DOMINION ENERGY MIDSTREAM PARTNERS LP The following discussion and analysis provides information which management believes is relevant to an assessment and understanding ofDesktop Metal's consolidated results of operations and financial condition. The discussion should be read in conjunction withDesktop Metal's consolidated financial statements and notes thereto included elsewhere in Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading "Risk Factors". Actual results may differ materially from those contained in any forward-looking statements.
Business Overview
Desktop Metal is pioneering a new generation of additive manufacturing technologies focused on the production of end-use parts. We offer a portfolio of integrated additive manufacturing solutions for engineers, designers and manufacturers comprised of hardware, software, materials, and services. 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, aerospace, healthcare, consumer products, heavy industry, 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, including$43.1 million in 2020, 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. Our additive manufacturing products, which incorporate these technologies, offer several key advantages over competitive additive manufacturing technologies and provide our customers with several price points depending on their desired features and applications. Our announced additive manufacturing platforms are as follows:
Production System is an industrial manufacturing platform powered by our
proprietary SPJ technology, which is designed to achieve speeds up to 100 times
those of legacy Powder Bed Fusion (PBF) additive manufacturing technologies and
enable production quantities of up to millions of parts per year at part costs
• competitive with conventional mass production techniques. The Production System
platform consists of two printer models. The P-1, which began commercial
shipments in the fourth quarter of 2020, is a small form factor solution for
process development and serial production applications. The P-50, which is
scheduled to begin commercial shipments in 2021, is a large form factor mass
production solution for end-use parts.
Shop System is an affordable, turnkey binder jetting platform designed to bring
metal 3D printing to machine and job shops, leveraging build rates up to 10
• times those of legacy PBF additive manufacturing technologies in combination
with our proprietary sintering technology to enable serial production of dense
metal parts with exceptional surface finish and rich feature detail. Shop
System began commercial shipments in the fourth quarter of 2020.
Studio System is designed for office-friendly metal 3D printing and leverages
our proprietary BMD technology to minimize requirements for special facilities
as compared to legacy PBF additive manufacturing technologies and simplify the
• production of low volumes of complex, high quality metal parts in-house. Studio
System has been shipping in volume since the fourth quarter of 2018, and in
which further streamlines the BMD process.
Fiber is a desktop 3D printer that incorporates our proprietary Micro AFP
technology and is designed to produce high-resolution composite parts
• reinforced with aerospace- and industrial-grade continuous fiber tape,
unlocking superior part strength with high-performance materials starting at an
affordable annual subscription price. Fiber began initial commercial shipments
in the fourth quarter of 2020.
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Operating Results
For the year ended December 31, 2020 , we recognized revenues of $16.5 million
and used cash in operating activities of $80.6 million , and we ended the year
with $595.4 million of cash, cash equivalents, and short-term investments. We
incurred a net loss of $90.4 million for the year ended December 31, 2020 . In
December 2020 , we completed the Business Combination, receiving $534.6 million
net cash proceeds, which we expect to support our operations and investments in
the near term.
Recent Developments
Trine Merger OnDecember 9, 2020 , we consummated the Business Combination. Cash proceeds of the Business Combination were funded through a combination of Trine's$305 million of cash held in trust, net of redemptions of$0.3 million , and an aggregate of$275 million in gross proceeds to us from the sale of shares of our Class A common stock in a private placement in connection with the Business Combination, or the PIPE financing. Our cash on hand after giving effect to these transactions will be used for general corporate purposes, including advancement of our product development efforts. We also intend to use the proceeds to acquire other companies or technologies in the additive manufacturing industry. The Business Combination was accounted for as a reverse recapitalization. LegacyDesktop Metal has been determined to be the accounting acquirer based on the following facts and circumstances:
• Legacy Desktop Metal's shareholders have majority of the voting power in
• Legacy Desktop Metal has the ability to appoint a majority of the board of
directors of
• Legacy Desktop Metal's existing management comprises the management of Desktop
Metal;
• Legacy Desktop Metal comprises the ongoing operations of
• Legacy Desktop Metal is the larger entity based on historical revenues and
business operations; and
•
Under this method of accounting, Trine is treated as the "acquired" company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of Legacy Desktop Metal issuing stock for the net assets of Trine, accompanied by a recapitalization, and the historical financial statements of Legacy Desktop Metal became the historical financial statements of our company upon the closing of the Business Combination.
EnvisionTEC Acquisition
OnFebruary 16, 2021 , pursuant to the Purchase Agreement and Plan of Merger datedJanuary 14, 2021 , we consummated the EnvisionTEC Acquisition. The Company paid consideration of$143.8 million in cash and issued 5,036,142 Class A common shares with a fair value of$159.8 million as of the close of business on the acquisition date. In connection with the transaction, the Company also agreed to grant restricted stock units totaling 475,848 shares of Class A common stock to key EnvisionTEC employees. 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 45
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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 most 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 short-term, we have taken, and will continue to take, actions to mitigate the impact of the COVID-19 pandemic on our cash flow and results of operations and financial condition. We are managing the variable portion of our cost structure to better align with revenue, including external marketing spend, which will be significantly reduced during this period of disruption. Similarly, we have reduced discretionary research and development spending and plan to continue to closely manage additional spend. Additionally, we have reduced staffing across the organization by 30% across all departments. In the long-term, we believe that the COVID-19 pandemic 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 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 Annual Report on Form 10-K.
Commercial Launch of Products
Several of our products began commercial shipments in late 2020, with more in the late stages of development and scheduled to begin commercial shipments in 2021. Prior to commercialization, we must complete final testing and manufacturing ramp-up of these products at our third-party contract manufacturers. Any delays in successful completion of these steps may impact our ability to generate revenue from these products.
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.
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Pricing, Product Cost and Margins
While most of our revenue to date has been generated by sales of our Studio System, we began commercial shipments of several previously announced products in late 2020, which 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. We also expect to commercialize additional previously announced products over the course of 2021. Pricing for these 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 ease-of-use 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 long-term revenue growth, but it may adversely affect our near-term profitability.
Components of Results of Operations
Revenue
The majority of our revenue results from the sales of products, including our additive manufacturing systems and embedded on-device software and related consumables. Product revenue is recognized upon transfer of control to the customer, which generally takes place at the point of shipment. We also generate a portion of our revenue from software and support services. Software revenue is recognized (i) in the case of on-device software, upon transfer of control to the customer, which generally takes place upon shipment, and (ii) in the case of cloud-based software, which is primarily sold through one-year annual contracts, ratably over the term of the agreement. Revenue from support services for our additive manufacturing systems is primarily generated through one-year annual contracts and is recognized ratably over the term of the agreement. We generate revenue and deliver products and services principally through sales to resellers, who purchase and resell our products and also provide installation and support services for our additive manufacturing solutions to end-users. Occasionally and for certain products (and related consumables, software and support services), we generate revenue from and deliver services to our customers directly.
Cost of Revenue
Our cost of revenue consists of the cost of products and cost of services. Cost of products includes the manufacturing cost of our additive manufacturing systems and consumables, which primarily consists of amounts paid to our third-party contract manufacturers and suppliers and personnel-related costs directly associated with manufacturing operations. Cost of services includes personnel-related costs directly associated with the provision of support services to our customers, which include engineers dedicated to remote support as well as, training, support and the associated travel costs. Our cost of revenues also includes depreciation and amortization, cost of spare or replacement parts, warranty costs, excess and obsolete inventory and shipping costs, and an allocated portion of overhead costs. We expect cost of revenue to increase in absolute dollars in future periods as we expect our revenues to
continue to grow.
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Gross Profit and Gross Margin
Our gross profit is calculated based on the difference between our revenues and cost of revenues. Gross margin is the percentage obtained by dividing gross profit by our revenue. Our gross profit and gross margin are, or may be, influenced by a number of factors, including:
? Market conditions that may impact our pricing;
? Product mix changes between established products and new products;
Growth in our installed customer base or changes in customer utilization of our
? additive manufacturing systems, which affects sales of our consumable materials
and may result in excess or obsolete inventories; and
? Our cost structure for manufacturing operations, including contract
manufacturers, relative to volume, and our product support obligations.
We expect our gross margins to fluctuate over time, depending on the factors described above.
Research and Development Our research and development expenses represent costs incurred to support activities that advance the development of innovative additive manufacturing technologies, new product platforms and consumables, as well as activities that enhance the capabilities of our existing product platforms. Our research and development expenses consist primarily of employee-related personnel expenses, prototypes, design expenses, consulting and contractor costs and an allocated portion of overhead costs. We expect research and development costs will increase on an absolute dollar basis over time as we continue to invest in advancing our portfolio of additive manufacturing solutions.
Sales and Marketing
Sales and marketing expenses consist primarily of employee-related costs for individuals working in our sales and marketing departments, third party commissions, costs related to trade shows and events and an allocated portion of overhead costs. We expect our sales and marketing costs will increase on an absolute dollar basis as we expand our headcount, initiate new marketing campaigns and launch new product platforms.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs. We expect our general and administrative expenses will increase on an absolute dollar basis as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of theSEC , as well as increased expenses for general and director and officer insurance, investor relations, and other administrative and professional services. In addition, we expect to incur additional costs as we hire additional personnel and enhance our infrastructure to support the anticipated growth of the business.
Interest Expense
Interest expense includes cash interest related to our term loan as well as amortization of deferred financing fees and costs.
Interest and Other Income, Net
Interest and other income, net includes interest earned on deposits and short-term investments and gains and losses on investments.
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Income Taxes
Our income tax provision consists of an estimate forU.S. federal and state and foreign income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to cumulative losses, we maintain a valuation allowance against ourU.S. , state and foreign deferred tax assets. We recognized an income tax benefit of$0.9 million related to the acquisition
of acquired technology. Results of Operations
Comparison of the years 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 Years Ended December 31,
2020 2019 Change in Revenues(Dollars in thousands) Revenue % of Total Revenue
% of Total $ % Product Revenue$ 13,718 83 %$ 22,758 86 %$ (9,040) (40) % Service Revenue 2,752 17 % 3,681 14 % (929) (25) % Total Revenue$ 16,470 100 %$ 26,439 100 %$ (9,969) (38) % Total revenue for the years ended years endedDecember 31, 2020 and 2019 was$16.5 million and$26.4 million , respectively, a decrease of$9.9 million , or 38%. The decrease in total revenue was attributable to a decrease in revenue from both products and services. We sold fewer products during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 , leading to an approximately 40% decrease in product revenue. This was primarily due to decreased customer demand and longer sales cycles resulting from the COVID-19 pandemic. Additionally, as a result of customer facilities closures associated with the COVID-19 pandemic, we experienced delays in shipments and installation as well as decreased utilization of our installed products, leading to a decrease in sales of consumable materials. Service revenue decreased during the year endedDecember 31, 2020 , as compared to the year endedDecember 31, 2019 , primarily due to a decrease in support and installation revenue from decreased shipments during the period.
The following table presents revenue by geographic region, as well as the percentage of total revenue and change from the prior period.
For the Years Ended December 31,
2020 2019 Change in Revenues(Dollars in thousands) Revenue % of Total Revenue % of Total $ % Americas$ 6,665 40 %$ 15,801 60 %$ (9,136) (58) % EMEA (Europe , theMiddle East and Africa) 7,788 47 % 8,993 34 % (1,205) (13) % APAC (AsiaPacific) 2,017 12 % 1,645
6 % 372 23 %
Total Revenue $ 16,470 100 % $ 26,439 100 % $ (9,969) (38) %
Total revenue decreased due to fewer product sales in the
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Cost of Sales
Total cost of sales during the years ended years ended December 31, 2020 and
2019 was $31.5 million and $50.8 million , respectively, a decrease of
$19.3 million or 38%. The decrease in total cost of sales was driven primarily
by a decrease in product cost of sales, which resulted from fewer product sales.
This decrease was partially offset by an increase to our inventory reserves.
During 2020, we recognized a $2.9 million obsolescence inventory charge related
to product redesigns implemented to reduce costs and enhance performance and
functionality.
Gross Loss and Gross Margin
The following table presents gross loss by revenue stream, as well as change in gross loss dollars from the prior period.
For the
Years Ended
December 31, Change in Gross
2020 2019 Loss
(Dollars in thousands) Gross Loss $ %
Products $ (13,227) $ (22,510) $ 9,283 41 %
Services (1,822) (1,847) 25 1 %
Total $ (15,049) $ (24,357) $ 9,308 38 %
Total gross loss during the years ended December 31, 2020 and 2019 was $15.0
million and $24.4 million , respectively. The decrease in gross loss of
$9.3 million is driven by the fact that we sold less units during the year ended
December 31, 2020 , as compared to the year ended December 31, 2019 . Negative
gross profit during these periods was the result of higher system costs than
selling price, primarily driven by a combination of small purchase quantities
for systems and consumables from our third-party contract manufacturers,
resulting in higher costs, and the selection of suppliers influenced by
time-to-market considerations instead of just cost considerations.
The following table presents gross margin by revenue stream, as well as the change in gross margin from the prior period.
For the Years
Ended Change in Gross
December 31, Margin
2020 2019 Percentage
(Dollars in thousands) Gross Margin Points %
Products (96) % (99) % 0.03 3 %
Services (66) % (50) % (0.16) (32) %
Total (91) % (92) % 0.01 1 %
Total gross margin for the years ended December 31, 2020 , and 2019 was (91)% and
(92)%, respectively. The increase in total gross margin was primarily due to the
increase in gross margin from our product revenue, which resulted from a lower
product cost for units shipped in 2020 as compared to 2019. This was partially
offset by an obsolescence inventory charge related to product redesigns
implemented to reduce costs and enhance performance and functionality.
Research and Development
Research and development expenses during the years endedDecember 31, 2020 and 2019 were$43.1 million and$54.7 million , respectively, a decrease of$11.6 million , or 21%. The decrease in research and development expenses was primarily due to a$5.0 million decrease in prototyping costs related to the maturation of our product development efforts. Additionally, during the year endedDecember 31, 2020 , we reduced engineering consulting expenses and headcount to mitigate the impacts and uncertainties around COVID-19 as described in the "Recent Developments" section above, resulting in savings of$3.9 million $3.2 million , respectively. These expense reductions were partially offset by common stock warrant expense associated with product development of$1.7 million . 50 Table of Contents Sales and Marketing Sales and marketing expenses during the years ended years endedDecember 31, 2020 and 2019 were$13.1 million and$18.8 million , respectively, a decrease of$5.7 million , or 30%. The decrease in sales and marketing expenses was primarily due to a reduction tradeshow and related travel expenses and marketing headcount during the year endedDecember 31, 2020 to mitigate the impacts of, and uncertainties around, the COVID-19 pandemic as described in the "Recent Developments" section above, resulting in savings of$2.0 million and$0.9 million , respectively. During the year endedDecember 31, 2020 , there was a decrease in third party commissions of$1.0 million resulting from our shift towards a reseller model for our distribution network, as compared to the prior sales agent model. General and Administrative General and administrative expenses during the years endedDecember 31, 2020 and 2019 were$20.7 million and$11.3 million , respectively, an increase of$9.4 million , or 83%. The increase in general and administrative expenses was primarily due to an increase of$5.4 million of professional fees incurred as a result of the Business Combination and costs related to operating as a public company,$2.5 million increase in compensation costs related to the modification of certain equity based awards and$0.6 increase in compensation costs, related to hiring to support public company requirements.
Interest Expense
Interest expense during the years endedDecember 31, 2020 and 2019 was$0.3 million and$0.5 million , respectively, a decrease of$0.2 million , or 40%. The decrease resulted from a decrease in the variable interest rate paid on our term loan.
Interest and Other Income, Net
Interest and other income, net during the years endedDecember 31, 2020 and 2019 and was$1.0 million and$6.0 million , respectively, a decrease of$5.0 million , or 83%. Interest income decreased primarily due to a decrease in cash available for investment. Income Taxes We recorded an income tax benefit during the year endedDecember 31, 2020 compared to no provision for the year endedDecember 31, 2019 . The increase was due to the acquisition of acquired technology treated as a stock acquisition for tax purposes and an asset acquisition in accordance with GAAP. 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. 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 that EBITDA and Adjusted EBITDA, each 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.
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 stock-based compensation and warrants.
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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 that when evaluating EBITDA and Adjusted
EBITDA 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.
The following table reconciles net loss to EBITDA and Adjusted EBITDA during the
years ended years ended
For the Years Ended
December 31,
(Dollars in thousands) 2020 2019
Net loss attributable to common stockholders
(610) (3,993)
Income tax benefit (940) -
Depreciation and amortization 8,589 8,087
EBITDA (83,393) (99,502)
Stock compensation expense 8,006 5,215
Warrant expense 1,915 1,038
Adjusted EBITDA $ (73,472) $ (93,249) Liquidity and Capital Resources
We have incurred a net loss in each of our annual periods since our inception. We incurred net losses of$90.4 million and$103.6 million during the years endedDecember 31, 2020 and 2019, respectively. As ofDecember 31, 2020 , we had$595.4 million in cash, cash equivalents, and short-term investments. As noted in the "Recent Developments" section above, we completed the Business Combination. We received$534.6 million net cash proceeds as a result of the transaction which we expect to support our operations and investments in the near term. 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. As ofDecember 31, 2020 , our principal sources of liquidity were our cash, cash equivalents, and short-term investments of$595.4 million which are principally invested in money market funds and fixed income instruments. InJune 2018 , we entered into a three-year,$20.0 million term loan, which provided$10.0 million immediately with the remaining principal balance available to be drawn in up to three draws of not less than$2.0 million for 12 months from close of the facility. We entered into this loan to fund capital expenditures associated with our corporate office. Interest is calculated using the Wall Street Journal Prime rate less 50 basis points, payable monthly in arrears. If our cash and investments fall below$30.0 million , cash equal to the total outstanding amount of the debt is required to be placed in a money market account. In connection with this loan, we are also subject to periodic reporting requirements, and the lender has a first priority lien on all assets. Repayment terms include interest only payments for 36 months, with the principal coming due inJune 2021 . InApril 2020 , we received loan proceeds in the amount of approximately$5.4 million under the Paycheck Protection Program, or the "PPP"). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for loans to qualifying businesses. We repaid the loan in its entirety onMay 13, 2020 . 52 Table of Contents 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. As ofDecember 31, 2020 , we had$483.5 million in cash and cash equivalents, and$111.9 million in short-term liquid investments. This liquid asset balance significantly exceeds our current liabilities of$30.5 million as of the same date. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital.
We expect net losses to continue in connection with our ongoing activities, particularly as we continue to invest in commercialization and new product development. Additionally, we may engage in future acquisitions which may require additional capital.
Cash Flows
Since inception, we have primarily used proceeds from the Business Combination,
issuances of preferred stock and debt instruments to fund our operations. The
following table sets forth a summary of cash flows for the periods presented:
For the Years Ended
December 31,
(Dollars in thousands) 2020 2019Net cash used in operating activities$ (80,575) $ (97,202) Net cash used in investing activities (36,983)
(26,032)
Net cash provided by financing activities 534,922
160,352
Net change in cash, cash equivalents, and restricted cash
Cash Flows for the years ended
Operating Activities
Net cash used in operating activities was$80.6 million for the year endedDecember 31, 2020 , primarily consisting of$90.4 million of net losses, adjusted for non-cash items, which primarily included depreciation and amortization expense of$8.5 million , stock-based compensation expense of$8.0 million , and warrant expense of$1.9 million , as well as a$7.9 million increase in cash consumed by working capital. The increase in cash consumed by working capital was primarily driven by an increase in certain assets including accounts receivable and inventory alongside a decrease in certain liabilities including accounts payable. This increase in cash consumed by working capital was partially offset by an increase in certain liabilities including accrued expenses and other current liabilities and customer deposits. Net cash used in operating activities was$97.2 million for the year endedDecember 31, 2019 , primarily consisting of$103.6 million of net losses, adjusted for certain non-cash items, which primarily included depreciation and amortization expense of$8.1 million and stock-based compensation expense of$5.2 million , as well as a$5.3 million increase in cash consumed by working capital. The increase in cash consumed by working capital was primarily driven by an increase in certain assets including accounts receivable and inventory alongside a decrease in certain liabilities including accounts payable and deferred revenue. This increase in cash consumed by working capital was partially offset by an increase in certain liabilities including accrued expenses and other current liabilities. The majority of our inventory consists of finished goods. Inventory balances may fluctuate during cycles of new product launch, commercialization and planned growth of production and sales of products.
Investing Activities
Net cash used in investing activities was$37 million for the year endedDecember 31, 2020 , primarily consisting of purchases of marketable securities of$136.3 million , offset by proceeds from sales and maturities of marketable securities of$109.0 million . We also paid cash to acquire two companies, made an investment in a privately held company in the form of convertible debt in the amount of$3.0 million , and purchased$1.4 million of property and equipment. 53 Table of Contents
Net cash used in investing activities was$26.0 million for the year endedDecember 31, 2019 , primarily consisting of purchases of marketable securities of$215.6 million , offset by proceeds from sales and maturities of marketable securities of$196.8 million , as well as purchases of property and equipment for$6.9 million . Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements and do not utilize any "structured debt," "special purpose" or similar unconsolidated entities for liquidity or financing purposes.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . Certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based on our historical experience (where available), current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in our judgments, the results could be materially different from our estimates. We believe the following critical accounting policy requires significant judgments and estimates in the preparation of our consolidated financial statements:
Revenue Recognition
We recognize revenue from sale of products upon transfer of control, which is generally at the point of shipment. Revenue from sale of services may be recognized over the life of the associated service contract or as services are performed, depending on the nature of the services being provided. Our contracts with customers often include promises to transfer multiple products and services to the customer. Judgment is required to determine the separate performance obligations present in a given contract, which we have concluded are generally capable of being distinct and accounted for as separate performance obligations. We use standalone selling price, or SSP, to allocate revenue to each performance obligation. Significant judgment is required to determine the SSP for each distinct performance obligation in a contract. We began generating revenue in the fourth quarter of 2018, and as such, we have had limited standalone sales of our products and services. The absence of observable prices resulting from our relatively short period of revenue generation requires us to estimate the SSPs of distinct performance obligations in a given contract. We determine SSP using market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of our customers. The SSP generally varies by size of the customer. Our determination of SSP may change in the future as standalone sales of products and services occur, providing observable prices.
Stock-Based Compensation
We have applied the fair value recognition provisions ofFinancial Accounting Standards Board , or FASB, Accounting Standards Codification, or ASC, Topic 718 Compensation-Stock Compensation to account for the stock-based compensation for employees and non-employees. We recognize compensation costs related to stock options granted to employees and non-employees based on 54
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estimated fair value of the award on the date of grant. Described below is the methodology we have utilized in measuring stock-based compensation expense.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the fair value of our common stock on the measurement date, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Because we have a limited operating history, we utilize data from a representative group of publicly traded companies to estimate the expected stock price volatility. We selected representative companies from the additive manufacturing industry with characteristics similar to us. We use the simplified method as prescribed by theSEC Staff Accounting Bulletin No. 107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees and non-employees. For ourAugust 5, 2020 grants we were precluded from using the simplified method, therefore expected term for this grant was based on forecasted exercises. We utilize a dividend yield of zero based on the fact that we have never paid and are not expected to pay cash dividends. The risk-free interest rate used for each grant is an interpolated rate to match the term assumption based on theU.S. Treasury yield curve as of the valuation date. The following table presents the dates of stock options that we granted or modified from the earliest presented period in these financial statements throughDecember 31, 2020 with the corresponding exercise price for each option grant or modifications and our current estimate of the fair value per option on each grant or modification date, which we utilize to calculate stock-based compensation expense. Weighted-Average Number of Estimated Fair Estimated Fair Share Options Exercise Price Value per Share Value per Share Grant Date Granted per Share of Common Stock of Options March 1, 2019 1,555,218 $ 3.34 $ 3.34 $ 1.76 May 8, 2019 1,137,463 $ 3.34 $ 3.34 $ 1.75 September 18, 2019 723,103 $ 3.34 $ 3.34 $ 1.70 November 13, 2019 701,957 $ 3.34 $ 3.34 $ 1.71 March 12, 2020 473,625 $ 3.34 $ 3.34 $ 1.65 June 11, 2020 4,176,283 $ 1.40 $ 1.40 $ 0.70 July 14, 2020 3,087,308 $ 1.40 $ 7.98 $ 6.87 August 5, 2020 713,803 $ 1.40 $ 7.98 $ 6.78
Determination of the fair value of Common Stock on Grant Dates
Prior to the Business Combination onDecember 9, 2020 , there was no public market for our equity instruments to date, as a result, the estimated fair value of our common stock has historically been determined by our board of directors as of the grant date with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that the board believed were relevant and which may have changed from the date of the most recent valuation through the date of grant. We engaged an independent third-party valuation specialist to perform contemporaneous valuations of our common stock in connection with each of our convertible preferred stock issuances and as ofJune 30, 2019 ,December 31, 2019 ,March 31, 2020 , andAugust 20, 2020 . The valuations were performed in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants , or AICPA, Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. The independent third-party valuation specialist considered all objective and subjective factors that it believed to be relevant for each valuation conducted in accordance with AICPA's Practice Aid, including our best estimate of our business condition, prospects, and operating performance at each valuation date. Other significant factors included:
? The rights and preferences of our preferred stock as compared to those of our
common stock, including liquidation preferences of preferred stock;
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? Our results of operations and financial position;
? Our stage of development and business strategy and the material risks related
to our business and industry;
? The composition of, and changes to, our management team and board of directors;
? The lack of liquidity of our common stock;
? The valuation of publicly traded peer companies; and
? The likelihood of achieving a liquidity event for the holders of our common
stock and stock options, given prevailing market conditions
The dates of the contemporaneous valuations have not always coincided with the date of our stock option grants. In determining the exercise price of the stock options set forth in the table above, our board of directors considered, among other things, the most recent contemporaneous valuation of our common stock and their assessment of additional objective and subjective factors that were relevant as of the grant dates. These factors include the current operating performance of the Company, assumptions regarding the future operating performance of the Company, and the likelihood of achieving a liquidity event in the capital markets. If we had made different assumptions, our stock-based compensation expense, net loss, and net loss per share applicable to common stockholders could have been materially different.
Following the Business Combination, the fair value of the entity's common stock is determined based on the quoted market price of the entity's common stock.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in "Note 2. Summary of Significant Accounting Policies" to our consolidated financial statements in this Annual Report on Form 10-K.
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