UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

FORM 10-Q


			(Mark One)

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

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

Commission File Number: 001-35435

Proto Labs, Inc.

(Exact name of registrant as specified in its charter)

~~Minnesota~~	~~41-1939628~~
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~~

þYes oNo

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~~

þYes oNo

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~~"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~~

oYes þNo

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~~26,095,434 shares of Common Stock, par value $0.001 per share, were outstanding at ~~July 29, 2022.~~

August 1, 2023.

Table of Contents

Proto Labs, Inc.

TABLE OF CONTENTS

Item

Description

Page

PART I
1.

Financial Statements

2
2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

16
3.

Quantitative and Qualitative Disclosures about Market Risk

26
4.

Controls and Procedures

27
PART II
1.

Legal Proceedings

28
1A.

Risk Factors

28
2.

Unregistered Sales of Equity Securities and Use of Proceeds

28
3.

Defaults Upon Senior Securities

28
4.

Mine Safety Disclosures

28
5.

Other Information

28
6.

Exhibits

29

Table of Contents

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,

2022 2021

(Unaudited)

Assets

Current assets

Cash and cash equivalents
$ 54,666 $ 65,929
Short-term marketable securities
24,379 11,580
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
Inventory
15,051 13,161
Income taxes receivable
2,627 1,321
Prepaid expenses and other current assets
11,484 11,450
Total current assets
190,676 183,492
Property and equipment, net
260,631 280,346
Goodwill
390,354 400,610
Other intangible assets, net
34,026 37,998
Long-term marketable securities
31,068 14,340
Operating lease assets
4,037 5,578
Finance lease assets
1,649 1,898
Long-term assets held for sale
1,985 0
Other long-term assets
4,223 4,320
Total assets
$ 918,649 $ 928,582

Liabilities and shareholders' equity

Current liabilities

Accounts payable
$ 15,642 $ 25,364
Accrued compensation
16,687 13,704
Accrued liabilities and other
24,011 11,980
Current operating lease liabilities
2,140 3,298
Current finance lease liabilities
436 550
Total current liabilities
58,916 54,896
Long-term operating lease liabilities
1,886 2,245
Long-term finance lease liabilities
1,188 1,351
Long-term deferred tax liabilities
30,177 35,892
Other long-term liabilities
5,784 5,705
Total liabilities
97,951 100,089

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
Additional paid-in capital
475,740 468,548
Retained earnings
381,079 376,734
Accumulated other comprehensive loss
(36,149 ) (16,817 )
Total shareholders' equity
820,698 828,493
Total liabilities and shareholders' equity
$ 918,649 $ 928,582
Proto Labs, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)



	June 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	66,493	$	56,558
Short-term marketable securities	19,945		23,568
Accounts receivable, net of allowance for doubtful accounts of $2,209 and $1,706 as of June 30, 2023, and December 31, 2022, respectively	75,034		76,225
Inventory	14,311		13,578
Income taxes receivable	868		4,042
Prepaid expenses and other current assets	8,501		12,597
Total current assets	185,152		186,568
Property and equipment, net	248,614		257,785
Goodwill	273,991		273,991
Other intangible assets, net	28,353		31,250
Long-term marketable securities	16,344		26,419
Operating lease assets	3,084		3,844
Finance lease assets	16,934		17,532
Other long-term assets	4,738		4,779
Total assets	$	777,210	$	802,168

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	16,474	$	17,356
Accrued compensation	12,486		12,743
Accrued liabilities and other	19,155		22,384
Current operating lease liabilities	1,209		1,561
Current finance lease liabilities	16,549		17,537
Income taxes payable	348		-
Total current liabilities	66,221		71,581
Long-term operating lease liabilities	1,833		2,255
Long-term finance lease liabilities	745		—
Long-term deferred tax liabilities	20,790		26,322
Other long-term liabilities	4,936		4,362
Total liabilities	94,525		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, 2023, and December 31, 2022	-		-
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 26,095,434 and 26,888,425 shares as of June 30, 2023, and December 31, 2022, respectively	26		27
Additional paid-in capital	464,950		473,740
Retained earnings	246,930		258,236
Accumulated other comprehensive loss	(29,221)		(34,355)
Total shareholders' equity	682,685		697,648
Total liabilities and shareholders' equity	$	777,210	$	802,168

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

Table of Contents

Proto Labs, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

~~Proto Labs, Inc.~~

~~Consolidated Statements of Comprehensive Income~~

~~(In thousands, except share and per share amounts)~~

~~(Unaudited)~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2022

2021

2022

2021

Statements of Operations:

Revenue
$ 126,902 $ 123,048 $ 251,070 $ 239,174
Cost of revenue
69,480 66,423 137,844 127,219
Gross profit
57,422 56,625 113,226 111,955
Operating expenses

Marketing and sales
21,055 21,044 41,641 40,524
Research and development
9,450 11,060 20,007 23,241
General and administrative
16,522 8,417 33,293 27,825
Closure of Japan business
5,194 0 5,194 0
Total operating expenses
52,221 40,521 100,135 91,590
Income from operations
5,201 16,104 13,091 20,365
Other income (loss), net
1 137 (299 ) (176 )
Income before income taxes
5,202 16,241 12,792 20,189
Provision for income taxes
2,645 3,326 5,140 3,562
Net income
$ 2,557 $ 12,915 $ 7,652 $ 16,627

Net income per share:

Basic
$ 0.09 $ 0.47 $ 0.28 $ 0.60
Diluted
$ 0.09 $ 0.47 $ 0.28 $ 0.60

Shares used to compute net income per share:

Basic
27,530,739 27,735,732 27,515,583 27,600,684
Diluted
27,536,823 27,744,870 27,524,019 27,741,464

Comprehensive Income (Loss) (net of tax)

Comprehensive income (loss)
$ (11,287 ) $ 14,896 $ (11,680 ) $ 11,932
(Unaudited)

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Statements of Operations:
Revenue	$	122,265	$	126,902	$	248,124	$	251,070
Cost of revenue	69,142		69,480		141,225		137,844
Gross profit	53,123		57,422		106,899		113,226
Operating expenses
Marketing and sales	21,730		21,055		44,181		41,641
Research and development	9,865		9,450		20,542		20,007
General and administrative	15,822		16,522		32,655		33,293
Closure of Japan business	98		5,194		164		5,194
Total operating expenses	47,515		52,221		97,542		100,135
Income from operations	5,608		5,201		9,357		13,091
Other (loss) income, net	(3,368)		1		(2,078)		(299)
Income before income taxes	2,240		5,202		7,279		12,792
Provision for income taxes	2,623		2,645		5,003		5,140
Net (loss) income	$	(383)	$	2,557	$	2,276	$	7,652

Net (loss) income per share:
Basic	$	(0.01)	$	0.09	$	0.09	$	0.28
Diluted	$	(0.01)	$	0.09	$	0.09	$	0.28

Shares used to compute net (loss) income per share:
Basic	26,210,478		27,530,739		26,414,467		27,515,583
Diluted	26,210,478		27,536,823		26,445,427		27,524,019

Comprehensive Income (Loss) (net of tax)
Comprehensive income (loss)	$	3,890	$	(11,287)	$	7,410	$	(11,680)

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

Table of Contents

Proto Labs, Inc.

Consolidated Statements of Shareholders' Equity

(In thousands, except share amounts)

~~Proto Labs, Inc.~~

~~Consolidated Statements of Shareholders' Equity~~

~~(In thousands, except share amounts)~~

	*Common Stock*					*Additional*						*Accumulated Other*
						*Paid-In*			*Retained*			*Comprehensive*
	*Shares*			*Amount*		*Capital*			*Earnings*			*Loss*			*Total*				Common Stock			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Total
																			Shares	Amount
Balance at January 1, 2022		27,465,945			28		468,548			376,734			(16,817	)		828,493

Balance at December 31, 2022																		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	)	Common shares issued on exercise of options and other, net of shares withheld for tax obligations	26,798	-		(401)			-		-		(401)
Stock-based compensation expense		-			-		4,397			-			-			4,397		Stock-based compensation expense	-	-		3,695			-		-		3,695
Repurchases of common stock		0			-		-			-			-			-
Repurchases of common stock and other																		Repurchases of common stock and other	(712,500)	(1)		(11,849)			(9,475)		-		(21,325)
Net income		-			-		-			5,095			-			5,095		Net income	-	-		-			2,659		-		2,659
Other comprehensive loss
Other comprehensive income																		Other comprehensive income
Foreign currency translation adjustment		-			-		-			-			(4,972	)		(4,972	)	Foreign currency translation adjustment	-	-		-			-		527		527
Net unrealized gains (losses) on investments in securities		-			-		-			-			(516	)		(516	)	Net unrealized gains (losses) on investments in securities	-	-		-			-		334		334
Comprehensive loss					0		0			0			0			(393	)
Balance at March 31, 2022		27,493,661		$	28	$	472,483		$	381,829		$	(22,305	)	$	832,035
Comprehensive income																		Comprehensive income											3,520
Balance at March 31, 2023																		Balance at March 31, 2023	26,202,723	$	26	$	465,185		$	251,420	$	(33,494)	$	683,137
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		Common shares issued on exercise of options and other, net of shares withheld for tax obligations	169,229	-		962			-		-		962
Stock-based compensation expense		-			0		4,031			0			0			4,031		Stock-based compensation expense	-	-		3,675			-		-		3,675
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
Repurchases of common stock and other																		Repurchases of common stock and other	(276,518)	-		(4,872)			(4,107)		-		(8,979)
Net loss																		Net loss	-	-		-			(383)		-		(383)
Other comprehensive income																		Other comprehensive income
Foreign currency translation adjustment		-			0		0			0			(13,515	)		(13,515	)	Foreign currency translation adjustment	-	-		-			-		4,254		4,254��
Net unrealized gains (losses) on investments in securities		-			0		0			0			(329	)		(329	)	Net unrealized gains (losses) on investments in securities	-	-		-			-		19		19
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
Comprehensive income																		Comprehensive income											3,890
Balance at June 30, 2023																		Balance at June 30, 2023	26,095,434	$	26	$	464,950		$	246,930	$	(29,221)	$	682,685

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

Balance at January 1, 2021		26,776,796			27		284,848			362,901			(3,420	)		644,356
Balance at December 31, 2021																		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	)	Common shares issued on exercise of options and other, net of shares withheld for tax obligations	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		Stock-based compensation expense	-	-		4,397		-		-		4,397
Repurchases of common stock		0			-		-			-			-			-		Repurchases of common stock	-	-		-		-		-		-
Net income		-			-		-			3,712			-			3,712		Net income	-	-		-		5,095		-		5,095
Other comprehensive loss																		Other comprehensive loss
Foreign currency translation adjustment		-			-		-			-			(6,842	)		(6,842	)	Foreign currency translation adjustment	-	-		-		-		(4,972)		(4,972)
Net unrealized gains (losses) on investments in securities		-			-		-			-			166			166		Net unrealized gains (losses) on investments in securities	-	-		-		-		(516)		(516)
Comprehensive loss					0		0			0			0			(2,964	)	Comprehensive loss										(393)
Balance at March 31, 2021		27,689,746		$	28	$	456,886		$	366,613		$	(10,096	)	$	813,431
Balance at March 31, 2022																		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		85,317			0		(81	)		0			0			(81	)	Common shares issued on exercise of options and other, net of shares withheld for tax obligations	122,705	-		1,158		-		-		1,158
Stock-based compensation expense		-			0		4,941			0			0			4,941		Stock-based compensation expense	-	-		4,031		-		-		4,031
Repurchases of common stock		(14,000	)		0		(149	)		(1,061	)		0			(1,210	)	Repurchases of common stock	(113,266)	-		(1,932)		(3,307)		-		(5,239)
Net income		-			0		0			12,915			0			12,915		Net income	-			-		2,557		-		2,557
Other comprehensive income
Other comprehensive loss																		Other comprehensive loss
Foreign currency translation adjustment		-			0		0			0			2,030			2,030		Foreign currency translation adjustment	-	-		-		-		(13,515)		(13,515)
Net unrealized gains (losses) on investments in securities		-			0		0			0			(49	)		(49	)	Net unrealized gains (losses) on investments in securities	-	-		-		-		(329)		(329)
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
Comprehensive loss																		Comprehensive loss										(11,287)
Balance at June 30, 2022																		Balance at June 30, 2022	27,503,100	$	28	$	475,740	$	381,079	$	(36,149)	$	820,698

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

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

Table of Contents

Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

~~Proto Labs, Inc.~~

~~Consolidated Statements of Cash Flows~~

~~(In thousands)~~

~~(Unaudited)~~

Six Months Ended

June 30,

2022

2021

Operating activities

Net income
$ 7,652 $ 16,627
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
20,274 20,127
Stock-based compensation expense
8,428 10,561
Deferred taxes
(5,653 ) 419
Fair value of contingent consideration
0 (7,763 )
Impairments related to closure of Japan business
1,792 0
Other
32 269
Changes in operating assets and liabilities:

Accounts receivable
(5,748 ) (23,296 )
Inventories
(1,783 ) 1,727
Prepaid expenses and other
(298 ) 1,810
Income taxes
(1,250 ) (4,015 )
Accounts payable
(521 ) 5,011
Accrued liabilities and other
8,115 (748 )
Net cash provided by operating activities
31,040 20,729

Investing activities

Purchases of property, equipment and other capital assets
(6,030 ) (23,929 )
Cash used for acquisitions, net of cash acquired
0 (127,413 )
Purchases of marketable securities
(38,882 ) (15,159 )
Proceeds from sales of marketable securities
1,000 47,694
Proceeds from call redemptions and maturities of marketable securities
7,396 13,725
Net cash used in investing activities
(36,516 ) (105,082 )

Financing activities

Proceeds from exercises of stock options
2,311 3,838
Purchases of shares withheld for tax obligations
(1,615 ) (4,209 )
Repurchases of common stock
(5,239 ) (1,210 )
Principal repayments of finance lease obligations
(278 ) (275 )
Net cash used in financing activities
(4,821 ) (1,856 )
Effect of exchange rate changes on cash and cash equivalents
(966 ) 515
Net decrease in cash and cash equivalents
(11,263 ) (85,694 )
Cash and cash equivalents, beginning of period
65,929 127,603
Cash and cash equivalents, end of period
$ 54,666 $ 41,909
(Unaudited)

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



	Six Months Ended June 30,
	2023		2022

Operating activities
Net income	$	2,276	$	7,652
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18,883		20,274
Stock-based compensation expense	7,370		8,428
Deferred taxes	(5,605)		(5,653)
Interest on finance lease obligations	568		-
Loss on foreign currency translation	3,906		-
Impairments related to closure of Japan business	-		1,792
Gain on disposal of property and equipment	(428)		-
Other	215		32
Changes in operating assets and liabilities:
Accounts receivable	1,106		(5,748)
Inventories	(551)		(1,783)
Prepaid expenses and other	4,193		(298)
Income taxes	3,524		(1,250)
Accounts payable	(961)		(521)
Accrued liabilities and other	(2,629)		8,115
Net cash provided by operating activities	31,867		31,040

Investing activities
Purchases of property, equipment and other capital assets	(6,829)		(6,030)
Proceeds from sales of property, equipment and other capital assets	623		-
Purchases of marketable securities	-		(38,882)
Proceeds from sales of marketable securities	-		1,000
Proceeds from call redemptions and maturities of marketable securities	14,020		7,396
Net cash provided by (used in) investing activities	7,814		(36,516)

Financing activities
Proceeds from exercises of stock options	1,986		2,311
Purchases of shares withheld for tax obligations	(1,425)		(1,615)
Repurchases of common stock	(30,064)		(5,239)
Principal repayments of finance lease obligations	(163)		(278)
Net cash used in financing activities	(29,666)		(4,821)
Effect of exchange rate changes on cash and cash equivalents	(80)		(966)
Net increase (decrease) in cash and cash equivalents	9,935		(11,263)
Cash and cash equivalents, beginning of period	56,558		65,929
Cash and cash equivalents, end of period	$	66,493	$	54,666

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

Table of Contents

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-Q10-Q and Article 10 of Regulation S-X.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 maybe 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-K10-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-Q10-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-K10-K filed on February ~~18, 2022~~ 21, 2023as 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 (Loss) Income per Common Share

Basic net (loss) income per share is computed based on the weighted-average number of common shares outstanding. Diluted net (loss) 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,~~ ~~220,776 and 208,840 anti-dilutive~~Anti-dilutive options were excluded from the calculation of diluted weighted average shares ~~outstanding.~~

outstanding and were 380,848 and 220,776 for the three months ended June 30, 2023and 2022, respectively, and 407,119 and 208,840 for the six months ended June 30, 2023 and 2022, respectively.

Table of Contents

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

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands, except share and per share amounts)

2022

2021

2022

2021

Net income
$ 2,557 $ 12,915 $ 7,652 $ 16,627

Basic - weighted-average shares outstanding:
27,530,739 27,735,732 27,515,583 27,600,684
Effect of dilutive securities:

Employee stock options and other
6,084 9,138 8,436 140,780
Diluted - weighted-average shares outstanding:
27,536,823 27,744,870 27,524,019 27,741,464
Net income per share:

Basic
$ 0.09 $ 0.47 $ 0.28 $ 0.60
Diluted
$ 0.09 $ 0.47 $ 0.28 $ 0.60



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share and per share amounts)	2023		2022		2023		2022
Net (loss) income	$	(383)	$	2,557	$	2,276	$	7,652

Basic - weighted-average shares outstanding:	26,210,478		27,530,739		26,414,467		27,515,583
Effect of dilutive securities:
Employee stock options and other1	—		6,084		30,960		8,436
Diluted - weighted-average shares outstanding:	26,210,478		27,536,823		26,445,427		27,524,019
Net (loss) income per share:
Basic	$	(0.01)	$	0.09	$	0.09	$	0.28
Diluted	$	(0.01)	$	0.09	$	0.09	$	0.28


1 For the three months ended June 30, 2023, 14,084 of dilutive securities for employee stock options and other were not included in the diluted weighted average shares outstanding due to the net loss for the three months ended June 30, 2023.

~~Table of Contents~~

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 three and six months ended June 30, 2023.

Intangible assets other than goodwill at June 30, 2023 and December 31, 2022 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~~



	June 30, 2023						December 31, 2022						Useful Life (in years)	Weighted Average Useful Life Remaining (in years)
(in thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Intangible assets with finite lives:
Marketing assets	$	930	$	(852)	$	78	$	930	$	(806)	$	124	10.0	0.8
Non-compete agreement	832		(545)		287		828		(487)		341		2.0 - 5.0	1.8
Software technology	13,229		(7,068)		6,161		13,229		(6,383)		6,846		10.0	4.5
Software platform	26,247		(5,510)		20,737		26,054		(4,337)		21,717		12.0	9.6
Tradenames	352		(286)		66		350		(227)		123		3.0	0.6
Customer relationships	12,213		(11,189)		1,024		12,197		(10,098)		2,099		3.0 - 9.0	0.4
Total intangible assets	$	53,803	$	(25,450)	$	28,353	$	53,588	$	(22,338)	$	31,250

Intangible 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~~ ~~and~~ ~~December 31, 2021~~ ~~were as follows:~~

June 30, 2022

December 31, 2021

Useful

Weighted Average

(in thousands)

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
Non-compete agreement
822 (423 ) 399 842 (363 ) 479 2.0 - 5.0 2.5
Software technology
13,229 (5,699 ) 7,530 13,229 (5,014 ) 8,215 10.0 6.0
Software platform
25,777 (3,239 ) 22,538 26,725 (2,262 ) 24,463 12.0 10.6
Tradenames
346 (167 ) 179 359 (114 ) 245 3.0 1.6
Customer relationships
12,174 (8,965 ) 3,209 12,252 (7,873 ) 4,379 3.0 - 9.0 1.3
Total intangible assets
$ 53,278 $ (19,252 ) $ 34,026 $ 54,337 $ (16,339 ) $ 37,998

~~Intangible assets have been allocated to the acquired Hubs entities consisting~~consisted of intangible assets of ~~€11.6~~€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~~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~~ 2023 and ~~2021~~,2022 and $3.1 million ~~and $3.0 million~~ for each of the six months ended June 30, 2023 and 2022, ~~and~~ ~~2021,~~respectively.

Table of Contents

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

Remaining 2022
$ 3,029
2023
5,855
2024
3,706
2025
3,608
2026
3,508
Thereafter
14,320
Total estimated amortization expense
$ 34,026



(in thousands)	Estimated Amortization Expense
Remaining 2023	$	2,894
2024	3,741
2025	3,644
2026	3,542
2027	3,533
Thereafter	10,999
Total estimated amortization expense	$	28,353

~~Table of Contents~~

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~~)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 maybe used to measure fair value:

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

Level 2—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—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)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)2).

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



	June 30, 2023						December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash	$	56,768	$	-	$	-	$	38,862	$	-	$	-
Money market mutual fund	9,725		-		-		17,696		-		-
Marketable securities	5,457		30,832		-		9,881		40,106		-
Total	$	71,950	$	30,832	$	-	$	66,439	$	40,106	$	-

June 30, 2022

December 31, 2021

(in thousands)

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Financial Assets:

Cash
$ 44,886 $ 0 $ 0 $ 65,637 $ 0 $ 0
Money market mutual fund
9,780 0 0 292 0 0
Marketable securities
15,851 39,596 0 7,602 18,318 0
Total
$ 70,517 $ 39,596 $ 0 $ 73,531 $ 18,318 $ 0

Table of Contents

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~~2023 and December 31, ~~2021~~:

June 30, 2022

(in thousands)

Cost

Unrealized Gains

Unrealized Losses

Fair Value

U.S. municipal securities
$ 17,893 $ 0 $ (365 ) $ 17,528
Corporate debt securities
12,299 0 (234 ) 12,065
U.S. government agency securities
22,284 2 (355 ) 21,931
Certificates of deposit/time deposits
941 0 (6 ) 935
Commercial paper
2,994 0 (6 ) 2,988
Total marketable securities
$ 56,411 $ 2 $ (966 ) $ 55,447

2022:



	June 30, 2023
(in thousands)	Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. municipal securities	$	12,229	$	-	$	(293)	$	11,936
Corporate debt securities	4,050		-		(93)		3,957
U.S. government agency securities	20,787		-		(637)		20,150
Certificates of deposit/time deposits	249		-		(3)		246
Total marketable securities	$	37,315	$	-	$	(1,026)	$	36,289



	December 31, 2022
(in thousands)	Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. municipal securities	$	15,574	$	-	$	(417)	$	15,157
Corporate debt securities	9,578		-		(205)		9,373
U.S. government agency securities	25,275		-		(750)		24,525
Certificates of deposit/time deposits	939		-		(7)		932
Total marketable securities	$	51,366	$	-	$	(1,379)	$	49,987

~~Table of Contents~~

December 31, 2021

(in thousands)

Cost

Unrealized Gains

Unrealized Losses

Fair Value

U.S. municipal securities
$ 12,549 $ 0 $ (70 ) $ 12,479
Corporate debt securities
9,303 0 (44 ) 9,259
U.S. government agency securities
2,500 0 (12 ) 2,488
Certificates of deposit/time deposits
1,687 7 0 1,694
Commercial paper
0 0 0 0
Total marketable securities
$ 26,039 $ 7 $ (126 ) $ 25,920

Fair values for the corporate debt securities are primarily determined based on quoted market prices (Level 1)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)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~~2023 balance of available-for-sale debt securities by contractual maturity is shown in the following table at fair value. Actual maturities maydiffer from contractual maturities because the issuers of the securities mayhave the right to prepay obligations without prepayment penalties.

June 30,

(in thousands)
2022
Due in one year or less
$ 24,379
Due after one year through five years
31,068
Total marketable securities
$ 55,447



(in thousands)	June 30, 2023
Due in one year or less	$	19,945
Due after one year through five years	16,344
Total marketable securities	$	36,289

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~~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.

Table of Contents

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

June 30,

December 31,

(in thousands)
2022 2021
Total inventory
$ 15,817 $ 13,474
Allowance for obsolescence
(766 ) (313 )
Inventory, net of allowance
$ 15,051 $ 13,161



(in thousands)	June 30, 2023		December 31, 2022
Total inventory	$	14,855	$	13,965
Allowance for obsolescence	(544)		(387)
Inventory, net of allowance	$	14,311	$	13,578

~~Table of Contents~~

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.~~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.~~ 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, 2022will 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 committeemayprovide 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~~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~~$4.0 million for the three months ended June 30, ~~2022~~2023 and ~~2021~~,2022, respectively, and ~~$8.4~~$7.4 million and ~~$10.6~~$8.4 million for the six months ended June 30, ~~2022~~ 2023 and ~~2021,~~ ~~respectively.~~

2022.

Table of Contents

Stock Options

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

Weighted-

Average

Stock Options

Exercise Price

Options outstanding at December 31, 2021
233,384 $ 97.78
Granted
52,992 59.40
Exercised
(3,114 ) 30.58
Forfeited
(34,075 ) 90.61
Expired
(28,411 ) 84.92
Options outstanding at June 30, 2022
220,776 $ 92.28

Exercisable at June 30, 2022
113,652 $ 92.57

2023:



	Stock Options	Weighted- Average Exercise Price
Options outstanding at December 31, 2022	263,992	$	79.07
Granted	186,804	33.36
Exercised	-	-
Forfeited	(35,702)	63.70
Expired	(15,848)	55.67
Options outstanding at June 30, 2023	399,246	$	59.99

Exercisable at June 30, 2023	125,050	$	90.81

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 months ended June 30, ~~2022~~2023 was ~~$27.84.~~

$16.36.

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

Six Months Ended June 30,

2022

2021

Risk-free interest rate

1.94%

0.80% - 1.12%

Expected life (years)
6.25 6.25
Expected volatility

45.95%

45.28 - 45.35%

Expected dividend yield

0%

0%

2022:



	Six Months Ended June 30,
	2023	2022
Risk-free interest rate	3.90% - 4.55%	1.94%
Expected life (years)	2.00 - 6.25	6.25
Expected volatility	49.23% - 55.92%	45.95%
Expected dividend yield	0%	0%

As of June 30, ~~2022~~,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.

~~Table of Contents~~

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.

Table of Contents

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

Weighted-

Average

Grant Date

Restricted

Fair Value

Stock

Per Share

Restricted stock at December 31, 2021
343,782 $ 111.79
Granted
44,782 59.40
Restrictions lapsed
(119,315 ) 105.06
Forfeited
(32,814 ) 107.48
Restricted stock at June 30, 2022
236,435 $ 105.90

2023:



	Restricted Stock	Weighted- Average Grant Date Fair Value Per Share
Restricted stock at December 31, 2022	478,596	$	70.36
Granted	406,150	32.50
Restrictions lapsed	(135,687)	80.02
Forfeited	(65,821)	70.09
Restricted stock at June 30, 2023	683,238	$	45.88

As of June 30, ~~2022~~,2023, there was ~~$18.8~~$25.3 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~~2.9 years.

~~Table of Contents~~

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~~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 months ended June 30, ~~2022~~:

2023:



	Performance Stock	Weighted- Average Grant Date Fair Value Per Share
Performance stock at December 31, 2022	35,802	$	77.91
Granted	71,295	57.79
Restrictions lapsed	-	-
Performance change	-	-
Forfeited	-	-
Performance stock at June 30, 2023	107,097	$	74.08

Weighted-

Average

Grant Date

Performance

Fair Value

Stock

Per Share

Performance stock at December 31, 2021
16,839 $ 115.56
Granted
32,620 100.33
Restrictions lapsed
0 0
Performance change
0 0
Forfeited
(3,578 ) 121.79
Performance stock at June 30, 2022
45,881 $ 113.25

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

Six Months Ended June 30,

2022

2021

Risk-free interest rate

1.76%

0.22%

Expected life (years)
2.87 2.87
Expected volatility

53.50%

51.40%

Expected dividend yield

0%

0%

2022:



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

As of June 30, ~~2022~~,2023, there was ~~$3.0~~$5.5 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~~2.3 years.

Employee Stock Purchase Plan

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

Six Months Ended June 30,

2022

2021

Risk-free interest rate

0.17 - 2.06%

0.06 - 0.12%

Expected life (months)
6.00 6.00
Expected volatility

47.05 - 53.44%

50.85 - 65.53%

Expected dividend yield

0%

0%

2022:

Six Months Ended
June 30,
2023 2022
Risk-free interest rate 4.60 - 4.82% 0.17 - 2.06%
Expected life (months) 6.00 6.00
Expected volatility 47.38 - 67.84% 47.05 - 53.44%
Expected dividend yield 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. During the three and six months ended June 30, 2023 we recognized a $3.9 million foreign currency translation loss from the substantial completion on the closure of our Japan business.

The following table presents the changes in accumulated other comprehensive income (loss) balances during the three and six months ended June 30, ~~2022~~2023 and ~~2021~~:

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2022

2021

2022

2021

Balance at beginning of period
$ (22,305 ) $ (10,096 ) $ (16,817 ) $ (3,420 )
Foreign currency translation adjustments

Other comprehensive income (loss) before reclassifications
(13,515 ) 2,030 (18,487 ) (4,812 )
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 )
Net unrealized gains (losses) on investments in securities

Other comprehensive income (loss) before reclassifications
(329 ) (49 ) (845 ) 117
Amounts reclassified from accumulated other comprehensive loss
0 0 0 0
Net current-period other comprehensive income (loss)
(329 ) (49 ) (845 ) 117
Balance at end of period
$ (36,149 ) $ (8,115 ) $ (36,149 ) $ (8,115 )

2022:



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022

Balance at beginning of period	$	(33,494)	$	(22,305)	$	(34,355)	$	(16,817)
Foreign currency translation adjustments
Other comprehensive income (loss) before reclassifications	348		(13,515)		875		(18,487)
Amounts reclassified from accumulated other comprehensive loss	3,906		-		3,906		-
Net current-period other comprehensive income (loss)	4,254		(13,515)		4,781		(18,487)
Net unrealized gains (losses) on investments in securities
Other comprehensive income (loss) before reclassifications	19		(329)		353		(845)
Amounts reclassified from accumulated other comprehensive loss	-		-		-		-
Net current-period other comprehensive income (loss)	19		(329)		353		(845)
Balance at end of period	$	(29,221)	$	(36,149)	$	(29,221)	$	(36,149)

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~~2023 and ~~2021~~,2022, the Company recorded an income tax provision of $2.6 million and ~~$3.3~~$2.6 million, respectively. For the six months ended June 30, ~~2022~~ 2023 and ~~2021,~~2022, the Company recorded an income tax provision of ~~$5.1~~$5.0 million and ~~$3.6~~$5.1 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~~2023 was ~~50.8~~117.1 percent compared to ~~20.5~~50.8 percent in the same period of the prior year. The effective tax rate increased by ~~30.3~~66.3 percent for the three months ended June 30, ~~2022~~2023 when compared to the same period in ~~2021~~,2022, primarily due to ~~a decrease in~~the tax ~~benefits~~impact of the foreign currency translation loss from the ~~vesting~~substantial completion on the closure of ~~restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily~~our Japan ~~that are~~ ~~not~~ ~~eligible for tax benefits due to valuation allowances.~~business. The effective income tax rate for the six months ended June 30, ~~2022~~2023 was ~~40.2~~68.7 percent compared to ~~17.6~~40.2 percent in the same period of the prior year. The effective tax rate increased by ~~22.6~~28.5 percent for the six months ended June 30, ~~2022~~2023 when compared to the same period in ~~2021~~,2022, primarily due to ~~a decrease in~~the tax ~~benefits~~impact of the foreign currency translation loss from the ~~vesting~~substantial completion on the closure of ~~restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily~~our Japan ~~that are~~ ~~not~~ ~~eligible for tax benefits due to valuation allowances.~~

business.

The effective income tax rate for the three and six months ended June 30, ~~2022~~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~~$3.6 million as of June 30, ~~2022~~2023 and ~~$4.4~~$3.2 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

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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~~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 June 30,

Six Months Ended June 30,

(in thousands)

2022

2021

2022

2021

Income (Loss) from Operations:

United States
$ 26,168 $ 26,280 $ 48,691 $ 48,783
Europe
(2,249 ) 5,063 (3,928 ) 3,692
Corporate Unallocated and Japan
(18,718 ) (15,239 ) (31,672 ) (32,110 )
Total Income from Operations
$ 5,201 $ 16,104 $ 13,091 $ 20,365



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Revenue:
United States	$	96,321	$	100,655	$	194,067	$	196,151
Europe	25,944		23,391		54,057		47,977
Japan	-		2,856		-		6,942
Total revenue	$	122,265	$	126,902	$	248,124	$	251,070



	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Income (Loss) from Operations:
United States	$	22,053	$	26,168	$	42,534	$	48,691
Europe	(3,380)		(2,249)		(5,863)		(3,928)
Corporate Unallocated and Japan	(13,065)		(18,718)		(27,314)		(31,672)
Total Income from Operations	$	5,608	$	5,201	$	9,357	$	13,091

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



(in thousands)	June 30, 2023		December 31, 2022
Total long-lived assets:
United States	$	194,656	$	203,816
Europe	53,958		53,835
Japan	-		134
Total Long-lived Assets	$	248,614	$	257,785

June 30,

December 31,

(in thousands)
2022 2021
Total long-lived assets:

United States
$ 205,090 $ 215,701
Europe
52,880 59,388
Japan
2,661 5,257
Total Long-lived Assets
$ 260,631 $ 280,346

~~The Company's decision to exit Japan resulted in a $1.2 million impairment~~

Table 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.~~

Contents

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

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2022

2021

2022

2021

Revenue:

Injection Molding
$ 53,355 $ 58,168 $ 106,753 $ 114,527
CNC Machining
48,222 41,592 94,320 78,295
3D Printing
19,963 18,170 39,635 35,405
Sheet Metal
5,160 4,717 9,847 9,936
Other Revenue
202 401 515 1,011
Total revenue
$ 126,902 $ 123,048 $ 251,070 $ 239,174



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Revenue:
Injection Molding	$	48,819	$	53,355	$	100,767	$	106,753
CNC Machining	48,297		48,222		96,401		94,320
3D Printing	21,005		19,963		42,330		39,635
Sheet Metal	3,939		5,160		8,187		9,847
Other Revenue	205		202		439		515
Total Revenue	$	122,265	$	126,902	$	248,124	$	251,070

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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

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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.~~

•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,~~2023, we served ~~24,058~~23,377 unique product developers and engineers who purchased our products through our web-based customer interface, ~~an increase~~a decrease of ~~3.4%~~2.8% over the same period in ~~2021.~~2022. During the six months ended June 30, ~~2022,~~2023, we served ~~36,878~~35,743 unique product developers and engineers who purchased our products through our web-based customer interface, ~~an increase~~a decrease of ~~5.2%~~3.1% over the same period in ~~2021.~~

2022.

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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

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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
(dollars in thousands)
2022

2021

$

%

2022

2021

$

%
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
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
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
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
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)
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)
Closure of Japan business
5,194 4.1 - - 5,194 100.0
5,194
2.1 - - 5,194 100.0
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
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)
Other income (loss), net
1 0.0 137 0.1 (136 ) (99.3 )
(299)
(0.1 ) (176 ) (0.1) (123 ) 69.9
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)
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
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)%



	Three Months Ended June 30,								Change				Six Months Ended June 30,								Change
(dollars in thousands)	2023				2022				$		%		2023				2022				$		%
Revenue	$	122,265	100.0		$	126,902	100.0		$	(4,637)	(3.7)		$	248,124	100.0		$	251,070	100.0		$	(2,946)	(1.2)
Cost of revenue	69,142		56.6		69,480		54.8		(338)		(0.5)		141,225		56.9		137,844		54.9		3,381		2.5
Gross profit	53,123		43.4		57,422		45.2		(4,299)		(7.5)		106,899		43.1		113,226		45.1		(6,327)		(5.6)
Operating expenses
Marketing and sales	21,730		17.8		21,055		16.6		675		3.2		44,181		17.8		41,641		16.6		2,540		6.1
Research and development	9,865		8.1		9,450		7.4		415		4.4		20,542		8.3		20,007		8.0		535		2.7
General and administrative	15,822		12.9		16,522		13.0		(700)		(4.2)		32,655		13.2		33,293		13.3		(638)		(1.9)
Closure of Japan business	98		0.1		5,194		4.1		(5,096)		(98.1)		164		0.1		5,194		2.1		(5,030)		(96.8)
Total operating expenses	47,515		38.9		52,221		41.2		(4,706)		(9.0)		97,542		39.3		100,135		39.9		(2,593)		(2.6)
Income from operations	5,608		4.6		5,201		4.1		407		7.8		9,357		3.8		13,091		5.2		(3,734)		(28.5)
Other (loss) income, net	(3,368)		(2.8)		1		—		(3,369)		(336,900.0)		(2,078)		(0.8)		(299)		(0.1)		(1,779)		595.0
Income before income taxes	2,240		1.8		5,202		4.1		(2,962)		(56.9)		7,279		2.9		12,792		5.1		(5,513)		(43.1)
Provision for income taxes	2,623		2.1		2,645		2.1		(22)		(0.8)		5,003		2.0		5,140		2.0		(137)		(2.7)
Net (loss) income	$	(383)	(0.3	%)	$	2,557	2.0	%	$	(2,940)	(115.0)	%	$	2,276	0.9	%	$	7,652	3.0	%	$	(5,376)	(70.3)	%

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

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

2022

2021

2022

2021

Stock options, restricted stock and performance stock
$ 3,668 $ 4,563 $ 7,674 $ 9,854
Employee stock purchase plan
363 378 754 707
Total stock-based compensation expense
$ 4,031 $ 4,941 $ 8,428 $ 10,561

Cost of revenue
$ 528 $ 668 $ 1,115 $ 1,303
Operating expenses:

Marketing and sales
813 929 1,550 1,782
Research and development
471 744 1,100 1,368
General and administrative
2,219 2,600 4,663 6,108
Total stock-based compensation expense
$ 4,031 $ 4,941 $ 8,428 $ 10,561



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2023		2022		2023		2022
Stock options, restricted stock and performance stock	$	3,267	$	3,668	$	6,588	$	7,674
Employee stock purchase plan	408		363		782		754
Total stock-based compensation expense	$	3,675	$	4,031	$	7,370	$	8,428

Cost of revenue	$	461	$	528	$	926	$	1,115
Operating expenses:
Marketing and sales	855		813		1,548		1,550
Research and development	641		471		1,213		1,100
General and administrative	1,718		2,219		3,683		4,663
Total stock-based compensation expense	$	3,675	$	4,031	$	7,370	$	8,428

1920

Table of Contents

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

2022

Revenue

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

Three Months Ended June 30,

2022

2021

Change

(dollars in thousands)

$

% of Total Revenue

$

% of Total Revenue

$

%

Revenue

United States
$ 100,655 79.3 % $ 95,344 77.5 % $ 5,311 5.6 %
Europe
23,391 18.4 24,655 20.0 (1,264 ) (5.1 )
Japan
2,856 2.3 3,049 2.5 (193 ) (6.3 )
Total revenue
$ 126,902 100.0 % $ 123,048 100.0 % $ 3,854 3.1 %



	Three Months Ended June 30,
	2023				2022				Change
(dollars in thousands)	$		% of Total Revenue		$		% of Total Revenue		$		%
Revenue:
United States	$	96,321	78.8	%	$	100,655	79.3	%	$	(4,334)	(4.3)	%
Europe	25,944		21.2	%	23,391		18.4	%	2,553		10.9
Japan	-		—	%	2,856		2.3	%	(2,856)		(100.0)
Total revenue	$	122,265	100.0	%	$	126,902	100.0	%	$	(4,637)	(3.7	%)

Our revenue ~~increased $3.9~~decreased $4.6 million, or ~~3.1%~~3.7%, for the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. By reportable segment, revenue in the United States ~~increased $5.3~~decreased $4.3 million, or ~~5.6%~~4.3%, for the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. Revenue in Europe ~~decreased $1.3~~increased $2.6 million, or ~~5.1%~~10.9%, and revenue in Japan decreased ~~$0.2~~$2.9 million, or ~~6.3%,~~100.0% in each case for the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021. Our acquisition~~2022. The decrease in Japan revenue was driven by our decision in the second quarter of 2022 to close our Japan operations. Revenue generated from our digital network powered by Hubs ~~provided revenue of $5.9~~was $20.2 million and ~~$4.6~~$11.3 million ~~in the United States and $5.4 million and $4.3 million in Europe~~ for ~~each of~~ the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. International revenue was negatively impacted by ~~$2.7~~$0.5 million ~~during the~~during three months ended June 30, ~~2022~~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,~~2023, we served ~~24,058~~23,377 unique product developers and engineers, ~~an increase~~which is a decrease of ~~3.4% over~~2.8% from the same period in ~~2021.~~2022. Our ~~growth~~decline in product developers and engineers served ~~increased~~decreased at a lesser rate ~~consistent with~~than our revenue ~~growth.~~

decline, 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, ~~2022~~2023 and ~~2021~~2022 were as follows:

Three Months Ended June 30,

2022

2021

Change

(dollars in thousands)

$

% of Total Revenue

$

% of Total Revenue

$

%

Revenue

Injection Molding
$ 53,355 42.0 % $ 58,168 47.3 % $ (4,813 ) (8.3 )%
CNC Machining
48,222 38.0 41,592 33.8 6,630 15.9
3D Printing
19,963 15.7 18,170 14.8 1,793 9.9
Sheet Metal
5,160 4.1 4,717 3.8 443 9.4
Other Revenue
202 0.2 401 0.3 (199 ) (49.6 )
Total revenue
$ 126,902 100.0 % $ 123,048 100.0 % $ 3,854 3.1 %



	Three Months Ended June 30,
	2023				2022				Change
(dollars in thousands)	$		% of Total Revenue		$		% of Total Revenue		$		%
Revenue:
Injection Molding	$	48,819	39.9	%	$	53,355	42.0	%	$	(4,536)	(8.5)	%
CNC Machining	48,297		39.5		48,222		38.0		75		0.2
3D Printing	21,005		17.2		19,963		15.7		1,042		5.2
Sheet Metal	3,939		3.2		5,160		4.1		(1,221)		(23.7)
Other Revenue	205		0.2		202		0.2		3		1.5
Total Revenue	$	122,265	100.0	%	$	126,902	100.0	%	$	(4,637)	(3.7)	%

By product line, our revenue ~~increase~~decrease was driven by a ~~15.9% increase~~8.5% decrease in ~~CNC Machining revenue, a 9.9% increase in 3D Printing~~Injection Molding revenue and a ~~9.4% increase~~23.7% decrease in Sheet Metal revenue, which was partially offset by ~~an 8.3% decrease~~a 0.2% increase in ~~Injection Molding~~CNC Machining revenue, a 5.2% increase in 3D Printing revenue and a ~~49.6% decrease~~1.5% increase in Other Revenue, in each case for the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~

2022.

2021

Table of Contents

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue ~~increased $3.1~~decreased $0.3 million, or ~~4.6%~~0.5%, for the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022, which was ~~greater~~less than the rate of revenue ~~increase~~decrease of ~~3.1%~~3.7% for the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021. Cost~~2022. The decrease in the cost of ~~revenue increased $2.6~~revenue of $0.3 million ~~in our digital manufacturing business, which~~ was primarily driven by ~~increased volumes~~reduced headcount and decreases in overtime and contract labor ~~shortages resulting in wage inflation, driving~~expense and led to lower personnel and related ~~cost~~costs of $3.8 million, which were partly offset by increases ~~of $0.7 million, an increase~~ in raw material and product costs of ~~$1.8~~$3.5 million primarily driven by ~~materials cost inflation and~~ higher ~~logistics costs, and an increase~~revenue volumes in ~~equipment and facility related costs of $0.1 million. Hubs provided a $0.5 million increase in cost of revenue for~~our digital network offering during the three months ended June 30, ~~2022 when~~2023 compared to the same period in ~~2021.~~

2022.

Gross Profit and Gross Margin. Gross profit ~~increased~~decreased from ~~$56.6 million in the three months ended June 30, 2021 to~~ $57.4 million in the three months ended June 30, ~~2022. Gross margin decreased from 46.0%~~2022 to $53.1 million in the three months ended June 30, ~~2021 to~~2023. Gross margin decreased from 45.2% in the three months ended June 30, 2022 ~~primarily due~~ to ~~labor and materials cost inflation as described above and~~43.4% in the ~~mix of revenue.~~

three months ended June 30, 2023.

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

Marketing and Sales. Marketing and sales expenses ~~remained consistent~~increased $0.7 million, or 3.2%, during the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021. Personnel~~2022. The increase in marketing and sales expenses was primarily driven by increases in personnel and related ~~cost decreases in our digital manufacturing business~~costs of $0.5 million and marketing program cost ~~decreases in our digital manufacturing business~~increases of ~~$0.1 million were offset by increases in Hubs' marketing and sales expense of $0.6~~$0.2 million during the three months ended June 30, ~~2022~~2023 when compared to the same period in ~~2021.~~

2022.

Research and Development. Our research and development expenses ~~decreased $1.6~~increased $0.4 million, or ~~14.6%~~4.4%, during the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021~~2022 primarily due to increases of $0.5 million in personnel and related ~~cost~~costs, which were partially offset by decreases of ~~$1.6~~$0.1 million ~~driven by personnel and contractor resources dedicated to the launch of our Protolabs 2.0 system~~ in ~~the first quarter of 2021.~~

professional services.

General and Administrative. Our general and administrative expenses ~~increased $0.3~~decreased $0.7 million, or ~~2.1%~~4.2%, during the three months ended June 30, ~~2022~~2023 compared to the same period in ~~2021~~2022 primarily due to ~~an increase in~~decreases of $0.3 million stock based compensation costs and personnel and related costs of ~~$0.2~~$0.5 million, ~~and~~which were partially offset by an increase of $0.1 million in professional services ~~of $0.1 million.~~

and operating costs.

Closure of Japan business. Our decision to close our Japan business resulted in ~~$5.2~~$0.1 million in operating expenses during the three months ended June 30, 2023, a decrease of $5.1 million or 98.1% compared to the same period in 2022. ~~Operating expenses included~~During the three months ended June 30, 2022, we recognized $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.

Other (loss) income, net. We ~~had no expenses related to the closure~~recognized other loss, net 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~~$3.4 million ~~during~~for the three months ended June 30, ~~2021.~~

~~Other~~2023, a decrease of $3.4 million compared to other income, ~~(loss), net.~~ ~~We recognized no other~~net of zero for the three months ended June 30, 2022. Other income, net for the three months ended June 30, ~~2022,~~2023 primarily consisted of a ~~decrease~~$3.9 million foreign currency translation loss from the substantial completion on the closure of ~~$0.1~~our Japan business, partly offset by $0.5 million ~~compared to~~in interest income on investments and other ~~income, net of $0.1 million for the three months ended June 30, 2021.~~income. 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~~

Provision for Income Taxes. Our effective tax rate of 117.1% 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~~2023 increased ~~30.3%~~66.3% compared to ~~20.5%~~50.8% for the same period in ~~2021.~~2022. The increase in the effective tax rate is primarily due to ~~a decrease in tax benefits~~the foreign currency translation loss from the ~~vesting~~substantial completion on the closure of ~~restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily~~our Japan ~~that are~~business, which is not ~~eligible~~deductible for tax ~~benefits due to valuation allowances.~~purposes. Our income tax provision of $2.6 million for the three months ended June 30, ~~2022 decreased $0.7 million~~2023 was consistent as compared to ~~our income tax provision of $3.3 million for~~ the ~~three months ended June 30, 2021.~~

same period in 2022.

2122

Table of Contents

Comparison of Six Months Ended June 30, ~~2022~~2023 and ~~2021~~

2022

Revenue

Revenue by reportable segment and the related changes for the six months ended June 30, ~~2022~~2023 and ~~2021~~2022 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 %



	Six Months Ended June 30,
	2023				2022				Change
(dollars in thousands)	$		% of Total Revenue		$		% of Total Revenue		$		%
Revenue:
United States	$	194,067	78.2	%	$	196,151	78.1	%	$	(2,084)	(1.1)	%
Europe	54,057		21.8	%	47,977		19.1	%	6,080		12.7
Japan	-		—	%	6,942		2.8	%	(6,942)		(100.0)
Total revenue	$	248,124	100.0	%	$	251,070	100.0	%	$	(2,946)	(1.2	%)

Our revenue ~~increased $11.9~~decreased $2.9 million, or ~~5.0%~~1.2%, for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. By reportable segment, revenue in the United States ~~increased $9.8~~decreased $2.1 million, or ~~5.2%~~1.1%, for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. Revenue in Europe increased ~~$1.9~~$6.1 million, or ~~4.1%~~12.7%, and revenue in Japan ~~increased $0.3~~decreased $6.9 million, or ~~4.0%,~~100.0% in each case for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021. Our acquisition~~2022. The decrease in Japan revenue was driven by our decision in the second quarter of 2022 to close our Japan operations. Revenue generated from our digital network powered by Hubs ~~provided revenue of $10.6~~was $37.5 million and ~~$7.8~~$21.6 million ~~in the United States and $10.9 million and $6.9 million in Europe~~ for ~~each of~~ the six months ended June 30, 2023 and 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~~$3.0 million during ~~the~~ six months ended June 30, ~~2022~~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 six months ended June 30, ~~2022,~~2023, we served ~~36,878~~35,743 unique product developers and engineers, ~~an increase~~a decrease of ~~5.2% over~~3.1% from the same period in ~~2021.~~2022. Our ~~growth~~decrease in product developers and engineers served ~~increased~~decreased at a higher rate ~~consistent with~~than our revenue ~~growth.~~

decline, resulting in a decrease in the average spend per product developer and engineer.

Revenue by product line and the related changes for the six months ended June 30, ~~2022~~2023 and ~~2021~~2022 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 %



	Six Months Ended June 30,
	2023				2022				Change
(dollars in thousands)	$		% of Total Revenue		$		% of Total Revenue		$		%
Revenue:
Injection Molding	$	100,767	40.6	%	$	106,753	42.5	%	$	(5,986)	(5.6)	%
CNC Machining	96,401		38.9		94,320		37.6		2,081		2.2
3D Printing	42,330		17.1		39,635		15.8		2,695		6.8
Sheet Metal	8,187		3.3		9,847		3.9		(1,660)		(16.9)
Other Revenue	439		0.1		515		0.2		(76)		(14.8)
Total Revenue	$	248,124	100.0	%	$	251,070	100.0	%	$	(2,946)	(1.2)	%

By product line, our revenue ~~increase~~decrease 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%~~5.6% decrease in Injection Molding revenue, a ~~0.9%~~16.9% decrease in Sheet Metal revenue and a ~~49.1%~~14.8% decrease in Other Revenue, which was partially offset by a 2.2% increase in CNC Machining revenue and a 6.8% increase in 3D Printing revenue in each case for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021.~~

2022.

2223

Table of Contents

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased ~~$10.6~~$3.4 million, or ~~8.4%~~2.5%, for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021,~~2022, which was ~~greater~~higher than the rate of revenue ~~increase~~decrease of ~~5.0%~~1.2% for the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021. Cost~~2022. The increase in cost of revenue ~~increased $7.5~~of $3.4 million ~~in our digital manufacturing business, which~~ was primarily 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~~$9.0 million primarily driven by ~~materials cost inflation~~higher revenue volumes in our digital network offering, partly offset by reduced headcount and ~~higher logistics costs,~~decreases in overtime and ~~an increase in equipment~~contract labor expense and ~~facility~~led to lower personnel and related costs of ~~$0.4 million. Our acquisition of Hubs provided a $3.1~~$5.6 million ~~increase in cost of revenue for~~during the six months ended June 30, ~~2022 when~~2023 compared to the same period in ~~2021.~~

2022.

Gross Profit and Gross Margin. Gross profit ~~increased~~decreased 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%~~2022 to $106.9 million in the six months ended June 30, ~~2021 to~~2023. Gross margin decreased from 45.1% in the six months ended June 30, 2022 ~~primarily due~~ to ~~labor and materials cost inflation as described above and~~43.1% in the ~~mix of revenue.~~

six months ended June 30, 2023.

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

Marketing and Sales. Marketing and sales expenses increased ~~$1.1~~$2.5 million, or ~~2.8%~~6.1%, during the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021. Hubs provided a $1.2~~2022. The increase was driven by increases in personnel and related costs of $2.0 million ~~increase in marketing~~ and ~~sales expenses and our digital manufacturing business provided~~ marketing program cost increases of ~~$0.2~~$0.5 million during the six months ended June 30, ~~2022~~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 $0.5 million, or ~~13.9%~~2.7%, during the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021~~2022 primarily due to personnel and related cost ~~decreases~~increases of ~~$3.8~~$1.1 million, ~~driven by personnel and contractor resources dedicated to the launch and support of our Protolabs 2.0 system in the first quarter of 2021. The decrease was~~which were partially offset by adecreases in professional services and other operating costs of $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.~~

million.

General and Administrative. Our general and administrative expenses decreased ~~$2.3~~$0.6 million, or ~~6.4%~~1.9%, during the six months ended June 30, ~~2022~~2023 compared to the same period in ~~2021~~2022 primarily due to ~~a decrease~~decreases in stock based compensation costs of ~~$2.3~~$0.5 million ~~in professional service~~and personnel and related costs ~~primarily driven by increased transaction costs in 2021 related to our acquisition~~ of Hubs and a decrease of $1.3 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 in general and administrative expense during the six months ended June 30, 2022 when compared to the same period in 2021.

$0.1 million.

Closure of Japan business. Our decision to close our Japan business resulted in ~~$5.2~~$0.2 million in operating expenses during the six months ended June 30, 2023, a decrease of $5.0 million or 96.8% compared to the same period in 2022. ~~Operating expenses included~~During the six months ended June 30, 2022, we recognized $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.

Other loss, net. We ~~had no expenses related to the closure~~recognized other loss, net 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~~$2.1 million ~~during~~for the six months ended June 30, ~~2021.~~

~~Other Loss, net.~~ ~~We recognized~~2023, a increase of $1.8 million compared to other loss, net of $0.3 million for the six months ended June 30, ~~2022, a decrease of $0.1 million compared to other~~2022. Other loss, net ~~of $0.2 million~~ for the six months ended June 30, ~~2021.~~2023 primarily consisted of a $3.9 million foreign currency translation loss from the substantial completion on the closure of our Japan business, which was partially offset by $1.8 million in interest income on investments and other income. Other ~~loss,~~income, net for the six months ended June 30, 2022 primarily consisted of a $0.4 million loss on foreign currency, which was ~~partially~~ offset by $0.1 million in interest income on investments and other income. ~~Other loss, net~~

Provision for Income Taxes. Our effective tax rate of 68.7% for the six months ended June 30, ~~2021 primarily consisted of a $0.5 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.~~

~~Provision for Income Taxes.~~ ~~Our effective tax rate of 40.2% for the six months ended June 30, 2022~~2023 increased ~~22.6%~~28.5% compared to ~~17.6%~~40.2% for the same period in ~~2021.~~2022. The increase in the effective tax rate is primarily due to ~~a decrease in tax benefits~~the foreign currency translation loss from the ~~vesting~~substantial completion on the closure of ~~restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily~~our Japan ~~that are~~business, which is not ~~eligible~~deductible for tax ~~benefits due~~purposes. Our income tax provision of $5.0 million for the six months ended June 30, 2023 decreased $0.1 million compared to ~~valuation allowances. Our~~our income tax provision of $5.1 million for the six months ended June 30, ~~2022 increased $1.5 million compared to our income tax provision of $3.6 million for the six months ended June 30, 2021.~~

2022.

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Liquidity and Capital Resources

Cash Flows

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

Six Months Ended June 30,

(dollars in thousands)
2022 2021
Net cash provided by operating activities
$ 31,040 $ 20,729
Net cash used in investing activities
(36,516 ) (105,082 )
Net cash used in financing activities
(4,821 ) (1,856 )
Effect of exchange rates on cash and cash equivalents
(966 ) 515
Net decrease in cash and cash equivalents
$ (11,263 ) $ (85,694 )

2022:

Six Months Ended June 30,
(dollars in thousands) 2023 2022
Net cash provided by operating activities $ 31,867 $ 31,040
Net cash provided by (used in) investing activities 7,814 (36,516)
Net cash used in financing activities (29,666) (4,821)
Effect of exchange rate changes on cash and cash equivalents (80) (966)
Net increase (decrease) in cash and cash equivalents $ 9,935 $ (11,263)

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~~$66.5 million as of June 30, ~~2022, a decrease~~2023, an increase of ~~$11.3~~$9.9 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 $31.9 million and proceeds from call redemptions and maturities of marketable securities ~~net,~~ of ~~$30.5~~$14.0 million, which were partially offset by $6.8 million for purchases of property, equipment and other capital assets, and $30.1 million in repurchases of ~~$6.0~~common stock.

We believe that our existing cash and cash equivalents together with cash generated from operations 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 $31.9 million during the six months ended June 30, 2023 and primarily consisted of net income of $2.3 million, adjusted for certain non-cash items, including depreciation and amortization of $18.9 million, stock-based compensation expense of $7.4 million, interest on finance lease obligations of $0.6 million and ~~cash used~~changes in ~~financing activities of $4.8~~operating assets and liabilities and other items totaling $4.7 million, which were partially offset by ~~cash generated through operations~~deferred taxes of ~~$31.0~~$5.6 million.

~~Cash Flows from Operating Activities~~

Cash flows from operating activities were $31.0 million during the six months ended June 30, 2022 and primarily consisted of net income of $7.7 million, adjusted for certain non-cash items, including depreciation and amortization of $20.3 million and stock-based compensation expense of $8.4 million, and impairments related to the closure of our Japan business of $1.8 million, which were partially offset by deferred taxes of $5.7 million and changes in operating assets and liabilities and other items totaling $1.5 million.

Cash flows from operating activities ~~were $20.7~~increased $0.8 million during the six months ended June 30, ~~2021 and~~2023 compared to the same period in 2022, primarily ~~consisted~~due to increases in interest on finance lease obligations of ~~net income~~$0.6 million, foreign currency translation losses of $16.6 million, adjusted for certain non-cash items, including depreciation and amortization of $20.1 million and stock-based compensation expense of $10.6 million, which were partially offset by a decrease in the fair value of contingent consideration of $7.8$3.9 million and changes in operating assets and liabilities ~~and other items~~ totaling ~~$18.8 million.~~

Cash flows from operating activities increased $10.3 million during the six months ended June 30, 2022 compared to the same period in 2021, primarily due to 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$6.1 million, which were partially offset by decreases in net income of ~~$9.0~~$5.4 million, stock-based compensation of ~~$2.1~~$1.1 million, impairments related to the closure of Japan business of $1.8 million and ~~deferred taxes~~depreciation and amortization of ~~$6.1~~$1.4 million.

Cash Flows from Investing Activities

Cash provided by investing activities was $7.8 million during the six months ended June 30, 2023, consisting of $14.0 million in proceeds from call redemptions and maturities of marketable securities, which were partially offset by $6.2 million for net purchases of property, equipment and other capital assets.

Cash used in investing activities was $36.5 million during the six months ended June 30, 2022, consisting of $30.5 million for net purchases of marketable securities and $6.0 million for the purchases of property, equipment and other capital assets.

Cash Flows from Financing Activities

Cash used in ~~investing~~financing activities was ~~$105.1~~$29.7 million during the six months ended June 30, ~~2021,~~2023, consisting of ~~$127.4~~$30.1 million in ~~cash used~~repurchases of common stock, $1.4 million in purchases of shares withheld for ~~acquisitions, net~~tax obligations associated with equity

Table of ~~cash acquired~~Contents

transactions, and ~~$23.9~~$0.2 million for ~~the purchases~~repayments of ~~property, equipment and other capital assets,~~finance lease obligations, which were partially offset by ~~$46.2~~$2.0 million ~~for net~~in proceeds from ~~investments in marketable securities.~~

~~Table~~exercises of ~~Contents~~stock option.

~~Cash Flows from Financing Activities~~

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

Cash used in financing activities was $1.9 million during the six months ended June 30, 2021, consisting of $4.2 million in purchases of shares withheld for tax obligations associated with equity transactions, $1.2 million in repurchases of common stock and $0.3 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.~~

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 months ended June 30, ~~2022.~~

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. During the three and six months ended June 30, 2023, we recognized a foreign currency translation loss of $3.9 million in connection with substantially completing our closure of our Japan business. We recognized foreign currency losses of ~~$0.3~~$0.1 million and ~~foreign currency gains of $0.1~~$0.3 million during the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. We recognized foreign currency ~~losses~~gains of ~~$0.4~~$0.1 million and ~~$0.5~~$0.4 million during the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The changes in foreign exchange rates had a negative impact on consolidated revenue of ~~$2.7~~$0.5 million for the three months ended June 30, ~~2022~~2023 and ~~$4.3~~$3.0 million for the six months ended June 30, ~~2022~~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~~$102.2 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,~~2023, we repurchased ~~113,266~~276,518 shares of our common stock at a total purchase price of ~~$5.2~~$8.9 million under this program. Common stock repurchase activity through June 30, ~~2022~~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)
April 1, 2023 through April 30, 2023 — $ — — $ 111,176
May 1, 2023 through May 31, 2023 187,068 $ 31.70 187,068 $ 105,246
June 1, 2023 through June 30, 2023 89,450 $ 33.62 89,450 $ 102,239
276,518 $ 32.32 276,518 $ 102,239

Item 3. Defaults Upon Senior Securities

No matters to disclose.

Item 4. Mine Safety Disclosures

No matters to disclose.

Table of Contents

Item 5. Other Information

~~No matters~~

During the three months ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to ~~disclose.~~

~~Table~~satisfy the affirmative defense conditions of ~~Contents~~Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules).

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~~ 10.1		Proto Labs, Inc. 2022 Long-Term Incentive Plan (as amended on May 17, 2023) (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K, filed on May 18, 2023).
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⁾101.INS		~~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⁾	~~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.~~

*Filed herewith.

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SIGNATURE

~~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 ~~5, 2022~~ 4, 2023		/s/ Robert Bodor
		Robert Bodor
		President and Chief Executive Officer (Principal Executive Officer)


Date: August ~~5, 2022~~ 4, 2023						/s/ Daniel Schumacher
						Daniel Schumacher
						Chief Financial Officer (Principal Financial Officer)

3031

Item	Description	Page

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

	*June 30,*			*December 31,*
	*2022*			*2021*
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	54,666		$	65,929
Short-term marketable securities		24,379			11,580
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
Inventory		15,051			13,161
Income taxes receivable		2,627			1,321
Prepaid expenses and other current assets		11,484			11,450
Total current assets		190,676			183,492
Property and equipment, net		260,631			280,346
Goodwill		390,354			400,610
Other intangible assets, net		34,026			37,998
Long-term marketable securities		31,068			14,340
Operating lease assets		4,037			5,578
Finance lease assets		1,649			1,898
Long-term assets held for sale		1,985			0
Other long-term assets		4,223			4,320
Total assets	$	918,649		$	928,582

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	15,642		$	25,364
Accrued compensation		16,687			13,704
Accrued liabilities and other		24,011			11,980
Current operating lease liabilities		2,140			3,298
Current finance lease liabilities		436			550
Total current liabilities		58,916			54,896
Long-term operating lease liabilities		1,886			2,245
Long-term finance lease liabilities		1,188			1,351
Long-term deferred tax liabilities		30,177			35,892
Other long-term liabilities		5,784			5,705
Total liabilities		97,951			100,089

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
Additional paid-in capital		475,740			468,548
Retained earnings		381,079			376,734
Accumulated other comprehensive loss		(36,149	)		(16,817	)
Total shareholders' equity		820,698			828,493
Total liabilities and shareholders' equity	$	918,649		$	928,582

	*Three Months Ended*					*Six Months Ended*
	*June 30,*					*June 30,*
	*2022*			*2021*		*2022*			*2021*

Statements of Operations:
Revenue	$	126,902		$	123,048	$	251,070		$	239,174
Cost of revenue		69,480			66,423		137,844			127,219
Gross profit		57,422			56,625		113,226			111,955
Operating expenses
Marketing and sales		21,055			21,044		41,641			40,524
Research and development		9,450			11,060		20,007			23,241
General and administrative		16,522			8,417		33,293			27,825
Closure of Japan business		5,194			0		5,194			0
Total operating expenses		52,221			40,521		100,135			91,590
Income from operations		5,201			16,104		13,091			20,365
Other income (loss), net		1			137		(299	)		(176	)
Income before income taxes		5,202			16,241		12,792			20,189
Provision for income taxes		2,645			3,326		5,140			3,562
Net income	$	2,557		$	12,915	$	7,652		$	16,627

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

Shares used to compute net income per share:
Basic		27,530,739			27,735,732		27,515,583			27,600,684
Diluted		27,536,823			27,744,870		27,524,019			27,741,464

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

(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

	*June 30, 2022*							*December 31, 2021*							*Useful*	*Weighted Average*
(in thousands)	*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
Non-compete agreement	822		(423		)	399		842		(363		)	479		2.0 - 5.0	2.5
Software technology	13,229		(5,699		)	7,530		13,229		(5,014		)	8,215		10.0	6.0
Software platform	25,777		(3,239		)	22,538		26,725		(2,262		)	24,463		12.0	10.6
Tradenames	346		(167		)	179		359		(114		)	245		3.0	1.6
Customer relationships	12,174		(8,965		)	3,209		12,252		(7,873		)	4,379		3.0 - 9.0	1.3
Total intangible assets	$	53,278	$	(19,252	)	$	34,026	$	54,337	$	(16,339	)	$	37,998

(in thousands)	*Estimated Amortization Expense*
Remaining 2022	$	3,029
2023		5,855
2024		3,706
2025		3,608
2026		3,508
Thereafter		14,320
Total estimated amortization expense	$	34,026

	*June 30, 2022*
(in thousands)	*Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
U.S. municipal securities	$	17,893	$	0	$	(365	)	$	17,528
Corporate debt securities		12,299		0		(234	)		12,065
U.S. government agency securities		22,284		2		(355	)		21,931
Certificates of deposit/time deposits		941		0		(6	)		935
Commercial paper		2,994		0		(6	)		2,988
Total marketable securities	$	56,411	$	2	$	(966	)	$	55,447

				*Weighted-*
				*Average*
	*Stock Options*			*Exercise Price*
Options outstanding at December 31, 2021		233,384		$	97.78
Granted		52,992			59.40
Exercised		(3,114	)		30.58
Forfeited		(34,075	)		90.61
Expired		(28,411	)		84.92
Options outstanding at June 30, 2022		220,776		$	92.28

Exercisable at June 30, 2022		113,652		$	92.57

	*Six Months Ended June 30,*
	*2022*		*2021*
Risk-free interest rate		1.94%		0.80% - 1.12%
Expected life (years)		6.25		6.25
Expected volatility		45.95%		45.28 - 45.35%
Expected dividend yield		0%		0%

				*Weighted-*
				*Average*
				*Grant Date*
	*Restricted*			*Fair Value*
	*Stock*			*Per Share*
Restricted stock at December 31, 2021		343,782		$	111.79
Granted		44,782			59.40
Restrictions lapsed		(119,315	)		105.06
Forfeited		(32,814	)		107.48
Restricted stock at June 30, 2022		236,435		$	105.90

	*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

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