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What changed in Proto Labs Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Proto Labs Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+247 added−323 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-21)

Top changes in Proto Labs Inc's 2023 10-K

247 paragraphs added · 323 removed · 210 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

66 edited+15 added−66 removed37 unchanged
Biggest changeOur customers typically order short run custom parts for a variety of reasons, including: ● they need a prototype to confirm the form, fit and function of one or more components of a product under development; ● they need an initial supply of parts to support pilot production for testing of a product; ● they need an initial supply of parts to support production while their tools for a high-volume production mold are prepared; ● they need to meet their customers' variable demand for parts in a competitive timeframe; ● their product will only be produced in a limited quantity and/or is highly customized; ● they need to support end-of-life production in a cost-effective manner; ● they want to avoid minimum order quantities or costs related to storing excess inventory; ● they need access to diverse, cost competitive manufacturing capabilities and value the convenience of working with a single supplier to match parts to the best producer; or ● they need low- to mid-volumes of parts on an irregular schedule and prefer to order on-demand. 5 Table of Contents In each of these instances, we believe our solution provides product developers, engineers, and production buyers with an exceptional combination of speed, quality, competitive pricing, ease of use and reliability that they typically cannot find among conventional custom parts manufacturers.
Biggest changeOur customers typically partner with us for a variety of reasons, including: • they need a prototype to confirm the form, fit and function of one or more components of a product under development; • they need an initial supply of parts to support pilot production for testing of a product; 5 Table of Contents • they need an initial supply of parts to support production while their tools for a high-volume production mold are prepared; • they need to meet their customers' variable demand for parts in a competitive timeframe; • their product will only be produced in a limited quantity and/or is highly customized; • they need to support end-of-life production in a cost-effective manner; • they want to avoid minimum order quantities or costs related to storing excess inventory; • they need access to diverse, cost competitive manufacturing capabilities and value the convenience of working with a single supplier to match parts to the best producer; or • they need low- to mid-volumes of parts on an irregular schedule and prefer to order on-demand.
We support several charitable causes with our Employee Matching, Cool Ideas, and Major Gifts Programs. The Foundation’s efforts serve as a sustaining investment in the future of the communities where our employees live and work, and also a commitment to build talent to support the future employment needs of the manufacturing industry.
We support several charitable causes with our Employee Matching, Cool Ideas, and Major Gifts Programs. The Foundation’s efforts serve as a sustaining investment in the future of the communities where our employees live and work, and a commitment to build talent to support the future employment needs of the manufacturing industry.
In order to ensure our industry remains robust, we are committed to supporting Science, Technology, Engineering and Mathematics (STEM) programs in the cities where we have facilities. Through the Protolabs Foundation, we provide STEM education grants to eligible organizations.
To ensure our industry remains robust, we are committed to supporting Science, Technology, Engineering and Mathematics (STEM) programs in the cities where we have facilities. Through the Protolabs Foundation, we provide STEM education grants to eligible organizations.
We believe that the key competitive factors in our industry include: ● Quality: dimensional accuracy, surface finish, color and cleanliness; ● Speed: turnaround time for quotations and parts; ● Reliability: highly reliable delivery with predictable lead times; ● Service: overall customer experience, from web interface to post-sales support; ● Capability: range of part sizes and dimensional complexities supported, variety of manufacturing processes offered, materials supported and post-processing provided; ● Scale: ability to support thousands of part designs in parallel; 13 Table of Contents ● Capacity: ability to manage peaks in demand with very short lead times and no minimum order quantities; and ● Price: competitive mold and part pricing, including total cost of ownership.
We believe that the key competitive factors in our industry include: • Quality: dimensional accuracy, surface finish, color and cleanliness; • Speed: turnaround time for quotations and parts; • Reliability: highly reliable delivery with predictable lead times; • Service: overall customer experience, from web interface to post-sales support; • Capability: range of part sizes and dimensional complexities supported, variety of manufacturing processes offered, materials supported and post-processing provided; • Scale: ability to support thousands of part designs in parallel; • Capacity: ability to manage peaks in demand with very short lead times and no minimum order quantities; and • Price: competitive mold and part pricing, including total cost of ownership.
Our digital thread ties together each aspect of the online ordering and manufacturing processes, including 3D CAD modeling and visualization tools, proprietary design for manufacturability analysis (DFM), computer aided manufacturing, the manufacturing equipment, and the shop floor data collection systems.
Within our factories, our digital thread ties together each aspect of the online ordering and manufacturing processes, including 3D CAD modeling and visualization tools, proprietary design for manufacturability analysis (DFM), computer aided manufacturing, the manufacturing equipment, and the shop floor data collection systems.
There are an increasing number of digital brokers that provide product developers with a network of manufacturers, generally a subset of the other custom parts manufacturers described above, that can offer a diverse range of capabilities, capacity, competitive pricing and desired lead times to meet customer demand. ● Captive in-house product manufacturing.
There are an increasing number of digital brokers that offer a network of manufacturers, generally a subset of the other custom parts manufacturers described above, that can offer a diverse range of capabilities, capacity, competitive pricing and desired lead times to meet customer demand. • Captive in-house product manufacturing.
In 2022, we hosted InspirON in Europe, an online knowledge sharing event to focus on what design engineers need to consider when developing sustainable products for manufacturing. The event was designed to provide insight into designing more sustainable products and to explore how design can help make the manufacturing process greener and more efficient.
In 2023, we again hosted InspirON in Europe, an online knowledge sharing event to focus on what design engineers need to consider when developing sustainable products for manufacturing. The event was designed to provide insight into designing more sustainable products and to explore how design can help make the manufacturing process greener and more efficient.
We continue to invest in a variety of employee health and wellness programs, including gym membership discounts, on-site yoga classes at certain facilities, wellness newsletters and learning sessions, and providing various Employee Assistance Programs. ● Charitable Giving We pride ourselves in being a responsible corporate citizen through our Protolabs Foundation.
We continue to invest in a variety of employee health and wellness programs, including gym membership discounts, on-site fitness classes at certain facilities, wellness newsletters and learning sessions, and by providing various Employee Assistance Programs. • Charitable Giving We pride ourselves in being a responsible corporate citizen through our Protolabs Foundation.
We have established a Human Rights Policy which is available on the Investor Relations section of our website. ● Supply Chain We are committed to conducting our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules and regulations.
We have established a Human Rights Policy which is available on the Investor Relations section of our website. 12 Table of Contents • Supply Chain We are committed to conducting our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules, and regulations.
We have further expanded our offering through the acquisition of Hubs to be able to serve our customers more holistically, augmenting our in-house manufacturing capabilities with a network of premium manufacturing partners to serve our customer needs that currently reside outside of our internal manufacturing capabilities.
We have further expanded our offering through the Protolabs Network to be able to serve our customers more holistically, augmenting our in-house manufacturing capabilities with a network of premium manufacturing partners to serve our customer needs that currently reside outside of our internal manufacturing capabilities.
All overtime is performed and compensated in accordance with the law and the individual’s employment contract or other applicable contract or collective agreement. ● Education We firmly believe that investing in the education of our employees is critical to our success.
All overtime is performed and compensated in accordance with the law and the individual’s employment contract or other applicable contract or collective agreement. 11 Table of Contents • Education We firmly believe that investing in the education of our employees is critical to our success.
We also owned approximately 29 registered United States trademarks or service marks as of December 31, 2022, with corresponding registered protection in Europe and Japan for the most important of these marks such as PROTO LABS, HUBS, PROTOMOLD, FIRSTCUT, PROTOQUOTE, FIRSTQUOTE, PROTOFLOW and FINELINE, corresponding approved protection in Canada for PROTO LABS, FIRSTCUT and FINELINE, and corresponding registered protection in Australia, Canada and Mexico for PROTOMOLD.
We also owned approximately 30 registered United States trademarks or service marks as of December 31, 2023, with corresponding registered protection in Europe and Japan for the most important of these marks such as PROTO LABS, HUBS, PROTOMOLD, FIRSTCUT, PROTOQUOTE, FIRSTQUOTE, PROTOFLOW and FINELINE, corresponding approved protection in Canada for PROTO LABS, FIRSTCUT and FINELINE, and corresponding registered protection in Australia, Canada and Mexico for PROTOMOLD.
Kenison 51 Vice President/General Manager – Americas Bjoern Klaas 53 Vice President/General Manager and Managing Director – Europe, Middle East and Africa Executive officers of the Company are elected at the discretion of the board of directors with no fixed terms. There are no family relationships between or among any of the executive officers or directors of the Company.
Kenison 52 Vice President/General Manager – Americas Bjoern Klaas 54 Vice President/General Manager and Managing Director – Europe, Middle East and Africa Executive officers of the Company are elected at the discretion of the board of directors with no fixed terms. There are no family relationships between or among any of the executive officers or directors of the Company.
Our employees are provided access to a robust learning management system that offers hundreds of courses on various topics ranging from compliance to leadership and for job-specific skills. In 2022 and 2021, employees spent an average of 36 and 14 hours, respectively, per employee in training sessions.
Our employees are provided access to a robust learning management system that offers hundreds of courses on various topics ranging from compliance to leadership to job-specific skills. In 2023 and 2022, employees spent an average of 35 and 36 hours, respectively, per employee in training sessions.
Through the acquisition of Hubs (formerly 3D Hubs, Inc.) (Hubs) in 2021, we are able to provide our customers access to a global network of premium manufacturing partners who reside across North America, Europe and Asia, complementing our in-house manufacturing.
Through the acquisition of Hubs (formerly 3D Hubs, Inc.) (Hubs) in 2021, we provide our customers access to a global network of premium manufacturing partners who reside across North America, Europe and Asia.
Item 1. Business Overview Proto Labs, Inc. was incorporated in Minnesota in 1999. The terms “Proto Labs,” the “Company,” “we,” “us,” and “our” as used herein refer to the business and operations of Proto Labs, Inc. and its subsidiaries. We are one of the world’s largest and fastest digital manufacturers of custom prototypes and on-demand production parts.
Item 1. Business Overview Proto Labs, Inc. was incorporated in Minnesota in 1999. The terms “Proto Labs,” the “Company,” “we,” “us,” and “our” as used herein refer to the business and operations of Proto Labs, Inc. and its subsidiaries. We are one of the world’s largest, fastest, and most comprehensive digital manufacturers of custom parts.
Our digital thread makes us ideally suited to solve these challenges for many manufacturing companies by offering world-class speed, low upfront investment, no minimum order quantities, broad manufacturing capabilities, and flexibility to adapt to demand volatility. 7 Table of Contents Our Process Our digital thread, which is the combination of our proprietary software and the physical manufacturing process, has enabled us to reinvent manufacturing.
Our digital thread makes us ideally suited to solve these challenges for many manufacturing companies by offering world-class speed, low upfront investment, no minimum order quantities, broad manufacturing capabilities, and flexibility to adapt to demand volatility. 6 Table of Contents Our Process Our digital thread, which is the virtual representation of the part created by our proprietary software and mirrors the physical manufacturing process, has enabled us to reinvent manufacturing.
We manufacture prototype and low volume production parts for companies worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers. We have manufactured over 450 million parts for customers.
Through our factories, we manufacture prototype and low volume production parts for companies worldwide, who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers.
Corporate Responsibility and Sustainability Our corporate responsibility and sustainability practices are built on a foundation of shared fundamental values of teamwork, trust and achievement, and help us to deliver strong financial results that create value for our Company and our shareholders in a way that respects our communities and the environments in which we operate.
Corporate Responsibility and Sustainability Our corporate responsibility and sustainability practices are built on a foundation of shared fundamental values of teamwork, trust and achievement, and help us to deliver strong financial results that create value for our Company and our shareholders in a way that respects our communities and the environments in which we operate. • Teamwork – We are dedicated to the idea that a diversity of minds is better than one.
We believe that our digital end-to-end manufacturing capability positions us favorably and has enabled us to become a leader in our markets.
We believe that our digital end-to-end manufacturing capabilities position us favorably and has enabled us to become a leader in our markets.
As of December 31, 2022, we owned and had applications pending for patents relating to various aspects of our quoting and manufacturing processes as follows: Jurisdiction Issued Patents Applications Pending United States 34 12 United Kingdom 3 0 Netherlands 1 0 Our patents have expiration dates ranging from 2023 to 2042.
As of December 31, 2023, we owned and had applications pending for patents relating to various aspects of our quoting and manufacturing processes as follows: Jurisdiction Issued Patents Applications Pending United States 46 15 United Kingdom 3 0 Netherlands 1 0 Our patents have expiration dates ranging from 2025 to 2043.
The program provides training on topics that are aligned with our Leadership Principles and our Core Values. In 2022, we launched a pilot mentorship program to provide opportunity for mentors and mentees to accelerate their personal and professional development through a one-on-one guided relationship.
The program provides training on topics that are aligned with our Leadership Principles and our Core Values. In 2023, we completed the first year of our mentorship program to provide opportunity for mentors and mentees to accelerate their personal and professional development through a one-on-one guided relationship.
We believe that our employees are our most valuable asset, and their safety and health is among our top priorities. In addition to concentrating on employee safety in the workplace, we also focus on the overall wellbeing of our employees.
We believe this program is the basis for our excellent safety compliance record. We believe that our employees are our most valuable asset, and their safety and health is among our top priorities. In addition to concentrating on employee safety in the workplace, we also focus on the overall wellbeing of our employees.
We continually seek to expand the range of size and geometric complexity of the parts we can make with these processes, to extend the variety of materials we are able to support and to identify additional manufacturing processes to which we can apply our technology in order to better serve the evolving preferences and needs of product developers and production buyers.
We continually seek to expand the range of size and geometric complexity of the parts we can make or source with these processes, to extend the variety of materials we are able to support, and to identify additional manufacturing processes to which we can apply our technology or incorporate into our manufacturing network in order to better serve the evolving preferences and needs of our customers.
Our attrition rates were 21.8% and 23.1% in the United States and Europe, respectively. ● Compensation and Benefits We believe our success depends in large measure on our ability to attract, retain and motivate a broad range of employees to be successful in a dynamic and changing business environment, and that a competitive compensation program is essential.
Our attrition rates for the years ended December 31, 2023 were 20.4% and 23.9% in the United States and Europe, respectively. • Compensation and Benefits We believe our success depends in large measure on our ability to attract, retain and motivate a broad range of employees to be successful in a dynamic and changing business environment, and that a competitive compensation program is essential.
We believe our use of advanced technology enables us to offer significant advantages at competitive prices to many customers and is the primary reason we have become a leading supplier of custom parts.
We believe our use of advanced technology enables us to offer significant advantages at competitive prices to many customers and is the primary reason we have become a leading supplier of custom parts. We have established our operations in the United States and Europe. Previously we had established operations in Japan.
Our proprietary software uses complex algorithms to analyze the 3D CAD geometry, analyze its DFM and support the creation of an interactive, web-based quotation containing pricing and manufacturability information. Using this technology, we have analyzed over 13.0 million unique part designs. The artificial intelligence and machine learning provided by each analysis allows us to continually improve our DFM technology.
Our proprietary software uses complex algorithms to analyze the 3D CAD geometry, analyze its DFM and support the creation of an interactive, web-based quotation containing pricing and manufacturability information. The artificial intelligence and machine learning provided by each analysis allows us to continually improve our DFM technology.
Executive Officers of the Registrant Set forth below are the names of our current executive officers, their ages, titles, the year first appointed as an executive officer, and employment for the past five years: Robert Bodor 50 President, Chief Executive Officer and Director Daniel Schumacher 48 Chief Financial Officer Oleg Ryaboy 47 Chief Technology Officer Michael R.
The SEC’s website is www.sec.gov. 13 Table of Contents Executive Officers of the Registrant Set forth below are the names of our current executive officers, their ages, titles, the year first appointed as an executive officer, and employment for the past five years: Robert Bodor 51 President, Chief Executive Officer and Director Daniel Schumacher 49 Chief Financial Officer Oleg Ryaboy 48 Chief Technology Officer Michael R.
Our pledge is to promote a global culture that invites, recognizes and embraces each individuals contributions to make a stronger “US”. ● Workforce Demographics As of December 31, 2022, we had 2,568 full-time employees, including 1,787 full-time employees in the United States, 777 full-time employees in Europe and 4 full-time employees in Japan.
Our pledge is to promote a global culture that invites, recognizes and embraces each individuals' contributions to make a stronger “US”. • Workforce Demographics As of December 31, 2023, we had 2,415 full-time employees, including 1,672 full-time employees in the United States and 743 full-time employees in Europe.
From 2008 to 2012, Mr. Klaas worked at Colorant-Chromatics, a global leader for high temperature polymer formulations, as the General Manager for the global business. 19 Table of Contents
Klaas worked at Colorant-Chromatics, a global leader for high temperature polymer formulations, as the General Manager for the global business. 14 Table of Contents
Klaas has led our Company’s business in Europe, Middle East and Africa as the Vice President and Managing Director since December 2017. Prior to joining Proto Labs, Mr. Klaas held key positions with global polymer supplier PolyOne from 2012 to 2017, most recently as its Vice President and General Manager for its ColorMatrix Group headquartered in the United States.
Prior to joining Proto Labs, Mr. Klaas held key positions with global polymer supplier PolyOne from 2012 to 2017, most recently as its Vice President and General Manager for its ColorMatrix Group headquartered in the United States. From 2008 to 2012, Mr.
For most of our offerings, our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. Using our technology, we have analyzed over 13.0 million unique part designs. Our customers conduct nearly all of their business with us over the Internet.
Since our inception, we have manufactured over 450 million parts for customers. For most of our offerings, our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. Using our technology, we have analyzed over 13 million unique part designs since inception.
We are responsible for our performance, our results and our future. 14 Table of Contents 2022 Environmental, Social and Governance Strategy and Risk Assessment Process In 2021, our board of directors, executives and leaders throughout the organization focused to identify our top environmental, social and governance (ESG) priorities for 2022 and beyond.
We are responsible for our performance, our results and our future. 8 Table of Contents 2023 Environmental, Social and Governance Strategy and Risk Assessment Process Our board of directors, executives and leaders throughout the organization have identified our top environmental, social and governance (ESG) priorities.
The success of our Company depends on the success of our people. • Achievement – Speed and innovation are the cornerstones of our success. We are committed to being a solution for getting things done quickly and sustainably and a catalyst for great ideas for our shareholders, customers, the environment and each other.
We are committed to being a solution for getting things done quickly and sustainably and a catalyst for great ideas for our shareholders, customers, the environment and each other.
We are committed to nurturing a culture where we celebrate diversity, equity and inclusivity as a way of life. Our diversity and inclusion efforts start at the top with our board regularly reviewing initiatives. Our Diversity, Equity and Inclusion (DEI) Leadership Council was established to promote honest conversations, influence best practices and educate our employees.
Our diversity and inclusion efforts start at the top with our board regularly reviewing initiatives. Our Diversity, Equity and Inclusion (DEI) Leadership Council was established to promote honest conversations, influence best practices and educate our employees.
We target our products to the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets. In addition, we serve procurement and supply chain professionals seeking to manufacture custom parts on-demand. We have established our operations in the United States, Europe and Japan.
We target our products to the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets, to the procurement and supply chain professionals seeking to easily and efficiently source custom parts on-demand, and to a wide variety of customers seeking to purchase custom parts.
We believe prototype and low volume custom parts 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.
We create time for our customers by providing an efficient way for them to procure high-quality custom parts at competitive prices. We believe prototype and low volume custom parts 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.
These reports include, but are not limited to, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports.
These reports include, but are not limited to, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports. Our SEC reports can be accessed through the investor relations section of our website.
In addition, we partner with schools, colleges and universities to provide various outreach opportunities and sponsorships. 17 Table of Contents ● Health, Safety and Wellness We are committed to providing a safe and healthy working environment that minimizes health and safety risks.
In addition, we partner with schools, colleges, and universities to provide various outreach opportunities and sponsorships. • Health, Safety and Wellness We are committed to providing a safe and healthy working environment that minimizes health and safety risks. Our processes support accident prevention and prioritizes the health and safety of all our employees and all others affected by their activities.
Kenison led various teams at the Company, including as Vice President of Manufacturing, a role he held since 2013. Before his tenure at Protolabs, Mr. Kenison served in several leadership roles within the industry, including as Vice President of Manufacturing at Cardiac Science, Inc. - a medical device provider of defibrillator technology. Bjoern Klaas . Mr.
Before his tenure at Protolabs, Mr. Kenison served in several leadership roles within the industry, including as Vice President of Manufacturing at Cardiac Science, Inc. - a medical device provider of defibrillator technology. Bjoern Klaas . Mr. Klaas has led our Company’s business in Europe, Middle East and Africa as the Vice President and Managing Director since December 2017.
Ryaboy served from 2010 to 2022 as Chief Technology Officer and Senior Vice President at Digital River, a global e-commerce platform and software-as-a-service company providing online storefronts. Michael Kenison . Mr. Kenison has served as our Vice President/General Manager - Americas since June 2021. Prior to his current position, Mr.
Ryaboy held several roles at Digital River, a global e-commerce platform and software-as-a-service company providing online storefronts, from 2010 to 2022, most recently as Chief Technology Officer and Senior Vice President from 2015 to 2022. Prior to his role of Chief Technology Officer at Digital River, Mr.
Digital Manufacturing Process Our internal manufacturing operations produce parts in-house, while our outsourced manufacturing operations automatically route the parts for production by a global network of premium manufacturing partners.
Digital Manufacturing Process Our internal manufacturing operations produce parts in-house, while our outsourced manufacturing operations automatically route the parts for production by a global network of premium manufacturing partners. Our proprietary software and business process automates the non-recurring manufacturing engineering in many of our services, removing time and cost from the manufacture of the custom part.
This ensures consistency, quality and a high degree of automation. As a result of this automation, we are able to ship parts to customers with industry leading speed at scale.
With the integrated digital thread, data is shared through the continuum of the manufacturing process, from product conception and design upload to manufacturing, inspection and delivery. This ensures consistency, quality, and a high degree of automation. As a result of this automation, we are able to ship parts to customers with industry leading speed at scale.
As we integrate with Hubs, our goal is to go from being one of the fastest and most reliable providers of custom parts to one of the most comprehensive in our four services.
Our goal is to be the fastest, most reliable, and most comprehensive provider of custom parts in our four services.
Since our inception, we have focused on areas where we could automate the manufacturing process via our digital model. Our initial focus was on prototypes and simple parts and have added complexity over time. We have added product lines and expanded those product lines to meet the needs of our customers, which has ultimately driven our growth.
Since our inception, we have focused on areas where we could automate the manufacturing process via our digital model and we positioned ourselves to avoid routine, low margin, high-volume commoditized manufacturing. Our initial focus was on prototypes and simple parts and have added complexity over time.
We believe the United States and Europe are two of the largest geographic markets where product developers and engineers are located. On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region.
On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023.
Finally, the Green Team, an employee-led organization, educates our employees on how they can positively impact the environment, both at work and at home. The Green Team also provides opportunities for employees to positively impact the environment, including activities like roadside cleanup and tree planting. Social ● Diversity, Equity and Inclusion At Protolabs, diversity, equity and inclusion matters.
Finally, the Green Team, an employee-led organization, educates our employees on how they can positively impact the environment, both at work and at home.
Competition The market for custom parts manufacturing is fragmented, highly competitive and subject to rapid and significant technological change. Our potential competitors include: ● Other custom parts manufacturers. There are thousands of alternative manufacturing machine shops, injection molding suppliers, sheet metal fabricators, and 3D printing service bureaus and vendors worldwide.
Our potential competitors include: • Other custom parts manufacturers. There are thousands of alternative manufacturing machine shops, injection molding suppliers, sheet metal fabricators, and 3D printing service bureaus and vendors worldwide. The size and scale of these businesses range from very small specialty shops to large, high-volume production manufacturers. • Brokers.
Our SEC reports can be accessed through the investor relations section of our website. 18 Table of Contents The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file information electronically with the SEC. The SEC’s website is www.sec.gov.
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file information electronically with the SEC.
Furthermore, reducing scrap rate requires monitoring systems that enable automated process cycle sheet generation, ensuring run-to-run repeatability and reducing operator error. This kind of monitoring system can improve consistency in part production and reduce scrap costs, especially in injection molding and parts nonconformance.
This kind of monitoring system can improve consistency in part production and reduce scrap costs, especially in injection molding and parts nonconformance.
We strive to continuously improve our employees’ health, safety and wellness. Our “I Am” safety program teaches that safety is the responsibility of every individual in our organization. We believe this program is the basis for our excellent safety compliance record.
We provide and require our employees to use personal protective equipment at all times. To ensure our employees understand the importance of safety, we provide regular, mandatory training. We strive to continuously improve our employees’ health, safety, and wellness. Our “I Am” safety program teaches that safety is the responsibility of every individual in our organization.
Historically, we focused on speed, reliability and quality as key components of our differentiation, and customers used us for production where there was a good fit. We have positioned ourselves to avoid routine, low margin, high-volume commoditized manufacturing.
We have added product lines and expanded those product lines to meet the needs of our customers, which has ultimately driven our growth. Initially, we focused on speed, reliability and quality as key components of our differentiation, and customers used us for production where there was a good fit.
The figure below shows the results of our ESG priority setting initiative in terms of both importance to shareholders and our Company’s success. 15 Table of Contents Our environmental key priorities include: • Environmental compliance • Energy use reduction • Waste management/recycling In 2022, our environmental initiative was to define our key priorities and focus areas.
The figure below shows our ESG priorities in terms of both importance to shareholders and our Company’s success. Our environmental key priorities include: • Environmental compliance • Energy use reduction • Waste management/recycling In 2023, we devoted resources to manage increasing costs of energy, particularly in the European region, and seek opportunities to reduce our consumption of energy resources.
We believe our employees are critical to our success and continually seek employee feedback to enhance employee engagement. In 2022, our attrition rates were higher than normal.
We believe our employees are critical to our success and continually seek employee feedback to enhance employee engagement. In 2023, our attrition rates were higher than historical averages and were impacted by actions we took during the year to reduce our workforce in areas of the business that experienced lower volumes.
We help colleagues who are struggling to improve, so our success is everyone’s success. • Trust – Our integrity is built on honest answers to our customers and colleagues. It is okay to make mistakes if we use them to learn. We navigate difficult situations with compassion.
It is okay to make mistakes if we use them to learn. We navigate difficult situations with compassion. The success of our Company depends on the success of our people. • Achievement – Speed and innovation are the cornerstones of our success.
Our technology enables us to ship parts as soon as the same day after receipt of a customer’s design submission. Our primary manufacturing product lines currently include Injection Molding, CNC Machining, 3D Printing and Sheet Metal.
Our primary manufacturing product lines currently include Injection Molding, CNC Machining, 3D Printing and Sheet Metal.
The results of the enterprise risk management program will be used to drive governance key priorities and company strategy in 2023 and beyond.
This included in-depth risk-based conversations regarding strategic alternatives and defining actions to mitigate risk. The results of the enterprise risk management program will be used to drive governance key priorities and company strategy in 2024 and beyond. In addition, we established policies and identified leaders to comply with the new cybersecurity regulations effective in 2023.
Outsourced Manufacturing Operations to Network of Manufacturing Partners Once a customer order is confirmed, Hubs’ proprietary software automatically routes the parts to the right manufacturing partner within minutes using a smart order routing system.
For parts produced by the manufacturing network, our proprietary software automatically routes the parts to the right manufacturing partner within minutes using an AI-infused smart order routing system built on machine learning data of millions of parts produced.
Digital manufacturing is a solution our customers can deploy to reduce product waste by iterating part designs virtually, on a digital twin model before any actual production begins. With on-demand production of parts, there is also reduced reliance on storage facilities since inventory is virtual – the parts you need, when you need them.
With on-demand production of parts, there is also reduced reliance on storage facilities since inventory is virtual – the parts you need, when you need them. Our on-demand manufacturing model also helps customers with end-of-life planning for products, reducing the need for ordering excess parts with shifting market demand.
The event covered topics ranging from: sustainable material selection, to the role that digital manufacturing and industry 4.0 will play, to how to develop and optimize a sustainable supply chain. In 2021, we were awarded a Manufacturing Leadership Award from the National Association of Manufacturers (NAM) in the Sustainability Leadership category.
The event covered topics ranging from: manufacturing innovation in the face of adversity, using rapid manufacturing to solve complex development challenges, and practical innovation for production methods. In 2021, we were awarded a Manufacturing Leadership Award from the National Association of Manufacturers (NAM) in the Sustainability Leadership category.
The acquisition of Hubs also allows us to offer customers a wider variety of lead times and pricing options, and an expanded envelope of parts (complexity, size, etc.). Our increases in revenue can be attributed to expanding our customer base, broadening our parts envelope, and launching new manufacturing technologies.
With the addition of the Protolabs Network in 2021, our global network of premium manufacturing partners significantly expands the breadth and depth of our manufacturing capabilities, enabling us to offer customers a wider variety of lead times and pricing options, and an expanded envelope of parts (complexity, size, etc.).
The Company's three core values are embodied in everything we do. • Teamwork – We are dedicated to the idea that a diversity of minds is better than one. Through open communication, we strive to collaborate with and include all of our colleagues to maximize our creativity and to make our good ideas great. We respect each other’s opinions.
Through open communication, we strive to collaborate with and include all of our colleagues to maximize our creativity and to make our good ideas great. We respect each other’s opinions. We help colleagues who are struggling to improve, so our success is everyone’s success. • Trust – Our integrity is built on honest answers to our customers and colleagues.
Combining our unprecedented in-house manufacturing with Hubs broad services offer and wide variety of price and lead time options expands our ability to provide value to our customers and differentiates us from competitors. 10 Table of Contents The principal elements of our growth strategy are to: Establish Platform (2022-2023) We serve nearly all of our customers over the internet using our e-commerce, digital model.
Combining our unprecedented in-house manufacturing with the broad capabilities and wide variety of price and lead time options through our manufacturing network expands our ability to provide value to our customers and differentiates us from competitors. 7 Table of Contents Competition The market for custom parts manufacturing is fragmented, highly competitive and subject to rapid and significant technological change.
Our on-demand manufacturing model also helps customers with end-of-life planning for products, reducing the need for ordering excess parts with shifting market demand. When paired with a robust e-commerce platform, digital manufacturing can also increase efficiencies in material selection and usage, the procurement process, and accelerating innovation.
When paired with a robust e-commerce platform, digital manufacturing can also increase efficiencies in material selection and usage, the procurement process, and accelerate innovation. Furthermore, reducing scrap rate requires monitoring systems that enable automated process cycle sheet generation, ensuring run-to-run repeatability and reducing operator error.
Our mission is to empower companies to bring new ideas to market by offering the fastest and most comprehensive digital manufacturing service in the world. Our automated quoting and manufacturing systems allow us to produce commercial-grade plastic, metal, and liquid silicone rubber parts in as fast as one day.
Our vision is accelerating innovation by revolutionizing manufacturing. Our mission is to empower companies to bring new ideas to market by offering the fastest and most comprehensive digital manufacturing service in the world. We accomplish this by offering a variety of manufacturing capabilities fulfilled through a combination of owned manufacturing factories and a worldwide network of premium manufacturing partners.
In addition, we set regulatory management goals around International Traffic in Arms Regulation and global export compliance and established enhanced decision authority and signatory matrices to drive governance oversight and compliance. 16 Table of Contents Environmental ● Digital Manufacturing Drives Sustainability As a digital manufacturer, we are able to assist our customers as they focus on materials management, operational productivity and on-demand solutions.
Environmental • Digital Manufacturing Drives Sustainability As a digital manufacturer, we are able to assist our customers as they focus on materials management, operational productivity and on-demand solutions. Digital manufacturing is a solution our customers can deploy to reduce product waste by iterating part designs virtually, on a digital twin model before any actual production begins.
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Through the acquisition of Hubs, and as we complete the integration of our offerings, we will be providing our customers access to a global network of premium manufacturing partners which significantly expands the breadth and depth of our manufacturing capabilities.
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Our automated quoting and manufacturing systems are highly integrated with our manufacturing and fulfillment systems, which allow us to offer a vast array of manufacturing technologies in a variety of materials across a continuum of lead times and prices.
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We were founded in 1999 with plastic injection molding, and have expanded our product lines over the years by the introduction of: ● CNC machining in 2007; ● liquid silicon rubber (LSR) and lathe manufacturing processes that expanded the breadth and scope of our injection molding and CNC machining product lines in 2014; ● 3D printing, including stereolithography (SL), selective laser sintering (SLS), and direct metal laser sintering (DMLS), through our acquisition of FineLine Prototyping, Inc.
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Our technology-enabled digital engineering and manufacturing applications enable us to produce commercial-grade plastic, metal, and liquid silicone rubber parts in as fast as one day. Our customers engage with us throughout the lifecycle of their product, from early-stage prototyping through end-use production to end-of-life replacement and other parts needs.
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(FineLine) in 2014 and expanded through our acquisition of certain assets of Alphaform AG (Alphaform) in 2015; ● rapid overmolding technology in 2016 and insert molding technology in 2017, both of which expanded the breadth of our manufacturing capabilities in our Injection Molding product line; ● PolyJet and Multi Jet Fusion (MJF) in 2017, which expanded the processes with which we produce 3D printed parts; ● injection molding commercial offerings tailored to on-demand manufacturing customers in 2017; ● sheet metal fabrication capability through our acquisition of RAPID Manufacturing Group, LLC (RAPID) in 2017; ● expanded CNC machining capabilities for larger and more complex parts through our acquisition of RAPID in 2017; ● Carbon Digital Light Synthesis (TM) (DLS) in 2019, which further expanded the processes with which we produce 3D printed parts; ● enhancements to our e-commerce customer interface and back-end operations software in Europe in the fourth quarter of 2020 and in the United States in the first quarter of 2021 designed to add value for our customers and support the growth of the business in the future; ● Hubs in 2021 to provide the platform to expand our offering for our customers by providing access to a global network of premium manufacturing partners; and ● Critical-to-Quality First Article Inspection technology for Injection Molded prototypes and low-volume production parts in 2021. 6 Table of Contents Industry Overview We serve product developers and engineers worldwide who bring new ideas to market in the form of products containing one or more custom parts.
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The manufacturing partner network, complements our in-house manufacturing, enabling us to significantly increase the size, complexity, breadth of manufacturing processes, lead times and prices of the parts we produce. In January 2024, we rebranded Hubs to the Protolabs Network by Hubs (Protolabs Network). Our customers conduct nearly all their business with us over the Internet.
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Many of these product developers and engineers use 3D CAD software to create digital models representing their custom part designs that are then used to create physical parts for concept modeling, prototyping, functional testing, market evaluation or production.
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We also believe that there are a multitude of factors that are valuable to our customers that our offer uniquely provides, including speed to market, supply chain stability, access to a broad range of manufacturing capabilities, reduced supply chain waste, and efficient sourcing of custom parts.
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Custom prototype parts play a critical role in the product development process, as they provide product developers and engineers with the ability to test and confirm their intended performance requirements and explore design alternatives. Our digital model supports the transition from prototyping to production and enables us to serve product developers and engineers through prototyping and product development.
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In each of these instances, we believe our solution provides product developers, engineers, production buyers and other customers with an exceptional combination of speed, quality, competitive pricing, ease of use and reliability that they typically cannot find among conventional custom parts manufacturers or other competitors in our industry.
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Our digital model also enables us to serve production buyers that are focused on bringing their end product to market in a scalable, cost-effective manner.
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Our technology enables us to ship parts not only with industry-leading speed as soon as the same day after receipt of a customer’s design submission, but also provides the flexibility to produce for our customers custom parts in the manufacturing processes and materials they want, with the flexible lead time they choose, at competitive prices..
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Our internal manufacturing operations, augmented by external manufacturing partners through our acquisition of Hubs in 2021, allow us to provide solutions for the many customer use cases from prototyping to low-volume production in a broad range of lead time and pricing options.
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Industry Overview We pioneered the digital manufacturing industry when we were founded in 1999 and have been recognized as a catalyst for the next generation wave of Industry 4.0. Traditional manufacturing exists as a fragmented collage of niche producers operating in disparate capacities along the supply chain.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of the factors, many of which are outside of our control, that may cause the market price of our common stock to fluctuate include: • fluctuations in our financial condition and operating results; • our ability to retain and attract customers and increase net sales; • pricing pressures due to competition or otherwise and changes in gross margins; • changes in general economic and market conditions, economic uncertainty and changes in product development activity levels; • changes in inflation driven by market conditions resulting in material and labor cost changes; • announcements by us or our competitors of technological innovations or new product or product lines offerings or significant acquisitions; • timing, effectiveness, and costs of expansion and upgrades of our offerings, systems and infrastructure; • changes in key personnel; • success in entry into new markets and expansion efforts; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission and announcements relating to litigation; • the projections we may provide to the public, any changes in these projections or our failure to meet these projections; • the issuance of new or updated research or reports by any securities or industry analysts who follow our common stock, changes in analysts’ financial estimates or ratings, and failure of securities analysts to initiate or maintain coverage of our common stock; • changes in the market valuations of similar companies; • significant lawsuits, including patent or shareholder litigation; • changes in laws or regulations applicable to us; • changes in accounting principles; • the sustainability of an active trading market for our common stock; • future sales of our common stock by us or our shareholders, including sales by our officers, directors and significant shareholders; • share price and volume fluctuations attributable to inconsistent trading levels of our shares; and • other events or factors, including those resulting from war, acts of terrorism, natural disasters or responses to these events.
Biggest changeSome of the factors, many of which are outside of our control, that may cause the market price of our common stock to fluctuate include: • the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission and announcements relating to litigation; • the projections we may provide to the public, any changes in these projections or our failure to meet these projections; • changes in the market valuations of similar companies; • changes in accounting principles; • the sustainability of an active trading market for our common stock; • future sales of our common stock by us or our shareholders, including sales by our officers, directors and significant shareholders; and • share price and volume fluctuations attributable to inconsistent trading levels of our shares.
Such transactions may be complex, time consuming and expensive, and may present numerous challenges and risks including: • an acquired company, asset or technology not furthering our business strategy as anticipated; • difficulties entering and competing in new product or geographic markets and increased competition, including price competition; • integration challenges; • challenges in working with strategic partners and resolving any related disagreements or disputes; • high valuation for a company, asset or technology, or changes in the economic or market conditions or assumptions underlying our decision to acquire; • significant problems or liabilities associated with acquired businesses, assets or technologies, including increased intellectual property and employment related litigation exposure; • an acquisition that results in a significant amount of goodwill being recognized, which could result in future impairment charges that would reduce our earnings; and • requirements to record substantial charges and amortization expenses related to certain purchased intangible assets, deferred stock compensation and other items, as well as other charges or expenses. 24 Table of Contents Any one of these challenges or risks could impair our ability to realize any benefit from our acquisitions, strategic relationships, joint ventures or investments after we have expended resources on them, as well as divert our management’s attention.
Such transactions may be complex, time consuming and expensive, and may present numerous challenges and risks including: • an acquired company, asset or technology not furthering our business strategy as anticipated; • difficulties entering and competing in new product or geographic markets and increased competition, including price competition; • integration challenges; • challenges in working with strategic partners and resolving any related disagreements or disputes; • high valuation for a company, asset or technology, or changes in the economic or market conditions or assumptions underlying our decision to acquire; • significant problems or liabilities associated with acquired businesses, assets or technologies, including increased intellectual property and employment related litigation exposure; • an acquisition that results in a significant amount of goodwill being recognized, which could result in future impairment charges that would reduce our earnings; and • requirements to record substantial charges and amortization expenses related to certain purchased intangible assets, deferred stock compensation and other items, as well as other charges or expenses. 19 Table of Contents Any one of these challenges or risks could impair our ability to realize any benefit from our acquisitions, strategic relationships, joint ventures or investments after we have expended resources on them, as well as divert our management’s attention.
We believe that our continued revenue growth will depend on many factors, a number of which are out of our control, including among others, our ability to: • retain and further penetrate existing customer companies, as well as attract new customer companies; • consistently execute on custom part orders in a manner that satisfies product developers’ and engineers’ needs and provides them with a superior experience; • develop new technologies or manufacturing processes and broaden the range of parts we offer; • successfully execute on our international strategy and expand into new geographic markets; • capitalize on product developer and engineer expectations for access to comprehensive, user-friendly e-commerce capabilities 24 hours per day, 7 days per week; • increase the strength and awareness of our brand across geographic regions; • respond to changes in product developer and engineer needs, technology and our industry; • successfully integrate operations and offerings of acquisitions; • react to challenges from existing and new competitors; • continue to attract and retain R&D professionals who will continue to expand our technologies; and • respond to an economic recession which negatively impacts manufacturers' ability to innovate and bring new products to market.
We believe that our continued revenue growth will depend on many factors, a number of which are out of our control, including among others, our ability to: • retain and further penetrate existing customer companies, as well as attract new customer companies; • consistently execute on custom part orders in a manner that satisfies product developers’ and engineers’ needs and provides them with a superior experience; • develop new technologies or manufacturing processes and broaden the range of parts we offer; • successfully execute on our international strategy and expand into new geographic markets; • capitalize on customer expectations for access to comprehensive, user-friendly e-commerce capabilities 24 hours per day, 7 days per week; • increase the strength and awareness of our brand across geographic regions; • respond to changes in customer needs, technology and our industry; • successfully integrate operations and offerings of acquisitions; • react to challenges from existing and new competitors; • continue to attract and retain R&D professionals who will continue to expand our technologies; and • respond to an economic recession which negatively impacts manufacturers' ability to innovate and bring new products to market.
If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected. 30 Table of Contents Risks Relating to Ownership of Our Common Stock Our stock price has been and may continue to be volatile.
If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected. 24 Table of Contents Risks Relating to Ownership of Our Common Stock Our stock price has been and may continue to be volatile.
If we fail to meet our customers’ specifications in any given period, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer. 25 Table of Contents The strength of our brand is important to our business, and any failure to maintain and enhance our brand would hurt our ability to retain and expand our customer base as well as further penetrate existing customers.
If we fail to meet our customers’ specifications in any given period, demand for our products and product lines could be negatively impacted and our business and results of operations could suffer. 20 Table of Contents The strength of our brand is important to our business, and any failure to maintain and enhance our brand would hurt our ability to retain and expand our customer base as well as further penetrate existing customers.
We may not have adequately assessed the internal and external risks posed to the security of our company’s systems and information and may not have implemented adequate preventative safeguards or take adequate reactionary measures in the event of a security incident.
We may not have adequately assessed the internal and external risks posed to the security of our company’s systems and information and may not have implemented adequate preventive safeguards or take adequate reactionary measures in the event of a security incident.
We cannot assure you that we will be successful in addressing the factors above and continuing to grow our business and revenue. 21 Table of Contents Interruptions to, or other problems with, our website and interactive user interface, information technology systems, manufacturing processes or other operations could damage our reputation and brand and substantially harm our business and results of operations.
We cannot assure you that we will be successful in addressing the factors above and continuing to grow our business and revenue. Interruptions to, or other problems with, our website and interactive user interface, information technology systems, manufacturing processes or other operations could damage our reputation and brand and substantially harm our business and results of operations.
Our business has been, and, we believe, will continue to be, affected by changes in product developer and engineering requirements and preferences, rapid technological change, new product and product line introductions and the emergence of new standards and practices, any of which could render our technology, products and product lines less attractive, uneconomical or obsolete.
Our business has been, and, we believe, will continue to be, affected by changes in customer requirements and preferences, rapid technological change, new product and product line introductions and the emergence of new standards and practices, any of which could render our technology, products and product lines less attractive, uneconomical or obsolete.
The impact of these continuously evolving laws and regulations could have a material adverse effect on the way we use data to digitally market and pursue our customers. 22 Table of Contents Global economic conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
The impact of these continuously evolving laws and regulations could have a material adverse effect on the way we use data to digitally market and pursue our customers. Global economic conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. 32 Table of Contents Item 1B. Unresolved Staff Comments None.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Item 1B. Unresolved Staff Comments None.
These negotiations could result in significant diversion of management time, as well as substantial out-of-pocket costs. Our success depends on our ability to deliver products and product lines that meet the needs of product developers and engineers and to effectively respond to changes in our industry.
These negotiations could result in significant diversion of management time, as well as substantial out-of-pocket costs. Our success depends on our ability to deliver products and product lines that meet the needs of customers and to effectively respond to changes in our industry.
In addition, if we were unable to find a suitable supplier for a particular type of manufacturing equipment or material, we could be required to modify our existing business processes and offerings to accommodate the situation.
In addition, if we were unable to find a suitable supplier for a particular type of manufacturing equipment or material, we could be required to 21 Table of Contents modify our existing business processes and offerings to accommodate the situation.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed. 28 Table of Contents Our operating results and financial condition may fluctuate on a quarterly and annual basis.
If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed. Our operating results and financial condition may fluctuate on a quarterly and annual basis.
Our business depends on product developers’ and engineers’ demand for our product lines, the general economic health of current and prospective customers, and companies’ desire or ability to make investments in new products.
Our business depends on customer demand for our product lines, the general economic health of current and prospective customers, and companies’ desire or ability to make investments in new products.
Our business involves the controlled storage, use and disposal of hazardous materials. We and our suppliers are subject to federal, state and local as well as foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.
We and our suppliers are subject to federal, state and local as well as foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.
Many of the following factors have adversely affected our international operations and sales to customers located outside of the United States and may again in the future: • difficulties in staffing and managing foreign operations, particularly in new geographic locations; • challenges in providing solutions across a significant distance, in different languages and among different cultures; • rapid changes in government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics, and other similar outbreaks or events; • economic uncertainty, including significant volatility in global stock markets and currency exchange rates, resulting from Brexit; • fluctuations in foreign currency exchange rates; • differences in product developer and engineer preferences and means of procuring parts; • compliance with and changes in foreign laws and regulations, as well as U.S. laws affecting the activities of U.S. companies abroad, including those associated with export controls, tariffs and embargoes, other trade restrictions and antitrust and data privacy concerns; • different, complex and changing laws governing intellectual property rights, sometimes affording companies lesser protection in certain areas; • differing levels of use of the Internet or 3D CAD software; • seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and holiday season; • higher costs of doing business internationally; • interruptions resulting from any events affecting raw material supply or manufacturing capabilities abroad; • protectionist laws and business practices that favor local producers and service providers; • taxation; • energy costs; • restrictions imposed by local labor practices and laws on our business and operations; • workforce uncertainty in countries where labor unrest is more common than in the United States; • transportation delays; and • increased payment risk and higher levels of payment fraud.
Many of the following factors have adversely affected our international operations and sales to customers located outside of the United States and may again in the future: • difficulties in staffing and managing foreign operations, particularly in new geographic locations; • challenges in providing solutions across a significant distance, in different languages and among different cultures; • rapid changes in government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics, and other similar outbreaks or events; • fluctuations in foreign currency exchange rates; 17 Table of Contents • compliance with and changes in foreign laws and regulations, as well as U.S. laws affecting the activities of U.S. companies abroad, including those associated with export controls, tariffs and embargoes, other trade restrictions and antitrust and data privacy concerns; • different, complex and changing laws governing intellectual property rights, sometimes affording companies lesser protection in certain areas; • seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and holiday season; • higher costs of doing business internationally; • interruptions resulting from any events affecting raw material supply or manufacturing capabilities abroad; • protectionist laws and business practices that favor local producers and service providers; • taxation; • energy costs; • restrictions imposed by local labor practices and laws on our business and operations; • workforce uncertainty in countries where labor unrest is more common than in the United States; • transportation delays; and • increased payment risk and higher levels of payment fraud.
Our research and development costs were approximately $38.2 million, $44.2 million and $36.9 million for the years ended December 31, 2022, 2021 and 2020, respectively, and there is no guarantee that these costs will enable us to maintain or grow our revenue profitability. Refer to Item 7.
Our research and development costs were approximately $40.1 million, $38.2 million and $44.2 million for the years ended December 31, 2023, 2022 and 2021, respectively, and there is no guarantee that these costs will enable us to maintain or grow our revenue profitability. Refer to Item 7.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts.
If securities or industry analysts publish inaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline. The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts.
Our future effective tax rates could be adversely affected by changes in statutory tax rates or interpretation of tax rules, including those set forth in the Tax Cuts and Jobs Act enacted in 2017, and regulations in jurisdictions in which we do business, changes in the amount of revenue or earnings in the countries with varying statutory tax rates, or by changes in the valuation of deferred tax assets and liabilities.
Our future effective tax rates could be adversely affected by changes in statutory tax rates or interpretation of tax rules, and regulations in jurisdictions in which we do business, changes in the amount of revenue or earnings in the countries with varying statutory tax rates, or by changes in the valuation of deferred tax assets and liabilities.
In addition, our sales are often made on unsecured credit terms, and a deterioration of political, economic or social conditions in a given country or region could reduce or eliminate our ability to collect accounts receivable in that country or region.
In addition, our sales are often made on unsecured credit terms, and a deterioration of political, economic or social conditions in a given country or region could reduce or eliminate our ability to collect accounts receivable in that country or region. In any of these events, our results of operations could be materially and adversely affected.
We believe successful execution of this part of our business plan is critical for our ability to compete in our industry and grow our business, and there are no guarantees we will be able to do so in a timely fashion, or at all.
We believe successful execution of this part of our business plan is critical for our ability to compete in our industry and grow our business, and there are no guarantees we will be able to do so in a timely fashion, or at all. Failures in this area could adversely impact our operating results and harm our reputation and brand.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires or flooding.
Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations. Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires or flooding.
In the year ended December 31, 2022, our common stock traded as high as $61.14 and as low as $22.04. The market for our common stock may become less active, liquid or orderly, which could depress the trading price of our common stock.
In the year ended December 31, 2023, our common stock traded as high as $40.47 and as low as $23.01. The market for our common stock may become less active, liquid or orderly, which could depress the trading price of our common stock.
Moreover, the business interruption insurance that we carry may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our product lines as a result of system failures.
Moreover, the business interruption insurance that we carry may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our product lines as a result of system failures. 16 Table of Contents We store confidential customer information in our systems that, if breached or otherwise subjected to unauthorized access, may harm our reputation or brand or expose us to liability.
If we are not able to comply with the requirements of Section 404 in the future, or if we fail to prevent or detect misstatements in the financial statements we include in our reports filed with the SEC, our business could be harmed and the market price of our common stock could decline.
If we are not able to comply with the requirements of Section 404 in the future, or if we fail to prevent or detect misstatements in the financial statements we include in our reports filed with the SEC, our business could be harmed and the market price of our common stock could decline. 25 Table of Contents Anti-takeover provisions in our charter documents and Minnesota law might discourage or delay acquisition attempts for us that you might consider favorable.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for additional discussion related to research and development costs.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for additional discussion related to research and development costs. Our failure to meet our customers' expectations regarding quick turnaround time would adversely affect our business and results of operations.
All of our in-house manufacturing products are produced in 9 manufacturing facilities, located in Rosemount, Minnesota; Plymouth, Minnesota; Brooklyn Park, Minnesota; Cary, North Carolina; Nashua, New Hampshire (2 facilities); Telford, United Kingdom; Putzbrunn, Germany; and Eschenlohe, Germany. These facilities and the manufacturing equipment we use would be costly to replace and could require substantial lead time to repair or replace.
All of our in-house manufacturing products are produced in 10 manufacturing facilities, located in Rosemount, Minnesota; Plymouth, Minnesota; Brooklyn Park, Minnesota; Cary, North Carolina (2 facilities); Nashua, New Hampshire (2 facilities); Telford, United Kingdom; Putzbrunn, Germany; and Eschenlohe, Germany.
We believe many product developers and engineers have a need for specific quality of quick-turn, on-demand custom parts. We believe our ability to create parts with the specifications of the product developers and engineers is an important factor in our results to date.
We believe many customers have a need for specific quality of their parts. We believe our ability to create parts within customer specifications is an important factor in our results to date.
Our business depends in part on our ability to process a large volume of new part designs from a diverse group of product developers and engineers and successfully identify significant opportunities for our business based on those submissions.
If we are unable to successfully maintain and enhance our brand, this could have a negative impact on our business and ability to generate revenue. Our business depends in part on our ability to process a large volume of new part designs from a diverse group of customers and successfully identify significant opportunities for our business based on those submissions.
The prototype parts we manufacture and the parts we manufacture in low volumes may contain undetected defects or errors that are not discovered until after the products have been installed and used by customers. This could result in claims from customers or others, damage to our business and reputation and brand, or significant costs to correct the defect or error.
We may be subject to product liability claims, which could result in material expense, diversion of management time and attention and damage to our business, reputation, and brand. The parts we manufacture may contain undetected defects or errors that are not discovered until after the products have been installed and used by customers.
Anti-takeover provisions in our charter documents and Minnesota law might discourage or delay acquisition attempts for us that you might consider favorable. Our Third Amended and Restated Articles of Incorporation, as amended, and Third Amended and Restated By-Laws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors.
Our Third Amended and Restated Articles of Incorporation, as amended, and Third Amended and Restated By-Laws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors.
While most manufacturing equipment and materials for our products are available from multiple suppliers, certain of those items are only available from single or limited sources.
We do not have long-term supply contracts with any of our suppliers and operate on a purchase-order basis. While most manufacturing equipment and materials for our products are available from multiple suppliers, certain of those items are only available from single or limited sources.
The sale and support of our products entails the risk of product liability claims. Any product liability claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, damage to our business and reputation and brand, and cause us to fail to retain existing customers or to fail to attract new customers.
Any product liability claim brought against us, regardless of its merit, could result in material expense, diversion of management time and attention, damage to our business, reputation, and brand, and cause us to fail to retain existing customers or to fail to attract new customers. 22 Table of Contents Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.
Any failure in our ability to timely and effectively scale and adapt our existing technology, processes and infrastructure could negatively impact our ability to retain existing customers and attract new customers, damage our reputation and brand, result in lost revenue, and otherwise substantially harm our business and results of operations. 20 Table of Contents Economic uncertainty arising from the recent COVID-19 pandemic has adversely affected our business and results of operations and could continue to do so in the future.
Any failure in our ability to timely and effectively scale and adapt our existing technology, processes and infrastructure could negatively impact our ability to retain existing customers and attract new customers, damage our reputation and brand, result in lost revenue, and otherwise substantially harm our business and results of operations. 15 Table of Contents Numerous factors may cause us not to maintain the revenue growth that we have historically experienced.
Existing and future laws and regulations may impede the growth of the Internet or other online services.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet or other online services.
Our failure to meet our customers' expectations regarding quick turnaround time would adversely affect our business and results of operations. We believe many product developers and engineers are facing increased pressure from global competitors to be first to market with their finished products, often resulting in a need for quick turnaround of custom parts.
We believe many customers are facing increased pressure from global competitors to be first to market with their finished products, often resulting in a need for quick turnaround of custom parts. We believe our ability to quickly quote, manufacture and ship custom parts has been an important factor in our results to date.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility.
Due to the factors above and the other risks discussed in this “Risk Factors” section, our stock is subject to volatility. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.
There is no assurance that we will be able to obtain valuable intellectual property in the jurisdictions where we and our competitors operate or that we will be able to use or license that intellectual property. 27 Table of Contents We may be subject to product liability claims, which could result in material expense, diversion of management time and attention and damage to our business and reputation and brand.
There is no assurance that we will be able to obtain valuable intellectual property in the jurisdictions where we and our competitors operate or that we will be able to use or license that intellectual property.
Our facilities may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, tornadoes, fires, hurricanes, tsunamis and nuclear disasters.
These facilities and the 18 Table of Contents manufacturing equipment we use would be costly to replace and could require substantial lead time to repair or replace. Our facilities may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, tornadoes, fires, hurricanes, tsunamis and nuclear disasters.
These events could in turn cause the market price of our common stock to fluctuate. If our operating results do not meet the expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical operating results, the market price of our common stock will likely decline.
If our operating results do not meet the expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical operating results, the market price of our common stock will likely decline. 23 Table of Contents Due to this and the other risks discussed in this “Risk Factors” section, you should not rely on quarter-to-quarter or year-to-year comparisons of our operating results as an indicator of future performance.
We attempt to include provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future.
However, it is possible that these limitations may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. The sale and support of our products entails the risk of product liability claims.
Our international revenue accounted for approximately 21%, 21% and 20% of our total revenue in the years ended December 31, 2022, 2021 and 2020, respectively. The future growth and profitability of our international business is subject to a variety of risks and uncertainties.
The future growth and profitability of our international business is subject to a variety of risks and uncertainties.
We rely on encryption, authentication and other technologies licensed from third parties, as well as administrative and physical safeguards, to secure such confidential information. Any compromise of our information security could damage our reputation and brand and expose us to a risk of loss, costly litigation and liability that would substantially harm our business and operating results.
Any compromise of our information security could damage our reputation and brand and expose us to a risk of loss, costly litigation and liability that would substantially harm our business and operating results. The rapid evolution and increased adoption of artificial intelligence technologies may intensify our cybersecurity risks.
If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business. 31 Table of Contents If securities or industry analysts publish inaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline.
In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
We acquire substantially all of the manufacturing equipment and certain of our materials that are critical to the ongoing operation and future growth of our business from several third parties. We do not have long-term supply contracts with any of our suppliers and operate on a purchase-order basis.
If our present single or limited source suppliers become unavailable or inadequate, our customer relationships, results of operations and financial condition may be adversely affected. We acquire substantially all of the manufacturing equipment and certain of our materials that are critical to the ongoing operation and future growth of our business from several third parties.
Due to all of the foregoing factors and the other risks discussed in this “Risk Factors” section, you should not rely on quarter-to-quarter or year-to-year comparisons of our operating results as an indicator of future performance. 29 Table of Contents Our business involves the use of hazardous materials, and we and our suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our business involves the use of hazardous materials, and we and our suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business. Our business involves the controlled storage, use and disposal of hazardous materials.
We have established our operations in the United States and Europe and are seeking to further expand our international operations. In addition to English, our website is available in British English, French, German, Italian, Japanese and Spanish.
We have established our operations in the United States and Europe and are seeking to further expand our international operations. Our international revenue accounted for approximately 21% of our total revenue in each of the years ended December 31, 2023, 2022 and 2021.
We store confidential customer information in our systems that, if breached or otherwise subjected to unauthorized access, may harm our reputation or brand or expose us to liability. Our system stores, processes and transmits our customers’ confidential information, including the intellectual property in their part designs and other sensitive data.
Our system stores, processes and transmits our customers’ confidential information, including the intellectual property in their part designs and other sensitive data. We rely on encryption, authentication and other technologies licensed from third parties, as well as administrative and physical safeguards, to secure such confidential information.
Removed
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a pandemic. The COVID-19 pandemic and associated counter-acting measures implemented by governments around the world, as well as increased business uncertainty, has adversely affected our business and results of operations and could continue to do so in the future.
Added
This could result in claims from customers or others, damage to our business and reputation and brand, or significant costs to correct the defect or error. We attempt to include provisions in our agreements with customers that are designed to limit our exposure to potential liability for damages arising from defects or errors in our products.
Removed
The Company is monitoring the global COVID-19 pandemic and has taken steps to mitigate the risks to our employees, customers, suppliers and other stakeholders. The current business environment and quickly evolving market conditions require significant management judgment to interpret and quantify the actual and potential impact on our assumptions about future financial performance and operating cash flows.
Added
These events could in turn cause the market price of our common stock to fluctuate.
Removed
To the extent that changes in the current business environment continue to impact our ability to achieve levels of forecasted operating results and cash flows, if our stock price were to trade below book value per share for an extended period of time and/or should other events occur indicating the carrying value of our assets might be impaired, we may be required to recognize impairment losses on goodwill, intangible and tangible assets.
Removed
Numerous factors may cause us not to maintain the revenue growth that we have historically experienced.
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A number of factors or events could cause such interruptions or problems, including among others: human and software errors, design faults, challenges associated with upgrades, changes or new facets of our business, power loss, telecommunication failures, fire, flood, extreme weather, political instability, acts of terrorism, war, break-ins and security breaches, contract disputes, labor strikes and other workforce-related issues, capacity constraints due to an unusually large number of product developers and engineers accessing our websites or ordering parts at the same time, and other similar events.
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These risks are augmented by the fact that our customers come to us largely for our quick-turn manufacturing capabilities and that accessibility and turnaround speed are often of critical importance to these product developers and engineers.
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In any of these events, our results of operations could be materially and adversely affected. 23 Table of Contents Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.
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We derive almost all of our revenue from the manufacture and sale to product developers and engineers of quick-turn low volumes of custom parts for prototyping, support of internal manufacturing and limited quantity product release.
Removed
Broadening the range of parts we offer is of particular importance since limitations in manufacturability are the primary reason we are not able to fulfill many quotation requests.
Removed
There are no guarantees that the resources devoted to executing on this aspect of our business plan will improve our business and operating results or result in increased demand for our products and product lines. Failures in this area could adversely impact our operating results and harm our reputation and brand.
Removed
Any failure to properly meet the needs of product developers and engineers or respond to changes in our industry on a cost-effective and timely basis, or at all, would likely have a material adverse effect on our business and operating results and harm our competitive position.
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We believe our ability to quickly quote, manufacture and ship custom parts has been an important factor in our results to date. There are no guarantees we will be able to meet product developers’ and engineers’ increasing expectations regarding quick turnaround time, especially as we increase the scope of our operations.
Removed
If we are unable to successfully maintain and enhance our brand, this could have a negative impact on our business and ability to generate revenue.
Removed
If we fail to grow our business as anticipated, our net sales, gross margin and operating margin will be adversely affected. We are attempting to grow our business substantially. To this end, we have made and expect to continue to make significant investments in our business, including investments in our infrastructure, technology, and marketing and sales efforts.
Removed
These investments include dedicated facilities expansion and increased staffing, both domestic and international. If our business does not generate the level of revenue required to support our investment, our net sales and profitability will be adversely affected.
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If we are unable to manage our growth and expand our operations successfully, our reputation and brand may be damaged, and our business and results of operations may be harmed. Over the past several years, we have experienced rapid growth.
Removed
For example, we have grown from 2,487 full-time employees as of December 31, 2018 to 2,568 full-time employees as of December 31, 2022. We have expanded internationally, including establishing manufacturing operations in Europe in 2005. In 2014, we expanded our product lines with 3D Printing through our acquisition of FineLine.
Removed
In 2015, we expanded our manufacturing operations and our 3D Printing product lines in Europe through our acquisition of Alphaform. In 2017, we expanded our product lines to include Sheet Metal through our acquisition of RAPID. In 2021, we expanded the breadth of products and lead times we offer through the acquisition of Hubs.
Removed
We expect this growth to continue and the number of countries and facilities from which we operate to increase in the future.
Removed
Our ability to effectively manage our anticipated growth and expansion of our operations will require us to do, among other things, the following: • enhance our operational, financial and management controls and infrastructure, human resource policies, and reporting systems and procedures, in particular as we continue to operate as a global organization; • effectively scale our operations, including accurately predicting the need for floor space, equipment, and additional staffing; • integrate the offer and operations of acquisitions; • successfully identify, recruit, hire, train, develop, maintain, motivate and integrate additional employees; and • expand our international resources.
Removed
These enhancements and improvements will require significant capital expenditures and allocation of valuable management and employee resources. Furthermore, our growth, combined with the geographical dispersion of our operations, has placed, and will continue to place, a strain on our operational, financial and management infrastructure.
Removed
Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and expansion. There are no guarantees we will be able to do so in an efficient or timely manner, or at all.
Removed
Our failure to effectively manage growth and expansion could have a material adverse effect on our business, results of operations, financial condition, prospects, and reputation and brand, including impairing our ability to perform to our customers’ expectations. 26 Table of Contents If our present single or limited source suppliers become unavailable or inadequate, our customer relationships, results of operations and financial condition may be adversely affected.
Removed
Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations. We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce.
Removed
Our operating results and financial condition may fluctuate due to a number of factors, including those listed below and those identified throughout this “Risk Factors” section: • the development of new competitive systems or processes by others; • the entry of new competitors into our market, whether by established companies or by new companies; • ability to economically source products manufactured by our network of premium manufacturing partners; • changes in the size and complexity of our organization, including our international operations; • levels of sales of our products and product lines to new and existing customers; • the geographic distribution of our sales; • changes in product developer and engineer preferences or needs; • changes in the amount that we invest to develop, acquire or license new technologies and processes, which we anticipate will generally increase and may fluctuate in the future; • delays between our expenditures to develop, acquire or license new technologies and processes, and the generation of sales related thereto; • our ability to timely and effectively scale our business during periods of sequential quarterly or annual growth; • limitations or delays in our ability to reduce our expenses during periods of declining sequential quarterly or annual revenue; • changes in our pricing policies or those of our competitors, including our responses to price competition; • changes in the amount we spend in our marketing and other efforts; • unexpected increases in expenses as compared to our related accounting accruals or operating plan; • the volatile global economy; • general economic and industry conditions that affect customer demand and product development trends; • interruptions to or other problems with our website and interactive user interface, information technology systems, manufacturing processes or other operations; • changes in accounting rules and tax and other laws; and • plant shutdowns due to health or weather conditions.

Item 2. Properties

Properties — owned and leased real estate

7 edited+0 added−1 removed1 unchanged
Biggest changeIn 2021, we entered into a lease agreement to expand our additive manufacturing footprint at a second location, which will add approximately 120,000 square feet in 2023. The lease contains a right to purchase option that we expect to exercise in 2023. In 2021, we consolidated facilities in Nashua, New Hampshire reducing our total footprint by approximately 18,000 square feet.
Biggest changeWe own a facility in Cary, North Carolina that encompasses approximately 77,000 square feet of manufacturing and office space. In 2021, we entered into a lease agreement to expand our additive manufacturing footprint at a second location, which added approximately 120,000 square feet in 2023. The lease contained a right to purchase option that we exercised in 2023.
In 2021, we leased a facility in Chicago, Illinois that encompasses approximately 10,000 square feet of office space utilized to support our outsourced manufacturing operations. The lease expires in 2026. Europe Our European operations are headquartered in Telford, United Kingdom in a facility we own encompassing approximately 163,000 square feet of office and manufacturing space.
We lease a facility in Chicago, Illinois that encompasses approximately 10,000 square feet of office space utilized to support our outsourced manufacturing operations. The lease expires in 2026. Europe Our European operations are headquartered in Telford, United Kingdom in a facility we own encompassing approximately 163,000 square feet of office and manufacturing space.
In 2021, we constructed a new facility we own in Putzbrunn, Germany which encompasses approximately 70,000 square feet of office and manufacturing space. We also lease office space in Mosbach, Germany; Le Bourget du Lac, France; Novara, Italy and Nacka, Sweden for sales, customer service and technical support staff. The leases expire at various times from 2023 to 2025.
We own a facility in Putzbrunn, Germany which encompasses approximately 70,000 square feet of office and manufacturing space. 27 Table of Contents We also lease office space in Mosbach, Germany; Le Bourget du Lac, France; Novara, Italy and Nacka, Sweden for sales, customer service and technical support staff. The leases expire at various times from 2024 to 2025.
In May 2021, we purchased one of our previously leased facilities and continue to lease a second facility. The lease expires in 2026. The New Hampshire facilities provide a total of approximately 128,000 square feet of manufacturing and office space.
In 2021, we consolidated facilities in Nashua, New Hampshire reducing our total footprint by approximately 18,000 square feet. In May 2021, we purchased one of our previously leased facilities and continue to lease a second facility. The lease expires in 2026. The New Hampshire facilities provide a total of approximately 128,000 square feet of manufacturing and office space.
We also lease a manufacturing and office facility encompassing approximately 21,000 square feet in Eschenlohe, Germany. The lease expires in 2024. Our outsourced manufacturing operations are headquartered in Amsterdam, Netherlands in a leased facility encompassing approximately 12,000 square feet of office space. The lease expires in 2025.
We also lease a manufacturing and office facility encompassing approximately 21,000 square feet in Eschenlohe, Germany. The lease expires in 2029. We lease a facility in Amsterdam, Netherlands that encompasses approximately 12,000 square feet of office space utilized to support our outsourced manufacturing operations. The lease expires in 2025.
We own a facility in Brooklyn Park, Minnesota that encompasses approximately 215,000 square feet of manufacturing and office space. We own a facility in Cary, North Carolina that encompasses approximately 77,000 square feet of manufacturing and office space.
We own a facility in Rosemount, Minnesota that encompasses approximately 130,000 square feet of manufacturing and office space. We own a facility in Plymouth, Minnesota that encompasses approximately 170,000 square feet of manufacturing and office space. We own a facility in Brooklyn Park, Minnesota that encompasses approximately 215,000 square feet of manufacturing and office space.
Japan In 2022, we announced our intention to cease our Japan operations headquartered in Zama, Kanagawa, Japan (southwest of Tokyo), where we operate in a leased facility encompassing approximately 88,000 square feet of office and manufacturing space. The lease expires in 2023. 33 Table of Contents
Japan In December 2023, we dissolved our Japan operations headquartered in Zama, Kanagawa, Japan (southwest of Tokyo), where we operated in a leased facility which encompassed approximately 88,000 square feet of office and manufacturing space. The lease expired in 2023.
Removed
In August 2022, we sold a nearby facility encompassing approximately 35,000 square feet of manufacturing space. We own a facility in Rosemount, Minnesota that encompasses approximately 130,000 square feet of manufacturing and office space. We own a facility in Plymouth, Minnesota that encompasses approximately 170,000 square feet of manufacturing and office space.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+1 added−0 removed2 unchanged
Added
Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+2 added−0 removed5 unchanged
Biggest changeAny future determination related to our dividend policy will be made at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. 35 Table of Contents Performance Graph The following graph shows a comparison from December 31, 2017 through December 31, 2022 of the cumulative total return for our common stock, the S&P 500 Index and the Russell 2000 Index.
Biggest changeAny future determination related to our dividend policy will be made at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
We have selected the Russell 2000 Index because the Russell 2000 Index measures the performance of the small market capitalization segment of U.S. equity instruments and we are a member company included in the Russell 2000 Index. Such returns are based on historical results and are not intended to suggest future performance.
We have selected the Russell 2000 Index because the Russell 2000 Index measures the performance of the small market capitalization segment of U.S. equity instruments and we are a member company included in the Russell 2000 Index. Such returns are based on historical results 28 Table of Contents and are not intended to suggest future performance.
As of January 26, 2023, we had 11 holders of record of our common stock. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
As of January 25, 2024 , we had 11 holders of record of our common stock. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
On November 17, 2022, our board of directors approved $50 million increase in our authorized stock repurchase program, which increased the total repurchases authorized to $200 million and extended the term of the program through December 31, 2024. We have $82.3 million remaining under this authorization.
On November 17, 2022, our board of directors approved $50 million increase in our authorized stock repurchase program, which increased the total repurchases authorized to $200 million and extended the term of the program through December 31, 2024.
The timing and amount of any share repurchases will be determined by our management based on market conditions and other factors. During the year ended December 31, 2022, we repurchased 857,123 shares at an average price of $34.57 per share for an aggregate purchase price of $29.6 million.
The timing and amount of any share repurchases will be determined by our management based on market conditions and other factors. 29 Table of Contents During the year ended December 31, 2023, we repurchased 1,392,921 shares at an average price of $31.52 per share for an aggregate purchase price of $43.9 million.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) October 1, 2022 through October 31, 2022 210,000 $ 37.77 210,000 $ 40,909 November 1, 2022 through November 30, 2022 116,357 $ 28.53 116,357 $ 87,589 December 1, 2022 through December 31, 2022 210,000 $ 25.31 210,000 $ 82,274 536,357 $ 30.89 536,357 $ 82,274
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) October 1, 2023 through October 31, 2023 — $ — — $ 93,258 November 1, 2023 through November 30, 2023 74,658 $ 36.62 74,658 $ 90,524 December 1, 2023 through December 31, 2023 58,677 $ 36.81 58,677 $ 88,364 133,335 $ 36.70 133,335 $ 88,364 Item 6. [Reserved]
Index 12/31/2017 6/30/2018 12/31/2018 6/30/2019 12/31/2019 6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 12/31/2022 Proto Labs, Inc. 100.00 115.49 109.50 112.64 98.59 109.19 148.93 89.13 49.85 46.45 24.79 S&P 500 100.00 101.67 93.76 110.03 120.84 115.96 140.49 160.74 178.27 141.58 143.61 Russell 2000 100.00 107.00 87.82 102.02 108.66 93.87 128.61 150.47 146.23 111.23 114.70 36 Table of Contents Unregistered Sales of Equity Securities and Issuer Purchases of Equity Securities On February 9, 2017, our board of directors authorized the repurchase of shares of our common stock from time to time on the open market or in privately negotiated purchases, at an aggregate purchase price of up to $50 million.
Index 12/31/2018 6/30/2019 12/31/2019 6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 12/31/2022 6/30/2023 12/31/2023 Proto Labs, Inc. 100.00 102.86 90.03 99.72 136.00 81.39 45.53 42.42 22.63 31.00 34.54 S&P 500 100.00 117.35 128.88 123.67 149.83 171.43 190.13 151.00 153.16 177.53 190.27 Russell 2000 100.00 116.17 123.72 106.88 146.44 171.33 166.50 126.65 130.60 140.06 150.31 Unregistered Sales of Equity Securities and Issuer Purchases of Equity Securities On February 9, 2017, our board of directors authorized the repurchase of shares of our common stock from time to time on the open market or in privately negotiated purchases, at an aggregate purchase price of up to $50 million.
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Performance Graph The following graph shows a comparison from December 31, 2018 through December 31, 2023 of the cumulative total return for our common stock, the S&P 500 Index and the Russell 2000 Index.
Added
On February 7, 2023 our board of directors approved a $50 million increase in our authorized stock repurchase program, which increased the stock repurchase authorized to $250 million. We have $88.4 million remaining under this authorization.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

80 edited+17 added−21 removed46 unchanged
Biggest changeYear Ended Year Ended December 31, Change December 31, Change (dollars in thousands) 2022 2021 $ % 2021 2020 $ % Revenue $ 488,398 100.0 % $ 488,098 100.0 % $ 300 0.1 $ 488,098 100.0 % $ 434,395 100.0 % $ 53,703 12.4 Cost of revenue 272,933 55.9 265,407 54.4 7,526 2.8 265,407 54.4 216,568 49.9 48,839 22.6 Gross profit 215,465 44.1 222,691 45.6 (7,226 ) (3.2 ) 222,691 45.6 217,827 50.1 4,864 2.2 Operating expenses: Marketing and sales 82,752 17.0 82,175 16.8 577 0.7 82,175 16.8 69,309 16.0 12,866 18.6 Research and development 38,222 7.8 44,241 9.1 (6,019 ) (13.6 ) 44,241 9.1 36,940 8.5 7,301 19.8 General and administrative 67,544 13.8 68,436 14.0 (892 ) (1.3 ) 68,436 14.0 51,742 11.9 16,694 32.3 Goodwill impairment 118,008 24.2 - - 118,008 * - - - - - - Closure of Japan business 6,922 1.4 - - 6,922 * - - - - - - Changes in fair value of contingent consideration - - (12,503 ) (2.6 ) 12,503 * (12,503 ) (2.6 ) - - (12,503 ) * Total operating expenses 313,448 64.2 182,349 37.3 131,099 71.9 182,349 37.3 157,991 36.4 24,358 15.4 (Loss) income from operations (97,983 ) (20.1 ) 40,342 8.3 (138,325 ) (342.9 ) 40,342 8.3 59,836 13.8 (19,494 ) (32.6 ) Other income (expense), net 106 - (158 ) - 264 (167.1 ) (158 ) - 3,109 0.7 (3,267 ) (105.1 ) (Loss) income before income taxes (97,877 ) (20.1 ) 40,184 8.2 (138,061 ) (343.6 ) 40,184 8.2 62,945 14.5 (22,761 ) (36.2 ) Provision for income taxes 5,585 1.1 6,812 1.4 (1,227 ) (18.0 ) 6,812 1.4 12,078 2.8 (5,266 ) (43.6 ) Net (loss) income $ (103,462 ) (21.2 %) $ 33,372 6.8 % $ (136,834 ) (410.0 %) $ 33,372 6.8 % $ 50,867 11.7 % $ (17,495 ) (34.4 %) *Percentage change not meaningful Stock-based compensation expense included in the statements of comprehensive income data above is as follows: Year Ended December 31, (dollars in thousands) 2022 2021 2020 Stock options and grants $ 16,103 $ 17,553 $ 13,327 Employee stock purchase plan 1,442 1,542 1,346 Total stock-based compensation expense $ 17,545 $ 19,095 $ 14,673 Cost of revenue $ 2,172 $ 2,595 $ 2,451 Operating expenses: Marketing and sales 3,295 3,736 3,121 Research and development 2,189 2,833 2,440 General and administrative 9,889 9,931 6,661 Total stock-based compensation expense $ 17,545 $ 19,095 $ 14,673 Comparison of Years Ended December 31, 2022 and 2021 Revenue Revenue by reportable segment and the related changes for 2022 and 2021 is summarized as follows: Year Ended December 31, 2022 2021 Change (dollars in thousands) $ % of Total Revenue $ % of Total Revenue $ % Revenue United States $ 387,399 79.3 % $ 384,458 78.8 % $ 2,941 0.8 % Europe 92,770 19.0 90,399 18.5 2,371 2.6 Japan 8,229 1.7 13,241 2.7 (5,012 ) (37.9 ) Total revenue $ 488,398 100.0 % $ 488,098 100.0 % $ 300 0.1 % Our revenue increased $0.3 million, or 0.1%, for 2022 compared with 2021.
Biggest changeYear Ended December 31, Change Year Ended December 31, Change (dollars in thousands) 2023 2022 $ % 2022 2021 $ % Revenue $ 503,877 100.0 % $ 488,398 100.0 % $ 15,479 3.2 $ 488,398 100.0 % $ 488,098 100.0 % $ 300 0.1 Cost of revenue 281,884 55.9 272,933 55.9 8,951 3.3 272,933 55.9 265,407 54.4 7,526 2.8 Gross profit 221,993 44.1 215,465 44.1 6,528 3.0 215,465 44.1 222,691 45.6 (7,226) (3.2) Operating expenses: Marketing and sales 87,688 17.4 82,752 17.0 4,936 6.0 82,752 17.0 82,175 16.8 577 0.7 Research and development 40,135 8.0 38,222 7.8 1,913 5.0 38,222 7.8 44,241 9.1 (6,019) (13.6) General and administrative 65,788 13.1 67,544 13.8 (1,756) (2.6) 67,544 13.8 68,436 14.0 (892) (1.3) Goodwill impairment - - 118,008 24.2 (118,008) * 118,008 24.2 — — 118,008 * Closure of Japan business 215 - 6,922 1.4 (6,707) * 6,922 1.4 — — 6,922 * Changes in fair value of contingent consideration — — — — — * — — (12,503) (2.6) 12,503 * Total operating expenses 193,826 38.5 313,448 64.2 (119,622) (38.2) 313,448 64.2 182,349 37.3 131,099 71.9 Income (loss) from operations 28,167 5.6 (97,983) (20.1) 126,150 128.7 (97,983) (20.1) 40,342 8.3 (138,325) (342.9) Other (expense) income, net (215) (0.1) 106 - (321) (302.8) 106 - (158) — 264 (167.1) Income (loss) before income taxes 27,952 5.5 (97,877) (20.1) 125,829 128.6 (97,877) (20.1) 40,184 8.2 (138,061) (343.6) Provision for income taxes 10,732 2.1 5,585 1.1 5,147 92.2 5,585 1.1 6,812 1.4 (1,227) (18.0) Net income (loss) $ 17,220 3.4 % $ (103,462) (21.2 %) $ 120,682 116.6 % $ (103,462) (21.2 %) $ 33,372 6.8 % $ (136,834) (410.0 %) * Percentage change not meaningful Stock-based compensation expense included in the statements of comprehensive income data above is as follows: Year Ended December 31, (in thousands) 2023 2022 2021 Stock options and other $ 14,550 $ 16,103 $ 17,553 Employee stock purchase plan 1,439 1,442 1,542 Total stock-based compensation expense $ 15,989 $ 17,545 $ 19,095 Cost of revenue $ 1,840 $ 2,172 $ 2,595 Operating expenses: Marketing and sales 3,426 3,295 3,736 Research and development 2,556 2,189 2,833 General and administrative 8,167 9,889 9,931 Total stock-based compensation expense $ 15,989 $ 17,545 $ 19,095 34 Table of Contents Comparison of Years Ended December 31, 2023 and 2022 Revenue Revenue by reportable segment and the related changes for 2023 and 2022 is summarized as follows: Year Ended December 31, 2023 2022 Change (dollars in thousands) $ % of Total Revenue $ % of Total Revenue $ % Revenue United States $ 396,821 78.8 % $ 387,399 79.3 % $ 9,422 2.4 % Europe 107,056 21.2 92,770 19.0 14,286 15.4 Japan — — 8,229 1.7 (8,229) (100.0) Total revenue $ 503,877 100.0 % $ 488,398 100.0 % $ 15,479 3.2 % Our revenue increased $15.5 million, or 3.2%, for 2023 compared with 2022.
Cash Flows from Financing Activities Cash used in financing activities was $27.9 million for the year ended December 31, 2022, consisting of $29.7 million in repurchases of common stock, $1.7 million in shares withheld for tax obligations associated with equity transactions, and $0.5 million for repayments of finance lease obligations, which were partially offset by $4.0 million in proceeds from issuance of common stock from equity plans.
Cash used in financing activities was $27.9 million for the year ended December 31, 2022, consisting of $29.7 million in repurchases of common stock, $1.7 million in shares withheld for tax obligations associated with equity transactions, and $0.5 million for repayments of finance lease obligations, which were partially offset by $4.0 million in proceeds from issuance of common stock from equity plans.
The decrease in our cash was primarily due to cash used in investing activities for net purchases of, and proceeds from sales of, marketable securities of $25.5 million, purchases of property, equipment and other capital assets of $17.6 million, and cash used in financing activities for repurchases of common stock of $29.7 million, which were partially offset by cash generated through operations of $62.1 million.
The decrease in our cash was primarily due to cash used in investing activities for net purchases of, and proceeds of, marketable securities of $25.5 million, purchases of property, equipment and other capital assets of $17.6 million, and cash used in financing activities for repurchases of common stock of $29.7 million, which were partially offset by cash generated through operations of $62.1 million.
Our addition of Hubs in 2021 provides a complementary opportunity to add revenue growth through the use of premium manufacturing partners, without the significant investments required by our legacy business model. 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 addition of Hubs in 2021 provides a complementary opportunity to add revenue growth through the use of premium manufacturing partners, without the significant investments required by our internal manufacturing business model. 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.
“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information about these critical accounting policies and estimates, as well as a description of our other accounting policies and estimates. 46 Table of Contents Revenue Recognition We recognize revenue for our internal and outsourced manufacturing operations in accordance with ASC 606, Revenue from Contracts with Customers .
“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information about these critical accounting policies and estimates, as well as a description of our other accounting policies and estimates. Revenue Recognition We recognize revenue for our internal and outsourced manufacturing operations in accordance with ASC 606, Revenue from Contracts with Customers .
Recently adopted accounting pronouncements We did not recently adopt any accounting pronouncements that had a material impact on our Consolidated Financial Statements. There are no pending accounting pronouncements that are expected to have a material impact on our Consolidated Financial Statements. 49 Table of Contents
Recently adopted accounting pronouncements We did not recently adopt any accounting pronouncements that had a material impact on our Consolidated Financial Statements. There are no pending accounting pronouncements that are expected to have a material impact on our Consolidated Financial Statements. 42 Table of Contents
For a more complete discussion of the risks facing our business, see Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K. 38 Table of Contents Key Financial Measures and Trends Revenue Our operations are comprised of two geographic operating segments in the United States and Europe.
For a more complete discussion of the risks facing our business, see Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K. Key Financial Measures and Trends Revenue Our operations are comprised of two geographic operating segments in the United States and Europe.
An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows generated by the asset. As of December 31, 2022, no impairment charges for intangible assets have been recognized.
An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows generated by the asset. As of December 31, 2023, no impairment charges for intangible assets have been recognized.
On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, goodwill, capitalized software costs, other intangible assets, stock-based compensation, and income taxes. 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.
On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, goodwill, other intangible assets, stock-based compensation, and income taxes. 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.
Our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including: • expanding the breadth and scope of our products by adding more sizes and materials to our offerings; • the introduction of our 3D Printing product line through our acquisition of FineLine in 2014; • expanding 3D printing to Europe through our acquisition of Alphaform in October 2015; • the introduction of our Sheet Metal product line through our acquisition of RAPID in 2017; • continuously improving the usability of our product lines such as our web-centric applications; and • providing customers with on-demand access to a global network of premium manufacturing partners through our acquisition of Hubs in January 2021.
Our revenue is generated from a diverse customer base and our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by increasing marketing and selling activities, including: • expanding the breadth and scope of our products by adding more sizes and materials to our offerings; • the introduction of our 3D Printing product line through our acquisition of FineLine in 2014; • expanding 3D printing to Europe through our acquisition of Alphaform in October 2015; • the introduction of our Sheet Metal product line through our acquisition of RAPID in 2017; • continuously improving the usability of our product lines such as our web-centric applications; and 31 Table of Contents • providing customers with on-demand access to a global network of premium manufacturing partners through our acquisition of Hubs in January 2021.
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.
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. 40 Table of Contents The Black-Scholes option pricing model requires inputs such as the risk-free interest rate, expected term, expected volatility and expected dividend yield.
Overall, our effective tax rate for 2022 and beyond may differ from historical effective tax rates due to increases in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact the effective tax rate. 40 Table of Contents Results of Operations The following table summarizes our results of operations and the related changes for the periods indicated.
Overall, our effective tax rate for 2023 and beyond may differ from historical effective tax rates due to changes in losses in foreign operations that are not eligible for tax benefits on account of valuation allowances, as well as any future tax law changes that may impact the effective tax rate. 33 Table of Contents Results of Operations The following table summarizes our results of operations and the related changes for the periods indicated.
The majority of our injection molding contracts have multiple performance obligations including one obligation to produce the mold and a second obligation to produce parts. For injection molding contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling price based on the price charged to customers.
The majority of our injection molding contracts have multiple performance obligations including one obligation to produce the mold and a second obligation to produce parts. For injection molding contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price.
On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. Revenue is derived from our Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines.
On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023. Revenue is derived from our Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines.
The fair value of each offering period was estimated using the Black-Scholes option pricing model with the following assumptions: Year Ended December 31, 2022 2021 2020 Risk-free interest rate 0.17 - 4.60% 0.06 - 0.17% 0.12 - 0.17% Expected life (months) 6.00 6.00 6.00 Expected volatility 47.05 - 67.84% 53.44 - 65.53% 50.85 - 59.99% Expected dividend yield 0% 0% 0% There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions.
The fair value of each offering period was estimated using the Black-Scholes option pricing model with the following assumptions: Year Ended December 31, 2023 2022 2021 Risk-free interest rate 4.60 - 5.16% 0.17 - 4.60% 0.06 - 0.17% Expected life (months) 6.00 6.00 6.00 Expected volatility 47.38 - 67.84% 47.05 - 67.84% 53.44 - 65.53% Expected dividend yield 0% 0% 0% There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions.
Our future capital requirements will depend on many factors, including the following: • the revenue growth in Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines; • costs of operations, including costs relating to expansion and growth; • the emergence of competing or complementary technological developments; • the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual product rights, or participating in litigation-related activities; and • the acquisition of businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
Our future capital requirements will depend on many factors, including the following: • the revenue growth in Injection Molding, CNC Machining, 3D Printing and Sheet Metal product lines; • costs of operations, including costs relating to expansion and growth; • the emergence of competing or complementary technological developments; • the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual product rights, or participating in litigation-related activities; and • the acquisition of businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. 38 Table of Contents Our recent annual capital expenditures have varied between 4% and 8% of annual revenue.
An impairment charge for goodwill was recognized for our Europe reporting unit in the fourth quarter of 2022, as it was determined the estimated fair value of the reporting unit, including goodwill, was less than its carrying amount. Closure of Japan business.
Goodwill is tested for impairment annually as of the first day of the fourth quarter. An impairment charge for goodwill was recognized for our Europe reporting unit in the fourth quarter of 2022, as it was determined the estimated fair value of the reporting unit, including goodwill, was less than its carrying amount. Closure of Japan business.
While our business may be positively affected by these trends, our results may also be favorably or unfavorably impacted by other trends that affect product developer and engineer orders for custom parts in low volumes, including, among others, economic conditions, changes in product developer and engineer preferences or needs, developments in our industry and among our competitors, and developments in our customers' industries.
While our business may be positively affected by these trends, our results may also be favorably or unfavorably impacted by other trends that affect customer orders for custom parts, including, among others, economic conditions, changes in customer preferences or needs, developments in our industry and among our competitors, and developments in our customers' industries.
As of December 31, 2022, the amount of cash and cash equivalents held by foreign subsidiaries was $19.6 million. Our intent is to continue to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations.
As of December 31, 2023, the amount of cash and cash equivalents held by foreign subsidiaries was $18.1 million. Our intent is to continue to reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations.
We recognize stock-based compensation expense on a straight-line basis over the requisite service period. We recorded stock-based compensation expense relating to stock options, restricted stock awards, performance stock units and our ESPP of $17.5 million, $19.1 million and $14.7 million during the years ended December 31, 2022, 2021 and 2020, respectively.
We recognize stock-based compensation expense on a straight-line basis over the requisite service period. We recorded stock-based compensation expense relating to stock options, restricted stock awards, performance stock units and our ESPP of $16.0 million, $17.5 million and $19.1 million during the years ended December 31, 2023, 2022 and 2021, 41 Table of Contents respectively.
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.
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. We account for forfeitures as they occur.
We account for forfeitures as they occur. 47 Table of Contents The fair value of each new employee option awarded was estimated on the date of grant for the periods below using the Black-Scholes option pricing model with the following assumptions: Year Ended December 31, 2022 2021 2020 Risk-free interest rate 1.94 - 3.40% 0.80 - 1.12% 0.50 - 1.47% Expected life (years) 6.25 6.25 6.25 Expected volatility 45.95 - 46.03% 45.28 - 45.53% 42.40 - 43.83% Expected dividend yield 0% 0% 0% Weighted average grant date fair value $23.11 $128.14 $45.32 Our 2012 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of our common stock during each offering period at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations.
The fair value of each new employee option awarded was estimated on the date of grant for the periods below using the Black-Scholes option pricing model with the following assumptions: Year Ended December 31, 2023 2022 2021 Risk-free interest rate 3.55 - 4.55% 1.94 - 3.40% 0.80 - 1.12% Expected life (years) 2 - 6.25 6.25 6.25 Expected volatility 49.23 -55.92% 45.95 - 46.03% 45.28 - 45.53% Expected dividend yield 0% 0% 0% Weighted average grant date fair value $16.36 $23.11 $128.14 Our 2012 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase a variable number of shares of our common stock during each offering period at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations.
We believe we continue to be well positioned to benefit from these trends, given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom parts. The COVID-19 pandemic has also impacted the manufacturing environment.
We believe we continue to be well positioned to benefit from these trends, given our proprietary technology that enables us to automate and integrate the majority of activities involved in procuring custom parts.
Our gross profit and gross margin are affected by many factors, including our mix of revenue by product line, pricing, sales volume, manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources, the mix between revenue produced in our internal manufacturing operations and outsourced to our external manufacturing partners, and foreign exchange rates. 39 Table of Contents Operating Expenses Operating expenses consist of marketing and sales, research and development and general and administrative expenses.
Our gross profit and gross margin are affected by many factors, including our mix of revenue by product line, pricing, sales volume, manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources, the mix between revenue produced in our internal manufacturing operations and outsourced to our external manufacturing partners, and foreign exchange rates.
Our revenue outside of the United States accounted for approximately 21%, 21% and 20% of our consolidated revenue in the years ended December 31, 2022, 2021 and 2020, respectively. We intend to continue to expand our international sales efforts and believe opportunities exist to serve the needs of product developers and engineers in select new geographic regions.
Our revenue outside of the United States accounted for approximately 21% of our consolidated revenue in each of the years ended December 31, 2023 and 2022. We intend to continue to expand our international sales efforts and believe opportunities exist to serve the needs of customers in select new geographic regions.
Including interest and penalties, we have established a liability for uncertain tax positions of $4.4 million as of December 31, 2022.
Including interest and penalties, we have established a liability for uncertain tax positions of $5.0 million as of December 31, 2023.
Cash used in financing activities was $22.2 million for the year ended December 31, 2021, consisting of $23.3 million in repurchases of common stock, $4.2 million in shares withheld for tax obligations associated with equity transactions, and $0.6 million for repayments of finance lease obligations, which were partially offset by $5.9 million in proceeds from issuance of common stock from equity plans.
Cash Flows from Financing Activities Cash used in financing activities was $41.9 million for the year ended December 31, 2023, consisting of $44.0 million in repurchases of common stock, $1.4 million in shares withheld for tax obligations associated with equity transactions, and $0.3 million for repayments of finance lease obligations, which were partially offset by $3.8 million in proceeds from issuance of common stock from equity plans.
Cash Flows from Operating Activities Cash flow from operating activities of $62.1 million during 2022 primarily consisted of net loss of $103.4 million, adjusted for certain non-cash items, including depreciation and amortization of $39.4 million, stock-based compensation expense of $17.6 million, loss on goodwill impairment of $118.0 million and impairments related to closure of Japan business of $2.8 million, which were partially offset by changes in deferred taxes of $9.5 million and changes in operating assets and liabilities and other items totaling $2.8 million.
The cash flow from operating activities during 2023 compared to 2022 increased $11.2 million primarily due to changes in operating assets and liabilities of $7.2 million, increases in deferred taxes of $1.8 million, increases in interest on finance lease obligations of $1.1 million and increases in net income of $120.7 million, which were partially offset by decreases in stock-based compensation of $1.6 million and loss on impairment of goodwill of $118.0 million. 37 Table of Contents Cash flow from operating activities of $62.1 million during 2022 primarily consisted of net loss of $103.5 million, adjusted for certain non-cash items, including depreciation and amortization of $39.4 million and stock-based compensation expense of $17.5 million, loss on goodwill impairment of $118.0 million and impairments related to closure of Japan business of $2.8 million, which were partially offset by changes in deferred taxes of $9.5 million and changes in operating asset and liabilities and other items totaling $2.8 million.
Our contingent consideration liability is related to our acquisition of Hubs in 2021 and is evaluated quarterly for changes in fair value. Other Income, Net Other income, net primarily consists of foreign currency-related gains and losses and interest income on cash balances and investments. Our foreign currency-related gains and losses will vary depending upon movements in underlying exchange rates.
Our contingent consideration liability is related to our acquisition of Hubs in 2021, was evaluated quarterly for changes in fair value, and was written off in 2021. Other Income, Net Other income, net primarily consists of foreign currency-related gains and losses and interest income on cash balances and investments.
As of December 31, 2022, we had $3.9 million of unrecognized stock-based compensation costs related to unvested stock options that are expected to be recognized over a weighted average period of 2.6 years. We issued options to purchase 118,434, 57,901 and 60,065 shares of our common stock in 2022, 2021 and 2020, respectively.
As of December 31, 2023, we had $3.8 million of unrecognized stock-based compensation costs related to unvested stock options that are expected to be recognized over a weighted average period of 2.5 years. We issued options to purchase 186,804, 118,434 and 57,901 shares of our common stock during the years ended December 31, 2023, 2022 and 2021, respectively.
By reportable segment, revenue in the United States increased $2.9 million, or 0.8%, for 2022 compared with 2021. Revenue in Europe increased $2.4 million, or 2.6%, for 2022 compared with 2021. Revenue in Japan decreased $5.0 million, or 37.9%, for 2022 compared with 2021.
By reportable segment, revenue in the United States increased $9.4 million, or 2.4%, for 2023 compared with 2022. Revenue in Europe increased $14.3 million, or 15.4%, for 2023 compared with 2022. Revenue in Japan decreased $8.2 million, or 100.0%, for 2023 compared with 2022.
Goodwill impairment. A goodwill impairment charge of $118.0 million was recognized in the fourth quarter of 2022, as it was determined the estimated fair value of our Europe reporting unit, including goodwill, was less than its carrying amount. Closure of Japan business. Our decision to close our Japan business resulted in $6.9 million in operating expenses during 2022.
We had no goodwill impairment charges recorded during 2023. A goodwill impairment charge of $118.0 million was recognized in the fourth quarter of 2022, as it was determined the estimated fair value of our Europe reporting unit, including goodwill, was less than its carrying amount. Closure of Japan business.
Other (Expense) Income, Net and Provision for Income Taxes Other (Expense) Income, Net. We recognized other income, net of $0.1 million in 2022, an increase of $0.3 million compared to other expense, net of $0.2 million for 2021.
Other (Expense) Income, Net and Provision for Income Taxes Other (Expense) Income, Net. We recognized other expense, net of $0.2 million in 2023, a decrease of $0.3 million compared to other income, n et of $0.1 million for 2022.
We believe our customers are facing increased pressure to shorten product life-cycles, to embed products with connectivity driven by the internet of things technology, and to deliver products that are personalized and customized to unique customer specifications.
For example, we believe that many of our target customers are facing three mega trends, which are disrupting long-term product growth models. We believe our customers are facing increased pressure to shorten product life-cycles, to embed products with connectivity driven by the "internet of things" technology, and to deliver products that are personalized and customized to unique customer specifications.
Other income, net for 2022 primarily consisted of $1.0 million in interest income, which was partially offset by a $0.9 million loss on foreign currency and other losses. Other income, net for 2021 primarily consisted of a $0.9 million loss on foreign currency, which is partially offset by a $0.2 million in interest income and $0.5 million in other income.
Other income, net for 2022 primarily consisted of $1.0 million in interest income, which was partially offset by a $0.9 million loss on foreign currency and other losses. Provision for Income Taxes. Our income tax provision increased by $5.1 million for 2023 compared to 2022.
Goodwill We recognize goodwill in accordance with ASC 350, Intangibles—Goodwill and Other . Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination.
We generally determine standalone selling price based on the price charged to customers. 39 Table of Contents Goodwill We recognize goodwill in accordance with ASC 350, Intangibles—Goodwill and Other . Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination.
We establish a valuation allowance for any portion of our deferred tax assets that we believe will not be recognized. 48 Table of Contents 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.
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.
As of December 31, 2022, we had $21.1 million of unrecognized stock-based compensation costs related to non-vested restricted stock, which is expected to be recognized over a weighted average period of 2.4 years. We issued restricted stock awards of 315,432, 205,996 and 108,179 shares of our common stock in 2022, 2021 and 2020, respectively.
As of December 31, 2023, we had $18.5 million of unrecognized stock-based compensation costs related to unvested restricted stock, which is expected to be recognized over a weighted average period of 2.5 years. We issued restricted stock awards of 410,682, 315,432 and 205,996 shares of our common stock during the years ended December 31, 2023, 2022 and 2021, respectively.
Financing Arrangements We had no financing arrangements as of December 31, 2022 and 2021. Inflation We experience normal inflation and changing prices, primarily on our production materials and labor. In 2022, 2021 and 2020 wage inflation contributed to our lower gross margin.
Inflation We experience normal inflation and changing prices, primarily on our production materials and labor. In the years ended December 31, 2023, 2022 and 2021 wage inflation contributed to our lower gross margin.
As a result of the factors described above, many of our customers tend to return to Proto Labs to meet their ongoing needs, with approximately 94%, 93% and 93% of our revenue in 2022, 2021 and 2020, respectively, derived from existing customers. We have established our operations in the United States, Europe and Japan.
As a result of the factors described above, many of our customers tend to return to Proto Labs to meet their ongoing needs. We have established our operations in the United States and Europe. Previously we had established operations in Japan.
As of December 31, 2022, we had $2.5 million of unrecognized stock-based compensation costs related to non-vested performance stock, which is expected to be recognized over a weighted average period of 2.0 years. We issued performance stock awards of 35,697, 15,078 and 19,956 shares of our common stock in 2022, 2021 and 2020, respectively.
As of December 31, 2023, we had $4.1 million of unrecognized stock-based compensation costs related to unvested performance stock, which is expected to be recognized over a weighted average period of 1.8 years. We issued performance stock awards of 71,295, 35,697 and 15,078 shares of our common stock during the years ended December 31, 2023, 2022 and 2021, respectively.
The decrease in our cash was primarily due to cash used in investing activities for our acquisition of Hubs of $127.4 million, purchases of property, equipment and other capital assets of $34.2 million, and cash used in financing activities for repurchases of common stock of $23.3 million, which were partially offset by net proceeds from investments in marketable securities of $67.0 million and cash generated through operations of $55.2 million.
The increase in our cash was primarily due to cash generated through operations of $73.3 million, which was partially offset by cash used in investing activities of $4.6 million, consisting primarily of net purchases of property, equipment and other capital assets of $27.4 million partly offset by proceeds from the maturity of marketable securities of $23.9 million, and cash used in financing activities of $41.9 million, primarily for repurchases of common stock of $44.0 million.
For example, the pandemic accelerated the digitization of manufacturing as companies pivoted to a work-from-home and socially-distanced manufacturing plant environment. As a result, the adoption of e-commerce was accelerated, which allows opportunity for us to provide valuable solutions to manufacturers looking to build resiliency in their supply chains through fast, on-demand manufacturers.
As a result, the adoption of e-commerce manufacturing has accelerated, which allows opportunity for us to provide valuable solutions to customers looking to build resiliency in their supply chains through fast, on-demand manufacturers.
An impairment charge for goodwill is recognized only when the estimated fair value of a reporting unit, including goodwill, is less than its carrying amount. The quantitative impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit.
The quantitative impairment test requires judgment, including the identification of reporting units, the assignment of assets, liabilities and goodwill to reporting units, and the determination of fair value of each reporting unit. The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount, including goodwill.
Other intangible assets include software technology, customer relationships and other intangible assets acquired from independent parties. We used a multi-period excess earnings method under the income approach to measure the software platform when acquired through an acquisition.
We used a multi-period excess earnings method under the income approach to measure the software platform when acquired through an acquisition.
Cash used in investing activities was $94.7 million for the year ended December 31, 2021, consisting of $127.4 million in cash used for acquisitions, net of cash acquired and $34.2 million for the purchases of property, equipment and other capital assets, which were partially offset by $67.0 million of net proceeds from investments in marketable securities.
Cash Flows from Investing Activities Cash used in investing activities was $4.6 million for the year ended December 31, 2023, consisting of $27.4 million for the net purchases of property, equipment and other capital assets, $1.0 in other investing activities, which were partially offset by $23.9 million in proceeds from maturities of marketable securities.
Income from operations for Europe decreased $131.1 million for 2022 compared with 2021, which was primarily driven by a $118.0 goodwill impairment charge. Loss from operations included in Corporate Unallocated and Japan decreased $2.4 million for 2022 compared with 2021. The loss from operations is primarily driven by the Europe goodwill impairment charge.
By reportable segment, income from operations for the United States increased $1.5 million. Income from operations for Europe increased $117.9 million for 2023 compared with 2022, which was primarily driven by a $118.0 goodwill impairment charge in 2022. Loss from operations included in Corporate Unallocated and Japan decreased $6.8 million for 2023 compared with 2022.
Our general and administrative expense decreased $0.9 million, or 1.3%, for 2022 compared to 2021 primarily due to a decrease of $2.4 million in administrative costs, a decrease of $2.2 million in professional service costs, a decrease of $0.8 million in personnel and related costs, and a decrease of $0.3 million in stock-based compensation cost, which were partially offset by an increase in research and development costs of $4.8 million provided by Hubs.
Our general and administrative expense decreased $1.8 million, or 2.6%, fo r 2023 compared to 2022 primarily due to a decrease of $1.7 million in stock-based compensation and a decrease of $0.7 million in personnel and related costs, which were partially offset by an increase in professional services and other administrative costs of $0.6 million. Goodwill impairment.
During 2022, we served 56,333 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 1.8% over the same period in 2021. During 2021, we served 55,330 unique product developers and engineers who purchased our products through our web-based customer interface, an increase of 26.3% over the same period in 2020.
During 2023, we served 53,464 unique customer contacts who purchased our products through our web-based customer interface, a decrease of 5.1% over the same period in 2022. During 2022, we served 56,333 unique customer contacts who purchased our products through our web-based customer interface, an increase of 1.8% over the same period in 2021.
Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, 3D-printed and sheet metal custom parts for prototyping and low-volume production. In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future. Marketing and sales.
Operating Expenses Operating expenses consist of marketing and sales, research and development and general and administrative expenses. Personnel-related costs are the most significant component in each of these categories. Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn, on-demand injection-molded, CNC-machined, 3D-printed and sheet metal custom parts for prototyping and low-volume production.
We also continually seek to enhance other aspects of our technology and manufacturing processes, including our interactive web-based and automated user interface and quoting system. We intend to continue to invest significantly to enhance our technology and manufacturing processes and expand the range of our existing capabilities with the aim of meeting the needs of a broader set of customers.
We intend to continue to invest significantly to enhance our technology and 30 Table of Contents manufacturing processes and expand the range of our existing capabilities with the aim of meeting the needs of a broader set of customers.
Comparison of Years Ended December 31, 2021 and 2020 For a comparison of our results of operations for fiscal years ended December 31, 2021 and December 31, 2020, see "Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 18, 2022. 43 Table of Contents Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, (dollars in thousands) 2022 2021 2020 Net cash provided by operating activities $ 62,079 $ 55,242 $ 106,969 Net cash used in investing activities (43,092 ) (94,664 ) (95,473 ) Net cash used in financing activities (27,922 ) (22,198 ) (10,726 ) Effect of exchange rates on cash and cash equivalents (436 ) (54 ) 1,608 Net (decrease) increase in cash and cash equivalents $ (9,371 ) $ (61,674 ) $ 2,378 Sources of Liquidity We finance our operations and capital expenditures through cash flow from operations.
Liquidity and Capital Resources Cash Flows The following table summarizes our cash flows for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Net cash provided by operating activities $ 73,274 $ 62,079 $ 55,242 Net cash used in investing activities (4,552) (43,092) (94,664) Net cash used in financing activities (41,858) (27,922) (22,198) Effect of exchange rates on cash and cash equivalents 368 (436) (54) Net (decrease) increase in cash and cash equivalents $ 27,232 $ (9,371) $ (61,674) Sources of Liquidity We finance our operations and capital expenditures through cash flow from operations.
International revenue was negatively impacted by $11.6 million during 2022 compared to the same period in 2021 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar. 41 Table of Contents During 2022, we served 56,333 unique product developers and engineers, an increase of 1.8% over 2021.
International revenue w as negatively impacted by $0.2 million during 2023 compared to the same period in 2022 as a result of foreign currency movements, primarily the weakening of the British Pound and Euro relative to the United States Dollar. During 2023, we served 53,464 unique customer contacts, a decrease of 5.1% over 2022.
Gross profit decreased from $222.7 million in 2021 to $215.5 million in 2022. Gross margin decreased from 45.6% of revenue in 2021 to 44.1% of revenue in 2022 primarily due to a decrease in Injection Molding revenue. Operating Expenses Marketing and Sales. Marketing and sales expense increased $0.6 million, or 0.7%, for 2022 compared to 2021.
Gross Profit and Gross Margin. Gross profit increased from $215.5 million in 2022 to $222.0 million in 2023. Gross margin was 44.1% of revenue in 2023, unchanged compared to 2022 . Operating Expenses Marketing and Sales.
Revenue by product line and the related changes for 2022 and 2021 is summarized as follows: Year Ended December 31, 2022 2021 Change (dollars in thousands) $ % of Total Revenue $ % of Total Revenue $ % Revenue Injection Molding $ 200,578 41.1 % $ 226,117 46.3 % $ (25,539 ) (11.3 %) CNC Machining 188,372 38.5 166,811 34.2 21,561 12.9 3D Printing 78,988 16.2 72,721 14.9 6,267 8.6 Sheet Metal 19,498 4.0 20,397 4.2 (899 ) (4.4 ) Other Revenue 962 0.2 2,052 0.4 (1,090 ) (53.1 ) Total revenue $ 488,398 100.0 % $ 488,098 100.0 % $ 300 0.1 % By product line, our revenue increase was driven by a 12.9% increase in CNC Machining revenue and an 8.6% increase in 3D Printing revenue, which was partially offset by an 11.3% decrease in Injection Molding revenue, a 4.4% decrease in Sheet Metal revenue, and a 53.1% decrease in Other Revenue, in each case for 2022 compared with 2021.
Revenue by product line and the related changes for 2023 and 2022 is summarized as follows: Year Ended December 31, 2023 2022 Change (dollars in thousands) $ % of Total Revenue $ % of Total Revenue $ % Revenue Injection Molding $ 203,941 40.5 % $ 200,578 41.1 % $ 3,363 1.7 % CNC Machining 198,222 39.3 188,372 38.5 9,850 5.2 3D Printing 84,291 16.7 78,988 16.2 5,303 6.7 Sheet Metal 16,540 3.3 19,498 4.0 (2,958) (15.2) Other Revenue 883 0.2 962 0.2 (79) (8.2) Total revenue $ 503,877 100.0 % $ 488,398 100.0 % $ 15,479 3.2 % By product line, our revenue increase was driven by a 5.2% increase in CNC Machining revenue, a 6.7% increase in 3D Printing revenue and a 1.7% increase in Injection Molding revenue, which was partially offset by a 15.2% decrease in Sheet Metal revenue, and a 8.2% decrease in Other Revenue, in each case for 2023 compared with 2022. 35 Table of Contents Cost of Revenue, Gross Profit and Gross Margin Cost of Revenue.
Cost of Revenue, Gross Profit and Gross Margin Cost of Revenue. Cost of revenue increased $7.5 million, or 2.8%, for 2022 compared to 2021, which was greater than the rate of revenue increase of 0.1% for 2022 compared to 2021.
Cost of revenue increased $9.0 million, or 3.3%, for 2023 compared to 2022, which was less than the rate of revenue increase of 3.2% for 2023 compared to 2022.
Our interest income will vary each reporting period depending on our average cash balances during the period, composition of our marketable security portfolio and the current level of interest rates. Provision for Income Taxes Provision for income taxes is comprised of federal, state, local and foreign taxes based on pre-tax income.
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.
We target our products at the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets. We have experienced significant growth since our inception.
We target our products at the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets, to the procurement and supply chain professionals seeking to easily and efficiently source custom parts on-demand, and to a wide variety of customers seeking to purchase low-volume custom parts.
We believe future growth capital expenditures, excluding any expenditures for buildings and maintenance capital we might purchase for our operations, are likely to vary between approximately 8% and 12% of annual revenue. 45 Table of Contents Contractual Obligations As of December 31, 2022, our contractual obligations are $21.4 million related to current and long-term operating and finance lease liabilities.
We believe future growth capital expenditures, excluding any expenditures for buildings and maintenance capital we might purchase for our operations, are likely to vary between approximately 4% and 7% of annual revenue.
Our actual results may differ materially from those anticipated in these forward- looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Overview We are one of the world’s largest and fastest digital manufacturers of custom prototypes and on-demand production parts.
Our actual results may differ materially from those anticipated in these forward- looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. This Management's Discussion and Analysis (MD&A) generally discusses fiscal years 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Cash flow from operating activities of $55.2 million during 2021 primarily consisted of net income of $33.4 million, adjusted for certain non-cash items, including depreciation and amortization of $40.5 million and stock-based compensation expense of $19.1 million, which were partially offset by a decrease in the fair value of contingent consideration of $13.3 million and changes in operating assets and liabilities and other items totaling $24.5 million.
Cash Flows from Operating Activities Cash flow from operating activities of $73.3 million during 2023 primarily consisted of net income of $17.2 million, adjusted for certain non-cash items, including depreciation and amortization of $37.5 million, stock-based compensation expense of $16.0 million, foreign currency translation losses of $3.9 million, interest on finance lease obligations of $1.1 million and changes in operating assets and liabilities and other items totaling $5.2 million, which were partially offset by changes in deferred taxes of $7.7 million.
Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions. Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations.
Given the inherent uncertainty in determining the assumptions underlying a DCF analysis, actual results may differ from those used in our valuations.
We believe the United States and Europe are two of the largest geographic markets where product developers and engineers are located. On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. We entered the European market in 2005.
On May 27, 2022, the Company's board of directors approved a plan for the closure of the Company's manufacturing facility in Japan and announced an intention to cease operations in the region. The Company dissolved its Japan operations in December 2023.
Determining fair value requires us to make judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long-term business plan and recent operating performance.
The cash flows employed in the DCF analysis for each reporting unit are based on the reporting unit's budget, long-term business plan and recent operating performance. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting unit and market conditions.
We manufacture prototypes and low-volume production parts for companies worldwide that are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers.
Overview We are one of the world’s largest, fastest, and most comprehensive digital manufacturers of custom parts. We manufacture prototypes and low-volume production parts for companies worldwide that are under increasing pressure to bring their finished products to market faster than their competition.
The impairment test requires the comparison of the fair value of each reporting unit with its carrying amount, including goodwill. In performing the impairment test, we determined the fair value of its reporting units through the income approach by using discounted cash flow (DCF) analyses.
In performing the impairment test, we determined the fair value of our reporting units through the income approach by using discounted cash flow (DCF) analyses. Determining fair value requires us to make judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.
Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing programs such as electronic, print and pay-per-click advertising, trade shows and other related overhead, which includes an allocation of information technology expense including amortization of PL 2.0 software assets.
In order to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses in the future. Marketing and sales. Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing programs such as electronic, print and pay-per-click advertising, trade shows and other related overhead.
Operating expenses included $2.3 million of employee severance, $2.4 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges, $0.7 million in other closure related charges. We had no expenses related to the closure of our Japan business in 2021. Changes in fair value of contingent consideration.
During 2022 we recognized $2.3 million of employee severance, $2.4 million related to the write-down of fixed assets, $0.9 million of facility-related charges, $0.6 million in goodwill impairment charges and $0.7 million in other closure related charges. Income (Loss) from Operations Income from operations increased $126.2 million, or 128.6%, for 2023 compared with 2022.
Provision for Income Taxes. Our income tax provision decreased by $1.2 million for 2022 compared to 2021. The decrease in the provision is primarily due to lower taxable income and the lower effective tax rate.
The increase in the provision is primarily due to higher taxable income and the higher effective tax rate.
Significant assumptions used in the DCF analysis included forecasted revenue and related revenue growth rate, gross margins rate, operating expenses as a percentage of revenue rate and weighted-average cost of capital. As a result of the analyses, a $118.0 million impairment related to the Europe reporting unit was identified, which represents a write-off of all Europe goodwill.
As a result of the fiscal year 2022 analysis, which used the quantitative assessment, a $118.0 million impairment related to the Europe reporting unit was identified, which represents a write-off of all Europe goodwill, and recorded during the year ended December 31, 2022.
Our research and development expense decreased $6.0 million, or 13.6%, for 2022 compared to 2021 primarily due to legacy personnel and related cost decreases of $6.6 million driven by personnel and contractor resources dedicated to the launch of our PL 2.0 system in 2021 and decreases in other operating costs of $0.7 million, which were partially offset by a $0.3 million increase in professional services.
Our researc h and development expense increased $1.9 million, or 5.0%, for 2023 compared to 2022 primarily due to increases in personnel and related costs of $2.8 million, partially offset by decreases in other operating costs of $0.5 million and professional services of $0.4 million for 2023 compared with 2022. General and Administrative.
We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization. Goodwill impairment. Goodwill is tested for impairment annually as of the first day of the fourth quarter.
General and administrative expense consists primarily of employee compensation, benefits, stock-based compensation, professional service fees related to accounting, tax and legal and other related 32 Table of Contents overhead. We expect general and administrative expense to increase in the future as we continue to grow and expand as a global organization. Goodwill impairment.
We had cash and cash equivalents of $65.9 million as of December 31, 2021, a decrease of $61.7 million from December 31, 2020.
We had cash and cash equivalents of $83.8 million as of December 31, 2023, an increase of $27.2 million from December 31, 2022.
The effective tax rate decreased by 22.7% for the year ended December 31, 2022 when compared to 2021 primarily due to the tax rate impact of the goodwill impairment and a benefit from the decrease in the tax liability for uncertain tax positions. These benefits were partially offset by an increase in the valuation allowances on losses from foreign operations.
The effective tax rate increased by 44.1% for the year ended December 31, 2023 when compared to 2022 primarily due to the tax rate impact of the goodwill impairment recorded during the year ended December 31, 2022 as well as the overall change from a loss to income position in 2023.
The cash flow from operating activities during 2021 compared to 2020 decreased $51.7 million primarily due to decreases in net income of $17.5 million, increases in accounts receivable of $20.1 million driven by timing of cash receipts, a decrease in the fair value of contingent consideration of $13.3 million, decreases in deferred taxes of $7.2 million, and decreases of $6.0 million in other items, which were partially offset by increases in depreciation and amortization of $7.9 million and increases in stock-based compensation of $4.4 million. 44 Table of Contents Cash Flows from Investing Activities Cash used in investing activities was $43.1 million for the year ended December 31, 2022, consisting of $17.6 million for the net purchases of property, equipment and other capital assets and $25.5 million of net purchases of marketable securities.
Cash used in investing activities was $43.1 million for the year ended December 31, 2022, consisting of $17.6 million for the net purchases of property, equipment and other capital assets and $25.5 million of net purchases of marketable securities.
Our effective tax rate of (5.7)% for 2022 decreased 22.7% compared to 17.0% for the same period in 2021 primarily due to the tax rate impact of the goodwill impairment and a benefit from the decrease in the tax liability for uncertain tax positions.
Our effective tax rate of 38.4% for 2023 increased 44.1% compared to (5.7)% for the same period in 2022 primarily due to the tax rate impact of the goodwill impairment recorded during the year ended December 31, 2022 as well as the overall change from a loss to income position in 2023. 36 Table of Contents Comparison of Years Ended December 31, 2022 and 2021 For a comparison of our results of operations for fiscal years ended December 31, 2022 and December 31, 2021, see Part II, Item 7.
In 2021, we acquired Hubs to provide customers with on-demand access to a global network of premium manufacturing partners. In 2022, we launched the first iteration of our integrated offer in Europe, which allows us to offer CNC manufacturing for eligible parts through the combination of our internal digital manufacturing and our digital network of manufacturing partners.
The integrated offer allows us to offer CNC manufacturing for eligible parts through the combination of our internal digital manufacturing and our digital network of manufacturing partners. We also continually seek to enhance other aspects of our technology and manufacturing processes, including our interactive web-based and automated user interface and quoting system.
We have grown our total revenue from $445.6 million in 2018 to $488.4 million in 2022. During this period, our operating expenses increased from $149.8 million in 2018 to $313.4 million in 2022, which includes a $118.0 million goodwill impairment charge and $6.9 million in costs related to closure of our Japan business.
We have grown our total revenue from $488.1 million in the year December 31, 2021 to $503.9 million in the year ended December 31, 2023. During this period, our operating expenses increased from $182.3 million in the year ended December 31, 2021 to $193.8 million in the year ended December 31, 2023.
Our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. In January 2021, we acquired Hubs, a leading online manufacturing platform based in Amsterdam, Netherlands, that provides customers with on-demand access to a global network of premium manufacturing partners.
We utilize injection molding, computer numerical control (CNC) machining, 3D printing and sheet metal fabrication to manufacture custom parts for our customers. Our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts.
The $0.1 million decrease in cost of revenue in our legacy business was driven by personnel and related cost decreases of $5.3 million, which were partially offset by an increase in raw material and product costs of $4.8 million and an increase in equipment and facility related costs of $0.4 million. Gross Profit and Gross Margin.
The increase in the cost of revenue of $9.0 million was primarily driven by higher revenue volumes in the Protolabs Network, partly offset by reductions in contract labor, headcount and overtime leading to lower personnel and related costs of $8.0 million and lower raw material and product costs of $3.9 million in our digital manufacturing factory offering for 2023 compared with 2022 .

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed5 unchanged
Biggest changeWe recognized foreign currency losses of $0.1 million and $0.9 million for the years ended December 31, 2022 and December 31, 2021, respectively. 50 Table of Contents
Biggest changeDuring the year ended December 31, 2023, we recognized a foreign currency translation loss of $3.9 million in connection with completing the closure of our Japan business. We recognized net foreign currency gains (losses) of $0.2 million an d ($0.1) million for the years ended December 31, 2023 and 2022, respectively. 43 Table of Contents
We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain a portfolio of debt securities with various maturities ranging from one to three years. Due to the nature of our investment portfolio, we are subject to interest rate risks, which we mitigate by holding our investments to maturity.
We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain a portfolio of debt securities with various maturities ranging from one to three years. Due to the nature of our investment portfolio, we are subject to interest rate risks, which we mitigate by generally holding our investments to maturity.

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