UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~June 30, 2022~~March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number: 001-35435

Proto Labs, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1939628
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5540 Pioneer Creek Drive
Maple Plain, Minnesota	55359
(Address of principal executive offices)	(Zip Code)

(763) 479-3680

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.001 Per Share	PRLB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑Yes ☐No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☑No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~27,503,100~~26,202,723 shares of Common Stock, par value $0.001 per share, were outstanding at ~~July 29, 2022.~~May 2, 2023.

Table of Contents

Proto Labs, Inc.

TABLE OF CONTENTS

Item		Description	Page		Description	Page

PART I	PART I			PART I
1.		Financial Statements	2		Financial Statements	2
2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	16		Management's Discussion and Analysis of Financial Condition and Results of Operations	15
3.		Quantitative and Qualitative Disclosures about Market Risk	26		Quantitative and Qualitative Disclosures about Market Risk	23
4.		Controls and Procedures	27		Controls and Procedures	24
PART II	PART II			PART II
1.		Legal Proceedings	28		Legal Proceedings	25
1A.		Risk Factors	28		Risk Factors	25
2.		Unregistered Sales of Equity Securities and Use of Proceeds	28		Unregistered Sales of Equity Securities and Use of Proceeds	25
3.		Defaults Upon Senior Securities	28		Defaults Upon Senior Securities	25
4.		Mine Safety Disclosures	28		Mine Safety Disclosures	25
5.		Other Information	28		Other Information	25
6.		Exhibits	29		Exhibits	26

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Proto Labs, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	*June 30,*			*December 31,*			*March 31,*			*December 31,*
	*2022*			*2021*			*2023*			*2022*
	(Unaudited)						(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	54,666		$	65,929		$	62,051		$	56,558
Short-term marketable securities		24,379			11,580			22,851			23,568
Accounts receivable, net of allowance for doubtful accounts of $2,130 and $1,948 as of June 30, 2022, and December 31, 2021, respectively		82,469			80,051
Accounts receivable, net of allowance for doubtful accounts of $1,932 and $1,706 as of March 31, 2023, and December 31, 2022, respectively								77,619			76,225
Inventory		15,051			13,161			14,273			13,578
Income taxes receivable		2,627			1,321			821			4,042
Prepaid expenses and other current assets		11,484			11,450			11,101			12,597
Total current assets		190,676			183,492			188,716			186,568
Property and equipment, net		260,631			280,346			253,616			257,785
Goodwill		390,354			400,610			273,991			273,991
Other intangible assets, net		34,026			37,998			29,869			31,250
Long-term marketable securities		31,068			14,340			19,824			26,419
Operating lease assets		4,037			5,578			3,315			3,844
Finance lease assets		1,649			1,898			17,266			17,532
Long-term assets held for sale		1,985			0
Other long-term assets		4,223			4,320			4,776			4,779
Total assets	$	918,649		$	928,582		$	791,373		$	802,168

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	15,642		$	25,364		$	19,854		$	17,356
Accrued compensation		16,687			13,704			14,695			12,743
Accrued liabilities and other		24,011			11,980			23,156			22,384
Current operating lease liabilities		2,140			3,298			1,295			1,561
Current finance lease liabilities		436			550			17,452			17,537
Income taxes payable								1,928			-
Total current liabilities		58,916			54,896			78,380			71,581
Long-term operating lease liabilities		1,886			2,245			1,983			2,255
Long-term finance lease liabilities		1,188			1,351
Long-term deferred tax liabilities		30,177			35,892			23,258			26,322
Other long-term liabilities		5,784			5,705			4,615			4,362
Total liabilities		97,951			100,089			108,236			104,520

Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of June 30, 2022, and December 31, 2021		0			0
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 27,503,100 and 27,465,945 shares as of June 30, 2022, and December 31, 2021, respectively		28			28
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of March 31, 2023, and December 31, 2022								-			-
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 26,202,723 and 26,888,425 shares as of March 31, 2023, and December 31, 2022, respectively								26			27
Additional paid-in capital		475,740			468,548			465,185			473,740
Retained earnings		381,079			376,734			251,420			258,236
Accumulated other comprehensive loss		(36,149	)		(16,817	)		(33,494	)		(34,355	)
Total shareholders' equity		820,698			828,493			683,137			697,648
Total liabilities and shareholders' equity	$	918,649		$	928,582		$	791,373		$	802,168

The accompanying notes are an integral part of these consolidated financial statements.

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Proto Labs, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(Unaudited)

	*Three Months Ended*					*Six Months Ended*						*Three Months Ended*
	*June 30,*					*June 30,*						*March 31,*
	*2022*			*2021*		*2022*			*2021*			*2023*		*2022*

Statements of Operations:
Revenue	$	126,902		$	123,048	$	251,070		$	239,174		$	125,859	$	124,168
Cost of revenue		69,480			66,423		137,844			127,219			72,083		68,364
Gross profit		57,422			56,625		113,226			111,955			53,776		55,804
Operating expenses
Marketing and sales		21,055			21,044		41,641			40,524			22,451		20,586
Research and development		9,450			11,060		20,007			23,241			10,677		10,557
General and administrative		16,522			8,417		33,293			27,825			16,833		16,771
Closure of Japan business		5,194			0		5,194			0			66		-
Total operating expenses		52,221			40,521		100,135			91,590			50,027		47,914
Income from operations		5,201			16,104		13,091			20,365			3,749		7,890
Other income (loss), net		1			137		(299	)		(176	)		1,290		(300	)
Income before income taxes		5,202			16,241		12,792			20,189			5,039		7,590
Provision for income taxes		2,645			3,326		5,140			3,562			2,380		2,495
Net income	$	2,557		$	12,915	$	7,652		$	16,627		$	2,659	$	5,095

Net income per share:
Basic	$	0.09		$	0.47	$	0.28		$	0.60		$	0.10	$	0.19
Diluted	$	0.09		$	0.47	$	0.28		$	0.60		$	0.10	$	0.19

Shares used to compute net income per share:
Basic		27,530,739			27,735,732		27,515,583			27,600,684			26,580,279		27,502,941
Diluted		27,536,823			27,744,870		27,524,019			27,741,464			26,605,787		27,510,477

Comprehensive Income (Loss) (net of tax)
Comprehensive income (loss)	$	(11,287	)	$	14,896	$	(11,680	)	$	11,932		$	3,520	$	(393	)

The accompanying notes are an integral part of these consolidated financial statements.

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Proto Labs, Inc.

Consolidated Statements of Shareholders' Equity

(In thousands, except share amounts)

	*Common Stock*					*Additional*						*Accumulated Other*						*Common Stock*						*Additional*						*Accumulated Other*
						*Paid-In*			*Retained*			*Comprehensive*												*Paid-In*			*Retained*			*Comprehensive*
	*Shares*			*Amount*		*Capital*			*Earnings*			*Loss*			*Total*			*Shares*			*Amount*			*Capital*			*Earnings*			*Loss*			*Total*

Balance at January 1, 2022		27,465,945			28		468,548			376,734			(16,817	)		828,493
Balance at December 31, 2022																			26,888,425			27			473,740			258,236			(34,355	)		697,648
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		27,716			-		(462	)		-			-			(462	)		26,798			-			(401	)		-			-			(401	)
Stock-based compensation expense		-			-		4,397			-			-			4,397			-			-			3,695			-			-			3,695
Repurchases of common stock		0			-		-			-			-			-
Repurchases of common stock and other																			(712,500	)		(1	)		(11,849	)		(9,475	)		-			(21,325	)
Net income		-			-		-			5,095			-			5,095			-			-			-			2,659			-			2,659
Other comprehensive loss
Foreign currency translation adjustment		-			-		-			-			(4,972	)		(4,972	)		-			-			-			-			527			527
Net unrealized gains (losses) on investments in securities		-			-		-			-			(516	)		(516	)		-			-			-			-			334			334
Comprehensive loss					0		0			0			0			(393	)																	3,520
Balance at March 31, 2022		27,493,661		$	28	$	472,483		$	381,829		$	(22,305	)	$	832,035
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		122,705			0		1,158			0			0			1,158
Stock-based compensation expense		-			0		4,031			0			0			4,031
Repurchases of common stock		(113,266	)		0		(1,932	)		(3,307	)		0			(5,239	)
Net income		-			0		0			2,557			0			2,557
Other comprehensive loss
Foreign currency translation adjustment		-			0		0			0			(13,515	)		(13,515	)
Net unrealized gains (losses) on investments in securities		-			0		0			0			(329	)		(329	)
Comprehensive loss					0		0			0			0			(11,287	)
Balance at June 30, 2022		27,503,100		$	28	$	475,740		$	381,079		$	(36,149	)	$	820,698
Balance at March 31, 2023																			26,202,723		$	26		$	465,185		$	251,420		$	(33,494	)	$	683,137

	*Common Stock*					*Additional*						*Accumulated Other*						*Common Stock*				*Additional*					*Accumulated Other*
						*Paid-In*			*Retained*			*Comprehensive*										*Paid-In*			*Retained*		*Comprehensive*
	*Shares*			*Amount*		*Capital*			*Earnings*			*Loss*			*Total*			*Shares*		*Amount*		*Capital*			*Earnings*		*Loss*			*Total*

Balance at January 1, 2021		26,776,796			27		284,848			362,901			(3,420	)		644,356
Balance at December 31, 2021																			27,465,945		28		468,548			376,734		(16,817	)		828,493
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		48,955			-		(290	)		-			-			(290	)		27,716		-		(462	)		-		-			(462	)
Common shares issued for Hubs acquisition		863,995			1		166,708			0			0			166,709
Stock-based compensation expense		-			-		5,620			-			-			5,620			-		-		4,397			-		-			4,397
Repurchases of common stock		0			-		-			-			-			-			-		-		-			-		-			-
Net income		-			-		-			3,712			-			3,712			-		-		-			5,095		-			5,095
Other comprehensive loss
Foreign currency translation adjustment		-			-		-			-			(6,842	)		(6,842	)		-		-		-			-		(4,972	)		(4,972	)
Net unrealized gains (losses) on investments in securities		-			-		-			-			166			166			-		-		-			-		(516	)		(516	)
Comprehensive loss					0		0			0			0			(2,964	)														(393	)
Balance at March 31, 2021		27,689,746		$	28	$	456,886		$	366,613		$	(10,096	)	$	813,431
Common shares issued on exercise of options and other, net of shares withheld for tax obligations		85,317			0		(81	)		0			0			(81	)
Stock-based compensation expense		-			0		4,941			0			0			4,941
Repurchases of common stock		(14,000	)		0		(149	)		(1,061	)		0			(1,210	)
Net income		-			0		0			12,915			0			12,915
Other comprehensive income
Foreign currency translation adjustment		-			0		0			0			2,030			2,030
Net unrealized gains (losses) on investments in securities		-			0		0			0			(49	)		(49	)
Comprehensive income					0		0			0			0			14,896
Balance at June 30, 2021		27,761,063		$	28	$	461,597		$	378,467		$	(8,115	)	$	831,977
Balance at March 31, 2022																			27,493,661	$	28	$	472,483		$	381,829	$	(22,305	)	$	832,035

The accompanying notes are an integral part of these consolidated financial statements.

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Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	*Six Months Ended*						*Three Months Ended*
	*June 30,*						*March 31,*
	*2022*			*2021*			*2023*			*2022*

Operating activities
Net income	$	7,652		$	16,627		$	2,659		$	5,095
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,274			20,127			9,388			10,232
Stock-based compensation expense		8,428			10,561			3,695			4,397
Deferred taxes		(5,653	)		419			(3,096	)		(3,213	)
Fair value of contingent consideration		0			(7,763	)
Impairments related to closure of Japan business		1,792			0
Interest on finance lease obligations								287			-
Other		32			269			(46	)		79
Changes in operating assets and liabilities:
Accounts receivable		(5,748	)		(23,296	)		(2,328	)		(6,329	)
Inventories		(1,783	)		1,727			(641	)		(675	)
Prepaid expenses and other		(298	)		1,810			1,464			1,110
Income taxes		(1,250	)		(4,015	)		5,160			4,519
Accounts payable		(521	)		5,011			2,536			(326	)
Accrued liabilities and other		8,115			(748	)		3,500			2,894
Net cash provided by operating activities		31,040			20,729			22,578			17,783

Investing activities
Purchases of property, equipment and other capital assets		(6,030	)		(23,929	)		(3,441	)		(3,069	)
Cash used for acquisitions, net of cash acquired		0			(127,413	)
Proceeds from sales of property, equipment and other capital assets								194			-
Purchases of marketable securities		(38,882	)		(15,159	)		-			(29,366	)
Proceeds from sales of marketable securities		1,000			47,694
Proceeds from call redemptions and maturities of marketable securities		7,396			13,725			7,630			6,600
Net cash used in investing activities		(36,516	)		(105,082	)
Net cash provided by (used in) investing activities								4,383			(25,835	)

Financing activities
Proceeds from exercises of stock options		2,311			3,838			-			6
Purchases of shares withheld for tax obligations		(1,615	)		(4,209	)		(401	)		(468	)
Repurchases of common stock		(5,239	)		(1,210	)		(21,119	)		-
Principal repayments of finance lease obligations		(278	)		(275	)		(82	)		(139	)
Net cash used in financing activities		(4,821	)		(1,856	)		(21,602	)		(601	)
Effect of exchange rate changes on cash and cash equivalents		(966	)		515			134			(37	)
Net decrease in cash and cash equivalents		(11,263	)		(85,694	)
Net increase (decrease) in cash and cash equivalents								5,493			(8,690	)
Cash and cash equivalents, beginning of period		65,929			127,603			56,558			65,929
Cash and cash equivalents, end of period	$	54,666		$	41,909		$	62,051		$	57,239

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation

The unaudited interim Consolidated Financial Statements of Proto Labs, Inc. (Protolabs, the Company, we, us or our) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying financial statements reflect all adjustments necessary for a fair presentation of the Company’s statements of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022, as filed with the Securities and Exchange Commission (SEC) on February ~~18, 2022.~~21, 2023.

The accompanying Consolidated Balance Sheet as of December 31, ~~2021~~2022 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by U.S. GAAP for a full set of financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in the Company's Annual Report on Form 10-K filed on February ~~18, 2022~~21, 2023 as referenced above.

On ~~May 27, 2022,~~ the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. Affected employees in Japan will receive severance and other transition assistance that meet or exceed local requirements. The Company expects to substantially complete the closure plan within the next year. The Company's decision to close the Japan business resulted in $5.2 million in operating expenses during the ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2022.~~ Operating expenses included $2.2 million of employee severance, $1.2 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.3 million in other closure related charges for the ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2022.~~

Note 2 – Recent Accounting Pronouncements

The Company did not recently adopt any accounting pronouncements that had a material impact on the Company's Consolidated Financial Statements. There are no pending accounting pronouncements that are expected to have a material impact on the Company's Consolidated Financial Statements.

Note 3 – Net Income per Common Share

Basic net income per share is computed based on the weighted-average number of common shares outstanding. Diluted net income per share is computed based on the weighted-average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options and other stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan. Performance stock units are excluded from the calculation of dilutive potential common shares until the performance conditions have been satisfied. For the three ~~and~~ ~~six~~months ended ~~June 30, 2022,~~March 31, 2023 ~~220,776~~ and ~~208,840~~2022, 382,906 and 233,380 anti-dilutive options were excluded from the calculation of diluted weighted average shares ~~outstanding.~~outstanding, respectively.

The table below sets forth the computation of basic and diluted net income per share:

	*Three Months Ended*				*Six Months Ended*				*Three Months Ended*
	*June 30,*				*June 30,*				*March 31,*
(in thousands, except share and per share amounts)	*2022*		*2021*		*2022*		*2021*		*2023*		*2022*
Net income	$	2,557	$	12,915	$	7,652	$	16,627	$	2,659	$	5,095

Basic - weighted-average shares outstanding:		27,530,739		27,735,732		27,515,583		27,600,684		26,580,279		27,502,941
Effect of dilutive securities:
Employee stock options and other		6,084		9,138		8,436		140,780		25,508		7,536
Diluted - weighted-average shares outstanding:		27,536,823		27,744,870		27,524,019		27,741,464		26,605,787		27,510,477
Net income per share:
Basic	$	0.09	$	0.47	$	0.28	$	0.60	$	0.10	$	0.19
Diluted	$	0.09	$	0.47	$	0.28	$	0.60	$	0.10	$	0.19

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Note 4 ~~– Business Combinations~~

On ~~January 22, 2021,~~ ~~the Company acquired all of the outstanding shares of~~ 3D Hubs, Inc. (Hubs), for $294.1 million, consisting of $127.4 million in cash and 863,995 shares of the Company's common stock valued at $166.7 million on the closing date. The purchase agreement included additional contingent consideration of up to $52.8 million subject to the achievement of performance-based targets during fiscal ~~2021~~ ~~and fiscal~~ ~~2022.~~ The contingent consideration consisted of up to $25.0 million in cash and up to 143,983 shares of the Company's common stock valued at $27.8 million on the closing date. The Company initially recorded a liability of $13.6 million related to the contingent consideration, which was subsequently reversed when it was determined the performance based targets would ~~not~~ ~~be met in~~ ~~2021~~ ~~and the expectation that those targets would~~ ~~not~~ ~~be met in fiscal~~ ~~2022.~~ ~~The reversal of the contingent consideration was recorded as a decrease in general and administrative expense in the Consolidated Statements of Comprehensive Income.~~

Hubs is based in Amsterdam, Netherlands and is a leading online manufacturing platform that provides customers with on-demand access to a global network of premium manufacturing partners. The acquisition enhances the Company’s value proposition by expanding the customer offerings, enabling the Company to more holistically serve its customers.

The fair value of the consideration paid for this acquisition has been allocated to the assets purchased and liabilities assumed based on their fair values as of the acquisition date, with any excess recorded as goodwill. The goodwill associated with the acquisition represents both the strategic and growth opportunities by significantly expanding the customer offering with a network of premium manufacturing partners. The goodwill related to the acquisition is ~~not~~ ~~deductible for tax purposes.~~

~~The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC~~ ~~805,~~~~Business Combinations~~~~. The final purchase price allocation was as follows:~~

(in thousands)
Acquisition
Assets acquired:

Current assets
$ 2,497
Intangible assets
30,770
Goodwill
280,925
Other long-term assets
1,139
Total assets acquired
315,331

Liabilities assumed:

Current contingent consideration
7,093
Current liabilities
5,666
Long-term contingent consideration
6,507
Long-term deferred tax liabilities
1,688
Other long-term liabilities
255
Total liabilities assumed
21,209
Net assets acquired
294,122

Cash paid
133,847
Cash acquired
(6,434 )
Net cash consideration
127,413
Equity portion of purchase price
166,709
Total purchase consideration
$ 294,122

~~Table of Contents~~

~~Note~~ 5 – Goodwill and Other Intangible Assets

~~The~~There were no changes in the carrying amount of goodwill during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 ~~were as follows:~~

(in thousands)
Six Months Ended June 30, 2022
Balance as of the beginning of the period
$ 400,610
Goodwill acquired during the period
0
Goodwill written off during the period
(630 )
Foreign currency translation adjustments
(9,626 )
Balance as of the end of the period
$ 390,354

~~Goodwill of $0.6 million was written off as of~~ ~~June 30, 2022,~~ ~~as a result of the Company's decision to close the Japan manufacturing facility and exit the Japan market. The Japan business was in operations through the~~ ~~second~~ ~~quarter of~~ ~~2022~~ ~~and the assets are expected to be available for sale during the~~ ~~second~~ ~~half of~~ ~~2022.~~ ~~Goodwill has been allocated to the acquired Hubs entities consisting of goodwill of~~ ~~€106.5~~ million in Europe and $151.3 million in the United States as of the date of the acquisition. The Euro denominated goodwill is translated at the end of each period using the current exchange rates resulting in a foreign currency translation adjustment that is recorded as a component of Other Comprehensive Income..

Intangible assets other than goodwill at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:

	*June 30, 2022*							*December 31, 2021*							*Useful*	*Weighted Average*	*March 31, 2023*							*December 31, 2022*							*Useful*	*Weighted Average*
(in thousands)	*Gross*		*Accumulated Amortization*			*Net*		*Gross*		*Accumulated Amortization*			*Net*		*Life (in years)*	*Useful Life Remaining (in years)*	*Gross*		*Accumulated Amortization*			*Net*		*Gross*		*Accumulated Amortization*			*Net*		*Life (in years)*	*Useful Life Remaining (in years)*
Intangible assets with finite lives:
Marketing assets	$	930	$	(759	)	$	171	$	930	$	(713	)	$	217	10.0	1.8		$ 930		$ (829)			$ 101		$ 930		$ (806)			$ 124	10.0	1.1
Non-compete agreement	822		(423		)	399		842		(363		)	479		2.0 - 5.0	2.5	831		(516		)	315		828		(487		)	341		2.0 - 5.0	1.9
Software technology	13,229		(5,699		)	7,530		13,229		(5,014		)	8,215		10.0	6.0	13,229		(6,725		)	6,504		13,229		(6,383		)	6,846		10.0	4.8
Software platform	25,777		(3,239		)	22,538		26,725		(2,262		)	24,463		12.0	10.6	26,200		(4,886		)	21,314		26,054		(4,337		)	21,717		12.0	9.8
Tradenames	346		(167		)	179		359		(114		)	245		3.0	1.6	352		(256		)	96		350		(227		)	123		3.0	0.8
Customer relationships	12,174		(8,965		)	3,209		12,252		(7,873		)	4,379		3.0 - 9.0	1.3	12,209		(10,670		)	1,539		12,197		(10,098		)	2,099		3.0 - 9.0	0.6
Total intangible assets	$	53,278	$	(19,252	)	$	34,026	$	54,337	$	(16,339	)	$	37,998			$	53,751	$	(23,882	)	$	29,869	$	53,588	$	(22,338	)	$	31,250

Intangible assets ~~have been~~ allocated to the acquired Hubs entities ~~consisting~~consisted of intangible assets of €11.6 million in Europe and $16.6 million in the United States as of the date of the acquisition. The Euro denominated intangible assets are translated at the end of each period using the current exchange rates resulting in a foreign currency translation adjustment that is recorded as a component of Other Comprehensive Income. Foreign currency losses related to intangible assets were ~~$2.0~~$1.5 million and ~~$0.9~~$1.7 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Amortization expense for intangible assets was $1.5 million for each of the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022~~, and $3.1 million and $3.0 million for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~respectively.~~.

Estimated aggregated amortization expense based on the current carrying value of the amortizable intangible assets and current exchange rates is as follows:

(in thousands)	*Estimated Amortization Expense*		*Estimated Amortization Expense*
Remaining 2022	$	3,029
2023		5,855
Remaining 2023			$	4,376
2024		3,706		3,746
2025		3,608		3,648
2026		3,508		3,546
2027				3,537
Thereafter		14,320		11,016
Total estimated amortization expense	$	34,026	$	29,869

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Note 6– ~~Assets Held for Sale~~

~~Assets are classified as held for sale and presented separately on the Consolidated Balance Sheet when all of the following criteria for a plan of sale have been met: (~~1~~) management, having the authority to approve the action, commits to a plan to sell the assets; (~~2~~) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (~~3~~) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (~~4~~) the sale of the assets is probable and is expected to be completed within~~ ~~one~~ ~~year; (~~5~~) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (~~6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. The assets are then recorded at the lower of their current carrying value or the fair market value, less costs to sell.

~~During the~~ ~~first~~ ~~quarter of~~ ~~2022,~~ a facility the Company owns in Maple Plain, Minnesota, encompassing approximately 35,000 square feet of manufacturing and office space, met the criteria to be held for sale. The assets held for sale were $2.0 million as of ~~June 30, 2022~~ ~~and are presented on the Company's Consolidated Balance Sheet as Long-term assets held for sale. The assets held for sale had~~ no ~~impact on the Company’s Consolidated Statements of Operations during the~~ ~~three~~ or ~~six~~ ~~months ended~~ ~~June 30, 2022.~~

~~Note~~ 7 – Fair Value Measurements

Accounting Standards Codification, Fair Value Measurement (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company's assets and liabilities that are required to be measured or disclosed at fair value on a recurring basis include cash and cash equivalents and marketable securities. The Company’s cash consists of bank ~~deposits.~~deposits and cash equivalents consist primarily of money market mutual funds. The Company determines the fair value of these investments using Level 1 inputs. The Company's marketable securities consist of short-term and long-term agency, municipal, corporate and other debt securities. Fair value for the corporate debt securities is primarily determined based on quoted market prices (Level 1). Fair values for the U.S. municipal securities, U.S. government agency securities, certificates of deposit and U.S. treasury securities are primarily determined using dealer quotes or quoted market prices for similar securities (Level 2).

The following table summarizes financial assets as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 measured at fair value on a recurring basis:

	*June 30, 2022*						*December 31, 2021*						*March 31, 2023*						*December 31, 2022*
(in thousands)	*Level 1*		*Level 2*		*Level 3*		*Level 1*		*Level 2*		*Level 3*		*Level 1*		*Level 2*		*Level 3*		*Level 1*		*Level 2*		*Level 3*
Financial Assets:
Cash	$	44,886	$	0	$	0	$	65,637	$	0	$	0	$	50,165	$	-	$	-	$	38,862	$	-	$	-
Money market mutual fund		9,780		0		0		292		0		0		11,886		-		-		17,696		-		-
Marketable securities		15,851		39,596		0		7,602		18,318		0		11,344		31,331		-		9,881		40,106		-
Total	$	70,517	$	39,596	$	0	$	73,531	$	18,318	$	0	$	73,395	$	31,331	$	-	$	66,439	$	40,106	$	-

Note 86 – Marketable Securities

The Company invests in short-term and long-term agency, municipal, corporate and other debt securities. The securities are categorized as available-for-sale and are recorded at fair value. The following table summarizes information regarding the Company’s short-term and long-term marketable securities as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022:

	*June 30, 2022*									*March 31, 2023*
(in thousands)	*Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*		*Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
U.S. municipal securities	$	17,893	$	0	$	(365	)	$	17,528	$	14,377	$	-	$	(330	)	$	14,047
Corporate debt securities		12,299		0		(234	)		12,065		6,567		-		(153	)		6,414
U.S. government agency securities		22,284		2		(355	)		21,931		22,282		-		(558	)		21,724
Certificates of deposit/time deposits		941		0		(6	)		935		494		-		(4	)		490
Commercial paper		2,994		0		(6	)		2,988
Total marketable securities	$	56,411	$	2	$	(966	)	$	55,447	$	43,720	$	-	$	(1,045	)	$	42,675

Table of Contents

	*December 31, 2021*									*December 31, 2022*
(in thousands)	*Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*		*Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
U.S. municipal securities	$	12,549	$	0	$	(70	)	$	12,479	$	15,574	$	-	$	(417	)	$	15,157
Corporate debt securities		9,303		0		(44	)		9,259		9,578		-		(205	)		9,373
U.S. government agency securities		2,500		0		(12	)		2,488		25,275		-		(750	)		24,525
Certificates of deposit/time deposits		1,687		7		0			1,694		939		-		(7	)		932
Commercial paper		0		0		0			0
Total marketable securities	$	26,039	$	7	$	(126	)	$	25,920	$	51,366	$	-	$	(1,379	)	$	49,987

Fair values for the corporate debt securities are primarily determined based on quoted market prices (Level 1). Fair values for the U.S. municipal securities, U.S. government agency securities, certificates of deposit and U.S. treasury securities are primarily determined using dealer quotes or quoted market prices for similar securities (Level 2).

Classification of marketable securities as current or non-current is based upon the security’s maturity date as of the date of these financial statements.

The ~~June 30, 2022~~March 31, 2023 balance of available-for-sale debt securities by contractual maturity is shown in the following table at fair value. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

	*June 30,*		*March 31,*
(in thousands)	*2022*		*2023*
Due in one year or less	$	24,379	$	22,851
Due after one year through five years		31,068		19,824
Total marketable securities	$	55,447	$	42,675

Note 97 – Inventory

Inventory consists primarily of raw materials, which are recorded at the lower of cost and net realizable value using the standard cost method, which approximates first-in, first-out (FIFO) cost. The Company periodically reviews its inventory for slow-moving, damaged and discontinued items and provides allowances to reduce such items identified to their recoverable amounts.

The Company’s inventory consisted of the following as of the dates indicated:

	*June 30,*			*December 31,*			*March 31,*			*December 31,*
(in thousands)	*2022*			*2021*			*2023*			*2022*
Total inventory	$	15,817		$	13,474		$	14,692		$	13,965
Allowance for obsolescence		(766	)		(313	)		(419	)		(387	)
Inventory, net of allowance	$	15,051		$	13,161		$	14,273		$	13,578

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Note 108 – Stock-Based Compensation

Under the Company’s 2012 Long-Term Incentive Plan, as amended (the 2012 Plan), the Company had the ability to grant stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, other stock-based awards and cash incentive awards through February 23, 2022. On July 8, 2022, the board of directors approved the Proto Labs, Inc. 2022 Long-Term Incentive Plan (the 2022 Plan), which ~~will take effect on~~ ~~August 29, 2022~~ ~~subject to approval~~was approved by the Company's shareholders at ~~our previously noticed~~a Special Meeting of Shareholders on August 29, 2022. No awards ~~have been~~were granted ~~since~~from February 23, 2022 ~~or will be granted~~to August 29, 2022. Awards outstanding under the 2012 Plan ~~until a new long-term~~as of August 29, 2022 will continue to be subject to the terms of the 2012 Plan, but if those awards subsequently expire, are forfeited or cancelled or are settled in cash, the shares subject to those awards will become available for awards under the 2022 Plan. Under the 2022 Plan, the Company has the ability to grant stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, other stock-based awards and cash incentive ~~plan is approved by shareholders.~~awards. Awards under the ~~2012~~2022 Plan have a maximum term of ten years from the date of grant. The compensation committee may provide that the vesting or payment of any award will be subject to the attainment of specified performance measures in addition to the satisfaction of any continued service requirements and the compensation committee will determine whether such measures have been achieved. The per-share exercise price of stock options and SARs granted under the ~~2012~~2022 Plan generally may not be less than the fair market value of a share of our common stock on the date of the grant.

Employee Stock Purchase Plan

The Company’s 2012 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of the Company’s common stock each offering period at a discount through payroll deductions of up to 15 percent of their eligible compensation, subject to plan limitations. The ESPP provides for six-month offering periods with a single purchase period ending May 15 and November 15, respectively. At the end of each offering period, employees are able to purchase shares at 85 percent of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period.

Stock-Based Compensation Expense

Stock-based compensation expense was ~~$4.0~~$3.7 million and ~~$4.9~~$4.4 million for the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022, ~~respectively, and $8.4 and $10.6 million for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ respectively.

Stock Options

The following table summarizes stock option activity during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023:

				*Weighted-*					*Weighted-*
				*Average*					*Average*
	*Stock Options*			*Exercise Price*		*Stock Options*			*Exercise Price*
Options outstanding at December 31, 2021		233,384		$	97.78
Options outstanding at December 31, 2022							263,992		$	79.07
Granted		52,992			59.40		134,647			33.84
Exercised		(3,114	)		30.58		-			-
Forfeited		(34,075	)		90.61		(15,061	)		73.17
Expired		(28,411	)		84.92		(672	)		108.33
Options outstanding at June 30, 2022		220,776		$	92.28
Options outstanding at March 31, 2023							382,906		$	63.34

Exercisable at June 30, 2022		113,652		$	92.57
Exercisable at March 31, 2023							120,344		$	89.42

The outstanding options generally have a term of ten years. For employees, options granted become exercisable ratably over the vesting period, which is generally a period of four to ~~five~~years, beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. ~~For the board of directors, options generally become exercisable in full on the~~ ~~first~~ ~~anniversary of the grant date.~~

The weighted-average grant date fair value of options that were granted during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 was ~~$27.84.~~$16.21.

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022:

	*Six Months Ended June 30,*				*Three Months Ended March 31,*
	*2022*		*2021*		*2023*		*2022*
Risk-free interest rate		1.94%		0.80% - 1.12%		3.90% - 4.55%		1.94%
Expected life (years)		6.25		6.25		2.00 - 6.25		6.25
Expected volatility		45.95%		45.28 - 45.35%		49.23% - 55.92%		45.95%
Expected dividend yield		0%		0%		0%		0%

As of ~~June 30, 2022~~March 31, 2023, there was ~~$4.0~~$5.3 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of ~~2.7~~2.8 years.

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Restricted Stock

Restricted stock awards are share-settled awards and restrictions lapse ratably over the vesting period, which is generally a period from three to ~~five~~four years, beginning on the first anniversary of the grant date, subject to the employee's continuing service to the Company. For the board of directors, restrictions generally lapse in full on the first anniversary of the grant date.

The following table summarizes restricted stock activity during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023:

				*Weighted-*					*Weighted-*
				*Average*					*Average*
				*Grant Date*					*Grant Date*
	*Restricted*			*Fair Value*		*Restricted*			*Fair Value*
	*Stock*			*Per Share*		*Stock*			*Per Share*
Restricted stock at December 31, 2021		343,782		$	111.79
Restricted stock at December 31, 2022							478,596		$	70.36
Granted		44,782			59.40		88,658			33.84
Restrictions lapsed		(119,315	)		105.06		(37,528	)		111.56
Forfeited		(32,814	)		107.48		(23,807	)		75.18
Restricted stock at June 30, 2022		236,435		$	105.90
Restricted stock at March 31, 2023							505,919		$	60.57

As of ~~June 30, 2022~~March 31, 2023, there was ~~$18.8~~$20.0 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of ~~2.3~~2.5 years.

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Performance Stock

Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between 0 percent and 200 percent of that target number capable of being earned and vesting at the end of a three-year performance period depending on the Company’s performance in the final year of the performance period and the award recipient’s continued employment. ~~The Company’s~~Certain PSUs granted ~~from~~ ~~2017~~ to ~~2019~~ ~~and certain PSUs granted~~by the Company in 2021 are based on performance conditions and the related compensation cost is based on the probability that the performance conditions will be achieved. The Company’s PSUs granted in 2020, ~~and~~ 2022,2023 and certain PSUs granted in 2021 are based on market conditions and the related compensation cost is based on the fair value at grant date calculated using a Monte Carlo pricing model.

The following table summarizes performance stock activity during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023:

				*Weighted-*				*Weighted-*
				*Average*				*Average*
				*Grant Date*				*Grant Date*
	*Performance*			*Fair Value*		*Performance*		*Fair Value*
	*Stock*			*Per Share*		*Stock*		*Per Share*
Performance stock at December 31, 2021		16,839		$	115.56
Performance stock at December 31, 2022							35,802	$	77.91
Granted		32,620			100.33		71,295		57.79
Restrictions lapsed		0			0		-		-
Performance change		0			0		-		-
Forfeited		(3,578	)		121.79		-		-
Performance stock at June 30, 2022		45,881		$	113.25
Performance stock at March 31, 2023							107,097	$	74.08

The following table provides the assumptions used in the Monte Carlo pricing model valuation of PSUs during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022:

	*Six Months Ended June 30,*				*Three Months Ended March 31,*
	*2022*		*2021*		*2023*		*2022*
Risk-free interest rate		1.76%		0.22%		4.35%		1.76%
Expected life (years)		2.87		2.87		2.88		2.87
Expected volatility		53.50%		51.40%		58.00%		53.50%
Expected dividend yield		0%		0%		0%		0%

As of ~~June 30, 2022~~March 31, 2023, there was ~~$3.0~~$6.1 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average period of 2.5 years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022:

	*Six Months Ended June 30,*				*Three Months Ended March 31,*
	*2022*		*2021*		*2023*		*2022*
Risk-free interest rate		0.17 - 2.06%		0.06 - 0.12%		4.60%		0.17%
Expected life (months)		6.00		6.00		6.00		6.00
Expected volatility		47.05 - 53.44%		50.85 - 65.53%		67.84%		53.44%
Expected dividend yield		0%		0%		0%		0%

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Note 119 – Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is comprised of foreign currency translation adjustments and net unrealized gains (losses) on investments in securities. The following table presents the changes in accumulated other comprehensive income (loss) balances during the three ~~and~~ ~~six~~months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022:

	*Three Months Ended*						*Six Months Ended*						*Three Months Ended*
	*June 30,*						*June 30,*						*March 31,*
(in thousands)	*2022*			*2021*			*2022*			*2021*			*2023*			*2022*

Balance at beginning of period	$	(22,305	)	$	(10,096	)	$	(16,817	)	$	(3,420	)	$	(34,355	)	$	(16,817	)
Foreign currency translation adjustments
Other comprehensive income (loss) before reclassifications		(13,515	)		2,030			(18,487	)		(4,812	)		527			(4,972	)
Amounts reclassified from accumulated other comprehensive loss		0			0			0			0			-			-
Net current-period other comprehensive income (loss)		(13,515	)		2,030			(18,487	)		(4,812	)		527			(4,972	)
Net unrealized gains (losses) on investments in securities
Other comprehensive income (loss) before reclassifications		(329	)		(49	)		(845	)		117			334			(516	)
Amounts reclassified from accumulated other comprehensive loss		0			0			0			0			-			-
Net current-period other comprehensive income (loss)		(329	)		(49	)		(845	)		117			334			(516	)
Balance at end of period	$	(36,149	)	$	(8,115	)	$	(36,149	)	$	(8,115	)	$	(33,494	)	$	(22,305	)

Note 1210 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022, the Company recorded an income tax provision of ~~$2.6~~$2.4 million and ~~$3.3 million, respectively. For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021,~~ ~~the Company recorded an income tax provision of $5.1 million and $3.6~~$2.5 million, respectively. The income tax provision is based on the estimated annual effective tax rate for the year applied to pre-tax income. The effective income tax rate for the three months ended ~~June 30, 2022~~March 31, 2023 was ~~50.8~~47.2 percent compared to ~~20.5~~32.9 percent in the same period of the prior year. The effective tax rate increased by ~~30.3~~14.3 percent for the three months ended ~~June 30, 2022~~March 31, 2023 when compared to the same period in ~~2021~~2022, primarily due to a decrease in tax benefits from the vesting of restricted stock, the cancellation of performance stock units and the exercise of stock options, as well as an increase in the rate impact of losses in jurisdictions ~~primarily Japan,~~ that are not eligible for tax benefits due to valuation allowances. ~~The effective income tax rate for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~was 40.2 percent compared to 17.6 percent in the same period of the prior year. The effective tax rate increased by 22.6 percent for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2022~~ ~~when compared to the same period in~~ ~~2021~~~~, primarily due to a decrease in tax benefits from the vesting of restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily Japan, that are~~ ~~not~~ ~~eligible for tax benefits due to valuation allowances.~~

The effective income tax rate for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 differs from the U.S. federal statutory rate of 21.0 percent due to various factors, including operating in multiple state and foreign jurisdictions and tax credits for which the Company qualifies.

The Company had unrecognized tax benefits totaling ~~$4.3~~$4.7 million as of ~~June 30, 2022~~March 31, 2023 and ~~$4.4~~$4.5 million as of December 31, ~~2021~~2022, respectively, that if recognized would result in a reduction of the Company’s effective tax rate. The liabilities are classified as other long-term liabilities in the accompanying consolidated balance sheets. The Company recognizes interest and penalties related to income tax matters in income tax expense and reports the liability in current or long-term income taxes payable as appropriate.

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Note 1311 – Segment Reporting

The Company’s reportable segments are based on the internal reporting used by the Company’s Chief Executive Officer, who is the chief operating decision maker (CODM), to assess operating performance and make decisions about the allocation of resources. The Corporate Unallocated and Japan category includes non-reportable segments, as well as research and development and general and administrative costs, that the Company does not allocate directly to its operating segments.

Intercompany transactions primarily relate to intercontinental activity and have been eliminated and are excluded from the reported amounts. The difference between income from operations and pre-tax income relates to foreign currency-related gains and losses and interest income on cash balances and investments, which are not allocated to business segments.

Revenue and income from operations by reportable segment for the three ~~and~~ ~~six~~months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2022

2021

2022

2021

Revenue:

United States
$ 100,655 $ 95,344 $ 196,151 $ 186,397
Europe
23,391 24,655 47,977 46,104
Japan
2,856 3,049 6,942 6,673
Total revenue
$ 126,902 $ 123,048 $ 251,070 $ 239,174

	*Three Months Ended March 31,*
(in thousands)	*2023*		*2022*
Revenue:
United States	$	97,746	$	95,496
Europe		28,113		24,586
Japan		-		4,086
Total revenue	$	125,859	$	124,168

	*Three Months Ended June 30,*						*Six Months Ended June 30,*						*Three Months Ended March 31,*
(in thousands)	*2022*			*2021*			*2022*			*2021*			*2023*			*2022*
Income (Loss) from Operations:
United States	$	26,168		$	26,280		$	48,691		$	48,783		$	20,481		$	22,524
Europe		(2,249	)		5,063			(3,928	)		3,692			(2,483	)		(1,679	)
Corporate Unallocated and Japan		(18,718	)		(15,239	)		(31,672	)		(32,110	)		(14,249	)		(12,955	)
Total Income from Operations	$	5,201		$	16,104		$	13,091		$	20,365		$	3,749		$	7,890

Total long-lived assets at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were as follows:

	*June 30,*		*December 31,*		*March 31,*		*December 31,*
(in thousands)	*2022*		*2021*		*2023*		*2022*
Total long-lived assets:
United States	$	205,090	$	215,701	$	199,381	$	203,816
Europe		52,880		59,388		54,101		53,835
Japan		2,661		5,257		134		134
Total Long-lived Assets	$	260,631	$	280,346	$	253,616	$	257,785

~~The Company's decision to exit Japan resulted in a $1.2 million impairment of fixed assets during the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2022.~~ ~~The Japan business was in operations through the~~ ~~second~~ ~~quarter of~~ ~~2022~~ ~~and the fixed assets are expected to be available for sale during the~~ ~~second~~ ~~half of~~ ~~2022.~~

Revenue by product line for the three ~~and~~ ~~six~~months ended ~~June 30, 2022~~March 31, 2023 and ~~2021~~2022 were as follows:

	*Three Months Ended June 30,*				*Six Months Ended June 30,*				*Three Months Ended March 31,*
(in thousands)	*2022*		*2021*		*2022*		*2021*		*2023*		*2022*
Revenue:
Injection Molding	$	53,355	$	58,168	$	106,753	$	114,527	$	51,948	$	53,398
CNC Machining		48,222		41,592		94,320		78,295		48,104		46,098
3D Printing		19,963		18,170		39,635		35,405		21,325		19,672
Sheet Metal		5,160		4,717		9,847		9,936		4,248		4,687
Other Revenue		202		401		515		1,011		234		313
Total revenue	$	126,902	$	123,048	$	251,070	$	239,174	$	125,859	$	124,168

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Forward-Looking Statements

Statements contained in this report regarding matters that are not historical or current facts are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our results to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are described in Item 1A. “Risk Factors” of this Form 10-Q, as well as our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC). Other unknown or unpredictable factors also could have material adverse effects on our future results. We cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, we expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Overview

We are one of the world’s largest and fastest digital manufacturers of custom prototypes and on-demand production parts. Our mission is to empower companies to bring new ideas to market by offering the fastest and most comprehensive digital manufacturing service in the world. Our automated quoting and manufacturing systems allow us to produce commercial-grade plastic, metal, and liquid silicone rubber parts in as fast as one day. We manufacture prototype and low volume production parts for companies worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers. For most of our offerings, our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. Our customers conduct nearly all of their business with us over the Internet. We target our products to the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets. In addition, we serve procurement and supply chain professionals seeking to manufacture custom parts on-demand. Through the acquisition of Hubs (formerly 3D Hubs, Inc.) (Hubs) in 2021, we are able to provide our customers access to a global network of premium manufacturing partners who reside across North America, Europe and Asia, complementing our in-house manufacturing. We believe our use of advanced technology enables us to offer significant advantages at competitive prices to many customers and is the primary reason we have become a leading supplier of custom parts.

On May 27, 2022, our board of directors approved a plan for the closure of our manufacturing facility in Japan and announced an intention to cease operations in the region. Affected employees in Japan will receive severance and other transition assistance that meet or exceed local requirements. We expect to ~~substantially~~ complete the closure plan within the ~~next~~ year. Our decision to close the Japan business resulted in $5.2 million in operating expenses during the three and six months ended June 30, 2022. Operating expenses included $2.2 million of employee severance, $1.2 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.3 million in other closure related charges for the three and six months ended June 30, 2022.

Our primary manufacturing product lines currently include Injection Molding, CNC Machining, 3D Printing and Sheet Metal. We continually seek to expand the range of sizes and geometric complexity of the parts we can make with these processes, to extend the variety of materials we are able to support, and to identify additional manufacturing processes to which we can apply our technology in order to better serve the evolving preferences and needs of product developers and engineers. In 2021, we augmented our internal manufacturing operations through our acquisition of Hubs to expand the envelope of custom parts we can provide to our customers through a network of premium manufacturing partners in each of our product lines.

Injection Molding

Our Injection Molding product line uses our 3D CAD-to-CNC machining technology for the automated design and manufacture of molds, which are then used to produce custom plastic and liquid silicone rubber injection-molded parts and over-molded and insert-molded injection-molded parts on commercially available equipment. Our Injection Molding product line works best for on-demand production, bridge tooling, pilot runs and functional prototyping. Our affordable molds and quick turnaround times help reduce design risk and limit overall production costs for product developers and engineers. Because we retain possession of the molds, customers who need short-run production often come back to Proto Labs’ Injection Molding product line for additional quantities. They do so to support pilot production for product testing, while their tooling for high-volume production is being prepared, because they need on-demand manufacturing due to disruptions in their manufacturing process, because their product requires limited annual quantity or because they need end-of-life production support. In 2017, we launched an on-demand manufacturing injection molding service. This service utilizes our existing processes, but is designed to fulfill the needs of customers with on-going production needs.

CNC Machining

Our CNC Machining product line uses commercially available CNC machines to offer milling and turning. CNC milling is a manufacturing process that cuts plastic and metal blocks into one or more custom parts based on the 3D CAD model uploaded by the customer. CNC turning is a subtractive manufacturing process that rotates a metal rod while a cutting tool is used to remove material and create final parts. Quick-turn CNC machining works best for prototyping, form and fit testing, jigs and fixtures and functional components for end-use applications.

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Industrial 3D Printing

Our Industrial 3D Printing product line includes SL, SLS, DMLS, MJF, PolyJet, Carbon DLS and fused deposition modeling (FDM) processes, which offers customers a wide-variety of high-quality, precision rapid prototyping and low volume production. These processes create parts with a high level of accuracy, detail, strength and durability. Industrial 3D Printing is best suited for functional prototypes, complex designs and end-use applications.

Sheet Metal

Our Sheet Metal product line includes quick-turn and e-commerce-enabled custom sheet metal parts, providing customers with prototype and low-volume production parts. The rapid prototype sheet metal process is most often used when form, fit and function are all a priority. Our manufacturing process uses customer 3D CAD models uploaded by the customer to fabricate rapid prototyping sheet metal or end-use production parts and assemblies.

Key Financial Measures and Trends

Revenue

Our operations are comprised of three geographic operating segments in the United States, Europe and Japan. On May 27, 2022, our board of directors approved a plan for the closure of our manufacturing facility in Japan and announced an intention to cease operations in the region. Revenue is derived from our Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines. Injection Molding revenue consists of sales of custom injection molds and injection-molded parts. CNC Machining revenue consists of sales of CNC-machined custom parts. 3D Printing revenue consists of sales of 3D-printed parts. Sheet Metal revenue consists of sales of fabricated sheet metal custom parts. Our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including:

	●	expanding the breadth and scope of our products by adding more sizes and materials to our offerings;

	●	the introduction of our 3D Printing product line through our acquisition of FineLine in 2014;

	●	expanding 3D Printing to Europe through our acquisition of Alphaform in 2015;

	●	the introduction of our Sheet Metal product line through our acquisition of Rapid Manufacturing Group, LLC in 2017;

	●	continuously improving the usability of our product lines such as our web-centric applications; and

	●	providing customers with on-demand access to a global network of premium manufacturing partners through our acquisition of Hubs in 2021.

During the three months ended ~~June 30, 2022,~~March 31, 2023, we served ~~24,058~~23,287 unique product developers and engineers who purchased our products through our web-based customer interface, ~~an increase of 3.4% over~~which is consistent with the same period in 2021. During the six months ended June 30, 2022, we served 36,878 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 5.2% over the same period in 2021.2022.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists primarily of raw materials, equipment depreciation, employee compensation, benefits, stock-based compensation, facilities costs and overhead allocations associated with the manufacturing process for molds and customer parts. We expect our personnel-related costs to increase in order to retain and attract top talent and remain competitive in the market. Overall, we expect cost of revenue to increase in absolute dollars.

We define gross profit as our revenue less our cost of revenue, and we define gross margin as gross profit expressed as a percentage of revenue. Our gross profit and gross margin are affected by many factors, including our mix of revenue by product line, pricing, sales volume, manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources, the mix between revenue produced in our internal manufacturing operations and outsourced to our external manufacturing partners, the mix between premium expedited manufacturing and longer lead times, and foreign currency exchange rates.

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Operating Expenses

Operating expenses consist of marketing and sales, research and development and general and administrative expenses. Personnel-related costs are the most significant component in each of these categories.

The launch of our Protolabs 2.0 project, an internal business systems initiative impacting both external customer-facing and internal back-end systems, in the United States in the first quarter of 2021, and our acquisition of Hubs in January 2021, led to higher operating expenses in the first six months of 2021. Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, 3D-printed and sheet metal custom parts for prototyping and low-volume production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future.

Marketing and sales. Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing programs such as electronic, print and pay-per-click advertising, trade shows and other related overhead, which includes an allocation of information technology expense including amortization of Protolabs 2.0 software assets. We expect sales and marketing expense to increase in the future as we increase the number of marketing and sales professionals and marketing programs targeted to increase our customer base and grow revenue.

Research and development. Research and development expense consists primarily of personnel and outside service costs related to the development of new processes and product lines, enhancement of existing product lines, development of software for internal use, maintenance of internally developed software, quality assurance and testing. Costs for internal use software are evaluated by project and capitalized where appropriate under ASC 350-40, Intangibles — Goodwill and Other, Internal-Use Software. We expect research and development expense to increase in the future as we seek to enhance our e-commerce interface technology, internal software and supporting business systems, and continue to expand our product lines.

General and administrative. General and administrative expense consists primarily of employee compensation, benefits, stock-based compensation, professional service fees related to accounting, tax and legal, and other related overhead, which includes an allocation of information technology expense including amortization of Protolabs 2.0 software assets. We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization.

Closure of Japan business. Closure of Japan business expense is driven by our decision to close the Japan manufacturing facility and exit the Japan market. The expenses consist primarily of operating expense, including employee severance, write-down of fixed assets, facility-related charges and goodwill impairment charges.

Other Income (Loss), net

Other income (loss), net primarily consists of foreign currency-related gains and losses and interest income on cash balances and investments. Our foreign currency-related gains and losses will vary depending upon movements in underlying foreign currency exchange rates. Our interest income will vary each reporting period depending on our average cash balances during the period, composition of our marketable security portfolio and the current level of interest rates.

Provision for Income Taxes

Provision for income taxes is comprised of federal, state, local and foreign taxes based on pre-tax income. Overall, our effective tax rate for ~~2022~~2023 and beyond may differ from historical effective tax rates due to increases in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact our effective tax rate.

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Results of Operations

The following table summarizes our results of operations and the related changes for the periods indicated. The results below are not necessarily indicative of the results for future periods.

	Three Months Ended June 30,									Change					Six Months Ended June 30,								Change			Three Months Ended March 31,									Change
(dollars in thousands)	2022				2021					$			%		2022				2021				$		%	2023				2022								$%
Revenue	$	126,902	100.0		$	123,048		100.0		$	3,854		3.1			$ 251,070	100.0		$	239,174		100.0	$11,896		5.0	$	125,859	100.0		$	124,168		100.0		$	1,691			1.4
Cost of revenue		69,480	54.8			66,423		54.0			3,057		4.6			137,844	54.9			127,219		53.2	10,625		8.4		72,083	57.3			68,364		55.1			3,719			5.4
Gross profit		57,422	45.2			56,625		46.0			797		1.4			113,226	45.1			111,955		46.8	1,271		1.1		53,776	42.7			55,804		44.9			(2,028	)		(3.6	)
Operating expenses:
Marketing and sales		21,055	16.6			21,044		17.1			11		0.1			41,641	16.6			40,524		16.9	1,117		2.8		22,451	17.8			20,586		16.6			1,865			9.1
Research and development		9,450	7.4			11,060		9.0			(1,610	)	(14.6	)		20,007	8.0			23,241		9.7	(3,234	)	(13.9)		10,677	8.5			10,557		8.5			120			1.1
General and administrative		16,522	13.0			16,180		13.1			342		2.1			33,293	13.2			35,588		14.9	(2,295	)	(6.4)		16,833	13.4			16,771		13.5			62			0.4
Closure of Japan business		5,194	4.1			-		-			5,194		100.0			5,194	2.1			-		-	5,194		100.0		66	0.1			-		-			66			100.0
Changes in fair value of contingent consideration		-	(0.0	)		(7,763	)	(6.3	)		7,763		(100.0	)		-	-			(7,763	)	(3.2)	7,763		(100.0)
Total operating expenses		52,221	41.1			40,521		32.9			11,700		28.9			100,135	39.9			91,590		38.3	8,545		9.3		50,027	39.7			47,914		38.6			2,113			4.4
Income from operations		5,201	4.1			16,104		13.1			(10,903	)	(67.7	)		13,091	5.2			20,365		8.5	(7,274	)	(35.7)		3,749	3.0			7,890		6.3			(4,141	)		(52.5	)
Other income (loss), net		1	0.0			137		0.1			(136	)	(99.3	)		(299)	(0.1	)		(176	)	(0.1)	(123	)	69.9		1,290	1.0			(300	)	(0.2	)		1,590			(530.0	)
Income before income taxes		5,202	4.1			16,241		13.2			(11,039	)	(68.0	)		12,792	5.1			20,189		8.4	(7,397	)	(36.6)		5,039	4.0			7,590		6.1			(2,551	)		(33.6	)
Provision for income taxes		2,645	2.1			3,326		2.7			(681	)	(20.5	)		5,140	2.1			3,562		1.5	1,578		44.3		2,380	1.9			2,495		2.0			(115	)		(4.6	)
Net income	$	2,557	2.0	%	$	12,915		10.5	%	$	(10,358	)	(80.2	)%		$ 7,652	3.0	%	$	16,627		7.0%	$(8,975	)	(54.0)%	$	2,659	2.1	%	$	5,095		4.1	%	$	(2,436	)		(47.8	)%

Stock-based compensation expense included in the statements of operations data above for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(dollars in thousands)	2022		2021		2022		2021		2023		2022
Stock options, restricted stock and performance stock	$	3,668	$	4,563	$	7,674	$	9,854	$	3,321	$	4,006
Employee stock purchase plan		363		378		754		707		374		391
Total stock-based compensation expense	$	4,031	$	4,941	$	8,428	$	10,561	$	3,695	$	4,397

Cost of revenue	$	528	$	668	$	1,115	$	1,303	$	466	$	587
Operating expenses:
Marketing and sales		813		929		1,550		1,782		693		737
Research and development		471		744		1,100		1,368		572		629
General and administrative		2,219		2,600		4,663		6,108		1,964		2,444
Total stock-based compensation expense	$	4,031	$	4,941	$	8,428	$	10,561	$	3,695	$	4,397

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Comparison of Three Months Ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

Revenue

Revenue by reportable segment and the related changes for the three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows:

	Three Months Ended June 30,																Three Months Ended March 31,
	2022					2021					Change						2023					2022					Change
(dollars in thousands)	$		% of Total Revenue			$		% of Total Revenue			$			%			$		% of Total Revenue			$		% of Total Revenue			$			%
Revenue
United States	$	100,655		79.3	%	$	95,344		77.5	%	$	5,311			5.6	%	$	97,746		77.7	%	$	95,496		76.9	%	$	2,250			2.4	%
Europe		23,391		18.4			24,655		20.0			(1,264	)		(5.1	)		28,113		22.3			24,586		19.8			3,527			14.3
Japan		2,856		2.3			3,049		2.5			(193	)		(6.3	)		-		-			4,086		3.3			(4,086	)		(100.0	)
Total revenue	$	126,902		100.0	%	$	123,048		100.0	%	$	3,854			3.1	%	$	125,859		100.0	%	$	124,168		100.0	%	$	1,691			1.4	%

Our revenue increased ~~$3.9~~$1.7 million, or ~~3.1%~~1.4%, for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. By reportable segment, revenue in the United States increased ~~$5.3~~$2.3 million, or ~~5.6%~~2.4%, for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. Revenue in Europe ~~decreased $1.3~~increased $3.5 million, or ~~5.1%~~14.3%, and revenue in Japan decreased ~~$0.2~~$4.1 million, or ~~6.3%~~100.0%, in each case for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. The decrease in Japan revenue was driven by our decision in the second quarter of 2022 to close our Japan operations. Our acquisition of Hubs provided revenue of ~~$5.9~~$9.4 million and ~~$4.6~~$4.8 million in the United States, and ~~$5.4~~$7.8 million and ~~$4.3~~$5.5 million in Europe, for each of the three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021, respectively.~~2022. International revenue was negatively impacted by ~~$2.7~~$2.5 million during the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.

During the three months ended ~~June 30, 2022,~~March 31, 2023, we served ~~24,058~~23,287 unique product developers and engineers, ~~an increase of 3.4% over~~which is consistent with the same period in ~~2021.~~2022. Our growth in product developers and engineers served increased at a lesser rate ~~consistent with~~than our revenue ~~growth.~~growth, resulting in an increase in the average spend per product developer and engineer.

Revenue by product line and the related changes for the three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ were as follows:

	Three Months Ended June 30,																Three Months Ended March 31,
	2022					2021					Change						2023					2022					Change
(dollars in thousands)	$		% of Total Revenue			$		% of Total Revenue			$			%			$		% of Total Revenue			$		% of Total Revenue			$			%
Revenue
Injection Molding	$	53,355		42.0	%	$	58,168		47.3	%	$	(4,813	)		(8.3	)%	$	51,948		41.3	%	$	53,398		43.0	%	$	(1,450	)		(2.7	)%
CNC Machining		48,222		38.0			41,592		33.8			6,630			15.9			48,104		38.2			46,098		37.1			2,006			4.4
3D Printing		19,963		15.7			18,170		14.8			1,793			9.9			21,325		16.9			19,672		15.8			1,653			8.4
Sheet Metal		5,160		4.1			4,717		3.8			443			9.4			4,248		3.4			4,687		3.8			(439	)		(9.4	)
Other Revenue		202		0.2			401		0.3			(199	)		(49.6	)		234		0.2			313		0.3			(79	)		(25.2	)
Total revenue	$	126,902		100.0	%	$	123,048		100.0	%	$	3,854			3.1	%	$	125,859		100.0	%	$	124,168		100.0	%	$	1,691			1.4	%

By product line, our revenue increase was driven by a ~~15.9%~~4.4% increase in CNC Machining revenue ~~a 9.9%~~and an 8.4% increase in 3D Printing ~~revenue, and a 9.4% increase in Sheet Metal~~ revenue, which was partially offset by ~~an 8.3%~~a 2.7% decrease in Injection Molding revenue, a 9.4% decrease in Sheet Metal revenue and a ~~49.6%~~25.2% decrease in Other Revenue, in each case for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022.

2019

Table of Contents

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased ~~$3.1~~$3.7 million, or ~~4.6%~~5.4%, for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021,~~2022, which was ~~greater~~higher than the rate of revenue increase of ~~3.1%~~1.4% for the three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. Cost of revenue ~~increased $2.6~~decreased $1.9 million in our digital manufacturing business, which was driven by ~~increased volumes~~decreases in overtime and contract labor ~~shortages resulting in wage inflation, driving~~expense and led to lower personnel and related ~~cost increases~~costs of ~~$0.7~~$2.1 million, and an increase in raw material and product costs of ~~$1.8 million driven by materials cost inflation and higher logistics costs, and an increase in equipment and facility related costs of $0.1~~$0.2 million. Hubs provided a ~~$0.5~~$5.6 million increase in cost of revenue due to higher revenue volume for the three months ended ~~June 30, 2022 when~~March 31, 2023 compared to the same period in ~~2021.~~2022.

Gross Profit and Gross Margin. Gross profit ~~increased~~decreased from ~~$56.6~~$55.8 million in the three months ended ~~June 30, 2021~~March 31, 2022 to ~~$57.4~~$53.8 million in the three months ended ~~June 30, 2022.~~March 31, 2023. Gross margin decreased from ~~46.0%~~44.9% in the three months ended ~~June 30, 2021~~March 31, 2022 to ~~45.2%~~42.7% in the three months ended ~~June 30, 2022, primarily due to labor and materials cost inflation as described above and the mix of revenue.~~

~~Operating Expenses, Other Income (Loss), net and Provision for Income Taxes~~

~~Marketing and Sales.~~ Marketing and sales expenses remained consistent during the three months ended June 30, 2022 compared to the same period in 2021. Personnel and related cost decreases in our digital manufacturing business of $0.5 million and marketing program cost decreases in our digital manufacturing business of $0.1 million were offset by increases in Hubs' marketing and sales expense of $0.6 million during the three months ended June 30, 2022 when compared to the same period in 2021.

~~Research and Development.~~ Our research and development expenses decreased $1.6 million, or 14.6%, during the three months ended June 30, 2022 compared to the same period in 2021 primarily due to personnel and related cost decreases of $1.6 million driven by personnel and contractor resources dedicated to the launch of our Protolabs 2.0 system in the first quarter of 2021.

~~General and Administrative.~~ Our general and administrative expenses increased $0.3 million, or 2.1%, during the three months ended June 30, 2022 compared to the same period in 2021 primarily due to an increase in personnel and related costs of $0.2 million and an increase of professional services of $0.1 million.

~~Closure of Japan business.~~ Our decision to close our Japan business resulted in $5.2 million in operating expenses during the three months ended June 30, 2022. Operating expenses included $2.2 million of employee severance, $1.2 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.3 million in other closure related charges. We had no expenses related to the closure of our Japan business in 2021.

~~Changes in fair value of contingent consideration.~~ We had no contingent consideration liabilities recorded during 2022. The change in fair value of contingent consideration associated with the acquisition of Hubs was $7.8 million during the three months ended June 30, 2021.

~~Other income (loss), net.~~ We recognized no other income, net for the three months ended June 30, 2022, a decrease of $0.1 million compared to other income, net of $0.1 million for the three months ended June 30, 2021. Other income, net for the three months ended June 30, 2022 primarily consisted of a $0.3 million loss on foreign currency, which was offset by interest income on investments and other income. Other income, net for the three months ended June 30, 2021 primarily consisted of a $0.1 million gain on foreign currency and interest income on investments.

~~Provision for Income Taxes.~~ Our effective tax rate of 50.8% for the three months ended June 30, 2022 increased 30.3% compared to 20.5% for the same period in 2021. The increase in the effective tax rate is primarily due to a decrease in tax benefits from the vesting of restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily Japan, that are not eligible for tax benefits due to valuation allowances. Our income tax provision of $2.6 million for the three months ended June 30, 2022 decreased $0.7 million compared to our income tax provision of $3.3 million for the three months ended June 30, 2021.

~~Table of Contents~~

~~Comparison of Six Months Ended June 30, 2022 and 2021~~

~~Revenue~~

~~Revenue by reportable segment and the related changes for the six months ended June 30, 2022 and 2021 were as follows:~~

Six Months Ended June 30,

2022

2021

Change

(dollars in thousands)

$

% of Total Revenue

$

% of Total Revenue

$

%

Revenue

United States
$ 196,151 78.1 % $ 186,397 77.9 % $ 9,754 5.2 %
Europe
47,977 19.1 46,104 19.3 1,873 4.1
Japan
6,942 2.8 6,673 2.8 269 4.0
Total revenue
$ 251,070 100.0 % $ 239,174 100.0 % $ 11,896 5.0 %

Our revenue increased $11.9 million, or 5.0%, for the six months ended June 30, 2022 compared to the same period in 2021. By reportable segment, revenue in the United States increased $9.8 million, or 5.2%, for the six months ended June 30, 2022 compared to the same period in 2021. Revenue in Europe increased $1.9 million, or 4.1%, and revenue in Japan increased $0.3 million, or 4.0%, in each case for the six months ended June 30, 2022 compared to the same period in 2021. Our acquisition of Hubs provided revenue of $10.6 million and $7.8 million in the United States and $10.9 million and $6.9 million in Europe for each of the six months ended June 30, 2022 and 2021, respectively. Hubs revenue in 2021 represents the period from January 22, 2021, the date of acquisition, through June 30, 2021. International revenue was negatively impacted by $4.3 million during the six months ended June 30, 2022 compared to the same period in 2021 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.

During the six months ended June 30, 2022, we served 36,878 unique product developers and engineers, an increase of 5.2% over the same period in 2021. Our growth in product developers and engineers served increased at a rate consistent with our revenue growth.

~~Revenue by product line and the related changes for the six months ended June 30, 2022 and 2021 were as follows:~~

Six Months Ended June 30,

2022

2021

Change

(dollars in thousands)

$

% of Total Revenue

$

% of Total Revenue

$

%

Revenue

Injection Molding
$ 106,753 42.5 % $ 114,527 47.9 % $ (7,774 ) (6.8 )%
CNC Machining
94,320 37.6 78,295 32.7 16,025 20.5
3D Printing
39,635 15.8 35,405 14.8 4,230 11.9
Sheet Metal
9,847 3.9 9,936 4.2 (89 ) (0.9 )
Other Revenue
515 0.2 1,011 0.4 (496 ) (49.1 )
Total revenue
$ 251,070 100.0 % $ 239,174 100.0 % $ 11,896 5.0 %

By product line, our revenue increase was driven by a 20.5% increase in CNC Machining revenue and an 11.9% increase in 3D Printing revenue, which was partially offset by a 6.8% decrease in Injection Molding revenue, a 0.9% decrease in Sheet Metal revenue and a 49.1% decrease in Other Revenue, in each case for the six months ended June 30, 2022 compared to the same period in 2021.

~~Table of Contents~~

~~Cost of Revenue, Gross Profit and Gross Margin~~

~~Cost of Revenue.~~ Cost of revenue increased $10.6 million, or 8.4%, for the six months ended June 30, 2022 compared to the same period in 2021, which was greater than the rate of revenue increase of 5.0% for the six months ended June 30, 2022 compared to the same period in 2021. Cost of revenue increased $7.5 million in our digital manufacturing business, which was driven by increased volumes and labor shortages resulting in wage inflation driving personnel and related cost increases of $3.2 million, an increase in raw material and product costs of $3.9 million driven by materials cost inflation and higher logistics costs, and an increase in equipment and facility related costs of $0.4 million. Our acquisition of Hubs provided a $3.1 million increase in cost of revenue for the six months ended June 30, 2022 when compared to the same period in 2021.

~~Gross Profit and Gross Margin.~~ Gross profit increased from $112.0 million in the six months ended June 30, 2021 to $113.2 million in the six months ended June 30, 2022. Gross margin decreased from 46.8% in the six months ended June 30, 2021 to 45.1% in the six months ended June 30, 2022, primarily due to labor and materials cost inflation as described above and the mix of revenue.March 31, 2023.

Operating Expenses, Other Income (Loss), net and Provision for Income Taxes

Marketing and Sales. Marketing and sales expenses increased ~~$1.1~~$1.9 million, or ~~2.8%~~9.1%, during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021. Hubs provided a $1.2~~2022. The increase was driven by marketing program cost increases in our digital manufacturing business of $0.2 million ~~increase~~and increases in Hubs' marketing and sales expenses ~~and our digital manufacturing business provided marketing program cost increases~~ of ~~$0.2~~$1.7 million during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 when compared to the same period in ~~2021, which was partially offset by a decrease in our digital manufacturing business personnel and related costs of $0.3 million.~~2022.

Research and Development. Our research and development expenses ~~decreased $3.2~~increased $0.1 million, or ~~13.9%~~1.1%, during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 primarily due to increases of $0.7 million in Hubs' research and development expenses, which were partially offset by personnel and related cost decreases of ~~$3.8~~$0.2 million ~~driven by personnel~~ and ~~contractor resources dedicated to the launch~~decreases in professional services and ~~support~~other operating costs of $0.4 million in our Protolabs 2.0 system in the first quarter of 2021. The decrease was partially offset by a $0.6 million increase in Hubs' research and development expenses during the six months ended June 30, 2022 when compared to the same period in 2021.digital manufacturing business.

General and Administrative. Our general and administrative expenses ~~decreased $2.3~~increased $0.1 million, or ~~6.4%~~0.4%, during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021~~2022 primarily due to an increase of $0.3 million in personnel and related costs, an increase of professional services of $0.4 million, an increase in stock based compensation costs of $0.1 million, which were partially offset by a decrease of ~~$2.3~~$0.5 million in ~~professional service~~administrative costs ~~primarily driven by increased transaction costs in 2021 related to our acquisition~~and decreases of ~~Hubs and a decrease of $1.3~~$0.2 million in stock-based compensation expense primarily driven by increased stock-based compensation expense in 2021 related to the retirement of our CEO. In addition, our acquisition of Hubs provided an increase of $1.3 million inHubs' general and administrative ~~expense during the six months ended June 30, 2022 when compared to the same period in 2021.~~expenses.

Closure of Japan business. Our decision to close our Japan business resulted in ~~$5.2~~$0.1 million in operating expenses during the ~~six~~three months ended June 30, 2022. Operating expenses included $2.2 million of employee severance, $1.2 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.3 million in other closure related charges.March 31, 2023. We had no expenses related to the closure of our Japan business in ~~2021.~~

~~Changes in fair value of contingent consideration.~~ ~~We had no contingent consideration liabilities recorded during 2022. The change in fair value of contingent consideration associated with~~ the ~~acquisition of Hubs was $7.8 million during the six~~three months ended ~~June 30, 2021.~~ March 31, 2022.

Other ~~Loss,~~income (loss), net. We recognized other income, net of $1.3 million for the three months ended March 31, 2023, an increase of $1.6 million compared to other loss, net of $0.3 million for the ~~six~~three months ended ~~June 30, 2022, a decrease of $0.1 million compared to other loss, net of $0.2 million for the six months ended June 30, 2021.~~March 31, 2022. Other ~~loss,~~income, net for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 primarily consisted of a ~~$0.4~~$0.1 million ~~loss~~gain on foreign currency ~~which was partially offset by $0.1~~and $1.2 million in interest income on investments and other income. Other ~~loss,~~income, net for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 primarily consisted of a ~~$0.5~~$0.3 million loss on foreign ~~currency, which was partially offset by $0.2 million in interest income on investments and $0.1 million in other income.~~currency.

Provision for Income Taxes. Our effective tax rate of ~~40.2%~~47.2% for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 increased ~~22.6%~~14.3% compared to ~~17.6%~~32.9% for the same period in ~~2021.~~2022. The increase in the effective tax rate is primarily due to a decrease in tax benefits from the vesting of restricted stock, the cancellation of performance stock units and the exercise of stock options, as well as an increase in the rate impact of losses in jurisdictions ~~primarily Japan,~~ that are not eligible for tax benefits due to valuation allowances. Our income tax provision of ~~$5.1~~$2.4 million for the ~~six~~three months ended ~~June 30, 2022 increased $1.5~~March 31, 2023 decreased $0.1 million compared to our income tax provision of ~~$3.6~~$2.5 million for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

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Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:

	Six Months Ended June 30,						Three Months Ended March 31,
(dollars in thousands)	2022			2021			2023			2022
Net cash provided by operating activities	$	31,040		$	20,729		$	22,578		$	17,783
Net cash used in investing activities		(36,516	)		(105,082	)
Net cash provided by (used in) investing activities								4,383			(25,835	)
Net cash used in financing activities		(4,821	)		(1,856	)		(21,602	)		(601	)
Effect of exchange rates on cash and cash equivalents		(966	)		515			134			(37	)
Net decrease in cash and cash equivalents	$	(11,263	)	$	(85,694	)
Net increase (decrease) in cash and cash equivalents							$	5,493		$	(8,690	)

Sources of Liquidity

Historically, we have primarily financed our operations and capital expenditures through cash flow from operations. We had cash and cash equivalents of ~~$54.7~~$62.1 million as of ~~June 30, 2022, a decrease~~March 31, 2023, an increase of ~~$11.3~~$5.5 million from December 31, ~~2021.~~2022. The ~~decrease~~increase in our cash was primarily due to cash ~~used in investing activity for purchases~~provided by operating activities of $22.6 million and proceeds from call redemptions and maturities of marketable securities ~~net,~~ of ~~$30.5~~$7.7 million, which were partially offset by $3.4 million for purchases of property, equipment and other capital assets, and $21.1 million in repurchases of ~~$6.0 million,~~common stock.

We believe that our existing cash and cash ~~used in financing activities of $4.8 million, which were partially offset by~~equivalents together with cash generated ~~through~~from operations ~~of $31.0 million.~~will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

Cash Flows from Operating Activities

Cash flows from operating activities were ~~$31.0~~$22.6 million during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and primarily consisted of net income of ~~$7.7~~$2.7 million, adjusted for certain non-cash items, including depreciation and amortization of ~~$20.3~~$9.4 million, stock-based compensation expense of ~~$8.4~~$3.7 million, ~~and impairments related to the closure~~interest on finance lease obligations of ~~our Japan business of $1.8 million, which were partially offset by deferred taxes of $5.7~~$0.3 million and changes in operating assets and liabilities and other items totaling ~~$1.5~~$9.6 million, which were partially offset by deferred taxes of $3.1 million. Cash flows from operating activities were ~~$20.7~~$17.8 million during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and primarily consisted of net income of ~~$16.6~~$5.1 million, adjusted for certain non-cash items, including depreciation and amortization of ~~$20.1~~$10.2 million and stock-based compensation expense of ~~$10.6~~$4.4 million, which were partially offset by ~~a decrease in the fair value of contingent consideration of $7.8 million and~~ changes in operating assets and liabilities and other items totaling ~~$18.8~~$1.9 million.

Cash flows from operating activities increased ~~$10.3~~$4.8 million during the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 compared to the same period in ~~2021,~~2022, primarily due to increases in interest on finance lease obligations of $0.3 million and changes in operating assets and liabilities totaling $17.7 million, changes in fair value of contingent consideration of $7.8 million, costs related to the closure of our Japan business of $1.8 million, and increases of depreciation and amortization of $0.2$8.4 million, which were partially offset by decreases in net income of ~~$9.0~~$2.4 million, stock-based compensation of ~~$2.1~~$0.7 million, and ~~deferred taxes~~depreciation and amortization of ~~$6.1~~$0.8 million.

Cash Flows from Investing Activities

Cash ~~used in~~provided by investing activities was ~~$36.5~~$4.4 million during the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, consisting of ~~$30.5~~$7.7 million ~~for net purchases~~in proceeds from call redemptions and maturities of marketable securities, ~~and $6.0~~which were partially offset by $3.3 million for ~~the~~net purchases of property, equipment and other capital assets.

Cash used in investing activities was ~~$105.1~~$25.8 million during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, consisting of ~~$127.4~~$22.7 million ~~in cash used~~ for ~~acquisitions,~~ net purchases of ~~cash acquired~~marketable securities and ~~$23.9~~$3.1 million for the purchases of property, equipment and other capital ~~assets, which were partially offset by $46.2 million for net proceeds from investments in marketable securities.~~assets.

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Cash Flows from Financing Activities

Cash used in financing activities was ~~$4.8~~$21.6 million during the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, consisting of ~~$5.2~~$21.1 million in repurchases of common stock, ~~$1.6~~$0.4 million in purchases of shares withheld for tax obligations associated with equity transactions, and ~~$0.3~~$0.1 million for repayments of finance lease ~~obligations, which were partially offset by $2.3 million in proceeds from exercises of stock options.~~obligations.

Cash used in financing activities was ~~$1.9~~$0.6 million during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, consisting of ~~$4.2~~$0.5 million in purchases of shares withheld for tax obligations associated with equity transactions, ~~$1.2 million in repurchases of common stock~~ and ~~$0.3~~$0.1 million for repayments of finance lease ~~obligations, which were partially offset by $3.8 million in proceeds from the exercise of stock options.~~

~~Off-Balance Sheet Arrangements~~

~~Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.~~obligations.

Critical Accounting ~~Policies and Use of~~ Estimates

We have adopted various accounting policies to prepare the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires us to make estimates, judgements and assumptions. Our significant accounting policies and estimates are disclosed in Note 2 to the Consolidated Financial Statements included Pat II, Item 8 in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There were no material changes to our critical accounting policies and estimates during the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2 to the Consolidated Financial Statements appearing in Part I, Item 1 in this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

As a result of our foreign operations, we have revenue, expenses, assets and liabilities that are denominated in foreign currencies. We generate revenue and incur production costs and operating expenses in British Pounds, Euros and Japanese Yen.

Our operating results and cash flows are adversely impacted when the United States Dollar appreciates relative to foreign currencies. Additionally, our operating results and cash flows are adversely impacted when the British Pound appreciates relative to the Euro. As we expand internationally, our results of operations and cash flows will become increasingly subject to changes in foreign currency exchange rates.

We have not used forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Foreign currency risk can be assessed by estimating the change in results of operations or financial position resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would generally not have a material impact on our financial position, but could have a material impact on our results of operations. We recognized foreign currency ~~losses~~gains of ~~$0.3~~$0.1 million and foreign currency ~~gains~~losses of ~~$0.1~~$0.3 million during the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively. We recognized foreign currency losses of $0.4 million and $0.5 million during the six months ended June 30, 2022 and 2021,~~ respectively. The changes in foreign exchange rates had a negative impact on consolidated revenue of ~~$2.7~~$2.5 million for the three months ended ~~June 30, 2022 and $4.3 million for the six months ended June 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in ~~2021.~~2022.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures are effective and provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time frames specified in the SEC’s rules and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of these financial statements, we do not believe we are party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business.

Item 1A. Risk Factors

Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 includes a discussion of our risk factors. There have been no material changes from the risk factors described in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 9, 2017, our board of directors authorized the repurchase of shares of our common stock from time to time on the open market or in privately negotiated purchases, at an aggregate purchase price of up to $50 million. On May 16, 2019, we announced that our board of directors approved a $50 million increase in ~~its~~our authorized stock repurchase program and extended the term of the program through December 31, 2023, which increased the stock repurchase program to $100 million. On December 8, 2021, our board of directors approved aanother $50 million increase in ~~its~~our authorized stock repurchase program, which increased the total ~~expenditure~~repurchases authorized to $150 million. On November 17, 2022, our board of directors approved a $50 million increase in our authorized stock repurchase program, which increased the total repurchases authorized to $200 million and extended the term of the program through December 31, 2024. On February 7, 2023 our board of directors approved a $50 million increase in our authorized stock repurchase program, which increased the stock repurchase authorized to $250 million. We have ~~$56.7~~$111.2 million remaining under this authorization. The timing and amount of any share repurchases will be determined by our management based on market conditions and other factors.

During the three months ended ~~June 30, 2022,~~March 31, 2023, we repurchased ~~113,266~~672,500 shares of our common stock at a total purchase price of ~~$5.2~~$21.1 million under this program. Common stock repurchase activity through ~~June 30, 2022~~March 31, 2023 was as follows:

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1)

April 1, 2022 through April 30, 2022
- $- - $61,905
May 1, 2022 through May 31, 2022
79,236 $45.22 79,236 $58,322
June 1, 2022 through June 30, 2022
34,030 $48.58 34,030 $56,669
113,266 $46.23 113,266 $56,669

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1)
January 1, 2023 through January 31, 2023		200,000	$	27.58		200,000	$	76,757
February 1, 2023 through February 28, 2023		292,500	$	32.59		292,500	$	117,224
March 1, 2023 through March 31, 2023		180,000	$	33.60		180,000	$	111,176
		672,500	$	31.37		672,500	$	111,176

Item 3. Defaults Upon Senior Securities

No matters to disclose.

Item 4. Mine Safety Disclosures

No matters to disclose.

Item 5. Other Information

No matters to disclose.

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Item 6. Exhibits

The following documents are filed as part of this report:

Exhibit Number			Description of Exhibit
3.1⁽¹⁾			Third Amended and Restated Articles of Incorporation of Proto Labs, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1/A, filed on February 13, 2012).
3.2⁽²⁾			Articles of Amendment to Third Amended and Restated Articles of Incorporation of Proto Labs, Inc. dated May 20, 2015 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K, filed with the Commission on May 21, 2015).
3.3⁽³⁾			~~Second~~Third Amended and Restated By-Laws of Proto Labs, Inc., as amended through November ~~8, 2016~~15, 2022 (incorporated by reference to Exhibit 3.2 to the Company's Form 8-K, filed on November 15, 2022).
31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
32.1			Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act*
~~99.1~~⁽⁴⁾			~~Form of Severance Agreement~~
101.INS			Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

⁽¹⁾ * Filed herewith.	~~Previously filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-1/A, filed with the Commission on February 13, 2012, and incorporated by reference herein.~~
⁽²⁾	~~Previously filed as Exhibit 3.1 to the Company's Form 8-K, filed with the Commission on May 21, 2015 and incorporated by reference herein.~~
⁽³⁾	~~Previously filed as Exhibit 3.1 to the Company's Form 8-K, filed with the Commission on November 8, 2016 and incorporated by reference herein.~~
⁽⁴⁾	~~Previously filed as Exhibit 99.2 to the Company's Form 8-K, filed with the Commission on June 6, 2022 and incorporated by reference herein.~~
*	~~Filed herewith.~~

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Proto Labs, Inc.

Date: ~~August~~May 5, ~~2022~~2023		/s/ Robert Bodor
		Robert Bodor
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~August~~May 5, ~~2022~~2023

/s/ Daniel Schumacher

Daniel Schumacher

Chief Financial Officer

(Principal Financial Officer)

3027

(in thousands)	*Acquisition*
Assets acquired:
Current assets	$	2,497
Intangible assets		30,770
Goodwill		280,925
Other long-term assets		1,139
Total assets acquired		315,331

Liabilities assumed:
Current contingent consideration		7,093
Current liabilities		5,666
Long-term contingent consideration		6,507
Long-term deferred tax liabilities		1,688
Other long-term liabilities		255
Total liabilities assumed		21,209
Net assets acquired		294,122

Cash paid		133,847
Cash acquired		(6,434	)
Net cash consideration		127,413
Equity portion of purchase price		166,709
Total purchase consideration	$	294,122

(in thousands)	*Six Months Ended June 30, 2022*
Balance as of the beginning of the period	$	400,610
Goodwill acquired during the period		0
Goodwill written off during the period		(630	)
Foreign currency translation adjustments		(9,626	)
Balance as of the end of the period	$	390,354