UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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Documents Incorporated by Reference
Portions of the Registrant’s Definitive Proxy Statement relating to the 2022 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A with the Securities Exchange Commission are incorporated by reference into Part III of this report. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the Registrant’s fiscal year ended December 31, 2021.
TABLE OF CONTENTS
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BASIS OF PRESENTATION
On December 9, 2020, we consummated the business combination, or the Business Combination, contemplated by the Agreement and Plan of Merger, dated August 26, 2020, by and among our company (formerly known as Trine Acquisition Corp.), Desktop Metal Operating, Inc. (formerly known as Desktop Metal, Inc.) and Sparrow Merger Sub, Inc., pursuant to which Sparrow Merger Sub, Inc. merged with and into Desktop Metal Operating, Inc., with Desktop Metal Operating, Inc. becoming our wholly owned subsidiary. Upon the closing of the Business Combination, we changed our name to Desktop Metal, Inc.
Unless otherwise indicated or the context otherwise requires, references in this Annual Report on Form 10-K to “we,” “us,” “the company” and “Desktop Metal” refer to the consolidated operations of Desktop Metal, Inc. and its subsidiaries. References to “Trine” refer to the company prior to the consummation of the Business Combination and references to “Legacy Desktop Metal” refer to Desktop Metal Operating, Inc. prior to the consummation of the Business Combination.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, contains forward-looking statements. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, trends, events, and our objectives for future operations, are forward-looking statements. The words “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “project,” “could,” “would,” “estimate,” “potential,” “continue,” “plan,” “target,” or the negative of these words or similar expressions are intended to identify forward-looking statements.
The forward-looking statements included herein are based on current expectations of management. Actual results may differ from those expressed in forward-looking statements due to additional factors, including those set forth in Part I, Item 1A. “Risk Factors” elsewhere in this Annual Report on Form 10-K. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report on Form 10-K will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
You should read this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
PART I
Item 1. Business
Business Overview
Desktop Metal is pioneering a new generation of additive manufacturing technologies focused on Additive Manufacturing 2.0, the volume production of end-use parts. We offer a comprehensive portfolio of integrated additive manufacturing solutions comprised of hardware, software, materials and services with support for metals, polymers, elastomers, ceramics, sands, composites, wood and biocompatible materials. Our solutions span use cases across the product life cycle, from product development to mass production and aftermarket operations, and they address an array of industries, including automotive, healthcare and dental, consumer products, heavy industry, aerospace, machine design and research and development.
At Desktop Metal, we believe additive manufacturing, commonly referred to as 3D printing, is one of the most exciting and transformational technology innovations of our time. According to the Wohlers Report 2021 and management estimates, the global additive manufacturing market, which includes spending on systems, materials, parts and other 3D printing software and services, is expected to grow from $13 billion in 2020 to more than $100 billion in 2030 at a compound annual growth rate of approximately 22%.
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Additive manufacturing has the capacity to change the way parts of nearly all materials are designed, manufactured and sold around the world, and it provides businesses of all sizes the means to make high performance products faster, more sustainably, and at costs and volumes competitive with conventional manufacturing processes. Our mission is to enable high volume production, while making additive manufacturing accessible to all engineers, designers and manufacturers. In doing so, we believe we will empower businesses to adopt radical, new approaches to design and production and enable the success of many of the high growth industries that will drive global economic growth in the years to come.
Our growth strategy begins with a commitment to research and development. Since our founding in 2015, we have invested significant resources in research and development towards building an extensive portfolio of proprietary and differentiated technologies with a focus on making additive manufacturing an easy-to-use, economic and scalable solution. These technologies represent the cornerstones of our future product introductions, are critical to enhancing our existing offerings and are supported by over 650 patents or pending patent applications. Our additive manufacturing platforms, which leverage these technologies for the production of tools and end-use parts, enable businesses to address their specific goals through a range of solutions that span price points, throughput levels and operating environments.
Our product platforms offer several key advantages over competitive additive manufacturing systems including breakthrough print speeds, competitive part costs, accessible workflows and software, turnkey solutions and support for an extensive library of qualified materials, the sale of which represent a recurring revenue stream from customers of our additive manufacturing solutions in addition to system consumables and other services, such as installation, training and technical support. As a result of these strengths, our solutions are lowering the barriers to adopting additive manufacturing and unlocking new applications where conventional manufacturing has customarily held cost and volume advantages. Across printers, parts and materials, we intend to continue investing to advance our current technology portfolio and develop new technologies that allow us to serve a broader customer base and reach new verticals, thereby expanding our addressable market and driving adoption of Additive Manufacturing 2.0.
We leverage our core competencies in technology innovation and product development by marketing and selling our Additive Manufacturing 2.0 solutions through a leading global distribution network, managed and augmented by our own internal sales and marketing teams. This distribution network, which covers over 65 countries around the world, is composed of sales and distribution professionals with decades of experience in digital manufacturing technologies and works alongside our direct sales force to market and sell products across a range of industries and price points. Similarly, our internal manufacturing and supply chain teams work collaboratively with our internal engineering department and third-party contract manufacturers to scale up initial prototypes for commercialization and volume commercial shipments. Together, our hybrid distribution and manufacturing approaches allow us to produce, sell and service our products at-scale in global markets and create substantial operating leverage as we execute our strategy.
Our proprietary technology solutions also serve as the foundation for product parts offerings in which we which we directly manufacture parts for sale to our customers with a focus on key applications and verticals in which additive manufacturing can provide significant design, performance, cost and supply chain advantages relative to conventional manufacturing. These offerings will enable us to provide a more holistic suite of solutions for our customers and enable the accelerated adoption of our Additive Manufacturing 2.0 solutions across select high-value production applications, which we refer to as “killer apps”, including, but not limited to, medical and dental devices, fluid power systems, and sustainable, end-use wood parts. We believe such offerings will not only create a high-margin revenue stream, but will also facilitate lead generation for our additive manufacturing systems at scale and enable high-performance and specialized applications using new materials ahead of broader market introduction.
We are led by visionary technologists and a team of proven leaders with experience bringing emerging technologies to market across the hardware, materials and software sectors. Our technologies have the potential to empower engineers and designers to easily access additive manufacturing and drive new application discovery as well as provide manufacturers with reliable and high-performance solutions that facilitate the production of innovative designs in high volumes. We believe that, taken together, these core competencies will propel us towards helping businesses realize the true promise of Additive Manufacturing 2.0.
Industry Background
Conventional manufacturing processes have numerous shortcomings.
Historically, processes such as casting, stamping, molding and machining have dominated global manufacturing, which is a $12 trillion industry, according to estimates by A.T. Kearney. These conventional and subtractive manufacturing techniques have
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numerous limitations. Most require high upfront expenses in the form of tools, such as molds, dies, jigs or fixtures. Designing and manufacturing these tools can result in long lead times for parts as well as minimum volume requirements in order to achieve cost efficiencies.
Tooling requirements associated with casting, stamping, and injection molding also leave little room for design iteration without increasing time-to-market and development costs. New parts and design changes often require a new tool, thereby slowing the pace at which businesses can introduce new products and react to shifts in market preferences and making it difficult to compete effectively. Computer numerical controlled machining, or CNC machining, is an alternative to stamping, casting and molding that does not require a mold or die, enabling lower-volume production with reduced lead times. However, because CNC machining is a subtractive process in which material is removed from a solid block to create a part, it typically results in higher part costs and significant material waste. In addition, the CNC machining process often requires heavy involvement from specialist technicians, and machine programming can be time intensive. Each of these conventional manufacturing processes also creates design restrictions that can result in significantly higher part weights and costs or require assemblies, adversely impacting performance in favor of manufacturability and driving additional manufacturing and supply chain complexity.
Additive manufacturing has the potential to address the limitations of conventional manufacturing.
Additive manufacturing addresses many of the limitations of conventional manufacturing through a combination of flexibility, ease of use and cost, making it an efficient and effective process across the product life cycle, from design and prototyping to production. Additive manufacturing is a digital manufacturing process that produces 3D objects from digital models through the repeated deposition of thin layers of material. This process eliminates the need for tooling inputs and provides a range of benefits including:
• | Accelerated time-to-market. Businesses can manufacture design files at the push of a button with no tooling required. While design cycles for conventional manufacturing can take weeks or months, additive manufacturing can shorten this cycle to days due to the ability to rapidly switch between or iterate on designs without excessive delay. Such improvements in time-to-market for new products can help businesses react more rapidly to shifts in customer demand. |
• | Design flexibility. Conventional manufacturing can force design compromises as a result of subtractive manufacturing processes or the use of tools. While 3D printing may involve design guidelines primarily to reduce dependency on supports and optimize process success, designers generally have freedom to produce geometries not possible or economically feasible with conventional manufacturing. As an example, with additive manufacturing, designers can produce intricate organic or complex, lattice shapes that are optimized for strength and functional performance to reduce weight and material usage. |
• | Assembly consolidation. Improved design flexibility enables the consolidation of sub-assemblies into single parts, which can improve reliability by reducing the number of failure points in a product. Decreasing part quantity is also a productivity breakthrough for many businesses. With fewer unique parts to fabricate, procure, store and assemble, businesses can drastically simplify their supply chains. |
• | Mass customization. Additive manufacturing enables the customization and production of designs at scale, eliminating costs traditionally associated with multiple tools and tooling changeover as well as reducing the risk of excess inventory and material obsolescence. Each part printed using additive manufacturing can be identical to or radically different from the other parts within a given print. Several end markets, including audiology and dental, have already leveraged mass customization through additive manufacturing to improve the aesthetics and performance of parts. |
• | Supply chain re-engineering. Additive manufacturing suitable for end-use parts production can improve supply chains by enabling on-demand manufacturing in distributed locations. Decentralized networks of additive manufacturing systems with low tooling and set-up costs can replace centralized facilities with conventional manufacturing equipment in locations frequently selected because of lower cost of labor. In addition, producing parts near the point and time of demand can significantly reduce lead times, inventories, and dependencies on forecasting without incurring additional costs related to logistics and customs. |
• | Sustainable manufacturing. Additive manufacturing is a more efficient production process than subtractive techniques, such as CNC machining. It requires fewer material inputs and reduces material waste. By enabling optimized geometries |
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lighter than conventionally manufactured counterparts, additive manufacturing can also lead to downstream sustainability benefits, including reduced fuel consumption in industries such as automotive and aerospace. In addition, by reducing supply chain complexity, additive manufacturing can reduce emissions from transporting physical goods around the world.
Many businesses are motivated to deploy additive manufacturing to improve production processes at-scale.
Many businesses faced with increased global competition and rapidly changing market preferences are turning to additive manufacturing to overcome the limitations of conventional manufacturing and provide a competitive advantage. According to an Ernst & Young global survey, 83% of industrial businesses in 2019 were either already applying or considering applying additive manufacturing technologies, a significant increase from 36% in 2016. According to the Wohlers Report 2021, spending on additive manufacturing products and services roughly doubled from $6 billion to $12 billion during this same period. While many businesses still value the rapid prototyping benefits of additive manufacturing, they are also eager to realize benefits largely related to end-use part production. According to Ernst & Young, over 50% of industrial businesses expect to use additive manufacturing to produce products that better meet customer requirements; reduce logistics efforts, transport and inventories; and manufacture existing products at lower costs.
Most existing additive manufacturing technologies primarily focus on design & prototyping applications.
Additive manufacturing technologies face stringent business requirements for use in production with respect to accuracy, surface finish, material properties and throughput, all of which must meet or exceed the standards set by more mature conventional manufacturing alternatives. Most commercially available 3D printers leverage legacy additive manufacturing technologies including fused filament fabrication, or FFF, stereolithography, or SLA, and powder bed fusion, or PBF. These first-generation 3D printing technologies build parts by tracing each layer using a single point or multiple points, such as an extrusion nozzle in FFF printers or a laser in SLA and PBF systems. While these technologies have evolved significantly since the early 2000s, and have mostly overcome initial deficiencies around accuracy, surface finish and material properties, their throughput and the resulting production economics have continued to present a challenge. Such technologies can typically only increase part throughput with additional time or systems, which limits customers’ ability to increase production without also increasing their equipment costs. Many existing additive manufacturing solutions consequently continue to focus on design and prototyping use cases or other low volume production applications where design flexibility and turnaround time are important to customers, but costs and part throughput are not, and where other key performance measures, including accuracy, surface finish and material properties are also less critical.
As a result, businesses still face hurdles in adopting legacy additive manufacturing for end-use production.
While the growth of additive manufacturing has accelerated in recent years, many companies still hesitate to fully adopt the existing, legacy technologies to produce end-use parts in volume, preventing them from realizing the full benefits of additive manufacturing. Ernst & Young found that only 18% of industrial businesses in 2019 used additive manufacturing for end-use parts, lagging other use cases such as rapid prototyping. Because these existing, legacy technologies are better suited to design and prototyping applications, businesses pursuing additive manufacturing solutions face significant barriers to adopting these technologies for end-use applications. Using legacy additive manufacturing technologies to make end-use parts can be expensive, particularly for businesses under margin pressure. This is due to the high costs of legacy additive manufacturing equipment and related consumable materials, which are often priced at high levels by vendors to compensate for the low productivity of their systems. When combined with the limited throughput of these legacy additive manufacturing technologies, high upfront and operating costs result in part costs that typically cannot compete with conventional manufacturing. Consequently, industries that require inexpensive parts in large quantities, such as automotive and consumer products, face challenges in adopting additive manufacturing for end-use parts production.
Our Market Opportunity
In part as a result of the drawbacks of these legacy additive manufacturing technologies, businesses of all sizes are engaging Desktop Metal to begin their deployment of additive manufacturing for scalable, end-use parts production. We believe our product portfolio enables customers to capture value at every stage in the product lifecycle, from research and development to the mass production of tools and end-use parts. We provide easy-to-use, high-throughput, and integrated additive manufacturing solutions comprised of hardware, software, materials, and services. Our solutions expand the addressable market for additive manufacturing by facilitating applications in vertical markets that have been restricted from adopting additive manufacturing due to cost and
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productivity hurdles, such as automotive, consumer products, heavy industry and machine design. As a result, we believe we are at the forefront of the next generation of companies that will drive the accelerated adoption of Additive Manufacturing 2.0, whereas legacy additive manufacturing technologies are primarily focused on enabling rapid prototyping and tooling applications. According to the Wohlers Report 2021 and management estimates, this market is expected grow from $13 billion in 2020 to more than $100 billion in 2030 at a compound annual growth rate of approximately 22%, as additive manufacturing displaces conventional manufacturing across a growing range of applications.
Our Growth Strategy
The key elements of our strategy for growth include the following:
Expand our product offerings with a focus on integrated solutions that make additive manufacturing suitable for production applications and accessible to a broad audience.
We believe the adoption of additive manufacturing, particularly for end-use parts, is driven by the availability of solutions that offer a tool-free, digital path to producing large quantities of parts that are both higher performance and lower cost than achievable through conventional manufacturing processes. Our product portfolio is focused on additive manufacturing printer platforms designed for Additive Manufacturing 2.0, or the volume production of end-use parts, and we intend to continue investing significant resources in enhancing these solutions and developing technologies with breakthrough advances in print speed and other process parameters to deliver the highest throughput systems and lowest part costs in the additive manufacturing market. We believe such improvements will encourage customer investment in additive manufacturing across a range of industrial applications and vertical markets where conventional manufacturing has customarily held cost and volume advantages. Improved system productivity and economics will expand our market opportunity and enable customers to enjoy the benefits of additive manufacturing at-scale, including lighter, more sustainable parts and a digital supply chain. Our Additive Manufacturing 2.0 solutions also enable us to capture recurring revenue streams through the sales of consumables and service contracts. We are also committed to lowering the barriers to adopting such additive manufacturing solutions by providing integrated, turnkey experiences that improve performance while reducing workflow complexity and include all the software, hardware and materials required to produce end-use parts. To accomplish this, we intend to continue investing in software, materials and sintering technologies complementary to our 3D printers that enable ease of use and broad adoption across a wide set of customers with varying levels of experience with additive manufacturing.
Qualify additional materials to reach new verticals and expand our addressable market
Our current product portfolio supports 3D printing using an extensive library of materials, including metals, polymers, elastomers, ceramics, sands, composites, wood and biocompatible materials, and we are in the process of qualifying additional materials for printing that meet or exceed the properties achievable through conventional manufacturing processes. Our metal additive manufacturing systems are designed using sintering-based, powder metallurgy processes, for which hundreds of well-characterized metal alloys and ceramics are available, offering a broad set of materials for us to evaluate and qualify for use with these platforms. Several of these solutions also provide open platforms for customers to develop and print with specialized materials that are either proprietary to them or not included on our internal development roadmap while others offer a full, turnkey experience including metal powders which we qualify and distribute for customer use. Our photopolymer systems support a wide range of both proprietary and third-party, industry-validated resins through a selectively open business model. By developing or qualifying additional industrial materials on our systems and enabling customers and partners to do the same, we believe we can serve a broader customer base and address new applications and vertical markets, thereby expanding market share of our solutions and helping drive adoption of additive manufacturing.
Develop robust produced parts offerings focused on “killer apps” for additive manufacturing
We are establishing produced parts offerings in which we directly manufacture parts for sale to our customers with a focus on key, high-value applications and verticals in which additive manufacturing can provide significant design, performance, cost and supply chain advantages relative to conventional manufacturing. These offerings will enable us to provide a more holistic suite of solutions for our customers and enable the accelerated adoption of our Additive Manufacturing 2.0 solutions across select high-value and high margin production applications, which we refer to as “killer apps”, including, but not limited to, medical and dental devices, fluid power systems, and sustainable, end-use wood parts. For example, we offer turnkey design and parts production services enabled by additive manufacturing for fluid power system applications through our Aidro subsidiary, and we are building Desktop Labs, a
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dental and biofabrication platform focused on leveraging our proprietary additive manufacturing solutions to vertically integrate into digital solutions, design services and parts production capabilities for dental and biofabrication applications. By leveraging additive manufacturing, we believe we can provide improved delivery timelines, higher performance parts, and a more integrated, end-to-end customer experience relative to manufacturers that leverage conventional processes, enabling pricing power and accelerating our customer acquisition capabilities. Providing produced parts also enables customers to leverage our technology for these “killer apps” with a lower initial capital expenditure investment before bringing their production in-house when they are ready to purchase our additive manufacturing systems. We believe such services will facilitate lead generation for our additive manufacturing systems at scale and enable high-performance and specialized applications using new materials ahead of broader market introduction.
Pursue strategic acquisitions and partnerships
We intend to continue to selectively pursue acquisitions and/or equity investments in businesses that represent a strategic fit and are consistent with our overall focus on technologies and solutions that enable Additive Manufacturing 2.0 across printers, materials and killer apps. We believe such transactions would allow us to accelerate market penetration of our additive manufacturing solutions by enabling expansion of our product portfolio, access to new markets and key applications for additive manufacturing, and a stronger value proposition for our customers while delivering margin improvements and increased customer lifetime value. We believe that because of our core focus on engineering and technology development as well as our unique distribution network, we will be able to successfully integrate and drive adoption of new technologies and capabilities acquired via strategic transactions.
Extend our distribution channels and reach
We have a leading global distribution network for our additive manufacturing technology solutions consisting of over 200 resellers, covering more than 65 countries around the world. Our direct sales force augments the reach of our distribution network, focusing primarily on selling our higher priced solutions, cross-selling our solutions across materials, serving major accounts and expanding our footprint within multinational and Fortune 500 organizations. We intend to extend this hybrid distribution approach by adding further geographic coverage and sales capacity across both reseller and direct sales channels as well as developing industry-specific expertise to drive penetration in vertical markets such as automotive, aerospace, healthcare and dental, and consumer products. We also expect to continue building out a high-velocity sales channel for lower price point products by partnering with additional volume distributors of software and hardware as well as expanding our internal sales infrastructure and online sales presence.
Build a diverse, global customer base across industries and applications
We believe that our success depends, in part, on our ability to develop a diverse, global customer base to reduce risks associated with revenue concentration in any single geographic region or industry. Our customers today include businesses of all sizes, ranging from small and medium enterprises to Fortune 500 organizations and span many industries and applications, including automotive, healthcare and dental, consumer products, heavy industry, aerospace, machine design and research and development. We aim to leverage our global distribution network to reach new customers broadly as well as opportunities in targeted industries and geographies. We believe this diversification will also allow us to identify new applications for which our solutions are appropriate and provide us with customer feedback to assist our product development efforts and ensure we are addressing a broad range of market needs. For example, in 2021 we launched Desktop Health, a business focused on developing new solutions built on and commercializing our portfolio of additive manufacturing solutions for personalized patient care across a range of healthcare and dental applications spanning dentistry, orthodontics, dermatology, orthopedics, cardiology, plastic surgery and printed regenerative tissues and grafts. Our produced parts offerings, including Aidro and Desktop Labs, further our application diversification efforts by providing us with a direct, internal feedback loop with users of our additive manufacturing solutions so we can continue to identify new use cases where our proprietary technologies deliver a compelling value proposition and accelerate our customer acquisition and account expansion capabilities.
Promote awareness through training and education
As businesses increasingly embrace additive manufacturing over the next decade, we intend to educate the market on best practices for adoption of the technology across the entire product life cycle. Our leadership position provides a platform to deliver this education both for our existing customers and the market as a whole. Such education is a critical component of our sales and marketing efforts. We believe businesses that are well-informed or that have firsthand experience of the benefits of our additive
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manufacturing solutions relative to conventional manufacturing are more likely to purchase and expand their use of our products and services over time. To drive such awareness, we are developing rich additive manufacturing content and curricula for delivery through both online and in-person media, including classes, programs, certifications, and professional services. We are developing global centers of excellence, leveraging our own headquarters and network of adoption centers in conjunction with our distribution network’s presences, to serve as showrooms for our solutions, learning facilities and focal points for additive manufacturing-focused professional services.
Our Competitive Strengths
We are a pioneer in the additive manufacturing industry with a mission to make the technology accessible to all designers, engineers, and manufacturers. We believe our collective expertise coupled with the following competitive strengths, will allow us to maintain and extend a leadership position in next-generation additive manufacturing and expand our market opportunity:
Differentiated and proprietary technology platform focused on area-wide print technologies
We have invested significant resources in developing proprietary technologies that serve as the foundation of our solutions across hardware, software and materials science to accelerate the widespread adoption of additive manufacturing. A majority of these proprietary technologies are innovations on binder jetting or digital light processing, or DLP, which are area-wide 3D printing processes that use inkjet printheads or DLP projectors, respectively, to print an entire layer or large sections of a layer at one time and are consequently more efficient than point processes, such as FFF, SLA and PBF, which trace each layer over time using single (or multiple) points of energy or material deposition. Several of our key print process innovations include:
• | Single Pass Jetting, or SPJ. An area-wide powder metallurgy-based process in which all the sequential steps of conventional binder jetting are combined and applied with each pass of a single print carriage over the “build box”, dramatically reducing print time and increasing mechanical efficiency, leading to significant increases in throughput and improvements in part costs. |
• | Triple Advanced Compaction Technology, or Triple ACT. An area-wide powder metallurgy-based process for binder jetting that leverages a unique ultrasonic hopper in combination with a dual roller approach featuring a knurl design on one roller for spreading powder and a special surface finish on a separate roller for compacting powder, leading to high powder bed densities with minimal variability. |
• | Continuous Digital Light Manufacturing, or CDLM. An area-wide photopolymer printing process built on top of DLP technology that allows for continuous motion of the build plate to deliver exceptional build speeds and parts with isotropic properties and high accuracy, leading to improvements in part costs while also enabling new resin chemistries with strong functional characteristics. |
• | Projection Arrays. An area-wide photopolymer printing process that combines multiple high-resolution DLP projectors into a single exposure using advance multi-image calibration to increase power density and resolution during curing, improving print speeds and enabling large format build areas to support the production of large parts. |
• | Bound Metal Deposition, or BMD. A powder metallurgy-based process in which loose powders and dangerous lasers commonly associated with 3D printing are eliminated in favor of bound metal rods to shape parts layer-by-layer, leading to reductions in requirements for special facilities. |
• | Micro Automated Fiber Placement, or Micro AFP. A process in which tape pre-impregnated with continuous fiber, or continuous fiber prepreg tape, is deposited along a part’s critical load paths in combination with chopped fiber filament to build high-strength and high-resolution parts with aerospace and industrial-grade materials. |
In addition to these print process innovations, we have developed purpose-built, proprietary sintering technology that delivers industrial-strength sintering in an office-friendly package as well as breakthrough sintering process simulation software, designed to facilitate metal parts production on our platforms with high accuracy while reducing trial-and-error. These fundamental technologies represent the cornerstones of our future product introductions and are critical to enhancing our existing offerings. Elements of these technologies and processes are protected by our know-how and by over 650 patents or pending patent applications.
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High printer throughput
We believe that our proprietary SPJ, Triple ACT, CDLM and Projection Array technologies and each of our binder jet and DLP product platforms enables the highest rate of parts production per unit of time among competing additive manufacturing systems for a given layer resolution. The Production System P-50, which is designed to achieve print speeds of up to 12,000 cubic centimeters per hour at a 65-micron printed layer height, can enable customers to manufacture up to hundreds of thousands or even millions of parts per year using additive manufacturing, unlocking new applications due to improved part costs and enhanced design flexibility. The Xtreme 8K uses patented Projection Array technology to support printing large photopolymer parts at build speeds up to 100 times those of legacy thermoplastic FFF printers. Our additive manufacturing solutions employ additional, proprietary technology innovations as a means to overcome some of the challenges that arise with high-speed 3D printing and ensure part consistency, accuracy, and resolution. Through continued advances in underlying hardware and our own technology and processes, we believe that our products’ print speeds will continue to increase, driving down the cost of parts produced on our additive manufacturing systems. This will further differentiate our solutions from competitors while also improving our ability to compete with conventional manufacturing processes at larger quantities of parts and across a wider range of applications.
Integrated, turnkey solutions
We aim to provide our customers with easy-to-use and end-to-end, turnkey solutions for additive manufacturing without the need for additional third-party equipment. We believe our compelling user experience across our product portfolio begins with cohesive and modern software applications for efficient printer build preparation and communication with our additive manufacturing systems, which receive feature enhancements via over-the-air or offline firmware updates. For our solutions related to metal additive manufacturing, which is a complex process that involves multiple steps to go from a digital file to a metal part, we have developed a furnace using proprietary technology purpose-built to provide industrial strength, partial-pressure and vacuum-enabled sintering in an office-friendly package. Sintering is a critical step for powder metallurgy-based metal additive manufacturing processes. Our furnace enables customers of our Studio System and metal binder jetting solutions with minimal additive manufacturing experience or materials expertise to process high-density, complex metal parts entirely in-house without third-party equipment required. Similarly, we provide cleaning and curing solutions for our photopolymer additive manufacturing systems, enabling customers to fully process parts post-print to achieve exceptional material properties, resolution and accuracy. We also provide a range of proprietary and third-party consumables and materials optimized for use with our additive manufacturing systems and designed to enable high-quality parts with consistency.
Broad product portfolio and material library
Every organization has a different challenge or application that drives its consideration of additive manufacturing. We offer our customers a range of solutions spanning multiple price points, throughput levels, operating environments, and technologies to enable businesses to find the solution that solves their specific pain point and achieves their goals across an extensive library of qualified materials. Our broad product portfolio covers a spectrum of use cases, scaling with customer needs from entry-level, office-friendly additive manufacturing systems for low volume production of metal, polymer, composite or biocompatible parts to high-end, industrial additive manufacturing systems for mass production of low-cost metal, polymer, elastomer, ceramic, sand or wood parts. In addition, this portfolio eliminates the need for customers to source products for different applications from multiple third-party vendors, giving us a market advantage relative to competitors with a more limited set of solutions.
Global presence and distribution capabilities
We have developed an industry-leading global distribution network for our additive manufacturing solutions consisting of over 200 resellers covering over 65 countries around the world and within a short drive of a significant portion of worldwide manufacturing sector locations. Our resellers, who have extensive experience across digital modeling, 3D printing, and metal and polymer manufacturing processes, provide marketing, sales, application engineering, and local support services for end users across an array of vertical markets, such as healthcare and dental. They also bring an existing base of customers into which we can drive awareness of and ultimately sell our additive manufacturing solutions. Our direct sales force augments the reach of our global distribution network, serving major accounts and expanding our footprint within multinational and Fortune 500 organizations. To support both our reseller and direct sales channels, we leverage an experienced team of application engineers who help customers identify and develop compelling use cases for additive manufacturing in their organizations to drive adoption of our solutions. We believe this hybrid
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distribution approach allows us to scale across a range of price points, solution complexities and deployment sizes while enabling a tight and ongoing relationship with customers of all sizes.
We have also established adoption centers in each of the Americas, the Europe, the Middle East and Asia, or EMEA region, and the Asia-Pacific, or APAC region, through which we offer sales and marketing and delivery of support and printing services to our customers. These adoption centers provide us with physical presence alongside our reseller locations in or near areas where many global industrial businesses have manufacturing facilities, providing potential customers with the ability to see our additive manufacturing systems in operation and evaluate their production capabilities prior to ordering such solutions to bring production in-house.
Visionary and experienced management team
Our management team has deep operational experience bringing emerging technologies to market across the hardware and software sectors. In engineering, we are led by accomplished and visionary technologists across the additive manufacturing, robotics, and materials science industries, including lead inventors of binder jetting and DLP technologies and an industry authority in powder metallurgy. Our commercialization efforts are managed by individuals with prior successes in building and growing indirect, channel-driven sales organizations.
Our Product Platforms
We offer a comprehensive portfolio of integrated additive manufacturing solutions comprised of hardware, software, materials and services with support for metals, polymers, elastomers, ceramics, sands, composites, wood, and biocompatible materials. Our additive manufacturing systems, which are based on our proprietary technologies, are described below.
Metal Additive Manufacturing Systems
Our metal additive manufacturing systems are designed using sintering-based, powder metallurgy processes, in which metal powder is bound together in a printer and sintered in a furnace to form a dense metal part. Hundreds of metal alloys are available to such powder metallurgy processes, many with well-characterized and high-quality material properties.
The Production System is an industrial manufacturing platform powered by patent-pending SPJ binder jetting technology designed to be the fastest way to 3D print metal parts at scale. The Production System platform consists of two printer models, the P-1 and the P-50, enabling customers to scale from process and materials development in a smaller form factor solution to mass production of low-cost, end-use parts on the same print engine. On the Production System P-50, which commenced shipments during the first quarter of 2022, SPJ technology offers dramatic increases in print speeds up to 100 times those of legacy PBF additive manufacturing technologies. This throughput is reinforced by an open material platform that allows customers to use low-cost, third-party metal injection molding, or MIM, powders. As a result, the Production System P-50 can produce high-resolution parts at costs competitive with conventional mass production techniques for quantities up to hundreds of thousands of units, addressing the needs of original equipment and third-party contract manufacturers seeking cost-effective additive manufacturing solutions. In addition, both Production System printer models feature an inert, chemically inactive processing environment, enabling support for a range of both non-reactive and reactive metals in a controlled fashion while also promoting consistent characteristics and quality across printed parts.
The Shop System platform introduces mid-volume binder jetting with rich feature detail and exceptional surface finish to the machine shop market. With the Shop System, businesses can produce serial batches of hundreds or thousands of complex, end-use metal parts in a fraction of the time and cost of conventional manufacturing and comparably priced additive manufacturing technologies. The Shop System, which can achieve build speeds up to 10 times those of legacy PBF additive manufacturing technologies, also features a configurable build volume from 4 liters to 16 liters designed to scale to a customer’s desired throughput. It is an affordable, turnkey solution that facilitates the full manufacturing process from digital file to sintered metal part, and includes a powder station for part depowdering prior to sintering, closed-loop powder recycling and our proprietary furnace technology with software and profiles optimized for mid-volume production. While the Shop System was initially designed for metal parts production, we also are qualifying and commercializing this solution for new materials that can leverage binder jetting, such as wood and ceramics.
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The X-series platform is designed for serial production binder jet 3D printed metal, ceramic, or composite parts, balancing speed and quality while offering broad material compatibility for a full spectrum of academics, researchers and manufacturers. The X-series consists of three printer models, including the X160Pro, X25Pro and InnoventX. The models differ primarily in print speed and build volume but leverage the same patented Triple ACT technology and advanced, piezoelectric printhead engine to support easy scaling from research and development to volume production with industry-leading final part accuracy, density and part variability as low at 0.3% across large build areas. Each of these printer models also features an open material system and significant process flexibility, enabling the use of a diverse range of ultra-fine, third-party MIM powders. At 160 liters in build volume, the X160Pro is the largest commercially available binder jet system in the market and large enough to batch process investment cast parts for applications in industries such as automotive, aerospace and defense. The X160Pro also features Industry 4.0 cloud connectivity and process-linking capabilities enabled by Siemens MindSphere. The X25Pro features a mid-sized 25-liter build volume, making it large enough to accommodate production of most metal parts manufactured today. The InnoventX is a compact, entry-level binder jetting solution aimed at academics, researchers, and manufacturers seeking to conduct materials research and produce low volumes of functional parts quickly, affordably, and sustainably. It also includes enhanced safety features for reliably producing high-quality parts with excellent surface finish across a wide range of materials. This system’s process flexibility and easy-to-manage build volume of just under 1 liter make it ideal for educating students, use in labs for research and development, or getting started with binder jetting without the need for large volumes of powder.
The Studio System platform, now in its second generation, is designed for office-friendly 3D printing. Integrated through Desktop Metal’s cloud-based Fabricate software, this turnkey, easy-to-use solution delivers a streamlined and automated workflow for producing low volumes of complex metal parts in house via additive manufacturing technology. Through BMD, the Studio System minimizes requirements for special facilities or expensive EHS equipment as compared to legacy PBF additive manufacturing technologies and improves ease-of-use while enabling new features such as use of closed-cell triply periodic minimal surface, or TPMS, infill for lightweight strength. Parts produced using the Studio System 2 also feature our Separable Supports technology, which enables simplified post-processing and support removal relative to legacy PBF additive manufacturing technologies.
We also offer a sintering furnace, that can be paired with the Studio System and our entry-level binder jetting solutions to create turnkey metal additive manufacturing solutions that are simple to install and easy to use. The Desktop Metal furnace is fully-automated, sized to fit through ADA-compliant doors and built using proprietary technology that provides industrial-strength, vacuum-enabled sintering in an office-friendly package. It is designed to achieve temperatures up to 1,400 degrees Celsius and to ensure uniform heating and cooling without the residual stresses introduced into parts by legacy PBF additive manufacturing processes, which can result in poor part performance.
Photopolymer Additive Manufacturing Systems
Our photopolymer additive manufacturing systems are designed using advanced, area-wide photopolymer print processes, such as DLP and CDLM, in which liquid photopolymer resin is cured using light from a high-resolution projector system to produce precision polymer parts with smooth surface finish and properties in line with or exceeding conventionally manufactured thermoplastics.
The Xtreme 8K platform features the largest build area among production-grade DLP systems. It is designed for industrial, high-temperature production of end-use photopolymer parts and uses high-powered light sources coupled with a water-cooled DLP chip for extended life on the factory floor. Leveraging patented Projection Array technology, the Xtreme 8K combines its two high-powered 4K projectors into a single exposure using multi-image calibration to drive power density during curing and enable the high-speed production of exceptionally large photopolymer parts within the 71 liters build envelope without sacrificing quality or accuracy. Projection Array technology, which supports build speeds on the Xtreme 8K up to 100 times those of legacy thermoplastic FFF printers, is also capable of printing parts with up to 16K resolution using patented pixel shifting technology. With the speed and resolution enabled by the Xtreme 8K, businesses can achieve superior price performance for large volumes of end-use parts versus comparable polymer additive manufacturing systems.
The Einstein series, designed for dental professionals, offers key features essential to superior 3D printing in the dental market, including accuracy, speed and versatility. The series consists of three models, including Einstein, Einstein Pro, and Einstein Pro XL, each of which offer progressively larger build volumes up to 5.7 liters, faster build speeds, and higher-resolution printing. All Einstein printers leverage proprietary NanoFit 385 technology built on industrial 385 nanometer projectors to enable dental applications with stunning clarity, exceptional accuracy, and natural looking finishes. The printers are also equipped with Hyperprint technology, which leverages closed-loop processing in combination with a heated resin vat to fabricate a variety of dental applications, such as models,
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dentures and crowns, with improved accuracy, speeds up to 50% faster, and a wider range of materials than predecessor dental photopolymer solutions.
The P4K platform offers a series of advanced DLP printer models designed for volume production in precision applications. With four available build envelopes up to 5.9 liters in volume, the P4K platform leverages industrial 385 nanometer projectors combined with patented pixel tuning technology that uses artificial intelligence to deliver parts with extremely high-quality surface finish. P4K printers eliminate the use of a vat used to hold the liquid photopolymer resin, and instead use a shallow tray filled with the exact volume of resin required for a given print, minimizing waste, saving material costs and making material changeovers fast and easy.
The Envision One platform leverages patented CDLM technology for high-volume production of end-use photopolymer parts at an affordable upfront price, offering exceptional price performance. Envision One printers are built with industrial projectors with 4K resolution and 385 nanometer wavelength that deliver high-intensity light uniformly and with high precision across the entire build surface. Paired with proprietary domeless basement technology for the material tray, which reinforces precision and part accuracy, CDLM technology on the Envision One enables the continuous motion of the build plate to deliver high build speeds and parts with isotropic properties, leading to cost-effective end-use parts. The Envision One platform consists of several models, including a large format solution, the Envision One XL, which supports printing large parts up to 330 millimeters tall, and the Envision One HT, which uses a high-accuracy, closed loop infrared heating system to enable a new generation of high-temperature, high-viscosity resin chemistries with strong functional characteristics.
The D4K Pro platform, designed for jewelry and chairside settings, offers professional-grade photopolymer printing for end-use parts in a desktop form factor. Equipped with an industrial 385 nanometer and 4K resolution projector, the D4K Pro platform uses proprietary DLP technology to deliver exceptionally fast print speeds. The platform offers build envelopes up to 1.4 liters in volume, resolution down to 25 microns, and exceptionally smooth surface finish that minimizes post-processing requirements.
Across each of these platforms, we have a large library of qualified materials suitable for healthcare and dental, consumer products, and industrial applications. In addition, we offer cleaning and curing accessories to facilitate post-processing of photopolymer parts produced on our printer platforms. The PWA 2000 and PWA 2000 XL automated rinsing solution facilitates cleaning uncured resin from parts with the convenience of a removable basket for ease-of-use when dipping or extracting parts from the tank. A selection of available automated programs ensures accurate, and efficient cleaning of delicate and larger, complex parts alike while minimizing liquid use to reduce costs and environmental impact. The PCA 2000 and PCA 4000 are solutions for curing parts printed using our CDLM or DLP platforms and utilize a unique system of ultraviolet light emitting diode (LED) light sources that uses both 385 nanometer wavelengths to deep cure and 405 nanometer wavelengths to achieve smooth surface on each part.
Digital Casting Additive Manufacturing Systems
Our digital casting additive manufacturing systems leverage binder jetting technology to print large-scale molds, mold cores, and investment casting patterns with high precision across a variety of sand materials for foundry applications to enable our customers to innovate through enhanced design solutions and improved turnaround times for their clients.
The S-Max platform is a high-performance digital casting solution designed for fast, precise and reliable production of sand molds and cores for metal casting applications, making it an ideal choice for industrial production of high-complexity castings that range in size for automotive, aerospace, energy, and other heavy industries. The platform consists of two models, the S-Max and S-Max Pro. Both models offer two large job boxes of 1,260 liters each, as well as a fully automated and adjustable printhead that supports a wide range of binder systems, providing the versatility to print cores and molds compatible with a range of ferrous and nonferrous metals. The S-Max printer offers a robust and reliable solution for the majority of our available sand printing binders, including all cold hardening binder systems, making it suitable for a common and wide range of casting materials. The S-Max Pro offers an additional inorganic binder option, which can deliver high-quality aluminum castings popular among automotive foundries. These models also vary in print speed, with the S-Max offering a build rate of up to 100 liters per hour and the S-Max Pro offering faster serial production speeds of up to 125 liters per hour. Designed for high-volume production, the S-Max Pro also leverages Siemens control systems with Industry 4.0 integration, cloud connectivity, and real-time process controls with early print error detection via integrated cameras. It is available as a standalone solution but can also be connected with optional auxiliary equipment to create a fully automated, turnkey production line for 3D sand printing. The S-Max Pro also offers an optional “box-in-box” system that uses transport shuttles for automated loading and removal of build boxes immediately after printing as well as an automated or semi-automated desanding station, which features state-of-the-art PLC controls and integrated sensors to reduce processing time by up
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to 95%, providing customers with the ability to support 24/7 continuous production on up to four S-Max Pro printers. A modular setup allows this system to be extended to robotic removal of cores and finishing, creating greater flexibility and future-proofing customer investment.
The Robotic Additive Manufacturing, or RAM, platform is designed to be the fastest and most flexible robotic 3D printing solution with an initial focus on sand and ceramic 3D printing for digital casting applications. Using patent-pending technology, a print carriage attached to a third-party, multi-axis robot uses high-speed binder jetting technology to deposit, spread, and compact powder and deposit binder in a single pass over the build box to produce high quality components for foundry applications at scale. The RAM platform consists of several standard models, which offer a variety of build envelopes up to 1,529 liters in volume, although the industrial robot and modular print carriage architecture allows configurations for a variety of build sizes, resolutions, accuracies and materials, such as wood or polymers.
The S-Print is an ideal entry-level solution for prototypes and small series production in digital casting applications. With a 160-liter build volume, it combines a compact footprint with the flexibility to use the full range of available sand printing binder systems to accommodate a variety of casting materials for rapid product development and short-run production.
Composite Additive Manufacturing Systems
The Fiber platform offers the world’s first desktop 3D printer to fabricate high-resolution parts with aerospace- and industrial-grade continuous fiber composite tape materials used in industrial Automated Fiber Placement, or AFP, processes. Through proprietary Micro AFP technology, Fiber supports materials up to two times stronger than steel at one-fifth its weight and up to 75 times stiffer and 60 times stronger than standard FFF polymer materials. Micro AFP uses a robotic tool changer architecture in which one printhead deposits a continuous fiber prepreg tape while a second printhead extrudes chopped fiber filament to build high-resolution parts with reinforced sections along critical load paths. To enable applications ranging from consumer electronics to automotive, Fiber is designed to support a number of fiberglass and carbon fiber-reinforced composites, including Polyetheretherketone, or PEEK, Polyetherketoneketone, or PEKK, and Nylon (Polyamide 6, or PA6) composites, which exhibit excellent mechanical properties and are temperature, chemical, and corrosion resistant, and electrostatic discharge, or ESD, compliant.
Biofabrication Additive Manufacturing Systems
The 3D-Bioplotter platform is a versatile and user-friendly biofabrication solution that processes biocompatible materials for potential computer-aided tissue engineering applications such as bone regeneration, cartilage regeneration, soft tissue fabrication, drug release and organ printing. It is one of the most widely referenced biofabrication platforms in the industry today and is being used for groundbreaking medical research and development. Designed to enable flexibility and combinations of different materials and temperatures, the platform leverages a modular architecture, including sterilized heating and cooling cartridges and a robotic tool changer to switch between one of up to five syringes, each of which has individual temperature control, and which use air or mechanical pressure to dispense liquid, melt, paste or gels from a cartridge. The 3D-Bioplotter can fabricate parts using a wide range of open-source and standard materials, from soft hydrogels to polymer melts or hard ceramics and even metals. Software-designed complex inner partners enable researchers and manufacturers to precisely control mechanical properties.
Consumable materials
We sell an array of consumable materials, or consumables, for use with several of our additive manufacturing systems. The sales of these materials provide us with a recurring revenue stream from customers of our additive manufacturing solutions. These materials consist of:
• | Binder jetting materials. For use with our binder jetting platforms, we sell a combination of proprietary binders engineered in-house by our materials team and third-party binders both to support a broad array of MIM alloys, sands and ceramics, and to maximize success through each stage of the binder jetting process, resulting in high-resolution parts with exceptional surface finish and strong material properties. While we offer an open platform that is compatible with third-party powders across many of our binder jetting solutions, we sell a range of powders qualified for use with the Shop System, with numerous additional materials in various stages of qualification. |
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• | DLP and CDLM photopolymer resins. For use with our area-wide photopolymer print platforms, we sell proprietary resins engineered in-house by our materials team to achieve high-performance material properties and support a broad range of applications across healthcare and dental, consumer products and industrial verticals. This extensive library of materials also includes biocompatible resins as well as several Food and Drug Administration, or FDA, cleared resins for use in medical and dental applications. In addition to our proprietary resins, we sell third-party, industry-validated materials that have been qualified for use with our platforms through a selectively open business model. |
• | BMD materials. For use with the Studio System, we sell metal and ceramic materials, including stainless steels, carbon steels, tool steels, titanium and copper. We also continue to develop additional materials to meet our customers’ needs for new applications and vertical markets. These office-friendly materials are delivered in our unique cartridge-based, rod format, which is a key differentiator for the Studio System as it allows for high metal loading and high-force extrusion during printing, resulting in high density parts with strong mechanical properties, as well as quick and easy material changeovers. |
• | Micro AFP materials. For use with Fiber, we sell both continuous and chopped fiber-reinforced composite materials. Fiber’s Micro AFP tape head deposits aerospace- and industrial-grade continuous fiber prepreg tape while the FFF printhead deposits chopped fiber filament. Fiber is designed to carbon fiber and fiberglass reinforcement options along with several thermoplastics, including PEEK, PEKK, and Nylon (PA6). This selection of materials enables a range of customer applications requiring high strength, low weight, temperature or chemical resistance, and ESD compliance. |
• | Bioprinting materials. For use with 3D-Bioplotter, we sell several biocompatible materials for potential use in tissue engineering applications. |
In addition, depending on the product, our consumables may include wear components for our additive manufacturing systems, such as printheads, build plates or material trays, which require replacement after a specified usage amount or in accordance with predetermined replacement cycles, in order to maintain the proper operations of the equipment.
Software
Software is a key component of our additive manufacturing solutions and is at the core of their accessibility and ease-of-use. Built on cloud, desktop, and mobile technologies, our build preparation software applications, Fabricate, Envision One RP, XPrep and Viriprint, streamline the process of setting up prints and provides a cohesive, modern user interface and experience across our product portfolio. In addition to basic features such as automatic and custom support generation, part scaling and positioning, our software also enables the unique features of each of our additive manufacturing systems, such as the ability to configure the placement and orientation of continuous fiber tape for Fiber, to adjust closed-cell infill for the Studio System, to leverage automated dental model preparation for Einstein printers and to densely nest multiple parts into a build across all our binder jetting, DLP and CDLM platforms. These software applications natively read commonly used 3D CAD file formats as well as traditional 3D printing file formats, such as STLs.
Our systems also feature onboard, color touchscreen controls and a user-friendly experience consistent with our build preparation software applications. For our cloud-enabled systems, these onboard controls facilitate remote over-the-air updates delivered directly to the equipment, allowing for continuous improvement via new features and enhancements. Several of our systems are integrated with third-party internet-of-things platforms such as Siemens Mindsphere, which enables real-time, cloud-based monitoring of print status, including live information on key system metrics and alerts for out-of-range issues, and for which we are developing closed-loop quality assurance systems to automatically detect and correct errors during printing.
In addition, we offer Live Sinter, a proprietary sintering process simulation software designed to improve part accuracy, reduce sintering support structures and associated costs and minimizing printing trial and error for binder jet additive manufacturing processes. This software dynamically simulates the results of the sintering process by leveraging a GPU-accelerated, multi-physics engine in combination with finite element analysis, or FEA, and artificial intelligence. It also automates the compensation of geometries for the distortion and shrinkage that typically occurs during sintering, further optimizing the printing process to create high-accuracy parts.
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Desktop Labs: Our Dental and Biofabrication Platform
Dental and biofabrication represent important emerging killer apps for additive manufacturing because the parts in these market segments are typically patient-specific. Traditional production methods in these industries include labor- and resource-intensive conventional manufacturing processes. As a result, we believe this market is poised to rapidly adopt additive manufacturing. To address these applications and accelerate their adoption of additive manufacturing, we are building Desktop Labs, a produced parts offering under Desktop Health that vertically integrates into digital solutions, design services and parts production capabilities. To support the Desktop Labs platform, we have acquired several businesses engaged in the production of a range of high-performance dental parts and devices, including, but not limited to, restorations such as dentures or crowns, splints and guards, and surgical guides.
We intend to establish a competitive advantage for Desktop Labs relative to dental industry peers by elevating the dental clinician practice experience and the standard of care through improved quality of restorations, faster turnaround times, and customized chairside solutions enabled by high-throughput 3D printers, breakthrough materials, and innovative software workflows. We are focused on rapidly digitizing Desktop Labs properties using these proprietary additive manufacturing solutions to enhance their profitability, expanding margins through efficient production capabilities while delivering improved patient outcomes. Through additive manufacturing-enabled digital workflows, Desktop Labs can not only realize significant cost reductions within key restorative dental device categories but also provide end-to-end solutions for private dental practices, dental services organizations (DSOs), dental hospitals, dental institutions, and manufacturing support for dental labs. In particular, we intend to use such additive manufacturing-enabled digital workflows and technology-enhanced support services to facilitate the expansion of the chairside printing ecosystem inside dental practices. These efforts will create new, digital-first treatment options for dental clinicians, resulting in reductions in patient visits, dental device remakes, real-time issue resolution, and an overall positive impact on dental practice economics, efficiency, and resource management.
Over time, we also intend to leverage this platform to provide biofabrication solutions leveraging proprietary materials currently in the advanced stages of research and development. We believe Desktop Labs can develop into an industry-leading business that provides printers, materials and end-use parts for dental and biofabrication customers with additive manufacturing at its core.
Customers
Our customers range from small and medium sized enterprises to Fortune 500 companies and represent a broad array of industries, including automotive, aerospace, healthcare, consumer products, heavy industry, machine design, research and development, and others. No single customer has accounted for more than 10% of our total revenue in 2021. One customer accounted for 24% of total accounts receivable in 2021.
Research and Development
The additive manufacturing market is undergoing rapid technological advancements across hardware, software, and materials. We invest significant resources into ongoing research and development programs because we believe our ability to maintain and extend our market position depends, in part, on breakthrough technologies that offer a unique value proposition for our customers and differentiation versus our competitors. Our research and development team, which is responsible for both the development of new products and improvements to our existing product portfolio, consists of talented and dedicated engineers, technicians, scientists, and professionals with experience from a wide variety of the world’s leading additive manufacturing, robotics, materials, and technology organizations. Our primary areas of focus in research and development include, but are not limited to:
• | Printing technologies for metals, polymers, elastomers, ceramics, sands, composites, wood and biocompatible materials, focused on driving improvements to speed, ease of use, and part size; |
• | Binder and resin formulation to enhance the support for additional materials and new applications; |
• | Sintering technology and powder metallurgy techniques to increase materials compatibility and part quality; |
• | Powder processing technology to ensure reliable and repeatable printing at scale; and |
• | Simulation and artificial intelligence-based software tools to maximize part quality and accuracy. |
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Sales and Marketing
We sell our additive manufacturing solutions through a global distribution network consisting of over 200 resellers, covering over 65 countries around the world. Our resellers purchase and resell our products to our customers, for whom they also perform installation, application engineering, and local support and maintenance services, with backup services provided by our internal applications engineering and support teams. Our resellers are overseen by Desktop Metal regional channel managers, and most operate on an exclusive basis with respect to the additive manufacturing technologies that we offer. Many resellers offer third-party digital manufacturing software and/or CNC machines in their respective regions, which provides an opportunity to cross-sell our additive manufacturing solutions to a broad, existing customer base that has purchased these other products. Our direct sales force augments the reach of our distribution network, focusing primarily on selling our higher priced solutions, cross-selling our solutions across materials, serving major accounts and expanding our footprint within multinational or Fortune 500 organizations. We believe this hybrid distribution approach not only broadens our global reach, but also creates a tight and ongoing relationship between us and our customers.
Our marketing strategies are focused on supporting sales growth by (i) driving awareness; (ii) developing comprehensive sales and marketing content, tools, and campaigns for each stage of the sales process; and (iii) scaling those campaigns via our global distribution network and direct sales force. We drive awareness for Desktop Metal, our additive manufacturing solutions, and our customers’ successes through public relations and communications efforts that span mainstream, business, and trade press across the manufacturing sector generally and in key verticals such as automotive, aerospace, healthcare, consumer products, heavy industry and machine design. Our internal marketing team develops compelling, high-fidelity content in multiple formats and delivery methods to facilitate marketing campaigns and sales enablement.
Manufacturing and Suppliers
Depending on the platform and volume requirements, our hardware products are either manufactured in-house or via third-party contract manufacturers with international quality certifications, such as ISO 9001, ISO 13485, and ISO/TS 16949. We design our products and internally manufacture initial engineering prototypes and low to medium volumes of products where applicable. Our internal manufacturing and supply chain teams work collaboratively with our engineering department and our third-party contract manufacturers to scale up the prototypes for commercialization through a phase gate product launch process. Our third-party contract manufacturers provide a variety of services including sourcing off-the-shelf components, manufacturing custom components/assemblies, final product assembly and integration, end of line testing and quality assurance per our specifications. Key consumables used in various print processes, such as proprietary resins and binders, are developed and produced either in-house or with core partners to ensure protection of intellectual property and production that meets our formula and specifications.
Across our solutions, we initially manage the supply chain for key components and materials, and then set up supply agreements to ensure stable supply and redundancy where applicable. When working with third-party contract manufacturers, depending on the criticality of the component, our internal supply chain group may continue to manage the supplier relationship throughout the life of the product. In addition, commodity hardware items are managed by our contract manufacturers’ sourcing teams under a vendor list approved by us to leverage the buying power of their global scale. Commodity consumables are qualified and purchased directly from known industry leaders and provided to the customer to properly support equipment operation. Inventory levels are managed with our manufacturing partners to ensure an adequate supply is on hand to meet business forecasts with the ability to produce at multiple locations.
Our raw materials and components are derived from several suppliers and, except as set forth below, the loss of an individual supplier would not have a material adverse effect on our business. Each of our binder jet additive manufacturing systems has a single supplier of certain printhead components, and several of our photopolymer DLP systems has a single supplier of certain projector components. While we believe that these component suppliers are each replaceable, in the event of the loss of any one of these suppliers, we could experience delays and interruptions that might adversely affect the financial performance of our business.
Intellectual Property
Our ability to drive innovation in the additive manufacturing market depends in part upon our ability to protect our core technology and intellectual property. We attempt to protect our intellectual property rights, both in the United States and abroad,
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through a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure and invention assignment agreements with our consultants and employees and through nondisclosure agreements with our vendors and business partners. Unpatented research, development, know-how and engineering skills make an important contribution to our business, but we pursue patent protection when we believe it is possible and consistent with our overall strategy for safeguarding intellectual property.
As of December 31, 2021, we own or co-own over 650 patents and pending patent applications in the United States and in various foreign countries. Desktop Metal’s patents and patent applications are directed to, among other things, additive manufacturing and related technologies.
Human Capital
Our employees are critical to our success. As of December 31, 2021, we had 1,370 employees. We also engage numerous consultants and contractors to supplement our permanent workforce. A majority of our employees are engaged in research and development and related functions. To date, we have not experienced any work stoppages and consider our relationship with our employees to be in good standing. None of our employees are subject to a collective bargaining agreement or represented by a labor union.
We believe that developing a diverse, equitable and inclusive culture is critical to continuing to attract and retain the top talent necessary for our long-term success and strategy. We value diversity at all levels and continue to focus on extending our diversity and inclusion initiatives across our entire workforce, including the expansion of individuals with diverse backgrounds in leadership.
Our principles of accountability, honesty, integrity and customer-focused, serve as our cultural pillars. We focus our efforts on creating a collaborative environment where our colleagues feel respected and valued. We provide our employees with competitive compensation, opportunities for equity ownership and a robust employment package, including health care, disability and long-term planning insurance, retirement planning and paid time off. In addition, we regularly interact with our employees to gauge employee satisfaction and identify areas of focus.
Government Regulations
We are subject to various laws, regulations and permitting requirements of federal, state and local authorities, including related to environmental, health and safety; anti-corruption and export controls; and FDA regulation. We believe that we are in material compliance with all such laws, regulations and permitting requirements.
On November 4, 2021, the Audit Committee of the Board of Directors engaged a third party to conduct an independent internal investigation as a result of a whistleblower complaint relating to manufacturing and product compliance practices at our EnvisionTEC US LLC facility in Dearborn, Michigan. In response, and to address the issues identified in the investigation, we implemented changes in the management of the Dearborn facility and improvements in manufacturing and compliance policies and procedures for the applicable products. Following notification to the FDA, we also initiated voluntary recalls of certain shipments of Flexcera resins and the PCA4000 curing box. The investigation is now closed, and the matters subject to the investigation and our responsive actions did not have, and are not anticipated to have, a material impact on our financial statements or business.
Environmental Matters
We are subject to domestic and foreign environmental laws and regulations governing our operations, including, but not limited to, emissions into the air and water and the use, handling, disposal and remediation of hazardous substances. A certain risk of environmental liability is inherent in our production activities.
These laws and regulations govern, among other things, the generation, use, storage, registration, handling and disposal of chemicals and waste materials, the presence of specified substances in electrical products, the emission and discharge of hazardous materials into the ground, air or water, the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and other waste materials and the health and safety of our employees. We are required to obtain environmental permits from governmental authorities for certain operations.
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The export of our products internationally from our production facilities subjects us to environmental laws and regulations concerning the import and export of chemicals and hazardous substances such as TSCA and REACH. These laws and regulations require the testing and registration of some chemicals that we ship along with, or that form a part of, our systems and other products.
See “Risk Factors — We are subject to environmental, health and safety laws and regulations related to our operations and the use of our additive manufacturing systems and consumable materials, which could subject us to compliance costs and/or potential liability in the event of non-compliance” for additional information about the environmental, health and safety laws and regulations that apply to our business.
Export and Trade Matters
We are subject to anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as the laws of the countries where we do business. We are also subject to various trade restrictions, including trade and economic sanctions and export controls, imposed by governments around the world with jurisdiction over our operations. For example, in accordance with trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce, we are prohibited from engaging in transactions involving certain persons and certain designated countries or territories, including Cuba, Iran, Syria, North Korea and the Crimea Region of Ukraine. In addition, our products are subject to export regulations that can involve significant compliance time and may add additional overhead cost to our products. In recent years the United States government has a renewed focus on export matters. For example, the Export Control Reform Act of 2018 and regulatory guidance thereunder have imposed additional controls and may result in the imposition of further additional controls, on the export of certain “emerging and foundational technologies.” Our current and future products may be subject to these heightened regulations, which could increase our compliance costs.
See “Risk Factors — Failure of our global operations to comply with anti-corruption laws and various trade restrictions, such as sanctions and export controls, could have an adverse effect on our business” for additional information about the environmental, health and safety laws and regulations that apply to our business.
Medical Devices
Our Desktop Health products and services, and its healthcare provider customers and distributors, are and will be subject to extensive federal, state, local and foreign regulations (including those of the U.S. Food and Drug Administration and its foreign equivalents), including, without limitation, regulations with respect to approvals and clearances for products, design, manufacturing and testing, labeling, marketing, sales, quality control, and privacy.
See “Risk Factors — Compliance with regulations for medical devices and solutions is expensive and time-consuming, and failure to obtain or maintain approvals, clearances, or compliance could impact financial projections and/or subject us to penalties or liabilities” for additional information about the environmental, health and safety laws and regulations that apply to our business.
Competition
Desktop Metal has experienced, and expects to continue to experience, competition from a number of companies, including other vendors of additive manufacturing systems. A variety of additive manufacturing technologies compete with our proprietary technologies, including, but not limited to: binder jetting, FFF, DLP, SLA, selective laser sintering, or SLS, PBF, and directed energy deposition, or DED.
We believe that we provide the only additive manufacturing solutions addressing customer requirements around both productivity and ease of use. We are well-positioned to compete in our industry based on these core competencies and on the following competitive strengths:
• | Highest rates of parts production among competing additive manufacturing systems for a given layer resolution, enabled by our proprietary SPJ, Triple ACT, CDLM and Projection Array technologies; |
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• | Extensive library of supported materials, including metals, polymers, elastomers, ceramics, sands, composites, wood and biocompatible materials, with additional materials in the process of qualification for use with our additive manufacturing systems; |
• | Cost-effective, industrial sintering technology designed to be office-friendly, easily serviceable by a global distribution network, and more gas and power efficient than industrial sintering equipment; |
• | Integrated software experiences with a cohesive, modern user interface for efficient print preparation and simplified system operations; and |
• | Global distribution capabilities in over 65 countries around the world, featuring world-class levels of support and applications engineering services. |
In addition, our broad product portfolio offers customers a variety of capabilities and price points that can scale with customer needs, and we believe that this enables us to compete across a wide range of vertical markets. It also eliminates the need for customers to source products for different applications from multiple third-party vendors, giving us a significant market advantage relative to vendors with a more limited product portfolio.
We also compete with established organizations selling conventional manufacturing solutions and services, such as casting, injection molding, forming, extrusion and CNC machining. Such businesses typically primarily address volume production applications. We believe we compete favorably against such offerings and are well-positioned to drive adoption of additive manufacturing across an expanding set of applications given the benefits our solutions provide around lead time reductions, improved design flexibility and performance, supply chain efficiencies, and part costs, which we expect to decrease over time as our technologies and system productivity improves as a result of our research and development efforts.
Company Formation
Trine was a blank check company incorporated under the laws of the State of Delaware in September 2018 and Legacy Desktop Metal was incorporated under the laws of the State of Delaware in 2015. On December 9, 2020, we consummated the Business Combination and Trine was renamed to Desktop Metal, Inc. Our principal executive offices are located at 63 Third Avenue in Burlington, Massachusetts 01803. Our website address is www.desktopmetal.com. We have included our website address in this report solely as an inactive textual reference.
Available Information
Copies of the periodic reports that we file with the Securities and Exchange Commission, or SEC, such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any other filings may be obtained by the public, free of charge, by visiting the Investors section of our website at ir.desktopmetal.com, or by contacting our Investor Relations department at our office address listed above. The SEC also maintains a website that contains periodic reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.
Item 1A. Risk Factors
Summary of Risk Factors
Our business is subject to numerous risks. Below is a summary of the principal factors that could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found under the heading “Risk Factors” immediately following this section and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the SEC, before making an investment decision regarding our Class A common stock.
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• | We may experience significant delays in the design, production and launch of our additive manufacturing solutions, and we may be unable to successfully commercialize products on our planned timelines. |
• | If demand for our products does not grow as expected, or if market adoption of additive manufacturing does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected. |
• | The additive manufacturing industry in which we operate is characterized by rapid technological change, which requires us to continue to develop new products and innovations to meet constantly evolving customer demands and which could adversely affect market adoption of our products. |
• | As part of our growth strategy, we intend to acquire or make investments in other businesses, patents, technologies, products or services. Our efforts to do so, or our failure to do so successfully could disrupt our business and have an adverse impact on our financial condition. |
• | We may experience difficulties in integrating the operations of ExOne, EnvisionTEC and other acquired companies into our business and in realizing the expected benefits of these acquisitions. |
• | We are an early-stage company with a history of losses. We have not been profitable historically and may not achieve or maintain profitability in the future. |
• | Future sales, or the perception of future sales, of our Class A common stock by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline. |
Risk Factors
Our business is subject to numerous risks. You should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form 10-K before making an investment decision regarding our Class A common stock. Our business, financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our Class A common stock could decline, and you could lose all or part of your investment. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
Risks Related to Our Business and Industry
We may experience significant delays in the design, production and launch of our additive manufacturing solutions, and we may be unable to successfully commercialize products on our planned timelines.
Several of our announced additive manufacturing solutions are yet to be commercially released. There are often delays in the design, testing, manufacture and commercial release of new products, and any delay in the launch of our products could materially damage our brand, business, growth prospects, financial condition and operating results. Even if we successfully complete the design, testing and manufacture for one or all of our products under development, we may fail to develop a commercially successful product on the timeline we expect for a number of reasons, including:
• | misalignment between the products and customer needs; |
• | lack of innovation of the product; |
• | failure of the product to perform in accordance with the customer’s expectations or industry standards; |
• | ineffective distribution and marketing; |
• | delay in obtaining any required regulatory approvals; |
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• | unexpected production costs; or |
• | release of competitive products. |
Our success in the market for the products we develop will depend largely on our ability to prove our products’ capabilities in a timely manner. Upon demonstration, our customers may not believe that our products and/or technology have the capabilities they were designed to have or that we believe they have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with another larger and more established company or may take longer than expected to make the decision to order our products. Significant revenue from new product investments may not be achieved for a number of years, if at all. If the timing of our launch of new products and/or of our customers’ acceptance of such products is different than our assumptions, our revenue and results of operations may be adversely affected.
We may experience significant delays or other obstacles in the design, production, launch and/or maintenance of produced parts offerings, and we may be unable to successfully commercialize said offerings.
We are building out produced parts offerings for customers, and produced parts is an existing offering of some of our recently-acquired businesses. These offerings present similar challenges and risks to those outlined herein with respect to the design, production, launch and profitability of new additive manufacturing solutions. We have a limited history operating in the direct manufacturing and produced parts businesses, and as a result we may face challenges in designing or delivering parts that meet customer specifications, both on time and cost-effectively. Additionally, our produced parts in the healthcare and dental industry may be subject to regulatory approvals and controls, which may delay the design, production or launch of products. In particular, we may fail to develop commercially successful produced parts offerings if we are unable to meet customer needs or industry standards, if we fail to meet our desired gross margins or customer price expectations, or if our marketing and distribution strategy proves ineffective. If we are unsuccessful in establishing such offerings, sales of our additive manufacturing solutions and our overall operating results could suffer.
Our business activities may be disrupted due to the ongoing impact of the COVID-19 pandemic.
We face various risks and uncertainties related to the ongoing impact of the COVID-19 pandemic, including the delta and omicron variants, recent resurgences, public health measures and related government-imposed restrictions. The COVID-19 pandemic has led to disruption and volatility in the global economy and capital markets, which increases the cost of capital and adversely impacts access to capital. Government-enforced travel bans and business closures around the world have significantly impacted our ability to sell, install and service our additive manufacturing systems at customers around the world. It has, and may continue to, disrupt our third-party contract manufacturers and supply chain. We currently anticipate customer payment delays for our products which could negatively impact our results of operations. We also expect some delays in installation of our products at customers’ facilities, which could lead to postponed revenue recognition for those transactions. In addition, installation delays could prevent us from achieving anticipated consumables revenues due to systems being put into operation later, or at lower utilization, than expected. Furthermore, if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, remote working or other restrictions in connection with the COVID-19 pandemic, our operations will likely be adversely impacted.
If the COVID-19 pandemic continues for a prolonged duration, we or our customers may be unable to perform fully on our contracts, which will likely result in increases in costs and reduction in revenue. These cost increases may not be fully recoverable or adequately covered by insurance. The long-term effects of COVID-19 to the global economy and to us are difficult to assess or predict and may include a further decline in the market prices of our products, risks to employee health and safety, risks for the deployment of our products and services and reduced sales in geographic locations impacted. Any prolonged restrictive measures put in place in order to control COVID-19 or other adverse public health developments in any of our targeted markets may have a material and adverse effect on our business operations and results of operations.
Changes in our product mix may impact our gross margins and financial performance.
Our financial performance may be affected by the mix of products and services we sell during a given period. Our products are sold, and will continue to be sold, at different price points. Sales of certain of our products have, or are expected to have, higher gross margins than others. If our product mix shifts too far into lower gross margin products, and we are not able to sufficiently reduce the
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engineering, production and other costs associated with those products or substantially increase the sales of our higher gross margin products, our profitability could be reduced. Additionally, the introduction of new products or services may further heighten quarterly fluctuations in gross profit and gross profit margins due to manufacturing ramp-up and start-up costs. We may experience significant quarterly fluctuations in gross profit margins or operating income or loss due to the impact of the mix of products, channels or geographic areas in which we sell our products from period to period. Our financial performance also depends on the portion of our produced parts revenue supplied using additive manufacturing processes, which may enable higher gross margins and operational efficiencies as compared to conventional manufacturing technologies.
If we fail to meet our customers’ price expectations, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer.
Demand for our product lines is sensitive to price. We believe our competitive pricing has been an important factor in our results to date. Therefore, changes in our pricing strategies can have a significant impact on our business and ability to generate revenue. Many factors, including our production and personnel costs and our competitors’ pricing and marketing strategies, can significantly impact our pricing strategies. If we fail to meet our customers’ price expectations in any given period, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer.
If demand for our products does not grow as expected, or if market adoption of additive manufacturing does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected.
The industrial manufacturing market, which today is dominated by conventional manufacturing processes that do not involve 3D printing technology, is undergoing a shift towards additive manufacturing. We may not be able to develop effective strategies to raise awareness among potential customers of the benefits of additive manufacturing technologies or our products may not address the specific needs or provide the level of functionality or economics required by potential customers to encourage the continuation of this shift towards additive manufacturing. If additive manufacturing technology does not continue to gain broader market acceptance as an alternative to conventional manufacturing processes, or does so more slowly than anticipated, or if the marketplace adopts additive manufacturing technologies that differ from our technologies, we may not be able to increase or sustain the level of sales of our products, and our operating results would be adversely affected as a result.
Declines in the prices of our products and services, or in our volume of sales, together with our relatively inflexible cost structure, may adversely affect our financial results.
Our business is subject to price competition. Such price competition may adversely affect our results of operation, especially during periods of decreased demand. Decreased demand also adversely impacts the volume of our systems sales. If our business is not able to offset price reductions resulting from these pressures, or decreased volume of sales due to contractions in the market, by improved operating efficiencies and reduced expenditures, then our operating results will be adversely affected.
Certain of our operating costs are fixed and cannot readily be reduced, which diminishes the positive impact of our restructuring programs on our operating results. To the extent the demand for our products slows, or the additive manufacturing market contracts, we may be faced with excess manufacturing capacity and related costs that cannot readily be reduced, which will adversely impact our financial condition and results of operations.
Our business model is predicated, in part, on building a customer base that will generate a recurring stream of revenues through the sale of our consumables and service contracts. If that recurring stream of revenues does not develop as expected, or if our business model changes as the industry evolves, our operating results may be adversely affected.
Our business model is dependent, in part, on our ability to maintain and increase sales of our proprietary consumables and service contracts as they generate recurring revenues. Existing and future customers of our systems may not purchase our consumables or related service contracts at the rate we expect for certain product lines or at the same rate at which customers currently purchase those consumables and services. In addition, our entry-level systems focused on low-volume production generally use a lower volume of consumables relative to our volume throughput systems focused on high-volume production. If our current and future customers purchase a lower volume of our consumable materials or service contracts, or if our entry-level systems represent an increasing percentage of our future installed customer base, resulting overall in lower purchases of consumables and service contracts
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on average than our current installed customer base or than we expect, our recurring revenue stream relative to our total revenues would be reduced and our operating results would be adversely affected.
Reservations for our Production System P-50 solution may not convert to purchase orders.
Prior to commencing shipments of our Production System P-50 in the first quarter of 2022, we accepted reservations for the product, most of which are accompanied by a financial deposit. Given the anticipated lead times between reservations and the date of delivery of the Production System P-50s, there is a risk that customers who have placed reservations may ultimately decide not to convert such reservations into purchase orders and take delivery of their reserved Production System P-50 due to potential changes in customer preferences, competitive developments or other factors. As a result, no assurance can be made that reservations will result in the purchase of our Production System P-50s, and any such failure to convert these reservations could harm our business, prospects, financial condition and operating results.
Defects in new products or in enhancements to our existing products that give rise to product returns or warranty or other claims could result in material expenses, diversion of management time and attention and damage to our reputation.
Our additive manufacturing solutions are complex and may contain undetected defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after a machine has been used. This could result in delayed market acceptance of those products or claims from resellers, customers or others, which may result in litigation, increased end user warranty, support and repair or replacement costs, damage to our reputation and business, or significant costs and diversion of support and engineering personnel to correct the defect or error. We may from time to time become subject to warranty or product liability claims related to product quality issues that could lead us to incur significant expenses.
We attempt to include provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future.
The sale and support of our products entails the risk of product liability claims. Any product liability claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, damage to our business and reputation and brand, and cause us to fail to retain existing customers or to fail to attract new customers.
Our operations could suffer if we are unable to attract and retain key management or other key employees.
We believe our success has depended, and continues to depend, on the efforts and talents of our senior management and other key personnel, including, in particular, our Co-Founder, Chief Executive Officer, and Chairman, Ric Fulop. Our executive team is critical to the management of our business and operations, as well as to the development of our strategy. Members of our senior management team may resign at any time. The loss of the services of any members of our senior management team, especially Mr. Fulop, could delay or prevent the successful implementation of our strategy or our commercialization of new applications for our systems or other products, or could otherwise adversely affect our ability to manage our company effectively and carry out our business plan. There is no assurance that if any senior executive leaves in the future, we will be able to rapidly replace him or her and transition smoothly towards his or her successor, without any adverse impact on our operations.
To support the continued growth of our business, we must also effectively recruit, hire, integrate, develop, motivate and retain additional new employees. High demand exists for senior management and other key personnel (including scientific, technical, engineering, financial and sales personnel) in the additive manufacturing industry, and there can be no assurance that we will be able to retain our current key personnel. We experience intense competition for qualified personnel. While we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. Moreover, new employees may not become as productive as we expect since we may face challenges in adequately integrating them into our workforce and culture. If we cannot attract and retain sufficiently qualified technical employees for our research product development activities, as well as experienced sales and marketing personnel, we may be unable to develop and commercialize new products or new applications for existing products. Furthermore, possible shortages of key personnel, including engineers, in the regions surrounding our Boston facility could require us to pay more to hire and retain key personnel, thereby increasing our costs. Since March 2020, we have had many employees working remotely to protect the health and safety of our employees, contractors, customers and visitors. We also
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shifted customer, industry and other stakeholder events to virtual-only experiences, and may similarly alter, postpone or cancel other events in the future. Given our limited history with remote operations, the long-term impacts are uncertain.
Departing employees’ knowledge of our business and industry can be extremely difficult to replace and provides their future employers with a competitive advantage. Where applicable law permits, we generally enter into non-competition agreements with our employees. These agreements prohibit our employees from competing directly with us or working for our competitors or clients while they work for us, and in some cases, for a limited period after they cease working for us. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work, and it may be difficult for us to restrict our competitors from benefiting from the expertise that our former employees or consultants developed while working for us. If we cannot demonstrate that our legally protectable interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
If we fail to grow our business as anticipated, our net sales, gross margin and operating margin will be adversely affected. If we grow as anticipated but fail to manage our growth and expand our operations accordingly, our business may be harmed and our results of operation may suffer.
Over the past several years, we have experienced rapid growth, and we are attempting to continue to grow our business substantially. To this end, we have made, and expect to continue to make, significant investments in our business, including investments in our infrastructure, technology, marketing and sales efforts. These investments include dedicated facilities expansion and increased staffing, both domestic and international. If our business does not generate the level of revenue required to support our investment, our net sales and profitability will be adversely affected.
Our ability to effectively manage our anticipated growth and expansion of our operations will also require us to enhance our operational, financial and management controls and infrastructure, human resources policies and reporting systems. These enhancements and improvements will require significant capital expenditures, investments in additional headcount and other operating expenditures and allocation of valuable management and employee resources. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and expansion. There are no guarantees we will be able to do so in an efficient or timely manner, or at all.
We may experience significant delays or obstacles to realizing the success of our newly-launched Desktop Health business line.
In March 2021, we launched our Desktop Health business, which aims to leverage our proprietary additive manufacturing technologies and materials to grow the market for existing applications in the healthcare and dental markets and identify, develop and/or commercialize future solutions for personalized patient care spanning dentistry, orthodontics, dermatology, orthopedics, cardiology, plastic surgery and printed regenerative tissues and grafts. This business operates in a highly competitive space which may make it difficult for us to implement business plans and expectations and identify and realize opportunities. In addition, this business and its technology, products, materials and applications may be subject to strict regulatory requirements in the United States and other countries. The regulatory approval or clearance process may be lengthy and costly, and regulatory requirements may impact the timing of, or our ability to, commercialize the regulated technology, products, materials and applications. The success of this business will also depend on our ability to attract, hire and retain qualified personnel, establish sales, marketing and distribution infrastructure, and establish and maintain supply and manufacturing relationships.
Our existing and planned global operations subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. Our business is subject to risks associated with selling machines and other products in non-United States locations.
Our products and services are distributed in more than 65 countries around the world, and we derive a substantial percentage of our sales from these international markets. In 2021, we derived approximately 32% of our revenues from countries outside the United States. Accordingly, we face significant operational risks from doing business internationally.
Our operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction risks. We incur currency transaction risks if we were to enter into either a purchase or a sale transaction using a different currency from the currency in which we report revenues. In such cases we may suffer an exchange loss because we do not currently engage in currency swaps or other currency hedging strategies to address this risk. As we realize our strategy to expand
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internationally, our exposure to currency risks may increase. Given the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have an adverse effect on our results of operations.
Other risks and uncertainties we face from our global operations include:
• | difficulties in staffing and managing foreign operations; |
• | limited protection for the enforcement of contract and intellectual property rights in certain countries where we may sell our products or work with suppliers or other third parties; |
• | potentially longer sales and payment cycles and potentially greater difficulties in collecting accounts receivable; |
• | costs and difficulties of customizing products for foreign countries; |
• | challenges in providing solutions across a significant distance, in different languages and among different cultures; |
• | laws and business practices favoring local competition; |
• | being subject to a wide variety of complex foreign laws, treaties and regulations and adjusting to any unexpected changes in such laws, treaties and regulations; |
• | specific and significant regulations, including the European Union’s General Data Protection Regulation, or GDPR, which imposes compliance obligations on companies who possess and use data of EU residents; |
• | uncertainty and resultant political, financial and market instability arising from the United Kingdom’s exit from the European Union; |
• | compliance with U.S. laws affecting activities of U.S. companies abroad, including the U.S. Foreign Corrupt Practices Act; |
• | tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets; |
• | operating in countries with a higher incidence of corruption and fraudulent business practices; |
• | changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions, competition, corporate practices and data privacy concerns; |
• | potential adverse tax consequences arising from global operations; |
• | seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and at year end globally; |
• | rapid changes in government, economic and political policies and conditions; and |
• | political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events. |
In addition, additive manufacturing has been identified by the U.S. government as an emerging technology and is currently being further evaluated for national security impacts. We expect additional regulatory changes to be implemented that will result in increased and/or new export controls related to 3D printing technologies, components and related materials and software. These changes, if implemented, may result in our being required to obtain additional approvals and/or licenses to sell 3D printers in the global market.
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Additionally, we have teams that are engaged in marketing, selling, and supporting our products internationally, and we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining international employees, particularly managers and other members of our international sales team, we may experience difficulties in sales productivity in international markets.
Our failure to effectively manage the risks and uncertainties associated with our global operations could limit the future growth of our business and adversely affect our business and operating results.
In the future, some of our arrangements for additive manufacturing solutions may contain customer-specific provisions that may impact the period in which we recognize the related revenues under GAAP.
Some customers that purchase additive manufacturing solutions from us may require specific, customized factors relating to their intended use of the solution or the installation of the product in the customers’ facilities. These specific, customized factors are occasionally required by the customers to be included in our commercial agreements relating to the purchases. As a result, our responsiveness to our customers’ specific requirements has the potential to impact the period in which we recognize the revenue relating to that additive manufacturing system sale.
Similarly, some of our customers must build or prepare facilities to install a subset of our additive manufacturing solutions, and the completion of such projects can be unpredictable, which can impact the period in which we recognize the revenue relating to that additive manufacturing solution sale.
We rely on our information technology systems to manage numerous aspects of our business and a disruption of these systems could adversely affect our business.
We rely on our information technology systems to manage numerous aspects of our business, including to efficiently purchase products from our suppliers, provide procurement and logistic services, ship products to our customers, manage our accounting and financial functions, including our internal controls, and maintain our research and development data. Our information technology systems are an essential component of our business and any disruption could significantly limit our ability to manage and operate our business efficiently. A failure of our information technology systems to perform properly could disrupt our supply chain, product development and customer experience, which may lead to increased overhead costs and decreased sales and have an adverse effect on our reputation and our financial condition. In addition, during the COVID-19 pandemic, a substantial portion of our employees have conducted work remotely, making us more dependent on potentially vulnerable communications systems and making us more vulnerable to cyberattacks.
Although we take steps and incur significant costs to secure our information technology systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, our security measures may not be effective and, our systems may be vulnerable to damage or interruption. Disruption to our information technology systems could result from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war, terrorism and usage errors by our employees.
Our reputation and financial condition could be adversely affected if, as a result of a significant cyber-event or otherwise:
• | our operations are disrupted or shut down; |
• | our confidential, proprietary information is stolen or disclosed; |
• | we incur costs or are required to pay fines in connection with stolen customer, employee or other confidential information; |
• | we must dedicate significant resources to system repairs or increase cyber security protection; or |
• | we otherwise incur significant litigation or other costs. |
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If our computer systems are damaged or cease to function properly, or, if we do not replace or upgrade certain systems, we may incur substantial costs to repair or replace them and may experience an interruption of our normal business activities or loss of critical data. Any such disruption could adversely affect our reputation and financial condition.
Additionally, some of the companies we acquire may not have the same level of information technology systems which may require that we invest significant resources to get those systems to the level of security we require.
We also rely on information technology systems maintained by third parties, including third-party cloud computing services and the computer systems of our suppliers for both our internal operations and our customer-facing infrastructure related to our additive manufacturing solutions. These systems are also vulnerable to the types of interruption and damage described above but we have less ability to take measures to protect against such disruptions or to resolve them if they were to occur. Information technology problems faced by third parties on which we rely could adversely impact our business and financial condition as well as negatively impact our brand reputation.
If we fail to implement or are delayed in the implementation of our new ERP system platform, we may not be able to effectively transact our business or produce our financial statements on a timely basis and without incurrence of additional costs, which would adversely affect our business, results of operations and cash flows.
We are currently implementing Oracle Enterprise Resource Planning, or ERP, to manage enterprise functions for our significant subsidiaries. This integration involves significant complexity, requiring us to move and reconfigure all of our current system processes, transactions, data and controls to a new platform. Due to this complexity and the scope and volume of changes involved in this implementation, we may experience delays and higher than planned resource needs in our migration efforts. Although we will conduct testing, assessments and validation to ensure that our internal financial and accounting controls will be effective post-implementation, we may nevertheless experience difficulties in transacting our business due to system challenges, delays or process deficiencies following the initial launch of the system, which could impair our ability to conduct our business or to produce accurate financial statements on a timely basis. If our ability to conduct our business or to produce accurate financial statements on a timely basis is impaired, our business, results of operations and cash flows would be adversely affected.
Our current levels of insurance may not be adequate for our potential liabilities.
We maintain insurance to cover our potential exposure for most claims and losses, including potential product and non-product related claims, lawsuits and administrative proceedings seeking damages or other remedies arising out of our commercial operations. However, our insurance coverage is subject to various exclusions, self-retentions and deductibles. We may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination or terrorist attacks, or that exceed our policy limits. Even a partially uninsured claim of significant size, if successful, could have an adverse effect on our financial condition.
In addition, we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, our existing policies may be cancelled or otherwise terminated by the insurer, and/or the companies that we acquire may not be eligible for certain types or limits of insurance. Maintaining adequate insurance and successfully accessing insurance coverage that may be due for a claim can require a significant amount of our management’s time, and we may be forced to spend a substantial amount of money in that process.
Due to our acquisition activity, the existing information technology systems and cyber controls of the acquired entities and integration efforts with respect thereto, as well as the state of the cyber insurance market generally, the costs for our cyber insurance increased significantly in 2021, and the cost of such insurance could continue to increase for future policy periods. Our cyber insurance coverage does not extend to all of our group companies and while we are working to implement better cyber controls and infrastructure for these entities, we may continue to be unable to secure cyber risk coverage for them for future periods. Moreover, the scope and limits of our cyber insurance coverage may not be sufficient or available to cover all expenses or other losses, including fines, or all types of claims that may arise in connection with cyberattacks, security compromises, and other related incidents.
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Global economic, political and social conditions and uncertainties in the markets that we serve may adversely impact our business.
Our performance depends on the financial health and strength of our customers, which in turn is dependent on the economic conditions of the markets in which we and our customers operate. A decline in the global economy, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors all affect the spending behavior of potential customers. The economic uncertainty in Europe, the United States, India, China and other countries may cause end-users to further delay or reduce technology purchases.
We also face risks from financial difficulties or other uncertainties experienced by our suppliers, distributors or other third parties on which we rely. If third parties are unable to supply us with required materials or components or otherwise assist us in operating our business, our business could be harmed.
For example, the possibility of an ongoing trade war between the United States and China may impact the cost of raw materials, finished products or components used in our products and our ability to sell our products in China. Other changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment could also adversely affect our business. In addition, the United Kingdom’s exit from the European Union on January 31, 2020 may result in the imposition of tariffs or other trade barriers that could have an adverse impact on our results of operation. Additionally, uncertainty surrounding this transition may have an effect on global economic conditions and the stability of global financial markets, which in turn could have a material adverse effect on our business, financial condition and results of operations. In extreme cases, we could experience interruptions in production due to the processing of customs formalities or reduced customer spending in the wake of weaker economic performance. If global economic conditions remain volatile for a prolonged period or if European economies experience further disruptions, our results of operations could be adversely affected.
Uncertainty and instability resulting from the conflict between Russia and Ukraine could negatively impact our business, financial condition and operations.
Russia’s recent invasion of Ukraine and the uncertainty surrounding the escalating conflict could negatively impact global and regional financial markets which could result in businesses postponing spending in response to tighter credit, higher unemployment, financial market volatility, negative financial news, and other factors. In addition, our suppliers and contractors may have staff, operations, materials or equipment located in the Ukraine or Russia which could impact our supply chain or services being provided to us. Moreover, we outsource some of our software development and design to third-party contractors that have employees and consultants located in Ukraine, Russia and/or Belarus. Poor relations between the United States and Russia, sanctions by the United States and the European Union against Russia, and any escalation of political tensions or economic instability in the area could have an adverse impact on our third-party contractors. In particular, Russia’s invasion of Ukraine and the increased tensions among the United States, the North Atlantic Treaty Organization and Russia could increase the threat of armed conflict, cyberwarfare and economic instability that could disrupt or delay the operations of these resources in Russia, Belarus and/or Ukraine, disrupt or delay communication with such resources or the flow of funds to support their operations, or otherwise render our resources unavailable.
The additive manufacturing industry in which we operate is characterized by rapid technological change, which requires us to continue to develop new products and innovations to meet constantly evolving customer demands and which could adversely affect market adoption of our products.
Our revenues are derived from the sale of additive manufacturing systems, produced parts, and consumables and services. We have encountered and will continue to encounter challenges experienced by growing companies in a market subject to rapid innovation and technological change. While we intend to invest substantial resources to remain on the forefront of technological development, continuing advances in additive manufacturing technology, changes in customer requirements and preferences and the emergence of new standards, regulations and certifications could adversely affect adoption of our products either generally or for particular applications. Our ability to compete in the additive manufacturing market depends, in large part, on our success in developing and introducing new additive manufacturing systems and technology, in improving our existing products and technology and qualifying new materials which our systems can support. We believe that we must continuously enhance and expand the functionality and features of our products and technologies in order to remain competitive. However, we may not be able to:
• | develop cost effective new products and technologies that address the increasingly complex needs of prospective customers; |
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• | enhance our existing products and technologies; |
• | respond to technological advances and emerging industry standards and certifications on a cost-effective and timely basis; |
• | adequately protect our intellectual property as we develop new products and technologies; |
• | identify the appropriate technology or product to which to devote our resources; or |
• | ensure the availability of cash resources to fund research and development. |
Even if we successfully introduce new additive manufacturing products and technologies and enhance our existing products and technologies, it is possible that these will eventually supplant our existing products or that our competitors will develop new products and technologies that will replace our own. As a result, any of our products may be rendered obsolete or uneconomical by our or our competitors’ technological advances, leading to a loss in market share, decline in revenue and adverse effects to our business and prospects.
The additive manufacturing industry is competitive. We expect to face increasing competition in many aspects of our business, which could cause our operating results to suffer.
The additive manufacturing industry in which we operate is fragmented and competitive. We compete for customers with a wide variety of producers of additive manufacturing and/or 3D printing equipment that creates 3D objects and end-use parts, as well as with providers of materials and services for this equipment. Some of our existing and potential competitors are researching, designing, developing and marketing other types of products and services that may render our existing or future products obsolete, uneconomical or less competitive. Existing and potential competitors may also have substantially greater financial, technical, marketing and sales, manufacturing, distribution and other resources than we do, including name recognition, as well as experience and expertise in intellectual property rights and operating within certain international markets, any of which may enable them to compete effectively against us. For example, a number of companies that have substantial resources have announced that they are beginning production of 3D printing systems, which will further enhance the competition we face.
Future competition may arise from the development of allied or related techniques for equipment, materials and services that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to develop certain products and from improvements to existing technologies.
We intend to continue to follow a strategy of continuing product development and distribution network expansion to enhance our competitive position to the extent practicable. But we cannot assure you that we will be able to maintain our current position or continue to compete successfully against current and future sources of competition. If we do not keep pace with technological change and introduce new products and technologies, demand for our products may decline, and our operating results may suffer.
Because the additive manufacturing market is rapidly evolving, forecasts of market growth in this Annual Report on Form 10-K may not be accurate.
Market opportunity estimates and growth forecasts included in this Annual Report on Form 10-K are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts and estimates in this Annual Report on Form 10-K relating to the expected size and growth of the markets for additive manufacturing technology and other markets in which we participate may prove to be inaccurate. Even if these markets experience the forecasted growth described in this Annual Report on Form 10-K, we may not grow our business at similar rates, or at all. Our future growth is subject to many factors, including market adoption of our products, which is subject to many risks and uncertainties. Accordingly, the forecasts and estimates of market size and growth described in this Annual Report on Form 10-K, including our estimates that the size of the total addressable market is expected to be more than $100 billion in 2030, should not be taken as indicative of our future growth. In addition, these forecasts do not consider the impact of the current global COVID-19 pandemic, and we cannot assure you that these forecasts will not be materially and adversely affected as a result.
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Risks Related to Acquisitions
The failure to successfully integrate the businesses and operations of Desktop Metal and ExOne in the expected time frame may adversely affect the combined company’s future results.
In November 2021, we acquired The ExOne Company, or ExOne, pursuant to an Agreement and Plan of Merger dated August 11, 2021, or the ExOne Acquisition. The success of the ExOne Acquisition will depend in part on our ability to realize the anticipated business opportunities from integrating the operations of ExOne with our business in an efficient and effective manner. It is possible that the integration process could result in the loss of key Desktop Metal or ExOne employees, the loss of customers, the disruption of our ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall integration process that takes longer than originally anticipated. Specifically, our ability to address the following issues, among others, in integrating the operations of Desktop Metal and ExOne may impact realization of the anticipated benefits of the ExOne Acquisition:
• | combining the companies’ operations and corporate functions; |
• combining the businesses of Desktop Metal and ExOne and meeting the capital requirements of the combined company, in a manner that permits the combined company to achieve any cost savings or other synergies anticipated to result from the ExOne Acquisition, the failure of which would result in the anticipated benefits of the ExOne Acquisition not being realized in the time frame currently anticipated or at all;
• integrating personnel from the two companies, especially in the COVID-19 environment which has required many Desktop Metal and ExOne employees to work remotely across several locations;
• | integrating and unifying the offerings and services available to customers; |
• | identifying and eliminating redundant and underperforming functions, product lines and assets; |
• | harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes; |
• | maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the combined company; |
• | addressing possible differences in business backgrounds, corporate cultures and management philosophies; |
• | consolidating the companies’ administrative and information technology infrastructure; |
• | coordinating distribution and marketing efforts; |
• | coordinating geographically dispersed organizations; and |
• | effecting actions that may be required in connection with obtaining regulatory or other governmental approvals. |
In addition, at times the attention of certain management individuals may be focused on the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to us, which may disrupt our ongoing business.
Following the ExOne Acquisition, customers, suppliers, distributors, or other third parties may seek to modify or terminate contractual or other business relationships with us, which could have an adverse effect on our business and operations.
As a result of the ExOne Acquisition, the combined company may experience impacts on relationships with customers, suppliers and distributors that may harm our business and results of operations. Certain customers, suppliers or distributors may seek to
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terminate or modify contractual obligations whether or not contractual rights are triggered as a result of the ExOne Acquisition. There can be no guarantee that customers, suppliers and distributors will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms. If any customers, suppliers or distributors seek to terminate or modify contractual obligations or discontinue the relationship with the combined company, then our business and results of operations may be harmed. Furthermore, we will not have long-term arrangements with many of the significant suppliers to the combined company. If suppliers were to seek to terminate or modify an arrangement with us, then the combined company may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all.
Prior to the closing of the ExOne Acquisition, Desktop Metal and ExOne also each had contracts with vendors, landlords, licensors and other business partners which may contain consent requirements or limitations applicable to such contracts as result of the ExOne Acquisition. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs and lose rights that may be material to our business.
The ExOne Acquisition may not be accretive, and may be dilutive, to our earnings per share, which may negatively affect the market price of our Class A common stock.
We currently anticipate that the ExOne Acquisition will be initially dilutive to our forecasted earnings per share on a standalone basis. This expectation is based on preliminary estimates, which may materially change. We may also have additional transaction-related costs, may fail to realize all of the benefits anticipated in the ExOne Acquisition or may be subject to other factors that affect preliminary estimates or our ability to realize operational efficiencies or other anticipated synergies. Any of these factors could cause a decrease in our earnings per share or decrease or delay the expected effect of the ExOne Acquisition and contribute to a decrease in the price of our Class A common stock.
Our future results following the ExOne Acquisition may be adversely impacted if we do not effectively manage our expanded operations.
As a result of the ExOne Acquisition, the size of our business is significantly larger than prior to the acquisition. Our ability to successfully manage this expanded business will depend, in part, upon management’s ability to implement an effective integration of the two companies and its ability to manage a combined business with significantly larger size and scope with the associated increased costs and complexity. Our management may not be successful, and we may not realize the expected operating efficiencies, cost savings and other benefits that were anticipated from the ExOne Acquisition.
As part of our growth strategy, we intend to continue to acquire or make investments in other businesses, patents, technologies, products or services. Our efforts to do so, or our failure to do so successfully, could disrupt our business and have an adverse impact on our financial condition.
As part of our business strategy, we are acquiring and investing in other companies, patents, technologies, products and/or services. To the extent we seek to grow our business through acquisitions, we may not be able to successfully identify attractive acquisition opportunities or consummate any such acquisitions if we cannot reach an agreement on commercially favorable terms, if we lack sufficient resources to finance the transaction on our own and cannot obtain financing at a reasonable cost or if regulatory authorities prevent such transaction from being consummated. The identification of potential targets, negotiation with targets and due diligence may divert management’s attention from their day-to-day responsibilities and require the incurrence of related costs. In addition, competition for acquisitions in the markets in which we operate during recent years has increased, and may continue to increase, which may result in an increase in the costs of acquisitions or cause us to refrain from making certain acquisitions. We may not be able to complete future acquisitions on favorable terms, if at all.
If we do complete future acquisitions, we cannot assure you that they will ultimately strengthen our competitive position or that they will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could pose numerous additional risks to our operations, including:
• | diversion of management’s attention from their day-to-day responsibilities; |
• | unanticipated costs or liabilities associated with the acquisition; |
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• | incurrence of acquisition-related costs, which would be recognized as a current period expense; |
• | problems integrating the purchased business, products or technologies; |
• | challenges in achieving strategic objectives, cost savings and other anticipated benefits; |
• | inability to maintain relationships with key customers, suppliers, vendors and other third parties on which the purchased business relies; |
• | the difficulty of incorporating acquired technology and rights into our platform and of maintaining quality and security standards consistent with our brand; |
• | difficulty in maintaining controls, procedures and policies during the transition and integration; |
• | challenges in integrating the new workforce and the potential loss of key employees, particularly those of the acquired business; and |
• | use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition. |
If we proceed with a particular acquisition, we may have to use cash, issue new equity securities with dilutive effects on existing shareholders, incur indebtedness, assume contingent liabilities or amortize assets or expenses in a manner that might have a material adverse effect on our financial condition and results of operations. Acquisitions will also require us to record certain acquisition-related costs and other items as current period expenses, which would have the effect of reducing our reported earnings in the period in which an acquisition is consummated. In addition, we could also face unknown liabilities or write-offs due to our acquisitions, which could result in a significant charge to our earnings in the period in which they occur. We will also be required to record goodwill or other long-lived asset impairment charges (if any) in the periods in which they occur, which could result in a significant charge to our earnings in any such period.
Achieving the expected returns and synergies from future acquisitions will depend, in part, upon our ability to integrate the products and services, technology, administrative functions and personnel of these businesses into our product lines in an efficient and effective manner. We cannot assure you that we will be able to do so, that our acquired businesses will perform at levels and on the timelines anticipated by our management or that we will be able to obtain these synergies. In addition, acquired technologies and intellectual property may be rendered obsolete or uneconomical by our own or our competitors’ technological advances. Management resources may also be diverted from operating our existing businesses to certain acquisition integration challenges. If we are unable to successfully integrate acquired businesses, our anticipated revenues and profits may be lower. Our profit margins may also be lower, or diluted, following the acquisition of companies whose profit margins are less than those of our existing businesses.
We may experience difficulties in integrating the operations of EnvisionTEC and other acquired companies into our business and in realizing the expected benefits of these acquisitions.
Acquisition involve numerous risks, any of which could harm our business and negatively affect our financial condition and results of operations. The success of the EnvisionTEC acquisition and other recent acquisitions will depend in part on our ability to realize the anticipated business opportunities from combining the operations of acquired companies with our business in an efficient and effective manner. Ongoing and expanded integration processes could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the acquisitions, and could harm our financial performance. If we are unable to successfully or timely integrate the operations of acquired companies with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the acquisitions, and our business, results of operations and financial condition could be materially and adversely affected.
We have incurred significant costs in connection with the recent acquisitions. The substantial majority of these costs are non-recurring acquisition expenses. These non-recurring costs and expenses are reflected in the consolidated financial statements included
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in this Annual Report on Form 10-K. We may incur additional costs in the integration of acquired companies, and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of these acquisitions.
Risks Related to Our Financial Position and Need for Additional Capital
We are an early-stage company with a history of losses. We have not been profitable historically and may not achieve or maintain profitability in the future.
We experienced net losses in each year from our inception, including net losses of $240.3 million and $34.0 million for the years ended December 31, 2021 and 2020, respectively. We believe we will continue to incur operating losses and negative cash flow in the near-term as we continue to invest significantly in our business, in particular across our research and development efforts and sales and marketing programs. These investments may not result in increased revenue or growth in our business.
In addition, as a public company, we incur significant additional legal, accounting and other expenses. As we acquire and integrate companies, we will also incur additional legal, accounting and other expenses. These increased expenditures may make it harder for us to achieve and maintain future profitability. Revenue growth and growth in our customer base may not be sustainable, and we may not achieve sufficient revenue to achieve or maintain profitability. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, our losses may be larger than anticipated, we may incur significant losses for the foreseeable future, and we may not achieve profitability when expected, or at all, and even if we do, we may not be able to maintain or increase profitability. Furthermore, if our future growth and operating performance fail to meet investor or securities analyst expectations, or if we have future negative cash flow or losses resulting from our investment in acquiring customers or expanding our operations, this could have a material adverse effect on our business, financial condition and results of operations.
Our limited operating history and rapid growth makes evaluating our current business and future prospects difficult and may increase the risk of your investment.
Much of our growth has occurred in recent periods. Our limited operating history may make it difficult for you to evaluate our current business and our future prospects, as we continue to grow our business. Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly evolving industries, as we continue to grow our business. If our assumptions regarding these uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our business could suffer, and the trading price of our stock may decline.
It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.
Our operating results and financial condition may fluctuate from period to period.
Our operating results and financial condition fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which will not be within our control. Both our business and the additive manufacturing industry are changing and evolving rapidly, and our historical operating results may not be useful in predicting our future operating results. If our operating results do not meet the guidance that we provide to the marketplace or the expectations of securities analysts or investors, the market price of our Class A common stock will likely decline. Fluctuations in our operating results and financial condition may be due to a number of factors, including:
• | the degree of market acceptance of our products and services; |
• | our ability to compete with competitors and new entrants into our markets; |
• | the mix of products and services that we sell during any period; |
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• | the timing of our sales and deliveries of our products to customers; |
• | the geographic distribution of our sales; |
• | changes in our pricing policies or those of our competitors, including our response to price competition; |
• | changes in the amount that we spend to develop and manufacture new products or technologies; |
• | changes in the amounts that we spend to promote our products and services; |
• | changes in the cost of satisfying our warranty obligations and servicing our installed customer base; |
• | expenses and/or liabilities resulting from litigation; |
• | delays between our expenditures to develop and market new or enhanced solutions and the generation of revenue from those solutions; |
• | unforeseen liabilities or difficulties in integrating our acquisitions or newly acquired businesses; |
• | disruptions to our information technology systems or our third-party contract manufacturers; |
• | general economic and industry conditions that effect customer demand; |
• | seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe; |
• | the impact of the COVID-19 pandemic on our customers, suppliers, manufacturers and operations; and |
• | changes in accounting rules and tax laws. |
In addition, our revenues and operating results may fluctuate from quarter-to-quarter and year-to-year due to our sales cycle and seasonality among our customers. Generally, our additive manufacturing solutions are subject to the adoption and capital expenditure cycles of our customers. As a result, we typically conduct a larger portion of our business during the fourth quarter of our fiscal year relative to the other quarters. Our quarterly sales also have often reflected a pattern in which a disproportionate percentage of each quarter’s total sales occurs towards the end of the quarter. This uneven sales pattern makes predicting revenue, earnings, cash flow from operations, adjusted EBITDA and working capital for each period difficult, increases the risk of unanticipated variations in our quarterly results and financial condition, and places pressure on our inventory management and logistics systems.
Additionally, for our more complex solutions, which may require customers to make additional facilities investment, potential customers may spend a substantial amount of time performing internal assessments prior to making a purchase decision. This may cause us to devote significant effort in advance of a potential sale without any guarantee of receiving any related revenues. As a result, revenues and operating results for future periods are difficult to predict with any significant degree of certainty, which could lead to adverse effects on our inventory levels and overall financial condition.
Due to the foregoing factors, and the other risks discussed in this Annual Report on Form 10-K, you should not rely on quarter-over-quarter and year-over-year comparisons of our operating results as an indicator of our future performance.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges and opportunities, including the need to develop new features or enhance our products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds if our existing sources of cash and any funds generated from operations do not provide us with sufficient capital. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges
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superior to those of holders of our Class A common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges and opportunities could be significantly impaired, and our business may be adversely affected.
Risks Related to Third Parties
We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply.
The products we supply are sometimes used in potentially hazardous or critical applications, such as the assembled parts of an aircraft, medical device or automobile, that could result in death, personal injury, property damage, loss of production, punitive damages and consequential damages. While we have not experienced any such claims to date, actual or claimed defects in the products we supply could result in our being named as a defendant in lawsuits asserting potentially large claims.
We attempt to include legal provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. Any such lawsuit, regardless of merit, could result in material expense, diversion of management time and efforts and damage to our reputation, and could cause us to fail to retain or attract customers, which could adversely affect our results of operations.
We depend on our network of resellers and our business could be adversely affected if they do not perform as expected.
We rely heavily on our global network of resellers to sell our products and to provide installation and support services to customers in their respective geographic regions. These resellers may not be as effective in selling our products or installing and supporting our customers as we expect. Further, our contracts with our resellers provide for termination for convenience, and if our contracts with a significant number of resellers, or with the most effective resellers, were to terminate or if they would otherwise fail or refuse to sell certain of our products, we may not be able to find replacements that are as qualified or as successful in a timely manner, if at all. In addition, if our resellers do not perform as anticipated, or if we are unable to secure qualified and successful resellers, our sales will suffer, which would have an adverse effect on our revenues and operating results. Because we also depend upon our resellers to provide installation and support services for products, if our reseller relationship were terminated or limited to certain products, we may face disruption in providing support for our customers, which would adversely affect our reputation and our results of operations. Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and adversely affect our financial results.
Additionally, a default by one or more resellers that have a significant receivables balance could have an adverse financial impact on our financial results. We have reviewed our policies that govern credit and collections and will continue to monitor them in light of current payment status and economic conditions. In addition, we try to reduce the credit exposures of our accounts receivable by instituting credit limits and having credit insurance. However, there can be no assurance that our efforts to identify potential credit risks will be successful. Our inability to timely identify resellers that are credit risks could result in defaults at a time when such resellers have high accounts receivable balances with us. Any such default would result in a significant charge against our earnings and adversely affect our results of operations and financial condition.
We could face liability if our additive manufacturing solutions are used by our customers to print dangerous objects.
Customers may use our additive manufacturing systems to print parts that could be used in a harmful way or could otherwise be dangerous. For example, there have been news reports that 3D printers were used to print guns or other weapons. We have little, if any, control over what objects our customers print using our products, and it may be difficult, if not impossible, for us to monitor and prevent customers from printing weapons with our products. While we have never printed weapons on any printers in our offices, there can be no assurance that we will not be held liable if someone were injured or killed by a weapon printed by a customer using one of our products.
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We depend on a limited number of third-party contract manufacturers for a significant portion of our manufacturing needs. If these third-party manufacturers experience any delay, disruption or quality control problems in their operations, including due to the COVID-19 pandemic, we could lose market share and our brand may suffer.
We depend on third-party contract manufacturers for the production of several of our additive manufacturing systems. While there are several potential manufacturers for most of these products, several of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party manufacturers. In most cases, we rely on these manufacturers to procure components and, in some cases, subcontract engineering work. Our reliance on a limited number of contract manufacturers involves a number of risks, including:
• | unexpected increases in manufacturing and repair costs; |
• | inability to control the quality and reliability of finished products; |
• | inability to control delivery schedules; |
• | potential liability for expenses incurred by third-party contract manufacturers in reliance on our forecasts that later prove to be inaccurate; |
• | potential lack of adequate capacity to manufacture all or a part of the products we require; and |
• | potential labor unrest affecting the ability of the third-party manufacturers to produce our products. |
If any of our third-party contract manufacturers experience a delay, disruption or quality control problems in their operations, including due to the COVID-19 pandemic, or if a primary third-party contract manufacturer does not renew its agreement with us, our operations could be significantly disrupted, and our product shipments could be delayed. Qualifying a new manufacturer and commencing volume production is expensive and time consuming. Ensuring that a contract manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a contract manufacturer can scale its production of our products at the volumes and in the quality that we require. If a contract manufacturer is unable to do these things, we may have to move production for the products to a new or existing third-party manufacturer, which would take significant effort and our business, results of operations and financial condition could be materially adversely affected.
As we contemplate moving manufacturing into different jurisdictions, we may be subject to additional significant challenges in ensuring that quality, processes, and costs, among other issues, are consistent with our expectations. For example, while we expect our third-party contract manufacturers to be responsible for penalties assessed on us because of excessive failures of the products, there is no assurance that we will be able to collect such reimbursements from these manufacturers, which causes us to take on additional risk for potential failures of our products.
In addition, because we use a limited number of third-party contract manufacturers, increases in the prices charged may have an adverse effect on our results of operations, as we may be unable to find a contract manufacturer who can supply us at a lower price. As a result, the loss of a limited source supplier could adversely affect our relationships with our customers and our results of operations and financial condition.
All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. Our third-party contract manufacturers are primarily responsible for conducting the tests that support our applications for most regulatory approvals for our products. If our third-party contract manufacturers fail to timely and accurately conduct these tests, we may be unable to obtain the necessary domestic or foreign regulatory approvals or certifications to sell our products in certain jurisdictions. As a result, we would be unable to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed and our reputation and brand would suffer.
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If our suppliers become unavailable or inadequate, our customer relationships, results of operations and financial condition may be adversely affected.
We acquire certain of our materials, which are critical to the ongoing operation and future growth of our business, from several third parties. If we or one of our contract manufacturers has a supply chain disruption, or our relationship with any of our contract manufacturers or key suppliers terminates, we could experience delays. While most manufacturing equipment and materials for our products are available from multiple suppliers, certain of those items are only available from limited sources. Should any of these suppliers become unavailable or inadequate, or impose terms unacceptable to us, such as increased pricing terms, we could be required to spend a significant amount of time and expense to develop alternate sources of supply, and we may not be successful in doing so on terms acceptable to us, or at all. As a result, the loss of a limited source supplier could adversely affect our relationship with our customers as well as our results of operations and financial condition.
Our facilities and the facilities of our third-party contract manufacturers, suppliers, and customers, are vulnerable to disruption due to natural or other disasters, strikes and other events beyond our control.
A major earthquake, fire, tsunami, hurricane, cyclone or other disaster, such as a pandemic, major flood, seasonal storms, nuclear event or terrorist attack affecting our facilities or the areas in which they are located, or affecting those of our customers or third-party manufacturers or suppliers, could significantly disrupt our or their operations and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our or their damaged manufacturing facilities. These delays could be lengthy and costly. If any of our facilities or those of our third-party contract manufacturers, suppliers or customers are negatively impacted by such a disaster, production, shipment and installation of our 3D printing machines could be delayed, which can impact the period in which we recognize the revenue related to that 3D printing machine sale. Additionally, customers may delay purchases of our products until operations return to normal. Even if we are able to respond quickly to a disaster, the continued effects of the disaster could create uncertainty in our business operations. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, labor strikes, war or the outbreak of epidemic diseases (including the outbreak of COVID-19) could have a negative effect on our operations and sales.
Risks Related to Our Class A Common Stock
Our issuance of additional shares of Class A common stock or convertible securities may dilute your ownership of us and could adversely affect our stock price.
From time to time, we have issued, and we expect in the future to issue, additional shares of our Class A common stock or securities convertible into our Class A common stock pursuant to a variety of transactions, including acquisitions. Additional shares of our Class A common stock may also be issued upon exercise of outstanding stock options and warrants to purchase our Class A common stock. The issuance by us of additional shares of our Class A common stock or securities convertible into our Class A common stock would dilute your ownership of us and the sale of a significant amount of such shares in the public market could adversely affect prevailing market prices of our Class A common stock. Subject to the satisfaction of vesting conditions and the expiration of lockup agreements, shares issuable upon exercise of options will be available for resale immediately in the public market without restriction.
In the future, we expect to obtain financing or to further increase our capital resources by issuing additional shares of our capital stock or offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock. Issuing additional shares of our capital stock, other equity securities, or securities convertible into equity may dilute the economic and voting rights of our existing stockholders, reduce the market price of our Class A common stock, or both. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our Class A common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. As a result, holders of our Class A common stock bear the risk that our future offerings may reduce the market price of our Class A common stock and dilute their percentage ownership.
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Future sales, or the perception of future sales, of our Class A common stock by us or our existing stockholders in the public market could cause the market price for our Class A common stock to decline.
The sale of substantial amounts of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Certain shares of our common stock are freely tradable without restriction under the Securities Act, except for any shares of our Class A common stock that may be held or acquired by our directors, executive officers, and other affiliates, as that term is defined in the Securities Act, which are be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. Any such sales, including sales of a substantial number of shares or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. We may also issue shares of our common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments, or otherwise. Any such issuance could result in ownership dilution to you as a stockholder and cause the trading price of our common stock to decline.
Our directors, executive officers and stockholders affiliated with our directors and executive officers own a significant percentage of our Class A common stock and, if they choose to act together, will be able to exert significant control over matters subject to shareholder approval.
Our directors, executive officers, and stockholders affiliated with our directors and executive officers exert significant influence on us. As of December 31, 2021, these holders owned approximately 9.4% of our outstanding Class A common stock. As a result, these holders, acting together, have significant control over all matters that require approval of our stockholders, including the election of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transactions. The interests of these holders may not always coincide with our corporate interests or the interests of other stockholders, and they may act in a manner with which you may not agree or that may not be in the best interests of our other stockholders.
Anti-takeover provisions in our governing documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.
Our certificate of incorporation, bylaws, and Delaware law contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Among other things, our certificate of incorporation and bylaws include the following provisions:
• | a staggered board, which means that our board of directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause; |
• | limitations on convening special stockholder meetings, which could make it difficult for our stockholders to adopt desired governance changes; |
• | a prohibition on stockholder action by written consent, which means that our stockholders will only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter; |
• | a forum selection clause, which means certain litigation against us can only be brought in Delaware; |
• | the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and |
• | advance notice procedures, which apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders. |
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents interested stockholders, such as certain stockholders holding more than 15% of our outstanding Class A common
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stock, from engaging in certain business combinations unless (i) prior to the time such stockholder became an interested stockholder, our board of directors approved the transaction that resulted in such stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our Class A common stock, or (iii) following board approval, such business combination receives the approval of the holders of at least two-thirds of our outstanding Class A common stock not held by such interested stockholder at an annual or special meeting of stockholders.
Any provision of our certificate of incorporation, our bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our certificate of incorporation and bylaws provide that, unless we consent in writing to the selection of an alternative forum, the (a) Court of Chancery of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action, suit or proceeding brought on our behalf; (ii) any action, suit or proceeding asserting a claim of breach of fiduciary duty owed by any of our directors, officers, or stockholders to us or to our stockholders; (iii) any action, suit or proceeding asserting a claim arising pursuant to the DGCL, our certificate of incorporation or bylaws; or (iv) any action, suit or proceeding asserting a claim governed by the internal affairs doctrine; and (b) subject to the foregoing, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, such forum selection provisions shall not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Additionally, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As noted above, our certificate of incorporation and bylaws provide that the federal district courts of the United States of America shall have jurisdiction over any action arising under the Securities Act. Accordingly, there is uncertainty as to whether a court would enforce such provision. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
Risks Related to Compliance Matters
Failure of our global operations to comply with anti-corruption laws and various trade restrictions, such as sanctions and export controls, could have an adverse effect on our business.
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. Doing business on a global basis requires us to comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as the laws of the countries where we do business. We are also subject to various trade restrictions, including trade and economic sanctions and export controls, imposed by governments around the world with jurisdiction over our operations. For example, in accordance with trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce, we are prohibited from engaging in transactions involving certain persons and certain designated countries or territories, including Cuba, Iran, Syria, North Korea and the Crimea Region of Ukraine. In addition, our products are subject to export regulations that can involve significant compliance time and may add additional overhead cost to our products. In recent years the U.S. government has had a renewed focus on export matters. For example, the Export Control Reform Act of 2018 and regulatory guidance have imposed additional controls,
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and may result in the imposition of further additional controls, on the export of certain “emerging and foundational technologies.” Our current and future products may be subject to these heightened regulations, which could increase our compliance costs.
We are committed to doing business in accordance with applicable anti-corruption laws and regulations and with applicable trade restrictions. We are subject, however, to the risk that our affiliated entities or our and our affiliates’ respective officers, directors, employees and agents (including distributors of our products) may take action determined to be in violation of such laws and regulations. Any violation by any of these persons could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our operating results. In addition, actual or alleged violations could damage our reputation and ability to do business.
We are subject to environmental, health and safety laws and regulations related to our operations and the use of our additive manufacturing systems, produced parts, and consumable materials, which could subject us to compliance costs and/or potential liability in the event of non-compliance.
We are subject to domestic and foreign environmental laws and regulations governing our operations, including, but not limited to, emissions into the air and water and the use, handling, disposal and remediation of hazardous substances. A certain risk of environmental liability is inherent in our production activities. These laws and regulations govern, among other things, the generation, use, storage, registration, handling and disposal of chemicals and waste materials, the presence of specified substances in electrical products, the emission and discharge of hazardous materials into the ground, air or water, the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and other waste materials and the health and safety of our employees. Under these laws, regulations and requirements, we could also be subject to liability for improper disposal of chemicals and waste materials, including those resulting from the use of our systems and accompanying materials by end-users. Accidents or other incidents that occur at our facilities or involve our personnel or operations could result in claims for damages against us. In the event we are found to be financially responsible, as a result of environmental or other laws or by court order, for environmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages or undertake expensive remedial obligations. If our operations fail to comply with such laws or regulations, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances that we generate, use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental laws allow for strict, joint and several liabilities for remediation costs, regardless of fault. We may be identified as a potentially responsible party under such laws. The amount of any costs, including fines or damages payments that we might incur under such circumstances could substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect on our business, financial condition and results of operations and could adversely affect our reputation.
The export of our products internationally from our production facilities subjects us to environmental laws and regulations concerning the import and export of chemicals and hazardous substances such as the United States Toxic Substances Control Act and the Registration, Evaluation, Authorization and Restriction of Chemical Substances. These laws and regulations require the testing and registration of some chemicals that we ship along with, or that form a part of, our systems and other products. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance.
The cost of complying with current and future environmental, health and safety laws applicable to our operations, or the liabilities arising from past releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments, alone or in combination, could have an adverse effect on our business, financial condition and results of operations.
Aspects of our business are subject to privacy, data use and data security regulations, which could increase our costs.
We collect personally identifiable information from our employees, prospects, and our customers. Privacy and security laws and regulations may limit the use and disclosure of certain information and require us to adopt certain cybersecurity and data handling practices that may affect our ability to effectively market our services to current, past or prospective customers. We must comply with privacy laws in the United States, Europe and elsewhere, including GDPR in the European Union, which became effective May 25, 2018 and the retained version of the GDPR as it forms part of the law of England and Wales, Scotland and Northern Ireland, and the
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California Consumer Privacy Act of 2018, which was enacted on June 28, 2018 and became effective on January 1, 2020. These laws create new individual privacy rights and impose increased obligations, including disclosure obligations, on companies handling personal data. In many jurisdictions, consumers must be notified in the event of a data security breach, and such notification requirements continue to increase in scope and cost. Privacy and security laws and regulations may limit the use and disclosure of certain information and require us to adopt certain cybersecurity and data handling practices that may affect our ability to effectively market our services to current, past or prospective customers. While we have invested in, and intend to continue to invest in, resources to comply with these standards, we may not be successful in doing so, and any such failure could have an adverse effect on our business, results of operations and reputation.
As privacy, data use and data security laws are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place. In recent years, there has been increasing regulatory enforcement and litigation activity in this area in the United States, Germany and in various other countries in which we operate.
Compliance with regulations for medical devices and solutions is expensive and time-consuming, and failure to obtain or maintain approvals, clearances, or compliance could impact financial projections and/or subject us to penalties or liabilities.
Our Desktop Health products and services, and its healthcare provider customers and distributors, are and will be subject to extensive federal, state, local and foreign regulations, including, without limitation, regulations with respect to approvals and clearances for products, design, manufacturing and testing, labeling, marketing, sales, quality control, and privacy. Unless an exemption applies, we must obtain clearance or approval from the Food and Drug Administration (or comparable foreign regulatory body) before a medical device or solution can be marketed or sold; this process involves significant time, effort and expense. The healthcare market overall is highly regulated and subject to frequent and sudden change. Our failure to secure clearances or approvals or comply with regulations could have an adverse impact on our business and reputation and subject us to lost research and development costs, withdrawal of clearance/approval, operating restrictions, liabilities, fines, penalties and/or litigation.
Risks Related to Intellectual Property
Third-party lawsuits and assertions alleging our infringement of patents, trade secrets or other intellectual property rights may have a significant adverse effect on our financial condition.
Third parties may own issued patents and pending patent applications that exist in fields relevant to additive manufacturing. Some of these third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims related to additive manufacturing. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our additive technologies may infringe. In addition, third parties may obtain patents in the future and claim that our technologies infringe upon these patents. Any third-party lawsuits or other assertion to which we are subject alleging our infringement of patents, trade secrets or other intellectual property rights may have a significant adverse effect on our financial condition.
We may incur substantial costs enforcing and defending our intellectual property rights.
We may incur substantial expense and costs in protecting, enforcing and defending our intellectual property rights against third parties. Intellectual property disputes may be costly and can be disruptive to our business operations by diverting attention and energies of management and key technical personnel and by increasing our costs of doing business. Third-party intellectual property claims asserted against us could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from assembling or licensing certain of our products, subject us to injunctions restricting our sale of products, cause severe disruptions to our operations or the marketplaces in which we compete or require us to satisfy indemnification commitments with our customers, including contractual provisions under various license arrangements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could have an adverse effect on our business and financial condition.
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If we are unable to adequately protect or enforce our intellectual property rights, such information may be used by others to compete against us, in particular in developing consumables that could be used with our printing systems in place of our proprietary consumables.
We have devoted substantial resources to the development of our technology and related intellectual property rights. Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We rely on a combination of registered and unregistered intellectual property and protect our rights using patents, licenses, trademarks, trade secrets, confidentiality and assignment of invention agreements and other methods.
Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our technologies, inventions, processes or improvements. We cannot assure you that any of our existing or future patents or other intellectual property rights will not be challenged, invalidated or circumvented, or will otherwise provide us with meaningful protection. Our pending patent applications may not be granted, and we may not be able to obtain foreign patents or pending applications corresponding to our U.S. patents. Even if foreign patents are granted, effective enforcement in foreign countries may not be available.
Our trade secrets, know-how and other unregistered proprietary rights are a key aspect of our intellectual property portfolio. While we take reasonable steps to protect our trade secrets and confidential information and enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficult and costly to enforce or may not provide adequate remedies if violated, and we may not have entered into such agreements with all relevant parties. Such agreements may be breached, and trade secrets or confidential information may be willfully or unintentionally disclosed, including by employees who may leave our company and join our competitors, or our competitors or other parties may learn of the information in some other way. The disclosure to, or independent development by, a competitor of any of our trade secrets, know-how or other technology not protected by a patent or other intellectual property system could materially reduce or eliminate any competitive advantage that we may have over such competitor. This concern could manifest itself in particular with respect to our proprietary consumables that are used with our systems. Portions of our proprietary consumables may not be afforded patent protection. Chemical companies or other producers of raw materials used in our consumables may be able to develop consumables that are compatible to a large extent with our products, whether independently or in contravention of our trade secret rights and related proprietary and contractual rights. If such consumables are made available to owners of our systems, and are purchased in place of our proprietary consumables, our revenues and profitability would be reduced, and we could be forced to reduce prices for our proprietary consumables.
If our patents and other intellectual property do not adequately protect our technology, our competitors may be able to offer products similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents and other intellectual property. Any of the foregoing events would lead to increased competition and reduce our revenue or gross margin, which would adversely affect our operating results.
If we attempt enforcement of our intellectual property rights, we may be, and have been in the past, subject or party to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation, regardless of merit, can be costly and disruptive to our business operations by diverting attention and energies of management and key technical personnel and by increasing our costs of doing business. Any of the foregoing could adversely affect our business and financial condition.
As part of any settlement or other compromise to avoid complex, protracted litigation, we may agree not to pursue future claims against a third party, including related to alleged infringement of our intellectual property rights. Part of any settlement or other compromise with another party may resolve a potentially costly dispute but may also have future repercussions on our ability to defend and protect our intellectual property rights, which in turn could adversely affect our business.
Our additive manufacturing software contains third-party open-source software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to sell our products.
Our additive manufacturing software contains components that are licensed under so-called “open source,” “free” or other similar licenses. Open source software is made available to the general public on an “as-is” basis under the terms of a non-negotiable license. We currently combine our proprietary software with open source software, but not in a manner that we believe requires the release of the source code of our proprietary software to the public. We do not plan to integrate our proprietary software with open source software in ways that would require the release of the source code of our proprietary software to the public; however, our use and
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distribution of open source software may entail greater risks than use of third-party commercial software. Open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, if we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release to the public or remove the source code of our proprietary software. We may also face claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. These claims could result in litigation, require us to purchase a costly license or remove the software. In addition, if the license terms for open source software that we use change, we may be forced to re-engineer our solutions, incur additional costs or discontinue the sale of our offerings if re-engineering could not be accomplished on a timely basis. Although we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our offerings. We cannot guarantee that we have incorporated open source software in our software in a manner that will not subject us to liability or in a manner that is consistent with our current policies and procedures.
General Risk Factors
Our Class A common stock price may be volatile or may decline regardless of our operating performance. You may lose some or all of your investment.
The trading price of our Class A common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. You may not be able to resell your shares at an attractive price due to a number of factors such as those listed in this section and the following:
• | the impact of the COVID-19 pandemic on our financial condition and the results of operations; |
• | our operating and financial performance and prospects; |
• | our quarterly or annual earnings or those of other companies in our industry compared to market expectations; |
• | conditions that impact demand for our products; |
• | future announcements concerning our business, our customers’ businesses or our competitors’ businesses; |
• | the public’s reaction to our press releases, other public announcements and filings with the SEC; |
• | the size of our public float; |
• | coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; |
• | market and industry perception of our success, or lack thereof, in pursuing our growth strategy; |
• | strategic actions by us or our competitors, such as acquisitions or restructurings; |
• | changes in laws or regulations which adversely affect our industry or us; |
• | changes in accounting standards, policies, guidance, interpretations or principles; |
• | changes in senior management or key personnel; |
• | issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock; |
• | changes in our dividend policy; |
• | adverse resolution of new or pending litigation against us; and |
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• | changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events. |
These broad market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low. As a result, you may suffer a loss on your investment.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our Class A common stock, the price of our Class A common stock could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that third-party securities analysts publish about us and the industries in which we operate. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of us, the price and trading volume of our securities would likely be negatively impacted. If any of the analysts that may cover us change their recommendation regarding our Class A common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A common stock would likely decline. If any analyst that may cover us ceases covering us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price or trading volume of our Class A common stock to decline. Moreover, if one or more of the analysts who cover us downgrades our Class A common stock, or if our reporting results do not meet their expectations, the market price of our Class A common stock could decline.
The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations.
We are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal control over financial reporting. Now that we have ceased to be an “emerging growth company” an attestation report on internal control over financial reporting is required to be issued by our independent registered public accounting firm. As a result, we will incur increased legal, accounting and other expenses that we did not previously incur. Our entire management team and many of our other employees will continue to devote substantial time to compliance and may not effectively or efficiently manage our transition into a public company.
In addition, the need to establish the corporate infrastructure demanded of a public company may also divert management’s attention from implementing our business strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal control over financial reporting, including IT controls, and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. If we do not continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition and results of operations. In addition, we cannot predict or estimate the amount of additional costs we may incur to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses.
These rules and regulations result in our incurring legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.
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As a public reporting company, we will be subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or report them in a timely manner.
We are subject to the rules and regulations established from time to time by the SEC and the NYSE. These rules and regulations require, among other things that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.
In addition, as a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting.
We have identified material weaknesses in our internal controls over financial reporting as of December 31, 2021. Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could impair our ability to produce timely and accurate financial statements or comply with applicable regulations and have a material adverse effect on our business.
We are required to maintain internal control over financial reporting and to report any material weaknesses in these controls. The process of designing and implementing effective internal controls is a continuous effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis or result in material misstatements in our consolidated financial statements, which could harm our operating results. In addition, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert management’s attention from other matters that are important to our business. Our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting on an annual basis.
In addition to our results determined in accordance with GAAP, we believe certain non-GAAP measures may be useful in evaluating our operating performance. We present certain non-GAAP financial measures in this Annual Report on Form 10-K and intend to continue to present certain non-GAAP financial measures in future filings with the SEC and other public statements. Any failure to accurately report and present our non-GAAP financial measures could cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock.
Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable NYSE listing rules, which may result in a breach of the covenants under existing or future financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm continue to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our Class A common stock.
As of December 31, 2021, our management and auditors determined that material weaknesses existed in our internal control over financial reporting due to the fact that we had not completed an annual or quarterly close under a timeline that would be compatible with public company filing deadlines, and with our limited accounting department personnel, this may not be achievable. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. While we have instituted plans to remediate the issue described above and continue to take remediation steps, including
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hiring additional personnel, including a vice president of accounting with public company experience, we continued to have a limited number of personnel with the level of GAAP accounting knowledge, specifically related to complex accounting transactions, commensurate with our financial reporting requirements.
Although we believe the hiring of additional accounting resources, implementation of additional reviews and processes requiring timely account reconciliations and analysis and implementation of processes and controls to better identify and manage segregation of duties will remediate the material weakness with respect to insufficient personnel, there can be no assurance that the material weakness will be remediated on a timely basis or at all, or that additional material weaknesses will not be identified in the future. If we are unable to remediate the material weakness, our ability to record, process, and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the SEC, could be adversely affected which, in turn, to may adversely affect our reputation and business and the market price of our Class A common stock.
We are, and have been in the recent past, subject to litigation.
We are currently, and have been in the recent past, subject to litigation, and we could be subject to further litigation in the future. Although we vigorously pursue favorable outcomes, we can provide no assurance as to the outcome of any current or future lawsuits or allegations, and any such actions may result in judgments against us for significant damages. Resolution of any such matters can be prolonged and costly, and the ultimate results or judgments are uncertain due to the inherent uncertainty in litigation and other proceedings. In addition, the additive manufacturing industry has been, and may continue to be, litigious, particularly with respect to intellectual property claims. Moreover, our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements. Regardless of the outcome, litigation has resulted in the past, and may result in the future, in significant legal expenses and require significant attention and resources of management. As a result, any present or future litigation that may be brought against us by any third party could result in losses, damages and expenses that have a significant adverse effect on our financial condition.
We do not intend to pay dividends on our Class A common stock for the foreseeable future.
We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, we do not anticipate declaring or paying any cash dividends on our Class A common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our business prospects, results of operations, financial condition, cash requirements and availability, certain restrictions related to our indebtedness, industry trends and other factors that our board of directors may deem relevant. Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness. In addition, we may incur additional indebtedness, the terms of which may further restrict or prevent us from paying dividends on our Class A common stock. As a result, you may have to sell some or all of your Class A common stock after price appreciation in order to generate cash flow from your investment, which you may not be able to do. Our inability or decision not to pay dividends, particularly when others in our industry have elected to do so, could also adversely affect the market price of our Class A common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Desktop Metal’s corporate headquarters are located in Burlington, Massachusetts. As of December 31, 2021, we leased approximately 110,000 square feet of office and building space for our corporate headquarters and in the surrounding area. We use these facilities primarily for manufacturing, research and development, warehousing, sales, marketing and administration.
As of December 31, 2021, we own or lease approximately 670,000 square feet of building space around the world, with significant locations in the United States, Germany, Italy and Japan. These locations support all aspects of our operations, including manufacturing, research and development, warehousing, sales marketing and administration.
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We believe the existing facilities are in good operating condition and adequate to meet our needs for the immediate future. We intend to procure additional space as we add employees and expand geographically, including internationally.
Item 3. Legal Proceedings
We are from time to time subject to various claims, lawsuits and other legal and administrative proceedings arising in the ordinary course of business. Some of these claims, lawsuits and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in damages, fines, penalties, non-monetary sanctions or relief. We recognize provisions for claims or pending litigation when we determine that an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any current legal proceedings will have a material adverse impact on the Company’s consolidated financial statements.
On November 4, 2021, the Audit Committee of the Board of Directors engaged a third party to conduct an independent internal investigation as a result of a whistleblower complaint relating to manufacturing and product compliance practices at our EnvisionTEC US LLC facility in Dearborn, Michigan. In response, and to address the issues identified in the investigation, we implemented changes in the management of the Dearborn facility and improvements in manufacturing and compliance policies and procedures for the applicable products. Following notification to the FDA, we also initiated voluntary recalls of certain shipments of Flexcera resins and the PCA4000 curing box. The investigation is now closed, and the matters subject to the investigation and our responsive actions did not have, and are not anticipated to have, a material impact on our financial statements or business.
Between September 2021 and the closing of the ExOne Merger on November 12, 2021, twelve putative class action complaints were filed by purported ExOne shareholders against ExOne and the former ExOne Board of Directors alleging violations of federal securities laws in connection with the S-4 filed by ExOne for the ExOne Merger. All have been dismissed.
On November 8, 2021, another purported stockholder, Leo Lissoq Goldstein, filed a Section 220 complaint in Delaware Chancery Court against ExOne (Goldstein v. The ExOne Company, Case No. 2021-0958-KSJM). Mr. Goldstein seeks to discover certain books and records of the company related to the ExOne Merger purportedly in order to investigate, among other things, the events leading up to and the disclosures made in connection with the ExOne Merger. Mr. Goldstein has also moved to intervene and stay the Campanella action, discussed below, until his Section 220 action is complete.
On November 22, 2021, purported stockholder Pietro Campanella filed a class action lawsuit against ExOne, Desktop Metal, Inc., and former ExOne directors and officers alleging breach of fiduciary duties and aiding and abetting breach of fiduciary duties in connection with the ExOne Merger (Campanella v. The ExOne Company et al., Case No. 2021-1013, Case No. 2021-1013-LWW). In particular, Mr. Campanella alleges that ExOne’s proxy statement and supplemental disclosures did not adequately disclose information related to a whistleblower investigation at one of Desktop Metal’s subsidiaries, EnvisionTEC, and the resignation of EnvisionTEC’s CEO.
On December 21, 2021, January 14, 2022, February 2, 2022 and February 22, 2022, four alleged shareholders of Desktop Metal stock filed purported securities class action complaints in the United States District Court for the District of Massachusetts. (Luongo v. Desktop Metal, D. Mass., Case No. 1:21-cv-12099-IT; Hathaway v. Desktop Metal, D. Mass., Case No. 1:22-cv-10059-IT; Guzman-Martinez v. Desktop Metal, D. Mass, Case No. 1:22-cv-10173, Xie v. Desktop Metal, Case No. 1:22-cv-10297-IT). Each complaint alleges that Desktop Metal and certain of its officers and directors violated Sections 10(b) and 20(a) of the Securities and Exchange Act by making false or misleading statements regarding EnvisionTEC’s manufacturing and product compliance practices and procedures. On February 4, 2022, the court issued an order consolidating the first three District of Massachusetts securities class actions.
The Company believes that these complaints are all without merit and intends to defend against them vigorously.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Class A common stock is listed on the New York Stock Exchange under the symbol “DM”.
Stockholders
As of March 11, 2022, there were 201 holders of record of our Class A common stock. The actual number of stockholders of our Class A common stock is greater than the number of record holders.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We do not expect to pay dividends on our capital stock for the foreseeable future, instead anticipating that all of our earnings for the foreseeable future will be used for the operation and growth of our business. The payment of any future dividends will be at the discretion of our board of directors and will depend on various factors, including our operating results, financial condition, capital requirements, growth plans, any contractual and legal restrictions on our payment of dividends, and any other factors deemed relevant by our board of directors.
Recent Sales of Unregistered Securities
All sales of unregistered securities by us during the year ended December 31, 2021 have been included previously in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
The following table sets forth purchases of our common stock for the three months ended December 31, 2021:
Period | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of a publicly announced program | Approximate dollar value of shares that may yet be purchased under the program | ||||||||
October 1, 2021 through October 31, 2021 | 2,674 | $ | 7.29 | — | — | |||||||
November 1, 2021 through November 30, 2021 | 7,895 | $ | 7.34 | — | — | |||||||
December 1, 2021 through December 31, 2021 | 1,458 | $ | 5.92 | — | — | |||||||
Total | 12,027 | — | ||||||||||
(1) All of the shares were withheld from employees in satisfaction of minimum tax withholding obligations associated with the issuance of shares of Class A common stock in connection with acquisitions during the period.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Desktop Metal’s consolidated results of operations and financial condition. The discussion should be read in conjunction with Desktop Metal’s consolidated financial statements and notes thereto included elsewhere in Annual Report on Form
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10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements.
Business Overview
Desktop Metal is pioneering a new generation of additive manufacturing technologies focused on Additive Manufacturing 2.0, the volume production of end use parts. We offer a comprehensive portfolio of integrated additive manufacturing solutions comprised of hardware, software, materials and services with support for metals, polymers, elastomers, ceramics, sands, composites, wood and biocompatible materials. Our solutions span use cases across the product life cycle, from product development to mass production and aftermarket operations, and they address an array of industries, including automotive, healthcare and dental, consumer products, heavy industry, aerospace, machine design and research and development.
Our growth strategy begins with a commitment to research and development. Since our founding in 2015, we have invested significant resources in research and development towards building an extensive portfolio of proprietary and differentiated technologies with a focus on making additive manufacturing an easy-to-use, economic and scalable solution. These technologies represent the cornerstones of our future product introductions, are critical to enhancing our existing offerings, and are supported by over 650 patents or pending patent applications. Our additive manufacturing platforms, which leverage these technologies for the production of tools and end-use parts, enable businesses to address their specific goals through a range of solutions that span price points, throughput levels and operating environments.
Our product platforms offer several key advantages over competitive additive manufacturing systems including breakthrough print speeds, competitive part costs, accessible workflows and software, turnkey solutions and support for over 250 qualified materials, the sale of which represent a recurring revenue stream from customers of our additive manufacturing solutions in addition to system consumables and other services, such as installation, training and technical support. As a result of these strengths, our solutions are lowering the barriers to adopting additive manufacturing and unlocking new applications where conventional manufacturing has customarily held cost and volume advantages. Across printers, parts and materials, we intend to continue investing to advance our current technology portfolio and develop new technologies that allow us to serve a broader customer base and reach new verticals, thereby expanding our addressable market and driving adoption of Additive Manufacturing 2.0.
We leverage our core competencies in technology innovation and product development by marketing and selling our Additive Manufacturing 2.0 solutions through a leading global distribution network, managed and augmented by our own internal sales and marketing teams. This distribution network, which covers over 65 countries around the world, is composed of sales and distribution professionals with decades of experience in digital manufacturing technologies and works alongside our direct sales force to market and sell products across a range of industries and price points. Similarly, our internal manufacturing and supply chain teams to work collaboratively with our internal engineering department and third-party contract manufacturers to scale up initial prototypes for commercialization and volume commercial shipments. Together, our hybrid distribution and manufacturing approaches allow us to produce, sell and service our products at-scale in global markets and create substantial operating leverage as we execute our strategy.
Our proprietary technology solutions also serve as the foundation for product parts offerings in which we which we directly manufacture parts for sale to our customers with a focus on key applications and verticals in which additive manufacturing can provide significant design, performance, cost and supply chain advantages relative to conventional manufacturing. These offerings will enable us to provide a more holistic suite of solutions for our customers and enable the accelerated adoption of our Additive Manufacturing 2.0 solutions across select high-value production applications, which we refer to as “killer apps”, including, but not limited to, medical and dental devices, fluid power systems, and sustainable, end-use wood parts. We believe such offerings will not only create a high-margin revenue stream, but will also facilitate lead generation for our additive manufacturing systems at scale and enable high-performance and specialized applications using new materials ahead of broader market introduction.
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Operating Results
For the year ended December 31, 2021, we recognized revenues of $112.4 million and used cash in operating activities of $155.0 million, and we ended the year with $269.6 million of cash, cash equivalents, and short-term investments. We incurred a net loss of $240.3 million the year ended December 31, 2021. As of December 31, 2021, we had $65.0 million in cash and cash equivalents, $204.6 million in short-term liquid investments, and current liabilities of $104.1 million.
Recent Developments
Desktop Health
On March 15, 2021, we announced the launch of Desktop Health, an expanded focus on accelerating the growth of additive manufacturing solutions for dental, orthodontic, otolaryngology and dermatology applications. Enabled by Desktop Metal's proprietary technology infrastructure for end-use parts production, including high-speed photopolymer, metal binder jetting and bioprinting additive manufacturing technologies combined with an extensive library of advanced materials, Desktop Health's mission is to create advanced, patient-specific solutions in the medical field.
Trine Warrants
On April 12, 2021, the Staff of the SEC issued the “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)”, or the Staff Statement”. The Staff Statement discussed “certain features of warrants issued in SPAC transactions” that “may be common across many entities.” The Staff Statement indicated that when one or more of such features is included in a warrant, the warrant “should be classified as a liability measured at fair value, with changes in fair value each period reported in earnings.” The Company has concluded that the warrants purchased by Trine Sponsor IH, LLC in connection with Trine’s initial public offering, or the Private Placement Warrants, were to be classified as a liability measured at fair value on the Company’s consolidated balance sheet upon the Business Combination on December 9, 2020, with subsequent changes in fair value reported in our statement of operations each reporting period. Effective March 2, 2021, all Private Placement Warrants were exercised and there was no outstanding warrant liability.
Acquisitions
EnvisionTEC Acquisition
On February 16, 2021, pursuant to the Purchase Agreement and Plan of Merger dated January 14, 2021, we consummated the EnvisionTEC Acquisition. We paid $143.8 million in cash and issued 5,036,142 shares of our Class A Common Stock, or Common Stock, with a fair value of $159.8 million as of the close of business on the acquisition date. In connection with the transaction, the Company also granted restricted stock awards totaling 475,848 shares of Common Stock, with a fair value of $4.2 million, to key EnvisionTEC employees in August 2021, which are subject to a three-year vesting period and continued employment.
Adaptive 3D Acquisition
On May 7, 2021, we, Diamond US Merger Sub, Inc., Diamond US LLC, Adaptive 3D Holdings, Inc., or Adaptive 3D, and Fortis Advisor LLC entered into an Agreement and Plan of Merger, or the A3D Merger Agreement, pursuant to which we acquired Adaptive 3D. The total purchase price was $61.8 million, consisting of $24.1 million paid in cash and 3,133,276 shares of Common Stock with a fair value of $37.7 million as of the close of business on the acquisition date.
Beacon Bio Acquisition
On June 10, 2021, we and Beacon Bio, Inc. entered into a Share Purchase Agreement pursuant to which we acquired all outstanding securities of Beacon Bio, Inc. The aggregate purchase price was $10.4 million, consisting of $6.1 million paid in cash and fully vested restricted stock units with an acquisition date fair value of $4.3 million, subject to certain adjustments and contingencies.
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Aerosint Acquisition
On June 24, 2021, we, DM Belgium BV/SRL, Aerosint SA, or Aerosint, and the sellers named therein and representatives of such sellers, entered into a Share Purchase Agreement pursuant to which we acquired all outstanding shares of Aerosint. The total purchase price was $23.8 million, consisting of $6.2 million paid in cash, 879,922 shares of our Common Stock with a fair value of $11.5 million as of the close of business on the acquisition date and contingent consideration with a fair value of $6.1 million as of the acquisition date.
Dental Arts Labs Acquisition
On July 30, 2021, we and Dental Arts Laboratories, Inc., or Dental Arts Labs, entered into a Stock Purchase Agreement of the same date, pursuant to which we acquired all outstanding shares of Dental Arts Labs. The purchase price was $26.0 million paid in cash. The Company also issued 1,190,468 restricted stock units with a grant date fair value of $11.0 million, which are subject to a four-year vesting period and continuing employment.
A.I.D.R.O. Acquisition
On September 7, 2021, we purchased the issued and outstanding capital stock of A.I.D.R.O. Srl and its shareholders, or A.I.D.R.O., pursuant to a Stock Purchase Agreement dated July 2, 2021. The purchase price was $5.6 million paid in cash. The Company also issued 364,050 restricted stock units with a grant date fair value of $3.2 million, which are subject to a four-year vesting period and continuing employment.
Meta Additive Acquisition
On September 9, 2021, we and Meta Additive Ltd, or Meta Additive, entered into a Stock Purchase Agreement of the same date, pursuant to which we acquired Meta Additive. The purchase price consisted of cash consideration of $15.2 million, including transaction costs of $0.1 million. In connection with the acquisition, the Company issued 1,101,592 restricted stock units with a fair value of $9.0 million as of the acquisition date, which are subject to a four-year vesting period and continuing employment.
Brewer Dental Acquisition
On October 14, 2021, we and Larry Brewer Dental Lab, Inc., or Brewer Dental, entered into a Stock Purchase Agreement of the same date, pursuant to which we acquired all outstanding shares of Brewer Dental. The purchase price was $7.6 million paid in cash. The Company also issued 252,096 restricted stock units with a grant date fair value of $1.8 million, which are subject to a four-year vesting period and continuing employment.
May Dental Acquisition
On October 29, 2021, we and May Dental Lab, Inc., or May Dental, entered into a Stock Purchase Agreement of the same date, pursuant to which we acquired all outstanding shares of May Dental. The purchase price was $12.5 million paid in cash. The Company also issued 357,642 restricted stock units with a grant date fair value of $2.5 million, which are subject to a four-year vesting period and continuing employment.
ExOne Acquisition
On November 12, 2021, we acquired The ExOne Company, or ExOne, pursuant to an Agreement and Plan of Merger dated August 11, 2021. The total purchase price was $613.0 million consisting of cash consideration of $201.4 million and 48,218,063 shares of our Common Stock with a fair value of $411.6 million as of the close of business on the transaction date.
COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. It is not possible to accurately predict the full impact of the COVID-19 pandemic on our business, financial condition and results of operations due to the evolving nature of the COVID-19 pandemic and the extent of its impact across industries and geographies and numerous other uncertainties.
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For example, we face uncertainties about the duration and spread of the outbreak, additional actions that may be taken by governmental entities, and the impact it may have on the ability of us, our customers, our suppliers, our manufacturers and our other business partners to conduct business. Governments in affected regions have implemented, and may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures as they deem necessary. Many organizations and individuals, including our company and employees, are taking additional steps to avoid or reduce infections, including limiting travel and staying home from work. These measures are disrupting normal business operations and have had significant negative impacts on businesses and financial markets worldwide. We continue to monitor our operations and government recommendations and have made modifications to our normal operations because of the COVID-19 pandemic, including requiring most non-engineering or operations-related team members to work remotely, utilizing heightened cleaning and sanitization procedures, implementing new health and safety protocols and reducing non-essential travel.
The COVID-19 pandemic has caused us to experience several adverse impacts, including extended sales cycles to close new orders for our products, delays in shipping and installing orders due to closed facilities and travel limitations and delays in collecting accounts receivable. The rapid development and uncertainty of the impacts of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic on our business. However, the COVID-19 pandemic, and the measures taken to contain it, present material uncertainty and risk with respect to our performance and financial results. In particular, businesses across an array of vertical markets are temporarily reducing capital expenditure budgets globally as they seek to preserve liquidity to ensure the longevity of their own operations, which in turn may lead to reductions in purchases of our additive manufacturing solutions. Further, office closures may prevent organizations from reaching typical utilizations of our additive manufacturing solutions, resulting in reductions in purchases of consumable materials. Additionally, the COVID-19 pandemic may contribute to facility closures at our third-party contract manufacturers and key suppliers, causing delays and disruptions in product manufacturing, which could affect our ability to ship products purchased by our customers in a timely manner. Disruptions in the capital markets as a result of the COVID-19 pandemic may also adversely affect our business if these impacts continue for a prolonged period and we need additional liquidity.
In the long-term, we believe that the COVID-19 pandemic will encourage organizations to reassess their supply chain structure and may accelerate their adoption of solutions such as additive manufacturing, which could allow for greater flexibility and a reduced reliance on overseas manufacturing.
Key Factors Affecting Operating Results
We believe that our performance and future success depend on many factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in “Risk Factors” section of this Annual Report on Form 10-K.
Adoption of our Additive Manufacturing Solutions
We believe the world is at an inflection point in the adoption of additive manufacturing solutions and that we are well-positioned to take advantage of this opportunity across an array of industries due to our proprietary technologies and global distribution capabilities. We expect that our results of operations, including revenue and gross margins, will fluctuate for the foreseeable future as businesses continue to shift away from conventional manufacturing processes towards additive manufacturing for end-use parts. Our turnkey and volume production solutions are designed to empower businesses to realize the full benefits of additive manufacturing at-scale, including geometric and design flexibility, mass customization and supply chain engineering, among others. The degree to which potential and current customers recognize these benefits and invest in our solutions will affect our financial results.
Pricing, Product Cost and Margins
We began commercial shipments of several products in late 2020 and early 2021, which offer customers a range of additive manufacturing solutions spanning multiple price points, materials, throughput levels, operating environments and technologies to enable them to find the solution that achieves their specific goals. We also expect to commercialize additional previously announced products in early 2022. Pricing for these products may vary by region due to market-specific supply and demand dynamics and product lifecycles, and sales of certain products have, or are expected to have, higher gross margins than others. As a result, our financial performance depends, in part, on the mix of products we sell during a given period. In addition, we are subject to price competition, and our ability to compete in key markets will depend on the success of our investments in new technologies and cost
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improvements as well as our ability to efficiently and reliability introduce cost-effective additive manufacturing solutions for our customers.
Continued Investment and Innovation
We believe that we are a leader in mass production and turnkey additive manufacturing solutions, offering breakthrough technologies that enable high throughput and ease-of-use through our broad product portfolio. Our performance is significantly dependent on the investment we make in our research and development efforts and on our ability to be at the forefront of the additive manufacturing industry. It is essential that we continually identify and respond to rapidly evolving customer requirements, develop and introduce innovative new products, enhance existing products and generate customer demand for our solutions. We believe that investment in our additive manufacturing solutions will contribute to long-term revenue growth, but it may adversely affect our near-term profitability.
Commercial Launch of Products
We continually invest in the development of new products and enhancements to existing products to meet constantly evolving customer demands. Prior to commercialization of new products, we must complete final testing, procurement and manufacturing ramp up of these products in-house or at our third-party contract manufacturers, as applicable. Any delays in successful completion of these steps may impact our ability to generate revenue from these products.
Acquisitions and Transaction-Related Costs
As part of our growth strategy, we intend to continue to acquire or make investments in other business, patents, technologies, products or services. Our growth relies heavily on the successful integration of acquired companies, including our ability to realize the anticipated business opportunities from combining operations in an efficient and effective manner. We expect that the results of our operations will fluctuate as we continue to integrate these businesses, and the technologies, products, and services that they offer. Additionally, our results of operations will be impacted by non-recurring transaction-related costs, including integration costs, associated with these acquisitions.
Components of Results of Operations
Revenue
The majority of our revenue results from the sales of products, including our additive manufacturing systems and embedded on-device software and related consumables. Product revenue is recognized upon transfer of control to the customer, which generally takes place at the point of shipment or acceptance. If we cannot objectively determine that the product provided to the customer is in accordance with agreed-upon specifications, revenue is not recognized until customer acceptance is received. We also generate a portion of our revenue from software and support services. Software revenue is recognized (i) in the case of on-device software, upon transfer of control to the customer, which generally takes place upon shipment, and (ii) in the case of cloud-based software, which is primarily sold through one-year annual contracts, ratably over the term of the agreement. Revenue from support services for our additive manufacturing systems is primarily generated through one-year annual contracts and is recognized ratably over the term of the agreement. In certain circumstances, we generate revenue through leases of machinery and equipment to customers. These leases are classified as either operating or sales-type leases based on an analysis of their underlying terms and conditions and generally have lease terms ranging from one to five years.
We generate revenue and deliver products and services through direct sales to end users utilizing both our inside sales and external partners. We also generate revenue from sales to resellers, who purchase and resell our products and also provide installation and support services for our additive manufacturing solutions to end-users.
Cost of Sales
Our cost of sales consists of the cost of products and cost of services. Cost of products includes the manufacturing cost of our additive manufacturing systems and consumables, which primarily consists of amounts paid to our third-party contract manufacturers and suppliers and personnel-related costs directly associated with manufacturing operations. It also includes cost of labor, materials
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and overhead for our produced parts offerings. Cost of services includes personnel-related costs directly associated with the provision of support services to our customers, which include engineers dedicated to remote support as well as, training, support and the associated travel costs. Our cost of revenues also includes depreciation and amortization, cost of spare or replacement parts, warranty costs, excess and obsolete inventory and shipping costs, and an allocated portion of overhead costs. We expect cost of revenue to increase in absolute dollars in future periods as we expect our revenues to continue to grow.
Gross Profit and Gross Margin
Our gross profit is calculated based on the difference between our revenues and cost of revenues. Gross margin is the percentage obtained by dividing gross profit by our revenue. Our gross profit and gross margin are, or may be, influenced by a number of factors, including:
| ● | Market conditions that may impact our pricing; |
| ● | Product mix changes between established products and new products; |
| ● | Growth in our installed customer base or changes in customer utilization of our additive manufacturing systems, which affects sales of our consumable materials and may result in excess or obsolete inventories; and |
| ● | Our cost structure for manufacturing operations, including contract manufacturers, relative to volume, and our product support obligations. |
We expect our gross margins to fluctuate over time, depending on the factors described above.
Research and Development
Our research and development expenses represent costs incurred to support activities that advance the development of innovative additive manufacturing technologies, new product platforms and consumables, as well as activities that enhance the capabilities of our existing product platforms. Our research and development expenses consist primarily of employee-related personnel expenses, prototypes, design expenses, consulting and contractor costs and an allocated portion of overhead costs. We expect research and development costs will increase on an absolute dollar basis over time as we continue to invest in advancing our portfolio of additive manufacturing solutions.
Sales and Marketing
Sales and marketing expenses consist primarily of employee-related costs for individuals working in our sales and marketing departments, third party commissions, costs related to trade shows and events and an allocated portion of overhead costs. We expect our sales and marketing costs will increase on an absolute dollar basis as we expand our headcount, initiate new marketing campaigns and launch new product platforms.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses associated with our executive, finance, legal, information technology and human resources functions, as well as professional fees for legal, audit, accounting and other consulting services, and an allocated portion of overhead costs. We expect our general and administrative expenses will increase on an absolute dollar basis as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as increased expenses for general and director and officer insurance, investor relations, and other administrative and professional services. In addition, we expect to incur additional costs as we hire additional personnel and enhance our infrastructure to support the anticipated growth of the business.
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In-Process Research and Development
In-process research and development expense consists of acquired assets that are deemed to have no future or alternative use, therefore, the acquisition costs are expensed under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC Topic 730, Research and Development. We expect in-process research and development to fluctuate depending on our acquisition strategy and targets we acquire.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability consists of the change in fair value of the Private Placement Warrants issued in connection with the Business Combination. The fair value of the warrant liability is calculated using the Black-Scholes model. We do not expect any further changes to the fair value of the warrant liability because all outstanding Private Placement Warrants have been exercised.
Interest Expense
Interest expense includes cash interest related to our term loan as well as amortization of deferred financing fees and costs.
Interest and Other Income, Net
Interest and other income, net includes interest earned on deposits and short-term investments and gains and losses on investments.
Income Taxes
Our income tax provision consists of an estimate for U.S. federal and state and foreign income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. Due to cumulative losses, we maintain a valuation allowance against our U.S., state and foreign deferred tax assets.
Results of Operations
Comparison of the years ended December 31, 2021 and 2020
Revenue
The following table presents the revenue of each of our revenue streams, as well as the percentage of total revenue and change from the prior year.
For the Years Ended December 31, |
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|
|
|
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2021 |
| 2020 |
| Change in Revenues |
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(Dollars in thousands) | Revenue |
| % of Total |
| Revenue |
| % of Total |
| $ |
| % |
| ||||||
Products Revenue | $ | 105,994 | 94 | % | $ | 13,718 | 83 | % | $ | 92,276 | 673 | % | ||||||
Services Revenue | 6,414 |
| 6 | % | 2,752 |
| 17 | % |
| 3,662 | 133 | % | ||||||
Total Revenue | $ | 112,408 |
| 100 | % | $ | 16,470 |
| 100 | % | $ | 95,938 | 583 | % | ||||
Total revenue for the years ended December 31, 2021 and 2020 was $112.4 million and $16.5 million, respectively, an increase of $95.9 million, or583%. The increase in total revenue was attributable to an increase in revenue from both products and services.
We sold more products during the year ended December 31, 2021 as compared to the year ended December 31, 2020, leading to an approximately 673% increase in product revenue. This was primarily the result of an increase in unit shipments across a more varied product mix during the year and additional revenue in connection with acquisitions during the year ended December 31, 2021 compared to the same period in 2020.
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Service revenue increased during the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to an increase in support and installation revenue from increased shipments during the period and additional revenue in connection with acquisitions.
The following table presents revenue by geographic region, as well as the percentage of total revenue and change from the prior period.
For the Years Ended December 31, |
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2021 |
| 2020 |
| Change in Revenues |
| |||||||||||||
(Dollars in thousands) | Revenue |
| % of Total |
| Revenue |
| % of Total |
| $ |
| % | |||||||
Americas | $ | 75,962 | 68 | % | $ | 6,665 | 40 | % | $ | 69,297 | 1,040 | % | ||||||
EMEA (Europe, the Middle East and Africa) | 24,097 |
| 21 | % | 7,788 |
| 47 | % |
| 16,309 | 209 | % | ||||||
APAC (Asia‑Pacific) | 12,349 |
| 11 | % | 2,017 |
| 12 | % |
| 10,332 | 512 | % | ||||||
Total Revenue | $ | 112,408 |
| 100 | % | $ | 16,470 |
| 100 | % | $ | 95,938 | 583 | % | ||||
Total revenue increased during the year ended December 31, 2021 compared to the year ended December 31, 2020, due to an increase in unit shipments in all regions across a more varied product mix and additional revenue in connection with acquisitions. Overall, there was an increased customer demand during the year ended December 31, 2021 During the year ended December 31, 2020, customer demand was lower as a result of the COVID-19 pandemic.
Cost of Sales
Total cost of sales during years ended December 31, 2021 and 2020 was $94.1 million and $31.5 million, respectively, an increase of $62.6 million or 199%. The increase in total cost of sales was driven primarily by an increase in product cost of sales, which resulted from greater product sales. The increase was partially offset by a decrease in obsolescence-related charges in 2021, compared to 2020. During 2020, we recognized a $2.9 million obsolescence inventory charge related to product redesigns implemented to reduce costs and enhance performance and functionality. Additionally, cost of sales increased in 2021 by $8.9 million due to amortization from intangible assets acquired and $2.2 million due to inventory step-up adjustments associated with acquisitions, both of which were recognized in cost of sales.
Gross Loss and Gross Margin
The following table presents gross loss by revenue stream, as well as change in gross loss dollars from the prior period.
For the |
| |||||||||||
Years Ended |
| |||||||||||
December 31, | Change in Gross |
| ||||||||||
2021 |
| 2020 | Loss |
| ||||||||
(Dollars in thousands) | Gross Loss |
| $ |
| % | |||||||
Products | $ | 18,544 | $ | (13,227) | $ | 31,771 | 240 | % | ||||
Services |
| (251) |
| (1,822) |
| 1,571 | 86 | % | ||||
Total | $ | 18,293 | $ | (15,049) | $ | 33,342 | 222 | % | ||||
Total gross profit (loss) during the years ended December 31, 2021 and 2020 was $18.3 million and ($15.0) million, respectively. The increase in gross profit of $33.3 million is driven by increased revenue compared to fixed costs and a more favorable product mix sold, including products in connection with acquisitions, during the year ended December 31, 2021, as compared to the year ended December 31, 2020.
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The following table presents gross margin by revenue stream, as well as the change in gross margin from the prior period.
For the Years |
| ||||||||
Ended | Change in Gross |
| |||||||
December 31, |
| Margin |
| ||||||
2021 | 2020 | Percentage | |||||||
(Dollars in thousands) | Gross Margin |
| Points |
| % |
| |||
Products | 17 | % | (96) | % | 1.14 |
| 118 | % | |
Services | (4) | % | (66) | % | 0.62 |
| 94 | % | |
Total | 16 | % | (91) | % | 1.08 |
| 118 | % | |
Total gross margin for the years ended December 31, 2021 and 2020, was 16% and (91)%, respectively. The increase in total gross margin was primarily due to the increase in gross margin from our product revenue, which resulted from a lower product cost for units shipped in 2021 as compared to 2020. The increase in gross margin was offset by a one-time acquisition accounting impact of inventory fair value step up being recognized through earnings, which decreased gross margin by 2%.
Research and Development
Research and development expenses during the years ended December 31, 2021 and 2020 were $68.1 million and $43.1 million, respectively, an increase of $25.0 million, or 58%. The increase in research and development expenses was due in part to increased expense related to acquired entities of $10.0 million. In addition, compensation costs increased $12.6 million due to headcount growth, of which $8.2 million relates to equity compensation and $4.4 million relates to payroll costs, to support new product development and existing product improvements. Additionally, engineering consulting costs, which were lowered during the year ended December 31, 2020 due to the COVID-19 pandemic, increased by $0.8 million in support of new product development efforts.
Sales and Marketing
Sales and marketing expenses during the years ended December 31, 2021 and 2020 were $48.0 million and $13.1 million, respectively, an increase of $34.9 million, or 265%. The increase in sales and marketing expenses was primarily due to increased expense related to acquired entities of $15.7 million. In addition, compensation costs increased $11.9 million, of which $3.7 million relates to equity compensation costs and $8.2 million relates to payroll costs, due to headcount growth and higher commission expenses commensurate with the increase in sales. Additionally, there was growth of $5.6 million in marketing program spend driven primarily by the commercialization of new products and related marketing efforts.
General and Administrative
General and administrative expenses during the years ended December 31, 2021 and 2020, were $78.0 million and $20.7 million, respectively, an increase of $57.3 million, or 276%. The increase in general and administrative expenses was primarily due to an increase of $18.5 million of professional fees incurred as a result of merger and acquisition activity and related integration costs. General and administrative expenses also increased by $17.2 million attributable to entities acquired in 2021. In addition, compensation costs increased by $14.5 million, of which $7.5 million relates to equity compensation and $7.0 million relates to payroll costs, due to headcount growth to support public company requirements. Director and officer insurance increased by $4.0 million as a public company.
In-Process Research and Development Assets Acquired
In-process research and development assets acquired during the year ended December 31, 2021 were $25.6 million, compared to no expense for in-process research and development assets acquired during the year ended December 31, 2020. The increase is attributable to the Beacon Bio and Meta Additive acquisitions, in which the company paid $25.6 million in cash and share consideration, inclusive of transaction costs. As the acquired in-process research and development assets were deemed to have no current or alternative future use, the entire amount was recognized as expense in the consolidated statement of operations for the year ended December 31, 2021.
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Change in Fair Value of Warrant Liability
Change in fair value of warrant liability during the years ended December 31, 2021 and 2020, was a $56.6 million loss and $56.4 million gain, respectively. The increase in fair value is the result of the remeasurement of the Private Placement Warrant liability prior to the cashless exercise of the Private Placement Warrants. The warrant liability increased $56.6 million as a result of the remeasurement, which resulted in the $56.6 million loss. As of March 2, 2021, all Private Placement Warrants were exercised and there was no outstanding warrant liability.
Interest Expense
Interest expense during the years ended December 31, 2021 and 2020 was $0.1 million and $0.3 million, respectively, a decrease of $0.2 million, or 55%. Interest expense decreased primarily due to the payoff of the term loan in June 2021.
Interest and Other (Expense) Income, Net
Interest and other (expense) income, net during the years ended December 31, 2021 and 2020 was ($11.8) million and $1.0 million, respectively, a decrease of $12.8 million, or 1282%. The decrease is primarily due to an unrealized loss on equity investment of $12.5 million during the year ended December 31, 2021.
Income Taxes
We recorded an income tax benefit of $29.7 million during the year ended December 31, 2021 compared to $0.9 million income tax benefit during the year ended December 31, 2020. The increase was due to the partial release of the valuation allowance related to the deferred tax liabilities acquired in various acquisitions in 2021.
We have provided a valuation allowance for various jurisdictions as a result of our historical net losses. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to implement, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period. To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.
Non-GAAP Financial Information
In addition to our results determined in accordance with GAAP, we believe that EBITDA and Adjusted EBITDA, each non-GAAP financial measures, are useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance.
The non-GAAP financial information excludes, as applicable, stock-based compensation expense, amortization of acquired intangible assets, acquisition-related and other transactional charges, inventory step-up, in-process research and development assets acquired, change in fair value of investments and change in fair value of warrant liability. These items are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or evaluating earnings potential, and therefore excludes them when presenting non-GAAP financial measures. Management uses non-GAAP financial measures to supplement our GAAP results.
Stock-based compensation is a non-cash expense relating to stock-based awards issued to executive officers, employees, and outside directors, consisting of options and restricted stock units. We exclude this expense because it is a non-cash expense and we assess our internal operations excluding this expense and believe it facilitates comparisons to the performance of other companies in our industry.
Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
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Acquisition-related and other transactional charges are direct costs related to potential and completed acquisitions, including transaction fees, due diligence costs, severance, professional fees, and integration activities. Other transactional charges include third-party costs related to structuring unusual transactions. The occurrence and amount of these costs will vary depending on the timing and size of acquisitions. We believe excluding acquisition-related costs facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.
Inventory step-up are adjustments related to recording the inventory of acquired business at fair value on the date of acquisition. These adjustments are booked cost of sales. The occurrence and amount of these adjustments will vary depending on the timing and size of acquisitions. We believe excluding inventory step-up adjustments facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.
In-process research and development assets acquired are direct costs related to assets acquisitions where the intangible assets acquired were determined to have no alternative future use. This is a non-recurring expense and we believe excluding acquired in-process research and development facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.
Change in fair value of investments is a non-cash gain or loss impacted by the change in fair value of convertible debt instruments and the equity investment. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
Change in fair value of warrant liability is a non-cash gain or loss impacted by the fair value of the Private Placement Warrants. We believe the assessment of our operations excluding this activity is relevant to our assessment of internal operations and to comparisons with the performance of other companies in our industry.
We use the below non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP results.
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The items excluded from the non-GAAP financial measures often have a material impact on our financial results and such items often recur. Accordingly, the non-GAAP financial measures included in this Annual Report on Form 10-K should be considered in addition to, and not as a substitute for, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure in our financial statements for the years ended December 31, 2021 and 2020:
For the Year Ended | ||||||
December 31, | ||||||
(Dollars in thousands) | 2021 |
| 2020 | |||
GAAP gross margin | $ | 18,293 | $ | (15,049) | ||
Stock-based compensation included in cost of sales | 1,018 | 290 | ||||
Amortization of acquired intangible assets included in cost of sales | 8,467 | — | ||||
Inventory step-up adjustment in cost of sales | 2,194 | — | ||||
Non-GAAP gross margin | $ | 29,972 | $ | (14,759) | ||
GAAP operating loss | $ | (201,455) | $ | (92,055) | ||
Stock-based compensation | 28,778 | 8,006 | ||||
Amortization of acquired intangible assets included in cost of sales | 8,467 | — | ||||
Amortization of acquired intangibles assets included in operating expenses | 9,114 | 758 | ||||
Inventory step-up adjustment in cost of sales | 2,194 | — | ||||
Acquisition-related and other transactional charges | 23,788 | 1,101 | ||||
In-process research and development assets acquired | 25,581 | — | ||||
Non-GAAP operating loss | $ | (103,533) | $ | (82,190) | ||
GAAP net loss | $ | (240,334) | $ | (34,015) | ||
Stock-based compensation | 28,778 | 8,006 | ||||
Amortization of acquired intangible assets included in cost of sales | 8,467 | — | ||||
Amortization of acquired intangibles assets included in operating expenses | 9,114 | 758 | ||||
Inventory step-up adjustment in cost of sales | 2,194 | — | ||||
Acquisition-related and other transactional charges | 23,788 | 1,101 | ||||
In-process research and development assets acquired | 25,581 | — | ||||
Change in fair value of investments | 12,475 | — | ||||
Change in fair value of warrant liability | 56,576 | (56,417) | ||||
Warrant expense | — | 1,915 | ||||
Non-GAAP net loss | $ | (73,361) | $ | (78,652) | ||
We define “EBITDA” as net loss plus net interest income, provision for income taxes, depreciation and amortization expense and in-process research and development assets acquired.
We define “Adjusted EBITDA” as EBITDA adjusted for change in fair value of warrant liability, change in fair value of investments, inventory step-up adjustments, stock-based compensation expense, warrant expense and transaction costs associated with acquisitions.
We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends because it eliminates the effect of financing, capital expenditures, and non-cash expenses such as stock-based compensation and warrants, and provides investors with a means to compare our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of these measures, especially Adjusted EBITDA, may not be comparable to other similarly titled measures computed by other companies because not all companies calculate these measures in the same fashion.
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Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net loss to EBITDA and Adjusted EBITDA during the years ended December 31, 2021 and 2020, respectively:
For the Years Ended | ||||||
December 31, | ||||||
(Dollars in thousands) | 2021 |
| 2020 | |||
Net loss attributable to common stockholders | $ | (240,334) | $ | (34,015) | ||
Interest (income) expense, net |
| (334) |
| (610) | ||
Income tax benefit |
| (29,668) |
| (940) | ||
Depreciation and amortization |
| 24,854 |
| 8,589 | ||
In-process research and development assets acquired | 25,581 | — | ||||
EBITDA |
| (219,901) |
| (26,976) | ||
Change in fair value of warrant liability | 56,576 | (56,417) | ||||
Change in fair value of investments | 12,475 | — | ||||
Inventory step-up adjustment | 2,194 | — | ||||
Stock compensation expense |
| 28,778 |
| 8,006 | ||
Warrant expense | — | 1,915 | ||||
Transaction costs associated with acquisitions | 23,788 | — | ||||
Adjusted EBITDA | $ | (96,090) | $ | (73,472) | ||
Liquidity and Capital Resources
We have incurred a net loss in each of our annual periods since our inception. We incurred net losses of $240.3 million and $34.0 million during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had $269.6 million in cash, cash equivalents, and short-term investments.
Since inception, we have received cumulative net proceeds from the Business Combination and the sale of our preferred and common stock of $973.4 million to fund our operations. As of December 31, 2021, our principal sources of liquidity were our cash, cash equivalents, and short-term investments of $269.6 million which are principally invested in money market funds and fixed income instruments.
In June 2018, we entered into a three-year, $20.0 million term loan, which provided $10.0 million immediately with the remaining principal balance available to be drawn in up to three draws of not less than $2.0 million for 12 months from close of the facility. We entered into this loan to fund capital expenditures associated with our corporate office. The loan was repaid in full in June 2021.
In April 2020, we received loan proceeds in the amount of approximately $5.4 million under the Paycheck Protection Program, or the PPP. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for loans to qualifying businesses. We repaid the loan in full on May 13, 2020.
In connection with the acquisition of EnvisionTEC, we acquired $1.2 million in PPP loans with a maturity date of April 3, 2022. Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of the loan which is dependent upon the recipient having initially qualified for the loan. Furthermore, the loan is subject to forgiveness to the extent loan proceeds are used for payroll costs, certain rents, utilities, and mortgage interest expense. In May 2021, the outstanding loan balance was forgiven.
In connection with the acquisition of Adaptive 3D, we acquired $0.3 million in PPP loans. In October 2021, substantially all of the outstanding balance was forgiven, and the remaining immaterial balance was paid in full.
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In connection with the acquisition of Dental Arts Labs, we acquired $3.4 million in PPP loans. In September 2021, the outstanding balance was forgiven.
In connection with the acquisition of Dental Arts Labs, we acquired a thirteen-month equipment financing agreement, or the Financing Agreement, in the amount of $0.5 million. The Financing Agreement provides for an advance payment of $0.5 million to secure equipment. Payments are made monthly under the Financing Agreement upon acceptance, which has not yet occurred as of December 31, 2021.
In connection with the acquisition of A.I.D.R.O., we acquired three loans, the Bank Loans, totaling $1.1 million in aggregate. The Bank Loans have term of 4.5 years and mature from September 2024 through September 2025, with interest rates ranging from 1.70% to 2.10%. Payments of principal and interest are made quarterly. As of December 31, 2021, we had paid $0.2 million and $0.9 million remains outstanding.
We believe that our existing capital resources will be sufficient to support our operating plan and cash commitments for at least the next 12 months. As of December 31, 2021, we had $65.0 million in cash and cash equivalents, and $204.6 million in short-term liquid investments. This liquid asset balance significantly exceeds our current liabilities of $104.1 million as of the same date. If we anticipate that our actual results will differ from our operating plan, we believe we have sufficient capabilities to enact cost savings measures to preserve capital.
We expect net losses to continue in connection with our ongoing activities, particularly as we continue to invest in commercialization and new product development. Additionally, we may engage in future acquisitions which may require additional capital.
Cash Flows
Since inception, we have primarily used proceeds from the Business Combination, issuances of preferred stock and debt instruments to fund our operations. The following table sets forth a summary of cash flows for the periods presented:
| For the Years Ended | ||||||
December 31, | |||||||
(Dollars in thousands) |
|
| 2021 |
| 2020 | ||
Net cash used in operating activities | $ | (155,048) | $ | (80,575) | |||
Net cash (used in) provided by investing activities |
| (427,294) |
| (36,983) | |||
Net cash provided by (used in) financing activities |
| 166,550 |
| 534,922 | |||
Net change in cash, cash equivalents, and restricted cash | $ | (415,792) | $ | 417,364 | |||
Cash Flows for the years ended December 31, 2021 and 2020
Operating Activities
Net cash used in operating activities was $155.0 million for the year ended December 31, 2021, primarily consisting of $240.3 million of net losses, adjusted for non-cash items, which primarily included loss on change in fair value of warrant liability of $56.6 million, acquisition of in-process research and development of $25.6 million, depreciation and amortization expense of $24.9 million and stock-based compensation expense of $28.8 million, as well as a $36.7 million increase in cash consumed by working capital.
Net cash used in operating activities was $80.6 million for the year ended December 31, 2020, primarily consisting of $34.0 million of net losses, adjusted for non-cash items, which primarily included gain on change in fair value of warrant liability of $56.4 million, depreciation and amortization expense of $8.6 million, stock-based compensation expense of $8.0 million, and warrant expense of $1.9 million, as well as a $7.9 million increase in cash consumed by working capital.
Investing Activities
Net cash used in investing activities was $427.3 million for the year ended December 31, 2021, primarily consisting of purchases of marketable securities of $330.9 million, offset by proceeds from sales and maturities of marketable securities of $243.3 million. We
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also paid $287.6 million, net of cash acquired, for acquisitions, and $21.2 million, net of cash acquired, to acquire in-process research and development. We made a $20.0 million investment in equity securities, invested $3.6 million in other investments, and purchased $7.7 million of property and equipment.
Net cash used in investing activities was $37.0 million for the year ended December 31, 2020, primarily consisting of purchases of marketable securities of $136.3 million, offset by proceeds from sales and maturities of marketable securities of $109.0 million. We also paid $5.3 million, net of cash acquired, for acquisitions, made an investment in a privately held company in the form of convertible debt in the amount of $3.0 million, and purchased $1.4 million of property and equipment.
Financing Activities
Net cash provided by financing activities was $166.5 million for the year ended December 31, 2021, consisting primarily of $170.7 million in proceeds from the exercise of public warrants and $6.4 million in proceeds from the exercise of stock options, offset by the repayment of the term loan of $10.0 million.
Net cash provided by financing activities was $534.9 million for the year ended December 31, 2020, consisting primarily of proceeds from the Business Combination and the private placement of shares of our Class A common stock pursuant to subscription agreements in connection with the Business Combination, or the PIPE financing.
Off-Balance Sheet Arrangements
In the normal course of operations, ExOne’s German subsidiary, ExOne GmbH, issues short-term financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security through a credit facility with a German bank. At December 31, 2021, total outstanding financial guarantees and letters of credit issued were $2.7 million. For further discussion related to financial guarantees and letters of credit, refer to Note 17 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
We have no other off-balance sheet arrangements and do not utilize any “structured debt,” “special purpose” or similar unconsolidated entities for liquidity or financing purposes.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain of our accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We periodically evaluate the judgments and estimates used for our critical accounting policies to ensure that such judgments and estimates are reasonable for our interim and year-end reporting requirements. These judgments and estimates are based on our historical experience (where available), current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in our judgments, the results could be materially different from our estimates. We believe the following critical accounting policy requires significant judgments and estimates in the preparation of our consolidated financial statements:
Revenue Recognition
We recognize revenue from sale of products upon transfer of control, which is generally at the point of shipment. If we cannot objectively determine that the product provided to the customer is in accordance with agreed-upon specifications, revenue is not recognized until customer acceptance is received. Revenue from sale of services may be recognized over the life of the associated service contract or as services are performed, depending on the nature of the services being provided. In certain circumstances, we generate revenue through leases of machinery and equipment to customers, which are classified as either operating or sales-type leases and generally have lease terms ranging from one to five years.
Our contracts with customers often include promises to transfer multiple products and services to the customer. Judgment is required to determine the separate performance obligations present in a given contract, which we have concluded are generally capable of being distinct and accounted for as separate performance obligations. We use standalone selling price, or SSP, to allocate
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revenue to each performance obligation. Significant judgment is required to determine the SSP for each distinct performance obligation in a contract.
We began generating revenue in the fourth quarter of 2018, and as such we generally use our stand-alone sales price as our SSP, and we use our best estimate for the performance obligations where we do not have stand-alone sales. The absence of observable prices resulting from our relatively short period of revenue generation requires us to estimate the SSPs of distinct performance obligations in a given contract.
We determine SSP using market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of our customers. The SSP generally varies by size of the customer. Our determination of SSP may change in the future as standalone sales of products and services occur, providing observable prices.
Stock-Based Compensation
Our historical and outstanding stock-based compensation awards under our equity compensation plans have typically included service-based, performance-based, or market-based vesting conditions. We have applied the fair value recognition provisions of FASB ASC Topic 718, Compensation-Stock Compensation to account for the stock-based compensation for employees and non-employees. We recognize compensation costs related to stock options granted to employees and non-employees based on estimated fair value of the award on the date of grant. For awards with only service-based vesting conditions, we recognize stock-based compensation expense over the requisite service period, and record compensation cost using the straight-line method less a historical forfeiture rate. For awards with performance-based or market-based vesting conditions, we recognize compensation cost on a tranche-by-tranche basis, or the accelerated attribution method.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. Following the Business Combination, the fair value of our common stock is determined based on the quoted market price of our common stock. Prior to the Business Combination, there was no public market for our equity instruments, as a result, the estimated fair value of our common stock had historically been determined by our board of directors with input from management. We engaged an independent third-party valuation specialist to perform a valuation of our common stock and assessed other factors including financial performance, capital structure, forecasted operating results and valuations of publicly traded peer companies.
Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. To determine the fair-value of grants with market-based conditions, we use a Monte Carlo simulation which requires management to make a number of key assumptions, including the estimated fair value of the common stock underlying the award, expected volatility, expected term, risk-free interest rate and expected dividend yield. The risk-free interest rate is determined using the rate of return on U.S. treasury notes with a life that approximates the expected term.
Acquisitions
We account for business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at their respective estimated fair values as of the acquisition date. The excess of the fair value of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. While we use our best estimates and judgments, our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustments to our preliminary estimates to goodwill provided that we are within the measurement period.
The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated useful life of each asset, can materially impact the consolidated statements of operations of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In determining the estimated fair value for intangible assets, we typically utilize the income approach, which discounts the projected future net cash flow using a discount rate deemed appropriate by management that reflects the risks associated with such projected future cash flow. Significant estimates and assumptions include revenue growth rates, technology migration curves, the customer
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attrition rate, and discount rates. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in “Note 2. Summary of Significant Accounting Policies” to our consolidated financial statements in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks from fluctuations in interest rates and foreign currency translation, which may adversely affect our results of operations and financial condition. We seek to minimize these risks through regular operating and financing activities and, if we consider it to be appropriate, through the use of derivative financial instruments. We do not purchase, hold or sell derivative financial instruments for trading or speculative purposes.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash, cash equivalents and short-term investment portfolio. Our investment strategy is focused on preserving capital and supporting our liquidity requirements, while earning a reasonable market return. We invest in a variety of U.S. government securities, corporate debt securities, asset-backed securities, and commercial paper. The market value of our marketable securities may decline if current market interest rates rise. As of December 31, 2021, the fair value of our cash, cash equivalents, and short-term investments was $269.6 million. A 10% change in interest rates would have an immaterial impact on the fair value of our investment portfolio. Our marketable securities are recorded at fair value, and gains and losses from these securities are recognized within other comprehensive income as they occur.
Foreign Currency Risk
The majority of our operations in Europe and Asia use the local currency as the functional currency. We translate the financial statements of our operations in Europe and Asia to United States dollars and as such we are exposed to foreign currency risk. Currently, we do not use foreign currency forward contracts to manage exchange rate risk, as the amount subject to foreign currency risk is not material to our overall operations and results.
Item 8. Financial Statements and Supplementary Data
This information is incorporated by reference beginning on page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of December 31, 2021. As described below, we identified material weaknesses in our internal control over financial reporting. As a result of these material weaknesses, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act is recorded, processed, summarized and reported as and when required.
66
Notwithstanding these material weaknesses noted above, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
• | pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on the assessment, we have concluded that we have material weaknesses in each of the following areas:
Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring
Control Environment - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i) an insufficient number of personnel with an appropriate level of Generally Accepted Accounting Principles (“GAAP”) knowledge and experience to create the proper environment for effective internal control over financial reporting and to ensure that (a) there were adequate processes for oversight, (b) there was accountability for the performance of internal control over financial reporting responsibilities, and (c) corrective activities were appropriately applied, prioritized, and implemented in a timely manner, and (ii) oversight processes and procedures that guide individuals in applying internal control over financial reporting were not adequate such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
Risk Assessment - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, and (iii) identifying and assessing changes in the business that could impact the system of internal controls.
Control Activities - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i) addressing relevant risks, (ii) providing evidence of performance, (iii) providing appropriate segregation of duties, or (iv) operation at a level of precision to identify all potentially material errors.
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Information and Communication - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control.
Monitoring - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to monitoring activities to ascertain whether the components of internal control are present and functioning.
In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Our management’s evaluation of internal control over financial reporting excluded the internal control over financial reporting at EnvisionTEC, which we acquired in February 2021, Adaptive 3D, which we acquired in May 2021, Beacon Bio, which we acquired in June 2021, Aerosint, which we acquired in June 2021, Dental Arts Labs, which we acquired in July 2021, A.I.D.R.O., which we acquired in September 2021, Meta Additive, which we acquired in September 2021 and ExOne, which we acquired in November 2021, collectively the “2021 acquisitions”, as discussed in Note 4, “Acquisitions,” of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We have included the financial results of these entities in the consolidated financial statements from the date of acquisition. Total revenues subject to the 2021 acquisitions’ internal control over financial reporting represented approximately 66% of our consolidated total revenues for the fiscal year ended December 31, 2021. Total assets subject to the 2021 acquisitions’ internal control over financial reporting represented approximately 10% of our consolidated total assets, excluding acquisition method fair value adjustments, as of December 31, 2021.
Remediation of Material Weakness in Internal Control Over Financial Reporting
Management has been actively engaged in remediation efforts to address the material weaknesses throughout 2021 and these efforts will continue into fiscal year 2022. We made enhancements to our control environment by improving guidance, communication of expectations and importance of internal controls. In addition, we made improvements to the level of detail in our risk assessment and clarity of the linkage between risks and internal controls. We will continue to improve upon our risk assessment procedures and the timeliness of those procedures in 2022. We have made progress towards addressing the weaknesses in information and communication beginning the process to better identify, document, and assess systems and information used when performing internal controls and will continue this effort in 2022. We implemented enhanced monitoring procedures to allow for more effective monitoring of compliance with established accounting policies, procedures and controls. The remediation efforts also include:
• | hiring additional qualified accounting, finance and legal personnel, to provide additional capacity and expertise to enhance our accounting and reporting review procedures; |
• | engaging consultants to provide additional technical accounting expertise; |
• | engaging third-party specialists to help assess and commence documentation of our internal controls for complying with the Sarbanes-Oxley Act of 2002; |
• | adding supervisory reviews performed by our financial management team and increasing the level of precision at which these reviews were performed; |
• | reporting on progress of internal control remediation efforts to the audit committee regularly during 2021; and |
• | engaging third-party specialists to assist with testing and validating the operating effectiveness of certain controls over financial reporting in 2021 to gain assurance that such controls are present and operating as designed. |
The controls that were designed and implemented in 2021 were not in all cases in place for a sufficient period of time to demonstrate operating effectiveness as of December 31, 2021. While we believe significant progress was made in 2021 to enhance
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and strengthen our internal control over financial reporting, management has concluded that the material weaknesses were not fully remediated as of December 31, 2021.
As described above in Management’s Report on Internal Control over Financial Reporting, we excluded from our assessment the internal control over financial reporting for the businesses acquired during 2021 including EnvisionTEC, Adaptive 3D, Beacon Bio, Aerosint, Dental Arts Labs, Aidro, Meta Additive, Brewer Dental, May Dental, and ExOne. During the initial transition period following the acquisitions, we identified and corrected certain financial information related to the acquired entities to properly reflect such financial information in our consolidated financial statements. As a result, we have identified control deficiencies within the internal control over financial reporting of the businesses acquired and we believe such deficiencies represent material weaknesses.
The measures we are implementing are subject to continued management review supported by confirmation and testing, as well as audit committee oversight. Management remains committed to the implementation of remediation efforts to address these material weaknesses. We will continue to implement measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential future material weaknesses. In addition, until remediation steps have been completed and are operating for a certain period of time, and subsequent evaluation of their effectiveness is completed, the material weaknesses previously disclosed, and as described above, will continue to exist. We are committed to the continuous improvement of our internal control over financial reporting and will continue to review the internal controls over financial reporting.
Changes in Internal Control Over Financial Reporting
As a result of the acquisitions described above, we are reviewing the internal controls of each of these subsidiaries and making appropriate changes as deemed necessary.
During the year ended December 31, 2021, we implemented certain internal controls in connection with our remediation efforts described above. Except as noted in the preceding paragraphs, there were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Internal Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, within the company have been or will be detected.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021, and is incorporated herein by reference.
We have adopted a code of ethics, called the Code of Business Conduct and Ethics, which applies to our officers, including our principal executive, financial and accounting officers, and our directors and employees. We have posted the Code of Business
69
Conduct and Ethics on our website at ir.desktopmetal.com under the “Governance Documents” section. We intend to make all required disclosures concerning any amendments to, or waivers from, the Code of Business Conduct and Ethics on our website.
On November 5, 2021, Ali El Siblani notified the Company of his intention to resign as a member of the Company’s Board of Directors and as an employee of the Company; thereafter, on November 11, 2021, the Company and Mr. Siblani entered into a separation agreement pursuant to which Mr. Siblani’s resignation was effective as of November 5, 2021.
Item 11. Executive Compensation
The information required by this item will be included in our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021, and is incorporated herein by reference.
Item 14. Principal Accountant’s Fees and Services
The information required by this item will be included in our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2021, and is incorporated herein by reference.
Part IV
Item 15. Exhibits and Financial Statement Schedules
| (a) | We have filed the following documents filed as part of this Annual Report on Form 10-K: |
| (1) | Financial Statements |
Reference is made to the Index to Financial Statements beginning on page F-1, which is incorporated into this item by reference.
| (2) | Financial Statement Schedules |
All financial statement schedules have been omitted because they are not applicable, or the required information is shown on the financial statements or notes thereto.
| (3) | Exhibits |
The exhibits listed in the Exhibit Index are filed as part of this Annual Report on Form 10-K and are incorporated herein by reference.
| (b) | Exhibits |
Refer to (a)(3) above.
| (c) | Additional Financial Statement Schedules |
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All financial statement schedules have been omitted because they are not applicable, or the required information is shown on the financial statements or notes thereto.
Item 16. Form 10-K Summary
None
71
EXHIBIT INDEX
72
10.19 | * | |||||||
10.20† | * | |||||||
21.1 | * | |||||||
23.1 | * | |||||||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) | * | ||||||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) | * | ||||||
32.1 | * | |||||||
101.INS | Inline XBRL Instance Document | * | ||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | * | ||||||
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | * | ||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | * |
* | Filed with this Annual Report on Form 10-K. |
† | Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv). |
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 15, 2022.
DESKTOP METAL, INC. | |||
By: | /s/ Ric Fulop | ||
Ric Fulop | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated:
Signature | Title | Date | ||
/s/ Ric Fulop | Chief Executive Officer | March 15, 2022 | ||
Ric Fulop | (Principal Executive Officer) | |||
/s/ James Haley | Chief Financial Officer | March 15, 2022 | ||
James Haley | (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ Scott Dussault | Director | March 15, 2022 | ||
Scott Dussault | ||||
/s/ James Eisenstein | Director | March 15, 2022 | ||
James Eisenstein | ||||
/s/ Dayna Grayson | Director | March 15, 2022 | ||
Dayna Grayson | ||||
/s/ Leo Hindery, Jr. | Director | March 15, 2022 | ||
Leo Hindery, Jr. | ||||
/s/ Wen Hsieh | Director | March 15, 2022 | ||
Wen Hsieh | ||||
/s/ Jeff Immelt | Director | March 15, 2022 | ||
Jeff Immelt | ||||
/s/ Stephen Nigro | Director | March 15, 2022 | ||
Stephen Nigro | ||||
/s/ Steve Papa | Director | March 15, 2022 | ||
Steve Papa | ||||
/s/ Bilal Zuberi | Director | March 15, 2022 | ||
Bilal Zuberi |
74
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Desktop Metal, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Desktop Metal, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2022, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses identified.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisitions —Intangible Assets — Refer to Note 4 to the financial statements
Critical Audit Matter Description
As discussed in Note 4 of the consolidated financial statements, during the year ended December 31, 2021, the Company completed multiple acquisitions, and evaluated each acquisition to determine whether it should be accounted for as a business combination or asset acquisition. The two significant acquisitions were of EnvisionTEC and ExOne, with total purchase prices of $303.6 million and $613.0 million. The acquisition of EnvisionTEC resulted in the recording of $195.7 million and $137.3 million in goodwill and intangible assets acquired and the acquisition of ExOne resulted in the recording of $374.6 million and $82.1 million in
F-2
goodwill and intangible assets acquired, respectively. The acquired intangibles included $77.8 million in acquired technology and $50.9 million in acquired customer relationships related to EnvisionTEC and $72.9 million in acquired technology and $7.9 million in acquired customer relationships related to ExOne. The significant assumptions used to estimate the fair value of the intangible assets included revenue growth rates, technology migration curves, customer attrition rates and discount rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
The procedures used to audit the valuation of the acquired technology and customer relationship assets acquired in the acquisition EnvisionTEC and ExOne include (i) a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of intangible assets acquired due to the significant amount of judgment by management when developing the estimate; (ii) significant audit effort in evaluating the significant assumptions relating to the estimate, such as revenue growth rates, technology migration curves, the customer attrition rate, and discount rates; and (iii) the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of the acquired technology and customer relationship assets acquired in the acquisition EnvisionTEC and ExOne included, among others:
| ● | We read the purchase agreements and understood management’s process for estimating fair value of intangible assets. |
| ● | We obtained an understanding of the design and implementation of the Company’s internal controls related to the determination of fair value for the acquired technology and customer relationship assets for EnvisionTEC and ExOne. |
| ● | With the assistance of our fair value specialists, we evaluated management’s process including the appropriateness of valuation models selected, the reasonableness of significant assumptions including revenue growth rates, the technology migration rate, the customer attrition rate, discount rates, and discounted cash flow models. |
| ● | The assumptions related to revenue growth rates and the customer attrition rate were evaluated by considering whether the assumptions used were reasonable considering the past performance of the acquiree. |
| ● | The assumptions related to the technology migration curve were evaluated by considering the life of the technology. |
| ● | The discount rates were evaluated by considering the cost of capital of comparable businesses and other industry factors. |
/s/ Deloitte & Touche LLP
March 15, 2022
We have served as the Company's auditor since 2016.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Desktop Metal, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Desktop Metal, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 15, 2022, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at EnvisionTEC, which was acquired in February 2021, Adaptive 3D, which was acquired in May 2021, Beacon Bio, which was acquired in June 2021, Aerosint, which was acquired in June 2021, Dental Arts Labs, which was acquired in July 2021, A.I.D.R.O., which was acquired in September 2021, Meta Additive, which was acquired in September 2021, Brewer Dental, which was acquired in October 2021, May Dental, which was acquired in October 2021, and ExOne, which was acquired in November 2021, collectively the “2021 acquisitions”. The financial statements of the 2021 acquisitions represent 66% of the Company’s consolidated total revenues and 10% of the Company’s consolidated total assets for the fiscal year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting for the 2021 acquisitions.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-4
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's assessment:
Control Environment - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i) an insufficient number of personnel with an appropriate level of Generally Accepted Accounting Principles (“GAAP”) knowledge and experience to create the proper environment for effective internal control over financial reporting and to ensure that (a) there were adequate processes for oversight, (b) there was accountability for the performance of internal control over financial reporting responsibilities, and (c) corrective activities were appropriately applied, prioritized, and implemented in a timely manner, and (ii) oversight processes and procedures that guide individuals in applying internal control over financial reporting were not adequate such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented or detected on a timely basis.
Risk Assessment - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, and (iii) identifying and assessing changes in the business that could impact the system of internal controls.
Control Activities - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i) addressing relevant risks, (ii) providing evidence of performance, (iii) providing appropriate segregation of duties, or (iv) operation at a level of precision to identify all potentially material errors.
Information and Communication - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control.
Monitoring - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to monitoring activities to ascertain whether the components of internal control are present and functioning.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect our report on such financial statements.
/s/ Deloitte &Touche LLP
Boston, Massachusetts
March 15, 2022
F-5
DESKTOP METAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31, | ||||||
| 2021 |
| 2020 | |||
Assets | ||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Current portion of restricted cash | | — | ||||
Short‑term investments |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash, net of current portion |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Other noncurrent assets | | | ||||
Total Assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Customer deposits |
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Current portion of lease liability |
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Accrued expenses and other current liabilities |
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Current portion of deferred revenue |
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Current portion of long‑term debt, net of deferred financing costs |
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Total current liabilities |
| |
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Long-term debt, net of current portion | | — | ||||
Warrant liability | — | | ||||
Contingent consideration, net of current portion | | — | ||||
Lease liability, net of current portion |
| |
| | ||
Deferred revenue, net of current portion | | — | ||||
Deferred tax liability | | — | ||||
Other noncurrent liabilities | | — | ||||
Total liabilities | | | ||||
Commitments and Contingences (Note 16) |
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Stockholders’ Equity |
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Preferred Stock, $ | ||||||
Common Stock, $ |
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Additional paid‑in capital |
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Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive income (loss) |
| ( |
| ( | ||
Total Stockholders’ Equity |
| |
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Total Liabilities and Stockholders’ Equity | $ | | $ | | ||
See notes to consolidated financial statements.
F-6
DESKTOP METAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Revenues |
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Products | $ | | $ | | ||
Services |
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Total revenues |
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Cost of sales |
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Products |
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Services |
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Total cost of sales |
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Gross profit/(loss) |
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| ( | ||
Operating expenses |
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Research and development |
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Sales and marketing |
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General and administrative |
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In-process research and development assets acquired | | — | ||||
Total operating expenses |
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Loss from operations |
| ( |
| ( | ||
Change in fair value of warrant liability | ( | | ||||
Interest expense |
| ( |
| ( | ||
Interest and other (expense) income, net |
| ( |
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Loss before income taxes |
| ( |
| ( | ||
Income tax benefit |
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Net loss | $ | ( | $ | ( | ||
Net loss per share—basic and diluted | ( | ( | ||||
Weighted average shares outstanding, basic and diluted | | | ||||
See notes to consolidated financial statements.
F-7
DESKTOP METAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Years Ended December 31, | |||||||
|
| 2021 |
| 2020 | |||
Net loss | $ | ( | $ | ( | |||
Other comprehensive (loss) income, net of taxes: |
| — |
| — | |||
Unrealized gain (loss) on available-for-sale marketable securities, net |
| ( |
| ( | |||
Foreign currency translation adjustment | ( | — | |||||
Total comprehensive loss, net of taxes of $ | $ | ( | $ | ( | |||
See notes to consolidated financial statements.
F-8
DESKTOP METAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Accumulated | |||||||||||||||||||||||
Other | |||||||||||||||||||||||
Additional | Comprehensive | Total | |||||||||||||||||||||
Legacy Convertible Preferred Stock | Common Stock | Paid‑in | Accumulated | (Loss) | Stockholders’ | ||||||||||||||||||
| Shares |
| Amount | Shares |
| Amount |
| Capital |
| Deficit |
| Income |
| Equity | |||||||||
BALANCE—January 1, 2020 | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | |||||||||
Retroactive application of recapitalization (Note 1) | ( | ( | | | | — | — | | |||||||||||||||
Adjusted balance, beginning of period | — | | | | ( | | | ||||||||||||||||
Exercise of Common Stock options |
| — | — | |
| — |
| |
| — |
| — |
| | |||||||||
Vesting of restricted Common Stock |
| — | — | |
| |
| |
| — |
| — |
| | |||||||||
Issuance of Common Stock in connection with acquisitions | — | — | | — | | — | — | | |||||||||||||||
Repurchase of shares for employee tax withholdings | — | — | ( | — | ( | — | — | ( | |||||||||||||||
Stock‑based compensation expense |
| — | — | — |
| — |
| |
| — |
| — |
| | |||||||||
Common Stock warrants issued and exercised |
| — | — | |
| — |
| |
| — |
| — |
| | |||||||||
Reverse recapitalization, net of transaction costs | — | — | | | | — | — | | |||||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||||
Other comprehensive income | — | — | — | — | — | — | ( | ( | |||||||||||||||
BALANCE—December 31, 2020 | — | — | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||||
Exercise of Common Stock options |
| — | — | |
| |
| |
| — |
| — |
| | |||||||||
Vesting of restricted Common Stock |
| — | — | |
| — |
| — |
| — |
| — |
| — | |||||||||
Repurchase of shares for employee tax withholdings - RSA | — | — | ( | — | ( | — |
| — | ( | ||||||||||||||
Vesting of restricted share units | — | — | | — | — |
| — |
| — | — | |||||||||||||
Repurchase of shares for employee tax withholdings - RSU | — | — | ( | — | ( | — | — | ( | |||||||||||||||
Issuance of Common Stock in connection with acquisitions | — | — | | | | — | — | | |||||||||||||||
Issuance of Common Stock in connection with acquired in-process research and development | — | — | | — | | — | — | | |||||||||||||||
Stock‑based compensation expense |
| — | — | — |
| — |
| |
| — |
| — |
| | |||||||||
Vesting of Trine Founder Shares |
| — | — | |
| — |
| — |
| — |
| — |
| — | |||||||||
Common Stock issued in connection with warrants exercised |
| — | — | |
| |
| |
| — |
| — |
| | |||||||||
Net loss |
| — | — | — |
| — |
| — |
| ( |
| — |
| ( | |||||||||
Other comprehensive loss |
| — | — | — |
| — |
| — |
| — |
| ( |
| ( | |||||||||
BALANCE—December 31, 2021 |
| — | — | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||||
See notes to consolidated financial statements.
F-9
DESKTOP METAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Cash flows from operating activities: | ||||||
Net loss | $ | ( |
| $ | ( | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
| ||||
Depreciation and amortization |
| |
| | ||
Stock‑based compensation |
| |
| | ||
Change in fair value of warrant liability | | ( | ||||
Change in fair value of subscription agreement | | — | ||||
Expense related to Common Stock warrants issued |
| - |
| | ||
Amortization (accretion) of discount on investments | | | ||||
Amortization of debt financing cost | | | ||||
Provision for bad debt | | | ||||
Acquired in-process research and development | | — | ||||
Loss on disposal of property and equipment | | | ||||
Foreign exchange (gains) losses on intercompany transactions, net | | — | ||||
Net increase in accrued interest related to marketable securities | ( | ( | ||||
Net unrealized (gain) loss on equity investment | | — | ||||
Net unrealized (gain) loss on other investments | ( | — | ||||
Deferred tax benefit | ( | ( | ||||
Change in fair value of contingent consideration | ( | — | ||||
Foreign currency transaction (gain) loss | | — | ||||
Changes in operating assets and liabilities: |
|
| ||||
Accounts receivable |
| ( |
| ( | ||
Inventory |
| ( |
| ( | ||
Prepaid expenses and other current assets |
| ( |
| | ||
Other assets | ( | — | ||||
Accounts payable |
| |
| ( | ||
Accrued expenses and other current liabilities |
| ( |
| ( | ||
Customer deposits |
| ( |
| ( | ||
Current portion of deferred revenue |
| |
| | ||
Change in right of use assets and lease liabilities, net |
| ( |
| ( | ||
Other liabilities | | |||||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: |
|
|
|
| ||
Purchases of property and equipment |
| ( |
| ( | ||
Purchase of other investments |
| ( |
| ( | ||
Purchase of equity investment | ( | — | ||||
Proceeds from sale of property and equipment | | — | ||||
Proceeds from policy buyout | | — | ||||
Purchase of marketable securities | ( | ( | ||||
Proceeds from sales and maturities of marketable securities |
| |
| | ||
Cash paid to acquire in-process research and development | ( | — | ||||
Cash paid for acquisitions, net of cash acquired |
| ( |
| ( | ||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: |
|
|
|
| ||
Proceeds from reverse recapitalization, net of issuance costs | — | | ||||
Proceeds from the exercise of stock options | | | ||||
Proceeds from the exercise of stock warrants | | — | ||||
Payment of taxes related to net share settlement upon vesting of restricted stock units | ( | — | ||||
Proceeds from PPP loan | — | | ||||
Repayment of PPP loan | — | ( | ||||
Repayment of term loan | ( | — | ||||
Deferred financing costs paid | — | — | ||||
Net cash provided by financing activities |
| |
| | ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | — | ||||
Net increase (decrease) in cash, cash equivalents, and restricted cash |
| ( |
| | ||
Cash, cash equivalents, and restricted cash at beginning of period | | | ||||
Cash, cash equivalents, and restricted cash at end of period | $ | | $ | | ||
F-10
Supplemental disclosures of cash flow information | ||||||
Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total shown in the condensed consolidated statements of cash flows: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash included in other current assets | | — | ||||
Restricted cash included in other noncurrent assets | | | ||||
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | | $ | | ||
Supplemental cash flow information: |
|
|
|
| ||
Interest paid | $ | | $ | | ||
Taxes paid | $ | | $ | — | ||
Non‑cash investing and financing activities: |
|
|
|
| ||
Net liabilities assumed from Trine Business Combination | $ | — | $ | | ||
Accrued reverse recapitalization transaction costs | $ | — | $ | | ||
Net unrealized (gain) loss on investments | $ | | $ | — | ||
Exercise of private placement warrants | $ | | $ | — | ||
Common Stock issued for acquisitions | $ | | $ | | ||
Common Stock issued for acquisition of in-process research and development | $ | | $ | — | ||
Accrued purchase price for asset acquisition | $ | | $ | | ||
Additions to right of use assets and lease liabilities | $ | | $ | — | ||
Purchase of property and equipment included in accounts payable | $ | | $ | — | ||
Purchase of property and equipment included in accrued expenses and other current liabilities | $ | | $ | — | ||
Transfers from property and equipment to inventory | $ | | $ | — | ||
Transfers from inventory to property and equipment | $ | | $ | — | ||
Accrued contingent consideration in connection with acquisitions | $ | | $ | — | ||
Tax liabilities related to withholdings on Common Stock issued in connection with acquisitions | $ | — | $ | | ||
Taxes related to net share settlement upon vesting of restricted stock awards in accrued expense | $ | | $ | — |
See notes to consolidated financial statements.
F-11
1. ORGANIZATION, NATURE OF BUSINESS, AND RISK AND UNCERTAINTIES
Organization and Nature of Business
Desktop Metal, Inc. is a Delaware corporation headquartered in Burlington, Massachusetts. The company was founded in 2015 and is accelerating the transformation of manufacturing with 3D printing solutions for engineers, designers, and manufacturers. The Company designs, produces and markets 3D printing systems to a variety of end customers.
On December 9, 2020 (the “Closing Date”), Trine Acquisition Corp. (“Trine”) consummated the previously announced merger pursuant to the Agreement and Plan of Merger, dated August 26, 2020, by and among Trine, Desktop Metal, Inc. and Sparrow Merger Sub, Inc., pursuant to which Sparrow Merger Sub, Inc. merged with and into Desktop Metal, Inc., with Desktop Metal, Inc. becoming our wholly owned subsidiary (the “Business Combination”). Upon the closing of the Business Combination, Trine changed its name to Desktop Metal, Inc. and Desktop Metal, Inc. changed its name to Desktop Metal Operating, Inc.
Unless otherwise indicated or the context otherwise requires, references in this Annual Report on Form 10-K to the “Company” and “Desktop Metal” refer to the consolidated operations of Desktop Metal, Inc. and its subsidiaries. References to “Trine” refer to the company prior to the consummation of the Business Combination and references to “Legacy Desktop Metal” refer to Desktop Metal Operating, Inc. prior to the consummation of the Business Combination.
Legacy Desktop Metal was deemed the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) 805. This determination was primarily based on Legacy Desktop Metal’s stockholders prior to the Business Combination having a majority of the voting power in the combined company, Legacy Desktop Metal having the ability to appoint a majority of the Board of Directors of the combined company, Legacy Desktop Metal’s existing management comprising the senior management of the combined company, Legacy Desktop Metal comprising the ongoing operations of the combined company, Legacy Desktop Metal being the larger entity based on historical revenues and business operations, and the combined company assuming Legacy Desktop Metal’s name. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Desktop Metal issuing stock for the net assets of Trine, accompanied by a recapitalization. The net assets of Trine are stated at historical cost, with no goodwill or other intangible assets recorded.
While Trine was the legal acquirer in the Business Combination, because Legacy Desktop Metal was deemed the accounting acquirer, the historical financial statements of Legacy Desktop Metal became the historical financial statements of the combined company upon the consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Legacy Desktop Metal prior to the Business Combination; (ii) the combined results of Trine and Legacy Desktop Metal following the close of the Business Combination; (iii) the assets and liabilities of Legacy Desktop Metal at their historical cost; and (iv) the Company’s equity structure for all periods presented.
In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s common stock, $
Risks and Uncertainties
The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including, but not limited to, the need for successful development of products, the need for additional funding, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology. The Company has financed its operations to date primarily with proceeds from the sale of preferred stock and the Business Combination. The Company’s long-term success is dependent upon its ability to successfully
F-12
market its products and services; generate revenue; maintain or reduce its operating costs and expenses; meet its obligations; obtain additional capital when needed; and, ultimately, achieve profitable operations. Management believes that existing cash and investments as of December 31, 2021 will be sufficient to fund operating and capital expenditure requirements through at least
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the regulations of the U.S Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The functional currency of all wholly owned subsidiaries is U.S. Dollars. All intercompany transactions and balances have been eliminated in consolidation.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a disease caused by a novel strain of the coronavirus (“COVID-19”) to be a pandemic. As of December 31, 2021, the impact of the COVID-19 pandemic continues to unfold and there has been uncertainty and disruption in the global economy and financial markets. The Company has considered the COVID-19 pandemic related impacts on its estimates, as appropriate, within its consolidated financial statements and there may be changes to those estimates in future periods.
The COVID-19 pandemic, as well as the response to mitigate the spread and effects of COVID-19, may impact the Company and its customers, as well as the demand for its products and services. The impact of COVID-19 on the Company’s operational results in subsequent periods will largely depend on future developments, and cannot be accurately predicted. These developments may include, but are not limited to, new information concerning the severity of COVID-19, the degree of success of actions take to contain or treat COVID-19 and the reactions by consumers, companies, governmental entities, and capital markets to such actions.
Foreign Currency Translation
The Company translates assets and liabilities of its foreign subsidiaries from their respective functional currencies to U.S. Dollars at the appropriate spot rates as of the balance sheet date. The functional currency of most wholly owned subsidiaries is U.S. Dollars, except for certain international subsidiaries, for which it is Euros, British Pound Sterling, or Japanese Yen, depending on the subsidiary’s location. The results of operations are translated into U.S. Dollars at a monthly average rate, calculated using daily exchange rates.
Differences arising from the translation of opening balance sheets of these entities to the rate at the end of the fiscal period are recognized in accumulated other comprehensive (loss) income. The differences arising from the translation of foreign results at the average rate are also recognized in accumulated other comprehensive (loss) income. Such translation differences are recognized as income or expense in the period in which the Company disposes of the operations.
Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. Assets and liabilities resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date. All such differences are recorded in Interest and other income, net in the consolidated statements of operations.
F-13
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the Company’s management to make judgements, estimates and assumptions regarding uncertainties that affect the reported amounts of assets, liabilities and related disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, realizability of inventory, goodwill, intangibles, stock-based compensation, and fair values of common stock. The Company bases its estimates on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of standard checking accounts, money market accounts and certain investments. The Company classifies any marketable security with an original maturity date of 90 days or less at the time of purchase as a cash equivalent.
Short-Term Investments
The Company invests its excess cash in fixed income instruments denominated and payable in U.S. dollars including U.S. treasury securities, commercial paper, corporate bonds and asset-backed securities in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital. Short-term investments represent holdings of available-for-sale marketable securities in accordance with the Company’s investment policy and cash management strategy. Investments in marketable securities are recorded at fair value, with any unrealized gains and losses reported within accumulated other comprehensive income as a separate component of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline in market value has occurred. When such reductions occur, the cost of the investment is adjusted to fair value through recording a loss on investments in the consolidated statements of operations. All investments in marketable securities mature within one year.
The Company also invests in equity securities which are carried at fair value based upon quoted prices in active markets. The Company’s recognizes unrealized gains (losses) on equity securities in interest and other (expense) income, net in the consolidated statements of operations.
Restricted Cash
Restricted cash represents cash and cash equivalents that are restricted to withdrawal or use as of the reporting date. Restricted cash typically relates to deposits to secure letters of credit, cash the Company is contractually obligated to maintain related to acquisitions, as well as contractually required security deposits.
Financial Instruments
The Company’s financial instruments are comprised of cash and cash equivalents, short-term investments, restricted cash, accounts receivable and accounts payable. The Company’s other current financial assets and current financial liabilities have fair values that approximate their carrying values due to the short maturity of these balances.
Products Revenue and Services Revenue
Products revenue include sales of the Company’s additive manufacturing systems, along with the sale of related accessories and consumables, as well as produced parts. Consumables are primarily comprised of materials, which are used by the 3D printers during the printing process to produce parts, as well as replacement parts for items consumed during system operations. Certain on-device software is embedded with the hardware and sold with the product bundle and is included within product revenue. Revenue from
F-14
products is recognized upon transfer of control, which is generally at the point of shipment. If the Company cannot objectively determine that the product provided to the customer is in accordance with agreed-upon specifications, revenue is not recognized until customer acceptance is received.
Services revenue consists of installation, training, and post-installation hardware and software support, as well as various software solutions the Company offers to facilitate the operation of the Company’s products. The Company offers multiple software products, which are licensed through either a cloud-based solution and/or on-device software, depending on the product. For the cloud-based solution, which the customer does not have the right to take possession of, the Company typically provides an annual subscription for customer access which is renewable at expiration. The revenue from the cloud-based solution is recognized ratably over the annual term as the Company considers the services provided under the cloud-based solution to be a series of distinct performance obligations, as the Company provides continuous daily access to the cloud solution. For on-device software subscriptions, the Company typically recognizes revenue once the customer has been given access to the software. When the Company enters into development contracts, control of the development service is transferred over time, and the related revenue is recognized as services are performed.
For certain products, the Company offers customers an optional extended warranty beyond the initial warranty period. The optional extended warranty is accounted for as a service-type warranty. Extended warranty revenue is deferred and recognized on a straight-line basis over the service-type warranty period of the contract and the associated costs are recognized as incurred. For certain deferred maintenance contracts where sufficient historical evidence indicates that the costs of performing the related services under the contract are not incurred on a straight-line basis, the associated revenue is recognized at a point in time in proportion to the costs expected to be incurred.
The Company generates certain revenues through the sale of research and development services. Revenue under research and development service contracts is generally recognized over time where progress is measured in a manner that reflects the transfer of control of the promised goods or services to the customer. Depending on the facts and circumstances surrounding each research and development service contract, revenue is recognized over time using either an input measure (based on the entity’s direct costs incurred in an effort to satisfy the performance obligations) or an output measure (specifically units or parts delivered, based upon certain customer acceptance and delivery requirements).
In certain circumstances, the Company generates revenue through leases of machinery and equipment to customers. These leases are classified as either operating or sales-type leases and generally have lease terms ranging from to
Revenue Recognition
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. The amount of consideration is typically a fixed price at the contract inception. Consideration from shipping and handling is recorded on a gross basis within product revenue.
The Company determines revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the Company satisfies a performance obligation
F-15
Nature of Products and Services
The Company sells its products through authorized resellers, independent sales agents, and its own sales force. Revenue from hardware, consumables, and produced parts is recognized upon transfer of control, which is generally at the point of shipment. If the Company cannot objectively determine that the products provided to the customer are in accordance with agreed-upon specifications, revenue is not recognized until customer acceptance is received.
The Company’s post-installation support is primarily sold through
The Company’s terms of sale generally provide payment terms that are customary in the countries where the Company transacts business. To reduce credit risk in connection with certain sales, the Company may, depending upon the circumstances, require significant deposits or payment in full prior to shipment. When the Company has a noncancelable contract and the right to invoice prior to shipment based on payment terms, the Company records the receivable and related customer deposits in the consolidated balance sheets.
Due to the short-term nature of the Company’s contracts, substantially all of the outstanding performance obligations are recognized within .
Shipping and handling activities that occur after control over a product has transferred to a customer are accounted for as fulfillment activities rather than performance obligations, as allowed under a practical expedient provided by ASC 606. The shipping and handling fees charged to customers are recognized as revenue and the related costs are included in cost of revenue at the point in time when ownership of the product is transferred to the customer. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.
Significant Judgements
The Company enters into contracts with customers that can include various combinations of hardware products, software licenses, and services, which are distinct and accounted for as separate performance obligations. Products or services that are promised to a customer can be considered distinct if both of the following criteria are met: (i) the customer can benefit from the products or services either on its own or together with other readily available resources and (ii) the Company’s promise to transfer the products, software, or services to the customer is separately identifiable from other promises in the contract. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgement.
Judgement is required to determine the standalone selling price (“SSP”). The transaction price is allocated to each distinct performance obligation on a relative standalone selling price basis and revenue is recognized for each performance obligation when control has passed. In most cases, the Company is able to establish SSP based on historical transaction data of the observable prices of hardware products and consumables sold separately in comparable circumstances to similar customers, observable renewal rates for software and post-installation support, and the Company’s best estimate of the selling price at which the Company would have sold the product regularly on a stand-alone basis for training and installation. The Company reassesses the SSP on a periodic basis or when facts and circumstances change.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, customer deposits and deferred revenues (contract liabilities) on the consolidated balance sheets. Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable at the time of invoicing. For most contracts, customers are invoiced a substantive portion of the arrangement prior to shipment of products or performance of services. The Company will typically bill in advance for post-installation support and cloud-based software licenses, resulting in deferred revenue.
F-16
When products have been delivered, but the product revenue associated with the arrangement has been deferred the Company includes the costs for the delivered items in inventory on the consolidated balance sheets until recognition of the related revenue occurs, at which time it is recognized in cost of sales.
The Company’s contracts are primarily one year or less, and as such, most of the deferred revenue outstanding at the end of the fiscal year is recognized during the following year. Purchases of post-installation customer support and maintenance may range from to
The Company sells products directly to end-users as well as through a reseller network. Under the reseller arrangement, the reseller is determined to be the Company’s customer, and revenue is recognized based on the amounts the Company is entitled to, reduced by any payments owed to the resellers. On certain contracts, the Company utilizes external partners and an internal sales team to sell direct to the end user. The Company acts as a principal in the contracts with users when utilizing external partners because the Company controls the product, establishes the price, and bears the risk of nonperformance, until it is transferred to the end user. The Company records the revenue on a gross basis and commissions are recorded as a sales and marketing expense in the statement of operations. The Company recognizes its commission expense as a point-in-time expense as contract obligations are primarily completed within a one-year contract period.
Allowance for Doubtful Accounts
In evaluating the collectability of accounts receivable, the Company assesses a number of factors, including specific customers’ abilities to meet their financial obligations, the length of time receivables are past due, and historical collection experience. If circumstances related to specific customers change, or economic conditions deteriorate such that past collection experience is no longer relevant, the Company’s estimate of the recoverability of accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.
The Company evaluates specific accounts for which it is believed a customer may have an inability to meet their financial obligations. In these cases, judgment is applied, based on available facts and circumstances, and a specific reserve is recorded for that customer to reduce the receivable to an amount expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved.
Remaining Performance Obligations
Remaining performance obligations are the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. The Company has elected to apply the practical expedient associated with incremental costs of obtaining a contract, and as such, sales commission expense is generally expensed when incurred because the amortization period would be one year or less. These costs are recorded within sales and marketing expense in the consolidated statements of operations.
Net Loss Per Share
The Company presents basic and diluted loss per share amounts. Basic loss per share is calculated by dividing net loss available to holders of Common Stock by the weighted average number of shares of Common Stock outstanding during the applicable period.
The denominator for diluted earnings per share is a computation of the weighted-average number of ordinary shares and the potential dilutive ordinary shares outstanding during the period. Potential dilutive shares outstanding include the dilutive effect of in-the-money options, unvested Restricted Stock Agreements (“RSAs”), and unvested Restricted Stock Units (“RSUs”) using the treasury stock method. In periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share because dilutive shares are not assumed to have been issued if their effect is anti-dilutive.
F-17
Grants
The Company recognizes grants or subsidies from governments and other organizations when there is reasonable assurance that the Company will comply with any conditions attached to the grant arrangement and the grant will be received. The Company evaluates the conditions of the grant as of each reporting period to ensure that the Company has reached reasonable assurance of meeting the conditions of each grant arrangement and that it is expected that the grant will be received as a result of meeting the necessary conditions. Grants are recognized in the consolidated statements of operations on a systematic basis over the periods in which the Company recognized the related costs for which the grant is intended to compensate. Specifically, when government grants are related to reimbursements for operating expenses, the grants are recognized as a reduction of the related expense in the consolidated statements of operations. During the year ended December 31, 2021, the Company recognized $
The Company records grant receivables in the consolidated balance sheets in prepaid expenses and other current assets or other non-current assets, depending on when the amounts are expected to be received from the government agency. Proceeds received from grants prior to expenditures being incurred are recorded as restricted cash and other current liabilities or other long-term liabilities, depending on when the Company expects to use the proceeds.
Warranty Reserve
Substantially all of the Company’s hardware and software products are covered by a standard assurance warranty of
The Company’s warranty reserve reflects estimated material and labor costs for potential or actual product issues in its installed base for which the Company expects to incur an obligation. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. If the data used to calculate the adequacy of the warranty reserve is not indicative of future requirements, additional or reduced warranty reserves may be required.
Substantially all of the Company’s produced parts are covered by standard warranties of to
Inventory
Inventory is stated at the lower of cost or net realizable value, approximating a first-in, first-out basis.
The Company provides for inventory losses based on obsolescence and levels in excess of forecasted demand. Inventory is reduced to the estimated net realizable value based on historical usage and expected demand. Inventory provisions based on obsolescence and inventory in excess of forecasted demand are recorded through cost of sales in the consolidated statements of operations.
Concentrations of Credit Risk and Off-Balance-Sheet Risk
In the normal course of operations, ExOne GmbH issues short-term financial guarantees and letters of credit to third parties in connection with certain commercial transactions requiring security through a credit facility with a German bank. At December 31, 2021, total outstanding financial guarantees and letters of credit issued were $
F-18
The Company has no other significant off-balance-sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents. The Company maintains its cash and cash equivalents principally with accredited financial institutions of high-credit standing.
As of December 31, 2021, and 2020,
Customer Deposits
Payments received from customers who have placed reservations or purchase orders in advance of shipment are refundable upon cancellation or non-delivery by the Company and are included within customer deposits on the consolidated balance sheets.
Other Investments
The Company periodically makes investments in companies within the additive manufacturing industry. The Company monitors events or changes in circumstances that may have a significant effect on the fair value of investments, either due to impairment or based on observable price changes, and records necessary adjustments in interest and other (expense) income, net in the consolidated statements of operations.
Property and Equipment
Property and equipment is stated at cost. Expenditures for repairs and maintenance are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is included in the determination of net income or loss.
Depreciation is expensed using the straight-line method over the estimated useful lives of the assets as follows:
Asset Classification |
| Useful Life |
Equipment |
| |
Buildings | ||
Automobiles | ||
Furniture and fixtures |
| |
Computer equipment |
| |
Tooling |
| |
Software |
| |
Leasehold improvements |
| Shorter of asset’s useful life or remaining life of the lease |
Leases
For lease arrangements in which the Company is the lessee, the Company determines if an arrangement is a lease at inception. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. The Company assesses it plans to renew its material leases on an annual basis. Operating leases are included in other assets, current portion of lease liability, and lease liability, net of current portion on the Company’s consolidated balance sheets.
Right of use (“ROU”) assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the expected remaining lease term. As the interest rate implicit in the Company’s leases is typically not readily determinable, the Company uses its incremental borrowing rate for a similar term of lease payments based on the information available at commencement date in determining the present value of future payments.
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The Company elected the short-term lease recognition practical expedient and therefore, the Company does not recognize right of use assets or lease liabilities for leases with less than a twelve-month duration. The Company also elected the practical expedient to account for lease agreements which contain both lease and non-lease components as a single lease component.
For lease arrangements in which the Company is the lessor, the Company determines whether the lease arrangement is classified as an operating lease or sales-type lease at inception. The Company’s operating lease arrangements have initial terms generally ranging from to
The Company’s sales-type lease arrangements generally include transfer of ownership at the end of the lease term, and as such, the Company’s net investment in sales-type lease arrangements presented in the consolidated balance sheets generally does not include an amount of unguaranteed residual value.
For certain of the arrangements, the Company separates and allocates certain non-lease components (principally maintenance services) from non-lease components. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from lease income) basis. In determination of the lease term, the Company considers the likelihood of lease renewal options and lease termination provisions.
Business Combinations
The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The Company generally values the identifiable intangible assets acquired using a discounted cash flow model. The significant estimates used in valuing certain of the intangible assets, include, but are not limited to future expected cash flows of the asset, discount rates to determine the present value of the future cash flows and expected technology life cycles. Intangible assets are amortized over their estimated useful life; the period over which the Company anticipates generating economic benefit from the asset. Fair value adjustments subsequent to the acquisition date, that are not measurement period adjustments, are recognized in earnings.
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that is not individually identified and separately recorded. The excess of the purchase price over the estimated fair value of net assets of businesses acquired in a business combination is recognized as goodwill. Goodwill is not amortized but is tested for impairment at least annually (as of the first day of the fourth quarter) or as circumstances indicate the value may no longer be recoverable. To assess if goodwill is impaired, the Company performs a qualitative assessment to determine whether further impairment testing is necessary. The Company then compares the carrying amount of the single reporting unit to the fair value of the reporting unit. An excess carrying value over fair value would indicate that goodwill may be impaired. The Company performed a qualitative assessment during its annual impairment review for 2021 as of October 1, 2021 and concluded that it is more likely than not that the fair value of the Company’s single reporting unit is not less than its carrying amount.
Intangible Assets
Intangible assets consist of identifiable intangible assets, including developed technology, trade names, and customer relationships, resulting from the Company’s acquisitions. The Company evaluates definite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If indicators of impairment are present, the Company then compares the estimated undiscounted cash flows that the specific asset is expected to generate to its carrying value. If such assets are impaired, the impairment recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. To date, there have been
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Asset Acquisitions
Acquisitions of assets or a group of assets that do not meet the definition of a business are accounted for as asset acquisitions using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values. No goodwill is recognized in an asset acquisition. Intangible assets that are acquired in an asset acquisition for use in research and development activities which have an alternative future use are capitalized as in-process research and development (“IPR&D”). Acquired IPR&D which has no alternative future use is recorded as in-process research and development expense at acquisition.
Impairment of Long-Lived Assets
The Company evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may be impaired. The Company does not believe that any events have occurred through December 31, 2021, that would indicate its long-lived assets are impaired.
Contingent Consideration
Contingent consideration represents potential future payments that the Company may be required to pay in the event negotiated milestones are met in connection with a business acquisition. Contingent consideration is recorded as a liability at the date of acquisition at fair value. The fair value of contingent consideration related to revenue metrics is estimated using a Monte Carlo simulation in a risk-neutral framework. Under this approach, the value of contingent consideration related to revenue metrics is calculated as the average present value of contingent consideration payments over all simulated paths. The fair value of contingent consideration related to technical developments is estimated using a scenario-based approach, which is a special case of the income approach that uses several possible future scenarios. Under this approach, the value of the technical milestone payment is calculated as the probability-weighted payment across all scenarios. Significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of the revenue or technical milestones could result in a significantly higher or lower fair value of the contingent consideration liability. The fair value of the contingent consideration at each reporting date is updated by reflecting the changes in fair value reflected within research and development expenses in the Company’s consolidated statements of operations.
Research and Development
Research and development costs are expensed as incurred. Research and development expense includes costs, primarily related to salaries and benefits for employees, prototypes and design expenses, incurred to develop intellectual property and is charged to expense as incurred.
Capitalized Software
Costs incurred internally in researching and developing a software product to be sold to customers are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, costs incurred during the application development phase are capitalized only when the Company believes it is probable the development will result in new or additional functionality, and such software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The Company has determined that technological feasibility for software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released, such that there are no material costs to capitalize.
The Company capitalizes certain costs related to the development and implementation of cloud computing software. The types of costs capitalized during the application development phase include employee compensation, as well as consulting fees for third-party developers working on these projects. The capitalized costs are amortized on a straight-line basis over the estimated useful life of the asset, which is typically 3 years.
F-21
Stock-Based Compensation
The Company’s stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period.
The Company accounts for all stock options granted to employees and nonemployees using a fair value method. The fair value of options on the date of grant is calculated using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the fair value of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.
For awards with service conditions only, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period. For awards with service and performance-based conditions, the Company recognizes stock-based compensation expense using the graded vesting method over the requisite service period. Estimates of stock-based compensation expense for an award with performance conditions are based on the probable outcome of the performance conditions and the cumulative effect of any changes in the probability outcomes are recorded in the period in which the changes occur. For awards with service and market-based conditions, the Company recognizes stock-based compensation expense on a straight-line based over the requisite service period for each tranche. Stock based compensation expense for awards with a market condition is calculated using a Monte Carlo valuation approach.
The Company estimates forfeitures that will occur based on a historical forfeiture rate in their determination of the expense recorded.
Income Taxes
The Company accounts for income taxes under the asset and liability method; under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.
The Company utilizes a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes.
Comprehensive Loss
The Company’s comprehensive loss consists of its net loss, unrealized gain and loss from investments in debt securities, and foreign currency translation adjustments.
Recently Issued Accounting Standards
Recently Adopted Accounting Guidance
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) —Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. This standard is effective for calendar-year public business entities in 2023 and interim periods within that year, and early adoption is permitted. The Company has adopted this ASU as of January 1, 2021 and has retrospectively adjusted purchase accounting for the EnvisionTEC acquisition where deferred revenue was fair valued. As a practical expedient, the Company elected to estimate
F-22
the SSP for allocation purposes at the acquisition date. Upon the application of this practical expedient, the Company recognized deferred revenue as part of purchase accounting in the amount of $
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in Accounting Standards Codification 740, Income Taxes. It also clarifies certain aspects of the existing guidance to promote more consistent application. This standard is effective for calendar-year public business entities in 2021 and interim periods within that year, and early adoption is permitted. The Company adopted the ASU as of January 1, 2021, which did not have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates the performance of Step 2 from the goodwill impairment test. In performing its annual or interim impairment testing, an entity will instead compare the fair value of the reporting unit with its carrying amount and recognize any impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The Company adopted the ASU as of January 1, 2021, which did not have a material effect on the Company’s consolidated financial statements.
Recent Accounting Guidance Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2022. The Company is currently evaluating the potential impact and does not believe the impact will be material.
3. REVENUE RECOGNITION
Contract Balances
The Company’s deferred revenue balance was $
Contract assets were not significant during the years ended December 31, 2021 and 2020.
Remaining Performance Obligations
At December 31, 2021, the Company had $
F-23
4. ACQUISITIONS
2021 Acquisitions
Acquisition of EnvisionTEC
On February 16, 2021, the Company acquired EnvisionTEC, Inc. and its subsidiaries (“EnvisionTEC”) pursuant to a Purchase Agreement and Plan of Merger dated January 15, 2021. This acquisition added a comprehensive portfolio in additive manufacturing across metals, polymers and composites and grew distribution channels both in quantity and through the addition of a vertically-focused channel. The total purchase price was $
The acquisition is accounted for as a business combination using the acquisition method of accounting. The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s estimates of their fair values on the acquisition date.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Equity consideration | | ||
Total consideration transferred | $ | | |
F-24
The following table summarizes the allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At February 16, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Restricted cash | | ||
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Restricted cash - noncurrent | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Customer deposits | | ||
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
Liability for income taxes | | ||
Deferred revenue | | ||
Current portion of long-term debt | | ||
Long-term debt | | ||
Deferred tax liability | | ||
Lease liability, net of current portion | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
Subsequent to the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in decrease to goodwill of $
The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Acquired technology | $ | | |||
Trade name | | ||||
Customer relationships | | ||||
Total intangible assets | $ | | |||
F-25
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. $
EnvisionTEC’s results are included in the Company’s consolidated results for the period from February 16, 2021 to December 31, 2021. For this period, EnvisionTEC’s net revenues were approximately $
Acquisition of Adaptive 3D
On May 7, 2021, the Company acquired Adaptive 3D Holdings, Inc. and its affiliates (“Adaptive 3D”) pursuant to a Purchase Agreement and Plan of Merger dated as of May 7, 2021. This acquisition expanded the Company’s materials library to include photopolymer elastomers for use in the production of end use parts. The total purchase price was $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to Adaptive 3D’s tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Equity consideration | | ||
Total consideration transferred | $ | | |
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The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At May 7, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
PPP loan payable | | ||
Deferred revenue | | ||
Lease liability, net of current portion | | ||
Deferred tax liability | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
Subsequent to the acquisition date, the Company made a measurement period adjustment to the preliminary purchase price allocation, which resulted in a decrease to goodwill of $
The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Acquired technology | $ | | |||
Trade name | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is not deductible for income tax purposes. The Company incurred $
Adaptive 3D’s results are included in the Company’s consolidated results for the period from May 7, 2021 to December 31, 2021. For this period, Adaptive 3D’s revenues were approximately $
F-27
Acquisition of Aerosint
On June 24, 2021, the Company acquired all outstanding securities of Aerosint SA and its affiliates (“Aerosint”), which expanded the Company’s portfolio of technologies with the addition of multi-material printing capabilities. The total purchase price was $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to Aerosint’s tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition included contingent consideration related to revenue metrics and technical milestones, with a fair value of $
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Equity consideration | | ||
Contingent consideration | | ||
Total consideration transferred | $ | | |
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The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At June 24, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Customer deposits | | ||
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
Deferred revenue | | ||
Lease liability, net of current portion | | ||
Deferred tax liability | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
Subsequent to the acquisition date, the Company made a measurement period adjustment to the preliminary purchase price allocation, which resulted in a decrease to goodwill of $
The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Acquired technology | $ | | |||
Trade name | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is not deductible for income tax purposes. The Company incurred $
Aerosint’s results are included in the Company’s consolidated results for the period from June 24, 2021 to December 31, 2021. For this period, Aerosint’s revenues were $
Acquisition of Dental Arts Labs
F-29
On July 30, 2021, the Company acquired Dental Arts Laboratories, Inc., (“Dental Arts Labs”), which expanded the Company’s portfolio in additive manufacturing within the healthcare industry. The purchase price was $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to Dental Arts Labs’ tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Total consideration transferred | $ | | |
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At July 30, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
Current portion of long‑term debt | | ||
Long‑term debt | | ||
Lease liability, net of current portion | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
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Subsequent to the acquisition date, the Company made a working capital adjustment to the preliminary purchase price allocation, which resulted in decrease to goodwill of $
The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Trade name | $ | | |||
Customer relationships | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is deductible for income tax purposes. The Company incurred $
Dental Arts Labs’ results are included in the Company’s consolidated results for the period from July 30, 2021 to December 31, 2021. For this period, Dental Arts Labs’ revenues were $
Acquisition of A.I.D.R.O.
On September 7, 2021, the Company purchased the entire corporate capital of A.I.D.R.O. Srl (“A.I.D.R.O.”). This acquisition expanded the Company’s parts production capabilities and application expertise in the hydraulics industry. The purchase price for the A.I.D.R.O. acquisition was $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to A.I.D.R.O.’s tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Total consideration transferred | $ | | |
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The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At September 7, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
Current portion of long-term debt, net of deferred financing costs | | ||
Long‑term debt | | ||
Lease liability, net of current portion | | ||
Deferred tax liability | | ||
Other noncurrent liabilities | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
Subsequent to the acquisition date, the Company made a working capital adjustment to the preliminary purchase price allocation, which resulted in an immaterial decrease to goodwill.
The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Trade name | | ||||
Customer relationships | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is not deductible for income tax purposes. The Company incurred $
A.I.D.R.O.’s results are included in the Company’s consolidated results for the period from September 7, 2021 to December 31, 2021. For this period, A.I.D.R.O.’s revenues were $
F-32
Acquisition of Brewer Dental
On October 14, 2021, the Company acquired Larry Brewer Dental Lab, Inc. (“Brewer Dental”), which expanded the Company’s portfolio in additive manufacturing within the healthcare and dental industry. The purchase price was $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to Brewer Dental’s tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Total consideration transferred | $ | | |
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At October 14, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Accounts receivable | | ||
Inventory | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
Lease liability, net of current portion | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
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The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Trade name | | ||||
Customer relationships | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is deductible for income tax purposes. The Company incurred immaterial acquisition-related and other transactional charges related to this acquisition, which are included in general and administrative expenses in the consolidated statements of operations.
Brewer Dental’s results are included in the Company’s consolidated results for the period from October 14, 2021 to December 31, 2021. For this period, Brewer Dental’s revenues were $
Acquisition of May Dental
On October 29, 2021, the Company acquired May Dental Lab, Inc. (“May Dental”), which expanded the Company’s portfolio in additive manufacturing within the healthcare and dental industry. The aggregate purchase price was $
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to My Dental’s tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Total consideration transferred | $ | | |
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The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At October 29, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Current portion of lease liability | | ||
Accrued expenses and other current liabilities | | ||
Lease liability, net of current portion | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Trade name | | ||||
Customer relationships | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is deductible for income tax purposes. The Company incurred immaterial acquisition-related and other transactional charges related to this acquisition, which are included in general and administrative expenses in the consolidated statements of operations.
May Dental’s results are included in the Company’s consolidated results for the period from October 29, 2021 to December 31, 2021. For this period, May Dental’s revenues were $
Acquisition of ExOne
On November 12, 2021, the Company acquired The ExOne Company and its affiliates (“ExOne”). The acquisition of ExOne extends the Company’s product platforms with complementary solutions to create a comprehensive portfolio combining throughput, flexibility, and materials breadth while allowing customers to optimize production based on their specific application needs. The Company acquired all of ExOne’s outstanding common stock for an aggregate purchase price of $
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acquisition method of accounting. The Company is currently finalizing the allocation of the purchase price and expects the purchase price to be allocated primarily to goodwill and intangible assets.
The total purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the Company’s preliminary estimates of their fair values on the acquisition date. The fair values assigned to ExOne’s tangible and intangible assets and liabilities assumed, and the related deferred tax assets and liabilities, are considered preliminary and are based on the information available at the date of the acquisition. The Company is in the process of finalizing its purchase price allocation, and the tax basis of the assets and liabilities acquired. This may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, establishment of certain intangible assets, revisions of useful lives of intangible assets, establishment of potential acquisition contingencies, and the determination of any residual amount that will be allocated to goodwill. Adjustments that impact the deferred tax liability recorded in the business combination could result in an increase or decrease in the Company’s recorded valuation allowance that will be recognized in the accompanying statement of operations.
The acquisition date fair value of the consideration transferred is as follows (in thousands):
Total Acquisition Date Fair Value | |||
Cash consideration | $ | | |
Equity consideration | | ||
Total consideration transferred | $ | | |
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed (in thousands):
At November 12, 2021 | |||
Assets acquired: | |||
Cash and cash equivalents | $ | | |
Restricted cash - current | | ||
Accounts receivable | | ||
Inventory | | ||
Prepaid expenses and other current assets | | ||
Property and equipment | | ||
Intangible assets | | ||
Other noncurrent assets | | ||
Total assets acquired | $ | | |
Liabilities assumed: | |||
Accounts payable | $ | | |
Accrued expenses and other current liabilities | | ||
Current portion of deferred revenue | | ||
Customer deposits | | ||
Current portion of operating lease liability | | ||
Deferred tax liability | | ||
Lease liability, net of current portion | | ||
Deferred revenue, net of current portion | | ||
Other noncurrent liabilities | | ||
Total liabilities assumed | $ | | |
Net assets acquired | $ | | |
Goodwill | $ | | |
Total net assets acquired | $ | | |
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The estimated useful lives of the identifiable intangible assets acquired is as follows:
Gross Value | Estimated Life | ||||
Developed Technology | | ||||
Trade name | | ||||
Customer relationships | | ||||
Total intangible assets | $ | | |||
The goodwill resulting from the purchase price allocation is attributable to the workforce of the acquired business (which is not eligible for separate recognition as an identifiable intangible asset) and the expected synergistic benefits of expanding the combined companies’ target markets both geographically and across industries. The goodwill recognized is not deductible for income tax purposes. The Company incurred $
ExOne’s results are included in the Company’s consolidated results for the period from November 12, 2021 to December 31, 2021. For this period, ExOne’s revenues were $
Pro Forma Information (unaudited)
The following unaudited pro forma financial information is based on the historical financial statements of the Company and presents the Company’s results as if the acquisitions of EnvisionTEC, Adaptive 3D, Aerosint, Dental Arts Labs, A.I.D.R.O., Brewer Dental, May Dental, and ExOne had occurred on January 1, 2020 (in thousands):
Year Ended December 31, | ||||||
2021 |
| 2020 | ||||
(unaudited) | (unaudited) | |||||
Net revenues | $ | | $ | | ||
Net income (loss) | $ | ( | $ | ( | ||
The unaudited pro forma financial information was computed by combining the historical financial information of the Company and EnvisionTEC, Adaptive 3D, Aerosint, Dental Arts, A.I.D.R.O., Brewer Dental, May Dental, and ExOne along with the effects of the acquisition method of accounting for business combinations as though the companies were combined on January 1, 2020. The unaudited pro forma information does not reflect the potential benefits of cost and funding synergies, opportunities to earn additional revenues, or other factors, and therefore does not represent what the actual net revenues and net loss would have been had the companies been combined as of this date.
2021 Asset Acquisitions
Acquisition of Beacon Bio
On June 10, 2021, the Company acquired Beacon Bio, Inc. (“Beacon Bio”) pursuant to a Stock Purchase Agreement. The purchase price consisted of cash consideration of $
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retain research and development employees and contractors of Beacon Bio through the expected term to complete the development, which vest over a service period of
The acquired in-process research and development asset consists of a license to commercialize the PhonoGraft technology. At the date of the acquisition, significant research, development, and risk related to the license remained, and it was deemed not yet probable that there was future economic benefit from this asset. Absent successful clinical results and regulatory approval for this asset, there was no alternative future use associated with this asset. Accordingly, the value of the asset was expensed in the consolidated statements of operations and no deferred tax liability has been recorded.
Acquisition of Meta Additive
On September 9, 2021, the Company acquired Meta Additive Ltd (“Meta Additive”), pursuant to a Stock Purchase Agreement of the same date. Meta Additive is engaged in research and development of binder jet printing. The purchase price consisted of cash consideration of $
The acquired in-process research and development asset consists of the development of novel functional binders to provide advanced additive manufacturing solutions. Due to the stage of development of this technology at the date of the acquisition, significant research, development, and risk remained, and it was not yet probable that there was future economic benefit from this asset. Absent successful commercialization of this asset, there was no associated alternative future use. Accordingly, the value of the assets was expensed in the consolidated statements of operations and no deferred tax liability has been recorded.
2020 Acquisitions
Business Combination
On December 9, 2020, the Company and Trine consummated the Business Combination, with Legacy Desktop Metal surviving the merger as a wholly-owned subsidiary of Trine. Upon the consummation of the Business Combination, each share of Legacy Desktop Metal capital stock issued and outstanding was converted into the right to receive
Upon the closing of the Business Combination, Trine’s certificate of incorporation was amended and restated to, among other things, increase the total number of authorized shares of all classes of capital stock to
In connection with the execution of the definitive agreement for the Business Combination, Trine entered into separate subscription agreements (each, a “Subscription Agreement”) with a number of investors (each, a “Subscriber”), pursuant to which the Subscribers agreed to purchase, and Trine agreed to sell to the Subscribers, an aggregate of
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Trine was treated as the “acquired” company for financial reporting purposes. See Note 1 “Organization and Nature of Business” for further details. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of
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Desktop Metal issuing stock for the net assets of Trine, accompanied by a recapitalization. The net assets of Trine are stated at historical cost, with no goodwill or other intangible assets recorded.
Prior to the Business Combination, Legacy Desktop Metal and Trine filed separate standalone federal, state and local income tax returns. As a result of the Business Combination, structured as a reverse recapitalization for tax purposes, Desktop Metal, Inc. (f/k/a Trine Acquisition Corp.), became the parent of the consolidated filing group, with Desktop Metal Operating, Inc. (f/k/a Desktop Metal, Inc.) as a subsidiary.
The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended December 31, 2020:
Recapitalization | |||
Cash – Trine's trust and cash (net of redemptions) | $ | | |
Cash – PIPE financing |
| | |
Less: transaction costs and advisory fees paid |
| ( | |
Net proceeds from reverse recapitalization |
| | |
Plus: non-cash net liabilities assumed1 |
| ( | |
Less: accrued transaction costs and advisory fees |
| ( | |
Net contributions from reverse recapitalization | $ | | |
The number of shares of common stock issued immediately following the consummation of the Business Combination:
Number of Shares | |||
Common stock, outstanding prior to Business Combination | | ||
Less: redemption of Trine shares |
| ( | |
Common stock of Trine |
| | |
Trine Founder Shares |
| | |
Trine Director Shares |
| | |
Shares issued in PIPE financing | | ||
Business Combination and PIPE financing shares | | ||
Legacy Desktop Metal shares (1) |
| | |
Total shares of common stock immediately after Business Combination |
| | |
(1) The number of Legacy Desktop Metal shares was determined from the shares of Legacy Desktop Metal shares outstanding immediately prior to the closing of the Business Combination converted at the Exchange Ratio of
In connection with the Business Combination,
2020 Asset Acquisitions
In December 2020, the Company acquired all issued and outstanding membership interests of Figur Machine Tools, LLC (“Figur”) for a total purchase price of $
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value attributable to the acquired assets was $
In October 2020, the Company acquired all outstanding shares of Forust Corporation (“Forust”) for a total purchase price of $
5. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company’s cash equivalents and short-term investments are invested in the following (in thousands):
| December 31, 2021 | |||||||||||
| Amortized Cost |
| Unrealized Gains |
| Unrealized Losses |
| Fair Value | |||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
Total cash equivalents | | — | — | | ||||||||
Commercial paper | | — | — | | ||||||||
Corporate bonds | | — | ( | | ||||||||
Government bonds | | — | ( | | ||||||||
Asset-backed securities | | — | ( | | ||||||||
Total short-term investments | | — | ( | | ||||||||
Total cash equivalents and short-term investments | $ | | $ | — | $ | ( | $ | | ||||
| December 31, 2020 | |||||||||||
| Amortized Cost |
| Unrealized Gains |
| Unrealized Losses |
| Fair Value | |||||
Commercial paper | $ | | $ | — | $ | — | $ | | ||||
Money market funds | | — | — | | ||||||||
Total cash equivalents | | — | — | | ||||||||
U.S. Treasury securities | | | — | | ||||||||
Commercial paper | | — | — | | ||||||||
Corporate bonds | | — | ( | | ||||||||
Total short-term investments | | | ( | | ||||||||
Total cash equivalents and short-term investments | $ | | $ | | $ | ( | $ | | ||||
During the year ended December 31, 2021, the Company made a $
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6. FAIR VALUE MEASUREMENTS
The Company uses the following three-tier fair value hierarchy, which prioritizes the inputs used in measuring the fair values for certain of its assets and liabilities:
Level 1 is based on observable inputs, such as quoted prices in active markets;
Level 2 is based on inputs other than the quoted prices in active markets that are observable either directly or indirectly; and
Level 3 is based on unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Items measured at fair value on a recurring basis include money market funds.
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December 31, 2021 | ||||||||||||
Quoted Prices in | Significant | |||||||||||
Active Markets | Other | Significant |
| |||||||||
for Identical | Observable | Unobservable |
| |||||||||
Items | Inputs | Inputs |
| |||||||||
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | |||||
Assets: | ||||||||||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
Commercial paper | — | | — | | ||||||||
Corporate bonds |
| — |
| |
| — | | |||||
Government bonds | — | | — | | ||||||||
Asset-backed securities | — | | — | | ||||||||
Equity securities | | — | — | | ||||||||
Other investments | — | — | | | ||||||||
Total assets | $ | | $ | | $ | | $ | | ||||
Liabilities: | ||||||||||||
Contingent consideration | $ | — | $ | — | $ | | $ | | ||||
Total liabilities | $ | — | $ | — | $ | | $ | | ||||
December 31, 2020 | ||||||||||||
Quoted Prices in | Significant | |||||||||||
Active Markets | Other | Significant | ||||||||||
for Identical | Observable | Unobservable | ||||||||||
Items | Inputs | Inputs | ||||||||||
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | |||||
Assets: |
|
|
|
|
|
|
|
| ||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
Commercial paper | — | | — | | ||||||||
Corporate bonds |
| — |
| |
| — | | |||||
U.S. Treasury securities | | — | — | | ||||||||
Other investments | — | — | | | ||||||||
Total assets | $ | | $ | | $ | | $ | | ||||
Liabilities: | ||||||||||||
Private Placement Warrants | $ | — | $ | — | $ | | $ | | ||||
Total liabilities | $ | — | $ | — | $ | | $ | | ||||
The Company has determined that the estimated fair value of its corporate bonds and commercial paper are reported as Level 2 financial assets as they are based on model-driven valuations in which all significant inputs are observable, or can be derived from or corroborated by observable market data for substantially the full term of the asset.
Equity securities include investments made via publicly traded securities. The Company has determined that the estimated fair value of its equity securities is reported as Level 1 financial assets as they are based on quoted market prices in active markets for identical assets. During the year ended December 31, 2021, the Company recognized a loss on investments in equity securities of $
Other investments include investments made via convertible debt instruments totaling $
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instruments include the rights and obligations of the notes the Company holds as well as the probability of a qualified financing event, acquisition, or change in control. During the year ended December 31, 2021, the Company recognized gains on convertible debt instruments of $
The contingent consideration liability is valued using a Monte Carlo simulation in a risk-neutral framework as well as a scenario based approach (both special cases of the income approach), based on key inputs that are not all observable in the market and is classified as a Level 3 liability. The Company assesses the fair value of the contingent consideration liability at each reporting period, with any subsequent changes to the fair value of the liability reflected in the consolidated statement of operations until the liability is settled. During the year ended December 31, 2021, the Company recognized a gain on the fair value of contingent consideration of $
The fair value of the Private Placement Warrants was estimated using the Black-Scholes option pricing model and was classified as a Level 3 financial instrument. The significant assumptions used in the model were the Company’s stock price, exercise price, expected term, volatility, interest rate, and dividend yield. During the year ended December 31, 2021 and 2020, the Company recognized a loss of $
There was
Year Ended December 31, | ||||||
2021 |
| 2020 | ||||
Balance at beginning of period | $ | | $ | — | ||
Additions | | | ||||
Changes in fair value | ( | — | ||||
Transfers to Level 1 | ( | — | ||||
Balance at end of period | $ | | $ | | ||
The following table presents information about the Company’s movement in Level 3 liabilities measured at fair value (in thousands):
Year Ended December 31, | ||||||
2021 |
| 2020 | ||||
Balance at beginning of period | $ | | $ | — | ||
Additions | | | ||||
Changes in fair value | | ( | ||||
Exercise of private placement warrants | ( | — | ||||
Disposals | ( | — | ||||
Balance at end of period | $ | | $ | | ||
In
7. ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows (in thousands):
December 31, | |||||||
2021 |
| 2020 | |||||
Trade receivables | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | |||||
Total accounts receivable | $ | | $ | | |||
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The following table summarizes activity in the allowance for doubtful accounts (in thousands):
Years Ended December 31, | |||||||
2021 | 2020 | ||||||
Balance at beginning of period | $ | | $ | | |||
Provision for uncollectible accounts, net of recoveries | | | |||||
Uncollectible accounts written off | ( | ( | |||||
Balance at end of period | $ | | $ | | |||
8. INVENTORY
Inventory consists of the following (in thousands):
December 31, | ||||||
| 2021 |
| 2020 | |||
Raw materials | $ | | $ | — | ||
Work in process | | | ||||
Finished goods: |
|
| ||||
Deferred cost of sales | | — | ||||
Manufactured finished goods | | | ||||
Total finished goods | | | ||||
Total inventory | $ | | $ | | ||
9. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consists of the following (in thousands):
December 31, | |||||||
2021 |
| 2020 | |||||
Prepaid operating expenses | $ | | $ | | |||
Prepaid taxes | | — | |||||
Prepaid dues and subscriptions | | | |||||
Prepaid insurance | | | |||||
Government grants receivable | | — | |||||
Prepaid rent | | | |||||
Other | | | |||||
Total prepaid expenses and other current assets | $ | | $ | | |||
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10. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following (in thousands):
December 31, | ||||||
| 2021 |
| 2020 | |||
Equipment | $ | | $ | | ||
Land and buildings | | — | ||||
Automobiles | | — | ||||
Furniture and fixtures |
| |
| | ||
Computer equipment |
| |
| | ||
Tooling |
| |
| | ||
Software |
| |
| | ||
Leasehold improvements |
| |
| | ||
Construction in process |
| |
| | ||
Property and equipment, gross |
| |
| | ||
Less: accumulated depreciation |
| ( |
| ( | ||
Total property and equipment, net | $ | | $ | | ||
Depreciation and amortization expense was $
11. GOODWILL & INTANGIBLE ASSETS
The carrying amount of goodwill at December 31, 2021 and 2020 was $
Goodwill | |||
Balance at December 31, 2019 | $ | | |
Balance at December 31, 2020 | $ | | |
Acquisition of EnvisionTEC | | ||
Acquisition of Adaptive3D | | ||
Acquisition of Aerosint | | ||
Acquisition of Dental Arts Labs | | ||
Acquisition of A.I.D.R.O. | | ||
Acquisition of Brewer Dental | | ||
Acquisition of May Dental | | ||
Acquisition of ExOne | | ||
Foreign currency translation adjustment | ( | ||
Balance at December 31, 2021 | $ | |
The Company has
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The following table sets forth the major categories of intangible assets and the weighted-average remaining useful lives for those assets that are not already fully amortized (in thousands):
December 31, 2021 |
| December 31, 2020 | |||||||||||||||||||
Weighted Average | Gross | Net | Gross | Net | |||||||||||||||||
Remaining Useful | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||
Lives (in years) | Amount | Amortization | Amount |
| Amount | Amortization | Amount | ||||||||||||||
Acquired technology | $ | | $ | | $ | |
| $ | | $ | | $ | | ||||||||
Trade name | | | | — | — | — | |||||||||||||||
Customer relationships | | | | — | — | — | |||||||||||||||
Capitalized software | | | | | | | |||||||||||||||
Total intangible assets | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
The Company recognized $
Statement of | Amortization | Amortization | ||||||||
Operations | Expense | Expense | ||||||||
Category | Line Item | December 31, 2021 | December 31, 2020 | |||||||
Acquired technology | Cost of Sales | $ | | $ | | |||||
Acquired technology | Research and Development | | | |||||||
Trade name | General and Administrative | | — | |||||||
Customer relationships | Sales and Marketing | | — | |||||||
Capitalized software | Research and Development | | | |||||||
$ | | $ | | |||||||
The Company expects to recognize the following amortization expense (in thousands):
Amortization | |||
2022 | $ | | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
2027 and after | | ||
Total intangible amortization | $ | | |
12. OTHER NONCURRENT ASSETS
The following table summarizes the Company’s components of other noncurrent assets (in thousands):
December 31, | ||||||
| 2021 |
| 2020 | |||
Right of use asset | | | ||||
Long-term deposits | | | ||||
Other investments | | | ||||
Other | | — | ||||
Total other noncurrent assets | $ | | $ | | ||
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13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The following table summarizes the Company’s components of accrued expenses and other current liabilities (in thousands):
December 31, | ||||||
| 2021 |
| 2020 | |||
Compensation and benefits related | $ | | $ | | ||
Professional services | | | ||||
Warranty reserve | | | ||||
Franchise and royalty fees | | | ||||
Current portion of contingent consideration | | — | ||||
Inventory purchases | |
| | |||
Commissions | | — | ||||
Income tax payable | | — | ||||
Sales and use and franchise taxes | | | ||||
Other |
| |
| | ||
Total accrued expenses and other current liabilities | $ | | $ | | ||
As of December 31, 2021, and December 31, 2020, the Company has recorded $
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Warranty reserve, at the beginning of the period | $ | | $ | | ||
Warranty reserve assumed in acquisition | | — | ||||
Additions to warranty reserve |
| |
| | ||
Claims fulfilled |
| ( |
| ( | ||
Warranty reserve, at the end of the period | $ | | $ | | ||
14. DEBT
Term Loan—In June 2018, the Company entered into a $
PPP Loans— In connection with the acquisition of EnvisionTEC, the Company acquired $
Bank Debt—In connection with the acquisition of A.I.D.R.O., the Company acquired
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December 31, 2021, the Company paid $
Equipment Financing Agreement—In connection with the acquisition of Dental Arts Labs, the Company acquired a
Deferred Financing Costs—In connection with the term loan borrowing, the Company incurred $
15. OTHER NONCURRENT LIABILITIES
The following table summarizes the Company’s components of other noncurrent liabilities (in thousands):
| December 31, | |||||
| 2021 |
| 2020 | |||
Taxes payable | $ | | $ | — | ||
Acquisition consideration | | — | ||||
Other |
| |
| — | ||
Total other noncurrent liabilities | $ | | $ | — | ||
16. LEASES
Lessee
At December 31, 2021, the Company recorded $
As a result of acquisitions, the Company acquired operating, finance, and short-term leases for corporate offices, manufacturing, warehousing, laboratory and research and development facilities, and company vehicles. The acquired leases increased the Company’s right of use asset by $
The Company reviews all supplier, vendor, and service provider contracts to determine whether any service arrangements contain a lease component. The Company identified
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Information about other lease-related balances is as follows (in thousands):
Years Ended December 31, |
| |||||||
| 2021 |
| 2020 |
| ||||
Lease cost |
|
|
| |||||
Operating lease cost | $ | | $ | | ||||
Finance lease cost | | — | ||||||
Short‑term lease cost |
| |
| — | ||||
Variable lease cost |
| |
| | ||||
Total lease cost | $ | | $ | | ||||
Other Information |
|
|
|
| ||||
Operating cash flows used in operating leases | $ | | $ | | ||||
Operating cash flows used in finance leases | | — | ||||||
Weighted‑average remaining lease term—operating leases (years) |
|
| ||||||
Weighted‑average remaining lease term—finance leases (years) | — | |||||||
Weighted‑average discount rate—operating leases | | | % | |||||
Weighted‑average discount rate—finance leases |
| | % |
| — | |||
The rate implicit in the lease is not readily determinable in most of the Company’s leases, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.
Future minimum lease payments under noncancelable operating leases at December 31, 2021, are as follows (in thousands):
Operating Leases | Finance Leases | |||||
2022 | $ | | $ | | ||
2023 |
| | | |||
2024 |
| | | |||
2025 |
| | | |||
2026 |
| | | |||
2026 and after | | | ||||
Total lease payments |
| | | |||
Less amount representing interest |
| ( | ( | |||
| | | ||||
| ( | ( | ||||
$ | | | ||||
As of December 31, 2021, the Company does
Lessor
The Company leases machinery and equipment to customers (principally 3D printing machines and related equipment) under lease arrangements classified as either operating leases or sales-type leases. At December 31, 2021, the Company estimated that the total fair market value approximated the related net book value of the machinery and equipment held under the Company’s operating lease arrangements. The Company’s net investment in sales-type lease arrangements at December 31, 2021 is immaterial and is recorded in prepaid expense and other current assets in the consolidated balance sheets. There was
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The Company recognized the following components under operating and sales-type lease arrangements in the accompanying consolidated statements of operations and comprehensive loss for the periods indicated:
For the years ended December 31, | ||||||||||
2021 | 2020 | |||||||||
Operating | Sales-type | Operating | Sales-type | |||||||
Revenue | $ | | | $ | — | — | ||||
Interest Income (1) | — | | — | — | ||||||
(1) Interest income related to sales-type leases is recorded as a component of revenue in the consolidated statements of operations and comprehensive loss for each of the periods presented.
The Company’s net investment in sales-type leases consisted of the following:
2021 | 2020 | |||||
Future minimum lease payments receivable | $ | | $ | — | ||
Less: Allowance for doubtful accounts | ( | — | ||||
Net future minimum lease payments receivable | | — | ||||
Less: Unearned interest income | ( | — | ||||
Net investment in sales-type leases | $ | | $ | — | ||
The Company did not record any provisions for bad debt related to lessees during the years ended December 31, 2021 or 2020.
Future minimum lease receipts of non-cancellable operating and sales-type lease arrangements as of December 31, 2021 were as follows:
Operating | Sales-type | |||||
2022 | $ | | $ | | ||
2023 |
| | | |||
2024 |
| | | |||
2025 |
| — | | |||
2026 |
| — | — | |||
Thereafter | — | — | ||||
Total minimum lease payments |
| $ | | $ | | |
Less: Allowance for doubtful accounts |
| ( | ||||
Less: Present value discount |
| ( | ||||
Future minimum lease payments receivable |
| $ | | |||
17. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company may face legal claims or actions in the normal course of business. At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to its legal proceedings. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any current legal proceedings will have a material adverse impact on the Company’s consolidated financial statements.
Between September 2021 and the closing of the ExOne Merger on November 12, 2021,
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On November 8, 2021, another purported stockholder, Leo Lissoq Goldstein, filed a Section 220 complaint in Delaware Chancery Court against ExOne (Goldstein v. The ExOne Company, Case No. 2021-0958-KSJM). Mr. Goldstein seeks to discover certain books and records of the company related to the ExOne Merger purportedly in order to investigate, among other things, the events leading up to and the disclosures made in connection with the ExOne Merger. Mr. Goldstein has also moved to intervene and stay the Campanella action, discussed below, until his Section 220 action is complete.
On November 22, 2021, purported stockholder Pietro Campanella filed a class action lawsuit against ExOne, Desktop Metal, Inc., and former ExOne directors and officers alleging breach of fiduciary duties and aiding and abetting breach of fiduciary duties in connection with the ExOne Merger (Campanella v. The ExOne Company et al., Case No. 2021-1013, Case No. 2021-1013-LWW). In particular, Mr. Campanella alleges that ExOne’s proxy statement and supplemental disclosures did not adequately disclose information related to a whistleblower investigation at one of Desktop Metal’s subsidiaries, EnvisionTEC, and the resignation of EnvisionTEC’s CEO.
On December 21, 2021, January 14, 2022, February 2, 2022 and February 22, 2022, four alleged shareholders of Desktop Metal stock filed purported securities class action complaints in the United States District Court for the District of Massachusetts. (Luongo v. Desktop Metal, D. Mass., Case No. 1:21-cv-12099-IT; Hathaway v. Desktop Metal, D. Mass., Case No. 1:22-cv-10059-IT; Guzman-Martinez v. Desktop Metal, D. Mass, Case No. 1:22-cv-10173, Xie v. Desktop Metal, Case No. 1:22-cv-10297-IT). Each complaint alleges that Desktop Metal and certain of its officers and directors violated Sections 10(b) and 20(a) of the Securities and Exchange Act by making false or misleading statements regarding EnvisionTEC’s manufacturing and product compliance practices and procedures. On February 4, 2022, the court issued an order consolidating the first three District of Massachusetts securities class actions.
The Company believes that these complaints are all without merit and intends to defend against them vigorously.
Whistleblower Complaint
On November 4, 2021, the Audit Committee of the Board of Directors engaged a third party to conduct an independent internal investigation as a result of a whistleblower complaint relating to manufacturing and product compliance practices at its EnvisionTEC US LLC facility in Dearborn, Michigan. In response, and to address the issues identified in the investigation, the Company implemented changes in the management of the Dearborn facility and improvements in manufacturing and compliance policies and procedures for the applicable products. Following notification to the FDA, the Company also initiated voluntary recalls of certain shipments of Flexcera resins and the PCA4000 curing box. The investigation is now closed, and the matters subject to the investigation and the Company’s responsive actions did not have, and are not anticipated to have, a material impact on the Company’s financial statements or its business.
Commitments
The Company has entered into legally binding agreements with certain suppliers to purchase materials used in the manufacturing of the Company’s products. As of December 31, 2021, the Company had outstanding purchase orders with contract manufacturers in the amount of $
The Company has also entered into licensing and royalty agreements with certain manufacturing and software companies and universities related to the use of patented technology. Under the terms of each agreement, the Company has made initial, one-time payments of $
As a result of the acquisition of ExOne, the Company assumed short-term financial guarantees and letters of credit. Within the Company’s normal course of operations, it issues these short-term financial guarantees and letters of credit through a credit facility with a German bank to third parties in connection with certain commercial transactions requiring security. The credit facility provides a capacity amount of $
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security. The credit facility does not require cash collateral for the issuance of financial guarantees and letters of credit for commercial transactions requiring security for amounts up to $
At December 31, 2021, total outstanding financial guarantees and letters of credit issued by the Company under the credit facility were $
18. INCOME TAXES
During the years ended December 31, 2021 and 2020, the Company recorded $
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Domestic | $ | ( | $ | ( | ||
Foreign |
| ( |
| ( | ||
Loss before income taxes | $ | ( | $ | ( | ||
The provision (benefit) for income taxes consists of the following (in thousands):
Years Ended December 31, | ||||||
2021 |
| 2020 | ||||
Current: | ||||||
Federal | $ | ( | — | |||
State | | — | ||||
Total Current | ( | — | ||||
Deferred: | ||||||
Federal | ( | ( | ||||
State | ( | ( | ||||
Foreign | ( | — | ||||
Total Deferred | ( | ( | ||||
Benefit for income taxes | $ | ( | $ | ( | ||
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A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate for the years ended December 31, 2021 and 2020 is as follows:
Years Ended December 31, | |||||||
| 2021 |
| 2020 |
| |||
Effective income tax rate: | |||||||
Expected income tax benefit at the federal statutory rate |
| | % |
| | % | |
State taxes | ( | % | | % | |||
Change in valuation allowance | ( | % | ( | % | |||
Research and development credit carryover | ( | % | | % | |||
Stock-based compensation expense | | % | — | % | |||
Warrant Expense | ( | % | — | % | |||
Permanent differences | — | % | | % | |||
Other | ( | % | — | % | |||
Effective income tax rate | | % | | % | |||
As of December 31, 2021, and 2020, deferred tax assets and liabilities consist of the following (in thousands):
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Deferred tax assets: | ||||||
Federal and state net operating carryforwards | $ | | $ | | ||
Research and development and other credits | | | ||||
Start-up costs | | | ||||
Stock-based compensation | | | ||||
Reserves and accruals | | | ||||
Deferred lease liability | | | ||||
Depreciation | | | ||||
Divisional foreign entity deferred | | — | ||||
Other deferred tax assets | | | ||||
Total gross deferred tax asset | | | ||||
Valuation allowance | ( | ( | ||||
Net deferred tax asset | | | ||||
Deferred tax liabilities: | ||||||
Right‑of‑use asset | ( | ( | ||||
Intangible assets | ( | ( | ||||
Depreciation | ( | — | ||||
Other | ( | — | ||||
Total deferred tax liabilities | ( | ( | ||||
Net deferred tax liability | $ | ( | $ | — | ||
Realization of deferred tax assets is dependent upon the generation of future taxable income. As required by ASC 740 Income Taxes, the Company evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets as of December 31, 2021. As a result of the fact that the Company has incurred tax losses from inception, the Company has determined that it was more likely than not that the Company would not realize the benefits of federal and state net deferred tax assets.
As a result of recent acquisitions, the Company recorded U.S. deferred tax liabilities in purchase accounting related to non-tax-deductible intangible assets recognized in the financial statements. The acquired deferred tax liabilities are a source of income to support recognition of the Company’s existing deferred tax assets. Pursuant to ASC 805, the impact on a Company’s existing deferred tax assets and liabilities caused by an acquisition should be recorded in the financial statements outside of acquisition accounting.
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Accordingly, the Company recorded an income tax benefit of $
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021 and 2020 were as follows (in thousands):
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Valuation allowance at beginning of the year | $ | | $ | | ||
Increases recorded to income tax provision |
| |
| | ||
Decreases recorded as a benefit to income tax provision | ( | ( | ||||
Valuation allowance at end of year | $ | | $ | | ||
As of December 31, 2021, and 2020, the Company had federal net operating loss carryforwards of $
The Company has foreign net operating loss carryforwards available to reduce taxable income in Germany, Japan, Belgium, Italy and the United Kingdom. As of December 31, 2021, the Company had total foreign net operating loss carryforwards of $
Utilization of the Company’s net operating loss (“NOL”) carryforwards and research and development (“R&D”) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“Section 382”) as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to significant complexity with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforward or research and development tax credits carryforwards would be subject to an annual limitation under Section 382. Although the Company has not completed its analysis, it is reasonably possible that its federal NOLs available to offset future taxable income could materially decrease. This reduction would be offset by an equal and offsetting adjustment to the existing valuation allowance. Given the offsetting adjustments to the existing valuation allowance, any ownership change is not expected to have an adverse material effect on the Company’s consolidated financial statements. Any limitation may result in expiration of a portion of the net operating loss carryforward or research and development tax credit carryforwards before utilization.
The Company operates within multiple tax jurisdictions and could be subject to audit in those jurisdictions. Such audits can involve complex income tax issues, which may require an extended period of time to resolve and may cover multiple years. In management’s opinion, adequate provisions for income taxes have been made for all years subject to audit.
In the U.S., the Company files income tax returns in the U.S. federal tax jurisdiction and various states. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years after 2017; and for 2017 and earlier years to the extent of the losses carried forward from such earlier years. The
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Company is currently not under examination by the Internal Revenue Service or any other jurisdiction for any tax years. The Company remains subject to non-U.S. income tax examinations in various jurisdictions for tax years 2016 through 2021.
As of December 31, 2021, the Company has a liability of $
Years Ended December 31, | ||||||
2021 |
| 2020 | ||||
Unrecognized tax liability, beginning of year | $ | — | $ | — | ||
Unrecognized tax liability acquired through purchase accounting | | — | ||||
Gross decreases - foreign exchange translation adjustments | ( | — | ||||
Unrecognized tax liability, end of year | $ | | $ | — | ||
The Company intends to permanently reinvest all earnings of its international subsidiaries in order to support the current and future capital needs of their operations in the foreign jurisdictions.
19. STOCKHOLDERS’ EQUITY
As of December 31, 2021, the Company’s authorized shares consisted of
During 2015, the Company issued
Common Stock Warrants
In May 2017, the Company entered into a strategic collaboration agreement with an investor allowing the investor’s resellers to sell and distribute the Company’s products. In consideration for this agreement, the Company agreed to issue warrants to purchase up to
Year Ended December 31, |
| ||||
2020 |
| ||||
Risk‑free interest rate | % | ||||
Expected volatility | | % | |||
Expected life (in years) | |||||
Expected dividend yield | — | ||||
Fair value of Common Stock | $ | | |||
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In August 2020, the Company issued a warrant to purchase up to
Year Ended December 31, | |||||
2020 |
| ||||
Risk‑free interest rate | % | ||||
Expected volatility | | % | |||
Expected life (in years) | |||||
Expected dividend yield | — | ||||
Fair value of Common Stock | $ | | |||
Trine Warrants
In Trine’s initial public offering, it sold units at a price of $
The Warrant Agreement, dated as of March 14, 2019, by and between the Company and Continental Stock Transfer & Trust Company also obligated the Company to use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act of 1933, as amended (the “Securities Act”), of the issuance of the shares of Common Stock issuable upon exercise of the Public Warrants, and to cause the same to become effective and remain effective while the Public Warrants remain outstanding. On February 4, 2021, the Company’s registration statement covering such shares became effective.
Simultaneously with the consummation of Trine’s initial public offering, Trine Sponsor IH, LLC (the “Sponsor”) purchased an aggregate of
The Private Placement Warrants are identical to the Public Warrants except that the Private Placement Warrants are not redeemable by Desktop Metal, and may be exercised for cash or on a cashless basis so long as they are held by the Sponsor or any of its permitted transferees. Additionally, pursuant to the terms of the amended and restated registration rights agreement entered in connection with the Business Combination, the Sponsor had the right to have the resale of the shares of Common Stock acquired upon exercise of the Private Placement Warrants registered under the Securities Act. On February 4, 2021, the Company’s registration statement covering such shares became effective.
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On February 24, 2020, Trine issued an unsecured promissory note (the “2020 Note”) to the Sponsor. The 2020 Note bore no interest and was repayable in full upon consummation of the Business Combination. The Sponsor had the option to convert any unpaid balance of the 2020 Note into warrants equal to the principal amount of the 2020 Note so converted divided by $
The Company’s Private Placement Warrants were classified as liabilities, and were measured at fair value through earnings. During the year ended December 31, 2021 and 2020, the Company recorded a $
Years Ended December 31, | |||||||||
2021 |
| 2020 | |||||||
Risk‑free interest rate | % | | % | ||||||
Expected volatility | | % | | % | |||||
Expected life (in years) | |||||||||
Expected dividend yield | — | — | |||||||
Fair value of Common Stock | $ | $ | | ||||||
Exercise price | $ | $ | |||||||
All of the Private Placement Warrants were exercised on a cashless basis prior to March 2, 2021, and an aggregate of
Legacy Desktop Metal Convertible Preferred Stock
In connection with the Business Combination, Legacy Desktop Metal’s Convertible Preferred Stock (“Legacy Convertible Preferred Stock”) previously classified as mezzanine was retroactively adjusted, converted into Common Stock, and reclassified to permanent equity as a result of the reverse recapitalization. As of December 31, 2020, there was no Legacy Convertible Preferred Stock authorized, issued or outstanding. The following table summarizes details of Legacy Convertible Preferred Stock authorized, issued and outstanding immediately prior to the Business Combination ($ in thousands):
| Prior to Business Combination | |||||
Legacy Convertible Preferred Stock Classes | Shares Authorized, Issued and Outstanding | Preferred Stock | ||||
Series A Legacy Convertible Preferred Stock, $ | | | ||||
Series B Legacy Convertible Preferred Stock, $ |
| | | |||
Series C Legacy Convertible Preferred Stock, $ |
| | | |||
Series D Legacy Convertible Preferred Stock, $ |
| | | |||
Series E Legacy Convertible Preferred Stock, $ |
| | | |||
Series E‑1 Legacy Convertible Preferred Stock, $ |
| | | |||
Total | | | ||||
The following describes the rights and preferences of the Company’s Legacy Convertible Preferred Stock prior to conversion to common stock in the Business Combination:
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Voting—The holders of Legacy Convertible Preferred Stock voted together with all other classes and series of stock as a single class on an as-converted basis. Each share of Legacy Convertible Preferred Stock entitled the holder to such number of votes per share as equaled the whole number of shares of Legacy Desktop Metal common stock into which such share of Legacy Convertible Preferred Stock was convertible. The holders of the Series A Legacy Convertible Preferred Stock were entitled to elect
Dividends—The holders of Legacy Convertible Preferred Stock were entitled to receive dividends at the rate of
Liquidation—Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the holders of the Legacy Convertible Preferred Stock were entitled to first be paid out of assets available for distribution, on a pari passu basis, prior and in preference to any distribution to the holders of Legacy Desktop Metal common stock, the greater of (a) an amount equal to $
Conversion—Each holder of Legacy Convertible Preferred Stock had the right, at their option at any time, to convert any such shares of Legacy Convertible Preferred Stock into fully paid and nonassessable shares of Legacy Desktop Metal common stock. The conversion ratio was determined by dividing the original issue price of such share of Legacy Convertible Preferred Stock by the conversion price then in effect, which was equal to $
Redemption—The Legacy Convertible Preferred Stock was not subject to mandatory or optional redemption other than in connection with a liquidation, dissolution, or winding-up of the Company.
20. STOCK BASED COMPENSATION
In 2015, the Board of Directors approved the adoption of the 2015 stock incentive plan (the “2015 Plan”). The 2015 Plan allowed for the award of incentive and nonqualified stock options, restricted stock, and other stock-based awards to employees, officers, directors, consultants, and advisers of the Company. Awards could be made under the 2015 Plan for up to
As part of the acquisition of Make Composites, Inc. (“Make”) in 2019, the Company assumed the 2018 equity incentive plan of Make (the “Make Plan”). The Make Plan allows for the award of incentive and nonqualified stock options and warrants for those
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employees and contractors that were hired as part of the acquisition. The Make Plan allowed for
In December 2020, the Board of Directors and stockholders of the Company approved the adoption of the 2020 Incentive Award Plan (the “2020 Plan” and together with the 2015 Plan and the Make Plan, the “Plans”), which became effective on the date of the Business Combination. Upon effectiveness of the 2020 Plan, the Company ceased granting new awards under the 2015 Plan.
The 2020 Plan allows for the award of incentive and nonqualified stock options, restricted stock, and other stock-based awards to employees, officers, directors, consultants, and advisers of the Company. The number of shares of common stock initially available for issuance under the 2020 Plan was
Stock Options
The Company grants stock options at exercise prices deemed by the Board of Directors to be equal to the fair value of the Common Stock at the time of grant. The fair value of Common Stock has been determined by the Board of Directors of the Company at each stock option measurement date based on a variety of different factors, including the results obtained from independent third-party appraisals, the Company’s consolidated financial position and historical financial performance, the status of technological development within the Company, the composition and ability of the current engineering and management team, an evaluation and benchmark of the Company’s competition, the current climate in the marketplace, the illiquid nature of the Common Stock, arm’s-length sales of the Company’s capital stock, and the prospects of a liquidity event, among others.
In July 2020 in order to incentivize and retain personnel, the Company repriced certain employee unvested stock options held by employees to have an exercise price equal to the most recent 409A private stock valuation. Vested awards were not eligible for repricing. Employees were allowed to opt out of the repricing of unvested stock option grants by providing notice to the Company within a month following the repricing. If an employee did not opt out of the repricing, all unvested options held by such employee were repriced and subject to a new vesting schedule. Repriced options vest over a period of
During the year ended December 31, 2021, the Company did
Year Ended |
| |||
| December 31, 2020 |
| ||
Risk‑free interest rate | % | |||
Expected volatility | % | |||
Expected life (in years) | ||||
Expected dividend yield | — | |||
Fair value of Common Stock | $ | |||
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During the year ended December 31, 2021, the Company did
Year Ended | |||||
December 31, 2020 |
| ||||
Risk‑free interest rate | % | ||||
Expected volatility | % | ||||
Expected life (in years) | |||||
Expected dividend yield | — | ||||
Fair value of Common Stock | $ | ||||
The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the related stock options. The expected life of stock options was calculated using the average of the contractual term of the option and the weighted-average vesting period of the option, as the Company does not have sufficient history to use an alternative method to the simplified method to calculate an expected life for employees. The Company has not paid a dividend and is not expected to pay a dividend in the foreseeable future. Expected volatility for the Common Stock was determined based on an average of the historical volatility of a peer group of similar public companies.
Performance-Based Stock Options (included above)
During the year ended December 31, 2020,
Assumed Stock Options
In connection with the acquisition of ExOne, the Company assumed
Risk‑free interest rate | % | |||
Expected volatility | % | |||
Expected life (in years) | ||||
Expected dividend yield | — | |||
Fair value of Common Stock | $ |
The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the related stock options. The expected life of stock options was calculated using the average of the contractual term of the option and the weighted-average vesting period of the option, as the Company does not have sufficient history to use an alternative method to the simplified method to calculate an expected life for employees. The Company has not paid a dividend and is not expected to pay a dividend in the foreseeable future. Expected volatility for the Common Stock was determined based on an average of the historical volatility of a peer group of similar public companies.
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The option activity of the Plans for the year ended December 31, 2021, is as follows (shares in thousands):
|
| Weighted-Average |
| |||||||
Weighted-Average | Remaining |
| Aggregate | |||||||
Number of | Exercise Price | Contractual Term |
| Intrinsic Value | ||||||
| Shares |
| per Share |
| (in years) |
| (in thousands) | |||
Outstanding at January 1, 2021 | | $ | | $ | | |||||
Granted |
| | $ | |
| |||||
Exercised |
| ( | $ | |
| |||||
Forfeited/expired |
| ( | $ | |
| |||||
Outstanding at December 31, 2021 |
| | $ | |
| $ | | |||
Options vested at December 31, 2021 |
| | $ | |
| $ | | |||
Options vested or expected to vest at December 31, 2021 |
| | $ | |
| $ | | |||
The weighted-average grant-date fair value for options granted during 2021 and 2020 was approximately $
On September 28, 2020 the Company modified the vesting conditions for certain awards granted to one of our officers such that in the event of a change in control, half of the outstanding unvested options would vest. Upon the Business Combination, the total incremental compensation expense resulting from the modification was approximately $
The total stock-based compensation expense related to stock options during the years ended December 31, 2021 and 2020 was $
Restricted Stock Awards
In connection with acquisitions, the Company has granted RSAs that are considered post-combination expense and accounted for as stock-based compensation as the shares vest.
The activity for stock subject to vesting under the Plans for the year ended December 31, 2021 is as follows (shares in thousands):
Shares Subject |
| Weighted-Average | ||
| to Vesting |
| Grant Date Fair Value | |
Balance of unvested shares as of January 1, 2021 | | $ | ||
Issuance of additional shares |
| |
| $ |
Vested |
| ( |
| $ |
Balance of unvested shares as of December 31, 2021 |
| |
| $ |
The total stock-based compensation expense related to RSAs during the years ended December 31, 2021 and 2020 was $
Restricted Stock Units
RSUs awarded to employees and non-employees generally vest over
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RSU activity under the 2020 Plan for the year ended December 31, 2021 is as follows (shares in thousands):
Shares Subject |
| Weighted-Average | ||
| to Vesting |
| Grant Date Fair Value | |
Balance of unvested shares as of January 1, 2021 | $ | |||
Granted | | $ | ||
Vested | ( | $ | ||
Cancelled/Forfeited | ( | $ | ||
Balance of unvested shares as of December 31, 2021 | | $ |
The total stock-based compensation expense related to RSUs during the years ended December 31, 2021 and 2020 was $
Restricted stock units include awards that vest subject to certain performance and market-based criteria.
Performance-Based Restricted Stock Units (included above)
During the year ended December 31, 2021,
During the year ended December 31, 2020,
Market-Based Restricted Stock Units (included above)
In October 2021 the Compensation Committee of the Company’s Board of Directors awarded certain executive officers a total of up to
The Company used a Monte Carlo simulation model to estimate the grant-date fair value of the restricted stock units granted in October 2021. The fair value is recorded as stock compensation expense in the consolidated statements of operations over the period from the date of grant to October 2026 regardless of the actual outcome achieved.
The table below sets forth the assumptions used to value the market-based awards and the estimated grant-date fair value:
October 2021 | ||||
Awards | ||||
Risk-free interest rate | | % | ||
Expected dividend yield | — | % | ||
Remaining performance period (in years) | ||||
Expected volatility | | % | ||
Estimated grant date fair value (per share) | $ | |||
Target performance (number of shares) | | |||
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During the year ended December 31, 2021, one of the executive officers resigned from the Company, forfeiting his market-based award. As the service condition was not met prior to his resignation,
Liability-Classified Share-Based Arrangement
During the year ended December 31, 2021, the Compensation Committee of the Company’s Board of Directors provided performance goals and achievement criteria to certain key employees. If these performance criteria are met, the Company has committed to issue RSU grants with a target fair value of $
Stock-Based Compensation Expense
Total stock-based compensation expense related to all of the Company’s stock-based awards granted is reported in the consolidated statements of operations as follows (in thousands):
Years Ended December 31, | ||||||
| 2021 |
| 2020 | |||
Research and development | $ | | $ | | ||
General and administrative expense |
| |
| | ||
Sales and marketing expense |
| |
| | ||
Cost of sales |
| |
| | ||
Total stock-based compensation expenses | $ | | $ | | ||
There were
21. RELATED PARTY TRANSACTIONS
As a result of the acquisition of EnvisionTEC, the Company entered into certain agreements with entities affiliated with Mr. El Siblani, who served as a director and executive officer of the Company until his resignation November 5, 2021.
The Company is the lessee in a lease agreement with ATMRE, LLC, a leasing company, in which Mr. El Siblani is the sole member, for the Dearborn, Michigan facility utilized by EnvisionTEC. This lease extends through December 31, 2023. As of December 31, 2021, the Company recorded $
The Company is the lessee in a lease agreement with JES Besitzgesellschaft GmbH, a leasing company that is controlled by members of the immediate family of Mr. El Siblani, for facilities located in Gladbeck, Germany utilized by EnvisionTEC. This lease extends through December 31, 2022. As of December 31, 2021, the Company recorded $
The Company is the lessee in a lease agreement with Sitraco (UK) Limited, a leasing company that is controlled by Mr. El Siblani, for an additional facility located in Gladbeck, Germany utilized by EnvisionTEC. This lease extends through December 31, 2022. As of December 31, 2021, the Company recorded $
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The Company has a distribution agreement with Sibco Europe Ltd., a distributor based out of the United Kingdom. Mr. El Siblani is Managing Director of and sole shareholder of Sibco Europe Ltd. The Company had immaterial sales to Sibco Europe Ltd. for the year ended December 31, 2021. In addition, Sibco Europe Ltd. provides sales and marketing support for EnvisionTEC GmbH. The Company did not incur any expenses to Sibco Europe Ltd for the year ended December 31, 2021. At December 31, 2021, the Company did not have accounts receivable or accounts payable due to or from Sibco Europe Ltd.
The Company also has an agreement with E3D Technology, a wholly-owned subsidiary of Sibco Europe Ltd., for services including research and development, maintenance, and marketing services. As part of the agreement, the Company also pays a fee for overhead at the facilities where these contracted services are being performed. During the year ended December 31, 2021, the Company paid $
As a result of the acquisition of Dental Arts Labs, the Company assumed certain lease agreements with a related party for facilities in Peoria, Illinois used for research and development and administrative purposes. These leases extend through July 31, 2029. As of December 31, 2021, the Company recorded $
22. SEGMENT INFORMATION
In its operation of the business, management, including the Company’s chief operating decision maker, who is also Chief Executive Officer, reviews the business as
Revenue during the year ended December 31, 2021
| Americas |
| EMEA |
| APAC | Total | ||||||
Products | $ | | $ | | $ | | $ | | ||||
Services |
| |
| |
| | | |||||
Total | $ | | $ | | $ | | $ | | ||||
Revenue during the year ended December 31, 2020
| Americas |
| EMEA |
| APAC |
| Total | |||||
Products | $ | | $ | | $ | | $ | | ||||
Services |
| |
| |
| |
| | ||||
Total | $ | | $ | | $ | | $ | | ||||
During the years ended December 31, 2021 and 2020, the Company recognized the following revenue from service contracts and cloud-based software licenses over time, and hardware and consumable product shipments and subscription software at a point in time (in thousands):
Years Ended | ||||||
December 31, | ||||||
| 2021 |
| 2020 | |||
Revenue recognized at a point in time | $ | | $ | | ||
Revenue recognized over time |
| |
| | ||
Total | $ | | $ | | ||
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The Company’s operations are principally in the United States.
Years Ended December 31, | ||||||
2021 |
| 2020 | ||||
Americas | $ | | $ | | ||
EMEA | | — | ||||
APAC | | — | ||||
Total long-lived assets | $ | | $ | | ||
23. NET LOSS PER SHARE
The Company computes basic loss per share and the weighted-average number of Common Stock shares outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock options and stock-based awards where the conversion of such instruments would be dilutive.
Years Ended December 31, | ||||||
(in thousands, except per share amounts) |
| 2021 |
| 2020 | ||
Numerator for basic and diluted net loss per share: |
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|
| |||
Net loss | $ | ( | $ | ( | ||
Denominator for basic and diluted net loss per share: |
|
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Weighted-average shares |
| |
| | ||
Net loss per share—Basic and Diluted | ( | ( | ||||
The Company’s potential dilutive securities, which include outstanding Common Stock options, unvested restricted stock units, unvested restricted stock awards and outstanding Common Stock warrants, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.
Years Ended December 31, | |||||||
2021 |
| 2020 | |||||
Common Stock options outstanding | | | |||||
Unvested restricted stock units outstanding | | | |||||
Unvested restricted stock awards outstanding | | | |||||
Common Stock warrants outstanding | — | | |||||
Unvested Trine Founder Shares, held in escrow | — | | |||||
Total shares | | | |||||
F-65