3D SYSTEMS CORP (DDD)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with our consolidated financial statements, and notes thereto, included in Item 8 of this Form 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements. See “Risk Factors” in Part I, Item 1A and “Forward-Looking Statements.”

For discussion related to our results of operations and changes in financial condition for fiscal 2023 compared to fiscal 2022, refer to Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in our fiscal 2023 Form 10-K. Our fiscal 2023 Form 10-K was filed with the SEC on August 13, 2024. Discussion of our segment results for fiscal 2023 compared to fiscal 2022 have been included herein due to the retroactive application of the change in our segment measure of profitability to gross profit for all periods reported in our segment footnote. Refer to Note 21 for additional details.

Business Overview

3D Systems Corporation (“3D Systems” or the “Company” or “we,” "our" or “us”) markets our products and services through subsidiaries in North America and South America (collectively referred to as “Americas”), Europe and the Middle East (collectively referred to as “EMEA”) and Asia Pacific and Oceania (collectively referred to as “APAC”). We provide comprehensive 3D printing and digital manufacturing solutions, including 3D printers for plastics and metals, materials, software, and services, including maintenance, advanced manufacturing and applications engineering. Our solutions support advanced applications in two key industry verticals: Healthcare Solutions and Industrial Solutions. We have over 35 years of experience and expertise, which have proven vital to our development of an ecosystem and end-to-end digital workflow solutions that enable customers to optimize product designs, transform workflows, bring innovative products to market and drive new business models.

The Company has two reportable segments: Healthcare Solutions and Industrial Solutions. Our reportable segments are based upon the industry verticals that they serve. For Healthcare Solutions, those industry verticals include dental, medical devices, personalized health services and regenerative medicine. For Industrial Solutions, those industry verticals include aerospace, defense, transportation and general manufacturing. We architect solutions specific to customers’ needs through a combination of materials, hardware platforms, software, professional services and advanced manufacturing – creating a path to integrating additive manufacturing into traditional production environments. As a result, manufacturers achieve design freedom, increase agility, scale production and improve their overall total cost of operation. Our technologies and process knowledge enable over a million production parts to be made through additive manufacturing each day.

Recent Developments

Fiscal Year 2023 Restructuring Plan

Restructuring Plan Objectives and Status of Execution

In 2023, the Company commenced a multi-faceted restructuring plan (the “2023 Restructuring Plan”) which was intended to improve operating efficiencies throughout the organization and drive long-term value creation. The key initiatives of the plan were announced in 2023 and included:

•improving manufacturing efficiencies related to the Company’s European metal printer operations by (1) in-sourcing certain metal printer platforms into the Company’s Riom, France manufacturing facility and (2) co-locating the engineering and manufacturing of in-sourced metal printer products in order to improve cycle time from development to production;

•reducing headcount throughout all functions and areas of the Company; and

•rationalizing the Company's geographic footprint through the exit of leased facilities.

As of December 31, 2024, the Company has completed its in-sourcing activities. Actions taken to reduce headcount under the 2023 Restructuring Plan commenced during the year ended December 31, 2023 and were completed during the year ended December 31, 2024.

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During the fourth quarter of 2023, as part of its efforts to rationalize its geographic footprint, the Company began identifying and evaluating opportunities to exit leased facilities, whether by early termination of a lease, non-renewal of a lease, or ceasing use with an intent to sublease a facility. As part of these restructuring efforts, during the year ended December 31, 2024, the Company (1) partially or fully exited 18 leased facilities that were identified as part of the Company's plan and (2) commenced active marketing efforts to sublease the available space in facilities that were either partially or fully exited, but have a continuing lease. The Company exited one additional lease in the first quarter of 2025, and has now exited all facilities identified as part of its facilities rationalization plan under the 2023 Restructuring Plan.

2023 Restructuring Plan Costs, Cash Settlements and Recognized Liabilities

Headcount Reductions

We incurred a total of $8.2 million in severance and termination benefit costs related to headcount reductions between inception of our 2023 Restructuring Plan and the completion of headcount reductions under the plan during the year ended December 31, 2024. These costs were generally recognized when probable and estimable because they were typically determined consistent with the Company’s past practices or statutory law. Accordingly, a substantial portion of the severance and termination benefit costs attributable to our 2023 Restructuring Plan were recorded during our fiscal year ended December 31, 2023, while the execution of the headcount reductions and the settlements of the associated costs continued into and throughout our fiscal year ended December 31, 2024. During the year ended December 31, 2024, as a result of a decision to continue operating certain facilities (i.e., a change to the original 2023 Restructuring Plan), the Company reduced its accrual for certain severance and termination benefit costs that had previously been recorded to cost of sales. This reduction to the Company's severance and termination benefits accrual was substantially offset by new accruals for incremental headcount reductions that were recorded to selling, general, and administrative expense and research and development expense. Refer to the tables that follow for additional details.

The following table provides details regarding the net severance, termination benefit and other employee costs that were incurred (or reversed) under our 2023 Restructuring Plan and amounts that were settled with cash during the years ended December 31, 2024 and 2023, as well as the related accrued liability balances included in our consolidated balance sheets as of December 31, 2024 and 2023:

The financial statement impacts of (1) severance, termination benefits and other employee costs that were incurred under our 2023 Restructuring Plan during the years ended December 31, 2024 and 2023 and (2) adjustments recorded with respect to the liability recognized under the 2023 Restructuring Plan during the year ended December 31, 2024 are reflected in our consolidated statements of operations as follows:

a.Only restructuring costs recorded to cost of sales have been included in our reported segment results, as gross profit is our measure of segment profitability. All severance and termination costs recorded to costs of sales are included in our Healthcare segment and, accordingly, are reflected in the Healthcare segment's reported gross profit. There were no facility termination costs or impairment costs included in the amounts reported for consolidated or segment cost of sales. See Note 21 for the reported gross profit for each of our reportable segments.

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Facilities Rationalization

Since inception of the 2023 Restructuring Plan, we have incurred $0.6 million in lease termination costs. During 2023, we recorded $0.6 million in incremental impairment charges related to certain fixed assets that have been retired in connection with the Company’s restructuring. However, since inception of our 2023 Restructuring Plan, with the exception of certain amounts paid to terminate certain leases early, our consolidated financial statements have not reflected material transactions or charges resulting from the decisions to cease the use of facilities for our own operations because the facilities for which we have a continuing leases (and any related assets, as applicable) generally have not yet qualified to be measured for impairment separate from the asset group to which they have historically belonged, which typically occurs when we have entered into a sublease.

Other Strategic Business Decisions and Cost Saving Initiatives

Geomagic

In December 2024, the Company entered into a definitive agreement for the sale of its Geomagic software business ("Geomagic"), which is included in our Industrial Solutions segment, to Hexagon AB for $123 million, subject to customary adjustments. The divestiture is expected to be completed by the end of the second quarter of 2025, subject to the satisfaction of certain closing conditions. The Company determined that the associated assets and liabilities met the held for sale criteria during December 2024. Accordingly, the Company classified $3.2 million of assets and $10.3 million of liabilities as held for sale in the Company’s consolidated balance sheet as of December 31, 2024. No loss was recognized to measure the disposal group at the lower of its carrying value or fair value less costs to sell. The disposal group has not been presented as a discontinued operation in the accompanying consolidated financial statements because the sale of Geomagic does not represent a strategic shift that will have a major effect on the Company’s operations.

Oqton

The Company previously disclosed during the year ended December 31, 2023 that it is more likely than not that Oqton, Inc. ("Oqton") MOS would be sold or otherwise disposed of. In connection with the expectation to sell or otherwise dispose of Oqton MOS, management previously assessed whether the carrying value of this asset group’s long-lived assets was recoverable, and determined that it was not recoverable. As a result, the Company recorded a $13.6 million charge to recognize the full impairment of the asset group's intangible assets during the year ended December 31, 2023.

During May 2024, the Company completed the sale of the portion of the Oqton MOS business that was focused on the dental market ("Oqton Dental") in exchange for a de minimis amount of cash, resulting in the transfer of a limited portion of Oqton MOS's personnel and a de minimis amount of fixed assets. The sale of Oqton Dental did not qualify as a discontinued operation, as it did not represent a strategic shift that will have a major effect on the Company's overall business operations; however, the transfer of personnel is expected to provide cost savings from the date of the disposal of Oqton Dental. The Company continues to evaluate strategic alternatives related to the remaining portion of Oqton MOS that the Company continues to hold.

2025 Restructuring Plan

In March 2025, the Company authorized the next phase of its multi-faceted cost savings and restructuring initiative (the “2025 Restructuring Plan”). The 2025 Restructuring Plan includes initiatives to deliver sustainable growth and profitability, enabled by a streamlining of both infrastructure and business processes, while consistently investing in core research and development activities to support long-term growth opportunities. The expected annual savings from the 2025 Restructuring Plan are significant and will begin to be realized beginning in the first half of 2025.

Acquisitions/Investments

The Company made the following significant acquisitions and investments during our fiscal years ended December 31, 2024, December 31, 2023, and December 31, 2022.

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Acquisition of Wematter

In July 2023, the Company completed the acquisition of Wematter AB (“Wematter”), a Swedish 3D printer manufacturer, for which post-acquisition results are included in our Industrial Solutions segment. The acquisition broadens 3D Systems’ Selective Laser Sintering (SLS) portfolio. Consideration for this acquisition consisted of approximately $10.2 million in cash, subject to customary post-closing adjustments. The Company also may be required to pay an additional €2.0 million in cash, contingent upon the achievement of certain post-closing performance conditions and the continued employment of certain key employees of Wematter for two years after the closing date of the acquisition. As of December 31, 2024, management does not believe that achievement of the post-closing performance conditions is probable.

Theradaptive, Inc.

In June 2023, we made an $8.0 million investment in Theradaptive, Inc. ("Theradaptive") via the purchase of Series A Preferred Stock. Theradaptive is currently developing a protein that encourages bone growth. This biotechnology could be applied to 3D printed metal splints for patients who otherwise may require amputation of a limb because the lost bone is too vast to replace with a splint. The Company has accounted for its investment in Theradaptive on a cost basis, subject to assessment for impairment, as the fair value of Theradaptive's equity is not readily determinable, and the investment is not subject to the equity method of accounting due to the Company's lack of significant influence.

National Additive Manufacturing Innovation ("NAMI") Joint Venture

In March 2022, the Saudi Arabian Industrial Investments Company (“Dussur”) and 3D Systems signed an agreement to form a joint venture intended to expand the use of additive manufacturing within the Kingdom of Saudi Arabia and surrounding geographies, including the Middle East and North Africa. The joint venture is to enable the development of Saudi Arabia's domestic additive manufacturing production capabilities, consistent with the Kingdom’s ‘Vision 2030,’ which is focused on diversification of the economy and long-term sustainability. Upon entering into the agreement with Dussur, 3D Systems committed to an initial investment in the joint venture of approximately $6.5 million. In February 2023, the Company became a shareholder in the joint venture and owns 49% of the joint venture's common stock. During April 2023, $3.4 million held in escrow, as well as the additional amount of approximately $3.1 million owed to the joint venture, was deposited into a bank account of the joint venture for use in its operations. In May 2024, the Company and Dussur each made an incremental investment of $2.5 million in the joint venture. During December 2024, the Company entered into a short-term non-interest-bearing loan agreement with NAMI whereby NAMI borrowed $2.0 million to finance its working capital and capital expenditure requirements. Additional future investments in the joint venture are contingent upon agreement by the parties to the joint venture to invest additional capital.

Enhatch Inc.

In March 2022, we made a $10.0 million investment in Enhatch Inc. (“Enhatch”), the developer of the Intelligent Surgery Ecosystem, in exchange for shares of Enhatch convertible preferred stock, a warrant to purchase common shares of Enhatch, and the right to purchase in the future the remaining shares of Enhatch that 3D Systems does not own if certain revenue targets are achieved (the “call option”). We simultaneously entered into a collaboration and supply agreement with Enhatch. Enhatch's Intelligent Surgery Ecosystem provides technologies which streamline and scale the design and delivery of patient-specific medical devices by automating the process. Incorporating these capabilities into 3D Systems’ workflow for patient-specific solutions, which includes advanced software, expert treatment planning services, custom implants, instrumentation design, and industry-leading production processes, will help more efficiently meet the growing demand for personalized medical devices.

In December 2024, the Company entered into an amended and restated warrant agreement with Enhatch which restated the terms of the warrant received in connection with the Company's March 2022 investment in their entirety by increasing the number of Enhatch common shares that may be purchased, decreasing the exercise price, modifying the exercise conditions, eliminating the net settlement feature, and accelerating the expiration date to June 1, 2025. In December 2024 and January 2025, the Company exercised the first tranche of the warrant for $0.6 million in cash and the second tranche of the warrant for $0.6 million in cash, respectively. The Company initially measured and recorded the Enhatch common shares purchased upon the exercise of the first and second tranche of the warrant at their estimated acquisition date fair values. Effective upon the exercise of the first tranche of the amended and restated warrant agreement in December 2024, due to the Company's ability to exert significant influence over the financial and operating policies of Enhatch, the Company began accounting for its investment in Enhatch common shares under the equity method of accounting. Under the equity method of accounting, the Company is required to recognize its proportionate share of Enhatch's reported net income or loss, which the Company recognizes on a one quarter lag. If the remaining underlying exercise conditions of the warrant are achieved, the Company may be required to pay up to an additional $0.9 million of cash to purchase Enhatch common shares prior to the warrant expiration on June 1, 2025.

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Investing in Regenerative Medicine

Within our Healthcare Solutions segment, a portion of our business focuses on opportunities for additive manufacturing to be applied to regenerative medicine. To date, our efforts in the area of regenerative medicine have consisted primarily of pre-commercial bio-technology research and development (“R&D”) in the areas described below.

Our first area of focus is the use of additive manufacturing for human organ transplantation, with a long-term goal of helping patients with end-stage disease receive transplants that will enable them to enjoy long and active lives. This program combines our 3D printing expertise and capabilities in human tissue engineering with the regenerative medicine and biotechnology expertise of a key strategic partner. Through the start of 2024, our program focused on developing the capability to print organ scaffolds for human lungs, kidneys and livers. However, beginning in the first quarter of 2024, due to changes to our arrangement with and funding from our key strategic partner, the Company’s continuing organ program shifted its focus to developing the capability to print human lung scaffolds, for which the related R&D efforts will continue to be primarily funded by our key strategic partner.

Our second area of focus seeks to utilize our bio-printing capabilities to design and manufacture 3D-printed vascularized “organs-on-chips” for use in drug development by pharmaceutical industry customers through our wholly-owned biotech company, Systemic Bio. We believe that “organs-on-chips” can accelerate the drug development process and reduce the cost of pre-clinical drug testing, as well as reduce the pharmaceutical industry’s reliance on animal testing. Systemic Bio combines 3D Systems’ legacy expertise in high-resolution 3D printing with advanced capabilities in bioprinting and biomaterials to design and market 3D-printed, vascularized “organs-on-chips”. During the year ended December 31, 2023, Systemic Bio entered into its first commercial contracts with pharmaceutical industry customers.

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Background

We earn revenue from the sale of products and services through our Healthcare Solutions and Industrial Solutions segments. The product categories include 3D printers and corresponding materials, digitizers, software licenses, 3D scanners and haptic devices. The majority of materials used in our 3D printers are proprietary. The services categories include maintenance contracts and services on 3D printers, software maintenance, software as a service subscriptions and healthcare solutions services.

Given the relatively high price of certain 3D printers and a corresponding lengthy selling cycle, as well as relatively low unit volume of the higher-priced printers in any particular period, a shift in the timing and concentration of orders and shipments from one period to another can materially affect reported revenue in any given period.

In addition to changes in sales volumes, there are two other primary drivers of changes in revenue from one period to another: (1) the combined effect of changes in product mix and average selling prices and (2) the impact of fluctuations in foreign currencies. As used in this MD&A, the price and mix effects relate to changes in revenue that are not able to be specifically attributed to changes in unit volume or changes in foreign exchange rates.

Consolidated Financial Results for the Years Ended December 31, 2024 and 2023

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Operating Results for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Consolidated revenue

The following table sets forth factors contributing to the changes in our products and services revenue for the year ended December 31, 2024, as compared to our products and services revenue reported for the year ended December 31, 2023.

Products revenue

For the year ended December 31, 2024, products revenue decreased by $49.6 million, or 15.1%, as compared to the year ended December 31, 2023. Industrial Solutions products revenue decreased $31.7 million primarily due to lower sales volume. The decrease in products sales volumes in our Industrial Solutions segment was reflective of lower materials sales to customers in the service bureaus and jewelry markets and lower printer sales to customers in the consumer auto and academic markets.

Healthcare Solutions products revenue decreased by $17.9 million, or 14.4% as compared to the year ended December 31, 2023, primarily due to a decline in printer sales volume in the dental market, including lower printer sales to a key customer, and unfavorable price/mix due to a significant increase in the volume of material sales to our key customer in the dental industry at lower pricing. These declines were partially offset by an overall increase in materials sales volumes.

Services revenue

For the year ended December 31, 2024, services revenue increased by $1.6 million, or 1.0%, as compared to the year ended December 31, 2023. Higher sales volume resulted in an increase of $10.8 million, which was partially offset by an $8.7 million reversal of revenue in the year ended December 31, 2024 due to a change in estimate under a collaboration arrangement in the Healthcare Solutions segment as discussed below. Services revenue increased $7.2 million in our Industrial Solutions segment, which was partially offset by a decline of $5.6 million in our Healthcare Solutions segment.

The volume increase in our Healthcare Solutions services revenue was due to higher personalized healthcare solutions revenue and printer service maintenance agreements of $3.2 million. The volume increase in our Healthcare Solutions services revenue was more than offset by an $8.7 million reversal of revenue in the year ended December 31, 2024 due to a cumulative catch-up adjustment under a collaboration arrangement as the Company determined that incremental revenue attributable to milestone payments that are contingent upon the achievement of contractual development criteria are no longer probable of being earned.

The volume increase in our Industrial Solutions services revenue was primarily related to increases in revenue generated from parts manufacturing and hardware maintenance services.

Total revenue

Total consolidated revenue for the year ended December 31, 2024 decreased by $47.9 million, or 9.8%, to $440.1 million, compared to $488.1 million for the year ended December 31, 2023. This decrease was primarily driven by the $31.7 million impact of lower products sales volumes and the $17.0 million unfavorable impact of price/mix on products revenue, which was partially offset by the $2.1 million impact of the increase in services revenue. Refer to the detailed discussions above.

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Consolidated gross profit

Gross profit for the year ended December 31, 2024 decreased $32.2 million, or 16.4%, to $164.2 million, compared to $196.4 million for the year ended December 31, 2023. Gross profit margin for the year ended December 31, 2024 decreased to 37.3%, as compared to 40.2%, for the year ended December 31, 2023, primarily driven by the decrease in both our products and services gross profit margin (as discussed in greater detail below).

Products gross profit and gross profit margin

For the year ended December 31, 2024, gross profit from products sales decreased by $22.2 million, or 17.7%, as compared to the year ended December 31, 2023. The most significant contributors to the decrease in our products gross profit margin for the year ended December 31, 2024 were (1) a $6.0 million increase in the provision recorded for inventory obsolescence during the year ended December 31, 2024, as compared to the year ended December 31, 2023, (2) lower sales volume and (3) unfavorable manufacturing variances.

Services gross profit and gross profit margin

For the year ended December 31, 2024, gross profit from services sales decreased $10.1 million, or 14.2%, as compared to the year ended December 31, 2023. The decrease in services gross profit was primarily driven by a decrease in revenue recognized under a collaboration arrangement as the Company determined that incremental revenue attributable to milestone payments that are contingent upon the achievement of contractual development criteria are no longer probable of being earned. As there was no direct cost associated with the milestone revenue under the collaboration arrangement; therefore, the entire $8.7 million reversal of revenue in the year ended December 31, 2024 contributed to a decrease in our reported gross profit.

Consolidated selling, general and administrative expense

Selling, general and administrative ("SG&A") expense for the year ended December 31, 2024 decreased $0.1 million to $210.1 million, compared to $210.2 million for the year ended December 31, 2023.

The primary drivers of the $0.1 million decrease in SG&A expense are as follows:

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Volumetric earnout

Prior to the year ended December 31, 2023, the Company had been accruing for a $65 million potential earnout payment (compensation expense) because the Company had concluded that a non-financial, scientific milestone included in the acquisition agreement related to the Company's December 2021 acquisition of Volumetric was probable of achievement. However, during the year ended December 31, 2023, the Company concluded that this non-financial, scientific milestone was no longer probable of achievement given a reduction in the budgeted funding for the related R&D efforts. As a result, the Company reversed all of the previously recognized earnout expense related to the milestone during the year ended December 31, 2023. The Company did not recognize any earnout expense related to the milestone during the year ended December 31, 2024, and as a result of events that have occurred during the year, the Company notified the sellers of Volumetric that they are no longer eligible to earn any of the milestone-based earnout payments contemplated in the Volumetric acquisition agreement. Refer to the discussions in Note 17 and Note 22 to the consolidated financial statements for additional details regarding the Company's cancellations of the Volumetric sellers' rights to future earnout payments, as well as actions taken in response to these cancellations.

Compensation and benefits

Compensation and benefits costs decreased by $20.1 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This decrease was primarily driven by a $13.7 million decrease in stock-based compensation expense (excluding the Volumetric earnout expense subject to settlement in shares of our common stock and discussed above), and a $5.1 million decrease in severance expense. The decrease in stock-based compensation expense for the year ended December 31, 2024 is primarily due to (1) the delayed grant of fiscal year 2024 annual share-based payment awards under the Company's 2015 Incentive Plan until September and October of 2024, as compared to fiscal year 2023 annual share-based payment award grants occurring in April 2023, and (2) a decrease in the overall grant date fair value of 2024 annual share-based payment awards under the Company's 2015 Incentive Plan, as compared to previous years' awards that vested during or before the year ended December 31, 2024.

Severance expense decreased by $5.1 million for the year ended December 31, 2024 due to higher severance and termination benefit costs that were recorded to SG&A expense during the year ended December 31, 2023 in connection with our 2023 Restructuring Plan. Under our 2023 Restructuring Plan, employee severance and termination benefit costs generally were recognized when probable and estimable because they are typically being determined consistent with the Company’s past practices or statutory law. Furthermore, the classification of these severance and termination benefit costs in our consolidated statements of operations is based upon the classification of the ordinary compensation expense attributable to the impacted employees.

Audit, legal and third-party consulting costs

Audit, legal and third-party consulting costs increased $5.9 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to the significant increases in the cost to complete our fiscal year 2023 audit, including costs paid to our former independent registered public accounting firm and third-party accounting and finance consulting support costs. The increases in audit and third-party consulting costs were partially offset by lower acquisition-related legal costs as compared to the year ended December 31, 2023.

Consolidated research and development expense

R&D expense for the year ended December 31, 2024 decreased $3.0 million, or 3.3%, to $86.5 million, as compared to $89.5 million for the same period last year. The decrease was primarily driven by a $3.9 million decrease in employee compensation and benefit costs, a $1.9 million decrease in materials costs and a $0.6 million decrease in external workforce cost. These decreases were partially offset by a $3.8 million increase in R&D expense related to the Company's discontinued kidney and liver regenerative medicine program.

Asset impairment charges

During the year ended December 31, 2024, we recorded aggregate impairment charges of $145.0 million related to intangible assets (inclusive of goodwill) and tangible assets as compared to $302.8 million in impairment charges recorded during the year ended December 31, 2023. The following table summarizes the impairment charges recorded during the years ended December 31, 2024 and 2023:

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Impairment charges recorded during the year ended December 31, 2024

As a result of the significant decline in the trading price of our common stock and our market capitalization during the three months ended September 30, 2024, as well as reduced long-term cash flow forecasts prepared in connection with the Company's long-range planning process, the Company concluded that the performance of an interim period goodwill impairment test was required as of September 30, 2024. Upon completion of this interim period goodwill impairment test, the Company concluded that the carrying value of the Healthcare Solutions reporting unit exceeded its fair value by $101.4 million and recognized this amount within asset impairment charges on our consolidated statement of operations.

In addition, during the three months ended September 30, 2024, the Company concluded that there were indicators that the primary asset group underlying the Company's core operations should be tested for recoverability based on reported losses and negative cash flows for both current and historical reporting periods, combined with the significant decline in the Company's stock price during the period. Upon assessing this asset group for recoverability, the Company concluded that the asset group's carrying value exceeded the undiscounted cash flows that the asset group was expected to generate over the estimated remaining useful life of the asset group's primary asset, which was deemed to be acquired technology. Accordingly, the Company further tested this asset group for impairment as of September 30, 2024. As a result of concluding that the carrying value of the primary asset group underlying the Company's core operations exceeded the fair value of the asset group as of September 30, 2024, the Company recorded an aggregate impairment loss of $42.3 million within asset impairment charges on our consolidated statement of operations. After consideration of the relative carrying values of the long-lived assets comprising this asset group, as well as the long-lived asset fair values below which asset carrying amounts should not be impaired, the Company recorded impairment charges of $31.2 million, $5.9 million, and $5.2 million (representing the allocation of the aggregate impairment charge of $42.3 million) to intangible assets; property and equipment; and right-of-use assets, respectively. An additional intangible asset impairment charge of $1.2 million was recognized in the three months ended December 31, 2024.

Impairment charges recorded during the year ended December 31, 2023

The $279.8 million goodwill impairment charge recorded for the year ended December 31, 2023 reflected the impairment of goodwill that had been assigned to our Industrial Solutions reporting unit based upon the result of our annual goodwill impairment test. This outcome of our annual goodwill impairment test reflected the significant and sustained drop in the Company's stock price and market capitalization leading up to and as of the testing date, as well as the significantly higher carrying value (including the goodwill balance) of our Industrial Solutions reporting unit compared to our Healthcare Solutions reporting unit. Refer to Note 9 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details on the 2024 and 2023 impairment charges.

For the year ended December 31, 2023, we recognized impairment charges related to (1) our indefinite-life intangible asset balance, consisting solely of dp polar's IPR&D, and (2) certain of our finite-life intangible assets, consisting of intangible assets included in our Oqton MOS and dp polar asset groups. These impairment charges were triggered by the Company's decision to cease the development of dp polar's IPR&D for the foreseeable future and the Company's conclusion that it would more likely than not sell or otherwise dispose of Oqton MOS. Based upon a determination that the dp polar and Oqton MOS intangible assets were no longer expected to produce or contribute to the production of positive cash flows for the Company, the Company recorded impairment charges to write their carrying values down to $0. Refer to our discussion of "Other Strategic Business Decisions and Cost Saving Initiatives" and Note 8 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

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Consolidated operating loss

Our operating loss for the year ended December 31, 2024 was $277.4 million, compared to a $406.0 million operating loss for the year ended December 31, 2023. The decrease in our operating loss was primarily attributable to a decrease in non-cash impairment charges of $157.8 million, which was partially offset by a $32.2 million decrease in gross profit. Refer to the discussions of our financial statement line items above for additional details.

Non-Operating Income for the Year Ended December 31, 2024 compared to the Year Ended December 31, 2023

The following table sets forth the components of non-operating income for the year ended December 31, 2024 and 2023.

Foreign exchange gain (loss), net

Foreign exchange gain (loss), net increased $7.2 million for the year ended December 31, 2024, primarily due to realized and unrealized gains related to our foreign operations.

Interest income

For the year ended December 31, 2024, interest income decreased as compared to the year ended December 31, 2023 due to the Company's lower cash and cash equivalent balances during the year ended December 31, 2024.

Interest expense

For the year ended December 31, 2024, interest expense decreased due to the Company's repurchases of debt in December 2023 and March 2024. In connection with each of these repurchases of debt, the Company wrote off a portion of the unamortized debt issuance costs, which resulted in lower amortization of debt issuance costs within interest expense for the year ended December 31, 2024.

Other income, net

For the year ended December 31, 2024, other income, net, decreased $12.1 million primarily due to the recognition of a $21.5 million gain on the extinguishment of debt during the year ended December 31, 2024, compared to the recognition of a $32.2 million gain on the extinguishment of debt during the year ended December 31, 2023.

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Net loss

The following table sets forth our net loss for the years ended December 31, 2024 and 2023.

For the year ended December 31, 2024, we reported income tax expense of $2.2 million, as compared to an income tax benefit of $0.6 million for the year ended December 31, 2023. The Company's effective tax rates for the years ended December 31, 2024 and 2023 were significantly below blended U.S. and foreign jurisdictions' statutory tax rates due to (1) the Company's reported losses and (2) the maintenance of a valuation allowance against the Company's deferred tax assets based upon the Company's conclusion that it is more likely than not that its deferred tax assets will not be realized in various tax jurisdictions.

The decrease in the net loss attributable to 3D Systems for the year ended December 31, 2024, as compared to the net loss attributable to 3D Systems for the year ended December 31, 2023, was primarily driven by the period-over period decrease in the Company's consolidated operating loss reported for the year ended December 31, 2024, partially offset by lower non-operating income reported for the year ended December 31, 2024, as compared to the year ended December 31, 2023. In addition, the Company reported a $3.4 million loss on equity method investment, net of income taxes, for the year ended December 31, 2024, as compared to a $1.3 million loss on equity method investment for the year ended December 31, 2023.

Segment Financial Results of Operations for the Years Ended December 31, 2024 and 2023

The following table presents the revenue and gross profit amounts reported by each of our segments for the years ended December 31, 2024 and 2023:

Healthcare Solutions

Revenue

For the year ended December 31, 2024, Healthcare Solutions revenue decreased $23.5 million, or 11.0%, as compared to the year ended December 31, 2023. This decrease in segment revenue was primarily due to a decrease in products revenue of $17.9 million, primarily reflective of our lower sales to the dental market, but also inclusive of lower printer sales to customers in the medical devices and other non-dental markets. Service revenue was down $5.6 million driven by a decrease in the estimated recognizable variable consideration related to a collaboration agreement which was partially offset by higher personalized healthcare solutions revenue and printer service maintenance agreements.

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Gross Profit

For the year ended December 31, 2024, gross profit for our Healthcare Solutions segment decreased $11.7 million, or 13.7%, as compared to the year ended December 31, 2023, primarily due to (1) a decrease in the estimated recognizable variable consideration related to a collaboration arrangement (2) our lower sales to the dental market, including the segment's lower printer sales to a key customer, (3) the decrease in products revenue from other markets, and (4) unfavorable price/mix on the segment's products revenue, which was partially offset by increases in materials revenue in the dental market and increases in services revenue.

Industrial Solutions

Revenue

For the year ended December 31, 2024, Industrial Solutions revenue decreased $24.5 million, or 8.9%, as compared to the year ended December 31, 2023. The decrease was primarily due to a $31.7 million decrease in products revenue reflective of lower materials sales to customers in the service bureaus and jewelry markets and lower printer sales to customers in the consumer auto and academic markets, which were partially offset by the favorable impact of price/mix primarily related to materials sales. The decrease in products revenue was partially offset by a $7.2 million increase in services revenue related to parts manufacturing and hardware maintenance services.

Gross Profit

For the year ended December 31, 2024, gross profit for our Industrial Solutions segment decreased $20.6 million, or 18.5%, as compared to the year ended December 31, 2023, which was primarily driven by the unfavorable impact of volume on products revenue, partially offset by the increase in services revenue.

Segment Financial Results of Operations for the Years Ended December 31, 2023 and 2022

The following table presents the revenue and gross profit amounts reported by each of our segments for the years ended December 31, 2023 and 2022:

Healthcare Solutions

Revenue

For the year ended December 31, 2023, Healthcare Solutions revenue decreased $47.8 million, or 18.3%, as compared to the year ended December 31, 2022. This decrease in segment revenue was primarily due to a $48.2 million, or 31.9%, decrease in sales to the dental market, including lower printer sales to a key customer. Total product revenue for the segment decreased by $55.6 million, primarily reflective of our lower sales to the dental market, but also inclusive of lower printer sales to customers in the medical devices and other non-dental markets.

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The decrease in product sales for the segment was partially offset by a $7.8 million increase in services revenue for the segment. The increase in services revenue was partially driven by the recognition of incremental variable consideration revenue, inclusive of a $4.5 million cumulative catch-up adjustment, that related directly to the inclusion of $6.5 million of additional milestone payments (representing variable consideration) in the total transaction price of a regenerative medicine collaboration and licensing revenue agreement during the year ended December 31, 2023. The additional milestone-based payments were deemed probable of being earned under revised contract terms that took effect upon the execution of an amendment to the collaboration and licensing revenue agreement during the year ended December 31, 2023. Our Healthcare Solutions' services revenue also increased due to higher personalized healthcare solutions revenue.

Gross Profit

For the year ended December 31, 2023, gross profit for our Healthcare Solutions segment decreased $13.6 million, or 13.8%, as compared to the year ended December 31, 2022, primarily due to lower sales to the dental market, including lower printer sales to a key customer, and the decrease in products sales into other markets. This was partially offset by the increase in our services revenue which includes $4.5 million of incremental variable consideration revenue recognized by our Healthcare Solutions segment on a cumulative catch-up basis, upon concluding that additional milestone-based payments related to a collaboration and licensing revenue agreement were probable of being earned. As there were no direct costs (e.g., costs of goods sold) associated with this incremental collaboration and licensing revenue, the entire $4.5 million contributed to an increase in our reported gross profit

Industrial Solutions

Revenue

For the year ended December 31, 2023, Industrial Solutions revenue decreased $2.2 million, or 0.8%, as compared to the year ended December 31, 2022. This decrease in segment revenue is primarily attributable to a $11.1 million decrease in products revenue reflective of (1) lower printer sales to customers in the jewelry market, resulting from a delay in the Company's release of a new printer model, and (2) an unfavorable impact of price/mix, primarily due to discounted pricing on certain product classes in response to competition and to increase future revenue. The decrease in product revenue was partially offset by an $8.9 million increase in services revenue related to parts manufacturing and hardware maintenance services.

Gross Profit

For the year ended December 31, 2023, gross profit for our Industrial Solutions segment decreased $4.2 million, or 3.6%, as compared to the year ended December 31, 2022, which was primarily driven by lower printer sales volume and unfavorable price/mix on products revenue, partially offset by the increase in services revenue.

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Liquidity and Capital Resources

The following table sets forth the Company's operating working capital at December 31, 2024, and 2023.

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and accounts payable turns. Our cash requirements, excluding acquisitions, primarily consist of funding working capital and capital expenditures. Differences between the amounts of working capital item changes in the cash flow statement and the balance sheet changes for the corresponding items are primarily the result of foreign currency translation adjustments.

At December 31, 2024, cash and cash equivalents totaled $171.3 million and decreased $160.2 million since December 31, 2023. This decrease resulted primarily from the use of $87.2 million for the early extinguishment of long-term debt, cash used in operations of $44.9 million, acquisitions and other investments, net of cash acquired of $3.0 million, and capital expenditures of $16.1 million.

Cash held outside the U.S. at December 31, 2024 was $63.8 million, or 37.3%, of total cash and cash equivalents, compared to $65.8 million, or 19.8%, of total cash and cash equivalents at December 31, 2023. As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant federal and state taxes. However, these dividends are subject to foreign withholding taxes that are estimated to result in the Company incurring tax costs in excess of the cost to obtain cash through other means. Cash equivalents are comprised of funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments. We strive to minimize our credit risk by investing primarily in investment grade, liquid instruments and limit exposure to any one issuer depending upon credit quality. See “Cash flow” discussion below.

Cash flow

The Company currently funds its operations, including working capital requirements, capital expenditures and investments by using cash on hand; cash equivalents; cash flow from operations, which can vary widely from quarter to quarter; and financing activities, as necessary. We expect that cash flow from operations, cash and cash equivalents, and other sources of liquidity, such as issuing equity or debt securities, subject to market conditions, will be available and sufficient to meet all foreseeable cash requirements. The following is a summary of the changes in the Company’s cash flows, followed by a brief discussion of these changes:

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Cash flow from operations

For the year ended December 31, 2024, cash used in operating activities was $44.9 million compared to $80.7 million for the year ended December 31, 2023. The $35.8 million decrease in cash used in operating activities during the year ended December 31, 2024 is primarily due to $15.8 million of cash generated during the year ended December 31, 2024 relating to the Company's efforts to reduce its inventory, as compared to $20.6 million of cash used during the year ended December 31, 2023 as a result of an increase in the Company's inventory on-hand related to the Company's decision to in-source activities from contract manufacturers. Cash flow from operations was also positively impacted by general improvements in working capital management.

Cash flow from investing activities

For the year ended December 31, 2024, cash used in investing activities was $19.0 million compared to $124.8 million of cash provided by investing activities for the year ended December 31, 2023. The investing cash outflows in 2024 included cash used for long-term investments of $3.0 million and capital expenditures of $16.1 million.

The investing cash inflows in 2023 included sales and maturities of short-term investments of $180.9 million, offset by cash used for acquisitions of $29.2 million and capital expenditures of $27.2 million.

Cash flow from financing activities

For the year ended December 31, 2024, the cash flow used in financing activities was $91.3 million primarily due to the use of $87.2 million for the early extinguishment of long-term debt and taxes paid related to the net-share settlement of equity awards of $2.7 million.

For the year ended December 31, 2023, the cash flow used in financing activities was $106.5 million primarily due to the use of $100.6 million for the extinguishment of long-term debt and taxes paid related to the net-share settlement of equity awards of $5.2 million.

Material Cash Requirements

The Company's material cash requirements consist of the following contractual commitments and other obligations:

Indebtedness

At December 31, 2024, we had $214.4 million of outstanding 0% convertible notes which mature in November of 2026. Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations or other strategic opportunities, which could result in higher financing costs. As of December 31, 2024, we were in compliance with all covenants of the outstanding 0% convertible notes due November 2026.

Purchase Commitments

We have purchase commitments under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of delivery. The Company has purchase commitments in excess of a year primarily related to printer assemblies, inventory, capital expenditures, and software licenses. As of December 31, 2024, such purchase commitments totaled $15.4 million, with $9.3 million expected to be purchased within the next twelve months.

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Leases

The Company had operating and financing lease obligations (inclusive of interest) of $97.6 million at December 31, 2024, primarily related to real estate and equipment leases, of which approximately $15.9 million in payments are expected over the next twelve months. For more information on the Company's leases, refer to Note 11 to the consolidated financial statements in Item 8 of this Form 10-K.

National Additive Manufacturing Innovation ("NAMI") Joint Venture

In March 2022, Dussur and 3D Systems signed an agreement to form a joint venture intended to expand the use of additive manufacturing within the Kingdom of Saudi Arabia and surrounding geographies, including the Middle East and North Africa. The joint venture is to enable the development of Saudi Arabia's domestic additive manufacturing production capabilities, consistent with the Kingdom’s ‘Vision 2030,’ which is focused on diversification of the economy and long-term sustainability. In February 2023, the Company became a shareholder in the joint venture and now owns 49% of its common stock. 3D Systems was committed to an initial investment of approximately $6.5 million of cash into the joint venture, all of which was funded as of December 31, 2023. In May 2024, the Company and Dussur each made an incremental investment of $2.5 million in the joint venture. In December 2024, the Company, along with the majority shareholder, signed a Shareholder Resolution agreeing to continue to support the ongoing business of NAMI for at least the next twelve months. The Company does not expect to make an additional capital contribution in 2025.

The Company accounts for the joint venture under the equity method of accounting, which requires the Company to recognize its proportionate share of the joint venture's reported net income or loss. For the years ended December 31, 2024 and December 31, 2023, the Company reported a loss on equity method investment in its consolidated statements of operations. The carrying values of the Company's equity method investment at December 31, 2024 and 2023 are $4.3 million and $5.2 million, respectively. During December 2024, the Company entered into a short-term, non-interest bearing loan agreement with NAMI whereby NAMI borrowed $2.0 million to finance its working capital and capital expenditures requirements. The loan matures on June 30, 2025 and is being accounted for at cost, which approximates fair value as of December 31, 2024. During December 2024, NAMI used the loan proceeds to remit payment to the Company for trade receivables outstanding.

Enhatch Inc.

In December 2024, the Company entered into an amended and restated warrant agreement with Enhatch that restated the terms of the original warrant in their entirety by increasing the number of Enhatch common shares that may be purchased, decreasing the exercise price, modifying the exercise conditions, eliminating the net settlement feature, and changing the expiration date to June 1, 2025. In December 2024 and January 2025, the Company exercised the first tranche of the warrant for $0.6 million in cash and the second tranche of the warrant for $0.6 million in cash, respectively. If the underlying exercise conditions are achieved, the Company may be required to pay up to an additional $0.9 million of cash to purchase Enhatch common shares prior to the warrant expiration on June 1, 2025.

Sources of Funding to Satisfy Material Cash Requirements

The Company believes that it has the financial resources needed to meet its cash requirements during the next twelve months. Cash requirements for periods beyond the next twelve months will depend on, among other things, the Company’s profitability and its ability to manage working capital requirements.

Indemnification

In the normal course of business we periodically enter into agreements to indemnify customers or suppliers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant. We are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

To the extent permitted under Delaware law, we indemnify our directors and officers for certain events or occurrences, when the director or officer is, or was, serving at our request in such capacity, subject to limited exceptions. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have directors’ and officers’ insurance coverage that may enable us to recover future amounts paid, subject to a deductible and to the policy limits. There is no assurance that the policy limits will be sufficient to cover all damages, if any.

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Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In doing so, we make estimates and assumptions that affect the amounts we reported as assets, liabilities, revenues, expenses, gains and losses, as well as related disclosures of contingent assets and liabilities. In some cases, we reasonably could have applied different estimates or assumptions and changes in our accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between our estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss further below. We have reviewed our critical accounting estimates with the Audit Committee of our Board of Directors.

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a summary of our significant accounting policies.

Revenue recognition

Revenue is recognized for the amount of consideration we expect to receive in exchange for products or services when control of those promised products or services is transferred to customers, which generally occurs when the goods have been shipped or delivered to the customer, risk of loss has transferred to the customer, and we have a present right to payment.

We enter into contracts that include various combinations of products and services that are generally capable of being distinct and are accounted for as separate performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation in a contract. In some instances, we estimate SSP using historical transaction data. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In other instances where SSP is not directly observable, such as when the product or service is not sold separately, we determine the SSP using information that may include market conditions, expected cost plus margin and other observable inputs.

In some circumstances, we have more than one SSP for individual products and services due to the stratification of those products and services by customers, geographic region or other factors. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP. The determination of SSP is an ongoing process, and information is reviewed regularly in order to ensure SSP reflects the most current information or trends.

The nature of our sales and marketing incentives may lead to consideration that is variable in the form of discounts based on volumes purchased, trade in allowances, rebates or other discounts. We estimate variable consideration based on the expected value approach, which required judgment in the identification of possible outcomes and in assessing the probability of those outcomes, or the most likely amount approach, which required judgement to identify the most likely amount in a range of amounts. Our estimates are based on historical experience, contract terms and other factors. Ongoing assessments are performed to determine if updates are needed to the original estimates.

We enter into collaboration arrangements that we may be required to account for in accordance with Accounting Standards Codification ("ASC") Topic 606, “Revenue from Contracts with Customers," because our collaboration partner meets the definition of a customer. When these arrangements provide an opportunity for the Company to earn milestone payments based upon the achievement of agreed-upon contract objectives, we must assess if and when it is appropriate to include those milestone payments, which represent variable consideration, in the contract's transaction price. This assessment, which impacts the timing and the amount of revenue recognized under a collaboration arrangement accounted for in accordance with ASC 606, requires management to conclude that it is probable that a significant reversal of the amount of cumulative revenue recognized with respect to a collaboration agreement will not occur as a result of including one or more milestone payments in the arrangement's transaction price, including when any uncertainty associated with the achievement of such milestones is ultimately resolved. The evaluation of when it is appropriate to include amounts earned upon the achievement of milestones in a contract's transaction price requires the application of significant assumptions and judgments, which management reassesses at the end of each reporting period.

See Note 2 and Note 5 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

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Allowance for credit losses

In evaluating the collectability of our accounts receivable, we assess a number of factors, including specific customers’ abilities to meet their financial obligations to us, the length of time receivables are past due, historical collection experience, current economic conditions, and reasonable and supportable forecasts. Based on these assessments, we may record a reserve for specific customers, as well as establish an allowance for expected credit losses related to our accounts receivable as a whole. If circumstances related to specific customers change, or economic conditions deteriorate such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

We evaluate specific accounts for which we believe a customer may have an inability to meet their financial obligations (for example, aging over 90 days past due or bankruptcy). In these cases, we use our judgment, based on available facts and circumstances, and record a specific reserve for that customer to reduce the receivable to an amount we expect to collect. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.

Income taxes

We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.

See Note 2 and Note 18 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost being determined using standard costing, which approximates the first-in, first-out method.

The inventory reserve is a critical estimate as there is rapid technological change in our industry impacting the market for our products, and there is significant judgment in estimating the amount of spare parts to keep on hand to service previously sold printers for periods of up to 10 or more years.

See Note 6 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Business combinations and purchase accounting

We apply purchase accounting to transactions that meet the definition of business combinations. When applying purchase accounting, we are required to estimate the fair value of the assets acquired and liabilities assumed in a business combination as of the acquisition date, for which the Company engages a third-party valuation specialist to assist. The application of purchase price accounting oftentimes results in the identification and valuation of intangible assets that may not have been previously recognized on the balance sheet of the acquired company. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill.

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The fair values of acquired assets and assumed liabilities are estimated in accordance with accounting standards which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Management must apply judgment when identifying the intangible assets acquired as part of a business combination, as well as when determining the appropriate valuation technique to be applied to all acquired assets and assumed liabilities. Management also must make significant estimates and assumptions when determining the inputs for inclusion in the related valuation models. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the marketplace participant).

The most significant estimates and assumptions relate to the determination of (1) the fair values of identified intangible assets (e.g., developed technology and trade names) and (2) the period and pattern of amortization for intangible assets that are assigned a definite life. The fair values of acquired intangible assets primarily have been determined based on projected cash flows attributable to the operations of the acquiree. The projected cash flows include various assumptions, including estimated revenue growth rates, operating margins, R&D expenditures, capital expenditures, royalty rates, and appropriate risk-adjusted discount rates used to discount the projected cash flows. The usage of different assumptions would result in the assignment of different fair values to the acquired identifiable intangible assets and, accordingly, also impact the amount of purchase consideration assigned to goodwill. Similarly, changes in the planned usage of the acquired identifiable intangible assets and/or their estimated economic lives, if any, could impact the recoverability of the assets and/or amortization period and expense attributable to the assets in the future.

Goodwill & other long-lived assets, including intangible assets

Long-lived assets, including intangible assets

We review long-lived assets (or asset groups), including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset (or asset group) may not be recoverable. We assess the recoverability of the carrying value of assets (or asset groups) held for use based upon a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of a long-lived asset (or asset group) over its estimated fair value, as determined using discounted projected cash flows. Our estimation of discounted projected cash flows requires us to make certain assumptions, including long-term revenue and expense forecasts, profit margins, discount rates and terminal growth rates.

See Note 2, Note 7, Note 8 and Note 11 to the consolidated financial statements in Item 8 of this Form 10-K for discussion of the long-lived asset impairment charges recognized during the years ended December 31, 2024 and 2023.

Goodwill

Goodwill represents the amount by which the purchase price paid to consummate a business combination exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in the business combination. Goodwill is required to be assigned to a reporting unit for purposes of subsequent measurement and, as of December 31, 2024 and 2023, all of our reported goodwill was assigned to our Healthcare reporting unit.

We assess goodwill for impairment at least annually and, between annual impairment assessments, when circumstances indicate that there is a likelihood of greater than 50% that the carrying value of a reporting unit, inclusive of any assigned goodwill, exceeds the reporting unit’s fair value. On a forward-looking basis, such circumstances may include (1) a significant and sustained decrease in the trading price or our common stock that may suggest that the fair value of the Company and, accordingly, the fair value of our Healthcare reporting unit has declined, (2) a significant adverse change in the business climate for our Healthcare reporting unit, (3) a significant adverse change in the performance of our Healthcare reporting unit and/or (4) a decision to dispose of a significant portion of our Healthcare reporting unit.

When required to be performed, a quantitative goodwill impairment test compares the carrying value of a reporting unit to its fair value, and a goodwill impairment charge results when the reporting unit’s carrying value exceeds its fair value. The performance of a quantitative goodwill impairment test requires management to apply significant estimates and judgment – particularly to (1) estimate the fair value of the Company and each of our reporting units and (2) determine the carrying value of each of our reporting units, since we do not maintain separate balance sheets for our reporting units.

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We estimate the fair value of our reporting units based primarily upon discounted cash flow projections for their underlying operations, which requires us to make significant assumptions regarding estimated cash flows, including long-term revenue and expense forecasts, profit margins, discount rates and terminal growth rates. We develop these assumptions based on the market risks unique to each reporting unit. In addition to the use of discounted cash flow projections, when appropriate, our estimates of the fair values of our reporting units include the results of applying the guideline company valuation method, which is a market approach. The application of the guideline company valuation method requires us to make judgments regarding (1) the appropriate set of comparable publicly traded guideline peer companies for which observable market multiples should be considered and (2) the appropriate multiple(s) to select from the range of multiples that may be observed for those guideline companies. We separately use reasonable and consistent allocation methodologies and approaches to allocate asset and liability balances to our reporting units when an account balance is not directly attributable to a specific reporting unit.

As a result of the goodwill impairment charge recognized in connection with our quantitative interim period goodwill impairment test performed as of September 30, 2024, the carrying value of our Healthcare reporting unit was reduced to equal the fair value of the reporting unit as of such date. Accordingly, the remaining goodwill assigned to our Healthcare reporting unit could become subject to additional impairment upon any decrease in the estimated fair value of the Healthcare reporting unit or any increase in the estimated carrying value of the Healthcare reporting unit. Factors that could result in a decrease in the estimated fair value of the Healthcare reporting unit include, but are not limited to, (1) failure to achieve the forecasted operating results and/or cash flows reflected in the projections utilized for purposes of the September 30, 2024 interim period goodwill impairment test, (2) a downward revision to the cash flows forecasted for future reporting periods, (3) an increase in the discount rate applied to forecasted cash flows due to changes in factors such as market interest rates or the selected company-specific risk premium, (4) a change in the estimated terminal growth rate for our Healthcare reporting unit, and/or (5) changes in observable market multiples for comparable publicly traded guideline peer companies. Due to (A) both the nature of and extensive period of time covered by the cash flow projections developed for purposes of our September 30, 2024 goodwill impairment test and (B) the use of market information as of a point in time to derive other key assumptions required for our September 30, 2024 goodwill impairment test, there is inherent uncertainty and risk in the underlying estimates, assumptions, and judgments that were utilized to estimate the fair value of our Healthcare reporting unit as of September 30, 2024. Accordingly, over time, the key estimates, assumptions, and judgments that were used to estimate the fair value of our Healthcare reporting unit may change due to factors such as changes in market conditions and/or the actual performance of our Healthcare reporting unit. Similarly, over time, the carrying value of our Healthcare reporting unit could increase due to factors such as capital expenditures and/or the composition of the assets and liabilities of the Company and the underlying process and estimates required to allocate assets and liabilities that are not directly attributable to a specific reporting unit between/amongst our reporting units. Any unfavorable changes to the key estimates, assumptions, judgments or inputs utilized in our most recent quantitative goodwill impairment – either on an individual basis or in the aggregate – could result in the recognition of additional impairment charges in the future.

See Note 2 and Note 9 to the consolidated financial statements in Item 8 of this Form 10-K for discussion of the goodwill impairment charges recognized during the years ended December 31, 2024 and 2023. Our annual goodwill impairment test performed for the year ended December 31, 2022 did not result in the recognition of a goodwill impairment charge.

Regenerative medicine earnout payments and performance-based stock units

Upon acquiring Volumetric on December 1, 2021, the Company became subject to potential aggregate acquisition-related earnout payments of up to $355.0 million that would be due to Volumetric’s former owners (“Sellers”) if seven individually assessed non-financial milestones were achieved. Each of the seven non-financial milestones, which individually triggered a specific earnout payment if achieved prior to an agreed upon date of either December 31, 2030 or December 31, 2035, was based upon specific advances in regenerative medicine related to lungs or tissue organs. For each milestone, payment was only due to the extent that the Sellers continue to be employed by the Company at the time that a milestone was achieved. As the earnout payments require the continued employment of Volumetric’s Sellers, the Company recognized each individual earnout payment as compensation expense over the period commencing on the date that the related milestone was deemed probable of achievement through the anticipated date of achievement.

In addition, the Company had granted performance-based stock units (“PSUs”), with vesting terms that were based upon four individually-assessed, non-financial milestones, to other employees who worked on advancements in regenerative medicine related to lungs and tissue organs. The PSUs associated with each individual milestone were recognized as compensation expense over the period commencing on the date that the respective milestone was deemed probable of being met through the anticipated date of achievement.

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As the milestones that trigger the Volumetric earnout payments and the vesting of the PSUs were (1) based upon scientific and technological advancements that were expected to require multiple years of R&D to achieve and (2) subject to significant known and unknown risks and uncertainties, management was to apply significant assumptions and judgment at each balance sheet date to assess both the probability of achievement and expected timing of achievement. A change in management’s assumptions or estimates regarding the probability and/or timing of achievement of a milestone in connection with management’s quarterly reassessment could materially impact the amount of compensation expense recognized for the respective and future periods as follows:

•A change in assumptions that resulted in a milestone first being deemed probable of achievement would result in the recognition of incremental compensation expense in the Company’s consolidated statement of operations in the respective period;

•A change in assumption regarding the timing of achievement of a milestone would result in the acceleration or deceleration of the recognition of future compensation expense; and/or

•A change in assumption that results in a milestone no longer being deemed probable of achievement would result in a full reversal of previously recognized expense in the respective period.

Prior to the year ended December 31, 2023, the Company had been recognizing compensation expense related to (1) one Volumetric milestone-based payment, for which the potential amount due to the Sellers would be $65.0 million, and (2) one PSU milestone (“the RegMed Awards”), for which the aggregate grant date fair value of the outstanding and unvested awards was $4.5 million as of December 31, 2022, as the related Volumetric earnout and RegMed Award milestone was deemed probable of achievement. During the year ended December 31, 2023, the Company decided to reduce its budgeted funding for the R&D related to the Volumetric earnout and RegMed Award milestone, which resulted in the Company concluding that it was no longer probable that the milestone would be achieved by the end of the term of the Volumetric earnout arrangement or prior to the expiration and cancellation of the RegMed Awards. In concluding that the Volumetric and RegMed Award milestone would no longer be achieved, the Company reversed all of the previously accrued compensation expense, one half of which was expected to be settled with common shares, which had an income statement impact of $18.4 million for the year ended December 31, 2023.

As a result of the reversal of all previously recognized expense during the year ended December 31, 2023, the Company did not recognize any compensation expense during the year ended December 31, 2023 related to (1) the $355.0 million of potential Volumetric earnout payments provided for in the Volumetric acquisition agreement or (2) the outstanding RegMed Awards with an aggregate grant date fair value of $17.2 million. The Company did not recognize any of this expense because none of the related non-financial milestones were deemed probable of achievement as of December 31, 2023.

Additionally, in February 2024, the Volumetric Sellers were informed that four of the seven milestones included in the Volumetric acquisition agreement were terminated. The termination of these milestones, which related to kidney and liver research, was based upon a determination that their achievement was no longer financially viable due to the loss of the funding required from the Company's key strategic partner for the related R&D efforts. As a result of the termination of the four milestones in February 2024, for periods subsequent to December 31, 2023, the Company's maximum liability for the Volumetric earnout payments related to the remaining three milestones was $175.0 million.

Furthermore, on April 29, 2024, the key employees from Volumetric, who were required to be employed at the time of achievement of each science-based milestone outlined in the Volumetric acquisition agreement in order for each related acquisition earnout payment to become payable, resigned from their positions with the Company. As a result of the resignation of the key employees for whom continued employment was required for any of the remaining earnout payments to become payable, the parties to which the remaining three earnout payments totaling $175.0 million were potentially payable were notified that such amount was no longer eligible to be earned. For further information concerning the termination of the Volumetric milestones related to potential earnout payments, refer to Note 22 to the consolidated financial statements included in Item 8 of this Form 10-K.

Further changes to management’s assumptions regarding the probability and/or timing of achievement of the RegMed Award milestones or, alternatively, changes to the arrangements or circumstances that provide for compensation to be paid upon the achievement of the RegMed Award milestones, could significantly impact the amount of compensation expense recognized by the Company in the future.

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Systemic Bio Phantom Plan

During the year ended December 31, 2023, we began granting phantom unit awards ("Phantom Units") under a new compensation plan designed for employees and non-employees performing services for Systemic Bio, a wholly-owned subsidiary of 3D Systems. All awards granted under the plan are subsidiary-level awards. The Phantom Units granted under the plan include both a time-based vesting condition (generally 4 years, subject to acceleration in connection with specified liquidity events) and a market condition that is met if (1) the value of Systemic Bio exceeds a specified multiple of the capital invested in this subsidiary (the "hurdle") and (2) the business achieves a specified minimum internal rate of return. The market condition will be assessed upon (A) a trigger event (e.g., change-in-control, IPO, or plan expiration of December 31, 2030) and/or (B) an interim liquidity event (defined as January 1, 2028) that occurs prior to a trigger event. All awards granted under the plan are liability-classified due to our intention to settle these awards with cash; although, we have discretion to partially or fully settle these awards in equity upon vesting. Liability classification of the awards requires them to be remeasured at their estimated fair value at the end of each reporting period. Due to the presence of the market-condition and the fact that Systemic Bio does not have a readily available share price, the awards are valued using a Monte Carlo simulation with the assistance of a third-party valuation firm. This valuation requires significant judgment regarding the input of various assumptions and estimates, which include the projected cash flows of (including projected capital invested in) Systemic Bio, the probability and/or timing of a trigger event or a liquidity event, the expected stock price volatility for selected public companies with comparable characteristics to Systemic Bio, the discount for the lack of marketability of Systemic Bio as a privately-held company, and the risk-free interest rate. A change in management’s judgment regarding these assumptions or estimates can materially impact the periodic measurement of the liability and the related amount of compensation expense recognized in the Company’s consolidated financial statements.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a discussion of recent accounting pronouncements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with our consolidated financial statements, and notes thereto, included in Item 8 of this Form 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements, as discussed more fully in this Form 10-K. See “Risk Factors” in Part I, Item 1A and “Forward-Looking Statements.” All amounts are in thousands, except share and per share amounts, or as otherwise indicated.

For discussion related to our results of operations and changes in financial condition for fiscal 2022 compared to fiscal 2021, refer to Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in our fiscal 2022 Form 10-K. Our fiscal 2022 Form 10-K was filed with the SEC on March 16, 2023.

Business Overview

3D Systems Corporation (“3D Systems” or the “Company” or “we,” "our" or “us”) markets our products and services through subsidiaries in North America and South America (collectively referred to as “Americas”), Europe and the Middle East (collectively referred to as “EMEA”) and Asia Pacific and Oceania (collectively referred to as “APAC”). We provide comprehensive 3D printing and digital manufacturing solutions, including 3D printers for plastics and metals, materials, software, and services, including maintenance, advanced manufacturing and applications engineering. Our solutions support advanced applications in two key industry verticals: Healthcare Solutions and Industrial Solutions. We have over 35 years of experience and expertise, which have proven vital to our development of an ecosystem and end-to-end digital workflow solutions that enable customers to optimize product designs, transform workflows, bring innovative products to market and drive new business models.

The Company has two reportable segments: Healthcare Solutions and Industrial Solutions. Our reportable segments are based upon the industry verticals that they serve. For Healthcare Solutions, those industry verticals include dental, medical devices, personalized health services and regenerative medicine. For Industrial Solutions, those industry verticals include aerospace, defense, transportation and general manufacturing. We architect solutions specific to customers’ needs through a combination of materials, hardware platforms, software, professional services and advanced manufacturing – creating a path to integrating additive manufacturing into traditional production environments. As a result, manufacturers achieve design freedom, increase agility, scale production and improve their overall total cost of operation. Our technologies and process knowledge enable over a million production parts to be made through additive manufacturing each day.

Recent Developments

Fiscal Year 2023 Restructuring Activities

Restructuring Plan Objectives and Phases

In February 2023, the Company announced the first phase of its multi-faceted restructuring initiative to improve operating efficiencies throughout the organization and drive long-term value creation. The objective of this first phase was to improve manufacturing efficiencies related to our European metal printer operations. Actions taken under this initiative include the insourcing of certain metal printer platforms into the Company’s Riom, France manufacturing facility, co-locating the manufacturing and engineering of the insourced metal printer products in order to improve cycle time from development to production.

In May 2023, the Company announced the next phase of its multi-faceted restructuring initiative, which primarily consisted of a reduction in headcount representing approximately 6% of the Company's workforce. The majority of this targeted workforce reduction related to corporate and business support functions predominately located in the U.S. and Europe.

In October 2023, the Company announced the latest phase of its multi-faceted restructuring initiative, which is primarily targeted at continuing to rationalize headcount, as well as the rationalization of geographic locations (i.e., leased facilities), in all functions across the Company and the reduction of certain third-party costs. This initiative also includes certain strategic actions that have been taken or are being contemplated with respect to certain of the Company’s previously acquired businesses.

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We currently expect the execution of our restructuring initiatives to result in the recognition of aggregate charges in the range of $8.5 million to $10.0 million, inclusive of $8.2 million which has been recognized in our consolidated statement of operations for the year ended December 31, 2023. These charges relate to employee severance and termination benefit costs that are generally recognized when probable and estimable because they are typically being determined consistent with the Company’s past practices or statutory law. We may incur additional cash expenditures related to our planned facility exits and relocation activities, which will be recognized as incurred.

We currently expect the execution of our restructuring plan, including the cash settlement of associated liabilities, to be substantially complete by December 31, 2024. Further, we expect our combined restructuring initiatives to deliver aggregate annualized savings of between $50.0 million and $65.0 million, commencing as of our fiscal year beginning January 1, 2025. Refer to the subsequent discussion of the status of our initiatives for additional details regarding the factors that will impact the timing of our realization of such savings.

Status of Our Initiatives

Headcount

The Company has substantially completed the initial phase of headcount reductions announced in May 2023. Actions related to the incremental headcount reductions announced in October 2023 commenced in November 2023 and are expected to continue throughout 2024. We expect to realize the resulting cost savings in our reported results as our headcount reduction efforts advance and are ultimately completed.

Facilities Rationalization

During the three months ended December 31, 2023, the Company (1) commenced the process of identifying leased facilities that it may exit and (2) began developing and executing plans to exit and potentially sublease such facilities. The decision-making, planning and execution activities will continue throughout 2024. To-date, we have identified certain facilities that we have committed to exiting. However, the Company’s consolidated financial statements as of and for the year ended December 31, 2023 do not include material transactions resulting from such decisions because the Company generally had not ceased use of such facilities as of December 31, 2023. In addition, we have identified several additional facilities that we continue to evaluate for opportunities to exit.

The amount and timing of both cost savings and cash savings that ultimately will be realized from facility exits will be dependent upon the finalization of decisions regarding facilities to be exited, how quickly we can exit the facilities that we identify, the impact of market conditions on our ability to sublease the identified facilities, the time it will take to execute a sublease, the amount of our committed lease payments that we are able to recover via sublease, and the level of expenditures that may be required to prepare a facility for sublease. To the extent that the Company is able to sublease a facility, we expect to realize future cash savings; however, a sublease may also result in the recognition of a non-cash impairment charge related to a right-of-use asset and any associated leasehold improvements to the extent that the sublease income is less than our remaining lease payments on the primary lease. In certain cases, if we elect to abandon a facility – for example, because the remaining term of a lease or market conditions do not provide an opportunity for a sublease – we may realize a reduction in selling, general and administrative expense due to lower amortization expense for periods subsequent to our exit of such facility; however, we may not achieve equivalent cash savings.

Costs Incurred and Settled During the Period

The following table provides details regarding restructuring charges recorded during the period, the portion of such costs that were settled with cash as of December 31, 2023, and the remaining accrued liability reported in our consolidated balance sheet as of December 31, 2023:

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The severance, termination benefits and other employee costs that the Company incurred during the year ended December 31, 2023 are reflected in our consolidated statement of operations as follows:

(1) These severance and termination costs are not included in the Company’s Adjusted EBITDA measure of segment profitability that is reported to our Chief Operating Decision Maker. If these costs were included in our measure of segment profitability, the reported results of our Healthcare Solutions segment and Industrial Solutions segment would have included approximately $1.4 million and $2.7 million respectively, and the remaining costs relate to Corporate.

In addition to the severance and termination costs reported above, the Company has recognized incremental impairment charges totaling $0.6 million related to certain fixed assets that have been retired in connection with the Company’s restructuring activities.

Other Strategic Business Decisions and Cost Saving Initiatives

dp polar GmbH ("dp polar")

During the three months ended December 31, 2023, the Company decided that, for the foreseeable future, it would cease the development of the in-process research and development ("IPR&D") acquired in connection with our October 2022 acquisition of dp polar, discussed below. As a result of this decision, the Company recorded impairment charges totaling $9.4 million related to the carrying value of the intangible assets attributable to this asset group (refer to Note 8). Based upon the decision to cease the development of dp polar’s IPR&D and the resulting impairment of dp polar’s long-lived assets that were previously subject to amortization, the Company expects to recognize lower amortization expense in selling, general and administrative (“SG&A”) expense in future periods.

Oqton

Since the quarter ended September 30, 2023, the Company has been evaluating strategic alternatives related to Oqton MOS, for which we previously disclosed that it is more likely than not that the business will be sold or otherwise disposed of. In connection with the expectation to sell or otherwise dispose of Oqton MOS, management assessed whether the carrying value of this asset group’s long-lived assets was recoverable and, ultimately, recorded impairment charges totaling $13.6 million for the year ended December 31, 2023 (refer to Note 8). The Company expects to immediately realize lower amortization expense recorded to SG&A expense as a result of the impairment of Oqton MOS’s intangible assets that were previously subject to amortization.

During May 2024, the Company completed the sale of the portion of the Oqton MOS business that was focused on the dental market ("Oqton Dental") in exchange for a de minimis amount of cash, resulting in the transfer of a limited portion of Oqton MOS's personnel. The transfer of personnel is expected to provide cost savings from the date of the disposal of Oqton Dental. The Company continues to evaluate strategic alternatives related to the remaining portion of Oqton that the Company continues to hold.

Acquisitions/Investments (See Note 3 and Note 10 to the Consolidated Financial Statements for further details)

The Company has made the following significant acquisitions and investments during our fiscal years ended December 31, 2023 and 2022.

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Wematter AB

On July 1, 2023, the Company completed the acquisition of Wematter AB (“Wematter”), a Swedish 3D printer manufacturer, for which post-acquisition results are included in our Industrial Solutions segment. The acquisition broadens 3D Systems’ Selective Laser Sintering (SLS) portfolio. Consideration for this acquisition consisted of approximately $10.2 million in cash, subject to customary post-closing adjustments. The Company also may be required to pay an additional €2.0 million in cash, contingent upon the achievement of certain post-closing performance conditions and the continued employment of certain key employees of Wematter for two years after the closing date of the acquisition. As of December 31, 2023, management does not believe that achievement of the post-closing performance conditions is probable.

Theradaptive, Inc.

In June of 2023, we made an $8.0 million investment in Theradaptive, Inc. ("Theradaptive") via the purchase of Series A Preferred Stock, pursuant to which we hold an approximate 9.15%, or 8.25% fully-diluted, ownership interest in Theradaptive. Theradaptive is currently developing a protein that encourages bone growth. This biotechnology could be applied to 3D printed metal splints for patients who otherwise may require amputation of a limb because the lost bone is too vast to replace with a splint. The Company has accounted for its investment in Theradaptive on a cost basis, subject to assessment for impairment, as the fair value of Theradaptive's equity is not readily determinable, and the investment is not subject to the equity method of accounting due to the Company's lack of significant influence. The investment in Theradaptive is not expected to materially impact our future financial position, results of operations, or cash flows.

dp polar GmbH

On October 4, 2022, we completed the acquisition of dp polar, a German-based designer and manufacturer of a manufacturing system designed for high-speed mass production of customized components, for $25.9 million, which includes $19.6 million paid in cash at closing, $7.1 million paid at closing via the issuance of the Company’s common stock, and an estimated post-closing purchase price adjustment of $0.8 million due to the Company from the sellers. An additional payment of $2.2 million, consisting of the issuance of 249,865 shares of the Company’s common stock, could be required if a key individual from dp polar's management team continues to provide service to the Company through December 31, 2024. As discussed above, because dp polar has not generated any revenue subsequent to being acquired, and is not expected to generate any revenue in the foreseeable future, the Company has decided to cease developing the acquired dp polar IPR&D for the foreseeable future.

Kumovis GmbH

On April 1, 2022, we completed the acquisition of 93.75% of Kumovis GmbH ("Kumovis") for an all-cash purchase price of $37.9 million. $3.6 million of the purchase price was deferred for up to fifteen months from the closing date and was paid in July 2023. Kumovis, which is part of the Healthcare Solutions segment, utilizes polyether ether keton or “PEEK” materials, which have properties that lend it to many medical applications that fit into our personalized healthcare solutions operations, including many implant applications. Certain of Kumovis's applications remain subject to FDA approval before they will result in the recognition of revenue.

Titan Additive LLC

On April 1, 2022, we completed the acquisition of 100% of Titan Additive LLC ("Titan") for an all-cash purchase price of $39.0 million. Titan, which is part of the Industrial Solutions segment, is a pellet-based extrusion platform that addresses customer applications requiring large build volumes, superior performance, and improved productivity at significantly lower cost. We believe the acquisition of Titan will open up new markets in the Industrial Solutions segment.

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National Additive Manufacturing Innovation ("NAMI") Joint Venture

In March 2022, the Saudi Arabian Industrial Investments Company (“Dussur”) and 3D Systems signed an agreement to form a joint venture intended to expand the use of additive manufacturing within the Kingdom of Saudi Arabia and surrounding geographies, including the Middle East and North Africa. The joint venture is to enable the development of Saudi Arabia's domestic additive manufacturing production capabilities, consistent with the Kingdom’s ‘Vision 2030,’ which is focused on diversification of the economy and long-term sustainability. Upon entering into the agreement with Dussur, 3D Systems committed to an initial investment in the joint venture of approximately $6.5 million, of which $3.4 million had been deposited into an escrow account as of December 31, 2022 and, accordingly, was reported as restricted cash within other assets on the December 31, 2022 balance sheet. In February 2023, the Company became a shareholder in the joint venture and owns 49% of the joint venture's common stock. During April 2023, the $3.4 million held in escrow, as well as the additional amount of approximately $3.1 million owed to the joint venture, was deposited into a bank account of the joint venture for use in its operations. The impact of this investment on the Company’s future financial position and cash flows is expected to be limited to cash outflow(s) related to future investments, if required. Additional future investments are contingent upon the achievement of certain milestones by the joint venture or separate agreement by the parties to the joint venture to invest additional capital. Refer to Note 26 for details regarding the Company's incremental investment in NAMI subsequent to December 31, 2023.

The Company accounts for the joint venture under the equity method of accounting, which requires the Company to recognize its proportionate share of the joint venture's reported net income or loss. Due to the timing of when the joint venture's reported financial information is expected to be available, the Company records amounts required to be recognized pursuant to the equity method of accounting on a one quarter lag.

Enhatch Inc.

In March 2022, we made a $10.0 million investment for an approximate 26.6% ownership interest in Enhatch Inc. (“Enhatch”), the developer of the Intelligent Surgery Ecosystem. We simultaneously entered into a collaboration and supply agreement with Enhatch. We also obtained warrants to purchase additional shares of Enhatch and the right to purchase, in the future, the remaining shares of Enhatch that 3D Systems does not own, if certain revenue targets are achieved. Enhatch's Intelligent Surgery Ecosystem provides technologies which streamline and scale the design and delivery of patient-specific medical devices by automating the process. Incorporating these capabilities into 3D Systems’ workflow for patient-specific solutions, which includes advanced software, expert treatment planning services, custom implants, instrumentation design, and industry-leading production processes, will help more efficiently meet the growing demand for personalized medical devices.

Investing in Regenerative Medicine

Within our Healthcare Solutions segment, a portion of our business focuses on opportunities for additive manufacturing to be applied to regenerative medicine. To date, our efforts in the area of regenerative medicine have consisted primarily of pre-commercial bio-technology R&D in the areas described below.

Our first area of focus is the use of additive manufacturing for human organ transplantation, with a long-term goal of helping patients with end-stage disease receive transplants that will enable them to enjoy long and active lives. This program combines our 3D printing expertise and capabilities in human tissue engineering with the regenerative medicine and biotechnology expertise of a key strategic partner. Through the start of 2024, our program focused on developing the capability to print organ scaffolds for human lungs, kidneys and livers. However, beginning in the first quarter of 2024, due to changes to our arrangement with and funding from our key strategic partner, the Company’s continuing organ program shifted its focus to developing the capability to print human lung scaffolds, for which the related R&D efforts will continue to be primarily funded by our key strategic partner. Refer to the discussions of (A) “Regenerative medicine earnout payments and performance-based stock units” within the “Critical Accounting Estimates” section of this MD&A discussion and (B) Note 26 for additional information regarding the impact of the changes to this program during the first quarter of 2024.

Our second area of focus involves utilizing our bio-printing technology to manufacture non-organ human tissue scaffolds for use in transplantation and surgical reconstruction applications. We believe that continued progress in this area could result in significantly improved health outcomes for patients, as well as open up attractive new growth markets and therapeutic applications for 3D printed, vascularized soft-tissue scaffolds.

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Our third area of focus seeks to utilize our bio-printing capabilities to design and manufacture 3D-printed vascularized “organs-on-chips” for use in drug development by pharmaceutical industry customers through our wholly-owned biotech company, Systemic Bio. We believe that “organs-on-chips” can accelerate the drug development process and reduce the cost of pre-clinical drug testing, as well as reduce the pharmaceutical industry’s reliance on animal testing. Systemic Bio combines 3D Systems’ legacy expertise in high-resolution 3D printing with advanced capabilities in bioprinting and biomaterials to design and market 3D-printed, vascularized “organs-on-chips.” During the year ended December 31, 2023, Systemic Bio entered into its first commercial contracts with pharmaceutical industry customers.

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Background

We earn revenue from the sale of products and services through our Healthcare Solutions and Industrial Solutions segments. The product categories include 3D printers and corresponding materials, digitizers, software licenses, 3D scanners and haptic devices. The majority of materials used in our 3D printers are proprietary. The services categories include maintenance contracts and services on 3D printers, software maintenance, software as a service subscriptions and healthcare solutions services.

Given the relatively high price of certain 3D printers and a corresponding lengthy selling cycle, as well as relatively low unit volume of the higher-priced printers in any particular period, a shift in the timing and concentration of orders and shipments from one period to another can materially affect reported revenue in any given period.

In addition to changes in sales volumes, there are two other primary drivers of changes in revenue from one period to another: (1) the combined effect of changes in product mix and average selling prices and (2) the impact of fluctuations in foreign currencies. As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume or foreign exchange.

How We Assess the Performance of Our Business

We manage operations through the two business segments described above. In addition to our consolidated GAAP financial measures, we review Adjusted EBITDA.

We believe Adjusted EBITDA is a helpful supplemental measure to assist us and investors in evaluating our operating results, as Adjusted EBITDA excludes certain items for which the fluctuation from period to period does not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss), plus income tax (provision) benefit, interest and other income (expense), net, stock-based compensation expense, amortization of intangible assets, depreciation expense, and certain other non-GAAP adjustments. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about our operating and financial performance without the effects of (1) certain material non-cash items and (2) certain items that we do not believe to be core to our operations.

Management and our Board of Directors regularly use Adjusted EBITDA in evaluating our operating and financial performance and in establishing discretionary annual compensation. This measure is provided in addition to, and should not be considered to be a substitute for, or superior to, comparable measures determined in accordance with GAAP. In addition, we believe that Adjusted EBITDA is frequently used by investors and other interested parties in the evaluation of other issuers, many of which also present Adjusted EBITDA when reporting their results in an effort to augment investors' understanding of their operating and financial results; however, similarly titled measures provided by other issuers may not be calculated in the same manner and/or using the same adjustments.

Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other performance measure derived in accordance with GAAP. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under GAAP.

For further information regarding Adjusted EBITDA, see “Reconciliation of non-GAAP Measures” below.

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Consolidated Financial Results for the Years Ended December 31, 2023 and 2022

Operating Results for the year ended December 31, 2023 compared to the year ended December 31, 2022

Consolidated revenue

The following table sets forth changes in our products and services revenue for the year ended December 31, 2023 and 2022.

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Products revenue

For the year ended December 31, 2023, products revenue decreased by $66.7 million, or 16.9%, as compared to the year ended December 31, 2022. Lower sales volume resulted in a $70.5 million, or 17.8%, decrease in reported product revenue relative to the prior year period, of which $62.9 million of such decrease is attributable to our Healthcare Solutions segment. The lower sales volume within our Healthcare Solutions segment was primarily due to lower sales to the dental market, including lower printer sales to a key customer. Product sales volume in our Healthcare Solutions segment also decreased due to lower printer sales to customers in the medical devices and other non-dental markets. A decrease in product sales volume within our Industrial Solutions segment resulted in a revenue decrease of $7.6 million compared to the prior year. This decrease was significantly driven by lower printer sales to customers in the jewelry market, which was primarily due to a delay in the Company's release of a new printer model.

The decrease in product revenue due to lower sales volume was partially offset by favorable impacts of price/mix and foreign currency translation. For our Healthcare Solutions segment, price/mix had a favorable impact of $6.7 million, which includes favorable pricing of sales to a key customer due to their lower purchase volume. The favorable impact of price/mix on our Healthcare Solutions revenue was partially offset by an unfavorable price/mix impact of $4.0 million on our Industrial Solutions revenue, which was due to discounted pricing on certain product classes in response to competition and to increase future revenues.

Services revenue

For the year ended December 31, 2023, services revenue increased by $16.7 million, or 11.7%, as compared to the year ended December 31, 2022. Higher sales volume resulted in a $16.0 million, or 11.2%, increase in reported services revenue relative to the prior year period, of which $7.6 million and $8.4 million of the increase relates to our Healthcare Solutions segment and our Industrial Solutions segment, respectively. The volume increase in our Healthcare Solutions' services revenue was partially due to incremental variable consideration (revenue) being deemed probable of being earned under a regenerative medicine collaboration and licensing agreement that was amended during the year ended December 31, 2023. In connection with the amendment to this collaboration and licensing agreement, the Company concluded that three additional milestone-based payments included in the contract, totaling $6.5 million in the aggregate, became probable of being earned. The inclusion of these additional milestone payments in the contract transaction price resulted in the recognition of additional Healthcare Solutions' services revenue during the year ended December 31, 2023, inclusive of a $4.5 million aggregate cumulative catch-up adjustment to the revenue recorded under the contract. Revenue related to the collaboration and licensing agreement is recognized over time and, accordingly, the remaining revenue attributable to the three additional milestone payments is expected to be recognized over the remaining duration of the contract. The remaining increase in our Healthcare Solutions' services revenue primarily relates to higher personalized healthcare solutions revenue.

For our Industrial Solutions segment, the $8.4 million increase in services revenue attributable to higher sales volume primarily relates to increases in revenue generated from parts manufacturing and hardware maintenance services.

Total revenue

Total consolidated revenue for the year ended December 31, 2023 decreased by $50.0 million or 9.3% to $488.1 million, compared to $538.0 million for the year ended December 31, 2022. This decrease was primarily driven by the $70.5 million impact of lower product sales volumes, offset by the $16.0 million impact of the increase in services sale volume. Refer to the detailed discussions above. To a lesser extent, total consolidated revenue for the year ended December 31, 2023 was positively impacted by changes in products sales price/mix and changes in foreign exchange rates.

Consolidated gross profit

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Gross profit for the year ended December 31, 2023 decreased $17.8 million, or 8.3%, to $196.4 million, compared to $214.2 million for the year ended December 31, 2022. Gross profit margin for the year ended December 31, 2023 increased to 40.2%, as compared to 39.8% for the year ended December 31, 2022, primarily driven by the increase in our services gross profit margin (as discussed in greater detail below).

Products gross profit and gross profit margin

For the year ended December 31, 2023, gross profit from products sales decreased by $32.5 million, or 20.6%, as compared to the year ended December 31, 2022. This decrease was primarily driven by lower products sales revenue.

Services gross profit and gross profit margin

For the year ended December 31, 2023, gross profit from services sales increased $14.7 million, or 26.2%, as compared to the year ended December 31, 2022. The increase in gross profit from services sales was primarily driven by the $16.7 million, or 11.7%, increase in services revenue. In general, the increases in services revenue in both our Industrial Solutions segment and Healthcare Solutions segment contributed significantly to the increase in our services gross profit and gross profit margin due to the fixed nature of certain costs (e.g., salaries) incurred to provide our services. Accordingly, the costs incurred to provide our services generally do not increase proportionately with increases in services revenue.

In addition, the increase in our services revenue includes the $4.5 million of incremental variable consideration revenue recognized by our Healthcare Solutions segment on a cumulative catch-up basis, upon concluding that additional milestone-based payments related to a collaboration and licensing revenue agreement are probable of being earned. As there were no direct costs (e.g., costs of goods sold) associated with this incremental collaboration and licensing revenue, the entire $4.5 million contributed to an increase in our reported gross profit, as well as to a 1.6% increase and 0.5% increase in our services gross profit margin and consolidated gross profit margin, respectively.

Consolidated selling, general and administrative expense

Selling, general and administrative ("SG&A") expense for the year ended December 31, 2023 decreased $34.0 million, or 13.9%, to $210.2 million, compared to $244.2 million for the year ended December 31, 2022. Reported SG&A expense for the year ended December 31, 2023 was impacted by the Company’s acquisition of Wematter on July 1, 2023, as costs attributable to Wematter's operations are not included in our reported results for the year ended December 31, 2022. In addition, SG&A expense for the year ended December 31, 2023 is impacted by the acquisitions of Titan and Kumovis on April 1, 2022 and dp polar on October 4, 2022, as each of these acquired businesses was consolidated for the full year ended December 31, 2023, as compared to only part of our fiscal year ended December 31, 2022. For the year ended December 31, 2023, our SG&A expense increased $1.4 million due to the inclusion of the operating results of these acquisitions for a greater portion of fiscal year 2023, as compared to fiscal year 2022. This $1.4 million increase primarily relates to additional compensation expense and amortization expense.

The primary drivers of the $34.0 million decrease in SG&A expense for fiscal year 2023 — despite the $1.4 million increase in SG&A expense due to recent acquisitions – include:

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Volumetric earnout expense decreased by $33.2 million for the year ended December 31, 2023, as the Company reversed $17.3 million of previously recognized earnout expense during the year ended December 31, 2023, as compared to recognizing $15.9 million of earnout expense during the year ended December 31, 2022. Prior to (and through the first half of) the year ended December 31, 2023, the Company was accruing for a potential earnout payment of $65 million, representing compensation expense, based upon the expected achievement of a non-financial, science-based milestone outlined in the Volumetric acquisition agreement. Expense related to the potential earnout payment was being recognized on a straight-line basis through the anticipated date of achievement of the related milestone. However, during the year ended December 31, 2023, the Company concluded that the non-financial milestone to which the potential earnout payment of $65 million relates was no longer probable of being achieved due to a reduction in the budgeted funding for the related R&D efforts and, accordingly, all previously recognized compensation expense was reversed. Refer to our discussion of "Critical Accounting Estimates" and Note 17 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

The $14.6 million decrease in SG&A expense related to our settlement with the U.S. government on export control compliance matters is due to the accrual of our full liability related to these matters during the year ended December 31, 2022. Refer to Note 23 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

Amortization expense decreased by $3.7 million for the year ended December 31, 2023 due to the impairment charges recorded against intangible assets included in our dp polar and Oqton MOS asset groups during the year ended December 31, 2023. These impairment charges reduced the amortizable asset balance for the impacted intangible assets to $0. Refer to our discussion of "Other Strategic Business Decisions and Cost Saving Initiatives" and Note 8 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details. In addition, amortization expense decreased as a result of certain intangible assets becoming fully amortized prior to the end of the first quarter of the current year ended December 31, 2023.

Ordinary compensation and benefits costs decreased by $1.2 million for the year ended December 31, 2023, as a $4.8 million decrease in bonus and share-based compensation (excluding the Volumetric earnout expense subject to settlement in shares of our common stock and discussed above) more than offset the increase in costs attributable to ordinary salaries, wages, and employee benefits due to our acquisitions and increase in personnel dedicated to our regenerative medicine activities.

Other legal and outside services expense increased by $11.1 million for the year ended December 31, 2023 due to (1) an increase in costs attributable to consultants and contract workers supporting various functions within the Company, including certain internal transformation efforts, (2) an increase in audit and accounting fees, and (3) an increase in legal fees (excluding the year-over-year impact of the settlement with the U.S. government on export control compliance matters, as discussed above).

Severance expense increased by $5.4 million for the year ended December 31, 2023 due to termination benefit costs that have been recognized for both completed and ongoing headcount reductions across various support functions of the Company. Refer to our discussion of "Fiscal Year 2023 Restructuring Activities" and Note 25 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

Consolidated research and development expense

R&D expense for the year ended December 31, 2023 increased $2.4 million, or 2.8%, to $89.5 million, as compared to $87.1 million for the same period last year. Reported R&D expense for the year ended December 31, 2023 was impacted by the Company’s acquisition of Wematter on July 1, 2023, as costs attributable to Wematter's operations are not included in our reported results for the year ended December 31, 2022. In addition, R&D expense for the year ended December 31, 2023 is impacted by the acquisitions of Titan and Kumovis on April 1, 2022 and dp polar on October 4, 2022, as each of these acquired businesses was consolidated for the full year ended December 31, 2023, as compared to only part of our fiscal year ended December 31, 2022. For the year ended December 31, 2023, our R&D expense increased $2.8 million due to the inclusion of the operating results of these acquisitions for a greater portion of fiscal year 2023, as compared to fiscal year 2022. This $2.8 million increase includes the impact of our acquisitions on compensation expense.

The primary drivers of the $2.4 million increase in R&D expense for fiscal year 2023 are a $1.1 million net impact of an increase in employee compensation and benefit costs, partially offset by lower external workforce costs, and a $1.0 million increase in severance costs. Ordinary compensation and benefit costs and certain other R&D costs increased due to the impact of our acquisitions and the ramp up of personnel in our wholly-owned bio-tech subsidiary, Systemic Bio, which is focused on the design and manufacture of 3D-printed vascularized “organs-on-chips” for use in drug development by pharmaceutical industry customers. Refer to our discussion of "Investing in Regenerative Medicine" for additional details.

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The increase in severance costs is primarily attributable to termination benefit costs that have been recognized for both completed and ongoing headcount reductions within our R&D function. Refer to our discussion of "Fiscal Year 2023 Restructuring Activities" and Note 25 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

Impairments of goodwill and intangible assets

During the year ended December 31, 2023, we recorded aggregate impairment charges of $302.8 million related to intangible assets (inclusive of goodwill); whereas, similar impairment charges were not recorded during the year ended December 31, 2022. The following table summarizes the nature of the intangible assets for which impairment charges were recorded during the year ended December 31, 2023:

The $279.8 million goodwill impairment charge recorded for the year ended December 31, 2023 reflects the impairment of 100% of the goodwill that had been assigned to our Industrial Solutions reporting unit based upon the result of our annual goodwill impairment test. This outcome of our annual goodwill impairment test is reflective of the significant and sustained drop in the Company's stock price and market capitalization leading up to and as of the testing date, as well as the significantly higher carrying value (including the goodwill balance) of our Industrial Solutions reporting unit compared to our Healthcare Solutions reporting unit. Refer to Note 9 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

For the year ended December 31, 2023, we recognized impairment charges related to (1) our indefinite-life intangible asset balance, consisting solely of dp polar's IPR&D, and (2) certain of our finite-life intangible assets, consisting of intangible assets included in our Oqton MOS and dp polar asset groups. These impairment charges were triggered by the Company's decision to cease the development of dp polar's IPR&D for the foreseeable future and the Company's conclusion that it will more likely than not sell or otherwise dispose of Oqton MOS. Based upon a determination that the dp polar and Oqton MOS intangible assets were no longer expected to produce or contribute to the production of positive cash flows for the Company, the Company recorded impairment charges to write their carrying values down to $0. Refer to our discussion of "Other Strategic Business Decisions and Cost Saving Initiatives" and Note 8 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

Consolidated operating loss

Our operating loss for the year ended December 31, 2023 was $406.0 million, compared to a $117.0 million operating loss for the year ended December 31, 2022. The increase in our operating loss was primarily attributable to the $302.8 million of non-cash impairment charges recorded (1) against the carrying value of our goodwill and (2) to write-off the intangible assets that were included in our dp polar and Oqton asset groups. The $17.8 million decrease in our reported gross profit and $2.4 million increase in our reported R&D expense was more than offset by the $34.0 million decrease in our reported SG&A expense. Refer to the discussions of our financial statement line items above for additional details.

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Non-Operating Income (Loss) for the Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

Interest and other income (expense), net

The following table sets forth the components of interest and other income (expense), net for the year ended December 31, 2023 and 2022.

For the year ended December 31, 2023, interest income, net increased $9.7 million, as compared to the year ended December 31, 2022. This increase was due to higher interest income earned on cash and cash equivalents, which was driven by higher market interest rates during the year ended December 31, 2023.

For the year ended December 31, 2023, other income (expense) increased primarily due to the $32.2 million gain recorded upon the repurchase of a portion of our outstanding convertible debt securities during the year ended December 31, 2023. Refer to Note 13 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details. In addition, a $2.8 million impairment charge was recorded with respect to the Company's investment in Enhatch during the year ended December 31, 2022. There were no similar impairments recognized with respect to the Company's investments during the year ended December 31, 2023. Refer to Note 10 to the consolidated financial statements included in Item 8 of this Form 10-K for additional details.

Net loss

The following table sets forth our net loss for the years ended December 31, 2023, and 2022.

For the year ended December 31, 2023, we reported a tax benefit of $0.6 million, as compared to a tax provision of $2.1 million for the year ended December 31, 2022. The Company's effective tax rates for the years ended December 31, 2023 and 2022 were significantly below blended U.S. and foreign jurisdictions' statutory tax rates due to (1) the Company's reported losses and (2) the maintenance of a valuation allowance against the Company's deferred tax assets based upon the Company's conclusion that it is more likely than not that its deferred tax assets will not be realized in various tax jurisdictions.

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The increase in the net loss attributable to 3D Systems for the year ended December 31, 2023, as compared to the net loss attributable to 3D Systems for the year ended December 31, 2022, was primarily driven by the period-over period increase in the Company's consolidated operating loss reported for the year ended December 31, 2023, partially offset by the non-operating income reported for the year ended December 31, 2023, as compared to a non-operating loss reported for the year ended December 31, 2022. In addition, the Company reported a loss on equity method investment, net of income taxes, for the year ended December 31, 2023; whereas, the Company did not hold this investment that is accounted for under the equity method of accounting as of the year ended December 31, 2022.

Non-GAAP Earnings

Adjusted EBITDA

Our Adjusted EBITDA decreased from negative $5.8 million for the year ended December 31, 2022 to negative $26.3 million for the year ended December 31, 2023. This decrease of $20.5 million in our Adjusted EBITDA was driven by a $289.0 million increase in our reported operating loss for the year ended December 31, 2023, adjusted for the period-over-period changes in certain operating costs that are included in the determination of our GAAP operating loss, but are excluded from our calculation of Adjusted EBITDA. As shown in the reconciliation of our reported Net Loss attributable to 3D Systems Corporation to Adjusted EBITDA (below), GAAP costs for which period-over-period variances materially impacted our reported operating loss for the year ended December 31, 2023, as compared to the year ended December 31, 2022, but are excluded from the calculation of Adjusted EBITDA for each of those respective periods, include impairment charges, amortization expense, stock-based compensation expense, acquisition and divestiture-related expense, legal expenses, and restructuring expense.

Reconciliation of Non-GAAP Measures

The table that follows provides a reconciliation of the reported Net Loss attributable to 3D Systems Corporation to Adjusted EBITDA. Refer to the discussion of "How We Assess the Performance of Our Business" for additional information regarding Adjusted EBITDA, and why management believes this measure provides useful information regarding the Company's results of operations.

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Segment Financial Results of Operations for the Years Ended December 31, 2023 and 2022

Effective as of January 1, 2023, and for periods subsequent thereto, Adjusted EBITDA reflects the measure of profitability used by the Company’s chief operating decision maker (“CODM”) to evaluate the performance of the Company’s reportable segments. In addition, as of January 1, 2023, the Company's methodology for allocating certain costs between its segments was revised to more closely reflect changes in the Company's business and estimates of the usage of shared resources by the Company's segments. Prior year amounts have been reclassified to conform with current year presentation.

The following table presents the revenue and Adjusted EBITDA amounts reported by each of our segments, as well as non-allocated corporate costs, for the years ended December 31, 2023 and 2022:

Healthcare Solutions

Revenue

For the year ended December 31, 2023, Healthcare Solutions revenue decreased $47.8 million, or 18.3%, as compared to the year ended December 31, 2022. This decrease in segment revenue was primarily due to a $48.2 million, or 31.9%, decrease in sales to the dental market, including lower printer sales to a key customer. Total product revenue for the segment decreased by $55.6 million, primarily reflective of our lower sales to the dental market, but also inclusive of lower printer sales to customers in the medical devices and other non-dental markets.

The decrease in product sales for the segment was partially offset by a $7.8 million increase in services revenue for the segment. The increase in services revenue was partially driven by the recognition of incremental variable consideration revenue, inclusive of a $4.5 million cumulative catch-up adjustment, that relates directly to the inclusion of $6.5 million of additional milestone payments (representing variable consideration) in the total transaction price of a regenerative medicine collaboration and licensing revenue agreement during the current year ended December 31, 2023. The additional milestone-based payments were deemed probable of being earned under revised contract terms that took effect upon the execution of an amendment to the collaboration and licensing revenue agreement during the year ended December 31, 2023. Our Healthcare Solutions' services revenue also increased due to higher personalized healthcare solutions revenue.

Adjusted EBITDA

For the year ended December 31, 2023, Adjusted EBITDA for our Healthcare Solutions segment decreased $17.3 million, or 30.9%, as compared to the year ended December 31, 2022, primarily due to (1) our lower sales to the dental market, including the segment's lower printer sales to a key customer, (2) the decrease in product sales into other markets, and (2) the increase in R&D costs incurred related to regenerative medicine, partially offset by increases in services revenue and a favorable impact of price/mix on the segment's product revenue.

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Industrial Solutions

Revenue

For the year ended December 31, 2023, Industrial Solutions revenue decreased $2.2 million, or 0.8%, as compared to the year ended December 31, 2022. This decrease in segment revenue is primarily attributable to a $11.1 million decrease in products revenue reflective of (1) lower printer sales to customers in the jewelry market, resulting from a delay in the Company's release of a new printer model, and (2) an unfavorable impact of price/mix, primarily due to discounted pricing on certain product classes in response to competition and to increase future revenue. The decrease in product revenue was partially offset by an $8.9 million increase in services revenue related to parts manufacturing and hardware maintenance services.

Adjusted EBITDA

For the year ended December 31, 2023, Adjusted EBITDA for our Industrial Solutions segment decreased $5.1 million, or 21.0%, as compared to the year ended December 31, 2022, which was primarily driven by a $2.0 million unfavorable impact of the Company's recent acquisitions and the unfavorable impact of both volume and price/mix on product revenue, partially offset by (1) the increase in services revenue and (2) lower operating expenses, when excluding the impact of acquisitions.

Corporate and Other

Adjusted EBITDA

For the year ended December 31, 2023, Corporate and Other Adjusted EBITDA was relatively flat, as compared to the year ended December 31, 2022, as a reduction in certain internal administration and corporate R&D costs, as well as a favorable foreign exchange impact, was partially offset by an increase in outside services and consulting costs.

Liquidity and Capital Resources

The following table sets forth the Company's operating working capital at December 31, 2023, and 2022.

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and accounts payable turns. Our cash requirements, excluding acquisitions, primarily consist of funding working capital and capital expenditures. Differences between the amounts of working capital item changes in the cash flow statement and the balance sheet changes for the corresponding items are primarily the result of foreign currency translation adjustments, acquisitions and divestitures.

At December 31, 2023, cash and cash equivalents and short-term investments totaled $331.5 million and decreased $237.2 million since December 31, 2022. This decrease resulted primarily from the repayment of long-term debt of $100.6 million, cash used in operations of $80.7 million, acquisitions and other investments, net of cash acquired of $29.2 million, and capital expenditures of $27.2 million.

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We expect that cash flow from operations, cash and cash equivalents, and other sources of liquidity, such as issuing equity or debt securities, subject to market conditions, will be available and sufficient to meet all foreseeable cash requirements.

Cash held outside the U.S. at December 31, 2023 was $65.8 million, or 19.8% of total cash and cash equivalents, compared to $58.4 million, or 15.0% of total cash and cash equivalents at December 31, 2022. As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant federal and state taxes. However, these dividends are subject to foreign withholding taxes that are estimated to result in the Company incurring tax costs in excess of the cost to obtain cash through other means. Cash equivalents are comprised of funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments. We strive to minimize our credit risk by investing primarily in investment grade, liquid instruments and limit exposure to any one issuer depending upon credit quality. See “Cash flow” discussion below.

Cash flow

The Company currently funds its operations — including working capital requirements, capital expenditures, investments and acquisitions — by using cash on hand cash; cash equivalents; cash flow from operations, which can vary widely from quarter to quarter; and financing activities, as necessary. We expect that cash flow from operations, cash and cash equivalents, and other sources of liquidity, such as issuing equity or debt securities, subject to market conditions, will be available and sufficient to meet all foreseeable cash requirements. The following is a summary of the changes in the Company’s cash flows, followed by a brief discussion of these changes:

Cash flow from operations

For the year ended December 31, 2023, cash used in operating activities was $80.7 million due to the reported loss from operations and the $35.4 million increase in working capital (excluding cash, cash equivalents and short-term investments) from December 31, 2022. Cash used in operating activities for the year ended December 31, 2022 was $70.0 million. The $10.7 million increase in cash used in operating activities during the year ended December 31, 2023 is primarily due to an increase in cash outflows for working capital. Such increase is primarily the result of: (1) a higher inventory balance due to the continued in-sourcing of activities from contract manufacturers, as well as due to lower revenue; (2) a decrease in accrued and other liabilities resulting from lower incentive compensation accruals and the payment of certain legal accruals; and (3) an increase in accounts receivable due to the timing of revenue recognized versus the payments received from customers.

Cash used in operating activities for the year ended December 31, 2022 was $70.0 million due to the reported loss from operations and the $49.6 million increase in working capital (excluding cash, cash equivalents and short-term investments) from December 31, 2021. The higher working capital primarily related to an increase in inventory balances to manage supply chain challenges and as a result of the purchase of $23.9 million of inventory from a contract manufacturer in connection with our decision to terminate the manufacturing services arrangement. In addition, there was a decrease in accrued liabilities primarily due to lower incentive compensation accruals, partially offset by a reduction in accounts receivable due to lower revenue.

Cash flow from investing activities

For the year ended December 31, 2023, cash provided by investing activities was $124.8 million compared to $308.4 million of cash used in investing activities for the year ended December 31, 2022. The investing cash inflows in 2023 included sales and maturities of short-term investments of $180.9 million, offset by cash used for acquisitions of $29.2 million and capital expenditures of $27.2 million.

For the year ended December 31, 2022, cash used in investing activities was $308.4 million, which included investments of $384.4 million of excess cash in short-term investments offset by $200.3 million proceeds from the sales and maturities of such investments, cash used for acquisitions of $103.7 million, and capital expenditures of $20.9 million.

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Cash flow from financing activities

For the year ended December 31, 2023, the cash flow used in financing activities was $106.5 million primarily due to the repayment of long-term debt of $100.6 million and taxes paid related to the net-share settlement of equity awards of $5.2 million.

For the year ended December 31, 2022, the cash flow used in financing activities was $13.8 million primarily due to taxes paid related to the net-share settlement of equity awards of $10.9 million and the $2.3 million payment for the acquisition of a non-controlling interest.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements and do not utilize any “structured debt,” “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

Material Cash Requirements

The Company's material cash requirements consist of the following contractual and other obligations:

Indebtedness

At December 31, 2023, we had $324.9 million of outstanding 0% convertible notes which mature in November of 2026. Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations or other strategic opportunities, which could result in higher financing costs.

Purchase Commitments

We have purchase commitments under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of delivery. The Company has purchase commitments in excess of a year primarily related to printer assemblies, inventory, capital expenditures, and software licenses. As of December 31, 2023, such purchase commitments totaled $14.7 million, with approximately $8.0 million expected to be purchased within the next twelve months. In addition to ordinary purchase commitments, as of December 31, 2023, the Company had approximately $1.7 million of purchase commitments for inventory as a result of the termination of a manufacturing services agreement (refer to Note 6 to the consolidated financial statements in Item 8 of this Form 10-K).

Leases

The Company had operating and financing lease obligations (inclusive of interest) of $107.8 million at December 31, 2023, primarily related to real estate and equipment leases, of which approximately $17.2 million in payments are expected over the next twelve months. For more information on the Company's leases, refer to Note 11 to the consolidated financial statements in Item 8 of this Form 10-K.

National Additive Manufacturing Innovation ("NAMI") Joint Venture

In March 2022, Dussur and 3D Systems signed an agreement to form a joint venture intended to expand the use of additive manufacturing within the Kingdom of Saudi Arabia and surrounding geographies, including the Middle East and North Africa. The joint venture is to enable the development of Saudi Arabia's domestic additive manufacturing production capabilities, consistent with the Kingdom’s ‘Vision 2030,’ which is focused on diversification of the economy and long-term sustainability. In February 2023, the Company became a shareholder in the joint venture and now owns 49% of its common stock. 3D Systems was committed to an initial investment of approximately $6.5 million of cash into the joint venture, all of which has been funded as of December 31, 2023. The future impact that participation in the joint venture will have on the Company’s financial position and cash flows is not expected to be material other than any potential cash outflow(s) that may be required to fund future investments in the joint venture. Additional future investments in the joint venture are contingent upon the achievement of certain milestones by the joint venture or separate agreement by the parties to the joint venture to invest additional capital. Refer to Note 26 for details regarding the Company's incremental investment in NAMI subsequent to December 31, 2023.

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Sources of Funding to Satisfy Material Cash Requirements

The Company believes that it has the financial resources needed to meet its cash requirements during the next twelve months. Cash requirements for periods beyond the next twelve months will depend on, among other things, the Company’s profitability and its ability to manage working capital requirements.

Other Contractual Commitments

Convertible Note

As of December 31, 2023, we were in compliance with all covenants of the outstanding 0% convertible notes due November 2026. Subsequent to December 31, 2023, the Company has become non-compliant with certain terms of the Indenture related to the outstanding 0% convertible notes due 2026. Refer to Note 26 for details regarding the Company's non-compliance with the Indenture subsequent to December 31, 2023.

Indemnification

In the normal course of business we periodically enter into agreements to indemnify customers or suppliers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant. We are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

To the extent permitted under Delaware law, we indemnify our directors and officers for certain events or occurrences, when the director or officer is, or was, serving at our request in such capacity, subject to limited exceptions. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have directors’ and officers’ insurance coverage that may enable us to recover future amounts paid, subject to a deductible and to the policy limits. There is no assurance that the policy limits will be sufficient to cover all damages, if any.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In doing so, we have to make estimates and assumptions that affect the amounts we reported as assets, liabilities, revenues, expenses, gains and losses, as well as related disclosures of contingent assets and liabilities. In some cases, we reasonably could have applied different estimates and/or assumptions. In some cases, changes in our accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between our estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss further below. We have reviewed our critical accounting estimates with the Audit Committee of our Board of Directors.

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a summary of our significant accounting policies.

Revenue recognition

Revenue is recognized for the amount of consideration we expect to receive in exchange for products or services when control of those promised products or services is transferred to customers, which generally occurs when the goods have been shipped or delivered to the customer, risk of loss has transferred to the customer, and we have a present right to payment.

We enter into contracts that include various combinations of products and services that are generally capable of being distinct and are accounted for as separate performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, we estimate SSP using historical transaction data. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, we determine the SSP using information that may include market conditions and other observable inputs.

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In some circumstances, we have more than one SSP for individual products and services due to the stratification of those products and services by customers, geographic region or other factors. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP. The determination of SSP is an ongoing process, and information is reviewed regularly in order to ensure SSP reflects the most current information or trends.

The nature of our sales and marketing incentives may lead to consideration that is variable. Judgment is exercised at contract inception to determine the expected value of the contract and resulting transaction price. Ongoing assessments are performed to determine if updates are needed to the original estimates.

We enter into collaborative arrangements that we may be required to account for in accordance with Accounting Standards Codification ("ASC") Topic 606, “Revenue from Contracts with Customers," because our collaboration partner meets the definition of a customer. When these arrangements provide an opportunity for the Company to earn milestone payments based upon the achievement of agreed-upon contract objectives, we must assess if and when it is appropriate to include those milestone payments, which represent variable consideration, in the contract's transaction price. This assessment, which impacts the timing and the amount of revenue recognized under a collaborative arrangement accounted for in accordance with ASC 606, requires management to conclude that it is probable that a significant reversal of the amount of cumulative revenue recognized with respect to a collaborative agreement will not occur as a result of including one or more milestone payments in the arrangement's transaction price, including when any uncertainty associated with the achievement of such milestones is ultimately resolved. The evaluation of when it is appropriate to include amounts earned upon the achievement of milestones in a contract's transaction price requires the application of significant assumptions and judgments, which management reassesses at the end of each reporting period.

See Note 2 and Note 5 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Allowance for doubtful accounts

In evaluating the collectability of our accounts receivable, we assess a number of factors, including specific customers’ abilities to meet their financial obligations to us, the length of time receivables are past due, historical collection experience, current economic conditions, and reasonable and supportable forecasts. Based on these assessments, we may record a reserve for specific customers, as well as a general reserve and allowance for expected credit losses. If circumstances related to specific customers change, or economic conditions deteriorate such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

We evaluate specific accounts for which we believe a customer may have an inability to meet their financial obligations (for example, aging over 90 days past due or bankruptcy). In these cases, we use our judgment, based on available facts and circumstances, and record a specific reserve for that customer to reduce the receivable to an amount we expect to collect. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.

Income taxes

We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.

See Note 2 and Note 19 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

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Inventories

Inventories are stated at the lower of cost or net realizable value, with cost being determined using standard costing, which approximates the first-in, first-out method.

The inventory reserve is a critical estimate as there is rapid technological change in our industry impacting the market for our products, and there is significant judgment in estimating the amount of spare parts to keep on hand to service previously sold printers for periods of up to 10 or more years.

See Note 6 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Business combinations and purchase accounting

We apply purchase accounting to transactions that meet the definition of business combinations. When applying purchase accounting, we are required to estimate the fair value of the assets acquired and liabilities assumed in a business combination as of the acquisition date, for which the Company engages a third-party valuation specialist to assist. The application of purchase price accounting oftentimes results in the identification and valuation of intangible assets that may not have been previously recognized on the balance sheet of the acquired company. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill.

The fair values of acquired assets and assumed liabilities are estimated in accordance with accounting standards which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Management must apply judgment when identifying the intangible assets acquired as part of a business combination, as well as when determining the appropriate valuation technique to be applied to all acquired assets and assumed liabilities. Management also must make significant estimates and assumptions when determining the inputs for inclusion in the related valuation models. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the marketplace participant).

The most significant estimates and assumptions relate to the determination of (1) the fair values of identified intangible assets (e.g., developed technology and trade names) and (2) the period and pattern of amortization for intangible assets that are assigned a definite life. The fair values of acquired intangible assets primarily have been determined based on projected cash flows attributable to the operations of the acquiree. The projected cash flows include various assumptions, including estimated revenue growth rates, operating margins, R&D expenditures, capital expenditures, royalty rates, and appropriate risk-adjusted discount rates used to discount the projected cash flows. The usage of different assumptions would result in the assignment of different fair values to the acquired identifiable intangible assets and, accordingly, also impact the amount of purchase consideration assigned to goodwill. Similarly, changes in the planned usage of the acquired identifiable intangible assets and/or their estimated economic lives, if any, could impact the recoverability of the assets and/or amortization period and expense attributable to the assets in the future.

Goodwill & other long-lived assets, including intangible assets

Long-lived assets, including intangible assets

We review long-lived assets (or asset groups), including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset (or asset group) may not be recoverable. We assess the recoverability of the carrying value of assets (or asset groups) held for use based upon a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of a long-lived asset (or asset group) over its estimated fair value, as determined using discounted projected cash flows.

See Note 7 and Note 8 to the consolidated financial statements in Item 8 of this Form 10-K for discussion of the long-lived asset impairment charges recognized during the years ended December 31, 2023 and 2022.

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Goodwill

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually and, between annual impairment assessments, when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances may include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. The test for goodwill impairment compares the fair value of each of our reporting units to its respective carrying value. This process requires a significant level of estimation and use of judgment by management – particularly to (1) estimate the fair value of each of our reporting units and (2) determine the carrying value of each of our reporting units, since we do not maintain separate balance sheets for our reporting units.

We estimate the fair value of our reporting units based primarily on the discounted projected cash flows of their underlying operations, which requires us to make assumptions about estimated cash flows, including long-term revenue and expense forecasts, profit margins, discount rates and terminal growth rates. We develop these assumptions based on the market risks unique to each reporting unit. We separately use reasonable and consistent allocation methodologies and approaches to allocate asset and liability balances to our reporting units when an account balance is not directly attributable to a specific reporting unit.

See Note 9 to the consolidated financial statements in Item 8 of this Form 10-K for discussion of the goodwill impairment charge recognized during the year ended December 31, 2023. Our annual goodwill impairment tests performed for the years ended December 31, 2022 and 2021 did not result in the recognition of a goodwill impairment charge.

Regenerative medicine earnout payments and performance-based stock units

Upon acquiring Volumetric on December 1, 2021, the Company became subject to potential aggregate acquisition-related earnout payments of up to $355.0 million that will be due to Volumetric’s former owners (“Sellers”) if seven individually assessed non-financial milestones are achieved. Each of the seven non-financial milestones, which individually triggers a specific earnout payment if achieved prior to an agreed upon date of either December 31, 2030 or December 31, 2035, is based upon specific advances in regenerative medicine related to lungs or tissue organs. For each milestone, payment is only due to the extent that the Sellers continue to be employed by the Company at the time that a milestone is achieved. As the earnout payments require the continued employment of Volumetric’s Sellers, the Company recognizes each individual earnout payment as compensation expense over the period commencing on the date that the related milestone is deemed probable of achievement through the anticipated date of achievement.

In addition, the Company has granted performance-based stock units (“PSUs”), with vesting terms that are based upon four individually-assessed, non-financial milestones, to other employees who work on advancements in regenerative medicine related to lungs and tissue organs. The PSUs associated with each individual milestone are recognized as compensation expense over the period commencing on the date that the respective milestone is deemed probable of being met through the anticipated date of achievement.

As the milestones that trigger the Volumetric earnout payments and the vesting of the PSUs are (1) based upon scientific and technological advancements that are expected to require multiple years of R&D to achieve and (2) subject to significant known and unknown risks and uncertainties, management must apply significant assumptions and judgment at each balance sheet date to assess both the probability of achievement and expected timing of achievement. A change in management’s assumptions or estimates regarding the probability and/or timing of achievement of a milestone in connection with management’s quarterly reassessment can materially impact the amount of compensation expense recognized for the respective and future periods as follows:

•A change in assumptions that results in a milestone first being deemed probable of achievement will result in the recognition of incremental compensation expense in the Company’s consolidated statement of operations in the respective period;

•A change in assumption regarding the timing of achievement of a milestone will result in the acceleration or deceleration of the recognition of future compensation expense; and/or

•A change in assumption that results in a milestone no longer being deemed probable of achievement will result in a full reversal of previously recognized expense in the respective period.

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Prior to the year ended December 31, 2023, the Company had been recognizing compensation expense related to (1) one Volumetric milestone-based payment, for which the potential amount due to the Sellers would be $65.0 million, and (2) one PSU milestone (“the RegMed Awards”), for which the aggregate grant date fair value of the outstanding and unvested awards was $4.5 million as of December 31, 2022, as the related Volumetric earnout and RegMed Award milestone was deemed probable of achievement. During the year ended December 31, 2023, the Company decided to reduce its budgeted funding for the R&D related to the Volumetric earnout and RegMed Award milestone, which resulted in the Company concluding that it was no longer probable that the milestone would be achieved by the end of the term of the Volumetric earnout arrangement or prior to the expiration and cancellation of the RegMed Awards. In concluding that the Volumetric and RegMed Award milestone would no longer be achieved, the Company reversed all of the previously accrued compensation expense, one half of which was expected to be settled with common shares, which had an income statement impact of $18.4 million for the year ended December 31, 2023.

As a result of the reversal of all previously recognized expense during the year ended December 31, 2023, the Company has not recognized any compensation expense related to (1) the $355.0 million of potential Volumetric earnout payments provided for in the Volumetric acquisition agreement or (2) the outstanding RegMed Awards with an aggregate grant date fair value of $17.2 million. The Company has not recognized any of this expense because none of the related non-financial milestones were deemed probable of achievement as of December 31, 2023.

Additionally, in February 2024, the Volumetric Sellers were informed that four of the seven milestones included in the Volumetric acquisition agreement were terminated. The termination of these milestones, which related to kidney and liver research, was based upon a determination that their achievement was no longer financially viable due to the loss of the funding required from the Company's key strategic partner for the related R&D efforts. As a result of the termination of the four milestones in February 2024, for periods subsequent to December 31, 2023, the Company's maximum liability for the Volumetric earnout payments related to the remaining three milestones is $175,000.

Furthermore, on April 29, 2024, the key employees from Volumetric who were required to be employed at the time of achievement of each science-based milestone outlined in the Volumetric acquisition agreement in order for each related acquisition earnout payment to become payable resigned from their positions with the Company. As a result of the resignation of the key employees for whom continued employment was required for any of the remaining earnout payments to become payable, the parties to which the remaining three earnout payments totaling $175,000 were potentially payable were notified that such amount was no longer eligible to be earned. For further information concerning the termination of the Volumetric milestones related to potential earnout payments, refer to Note 26 to the consolidated financial statements included in Item 8 of this Form 10-K.

Further changes to management’s assumptions regarding the probability and/or timing of achievement of the RegMed Award milestones or, alternatively, changes to the arrangements or circumstances that provide for compensation to be paid upon the achievement of the RegMed Award milestones, could significantly impact the amount of compensation expense recognized by the Company in the future.

Loss contingencies

We record an estimated loss from a contingency when information indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies requires us to use our judgment, and the ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

See Note 23 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a discussion of recent accounting pronouncements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with our consolidated financial statements and notes thereto included in Item 8 of this Form 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements, as discussed more fully in this Form 10-K. See “Risk Factors” in Part I, Item 1A and “Forward-Looking Statements”. All amounts are in thousands, except share and per share amounts, or as otherwise indicated.

For discussion related to the results of operations and changes in financial condition for fiscal 2021 compared to fiscal 2020, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2021 Form 10-K. Our fiscal 2021 Form 10-K was filed with the SEC on March 1, 2022.

Business Overview

3D Systems Corporation (“3D Systems” or the “Company” or “we,” "our" or “us”) markets our products and services through subsidiaries in North America and South America (collectively referred to as “Americas”), Europe and the Middle East (collectively referred to as “EMEA”) and the Asia Pacific and Oceania region (collectively referred to as “APAC”). We provide comprehensive 3D printing and digital manufacturing solutions, including 3D printers for plastics and metals, materials, software, and digital design tools. Our solutions support advanced applications in two key industry verticals: Healthcare Solutions and Industrial Solutions. We have over 35 years of experience and expertise, which have proven vital to our development of an ecosystem and end-to-end digital workflow solutions that enable customers to optimize product designs, transform workflows, bring innovative products to market and drive new business models.

The Company has two reportable segments, Healthcare Solutions and Industrial Solutions.

Overview and Strategy

In May 2020, our Chief Executive Officer and President, Dr. Jeffrey Graves, was hired. Dr. Graves undertook an initial assessment of the Company and developed the purpose statement to be the leader in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products. He announced a four-phased plan to enable this vision: reorganize into two key industry verticals (Healthcare Solutions and Industrial Solutions), restructure to gain efficiencies, divest non-core assets, and invest for future growth.

As part of our strategic plan, we have organized into two key verticals. This structure allows us to align our application-oriented approach with deep industry and customer knowledge. Our two key verticals span a range of industries. Healthcare Solutions includes dental, medical devices, personalized health services and regenerative medicine. Our Industrial Solutions vertical includes aerospace, defense, transportation and general manufacturing. We architect solutions specific to customers’ needs through a combination of materials, hardware platforms, software, professional services and advanced manufacturing – creating a path to integrating additive manufacturing into traditional production environments. As a result, manufacturers achieve design freedom, increase agility, scale production and improve overall total cost of operation. Our technologies and process knowledge enable hundreds of thousands of production parts to be made through additive manufacturing each day.

In conjunction with our four-phased plan, we completed our initial restructuring efforts in the second quarter of 2021. Cost reduction efforts included reducing the number of facilities and examining every aspect of our manufacturing and operating costs. However, given the current macroeconomic challenges, we continue to look for ways to manage costs. In the second quarter of 2022, we notified one of our printer assembly outsourcing partners of our intent to terminate the manufacturing services arrangement and in-source our printer assembly and production process, as we believe this is an opportunity to improve customer delivery and reduce costs. The exit agreement was finalized in July 2022 and resulted in a $1.7 million exit fee that we paid in the third quarter of 2022, as well as the purchase of $23.9 million of inventory and $0.4 million of fixed assets from the assembly manufacturer. Part of the inventory purchased was prepaid during previous quarters for $8.9 million, resulting in a net payment of $17.1 million in July 2022.

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Divestitures (see Note 4 to the Consolidated Financial Statements for further details)

In conjunction with our four-phased plan, we divested parts of our business that did not align with our strategic focus on additive manufacturing. The divestitures were completed in 2021, with net proceeds totaling $451.2 million. In January 2021, we sold Cimatron Ltd., which operated our Cimatron integrated CAD/CAM software for the tooling business and its GibbsCAM CNC programming software business. In August 2021, we sold our Simbionix line of surgical simulators. In September 2021, we sold our On Demand Manufacturing ("ODM") business. These divestitures represent the completion of our planned divestitures of non-core assets as part of the strategic plan noted above.

Acquisitions/Investments (See Note 3 to the Consolidated Financial Statements for further details)

The last phase of the plan is to invest in growth. Once the restructuring phase and the divestitures of non-core assets were complete, the Company made several acquisitions and investments.

On October 4, 2022, we completed the acquisition of dp polar, a German-based designer and manufacturer of the industry’s first additive manufacturing system designed for true high-speed mass production of customized components, for $26.7 million, of which $19.6 million was paid in cash and the remainder was paid via the issuance of the Company’s common stock. An additional payment of $2.2 million via the issuance of 249,865 shares of the Company’s common stock is possible upon the continued employment of a certain key individual from dp polar through October 4, 2024. Central to dp polar’s patented continuous printing process is a large-scale, segmented, rotating print platform that eliminates the start/stop operations of virtually all additive manufacturing platforms. With dp polar’s technology and patented polar coordinate control, the print heads remain stationary above the rotating platform, providing a continuous print process. The acquisition’s near-term impact on the Company’s results of operations and cash flows is expected to be dilutive.

On April 1, 2022, we completed the acquisition of 93.75% of Kumovis for an all-cash purchase price of $37.7 million. $3.6 million of the purchase price is deferred for up to fifteen months from the closing date. Kumovis, which is part of the Healthcare Solutions segment, utilizes polyether ether keton or “PEEK” materials, which have properties that lend it to many medical applications, including many implant applications, that fit into our personalized healthcare solutions operations. The acquisition’s near-term impact on the Company’s results of operations and cash flows is expected to be dilutive.

On April 1, 2022, we completed the acquisition of 100% of Titan for an all-cash purchase price of $39.0 million. Titan, which is part of the Industrial Solutions segment, is a pellet-based extrusion platform that addresses customer applications requiring large build volumes, superior performance, and improved productivity at significantly lower cost. We believe the acquisition of Titan will open up new markets in the Industrial Solutions segment. The acquisition’s near-term impact on the Company’s results of operations and cash flows is expected to be dilutive.

In March 2022, the Saudi Arabian Industrial Investments Company ("Dussur") and 3D Systems signed an agreement to form a joint venture intended to expand the use of additive manufacturing within the Kingdom of Saudi Arabia and surrounding geographies, including the Middle East and North Africa. The joint venture is to enable the development of Saudi Arabia's domestic additive manufacturing production capabilities, consistent with the Kingdom’s ‘Vision 2030,’ which is focused on diversification of the economy and long-term sustainability. Once the joint venture is formed, 3D Systems will own approximately 49% and is committed to an initial investment of about $6.5 million, of which $3.4 million has been deposited in an escrow account and is reported as restricted cash within other assets on the balance sheet as of December 31, 2022. Use of the amount deposited in escrow is limited to funding the Company's initial investment in the joint venture, and such amount is expected to be deposited into a bank account of the joint venture for use in its operations or to pay outstanding liabilities upon legal formation. Additional future investments are contingent upon the achievement of certain milestones by the joint venture. The impact on the Company’s financial position, results of operations and cash flows is not expected to be material other than the cash outflow(s) related to the initial and contingent investments.

In March 2022, we made a $10.0 million investment for an approximate 26.6% ownership interest in Enhatch, the developer of the Intelligent Surgery Ecosystem. We simultaneously entered into a collaboration and supply agreement with Enhatch. We also obtained warrants to purchase additional shares of Enhatch and the right to purchase, in the future, the remaining shares of Enhatch that 3D Systems does not own if certain revenue targets are achieved. Enhatch's Intelligent Surgery Ecosystem provides technologies which streamline and scale the design and delivery of patient-specific medical devices by automating the process. Incorporating these capabilities into 3D Systems’ workflow for patient-specific solutions, which includes advanced software, expert treatment planning services, custom implants, instrumentation design, and industry-leading production processes, will help more efficiently meet the growing demand for personalized medical devices.

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During the third quarter of 2022, the Company recorded an impairment charge of $2.8 million related to the carrying value of its investment in Enhatch. This impairment charge was the result of lower than projected revenues recognized by Enhatch during the quarter, as well as a reduction to near-term forecasted revenues due to a delay in receiving certain regulatory approvals. In addition, the carrying value of the Enhatch warrants, which are required to be recorded at their fair value as of the end of each quarter, was reduced from $0.3 million to $0.2 million. The Company has recorded the impairment charge related to its Enhatch investment, as well as the change in the value of the Enhatch warrants, within interest and other income (expense), net on the statement of operations for the year ended December 31, 2022.

On December 1, 2021, we acquired Volumetric for $40.2 million. Additional payments of up to $355.0 million are possible upon (1) the attainment of seven non-financial milestones, each of which requires achievement prior to either December 31, 2030 or December 31, 2035, and (2) the continued employment of certain key individuals from Volumetric. Volumetric’s mission is to develop the ability to manufacture human organs using bioprinting methods and the underlying technologies required to create these highly complex biological structures. With this acquisition, we expanded our capabilities and capacity in 3D printing related to bio-printing and regenerative medicine. Combining 3D Systems' regenerative medicine group with Volumetric’s highly complementary skill sets of biological expertise and cellular engineering is expected to accelerate our core regenerative medicine strategies which include the bio-printing of human organs, additional non-organ applications and bio-printing technologies for research labs. The acquisition’s near-term impact on the Company's results of operations and cash flows has been dilutive. Volumetric's operating results are reported in the Healthcare Solutions segment.

On November 1, 2021, we acquired Oqton for $187.8 million. Oqton is a software company that creates an intelligent, cloud-based MOS platform tailored for flexible production environments that increasingly utilize a range of advanced manufacturing and automation technologies, including additive manufacturing solutions, in their production workflows. The cloud-based solution leverages the Industrial Internet of Things, artificial intelligence, and machine learning technologies to deliver a solution for customers to automate their digital manufacturing workflows, scale their operations and enhance their competitive position. The Oqton acquisition will allow the Company to expand its existing additive manufacturing software suite to the entire additive industry. Oqton's operating results are reported in the Industrial Solutions segment and the acquisition’s impact on the Company’s financial position, results of operations and cash flows has been dilutive.

In May 2021, we purchased Allevi, Inc. to expand regenerative medicine initiatives into medical and pharmaceutical research and development laboratories. Additionally, in June 2021, we closed the acquisition of a German software firm, Additive Works GmbH (“Additive”). Additive expands the simulation capabilities for rapid optimization of industrial-scale 3D printing processes. The purchase price for both acquisitions, individually and combined, and the impacts to the Company’s financial position, results of operations and cash flows are not material.

COVID-19 Pandemic

Our offices are currently open and business travel has resumed, with safety measures in place and in accordance with local guidance. However, we continue to monitor and review guidance from international and domestic authorities regarding COVID-19 and remain committed to protecting our employees, delivering for our customers, and supporting our communities. If the COVID-19 pandemic resurges, governmental authorities may reimpose health and safety requirements that could restrict or prevent normal business activities. Refer to “Risk Factors” in Part I, Item 1A for a discussion of the risks to our business if the COVID-19 pandemic was to resurge.

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Background

We earn revenue from the sale of products and services through our Healthcare Solutions and Industrial Solutions segments. The product categories include 3D printers and corresponding materials, healthcare simulators (which was divested in third quarter of 2021), digitizers, software licenses, 3D scanners and haptic devices. The majority of materials used in our 3D printers are proprietary. The services category includes maintenance contracts and services on 3D printers and simulators, software maintenance, software as a service subscriptions, on-demand solutions (which was divested in the third quarter of 2021) and healthcare solutions services.

Given the relatively high price of certain 3D printers and a corresponding lengthy selling cycle, as well as relatively low unit volume of the higher-priced printers in any particular period, a shift in the timing and concentration of orders and shipments from one period to another can materially affect reported revenue in any given period.

In addition to changes in sales volumes, there are three other primary drivers of changes in revenue from one period to another: (1) divestitures, (2) the combined effect of changes in product mix and average selling prices and (3) the impact of fluctuations in foreign currencies. As used in this Management’s Discussion and Analysis, the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume, divestitures or foreign exchange.

Summary of Financial Results for the Years Ended December 31, 2022 and 2021

Consolidated revenue

Total consolidated revenue for the year ended December 31, 2022 decreased $77.6 million or 12.6% to $538.0 million, compared to $615.6 million for the same period last year, primarily driven by divestitures of non-core businesses and the negative impacts of foreign exchange, partially offset by higher sales volumes. Revenue from divested businesses for the year ended December 31, 2021 was $71.7 million, foreign exchange negatively impacted revenue in the year ended December 31, 2022 by $24.1 million, and higher sales volumes resulted in a $17.0 million increase in revenue.

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Consolidated gross profit

Gross profit for the year ended December 31, 2022 decreased $49.5 million, or 18.8%, to $214.2 million, compared to $263.8 million for the same period last year. Gross profit margin for the year ended December 31, 2022 and 2021 was 39.8% and 42.8%, respectively. The decrease in gross profit is primarily a result of divestitures of $33.5 million, cost inflation, and supply chain pressures.

Consolidated selling, general and administrative expense

Selling, general and administrative ("SG&A") expense for the year ended December 31, 2022 increased $16.5 million, or 7.2%, to $244.2 million, compared to $227.7 million for the same period last year. SG&A expense was impacted by the Company’s acquisitions of Titan, Kumovis, and dp polar during fiscal year 2022, as well as the Company's acquisitions of Volumetric and Oqton during the fourth quarter of 2021, each of which was consolidated for the full year ended December 31, 2022. Collectively, these acquisitions resulted in the recognition of incremental SG&A expense of $28.7 million for fiscal year 2022. This increase in SG&A expense due to acquisitions was partially offset by a $22.9 million decrease in SG&A expense driven by the Company’s divestitures of Simbionix and ODM during fiscal year 2021.

The primary drivers of the $16.5 million increase in SG&A expense for fiscal year 2022 – inclusive of the $5.8 million net increase due to the impacts of the Company’s recent acquisitions and divestitures – include:

Corporate litigation and settlement costs increased during fiscal year 2022 primarily due to non-recurring settlement accruals related to various compliance and litigation matters discussed in Note 23 to the consolidated financial statements included in Item 8 of this Form 10-K, as well as the incremental legal costs incurred to address those compliance and litigation matters.

The expense attributable to the Volumetric earnout increased during fiscal year 2022 due to the recognition of a full year of expense in fiscal year 2022 versus a partial year of expense in fiscal year 2021, as the acquisition of Volumetric occurred on December 2021.

Amortization expense increased during fiscal year 2022 due to the recognition of a partial year of amortization related to intangible assets resulting from the fiscal year 2022 acquisitions and the recognition of a full year of amortization related to intangible assets resulting from the fiscal year 2021 acquisitions.

Compensation and other labor costs decreased during fiscal year 2022 primarily due to lower incentive compensation consisting of bonuses and stock-based compensation.

Other drivers of the increase in total SG&A expense for fiscal year 2022 include increased marketing, travel, software and hardware costs.

Consolidated research and development expense

Research and development ("R&D") expense for the year ended December 31, 2022 increased $17.9 million, or 25.9%, to $87.1 million, as compared to $69.2 million for the same period last year. R&D expense was impacted by the Company’s acquisitions of Titan, Kumovis, and dp polar during fiscal year 2022, as well as the Company's acquisitions of Volumetric and Oqton during the fourth quarter of 2021, each of which was consolidated for the full year ended December 31, 2022. Collectively, these acquisitions resulted in the recognition of incremental R&D expense of $11.4 million for fiscal year 2022. This increase in R&D expense due to acquisitions was partially offset by a $6.9 million decrease in R&D expense driven by the Company’s divestiture of Simbionix during fiscal year 2021.

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The primary drivers of the $17.9 million increase in R&D expense for fiscal year 2022 – inclusive of the $4.5 million net increase due to the impacts of the Company’s recent acquisitions and divestitures – include:

The increases during fiscal year 2022 for compensation and other labor costs and operating supplies are primarily due to expenses from acquired businesses with significant R&D activities, partly offset by the absence of expenses from the divestiture of Simbionix.

Consolidated operating loss

Our operating loss for the year ended December 31, 2022 was $117.0 million, compared to a $33.1 million operating loss for the same period last year, due to lower gross profit and higher SG&A and R&D expenses as discussed above.

Results of Operations for 2022 and 2021

Segments income statements

The following table sets forth our operating results by segment for the years ended December 31, 2022 and 2021:

(a) - General corporate expense, net includes expenses not specifically attributable to our segments for functions such as human resources, finance, legal and information technology, including salaries, benefits, and other related costs, company-wide incentive compensation and stock-based compensation.

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Revenue

The following table sets forth our revenue by segment for the years ended December 31, 2022 and 2021:

For the year ended December 31, 2022, Healthcare Solutions revenue decreased $45.2 million, or 14.8%, to $261.0 million, as compared to $306.2 million for the same period last year primarily due to divestitures, the negative impacts of foreign exchange, and lower sales volumes in the dental market, partially offset by higher volumes and favorable sales price/mix in other markets. For the years ended December 31, 2022 and 2021, products revenue from Healthcare Solutions contributed $179.4 million and $217.7 million, respectively. The decreased products revenue in Healthcare Solutions is primarily due to the impact of divestitures of $23.0 million, and lower sales volumes in the dental market, partially offset by higher volumes and favorable sales price/mix in other markets. For the years ended December 31, 2022 and 2021, services revenue from Healthcare Solutions contributed $81.6 million and $88.4 million, respectively. The decreased services revenue in Healthcare Solutions is primarily due to the impact of divestitures of $8.8 million, partially offset by favorable sales price/mix.

For the year ended December 31, 2022, Industrial Solutions revenue decreased $32.4 million, or 10.5%, to $277.0 million as compared to $309.5 million in the same period last year primarily due to divestitures and the negative impacts of foreign exchange partially offset by higher sales volumes. For the years ended December 31, 2022 and 2021, products revenue from Industrial Solutions contributed $216.0 million and $211.0 million, respectively. The increased Industrial Solutions products revenue was primarily due to higher sales volumes, partially offset by the negative impact of foreign exchange. For the years ended December 31, 2022 and 2021, services revenue from Industrial Solutions contributed $61.1 million and $98.5 million, respectively. The decreased services revenue in Industrial Solutions is primarily due to divestitures and the negative impacts of foreign exchange partially offset by higher sales volumes.

The following table sets forth changes in our products and services revenue for the years ended December 31, 2022 and 2021.

For the year ended December 31, 2022, the decrease in products revenue was due to divestitures, and the negative impacts of foreign exchange, partially offset by higher sales volumes and favorable sales price/mix. The decrease in services revenue was due to divestitures and the negative impact of foreign exchange, partially offset by higher sales volumes.

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Gross profit and gross profit margins

The following table sets forth our gross profit and gross profit margins by segment:

For the year ended December 31, 2022, Healthcare Solutions gross profit and gross profit margin decreased compared to the same period last year primarily due to lower sales volumes in the dental market, divestitures of $16.7 million and inflationary cost pressures.

For the year ended December 31, 2022, Industrial Solutions gross profit decreased compared to the same period last year primarily due to divestitures of $16.8 million and inflationary cost pressures, partially offset by an increase in sales volumes.

The following table sets forth our products and services gross profit and gross profit margins for the years ended December 31, 2022 and 2021.

For the year ended December 31, 2022, the decrease in products and services gross profit and gross profit margin compared to the same period last year is primarily a result of divestitures of $33.5 million, lower sales volumes in the dental market and inflationary cost pressures partially offset by higher sales volumes in non-dental markets.

Operating expenses

The following table sets forth our operating expenses by segment for the years ended December 31, 2022 and 2021:

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(a) Segment operating expenses exclude expenses not specifically attributable to our segments for functions such as human resources, finance, legal and information technology, including salaries, benefits, and other related costs, company-wide incentive compensation and stock-based compensation.

For the year ended December 31, 2022, Healthcare Solutions' operating expenses increased by $6.6 million compared to the same period last year. The increase was primarily due to the continued investments in growth initiatives. The impact of acquisitions was materially offset by divestitures.

For the year ended December 31, 2022, Industrial Solutions' operating expenses increased by $13.2 million primarily due to a $18.9 million related to acquisitions and continued investments in growth initiatives, partially offset by the impact of divestitures of $8.4 million.

For the year ended December 31, 2022, Corporate operating expenses increased by 14.7 million compared to the same period last year. This increase was primarily driven by an increase of $19.9 million attributable to legal costs and the accrual of estimated settlements, an increase of $5.9 million of amortization expense attributable to the Company's fiscal year 2021 and fiscal year 2022 acquisitions, and an increase of $5.0 million attributable to consulting and other professional services costs. The primary offset to the increases in Corporate operating expenses was a $21.1 million decrease in incentive compensation costs that are not allocated to the Company's reportable segments.

Interest and other (expense) income, net

The following table sets forth the components of interest and other (expense) income, net for the years ended December 31, 2022 and 2021.

For the year ended December 31, 2022, foreign exchange (loss) gain, net, as compared to the same period last year, reported a loss due to the strengthening of the U.S. Dollar relative to the Euro, British Pound and other currencies, which negatively impacted non-U.S. Dollar denominated assets held by U.S. Dollar functional currency entities and U.S. Dollar liabilities held by non-U.S. Dollar functional currency entities.

For the year ended December 31, 2022, interest income (expense), net increase as compared to the same period last year due to net interest earned on short-term investments made using the cash proceeds from the 2021 divestitures and convertible debt issuance, partially offset by non-cash interest expense related to the convertible notes.

For the year ended December 31, 2022, other income decreased, as compared to the same period last year, due to: (1) the $2.8 million impairment loss related to the Company’s investment in Enhatch being recognized during the year ended December 31, 2022 and (2) the gain on sale of ODM of $38.5 million, the gain on sale of Simbionix of $273.8 million and the gain on sale of Cimatron of $38.5 million being recognized during the year ended December 31, 2021.

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Net (loss) income

The following table sets forth the net (loss) income for the years ended December 31, 2022, and 2021.

We recorded a $2.1 million tax provision and a $2.5 million tax benefit for the years ended December 31, 2022 and 2021, respectively.

In 2022, our provision reflected $0.4 million in U.S. tax benefit and $2.5 million of tax expense in foreign jurisdictions. In 2021, our provision reflected $6.6 million in U.S. tax benefit and $4.1 million of tax expense in foreign jurisdictions.

During 2022 and 2021, we concluded that it is more likely than not that our deferred tax assets will not be realized in certain jurisdictions, including the U.S. and certain foreign jurisdictions; therefore, we have a valuation allowance recorded against our deferred tax assets on our consolidated balance sheets totaling $100.7 million and $91.2 million as of December 31, 2022 and 2021, respectively.

For further discussion, regarding our provision/benefit for income taxes see Note 2 and Note 22 to the consolidated financial statements in Item 8 of this Form 10-K.

The net loss attributable to 3D Systems for the year ended December 31, 2022, as compared to the net income attributable to 3D Systems for the year ended December 31, 2021, was primarily driven by an increase in our loss from operations and the 2021 gains on the divestitures of Cimatron, ODM and Simbionix, as previously discussed.

Liquidity and Capital Resources

The following table sets forth the net liquidity and capital resources at December 31, 2022, and 2021.

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We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and accounts payable turns. Our cash requirements, excluding acquisitions, primarily consist of funding working capital and capital expenditures.

At December 31, 2022, cash and cash equivalents and short-term investments totaled $568.7 million and decreased $220.9 million since December 31, 2021. This decrease resulted primarily from cash paid for acquisitions and other investments of $103.7 million, cash used in operations of $70.0 million, capital expenditures of $20.9 million, and taxes paid related to net-share settlement of equity awards of $10.9 million.

At December 31, 2021, cash and cash equivalents totaled $789.7 million and increased $705.3 million since December 31, 2020. The higher cash balance resulted from proceeds of $421.1 million from the Cimatron, ODM, and Simbionix divestitures, $446.5 million of proceeds from the issuance of convertible notes, and $48.1 million of cash flow from operations, partially offset by $21.4 million for repayments of debt, $18.8 million for capital expenditures, $139.7 million for current acquisitions, $12.6 million related to net settlement of stock-based compensation, and $6.3 million of payments related to previously purchased non-controlling interests. Cash flow from operations was negatively impacted by withholding taxes of $6.6 million related to the Cimatron divestiture.

We expect that cash flow from operations, cash and cash equivalents, short-term investments, and other sources of liquidity, such as issuing equity or debt securities subject to market conditions, will be available and sufficient to meet all foreseeable cash requirements.

Cash held outside the U.S. at December 31, 2022 was $58.4 million, or 15.0% of total cash and cash equivalents, compared to $62.7 million, or 7.9% of total cash and cash equivalents at December 31, 2021. As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of these earnings to the U.S. would not incur significant federal and state taxes. However, these dividends are subject to foreign withholding taxes that are estimated to result in the Company incurring tax costs in excess of the cost to obtain cash through other means. Cash equivalents are comprised of funds held in money market instruments and are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments. We strive to minimize our credit risk by investing primarily in investment grade, liquid instruments and limit exposure to any one issuer depending upon credit quality. See “Cash flow” discussion below.

The changes that make up the other components of working capital not discussed above resulted from the ordinary course of business. Differences between the amounts of working capital item changes in the cash flow statement and the balance sheet changes for the corresponding items are primarily the result of foreign currency translation adjustments, acquisitions and divestitures.

Cash flow

Cash flow from operations

For the year ended December 31, 2022, cash used in operating activities was $70.0 million and cash provided by operating activities for the year ended December 31, 2021 was $48.1 million. The $118.1 million decrease in cash flow from operating activities during the year ended December 31, 2022, as compared to the prior year, is primarily due to the $84.0 million increase in losses from operations and the $49.6 million increase in working capital (excluding cash, cash equivalents and short-term investments). The higher working capital primarily related to an increase in inventory balances to manage supply chain challenges and as a result of the purchase of $23.9 million of inventory from a contract manufacturer in connection with our decision to terminate the manufacturing services arrangement. In addition, there was a decrease in accrued liabilities primarily due to lower incentive compensation accruals, partially offset by a reduction in accounts receivable due to lower revenue.

Cash provided by operating activities for the year ended December 31, 2021 was $48.1 million. Working capital used cash of $0.7 million for the year ended December 31, 2021. For the year ended December 31, 2021, working capital changes related to cash inflows were a decrease in inventory and an increase in accounts payable, partially offset by an increase in accounts receivable, and prepaid expenses and other current assets, and a decrease in deferred revenue, and other liabilities.

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Cash flow from investing activities

For the year ended December 31, 2022, cash used in investing activities was $308.4 million compared to $260.6 million of cash provided by investing activities for the year ended December 31, 2021. The investing cash outflows in 2022 included investments of $384.4 million of excess cash in short-term investments offset by $200.3 million proceeds from the sales and maturities of such investments, the cash used for acquisitions of $103.7 million, and capital expenditures of $20.9 million.

For the year ended December 31, 2021, cash provided by investing activities was $260.6 million, which included $421.5 million of proceeds from the sales of businesses, partially offset by cash used for acquisitions and other investments of $139.7 million and capital expenditures of $18.8 million.

Cash flow from financing activities

For the year ended December 31, 2022, the cash flow used in financing activities was $13.8 million primarily due to taxes paid related to the net-share settlement of equity awards of $10.9 million and the $2.3 million payment for the acquisition of a non-controlling interest.

For the year ended December 31, 2021, the cash flow provided by financing activities was $405.8 million due to net cash proceeds from the issuance of the convertible note of $446.5 million, the repayment of the remaining balance of the outstanding 5-year $100.0 million secured term loan facility of $21.4 million, the taxes paid related to net-share settlement of equity awards of $12.6 million and the payment for the acquisition of a non-controlling interest of $6.3 million.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements and do not utilize any “structured debt,” “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

Material Cash Requirements

The Company's material cash requirements consist of the following contractual and other obligations:

Indebtedness

At December 31, 2022, we had $460 million of outstanding 0% convertible notes which mature in November of 2026. Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations or other strategic opportunities, which could result in higher financing costs.

Purchase Commitments

We have purchase commitments under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of delivery.

Leases

The Company had operating and financing lease obligations (inclusive of interest) of $65.3 million at December 31, 2022, primarily related to real estate and equipment leases, of which approximately $11.6 million in payments are expected over the next twelve months. Additionally, at December 31, 2022, the Company had $33.4 million in lease obligations for which the leases have not commenced as the facilities are under construction by the landlord. For more information on the Company's leases, refer to Note 7 to the consolidated financial statements in Item 8 of this Form 10-K.

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Dussur

In March 2022, we and the Saudi Arabian Industrial Investments Company ("Dussur") signed an agreement to form a joint venture intended to expand the use of additive manufacturing within the Kingdom of Saudi Arabia and surrounding geographies, including the Middle East and North Africa. The joint venture is to enable the development of Saudi Arabia's domestic additive manufacturing production capabilities, consistent with the Kingdom’s ‘Vision 2030,’ which is focused on diversification of the economy and long-term sustainability. Once the joint venture is formed, 3D Systems will own approximately 49% and is committed to an initial investment of about $6.5 million, of which $3.4 million has been deposited in an escrow account and is reported as restricted cash within other assets on the balance sheet as of December 31, 2022. Use of the amount deposited in escrow is limited to funding the Company's initial investment in the joint venture, and such amount is expected to be deposited into a bank account of the joint venture for use in its operations or to pay outstanding liabilities upon legal formation. Additional future investments are contingent upon achievement of certain milestones by the joint venture. The impact on the Company’s financial position, results of operations and cash flows is not expected to be material other than the cash outflow(s) related to the initial and contingent investments.

Sources of Funding to Satisfy Material Cash Requirements

The Company believes that it has the financial resources needed to meet its cash requirements. Cash requirements for periods beyond the next twelve months will depend, among other things, on the Company’s profitability and its ability to manage working capital requirements. The Company may also borrow from various sources as described above.

Other Contractual Commitments

Convertible Note

We were in compliance with all covenants of the outstanding 0% convertible notes due November 2026 as of December 31, 2022.

Indemnification

In the normal course of business we periodically enter into agreements to indemnify customers or suppliers against claims of intellectual property infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant. We are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

To the extent permitted under Delaware law, we indemnify our directors and officers for certain events or occurrences while the director or officer is, or was, serving at our request in such capacity, subject to limited exceptions. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have directors’ and officers’ insurance coverage that may enable us to recover future amounts paid, subject to a deductible and to the policy limits.

Financial Instruments

We conduct business in various countries using both the functional currencies of those countries and other currencies to effect cross-border transactions. As a result, we are subject to the risk that fluctuations in foreign exchange rates between the dates that those transactions are entered into and their respective settlement dates will result in a foreign exchange gain or loss. When practicable, we endeavor to match assets and liabilities in the same currency on our U.S. balance sheet and those of our subsidiaries in order to reduce these risks. We also, when we consider it appropriate, enter into foreign currency contracts to hedge exposures arising from those transactions. We had $0 and $43.0 million in notional foreign exchange contracts outstanding as of December 31, 2022 and 2021, respectively. The fair value of these contracts was not material. We have elected not to prepare and maintain the documentation to qualify for hedge accounting treatment under ASC 815, “Derivatives and Hedging,” and therefore, all gains and losses (realized or unrealized) are recognized in interest and other expense, net in the consolidated statements of operations and comprehensive income (loss). Depending on the fair value at the end of the reporting period, derivatives are recorded either in prepaid and other current assets or in accrued liabilities in the consolidated balance sheets.

We do not hedge for trading or speculative purposes, and our foreign currency contracts are generally short-term in nature, typically maturing in 90 days or less. See Note 15 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

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Critical Accounting Policies and Significant Estimates

We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses, gains and losses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in our accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between our estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a summary of significant accounting policies.

Revenue recognition

Revenue is recognized for the amount of consideration we expect to receive in exchange for products or services when control of those promised products or services is transferred to customers, which generally occurs when the goods have been shipped or delivered to the customer, risk of loss has transferred to the customer, and we have a present right to payment.

We enter into contracts that include various combinations of products and services that are generally capable of being distinct and are accounted for as separate performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, we estimate SSP using historical transaction data. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, we determine the SSP using information that may include market conditions and other observable inputs.

In some circumstances, we have more than one SSP for individual products and services due to the stratification of those products and services by customers, geographic region or other factors. In these instances, we may use information such as the size of the customer and geographic region in determining the SSP. The determination of SSP is an ongoing process, and information is reviewed regularly in order to ensure SSP reflects the most current information or trends.

The nature of our marketing incentives may lead to consideration that is variable. Judgment is exercised at contract inception to determine the expected value of the contract and resulting transaction price. Ongoing assessments are performed to determine if updates are needed to the original estimates.

See Note 2 and Note 5 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Allowance for doubtful accounts

In evaluating the collectability of our accounts receivable, we assess a number of factors, including specific customers’ abilities to meet their financial obligations to us, the length of time receivables are past due, historical collection experience, current economic conditions, and reasonable and supportable forecasts. Based on these assessments, we may record a reserve for specific customers, as well as a general reserve and allowance for returns and discounts. If circumstances related to specific customers change, or economic conditions deteriorate such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further reduced from the levels provided for in the consolidated financial statements.

We evaluate specific accounts for which we believe a customer may have an inability to meet their financial obligations (for example, aging over 90 days past due or bankruptcy). In these cases, we use our judgment, based on available facts and circumstances, and record a specific reserve for that customer to reduce the receivable to an amount we expect to collect. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.

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Income taxes

We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost being determined using standard costing, which approximates the first-in, first-out method.

The inventory reserve is a critical estimate as there is rapid technological change in our industry impacting the market for our products and there is significant judgment in estimating the amount of spare parts to keep on hand to service previously sold printers for periods of up to 10 or more years.

See Note 8 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Business combinations and purchase accounting

We apply purchase accounting to transactions that meet the definition of business combinations. When applying purchase accounting, we are required to estimate the fair value of the assets acquired and liabilities assumed in a business combination as of the acquisition date, for which the Company engages a third-party valuation specialist to assist. The application of purchase price accounting oftentimes results in the identification and valuation of intangible assets that may not have been previously recognized on the balance sheet of the acquired company. The amount of purchase price paid in excess of the net assets acquired is recorded as goodwill.

The fair values of acquired assets and assumed liabilities are estimated in accordance with accounting standards which define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Management must apply judgment when identifying the intangible assets acquired as part of a business combination, as well as when determining the appropriate valuation technique to be applied to all acquired assets and assumed liabilities. Management also must make significant estimates and assumptions when determining the inputs for inclusion in the related valuation models. The fair values of the net assets acquired are determined primarily using Level 3 inputs (inputs that are unobservable to the marketplace participant).

The most significant estimates and assumptions relate to the determination of (1) the fair values of identified intangible assets (e.g., developed technology, trade names) and (2) the period and pattern of amortization for intangible assets that are assigned a definite life. The fair values of acquired intangible assets primarily have been determined based on projected cash flows attributable to the operations of the acquiree. The projected cash flows include various assumptions, including estimated revenue growth rates, operating margins, R&D expenditures, capital expenditures, royalty rates, and appropriate risk-adjusted discount rates used to discount the projected cash flows. The usage of different assumptions would result in the assignment of different fair values to the acquired identifiable intangible assets and the resulting assignment of purchase consideration to goodwill. Similarly, changes in the planned usage of the acquired identifiable intangible assets and/or their estimated economic lives, if any, could impact the recoverability of the assets and/or amortization period and expense attributable to the assets in the future.

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Goodwill & other long-lived assets, including intangible assets

We review long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of undiscounted projected cash flows. Impairment losses, where identified, are measured as the excess of the carrying value of the long-lived asset over its estimated fair value, as determined by discounted projected cash flows.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. We review goodwill for impairment annually and, between annual impairment assessments, when circumstances indicate that the likelihood of an impairment is greater than 50%. Such circumstances may include a significant adverse change in the business climate for one of our reporting units or a decision to dispose of a reporting unit or a significant portion of a reporting unit. The test for goodwill impairment compares the fair value of each of reporting unit to its respective carrying value. The process requires a significant level of estimation and use of judgment by management, particularly to estimate the fair value of our reporting units.

We estimate the fair value of our reporting units based primarily on the discounted projected cash flows of the underlying operations, which requires us to make assumptions about estimated cash flows, including long-term revenue and expense forecasts, profit margins, discount rates and terminal growth rates. We developed these assumptions based on the market risks unique to each reporting unit.

We conducted our annual goodwill impairment test for the years ended December 31, 2022 and 2021 as of November 30, 2022 and 2021, respectively, and concluded there was no goodwill impairment.

Regenerative Medicine earnout payments and performance-based stock units

In connection with the acquisition of Volumetric on December 1, 2021, the Company could be required to pay up to $355.0 million in earnout payments to Volumetric’s former owners (“Sellers”) based upon the achievement of up to seven non-financial milestones. Each of the non-financial milestones, which individually triggers a specific earnout payment if achieved prior to an agreed upon date of either December 31, 2030 or December 31, 2035, is based upon specific advances in regenerative medicine related to lungs or tissue organs. For each milestone, payment is only due to the extent that the Sellers continue to be employed by the Company at the time that a milestone is achieved. As the earnout payments require the continued employment of Volumetric’s Sellers, the Company recognizes each individual earnout payment as compensation expense over the period commencing on the date that the related milestone is deemed probable of achievement through the anticipated date of achievement.

In addition, the Company has granted performance-based stock units (“PSUs”) with vesting terms that are based upon four individually-measured, non-financial milestones to other employees who work on advancements in regenerative medicine related to lungs and tissue organs. The PSUs associated with each individual milestone are recognized as compensation expense over the period commencing on the date that the respective milestone is deemed probable of being met through the anticipated date of achievement.

As the milestones that trigger the Volumetric earnout payments and the vesting of the PSUs are (1) based upon scientific and technological advancements that are expected to require multiple years of R&D to achieve and (2) subject to significant known and unknown risks and uncertainties, management must apply significant assumptions and judgment at each balance sheet date to assess both the probability of achievement and expected timing of achievement. A change in management’s assumptions or estimates regarding the probability and/or timing of achievement of a milestone in connection with management’s quarterly reassessment can materially impact the amount of compensation expense recognized for the respective and future periods as follows:

•A change in assumptions that results in a milestone first being deemed probable of achievement will result in the recognition of incremental compensation expense in the Company’s consolidated statement of operations;

•A change in assumption regarding the timing of achievement of a milestone will result in the acceleration or deceleration of the recognition of future compensation expense, as well as the potential recognition of an expense catch-up or reversal adjustment in the period of change; and/or

•A change in assumption that results in a milestone no longer being deemed probable of achievement will result in a full reversal of previously recognized expense.

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The Company is currently recognizing compensation expense based upon the assumed achievement of one Volumetric earnout payment milestone for which the potential amount due to the Sellers will be $65 million and one PSU milestone for which the aggregate grant date fair value of the outstanding and unvested awards is $4.5 million. Achievement of each milestone is anticipated to occur as of the end of fiscal year 2025. As of December 31, 2022, unrecognized compensation expense attributable to the Volumetric earnout payment and PSUs deemed probable of being earned was $47.8 million and $3.4 million, respectively. Changes in management’s assumptions regarding the probability and/or timing of achievement of these respective milestones could directly affect the amount of future compensation expense recognized for the reasons described above.

In addition, the Company has not commenced the recognition of compensation expense related to (1) $290 million of Volumetric earnout payments and (2) outstanding PSUs with an aggregate grant date fair value of $13.6 million because the related milestones were not deemed probable of achievement as of December 31, 2022. Changes to management’s assumptions regarding the probability and/or timing of achievement of these remaining milestones could significantly increase the amount of compensation expense recognized by the Company.

Loss contingencies

We record an estimated loss from a contingency when information indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies requires us to use our judgment and the ultimate resolution of our exposure related to these matters may change as further facts and circumstances become known.

See Note 23 to the consolidated financial statements in Item 8 of this Form 10-K for further discussion.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements in Item 8 of this Form 10-K for a discussion of recent accounting pronouncements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with the selected consolidated financial data and our consolidated financial statements and notes thereto included in Item 8 of this Form 10-K. Certain statements contained in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements, as discussed more fully in this Form 10-K. See “Forward-Looking Statements” and “Risk Factors” in Part I, Item 1A. All amounts are in thousands, except share and per share amounts, or as otherwise indicated.

For discussion related to the results of operations and changes in financial condition for fiscal 2020 compared to fiscal 2019, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2020 Form 10-K, which was filed with the SEC on March 5, 2021.

Overview and Strategy

In May 2020, our Chief Executive Officer and President, Dr. Jeffrey Graves, was hired. Dr. Graves undertook an initial assessment of the Company and developed the purpose statement to be the leader in enabling additive manufacturing solutions for applications in growing markets that demand high reliability products. He announced a four-phased plan to enable this vision: reorganize into two key industry verticals (Healthcare and Industrial), restructure to gain efficiencies, divest non-core assets, and invest for future growth.

As part of our strategic plan, we have organized into two key verticals. This structure allows us to align our solution-oriented approach with deep industry and customer knowledge. Our two key verticals span a range of industries. Healthcare includes dental, medical devices, personalized health services and regenerative medicine. Our Industrial vertical includes aerospace, defense, transportation and general manufacturing. We architect solutions specific to customers’ needs through a combination of materials, hardware platforms, software, professional services and advanced manufacturing – creating a path to integrating additive manufacturing into traditional production environments. As a result, manufacturers achieve design freedom, increase agility, scale production and improve overall total cost of operation. Our technologies and process knowledge enable hundreds of thousands of production parts to be made through additive manufacturing each day.

We completed our restructuring efforts in the second quarter of 2021. Cost reduction efforts have included reducing the number of facilities and examining every aspect of our manufacturing and operating costs.

Divestitures

In conjunction with our four-phased plan, we divested parts of our business that did not align with our strategic focus on additive manufacturing. In January 2021 we sold Cimatron Ltd., which operated our Cimatron integrated CAD/CAM software for the tooling business and its GibbsCAM CNC programming software business, for $64.2 million. In August 2021 we sold our Simbionix line of surgical simulators for $305.0 million, and in September 2021 we sold our On Demand Manufacturing ("ODM") business for $82.0 million. All sale amounts are before customary closing adjustments.

We have now completed our planned divestitures of non-core assets and are focused on the strategic growth of our core additive manufacturing business.

Acquisitions

On November 1, 2021, we acquired Oqton, Inc. (“Oqton”), for $188.2 million, excluding customary closing adjustments. We paid $107.5 million in cash and issued 2,552,904 shares of the Company’s Common Stock. The acquisition’s near term impact on the Company’s results of operations and cash flows are expected to be dilutive. Oqton's operating results will be reported in the Industrial segment.

On December 1, 2021, we acquired Volumetric Biotechnologies, Inc. (“Volumetric”), for $40.2 million of which $24.8 million was paid in cash and the remainder was paid via the issuance of 720,022 shares of the Company's common stock. Additional payments of up to $355.0 million are possible which are linked to the attainment of several non-financial milestones through December 31, 2030 and 2035 and continued employment of certain key individuals from Volumetric. Any additional payments made will be paid approximately half in cash and half in shares of the Company’s common stock. The additional payments are considered compensation expense which will be recorded ratably from the time a milestone is deemed is probable of achievement to the estimated date of achievement. Any compensation expense recorded will be reversed if the milestone is no longer probable of achievement. Volumetric will be part of the Healthcare reporting unit and segment. The acquisition’s near-

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term impact on the Company's results of operations and cash flows are expected to be dilutive.

COVID-19 Pandemic Response

Our top priority is the health and safety of our employees and their families and communities, as we continue to manage our business through the COVID-19 pandemic. Throughout this past year, our leadership regularly reviewed and adapted our COVID-19 protocols based on evolving research and guidance. We have reopened our offices and begun business travel, with safety measures in place and in accordance with local guidance. Additionally, we implemented a hybrid-work program globally, providing more flexibility for employees to work remotely. We continue to monitor local transmission rates and regulatory guidance, and remain committed to protecting our employees, delivering for our customers, and supporting our communities. We are subject to vaccination and workplace safety protocols of the United States Federal Government Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors, and the COVID-19 Workplace Safety Guidance for Federal Contractors and Subcontractors issued by the Safer Federal Workforce Task Force. In support of a safe work environment, we have a vaccine policy for our U.S. employees, and a visitor policy to ensure those visiting our sites are taking the necessary health and safety precautions.

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2021 Summary