10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2014

or

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

Commission File Number: 001-35435

Proto Labs, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1939628
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5540 Pioneer Creek Drive
Maple Plain, Minnesota	55359
(Address of principal executive offices)	(Zip Code)

(763) 479-3680

(Registrant’s telephone number, including area code)

                   Not Applicable

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

____________________________________________

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 25,821,479 shares of Common Stock, par value $0.001 per share, were outstanding at October 31, 2014.

Proto Labs, Inc.

TABLE OF CONTENTS

Item	Description	Page
	PART I
1.	Financial Statements	3
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
3.	Quantitative and Qualitative Disclosures about Market Risk	23
4.	Controls and Procedures	24
	PART II
1.	Legal Proceedings	25
1A.	Risk Factors	25
6.	Exhibits	25

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 Proto Labs, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)  

	September 30,			December 31,
	2014			2013
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	34,268		$	43,039
Short-term marketable securities		24,212			36,339
Accounts receivable, net of allowance for doubtful accounts of $105 and $90 as of September 30, 2014 and December 31, 2013, respectively		25,460			18,320
Inventory		5,705			5,166
Prepaid expenses and other current assets		4,278			3,569
Income taxes receivable		3,223			2,907
Deferred tax assets		452			455
Total current assets		97,598			109,795
Property and equipment, net		87,962			56,101
Goodwill		28,916			-
Other intangible assets, net		4,269			-
Long-term marketable securities		60,449			64,023
Other long-term assets		232			256
Total assets	$	279,426		$	230,175
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	7,973		$	6,455
Accrued compensation		8,154			6,196
Accrued liabilities and other		3,804			808
Current portion of long-term debt obligations		164			204
Total current liabilities		20,095			13,663
Long-term deferred tax liabilities		4,112			3,682
Long-term debt obligations		42			159
Other long-term liabilities		854			1,028
Total liabilities		25,103			18,532
Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of September 30, 2014 and December 31, 2013		-			-
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 25,816,096 and 25,546,107 shares as of September 30, 2014 and December 31, 2013, respectively		26			26
Additional paid-in capital		178,767			166,861
Retained earnings		77,290			45,847
Accumulated other comprehensive income (loss)		(1,760	)		(1,091	)
Total shareholders' equity		254,323			211,643
Total liabilities and shareholders' equity	$	279,426		$	230,175

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

3

Proto Labs, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share and per share amounts)

(Unaudited) 

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2014			2013		2014			2013
Statements of Operations:
Revenue	$	54,574		$	42,008	$	153,514		$	119,070
Cost of revenue		21,492			16,053		58,725			44,983
Gross profit		33,082			25,955		94,789			74,087
Operating expenses
Marketing and sales		7,351			5,409		21,029			16,222
Research and development		4,555			3,026		11,925			8,405
General and administrative		5,733			4,118		15,970			12,035
Total operating expenses		17,639			12,553		48,924			36,662
Income from operations		15,443			13,402		45,865			37,425
Other income (expense), net		(56	)		31		(19	)		149
Income before income taxes		15,387			13,433		45,846			37,574
Provision for income taxes		5,003			4,561		14,404			11,804
Net income	$	10,384		$	8,872	$	31,442		$	25,770
Net income per share:
Basic	$	0.40		$	0.35	$	1.23		$	1.03
Diluted	$	0.40		$	0.34	$	1.20		$	1.00
Shares used to compute net income per share:
Basic		25,757,593			25,384,940		25,651,156			25,121,941
Diluted		26,200,741			26,002,240		26,109,539			25,794,950
Comprehensive Income (net of tax)
Comprehensive income	$	9,011		$	9,678	$	30,773		$	25,471

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

4

Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited) 

	Nine Months Ended
	September 30,
	2014			2013
Operating activities
Net income	$	31,442		$	25,770
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,696			5,528
Stock-based compensation expense		3,561			2,595
Deferred taxes		487			(61	)
Excess tax benefit from stock-based compensation		(4,383	)		(8,198	)
Loss on disposal of property and equipment		-			111
Amortization of held-to-maturity securities		1,194			1,007
Changes in operating assets and liabilities:
Accounts receivable		(6,302	)		(2,242	)
Inventories		(339	)		(380	)
Prepaid expenses and other		(706	)		1,545
Income taxes		4,032			6,099
Accounts payable		1,414			1,564
Accrued liabilities and other		1,908			1,562
Net cash provided by operating activities		40,004			34,900
Investing activities
Purchases of property and equipment		(35,928	)		(12,976	)
Acquisitions, net of cash acquired		(33,864	)		-
Purchases of marketable securities		(47,338	)		(82,657	)
Proceeds from sales and maturities of marketable securities		61,896			50,663
Net cash used in investing activities		(55,234	)		(44,970	)
Financing activities
Payments on debt		(1,005	)		(211	)
Acquisition-related contingent consideration		(800	)		-
Proceeds from exercises of stock options and other		3,962			4,635
Excess tax benefit from stock-based compensation		4,383			8,198
Net cash provided by financing activities		6,540			12,622
Effect of exchange rate changes on cash and cash equivalents		(81	)		71
Net increase (decrease) in cash and cash equivalents		(8,771	)		2,623
Cash and cash equivalents, beginning of period		43,039			36,759
Cash and cash equivalents, end of period	$	34,268		$	39,382

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

5

Note 1 – Basis of Presentation

The unaudited interim Consolidated Financial Statements of Proto Labs, Inc. (Proto Labs, the Company, we, us or our) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s statement of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission (SEC) on February 28, 2014.

The accompanying Consolidated Balance Sheet as of December 31, 2013 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by U.S. GAAP for a full set of financial statements. This Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in the Annual Report on Form 10-K filed on February 28, 2014 as referenced above.

Note 2 – Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The Company is required to adopt the new pronouncement on January 1, 2017 using one of two retrospective application methods. The Company is evaluating the application method and the impact of this new standard on our financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The Company is required to adopt the new pronouncement for the annual period ending after December 15, 2016, with early adoption permitted. We believe the impact of ASU 2014-15 will not affect the Company.

There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements.

Note 3 – Business Combinations

On April 23, 2014, the Company acquired 100% of the outstanding shares of FineLine Prototyping, Inc. (“FineLine”) for $33.9 million net cash consideration, which was funded with cash available in the United States and the sale of $15.5 million of held-to-maturity securities. The shares of FineLine acquired through the Stock Purchase Agreement (“Agreement”) were initially issued in a private transaction exempt from the registration under the Securities Act of 1933 and the operations of FineLine will be integrated into the operations of the Company. Under the terms of the Agreement, the Company is obligated to make an additional cash payment of up to $3.0 million, contingent upon both the achievement of 2014 revenue goals and certain milestones relating to the integration of FineLine’s operations with the Company.

FineLine is based in Raleigh, North Carolina and is a leading producer of parts using additive manufacturing technologies, often times referred to as 3D printing. FineLine produces high-quality parts using stereolithography (SLA), selective laser sintering (SLS) and direct metal laser sintering (DMLS) technologies to customers in a wide variety of industries, including medical, aerospace, computer/electronics, consumer products and industrial machinery, among others. Along with Protomold and Firstcut, the Company will offer these technologies to its customers under the Fineline product name.

Consistent with the provisions of Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805), the Company accrued the contingent payment on the date of acquisition after determining its fair value of $3.0 million in arriving at $36.9 million of total consideration, net of cash acquired. The contingent consideration liability is reflected in accrued liabilities and other as of September 30, 2014 and continues to be remeasured to fair value at each reporting period with changes in fair value reflected in the Consolidated Statements of Comprehensive Income. To date as of September 30, 2014, the Company has made payments of $0.8 million related to the attainment of milestones and as of September 30, 2014, the contingent consideration balance totaled $2.2 million.

6

The fair value of the consideration paid for this acquisition was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date, with any excess recorded as goodwill. The goodwill associated with the acquisition is deductible for tax purposes and represents the strategic and growth opportunities from strengthening the Company’s portfolio of rapid prototyping product offerings. The addition of additive manufacturing expands Proto Labs’ products to address a wider spectrum of need for the product developer. From concept models, to form and fit testing, to functional testing and short-run production, the acquisition of FineLine allows the Company to offer a broader range of quick-turn custom parts with speed, reliability and consistency.

The results of FineLine since the date of acquisition and pro forma disclosures of the consolidated results of the Company with the full year effects of FineLine have not been separately presented since the impact to the Company's results of operations was not material.

The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805. As of September 30, 2014, this allocation for FineLine remains preliminary as it relates to the valuation of certain working capital accounts, intangible assets and taxes. The preliminary allocation of the purchase price to assets acquired and liabilities assumed is as follows: 

(in thousands)
Assets acquired:
Current assets	$	1,248
Intangible assets		4,580
Goodwill		28,916
Other long-term assets		3,849
Total assets acquired		38,593
Liabilities assumed:
Current liabilities		1,729
Total liabilities assumed		1,729
Net assets acquired		36,864
Cash paid		34,468
Cash acquired		(604	)
Net cash consideration		33,864
Contingent consideration		3,000
Total purchase consideration	$	36,864

Note 4 – Goodwill and Other Intangible Assets

The changes in the carrying amount of Goodwill for the nine months ended September 30, 2014 were as follows: 

(in thousands)	Nine Months Ended September 30, 2014
Balance as of the beginning of the period	$	-
Goodwill acquired during the period		28,916
Balance as of the end of the period	$	28,916

7

Intangible assets other than Goodwill at September 30, 2014 and December 31, 2013 were as follows: 

	September 30, 2014							December 31, 2013
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization		Net		Useful Life (in years)		Weighted Average Useful Life Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(39	)	$	891	$	-	$	-	$	-		10.0		9.6
Non-compete agreement		190		(40	)		150		-		-		-		2.0		1.6
Trade secrets		250		(21	)		229		-		-		-		5.0		4.6
Internally developed software		680		(94	)		586		-		-		-		3.0		2.6
Customer relationships		2,530		(117	)		2,413		-		-		-		9.0		8.6
Total intangible assets	$	4,580	$	(311	)	$	4,269	$	-	$	-	$	-

Amortization expense for intangible assets for the three and nine months ended September 30, 2014 was $0.2 million and $0.3 million, respectively. There was no amortization expense in the same periods of the prior year.

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

(in thousands)	Estimated Amortization Expense
Remaining 2014	$	186
2015		746
2016		682
2017		500
2018		424
Thereafter		1,731
Total estimated amortization expense	$	4,269

Note 5 – Net Income per Common Share

Basic net income per share is computed based on the weighted-average number of common shares outstanding. Diluted net income per share is computed based on the weighted-average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options, restricted stock units and restricted stock awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.

8

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except share and per share amounts)	2014		2013		2014		2013
Net income	$	10,384	$	8,872	$	31,442	$	25,770
Basic - weighted-average shares outstanding:		25,757,593		25,384,940		25,651,156		25,121,941
Effect of dilutive securities:
Employee stock options and other		443,148		617,300		458,383		673,009
Diluted - weighted-average shares outstanding:		26,200,741		26,002,240		26,109,539		25,794,950
Net income per share:
Basic	$	0.40	$	0.35	$	1.23	$	1.03
Diluted	$	0.40	$	0.34	$	1.20	$	1.00

Note 6 – Fair Value Measurements

ASC 820, Fair Value Measurement (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

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

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash consists of bank deposits. The Company’s cash equivalents measured at fair value consist of money market mutual funds. The Company determines the fair value of these investments using Level 1 inputs.

A summary of financial assets as of September 30, 2014 and December 31, 2013 measured at fair value on a recurring basis follows: 

	September 30, 2014						December 31, 2013
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	4,917	$	-	$	-	$	5,524	$	-	$	-
Total	$	4,917	$	-	$	-	$	5,524	$	-	$	-

9

Note 7 – Marketable Securities

The Company invests in short-term and long-term agency, municipal, corporate, commercial paper and other debt securities. The securities are categorized as held-to-maturity and are recorded at amortized cost. Categorization as held-to-maturity is based on the Company’s ability and intent to hold these securities to maturity. Information regarding the Company’s short-term and long-term marketable securities as of September 30, 2014 and December 31, 2013 is as follows: 

	September 30, 2014
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government agency securities		$	20,533	$	-	$	(48	)	$	20,485
Corporate debt securities			28,452		9		(61	)		28,400
Commercial paper			1,999		-		-			1,999
U.S. municipal securities			28,268		54		(2	)		28,320
Certificates of deposit/time deposits			5,409		6		(12	)		5,403
Total marketable securities		$	84,661	$	69	$	(123	)	$	84,607

	December 31, 2013
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government agency securities		$	21,713	$	2	$	(22	)	$	21,693
Corporate debt securities			29,480		30		(20	)		29,490
U.S. municipal securities			44,474		49		(22	)		44,501
Certificates of deposit/time deposits			4,695		5		(8	)		4,692
Total marketable securities		$	100,362	$	86	$	(72	)	$	100,376

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

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

Classification of marketable securities as current or non-current is based upon the security’s maturity date as of the date of these financial statements.

The September 30, 2014 balance of held-to-maturity debt securities by contractual maturity is shown in the following table at amortized cost. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. 

	September 30,
(in thousands)	2014
Due in one year or less	$	24,212
Due after one year through five years		60,449
Total marketable securities	$	84,661

10

Note 8 – Inventory

Inventory consists primarily of raw materials, which are recorded at the lower of cost or market using the average-cost method, which approximates first-in, first-out (FIFO) cost. The Company periodically reviews its inventory for slow-moving, damaged and discontinued items and provides allowances to reduce such items identified to their recoverable amounts.

The Company’s inventory consists of the following: 

	September 30,			December 31,
(in thousands)	2014			2013
Raw materials	$	5,384		$	4,875
Work in process		505			410
Total inventory		5,889			5,285
Allowance for obsolescence		(184	)		(119	)
Inventory, net of allowance	$	5,705		$	5,166

Note 9 – Stock-Based Compensation

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

Employee Stock Purchase Plan

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

Stock-Based Compensation Expense

Stock-based compensation expense was $1.4 million and $0.9 million for the three months ended September 30, 2014 and 2013, respectively, and $3.6 and $2.6 million for the nine months ended September 30, 2014 and 2013, respectively.

Stock Options

A summary of stock option activity for the nine months ended September 30, 2014 is as follows: 

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2013		1,143,250		$	19.03
Granted		109,530			72.72
Exercised		(247,127	)		13.74
Forfeited		(6,619	)		26.13
Options outstanding at September 30, 2014		999,034		$	26.18
Exercisable at September 30, 2014		394,085		$	15.46

The outstanding options generally have a term of ten years. For employees, options granted become exercisable ratably over the vesting period, which is generally a five-year period beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, options generally become exercisable in full on the first anniversary of the grant date.

11

The weighted-average grant date fair value of options that were granted during the nine months ended September 30, 2014 was $32.76.

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the nine months ended September 30, 2014 and 2013, respectively: 

	Nine Months Ended September 30,
	2014		2013
Risk-free interest rate		0.43 - 2.14%		1.03 - 1.98%
Expected life (years)		2.00 - 6.50		5.50 - 6.50
Expected volatility		47.82 - 49.30%		49.36 - 53.54%
Expected dividend yield		0%		0%

As of September 30, 2014, there was $8.1 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.2 years.

Restricted Stock

Restricted stock includes non-vested shares issued pursuant to grants of restricted stock awards (RSA) and grants of restricted stock units (RSU). During the nine months ended September 30, 2014, the Company granted both RSA and RSU.

Non-vested restricted stock as of September 30, 2014 and changes during the nine months ended September 30, 2014 were as follows: 

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock Awards			Per Share
Nonvested restricted stock at December 31, 2013		-		$	-
Granted		74,467			69.45
Vested		(798	)		62.68
Forfeited		-			-
Nonvested restricted stock at September 30, 2014		73,669		$	69.52

As of September 30, 2014, there was $4.4 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 3.8 years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the nine months ended September 30, 2014 and 2013, respectively:  

	Nine Months Ended September 30,
	2014		2013
Risk-free interest rate		0.01 - 0.11%		0.11 - 0.13%
Expected life (months)		6.00		6.00
Expected volatility		39.16 - 39.80%		53.14% - 53.32%
Expected dividend yield		0%		0%

12

Note 10 – Accumulated Other Comprehensive Income

Other comprehensive income (loss) is comprised entirely of foreign currency translation adjustments. The following table presents the changes in accumulated other comprehensive income balances during the three and nine months ended September 30, 2014 and 2013, respectively: 

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2014			2013			2014			2013
Foreign currency translation adjustment, net of tax
Balance at beginning of period	$	(387	)	$	(2,033	)	$	(1,091	)	$	(928	)
Other comprehensive income before reclassifications		(1,373	)		806			(669	)		(299	)
Amounts reclassified from accumulated other comprehensive income		-			-			-			-
Net current-period other comprehensive income		(1,373	)		806			(669	)		(299	)
Balance at end of period	$	(1,760	)	$	(1,227	)	$	(1,760	)	$	(1,227	)

Note 11 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the three months ended September 30, 2014 and 2013 the Company recorded an income tax provision of $5.0 million and $4.6 million, respectively. For the nine months ended September 30, 2014 and 2013 the Company recorded an income tax provision of $14.4 million and $11.8 million, respectively. The income tax provision is based on the estimated annual effective tax rate for the year applied to pre-tax income. The effective income tax rate for the three months ended September 30, 2014 was 32.5 percent compared with 34.0 percent in the same period of the prior year. The effective income tax rate for each of the nine months ended September 30, 2014 and 2013 was 31.4 percent.

The effective income tax rate for the three and nine months ended September 30, 2014 differs from the U.S. federal statutory rate of 35 percent due primarily to the mix of revenue earned in domestic and foreign tax jurisdictions and deductions for which the Company qualifies.

The Company had liabilities related to unrecognized tax benefits totaling $0.9 million at September 30, 2014 and $0.7 million December 31, 2013, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to income tax matters in income tax expense, and reports the liability in current or long-term income taxes payable as appropriate.

During the quarter ended September 30, 2014, the Company decreased its prior year uncertain tax positions by $0.4 million due to the expiration of the statutes of limitations on the Company’s 2010 federal income tax return.  Also, during the quarter ended September 30, 2014, the Company increased its prior year and current year uncertain tax positions by $0.4 million and $0.5 million, respectively.  The increase was due to certain tax positions not meeting the more-like-than-not standard for accounting for uncertain tax positions under the Company’s current facts and circumstances.

Based upon the information available as of September 30, 2014, the Company anticipates the amount of uncertain tax positions will change in the next twelve months; however, the change cannot be estimated.

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Note 12 – Revenue and Geographic Information

The Company’s revenue is derived from its Protomold molding, Firstcut computer numerical control (CNC) machining and Fineline additive manufacturing (3D printing) product lines. Total revenue by product line is as follows: 

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Revenue:
Protomold	$	35,655	$	29,534	$	104,604	$	84,338
Firstcut		15,549		12,474		43,407		34,732
Fineline		3,370		-		5,503		-
Total revenue	$	54,574	$	42,008	$	153,514	$	119,070

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Revenue:
United States	$	40,822	$	30,561	$	113,810	$	88,816
International		13,752		11,447		39,704		30,254
Total revenue	$	54,574	$	42,008	$	153,514	$	119,070

	September 30,		December 31,
(in thousands)	2014		2013
Long-lived assets:
United States	$	73,082	$	48,381
International		14,880		7,720
Total long-lived assets	$	87,962	$	56,101

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2013.

Forward-Looking Statements

Statements contained in this report regarding matters that are not historical or current facts are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors which may cause our results to be materially different than those expressed or implied in such statements. Certain of these risk factors and others are described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K as filed with the SEC. Other unknown or unpredictable factors also could have material adverse effects on our future results. We cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, we expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events or circumstances.

Overview

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

Key Financial Measures and Trends

Revenue

The Company’s operations are comprised of three geographic business units in the United States, Europe and Japan. Revenue within each of our business units is derived from our Fineline, Firstcut and Protomold product lines. Fineline revenue consists of sales of additive-manufactured custom parts, often referred to as 3D printed parts. Firstcut revenue consists of sales of CNC-machined custom parts. Protomold revenue consists of sales of custom molds and molded parts. Our historical and current efforts to increase revenue have been directed at gaining new customers and selling to our existing customer base by:

● increasing marketing and selling activities;

● offering additional services such as the acquisition in April 2014 of FineLine Prototyping, Inc. leading to the offering of Fineline additive manufacturing technologies, often times referred to as 3D printing;

● introducing our Firstcut product line in 2007;

● expanding internationally such as the opening of our Japanese plant in 2009;

● improving the usability of our services such as our web-centric applications; and

● expanding the breadth and scope of our products such as by adding more sizes and materials to our offerings such as liquid silicon rubber (LSR) and metal injection molding (MIM).

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Excluding product developers we gained through the acquisition of FineLine, during the three months ended September 30, 2014, we served approximately 8,700 unique product developers, an increase of 19% over the same period in 2013. Excluding product developers we gained through the acquisition of FineLine, during the nine months ended September 30, 2014, we served approximately 15,900 unique product developers, an increase of 19% over the same period in 2013.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists primarily of raw materials, equipment depreciation, employee salaries, benefits, stock-based compensation, bonuses and overhead allocations associated with the manufacturing process for molds and custom parts. We expect cost of revenue to increase in absolute dollars, but remain relatively constant as a percentage of total revenue.

We define gross profit as our revenue less our cost of revenue, and we define gross margin as gross profit expressed as a percentage of revenue. Our gross profit and gross margin are affected by many factors, including pricing, sales volume and manufacturing costs, the costs associated with increasing production capacity, the mix between domestic and foreign revenue sources and foreign exchange rates.

Operating Expenses

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

Our recent growth in operating expenses is mainly due to higher headcounts to support our growth and expansion, and we expect that trend to continue. Our business strategy is to continue to be a leading online and technology-enabled manufacturer of quick-turn additive-manufactured (3D printing), CNC-machined and molded custom parts for prototyping and short-run production. For us to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses.

Marketing and sales. Marketing and sales expense consists primarily of employee compensation, benefits, commissions, stock-based compensation, marketing programs such as print and pay-per-click advertising, trade shows, direct mail and other related overhead. We expect sales and marketing expense to increase in the future as we increase the number of marketing and sales professionals and marketing programs targeted to increase our customer base.

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

General and administrative. General and administrative expense consists primarily of employee compensation, benefits, stock-based compensation, professional service fees related to accounting, tax and legal services, amortization of intangibles and other related overhead. We expect general and administrative expense to increase on an absolute basis as we continue to grow and expand our operations.

Other Income (Expense), Net

Other income (expense), net primarily consists of foreign currency-related gains and losses, interest income on cash balances and investments, and interest expense on borrowings. Our foreign currency-related gains and losses will vary depending upon movements in underlying exchange rates. Our interest income will vary each reporting period depending on our average cash balances during the period, composition of our marketable security portfolio and the current level of interest rates. Our interest expense will vary based on borrowings and interest rates.

Provision for Income Taxes

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

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Results of Operations

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

	Three Months Ended September 30,									Change						Nine Months Ended September 30,									Change
(dollars in thousands)	2014					2013				$			%			2014					2013				$			%
Revenue	$	54,574		100.0	%	$	42,008	100.0	%	$	12,566			29.9	%	$	153,514		100.0	%	$	119,070	100.0	%	$	34,444			28.9	%
Cost of revenue		21,492		39.4			16,053	38.2			5,439			33.9			58,725		38.3			44,983	37.8			13,742			30.5
Gross profit		33,082		60.6			25,955	61.8			7,127			27.5			94,789		61.7			74,087	62.2			20,702			27.9
Operating expenses:
Marketing and sales		7,351		13.5			5,409	12.9			1,942			35.9			21,029		13.7			16,222	13.6			4,807			29.6
Research and development		4,555		8.3			3,026	7.2			1,529			50.5			11,925		7.8			8,405	7.1			3,520			41.9
General and administrative		5,733		10.5			4,118	9.8			1,615			39.2			15,970		10.4			12,035	10.1			3,935			32.7
Total operating expenses		17,639		32.3			12,553	29.9			5,086			40.5			48,924		31.9			36,662	30.8			12,262			33.4
Income from operations		15,443		28.3			13,402	31.9			2,041			15.2			45,865		29.9			37,425	31.4			8,440			22.6
Other income (expense), net		(56	)	(0.1	)		31	0.1			(87	)		*			(19	)	-			149	0.1			(168	)		*
Income before income taxes		15,387		28.2			13,433	32.0			1,954			14.5			45,846		29.9			37,574	31.5			8,272			22.0
Provision for income taxes		5,003		9.2			4,561	10.9			442			9.7			14,404		9.4			11,804	9.9			2,600			22.0
Net income	$	10,384		19.0	%	$	8,872	21.1	%	$	1,512			17.0	%	$	31,442		20.5	%	$	25,770	21.6	%	$	5,672			22.0	%

* Percentage change not meaningful 

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2014		2013		2014		2013
Stock options and restricted stock	$	1,192	$	756	$	3,252	$	2,310
Employee stock purchase plan		121		103		309		285
Total stock-based compensation expense	$	1,313	$	859	$	3,561	$	2,595
Cost of revenue	$	103	$	89	$	282	$	233
Operating expenses:
Marketing and sales		250		154		685		455
Research and development		287		201		770		555
General and administrative		673		415		1,824		1,352
Total stock-based compensation expense	$	1,313	$	859	$	3,561	$	2,595

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Comparison of Three Months Ended September 30, 2014 and 2013

Revenue

Revenue by product line and the related changes for the three months ended September 30, 2014 and 2013 were as follows: 

	Three Months Ended September 30,
	2014					2013					Change
(dollars in thousands)		$	% of Total Revenue				$	% of Total Revenue				$	%
Revenue
Protomold	$	35,655		65.3	%	$	29,534		70.3	%	$	6,121		20.7	%
Firstcut		15,549		28.5			12,474		29.7			3,075		24.7
Fineline		3,370		6.2			-		-			3,370		100.0
Total revenue	$	54,574		100.0	%	$	42,008		100.0	%	$	12,566		29.9	%

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

	Three Months Ended September 30,
	2014					2013					Change
(dollars in thousands)		$	% of Total Revenue				$	% of Total Revenue				$	%
Revenue
United States	$	40,822		74.8	%	$	30,561		72.8	%	$	10,261		33.6	%
International		13,752		25.2			11,447		27.2			2,305		20.1
Total revenue	$	54,574		100.0	%	$	42,008		100.0	%	$	12,566		29.9	%

Our revenue increased $12.6 million, or 29.9%, for the three months ended September 30, 2014 compared with the same period in 2013. This revenue growth was driven by a 33.6% increase in United States revenue, 20.1% increase in international revenue, 20.7% increase in Protomold revenue, 24.7% increase in Firstcut revenue and $3.4 million increase in revenue from the FineLine acquisition, in all cases for the three months ended September 30, 2014 compared with the same period in 2013.

Within our legacy Firstcut and Protomold product lines, our revenue growth in the three months ended September 30, 2014 was the result of increased number and spending of the product developers we served. During the three months ended September 30, 2014, excluding product developers who purchased Fineline products, we served approximately 8,700 unique product developers, an increase of 18.8% over the same period in 2013. Average revenue per product developer, excluding product developers who only purchased Fineline products, also increased 2.6% during the three months ended September 30, 2014 compared to the same period in 2013.

Excluding revenue gained through the acquisition of FineLine, our revenue increases were primarily driven by increases in sales personnel and marketing activities. Our sales personnel focus on gaining new customer accounts and expanding the depth and breadth into existing customer accounts. Our marketing personnel focus on trade show and marketing activities that have proven to result in the greatest number of customer leads to support sales activity. International revenue was favorably impacted by $0.6 million in the three months ended September 30, 2014 compared to the same period in 2013 due to weakening of the United States dollar relative to certain foreign currencies, particularly the British Pound. The effect of pricing changes on revenue was immaterial for the three months ended September 30, 2014 compared to the same period in 2013.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $5.4 million, or 33.9%, for the three months ended September 30, 2014 compared to the same period in 2013, which was faster than the rate of revenue increase of 29.9% for the three months ended September 30, 2014 compared to the same period in 2013. The increase in cost of revenue was due to raw material and production cost increases of $1.5 million to support increased sales volumes, equipment and facility-related cost increases of $0.9 million and an increase in direct labor headcount resulting in personnel and related cost increases of $3.0 million.

Gross Profit and Gross Margin. Gross profit increased to $33.1 million, or 60.6% of revenues, for the three months ended September 30, 2014 from $26.0 million, or 61.8% of revenues, for the three months ended September 30, 2013 due to increases in revenue offset by the cost of revenue as discussed above.  Gross margin decreased primarily as a result of our Fineline product line having a lower gross margin than our legacy Firstcut and Protomold product lines.

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

Marketing and Sales. Marketing and sales expense increased $1.9 million, or 35.9%, for the three months ended September 30, 2014 compared to the same period in 2013 due primarily to an increase in headcount resulting in personnel and related cost increases of $1.3 million and marketing program cost increases of $0.6 million. The increase in marketing program costs is the result of our focus and concentration on funding those programs which have proven to be the most effective in growing our business.

Research and Development. Our research and development expense increased $1.5 million, or 50.5%, for the three months ended September 30, 2014 compared to the same period in 2013 due to an increase in headcount resulting in personnel and related cost increases of $1.3 million and operating cost increases of $0.2 million.

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General and Administrative. Our general and administrative expense increased $1.6 million, or 39.2%, for the three months ended September 30, 2014 compared to the same period in 2013 due to an increase in headcount resulting in personnel and related cost increases of $0.7 million, stock-based compensation costs increases of $0.3 million, administrative cost increases of $0.2 million, intangible amortization expense cost increases of $0.2 and professional services cost increases of $0.2 million.

Other Income (Expense), net. Other income, net decreased $0.1 million for the three months ended September 30, 2014 compared to the same period in 2013 due to changes in foreign currency rates.

Provision for Income Taxes. Our effective tax rate of 32.5% for the three months ended September 30, 2014 decreased 1.5% when compared to 34.0% for the same period in 2013. The decrease in the effective tax rate is primarily due to our foreign rate differential and an increase in tax benefit from the domestic manufacturing deduction projected for the tax year ending December 31, 2014. As a result of increased income attributable to the fluctuations described above, our income tax provision increased by $0.4 million to $5.0 million for the three months ended September 30, 2014 compared to our income tax provision of $4.6 million for the three months ended September 30, 2013.

Comparison of Nine Months Ended September 30, 2014 and 2013

Revenue

Revenue by product line and the related changes for the nine months ended September 30, 2014 and 2013 were as follows: 

	Nine Months Ended September 30,
	2014					2013					Change
(dollars in thousands)		$	% of Total Revenue				$	% of Total Revenue				$	%
Revenue
Protomold	$	104,604		68.1	%	$	84,338		70.8	%	$	20,266		24.0	%
Firstcut		43,407		28.3			34,732		29.2			8,675		25.0
Fineline		5,503		3.6			-		-			5,503		100.0
Total revenue	$	153,514		100.0	%	$	119,070		100.0	%	$	34,444		28.9	%

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

	Nine Months Ended September 30,
	2014					2013					Change
(dollars in thousands)		$	% of Total Revenue				$	% of Total Revenue				$	%
Revenue
United States	$	113,810		74.1	%	$	88,816		74.6	%	$	24,994		28.1	%
International		39,704		25.9			30,254		25.4			9,450		31.2
Total revenue	$	153,514		100.0	%	$	119,070		100.0	%	$	34,444		28.9	%

Our revenue increased $34.4 million, or 28.9%, for the nine months ended September 30, 2014 compared with the same period in 2013. This revenue growth was driven by a 28.1% increase in United States revenue, 31.2% increase in international revenue, 24.0% increase in Protomold revenue, 25.0% increase in Firstcut revenue and $5.5 million in revenue from the FineLine acquisition, in each case for the nine months ended September 30, 2014 compared with the same period in 2013.

Within our legacy Firstcut and Protomold product lines, our revenue growth in the nine months ended September 30, 2014 was the result of increased number and spending of the product developers we served. During the nine months ended September 30, 2014, excluding product developers who purchased Fineline products, we served approximately 15,900 unique product developers, an increase of 18.8% over the same period in 2013. Average revenue per product developer, excluding product developers who only purchased Fineline products, also increased 4.6% during the nine months ended September 30, 2014 compared to the same period in 2013.

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Excluding revenue gained through the acquisition of FineLine, our revenue increases were primarily driven by increases in sales personnel and marketing activities. Our sales personnel focus on gaining new customer accounts and expanding the depth and breadth into existing customer accounts. Our marketing personnel focus on trade show and marketing activities that have proven to result in the greatest number of customer leads to support sales activity. International revenue was favorably impacted by $1.7 million in the nine months ended September 30, 2014 compared to the same period in 2013 due to the weakening of United States dollar relative to certain foreign currency, particularly the British Pound. The effect of pricing changes on revenue was immaterial for the nine months ended September 30, 2014 compared to the same period in 2013.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $13.7 million, or 30.5%, for the nine months ended September 30, 2014 compared to the same period in 2013, which was higher than the rate of revenue increase of 28.9% for the nine months ended September 30, 2014. The increase in cost of revenue was due to raw material and production cost increases of $3.8 million to support increased sales volumes, equipment and facility-related cost increases of $2.3 million and an increase in direct labor headcount resulting in personnel and related cost increases of $7.6 million.

Gross Profit and Gross Margin. Gross profit increased to $94.8 million, or 61.7% of revenues, for the nine months ended September 30, 2014 from $74.1 million, or 62.2% of revenues, for the nine months ended September 30, 2013 due to increases in revenue offset by the cost of revenue as discussed above.  Gross margin decreased primarily as a result of our Fineline product line having a lower gross margin than our legacy Firstcut and Protomold product lines and the move to our new facility in Plymouth, Minnesota.

Operating Expenses, Other Income (Expenses), Net and Provision for Income Taxes

Marketing and Sales. Marketing and sales expense increased $4.8 million, or 29.6%, for the nine months ended September 30, 2014 compared to the same period in 2013 due primarily to an increase in headcount resulting in personnel and related cost increases of $3.5 million and marketing program cost increases of $1.3 million. The increase in marketing program costs is the result of our focus and concentration on funding those programs which have proven to be the most effective in growing our business.

Research and Development. Our research and development expense increased $3.5 million, or 41.9%, for the nine months ended September 30, 2014 compared to the same period in 2013 due to an increase in headcount resulting in personnel and related cost increases of $2.9 million and operating cost increases of $0.6 million.

General and Administrative. Our general and administrative expense increased $3.9 million, or 32.7%, for the nine months ended September 30, 2014 compared to the same period in 2013 due to an increase in headcount resulting in personnel and related cost increases of $1.5 million, professional services cost increases of $1.1 million, stock-based compensation costs increases of $0.5 million, administrative cost increases of $0.5 million, and intangible amortization expense cost increases of $0.3 million.

Other Income (Expense), Net. Our other income, net decreased $0.2 million for the nine months ended September 30, 2014 compared to the same period in 2013 due to foreign currency change decreases of $0.3 million, which were partially offset by investment interest income increases of $0.1 million.

Provision for Income Taxes. Our effective tax rate of 31.4% for the nine months ended September 30, 2014 was unchanged from our effective tax rate of 31.4% for the same period in 2013. Refer to Note 11 for additional information. As a result of the increased income attributable to the fluctuations described above, our income tax provision increased by $2.6 million to $14.4 million for the nine months ended September 30, 2014 compared to our income tax provision of $11.8 million for the nine months ended September 30, 2013.

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Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows for the nine months ended September, 2014 and 2013: 

	Nine Months Ended September 30,
(dollars in thousands)	2014			2013
Net cash provided by operating activities	$	40,004		$	34,900
Net cash used in investing activities		(55,234	)		(44,970	)
Net cash provided by financing activities		6,540			12,622
Effect of exchange rates on cash and cash equivalents		(81	)		71
Net increase (decrease) in cash and cash equivalents	$	(8,771	)	$	2,623

Sources of Liquidity

Historically we have financed our operations and capital expenditures primarily through cash flow from operations and, to a lesser extent, lease financing. We had cash and cash equivalents of $34.3 million as of September 30, 2014, a decrease of $8.8 million from December 31, 2013. The decrease in our cash was primarily due to the purchase of FineLine Prototyping, Inc. as discussed in Note 3 to the consolidated financial statements appearing in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Cash Flows from Operating Activities

Cash provided by operating activities was $40.0 million for the nine months ended September 30, 2014. We had net income of $31.4 million, which included non-cash charges consisting of $7.7 million in depreciation and amortization, $3.6 million in stock-based compensation, $1.2 million in amortization of held-to-maturity securities and $0.5 million in deferred taxes, partially offset by $4.4 million of excess tax benefit on stock-based compensation. Other uses of cash in operating activities had no net impact on cash provided by operating activities, which included an increase in accounts receivable of $6.3 million, increase in inventory of $0.3 million and increase in prepaid expenses and other of $0.7 million, which were fully offset by an increase in accrued liabilities and other of $1.9 million, increase in accounts payable of $1.4 million and income taxes-related activity of $4.0 million resulting from the excess tax benefit described above partially offset by the increase in income taxes receivable. These operating cash increases in accounts receivable, accounts payable, inventories and other reflect increases in revenue and the growth of our business.

Cash provided by operating activities was $34.9 million for the nine months ended September 30, 2013. We had net income of $25.8 million, which included non-cash charges consisting of $5.5 million in depreciation, $2.6 million in stock-based compensation, $1.0 million in amortization of held-to-maturity securities and $0.1 million in loss on the disposal of property and equipment, offset by $8.2 million of excess tax benefit on stock-based compensation and $0.1 million of deferred taxes. Other sources of cash in operating activities totaled $8.2 million, which included an increase in income taxes payable of $6.1 million, increase in prepaid expenses and other of $1.5 million, increase in accounts payable of $1.6 million and increase in accrued liabilities and other of $1.6 million, which were partially offset by an increase in accounts receivable of $2.2 million and increase in inventories of $0.4 million. These operating cash increases in accounts receivable, accounts payable, inventories and other reflect increases in revenue and the growth of our business.

Cash Flows from Investing Activities

Cash used in investing activities was $55.2 million for the nine months ended September 30, 2014, consisting of $35.9 million for the purchase of property and equipment, $33.9 million for the payments on business acquisitions and $47.3 million for the purchase of marketable securities, which were partially offset by $61.9 million in proceeds from the maturities, sales and call redemptions of marketable securities.

Cash used in investing activities was $45.0 million for the nine months ended September 30, 2013, consisting of $13.0 million for the purchase of property and equipment and $82.7 million for the purchase of marketable securities, which were partially offset by $50.7 million in proceeds from the maturities and call redemptions of marketable securities.

Cash Flows from Financing Activities

Cash provided by financing activities was $6.5 million for the nine months ended September 30, 2014, consisting of proceeds from exercises of stock options of $3.9 million and $4.4 million in excess tax benefit on stock-based compensation, which were partially offset by $1.0 million for payments of debt and $0.8 million for payments of acquisition-related contingent consideration.

21

Cash provided by financing activities was $12.6 million for the nine months ended September 30, 2013, consisting of excess tax benefit on stock-based compensation of $8.2 million and $4.6 million in proceeds from exercises of stock options, partially offset by $0.2 million for payments of debt.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Critical Accounting Policies and Use of Estimates

We have adopted various accounting policies to prepare the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Our significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. There were no material changes in our significant accounting policies, with the following change made to goodwill and intangible assets during the nine months ended September 30, 2014.

Goodwill

We recognize goodwill in accordance with ASC 350, Intangibles - Goodwill and Other (ASC 350). Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually in the fourth quarter of each year, and is tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. 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.

Other Intangible Assets

We recognize other intangibles assets in accordance with ASC 350, Intangibles - Goodwill and Other (ASC 350). Other intangible assets include internally developed software, customer relationships and other intangible assets acquired from an independent party. Other intangible assets with a definite life are amortized over a period ranging from two to 10 years on a straight line basis. Other intangible assets with a definite life are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The amount of the impairment loss recorded is calculated by the excess of the asset’s carrying value over its fair value.

Recent Accounting Pronouncements

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

22

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

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

23

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The risk factor discussed below updates the risk factors we previously disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.

Our acquisition of FineLine Prototyping, Inc. presents risks to our business and could harm our operating results and financial condition.

On April 23, 2014, we entered into a stock purchase agreement for the purchase of all of the outstanding shares of capital stock of FineLine Prototyping, Inc. At the closing, we paid cash consideration of $34.5 million to the sellers, which amount is subject to adjustment based on FineLine’s indebtedness and net working capital as of the closing date and FineLine’s expenses in connection with the transactions contemplated by the stock purchase agreement. The stock purchase agreement also provides that we will pay the sellers up to an additional $3 million if FineLine’s revenue for 2014 exceeds certain amounts and if certain milestones relating to the integration of FineLine’s and our businesses are achieved. FineLine provides additive manufacturing (3D printing) services. Our acquisition of FineLine subjects us to certain risks, including:

● We have not previously provided additive manufacturing services and the complexity of our operations therefore has increased, and we may not be able to maintain or grow the newly acquired portion of our business as quickly or significantly as anticipated, or at all;

● Integrating FineLine’s operations with our historic operations could divert management’s attention and cause our results of operations to suffer;

● We may be unable to integrate successfully FineLine’s business and realize the anticipated benefits of the acquisition;

● Our acquisition of FineLine includes significant goodwill, which could result in future impairment charges that would reduce our earnings;

● Our acquisition of FineLine and the integration of its business may involve unexpected costs, unexpected liabilities or unexpected delays; and

● Our acquisition of FineLine may harm relationships with FineLine’s customers, suppliers and employees.

Any failure to successfully address these challenges or risks could disrupt our business and harm our operating results and financial condition.

Item 6. Exhibits

The following documents are filed as part of this report:

Exhibit Number		Description of Exhibit
3.1(1)		Third Amended and Restated Articles of Incorporation of Proto Labs, Inc.
3.2(2)		Amended and Restated By-Laws of Proto Labs, Inc.
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1		Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
(1)	Previously filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-1/A (File No. 333-175745), filed with the Commission on February 13, 2012, and incorporated by reference herein.
(2)	Previously filed as Exhibit 3.4 to the Company’s Registration Statement on Form S-1/A (File No. 333-175745), filed with the Commission on February 13, 2012, and incorporated by reference herein.

25

SIGNATURE

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

	Proto Labs, Inc.
Date: November 4, 2014		/s/ Victoria M. Holt
		Victoria M. Holt
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 4, 2014	/s/ John R. Judd
	John R. Judd
	Chief Financial Officer
	(Principal Financial Officer)

26

EX-31

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Victoria M. Holt, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Proto Labs, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2014	By:	/s/ Victoria M. Holt
		Victoria M. Holt
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002 

I, John R. Judd, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Proto Labs, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2014	By:	/s/ John R. Judd
		John R. Judd
		Chief Financial Officer
		(Principal Financial Officer)

EX-32

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Victoria M. Holt, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Proto Labs, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Proto Labs, Inc.

Date: November 4, 2014	By:	/s/ Victoria M. Holt
	Name:	Victoria M. Holt
	Title:	President and Chief Executive Officer

I, John R. Judd, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Proto Labs, Inc. on Form 10-Q for the fiscal quarter ended September 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Proto Labs, Inc.

Date: November 4, 2014	By:	/s/ John R. Judd
	Name:	John R. Judd
	Title:	Chief Financial Officer

XML

Note 9 - Stock-Based Compensation (Details) - Stock Option Activity (USD $)	9 Months Ended
	Sep. 30, 2014
Stock Option Activity [Abstract]
Options outstanding at December 31, 2013	1,143,250
Options outstanding at December 31, 2013	$ 19.03
Granted	109,530
Granted	$ 72.72
Exercised	(247,127)
Exercised	$ 13.74
Forfeited	(6,619)
Forfeited	$ 26.13
Options outstanding at September 30, 2014	999,034
Options outstanding at September 30, 2014	$ 26.18
Exercisable at September 30, 2014	394,085
Exercisable at September 30, 2014	$ 15.46

XML

Note 12 - Revenue and Geographic Information (Details) - Revenue to External Customers and Long-Lived Assets by Geography (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenue:
Revenue	$ 54,574	$ 42,008	$ 153,514	$ 119,070
UNITED STATES
Revenue:
Revenue	40,822	30,561	113,810	88,816
International [Member]
Revenue:
Revenue	$ 13,752	$ 11,447	$ 39,704	$ 30,254

XML

Note 5 - Net Income per Common Share (Details) - Computation of Basic and Diluted Net Income per Share (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Computation of Basic and Diluted Net Income per Share [Abstract]
Net income (in Dollars)	$ 10,384	$ 8,872	$ 31,442	$ 25,770
Basic - weighted-average shares outstanding:	25,757,593	25,384,940	25,651,156	25,121,941
Effect of dilutive securities:
Employee stock options and other	443,148	617,300	458,383	673,009
Diluted - weighted-average shares outstanding:	26,200,741	26,002,240	26,109,539	25,794,950
Net income per share:
Basic (in Dollars per share)	$ 0.40	$ 0.35	$ 1.23	$ 1.03
Diluted (in Dollars per share)	$ 0.40	$ 0.34	$ 1.20	$ 1.00

XML

Note 10 - Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2014

Partners' Capital, Comprehensive Income [Abstract]

Comprehensive Income (Loss) [Table Text Block]

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2014			2013			2014			2013
Foreign currency translation adjustment, net of tax
Balance at beginning of period	$	(387	)	$	(2,033	)	$	(1,091	)	$	(928	)
Other comprehensive income before reclassifications		(1,373	)		806			(669	)		(299	)
Amounts reclassified from accumulated other comprehensive income		-			-			-			-
Net current-period other comprehensive income		(1,373	)		806			(669	)		(299	)
Balance at end of period	$	(1,760	)	$	(1,227	)	$	(1,760	)	$	(1,227	)

XML

Note 9 - Stock-Based Compensation (Details) - Assumptions Used to Estimate the Fair Value of the ESPP (ESPP [Member])	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Note 9 - Stock-Based Compensation (Details) - Assumptions Used to Estimate the Fair Value of the ESPP [Line Items]
Expected life (months)	6 years	6 years
Expected dividend yield	0.00%	0.00%
Minimum [Member]
Note 9 - Stock-Based Compensation (Details) - Assumptions Used to Estimate the Fair Value of the ESPP [Line Items]
Risk-free interest rate	0.01%	0.11%
Expected volatility	39.16%	53.14%
Maximum [Member]
Note 9 - Stock-Based Compensation (Details) - Assumptions Used to Estimate the Fair Value of the ESPP [Line Items]
Risk-free interest rate	0.11%	0.13%
Expected volatility	39.80%	53.32%

XML

Note 8 - Inventory (Details) - The Company’s Inventory (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
The Company’s Inventory [Abstract]
Raw materials	$ 5,384	$ 4,875
Work in process	505	410
Total inventory	5,889	5,285
Allowance for obsolescence	(184)	(119)
Inventory, net of allowance	$ 5,705	$ 5,166

XML

Note 12 - Revenue and Geographic Information (Details) - Long-lived Assets by Geographic Region (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Long-lived assets:
Long-lived Assets	$ 87,962	$ 56,101
UNITED STATES
Long-lived assets:
Long-lived Assets	73,082	48,381
International [Member]
Long-lived assets:
Long-lived Assets	$ 14,880	$ 7,720

XML

Note 4 - Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Note 4 – Goodwill and Other Intangible Assets

The changes in the carrying amount of Goodwill for the nine months ended September 30, 2014 were as follows: 

(in thousands)	Nine Months Ended September 30, 2014
Balance as of the beginning of the period	$	-
Goodwill acquired during the period		28,916
Balance as of the end of the period	$	28,916

Intangible assets other than Goodwill at September 30, 2014 and December 31, 2013 were as follows: 

	September 30, 2014							December 31, 2013
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization		Net		Useful Life (in years)		Weighted Average Useful Life Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(39	)	$	891	$	-	$	-	$	-		10.0		9.6
Non-compete agreement		190		(40	)		150		-		-		-		2.0		1.6
Trade secrets		250		(21	)		229		-		-		-		5.0		4.6
Internally developed software		680		(94	)		586		-		-		-		3.0		2.6
Customer relationships		2,530		(117	)		2,413		-		-		-		9.0		8.6
Total intangible assets	$	4,580	$	(311	)	$	4,269	$	-	$	-	$	-

Amortization expense for intangible assets for the three and nine months ended September 30, 2014 was $0.2 million and $0.3 million, respectively. There was no amortization expense in the same periods of the prior year.

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

(in thousands)	Estimated Amortization Expense
Remaining 2014	$	186
2015		746
2016		682
2017		500
2018		424
Thereafter		1,731
Total estimated amortization expense	$	4,269

XML

Note 10 - Accumulated Other Comprehensive Income (Details) - Other Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Foreign currency translation adjustment, net of tax
Balance at beginning of period	$ (387)	$ (2,033)	$ (1,091)	$ (928)
Other comprehensive income before reclassifications	(1,373)	806	(669)	(299)
Amounts reclassified from accumulated other comprehensive income	0	0	0	0
Net current-period other comprehensive income	(1,373)	806	(669)	(299)
Balance at end of period	$ (1,760)	$ (1,227)	$ (1,760)	$ (1,227)

XML

Note 4 - Goodwill and Other Intangible Assets (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 200,000	$ 0	$ 300,000	$ 0

XML

Note 3 - Business Combinations (Details) - Allocation of Purchase Prices of Acquisitions (USD $) In Thousands, unless otherwise specified	9 Months Ended		1 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Apr. 23, 2014 FineLine Prototyping, Inc. [Member]	Sep. 30, 2014 FineLine Prototyping, Inc. [Member]
Assets acquired:
Current assets			$ 1,248
Intangible assets			4,580
Goodwill	28,916	0	28,916
Other long-term assets			3,849
Total assets acquired			38,593
Liabilities assumed:
Current liabilities			1,729
Total liabilities assumed			1,729
Net assets acquired			36,864
Cash paid			34,468
Cash acquired			(604)
Net cash consideration	33,864		33,864
Contingent consideration			3,000	2,200
Total purchase consideration			$ 36,864

XML

Note 11 - Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Note 11 - Income Taxes (Details) [Line Items]
Income Tax Expense (Benefit)	$ 5,003,000	$ 4,561,000	$ 14,404,000	$ 11,804,000
Effective Income Tax Rate Reconciliation, Percent	32.50%	34.00%	31.40%	31.40%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			35.00%
Unrecognized Tax Benefits	900,000		900,000		700,000
Unrecognized Tax Benefits, Period Increase (Decrease)	500,000
Tax Year 2010 [Member]
Note 11 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations	400,000
Tax Year 2013 [Member]
Note 11 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Period Increase (Decrease)	$ 400,000

XML

Note 4 - Goodwill and Other Intangible Assets (Details) - Changes in Carrying Amount of Goodwill (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Changes in Carrying Amount of Goodwill [Abstract]
Balance as of the beginning of the period	$ 0
Goodwill acquired during the period	28,916
Balance as of the end of the period	$ 28,916

XML

Note 4 - Goodwill and Other Intangible Assets (Details) - Intangible Assets Other Than Goodwill (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Intangible Assets with finite lives:
Gross	$ 4,580
Accumlated amortization	(311)
Net	4,269
Marketing-Related Intangible Assets [Member]
Intangible Assets with finite lives:
Gross	930
Accumlated amortization	(39)
Net	891
Useful life (in years)	10 years
Weighted average useful life remaining	9 years 219 days
Noncompete Agreements [Member]
Intangible Assets with finite lives:
Gross	190
Accumlated amortization	(40)
Net	150
Useful life (in years)	2 years
Weighted average useful life remaining	1 year 219 days
Trade Secrets [Member]
Intangible Assets with finite lives:
Gross	250
Accumlated amortization	(21)
Net	229
Useful life (in years)	5 years
Weighted average useful life remaining	4 years 219 days
Computer Software, Intangible Asset [Member]
Intangible Assets with finite lives:
Gross	680
Accumlated amortization	(94)
Net	586
Useful life (in years)	3 years
Weighted average useful life remaining	2 years 219 days
Customer Relationships [Member]
Intangible Assets with finite lives:
Gross	2,530
Accumlated amortization	(117)
Net	$ 2,413
Useful life (in years)	9 years
Weighted average useful life remaining	8 years 219 days

XML

Note 3 - Business Combinations

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 3 – Business Combinations

On April 23, 2014, the Company acquired 100% of the outstanding shares of FineLine Prototyping, Inc. (“FineLine”) for $33.9 million net cash consideration, which was funded with cash available in the United States and the sale of $15.5 million of held-to-maturity securities. The shares of FineLine acquired through the Stock Purchase Agreement (“Agreement”) were initially issued in a private transaction exempt from the registration under the Securities Act of 1933 and the operations of FineLine will be integrated into the operations of the Company. Under the terms of the Agreement, the Company is obligated to make an additional cash payment of up to $3.0 million, contingent upon both the achievement of 2014 revenue goals and certain milestones relating to the integration of FineLine’s operations with the Company.

FineLine is based in Raleigh, North Carolina and is a leading producer of parts using additive manufacturing technologies, often times referred to as 3D printing. FineLine produces high-quality parts using stereolithography (SLA), selective laser sintering (SLS) and direct metal laser sintering (DMLS) technologies to customers in a wide variety of industries, including medical, aerospace, computer/electronics, consumer products and industrial machinery, among others. Along with Protomold and Firstcut, the Company will offer these technologies to its customers under the Fineline product name.

Consistent with the provisions of Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805), the Company accrued the contingent payment on the date of acquisition after determining its fair value of $3.0 million in arriving at $36.9 million of total consideration, net of cash acquired. The contingent consideration liability is reflected in accrued liabilities and other as of September 30, 2014 and continues to be remeasured to fair value at each reporting period with changes in fair value reflected in the Consolidated Statements of Comprehensive Income. To date as of September 30, 2014, the Company has made payments of $0.8 million related to the attainment of milestones and as of September 30, 2014, the contingent consideration balance totaled $2.2 million.

The fair value of the consideration paid for this acquisition was allocated to the assets purchased and liabilities assumed based on their estimated fair values as of the acquisition date, with any excess recorded as goodwill. The goodwill associated with the acquisition is deductible for tax purposes and represents the strategic and growth opportunities from strengthening the Company’s portfolio of rapid prototyping product offerings. The addition of additive manufacturing expands Proto Labs’ products to address a wider spectrum of need for the product developer. From concept models, to form and fit testing, to functional testing and short-run production, the acquisition of FineLine allows the Company to offer a broader range of quick-turn custom parts with speed, reliability and consistency.

The results of FineLine since the date of acquisition and pro forma disclosures of the consolidated results of the Company with the full year effects of FineLine have not been separately presented since the impact to the Company's results of operations was not material.

The acquisition has been accounted for under the acquisition method of accounting in accordance with ASC 805. As of September 30, 2014, this allocation for FineLine remains preliminary as it relates to the valuation of certain working capital accounts, intangible assets and taxes. The preliminary allocation of the purchase price to assets acquired and liabilities assumed is as follows: 

(in thousands)
Assets acquired:
Current assets	$	1,248
Intangible assets		4,580
Goodwill		28,916
Other long-term assets		3,849
Total assets acquired		38,593
Liabilities assumed:
Current liabilities		1,729
Total liabilities assumed		1,729
Net assets acquired		36,864
Cash paid		34,468
Cash acquired		(604	)
Net cash consideration		33,864
Contingent consideration		3,000
Total purchase consideration	$	36,864

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Note 4 - Goodwill and Other Intangible Assets (Details) - Estimated Aggregated Amortization Expense (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Estimated Aggregated Amortization Expense [Abstract]
Remaining 2014	$ 186
2015	746
2016	682
2017	500
2018	424
Thereafter	1,731
Total estimated amortization expense	$ 4,269

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Note 9 - Stock-Based Compensation (Details) - Assumptions Used in the Black-Scholes Option Pricing Model (Employee Stock Option [Member])	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Note 9 - Stock-Based Compensation (Details) - Assumptions Used in the Black-Scholes Option Pricing Model [Line Items]
Expected dividend yield	0.00%	0.00%
Minimum [Member]
Note 9 - Stock-Based Compensation (Details) - Assumptions Used in the Black-Scholes Option Pricing Model [Line Items]
Risk-free interest rate	0.43%	1.03%
Expected life (years)	2 years	5 years 6 months
Expected volatility	47.82%	49.36%
Maximum [Member]
Note 9 - Stock-Based Compensation (Details) - Assumptions Used in the Black-Scholes Option Pricing Model [Line Items]
Risk-free interest rate	2.14%	1.98%
Expected life (years)	6 years 6 months	6 years 6 months
Expected volatility	49.30%	53.54%

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Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current assets
Cash and cash equivalents	$ 34,268	$ 43,039
Short-term marketable securities	24,212	36,339
Accounts receivable, net of allowance for doubtful accounts of $105 and $90 as of September 30, 2014 and December 31, 2013, respectively	25,460	18,320
Inventory	5,705	5,166
Prepaid expenses and other current assets	4,278	3,569
Income taxes receivable	3,223	2,907
Deferred tax assets	452	455
Total current assets	97,598	109,795
Property and equipment, net	87,962	56,101
Goodwill	28,916	0
Other intangible assets, net	4,269
Long-term marketable securities	60,449	64,023
Other long-term assets	232	256
Total assets	279,426	230,175
Current liabilities
Accounts payable	7,973	6,455
Accrued compensation	8,154	6,196
Accrued liabilities and other	3,804	808
Current portion of long-term debt obligations	164	204
Total current liabilities	20,095	13,663
Long-term deferred tax liabilities	4,112	3,682
Long-term debt obligations	42	159
Other long-term liabilities	854	1,028
Total liabilities	25,103	18,532
Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of September 30, 2014 and December 31, 2013
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 25,816,096 and 25,546,107 shares as of September 30, 2014 and December 31, 2013, respectively	26	26
Additional paid-in capital	178,767	166,861
Retained earnings	77,290	45,847
Accumulated other comprehensive income (loss)	(1,760)	(1,091)
Total shareholders' equity	254,323	211,643
Total liabilities and shareholders' equity	$ 279,426	$ 230,175

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Note 12 - Revenue and Geographic Information (Details) - Total Revenue by Product Line (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenue:
Revenue	$ 54,574	$ 42,008	$ 153,514	$ 119,070
Protomold [Member]
Revenue:
Revenue	35,655	29,534	104,604	84,338
First Cut [Member]
Revenue:
Revenue	15,549	12,474	43,407	34,732
Fineline [Member]
Revenue:
Revenue	$ 3,370		$ 5,503

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Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2014

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1 – Basis of Presentation

The unaudited interim Consolidated Financial Statements of Proto Labs, Inc. (Proto Labs, the Company, we, us or our) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s statement of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Actual results could materially differ from these estimates. For further information, refer to the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission (SEC) on February 28, 2014.

The accompanying Consolidated Balance Sheet as of December 31, 2013 was derived from the audited Consolidated Financial Statements but does not include all disclosures required by U.S. GAAP for a full set of financial statements. This Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in the Annual Report on Form 10-K filed on February 28, 2014 as referenced above.

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Note 7 - Marketable Securities (Details) - Short-Term and Long-Term Marketable Securities (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 84,661	$ 100,362
Unrealized Gains	69	86
Unrealized Losses	(123)	(72)
Fair Value	84,607	100,376
US Government Agencies Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	20,533	21,713
Unrealized Gains		2
Unrealized Losses	(48)	(22)
Fair Value	20,485	21,693
Corporate Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	28,452	29,480
Unrealized Gains	9	30
Unrealized Losses	(61)	(20)
Fair Value	28,400	29,490
Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	1,999
Fair Value	1,999
US States and Political Subdivisions Debt Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	28,268	44,474
Unrealized Gains	54	49
Unrealized Losses	(2)	(22)
Fair Value	28,320	44,501
Bank Time Deposits [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	5,409	4,695
Unrealized Gains	6	5
Unrealized Losses	(12)	(8)
Fair Value	$ 5,403	$ 4,692

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Note 7 - Marketable Securities (Tables)

9 Months Ended

Sep. 30, 2014

Investments Schedule [Abstract]

Held-to-maturity Securities [Table Text Block]

	September 30, 2014
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government agency securities		$	20,533	$	-	$	(48	)	$	20,485
Corporate debt securities			28,452		9		(61	)		28,400
Commercial paper			1,999		-		-			1,999
U.S. municipal securities			28,268		54		(2	)		28,320
Certificates of deposit/time deposits			5,409		6		(12	)		5,403
Total marketable securities		$	84,661	$	69	$	(123	)	$	84,607

	December 31, 2013
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government agency securities		$	21,713	$	2	$	(22	)	$	21,693
Corporate debt securities			29,480		30		(20	)		29,490
U.S. municipal securities			44,474		49		(22	)		44,501
Certificates of deposit/time deposits			4,695		5		(8	)		4,692
Total marketable securities		$	100,362	$	86	$	(72	)	$	100,376

Investments Classified by Contractual Maturity Date [Table Text Block]

	September 30,
(in thousands)	2014
Due in one year or less	$	24,212
Due after one year through five years		60,449
Total marketable securities	$	84,661

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Note 7 - Marketable Securities (Details) - Balance of Held-to-Maturity Debt Securities by Contractual Maturity (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Balance of Held-to-Maturity Debt Securities by Contractual Maturity [Abstract]
Due in one year or less	$ 24,212
Due after one year through five years	60,449
Total marketable securities	$ 84,661	$ 100,362

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Note 9 - Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2013		1,143,250		$	19.03
Granted		109,530			72.72
Exercised		(247,127	)		13.74
Forfeited		(6,619	)		26.13
Options outstanding at September 30, 2014		999,034		$	26.18
Exercisable at September 30, 2014		394,085		$	15.46

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Nine Months Ended September 30,
	2014		2013
Risk-free interest rate		0.43 - 2.14%		1.03 - 1.98%
Expected life (years)		2.00 - 6.50		5.50 - 6.50
Expected volatility		47.82 - 49.30%		49.36 - 53.54%
Expected dividend yield		0%		0%

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock Awards			Per Share
Nonvested restricted stock at December 31, 2013		-		$	-
Granted		74,467			69.45
Vested		(798	)		62.68
Forfeited		-			-
Nonvested restricted stock at September 30, 2014		73,669		$	69.52

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block]

	Nine Months Ended September 30,
	2014		2013
Risk-free interest rate		0.01 - 0.11%		0.11 - 0.13%
Expected life (months)		6.00		6.00
Expected volatility		39.16 - 39.80%		53.14% - 53.32%
Expected dividend yield		0%		0%

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Note 2 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note 2 – Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The Company is required to adopt the new pronouncement on January 1, 2017 using one of two retrospective application methods. The Company is evaluating the application method and the impact of this new standard on our financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The Company is required to adopt the new pronouncement for the annual period ending after December 15, 2016, with early adoption permitted. We believe the impact of ASU 2014-15 will not affect the Company.

There are no other new accounting pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements.

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Allowance for doubtful accounts (in Dollars)	$ 105	$ 90
Preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	25,816,096	25,546,107
Common stock, shares outstanding	25,816,096	25,546,107

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Note 12 - Revenue and Geographic Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 12 – Revenue and Geographic Information

The Company’s revenue is derived from its Protomold molding, Firstcut computer numerical control (CNC) machining and Fineline additive manufacturing (3D printing) product lines. Total revenue by product line is as follows: 

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Revenue:
Protomold	$	35,655	$	29,534	$	104,604	$	84,338
Firstcut		15,549		12,474		43,407		34,732
Fineline		3,370		-		5,503		-
Total revenue	$	54,574	$	42,008	$	153,514	$	119,070

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Revenue:
United States	$	40,822	$	30,561	$	113,810	$	88,816
International		13,752		11,447		39,704		30,254
Total revenue	$	54,574	$	42,008	$	153,514	$	119,070

	September 30,		December 31,
(in thousands)	2014		2013
Long-lived assets:
United States	$	73,082	$	48,381
International		14,880		7,720
Total long-lived assets	$	87,962	$	56,101

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Document And Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	Proto Labs Inc
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		25,821,479
Amendment Flag	false
Entity Central Index Key	0001443669
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Well-known Seasoned Issuer	Yes
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3

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Note 3 - Business Combinations (Tables)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

(in thousands)
Assets acquired:
Current assets	$	1,248
Intangible assets		4,580
Goodwill		28,916
Other long-term assets		3,849
Total assets acquired		38,593
Liabilities assumed:
Current liabilities		1,729
Total liabilities assumed		1,729
Net assets acquired		36,864
Cash paid		34,468
Cash acquired		(604	)
Net cash consideration		33,864
Contingent consideration		3,000
Total purchase consideration	$	36,864

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statements of Operations:
Revenue	$ 54,574	$ 42,008	$ 153,514	$ 119,070
Cost of revenue	21,492	16,053	58,725	44,983
Gross profit	33,082	25,955	94,789	74,087
Operating expenses
Marketing and sales	7,351	5,409	21,029	16,222
Research and development	4,555	3,026	11,925	8,405
General and administrative	5,733	4,118	15,970	12,035
Total operating expenses	17,639	12,553	48,924	36,662
Income from operations	15,443	13,402	45,865	37,425
Other income (expense), net	(56)	31	(19)	149
Income before income taxes	15,387	13,433	45,846	37,574
Provision for income taxes	5,003	4,561	14,404	11,804
Net income	10,384	8,872	31,442	25,770
Net income per share:
Basic (in Dollars per share)	$ 0.40	$ 0.35	$ 1.23	$ 1.03
Diluted (in Dollars per share)	$ 0.40	$ 0.34	$ 1.20	$ 1.00
Shares used to compute net income per share:
Basic (in Shares)	25,757,593	25,384,940	25,651,156	25,121,941
Diluted (in Shares)	26,200,741	26,002,240	26,109,539	25,794,950
Comprehensive Income (net of tax)
Comprehensive income	$ 9,011	$ 9,678	$ 30,773	$ 25,471

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Note 7 - Marketable Securities

9 Months Ended

Sep. 30, 2014

Investments Schedule [Abstract]

Investment [Text Block]

Note 7 – Marketable Securities

The Company invests in short-term and long-term agency, municipal, corporate, commercial paper and other debt securities. The securities are categorized as held-to-maturity and are recorded at amortized cost. Categorization as held-to-maturity is based on the Company’s ability and intent to hold these securities to maturity. Information regarding the Company’s short-term and long-term marketable securities as of September 30, 2014 and December 31, 2013 is as follows: 

	September 30, 2014
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government agency securities		$	20,533	$	-	$	(48	)	$	20,485
Corporate debt securities			28,452		9		(61	)		28,400
Commercial paper			1,999		-		-			1,999
U.S. municipal securities			28,268		54		(2	)		28,320
Certificates of deposit/time deposits			5,409		6		(12	)		5,403
Total marketable securities		$	84,661	$	69	$	(123	)	$	84,607

	December 31, 2013
(in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. government agency securities		$	21,713	$	2	$	(22	)	$	21,693
Corporate debt securities			29,480		30		(20	)		29,490
U.S. municipal securities			44,474		49		(22	)		44,501
Certificates of deposit/time deposits			4,695		5		(8	)		4,692
Total marketable securities		$	100,362	$	86	$	(72	)	$	100,376

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

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

Classification of marketable securities as current or non-current is based upon the security’s maturity date as of the date of these financial statements.

The September 30, 2014 balance of held-to-maturity debt securities by contractual maturity is shown in the following table at amortized cost. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. 

	September 30,
(in thousands)	2014
Due in one year or less	$	24,212
Due after one year through five years		60,449
Total marketable securities	$	84,661

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Note 6 - Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 6 – Fair Value Measurements

ASC 820, Fair Value Measurement (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

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

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash consists of bank deposits. The Company’s cash equivalents measured at fair value consist of money market mutual funds. The Company determines the fair value of these investments using Level 1 inputs.

A summary of financial assets as of September 30, 2014 and December 31, 2013 measured at fair value on a recurring basis follows: 

	September 30, 2014						December 31, 2013
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	4,917	$	-	$	-	$	5,524	$	-	$	-
Total	$	4,917	$	-	$	-	$	5,524	$	-	$	-

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Note 8 - Inventory (Tables)

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	September 30,			December 31,
(in thousands)	2014			2013
Raw materials	$	5,384		$	4,875
Work in process		505			410
Total inventory		5,889			5,285
Allowance for obsolescence		(184	)		(119	)
Inventory, net of allowance	$	5,705		$	5,166

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Note 4 - Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill [Table Text Block]

(in thousands)	Nine Months Ended September 30, 2014
Balance as of the beginning of the period	$	-
Goodwill acquired during the period		28,916
Balance as of the end of the period	$	28,916

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	September 30, 2014							December 31, 2013
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization		Net		Useful Life (in years)		Weighted Average Useful Life Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(39	)	$	891	$	-	$	-	$	-		10.0		9.6
Non-compete agreement		190		(40	)		150		-		-		-		2.0		1.6
Trade secrets		250		(21	)		229		-		-		-		5.0		4.6
Internally developed software		680		(94	)		586		-		-		-		3.0		2.6
Customer relationships		2,530		(117	)		2,413		-		-		-		9.0		8.6
Total intangible assets	$	4,580	$	(311	)	$	4,269	$	-	$	-	$	-

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

(in thousands)	Estimated Amortization Expense
Remaining 2014	$	186
2015		746
2016		682
2017		500
2018		424
Thereafter		1,731
Total estimated amortization expense	$	4,269

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Note 10 - Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2014

Partners' Capital, Comprehensive Income [Abstract]

Disclosure of Reclassification Amount [Text Block]

Note 10 – Accumulated Other Comprehensive Income

Other comprehensive income (loss) is comprised entirely of foreign currency translation adjustments. The following table presents the changes in accumulated other comprehensive income balances during the three and nine months ended September 30, 2014 and 2013, respectively: 

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2014			2013			2014			2013
Foreign currency translation adjustment, net of tax
Balance at beginning of period	$	(387	)	$	(2,033	)	$	(1,091	)	$	(928	)
Other comprehensive income before reclassifications		(1,373	)		806			(669	)		(299	)
Amounts reclassified from accumulated other comprehensive income		-			-			-			-
Net current-period other comprehensive income		(1,373	)		806			(669	)		(299	)
Balance at end of period	$	(1,760	)	$	(1,227	)	$	(1,760	)	$	(1,227	)

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Note 8 - Inventory

9 Months Ended

Sep. 30, 2014

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 8 – Inventory

Inventory consists primarily of raw materials, which are recorded at the lower of cost or market using the average-cost method, which approximates first-in, first-out (FIFO) cost. The Company periodically reviews its inventory for slow-moving, damaged and discontinued items and provides allowances to reduce such items identified to their recoverable amounts.

The Company’s inventory consists of the following: 

	September 30,			December 31,
(in thousands)	2014			2013
Raw materials	$	5,384		$	4,875
Work in process		505			410
Total inventory		5,889			5,285
Allowance for obsolescence		(184	)		(119	)
Inventory, net of allowance	$	5,705		$	5,166

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Note 9 - Stock-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 9 – Stock-Based Compensation

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

Employee Stock Purchase Plan

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

Stock-Based Compensation Expense

Stock-based compensation expense was $1.4 million and $0.9 million for the three months ended September 30, 2014 and 2013, respectively, and $3.6 and $2.6 million for the nine months ended September 30, 2014 and 2013, respectively.

Stock Options

A summary of stock option activity for the nine months ended September 30, 2014 is as follows: 

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2013		1,143,250		$	19.03
Granted		109,530			72.72
Exercised		(247,127	)		13.74
Forfeited		(6,619	)		26.13
Options outstanding at September 30, 2014		999,034		$	26.18
Exercisable at September 30, 2014		394,085		$	15.46

The outstanding options generally have a term of ten years. For employees, options granted become exercisable ratably over the vesting period, which is generally a five-year period beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, options generally become exercisable in full on the first anniversary of the grant date.

The weighted-average grant date fair value of options that were granted during the nine months ended September 30, 2014 was $32.76.

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the nine months ended September 30, 2014 and 2013, respectively: 

	Nine Months Ended September 30,
	2014		2013
Risk-free interest rate		0.43 - 2.14%		1.03 - 1.98%
Expected life (years)		2.00 - 6.50		5.50 - 6.50
Expected volatility		47.82 - 49.30%		49.36 - 53.54%
Expected dividend yield		0%		0%

As of September 30, 2014, there was $8.1 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.2 years.

Restricted Stock

Restricted stock includes non-vested shares issued pursuant to grants of restricted stock awards (RSA) and grants of restricted stock units (RSU). During the nine months ended September 30, 2014, the Company granted both RSA and RSU.

Non-vested restricted stock as of September 30, 2014 and changes during the nine months ended September 30, 2014 were as follows: 

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock Awards			Per Share
Nonvested restricted stock at December 31, 2013		-		$	-
Granted		74,467			69.45
Vested		(798	)		62.68
Forfeited		-			-
Nonvested restricted stock at September 30, 2014		73,669		$	69.52

As of September 30, 2014, there was $4.4 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 3.8 years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the nine months ended September 30, 2014 and 2013, respectively:  

	Nine Months Ended September 30,
	2014		2013
Risk-free interest rate		0.01 - 0.11%		0.11 - 0.13%
Expected life (months)		6.00		6.00
Expected volatility		39.16 - 39.80%		53.14% - 53.32%
Expected dividend yield		0%		0%

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Note 11 - Income Taxes

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 11 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the three months ended September 30, 2014 and 2013 the Company recorded an income tax provision of $5.0 million and $4.6 million, respectively. For the nine months ended September 30, 2014 and 2013 the Company recorded an income tax provision of $14.4 million and $11.8 million, respectively. The income tax provision is based on the estimated annual effective tax rate for the year applied to pre-tax income. The effective income tax rate for the three months ended September 30, 2014 was 32.5 percent compared with 34.0 percent in the same period of the prior year. The effective income tax rate for each of the nine months ended September 30, 2014 and 2013 was 31.4 percent.

The effective income tax rate for the three and nine months ended September 30, 2014 differs from the U.S. federal statutory rate of 35 percent due primarily to the mix of revenue earned in domestic and foreign tax jurisdictions and deductions for which the Company qualifies.

The Company had liabilities related to unrecognized tax benefits totaling $0.9 million at September 30, 2014 and $0.7 million December 31, 2013, all of which, if recognized, would affect the Company’s effective tax rate. The Company recognizes interest and penalties related to income tax matters in income tax expense, and reports the liability in current or long-term income taxes payable as appropriate.

During the quarter ended September 30, 2014, the Company decreased its prior year uncertain tax positions by $0.4 million due to the expiration of the statutes of limitations on the Company’s 2010 federal income tax return.  Also, during the quarter ended September 30, 2014, the Company increased its prior year and current year uncertain tax positions by $0.4 million and $0.5 million, respectively.  The increase was due to certain tax positions not meeting the more-like-than-not standard for accounting for uncertain tax positions under the Company’s current facts and circumstances.

Based upon the information available as of September 30, 2014, the Company anticipates the amount of uncertain tax positions will change in the next twelve months; however, the change cannot be estimated.

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Note 6 - Fair Value Measurements (Details) - Fair Value of Financial Assets Measured on a Recurring Basis (Fair Value, Inputs, Level 1 [Member], Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Cash and cash equivalents
Money market mutual fund	$ 4,917	$ 5,524
Total	$ 4,917	$ 5,524

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Note 6 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

	September 30, 2014						December 31, 2013
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	4,917	$	-	$	-	$	5,524	$	-	$	-
Total	$	4,917	$	-	$	-	$	5,524	$	-	$	-

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Note 12 - Revenue and Geographic Information (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Revenue from External Customers by Products and Services [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Revenue:
Protomold	$	35,655	$	29,534	$	104,604	$	84,338
Firstcut		15,549		12,474		43,407		34,732
Fineline		3,370		-		5,503		-
Total revenue	$	54,574	$	42,008	$	153,514	$	119,070

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Revenue:
United States	$	40,822	$	30,561	$	113,810	$	88,816
International		13,752		11,447		39,704		30,254
Total revenue	$	54,574	$	42,008	$	153,514	$	119,070

Long-lived Assets by Geographic Areas [Table Text Block]

	September 30,		December 31,
(in thousands)	2014		2013
Long-lived assets:
United States	$	73,082	$	48,381
International		14,880		7,720
Total long-lived assets	$	87,962	$	56,101

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Note 9 - Stock-Based Compensation (Details) - Non-Vested Restricted Stock Options (USD $)	9 Months Ended
	Sep. 30, 2014
Note 9 - Stock-Based Compensation (Details) - Non-Vested Restricted Stock Options [Line Items]
Granted	109,530
Granted (in Dollars per share)	$ 32.76
Restricted Stock [Member]
Note 9 - Stock-Based Compensation (Details) - Non-Vested Restricted Stock Options [Line Items]
Nonvested restricted stock at December 31, 2013	0
Nonvested restricted stock at December 31, 2013 (in Dollars per share)	$ 0
Granted	74,467
Granted (in Dollars per share)	$ 69.45
Vested	(798)
Vested (in Dollars per share)	$ 62.68
Forfeited	0
Nonvested restricted stock at September 30, 2014	73,669
Nonvested restricted stock at September 30, 2014 (in Dollars per share)	$ 69.52

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Operating activities
Net income	$ 31,442	$ 25,770
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,696	5,528
Stock-based compensation expense	3,561	2,595
Deferred taxes	487	(61)
Excess tax benefit from stock-based compensation	(4,383)	(8,198)
Loss on disposal of property and equipment		111
Amortization of held-to-maturity securities	1,194	1,007
Changes in operating assets and liabilities:
Accounts receivable	(6,302)	(2,242)
Inventories	(339)	(380)
Prepaid expenses and other	(706)	1,545
Income taxes	4,032	6,099
Accounts payable	1,414	1,564
Accrued liabilities and other	1,908	1,562
Net cash provided by operating activities	40,004	34,900
Investing activities
Purchases of property and equipment	(35,928)	(12,976)
Acquisitions, net of cash acquired	(33,864)
Purchases of marketable securities	(47,338)	(82,657)
Proceeds from sales and maturities of marketable securities	61,896	50,663
Net cash used in investing activities	(55,234)	(44,970)
Financing activities
Payments on debt	(1,005)	(211)
Acquisition-related contingent consideration	(800)
Proceeds from exercises of stock options and other	3,962	4,635
Excess tax benefit from stock-based compensation	4,383	8,198
Net cash provided by financing activities	6,540	12,622
Effect of exchange rate changes on cash and cash equivalents	(81)	71
Net increase (decrease) in cash and cash equivalents	(8,771)	2,623
Cash and cash equivalents, beginning of period	43,039	36,759
Cash and cash equivalents, end of period	$ 34,268	$ 39,382

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Note 5 - Net Income per Common Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 5 – Net Income per Common Share

Basic net income per share is computed based on the weighted-average number of common shares outstanding. Diluted net income per share is computed based on the weighted-average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options, restricted stock units and restricted stock awards granted under stock-based compensation plans and shares committed to be purchased under the employee stock purchase plan.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except share and per share amounts)	2014		2013		2014		2013
Net income	$	10,384	$	8,872	$	31,442	$	25,770
Basic - weighted-average shares outstanding:		25,757,593		25,384,940		25,651,156		25,121,941
Effect of dilutive securities:
Employee stock options and other		443,148		617,300		458,383		673,009
Diluted - weighted-average shares outstanding:		26,200,741		26,002,240		26,109,539		25,794,950
Net income per share:
Basic	$	0.40	$	0.35	$	1.23	$	1.03
Diluted	$	0.40	$	0.34	$	1.20	$	1.00

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Note 3 - Business Combinations (Details) (USD $)	1 Months Ended	9 Months Ended
	Apr. 23, 2014	Sep. 30, 2014
Note 3 - Business Combinations (Details) [Line Items]
Payments to Acquire Businesses, Net of Cash Acquired		$ 33,864,000
FineLine Prototyping, Inc. [Member]
Note 3 - Business Combinations (Details) [Line Items]
Payments to Acquire Businesses, Net of Cash Acquired	33,864,000
Proceeds from Sale of Held-to-maturity Securities	15,500,000
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High	3,000,000
Business Combination, Consideration Transferred	36,864,000
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability		800,000
Business Combination, Contingent Consideration, Liability	$ 3,000,000	$ 2,200,000

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Note 9 - Stock-Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Note 9 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period			10 years
Share-based Compensation Arrangement by Share-based Payment Award, Discount from Market Price, Offering Date			15.00%
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period			6 months
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent			85.00%
Share-based Compensation	$ 1,400,000	$ 900,000	$ 3,561,000	$ 2,595,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)			$ 32.76
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	8,100,000		8,100,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			3 years 73 days
Restricted Stock [Member]
Note 9 - Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share)			$ 69.45
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			3 years 292 days
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 4,400,000		$ 4,400,000

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Note 5 - Net Income per Common Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except share and per share amounts)	2014		2013		2014		2013
Net income	$	10,384	$	8,872	$	31,442	$	25,770
Basic - weighted-average shares outstanding:		25,757,593		25,384,940		25,651,156		25,121,941
Effect of dilutive securities:
Employee stock options and other		443,148		617,300		458,383		673,009
Diluted - weighted-average shares outstanding:		26,200,741		26,002,240		26,109,539		25,794,950
Net income per share:
Basic	$	0.40	$	0.35	$	1.23	$	1.03
Diluted	$	0.40	$	0.34	$	1.20	$	1.00