FATHOM DIGITAL MANUFACTURING CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction withFathom Digital Manufacturing Corporation's financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth elsewhere in this Annual Report on Form 10-K.
Overview
Fathom Digital Manufacturing Corporation was incorporated inDelaware inDecember 2021 . However, our roots stretch back over 35 years with the founding of several of our subsidiaries. The terms "Fathom" the "Company," "we," "us," and "our" as used herein refer to the business and operations ofFathom Digital Manufacturing Corporation and its consolidated subsidiaries. We are a leading national on-demand digital manufacturing platform at the forefront of the Industry 4.0 revolution. Industry 4.0 utilizes e-commerce, automation, and data sharing in a cyber-physical system to communicate and cooperate in the manufacturing process over the Internet of Things ("IoT"). Using our expansive manufacturing footprint and extensive expertise in both additive and traditional manufacturing, we provide comprehensive product development and on-demand manufacturing services to many of the largest and most innovative companies in the world. Our unified suite of manufacturing technologies, processes, and proprietary software enables us to deliver hybridized solutions that meet the specific needs of our customers, empowering them to tackle complex manufacturing problems and accelerate product development cycles.
Our differentiated strategy focuses on speed, problem solving, adaptive technical responsiveness, and a technology agnostic approach across our 25 plus manufacturing processes to meet customers' design intent. This allows our customers to iterate faster, often shortening their product development and production cycles from months to days.
We seamlessly blend in-house capabilities consisting of plastic and metal
additive technologies, injection molding and tooling, computer numerical control
("CNC") machining, and precision sheet metal fabrication. We operate over 530
advanced manufacturing systems across 25 unique manufacturing processes and a
450,000 sq. ft. manufacturing footprint, spanning 12 facilities located
primarily within the U.S. We believe we are positioned to serve the largest
geographic markets in which our customers are located and enable cost effective
and rapid turnaround times for our customers. Our scale and the breadth of
offerings allow our customers to consolidate their supply chain and product
development needs through the ability to source through a single manufacturing
supplier. Fathom's manufacturing technologies and capacity are further extended
through the utilization of a selected group of highly qualified suppliers that
specialize in injection molding and tooling and CNC machining.
We have experienced significant growth since inception both organically and
through our successful and proven acquisition playbook, which is enabled by our
proprietary software platform that allows for a streamlined integration of
acquired companies. Over the past three years, we have successfully completed 13
acquisitions to bolster our operations and offerings. Fathom started as Midwest
Composite Technologies, LLC ("MCT"), a leader in prototyping and low-volume
services. Founded in 1984, MCT specialized in model making, industrial design,
and rapid prototyping. Today, MCT serves companies through a variety of in-house
additive manufacturing technologies, including 3D printing and processing, CNC
machining, injection molding, and industrial design capabilities. In September
2019 , we acquired Kemeera, LLC to expand our additive, CNC machining injection
molding, and development and engineering services, as well as bring urethane
casting capabilities. In December 2019 , we acquired ICOMold LLC ("ICOMold") to
expand our injection molding capabilities and significantly enhance our customer
experience by bringing in-house an interactive, automated quotation system
capable of providing feedback in 30 seconds with an intuitive, customer-facing
project management portal, which we have continued to develop and enhance. Our
acquisition of ICOMold also expanded our capabilities into China . In July 2020 ,
we acquired Incodema, LLC and Newchem, LLC to expand our in-house manufacturing
processes to include precision sheet metal engineering solutions, including a
broad array of sheet metal cutting and forming solutions such as laser cutting,
micro waterjet, specialty stamping, and photochemical etching, among others, for
quick and complex, tight tolerance parts. In August 2020 , we acquired GPI
Prototype & Manufacturing Services, LLC ("GPI") to expand our additive
manufacturing capabilities. GPI was one of the first metal additive
manufacturing service providers in the U.S. , bringing metallurgical expertise
in-house and enabling the Company to produce metal parts with complex geometries
for on-demand manufacturing applications. In December 2020 , we acquired
Dahlquist Machine, LLC to expand our precision machining capabilities with
state-of-the-art CNC mills and lathes for high-speed precision machining of
light metals, aluminum, and plastics. In December 2020 , we also acquired
Majestic Metals, LLC , further expanding our precision sheet metal fabrication
capabilities. Further, in December 2020 , we acquired Mark Two Engineering, LLC
expanding our precision machining services and footprint in the medical device
industry. In February 2021 , we acquired Summit Tooling, Inc. and Summit Plastics
LLC , further expanding our plastic injection mold manufacturing capabilities. In
April 2021 , we acquired Centex Machine and Welding Inc. and Laser Manufacturing,
Inc. to expand our high-precision manufacturing services specializing in CNC
machining and medical device manufacturing. In April 2021 , we also acquired
Sureshot Precision LLC d/b/a Micropulse West expanding our Electrical Discharge
Machine ("EDM") services, and CNC and manual machining capabilities. Further, in
April 2021 , we acquired Precision Process, LLC specializing in CNC machining,
engineering support, and EDM services.
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We continue to invest significantly in the enhancement and expansion of our
technologies, processes, and capabilities with the aim of better serving the
needs of a broader set of customers and end-markets. As a result of our efforts
described above, we have developed a loyal base of approximately 3,000
customers, including many of the most innovative companies in the world. Our
customers span across a diverse range of end-markets, including, but not limited
to, the aerospace, defense, technology, medical, automotive, and IoT sectors.
This diverse customer base has allowed for no single customer to represent more
than 4.4% and 5.6% of our revenue in 2021 and 2020, respectively.
We believe the market for our on-demand digital manufacturing services across
manufacturing applications is largely unsaturated as companies continue to
realize the efficiency and effectiveness of our rapid quotation system and 3D
CAD driven manufacturing processes. Our market is projected to grow from $25
billion in 2021 to $33 billion in 2025, fueled by growth in demand for additive
manufacturing and continuation of the trend of customers increasingly
outsourcing their prototyping and low-to-medium volume production needs. We
believe our position as the only on-demand digital manufacturing platform
purpose-built to serve the rapid prototyping and low-to-medium volume production
needs of the largest and most innovative companies, coupled with our competitive
strengths, will allow us to maintain and extend our market leading position.
Factors Affecting the Comparability of our Results of Operations
As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Set forth below is a brief discussion of the key factors that may impact the comparability of our results of operations in future operations.
Impact of the Business Combination
Fathom is subject to corporate level tax rates at the federal, state and local levels. Fathom OpCo was and is treated as a flow-through entity forU.S. federal income tax purposes, and as such, has generally not been subject toU.S. federal income tax at the entity level. Accordingly, other than for certain consolidated subsidiaries of the Predecessor that are structured as corporations and unless otherwise specified, the historical results of operations and other financial information presented does not include any provision forU.S. federal income tax. Fathom paysU.S. federal and state income taxes as a corporation on its share of our taxable income. The Business Combination was accounted for as a business combination using the acquisition method of accounting. Accordingly, the assets and liabilities, including any identified intangible assets, were recorded at their preliminary fair values at the date of completion of the Business Combination, with any excess of the purchase price over the preliminary fair value recorded as goodwill. The application of business combination accounting required the use of significant estimates and assumptions. As a result of the application of accounting for the Business Combination, the historical consolidated financial statements of Fathom OpCo are not necessarily indicative of the Fathom's future results of operations, financial position and cash flows. For example, increased tangible and intangible assets resulting from adjusting the basis of tangible and intangible assets to their fair value would result in increased depreciation and amortization expense in the periods following the consummation of the Business Combination. In connection with the Business Combination, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-Business Combination owners that provides for the payment by Fathom to such owners of 85% of the benefits that Fathom is deemed to realize as a result of the Company's share of existing tax basis acquired in the Business Combination and other tax benefits related to entering into the TRA. Additionally, in connection with the Business Combination, we have accounted for the issuance of warrants and earnout shares as liabilities which require re-measurement to fair value at the end of each reporting period, as applicable, and adopted the Fathom 2021 Omnibus Incentive Plan which will result in higher share-based compensation expenses.
Impact of Becoming a
We expect to incur additional costs associated with operating as a public company, including human resources, legal, consulting, regulatory, insurance, accounting, investor relations and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act and rules adopted by theSEC require public companies to implement specified corporate governance practices that are not applicable to a private company. These additional rules and regulations increased our legal, regulatory and financial compliance costs and will make some activities more time-consuming and costly.
Key Factors Affecting Our Results
Our financial position and results of operations depend to a significant extent on the following actors:
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--------------------------------------------------------------------------------Industry Opportunity and Competitive Landscape
As discussed above, the market in which we operate is projected to grow from$25 billion in 2021 to$33 billion in 2025, fueled by growth in demand for additive manufacturing and continuing trends in customer outsourcing of production needs. We operate in a large, fragmented, and competitive industry, competing for customers with a range of digital manufacturers, digital manufacturing brokers, and regional design bureaus. We believe we are uniquely positioned as the only full-service outsourced solution built specifically to cater to the manufacturing needs of enterprise-level corporate customers. In particular, we believe we compare favorably to other industry participants on the basis of the following competitive factors: • Fathom owns a wide breadth of advanced manufacturing processes, including additive 2.0 and emerging technologies;
• We have a proven track record of serving blue-chip, enterprise-level
corporate customers;
• We offer our clients turnaround times in as little as 24-hours, nationwide;
• Our unified digital customer experience supplemented by with embedded
support teams;
• Fathom provides the industry's only team of dedicated customer-facing
engineers, unlocking the broadest parts envelope and providing customers
with high-value customized parts;
• Our list of certifications validates our capabilities and precision
(tight tolerances, handling of sensitive client data, etc.);
• We possess a wealth of material expertise, technical designcapabilities, and engineering resources which we leverage to deliver
superior customer results regardless of manufacturing process and
production material; and
• Our successful and proven acquisition integration playbook for strategic
growth opportunities.
Customer Product Life Cycle and Connectivity
We believe that a number of trends affecting our industry have affected our results of operations and may continue to do so. For example, we believe that many of our target customers are facing three mega trends which are disrupting long-term product growth models including (i) increased pressure to shorten product life-cycles, (ii) manufactured parts on-demand, and (iii) expectation to deliver products that are personalized and customized to unique customer specifications. We believe we continue to be well positioned to benefit from these trends given our proprietary technology alignment with Industry 4.0 trends that enables us to automate and integrate processes involved in manufacturing custom parts. The COVID-19 pandemic has also impacted the manufacturing environment. For example, the pandemic accelerated the digitization of manufacturing as companies pivoted to a work-from-home and socially-distanced manufacturing plant environment. As a result, the adoption of e-commerce was accelerated, which allows opportunity for us to provide valuable solutions to manufacturers looking to build resiliency in their supply chains through fast, on-demand manufacturers. While our business may be positively affected by these trends, our results may also be favorably or unfavorably impacted by other trends that affect product developer and engineer orders for custom parts in low volumes, including, among others, economic conditions, changes in product developer and engineer preferences or needs, developments in our industry and among our competitors, and developments in our customers' industries. For a more complete discussion of the risks facing our business, see Item 1A. "Risk Factors" of this Annual Report on Form 10-K.
Manufacturing Facilities and Capacity
We believe our combined facilities are adequate for our development and
production needs in the near future. Should we need to add space or transition
into new facilities, we believe we have the ability to expand our footprint on
commercially reasonable terms.
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--------------------------------------------------------------------------------Impacts of the COVID-19 pandemic
OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of a respiratory disease caused by a new coronavirus as a "pandemic." First identified in late 2019 and now known as COVID-19, the outbreak has impacted millions of individuals worldwide. As of the date of issuance of the consolidated financial statements, our operations have not been significantly impacted, but we continue to monitor the situation. No impairments were recorded as of the consolidated balance sheet date, as no triggering events or changes in circumstances had occurred during 2021; however, due to uncertainty surrounding the situation, and specifically as it pertains to the current global supply chain disruptions, and management's judgment could change in the future. In addition, while our results of operations, cash flows and financial condition were not significantly impacted, the extent of any future impact cannot be reasonably estimated at this time. The health and well-being of our employees is critical to our ongoing ability to operate and serve our customers. We are committed to ensuring the safety and well-being of our employees across each location and job function, which includes providing broad benefits to support their health and wellness needs. In order to address the challenges posed by COVID-19,we implemented a number of measures across our locations to ensure maximum protection for our employees and their families, including allowing remote work arrangements where possible. We continue to place the utmost importance on complying with governmental regulations and health authority guidance to ensure that the appropriate steps are taken to protect the well-being of all people engaged with our business.
Comparison of Years Ended
For the purposes of this section, the period fromJanuary 1, 2021 toDecember 22, 2021 is the "predecessor period", and the period fromDecember 23, 2021 toDecember 31, 2021 is the 2021 "successor period". The predecessor period and the successor period collectively are referred to as the "2021 predecessor and successor periods." Period From December 23 - January 1 - January 1 - December 31, 2021 December 22, 2021 31, 2020 (Successor) (Predecessor) (Predecessor) Revenue $ 4,840 $ 147,356 $ 61,289 Cost of revenue 2,725 90,278 33,064 Gross profit 2,115 57,078 28,225 Operating expenses Selling, general, and administrative 3,133 37,507 24,642 Depreciation and amortization 416 10,357 4,672 Total operating expenses 3,549 47,864 29,314 Operating (loss) income (1,434 ) 9,214 (1,089 ) Interest expense and other (income) expense Interest expense 251 13,063 3,635 Other expense 308 21,007 3,824 Other income (35,460 ) (5,174 ) (585 ) Total interest expense and other (income) expense, net (34,901 ) 28,896 6,874 Net income (loss) before income tax$ 33,467 $ (19,682 ) $ (7,963 ) Income tax benefit (3 ) (3,208 ) - Net income (loss)$ 33,470 $ (16,474 ) $ (7,963 ) Net loss attributable to Fathom OpCo non-controlling interest (Note 14) (968 ) - - Net income attributable to controlling interest 34,438 - - Comprehensive income (loss): Gain (loss) from foreign currency translation adjustments - 113 (68 ) Comprehensive income (loss), net of tax$ 34,438 $ (16,361 ) $ (8,031 ) Revenue
Revenue was
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--------------------------------------------------------------------------------Gross Profit
Gross profit, or revenue less cost of revenue, is primarily affected by our sales growth and was$2.1 million and$57.1 million for the 2021 successor and predecessor periods, respectively, compared to$28.2 million for the year endedDecember 31, 2020 . The$31.0 million , or 109.9%, increase from was primarily driven by our 2021 and 2020 acquisitions. Gross margin percentage decreased to 38.9% for the combined 2021 predecessor and successor periods from 46.1% for the year endedDecember 31, 2020 . This is primarily driven by increases in material costs of 3.4% and the dilutive impact from our 2021 acquisitions of 3.6%.
Operating Expenses
Selling, general and administrative (SG&A) expenses were$3.1 million and$37.5 million for the 2021 successor and predecessor periods, respectively, compared to$24.6 million for the year endedDecember 31, 2020 . The$16.0 million , or 65.0%, increase in SG&A expenses was primarily driven by the cost related to our 2021 and 2020 acquisitions and the additional costs associated with the Business Combination. Depreciation and amortization expenses were$0.4 million and$10.4 million for the 2021 successor and predecessor periods, respectively, compared to$4.7 million for the year endedDecember 31, 2020 . The increase of$6.1 million , or 129.8%, was primarily driven by property, plant and equipment and intangible assets added from our 2021 and 2020 acquisitions.
Operating Income (Loss)
Operating income was
Interest Expense and Other Expense (Income)
Interest expense was$0.3 million and$13.1 million for the 2021 successor and predecessor periods, respectively, compared to$3.6 million for the year endedDecember 31, 2020 . The increase of$9.8 , million or 272.2%, is driven by interest on a$172.0 million bridge loan executed inApril 2021 to finance our 2021 acquisitions. Other expenses were$0.3 million and$16.5 million for the 2021 successor and predecessor periods, respectively, compared to$3.8 million for the year endedDecember 31, 2020 . The increase of$13.0 million , or 342.1%, is driven by transaction related expenses related to the acquisition of Fathom OpCo and acquisition related expenses of$12.5 million and$4.0 million , respectively, in the 2021 predecessor period. In addition, the change in fair value of the TRA of$0.3 million is represented in the 2021 successor period. Other income was$35.5 million and$5.2 million for the 2021 successor and predecessor periods, respectively, compared to$0.6 million for the year endedDecember 31, 2020 . The increase of$40.1 million represents the changes in fair value in our Earnout Share liability, Sponsor Earnout Share liability, and Warrant liability during the 2021 successor period of$26.9 million ,$3.4 million , and$8.2 million , respectively. Other income for the 2021 predecessor period included a change in fair value of contingent consideration and a gain on PPP loan forgiveness of$3.6 million and$1.6 million , respectively.
Income Taxes
We recorded a tax benefit of$0.0 million and$3.2 million for the 2021 successor and predecessor periods and a tax provision of$0.0 million for the year endedDecember 31, 2020 . During the 2021 predecessor period, certain subsidiaries of Fathom OpCo which were previously held as corporations forU.S. federal tax purposes, were reorganized into flow-through entities in non-taxable transactions. As a result, deferred tax liabilities pertaining to the corporate subsidiaries were reversed as income tax benefits during the 2021 predecessor period. During the 2021 successor period, the Company was in a small taxable loss position after accounting for permanent differences on income from the change in warrant liability, earnout share liability, and sponsor earnout liability. As we have assessed that deferred tax assets in the form of net operating losses are not more likely than not to be realized, no income tax benefit was recorded from the taxable loss position. 36 --------------------------------------------------------------------------------
Non-GAAP Information
This Annual Report on Form 10-K includes Adjusted Net Income (Loss) and Adjusted
Earnings Before Interest Taxes Depreciation and Amortization ("Adjusted
EBITDA"), which are non-GAAP financial measures that we use to supplement our
results presented in accordance with U.S. GAAP. We believe Adjusted Net Income
(Loss) and Adjusted EBITDA are useful in evaluating our operating performance,
as they are similar to measures reported by our public competitors and regularly
used by security analysts, institutional investors, and other interested parties
in analyzing operating performance and prospects. Adjusted Net Income (Loss) and
Adjusted EBITDA are not intended to be a substitute for any U.S. GAAP financial
measure and, as calculated, may not be comparable to other similarly titled
measures of performance of other companies in other industries or within the
same industry. These non-GAAP financial measures supplement and should be
considered in addition to and not in lieu of our, U.S. GAAP results.
We include these non-GAAP financial measures because they are used by management
to evaluate Fathom's core operating performance and trends and to make strategic
decisions regarding the allocation of capital and new investments. Adjusted
EBITDA excludes certain expenses that are required in accordance with U.S. GAAP
because they are non-recurring (for example, in the case of transaction-related
costs), non-cash (for example, in the case of depreciation and amortization) or
are not related to our underlying business performance (for example, in the case
of interest income and expense).
Adjusted Net Income (Loss)
We define and calculate Adjusted Net Income (Loss) as net loss before the impact of any increase or decrease in the estimated fair value of the Company's warrants and earnout shares as well as transaction-related costs and certain other non-cash and non-core items.
The table below presents our Adjusted Net Income (Loss) reconciled to our net
income (loss), the closest
Period From
December 23 - December January 1 - December January 1 - December 31,
31, 2021 (Successor) 22, 2021 (Predecessor) 2020 (Predecessor)
Net income (loss) $ 33,470 $ (16,474 ) $ (7,963 )
Acquisition - 4,045 1,254
expenses(1)
Transaction costs(2) - 12,515 -
Change in fair value 300 - -
of the TRA
Change in fair value (8,200 ) - -
of Warrant
liability(3)
Change in fair value (27,260 ) - -
of earnout share
liabilities(3)
Integration, - - 2,511
non-recurring,
non-operating, cash,
and non-cash
costs(4)
Adjusted net income $ (1,690 ) $ 86 $ (4,198 ) (loss) (1) Represents expenses incurred related to business acquisitions; (2) Represents legal, consulting, and auditing costs associated with the Business Combination; (3) Represents the income statement impacts from the change in fair value related to both the Sponsor Earnout Share liability, the Fathom Earnout Share liability, and the Warrant liability associated with the Business Combination. (4) Represents adjustments for other integration, non-recurring, non-operating, cash, and non-cash costs related primarily to integration costs for new acquisitions, severance, and charges for the increase of fair value of inventory related to acquisitions, and management fees paid to our principal owner.
Adjusted EBITDA
We define and calculate Adjusted EBITDA as net losses before the impact of
interest income or expense, income tax expense and depreciation and
amortization, and further adjusted for the following items: transaction-related
costs, the impact of any increase or decrease in the estimated fair value of the
Company's warrants and earnout shares, and certain other non-cash and non-core
items, as described in the reconciliation included below.
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The table below presents our Adjusted EBITDA reconciled to net income (loss),
the closest
Period From
December 23 - December January 1 - December January 1 - December 31,
31, 2021 (Successor) 22, 2021 (Predecessor) 2020 (Predecessor)Net income (loss) $ 33,470 $ (16,474 ) $ (7,963 ) Depreciation and 510 16,108 7,239 amortization Interest expense, 251 13,063 3,635 net Income tax expense (3 ) (3,208 ) - Contingent - (3,550 ) 1,055 consideration(1) Acquisition - 4,045 1,254 expenses(2) Loss on - 2,031 - extinguishment of debt(3) Transaction costs(4) - 12,515 - Change in fair value 300 - - of the TRA Change in fair value (8,200 ) - - of Warrant liability(5) Change in fair value (27,260 ) - - of earnout share liabilities(5) Integration, 215 10,538 5,791 non-recurring, non-operating, cash, and non-cash costs(6) Adjusted EBITDA $ (717 ) $ 35,068 $ 11,011 (1) Represents the change in fair value of contingent consideration payable to former owners of acquired businesses; (2) Represents expenses incurred related to business acquisitions; (3) Represents amounts paid to refinance debt inApril 2021 ; (4) Represents legal, consulting, and auditing costs associated with the Business Combination. (5) Represents the impacts from the change in fair value related to both the earnout share liabilities and the warrant liabilities associated with the Business Combination; (6) Represents adjustments for other integration, non-recurring, non-operating, cash, and non-cash costs related primarily to integration costs for new acquisitions, severance, and charges for the increase of fair value of inventory related to acquisitions, and management fees paid to our principal owner.
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Our current working capital needs relate mainly to our growth strategies, including business combination activity, capital equipment investments, and business development efforts, as well as compensation and benefits of our employees. In addition, under our New Credit Agreements (as defined below), the Company is subject to various financial covenants, including quarterly net leverage and interest coverage covenants. As ofDecember 31, 2021 , the Company was in compliance with all covenant requirements. Our ability to expand and grow our business will depend on many factors, including our working capital needs and the evolution of our operating cash flows. We had$20.4 million in cash as ofDecember 31, 2021 . We believe our operating cash flows, together with amounts available under the New Credit Agreement and our cash on hand will be sufficient to meet our anticipated working capital and capital expenditure requirements during the next 12 months. 38 -------------------------------------------------------------------------------- We may, however, need additional cash resources due to changed business conditions or other developments, including unanticipated regulatory developments, significant acquisitions and competitive pressures. We expect our capital expenditures and working capital requirements to continue to increase in the immediate future, as we seek to expand our product offerings across more of theU.S. Our capital expenditures in 2021 of$9.0 million were approximately 6.0% of annual revenue We believe future growth capital expenditures, excluding any expenditures for buildings and maintenance capital we might purchase for our operations, are likely to be approximately 6.0% of annual revenue. To the extent that our current resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in new product launches and related marketing initiatives or to scale back our existing operations, which could have an adverse impact on our business and financial prospects. See Note 3-Business Combination with Fathom OpCo in the accompanying notes to our consolidated financial statements for further information.
Borrowings and Lines of Credit
OnDecember 23, 2021 , the Company entered into a financing transaction, which included a$50.0 million revolving credit facility and a$125.0 million term loan (collectively, the "New Credit Agreement"). The Company's borrowings under the revolving credit facility were$27.0 million atDecember 31, 2021 . The loans made under the New Credit Agreement will mature inDecember 2026 . The total$152.0 million proceeds from the New Credit Agreement was used to repay existing indebtedness. The Company recorded deferred financing costs of$1.8 million in conjunction with the New Credit Agreement and the balance is presented net within Long-Term debt, net on the Company's Consolidated Balance Sheet. The Company amortizes the deferred financing costs using the effective interest method. The revolving credit facility under the New Credit Agreement is available for working capital and other general corporate purposes and includes a letter of credit sub-facility of up to$5.0 million . The New Credit Agreement also includes an uncommitted incremental facility, which, subject to certain conditions, provides for additional term loan facilities, an increase in commitments under the New Credit Agreement and/or an increase in commitments under the revolving credit facility, in an aggregate amount of up to$100 million .
Tax Receivable Agreement
In connection with the Business Combination, we entered into the TRA with certain of our pre-Business Combination owners that provides for the payment by Fathom to such owners of 85% of the benefits that Fathom is deemed to realize as a result of the Company's share of existing tax basis acquired in the Business Combination and other tax benefits related to entering into the TRA. Actual tax benefits realized by Fathom may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Fathom may make under the TRA will be substantial. As ofDecember 31, 2021 , we do not expect to make any material payments within the next two years, and anticipate payments to become more material beginning in 2024. Cash Flow Analysis Period From December 23 - January 1 - January 1 - December 31, December 22, 2021 December 31, 2020 (dollars in thousands) 2021 (Successor) (Predecessor) (Predecessor) Net cash provided by (used in) : Operating Activities $ 521 $ 7,223 $ 1,870 Investing Activities - $ (76,400 ) $ (96,038 ) Financing Activities - $ 70,566 $ 101,330 Net Change in Cash and Cash Equivalents $ 521 $ 1,389 $ 7,162 Operating Activities Net cash provided from operating activities was$7.2 million and$0.5 million for the 2021 predecessor and successor periods, respectively, and$1.9 million for the year endedDecember 31, 2020 . This increase of$5.9 million is primarily driven by an improved financial performance and an increase in non-cash items related to the business acquisitions in the 2021 predecessor period, partially offset by an increase in working capital requirements. 39 --------------------------------------------------------------------------------
Investing Activities
Cashed used for investing activities for the 2021 predecessor and successor periods, was$76.4 million and$0.0 million , respectively, compared to$96.0 million for the year endedDecember 31, 2020 . This decrease of$19.6 million was driven by a reduction of the overall cash used in acquisitions under Fathom OpCo for the 2021 predecessor period compared to the year endedDecember 31, 2020 , partially offset by an increase in capital expenditures.
Financing Activities
Cash provided by financing activities for the 2021 predecessor period was$70.6 million . The primary drivers were the proceeds related to the 2021 Bridge Loan of$183.5 million , as described in Note 10 Long-Term Debt, in the accompanying notes to our consolidated financial statements. This was partially offset by payments on the 2021 Term Loan and extinguishment of our 2020 credit facilities of$104.1 million . Cash provided by financing activities for the year endedDecember 31, 2020 were primarily due to borrowings under our 2020 credit facility of$65.1 million and proceeds from issuance of member's units of$40.4 million .
Critical Accounting Policies and Use of Estimates
Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See Note 2-Significant Accounting Policies in the accompanying notes to our audited consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements. We believe that the most complex and sensitive judgments, because of their potential significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain and are described subsequently. Actual results could differ from management's estimates.
Business Combinations
We account for business acquisitions in accordance with Accounting Standards
Codification ("ASC") 805, Business Combinations ("ASC 805"). We measure the cost
of an acquisition as the aggregate of the acquisition date fair values of the
assets transferred and liabilities assumed and equity instruments issued.
Transaction costs directly attributable to the acquisition are expensed as
incurred. We record goodwill for the excess of (i) the total costs of
acquisition, fair value of any non-controlling interests and acquisition date
fair value of any previously held equity interest in the acquired business over
(ii) the fair value of the identifiable net assets of the acquired business.
The acquisition method of accounting requires us to exercise judgment and make
estimates and assumptions based on available information regarding the fair
values of the elements of a business combination as of the date of acquisition,
including the fair values of identifiable intangible assets, deferred tax asset
valuation allowances, liabilities related to uncertain tax positions and
contingencies. We must also refine these estimates over a one-year measurement
period, to reflect any new information obtained about facts and circumstances
that existed as of the acquisition date that, if known, would have affected the
measurement of the amounts recognized as of that date. If we are required to
retroactively adjust provisional amounts that we have recorded for the fair
value of assets and liabilities in connection with an acquisition, these
adjustments could materially impact our results of operations and financial
position. Estimates and assumptions that we must make in estimating the fair
value of future acquired technology, user lists and other identifiable
intangible assets include future cash flows that we expect to generate from the
acquired assets. If the subsequent actual results and updated projections of the
underlying business activity change compared with the assumptions and
projections used to develop these values, we could record impairment charges. In
addition, we have estimated the economic lives of certain acquired assets and
these lives are used to calculate depreciation and amortization expense. If our
estimates of the economic lives change, depreciation or amortization expenses
could be accelerated or slowed, which could materially impact our results of
operations.
We recognize goodwill in accordance with ASC 350, Intangibles-Goodwill and Other
("ASC 350"). Goodwill is the excess of cost of an acquired entity over the fair
value amounts assigned to assets acquired and liabilities assumed in a business
combination. Goodwill is not amortized. Goodwill is tested for impairment
annually in the fourth quarter of each year, and is tested for impairment
between annual tests if an event occurs or circumstances change that would
indicate the carrying amount may be impaired. An impairment charge for goodwill
is recognized only when the estimated fair value of a reporting unit, including
goodwill, is less than its carrying amount. As of December 31, 2021 and December
31, 2020 , no impairment charges for goodwill have been recognized.
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We recognize intangibles assets in accordance with ASC 350. Acquired intangible
assets subject to amortization are stated at cost and are amortized using the
straight-line method over the estimated useful lives of the assets. Intangible
assets that are subject to amortization are reviewed for potential impairment
whenever events or circumstances indicate that carrying amounts may not be
recoverable. Assets not subject to amortization are tested for impairment at
least annually. As of December 31, 2021 and December 31, 2020 , no impairment
charges for intangible assets have been recognized.
The estimates of fair value are based on the best information available as of
the date of the assessment, which primarily incorporates management assumptions
about expected future cash flows. Although these assets are not currently
impaired, there can be no assurance that future impairments will not occur. See
Note 3-Business Combination with Fathom OpCo, note 4 - Fathom OpCo Predecessor
Period Acquisitions, and Note 8-Goodwill and Intangible Assets in the
accompanying notes to the consolidated financial statements for more
information.
Revenue Recognition from Contracts with Customers
OnJanuary 1, 2019 , the Company adopted ASC 606, Revenue from Contracts with Customers ("ASC 606"), using the modified retrospective approach. Most of the Company's revenue has one performance obligation and is recognized on a point-in-time basis upon shipment. The majority of the Company's injection molding contracts have multiple performance obligations including one obligation to produce the mold and sample part and a second obligation to produce production parts. For injection molding contracts with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price and recognizes revenue for each performance obligation on a point-in-time basis upon shipment. We generally determine standalone selling price based on the price charged to customers. The Company's payments terms are consistent with industry standards and never exceed 12 months. The adoption of ASC 606 did not have a material impact on our consolidated financial statements.
Contingent Liabilities
Our contingent liabilities, which are included within the "Other non-current liabilities" caption on our consolidated balance sheets, are uncertain by nature and their estimation requires significant management judgment as to the probability and estimation of the amount of liability. These contingencies include, but may not be limited to, warrants, TRA liabilities, earnout shares, litigation, and management's evaluation of complex laws and regulations, including those relating to indirect taxes, and the extent to which they may apply to our business and industry. See Note 19-Fair Value Measurement and Note 20-Commitments and Contingencies in the accompanying notes to our consolidated financial statements for more information. We regularly review our contingencies to determine whether the likelihood of a liability is probable and to assess whether a reasonable estimate of the liability can be made. Determination of whether a liability estimate can be made is a complex undertaking that considers the judgement of management, third-party research, the prospect of negotiation and interpretations by regulators and courts, among other information. When liabilities can be reasonably estimated, an estimated contingent liability is recorded. We continually reevaluate our indirect tax and other positions for appropriateness.
Shared Based Compensation
The grant date fair value of the time-based and performance-based awards issued under the 2021 Omnibus Plan were valued using the closing stock price for the Company's Class A common stock onDecember 23, 2021 (i.e., the grant date), less a discount for lack of marketability ("DLOM") due to certain transfer restrictions applicable to the awards. The higher these discounts, the lower the compensation expense taken over time for these grants. See Note 12 - Share Based Compensation in the accompanying notes to our consolidated financial statements for more information.
Earnout Shares Liabilities and Warrant Liability
The fair values of the Sponsor earnout shares liability, Fathom earnout shares liability, and Warrants liability were determined usingMonte Carlo simulations that have various significant unobservable inputs. The assumptions used could have a material impact on the valuation of these liabilities, and include our best estimate of expected volatility, expected holding periods and appropriate discounts for lack of marketability. Changes in the estimated fair values of these liabilities may have material impacts on our results of operations in any given period, as any increases in these liabilities have a corresponding negative impact on ourU.S. GAAP results of operations in the period in which the changes occur. See Note 3 - Business Combination with Fathom OpCo and Note 9 - Warrant Liability in the accompanying notes to our consolidated financial statements for more information. 41 --------------------------------------------------------------------------------
Impact of Changes in Accounting on Recent and Future Trends
TheFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, ("ASC 842") which will supersede the current lease requirements in ASC 840. ASC 842 requires lessees to recognize a right-to-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The new lease guidance will be effective for the Company's fiscal year endingDecember 31, 2022 and will be applied using a modified retrospective transition method to either the beginning of the earliest period presented or the beginning of the year of adoption. The new lease standard is expected to have a significant effect on the Company's financial statements as a result of the Company's operating leases, that will be reported on the balance sheet at adoption. Upon adoption, the Company will recognize a lease liability and corresponding right-to-use asset based on the present value of the minimum lease payments. The effects on the results of operations are not expected to be significant as recognition and measurement of expenses and cash flows for leases will be substantially the same under the new standard.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable. Altimar II was an emerging growth company as
defined in Section 2(a) of the Securities Act of 1933, as amended, and has
elected to take advantage of the benefits of this extended transition period.
Fathom is expected to remain an emerging growth company at least through the end
of the 2022 and is expected to continue to take advantage of the benefits of the
extended transition period. This may make it difficult or impossible to compare
Fathom financial results with the financial results of another public company
that is either not an emerging growth company or is an emerging growth company
that has chosen not to take advantage of the extended transition period
exemptions for emerging growth companies because of the potential differences in
accounting standards used.
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