OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes included as Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K to which this Operating and Financial Review and Prospects is attached, or the Form 6-K. The discussion below contains forward-looking statements (within the meaning of the United States federal securities laws) that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Forward-Looking Statements and Factors that May Affect Future Results of Operations”, below, as well in the “Risk Factors” in Item 3.D of our Annual Report on Form 20-F for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on March 3, 2023, or our 2022 Annual Report, as updated by the “Risk Factors” section below.
Overview of Business and Trend Information
- further actions taken by central banks in Europe and the U.S. to increase interest rates as a means to slow down inflation, which may worsen credit/financing conditions for our customers who purchase our products; and
- potential contraction of economic activities and recessionary conditions that could arise as a result of interest rate increases and a decrease in consumer demand;
Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. In the opinion of our management, all adjustments considered necessary for a fair statement of the unaudited condensed consolidated financial statements have been included herein and are of a normal recurring nature. The following discussion compares the actual results, on a GAAP basis, for the three months ended March 31, 2023 with the corresponding period in 2022.
The following table sets forth certain statement of operations data for the periods indicated:
Three Months Ended March 31, | |||||||||||||||
2023 | 2022 | ||||||||||||||
U.S. $ in thousands | % of Revenues | U.S. $ in thousands | % of Revenues | ||||||||||||
Revenues | $ | 149,377 | 100.0 | % | $ | 163,429 | 100.0 | % | |||||||
Cost of revenues | 83,982 | 56.2 | % | 93,752 | 57.4 | % | |||||||||
Gross profit | 65,395 | 43.8 | % | 69,677 | 42.6 | % | |||||||||
Research and development, net | 21,475 | 14.4 | % | 23,998 | 14.7 | % | |||||||||
Selling, general and administrative | 60,717 | 40.6 | % | 65,263 | 39.9 | % | |||||||||
Operating loss | 16,797 | 11.2 | % | 19,584 | 12.0 | % | |||||||||
Financial expenses (income), net | (773 | ) | (0.5 | )% | 1,362 | 0.8 | % | ||||||||
Loss before income taxes | 16,024 | 10.7 | % | 20,946 | 12.8 | % | |||||||||
Income tax benefit (expenses) | (3,775 | ) | 2.5 | % | 73 | 0.0 | % | ||||||||
Share in losses of associated companies | 2,425 | 1.6 | % | 75 | 0.0 | % | |||||||||
Net loss | 22,224 | 14.9 | % | 20,948 | 12.8 | % |
Discussion of Results of Operations
Revenues
Our products and services revenues in the three months ended March 31, 2023 and 2022, as well as the percentage change reflected thereby, were as follows:
Three Months Ended March 31, | |||||||||||||||
2023 | 2022 | % Change | |||||||||||||
U.S. $ in thousands | |||||||||||||||
Products | $ | 100,971 | $ | 113,073 | (10.7 | )% | |||||||||
Services | 48,406 | 50,356 | (3.9 | )% | |||||||||||
$ | 149,377 | $ | 163,429 | (8.6 | )% |
Products Revenues
Services Revenues
Services revenues (including SDM, maintenance contracts, time and materials and other services) decreased by $2.0 million for the three months ended March 31, 2023, or 3.9%, as compared to the three months ended March 31, 2022. Within services revenues, customer support revenue, which includes revenue generated mainly by maintenance contracts on our systems, increased by 4.9%.
Revenues by Region
Revenues and the percentage of revenues by region for the three months ended March 31, 2023 and 2022, as well as the percentage change in revenues in each such region reflected thereby, were as follows:
Three Months Ended March 31, | ||||||||||||||||||||
2023 | 2022 | % Change | ||||||||||||||||||
U.S.$ in thousands | % of Revenues | U.S.$ in thousands | % of Revenues | |||||||||||||||||
Americas* | $ | 90,080 | 60.3 | % | $ | 98,567 | 60.3 | % | (8.6 | )% | ||||||||||
EMEA | 37,880 | 25.4 | % | 40,055 | 24.5 | % | (5.4 | )% | ||||||||||||
Asia Pacific | 21,417 | 14.3 | % | 24,807 | 15.2 | % | (13.7 | )% | ||||||||||||
$ | 149,377 | 100.0 | % | $ | 163,429 | 100.0 | % | (8.6 | )% |
* Represent the United States, Canada and Latin America
Gross Profit
Gross profit from our products and services, as well as the percentage change reflected thereby, was as follows:
Three Months Ended March 31, | ||||||||||||
2023 | 2022 | |||||||||||
U.S. $ in thousands | Change in % | |||||||||||
Gross profit attributable to: | ||||||||||||
Products | $ | 49,858 | $ | 53,700 | (7.2 | )% | ||||||
Services | 15,537 | 15,977 | (2.8 | )% | ||||||||
$ | 65,395 | $ | 69,677 | (6.1 | )% |
Gross profit as a percentage of revenues from our products and services was as follows:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Gross profit as a percentage of revenues from: | ||||||||
Products | 49.4 | % | 47.5 | % | ||||
Services | 32.1 | % | 31.7 | % | ||||
Total gross profit | 43.8 | % | 42.6 | % |
Operating Expenses
The amount of each type of operating expense for the three months ended March 31, 2023 and 2022, as well as the percentage change reflected thereby, and total operating expenses as a percentage of our total revenues in each such quarter, were as follows:
Three Months Ended March 31, | ||||||||||||
2023 | 2022 | % Change | ||||||||||
U.S. $ in thousands | ||||||||||||
Research and development, net | $ | 21,475 | $ | 23,998 | (10.5 | )% | ||||||
Selling, general and administrative | 60,717 | 65,263 | (7.0 | )% | ||||||||
$ | 82,192 | $ | 89,261 | (7.9 | )% | |||||||
Percentage of revenues | 55.0 | % | 54.6 | % |
Research and development expenses, net decreased by $2.5 million, or 10.5%, to $21.5 million for the three months ended March 31, 2023, compared to $24.0 million for the three months ended March 31, 2022. The amount of research and development expenses constituted 14.4% of our revenues for the three months ended March 31, 2023, as compared to 14.7% for the three months ended March 31, 2022. The absolute decrease in research and development expenses, was primarily attributable to the impact of MakerBot divestiture in amount of $1.8 million.
Operating Loss
Operating loss and operating loss as a percentage of our total revenues were as follows:
Three Months Ended March 31, | |||||||||
2023 | 2022 | ||||||||
U.S. $ in thousands | |||||||||
Operating loss | $ | (16,797 | ) | $ | (19,584 | ) | |||
Percentage of revenues | (11.2 | )% | (12.0 | )% |
Financial Expenses (Income), net
Income Taxes
Income tax benefit (expenses) and income tax benefit (expenses) as a percentage of net loss before taxes, as well as the percentage change in each, year over year, reflected thereby, were as follows:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
U.S. $ in thousands | ||||||||
Income tax benefit (expenses) | $ | (3,775 | ) | $ | 73 | |||
As a percent of loss before income taxes | (23.6 | )% | 0.3 | % |
Share in Losses of Associated Companies
Share in losses of associated companies reflects our proportionate share of the losses of unconsolidated entities accounted for by using the equity method of accounting. During the three months ended March 31, 2023, the loss from our proportionate share of the losses of our equity method investments was $2.4 million, compared to a loss of $0.1 million in the three months ended March 31, 2022.
Net Loss and Net Loss Per Share
Net loss and net loss per share were as follows:
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
U.S. $ in thousands | ||||||||
Net loss | $ | (22,224 | ) | $ | (20,948 | ) | ||
Percentage of revenues | (14.9 | )% | (12.8 | )% | ||||
Basic and diluted net loss per share | $ | (0.33 | ) | $ | (0.32 | ) |
The following non-GAAP data, which excludes certain items as described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures are useful information for investors and shareholders of our company in gauging our results of operations (i) on an ongoing basis after excluding mergers, acquisitions and restructuring-related charges or gains, legal provisions and (ii) excluding non-cash items such as stock-based compensation expenses, acquired intangible assets amortization, including intangible assets amortization related to equity method investments, impairment of long-lived assets and goodwill, revaluation of our investments and the corresponding tax effect of those items.
Reconciliation of GAAP to Non-GAAP Results of Operations
The following tables present the GAAP measures, the corresponding non-GAAP amounts and the related non-GAAP adjustments for the applicable periods:
Three Months Ended March 31, | ||||||||||||||||||||||||
2023 | Non-GAAP | 2023 | 2022 | Non-GAAP | 2022 | |||||||||||||||||||
GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | |||||||||||||||||||
U.S. dollars and shares in thousands (except per share amounts) | ||||||||||||||||||||||||
Gross profit (1) | $ | 65,395 | $ | 5,299 | $ | 70,694 | $ | 69,677 | $ | 7,689 | $ | 77,366 | ||||||||||||
Operating income (loss) (1,2) | (16,797 | ) | 18,315 | 1,518 | (19,584 | ) | 21,607 | 2,023 | ||||||||||||||||
Net income (loss) (1,2,3) | (22,224 | ) | 23,306 | 1,082 | (20,948 | ) | 22,158 | 1,210 | ||||||||||||||||
Net income (loss) per diluted share (4) | $ | (0.33 | ) | $ | 0.35 | $ | 0.02 | $ | (0.32 | ) | $ | 0.34 | $ | 0.02 | ||||||||||
(1) | Acquired intangible assets amortization expense | 4,001 | 6,966 | |||||||||||||||||||||
Non-cash stock-based compensation expense | 932 | 900 | ||||||||||||||||||||||
Restructuring and other related costs | 366 | (177 | ) | |||||||||||||||||||||
5,299 | 7,689 | |||||||||||||||||||||||
(2) | Acquired intangible assets amortization expense | 2,194 | 2,225 | |||||||||||||||||||||
Non-cash stock-based compensation expense | 7,308 | 7,633 | ||||||||||||||||||||||
Restructuring and other related costs | 1,798 | 555 | ||||||||||||||||||||||
Revaluation of investments | 580 | 1,061 | ||||||||||||||||||||||
Contingent consideration | 265 | 207 | ||||||||||||||||||||||
Other expenses | 871 | 2,237 | ||||||||||||||||||||||
13,016 | 13,918 | |||||||||||||||||||||||
18,315 | 21,607 | |||||||||||||||||||||||
(3) | Corresponding tax effect | 3,038 | 145 | |||||||||||||||||||||
Equity method related amortization | 1,490 | - | ||||||||||||||||||||||
Finance expenses | 463 | 406 | ||||||||||||||||||||||
4,991 | 551 | |||||||||||||||||||||||
$ | 23,306 | $ | 22,158 | |||||||||||||||||||||
(4) | Weighted average number of ordinary shares outstanding - Diluted | 67,583 | 68,080 | 65,721 | 67,060 |
Liquidity and Capital Resources
A summary of our statements of cash flows is as follows:
Three Months Ended March 31, | |||||||
2023 | 2022 | ||||||
U.S $ in thousands | |||||||
Net loss | $ | (22,224 | ) | $ | (20,948 | ) | |
Depreciation and amortization | 11,680 | 15,290 | |||||
Stock-based compensation | 8,241 | 8,533 | |||||
Foreign currency transactions loss | 531 | 2,792 | |||||
Other non-cash items, net | 3,372 | 1,219 | |||||
Change in working capital and other items | (19,526 | ) | (22,949 | ) | |||
Net cash used in operating activities | (17,926 | ) | (16,063 | ) | |||
Net cash provided by investing activities | 75,922 | 67,738 | |||||
Net cash provided by financing activities | 855 | 1,021 | |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (168 | ) | (2,228 | ) | |||
Net change in cash, cash equivalents and restricted cash | 58,683 | 50,468 | |||||
Cash, cash equivalents and restricted cash, beginning of period | 150,686 | 243,293 | |||||
Cash, cash equivalents and restricted cash, end of period | 209,369 | 293,761 |
Our cash, cash equivalents and restricted cash balance increased to $ 209.4million as of March 31, 2023 from $150.7 million as of December 31, 2022. The increase in cash, cash equivalents and restricted cash in the three months ended March 31, 2023 was primarily due to $75.9 million of cash provided by investing activities, partially offset by $17.9 million of cash used in operating activities.
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
We generated $0.9 million of cash from financing activities during the three months ended March 31, 2023.
Capital resources and capital expenditures
Our total current assets amounted to $665.0 million as of March 31, 2023, of which $287.6 million consisted of cash, cash equivalents, short-term deposits and restricted cash. Total current liabilities amounted to $202.1 million. Most of our cash and cash equivalents and short-term deposits are held in banks in Israel, US and in the U.K.
The credit risk related to our accounts receivable is limited, due to the relatively large number of customers and their wide geographic distribution. In addition, we seek to reduce the credit exposure related to our accounts receivable by imposing credit limits, conducting ongoing credit evaluation, and by implementing account monitoring procedures, as well as credit insurance for many of our customers.
We believe that we will have adequate cash and cash equivalents to fund our ongoing operations and that these sources of liquidity will be sufficient to satisfy our capital expenditure and working capital needs for the next twelve months.
Critical Accounting Estimates
Forward-Looking Statements and Factors That May Affect Future Results of Operations
Certain information included in or incorporated by reference into the Report of Foreign Private Issuer on Form 6-K to which this Operating and Financial Review is appended, or the Form 6-K, may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “may,” “will,” “could,” “should,” “expect,” “anticipate,” “intend,” “estimate,” “believe,” “project,” “plan,” “assume” or other similar expressions, or negatives of those expressions, although not all forward-looking statements contain these identifying words.
These forward-looking statements may include, but are not limited to, statements regarding our future strategy, future operations, projected financial position, proposed products, estimated future revenues, projected costs, future prospects, the future of our industry and results that might be obtained by pursuing management’s current plans and objectives.
You should not place undue reliance on our forward-looking statements because the matters they describe are subject to certain risks, uncertainties and assumptions that are difficult to predict. Our forward-looking statements are based on the information currently available to us and speak only as of the date of the Form 6-K. Over time, our actual results, performance or achievements may differ from those expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our shareholders. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
•
the extent of our success at introducing new or improved products and solutions that gain market share;
•
the extent of growth of the 3D printing market generally;
•
changes in our overall strategy, including as related to any restructuring activities and our capital expenditures;
•
the impact of shifts in prices or margins of the products that we sell or services we provide;
•
the impact of competition and new technologies;
•
impairments of goodwill or other intangible assets in respect of companies that we acquire;
•
the extent of our success at efficiently and successfully integrating the operations of various companies that we have acquired or may acquire;
- the degree of our success at locating and acquiring additional value-enhancing, inorganic technology that furthers our business plan to lead in the realm of polymers;
- the potential adverse impact that recent global interruptions and delays involving freight carriers and other third parties have been and may continue to have on our supply chain and distribution network, and, consequently, our ability to successfully sell both our existing and newly-launched 3D printing products;
- the potential adverse effects that inflation, and actions taken to reduce inflation, such as increased interest rates, are having or may have on the macro-economic environment, and the degree of our resilience (and that of our customers and suppliers) to those effects, which may have significant consequences for our operations, financial position and cash flows;
•
global market, political and economic conditions, and in the countries in which we operate in particular;
•
government regulations and approvals;
•
litigation and regulatory proceedings;
•
infringement of our intellectual property rights by others (including for replication and sale of consumables for use in our systems), or infringement of others’ intellectual property rights by us;
- potential cyber attacks against, or other breaches to, our information technologies systems;
• the extent of our success at maintaining our liquidity and financing our operations and capital needs;
•
impact of tax regulations on our results of operations and financial conditions;
•
those factors referred to in Item 3.D, “Key Information - Risk Factors”, Item 4, “Information on the Company”, and Item 5, “Operating and Financial Review and Prospects” in our 2022 Annual Report, as supplemented herein, as well as in other portions of the 2022 Annual Report Readers are urged to carefully review and consider the various disclosures made throughout the Form 6-K, our 2022 Annual Report, and in our other reports filed with or furnished to the SEC, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Reference is made to Item 11, “Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Annual Report.
LEGAL PROCEEDINGS
We are subject to various litigation and other legal proceedings from time to time. For a discussion of our litigation status, see Note 12-“Contingencies” in the notes to our unaudited condensed consolidated interim financial statements attached as Exhibit 99.1 to the Form 6-K.
RISK FACTORS
Adverse macro-economic trends such as inflation and higher interest rates have been adversely affecting, and may continue to adversely affect, potentially in a more material manner (including due to measures taken to reduce their impact), our business, results of operations and financial condition.