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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                      

Commission File Number: 001-35435

 

Proto Labs, Inc.

(Exact name of registrant as specified in its charter)

 

Minnesota

41-1939628

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

5540 Pioneer Creek Drive

 

Maple Plain, Minnesota

55359

(Address of principal executive offices)

(Zip Code)

 

(763479-3680

(Registrant’s telephone number, including area code)

 

Not Applicable

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

  

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.001 Per Share

PRLB

New York Stock Exchange

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer     

Non-accelerated filer

☐    

 

Smaller reporting company

Emerging growth company

    

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 26,753,545 shares of Common Stock, par value $0.001 per share, were outstanding at October 29, 2020.

 

 

 

 

Proto Labs, Inc.

TABLE OF CONTENTS

 

Item

 

Description

 

Page

 

 

 

 

 

PART I

1.

 

Financial Statements

 

2

2.

 

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

 

16

3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

26

4.

 

Controls and Procedures

 

27

PART II

1.

 

Legal Proceedings

 

28

1A.

 

Risk Factors

 

28

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

3.

 

Defaults Upon Senior Securities

 

28

4.

 

Mine Safety Disclosures

 

28

5.

 

Other Information

 

28

6.

 

Exhibits

 

29

 

 

1

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

Proto Labs, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 


 

  

September 30,

  

December 31,

 
  

2020

  

2019

 
  

(Unaudited)

     

Assets

        

Current assets

        
Cash and cash equivalents $118,254  $125,225 
Short-term marketable securities  30,993   35,437 
Accounts receivable, net of allowance for doubtful accounts of $1,854 and $952 as of September 30, 2020 and December 31, 2019, respectively  61,250   57,450 
Inventory  10,402   10,075 
Income taxes receivable  16   - 
Prepaid expenses and other current assets  10,198   8,232 

Total current assets

  231,113   236,419 
Property and equipment, net  281,895   263,712 
Goodwill  128,752   128,752 
Other intangible assets, net  15,107   17,369 
Long-term marketable securities  51,369   12,960 
Operating lease assets  10,485   11,425 
Finance lease assets  2,087   - 
Other long-term assets  5,318   3,030 

Total assets

 $726,126  $673,667 
         

Liabilities and shareholders' equity

        

Current liabilities

        
Accounts payable $15,452  $16,804 
Accrued compensation  13,539   15,058 
Accrued liabilities and other  19,047   11,057 
Current operating lease liabilities  3,330   3,340 
Current finance lease liabilities  325   - 
Income taxes payable  -   1,322 

Total current liabilities

  51,693   47,581 
Long-term operating lease liabilities  8,003   8,565 
Long-term finance lease liabilities  1,758   - 
Long-term deferred tax liabilities  32,849   26,283 
Other long-term liabilities  6,002   5,448 

Total liabilities

  100,305   87,877 
         

Shareholders' equity

        

Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of September 30, 2020 and December 31, 2019

  -   - 
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 26,753,545 and 26,786,459 shares as of September 30, 2020 and December 31, 2019, respectively  27   27 
Additional paid-in capital  278,996   268,059 
Retained earnings  353,322   324,722 
Accumulated other comprehensive loss  (6,524)  (7,018)

Total shareholders' equity

  625,821   585,790 

Total liabilities and shareholders' equity

 $726,126  $673,667 

 


 

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

 

2

Table of Contents
 

 

Proto Labs, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(Unaudited)

 


 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 

Statements of Operations:

                               

Revenue

  $ 107,504     $ 117,455     $ 329,187     $ 346,839  

Cost of revenue

    52,861       57,839       163,988       168,127  

Gross profit

    54,643       59,616       165,199       178,712  

Operating expenses

                               

Marketing and sales

    16,705       17,604       51,821       55,466  

Research and development

    7,915       8,359       25,550       24,541  

General and administrative

    12,354       12,380       38,983       38,411  

Total operating expenses

    36,974       38,343       116,354       118,418  

Income from operations

    17,669       21,273       48,845       60,294  

Other income, net

    728       228       2,549       1,566  

Income before income taxes

    18,397       21,501       51,394       61,860  

Provision for income taxes

    3,700       4,709       10,106       13,391  

Net income

  $ 14,697     $ 16,792     $ 41,288     $ 48,469  
                                 

Net income per share:

                               

Basic

  $ 0.55     $ 0.63     $ 1.54     $ 1.80  

Diluted

  $ 0.55     $ 0.62     $ 1.54     $ 1.79  
                                 

Shares used to compute net income per share:

                               

Basic

    26,736,709       26,846,030       26,724,715       26,894,420  

Diluted

    26,886,433       27,005,341       26,861,647       27,072,873  
                                 

Comprehensive Income (net of tax)

                               

Comprehensive income

  $ 17,807     $ 14,642     $ 41,782     $ 46,317  

 


 

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

 

3

Table of Contents
 

 

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, 2020

    26,786,459       27       268,059       324,722       (7,018 )     585,790  

Common shares issued on exercise of options and other, net of shares withheld for tax obligations

    23,525       -       (902 )     -       -       (902 )

Stock-based compensation expense

    -       -       3,033       -       -       3,033  

Repurchases of common stock

    (161,460 )     -       (1,616 )     (9,569 )     -       (11,185 )

Net income

    -       -       -       13,984       -       13,984  

Other comprehensive income

                                               

Foreign currency translation adjustment

    -       -       -       -       (2,980 )     (2,980 )

Comprehensive income

                                            11,004  

Balance at March 31, 2020

    26,648,524     $ 27     $ 268,574     $ 329,137     $ (9,998 )   $ 587,740  
Common shares issued on exercise of options and other, net of shares withheld for tax obligations     96,186       -       400       -       -       400  
Stock-based compensation expense     -       -       3,639       -       -       3,639  
Repurchases of common stock     (38,154 )     -       (382 )     (3,119 )     -       (3,501 )
Net income     -       -       -       12,607       -       12,607  

Other comprehensive income

                                               
Foreign currency translation adjustment     -             -       -       364       364  

Comprehensive income

                                            12,971  

Balance at June 30, 2020

    26,706,556     $ 27     $ 272,231     $ 338,625     $ (9,634 )   $ 601,249  
Common shares issued on exercise of options and other, net of shares withheld for tax obligations     46,989       -       2,820                   2,820  
Stock-based compensation expense     -       -       3,945       -       -       3,945  
Repurchases of common stock     -       -       -       -       -       -  
Net income     -       -       -       14,697       -       14,697  
Other comprehensive income                                                
Foreign currency translation adjustment     -       -       -       -       3,110       3,110  
Comprehensive income                                             17,807  
Balance at September 30, 2020     26,753,545     $ 27     $ 278,996     $ 353,322     $ (6,524 )   $ 625,821  

 

   

Common Stock

   

Additional

           

Accumulated Other

         
                   

Paid-In

   

Retained

   

Comprehensive

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Loss

   

Total

 
                                                 

Balance at January 1, 2019

    26,984,747       27       258,502       291,460       (8,492 )     541,497  

Common shares issued on exercise of options and other, net of shares withheld for tax obligations

    19,950       -       (420 )     -       -       (420 )

Stock-based compensation expense

    -       -       3,040       -       -       3,040  

Repurchases of common stock

    (157,716 )     -       (1,511 )     (15,798 )     -       (17,309 )

Net income

    -       -       -       15,511       -       15,511  

Other comprehensive income

                                               

Foreign currency translation adjustment

    -       -       -       -       476       476  

Comprehensive income

                                            15,987  

Balance at March 31, 2019

    26,846,981     $ 27     $ 259,611     $ 291,173     $ (8,016 )   $ 542,795  
Common shares issued on exercise of options and other, net of shares withheld for tax obligations     75,785       -       245       -       -       245  
Stock-based compensation expense     -       -       3,486       -       -       3,486  
Repurchases of common stock     (40,669 )     -       (390 )     (3,711 )     -       (4,101 )
Net income     -       -       -       16,166       -       16,166  

Other comprehensive income

                                               
Foreign currency translation adjustment     -             -       -       (478 )     (478 )

Comprehensive income

                                            15,688  

Balance at June 30, 2019

    26,882,097     $ 27     $ 262,952     $ 303,628     $ (8,494 )   $ 558,113  
Common shares issued on exercise of options and other, net of shares withheld for tax obligations     5,089       -       241       -       -       241  
Stock-based compensation expense     -       -       3,212       -       -       3,212  
Repurchases of common stock     (128,077 )     -       (1,227 )     (10,884 )     -       (12,111 )
Net income     -       -       -       16,792       -       16,792  
Other comprehensive income                                                
Foreign currency translation adjustment     -             -       -       (2,150 )     (2,150 )
Comprehensive income                                             14,642  
Balance at September 30, 2019     26,759,109     $ 27     $ 265,178     $ 309,536     $ (10,644 )   $ 564,097  

 


 

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

 

4

Table of Contents
 

 

Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 


 

   

Nine Months Ended

 
   

September 30,

 
   

2020

   

2019

 
                 

Operating activities

               

Net income

  $ 41,288     $ 48,469  

Adjustments to reconcile net income to net cash provided by operating activities:

               
Depreciation and amortization     23,891       22,658  
Stock-based compensation expense     10,617       9,738  
Deferred taxes     6,578       1,599  
Amortization of held-to-maturity securities     202       (5 )
Other     (865 )     (133 )

Changes in operating assets and liabilities:

               
Accounts receivable     (3,812 )     (5,387 )
Inventories     (316 )     551  
Prepaid expenses and other     (1,008 )     (162 )
Income taxes     (1,325 )     9,165  
Accounts payable     (1,257 )     1,479  
Accrued liabilities and other     8,382       (4,193 )

Net cash provided by operating activities

    82,375       83,779  
                 

Investing activities

               
Purchases of property, equipment and other capital assets     (40,489 )     (46,151 )
Purchases of other assets and investments     (3,000 )     (4,000 )
Purchases of marketable securities     (90,596 )     (17,443 )
Proceeds from maturities of marketable securities     56,428       54,352  

Net cash used in investing activities

    (77,657 )     (13,242 )
                 

Financing activities

               
Proceeds from exercises of stock options     5,674       2,486  
Purchases of shares withheld for tax obligations     (3,367 )     (2,420 )
Repurchases of common stock     (14,686 )     (33,521 )

Net cash used in financing activities

    (12,379 )     (33,455 )
Effect of exchange rate changes on cash and cash equivalents     690       (560 )

Net (decrease) increase in cash and cash equivalents

    (6,971 )     36,522  
Cash and cash equivalents, beginning of period     125,225       85,046  

Cash and cash equivalents, end of period

  $ 118,254     $ 121,568  

 


 

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

 

5

Table of Contents

 

 

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, 2019 as filed with the Securities and Exchange Commission (SEC) on February 26, 2020.

 

The accompanying Consolidated Balance Sheet as of December 31, 2019 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 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 26, 2020 as referenced above.

  

 

 

Note 2 – Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements

 

During the first quarter of 2020, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses, which is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity at each reporting date. The adoption of this guidance had no material impact on our consolidated financial statements. 

 

During the fourth quarter of 2019, the Company early adopted the FASB ASU 2017-04, Intangibles – Goodwill and Other, which is intended to simplify the subsequent measurement of goodwill. The adoption of this guidance had no material impact on our consolidated financial statements.

 

 

6

 
 

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, restricted stock units and restricted stock 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.

 

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

 


 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands, except share and per share amounts)

 

2020

   

2019

   

2020

   

2019

 

Net income

  $ 14,697     $ 16,792     $ 41,288     $ 48,469  
                                 

Basic - weighted-average shares outstanding:

    26,736,709       26,846,030       26,724,715       26,894,420  

Effect of dilutive securities:

                               

Employee stock options and other

    149,724       159,311       136,932       178,453  

Diluted - weighted-average shares outstanding:

    26,886,433       27,005,341       26,861,647       27,072,873  

Net income per share:

                               

Basic

  $ 0.55     $ 0.63     $ 1.54     $ 1.80  

Diluted

  $ 0.55     $ 0.62     $ 1.54     $ 1.79  

 


 

7

 
 

Note 4 – Goodwill and Other Intangible Assets

 

There were no changes in the carrying amount of Goodwill during the three and nine months ended September 30, 2020.

 

Intangible assets other than goodwill at  September 30, 2020 and December 31, 2019 were as follows:

 


 

  

September 30, 2020

  

December 31, 2019

  

Useful

 

Weighted Average

(in thousands)

 

Gross

  

Accumulated Amortization

  

Net

  

Gross

  

Accumulated Amortization

  

Net

  

Life (in years)

 

Useful Life Remaining (in years)

Intangible assets with finite lives:

                            

Marketing assets

 $930  $(597) $333  $930  $(527) $403  10.0 3.5

Non-compete agreement

  270   (234)  36   270   (222)  48  2.0 - 5.0 2.3

Software technology

  13,229   (3,302)  9,927   13,229   (2,275)  10,954  10.0 7.3

Customer relationships

  10,070   (5,259)  4,811   10,070   (4,106)  5,964  6.0 - 9.0 3.1

Total intangible assets

 $24,499  $(9,392) $15,107  $24,499  $(7,130) $17,369     

 


 

Amortization expense for intangible assets was $0.8 million and $0.9 million for the three months ended  September 30, 2020 and 2019, respectively, and $2.3 million and $2.6 million for the nine months ended September, 2020 and 2019, respectively.

 

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

 


 

(in thousands)

 

Estimated Amortization Expense

 
Remaining 2020 $754 
2021  3,016 
2022  3,016 
2023  2,813 
2024  1,400 
Thereafter  4,108 

Total estimated amortization expense

 $15,107 

 


 

8

 
 

Note 5 – Fair Value Measurements

 

Accounting Standards Codification (ASC 820), 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 cash consists of bank deposits. The Company’s cash equivalents measured at fair value consist of money market mutual funds. The Company determines the fair value of these investments using Level 1 inputs.

 

The following table summarizes financial assets as of  September 30, 2020 and December 31, 2019 measured at fair value on a recurring basis: 

 


 

   

September 30, 2020

   

December 31, 2019

 

(in thousands)

 

Level 1

   

Level 2

   

Level 3

   

Level 1

   

Level 2

   

Level 3

 

Financial Assets:

                                               

Cash and cash equivalents

                                               
Money market mutual fund   $ 66,374     $ -     $ -     $ 68,962     $ -     $ -  

Total

  $ 66,374     $ -     $ -     $ 68,962     $ -     $ -  

 


 

 

Note 6 – Marketable Securities

 

The Company invests in short-term and long-term agency, municipal, corporate and other debt securities. The securities are categorized as held-to-maturity and are recorded at amortized cost, net of an allowance for credit losses. Categorization as held-to-maturity is based on the Company’s ability and intent to hold these securities to maturity. The following table summarizes information regarding the Company’s short-term and long-term marketable securities as of  September 30, 2020 and December 31, 2019:

 


 

   

September 30, 2020

 

(in thousands)

 

Cost

   

Unrealized Gains

   

Unrealized Losses

   

Fair Value

 
U.S. municipal securities   $ 17,795     $ 68     $ -     $ 17,863  
Corporate debt securities     38,876       283       (25 )     39,134  
U.S. government agency securities     19,003       9       (15 )     18,997  
Certificates of deposit/time deposits     5,189       105       -       5,294  
Commercial paper     1,499       -       -       1,499  

Total marketable securities

  $ 82,362     $ 465     $ (40 )   $ 82,787  

 


 

9

 

 

   

December 31, 2019

 

(in thousands)

 

Cost

   

Unrealized Gains

   

Unrealized Losses

   

Fair Value

 

U.S. municipal securities

  $ 10,204     $ 9     $ (3 )   $ 10,210  

Corporate debt securities

    26,944       80       (12 )     27,012  

U.S. government agency securities

    6,274       1       (7 )     6,268  

Certificates of deposit/time deposits

    1,484       22       -       1,506  
Commercial paper     3,491       -       -       3,491  

Total marketable securities

  $ 48,397     $ 112     $ (22 )   $ 48,487  

 


 

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).

 

During the first quarter of 2020, the Company adopted the FASB ASU 2016-13, Financial Instruments – Credit Losses. The Company calculated the expected credit loss for each security in its portfolio using the probability-of-default method. The Company concluded the adoption of the guidance had no material impact on its consolidated financial statements. 

 

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  September 30, 2020 balance of held-to-maturity debt securities by contractual maturity is shown in the following table at amortized cost, net of an allowance for credit losses. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

 


 

   

September 30,

 

(in thousands)

 

2020

 

Due in one year or less

  $ 30,993  

Due after one year through five years

    51,369  

Total marketable securities

  $ 82,362  

 


 

 

Note 7 – Inventory

 

Inventory consists primarily of raw materials, which are recorded at the lower of cost or market using the average-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:

 


 

   

September 30,

   

December 31,

 

(in thousands)

 

2020

   

2019

 
Raw materials   $ 10,650     $ 9,818  
Work in process     16       501  

Total inventory

    10,666       10,319  
Allowance for obsolescence     (264 )     (244 )

Inventory, net of allowance

  $ 10,402     $ 10,075  

 


 

10

 

 

 

Note 8 – Stock-Based Compensation

 

Under the Company’s 2012 Long-Term Incentive Plan, as amended (the 2012 Plan), the Company has the ability to grant stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, other stock-based awards and cash incentive awards. Awards under the 2012 Plan have a maximum term of ten years from the date of grant. The compensation committee may provide that the vesting or payment of any award will be subject to the attainment of specified performance measures in addition to the satisfaction of any continued service requirements and the compensation committee will determine whether such measures have been achieved. The per-share exercise price of stock options and SARs granted under the 2012 Plan generally may not be less than the fair market value of a share of our common stock on the date of the grant.

 

Employee Stock Purchase Plan

 

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

 

Stock-Based Compensation Expense

 

Stock-based compensation expense was $3.9 million and $3.2 million for the three months ended  September 30, 2020 and 2019, respectively, and $10.6 million and $9.7 million for the nine months ended September 30, 2020 and 2019, respectively.

 

Stock Options

 

The following table summarizes stock option activity during the nine months ended September 30, 2020:

 


 

      

Weighted-

 
      

Average

 
  

Stock Options

  

Exercise Price

 

Options outstanding at December 31, 2019

  276,266  $72.38 
Granted  60,065   105.79 
Exercised  (64,932)  57.24 
Forfeited  (37,842)  67.92 
Options outstanding at September 30, 2020  233,557  $85.89 
         
Exercisable at September 30, 2020  135,837  $98.38 

 


 

The outstanding options generally have a term of ten years. For employees, options granted become exercisable ratably over the vesting period, which is generally a period from four to five years, beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For 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 nine months ended September 30, 2020 was $45.32.

 

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the nine months ended September 30, 2020 and 2019:

 


 

  

Nine Months Ended September 30,

  

2020

 

2019

Risk-free interest rate

 

0.50 - 1.47%

 

2.35 - 2.58%

Expected life (years)

 6.25 6.25

Expected volatility

 

42.40 - 43.83%

 

42.52 - 42.74%

Expected dividend yield

 

0%

 

0%

 


 

As of September 30, 2020, there was $4.8 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.8 years.

 

11

 

Restricted Stock

 

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

 

The following table summarizes restricted stock activity during the nine months ended September 30, 2020:

 


 

      

Weighted-

 
      

Average

 
      

Grant Date

 
  

Restricted

  

Fair Value

 
  

Stock

  

Per Share

 

Restricted stock at December 31, 2019

  314,973  $89.55 
Granted  108,179   117.76 
Restrictions lapsed  (100,596)  84.57 
Forfeited  (12,221)  92.61 
Restricted stock at September 30, 2020  310,335  $98.84 

 


 

As of September 30, 2020, there was $24.3 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 2.6 years. 

 

12

 
 

Performance Stock

 

Performance stock units (PSUs) are expressed in terms of a target number of PSUs, with anywhere between 0 percent and 150 percent of that target number capable of being earned and vesting at the end of a three-year performance period depending on the Company’s performance in the final year of the performance period and the award recipient’s continued employment. The Company’s PSUs granted from 2017 to 2019 are based on performance conditions and the related compensation cost is based on the probability that the performance conditions will be achieved. The Company’s PSUs granted in 2020 are based on market conditions and the related compensation cost is based on the fair value at grant date calculated using a Monte Carlo pricing model.

 

The following table summarizes performance stock activity during the nine months ended September 30, 2020:

 


 

      

Weighted-

 
      

Average

 
      

Grant Date

 
  

Performance

  

Fair Value

 
  

Stock

  

Per Share

 

Performance stock at December 31, 2019

  9,383  $58.35 

Granted

  19,956   118.66 

Restrictions lapsed

  (7,113)  58.35 

Performance change

  -   - 

Forfeited

  (2,270)  58.35 

Performance stock at September 30, 2020

  19,956  $118.66 

 


 

The following table provides the assumptions used in the Monte Carlo pricing model valuation of PSUs during the nine months ended September 30, 2020:

 


 

  

Nine Months Ended September 30,

  

2020

 

Risk-free interest rate

 1.41% 

Expected life (years)

 2.88 

Expected volatility

 38.70% 

Expected dividend yield

 0% 

 


 

As of September 30, 2020, there was $1.9 million of unrecognized compensation expense related to non-vested performance stock, which is expected to be recognized over a weighted-average period of 2.4 years. 

 

Employee Stock Purchase Plan

 

The following table presents the assumptions used to estimate the fair value of the ESPP during the nine months ended September 30, 2020 and 2019

 


 

  

Nine Months Ended September 30,

  

2020

 

2019

Risk-free interest rate

 

0.17 - 1.59%

 

2.33 - 2.35%

Expected life (months)

 6.00 6.00

Expected volatility

 

42.63 - 59.99%

 

37.36 - 53.57%

Expected dividend yield

 

0%

 

0%

 


 

13

 
 
 

 Note 9 – Accumulated Other Comprehensive Income (Loss)

 

Other comprehensive income (loss) is comprised entirely of foreign currency translation adjustments. The following table presents the changes in accumulated other comprehensive income (loss) balances during the three and nine months ended September 30, 2020 and 2019:

 


 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands)

 

2020

   

2019

   

2020

   

2019

 

Foreign currency translation adjustments

                               

Balance at beginning of period

  $ (9,634 )   $ (8,494 )   $ (7,018 )   $ (8,492 )

Other comprehensive income (loss) before reclassifications

    3,110       (2,150 )     494       (2,152 )

Amounts reclassified from accumulated other comprehensive loss

    -       -       -       -  

Net current-period other comprehensive income (loss)

    3,110       (2,150 )     494       (2,152 )

Balance at end of period

  $ (6,524 )   $ (10,644 )   $ (6,524 )   $ (10,644 )

 


 

 

Note 10 – 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  September 30, 2020 and 2019, the Company recorded an income tax provision of $3.7 million and $4.7 million, respectively. For the nine months ended  September 30, 2020 and 2019, the Company recorded an income tax provision of $10.1 million and $13.4 million, respectively. The income tax provision is based on the estimated annual effective tax rate for the year applied to pre-tax income. The effective income tax rate for the three months ended  September 30, 2020 was 20.1 percent compared to 21.9 percent in the same period of the prior year. The effective tax rate decreased by 1.8 percent for the three months ended  September 30, 2020 when compared to the same period in 2019 primarily due to an increase in tax benefits from the vesting of restricted stock and the exercise of stock options. The effective income tax rate for the nine months ended  September 30, 2020 was 19.7 percent compared to 21.6 percent in the same period of the prior year. The effective tax rate decreased by 1.9 percent for the nine months ended  September 30, 2020 when compared to the same period in 2019 primarily due to an increase in tax benefits from the vesting of restricted stock and the exercise of stock options.

 

The effective income tax rate for the nine months ended September 30, 2020 differs from the U.S. federal statutory rate of 21.0 percent due to various factors, including operating in multiple state and foreign jurisdictions and tax credits for which the Company qualifies.

 

The Company had unrecognized tax benefits totaling $4.9 million as of September 30, 2020 and $4.6 million as of  December 31, 2019, respectively, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to income tax matters in income tax expense, and reports the liability in current or long-term income taxes payable as appropriate.

 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The CARES Act is meant to infuse companies with various income and payroll tax cash benefits to ease the impact of the pandemic. A technical correction to the Tax Cuts and Jobs Act of 2017 was included in the CARES Act allowing qualified improvement property to claim bonus depreciation for respective assets placed in service in 2018 and 2019.  The impact of the CARES Act to the Company was a $2.6 million reduction in our income taxes payable and a corresponding increase to our deferred tax liability. In addition, the Company has elected to defer deposits of the employer portion of the Social Security tax for the quarter ended September 30, 2020 through the quarter ended December 31, 2020.  The Social Security taxes are being accrued for and will be paid beginning in 2021.

 

14

 
 
 

Note 11 – 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 nine months ended September 30, 2020 and 2019 were as follows:

 


 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

(in thousands)

 

2020

   

2019

   

2020

   

2019

 

Revenue:

                               

United States

  $ 85,608     $ 92,916     $ 262,507     $ 271,877  

Europe

    18,897       20,721       56,413       62,915  

Japan

    2,999       3,818       10,267       12,047  

Total revenue

  $ 107,504     $ 117,455     $ 329,187     $ 346,839  

 


 


 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

(in thousands)

 

2020

   

2019

   

2020

   

2019

 

Income from Operations:

                               

United States

  $ 25,164     $ 28,109     $ 74,602     $ 82,367  

Europe

    3,764       4,045       10,389       12,022  

Corporate Unallocated and Japan

    (11,259 )     (10,881 )     (36,146 )     (34,095 )

Total Income from Operations

  $ 17,669     $ 21,273     $ 48,845     $ 60,294  

 


 

Total long-lived assets at  September 30, 2020 and December 31, 2019 were as follows:

 


 

   

September 30,

   

December 31,

 

(in thousands)

 

2020

   

2019

 

Total long-lived assets:

               
United States   $ 219,425     $ 210,171  
Europe     54,628       45,019  
Japan     7,842       8,522  

Total Assets

  $ 281,895     $ 263,712  

 


 

Revenue by product line for the three and nine months ended September 30, 2020 and 2019 were as follows:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

(in thousands)

 

2020

   

2019

   

2020

   

2019

 

Revenue:

                               

Injection Molding

  $ 53,257     $ 55,167     $ 165,927     $ 165,935  

CNC Machining

    33,115       40,219       99,760       116,979  

3D Printing

    16,294       15,898       46,478       45,644  

Sheet Metal

    3,988       5,280       14,306       15,777  

Other Revenue

    850       891       2,716       2,504  

Total revenue

  $ 107,504     $ 117,455     $ 329,187     $ 346,839  

 

 

15

 
 

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, 2019.

 

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 the world’s largest and fastest digital manufacturer of custom prototypes and on-demand production parts. We manufacture prototypes 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. 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.

 

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.

 

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 aluminum molds and quick turnaround times help reduce design risk and limit overall production costs for product developers and engineers. Prototype quantities typically range from 25 to 100 parts. Because we retain possession of the molds, customers who need short-run production often come back to Protolabs’ 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 product offering. This product offering utilizes our existing processes, but is designed to fulfill the needs of customers with on-going production needs, typically in annual volumes of less than 10,000 parts.

 

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 product developer or engineer. CNC turning with live tooling combines both lathe and mill capabilities to machine parts with cylindrical features from metal rod stock. Our efficiencies derive from the automation of the programming of these machines and a proprietary fixturing process.

 

Quick-turn CNC machining works best for prototyping, form and fit testing, jigs and fixtures and functional components for end-use applications. The CNC Machining product line is well suited to produce small quantities, typically in the range of one to 1,000 parts.

 

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3D Printing

 

Our 3D Printing product line includes stereolithography, selective laser sintering, direct metal laser sintering, Multi Jet Fusion, PolyJet and digital light synthesis processes, which offer 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 produced in small quantities, typically in the range of one to several hundred parts.

 

Sheet Metal

 

Our Sheet Metal product line includes quick-turn and e-commerce-enabled custom sheet metal parts, which provides 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 product developer or engineer to fabricate quick-turn prototype sheet metal or short-run production parts. The Sheet Metal product line is well suited to produce quantities in the range of one to 500 parts.

 

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 expanding the breadth of our product offerings, gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including:

 

 

expanding the breadth and scope of each of our product lines by adding more sizes and materials to our offerings;

 

 

 

 

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

 

 

 

 

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

 

 

 

 

the introduction of our Sheet Metal product line through our acquisition of Rapid Manufacturing Group, LLC (RAPID) in 2017; and

 

 

 

 

continuously improving the usability of our product lines such as our web-centric applications.

 

During the three months ended September 30, 2020, we served 18,796 unique product developers and engineers who purchased our products through our web-based customer interface, a decrease of 12.5% over the same period in 2019. During the nine months ended September 30, 2020, we served 37,504 unique product developers and engineers who purchased our products through our web-based customer interface, a decrease of 8.1% over the same period in 2019. The economic uncertainty arising from the COVID-19 pandemic has impacted the number of product developers and engineers who purchase our products. While we expect the number of product developers and engineers served to grow in the long-term, challenges posed by the COVID-19 pandemic on the global economy have continued through the date of this report. Steps taken by national and local governments to slow the spread of the virus, including business shutdowns and shelter in place orders, have hindered the ability and willingness of project developers and engineers to proceed with development and commercialization projects on the same scale as they have historically.  At this time, it is difficult to predict the future given the current economic uncertainty and evolving market conditions.

 

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 custom 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, but remain relatively constant as a percentage of total revenue.

 

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 and foreign exchange rates.

 

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Operating Expenses

 

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

 

Our recent decrease in operating expenses is mainly due to cost saving measures implemented as a result of the COVID-19 pandemic. However, our long-term business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, CNC-turned, 3D-printed and sheet metal custom parts for prototyping and low-volume production. In order to achieve our long-term goals and support our revenue growth, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses. 

 

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. 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. We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization.

 

Other Income, net

 

Other income, 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, we expect our effective tax rate for 2020 and beyond will remain consistent based on the current tax laws.

 

Market Conditions 

 

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic. The full financial impact of COVID-19 is unknown at this time and will depend on the duration of government restrictions, including travel restrictions, quarantines, shelter in place orders and shutdowns and duration of the economic slowdown and nature and timing of a recovery. The Company has been deemed an essential business and all of our global manufacturing operations have remained open. The Company has activated a global, cross-functional response team, which is closely monitoring the situation and implementing additional safety measures to help ensure the well-being of our employees, customers and suppliers, to minimize disruptions and provide for the safe and reliable supply of products to our customers. In accordance with the guidance provided by both the World Health Organization and the U.S. Centers for Disease Control and Prevention, the Company has implemented safe work practices, including social distancing and work from home guidelines.

 

We are actively monitoring key product availability and continue to stay connected with our customers to understand impacts on their operations. All of these efforts will help us better plan and prepare, so we can continue to be a leading supplier of custom parts. In anticipation of exposure due to an economic slowdown driven by COVID-19, the Company increased its bad debt reserve by $0.9 million during the nine months ended September 30, 2020.

 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The CARES Act is meant to infuse companies with various income and payroll tax cash benefits to ease the impact of the pandemic. A technical correction to the Tax Cuts and Jobs Act of 2017 was included in the CARES Act allowing qualified improvement property to claim bonus depreciation for respective assets placed in service in 2018 and 2019.  The impact of the CARES Act to the Company was a $2.6 million reduction in our income taxes payable and a corresponding increase to our deferred tax liability. In addition, the Company has elected to defer deposits of the employer portion of the Social Security tax for the quarter ended September 30, 2020 through the quarter ended December 31, 2020.  The Social Security taxes are being accrued for and will be paid beginning in 2021.

 

See "Risk Factors" in Item 1A of this Quarterly Report on Form 10-Q for further information of the possible impact of the COVID-19 pandemic on our business. 

 

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Results of Operations

 

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

 


 

   

Three Months Ended September 30,

   

Change

   

Nine Months Ended September 30,

   

Change

 

(dollars in thousands)

 

2020

   

2019

   

$

   

%

   

2020

   

2019

   

$

   

%

 

Revenue

  $ 107,504       100.0     $ 117,455       100.0     $ (9,951 )     (8.5 )   $ 329,187       100.0     $ 346,839       100.0     $ (17,652 )     (5.1 )

Cost of revenue

    52,861       49.2       57,839       49.2       (4,978 )     (8.6 )     163,988       49.8       168,127       48.5       (4,139 )     (2.5 )

Gross profit

    54,643       50.8       59,616       50.8       (4,973 )     (8.3 )     165,199       50.2       178,712       51.5       (13,513 )     (7.6 )

Operating expenses:

                                                                                               

Marketing and sales

    16,705       15.5       17,604       15.0       (899 )     (5.1 )     51,821       15.7       55,466       16.0       (3,645 )     (6.6 )

Research and development

    7,915       7.4       8,359       7.1       (444 )     (5.3 )     25,550       7.9       24,541       7.1       1,009       4.1  

General and administrative

    12,354       11.5       12,380       10.5       (26 )     (0.2 )     38,983       11.8       38,411       11.0       572       1.5  

Total operating expenses

    36,974       34.4       38,343       32.6       (1,369 )     (3.6 )     116,354       35.4       118,418       34.1       (2,064 )     (1.7 )

Income from operations

    17,669       16.4       21,273       18.2       (3,604 )     (16.9 )     48,845       14.8       60,294       17.4       (11,449 )     (19.0 )

Other income, net

    728       0.7       228       0.1       500       219.3       2,549       0.8       1,566       0.4       983       62.8  

Income before income taxes

    18,397       17.1       21,501       18.3       (3,104 )     (14.4 )     51,394       15.6       61,860       17.8       (10,466 )     (16.9 )

Provision for income taxes

    3,700       3.4       4,709       4.0       (1,009 )     (21.4 )     10,106       3.1       13,391       3.8       (3,285 )     (24.5 )

Net income

  $ 14,697       13.7 %   $ 16,792       14.3 %   $ (2,095 )     (12.5 )%   $ 41,288       12.5 %   $ 48,469       14.0 %   $ (7,181 )     (14.8 )%

 


 

Stock-based compensation expense included in the statements of operations data above for the three and nine months ended September 30, 2020 and 2019 was as follows:

 


 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 

(dollars in thousands)

 

2020

   

2019

   

2020

   

2019

 

Stock options and restricted stock

  $ 3,624     $ 2,886     $ 9,693     $ 8,858  

Employee stock purchase plan

    321       326       924       880  

Total stock-based compensation expense

  $ 3,945     $ 3,212     $ 10,617     $ 9,738  
                                 

Cost of revenue

  $ 646     $ 560     $ 1,761     $ 1,466  

Operating expenses:

                               

Marketing and sales

    865       760       2,233       1,923  

Research and development

    638       560       1,766       1,486  

General and administrative

    1,796       1,332       4,857       4,863  

Total stock-based compensation expense

  $ 3,945     $ 3,212     $ 10,617     $ 9,738  

 


 

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Table of Contents

 

Comparison of Three Months Ended September 30, 2020 and 2019

 

Revenue

 

Revenue by reportable segment and the related changes for the three months ended September 30, 2020 and 2019 were as follows:

 


 

   

Three Months Ended September 30,

                 
   

2020

   

2019

   

Change

 

(dollars in thousands)

 

$

   

% of Total Revenue

   

$

   

% of Total Revenue

    $    

%

 

Revenue

                                               

United States

  $ 85,608       79.6 %   $ 92,916       79.1 %   $ (7,308 )     (7.9 )%

Europe

    18,897       17.6       20,721       17.6       (1,824 )     (8.8 )

Japan

    2,999       2.8       3,818       3.3       (819 )     (21.5 )

Total revenue

  $ 107,504       100.0 %   $ 117,455       100.0 %   $ (9,951 )     (8.5 )%

 


 

Our revenue decreased $10.0 million, or 8.5%, for the three months ended September 30, 2020 compared to the same period in 2019. By reportable segment, revenue in the United States decreased $7.3 million, or 7.9%, for the three months ended September 30, 2020 compared to the same period in 2019. Revenue in Europe decreased $1.8 million, or 8.8%, and revenue in Japan decreased $0.8 million, or 21.5%, in each case for the three months ended September 30, 2020 compared to the same period in 2019. Our revenue in Europe was impacted by foreign currency exchange rates. Excluding the $0.8 million impact of the changes in foreign currency exchange rates, the decrease in Europe revenue would have been 12.8%. In addition, our revenue in each region was impacted by a decline in order activity driven by current economic conditions as a result of the COVID-19 pandemic.

 

Our revenue decline during the three months ended September 30, 2020 was the result of a decrease in the volume of product developers and engineers we served. During the three months ended September 30, 2020, we served 18,796 unique product developers and engineers, a decrease of 12.5% over the same period in 2019. The economic uncertainty arising from the COVID-19 pandemic has impacted the number of product developers and engineers who purchase our products. While we expect the number of product developers and engineers served to grow in the long-term, challenges posed by the COVID-19 pandemic on the global economy have continued through the date of this report. Steps taken by national and local governments to slow the spread of the virus, including business shutdowns and shelter in place orders, have hindered the ability and willingness of project developers and engineers to proceed with development and commercialization projects on the same scale as they have historically.  At this time, it is difficult to predict the future given the current economic uncertainty and evolving market conditions.

 

The decrease in product developers served led to a reduction in overall order activity as a result of the economic uncertainty created by the COVID-19 pandemic, which in turn resulted in a decrease in revenue. International revenue was positively impacted by $0.9 million during the three months ended September 30, 2020 compared to the same period in 2019 as a result of foreign currency movements, primarily the strengthening of the British Pound and Euro relative to the United States Dollar.

 

Revenue by product line and the related changes for the three months ended September 30, 2020 and 2019 were as follows:

 


 

   

Three Months Ended September 30,

                 
   

2020

   

2019

   

Change

 

(dollars in thousands)

 

$

   

% of Total Revenue

   

$

   

% of Total Revenue

    $    

%

 

Revenue

                                               
Injection Molding   $ 53,257       49.5 %   $ 55,167       47.0 %   $ (1,910 )     (3.5 )%
CNC Machining     33,115       30.8       40,219       34.2       (7,104 )     (17.7 )
3D Printing     16,294       15.2       15,898       13.5       396       2.5  
Sheet Metal     3,988       3.7       5,280       4.5       (1,292 )     (24.5 )
Other Revenue     850       0.8       891       0.8       (41 )     (4.6 )

Total revenue

  $ 107,504       100.0 %   $ 117,455       100.0 %   $ (9,951 )     (8.5 )%

 


 

By product line, our revenue decrease was driven by a 3.5% decrease in Injection Molding revenue, a 17.7% decrease in CNC Machining revenue, a 24.5% decrease in Sheet Metal revenue and a 4.6% decrease in Other Revenue, which was partially offset by a 2.5% increase in 3D Printing revenue, in each case for the three months ended September 30, 2020 compared to the same period in 2019.

 

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Table of Contents

 

Cost of Revenue, Gross Profit and Gross Margin

 

Cost of Revenue. Cost of revenue decreased $5.0 million, or 8.6%, for the three months ended September 30, 2020 compared to the same period in 2019, which was slightly greater than the rate of revenue decrease of 8.5% for the three months ended September 30, 2020 compared to the same period in 2019. The decrease in cost of revenue was primarily driven by lower variable costs associated with lower revenue volumes and cost saving measures implemented as a result of the COVID-19 pandemic. Specifically, the decreases were driven by a decrease in direct labor headcount and hours worked resulting in personnel and related cost decreases of $2.8 million and raw material and production cost decreases of $3.5 million, which were partially offset by equipment and facility-related cost increases of $1.3 million to support future growth of the business.

 

Gross Profit and Gross Margin. Gross profit decreased from $59.6 million in the three months ended September 30, 2019 to $54.6 million in the three months ended September 30, 2020, primarily due to lower revenue volumes offset by cost-saving measures implemented as a result of the COVID-19 pandemic and the timing and mix of revenue. Gross margin was 50.8% in each of the three months ended September 30, 2020 and 2019.

 

Operating Expenses, Other Income, net and Provision for Income Taxes

 

Marketing and Sales. Marketing and sales expenses decreased $0.9 million, or 5.1%, during the three months ended September 30, 2020 compared to the same period in 2019 due primarily to personnel and related cost decreases of $0.4 million as well as marketing program cost decreases of $0.5 million.

 

Research and Development. Our research and development expenses decreased $0.4 million, or 5.3%, during the three months ended September 30, 2020 compared to the same period in 2019 due to a decrease in headcount resulting in personnel and related cost decreases of $0.4 million.

 

General and Administrative. Our general and administrative expenses remained consistent during the three months ended September 30, 2020 compared to the same period in 2019 due to administrative cost decreases of $0.6 million, amortization cost decreases of $0.1 million and professional service cost decreases of $0.1 million, which were partially offset by personnel and related cost increases of $0.3 million and stock-based compensation cost increases of $0.5 million.

  

Other Income, net. We recognized other income, net of $0.7 million for the three months ended September 30, 2020, an increase of $0.5 million compared to other income, net of $0.2 million for the three months ended September 30, 2019. Other income, net for the three months ended September 30, 2020 primarily consisted of $0.3 million in interest income on investments, a $0.3 million gain on foreign currency and $0.1 million in other income. Other income, net for the three months ended September 30, 2019 primarily consisted of $0.5 million in interest income on investments, which was partially offset by a $0.3 million loss on foreign currency.

 

Provision for Income Taxes. Our effective tax rate of 20.1% for the three months ended September 30, 2020 decreased 1.8% compared to 21.9% for the same period in 2019. The decrease in the effective tax rate is primarily due to an increase in tax benefits from the exercise of stock options. Our income tax provision of $3.7 million for the three months ended September 30, 2020 decreased $1.0 million compared to our income tax provision of $4.7 million for the three months ended September 30, 2019, due to a combination of lower pre-tax income and the lower effective tax rate.

 

21

 

Comparison of Nine Months Ended September 30, 2020 and 2019

 

Revenue

 

Revenue by reportable segment and the related changes for the nine months ended September 30, 2020 and 2019 were as follows:

 


 

   

Nine Months Ended September 30,

                 
   

2020

   

2019

   

Change

 

(dollars in thousands)

  $    

% of Total Revenue

    $    

% of Total Revenue

    $    

%

 

Revenue

                                               

United States

  $ 262,507       79.8 %   $ 271,877       78.4 %   $ (9,370 )     (3.4 )%

Europe

    56,413       17.1       62,915       18.1       (6,502 )     (10.3 )

Japan

    10,267       3.1       12,047       3.5       (1,780 )     (14.8 )

Total revenue

  $ 329,187       100.0 %   $ 346,839       100.0 %   $ (17,652 )     (5.1 )%

 


 

Our revenue decreased $17.7 million, or 5.1%, for the nine months ended September 30, 2020 compared to the same period in 2019. By reportable segment, revenue in the United States decreased $9.4 million, or 3.4%, for the nine months ended September 30, 2020 compared to the same period in 2019. Revenue in Europe decreased $6.5 million, or 10.3%, and revenue in Japan decreased $1.8 million, or 14.8%, in each case for the nine months ended September 30, 2020 compared to the same period in 2019. Our revenue in Europe was impacted by foreign currency exchange rates. Excluding the $0.2 million impact of the changes in foreign currency exchange rates, the decrease in Europe revenue would have been 10.0%. In addition, our revenue in each region was impacted by a decline in order activity driven by current economic conditions as a result of the COVID-19 pandemic.

 

Our revenue decline during the nine months ended September 30, 2020 was the result of a decrease in the volume of product developers and engineers we served. During the nine months ended September 30, 2020, we served 37,504 unique product developers and engineers, a decrease of 8.1% over the same period in 2019. The economic uncertainty arising from the COVID-19 pandemic has impacted the number of product developers and engineers who purchase our products. While we expect the number of product developers and engineers served to grow in the long-term, challenges posed by the COVID-19 pandemic on the global economy have continued through the date of this report. Steps taken by national and local governments to slow the spread of the virus, including business shutdowns and shelter in place orders, have hindered the ability and willingness of project developers and engineers to proceed with development and commercialization projects on the same scale as they have historically.  At this time, it is difficult to predict the future given the current economic uncertainty and evolving market conditions.

 

The decrease in product developers served led to a reduction in overall order activity as a result of the economic uncertainty created by the COVID-19 pandemic, which in turn resulted in a decrease in revenue. International revenue was negatively impacted by $0.1 million during the nine months ended September 30, 2020 compared to the same period in 2019 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar.

 

Revenue by product line and the related changes for the nine months ended September 30, 2020 and 2019 were as follows:

 


 

   

Nine Months Ended September 30,

                 
   

2020

   

2019

   

Change

 

(dollars in thousands)

  $    

% of Total Revenue

    $    

% of Total Revenue

    $    

%

 

Revenue

                                               

Injection Molding

  $ 165,927       50.4 %   $ 165,935       47.8 %   $ (8 )     (0.0 )%

CNC Machining

    99,760       30.3       116,979       33.7       (17,219 )     (14.7 )

3D Printing

    46,478       14.1       45,644       13.2       834       1.8  

Sheet Metal

    14,306       4.4       15,777       4.5       (1,471 )     (9.3 )

Other Revenue

    2,716       0.8       2,504       0.8       212       8.5  

Total revenue

  $ 329,187       100.0 %   $ 346,839       100.0 %   $ (17,652 )     (5.1 )%

 


 

By product line, our revenue decrease was driven by a 14.7% decrease in CNC Machining revenue and a 9.3% decrease in Sheet Metal revenue, which was partially offset by a 1.8% increase in 3D Printing revenue and an 8.5% increase in Other Revenue, in each case for the nine months ended September 30, 2020 compared to the same period in 2019.

 

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Cost of Revenue, Gross Profit and Gross Margin

 

Cost of Revenue. Cost of revenue decreased $4.1 million, or 2.5%, for the nine months ended September 30, 2020 compared to the same period in 2019, which was less than the rate of revenue decrease of 5.1% for the nine months ended September 30, 2020 compared to the same period in 2019. The decreases were driven by a $4.3 million decrease in raw material and production costs and a $2.7 million decrease in personnel and related cost, which was partially offset by a $2.9 million increase in equipment and facility-related costs to support future growth of the business.

 

Gross Profit and Gross Margin. Gross profit decreased from $178.7 million in the nine months ended September 30, 2019 to $165.2 million in the nine months ended September 30, 2020 primarily due to a decrease in revenue. Gross margin decreased from 51.5% in the nine months ended September 30, 2019 to 50.2% in the nine months ended September 30, 2020 due to the fixed cost structure of our facilities and equipment supporting lower revenue this year and the timing and mix of revenue.

 

Operating Expenses, Other Income, net and Provision for Income Taxes

 

Marketing and Sales. Marketing and sales expenses decreased $3.6 million, or 6.6%, during the nine months ended September 30, 2020 compared to the same period in 2019 due primarily to personnel and related cost decreases of $1.6 million as well as marketing program cost decreases of $2.0 million.

 

Research and Development. Our research and development expenses increased $1.0 million, or 4.1%, during the nine months ended September 30, 2020 compared to the same period in 2019 due to an increase in headcount resulting in personnel and related cost increases of $1.1 million and operating cost increases of $0.2 million, which were partially offset by professional services decreases of $0.3 million.

 

General and Administrative. Our general and administrative expenses increased $0.6 million, or 1.5%, during the nine months ended September 30, 2020 compared to the same period in 2019 due to personnel and related cost increases of $1.6 million and professional services increases of $0.1 million, which were partially offset by a $0.4 million decrease in amortization cost and a $0.7 million decrease in administrative costs.

  

Other Income, net. We recognized other income, net of $2.6 million for the nine months ended September 30, 2020, an increase of $1.0 million compared to other income, net of $1.6 million for the nine months ended September 30, 2019. Other income, net for the nine months ended September 30, 2020 primarily consisted of $1.2 million in interest income on investments and a $1.2 million gain on foreign currency. Other income, net for the nine months ended September 30, 2019 primarily consisted of $1.5 million in interest income on investments.

 

Provision for Income Taxes. Our effective tax rate of 19.7% for the nine months ended September 30, 2020 decreased 1.9% compared to 21.6% for the same period in 2019. The decrease in the effective tax rate is primarily due to an increase in tax benefits from the vesting of restricted stock and the exercise of stock options. Our income tax provision of $10.1 million for the nine months ended September 30, 2020 decreased $3.3 million compared to our income tax provision of $13.4 million for the nine months ended September 30, 2019.

 

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Liquidity and Capital Resources

 

Cash Flows

 

The following table summarizes our cash flows during the nine months ended September 30, 2020 and 2019:

 


 

   

Nine Months Ended September 30,

 

(dollars in thousands)

 

2020

   

2019

 

Net cash provided by operating activities

  $ 82,375     $ 83,779  

Net cash used in investing activities

    (77,657 )     (13,242 )

Net cash used in financing activities

    (12,379 )     (33,455 )

Effect of exchange rates on cash and cash equivalents

    690       (560 )

Net (decrease) increase in cash and cash equivalents

  $ (6,971 )   $ 36,522  

 


 

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 $118.3 million as of September 30, 2020, a decrease of $7.0 million from December 31, 2019. The decrease in our cash was primarily due to cash used in investing activity including net investments in marketable securities of $34.2 million and purchases of property, equipment and other capital assets of $40.5 million and repurchases of common stock of $14.7 million, which were partially offset by cash generated through operations of $82.4 million.

 

Cash Flows from Operating Activities

 

Cash flows from operating activities were $82.4 million during the nine months ended September 30, 2020 and primarily consisted of net income of $41.3 million, adjusted for certain non-cash items, including depreciation and amortization of $23.9 million, stock-based compensation expense of $10.6 million and deferred taxes of $6.6 million. Cash flows from operating activities were $83.8 million during the nine months ended September 30, 2019 and primarily consisted of net income of $48.5 million, adjusted for certain non-cash items, including depreciation and amortization of $22.7 million, stock-based compensation expense of $9.7 million, deferred taxes of $1.6 million and changes in operating assets and liabilities and other items totaling $1.3 million.

 

Cash flows from operating activities decreased $1.4 million during the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to decreases in net income of $7.2 million and decreases in changes in operating assets and liabilities of $0.8 million driven by timing of cash receipts and payments, which were partially offset by increases in deferred taxes of $5.0 million, increases in depreciation and amortization of $1.2 million and increases of $0.4 million in other items.

 

Cash Flows from Investing Activities

 

Cash used in investing activities was $77.7 million during the nine months ended September 30, 2020, consisting of $34.2 million in net investments in marketable securities, $40.5 million for the purchases of property, equipment and other capital assets and $3.0 million for purchases of other assets and investments.

 

Cash used in investing activities was $13.2 million during the nine months ended September 30, 2019, consisting of $46.2 million for the purchases of property, equipment and other capital assets and $4.0 million for purchases of other assets and investments, which were partially offset by $37.0 million in net proceeds from maturities of marketable securities.

 

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Table of Contents

 

Cash Flows from Financing Activities

 

Cash used in financing activities was $12.4 million during the nine months ended September 30, 2020, consisting of $14.7 million in repurchases of common stock and $3.4 million in purchases of shares withheld for tax obligations associated with equity transactions, which were partially offset by $5.7 million in proceeds from the exercise of stock options.

 

Cash used in financing activities was $33.4 million during the nine months ended September 30, 2019, consisting of $33.5 million in repurchases of common stock and $2.4 million in purchases of shares withheld for tax obligations associated with equity transactions, which were partially offset by $2.5 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, 2019.

 

Recent Accounting Pronouncements

 

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

 

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Table of Contents

 

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 gains of $0.3 million and $1.2 million during the three and nine months ended September 30, 2020, respectively. We recognized foreign currency losses of $0.3 million and $0.2 million during the three and nine months ended September 30, 2019, respectively. The changes in foreign exchange rates had a positive impact on consolidated revenue of $0.9 million for the three months ended September 30, 2020 and a negative impact of $0.1 million for the nine months ended September 30, 2020 as compared to the same periods in 2019.

 

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Table of Contents

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

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Table of Contents

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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

 

Item 1A. Risk Factors

 

Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Except as presented below, there have been no material changes from the risk factors described in our Form 10-K.

 

Economic uncertainty arising from the recent COVID-19 pandemic has adversely affected our business and results of operations and could continue to do so in the future.

 

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic. The COVID-19 pandemic and associated counter-acting measures implemented by governments around the world, as well as increased business uncertainty, has adversely affected our business and results of operations and could continue to do so in the future. The Company is monitoring the global COVID-19 pandemic and has taken steps to mitigate the risks to our employees, customers, suppliers and other stakeholders. The Company has been deemed an essential business and all of our global manufacturing operations have remained open. The current business environment and quickly evolving market conditions require significant management judgment to interpret and quantify the actual and potential impact on our assumptions about future financial performance and operating cash flows. To the extent that changes in the current business environment continue to impact our ability to achieve levels of forecasted operating results and cash flows, if our stock price were to trade below book value per share for an extended period of time and/or should other events occur indicating the carrying value of our assets might be impaired, we may be required to recognize impairment losses on goodwill, intangible and tangible assets.

 

 

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

 

On February 9, 2017, we announced that our board of directors had 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. This authorization increases the stock repurchase program to $100 million. The timing and amount of any share repurchases will be determined by our management based on market conditions and other factors. 

 

The Company had no repurchases in the third quarter of 2020. During the nine months ended September 30, 2020, we repurchased 199,614 shares at an average price of $73.54 per share for an aggregate purchase price of $14.7 million.  We have $35.2 million remaining under this authorization.

 

Item 3. Defaults Upon Senior Securities

 

No matters to disclose.

 

Item 4. Mine Safety Disclosures

 

No matters to disclose.

 

Item 5. Other Information

 

No matters to disclose.

 

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Table of Contents

 

Item 6. Exhibits

 

The following documents are filed as part of this report:

 

Exhibit Number

 

Description of Exhibit

3.1(1)

 

Third Amended and Restated Articles of Incorporation of Proto Labs, Inc.

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

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

32.1

 

Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

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 (File No. 333-175745), 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 (File No. 001-35435), 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 (File No. 001-35435), filed with the Commission on November 8, 2016 and incorporated by reference herein.

 

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Table of Contents

 

SIGNATURE

 

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

 

 

 

Proto Labs, Inc.

 

 

 

 

 

Date: November 3, 2020

 

/s/ Victoria M. Holt

 

 

 

Victoria M. Holt

 

 

 

President and Chief Executive Officer

(Principal Executive Officer)

 

 

Date: November 3, 2020

 

/s/ John A. Way

 

 

 

John A. Way

 

 

 

Chief Financial Officer

(Principal Financial Officer)

 

 

30