1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2016 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to____________ Commission File No. 001-34220 __________________________ 3D SYSTEMS CORPORATION (Exact name of Registrant as specified in its Charter) _______________ _____________________________ DELAWARE 95-4431352 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 333 THREE D SYSTEMS CIRCLE ROCK HILL, SOUTH CAROLINA 29730 (Address of Principal Executive Offices) (Zip Code) (Registrant’s Telephone Number, Including Area Code): (803) 326-3900 __________________________ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer (Do not check if smaller reporting company) Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Shares of Common Stock, par value $0.001, outstanding as of October 26, 2016: 112,359,693
Transcript
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 __________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to____________
Commission File No. 001-34220
__________________________
3D SYSTEMS CORPORATION (Exact name of Registrant as specified in its Charter)
_______________ _____________________________
DELAWARE 95-4431352 (State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
333 THREE D SYSTEMS CIRCLE ROCK HILL, SOUTH CAROLINA 29730
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code): (803) 326-3900
__________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Shares of Common Stock, par value $0.001, outstanding as of October 26, 2016: 112,359,693
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3D SYSTEMS CORPORATION
Quarterly Report on Form 10-Q for the
Quarter and Nine Months Ended September 30, 2016
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements. 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 34
Item 4. Controls and Procedures. 34
PART II — OTHER INFORMATION
Item 1. Legal Proceedings. 34
Item 1A. Risk Factors. 34
Item 6. Exhibits. 34
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
(in thousands, except par value)
2016
(Unaudited)
December 31,
2015
ASSETS
Current assets:
Cash and cash equivalents $ 179,358 $ 155,643
Accounts receivable, net of reserves — $15,408 (2016) and $14,139 (2015) 120,630 157,406
Inventories, net of reserves — $25,938 (2016) and $28,225 (2015) 113,717 105,877
Prepaid expenses and other current assets 15,196 13,541
Total current assets 428,901 432,467
Property and equipment, net 80,837 85,995
Intangible assets, net 133,518 157,466
Goodwill 189,018 187,875
Long term deferred income tax asset 5,374 3,216
Other assets, net 24,700 26,256
Total assets $ 862,348 $ 893,275
LIABILITIES AND EQUITY
Current liabilities:
Current portion of capitalized lease obligations $ 581 $ 529
Accounts payable 37,113 46,869
Accrued and other liabilities 46,746 54,699
Customer deposits 5,789 8,229
Deferred revenue 37,385 35,145
Total current liabilities 127,614 145,471
Long term portion of capitalized lease obligations 7,781 8,187
Long term deferred income tax liability 15,026 17,944
Other liabilities 60,338 58,155
Total liabilities 210,759 229,757
Redeemable noncontrolling interests 8,872 8,872
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.001 par value, authorized 220,000 shares; issued 114,301 (2016) and
113,115 (2015)
114 113
Additional paid-in capital 1,306,903 1,279,738
Treasury stock, at cost — 1,330 shares (2016) and 892 shares (2015) (1,294) (1,026)
Accumulated deficit (627,017) (583,368)
Accumulated other comprehensive loss (33,995) (39,548)
Total 3D Systems Corporation stockholders' equity 644,711 655,909
Noncontrolling interests (1,994) (1,263)
Total stockholders’ equity 642,717 654,646
Total liabilities, redeemable noncontrolling interests and stockholders’ equity $ 862,348 $ 893,275
See accompanying notes to condensed consolidated financial statements.
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3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Quarter Ended September 30, Nine Months Ended September 30,
(in thousands, except per share amounts) 2016 2015 2016 2015
Revenue:
Products $ 94,543 $ 87,747 $ 280,406 $ 292,146
Services 61,819 63,827 186,622 190,654
Total revenue 156,362 151,574 467,028 482,800
Cost of sales:
Products 56,321 48,472 146,682 156,432
Services 31,104 32,064 93,485 94,719
Total cost of sales 87,425 80,536 240,167 251,151
Gross profit 68,937 71,038 226,861 231,649
Operating expenses:
Selling, general and administrative 64,814 83,212 202,009 237,242
Research and development 26,140 22,463 67,345 70,410
Total operating expenses 90,954 105,675 269,354 307,652
Loss from operations (22,017) (34,637) (42,493) (76,003)
Interest and other expense, net 1,624 1,373 1,290 4,029
Loss before income taxes (23,641) (36,010) (43,783) (80,032)
Provision (benefit) for income taxes (2,214) (3,524) 665 (20,563)
Net loss (21,427) (32,486) (44,448) (59,469)
Less: net loss attributable to noncontrolling interests (214) (237) (799) (343)
Net loss attributable to 3D Systems Corporation $ (21,213) $ (32,249) $ (43,649) $ (59,126)
Net loss per share available to 3D Systems Corporation common
Foreign currency translation gain (loss) 4,282 (9,957) 5,567 (17,903)
Total other comprehensive income (loss) 4,300 (9,943) 5,621 (17,627)
Less foreign currency translation gain (loss) attributable to
noncontrolling interests 22 (882) 68 (2,588)
Other comprehensive income (loss) attributable to 3D Systems
Corporation 4,278 (9,061) 5,553 (15,039)
Comprehensive loss (17,127) (42,429) (38,827) (77,096)
Less comprehensive loss attributable to noncontrolling interests (192) (1,119) (731) (2,931)
Comprehensive loss attributable to 3D Systems Corporation $ (16,935) $ (41,310) $ (38,096) $ (74,165)
See accompanying notes to condensed consolidated financial statements.
5
3D SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
(In thousands) 2016 2015
Cash flows from operating activities: Net loss $ (44,448) $ (59,469) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Benefit of deferred income taxes (5,464) (21,971) Depreciation and amortization 45,731 63,905 Provision for arbitration award — 11,282 Impairment of assets 8,590 1,111 Provision for bad debts 1,488 4,123 Inventory reserve of discontinued products 10,723 — Stock-based compensation 28,405 28,850 Loss on the disposition of property and equipment 2,052 1,182 Changes in operating accounts: Accounts receivable 36,357 37,426 Inventories (16,977) (40,987) Prepaid expenses and other current assets (1,619) (10,136) Accounts payable (9,938) (19,657) Accrued and other current liabilities (8,452) (5,348) Customer deposits (2,389) 566 All other operating activities (5,819) (1,485)
Net cash provided by (used in) operating activities 38,240 (10,608) Cash flows from investing activities:
Purchases of property and equipment (12,014) (18,064) Additions to license and patent costs (790) (719) Cash paid for acquisitions, net of cash assumed — (91,799) Other investing activities (1,000) (3,750)
Net cash used in investing activities (13,804) (114,332) Cash flows from financing activities:
Tax benefits from share-based payment arrangements — 467 Proceeds, repurchase and retirement of stock, net (1,507) 748 Repayment of capital lease obligations (786) (788)
Net cash provided by (used in) financing activities (2,293) 427 Effect of exchange rate changes on cash and cash equivalents 1,572 (2,896) Net increase (decrease) in cash and cash equivalents 23,715 (127,409) Cash and cash equivalents at the beginning of the period 155,643 284,862
Cash and cash equivalents at the end of the period $ 179,358 $ 157,453
Stock award activity for the nine months ended September 30, 2016 and 2015 was as follows:
Nine Months Ended September 30,
2016 2015
(in thousands, except per share amounts) Number of
Shares/Units
Weighted Average
Grant Date Fair
Value
Number of
Shares/Units
Weighted Average
Grant Date Fair
Value
Outstanding at beginning of period — unvested 2,942 2,806
Granted 1,482 $ 13.69 729 $ 23.29
Cancelled (446) $ 54.61 (162) $ 48.44
Vested (562) $ 35.37 (300) $ 18.64
Outstanding at end of period — unvested 3,416 3,073
During the nine months ended September 30, 2016, the Company awarded certain employees restricted stock under the 2015 Plan,
included in the activity above, that vests under specified market conditions. Each employee was generally awarded two equal tranches
of market condition restricted stock that immediately vests when the Company’s common stock trades at either $30 or $40 per share for
ninety consecutive calendar days.
At September 30, 2016, there was $5,624 of unrecognized pre-tax stock-based compensation expense related to non-vested restricted
stock awards with market conditions, which the Company expects to recognize over the remaining weighted-average vesting period of
four years.
At September 30, 2016, there was $34,859 of unrecognized pre-tax stock-based compensation expense related to all other non-vested
restricted stock award shares and units, which the Company expects to recognize over the remaining weighted-average vesting period
of 1.5 years.
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Stock Options
The Company estimates the fair value of stock options with market conditions using a binomial lattice Monte Carlo simulation model.
The weighted-average fair value and the assumptions used to measure fair value were as follows:
Quarter Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Stock option assumptions:
Weighted-average fair value $ 7.94 $ — $ 7.81 $ —
Expected volatility 60.0% — 60.0% —
Risk-free interest rate 1.46% — 0.76%-1.46 —
Expected dividend yield 0 % — 0 % —
Derived term in years 3-4 — 3-4 —
Stock option activity for the nine months ended September 30, 2016 was as follows:
Nine Months Ended September 30, 2016
(in thousands, except per share amounts) Number of Shares
Weighted Average
Exercise
Weighted Average
Remaining Term (in
years)
Stock option activity:
Outstanding at beginning of period — $ —
Granted 2,160 13.95
Exercised — —
Forfeited and expired — —
Outstanding at end of period 2,160 $ 13.95 9.8
Exercisable at end of period — $ — —
During the nine months ended September 30, 2016, the Company awarded certain employees market condition stock options under the
2015 Plan, included in the activity above, that vest under specified market conditions. Each employee was generally awarded two equal
tranches of market condition stock options that immediately vest when the Company’s common stock trades at either $30 or $40 per
share for ninety consecutive calendar days. At September 30, 2016, there was $15,213 of unrecognized pre-tax stock-based
compensation expense related to non-vested stock options with market conditions, which the Company expects to recognize over the
remaining weighted-average vesting period of four years.
(9) Loss Per Share
The Company presents basic and diluted loss per share amounts. Basic loss per share is calculated by dividing net loss attributable to
3D Systems Corporation by the weighted average number of common shares outstanding during the applicable period. Diluted loss per
share is calculated by dividing net loss by the weighted average number of common and common equivalent shares outstanding during
the applicable period. The following table reconciles basic weighted average outstanding shares to diluted weighted average outstanding
for the quarter and nine months ended September 30, 2016 and 2015:
Quarter Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except per share amounts) 2016 2015 2016 2015
Numerator for basic and diluted net loss per share:
Net loss attributable to 3D Systems Corporation $ (21,213) $ (32,249) $ (43,649) $ (59,126)
Denominator for basic and diluted net loss per share:
Weighted average shares 111,008 112,010 111,194 111,920
Net loss per share, basic and diluted $ (0.19) $ (0.29) $ (0.39) $ (0.53)
The calculation for weighted average outstanding diluted loss per share excludes stock options with an exercise price that exceeds the
average market price of shares during the period. In addition to unexercised stock options, there was an immaterial number of additional
shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti-
dilutive.
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(10) Fair Value Measurements ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
For the Company, the above standard applies to cash equivalents and earnout consideration. The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurements as of September 30, 2016
(in thousands) Level 1 Level 2 Level 3 Total
Description
Cash equivalents (a) $ 37,532 $ — $ — $ 37,532
Earnout consideration (b) $ — $ — $ 9,563 $ 9,563
Fair Value Measurements as of December 31, 2015
(in thousands) Level 1 Level 2 Level 3 Total
Description
Cash equivalents (a) $ 26,648 $ — $ — $ 26,648
Earnout consideration (b) $ — $ — $ 9,673 $ 9,673
(a) Cash equivalents include funds held in money market instruments and are reported at their current carrying value, which
approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in the
consolidated balance sheet.
(b) The fair value of the earnout consideration, which is based on the present value of the expected future payments to be made to
the sellers of the acquired businesses, was derived by analyzing the future performance of the acquired businesses using the
earnout formula and performance targets specified in each purchase agreement and adjusting those amounts to reflect the ability
of the acquired entities to achieve the stated targets. Given the significance of the unobservable inputs, the valuations are
classified in Level 3 of the fair value hierarchy. The change in earnout consideration from December 31, 2015 to September
30, 2016 reflects a $917 adjustment to the expected payment, partially offset by $807 of accretion.
The Company did not have any transfers of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value measurement hierarchy during the quarter and nine months ended September 30, 2016. In addition to the assets and liabilities included in the above table, certain of our assets and liabilities are to be initially measured at fair value on a non-recurring basis. This includes goodwill and other intangible assets measured at fair value for impairment assessment, in addition to redeemable noncontrolling interests. For additional discussion, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” in our Form 10-K.
14
(11) Income Taxes
For the quarter and nine months ended September 30, 2016, the Company recorded a benefit of $2,214 and a provision of $665,
respectively, resulting in effective tax rates of 9.4% of benefit and 1.5% of expense, respectively, compared to tax rates of 9.8% and
25.7% of benefit for the quarter and nine months ended September 30, 2015, respectively. The difference in the effective tax rates is
primarily attributable to valuation allowances that the Company recorded in the fourth quarter of 2015 in the United States and certain
foreign jurisdictions, as well as an adjustment that was recorded during the third quarter of 2016 in connection with completion of the
Company’s tax returns, which resulted in a tax benefit.
The Company has not provided for any taxes on the unremitted earnings of its foreign subsidiaries, as the Company intends to
permanently reinvest all such earnings outside of the U.S. The Company believe a calculation of the deferred tax liability associated
with these undistributed earnings is impracticable.
Tax years 2003 through 2015 remain subject to examination by the U.S. Internal Revenue Service, with most of the years open to
examination due to the generation and utilization of net operating losses. The Company files income tax returns (which are open to
examination beginning in the year shown in parentheses) in Australia (2012), Belgium (2013), Brazil (2011), China (2013), France
(2013), Germany (2012), India (2013), Israel (2012), Italy (2011), Japan (2011), Korea (2011), Mexico (2011), Netherlands (2011),
Switzerland (2011), the United Kingdom (2015) and Uruguay (2011).
(12) Segment Information
The Company operates in one reportable business segment. The Company conducts its business through various offices and facilities
located throughout the Asia Pacific region (Australia, China, India, Japan and Korea), Europe (Belgium, France, Germany, Italy, the
Netherlands, Switzerland and the United Kingdom), Israel, Latin America (Brazil, Mexico and Uruguay), Russia and the United States.
The Company has historically disclosed summarized financial information for the geographic areas of operations as if they were
segments in accordance with ASC 280, “Segment Reporting.” Financial information concerning the Company’s geographical locations
is based on the location of the selling entity. Such summarized financial information concerning the Company’s geographical operations
is shown in the following tables:
Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2016 2015 2016 2015
Revenue from unaffiliated customers:
Americas $ 86,890 $ 80,724 $ 253,981 $ 257,382
Germany 16,796 18,972 56,225 61,567
Other EMEA 26,948 26,063 83,704 84,475
Asia Pacific 25,728 25,815 73,118 79,376
Total revenue $ 156,362 $ 151,574 $ 467,028 $ 482,800
Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2016 2015 2016 2015
Revenue by class of product and service:
Products $ 56,484 $ 52,899 $ 163,301 $ 183,790
Materials 38,059 34,848 117,105 108,356
Services 61,819 63,827 186,622 190,654
Total revenue $ 156,362 $ 151,574 $ 467,028 $ 482,800
The increase in revenue from the Americas for the quarter primarily reflects increased sales from healthcare-related applications, while
the decrease in revenue for the quarter from the EMEA and Asia Pacific regions primarily reflects lower sales of 3D printers and on
demand parts manufacturing services. The decrease in revenue in all geographic regions for the nine months primarily reflects lower
sales of 3D printers and on demand parts manufacturing services, partially offset by increased sales from materials, software and
healthcare-related applications.
For the quarter and nine months ended September 30, 2016, revenue from operations outside the U.S., including Latin America, EMEA
and Asia Pacific, was 45.8% and 49.1% of total revenue, respectively, compared to 51.1% and 50.5% for the quarter and nine months
ended September 30, 2015, respectively.
Gross profit and gross profit margins Table 5 and Table 6 below set forth gross profit and gross profit margin for the quarters and nine months ended September 30, 2016 and 2015, respectively.
Total consolidated gross profit for the quarter and nine months ended September 30, 2016 decreased, primarily driven by write-down
charges related to inventory and production assets in connection with our updated strategy and discontinuation of certain products. See
Note 2.
Gross profit margin for products decreased for the quarter and nine months ended September 30, 2016, primarily driven by charges
related to our updated strategy.
Gross profit margin for materials increased for the quarter and nine months ended September 30, 2016, reflecting improved supply chain
efficiencies, partially offset by the unfavorable impact of mix.
Gross profit margin for services decreased for the quarter and nine months ended September 30, 2016, primarily driven by higher printer
service costs and lower on-demand parts margins.
For the quarter and nine months ended September 30, 2016, on demand parts manufacturing services gross profit margin was 43.7%
and 44.1%, respectively, compared to 43.8% and 44.5% for the quarter and nine months ended September 30, 2015, respectively.
Operating expenses Table 7 and Table 8 below set forth components of operating expenses for the quarters and nine months ended September 30, 2016 and 2015, respectively.
Table 7
Quarter Ended September 30,
2016 2015 Change
(Dollars in thousands) Amount
%
Revenue Amount
%
Revenue $ %
Selling, general and administrative expenses $ 64,814 41.5 % $ 83,212 54.9 % $ (18,398) (22.1) %
Research and development expenses 26,140 16.7 22,463 14.8 3,677 16.4
Loss from operations $ (22,017) $ (34,637) $ (42,493) $ (76,003)
The improvement in operating loss for the quarter and nine months ended September 30, 2016 was primarily driven by lower operating
expenses. See “Gross profit and gross profit margins” and “Operating expenses” above.
With respect to the Americas, for the quarter and nine months ended September 30, 2016 and 2015, the changes in operating income
(loss) reflected the same factors relating to our consolidated operating income (loss) that are discussed above.
The changes in operating income (loss) in our operations outside the Americas for the quarter and nine months ended September 30,
2016 and 2015 resulted primarily from transfer pricing, changes in sales volume and foreign currency translation.
25
Interest and other (income) expense, net
Table 10 below sets forth components of interest and other (income) expense, net, for the quarters and nine months ended September
30, 2016 and 2015, respectively.
Table 10
Quarter Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2016 2015 2016 2015
Interest and other expense, net:
Interest income $ (153) $ (120) $ (600) $ (362)
Foreign exchange (gain) loss 1,123 (126) (340) 1,641
Interest expense 272 554 1,053 1,487
Other (income) expense, net 382 1,065 1,177 1,263
Total interest and other (income) expense, net $ 1,624 $ 1,373 $ 1,290 $ 4,029
Benefit and provision for income taxes For the quarter and nine months ended September 30, 2016, we recorded a $2.2 million benefit and $0.7 million provision for income taxes, respectively, compared to a $3.5 million and $20.6 million benefit for the quarter and nine months ended September 30, 2015. The difference in the effective tax rates is primarily attributable to valuation allowances that we recorded in the fourth quarter of 2015 in the United States and certain foreign jurisdictions, as well as an adjustment that was recorded during the third quarter of 2016 in connection with the completion of our tax returns, which resulted in a tax benefit. Net loss
Table 11 and Table 12 below set forth components of net loss attributable to 3D Systems for the quarters and nine months ended
September 30, 2016 and 2015, respectively. Table 11
Quarter Ended September 30,
(Dollars in thousands) 2016 2015 Change
Operating loss $ (22,017) $ (34,637) $ 12,620
Less:
Interest and other (income) expense, net 1,624 1,373 251
Provision (benefit) for income taxes (2,214) (3,524) 1,310
Net loss attributable to noncontrolling interests (214) (237) 23
Net loss attributable to 3D Systems $ (21,213) $ (32,249) $ 11,036
Weighted average shares, basic and diluted 111,008 112,010
Net loss per share, basic and diluted $ (0.19) $ (0.29)
Table 12
Nine Months Ended September 30,
(Dollars in thousands) 2016 2015 Change
Operating loss $ (42,493) $ (76,003) $ 33,510
Less:
Interest and other (income) expense, net 1,290 4,029 (2,739)
Provision (benefit) for income taxes 665 (20,563) 21,228
Net loss attributable to noncontrolling interests (799) (343) (456)
Net loss attributable to 3D Systems $ (43,649) $ (59,126) $ 15,477
Weighted average shares, basic and diluted 111,194 111,920
Net loss per share, basic and diluted $ (0.39) $ (0.53)
For further discussion of income taxes, see “Benefit and provision for income taxes” above and Note 11.
26
Other Financial Information
In addition to our results determined under GAAP discussed above, management believes non-GAAP financial measures are useful to
investors in evaluating our operating performance and facilitate a better understanding of the impact that strategic acquisitions, non-
recurring charges and certain non-cash expenses had on our financial results. These non-GAAP financial measures have not been
prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and are subject to
inherent limitations as they reflect the exercise of judgments by our management about which costs, expenses and other items are
excluded from our GAAP financial statements in determining our non-GAAP financial measures. We have sought to compensate for
these limitations by analyzing current and expected future results on a GAAP basis as well as a non-GAAP basis and also by providing
GAAP financial statements as required in our public disclosures as well as reconciliations of our non-GAAP financial measures to our
GAAP financial measures. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the
directly comparable financial measures prepared in accordance with GAAP. These non-GAAP financial measures are meant to
supplement, and be viewed in conjunction with, GAAP financial measures. We urge investors to review the reconciliation of our non-
GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure
to evaluate our business. Our non-GAAP financial measures are adjusted to exclude the following items:
Amortization and stock-based compensation. We exclude intangible asset amortization expense and non-cash stock based
compensation expense.
Legal and acquisition related expenses. We exclude charges associated with arbitration awards, litigation settlements and
severance costs, in addition to charges in connection with business acquisitions, which generally include earnout amortization
and other acquisition-related fees.
Portfolio re-alignment. We exclude charges associated with discontinued product lines, strategic decisions and re-prioritization
of projects.
27
Reconciliation of GAAP Net Loss to Non-GAAP Financial Measures
Table 13 and Table 14 reconciles GAAP net loss to non-GAAP financial measures for the quarters and nine months ended September 30, 2016 and 2015, respectively.
Table 13
Quarter Ended September 30, 2016 Quarter Ended September 30, 2015
(a) Tax effect for the quarter ended March 31, 2016 and earlier periods was calculated quarterly, based on the Company’s overall tax rate for each quarter. Tax effect for the
quarter ended September 30, 2016 was calculated based on the Company’s quarterly U.S. tax rate, which was 0% as a result of the valuation allowance that was recorded in
the fourth quarter of 2015, in connection with GAAP net losses.
28
Table 14
Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015
(a) Tax effect for the quarter ended March 31, 2016 and earlier periods was calculated quarterly, based on the Company’s overall tax rate for each quarter. Tax effect for the quarters ended June 30, 2016 and September 30, 2016 was calculated based on the Company’s quarterly U.S. tax rate, which was 0% as a result of the valuation allowance that was recorded in the fourth quarter of 2015, in connection with GAAP net losses.
29
Financial Condition and Liquidity
Table 15
Change
(Dollars in thousands) September 30, 2016 December 31, 2015 $ %
Cash used in investing activities (13,804) (114,332)
Cash provided by (used in) financing activities (2,293) 427
Effect of exchange rate changes on cash 1,572 (2,896)
Net increase (decrease) in cash and cash equivalents $ 23,715 $ (127,409)
Cash flow from operating activities
Table 17
Nine Months Ended September 30,
2016 2015
(Dollars in thousands)
Net loss $ (44,448) $ (59,469)
Non-cash charges 91,525 88,482
Changes in working capital and all other operating assets (8,837) (39,621)
Net cash provided by (used in) operating activities $ 38,240 $ (10,608)
For further discussion of net loss, see “Net loss” above.
Non-cash charges primarily consist of depreciation, amortization, stock-based compensation, inventory reserve of discontinued
products, and asset impairment, partially offset by the benefit of deferred income taxes.
For further discussion of changes in working capital, see “Financial Condition and Liquidity” above. Differences between the amounts
of working capital item changes in the cash flow statement and the balance sheet changes for the corresponding items are primarily the
result of foreign currency translation adjustments.
31
Cash flow from investing activities
Table 18
Nine Months Ended September 30,
2016 2015
(Dollars in thousands)
Cash paid for acquisitions, net of cash assumed $ — $ (91,799)
Purchases of property and equipment (12,014) (18,064)
Other investing activities (1,000) (3,750)
Additions to license and patent costs (790) (719)
Net cash used in investing activities $ (13,804) $ (114,332)
Purchases of property and equipment primarily consisted of expenditures for leasehold improvements, including expanding facilities
and investing in infrastructure, equipment to support our on demand parts manufacturing service and printers associated with new
product development efforts. Other investing activities consist of minority investments of less than 20% made through 3D Ventures, our
venture investment initiative, in promising enterprises that we believe will benefit from or be powered by our technologies. We made
no acquisitions during the quarter or nine months ended September 30, 2016.
Cash flow from financing activities
Table 19
Nine Months Ended September 30,
2016 2015
(Dollars in thousands) Tax benefits from share-based payment arrangements $ — $ 467
Proceeds, repurchase and retirement of stock, net (1,507) 748
Repayment of capital lease obligations (786) (788)
Net cash provided by (used in) financing activities $ (2,293) $ 427
Contractual commitments and off-balance sheet arrangements
Credit facilities
In October 2014, we entered into a $150.0 million five-year revolving, unsecured credit facility. The agreement provides for advances
in the initial aggregate principal amount of up to $150.0 million. Subject to certain terms and conditions contained in the agreement, we
may, at our option, request an increase in the aggregate principal amount available under the credit facility by an additional $75.0
million. As of September 30, 2016 and December 31, 2015, there was no outstanding balance on the credit facility. As of September 30,
2016, we meet all financial covenant requirements and have full availability on the credit facility. Future results may impact availability.
See Note 7 for additional information related to the credit facility.
Capitalized lease obligations
Our capitalized lease obligations include a lease agreement that we entered into during 2006 with respect to our Rock Hill, SC facility,
in addition to other lease agreements assumed through acquisitions. In accordance with ASC 840, “Leases,” we are considered an owner
of the properties, therefore, we have recorded the amounts shown in the table below as “building” in our consolidated balance sheet with
a corresponding capitalized lease obligation in the liabilities section of the consolidated balance sheet.
Table 20 below sets forth outstanding capitalized lease obligations carrying values as of September 30, 2016 and December 31, 2015,
respectively.
Table 20
(Dollars in thousands) September 30, 2016 December 31, 2015
Capitalized lease obligations:
Capitalized lease obligations — current $ 581 $ 529
Capitalized lease obligations — long term 7,781 8,187
Total capitalized lease obligations $ 8,362 $ 8,716
32
Other contractual arrangements
Certain of our acquisitions contain earnout provisions under which the sellers of the acquired businesses can earn additional amounts.
The total liability recorded for these earnouts at September 30, 2016 was $9.6 million. At December 31, 2015, in addition to earnout
provisions, certain of our acquisitions also contained deferred purchase payment arrangements. The total liability recorded for these
earnouts and deferred purchase payment arrangements totaled $9.8 million at December 31, 2015.
As of September 30, 2016, we have supply commitments related to printer assemblies that total $38.3 million compared to $50.7 million
at December 31, 2015.
The minority interest shareholders of a certain subsidiary have the right to require us to acquire either a portion of or all ownership
interest under certain circumstances pursuant to a contractual arrangement, and we have a similar call option under the same contractual
terms. The amount of consideration under the put and call rights is not a fixed amount, but rather is dependent upon various valuation
formulas and on future events, such as revenue and gross margin performance of the subsidiary through the date of exercise, as described
in Note 13. Management estimates, assuming that the subsidiary owned by us at September 30, 2016 performs over the relevant future
periods at its forecasted earnings levels, that these rights, if exercised, could require us in a future period to pay a maximum of
approximately $8.9 million to the owners of such put rights. This amount has been recorded as redeemable noncontrolling interests on
the balance sheet at September 30, 2016 and December 31, 2015.
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.
Financial instruments
We conduct business in various countries using both the functional currencies of those countries and other currencies to effect cross
border transactions. As a result, we are subject to the risk that fluctuations in foreign exchange rates between the dates that those
transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, we
endeavor to match assets and liabilities in the same currency on our balance sheet and those of our subsidiaries in order to reduce these
risks. We also, when we consider it to be appropriate, enter into foreign currency contracts to hedge exposures arising from those
transactions. There were no foreign exchange contracts at September 30, 2016 or December 31, 2015.
We do not hedge for trading or speculative purposes, and our foreign currency contracts are generally short-term in nature, typically
maturing in 90 days or less. We have elected not to prepare and maintain the documentation to qualify for hedge accounting treatment
under ASC 815, “Derivatives and Hedging,” and therefore, we recognize all gains and losses (realized or unrealized) in interest and
other expense, net in our Consolidated Statements of Operations and Other Comprehensive Income (Loss).
Changes in the fair value of derivatives are recorded in interest and other expense, net, in our unaudited condensed consolidated statements of operations and comprehensive income (loss). Depending on their fair value at the end of the reporting period, derivatives are recorded either in prepaid and other current assets or in accrued liabilities in our unaudited condensed consolidated balance sheets.
Recent Accounting Pronouncements For information with respect to recent accounting pronouncements and the impact of these pronouncements on our unaudited condensed
consolidated financial statements, see Note 1.
Critical Accounting Policies and Significant Estimates
For a discussion of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” in our Annual Report on Form 10-K for
the year ended December 31, 2015 (“Form 10-K”).
33
Forward-Looking Statements
Certain statements made in this Form 10-Q that are not statements of historical or current facts are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from historical
results or from any future results expressed or implied by such forward-looking statements. In many cases, you can identify forward-
looking statements by terms such as “believes,” “belief,” “expects,” “may”, “will”, “estimates,” “intends,” “anticipates,” or “plans” or
the negative of these terms or other comparable terminology.
Forward-looking statements are based upon management’s beliefs, assumptions and current expectations concerning future events and
trends, using information currently available, and are necessarily subject to uncertainties, many of which are outside our control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are
not, and should not be relied upon as a guarantee of future performance or results, nor will they necessarily prove to be accurate
indications of the times at or by which any such performance or results will be achieved. A number of important factors could cause
actual results to differ materially from those indicated by the forward-looking statements. These factors include without limitation:
competitive industry pressures;
our ability to deliver products that meet changing technology and customer needs;
our ability to identify future, strategic acquisitions and to integrate such acquisitions into our business without disruption;
our ability to acquire and enforce intellectual property rights and defend such rights against third party claims;
our ability to protect our intellectual property rights and confidential information, including our digital content, from third-
party infringers or unauthorized copying, use or disclosure;
failure of our information technology infrastructure or inability to protect against cyber-attack;
our ability to generate net cash flow from operations;
our ability to obtain additional financing on acceptable terms;
impact of global economic, political and social conditions and financial markets on our business;
fluctuations in our gross profit margins, operating income or loss and/or net income or loss;
our ability to efficiently conduct business outside the U.S.;
our dependence on our supply chain for components and sub-assemblies used in our 3D printers and other products and for raw
materials used in our print materials;
our ability to manage the costs and effects of litigation, investigations or similar matters involving us or our subsidiaries;
product quality problems that result in decreased sales and operating margin, product returns, product liability, warranty or
other claims;
our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs;
our exposure to product liability claims and other claims and legal proceedings;
disruption in our management information systems for inventory management, distribution, and other key functions;
compliance with U.S. and other anti-corruption laws, trade controls, economic sanctions, and similar laws and regulations;
changes in, or interpretation of, tax rules and regulations;
compliance with, and related costs concerning, privacy, environmental, health and safety laws and regulations;
compliance with, and related expenses and challenges concerning, conflict-free minerals regulations; and
the other factors discussed in the reports we file with or furnish to the SEC from time to time, including the risks and important
factors set forth in additional detail in “Risk Factors” in Part I, Item 1A of our Form 10-K filed with the SEC.
Certain of these and other factors are discussed in more detail in “Item 1A. Risk Factors” of our Form 10-K. Readers are cautioned not
to place undue reliance on these forward-looking statements. The forward-looking statements included herein are made only as of the
date of this Form 10-Q and we undertake no obligation to publicly update or review any forward-looking statement made by us or on
our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise. All
subsequent written or oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in
their entirety by the cautionary statements referenced above.
34
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
For a discussion of market risks at December 31, 2015, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,”
in our Form 10-K. During the quarter and nine months ended September 30, 2016, there were no material changes or developments that
would materially alter the market risk assessment performed as of December 31, 2015.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
As of September 30, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
pursuant to Rules 13a-15 and 15d-15 under the Exchange Act. These controls and procedures were designed to provide reasonable
assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner to
allow timely decisions regarding required disclosures. Based on this evaluation, including an evaluation of the rules referred to above
in this Item 4, management has concluded that our disclosure controls and procedures were effective as of September 30, 2016 to provide
reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner to
* Management contract or compensatory plan or arrangement
37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
3D SYSTEMS CORPORATION
By /s/ JOHN N. MCMULLEN
John N. McMullen
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
(duly authorized officer)
Date: November 3, 2016
Exhibit 31.1
Certification ofPrincipal Executive Officer of
3D Systems Corporation
I, Vyomesh I. Joshi, certify that:
1. I have reviewed this report on Form 10-Q of 3D Systems Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the periodin which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting.
Date: November 3, 2016
By: /s/ Vyomesh I. JoshiVyomesh I. Joshi
Title: President & Chief Executive Officer(principal executive officer)
Exhibit 31.2
Certification ofPrincipal Financial Officer of
3D Systems Corporation
I, John N. McMullen, certify that:
1. I have reviewed this report on Form 10-Q of 3D Systems Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the periodin which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting.
Date: November 3, 2016
By: /s/ John N. McMullenJohn N. McMullen
Title: Executive Vice President and Chief Financial Officer(principal financial and accounting officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies theQuarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter and nine months ended September 30, 2016 of 3DSystems Corporation (the “Issuer”).
I, Vyomesh I. Joshi, the President and Chief Executive Officer (principal executive officer) of the Issuer, certify that,pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of myknowledge:
(i) the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the SecuritiesExchange Act of 1934; and
(ii) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition andresults of operations of the Issuer.
Date: November 3, 2016/s/ Vyomesh I. JoshiName: Vyomesh I. Joshi(principal executive officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and accompanies theQuarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter and nine months ended September 30, 2016 of 3DSystems Corporation (the “Issuer”).
I, John N. McMullen, the Executive Vice President and Chief Financial Officer (principal financial and accountingofficer) of the Issuer, certify that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-OxleyAct of 2002, to the best of my knowledge:
(i) the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the SecuritiesExchange Act of 1934; and
(ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition andresults of operations of the Issuer.
Date: November 3, 2016/s/ John N. McMullenName: John N. McMullen(principal financial andaccounting officer)
