Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2012

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)

(763) 479-3680

(Registrant’s telephone number, including area code)

Not Applicable

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

 

 

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.     x  Yes     ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).     x  Yes     ¨  No

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 24,325,937 shares of Common Stock, par value $0.001 per share, were outstanding at October 25, 2012.

 

 

 


Table of Contents

Proto Labs, Inc.

TABLE OF CONTENTS

 

Item

 

Description of Exhibit

   Page  
    
  PART I   

1.

  Financial Statements      3   

2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      16   

3.

  Quantitative and Qualitative Disclosures About Market Risk      27   

4.

  Controls and Procedures      28   
  PART II   

1.

  Legal Proceedings      29   

1A.

  Risk Factors      29   

2.

  Unregistered Sales of Equity Securities and Use of Proceeds      30   

6.

  Exhibits      30   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Proto Labs, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

     September 30,     December 31,  
     2012     2011  
     (Unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   $ 36,290      $ 8,135   

Short-term marketable securities

     21,704        250   

Accounts receivable, net of allowance for doubtful accounts of $158 and

    

$97 as of September 30, 2012 and December 31, 2011, respectively

     15,304        11,533   

Inventory

     4,343        3,797   

Prepaid expenses and other current assets

     3,997        3,430   

Deferred tax assets

     930        932   

Income taxes receivable

     245        —     
  

 

 

   

 

 

 

Total current assets

     82,813        28,077   

Property and equipment, net

     44,457        34,249   

Long-term marketable securities

     29,651        —     
  

 

 

   

 

 

 

Total assets

   $ 156,921      $ 62,326   
  

 

 

   

 

 

 

Liabilities, redeemable convertible preferred stock, redeemable common stock and shareholders' equity (deficit)

    

Current liabilities

    

Accounts payable

   $ 4,159      $ 4,431   

Accrued compensation

     5,516        4,767   

Accrued liabilities and other

     725        318   

Income taxes payable

     —          33   

Current portion of long-term debt obligations

     335        390   
  

 

 

   

 

 

 

Total current liabilities

     10,735        9,939   

Deferred tax liability

     4,252        4,252   

Long-term debt obligations

     401        613   

Other

     800        871   

Redeemable convertible stock

    

Redeemable convertible preferred stock, $0.001 par value, authorized, issued and outstanding 0 and 427,985 shares as of September 30, 2012 and December 31, 2011, respectively

     —          66,075   

Redeemable common stock, $0.001 par value, issued and outstanding 0 and 3,189,648 shares as of September 30, 2012 and December 31, 2011, respectively

     —          819   

Shareholders’ equity (deficit)

    

Preferred stock, $0.001 par value, authorized 10,000,000 and 0 shares; issued and outstanding 0 shares as of September 30, 2012 and December 31, 2011, respectively

     —          —     

Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 24,302,437 and 9,706,270 shares as of September 30, 2012 and December 31, 2011, respectively

     24        10   

Additional paid in capital

     138,075        8,229   

Accumulated equity (deficit)

     3,175        (27,744

Accumulated other comprehensive income (loss)

     (541     (738
  

 

 

   

 

 

 

Total shareholders’ equity (deficit)

     140,733        (20,243
  

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock, redeemable common stock and shareholders’ equity (deficit)

   $ 156,921      $ 62,326   
  

 

 

   

 

 

 

 

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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,  
     2012      2011     2012     2011  

Statements of Operations:

         

Revenue

   $ 32,454       $ 26,915      $ 92,375      $ 73,302   

Cost of revenue

     12,760         10,305        37,242        28,251   
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     19,694         16,610        55,133        45,051   

Operating expenses

         

Marketing and sales

     4,442         4,000        13,440        11,139   

Research and development

     2,561         1,304        6,622        3,639   

General and administrative

     3,118         3,038        10,394        8,297   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,121         8,342        30,456        23,075   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from operations

     9,573         8,268        24,677        21,976   

Other income (expense), net

     314         21        (90     18   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,887         8,289        24,587        21,994   

Provision for income taxes

     3,185         2,801        7,957        7,252   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     6,702         5,488        16,630        14,742   

Less: dividends on redeemable preferred stock

     —           (1,053     —          (3,126

Less: undistributed earnings allocated to preferred shareholders

     —           (1,415     —          (3,834
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

   $ 6,702       $ 3,020      $ 16,630      $ 7,782   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income per share:

         

Basic

   $ 0.28       $ 0.23      $ 0.72      $ 0.64   
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.26       $ 0.22      $ 0.68      $ 0.58   
  

 

 

    

 

 

   

 

 

   

 

 

 

Shares used to compute net income per share:

         

Basic

     24,052,409         12,895,918        22,975,950        12,162,808   

Diluted

     25,312,643         13,560,400        24,356,785        13,496,238   

Comprehensive income

   $ 6,756       $ 5,182      $ 16,827      $ 14,462   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

     Nine Months Ended  
     September 30,  
     2012     2011  

Operating activities

    

Net income

   $ 16,630      $ 14,742   

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

    

Depreciation and amortization

     4,380        3,009   

Stock-based compensation expense

     2,362        742   

Deferred taxes

     —          1,463   

Excess tax benefit from stock-based compensation

     (2,635     —     

Loss (gain) on disposal of property and equipment

     —          (11

Changes in operating assets and liabilities:

    

Accounts receivable

     (3,777     (4,423

Inventories

     (513     (1,252

Prepaid expenses and other

     (256     (93

Income taxes

     2,350        524   

Accounts payable

     (312     941   

Accrued liabilities and other

     1,032        3,693   
  

 

 

   

 

 

 

Net cash provided by operating activities

     19,261        19,335   
  

 

 

   

 

 

 

Investing activities

    

Purchases of property and equipment

     (14,435     (10,083

Purchases of marketable securities

     (61,395     —     

Proceeds from sale of marketable securities

     10,290        500   
  

 

 

   

 

 

 

Net cash used in investing activities

     (65,540     (9,583
  

 

 

   

 

 

 

Financing activities

    

Proceeds from initial public offering, net of offering costs

     71,530        —     

Payments on debt

     (289     (3,955

Proceeds from exercises of warrants and stock options

     728        547   

Excess tax benefit from stock-based compensation

     2,635        —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     74,604        (3,408
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (170     (92
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     28,155        6,252   

Cash and cash equivalents, beginning of period

     8,135        6,101   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 36,290      $ 12,353   
  

 

 

   

 

 

 

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

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of Presentation

The unaudited interim Consolidated Financial Statements of Proto Labs, Inc. (Proto Labs, 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. These statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s statement 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 prospectus filed on February 27, 2012 with the SEC pursuant to Rule 424(b)(4) of the Securities Act of 1933.

The accompanying Consolidated Balance Sheet as of December 31, 2011 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 prospectus filed on February 27, 2012 as referenced above.

On February 21, 2012, the Company executed a 14-for-1 forward stock split of the Company’s common stock. The consolidated financial statements for all periods and dates presented give retroactive effect to the stock split.

Note 2 – Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04). This accounting update generally aligns the principles for fair value measurements and the related disclosure requirements under U.S. GAAP and International Financial Reporting Standards (IFRS). From a U.S. GAAP perspective, the amendments are largely clarifications, but some could have a significant effect on certain companies. A number of new disclosures also are required. Except for certain disclosures, the guidance applies to public and nonpublic companies and is to be applied prospectively. For public and nonpublic companies, the amendments are effective during interim and annual periods beginning after December 15, 2011. The Company adopted this accounting guidance effective January 1, 2012. The adoption of ASU 2011-04 did not result in a material impact to the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05). This accounting update requires entities to present items of net income and other comprehensive income either in a single continuous statement, or in separate, but consecutive, statements of net income and other comprehensive income. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. However, the current option under existing standards to report other comprehensive income and its components in the statement of changes in equity is eliminated. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). The updated guidance defers the requirement in ASU 2011-05 to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. The amendments apply to public and nonpublic companies and are to be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this accounting guidance effective January 1, 2012 and has presented the items of net income and other comprehensive income in a single continuous statement in this report. The adoption of ASU 2011-05 and ASU 2011-12 did not result in a material impact to the Company’s financial statements.

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

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 the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options and other stock-based awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.

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)    2012      2011     2012      2011  

Net Income

   $ 6,702       $ 5,488      $ 16,630       $ 14,742   

Less: dividends on redeemable convertible preferred stock

     —           (1,053     —           (3,126

Less: undistributed earnings allocated to preferred shareholders

     —           (1,415     —           (3,834
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income attributable to common shareholders

   $ 6,702       $ 3,020      $ 16,630       $ 7,782   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic—weighted-average shares outstanding:

     24,052,409         12,895,918        22,975,950         12,162,808   

Effect of dilutive securities:

          

Employee stock options, warrants and other

     1,260,234         664,482        1,380,835         1,333,430   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted—weighted-average shares outstanding:

     25,312,643         13,560,400        24,356,785         13,496,238   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income per share attributable to common shareholders:

          

Basic

   $ 0.28       $ 0.23      $ 0.72       $ 0.64   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted

   $ 0.26       $ 0.22      $ 0.68       $ 0.58   
  

 

 

    

 

 

   

 

 

    

 

 

 

Weighted-average diluted shares for the three and nine month periods ended September 30, 2011 excludes redeemable convertible preferred stock as it was anti-dilutive for the periods.

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

The following table sets forth the calculation of unaudited pro forma net income per basic and diluted share which gives effect to the conversion of all outstanding shares of redeemable convertible preferred stock as if the conversion had occurred on January 1, 2011:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
(in thousands, except share and per share amounts)    2012      2011      2012      2011  

Net income attributable to common shareholders, as reported

   $ 6,702       $ 3,020       $ 16,630       $ 7,782   

Dividends on redeemable convertible preferred stock

     —           1,053         —           3,126   

Undistributed earnings allocated to preferred shareholders

     —           1,415         —           3,834   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma net income

   $ 6,702       $ 5,488       $ 16,630       $ 14,742   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic—weighted-average shares outstanding, as reported

     24,052,409         12,895,918         22,975,950         12,162,808   

Add: common shares from conversion of redeemable convertible preferred shares

     —           5,991,790         —           5,991,790   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma basic weighted average shares outstanding

     24,052,409         18,887,708         22,975,950         18,154,598   
  

 

 

    

 

 

    

 

 

    

 

 

 

Effect of dilutive securities:

           

Employee stock options and warrants

     1,260,234         664,482         1,380,835         1,333,430   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma diluted—weighted-average shares outstanding:

     25,312,643         19,552,190         24,356,785         19,488,028   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma net income per share attributable to common shareholders:

           

Basic

   $ 0.28       $ 0.29       $ 0.72       $ 0.81   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.26       $ 0.28       $ 0.68       $ 0.76   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 4 – 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 consists of the following:

 

     September 30,     December 31,  
(in thousands)    2012     2011  

Raw materials

   $ 4,080      $ 3,463   

Work in process

     347        418   
  

 

 

   

 

 

 

Total Inventory

     4,427        3,881   

Allowance for obsolescence

     (84     (84
  

 

 

   

 

 

 

Inventory, net of allowance

   $ 4,343      $ 3,797   
  

 

 

   

 

 

 

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 5 – Marketable Securities

The Company invests in short-term and long-term agency, municipal, corporate, commercial paper and other debt securities. The securities are categorized as held-to-maturity and are recorded at amortized cost. Categorization as held-to-maturity is based on the Company’s ability and intent to hold these securities to maturity. Information regarding the Company’s short-term and long-term marketable securities as of September 30, 2012 is as follows:

 

     September 30, 2012  
(in thousands)    Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
    Fair
Value
 

U.S. government agency securities

   $ 20,011       $ 2       $ (1   $ 20,012   

Corporate debt securities

     12,487         22         (8     12,501   

Commercial paper

     2,499         —           (5     2,494   

U.S. municipal securities

     11,662         3         (5     11,660   

Certificates of deposit/time deposits

     4,696         —           (4     4,692   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total marketable securities

   $ 51,355       $ 27       $ (23   $ 51,359   
  

 

 

    

 

 

    

 

 

   

 

 

 

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

The Company tests for other than temporary losses on a quarterly basis and has considered the unrealized losses indicated above to be temporary in nature. The Company intends to hold the investments to maturity and recover the full principal.

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, 2012 balance of held-to-maturity debt securities by contractual maturity is shown in the following table at amortized cost. 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)    2012  

Due in one year or less

   $ 21,704   

Due after one year through three years

     29,651   
  

 

 

 

Total marketable securities

   $ 51,355   
  

 

 

 

Note 6 – 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 which 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.

 

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Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

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 as of September 30, 2012 consist of money market mutual funds and marketable securities with a maturity date of less than 90 days at the time of purchase. The Company’s short-term marketable securities measured at fair value as of December 31, 2011 consisted of domestic certificates of deposits at various banks and treasury notes. The Company determines the fair value of these investments using Level 1 inputs.

A summary of financial assets as of September 30, 2012 and December 31, 2011 measured at fair value on a recurring basis follows:

 

     September 30, 2012      December 31, 2011  

(in thousands)

   Level 1      Level 2      Level 3      Level 1      Level 2      Level 3  

Financial Assets:

                 

Cash and cash equivalents

                 

Money market mutual fund

   $ 14,756       $ —         $ —         $ —         $ —         $ —     

U.S. municipal securities

     3,670         —           —           —           —           —     

Short-term marketable securities

                 

Certificates of deposit and treasury notes

     —           —           —           250         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,426       $ —         $ —         $ 250       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 7 – Shareholders’ Equity

Initial Public Offering

In February 2012, the Company issued 4.9 million shares of common stock (including the exercise of the underwriters’ over-allotment shares) in conjunction with its initial public offering (IPO). The public offering price of the shares sold in the offering was $16.00 per share. The total gross proceeds from the IPO to the Company were $79.1 million. After deducting underwriting discounts and commissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $71.5 million.

Immediately prior to the consummation of the IPO, all outstanding shares of redeemable convertible preferred stock and redeemable common stock were converted into shares of common stock. Shares of redeemable convertible preferred stock were converted into 5,991,790 shares of common stock. All previously accrued dividends on the preferred stock were released back into retained earnings. Shares of redeemable common stock were converted into 3,189,648 shares of common stock. Refer to the tables below for additional information regarding the conversion.

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

The following table presents equity transactions during the nine months ended September 30, 2012 (in thousands, except share data):

 

     Common Stock      Additional
Paid-In
    Accumulated     Accumulated
Other
Comprehensive
       
     Shares      Amount      Capital     Earnings (Deficit)     Income (Loss)     Total  

Balance at December 31, 2011

     9,706,270       $ 10       $ 8,229      $ (27,744   $ (738   $ (20,243

Common shares issued upon initial public offering

     4,945,000         5         71,525        —          —          71,530   

Common shares issued upon conversion of redeemable convertible preferred stock

     5,991,790         6         66,069        —          —          66,075   

Common shares issued upon conversion of redeemable common stock

     3,189,648         3         816        —          —          819   

Common shares issued on exercise of options and other

     469,729         —           728        —          —          728   

Excess tax benefit from stock option exercises

     —           —           2,635        —          —          2,635   

Preferred stock dividends

     —           —           (14,289     14,289        —          —     

Stock-based compensation expense

     —           —           2,362        —          —          2,362   

Net income

     —           —           —          16,630        —          16,630   

Other comprehensive income

              

Foreign currency translation adjustment

     —           —           —          —          197        197   
              

 

 

 

Total Comprehensive income

                 16,827   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

     24,302,437       $ 24       $ 138,075      $ 3,175      $ (541   $ 140,733   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Equity Incentive Plans

The Company has two equity incentive plans: the 2000 Stock Option Plan (2000 Plan) and the 2012 Long-Term Incentive Plan (2012 Plan). Upon the adoption of the 2012 Plan, all shares that were reserved under the 2000 Plan but not issued were assumed by the 2012 Plan. No additional shares will be issued under the 2000 Plan. Under the 2012 Plan, the Company has the ability to grant stock options, stock appreciation rights (SARs), restricted stock, stock units, other stock-based awards and cash incentive awards. Awards under the 2012 Plan will 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) became effective on February 23, 2012. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 percent of their eligible compensation, subject to plan limitations. The ESPP generally provides for six-month offering periods and 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. Due to the timing of the IPO, the initial offering period under the ESPP will run approximately eight-and-a-half months from the offering date of February 23, 2012 to November 15, 2012.

Stock-Based Compensation Expense

Stock-based compensation expense was $0.7 million and $0.3 million for the three months ended September 30, 2012 and 2011, and $2.4 million and $0.7 million for the nine months ended September 30, 2012 and 2011, respectively.

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Stock Options

A summary of stock option activity for the nine months ended September 30, 2012 is as follows:

 

           Weighted-  
           Average  
     Stock Options     Exercise Price  

Options outstanding at December 31, 2011

     2,099,300      $ 6.18   

Granted

     239,800        28.03   

Exercised

     (336,459     1.60   

Cancelled

     (500     30.58   
  

 

 

   

Options outstanding at September 30, 2012

     2,002,141      $ 9.56   
  

 

 

   

Exercisable at September 30, 2012

     1,014,774      $ 4.81   
  

 

 

   

The outstanding options generally have a term of ten years. For employees, options granted become exercisable ratably over the vesting period, which is generally a 5-year period, 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 for the nine months ended September 30, 2012 was $14.44.

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options:

 

     Nine months ended September 30,  
     2012     2011  

Risk-free interest rate

     0.95 - 1.16     3.68

Expected life (years)

     5.5 - 6.5        5.0   

Expected volatility

     53.00 - 53.14     47.32

Expected dividend yield

     0     0

As of September 30, 2012 there was $5.8 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.0 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, 2012:

 

     Nine months ended
September 30, 2012
 

Risk-free interest rate

     0.16

Expected life (months)

     8.5   

Expected volatility

     53.00

Expected dividend yield

     0

 

12


Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 8 – 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, 2012 and 2011 the Company recorded an income tax provision of $3.2 million and $2.8 million, respectively. For the nine months ended September 30, 2012 and 2011 the Company recorded an income tax provision of $8.0 million and $7.3 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, 2012 was 32.2 percent compared with 33.8 percent in the same period of the prior year. The effective income tax rate for the nine months ended September 30, 2012 was 32.4 percent compared with 33.0 percent in the same period of the prior year.

The effective income tax rate for the three and nine month periods ended September 30, 2012 differs from the U.S. federal statutory rate of 35 percent primarily due to the components of income.

The Company has liabilities related to unrecognized tax benefits totaling $0.4 million at September 30, 2012 and December 31, 2011 that if recognized would result in a reduction of the Company’s effective tax rate. There were no material adjustments to the unrecorded tax benefits during the three or nine month periods ended September 30, 2012, and the Company does not anticipate that total unrecognized tax benefits will materially change in the next twelve months. 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.

Note 9 – Segment and Geographic Information

The Company’s operations are comprised of three geographically-based operating segments in the United States, Europe and Japan included in the reportable segments of United States, Europe and Other. Each operating segment generates revenue by providing low-volume custom parts to product developers worldwide. Operations included in the category “Other” are not considered significant.

Certain operating expenses and total assets managed by the Company on a global basis are included in the United States segment. As a result, reportable segment income from operations is not representative of the income from operations of the geographies in the reportable segments.

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Revenue, income from operations, depreciation and amortization, provision for income taxes, capital expenditures and total assets by segment are as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
(in thousands)    2012     2011     2012     2011  

Revenue:

        

United States

   $ 25,582      $ 20,287      $ 72,652      $ 57,510   

Europe

     5,771        5,790        16,305        13,941   

Other

     1,101        838        3,418        1,851   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 32,454      $ 26,915      $ 92,375      $ 73,302   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations:

        

United States

   $ 8,362      $ 6,701      $ 22,396      $ 20,089   

Europe

     1,995        2,104        4,706        3,672   

Other

     (784     (537     (2,425     (1,785
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 9,573      $ 8,268      $ 24,677      $ 21,976   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

        

United States

   $ 1,261      $ 807      $ 3,360      $ 2,126   

Europe

     250        273        722        747   

Other

     101        47        298        136   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 1,612      $ 1,127      $ 4,380      $ 3,009   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes:

        

United States

   $ 2,990      $ 2,435      $ 7,420      $ 6,612   

Europe

     195        366        537        640   

Other

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 3,185      $ 2,801      $ 7,957      $ 7,252   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures:

        

United States

   $ 1,371      $ 3,301      $ 11,196      $ 8,302   

Europe

     377        450        1,706        1,425   

Other

     23        (18     1,533        356   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 1,771      $ 3,733      $ 14,435      $ 10,083   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(in thousands)

   September 30,
2012
     December 31,
2011
 

Total assets:

     

United States

   $ 139,438       $ 47,710   

Europe

     12,089         10,719   

Other

     5,394         3,897   
  

 

 

    

 

 

 

Consolidated

   $ 156,921       $ 62,326   
  

 

 

    

 

 

 

 

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Table of Contents

Proto Labs, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

The Company’s revenue is derived from its Protomold injection molding and Firstcut computer numerical control (CNC) machining product lines. Total revenue by product line is as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(in thousands)    2012      2011      2012      2011  

Revenue:

           

Protomold

   $ 23,458       $ 19,951       $ 66,697       $ 55,087   

First Cut

     8,996         6,964         25,678         18,215   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 32,454       $ 26,915       $ 92,375       $ 73,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue to external customers based on the billing location of the end user customer and long-lived assets by geographic region are as follows:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
(in thousands)    2012      2011      2012      2011  

Revenue:

           

United States

   $ 24,807       $ 19,434       $ 69,887       $ 54,723   

International

           

Europe

     5,771         5,790         16,305         13,941   

Other

     1,876         1,691         6,183         4,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total international

     7,647         7,481         22,488         18,579   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 32,454       $ 26,915       $ 92,375       $ 73,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     September 30,      December 31,  
(in thousands)    2012      2011  

Long-lived assets:

     

United States

   $ 36,667       $ 28,831   

International

     

Europe

     4,532         3,377   

Other

     3,258         2,041   
  

 

 

    

 

 

 

Total international

     7,790         5,418   
  

 

 

    

 

 

 

Total long-lived assets

   $ 44,457       $ 34,249   
  

 

 

    

 

 

 

 

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Table of Contents

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.

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 which 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 the “Risk Factors” section of the final prospectus relating to our IPO dated February 23, 2012, as filed with the SEC, as well as in our subsequent reports filed with the 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 a leading online and technology-enabled manufacturer of quick-turn CNC machined and injection-molded custom parts for prototyping and short-run production. We provide “Real Parts, Really Fast” to product developers worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We believe low-volume manufacturing has historically been an underserved market due to the inefficiencies inherent in the quotation, equipment set-up and non-recurring engineering processes required to produce custom parts. Our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts in low volumes, and our customers conduct nearly all of their business with us over the Internet. We target our services to the millions of product developers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets. Our primary manufacturing services currently include Firstcut, which is our CNC machining service, and Protomold, which is our plastic injection molding service.

Key Financial Measures and Trends

Revenue

The Company’s operations are comprised of three geographically-based operating segments in the United States, Europe and Japan included in the reportable segments of United States, Europe, and Other. Revenue within these segments is derived from our Firstcut and Protomold services. Firstcut revenue consists of sales of CNC machined custom parts. Protomold revenue consists of sales of custom injection molds and injection-molded parts. Our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities, offering additional services such as the introduction of our Firstcut service in 2007, expanding internationally such as the opening of our Japanese plant in 2009, improving the usability of our services such as our web-centric applications, and expanding the breadth and scope of our products such as by adding more sizes and materials to our offerings. During the nine months ended September 30, 2012, we sold our services to approximately 4,400 customer companies from our existing customer base, an increase of 34% over the comparable period in 2011, and to approximately 2,250 new customer companies gained during the nine months ended September 30, 2012, an increase of 15% over the comparable period in 2011.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists primarily of raw materials, employee salaries, bonuses, benefits, stock-based compensation, equipment depreciation and overhead allocations associated with the manufacturing process for molds and custom parts. 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 pricing, our sales volume, our manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources and foreign exchange rates. Our gross margins vary between geographic markets due primarily to the costs associated with starting new factories and our operating maturity in these markets. We believe that over time and with growth and maturity of our international business, gross margins will be generally consistent through all our markets.

 

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Table of Contents

Operating Expenses

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

Our recent growth in operating expenses is mainly due to higher headcounts to support our growth and expansion, and we expect that trend to continue. Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn CNC machined and injection-molded custom parts for prototyping and short-run production. For us to achieve our goals, 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 salaries, commissions, bonuses, benefits, stock-based compensation, marketing programs such as print and pay-per-click advertising, trade shows, direct mail 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.

Research and development. Research and development expense consists primarily of employee salaries, bonuses, benefits, stock-based compensation, depreciation on equipment, outside services and other related overhead. All of our research and development costs have been expensed as incurred. We expect research and development expense to increase in the future as we seek to enhance and expand our service offerings.

General and administrative. General and administrative expense consists primarily of employee salaries, bonuses, 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 on an absolute basis and as a percentage of revenue as we continue to grow and expand our operations and develop the infrastructure necessary to operate as a public company. These expenses will include increased audit and legal fees, costs of compliance with securities and other regulations, implementation costs for compliance with the provisions of the Sarbanes-Oxley Act, investor relations expense and higher insurance premiums.

Other Income (Expense), net

Other income (expense), net primarily consists of foreign currency-related gains and losses, interest income on cash balances and investments, and interest expense on borrowings. 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. Our interest expense will vary based on borrowings and interest rates.

Provision for Income Taxes

Provision for income taxes is comprised of federal, state, local and foreign taxes based on pre-tax income. We expect income taxes to increase as our taxable income increases and our effective tax rate to remain relatively constant.

Results of Operations

The following table sets forth a summary of 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.

 

17


Table of Contents
     Three Months Ended                  Nine Months Ended              
     September 30,     Change     September 30,     Change  
(dollars in thousands)    2012     2011     $      %     2012     2011     $     %  

Revenue

   $ 32,454         100.0   $ 26,915         100.0   $ 5,539         20.6   $ 92,375        100.0   $ 73,302         100.0   $ 19,073        26.0

Cost of revenue

     12,760         39.3        10,305         38.3        2,455         23.8        37,242        40.3        28,251         38.5        8,991        31.8   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     19,694         60.7        16,610         61.7        3,084         18.6        55,133        59.7        45,051         61.5        10,082        22.4   

Operating expenses:

                            

Marketing and sales

     4,442         13.7        4,000         14.9        442         11.1        13,440        14.5        11,139         15.2        2,301        20.7   

Research and development

     2,561         7.9        1,304         4.8        1,257         96.4        6,622        7.2        3,639         5.0        2,983        82.0   

General and administrative

     3,118         9.6        3,038         11.3        80         2.6        10,394        11.3        8,297         11.3        2,097        25.3   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,121         31.2        8,342         31.0        1,779         21.3        30,456        33.0        23,075         31.5        7,381        32.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income from operations

     9,573         29.5        8,268         30.7        1,305         15.8        24,677        26.7        21,976         30.0        2,701        12.3   

Other income (expense), net

     314         1.0        21         0.1        293         *        (90     (0.1     18         0.0        (108     *   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,887         30.5        8,289         30.8        1,598         19.3        24,587        26.6        21,994         30.0        2,593        11.8   

Provision for income taxes

     3,185         9.8        2,801         10.4        384         13.7        7,957        8.6        7,252         9.9        705        9.7   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 6,702         20.7   $ 5,488         20.4   $ 1,214         22.1   $ 16,630        18.0   $ 14,742         20.1   $ 1,888        12.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

* Not meaningful

Stock-based compensation expense included in the statements of operations data above is as follows:

 

     Three months ended September 30,      Nine months ended September 30,  
(dollars in thousands)    2012      2011      2012      2011  

Stock options and grants

   $ 584       $ 331       $ 1,993       $ 742   

Employee stock purchase plan

     158         —           369         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 742       $ 331       $ 2,362       $ 742   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of revenue

   $ 103       $ 19       $ 248       $ 58   

Operating expenses:

           

Marketing and sales

     117         60         300         154   

Research and development

     142         69         346         206   

General and administrative

     380         183         1,468         324   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 742       $ 331       $ 2,362       $ 742   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparison of Three Months Ended September 30, 2012 and 2011

Revenue

Revenue by product line and the related changes for the three months ended September 30, 2012 and 2011 were as follows:

 

     Three Months Ended September 30,               
     2012     2011     Change  
(dollars in thousands)    $      % of  Total
Revenue
    $      % of  Total
Revenue
    $      %  

Revenue

               

Protomold

   $ 23,458         72.3   $ 19,951         74.1   $ 3,507         17.6

First Cut

     8,996         27.7        6,964         25.9        2,032         29.2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 32,454         100.0   $ 26,915         100.0   $ 5,539         20.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Revenue by geographic region, based on the billing location of the end customer, is summarized as follows:

 

     Three Months Ended September 30,               
     2012     2011     Change  
(dollars in thousands)    $      % of  Total
Revenue
    $      % of  Total
Revenue
    $      %  

Revenue

               

United States

   $ 24,807         76.4   $ 19,434         72.2   $ 5,373         27.6

International

     7,647         23.6        7,481         27.8        166         2.2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 32,454         100.0   $ 26,915         100.0   $ 5,539         20.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Our revenue increased $5.5 million, or 20.6%, for the three months ended September 30, 2012 compared to the same period in 2011. Our revenue growth was driven by a 27.6% increase in U.S. revenue, a 2.2% increase in international revenue, a 17.6% increase in Protomold revenue and a 29.2% increase in Firstcut revenue, in each case for the three months ended September 30, 2012 compared to the same period in 2011. Our revenue increases were primarily driven by greater spending on marketing and increases in sales personnel. The effect of pricing changes on revenue was immaterial for the three months ended September 30, 2012 compared to the same period in 2011.

Revenue by reportable segment is summarized as follows:

 

     Three Months Ended September 30,              
     2012     2011     Change  
(dollars in thousands)    $      % of  Total
Revenue
    $      % of  Total
Revenue
    $     %  

Revenue

              

United States

   $ 25,582         78.8   $ 20,287         75.4   $ 5,295        26.1

Europe

     5,771         17.8        5,790         21.5        (19     (0.3

Other

     1,101         3.4        838         3.1        263        31.4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenue

   $ 32,454         100.0   $ 26,915         100.0   $ 5,539        20.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

For our United States segment, revenue increased $5.3 million, or 26.1%, for the three months ended September 30, 2012 compared to the same period in 2011. Our United States revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

Revenue for our Europe segment was relatively flat for the three months ended September 30, 2012 compared to the same period in 2011. Our recent revenue growth in Europe has been tempered by economic uncertainty in the region.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $2.5 million, or 23.8%, for the three months ended September 30, 2012 compared to the same period in 2011 due to raw material and production cost increases of $0.8 million to support increased sales volumes, equipment and facility-related cost increases of $0.4 million and an increase in direct labor headcount resulting in personnel and related cost increases of $1.3 million.

Gross Profit and Gross Margin. Gross profit increased due to increases in revenue offset by the cost of revenue as discussed above. Gross margin decreased primarily as a result of increases in direct labor personnel and a slight decline in equipment utilization, which resulted from the increase in capacity related to capital equipment acquisition.

 

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

Marketing and Sales. Marketing and sales expense increased $0.4 million, or 11.1%, for the three months ended September 30, 2012 compared to the same period in 2011 due primarily to an increase in headcount resulting in personnel and related costs.

Research and Development. Our research and development expense increased $1.3 million, or 96.4%, for the three months ended September 30, 2012 compared to the same period in 2011 due to an increase in headcount resulting in personnel and related cost increases of $0.3 million, operating cost increases of $0.3 million and professional services of $0.7 million for outside consulting services.

General and Administrative. Our general and administrative expense increased $0.1 million, or 2.6%, for the three months ended September 30, 2012 compared to the same period in 2011 due primarily to stock-based compensation increases of $0.2 million offset by a reduction of personnel related costs of $0.1 million.

Other Income (Expense), net. Other income, net increased $0.3 million for the three months ended September 30, 2012 compared to the same period in 2011 due to changes in foreign currency rates.

Provision for Income Taxes. Our income tax provision increased $0.4 million to $3.2 million while our effective tax rate decreased to 32.2% for the three months ended September 30, 2012 compared to our income tax provision of $2.8 million and effective tax rate of 33.8% for the three months ended September 30, 2011. The decrease in effective tax rate is primarily attributable to an increase in the deduction for domestic manufacturing activities we are eligible to take in the current year.

Segment Income from Operations

Income from operations by segment and the related changes for the three months ended September 30, 2012 and 2011 were as follows:

 

     Three Months Ended September 30,              
     2012     2011     Change  
(dollars in thousands)    $     % of  Segment
Revenue
    $     % of  Segment
Revenue
    $     %  

Income from operations:

            

United States

   $ 8,362        32.7   $ 6,701        33.0   $ 1,661        24.8

Europe

     1,995        34.6        2,104        36.3        (109     (5.2

Other

     (784     (71.2     (537     (64.1     (247     (46.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income from operations

   $ 9,573        29.5   $ 8,268        30.7   $ 1,305        15.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations for the United States segment increased $1.7 million, or 24.8%, and as a percentage of segment revenue decreased to 32.7% from 33.0%, in each case for the three months ended September 30, 2012 compared to the same period in 2011. Income from operations for the United States segment increased due to a 26.1% increase in revenue offset by increased costs as previously discussed.

Income from operations for the Europe segment decreased $0.1 million, or 5.2%, and as a percentage of segment revenue decreased to 34.6% from 36.3%, in each case for the three months ended September 30, 2012 compared to the same period in 2011. Income from operations for the Europe segment decreased due to a consistent level of revenue impacted by increased operating costs for the three months ended September 30, 2012 compared to the same period in 2011.

 

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Comparison of Nine Months Ended September 30, 2012 and 2011

Revenue

Revenue by product line and the related changes for the nine months ended September 30, 2012 and 2011 were as follows:

 

     Nine Months Ended September 30,               
     2012     2011     Change  
(dollars in thousands)    $      % of Total
Revenue
    $      % of Total
Revenue
    $      %  

Revenue

               

Protomold

   $ 66,697         72.2   $ 55,087         75.2   $ 11,610         21.1

First Cut

     25,678         27.8        18,215         24.8        7,463         41.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 92,375         100.0   $ 73,302         100.0   $ 19,073         26.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Revenue by geographic region, based on the billing location of the end customer, is summarized as follows:

 

     Nine Months Ended September 30,               
     2012     2011     Change  
(dollars in thousands)    $      % of Total
Revenue
    $      % of Total
Revenue
    $      %  

Revenue

               

United States

   $ 69,887         75.7   $ 54,723         74.7   $ 15,164         27.7

International

     22,488         24.3        18,579         25.3        3,909         21.0   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 92,375         100.0   $ 73,302         100.0   $ 19,073         26.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Our revenue increased $19.1 million, or 26.0%, for the nine months ended September 30, 2012 compared to the same period in 2011. Of this growth, approximately $5.5 million was attributable to sales to approximately 4,400 existing customer companies, and approximately $13.6 million was attributable to sales to approximately 2,250 new customer companies gained during the nine months ended September 30, 2012. Our overall revenue growth was driven by a 27.7% increase in U.S. revenue, a 21.0% increase in international revenue, a 21.1% increase in Protomold revenue and a 41.0% increase in Firstcut revenue, in each case for the nine months ended September 30, 2012 compared to the same period in 2011. Our revenue increases were primarily driven by greater spending on marketing and increases in selling personnel. The effect of pricing changes on revenue was immaterial for the nine months ended September 30, 2012 compared to the same period in 2011.

 

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Revenue by reportable segment is summarized as follows:

 

     Nine Months Ended September 30,               
     2012     2011     Change  
(dollars in thousands)    $      % of Total
Revenue
    $      % of Total
Revenue
    $      %  

Revenue

               

United States

   $ 72,652         78.6   $ 57,510         78.5   $ 15,142         26.3

Europe

     16,305         17.7        13,941         19.0        2,364         17.0   

Other

     3,418         3.7        1,851         2.5        1,567         84.7   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 92,375         100.0   $ 73,302         100.0   $ 19,073         26.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

For our United States segment, revenue increased $15.1 million, or 26.3%, for the nine months ended September 30, 2012 compared to the same period in 2011. Of this growth, approximately $6.9 million was attributable to sales to approximately 3,350 existing customer companies, and approximately $8.2 million was attributable to sales to approximately 1,375 new customer companies gained during the nine months ended September 30, 2012. Our United States revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

For our Europe segment, revenue increased $2.4 million, or 17.0%, for the nine months ended September 30, 2012 compared to the same period in 2011. This growth was attributable to approximately $4.1 million in sales to approximately 625 new customer companies gained during the nine months ended September 30, 2012, partially offset by a period-over-period decline of approximately $1.7 million in sales attributable to approximately 825 existing customer companies. Our Europe revenue increase was primarily driven by greater spending on marketing and increases in sales personnel.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $9.0 million, or 31.8%, for the nine months ended September 30, 2012 compared to the same period in 2011 due to raw material and production cost increases of $3.1 million to support increased sales volumes, equipment and facility-related cost increases of $1.4 million and an increase in direct labor headcount resulting in personnel and related cost increases of $4.5 million.

Gross Profit and Gross Margin. Gross profit increased due to increases in revenue offset by the cost of revenue as discussed above. Gross margin decreased primarily as a result of increases in direct labor personnel and a slight decline in equipment utilization, which resulted from the increase in capacity related to capital equipment acquisition.

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

Marketing and Sales. Marketing and sales expense increased $2.3 million, or 20.7%, for the nine months ended September 30, 2012 compared to the same period in 2011 due to a $0.6 million increase in marketing program costs and an increase in headcount resulting in personnel and related cost increases of $1.7 million.

Research and Development. Our research and development expense increased $3.0 million, or 82.0%, for the nine months ended September 30, 2012 compared to the same period in 2011 due to an increase in headcount resulting in personnel and related cost increases of $0.9 million, operating cost increases of $0.6 million and professional services of $1.5 million for outside consulting services.

General and Administrative. Our general and administrative expense increased $2.1 million, or 25.3%, for the nine months ended September 30, 2012 compared to the same period in 2011 due to stock-based compensation increases of $1.2 million, an increase in headcount resulting in personnel and related cost increases of $0.4 million and professional services of $0.5 million for outside legal and accounting services.

Other Income (Expense), net. Other income (expense), net decreased $0.1 million for the nine months ended September 30, 2012 compared to the same period in 2011 due to changes in foreign currency rates.

Provision for Income Taxes. Our income tax provision increased $0.7 million to $8.0 million while our effective tax rate decreased to 32.4% for the nine months ended September 30, 2012 compared to our income tax provision of $7.3 million and effective tax rate of 33.0% for the nine months ended September 30, 2011. The decrease in effective tax rate is primarily attributable to an increase in the deduction for domestic manufacturing activities we are eligible to take in the current year.

 

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Segment Income from Operations

Income from operations by segment and the related changes for the nine months ended September 30, 2012 and 2011 were as follows:

 

     Nine Months Ended September 30,              
     2012     2011     Change  
(dollars in thousands)    $     % of Segment
Revenue
    $     % of Segment
Revenue
    $     %  

Income from operations:

            

United States

   $ 22,396        30.8   $ 20,089        34.9   $ 2,307        11.5

Europe

     4,706        28.9        3,672        26.3        1,034        28.2   

Other

     (2,425     (70.9     (1,785     (96.4     (640     (35.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income from operations

   $ 24,677        26.7   $ 21,976        30.0   $ 2,701        12.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations for the United States segment increased $2.3 million, or 11.5%, and as a percentage of segment revenue decreased to 30.8% from 34.9%, in each case for the nine months ended September 30, 2012 compared to the same period in 2011. Income from operations for the United States segment increased due to a 26.3% increase in revenue offset by increased costs as previously discussed.

Income from operations for the Europe segment increased $1.0 million, or 28.2%, and as a percentage of segment revenue increased to 28.9% from 26.3%, in each case for the nine months ended September 30, 2012 compared to the same period in 2011. Income from operations for the Europe segment increased due to a 17.0% increase in revenue, higher factory utilization and operating expenses growing at a slower rate than revenue.

Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2012 and 2011:

 

     Nine Months Ended September 30,  
(dollars in thousands)    2012     2011  

Net cash provided by operating activities

   $ 19,261      $ 19,335   

Net cash used in investing activities

     (65,540     (9,583

Net cash provided by (used in) financing activities

     74,604        (3,408

Effect of exchange rates on cash and cash equivalents

     (170     (92
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 28,155      $ 6,252   
  

 

 

   

 

 

 

Sources of Liquidity

Historically we have financed our operations and capital expenditures through operations, lease financing and the use of bank loans. In February 2012, we completed the IPO of our common stock, which provided us with $71.5 million of cash, net of underwriting discounts and commissions and offering expenses payable by us. We had cash and cash equivalents of $36.3 million as of September 30, 2012, an increase of $28.2 million from December 31, 2011. The increase in our cash was due primarily to cash received from the IPO of our common stock and generated through operations, partially reduced by investment activity described in Note 5 to the consolidated financial statements.

 

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Cash Flows from Operating Activities

Cash provided by operating activities was $19.3 million for the nine months ended September 30, 2012. We had net income of $16.6 million, which included non-cash charges consisting of $4.4 million in depreciation and $2.4 million in stock-based compensation, offset by $2.6 million of excess tax benefit on stock-based compensation. Other uses of cash in operating activities totaled $1.5 million, which included an increase in accounts receivable of $3.8 million, increase in inventory of $0.5 million, increase in prepaid and other expenses of $0.3 million and a decrease in accounts payable of $0.3 million, which were partially offset by an increase in income taxes payable of $2.4 million and increase in accrued and other liabilities of $1.0 million. The increase in accounts receivable reflects increases in revenue.

Cash provided by operating activities was $19.3 million for the nine months ended September 30, 2011. We had net income of $14.7 million, which included non-cash charges consisting of $3.0 million in depreciation, $0.7 million in stock-based compensation expense and $1.5 million in deferred taxes. Other uses of cash in operating activities totaled $0.6 million, which included an increase in accounts receivable of $4.4 million, an increase in inventory of $1.2 million and an increase in prepaid expenses of $0.1 million, which were partially offset by an increase in accounts payable of $0.9 million, increase in accrued liabilities of $3.7 million and increase in income taxes of $0.5 million. The increase in accounts receivable reflects increases in revenue.

Cash Flows from Investing Activities

Cash used in investing activities was $65.5 million for the nine months ended September 30, 2012, consisting of $14.4 million for the purchase of property and equipment and $61.4 million for the purchase of marketable securities, which were partially offset by $10.3 million in proceeds from the sale and call redemption of marketable securities.

Cash used in investing activities was $9.6 million for the nine months ended September 30, 2011, consisting of $10.1 million for the purchase of property and equipment, which was partially offset by a net reduction of short-term investments of $0.5 million.

Cash Flows from Financing Activities

Cash provided by financing activities was $74.6 million for the nine months ended September 30, 2012, consisting of $71.5 million from the IPO of our common stock, excess tax benefit on stock-based compensation of $2.6 million and $0.8 million in proceeds from exercises of stock options and warrants, partially offset by $0.3 million for payments of debt.

Cash used in financing activities was $3.4 million for the nine months ended September 30, 2011. The primary use of funds was for net payments on debt of $3.9 million, which was partially offset by proceeds from stock option and warrant exercises of $0.5 million.

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 most significant accounting policies are discussed herein.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying Notes. Our estimates and assumptions, including those related to revenue recognition, the allowance for doubtful accounts, inventory valuation, stock-based compensation and income taxes, are updated as appropriate, which in most cases is quarterly.

We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Management has discussed the development, selection and disclosure of these estimates with the audit committee of our board of directors. Our actual results may differ significantly from these estimates under different assumptions or conditions.

 

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Table of Contents

We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue in accordance with ASC 605, Revenue Recognition (ASC 605), which states that revenue is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.

Revenue is generally recognized upon transfer of title and risk of loss, which for us is upon shipment of parts.

Allowance for Doubtful Accounts

We carry our accounts receivable at their face amount less an allowance for doubtful accounts. On a periodic basis, we evaluate our accounts receivable and establish an allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions taking into account the history of write-offs and collections. A receivable is considered past due if payment has not been received within the period agreed upon in the invoice. Accounts receivable are written off after all collection efforts have been exhausted. To date, we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved. We believe appropriate reserves have been established, but they may not be indicative of future write-offs. Our allowance for doubtful accounts as of September 30, 2012 and December 31, 2011 was $0.2 million and $0.1 million, respectively. Our allowance for doubtful accounts has decreased as a percentage of accounts receivable due to improvements in account aging driven by stronger credit policies.

We also record a provision for estimated product returns and allowances in the period in which the related revenue is recorded. This provision against current gross revenue is based principally on historical rates of sales returns.

Inventory Valuation and Inventory Reserves

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, or FIFO, cost. We periodically review our inventory for slow-moving, damaged and discontinued items and provide reserves to reduce such items identified to their recoverable amounts. Our inventory allowance for obsolescence is not material as of September 30, 2012 or December 31, 2011.

Stock-Based Compensation

We determine our stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors based on the grant date fair value of the award.

Determining the appropriate fair value model and calculating the fair value of stock option grants requires the input of highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Stock-based compensation expense is significant to our consolidated financial statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management’s judgment. Significant estimates include our expected term, stock price volatility and forfeiture rates. If different estimates and assumptions had been used, our common stock valuations could be significantly different and related stock-based compensation expense may be materially impacted.

The Black-Scholes option pricing model requires inputs such as the risk-free interest rate, expected term, expected volatility and expected dividend yield. We base the risk-free interest rate that we use in the Black-Scholes option pricing model on zero coupon U.S. Treasury instruments with maturities similar to the expected term of the award being valued. The expected term represents the weighted-average period that our stock options are expected to be outstanding. The expected term is based on the observed and expected time to post-vesting exercise of options by employees and non-employee directors and considers the impact of post-vesting award forfeitures. As we have been operating as a private company with a limited market for our stock since inception to the completion of our IPO in February 2012, we estimate the volatility of our common stock based on volatility of a peer group of comparable publicly traded companies for which historical information is available. We have never paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, we use an expected dividend yield of zero in the option pricing model. In order to properly attribute compensation expense, we are required to estimate pre-vesting forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest. If our actual forfeiture rate is materially different from our estimate, stock-based compensation expense could be significantly different from what has been recorded.

 

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We allocate stock-based compensation expense on a straight-line basis over the requisite service period.

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes (ASC 740). Under this method, the Company determines tax assets and liabilities based upon the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. The tax consequences of most events recognized in the current year’s financial statements are included in determining income taxes currently payable. However, because tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities and equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax basis of assets or liabilities and their reported amounts in the financial statements. Because we assume that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, giving rise to a deferred tax asset or liability.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements. Additionally, ASC 740 provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

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 and expenses, assets and liabilities that are denominated in foreign currencies. A number of our employees are located in Europe and Japan. Therefore, a portion of our payrolls and operating expenses are paid and incurred in the British Pound, Euro and Yen. Our operating results and cash flows are adversely impacted when the U.S. dollar depreciates relative to other foreign currencies. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk. Foreign currency risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would not have a material impact on our results of operations.

 

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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 provided reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time frames specified in the SEC’s rules and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The risk factor discussed below updates the risk factors we previously disclosed under the heading “Risk Factors” in our final prospectus for our IPO dated February 23, 2012 and filed with the SEC on February 27, 2012.

Compliance with new regulations and customer demands regarding “conflict minerals” could significantly increase costs and affect the products that we manufacture.

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the SEC to establish new disclosure and reporting requirements regarding specified minerals originating in the Democratic Republic of the Congo or an adjoining country that are necessary to the functionality or production of products manufactured by companies required to file reports with the SEC. The final rules implementing these requirements, as released recently by the SEC, could affect sourcing at competitive prices and availability in sufficient quantities of minerals used in the products that we manufacture. In addition, these rules could result in us incurring additional costs to perform and document supplier due diligence. Moreover, we may encounter challenges to satisfy those customers who require that all of the components of the products that we manufacture for them be certified as conflict free.

 

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

 

(a) Use of Proceeds from Public Offering of Common Stock

On February 23, 2012, our registration statement on Form S-1 (No. 333-175745) was declared effective for our IPO, and on February 29, 2012 we consummated the IPO consisting of 4,945,000 shares of our common stock for $16.00 per share, including the underwriters’ exercise of their IPO over-allotment option for an additional 645,000 shares issued and sold by us for $16.00 per share. The underwriters of the offering were Jefferies & Company, Inc., Piper Jaffray & Co., William Blair & Company, L.L.C. and Craig-Hallum Capital Group, LLC. Following the sale of the shares in connection with the closing of the IPO, the offering terminated. As a result of the IPO, including the underwriters’ over-allotment option, we received total net proceeds of approximately $71.5 million, after deducting total expenses of $7.6 million, consisting of underwriting discounts and commissions of $5.5 million and offering-related expenses of approximately $2.1 million. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates. We have used and intend to use the net proceeds from our IPO for working capital and other general corporate purposes and we have invested the funds in marketable securities as previously discussed in Note 5 to the consolidated financial statements appearing in Part I, Item 1 in this Quarterly Report on Form 10-Q. We may also use a portion of the net proceeds to license, acquire or invest in complementary businesses, technologies, products or assets, as well as add incremental capacity. There has been no material change in the planned use of proceeds from our IPO from that described in the final Prospectus filed with the SEC pursuant to Rule 424(b)(4) on February 27, 2012.

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)   Amended and Restated By-Laws of Proto Labs, Inc.
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**   XBRL Instance Document
101.SCH**   XBRL Taxonomy Extension Schema Document
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**   XBRL Taxonomy Extension Label Linkbase Document
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

 

(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 3.4 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.

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
** Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

 

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SIGNATURE

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

 

    Proto Labs, Inc.
Date: October 30, 2012     /s/ Bradley A. Cleveland
    Bradley A. Cleveland
    President and Chief Executive Officer
    (Principal Executive Officer)

 

Date: October 30, 2012     /s/ John R. Judd
    John R. Judd
    Chief Financial Officer
    (Principal Financial Officer)

 

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