due to increased expense related to acquired entities of$4.5 million . In addition, compensation costs increased$2.0 million related to sales personnel hiring to support the launch and commercialization of new products. We incurred$0.9 million of restructuring charges included in sales and marketing expenses in connection with the Initiative described above. Additionally, there was growth of$0.6 million in marketing program spend driven primarily by the commercialization of new products and related marketing efforts.
General and Administrative
General and administrative expenses during the three months endedJune 30, 2022 and 2021 were$19.7 million and$13.1 million , respectively, an increase of$6.6 million , or 50%. The increase in general and administrative expenses was primarily due to increased expense related to acquired entities of$5.3 million . Additionally, stock-based compensation costs increased by$3.0 million , attributable to the amendment to the 2022 bonus program. We incurred$0.9 million in restructuring charges included in general and administrative expenses in connection with the Initiative described above. The increase in general and administrative expenses was partially offset by a decrease of$3.4 million in accounting, auditing and legal fees due to a reduction in merger and acquisition activity.
There were no in-process research and development assets acquired during the three months endedJune 30, 2022 . We recognized$10.4 million of in-process research and development assets acquired during the three months endedJune 30, 2021 , attributable to the Beacon Bio acquisition in 2021, in which we paid$10.2 million in cash and share consideration. As the acquired in-process research and development assets were deemed to have no current or alternative future use, the entire amount was recognized as expense in the consolidated statement of operations for the three months endedJune 30, 2021 . 54 Table of Contents Goodwill Impairment
Goodwill impairment charge of$229.5 million during the three months endedJune 30, 2022 , represents an impairment charge to write down the carrying amount of the goodwill. There was no goodwill impairment charge recorded during the three months endedJune 30, 2021 .
Change in Fair Value of Warrant Liability
There was no change in fair value of warrant liability during the three months
ended
Interest Expense
Interest expense during the three months endedJune 30, 2022 and 2021 was$0.6 million and$0.1 million , respectively, a decrease of$0.5 million . Interest expense decreased primarily due to the payoff of the term loan inJune 2021 .
Interest and Other Income, Net
Interest and other (expense) income, net during the three months
ended
Income Taxes
We recorded an income tax benefit of$0.9 million during the three months endedJune 30, 2022 , compared to an income tax benefit of$4.3 million during for the three months endedJune 30, 2021 . The decrease was due to the partial release of the valuation allowance related to the deferred tax liability acquired in the Adaptive 3D acquisition during the three months endedJune 30, 2021 . We have provided a valuation allowance for all of our deferred tax assets as a result of our historical net losses in the jurisdictions in which we operate, except forGermany ,Japan andBelgium . We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to enact in future periods, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.
Comparison of the six months ended
The following table presents the revenue of each of our revenue streams, as well as the percentage of total revenue and change from the prior year.
For the Six Months Ended June 30, Change in
2022 2021 Revenues
(Dollars in thousands) Revenue % of Total Revenue % of Total $ %
Product Revenue $ 92,148 91 % $ 27,871 92 % $ 64,277 231 %
Service Revenue 9,232 9 % 2,419 8 % 6,813 282 %
Total Revenue $ 101,380 100 % $ 30,290 100 % $ 71,090 235 %
Total revenue for the six months ended June 30, 2022 and 2021 was $101.4 million
and $30.3 million , respectively, an increase of $71.1 million , or 235%. The
increase in total revenue was attributable to an increase in revenue from both
products and services.
We sold more products during the six months ended June 30, 2022 , as compared to
the six months ended June 30, 2021 , leading to an approximately 231% increase in
product revenue. This was primarily the result of an increase in unit shipments
across a more
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varied product mix during the first two quarters of 2022 and additional revenue in connection with acquisitions that occurred during 2021.
Services revenue increased approximately 282% during the six months ended
The following table presents revenue by geographic region, as well as the percentage of total revenue and change from the prior period.
For the Six Months Ended June 30, Change in
2022 2021 Revenues
(Dollars in thousands) Revenue % of Total Revenue %of Total $ % Americas$ 70,887 70 %$ 17,960 59 %$ 52,927 295 % EMEA 23,060 23 % 6,892 23 % 16,168 235 % APAC 7,433 7 % 5,438 18 % 1,995 37 % Total Revenue$ 101,380 100 %$ 30,290 100 %$ 71,090 235 % Total revenue increased during the six months endedJune 30 , 20222, compared to the six months endedJune 30, 2021 , due to an increase in unit shipments in all regions across a more varied product mix and additional revenue in connection with acquisitions. Cost of Sales
Total cost of sales during the six months endedJune 30, 2022 and 2021 was$94.3 million and$28.5 million , respectively, an increase of$65.8 million or 231%. The increase in total cost of sales was driven primarily by an increase in product cost of sales, which resulted from greater product sales. Additionally, cost of sales increased$8.4 million due to amortization from intangible assets acquired through acquisitions that are included in cost of sales.
Gross Profit and Gross Margin
The following table presents gross profit by revenue stream, as well as change in gross profit (loss) dollars from the prior period.
For the Six Months Ended June 30, Change in Gross
2022 2021 Profit
(Dollars in thousands) Gross Profit (Loss) $ %
Products $ 5,333 $ 1,894 $ 3,439 182 %
Services 1,736 (109) 1,845 1,693 %
Total $ 7,069 $ 1,785 $ 5,284 296 %
Total gross profit during the six months ended June 30, 2022 and 2021 was $7.1
million and $1.8 million , respectively. The increase in gross profit of $5.3
million was driven by scaling revenue to improve absorption of fixed overhead
costs and a more favorable product mix sold, including products in connection
with acquisitions.
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The following table presents gross margin by revenue stream, as well as the change in gross margin from the prior period.
Change in Gross
For the Six Months Ended June 30, Margin
2022 2021 Percentage
Gross Margin Points %
Products 6 % 7 % (0.01) (14) %
Services 19 % (5) % 0.24 480 %
Total 7 % 6 % 0.01 17 %
Total gross margin for the six months ended June 30, 2022 and 2021 was 7% and
6%, respectively. The increase in total gross margin was primarily due to the
increase in gross margin from our service revenue, which resulted from greater
absorption of fixed costs in the six months ended June 30, 2022 , as compared to
the six months ended June 30, 2021 .
Research and Development
Research and development expenses during the six months endedJune 30, 2022 and 2021 were$56.0 million and$26.5 million , respectively, an increase of$29.5 million , or 111%. The increase in research and development expenses was due primarily to an increase in stock compensation expense of$14.7 million , attributable to the amendment to the 2022 bonus program, the acceleration of RSUs for certain key employees, in connection with the Initiative described above, and grants to new hires. The increase is also due in part to 2021 acquisitions, which added$9.7 million of research and development expenses. Additionally, we incurred$0.9 million of additional personnel costs related to hiring to support research operations and$0.2 million of restructuring charges included in research and development expenses in connection with the Initiative described above. Sales and Marketing
Sales and marketing expenses during the six months endedJune 30, 2022 and 2021 were$40.1 million and$16.3 million , respectively, an increase of$23.8 million , or 146%. The increase in sales and marketing expenses was primarily due to increased expense related to acquired entities of$8.6 million . In addition, compensation costs increased$5.0 million related to sales personnel hiring to support the launch and commercialization of new products. Additionally, there was growth of$3.9 million in marketing program spend driven primarily by the commercialization of new products and related marketing efforts. We also incurred$2.0 million of amortization from intangible assets acquired through acquisitions that are included in sales and marketing. We incurred$0.7 million of restructuring charges included in sales and marketing expenses in connection with the Initiative described above.
General and Administrative
General and administrative expenses during the six months endedJune 30, 2022 and 2021 were$43.6 million and$27.0 million , respectively, an increase of$16.6 million , or 61%. The increase in general and administrative expenses was primarily due to increased expense related to acquired entities of$11.9 million . Additionally, stock-based compensation costs increased by$5.6 million , attributable to the amendment to the 2022 bonus program and grants to new hires, and personnel costs increased$2.2 million due to new hires. We incurred$0.5 million in restructuring charges included in general and administrative expenses in connection with the Initiative described above. The increase in general and administrative expenses was partially offset by a decrease of$4.8 million in accounting, auditing and legal fees due to a reduction in merger and acquisition activity.
There were no in-process research and development assets acquired during the six months endedJune 30, 2022 . We recognized$10.4 million of in-process research and development assets acquired during the six months endedJune 30, 2021 , attributable to the Beacon Bio acquisition, in which we paid$10.2 million in cash and share consideration. As the acquired in-process research and development assets were deemed to have no current or alternative future use, the entire amount was recognized as expense in the consolidated statement of operations for the six months endedJune 30, 2021 . Goodwill Impairment 57 Table of ContentsGoodwill impairment charge of$229.5 million during the six months endedJune 30, 2022 , represents an impairment charge to write down the carrying amount of the goodwill. There was no goodwill impairment charge recorded during the six months endedJune 30, 2021 .
Change in Fair Value of Warrant Liability
There was no change in fair value of warrant liability during the six months endedJune 30, 2022 , and a change in fair value of warrant liability of($56.6) million during the six months endedJune 30, 2021 . The change in fair value is the result of the remeasurement of the Private Placement Warrant liability prior to the cashless exercise of the Private Placement Warrants. The warrant liability increased$56.6 million as a result of the remeasurement, which resulted in the$56.6 million loss. As ofMarch 2, 2021 , all Private Placement Warrants were exercised and there was no outstanding warrant liability.
Interest Expense
Interest expense during the six months endedJune 30, 2022 and 2021 was$0.6 million and$0.1 million , respectively, a decrease of$0.5 million . Interest expense decreased primarily due to the payoff of the term loan inJune 2021 .
Interest and Other Income, Net
Interest and other (expense) income, net during the six months endedJune 30, 2022 and 2021 and was($6.8) million and$0.6 million , respectively, a decrease of$7.4 million . The decrease is primarily to a loss on the investment in equity securities of a publicly-traded company.
Income Taxes
We recorded an income tax benefit of$2.2 million during the six months endedJune 30, 2022 , compared to an income tax benefit of$32.2 million during the six months endedJune 30, 2021 . The decrease was due to the partial release of the valuation allowance related to the deferred tax liability acquired in the EnvisionTEC and Adaptive 3D acquisitions during the six months endedJune 30, 2021 . We have provided a valuation allowance for all of our deferred tax assets as a result of our historical net losses in the jurisdictions in which we operate, except forGermany . We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to enact in future periods, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.
Non-GAAP Financial Information
In addition to our results determined in accordance with GAAP, we believe the
below non-GAAP financial measures are useful in evaluating our operational
performance. We use this non-GAAP financial information to evaluate our ongoing
operations and for internal planning and forecasting purposes. We believe that
this non-GAAP financial information, when taken collectively, may be helpful to
investors in assessing our operating performance.
The non-GAAP financial information excludes, as applicable, stock-based
compensation expense, amortization of acquired intangible assets, restructuring
expenses, acquisition-related and other transactional charges, inventory
step-up, in-process research and development assets acquired, goodwill
impairment, change in fair value of investments and change in fair value of
warrant liability. These items are normally included in the comparable measures
calculated and presented in accordance with GAAP. Our management excludes these
items when evaluating our ongoing performance and/or evaluating earnings
potential, and therefore excludes them when presenting non-GAAP financial
measures. Management uses non-GAAP financial measures to supplement our GAAP
results.
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Stock-based compensation is a non-cash expense relating to stock-based awards
issued to executive officers, employees, and outside directors, consisting of
options and restricted stock units. We exclude this expense because it is a
non-cash expense and we assess our internal operations excluding this expense
and believe it facilitates comparisons to the performance of other companies in
our industry.
Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is relevant to an understanding of internal operations and to comparisons with the performance of other companies in our industry.
Restructuring expenses are costs related to strategic integration and cost optimization initiatives which include global workforce reductions, facilities consolidation, and other operational savings measures. We believe the assessment of our operations excluding these costs is relevant to an understanding of internal operations and to comparisons with the performance of other companies in our industry. Acquisition-related and other transactional charges are direct costs related to potential and completed acquisitions, including transaction fees, due diligence costs, severance, professional fees, and integration activities. Other transactional charges include third-party costs related to structuring unusual transactions. The occurrence and amount of these costs will vary depending on the timing and size of acquisitions. We believe excluding acquisition-related costs facilitates the comparison of our financial results to our historical operating results and to other companies in our industry. In-process research and development assets acquired are direct costs related to assets acquisitions where the intangible assets acquired were determined to have no alternative future use. This is a non-recurring expense and we believe excluding acquired in-process research and development facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.Goodwill impairment is a non-cash charge to write down the carrying amount of goodwill following a quantitative impairment assessment where it was determined that the estimated fair value of the reporting unit was less than its carrying amount. We believe the assessment of our operations excluding this charge is relevant to an understanding of internal operations and to comparisons with the performance of other companies in our industry. Change in fair value of investments is a non-cash gain or loss impacted by the change in fair value of convertible debt instruments and the equity investment. We believe the assessment of our operations excluding this activity is relevant to an understanding of internal operations and to comparisons with the performance of other companies in our industry. Change in fair value of warrant liability is a non-cash gain or loss impacted by the fair value of the Private Placement Warrants. We believe the assessment of our operations excluding this activity is relevant to an understanding of internal operations and to comparisons with the performance of other companies in our industry. We use the below non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP results. 59 Table of Contents The items excluded from the non-GAAP financial measures often have a material impact on our financial results and such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure in our financial statements for the three and six months endedJune 30, 2022 and 2021: For the Three Months Ended
For the Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
GAAP gross margin $ 8,397 $ 2,372 $ 7,069 $ 1,785
Stock-based compensation included in cost of
sales(1) 671 128 1,158 245
Amortization of acquired intangible assets
included in cost of sales 5,950 2,235 11,940 3,326
Restructuring expense in cost of sales 41 - 41 -
Acquisition-related and other transactional
charges included in cost of sales 10 - 1,148 -
Inventory step-up adjustment in cost of
sales 315 - 1,496 -
Non-GAAP gross margin $ 15,384 $ 4,735 $ 22,852 $ 5,356
GAAP operating loss $ (292,570) $ (47,715) $ (362,049) $ (78,455)
Stock-based compensation(2),(3) 19,218 3,999 29,130 6,216
Amortization of acquired intangible assets 9,669 4,268 19,453 6,568
Restructuring expense 2,001 - 2,001 -
Inventory step-up adjustment in cost of
sales 315 - 1,496 -
Acquisition-related and other transactional
charges 1,171 3,127 5,157 8,313
In-process research and development assets
acquired - 10,400 - 10,198
Goodwill impairment 229,500 - 229,500 -
Non-GAAP operating loss $ (30,696) $ (25,921) $ (75,312) $ (47,160)
GAAP net loss $ (297,272) $ (43,180) $ (367,216) $ (102,288)
Stock-based compensation(2),(3) 19,218 3,999 29,130 6,216
Amortization of acquired intangible assets 9,669 4,268 19,453 6,568
Restructuring expense 2,384 - 2,384 -
Inventory step-up adjustment in cost of
sales 315 - 1,496 -
Acquisition-related and other transactional
charges 1,171 3,127 5,157 8,313
In-process research and development assets
acquired - 10,400 - 10,198
Goodwill impairment 229,500 - 229,500 -
Change in fair value of investments 4,741 (18) 6,441 (18)
Change in fair value of warrant liability - - - 56,576
Non-GAAP net loss $ (30,274) $
(21,404)
(1) Includes
(2) Includes
(3) Includes$2.2 million of liability-award stock-based compensation expense in 2022. 60 Table of Contents For the Three Months
Ended For the Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
GAAP operating expenses $ 300,967 $ 50,087 $ 369,118 $ 80,240
Stock-based compensation included in
operating expenses(1),(2) (18,547) (3,871) (27,972) (5,971)
Amortization of acquired intangible assets
included in operating expenses (3,719) (2,033) (7,513) (3,241)
Restructuring expense included in operating
expenses (1,960) - (1,960) -
Acquisition-related and other transactional
charges included in operating expenses (1,161) (3,127) (4,009) (8,111)
In-process research and development assets
acquired - (10,400) - (10,400)
Goodwill impairment (229,500) - (229,500) -
Non-GAAP operating expenses $ 46,080 $ 30,656 $ 98,164 $ 52,517 (1) Includes
(2) Includes
We define "EBITDA" as net loss plus net interest income, provision for income taxes, depreciation and amortization expense.
We define "Adjusted EBITDA" as EBITDA adjusted for change in fair value of warrant liability, change in fair value of investments, inventory step-up adjustment, stock-based compensation expense, restructuring expense, goodwill impairment and transaction costs associated with acquisitions.
We believe that the use of EBITDA and Adjusted EBITDA provides an additional
tool for investors to use in evaluating ongoing operating results and trends
because it eliminates the effect of financing, capital expenditures, and
non-cash expenses such as stock-based compensation and warrants, and provides
investors with a means to compare our financial measures with those of
comparable companies, which may present similar non-GAAP financial measures to
investors. However, you should be aware when evaluating EBITDA and Adjusted
EBITDA that we may incur future expenses similar to those excluded when
calculating these measures. In addition, our presentation of these measures
should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. Our computation of these measures,
especially Adjusted EBITDA, may not be comparable to other similarly titled
measures computed by other companies because not all companies calculate these
measures in the same fashion.
Because of these limitations, EBITDA and Adjusted EBITDA should not be
considered in isolation or as a substitute for performance measures calculated
in accordance with GAAP. We compensate for these limitations by relying
primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a
supplemental basis. You should review the reconciliation of net loss to EBITDA
and Adjusted EBITDA below and not rely on any single financial measure to
evaluate our business.
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The following table reconciles net loss to EBITDA and Adjusted EBITDA during the
three and six months ended
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
Net loss attributable to common
stockholders $ (297,272) $ (43,180) $ (367,216) $ (102,288)
Interest (income) expense, net 633 (140) 601 (182)
Income tax benefit (944) (4,317) (2,200) (32,238)
Depreciation and amortization 12,719 5,679 25,602 9,571
In-process research and development assets
acquired - 10,198 - 10,198
EBITDA (284,864) (31,760) (343,213) (114,939)
Change in fair value of warrant liability - - - 56,576
Change in fair value of investments 4,741 (18) 6,441 (18)
Inventory step-up adjustment 315 - 1,496 -
Stock-based compensation expense(1),(2) 19,218 3,999 29,130 6,216
Restructuring expense 2,384 - 2,384 -
Goodwill impairment 229,500 - 229,500 -
Acquisition-related and other transactional
charges 1,171 3,329 5,157 8,313
Adjusted EBITDA $ (27,535) $ (24,450) $ (69,105) $ (43,852) (1) Includes
(2) Includes
Liquidity and Capital Resources
We have incurred a net loss in each of our annual periods since our inception, and we have an accumulated deficit of$935.8 million as ofJune 30, 2022 . We incurred net losses of$367.2 million and$102.3 million during the six months endedJune 30, 2022 and 2021, respectively. We expect to continue to incur additional losses and negative cash flows from operations in the near term. As ofJune 30, 2022 , we had$255.8 million in cash, cash equivalents, and short-term investments. Since inception, we have received cumulative net proceeds from the Business Combination and the sale of our preferred and common stock of$973.4 million to fund our operations, and inMay 2022 we received aggregate net proceeds of$111.4 million from the sale of 6.0% Convertible Senior Notes due 2027 as described below. As ofJune 30, 2022 , our principal sources of liquidity were our cash, cash equivalents, and short-term investments of$255.8 million which are principally invested in money market funds and fixed income instruments. In connection with the acquisition ofDental Arts Labs , we acquired a thirteen-month equipment financing agreement, or the Financing Agreement, in the amount of$0.5 million . The Financing Agreement provides for an advance payment of$0.5 million to secure equipment. Payments are made monthly under the Financing Agreement. As ofJune 30, 2022 , we have made payments of$0.2 million on the Financing Agreement. In connection with the acquisition of A.I.D.R.O., we acquired three loans, the Bank Loans, totaling$1.1 million in aggregate. The Bank Loans have term of 4.5 years and mature fromSeptember 2024 throughSeptember 2025 , with interest rates ranging from 1.70% to 2.10%. Payments of principal and interest are made quarterly. As ofJune 30, 2022 , we had paid$0.4 million and$0.7 million remains outstanding. InMay 2022 , we issued$115.0 million principal amount of our 6.0% Convertible Senior Notes due 2027 ("2027 Notes"). The 2027 Notes were issued pursuant to, and are governed by, an indenture, dated as ofMay 13, 2022 , between us andU.S. Bank Trust Company, National Association , as trustee. Pursuant to the purchase agreement between us and the initial purchasers of the Notes, we granted the initial purchasers an option to purchase up to an additional$15.0 million principal amount of 2027 Notes, which was exercised onMay 19, 2022 . We received aggregate net proceeds of$111.4 million from the sale of the 2027 Notes. Our material cash requirements have consisted of operating activities, research and development costs, purchase price for acquisitions, transaction costs and capital expenditures. We expect our cash expenditures to increase in connection with our ongoing 62 Table of Contents
activities, particularly as we continue to develop and launch new products. As ofJune 30, 2022 , we had inventory purchase commitments of$56.4 million , with the majority payable within 12 months. In addition, as ofJune 30, 2022 , we had lease payment obligations of$23.2 million , with$5.2 million payable within 12 months. Capital expenditures for the six months endedJune 30, 2022 , totaled$8.8 million and consisted primarily of lab equipment. As ofJune 30, 2022 , we had capital expenditure commitments of$0.3 million , all payable within 12 months. As ofJune 30, 2022 , we had$108.0 million in cash and cash equivalents, and$147.8 million in short-term liquid investments. This liquid asset balance significantly exceeds our current liabilities of$94.0 million as of the same date. Our future cash requirements will depend on many factors including our revenue, research and development efforts, investments in, or acquisitions of, complementary or enhancing technologies or businesses, the impacts of the COVID-19 pandemic, the timing and extent of additional capital expenditures to invest in existing and new facilities, the expansion of sales and marketing and the introduction of new products. We expect to continue to incur net losses and negative cash flows from operations, particularly as we continue to invest in commercialization and new product development. Additionally, we may engage in future acquisitions which may require additional capital, and we may also dispose of assets or certain of our businesses. We believe that our existing capital resources will be sufficient to support our operating plan and cash commitments for at least the next 12 months. This belief is based on assumptions that may change as a result of many factors currently unknown to us; however, we expect that we may need to further increase our capital resources by issuing additional shares of our capital stock or offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock. There is no assurance that sources of financing will be available on a timely basis, or on satisfactory terms, or at all. If we are unable to raise additional funds or reduce costs when needed, we may be required to delay, reduce, or terminate our product development and commercialization efforts, or forego attractive acquisition opportunities. We have, and intend to continue to, enact cost savings measures during 2022 to preserve capital. InJune 2022 , we announced a strategic integration and cost optimization initiative that includes a global workforce reduction of approximately 12%, facilities consolidation, and other operational savings measures. We have commenced workforce reductions inthe United States and are reviewing workforce changes in other countries, the timing of which will vary according to local regulatory requirements. We are also conducting a facility rationalization assessment and assessing other operational savings measures. We are currently evaluating other potential specific initiatives we may undertake to reduce our operating expenses and manage our cash flows. We expect that these initiatives could include: disposing of certain of our assets, rationalizing our product portfolio, workforce adjustments based on changes to the business, manufacturing consolidation, improving our supply chain and logistics, improving our inventory management and consolidating certain of our facilities. We expect to incur costs in the near term in connection with these initiatives, including severance costs, lease termination costs and other costs to invest in operational improvements. These initiatives may not be successful, and they may not generate the cost savings we expect. Certain future events, such as a global recession, a material supply chain disruption or other events outside our control, may occur and could negatively impact our operating results and cash position and may require us to use our existing capital resources more quickly than we currently anticipate. These events may cause us to undertake additional cost savings measures or seek additional sources of financing.
Cash Flows
Since inception, we have primarily used proceeds from the Business Combination, issuances of preferred stock and debt instruments to fund our operations and complete acquisitions. The following table sets forth a summary of cash flows for the six months endedJune 30, 2022 , and 2021: For the Six Months Ended June 30, (Dollars in thousands) 2022 2021
Net cash used in operating activities$ (111,049) $ (71,908) Net cash provided by (used in) investing activities 43,615
(387,559)
Net cash provided by financing activities 112,225
164,185
Effect of exchange rate changes on cash, cash equivalents and restricted cash (819)
20
Net change in cash, cash equivalents, and restricted cash$ 43,972 $ (295,262) 63 Table of Contents Operating Activities
Net cash used in operating activities was$111.0 million for the six months endedJune 30, 2022 , primarily consisting of$138.5 million of net losses, adjusted for non-cash items, which primarily included depreciation and amortization expense of$25.5 million and stock-based compensation expense of$26.9 million , as well as a$30.5 million increase in cash consumed by working capital. This increase in cash consumed by working capital was primarily driven by an increase in inventory to support new product launches and commercialization of existing products. Net cash used in operating activities was$71.9 million for the six months endedJune 30, 2021 , primarily consisting of$102.3 million of net losses, adjusted for non-cash items, which primarily included loss on change in fair value of warrant liability of$56.6 million , gain on change in fair value of investment of$19.5 million , depreciation and amortization expense of$9.4 million and stock-based compensation expense of$6.2 million , as well as a$20.1 million increase in cash consumed by working capital.
Investing Activities
Net cash provided by investing activities was$43.6 million for the six months endedJune 30, 2022 , primarily consisting of proceeds from sales and maturities of marketable securities of$177.2 million , partially offset by purchases of marketable securities of$126.8 million . We also purchased$6.6 million of property and equipment. Net cash used in investing activities was$387.6 million for the six months endedJune 30, 2021 , primarily consisting of purchases of marketable securities of$281.4 million , offset by proceeds from sales and maturities of marketable securities of$66.7 million . We also paid$168.0 million for acquisitions, and$5.9 million to acquire in-process research and development. We purchased$3.6 million in convertible promissory notes and purchased$1.2 million of property and equipment. Financing Activities Net cash provided by financing activities was$112.2 million for the six months endedJune 30, 2022 , consisting primarily of$115.0 million of proceeds from the issuance of the 2027 Notes, partially offset by$3.6 million of convertible note costs incurred in connection with the issuance of the 2027 Notes. We also received$1.3 million in proceeds from the exercise of stock options. Net cash provided by financing activities was$164.2 million for the six months endedJune 30, 2021 , consisting primarily of$170.6 million in proceeds from the exercise of public warrants and$3.6 million in proceeds from the exercise of stock options, offset by the repayment of the term loan for$10.0 million .
Critical Accounting Policies and Significant Estimates
There were no material changes in the first six months of 2022 to the
information provided under the heading "Critical Accounting Policies and
Estimates" included in our Annual Report on Form 10-K for the year ended
Off-Balance Sheet Arrangements
In the normal course of operations,ExOne's German subsidiary,ExOne GmbH , issues short-term financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security through a credit facility with a German bank. AtJune 30, 2022 , total outstanding financial guarantees and letters of credit issued were$3.6 million . For further discussion related to financial guarantees and letters of credit, refer to Note 17 in our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
We have no other off-balance sheet arrangements and do not utilize any "structured debt," "special purpose" or similar unconsolidated entities for liquidity or financing purposes.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 2. Summary of Significant Accounting Policies to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
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