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 March 31, 2015

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	(I.R.S. Employer
incorporation or organization)	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: 25,919,760 shares of Common Stock, par value $0.001 per share, were outstanding at April 30, 2015.

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	14
3.	Quantitative and Qualitative Disclosures about Market Risk	21
4.	Controls and Procedures	22
	PART II
1.	Legal Proceedings	23
1A.	Risk Factors	23
6.	Exhibits	23

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Proto Labs, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	March 31,			December 31,
	2015			2014
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	52,553		$	43,329
Short-term marketable securities		29,055			30,706
Accounts receivable, net of allowance for doubtful accounts of $233 and $198 as of March 31, 2015 and December 31, 2014, respectively		28,382			24,226
Inventory		6,386			6,194
Prepaid expenses and other current assets		4,377			3,406
Deferred tax assets		459			483
Total current assets		121,212			108,344
Property and equipment, net		94,028			91,626
Goodwill		28,916			28,916
Other intangible assets, net		3,896			4,083
Long-term marketable securities		55,594			54,318
Other long-term assets		226			227
Total assets	$	303,872		$	287,514
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	8,566		$	7,882
Accrued compensation		7,865			6,067
Accrued liabilities and other		2,048			2,718
Income taxes payable		3,958			1,953
Current portion of long-term debt obligations		95			139
Total current liabilities		22,532			18,759
Long-term deferred tax liabilities		2,170			1,846
Long-term debt obligations		-			10
Other long-term liabilities		1,522			1,360
Total liabilities		26,224			21,975
Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of March 31, 2015 and December 31, 2014		-			-
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 25,893,815 and 25,838,110 shares as of March 31, 2015 and December 31, 2014, respectively		26			26
Additional paid-in capital		183,691			180,960
Retained earnings		97,935			87,482
Accumulated other comprehensive loss		(4,004	)		(2,929	)
Total shareholders' equity		277,648			265,539
Total liabilities and shareholders' equity	$	303,872		$	287,514

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
	March 31,
	2015			2014
Statements of Operations:
Revenue	$	58,536		$	46,074
Cost of revenue		23,282			17,050
Gross profit		35,254			29,024
Operating expenses
Marketing and sales		8,854			6,417
Research and development		4,314			3,456
General and administrative		6,245			4,703
Total operating expenses		19,413			14,576
Income from operations		15,841			14,448
Other income (expense), net		(457	)		103
Income before income taxes		15,384			14,551
Provision for income taxes		4,931			4,449
Net income	$	10,453		$	10,102
Net income per share:
Basic	$	0.40		$	0.40
Diluted	$	0.40		$	0.39
Shares used to compute net income per share:
Basic		25,850,274			25,573,851
Diluted		26,214,204			26,091,069
Comprehensive Income (net of tax)
Comprehensive income	$	9,378		$	10,274

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

4

Proto Labs, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2015			2014
Operating activities
Net income	$	10,453		$	10,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,399			2,106
Stock-based compensation expense		1,342			998
Deferred taxes		343			107
Excess tax benefit from stock-based compensation		(510	)		(897	)
Amortization of held-to-maturity securities		305			482
Changes in operating assets and liabilities:
Accounts receivable		(4,363	)		(3,554	)
Inventories		(243	)		(166	)
Prepaid expenses and other		(989	)		(828	)
Income taxes		2,729			3,951
Accounts payable		776			3,929
Accrued liabilities and other		2,175			(964	)
Net cash provided by operating activities		15,417			15,266
Investing activities
Purchases of property and equipment		(6,230	)		(9,892	)
Purchases of marketable securities		(11,575	)		(32,385	)
Proceeds from sales and maturities of marketable securities		11,646			26,590
Net cash used in investing activities		(6,159	)		(15,687	)
Financing activities
Payments on debt		(49	)		(50	)
Acquisition-related contingent consideration		(1,000	)		-
Proceeds from exercises of stock options and other		878			665
Excess tax benefit from stock-based compensation		510			897
Net cash provided by financing activities		339			1,512
Effect of exchange rate changes on cash and cash equivalents		(373	)		71
Net increase in cash and cash equivalents		9,224			1,162
Cash and cash equivalents, beginning of period		43,329			43,039
Cash and cash equivalents, end of period	$	52,553		$	44,201

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.

On April 23, 2014, the Company completed the acquisition of FineLine Prototyping, Inc. (FineLine). The operations of FineLine have been integrated into the operations of the Company and operating results beginning April 23, 2014 are included in the consolidated results under the Fineline product line.

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, 2014 as filed with the Securities and Exchange Commission (SEC) on February 27, 2015.

The accompanying Consolidated Balance Sheet as of December 31, 2014 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 27, 2015 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 using one of two retrospective application methods.

On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is evaluating the application method and the impact of this new standard on our financial statements, but does not expect the impact to be material.

Note 3 – Net Income per Common Share

Basic net income per share is computed based on the weighted-average number of common shares outstanding. Diluted net income per share is computed based on the weighted-average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options, 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.

6

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

	Three Months Ended
	March 31,
(in thousands, except share and per share amounts)	2015		2014
Net income	$	10,453	$	10,102
Basic - weighted-average shares outstanding:		25,850,274		25,573,851
Effect of dilutive securities:
Employee stock options and other		363,930		517,218
Diluted - weighted-average shares outstanding:		26,214,204		26,091,069
Net income per share:
Basic	$	0.40	$	0.40
Diluted	$	0.40	$	0.39

Note 4 – Goodwill and Other Intangible Assets

The changes in the carrying amount of Goodwill during the three months ended March 31, 2015 were as follows:

(in thousands)	Three Months Ended March 31, 2015
Balance as of the beginning of the period	$	28,916
Goodwill acquired during the period		-
Balance as of the end of the period	$	28,916

Intangible assets other than Goodwill at March 31, 2015 and December 31, 2014 were as follows:

	March 31, 2015							December 31, 2014							Useful		Weighted Average Useful Life
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Life (in years)		Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(85	)	$	845	$	930	$	(62	)	$	868		10.0		9.1
Non-compete agreement		190		(87	)		103		190		(63	)		127		2.0		1.1
Trade secrets		250		(46	)		204		250		(33	)		217		5.0		4.1
Internally developed software		680		(208	)		472		680		(151	)		529		3.0		2.1
Customer relationships		2,530		(258	)		2,272		2,530		(188	)		2,342		9.0		8.1
Total intangible assets	$	4,580	$	(684	)	$	3,896	$	4,580	$	(497	)	$	4,083

Amortization expense for intangible assets for the three months ended March 31, 2015 was $0.2 million. There was no amortization expense in the same period of the prior year.

7

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

(in thousands)	Estimated Amortization Expense
Remaining 2015	$	559
2016		682
2017		500
2018		424
2019		391
Thereafter		1,340
Total estimated amortization expense	$	3,896

Note 5 – 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 March 31, 2015 and December 31, 2014 measured at fair value on a recurring basis follows:

	March 31, 2015						December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	5,096	$	-	$	-	$	6,129	$	-	$	-
Total	$	5,096	$	-	$	-	$	6,129	$	-	$	-

8

Note 6 – 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 March 31, 2015 and December 31, 2014 is as follows:

	March 31, 2015
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	30,198	$	33	$	(27	)	$	30,204
Corporate debt securities		26,284		20		(20	)		26,284
U.S. government agency securities		20,946		18		(7	)		20,957
Certificates of deposit/time deposits		5,656		12		(1	)		5,667
Commercial paper		1,565		-		(2	)		1,563
Total marketable securities	$	84,649	$	83	$	(57	)	$	84,675

	December 31, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	30,004	$	32	$	(18	)	$	30,018
Corporate debt securities		29,316		7		(79	)		29,244
U.S. government agency securities		20,048		-		(71	)		19,977
Certificates of deposit/time deposits		5,656		5		(15	)		5,646
Total marketable securities	$	85,024	$	44	$	(183	)	$	84,885

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 March 31, 2015 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.

	March 31,
(in thousands)	2015
Due in one year or less	$	29,055
Due after one year through five years		55,594
Total marketable securities	$	84,649

Note 7 – Inventory

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

9

The Company’s inventory consists of the following:

	March 31,			December 31,
(in thousands)	2015			2014
Raw materials	$	5,818		$	5,728
Work in process		763			653
Total inventory		6,581			6,381
Allowance for obsolescence		(195	)		(187	)
Inventory, net of allowance	$	6,386		$	6,194

Note 8 – 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 $1.3 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively.

Stock Options

A summary of stock option activity during the three months ended March 31, 2015 is as follows:

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2014		998,987		$	26.49
Granted		102,290			67.15
Exercised		(51,526	)		17.05
Forfeited		(24,353	)		50.92
Options outstanding at March 31, 2015		1,025,398		$	30.44
Exercisable at March 31, 2015		497,232		$	16.87

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 three months ended March 31, 2015 was $32.52.

10

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the three months ended March 31, 2015 and 2014, respectively:

	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		1.77	%		2.14	%
Expected life (years)		6.50			6.50
Expected volatility		47.23	%		49.30	%
Expected dividend yield		0	%		0	%

As of March 31, 2015, there was $9.4 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.6 years.

Restricted Stock

The 2012 Plan provides for the award of restricted stock or restricted stock units. Restricted stock awards are share settled awards and restrictions lapse 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, restricted stock awards generally vest in full on the first anniversary of the grant date.

A summary of restricted stock activity during the three months ended March 31, 2015 is as follows:

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Nonvested restricted stock at December 31, 2014		76,574		$	69.27
Granted		26,705			67.15
Vested		(6,901	)		78.59
Forfeited		(1,858	)		78.59
Nonvested restricted stock at March 31, 2015		94,520		$	67.81

As of March 31, 2015, there was $5.5 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 3.9 years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the three months ended March 31, 2015 and 2014, respectively:

	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		0.08	%		0.11	%
Expected life (months)		6.00			6.00
Expected volatility		37.64	%		39.80	%
Expected dividend yield		0	%		0	%

11

Note 9 – Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is comprised entirely of foreign currency translation adjustments. The following table presents the changes in accumulated other comprehensive income (loss) balances during the three months ended March 31, 2015 and 2014, respectively:

	Three Months Ended
	March 31,
(in thousands)	2015			2014
Foreign currency translation adjustments
Balance at beginning of period	$	(2,929	)	$	(1,091	)
Other comprehensive income (loss) before reclassifications		(1,075	)		172
Amounts reclassified from accumulated other comprehensive income (loss)		-			-
Net current-period other comprehensive income (loss)		(1,075	)		172
Balance at end of period	$	(4,004	)	$	(919	)

Note 10 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. During the three months ended March 31, 2015 and 2014, the Company recorded an income tax provision of $4.9 million and $4.4 million, respectively. The income tax provision is based on the estimated annual effective tax rate for the year applied to pre-tax income. The effective income tax rate for the three months ended March 31, 2015 was 32.1 percent compared to 30.6 percent for the same period of the prior year.

The effective income tax rate for the three months ended March 31, 2015 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 has liabilities related to unrecognized tax benefits totaling $1.5 million at March 31, 2015 and $1.3 million December 31, 2014, 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 three months ended March 31, 2015, the Company increased its current year uncertain tax positions by $0.2 million. The increase was due to certain tax positions not meeting the more-likely-than-not standard for accounting for uncertain tax positions under the Company’s current facts and circumstances.

Based upon the information available as of March 31, 2015, the Company anticipates the amount of uncertain tax positions will change in the next twelve months; however, the change is not expected to be material.

Note 11 – Revenue and Geographic Information

The Company’s revenue is derived from its Protomold injection 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 March 31,
(in thousands)	2015		2014
Revenue:
Protomold	$	37,618	$	32,694
Firstcut		16,370		13,380
Fineline		4,548		-
Total revenue	$	58,536	$	46,074

12

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 March 31,
(in thousands)	2015		2014
Revenue:
United States	$	44,845	$	33,022
International		13,691		13,052
Total revenue	$	58,536	$	46,074

	March 31,		December 31,
(in thousands)	2015		2014
Long-lived assets:
United States	$	78,548	$	76,923
International		15,480		14,703
Total long-lived assets	$	94,028	$	91,626

13

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, 2014.

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, quick-turn, on-demand manufacturer of custom parts for prototyping and short-run production. We manufacture parts for product developers and engineers worldwide who are under increasing pressure to bring their finished products to market faster than their competition. We utilize injection molding, computer numerical control (CNC) machining and additive manufacturing to manufacture custom parts for our customers.

We believe custom parts manufacturing has historically been an underserved market due to the inefficiencies inherent in the quotation, equipment set-up and non-recurring engineering processes required to produce custom parts. Our proprietary technology eliminates most of the time-consuming and expensive skilled labor conventionally required to quote and manufacture parts. Our customers conduct nearly all of their business with us over the Internet. We target our products to the millions of product developers and engineers who use three-dimensional computer-aided design (3D CAD) software to design products across a diverse range of end-markets.

Our primary manufacturing product lines currently include Protomold, which is our injection molding product line, Firstcut, which is our CNC machining product line, and Fineline, which is our additive-manufactured (3D printing) product line. We continually seek to expand the range of size and geometric complexity of the parts we can make with these manufacturing processes, to extend the variety of materials we are able to support and to identify additional manufacturing processes to which we can apply our technology in order to better serve the evolving preferences and needs of product developers and engineers.

Protomold

Our Protomold product line uses our 3D CAD-to-CNC machining technology for the automated design and manufacture of thermoplastic, metal, or liquid silicone injection molds, which are then used to produce custom injection-molded parts on commercially available equipment. Our Protomold product line is used for prototype, on-demand and short-run production. Prototype quantities typically range from 25 to 100 parts. Because we retain possession of the molds, customers who need short-run production often come back to Protomold for additional quantities typically ranging up to 100,000 parts or more. They do so to support pilot production while their tooling for high-volume production is being prepared, because they need on-demand manufacturing due to disruptions in their manufacturing process, because their product will only be released in a limited quantity, or because they need end-of-life production support. These additional part orders typically occur on approximately half of the molds that we make, typically accounting for approximately half of our total Protomold revenue.

Firstcut

Our Firstcut product line uses commercially available CNC machines to cut plastic or metal bars and blocks into one or more custom parts based on the 3D CAD model uploaded by the product developer or engineer. Our efficiencies derive from the automation of the programming of these machines and a proprietary fixturing process. The Firstcut product line is well suited to produce small quantities, typically in the range of one to 200 parts.

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Fineline

Our Fineline additive manufacturing product line, often referred to as 3D printing, includes stereolithography (SL), selective laser sintering (SLS) and direct metal laser sintering (DMLS) processes, which offer customers a wide-variety of high-quality, precision rapid prototyping. These processes create parts with a high level of accuracy, detail, strength and durability. The Fineline product line is well suited to produce small quantities, typically in the range of one to 50 parts.

Key Financial Measures and Trends

Revenue

The Company’s operations are comprised of three geographic business units in the United States, Europe and Japan, which we believe are three of the largest geographic markets where product developers and engineers are located. Revenue within our United States business unit is derived from our Protomold, Firstcut and Fineline product lines. Revenue within each of our Europe and Japan business units is derived from our Protomold and Firstcut product lines. 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 product lines such as the acquisition of FineLine Prototyping, Inc. (FineLine) in April 2014, which resulted in our 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 product lines such as our web-centric applications; and

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

During the three months ended March 31, 2015, we served approximately 11,000 unique product developers and engineers, an increase of 44% over the same period in 2014. These product developers and engineers are served under all our product lines including Fineline, which was added by our purchase of FineLine Prototyping, Inc. in April of 2014.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue consists primarily of raw materials, equipment depreciation, employee compensation, benefits, stock-based compensation, facilities costs and overhead allocations associated with the manufacturing process for molds and custom parts. We expect 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 percent of revenue. Our gross profit and gross margin are affected by many factors, including our pricing, sales volume and manufacturing costs, the costs associated with increasing production capacity, the mix between sales by product line, the mix between domestic and foreign revenue sources and foreign exchange rates.

Our gross margins vary between geographic markets due primarily to the costs associated with starting new factories, available capacity and our operating maturity in these markets. We believe that over time and with growth and maturity of our international business, gross margins will be generally consistent through all our markets.

Operating Expenses

Operating expenses consist of marketing and sales, research and development and general and administrative expenses. Personnel-related costs are the most significant component 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, on-demand additive-manufactured (3D printing), CNC-machined, CNC-turned and injection-molded custom parts for prototyping and short-run production. For us to achieve our goals, we anticipate continued substantial investments in technology and personnel, resulting in increased operating expenses.

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

Other Income (Expense), Net

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

Provision for Income Taxes

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

Results of Operations

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

	Three Months Ended March 31,									Change
(dollars in thousands)	2015					2014				$			%
Revenue	$	58,536		100.0	%	$	46,074	100.0	%	$	12,462			27.0	%
Cost of revenue		23,282		39.8			17,050	37.0			6,232			36.6
Gross profit		35,254		60.2			29,024	63.0			6,230			21.5
Operating expenses:
Marketing and sales		8,854		15.1			6,417	13.9			2,437			38.0
Research and development		4,314		7.3			3,456	7.5			858			24.8
General and administrative		6,245		10.7			4,703	10.2			1,542			32.8
Total operating expenses		19,413		33.1			14,576	31.6			4,837			33.2
Income from operations		15,841		27.1			14,448	31.4			1,393			9.6
Other income (expense), net		(457	)	(0.8	)		103	0.2			(560	)		*
Income before income taxes		15,384		26.3			14,551	31.6			833			5.7
Provision for income taxes		4,931		8.4			4,449	9.7			482			10.8
Net income	$	10,453		17.9	%	$	10,102	21.9	%	$	351			3.5	%

 * Percentage change not meaningful

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

	Three Months Ended March 31,
(dollars in thousands)	2015		2014
Stock options and restricted stock	$	1,219	$	912
Employee stock purchase plan		123		86
Total stock-based compensation expense	$	1,342	$	998
Cost of revenue	$	111	$	82
Operating expenses:
Marketing and sales		236		195
Research and development		294		215
General and administrative		701		506
Total stock-based compensation expense	$	1,342	$	998

Comparison of Three Months Ended March 31, 2015 and 2014

Revenue

Revenue by product line and the related changes for the three months ended March 31, 2015 and 2014 were as follows:

	Three Months Ended March 31,
	2015					2014					Change
(dollars in thousands)	$		% of Total Revenue			$		% of Total Revenue			$		%
Revenue
Protomold	$	37,618		64.3	%	$	32,694		71.0	%	$	4,924		15.1	%
Firstcut		16,370		28.0			13,380		29.0			2,990		22.3
Fineline		4,548		7.7			-		-			4,548		100.0
Total revenue	$	58,536		100.0	%	$	46,074		100.0	%	$	12,462		27.0	%

Revenue by geographic region, based on the billing location of the end customer, for the three months ended March 31, 2015 and 2014 is summarized as follows:

	Three Months Ended March 31,
	2015					2014					Change
(dollars in thousands)	$		% of Total Revenue			$		% of Total Revenue			$		%
Revenue
United States	$	44,845		76.6	%	$	33,022		71.7	%	$	11,823		35.8	%
International		13,691		23.4			13,052		28.3			639		4.9
Total revenue	$	58,536		100.0	%	$	46,074		100.0	%	$	12,462		27.0	%

Our revenue increased $12.5 million, or 27.0%, for the three months ended March 31, 2015 compared to the same period in 2014. By geographic region, this revenue growth was driven by a 35.8% increase in United States revenue and a 4.9% increase in international revenue. By product line, this revenue growth was driven by a 15.1% increase in Protomold revenue and a 22.3% increase in Firstcut revenue, in each case for the three months ended March 31, 2015 compared to the same period in 2014, as well as $4.5 million in Fineline revenue related to the FineLine acquisition completed in the second quarter of 2014.

Our revenue growth during the three months ended March 31, 2015 was the result of increased volume of the product developers and engineers we served. During the three months ended March 31, 2015, we served approximately 11,000 unique product developers and engineers, an increase of 44% over the same period in 2014. Average revenue per product developer or engineer decreased 11% during the three months ended March 31, 2015 when compared to the same period in 2014.

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In addition to 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 marketing activities that have proven to result in the greatest number of customer prospects to support sales activity. International revenue was negatively impacted by $1.8 million for the three months ended March 31, 2015 compared to the same period in 2014 due to the strengthening of the United States dollar relative to the British Pound and Japanese Yen, as well as the strengthening of the British Pound relative to the Euro. The effect of pricing changes on revenue was immaterial for three months ended March 31, 2015 compared to the same period in 2014.

Cost of Revenue, Gross Profit and Gross Margin

Cost of Revenue. Cost of revenue increased $6.2 million, or 36.6%, for the three months ended March 31, 2015 compared to the same period in 2014, which was faster than the rate of revenue increase of 27.0% for the three months ended March 31, 2015 compared to the same period in 2014. The increase in cost of revenue was due to raw material and production cost increases of $2.0 million to support increased sales volumes, an increase in direct labor headcount resulting in personnel and related cost increases of $3.3 million and equipment and facility-related cost increases of $0.9 million.

Gross Profit and Gross Margin. Gross profit increased from $29.0 million, or 63.0% of revenues, in the three months ended March 31, 2014 to $35.3 million, or 60.2% of revenue, in the three months ended March 31, 2015 primarily 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 impact of fluctuations in foreign currency exchange rates.

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

Marketing and Sales. Marketing and sales expenses increased $2.4 million, or 38.0%, during the three months ended March 31, 2015 compared to the same period in 2014 due primarily to an increase in headcount resulting in personnel and related cost increases of $1.9 million and marketing program cost increases of $0.5 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 expenses increased $0.9 million, or 24.8%, during the three months ended March 31, 2015 compared to the same period in 2014 due to an increase in headcount resulting in personnel and related cost increases of $1.2 million and operating cost increases of $0.2 million, which were partially offset by professional services cost decreases of $0.5 million.

General and Administrative. Our general and administrative expenses increased $1.5 million, or 32.8%, during the three months ended March 31, 2015 compared to the same period in 2014 due to an increase in headcount resulting in personnel and related cost increases of $1.2 million, stock-based compensation costs increases of $0.2 million and intangible amortization expenses of $0.2 million, which were partially offset by professional services cost decreases of $0.1 million.

Other Income (Expense), net. Other expense, net increased $0.6 million during the three months ended March 31, 2015 compared to the same period in 2014 due to changes in foreign currency rates.

Provision for Income Taxes. Our effective tax rate of 32.1% for the three months ended March 31, 2015 increased 1.5% when compared to 30.6% for the same period in 2014. The increase 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, 2015. As a result of increased income attributable to the fluctuations described above, our income tax provision increased by $0.5 million to $4.9 million for the three months ended March 31, 2015 compared to our income tax provision of $4.4 million for the three months ended March 31, 2014.

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Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows during the three months ended March, 2015 and 2014:

	Three Months Ended March 31,
(dollars in thousands)	2015			2014
Net cash provided by operating activities	$	15,417		$	15,266
Net cash used in investing activities		(6,159	)		(15,687	)
Net cash provided by financing activities		339			1,512
Effect of exchange rates on cash and cash equivalents		(373	)		71
Net increase (decrease) in cash and cash equivalents	$	9,224		$	1,162

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 $52.6 million as of March 31, 2015, an increase of $9.2 million from December 31, 2014. The increase in our cash was primarily due to cash generated through operations, which was partially offset by investing activity.

Cash Flows from Operating Activities

Cash flows from operating activities during the three months ended March 31, 2015 primarily consisted of net income of $10.5 million, adjusted for certain non-cash items, including depreciation and amortization of $3.4 million, stock-based compensation expense of $1.3 million, deferred taxes of $0.3 million and amortization of held-to-maturity securities of $0.3 million, which were partially offset by excess tax benefit from stock-based compensation expense of $0.5 million. The cash flow from operating activities during the three months ended March 31, 2015 was consistent when compared to the same period in 2014.

Cash flows from operating activities during the three months ended March 31, 2014 consisted of net income of $10.1 million, adjusted for certain non-cash items, including depreciation and amortization of $2.1 million, stock-based compensation expense of $1.0 million, amortization of held-to-maturity securities of $0.5 million, deferred taxes of $0.1 million and changes in operating assets and liabilities of $2.4 million, which were partially offset by excess tax benefit from stock-based compensation expense of $0.9 million.

Cash Flows from Investing Activities

Cash used in investing activities during the three months ended March 31, 2015 consisted of $6.2 million for the purchases of property and equipment. Purchases of marketable securities for the period were $11.6 million, which were offset by $11.6 million in proceeds from maturities and call redemptions of marketable securities.

Cash used in investing activities was $15.7 million during the three months ended March 31, 2014, consisting of $9.9 million for the purchases of property and equipment and $32.4 million for the purchases of marketable securities, which were partially offset by $26.6 million in proceeds from maturities, sales and call redemptions of marketable securities.

Cash Flows from Financing Activities

Cash provided by financing activities was $0.3 million during the three months ended March 31, 2015, consisting of proceeds from exercises of stock options of $0.9 million and $0.5 million in excess tax benefit on stock-based compensation, which were partially offset by $1.0 million for payments of acquisition-related contingent consideration and $0.1 million for payments of debt.

Cash provided by financing activities was $1.5 million during the three months ended March 31, 2014, consisting of excess tax benefit on stock-based compensation of $0.9 million and $0.7 million in proceeds from exercises of stock options, partially offset by $0.1 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.

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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, 2014. There were no material changes in our significant accounting policies during the three months ended March 31, 2015.

Recent Accounting Pronouncements

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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

As a result of our foreign operations, we have revenue, expenses, assets and liabilities that are denominated in foreign currencies. We generate revenue in British Pounds, Euro and Japanese Yen. Our production costs are incurred in British Pounds and Japanese Yen. A number of our employees are located throughout Europe and in Japan. Therefore, a portion of our payrolls and operating expenses are incurred and paid in British Pounds, Euro and Japanese Yen.

Our operating results and cash flows are adversely impacted when the United States dollar appreciates relative to other foreign currencies. Additionally, our operating results and cash flows are adversely impacted when the British Pound appreciates relative to the Euro. As we expand internationally, our results of operations and cash flows will become increasingly subject to changes in foreign exchange rates.

We have not used forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Foreign currency risk can be quantified by estimating the change in results of operations or financial position resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would generally not have a material impact on our financial position, but could have a material impact on our results of operations. We recognized foreign currency losses of $0.6 million in the three months ended March 31, 2015. Foreign currency loss was immaterial in the three months ended March 31, 2014.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

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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

There have been no material changes from 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, 2014.

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.

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SIGNATURE

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

	Proto Labs, Inc.
Date: May 5, 2015	/s/ Victoria M. Holt
	Victoria M. Holt
	President and Chief Executive Officer (Principal Executive Officer)
Date: May 5, 2015	/s/ John A. Way
	John A. Way
	Chief Financial Officer
	(Principal Financial Officer)

24

EX-31.1

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: May 5, 2015	By:	/s/ Victoria M. Holt
		Victoria M. Holt
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

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 A. Way, 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: May 5, 2015	By:	/s/ John A. Way
		John A. Way
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

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 March 31, 2015 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: May 5, 2015

By:	/s/ Victoria M. Holt
Name:	Victoria M. Holt
Title:	President and Chief Executive Officer

I, John A. Way, 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 March 31, 2015 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: May 5, 2015

By: /s/ John A. Way

Name:	John A. Way
Title:	Chief Financial Officer

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Note 9 - Accumulated Other Comprehensive Income - Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Balance beginning of period	$ (2,929)	$ (1,091)
Other comprehensive income (loss) before reclassifications	(1,075)	172
Amounts reclassified from accumulated other comprehensive income (loss)
Net current-period other comprehensive income (loss)	(1,075)	172
Balance at end of period	$ (4,004)	$ (919)

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Note 7 - Inventory - Inventory (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Raw materials	$ 5,818	$ 5,728
Work in process	763	653
Total inventory	6,581	6,381
Allowance for obsolescence	(195)	(187)
Inventory, net of allowance	$ 6,386	$ 6,194

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Note 3 - Net Income per Common Share - Computation of Basic and Diluted Net Income Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Net income	$ 10,453	$ 10,102
Basic - weighted-average shares outstanding: (in shares)	25,850,274	25,573,851
Effect of dilutive securities:
Employee stock options and other (in shares)	363,930	517,218
Diluted - weighted-average shares outstanding: (in shares)	26,214,204	26,091,069
Net income per share:
Basic (in dollars per share)	$ 0.40	$ 0.40
Diluted (in dollars per share)	$ 0.40	$ 0.39

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Note 11 - Revenue and Geographic Information - Total Revenue by Product Line (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Revenue:
Revenues	$ 58,536	$ 46,074
Protomold [Member]
Revenue:
Revenues	37,618	32,694
First Cut [Member]
Revenue:
Revenues	16,370	13,380
Fineline [Member]
Revenue:
Revenues	$ 4,548

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Note 8 - Stock-based Compensation - Stock Option Activity (Details) (USD $)	3 Months Ended
	Mar. 31, 2015
Options outstanding (in shares)	998,987
Options outstanding (in dollars per share)	$ 26.49
Granted (in shares)	102,290
Granted (in dollars per share)	$ 67.15
Exercised (in shares)	(51,526)
Exercised (in dollars per share)	$ 17.05
Forfeited (in shares)	(24,353)
Forfeited (in dollars per share)	$ 50.92
Options outstanding (in shares)	1,025,398
Options outstanding (in dollars per share)	$ 30.44
Exercisable at March 31, 2015 (in shares)	497,232
Exercisable at March 31, 2015 (in dollars per share)	$ 16.87

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Note 4 - Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

4 –

Goodwill and Other Intangible Assets

The changes in the carrying amount of Goodwill during the three months ended March 31, 2015 were as follows:

(in thousands)	Three Months Ended March 31, 2015
Balance as of the beginning of the period	$	28,916
Goodwill acquired during the period		-
Balance as of the end of the period	$	28,916

Intangible assets other than Goodwill at March 31, 2015 and December 31, 2014 were as follows:

	March 31, 2015							December 31, 2014							Useful		Weighted Average Useful Life
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Life (in years)		Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(85	)	$	845	$	930	$	(62	)	$	868		10.0		9.1
Non-compete agreement		190		(87	)		103		190		(63	)		127		2.0		1.1
Trade secrets		250		(46	)		204		250		(33	)		217		5.0		4.1
Internally developed software		680		(208	)		472		680		(151	)		529		3.0		2.1
Customer relationships		2,530		(258	)		2,272		2,530		(188	)		2,342		9.0		8.1
Total intangible assets	$	4,580	$	(684	)	$	3,896	$	4,580	$	(497	)	$	4,083

Amortization expense for intangible assets for the three months ended March 31, 2015 was $0.2 million. There was no amortization expense in the same period 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 2015	$	559
2016		682
2017		500
2018		424
2019		391
Thereafter		1,340
Total estimated amortization expense	$	3,896

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Note 11 - Revenue and Geographic Information - Long-lived Assets by Geographic Region (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Long-lived assets:
Long-lived assets	$ 94,028	$ 91,626
UNITED STATES
Long-lived assets:
Long-lived assets	78,548	76,923
International [Member]
Long-lived assets:
Long-lived assets	$ 15,480	$ 14,703

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Note 4 - Goodwill and Other Intangible Assets - Estimated Aggregated Amortization Expense (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015
Remaining 2015	$ 559
2016	682
2017	500
2018	424
2019	391
Thereafter	1,340
Total estimated amortization expense	$ 3,896

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Note 4 - Goodwill and Other Intangible Assets - Changes in Carrying Amount of Goodwill (Details) (USD $)	3 Months Ended
	Mar. 31, 2015
Balance as of the beginning of the period	$ 28,916,000
Goodwill acquired during the period	0
Balance as of the end of the period	$ 28,916,000

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Note 5 - Fair Value Measurements - Fair Value of Financial Assets Measured on a Recurring Basis (Details) (Fair Value, Inputs, Level 1 [Member], Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Cash and cash equivalents:
Money market mutual fund	$ 5,096	$ 6,129
Total	$ 5,096	$ 6,129

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Note 6 - Marketable Securities - Short-Term and Long-Term Marketable Securities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Amortized Cost	$ 84,649	$ 85,024
Unrealized Gains	83	44
Unrealized Losses	(57)	(183)
Fair Value	84,675	84,885
US States and Political Subdivisions Debt Securities [Member]
Amortized Cost	30,198	30,004
Unrealized Gains	33	32
Unrealized Losses	(27)	(18)
Fair Value	30,204	30,018
Corporate Debt Securities [Member]
Amortized Cost	26,284	29,316
Unrealized Gains	20	7
Unrealized Losses	(20)	(79)
Fair Value	26,284	29,244
US Government Agencies Debt Securities [Member]
Amortized Cost	20,946	20,048
Unrealized Gains	18
Unrealized Losses	(7)	(71)
Fair Value	20,957	19,977
Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Amortized Cost	1,565
Unrealized Losses	(2)
Fair Value	1,563
Bank Time Deposits [Member]
Amortized Cost	5,656	5,656
Unrealized Gains	12	5
Unrealized Losses	(1)	(15)
Fair Value	$ 5,667	$ 5,646

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Note 3 - Net Income per Common Share

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

3 –

Net Income per Common Share

Basic net income per share is computed based on the weighted-average number of common shares outstanding. Diluted net income per share is computed based on the weighted-average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include stock options, 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
	March 31,
(in thousands, except share and per share amounts)	2015		2014
Net income	$	10,453	$	10,102
Basic - weighted-average shares outstanding:		25,850,274		25,573,851
Effect of dilutive securities:
Employee stock options and other		363,930		517,218
Diluted - weighted-average shares outstanding:		26,214,204		26,091,069
Net income per share:
Basic	$	0.40	$	0.40
Diluted	$	0.40	$	0.39

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Note 6 - Marketable Securities - Balance of Held-to-Maturity Debt Securities by Contractual Maturity (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015
Due in one year or less	$ 29,055
Due after one year through five years	55,594
Amortized Cost	$ 84,649

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Note 10 - Income Taxes (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Income Tax Expense (Benefit)	$ 4,931,000	$ 4,449,000
Effective Income Tax Rate Reconciliation, Percent	32.10%	30.60%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	35.00%
Unrecognized Tax Benefits	1,500,000		1,300,000
Unrecognized Tax Benefits, Increase Resulting from Current Period Tax Positions	$ 200,000

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Consolidated Balance Sheets (Current Period Unaudited) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Current assets
Cash and cash equivalents	$ 52,553,000	$ 43,329,000
Short-term marketable securities	29,055,000	30,706,000
Accounts receivable, net of allowance for doubtful accounts of $233 and $198 as of March 31, 2015 and December 31, 2014, respectively	28,382,000	24,226,000
Inventory	6,386,000	6,194,000
Prepaid expenses and other current assets	4,377,000	3,406,000
Deferred tax assets	459,000	483,000
Total current assets	121,212,000	108,344,000
Property and equipment, net	94,028,000	91,626,000
Goodwill	28,916,000	28,916,000
Other intangible assets, net	3,896,000	4,083,000
Long-term marketable securities	55,594,000	54,318,000
Other long-term assets	226,000	227,000
Total assets	303,872,000	287,514,000
Current liabilities
Accounts payable	8,566,000	7,882,000
Accrued compensation	7,865,000	6,067,000
Accrued liabilities and other	2,048,000	2,718,000
Income taxes payable	3,958,000	1,953,000
Current portion of long-term debt obligations	95,000	139,000
Total current liabilities	22,532,000	18,759,000
Long-term deferred tax liabilities	2,170,000	1,846,000
Long-term debt obligations		10,000
Other long-term liabilities	1,522,000	1,360,000
Total liabilities	26,224,000	21,975,000
Shareholders' equity
Preferred stock, $0.001 par value, authorized 10,000,000 shares; issued and outstanding 0 shares as of each of March 31, 2015 and December 31, 2014
Common stock, $0.001 par value, authorized 150,000,000 shares; issued and outstanding 25,893,815 and 25,838,110 shares as of March 31, 2015 and December 31, 2014, respectively	26,000	26,000
Additional paid-in capital	183,691,000	180,960,000
Retained earnings	97,935,000	87,482,000
Accumulated other comprehensive loss	(4,004,000)	(2,929,000)
Total shareholders' equity	277,648,000	265,539,000
Total liabilities and shareholders' equity	$ 303,872,000	$ 287,514,000

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Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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.

On April 23, 2014, the Company completed the acquisition of FineLine Prototyping, Inc. (FineLine). The operations of FineLine have been integrated into the operations of the Company and operating results beginning April 23, 2014 are included in the consolidated results under the Fineline product line.

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, 2014 as filed with the Securities and Exchange Commission (SEC) on February 27, 2015.

The accompanying Consolidated Balance Sheet as of December 31, 2014 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 27, 2015 as referenced above.

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Note 8 - Stock-based Compensation - Assumptions Used in the Black-Scholes Option Pricing Model (Details) (Employee Stock Option [Member])	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Employee Stock Option [Member]
Risk-free interest rate	1.77%	2.14%
Expected life (years)	6 years 182 days	6 years 182 days
Expected volatility	47.23%	49.30%
Expected dividend yield	0.00%	0.00%

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Note 8 - Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

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

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2014		998,987		$	26.49
Granted		102,290			67.15
Exercised		(51,526	)		17.05
Forfeited		(24,353	)		50.92
Options outstanding at March 31, 2015		1,025,398		$	30.44
Exercisable at March 31, 2015		497,232		$	16.87

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

	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		1.77	%		2.14	%
Expected life (years)		6.50			6.50
Expected volatility		47.23	%		49.30	%
Expected dividend yield		0	%		0	%

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

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Nonvested restricted stock at December 31, 2014		76,574		$	69.27
Granted		26,705			67.15
Vested		(6,901	)		78.59
Forfeited		(1,858	)		78.59
Nonvested restricted stock at March 31, 2015		94,520		$	67.81

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

	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		0.08	%		0.11	%
Expected life (months)		6.00			6.00
Expected volatility		37.64	%		39.80	%
Expected dividend yield		0	%		0	%

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Note 8 - Stock-based Compensation - Assumptions Used to Estimate the Fair Value of the ESPP (Details) (ESPP [Member])	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
ESPP [Member]
Risk-free interest rate	0.08%	0.11%
Expected life (years)	180 days	180 days
Expected volatility	37.64%	39.80%
Expected dividend yield	0.00%	0.00%

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Note 11 - Revenue and Geographic Information (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

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

	Three Months Ended March 31,
(in thousands)	2015		2014
Revenue:
Protomold	$	37,618	$	32,694
Firstcut		16,370		13,380
Fineline		4,548		-
Total revenue	$	58,536	$	46,074

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

	Three Months Ended March 31,
(in thousands)	2015		2014
Revenue:
United States	$	44,845	$	33,022
International		13,691		13,052
Total revenue	$	58,536	$	46,074

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

	March 31,		December 31,
(in thousands)	2015		2014
Long-lived assets:
United States	$	78,548	$	76,923
International		15,480		14,703
Total long-lived assets	$	94,028	$	91,626

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Note 2 - Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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 using one of two retrospective application methods.

On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is evaluating the application method and the impact of this new standard on our financial statements, but does not expect the impact to be material.

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Allowance for doubtful accounts	$ 233	$ 198
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	150,000,000	150,000,000
Common stock, shares issued (in shares)	25,893,815	25,838,110
Common stock, shares outstanding (in shares)	25,893,815	25,838,110

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Note 3 - Net Income per Common Share (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

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

	Three Months Ended
	March 31,
(in thousands, except share and per share amounts)	2015		2014
Net income	$	10,453	$	10,102
Basic - weighted-average shares outstanding:		25,850,274		25,573,851
Effect of dilutive securities:
Employee stock options and other		363,930		517,218
Diluted - weighted-average shares outstanding:		26,214,204		26,091,069
Net income per share:
Basic	$	0.40	$	0.40
Diluted	$	0.40	$	0.39

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Document And Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 30, 2015
Entity Registrant Name	Proto Labs Inc
Entity Central Index Key	0001443669
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		25,919,760
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Amendment Flag	false

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Note 4 - Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

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

(in thousands)	Three Months Ended March 31, 2015
Balance as of the beginning of the period	$	28,916
Goodwill acquired during the period		-
Balance as of the end of the period	$	28,916

Schedule of Goodwill [Table Text Block]

	March 31, 2015							December 31, 2014							Useful		Weighted Average Useful Life
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Life (in years)		Remaining (in years)
Intangible Assets with finite lives:
Marketing assets	$	930	$	(85	)	$	845	$	930	$	(62	)	$	868		10.0		9.1
Non-compete agreement		190		(87	)		103		190		(63	)		127		2.0		1.1
Trade secrets		250		(46	)		204		250		(33	)		217		5.0		4.1
Internally developed software		680		(208	)		472		680		(151	)		529		3.0		2.1
Customer relationships		2,530		(258	)		2,272		2,530		(188	)		2,342		9.0		8.1
Total intangible assets	$	4,580	$	(684	)	$	3,896	$	4,580	$	(497	)	$	4,083

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

(in thousands)	Estimated Amortization Expense
Remaining 2015	$	559
2016		682
2017		500
2018		424
2019		391
Thereafter		1,340
Total estimated amortization expense	$	3,896

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Statements of Operations:
Revenue	$ 58,536	$ 46,074
Cost of revenue	23,282	17,050
Gross profit	35,254	29,024
Operating expenses
Marketing and sales	8,854	6,417
Research and development	4,314	3,456
General and administrative	6,245	4,703
Total operating expenses	19,413	14,576
Income from operations	15,841	14,448
Other income (expense), net	(457)	103
Income before income taxes	15,384	14,551
Provision for income taxes	4,931	4,449
Net income	10,453	10,102
Net income per share:
Basic (in dollars per share)	$ 0.40	$ 0.40
Diluted (in dollars per share)	$ 0.40	$ 0.39
Shares used to compute net income per share:
Basic - weighted-average shares outstanding: (in shares)	25,850,274	25,573,851
Diluted (in shares)	26,214,204	26,091,069
Comprehensive Income (net of tax)
Comprehensive income	$ 9,378	$ 10,274

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Note 7 - Inventory

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

7 –

Inventory

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

The Company’s inventory consists of the following:

	March 31,			December 31,
(in thousands)	2015			2014
Raw materials	$	5,818		$	5,728
Work in process		763			653
Total inventory		6,581			6,381
Allowance for obsolescence		(195	)		(187	)
Inventory, net of allowance	$	6,386		$	6,194

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Note 6 - Marketable Securities

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Investment [Text Block]

Note

6

– 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 March

31, 2015 and December 31, 2014 is as follows:

	March 31, 2015
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	30,198	$	33	$	(27	)	$	30,204
Corporate debt securities		26,284		20		(20	)		26,284
U.S. government agency securities		20,946		18		(7	)		20,957
Certificates of deposit/time deposits		5,656		12		(1	)		5,667
Commercial paper		1,565		-		(2	)		1,563
Total marketable securities	$	84,649	$	83	$	(57	)	$	84,675

	December 31, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	30,004	$	32	$	(18	)	$	30,018
Corporate debt securities		29,316		7		(79	)		29,244
U.S. government agency securities		20,048		-		(71	)		19,977
Certificates of deposit/time deposits		5,656		5		(15	)		5,646
Total marketable securities	$	85,024	$	44	$	(183	)	$	84,885

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 March

31, 2015 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.

	March 31,
(in thousands)	2015
Due in one year or less	$	29,055
Due after one year through five years		55,594
Total marketable securities	$	84,649

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Note 9 - Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

Comprehensive Income (Loss) [Table Text Block]

	Three Months Ended
	March 31,
(in thousands)	2015			2014
Foreign currency translation adjustments
Balance at beginning of period	$	(2,929	)	$	(1,091	)
Other comprehensive income (loss) before reclassifications		(1,075	)		172
Amounts reclassified from accumulated other comprehensive income (loss)		-			-
Net current-period other comprehensive income (loss)		(1,075	)		172
Balance at end of period	$	(4,004	)	$	(919	)

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Note 5 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

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

	March 31, 2015						December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	5,096	$	-	$	-	$	6,129	$	-	$	-
Total	$	5,096	$	-	$	-	$	6,129	$	-	$	-

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Note 10 - Income Taxes

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

10

–

Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. During the three months ended March 31

, 2015 and 2014, the Company recorded an income tax provision of $4.9 million and $4.4 million, respectively. The income tax provision is based on the estimated annual effective tax rate for the year applied to pre-tax income. The effective income tax rate for the three months ended March 31

, 2015 was 32.1 percent compared to 30.6 percent for the same period of the prior year.

The effective income tax rate for the three months ended March 31

, 2015 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 has liabilities related to unrecognized tax benefits totaling $1.5 million at March 31

, 2015 and $1.3 million December 31, 2014, 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 three months ended March 31, 2015, the Company increased its current year uncertain tax positions by $0.2 million. The increase was due to certain tax positions not meeting the more-likely-than-not standard for accounting for uncertain tax positions under the Company’s current facts and circumstances.

Based upon the information available as of March 31, 2015, the Company anticipates the amount of uncertain tax positions will change in the next twelve months; however, the change is not expected to be material.

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Note 8 - Stock-based Compensation

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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

Note

8

– 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 $1.3 million and $1.0 million for the three months ended March

31, 2015 and 2014, respectively.

Stock Options

A summary of stock option activity during the three months ended March

31, 2015 is as follows:

				Weighted-
				Average
	Stock Options			Exercise Price
Options outstanding at December 31, 2014		998,987		$	26.49
Granted		102,290			67.15
Exercised		(51,526	)		17.05
Forfeited		(24,353	)		50.92
Options outstanding at March 31, 2015		1,025,398		$	30.44
Exercisable at March 31, 2015		497,232		$	16.87

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 three months ended March 31, 2015

was $32.52.

The following table provides the assumptions used in the Black-Scholes pricing model valuation of options during the three months ended March

31, 2015 and 2014, respectively:

	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		1.77	%		2.14	%
Expected life (years)		6.50			6.50
Expected volatility		47.23	%		49.30	%
Expected dividend yield		0	%		0	%

As of March 31, 2015,

there was $9.4 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.6 years

.

Restricted Stock

The 2012 Plan provides for the award of restricted stock or restricted stock units. Restricted stock awards are share settled awards and restrictions lapse 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, restricted stock awards generally vest in full on the first anniversary of the grant date.

A summary of restricted stock activity during the three months ended March

31, 2015 is as follows:

				Weighted-
				Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Nonvested restricted stock at December 31, 2014		76,574		$	69.27
Granted		26,705			67.15
Vested		(6,901	)		78.59
Forfeited		(1,858	)		78.59
Nonvested restricted stock at March 31, 2015		94,520		$	67.81

As of March 31

, 2015, there was $5.5 million of unrecognized compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 3.9 years.

Employee Stock Purchase Plan

The following table presents the assumptions used to estimate the fair value of the ESPP during the three months ended March 31

, 2015 and 2014, respectively:

	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		0.08	%		0.11	%
Expected life (months)		6.00			6.00
Expected volatility		37.64	%		39.80	%
Expected dividend yield		0	%		0	%

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Note 9 - Accumulated Other Comprehensive Income

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Disclosure of Reclassification Amount [Text Block]

Note

9

– Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is comprised entirely of foreign currency translation adjustments. The following table presents the changes in accumulated other comprehensive income (loss) balances during the three months ended March 31

, 2015 and 2014, respectively:

	Three Months Ended
	March 31,
(in thousands)	2015			2014
Foreign currency translation adjustments
Balance at beginning of period	$	(2,929	)	$	(1,091	)
Other comprehensive income (loss) before reclassifications		(1,075	)		172
Amounts reclassified from accumulated other comprehensive income (loss)		-			-
Net current-period other comprehensive income (loss)		(1,075	)		172
Balance at end of period	$	(4,004	)	$	(919	)

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Note 11 - Revenue and Geographic Information

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

11

–

Revenue and Geographic Information

The Company’s revenue is derived from its Protomold injection 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 March 31,
(in thousands)	2015		2014
Revenue:
Protomold	$	37,618	$	32,694
Firstcut		16,370		13,380
Fineline		4,548		-
Total revenue	$	58,536	$	46,074

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 March 31,
(in thousands)	2015		2014
Revenue:
United States	$	44,845	$	33,022
International		13,691		13,052
Total revenue	$	58,536	$	46,074

	March 31,		December 31,
(in thousands)	2015		2014
Long-lived assets:
United States	$	78,548	$	76,923
International		15,480		14,703
Total long-lived assets	$	94,028	$	91,626

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Note 8 - Stock-based Compensation (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
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	180 days
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent	85.00%
Share-based Compensation	$ 1,342,000	$ 998,000
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	$ 32.52
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	9,400,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years 219 days
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years 328 days
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 5,500,000

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Note 7 - Inventory (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31,			December 31,
(in thousands)	2015			2014
Raw materials	$	5,818		$	5,728
Work in process		763			653
Total inventory		6,581			6,381
Allowance for obsolescence		(195	)		(187	)
Inventory, net of allowance	$	6,386		$	6,194

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Note 4 - Goodwill and Other Intangible Assets (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Amortization of Intangible Assets	$ 200,000	$ 0

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Note 11 - Revenue and Geographic Information - Revenue to External Customers and Long-lived Assets by Geography (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Revenues	$ 58,536	$ 46,074
UNITED STATES
Revenues	44,845	33,022
International [Member]
Revenues	$ 13,691	$ 13,052

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Operating activities
Net income	$ 10,453	$ 10,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,399	2,106
Share-based Compensation	1,342	998
Deferred taxes	343	107
Excess tax benefit from stock-based compensation	(510)	(897)
Amortization of held-to-maturity securities	305	482
Changes in operating assets and liabilities:
Accounts receivable	(4,363)	(3,554)
Inventories	(243)	(166)
Prepaid expenses and other	(989)	(828)
Income taxes	2,729	3,951
Accounts payable	776	3,929
Accrued liabilities and other	2,175	(964)
Net cash provided by operating activities	15,417	15,266
Investing activities
Purchases of property and equipment	(6,230)	(9,892)
Purchases of marketable securities	(11,575)	(32,385)
Proceeds from sales and maturities of marketable securities	11,646	26,590
Net cash used in investing activities	(6,159)	(15,687)
Financing activities
Payments on debt	(49)	(50)
Acquisition-related contingent consideration	(1,000)
Proceeds from exercises of stock options and other	878	665
Excess tax benefit from stock-based compensation	510	897
Net cash provided by financing activities	339	1,512
Effect of exchange rate changes on cash and cash equivalents	(373)	71
Net increase in cash and cash equivalents	9,224	1,162
Cash and cash equivalents, beginning of period	43,329	43,039
Cash and cash equivalents, end of period	$ 52,553	$ 44,201

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Note 5 - Fair Value Measurements

3 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

5

– Fair Value Measurements

ASC 820,

Fair Value Measuremen

t (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 March 31

, 2015 and December 31, 2014 measured at fair value on a recurring basis follows:

	March 31, 2015						December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents
Money market mutual fund	$	5,096	$	-	$	-	$	6,129	$	-	$	-
Total	$	5,096	$	-	$	-	$	6,129	$	-	$	-

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Note 4 - Goodwill and Other Intangible Assets - Intangible Assets Other Than Goodwill (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Intangible Assets with finite lives:
Gross	$ 4,580	$ 4,580
Accumulated amortization	(684)	(497)
Net	3,896	4,083
Marketing-Related Intangible Assets [Member]
Intangible Assets with finite lives:
Gross	930	930
Accumulated amortization	(85)	(62)
Net	845	868
Useful life	10 years
Weighted average useful life remaining	9 years 36 days
Noncompete Agreements [Member]
Intangible Assets with finite lives:
Gross	190	190
Accumulated amortization	(87)	(63)
Net	103	127
Useful life	2 years
Weighted average useful life remaining	1 year 36 days
Trade Secrets [Member]
Intangible Assets with finite lives:
Gross	250	250
Accumulated amortization	(46)	(33)
Net	204	217
Useful life	5 years
Weighted average useful life remaining	4 years 36 days
Computer Software, Intangible Asset [Member]
Intangible Assets with finite lives:
Gross	680	680
Accumulated amortization	(208)	(151)
Net	472	529
Useful life	3 years
Weighted average useful life remaining	2 years 36 days
Customer Relationships [Member]
Intangible Assets with finite lives:
Gross	2,530	2,530
Accumulated amortization	(258)	(188)
Net	$ 2,272	$ 2,342
Useful life	9 years
Weighted average useful life remaining	8 years 36 days

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Note 8 - Stock-based Compensation - Non-vested Restricted Stock Options (Details) (Restricted Stock [Member], USD $)	3 Months Ended
	Mar. 31, 2015
Restricted Stock [Member]
Nonvested restricted stock at December 31, 2014 (in shares)	76,574
Nonvested restricted stock at December 31, 2014 (in dollars per share)	$ 69.27
Granted (in shares)	26,705
Granted (in dollars per share)	$ 67.15
Vested (in shares)	(6,901)
Vested (in dollars per share)	$ 78.59
Forfeited (in shares)	(1,858)
Forfeited (in dollars per share)	$ 78.59
Nonvested restricted stock at March 31, 2015 (in shares)	94,520
Nonvested restricted stock at March 31, 2015 (in dollars per share)	$ 67.81

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Note 6 - Marketable Securities (Tables)

3 Months Ended

Mar. 31, 2015

Notes Tables

Held-to-maturity Securities [Table Text Block]

	March 31, 2015
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	30,198	$	33	$	(27	)	$	30,204
Corporate debt securities		26,284		20		(20	)		26,284
U.S. government agency securities		20,946		18		(7	)		20,957
Certificates of deposit/time deposits		5,656		12		(1	)		5,667
Commercial paper		1,565		-		(2	)		1,563
Total marketable securities	$	84,649	$	83	$	(57	)	$	84,675

	December 31, 2014
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. municipal securities	$	30,004	$	32	$	(18	)	$	30,018
Corporate debt securities		29,316		7		(79	)		29,244
U.S. government agency securities		20,048		-		(71	)		19,977
Certificates of deposit/time deposits		5,656		5		(15	)		5,646
Total marketable securities	$	85,024	$	44	$	(183	)	$	84,885

Investments Classified by Contractual Maturity Date [Table Text Block]

	March 31,
(in thousands)	2015
Due in one year or less	$	29,055
Due after one year through five years		55,594
Total marketable securities	$	84,649