Form 10-Q Proto Labs Inc For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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| (Mark One) |
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended |
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File Number:
Proto Labs, Inc.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
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(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 |
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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. ☑
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). ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | ☑ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ |
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| 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).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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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 | $ | $ | ||||||
| Short-term marketable securities | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ and $ as of June 30, 2022, and December 31, 2021, respectively | ||||||||
| Inventory | ||||||||
| Income taxes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Long-term marketable securities | ||||||||
| Operating lease assets | ||||||||
| Finance lease assets | ||||||||
| Long-term assets held for sale | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued liabilities and other | ||||||||
| Current operating lease liabilities | ||||||||
| Current finance lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term operating lease liabilities | ||||||||
| Long-term finance lease liabilities | ||||||||
| Long-term deferred tax liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders' equity | ||||||||
| Preferred stock, $ par value, authorized shares; issued and outstanding shares as of each of June 30, 2022, and December 31, 2021 | ||||||||
| Common stock, $ par value, authorized shares; issued and outstanding and shares as of June 30, 2022, and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 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 | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Marketing and sales | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Closure of Japan business | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income (loss), net | ( | ) | ( | ) | ||||||||||||
| Income before income taxes | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Shares used to compute net income per share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Comprehensive Income (Loss) (net of tax) | ||||||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
| 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 | |||||||||||||||||||
| Balance at January 1, 2022 | ( | ) | ||||||||||||||||||||||
| Common shares issued on exercise of options and other, net of shares withheld for tax obligations | - | ( | ) | - | - | ( | ) | |||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||
| Other comprehensive loss | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Net unrealized gains (losses) on investments in securities | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Comprehensive loss | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued on exercise of options and other, net of shares withheld for tax obligations | ||||||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Other comprehensive loss | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Net unrealized gains (losses) on investments in securities | - | ( | ) | ( | ) | |||||||||||||||||||
| Comprehensive loss | ( | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common Stock | Additional | Accumulated Other | ||||||||||||||||||||||
| Paid-In | Retained | Comprehensive | ||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Total | |||||||||||||||||||
| Balance at January 1, 2021 | ( | ) | ||||||||||||||||||||||
| Common shares issued on exercise of options and other, net of shares withheld for tax obligations | - | ( | ) | - | - | ( | ) | |||||||||||||||||
| Common shares issued for Hubs acquisition | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||
| Repurchases of common stock | - | - | - | - | - | |||||||||||||||||||
| Net income | - | - | - | - | ||||||||||||||||||||
| Other comprehensive loss | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Net unrealized gains (losses) on investments in securities | - | - | - | - | ||||||||||||||||||||
| Comprehensive loss | ( | ) | ||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued on exercise of options and other, net of shares withheld for tax obligations | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Net unrealized gains (losses) on investments in securities | - | ( | ) | ( | ) | |||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
| Proto Labs, Inc. |
| Consolidated Statements of Cash Flows |
| (In thousands) |
| (Unaudited) |
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred taxes | ( | ) | ||||||
| Fair value of contingent consideration | ( | ) | ||||||
| Impairments related to closure of Japan business | ||||||||
| Other | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other | ( | ) | ||||||
| Income taxes | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities and other | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Purchases of property, equipment and other capital assets | ( | ) | ( | ) | ||||
| Cash used for acquisitions, net of cash acquired | ( | ) | ||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from sales of marketable securities | ||||||||
| Proceeds from call redemptions and maturities of marketable securities | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Proceeds from exercises of stock options | ||||||||
| Purchases of shares withheld for tax obligations | ( | ) | ( | ) | ||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Principal repayments of finance lease obligations | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
Notes to Consolidated Financial Statements
Note 1 – Basis of Presentation
The unaudited interim Consolidated Financial Statements of Proto Labs, Inc. (Protolabs, the Company, we, us or our) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying financial statements reflect all adjustments necessary for a fair presentation of the Company’s statements of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (SEC) on February 18, 2022.
The accompanying Consolidated Balance Sheet as of December 31, 2021 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by U.S. GAAP for a full set of financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in the Annual Report on Form 10-K filed on February 18, 2022 as referenced above.
On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. Affected employees in Japan will receive severance and other transition assistance that meet or exceed local requirements. The Company expects to substantially complete the closure plan within the next year. The Company's decision to close the Japan business resulted in $
Note 2 – Recent Accounting Pronouncements
The Company did not recently adopt any accounting pronouncements that had a material impact on the Company's Consolidated Financial Statements. There are no pending accounting pronouncements that are expected to have a material impact on the Company's Consolidated Financial Statements.
Note 3 – Net Income per Common Share
Basic net income per share is computed based on the weighted-average number of common shares outstanding. Diluted net income per share is computed based on the weighted-average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options and other stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan. Performance stock units are excluded from the calculation of dilutive potential common shares until the performance conditions have been satisfied. For the three and six months ended June 30, 2022,
The table below sets forth the computation of basic and diluted net 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 | $ | $ | $ | $ | ||||||||||||
| Basic - weighted-average shares outstanding: | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Employee stock options and other | ||||||||||||||||
| Diluted - weighted-average shares outstanding: | ||||||||||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
Note 4 – Business Combinations
On January 22, 2021, the Company acquired all of the outstanding shares of 3D Hubs, Inc. (Hubs), for $
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 | $ | |||
| Intangible assets | ||||
| Goodwill | ||||
| Other long-term assets | ||||
| Total assets acquired | ||||
| Liabilities assumed: | ||||
| Current contingent consideration | ||||
| Current liabilities | ||||
| Long-term contingent consideration | ||||
| Long-term deferred tax liabilities | ||||
| Other long-term liabilities | ||||
| Total liabilities assumed | ||||
| Net assets acquired | ||||
| Cash paid | ||||
| Cash acquired | ( | ) | ||
| Net cash consideration | ||||
| Equity portion of purchase price | ||||
| Total purchase consideration | $ | |||
Note 5 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill during the six months ended June 30, 2022 were as follows:
| (in thousands) | Six Months Ended June 30, 2022 | |||
| Balance as of the beginning of the period | $ | |||
| Goodwill acquired during the period | ||||
| Goodwill written off during the period | ( | ) | ||
| Foreign currency translation adjustments | ( | ) | ||
| Balance as of the end of the period | $ | |||
Goodwill of $
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 | $ | | $ | ( | ) | $ | | $ | | $ | ( | ) | $ | | ||||||||||||||||
| Non-compete agreement | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Software technology | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Software platform | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Tradenames | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
Intangible assets have been allocated to the acquired Hubs entities consisting of intangible assets of million in Europe and $
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 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total estimated amortization expense | $ | |||
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
Note 7 – Fair Value Measurements
Accounting Standards Codification, Fair Value Measurement (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company's assets and liabilities that are required to be measured or disclosed at fair value on a recurring basis include cash and cash equivalents and marketable securities. The Company’s cash consists of bank deposits. The Company determines the fair value of these investments using Level 1 inputs. The Company's marketable securities consist of short-term and long-term agency, municipal, corporate and other debt securities. Fair value for the corporate debt securities is primarily determined based on quoted market prices (Level 1). Fair values for the U.S. municipal securities, U.S. government agency securities, certificates of deposit and U.S. treasury securities are primarily determined using dealer quotes or quoted market prices for similar securities (Level 2).
The following table summarizes financial assets as of June 30, 2022 and December 31, 2021 measured at fair value on a recurring basis:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Money market mutual fund | ||||||||||||||||||||||||
| Marketable securities | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Note 8 – 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 and December 31, 2021:
| June 30, 2022 | ||||||||||||||||
| (in thousands) | Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| U.S. municipal securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| U.S. government agency securities | ( | ) | ||||||||||||||
| Certificates of deposit/time deposits | ( | ) | ||||||||||||||
| Commercial paper | ( | ) | ||||||||||||||
| Total marketable securities | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2021 | ||||||||||||||||
| (in thousands) | Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
| U.S. municipal securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| U.S. government agency securities | ( | ) | ||||||||||||||
| Certificates of deposit/time deposits | ||||||||||||||||
| Commercial paper | ||||||||||||||||
| Total marketable securities | $ | $ | $ | ( | ) | $ | ||||||||||
Fair values for the corporate debt securities are primarily determined based on quoted market prices (Level 1). Fair values for the U.S. municipal securities, U.S. government agency securities, certificates of deposit and U.S. treasury securities are primarily determined using dealer quotes or quoted market prices for similar securities (Level 2).
Classification of marketable securities as current or non-current is based upon the security’s maturity date as of the date of these financial statements.
The June 30, 2022 balance of available-for-sale debt securities by contractual maturity is shown in the following table at fair value. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
| June 30, | ||||
| (in thousands) | 2022 | |||
| Due in one year or less | $ | |||
| Due after one year through five years | ||||
| Total marketable securities | $ | |||
Note 9 – Inventory
Inventory consists primarily of raw materials, which are recorded at the lower of cost and net realizable value using the standard cost method, which approximates first-in, first-out (FIFO) cost. The Company periodically reviews its inventory for slow-moving, damaged and discontinued items and provides allowances to reduce such items identified to their recoverable amounts.
The Company’s inventory consisted of the following as of the dates indicated:
| June 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Total inventory | $ | $ | ||||||
| Allowance for obsolescence | ( | ) | ( | ) | ||||
| Inventory, net of allowance | $ | $ | ||||||
Note 10 – Stock-Based Compensation
Under the Company’s 2012 Long-Term Incentive Plan, as amended (the 2012 Plan), the Company had the ability to grant stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, other stock-based awards and cash incentive awards through February 23, 2022. On July 8, 2022, the board of directors approved the Proto Labs, Inc. 2022 Long-Term Incentive Plan (the 2022 Plan), which will take effect on August 29, 2022 subject to approval by the Company's shareholders at our previously noticed Special Meeting of Shareholders on August 29, 2022. No awards have been granted since February 23, 2022 or will be granted under the 2012 Plan until a new long-term incentive plan is approved by shareholders. Awards under the 2012 Plan have a maximum term of years from the date of grant. The compensation committee may provide that the vesting or payment of any award will be subject to the attainment of specified performance measures in addition to the satisfaction of any continued service requirements and the compensation committee will determine whether such measures have been achieved. The per-share exercise price of stock options and SARs granted under the 2012 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
Stock-Based Compensation Expense
Stock-based compensation expense was $
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 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Options outstanding at June 30, 2022 | $ | |||||||
| Exercisable at June 30, 2022 | $ | |||||||
The outstanding options generally have a term of years. For employees, options granted become exercisable ratably over the vesting period, which is generally a period of to 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 was $
The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Risk-free interest rate | | | ||||||
| Expected life (years) | ||||||||
| Expected volatility | | | ||||||
| Expected dividend yield | | | ||||||
As of June 30, 2022, there was $
Restricted Stock
Restricted stock awards are share-settled awards and restrictions lapse ratably over the vesting period, which is generally a period from to years, beginning on the first anniversary of the grant date, subject to the employee's continuing service to the Company. For the board of directors, restrictions generally lapse in full on the first anniversary of the grant date.
The following table summarizes restricted stock activity during the six months ended June 30, 2022:
| Weighted- | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Restricted | Fair Value | |||||||
| Stock | Per Share | |||||||
| Restricted stock at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Restrictions lapsed | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Restricted stock at June 30, 2022 | $ | |||||||
As of June 30, 2022, there was $
Performance Stock
Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between percent and
The following table summarizes performance stock activity during the six months ended June 30, 2022:
| Weighted- | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Performance | Fair Value | |||||||
| Stock | Per Share | |||||||
| Performance stock at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Restrictions lapsed | ||||||||
| Performance change | ||||||||
| Forfeited | ( | ) | ||||||
| Performance stock at June 30, 2022 | $ | |||||||
The following table provides the assumptions used in the Monte Carlo pricing model valuation of PSUs during the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Risk-free interest rate | | | ||||||
| Expected life (years) | ||||||||
| Expected volatility | | | ||||||
| Expected dividend yield | | | ||||||
As of June 30, 2022, there was $
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 and 2021:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Risk-free interest rate | | | ||||||
| Expected life (months) | ||||||||
| Expected volatility | | | ||||||
| Expected dividend yield | | | ||||||
Note 11 – Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) is comprised of foreign currency translation adjustments and net unrealized gains (losses) on investments in securities. The following table presents the changes in accumulated other comprehensive income (loss) balances during the three and six months ended June 30, 2022 and 2021:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Balance at beginning of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustments | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net unrealized gains (losses) on investments in securities | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ) | ( | ) | ( | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance at end of period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Note 12 – 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 and 2021, the Company recorded an income tax provision of $
The effective income tax rate for the six months ended June 30, 2022 differs from the U.S. federal statutory rate of
The Company had unrecognized tax benefits totaling $
Note 13 – 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 and 2021 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenue: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| Japan | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Income (Loss) from Operations: | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Europe | ( | ) | ( | ) | ||||||||||||
| Corporate Unallocated and Japan | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Income from Operations | $ | $ | $ | $ | ||||||||||||
Total long-lived assets at June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||||
| (in thousands) | 2022 | 2021 | ||||||
| Total long-lived assets: | ||||||||
| United States | $ | $ | ||||||
| Europe | ||||||||
| Japan | ||||||||
| Total Long-lived Assets | $ | $ | ||||||
The Company's decision to exit Japan resulted in a $
Revenue by product line for the three and six months ended June 30, 2022 and 2021 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenue: | ||||||||||||||||
| Injection Molding | $ | $ | $ | $ | ||||||||||||
| CNC Machining | ||||||||||||||||
| 3D Printing | ||||||||||||||||
| Sheet Metal | ||||||||||||||||
| Other Revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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.
Forward-Looking Statements
Statements contained in this report regarding matters that are not historical or current facts are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our results to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are described in Item 1A. “Risk Factors” of this Form 10-Q, as well as our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC). Other unknown or unpredictable factors also could have material adverse effects on our future results. We cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, we expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.
Overview
We are one of the world’s largest and fastest digital manufacturers of custom prototypes and on-demand production parts. Our mission is to empower companies to bring new ideas to market by offering the fastest and most comprehensive digital manufacturing service in the world. Our automated quoting and manufacturing systems allow us to produce commercial-grade plastic, metal, and liquid silicone rubber parts in as fast as one day. We manufacture prototype and low volume production parts for companies worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers. For most of our offerings, our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. Our customers conduct nearly all of their business with us over the Internet. We target our products to the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets. In addition, we serve procurement and supply chain professionals seeking to manufacture custom parts on-demand. Through the acquisition of Hubs (formerly 3D Hubs, Inc.) (Hubs) in 2021, we are able to provide our customers access to a global network of premium manufacturing partners who reside across North America, Europe and Asia, complementing our in-house manufacturing. We believe our use of advanced technology enables us to offer significant advantages at competitive prices to many customers and is the primary reason we have become a leading supplier of custom parts.
On May 27, 2022, our board of directors approved a plan for the closure of our manufacturing facility in Japan and announced an intention to cease operations in the region. Affected employees in Japan will receive severance and other transition assistance that meet or exceed local requirements. We expect to substantially complete the closure plan within the next year. Our decision to close the Japan business resulted in $5.2 million in operating expenses during the three and six months ended June 30, 2022. Operating expenses included $2.2 million of employee severance, $1.2 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.3 million in other closure related charges for the three and six months ended June 30, 2022.
Our primary manufacturing product lines currently include Injection Molding, CNC Machining, 3D Printing and Sheet Metal. We continually seek to expand the range of sizes and geometric complexity of the parts we can make with these processes, to extend the variety of materials we are able to support, and to identify additional manufacturing processes to which we can apply our technology in order to better serve the evolving preferences and needs of product developers and engineers. In 2021, we augmented our internal manufacturing operations through our acquisition of Hubs to expand the envelope of custom parts we can provide to our customers through a network of premium manufacturing partners in each of our product lines.
Injection Molding
Our Injection Molding product line uses our 3D CAD-to-CNC machining technology for the automated design and manufacture of molds, which are then used to produce custom plastic and liquid silicone rubber injection-molded parts and over-molded and insert-molded injection-molded parts on commercially available equipment. Our Injection Molding product line works best for on-demand production, bridge tooling, pilot runs and functional prototyping. Our affordable molds and quick turnaround times help reduce design risk and limit overall production costs for product developers and engineers. Because we retain possession of the molds, customers who need short-run production often come back to Proto Labs’ Injection Molding product line for additional quantities. They do so to support pilot production for product testing, while their tooling for high-volume production is being prepared, because they need on-demand manufacturing due to disruptions in their manufacturing process, because their product requires limited annual quantity or because they need end-of-life production support. In 2017, we launched an on-demand manufacturing injection molding service. This service utilizes our existing processes, but is designed to fulfill the needs of customers with on-going production needs.
CNC Machining
Our CNC Machining product line uses commercially available CNC machines to offer milling and turning. CNC milling is a manufacturing process that cuts plastic and metal blocks into one or more custom parts based on the 3D CAD model uploaded by the customer. CNC turning is a subtractive manufacturing process that rotates a metal rod while a cutting tool is used to remove material and create final parts. Quick-turn CNC machining works best for prototyping, form and fit testing, jigs and fixtures and functional components for end-use applications.
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. 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; |
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the introduction of our 3D Printing product line through our acquisition of FineLine in 2014; |
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expanding 3D Printing to Europe through our acquisition of Alphaform in 2015; |
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the introduction of our Sheet Metal product line through our acquisition of Rapid Manufacturing Group, LLC in 2017; |
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continuously improving the usability of our product lines such as our web-centric applications; and |
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| ● | 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, we served 24,058 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 3.4% over the same period in 2021. During the six months ended June 30, 2022, we served 36,878 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 5.2% over the same period in 2021.
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, and foreign exchange rates.
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 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 and beyond may differ from historical effective tax rates due to increases in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact our effective tax rate.
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)% | |||||||
Stock-based compensation expense included in the statements of operations data above for the three and six months ended June 30, 2022 and 2021 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: |
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| 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 | ||||||||
Comparison of Three Months Ended June 30, 2022 and 2021
Revenue
Revenue by reportable segment and the related changes for the three months ended June 30, 2022 and 2021 were as follows:
| Three Months Ended June 30, |
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| 2022 |
2021 |
Change |
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| (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 | % | ||||||||||||
Our revenue increased $3.9 million, or 3.1%, for the three months ended June 30, 2022 compared to the same period in 2021. By reportable segment, revenue in the United States increased $5.3 million, or 5.6%, for the three months ended June 30, 2022 compared to the same period in 2021. Revenue in Europe decreased $1.3 million, or 5.1%, and revenue in Japan decreased $0.2 million, or 6.3%, in each case for the three months ended June 30, 2022 compared to the same period in 2021. Our acquisition of Hubs provided revenue of $5.9 million and $4.6 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 and 2021, respectively. International revenue was negatively impacted by $2.7 million during the three months ended June 30, 2022 compared to the same period in 2021 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.
During the three months ended June 30, 2022, we served 24,058 unique product developers and engineers, an increase of 3.4% over the same period in 2021. Our growth in product developers and engineers served increased at a rate consistent with our revenue growth.
Revenue by product line and the related changes for the three months ended June 30, 2022 and 2021 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 | % | ||||||||||||
By product line, our revenue increase was driven by a 15.9% increase in CNC Machining revenue, a 9.9% increase in 3D Printing revenue, and a 9.4% increase in Sheet Metal revenue, which was partially offset by an 8.3% decrease in Injection Molding revenue, and a 49.6% decrease in Other Revenue, in each case for the three months ended June 30, 2022 compared to the same period in 2021.
Cost of Revenue, Gross Profit and Gross Margin
Cost of Revenue. Cost of revenue increased $3.1 million, or 4.6%, for the three months ended June 30, 2022 compared to the same period in 2021, which was greater than the rate of revenue increase of 3.1% for the three months ended June 30, 2022 compared to the same period in 2021. Cost of revenue increased $2.6 million in our digital manufacturing business, which was driven by increased volumes and labor shortages resulting in wage inflation, driving personnel and related cost increases of $0.7 million, an increase in raw material and product costs of $1.8 million driven by materials cost inflation and higher logistics costs, and an increase in equipment and facility related costs of $0.1 million. Hubs provided a $0.5 million increase in cost of revenue for the three months ended June 30, 2022 when compared to the same period in 2021.
Gross Profit and Gross Margin. Gross profit increased 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% in the three months ended June 30, 2021 to 45.2% in the three months ended June 30, 2022, primarily due to labor and materials cost inflation as described above and the mix of revenue.
Operating Expenses, Other Income (Loss), net and Provision for Income Taxes
Marketing and Sales. Marketing and sales expenses remained consistent during the three months ended June 30, 2022 compared to the same period in 2021. Personnel and related cost decreases in our digital manufacturing business of $0.5 million and marketing program cost decreases in our digital manufacturing business of $0.1 million were offset by increases in Hubs' marketing and sales expense of $0.6 million during the three months ended June 30, 2022 when compared to the same period in 2021.
Research and Development. Our research and development expenses decreased $1.6 million, or 14.6%, during the three months ended June 30, 2022 compared to the same period in 2021 primarily due to personnel and related cost decreases of $1.6 million driven by personnel and contractor resources dedicated to the launch of our Protolabs 2.0 system in the first quarter of 2021.
General and Administrative. Our general and administrative expenses increased $0.3 million, or 2.1%, during the three months ended June 30, 2022 compared to the same period in 2021 primarily due to an increase in personnel and related costs of $0.2 million and an increase of professional services of $0.1 million.
Closure of Japan business. Our decision to close our Japan business resulted in $5.2 million in operating expenses during the three months ended June 30, 2022. Operating expenses included $2.2 million of employee severance, $1.2 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.3 million in other closure related charges. We had no expenses related to the closure of our Japan business in 2021.
Changes in fair value of contingent consideration. We had no contingent consideration liabilities recorded during 2022. The change in fair value of contingent consideration associated with the acquisition of Hubs was $7.8 million during the three months ended June 30, 2021.
Other income (loss), net. We recognized no other income, net for the three months ended June 30, 2022, a decrease of $0.1 million compared to other income, net of $0.1 million for the three months ended June 30, 2021. Other income, net for the three months ended June 30, 2022 primarily consisted of a $0.3 million loss on foreign currency, which was offset by interest income on investments and other income. Other income, net for the three months ended June 30, 2021 primarily consisted of a $0.1 million gain on foreign currency and interest income on investments.
Provision for Income Taxes. Our effective tax rate of 50.8% for the three months ended June 30, 2022 increased 30.3% compared to 20.5% for the same period in 2021. The increase in the effective tax rate is primarily due to a decrease in tax benefits from the vesting of restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily Japan, that are not eligible for tax benefits due to valuation allowances. Our income tax provision of $2.6 million for the three months ended June 30, 2022 decreased $0.7 million compared to our income tax provision of $3.3 million for the three months ended June 30, 2021.
Comparison of Six Months Ended June 30, 2022 and 2021
Revenue
Revenue by reportable segment and the related changes for the six months ended June 30, 2022 and 2021 were as follows:
| Six Months Ended June 30, |
||||||||||||||||||||||||
| 2022 |
2021 |
Change |
||||||||||||||||||||||
| (dollars in thousands) |
$ |
% of Total Revenue |
$ |
% of Total Revenue |
$ |
% |
||||||||||||||||||
| Revenue |
||||||||||||||||||||||||
| United States |
$ | 196,151 | 78.1 | % | $ | 186,397 | 77.9 | % | $ | 9,754 | 5.2 | % | ||||||||||||
| Europe |
47,977 | 19.1 | 46,104 | 19.3 | 1,873 | 4.1 | ||||||||||||||||||
| Japan |
6,942 | 2.8 | 6,673 | 2.8 | 269 | 4.0 | ||||||||||||||||||
| Total revenue |
$ | 251,070 | 100.0 | % | $ | 239,174 | 100.0 | % | $ | 11,896 | 5.0 | % | ||||||||||||
Our revenue increased $11.9 million, or 5.0%, for the six months ended June 30, 2022 compared to the same period in 2021. By reportable segment, revenue in the United States increased $9.8 million, or 5.2%, for the six months ended June 30, 2022 compared to the same period in 2021. Revenue in Europe increased $1.9 million, or 4.1%, and revenue in Japan increased $0.3 million, or 4.0%, in each case for the six months ended June 30, 2022 compared to the same period in 2021. Our acquisition of Hubs provided revenue of $10.6 million and $7.8 million in the United States and $10.9 million and $6.9 million in Europe for each of the six months ended June 30, 2022 and 2021, respectively. Hubs revenue in 2021 represents the period from January 22, 2021, the date of acquisition, through June 30, 2021. International revenue was negatively impacted by $4.3 million during the six months ended June 30, 2022 compared to the same period in 2021 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.
During the six months ended June 30, 2022, we served 36,878 unique product developers and engineers, an increase of 5.2% over the same period in 2021. Our growth in product developers and engineers served increased at a rate consistent with our revenue growth.
Revenue by product line and the related changes for the six months ended June 30, 2022 and 2021 were as follows:
| Six Months Ended June 30, |
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| 2022 |
2021 |
Change |
||||||||||||||||||||||
| (dollars in thousands) |
$ |
% of Total Revenue |
$ |
% of Total Revenue |
$ |
% |
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| Revenue |
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| Injection Molding |
$ | 106,753 | 42.5 | % | $ | 114,527 | 47.9 | % | $ | (7,774 | ) | (6.8 | )% | |||||||||||
| CNC Machining |
94,320 | 37.6 | 78,295 | 32.7 | 16,025 | 20.5 | ||||||||||||||||||
| 3D Printing |
39,635 | 15.8 | 35,405 | 14.8 | 4,230 | 11.9 | ||||||||||||||||||
| Sheet Metal |
9,847 | 3.9 | 9,936 | 4.2 | (89 | ) | (0.9 | ) | ||||||||||||||||
| Other Revenue |
515 | 0.2 | 1,011 | 0.4 | (496 | ) | (49.1 | ) | ||||||||||||||||
| Total revenue |
$ | 251,070 | 100.0 | % | $ | 239,174 | 100.0 | % | $ | 11,896 | 5.0 | % | ||||||||||||
By product line, our revenue increase was driven by a 20.5% increase in CNC Machining revenue and an 11.9% increase in 3D Printing revenue, which was partially offset by a 6.8% decrease in Injection Molding revenue, a 0.9% decrease in Sheet Metal revenue and a 49.1% decrease in Other Revenue, in each case for the six months ended June 30, 2022 compared to the same period in 2021.
Cost of Revenue, Gross Profit and Gross Margin
Cost of Revenue. Cost of revenue increased $10.6 million, or 8.4%, for the six months ended June 30, 2022 compared to the same period in 2021, which was greater than the rate of revenue increase of 5.0% for the six months ended June 30, 2022 compared to the same period in 2021. Cost of revenue increased $7.5 million in our digital manufacturing business, which was driven by increased volumes and labor shortages resulting in wage inflation driving personnel and related cost increases of $3.2 million, an increase in raw material and product costs of $3.9 million driven by materials cost inflation and higher logistics costs, and an increase in equipment and facility related costs of $0.4 million. Our acquisition of Hubs provided a $3.1 million increase in cost of revenue for the six months ended June 30, 2022 when compared to the same period in 2021.
Gross Profit and Gross Margin. Gross profit increased from $112.0 million in the six months ended June 30, 2021 to $113.2 million in the six months ended June 30, 2022. Gross margin decreased from 46.8% in the six months ended June 30, 2021 to 45.1% in the six months ended June 30, 2022, primarily due to labor and materials cost inflation as described above and the mix of revenue.
Operating Expenses, Other Income (Loss), net and Provision for Income Taxes
Marketing and Sales. Marketing and sales expenses increased $1.1 million, or 2.8%, during the six months ended June 30, 2022 compared to the same period in 2021. Hubs provided a $1.2 million increase in marketing and sales expenses and our digital manufacturing business provided marketing program cost increases of $0.2 million during the six months ended June 30, 2022 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.
Research and Development. Our research and development expenses decreased $3.2 million, or 13.9%, during the six months ended June 30, 2022 compared to the same period in 2021 primarily due to personnel and related cost decreases of $3.8 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 partially offset by a $0.6 million increase in Hubs' research and development expenses during the six months ended June 30, 2022 when compared to the same period in 2021.
General and Administrative. Our general and administrative expenses decreased $2.3 million, or 6.4%, during the six months ended June 30, 2022 compared to the same period in 2021 primarily due to a decrease of $2.3 million in professional service 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.
Closure of Japan business. Our decision to close our Japan business resulted in $5.2 million in operating expenses during the 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. We had no expenses related to the closure of our Japan business in 2021.
Changes in fair value of contingent consideration. We had no contingent consideration liabilities recorded during 2022. The change in fair value of contingent consideration associated with the acquisition of Hubs was $7.8 million during the six months ended June 30, 2021.
Other Loss, net. We recognized other loss, net of $0.3 million for the six months ended June 30, 2022, a decrease of $0.1 million compared to other loss, net of $0.2 million for the six months ended June 30, 2021. Other loss, 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 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 increased 22.6% compared to 17.6% for the same period in 2021. The increase in the effective tax rate is primarily due to a decrease in tax benefits from the vesting of restricted stock and the exercise of stock options, as well as an increase in losses in jurisdictions, primarily Japan, that are not eligible for tax benefits due to valuation allowances. Our income tax provision of $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.
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows during the six months ended June 30, 2022 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 | ) | ||
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 million as of June 30, 2022, a decrease of $11.3 million from December 31, 2021. The decrease in our cash was primarily due to cash used in investing activity for purchases of marketable securities, net, of $30.5 million, purchases of property, equipment and other capital assets of $6.0 million, and cash used in financing activities of $4.8 million, which were partially offset by cash generated through operations of $31.0 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, 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 million during the six months ended June 30, 2021 and primarily consisted of net income 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 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 million, which were partially offset by decreases in net income of $9.0 million, stock-based compensation of $2.1 million and deferred taxes of $6.1 million.
Cash Flows from Investing Activities
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 used in investing activities was $105.1 million during the six months ended June 30, 2021, consisting of $127.4 million in cash used for acquisitions, net of cash acquired and $23.9 million for the purchases of property, equipment and other capital assets, which were partially offset by $46.2 million for net proceeds from investments in marketable securities.
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). Our significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to our critical accounting policies during the six months ended June 30, 2022.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
As a result of our foreign operations, we have revenue, expenses, assets and liabilities that are denominated in foreign currencies. We generate revenue and incur production costs and operating expenses in British Pounds, Euros and Japanese Yen.
Our operating results and cash flows are adversely impacted when the United States Dollar appreciates relative to foreign currencies. Additionally, our operating results and cash flows are adversely impacted when the British Pound appreciates relative to the Euro. As we expand internationally, our results of operations and cash flows will become increasingly subject to changes in foreign currency exchange rates.
We have not used forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Foreign currency risk can be assessed by estimating the change in results of operations or financial position resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would generally not have a material impact on our financial position, but could have a material impact on our results of operations. We recognized foreign currency losses of $0.3 million and foreign currency gains of $0.1 million during the three months ended June 30, 2022 and 2021, respectively. We recognized foreign currency losses of $0.4 million and $0.5 million during the six months ended June 30, 2022 and 2021, respectively. The changes in foreign exchange rates had a negative impact on consolidated revenue of $2.7 million for the three months ended June 30, 2022 and $4.3 million for the six months ended June 30, 2022 as compared to the same periods in 2021.
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.
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.
Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 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 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 a $50 million increase in its authorized stock repurchase program, which increased the total expenditure authorized to $150 million. We have $56.7 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, we repurchased 113,266 shares of our common stock at a total purchase price of $5.2 million under this program. Common stock repurchase activity through June 30, 2022 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) |
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| 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 | |||||||||||||
Item 3. Defaults Upon Senior Securities
No matters to disclose.
Item 4. Mine Safety Disclosures
No matters to disclose.
No matters to disclose.
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. |
||
| 3.2(2) |
Articles of Amendment to Third Amended and Restated Articles of Incorporation of Proto Labs, Inc. dated May 20, 2015 | ||
| 3.3(3) |
Second Amended and Restated By-Laws of Proto Labs, Inc., as amended through November 8, 2016 |
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| 31.1 |
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act* |
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| 31.2 |
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act* |
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| 32.1 |
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| 99.1(4) | Form of Severance Agreement | ||
| 101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | ||
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
||
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
||
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
||
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
||
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||
| (1) |
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. | ||
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.
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Proto Labs, Inc. |
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| Date: August 5, 2022 |
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/s/ Robert Bodor |
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Robert Bodor |
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President and Chief Executive Officer (Principal Executive Officer) |
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| Date: August 5, 2022 |
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/s/ Daniel Schumacher |
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Daniel Schumacher |
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Chief Financial Officer (Principal Financial Officer) |
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Robert Bodor, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Proto Labs, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 5, 2022 |
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By: |
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/s/ Robert Bodor |
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Robert Bodor |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Daniel Schumacher, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Proto Labs, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 5, 2022 |
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By: |
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/s/ Daniel Schumacher |
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Daniel Schumacher |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Bodor, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Proto Labs, Inc. on Form 10-Q for the fiscal quarter ended June 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Proto Labs, Inc.
Date: August 5, 2022
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By: |
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/s/ Robert Bodor |
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Name: |
Robert Bodor |
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Title: |
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President and Chief Executive Officer |
I, Daniel Schumacher, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Proto Labs, Inc. on Form 10-Q for the fiscal quarter ended June 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Proto Labs, Inc.
Date: August 5, 2022
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By: |
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/s/ Daniel Schumacher |
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Name: |
Daniel Schumacher |
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Title: |
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Chief Financial Officer |
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